OCI NV
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OCI NV
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Ladies and gentlemen, hello, welcome to the OCI N.V. Fourth Quarter 2022 Results Call. My name is Maxine, and I'll be coordinating the call today. [Operator Instructions] I will now hand you over to your host, Hans Zayed, Investor Relations Director, to begin. Hans, please go ahead when you're ready.
Yes. Good afternoon, and good morning to our audience in the U.S. Thank you for joining the OCI N.V. Fourth Quarter and Full Year 2022 Conference Call. With me today are Ahmed El-Hoshy, our Chief Executive Officer; and Hassan Badrawi, our Chief Financial Officer.
On this call, we will review OCI's key operational events and financial highlights for the quarter, followed by a discussion of OCI's outlook. And as usual, at the end of the call, we will wrap up with a Q&A. The results press release and accompanying presentation are available on our website at oci.nl in the Investors section. And we will be referring to slides in the results presentation during this call.
I would like to remind you that any forward-looking statements made on this call involve risks and the actual results could differ materially from those statements. Let me hand over to Ahmed.
Thank you, Hans, and thank you all for joining us today.
Hassan and I will provide some additional perspective on the recent results as well as the various initiatives which are covered in the material we published this morning. We are very pleased with what the OCI team has achieved during the calendar year 2022. We reported record results, which has allowed us to reset our balance sheet to return capital to shareholders for the first time in over a decade and have worked diligently to reposition the company to pursue and accelerate sustainability-focused projects across our geographically advantaged global platform to drive our future growth through the cycle and to have a clear path forward for decarbonization.
I'd like to thank all our team members for their contributions to our achievements over the past year. We start every call with reaffirming our strong commitment to safety, which remains our top priority. We've reported a 12-month rolling recordable incident rate at the end of December 2022 of 0.38 incidents per 200,000 manhours. Despite beating industry averages, we continue our relentless focus on operational and process safety throughout the organization because of how vital and important it is for our people and our operations.
As we go through the presentation today, we'll walk through the Q4 and fiscal year 2022 results, both financial and operational. We'll also, as usual, talk about the market outlook, both near term as well as medium and long term. And for our projects, we're going to provide an update on the existing growth initiatives, which many of you know of as well as some new and exciting prospects we're looking at, particularly in the fuel space that we've been developing over the last year.
With that, I'd like to hand it over to Hassan Badrawi, our CFO, to discuss our financial performance.
Thank you, Ahmed. We are pleased to report an outstanding year for the company. During 2022, we generated free cash flow of $1.9 billion after minorities and before growth CapEx. This allowed us to reset our balance sheet, achieving an investment-grade rating for both OCI and Fertiglobe from all 3 rating agencies.
It also allowed us to return $1.1 billion to our shareholders during the calendar year in capital repayments for the first time in a decade, representing around 15% of our average market cap in 2022. Despite these distributions, our net debt declined by $1.06 billion during the year, reaching a consolidated net leverage ratio of 0.3x as of the end of 31st December 2022.
We further announced an upcoming semiannual dividend distribution scheduled for April 2023 of EUR 3.5 per share or the equivalent of $785 million at current exchange rates. Fertiglobe refinanced $900 million bridge loan in Q4 into a $300 million 3-year and a $600 million 5-year term loans. The transaction was heavily oversubscribed and delivers a conservative capital structure to support future growth projects.
Fertiglobe in parallel increased its backstop RCF from $300 million to $600 million. This is in addition to an undrawn RCF facility at OCI of $1.1 billion as of year-end. Looking at Slide 7, we have successfully derisked our balance sheet and remain disciplined with our capital allocation approach, balancing both our sustainability focus and shareholder value creation.
As you can see, robust free cash flow generation has helped create shareholder value, which can be seen in lower leverage metrics and distributions made to shareholders. The positive market outlook and growth prospects position us well to continue to create shareholder value. Turning to Slide 8 on our financial results, some brief remarks there.
For the full year 2022, we reported revenue of $9.7 billion, adjusted EBITDA of $3.9 billion and adjusted net profit of $1.3 billion. In Q4 of 2022, we reported revenue of $2.2 billion and adjusted EBITDA of $669 million and adjusted net profit of $205 million.
OCI was effectively free cash flow neutral in Q4 after distributions to minorities. Total distributions to minorities during 2022 amounted to $1.1 billion compared to [ $443 ] million in 2021. Our Q4 results were impacted by several factors. First, the nitrogen selling prices declined in Q4 amid lower natural gas pricing in Europe, which also resulted in demand deferral into 2023. Despite higher ammonia nitrate prices in Q4, it was more than offset by lower urea prices and lower deliveries primarily in Europe.
Results were further impacted by a heavy turnaround schedule in Q4, which has only impacted volume but also typically impacts plant efficiencies and costs. We also reported realized natural gas hedge losses of a net amount of $43 million, comprised of a negative $49 million in Europe that was partially offset by a net gain in the U.S. However, looking at the year overall, including our share of Natgasoline, we have a total positive realized natural gains of around $92 million.
We quantified the negative impact of the U.S. winter freeze to be around $20 million, which resulted in outages and logistical constraints across the industry. From a year-over-year perspective, we highlight a negative result on EUAs of [indiscernible] million compared to a positive number in Q4 last year of $91 million, excluding the FX impact.
Turning to Page 9 and looking at our business segment performance. A few highlights to mention there as well. The performance of our U.S. nitrogen segment, which encompasses IFCo and our N-7 distribution business generated an adjusted EBITDA of $744 million and free cash flow of $483 million. This is a significant step up compared to last year, reflecting its competitive positioning in the premium U.S. Midwest market, its leading position in DEF and overall improved operational performance.
The adjusted margin for the underlying business -- manufacturing business was around 68%. Secondly, our European business continues to benefit from its resilient operating model, which allows us to import ammonia and maximize operating rates of downstream products. And this continues to be an important feature in a volatile feedstock environment in Europe.
Our methanol results reflect both our green methanol business and our fast-growing fuels business, which contributed to the tune of $84 million of our EBITDA positioning us as the world's #1 producer of low-carbon bio-methanol. And finally, our Abu Dhabi-listed Fertiglobe subsidiary also achieved record results in 2022. OCI received during the year $545 million in dividends and is slated to receive an additional $350 million based on the announced distribution of $700 million that is slated for April 2023.
Our balance sheet is strong and will support our growth process where we will always operate within our investment-grade framework and continue to maintain a strong capital discipline to minimize our capital outlays and maximize shareholder results.
And with this, I'd like to hand over to Ahmed to provide further commentary on our outlook and strategic initiatives. Ahmed, back to you.
Thanks, Hassan. So I'll start by sharing management's view on short- and medium-term outlooks for nitrogen and methanol. Looking at Page 11. The market fundamentals for nitrogen remained healthy despite the recent declines in pricing we've seen over the last several months. There is no doubt an extremely mild winter, almost historic winter has resulted in lower European gas pricing which has in turn had an impact on marginal cost of production and ultimately buying patterns, particularly in Europe and the U.S., resulting in demand deferral until the demand is basically right in front of them.
However, we have seen an acceleration in nitrogen demand in the short term, given the best nitrogen affordability and farmer profitability metrics we've seen in years and substantial pent-up demand. In the U.S., before the price drop, we saw one of the best fall ammonia seasons on record in Q4, but UAN and urea coverage for spring is lagging behind last year by over 30% with significant catch-up demand expected once the season starts in March, providing room for much higher pricing in season.
In Europe, due to warm weather, we are seeing an early start -- earlier start to the season compared to norms. And once first application starts, we should start seeing buying pickup in season with as much -- with needs for as much of 3 million to 4 million tons of urea expected to be imported before June. We're already starting to see a little bit of that early pickup as we speak in both the urea as well as the nitrates market just in the last few days.
The Indian urea tender has also been delayed from December and is expected quite imminently for delivery in April or earlier. Sales in India in 2022 were up 12%, while at the same time, domestic production fell short with Indian imports up 2 million tons year-over-year in 2022. Imports in 2023 are expected to be around 8 million tons and India will need to issue [ frequent ] tenders through the end of the year to replenish stocks and support [indiscernible] demand.
This combined with regular seasonal demand from Brazil, Australia and commitments to Ethiopia, which on the [ mid-Fertiglobe ] side, some of you know that we are about half the 500,000 tons to Ethiopia are also still to be delivered, except for the 50,000 tons we delivered in December. And we also should see lower inventories at the end of Q1 and Q2 once demand picks up.
Industrial outlook has also improved, particularly in Europe and Asia, supported by the lower energy complex and the emergence from the zero-COVID policy in China, for example. And this has been supportive of ammonia demand as the industrial sector consumes more than 50% of ammonium that's imported in those regions, both Europe and Asia.
Going over to Slide 12. Medium-term outlook for nitrogen also remains quite tight based on 4 key structural drivers we've discussed at length in the past. We see tight supply and demand fundamentals in the next 3, 4 years. When you look at the urea markets, we also see on the ammonia side, only 1 project coming online later this year in the U.S. And the next one is of size -- is the project we FID-ed in Texas, which starts in early 2025.
Most of the other low-carbon ammonia projects that have been announced have not reached FID. So we believe capacity could take quite some time to commission. Furthermore, crop fundamentals and higher farm profitability remains positive for nitrogen demand. And as you saw throughout the materials, the critical [ grade ] stocks remains to be low as grain prices are really incentivized and particularly current nitrogen prices, the application of nitrogen to increase yield and make a return.
No surprise that you're seeing corn acreage looks to be 93 million acres this year because there's a big incentive to plan for corn, and we see a bit above-trend demand for urea for at least the next 2 seasons. European gas pricing did reset materially to lower levels as we discussed earlier, which resulted in a decrease in sentiment and pricing. But the gas price environment for the marginal cost producers still remains higher than it was in the 2015 to 2020 period materially and is around $17 MMBtu through the end of '24, which provides supported levels for ammonia at approximately $650 a ton, excluding CO2 and that's just marginal cash costs.
That are variable, sorry, cash costs. Lastly, the environmental focus we've seen less great capacity additions, more time to get the support to get the financing in for some of the clean additions and continued closures in China with the focus on the environment and furthermore, as we've discussed in the past, significant clean ammonia demand starting up, particularly towards the middle of the decade.
On the methanol side, the market outlook is much more positive than the last time we spoke in both the short and medium term. This is reflected in the price momentum we've seen so far. We've seen spot prices come up over 10% from the lows we saw in Q4. We see demand that's expected to rebound quite firmly over the next several months and quarters when we see an improved industrial outlook in Europe and Asia.
Similar to what we discussed on ammonia, but probably even more so, the market expects a significant rebound in China, driven by the end of the zero-COVID policy after 3 years, and that further supports global industrial demand and should also result in higher MTO operating rates from the recent lows we've witnessed of approximately 60%. Just for those keeping track, I'm on Page 14. The supply side also remains tight with very limited new additions in the near to medium term with only 1 major expansion outside of China coming in the U.S. towards the end of this year.
If you look at the slide as well on 14, we lay out the industry view on supply and demand, the tighter market fundamentals as you can see through 2027 show that there's incremental demand exceeding supply by approximately 11 million tons over that period, [indiscernible] well for potential tightness in that market.
Furthermore, we are excited about the prospects for methanol rising from significant demand uptake as a hydrogen fuel starting from later this year, notably in the road and marine fuel sector. Demand for European fuels markets continues to grow with increased demand for direct lending of green methanol and bio-MTBE, and we continue to add sales in our key markets of the United Kingdom as well as Germany.
And so if we move to Page 16, ethanol demand from the maritime sector is expected to kick off from as early as later this year and early next year with the first methanol fuel ships slated for delivery at the end of the year. This is the first methanol-fueled containership that is. Incremental demand from the maritime sector is expected to be more than a 3 million ton per year market by the mid-2020s based current orders from the container vessel segment alone.
To put that into context, today, we're about 300,000 tons for methanol demand in the marine fuel sector. So we see a very big exponential increase based on the significant amount of vessel orders. We're encouraged by these orders also from the non-container segment, underscoring significant potential demand growth from current non-consumer freight segments.
Our recent bunker barge announcement with Unibarge, which we announced a few weeks ago to retrofit the first-ever inland methanol powered bunker barge demonstrates that retrofits are affordable and is an important milestone in our strategy to encourage demand for clean fuels in this growing segment.
Turning to our transformational growth projects. OCI is well positioned to take a leading role in both the nitrogen and methanol markets to capitalize on the opportunity arising from a structural demand pull for lower carbon fuels, industrial feedstocks and lower carbon [indiscernible]. If you look at Slide 6, just flipping back for a moment in our investor presentation, it showcases that our existing platform already has what a diverse offering of several low-carbon products.
Several of our most accretive and actual projects are highlighted as well on this page, picked out from a large pool of opportunities that we've been exploring on both the nitrogen and methanol side located in all 3 of our geographies, and that will enable us to capitalize on the hydrogen opportunity and help further decarbonize our footprint for the existing customers as well as new customers.
From Slide 18 in the deck, you will find a deep dive on some of our key projects, which I'd like to highlight briefly here. Go to Slide 18. I'm going to talk about 18 and 19 here, our blue ammonia project in Texas. We recently announced that we are partnering with a world-class global leader in industrial gases and engineering, Linde, to supply our Texas blue ammonia project with 100% of its nitrogen and hydrogen needs, and this is all going to be in the form of clean hydrogen.
The 1.1 million ton project is well underway and is in a key construction phase. All major contracts have been signed, long lead items have been ordered with first deliveries expected later this year for the procurement items. We expect to start production in early 2025, which means we expect this plan to be the first new build to capture the incremental value arising from the Inflation Reduction Act in the United States, and it will be ready for the additional demand for low-carbon ammonia as a clean fuel in the power sector kicking in from as early as 2025 in material amounts.
This also coincides with the Carbon Border Adjustment Mechanism coming into place in Europe from 2026, which is expected to accelerate the transition and raise nitrogen marginal cost floors, creating significant opportunities for us given we'll be one of the few players with that world scale available, exportable blue ammonia. Moving on to Slide 20. Each of the green hydrogen plant started commissioning its first unit of 15 megawatts in November '22 during COP27, and we're pleased to say that we've started production of some green hydrogen in January still offset, but we're continuing to make progress as we invest this project further.
Like our other projects, we are applying for various global government incentives to support the project on potentially reaching FID in 2023 for the larger 100-megawatt green hydrogen plant. Moving to the next slide. At Fertiglobe as well, we've also made progress with the 1 million tons low-carbon ammonia projects in the UAE in partnership with TA'ZIZ, GS Energy and Mitsui, where we just signed the EPC contract with Tecnimont, an exciting step further in the journey of this milestone project.
In this project, it's important to note that Fertiglobe is a minority investor, and we will be using project debt on this project to limit the equity outlay and obviously, Fertiglobe will be one of the off-takers from this project with the goal continuing to be having a low-cost base in the Middle East as we expand the production profile and leverage the existing infrastructure on site there, some new builds that are going to be shared with other industrials. And keep in mind, it's very close to our existing site Fertil as part of Fertiglobe.
Lastly, as part of our strategy to grow our fuels business and continue to shift our methanol business towards green fuels and feedstocks, we're evaluating a gasification opportunity in The Netherlands. This -- to support this, we will be applying to the EU Innovation Fund, and we also recently strengthened our collaboration with the Dutch government to receive essential regulatory, financial and infrastructure support to help realize our projects faster, and this is one of the key projects.
This project will leverage on existing infrastructure with strong regulatory support in place from European governments to help accelerate the project. Obviously, this is at our BioMCN side, which, as you know, has been shut down for over 1.5 years. So it's a way to create significant potential value and have lower work to get that to the market because of all the existing supply that's in place.
This would be the first [indiscernible] in The Netherlands to transform renewable biomass feedstocks derived from wood waste, agricultural waste and/or nonrecyclable municipal solid waste into renewable circular methanol to cater the growing demand in the low-carbon methanol space, which is in both the marine fuels demand as well as the vehicle fuel demand and also into the chemicals market, which is also looking to decarbonize.
So we're very much excited about this project. We've done significant engineering work. We've been working on it for over a year, and we're excited to continue to provide updates on this project over the coming months.
To conclude, we are proud of what the OCI and Fertiglobe teams have achieved so far and are very excited about the prospects for the company. Despite recent volatility and lower nitrogen prices, [indiscernible] market fundamentals remain solid, and we are excited to see significant upside potential from both our end markets and our low-carbon growth initiatives, where we believe we're the best place in the industry given our global footprint and diversified product exposure across the hydrogen value chain into ammonia and methanol.
We can leverage our existing -- we can leverage our legacy of executing projects and draw on lessons learned from our recent growth programs globally, fast track the project to remain ahead of the curve and get proper paybacks while we continue to decarbonize. With that, we will open the line for questions.
[Operator Instructions] Our first question comes from Christian Faitz from Kepler.
Yes. One question, if I may. I believe you are hedged with about 50% or so in the U.S. on gas given current gas prices should be considered a similar write-down of your hedging position like we saw in Q4. And if not, what would be roughly the right number for Q1, if you are marking to market the current nat gas price? I also had a demand question, but Ahmed, you explained that very well already on the nitrogen demand side.
Hassan, do you want to take the gas mark-to-market question?
Yes, sure. I mean -- on the gas, yes, I mean, we haven't provided any future guidance given the volatility that we see in the gas market. It's correct that OCI, we previously shared that we're circa hedged [ 40% ] of our needs from '23 to 2029. I think for U.S. and of course, in Fertiglobe, we know what the weighted average or the weighted average cost of gas is in the Fertiglobe, which continues to position us well on the left side of the cost curve.
I think overall, we look at this on a big picture basis, and we're comfortable with our long-term cost structure going forward. Of course, the percentage I referred to the [ 40% ] includes now the future expected demand from Texas blue with our hydrogen being sort of prices versus Henry Hub.
Okay. Great. Maybe if I could sneak in one other question. Given the cold freeze in the U.S. last -- late last year, anything to be expected in terms of outages for early Q1?
You're saying with regards to the freeze of late '22? Yes, there would be -- there was some overhang until the beginning of this year following some of the outages that we have. We don't give detailed guidance on where we're at, but the plants are as of now all running again, but it did go into the beginning part of the year as well for some of the plants.
[Operator Instructions] Our next question comes from Rikin Patel from BNP Paribas.
Just two. Firstly, on CapEx, given the number of projects you have in your pipeline, can you just remind us what we should be assuming for the 2023 and possibly thereafter as well? And then just on the market in nitrogen, could you give us a sense of what you expect in the way of Russian nitrogen exports this year and whether you expect any sort of step-up on some of the domestic supply starts to ramp over there?
Yes. I'll start with regards to the CapEx question and kind of hand over on guidance to Hassan. But as we said in the press release, despite some of the new initiatives, particularly the gasification one, we still reaffirm our guidance as Hassan will share for 2023. And then with regards to 2024, we didn't have guidance out for 2024, specifically. We have not FID-ed this gasification project, but we will take into account our investment grade financial policy, our view to continue to distribute cash to shareholders when undertaking any FID projects and we'll look at mechanisms, including equity participants, et cetera, as necessary to ensure that, that is the case. I'll pass it over to Hassan to discuss the guidance and specifics.
Yes. Thanks, Ahmed. I mean, I reaffirm, again, of course, the commitment to the investment grade framework that we achieved earlier this year across both OCI and Fertiglobe by all 3 rating agencies, which was the benefit of the accelerated deleveraging that we were able to accomplish the last 2 years.
Our total CapEx in 2022 came just under $400 million. The guidance for 2023, as Ahmed mentioned, remains largely unchanged. We mentioned, I believe in an earlier call that we have a growth estimate of between $350 million to $450 million and our maintenance CapEx rate has sort of remained the same at a run rate in the area of $300 million. And now granted there can be some sort of phasing between the different years that may affect that number from year-to-year, depending on [ when ] project starts, sometimes for the start later in the year and can [ lead ] over. I hope that answers your question.
And then with regards to your second question, in terms of Russia exports. So interestingly, and it's a bit bizarre you wouldn't have expected, but Russian UAN and urea exports were at record levels compared to 2021.
So the market was receiving it, particularly, I think as some may know, the U.S. imported quite a bit of UAN as well as urea over the last 12 months since the war began. So we think that they're basically at the capacity pushing those projects offer -- that product offer urea and UAN.
There's also new urea capacity that's supposed to come online and it's in our slide deck from '23 to '26 of approximately 2 million tons, but from everything that we've been seeing, they've been put on hold in terms of the ability to get licensors -- equipment on site, licensors, commission, et cetera.
So we don't have that in our near-term expectations to see an actual increase in some of that. In terms of ammonia, ammonia is down since prewar, approximately 70% in terms of exports. So there is a potential for ammonia exports to increase. There's been talks of new ports. We haven't seen much in concrete, and we've seen some failures and negotiations around getting that product, which is obviously has to be handled carefully out. So we're not seeing that in the near to medium term, but that's the only area where we could see probably an increase in exports at some point in the future. I just don't know when.
[Operator Instructions] Our next question comes from Frank Claassen from Degroof Petercam.
Yes. I've got 2 questions. First of all, on the minority payout, dividend payouts. Could you help us on the different elements? Of course, we've got Fertiglobe, but in particularly on Sorfert, could you give some color on that and also the timing of these payments? And then secondly, on DEF, what kind of outlook do you have there? What kind of growth do you envisage? And what is the maximum capacity at your plants to produce DEF?
Hassan, would you like to cover the minority interest point?
Sure, I can do that. On the minorities interest distribution, as we mentioned during the call, the total for 2022 was around $1.1 billion compared to just under -- just over $440 million the previous year, I believe.
I think for 2023, there is the effect of the [indiscernible] in Algeria within Fertiglobe and therefore, obviously consolidated into OCI. I believe that number is substantially larger than previous years due to the outstanding results that we had in 2022. So the number from Algeria, I believe, will be circa $800 million of distributions to our partners. And then, of course, you add to that minorities leakage associated with distributions from Fertiglobe. We already announced -- Fertiglobe already announced a 700 million dividend expected in April 2023, which OCI receives 50% of that. And of course, the balance is considered incremental minority leakage. We haven't given any guidance yet as for the October distributions from Fertiglobe going forward. These are the material numbers that comprise the minority interest distribution.
In terms of timing, just to complete the question, typically, and you will see from our previous -- from the previous year's financial results, where we have consistently extracted dividends from Algeria. Typically, it tends to be around the third quarter of the year that the distributions associated with the prior fiscal year are made.
Okay. That's helpful. And the DEF question?
Yes. With regards to DEF, we see a sizable opportunity. If you look at Slide 13 of the deck, you can see the market globally growing at 8% per annum, and that's in metric urea tons equivalent. So you're talking about 6 million tons worth of urea as DEF growing 7.5 million by 2026, a little over 7.5 million. So that's a sizable increase in terms of our strategy and focus on it. It's a global strategy. It's been primarily a U.S. strategy driven by N-7 when we created a few years ago. And I'm really happy to say that the team has done a great job of securing a fifth production site [indiscernible]. So now N-7 can distribute on top of 5 different production sites, making it solidly #2 in the United States for DEF and has established itself as a reliable supplier.
What we like about DEF is that this continues to grow, as you can see in the growth prospects there. When you added to an SCR engine, you improve diesel efficiency, it's predictable. And what we're doing and focus on is to continue to grow our customer service capabilities. And we've achieved, as we said in, I think, one of the prior conference calls, some fixed price arrangements and have moved off of the [indiscernible] urea contract structure, which is obviously relevant when you look at the volatility that there's been in [indiscernible] urea whether up or down. So for us, that's been important. We see the downstream urea equivalent values of DEF are multiple thousands of dollars. And we saw, particularly in Europe in the last several months that urea -- that DEF was trading at 3x the price of granular urea for periods of time because of the less -- the lower amounts of production. So for us, it's quite strategic. We've been increasing production and shipments out of Fertiglobe.
We have a project to come online at the beginning of 2024 to add 300,000 tons of DEF or 100,000 tons of urea equivalent in OCI Nitrogen to improve the margins in The Netherlands. And for us, it's a question of finding the customer base that we can securely get to and investing in some of the logistics. There are some constraints around the sites with regards to water availability, et cetera. But what we do has been focused on incrementally pushing up. For example, in Iowa Fertilizer Company, we brought that plant online in 2017. The nameplate capacity for DEF was approximately 300,000 tons of DEF a year. And now we're -- we've achieved over 1 million tons of DEF and could potentially go to 1.3 million tons of DEF out of that site, one of the largest single -- if not the largest single site of DEF production and distribution in the U.S. But it is very much depending on the customer service, the logistical capabilities, not just what's at the site level.
Our next question comes from Sam Perry from Credit Suisse.
Just on the dividend policy, the floating proportion of the dividend, which is linked to free cash flow, in '23, will that be linked to the absolute level of free cash flow or the change in free cash flow year-over-year? And if the latter, given sort of the outlook for product pricing, CapEx stepping up, et cetera, would it be fair to assume that could be 0?
I can take a crack at that and maybe Hassan could speak. I mean I'd say that the -- so the base is $400 million, the floating annually is what's above that level. It's not hard and fast formula to your question. It's the one where we look to distribute substantially all of the free cash flow that's remaining after. And at times, we also look into where our balance sheet is and how geared it is. For example, in Fertiglobe, we have a net cash position to end December 2022, you could see some additional distributions where you get leverage to the right level on an absolute and through-the-cycle basis, still take into account our investment grade policy to be able to continue to provide additional distributions above the base level.
Our next question comes from Lisa De Neve from Morgan Stanley.
So I have one on clean ammonia and methanol. So you're now in a [indiscernible] of building this 1 million ton per year of blue ammonia plant in Texas. And I just wanted to check what your ambitions are on the clean methanol side for potentially the U.S. plants there? And then from your conversations with potential customers, I mean, do customers have a preference towards progressing with clean ammonia over methanol as a fuel or vice versa? And if so, why?
Yes, Lisa, good question. So we look at all the opportunities that are out there. So I wouldn't kind of rank clean ammonia or clean methanol one over the other. We go to where there's value and what we can do, leveraging our existing production base and distribution base. So for us, we see really the ammonia markets on the clean ammonia side going into the power sector to decarbonize power heavily in East Asia, potentially in Europe.
We also see it as a mechanism to move low-carbon hydrogen, green or blue into other markets potentially be cracked into hydrogen where there's a regulatory value for hydrogen, particularly, for example, in places like Europe over time. With regards to methanol, we could also see it in the power space, and we're starting to see it on kind of small power applications on clean and low-carbon methanol side being used for stranded areas that can't get power and use diesel generators, but they want to do so in an environmentally conscious way.
But we see complementary demand actually a little bit different otherwise than where ammonia is at, where we see methanol as [indiscernible] fuel and as a marine fuel. So quite complementary, quite diversified in terms of output. But when you look at methanol and ammonia, it's comprising over 50% of hydrogen today and being much higher energy densities than hydrogen itself. We see a robust opportunity set in both the clean ammonia and the clean methanol markets in quite different spaces where we can decarbonize that.
When it comes to projects, you're right to point out both the Texas project and as well the recently signed EPC on the Abu Dhabi project, our focus there is to bring production that is low cost and advantage to online as quickly as possible. And with regards to doing so, being able to get a lot of our cash back from the CapEx that's there, leverage in the case of Fertiglobe, we can leverage project financing at times to get there -- get that done. We can get conciliatory financing at times, and we can get subsidies like you see in Texas with the Inflation Reduction Act, providing the 45Q program to decrease our cost of hydrogen and make us globally competitive.
Lastly, we are almost at all times looking at leveraging existing assets. So we have to decrease the amount of CapEx and work. So you're not doing a pure greenfield. You're leveraging an existing port, existing storage, existing distribution systems, existing plant nearby, all of the above when we're doing these types of projects so that we can get in on a low CapEx basis, a low replacement cost and be comfortable with the dynamics and being able to serve those markets. And so that's our general strategy. You asked -- one part of your question was on clean methanol. I kind of walked through kind of a preview of what we're doing on the gasification side, which we're applying to the Innovation Fund on the EU. We're very excited about that project.
To the extent the EU Innovation Funding is secured, we'll find out later this year as well as potential Dutch government support, we could see great value there because when you look at the draft regulations coming in on the EU maritime side versus VLSFO, very low sulfur fuel oil and versus diesel, which are having CO2 charges, we could see that the current kind of -- sorry, forward pricing, 2025, 2026 VLSFO and diesel pricing and CO2 pricing, the equivalent value to methanol will be over [ EUR 13,000 ] a ton.
So that's the opportunity that we're after, which is get it at a low cost base, leverage existing infrastructure, leverage financial support grant, leverage financing and use all of the above to target markets that will be preserving a premium when there's regulatory value and CO2 is charged on end user.
[Operator Instructions] We have no further questions on the telephone, so I hand over to Hans.
Thank you. And so there are a few questions, webcast questions. And the first one is outside of prices, any other drivers that contributed to the negative free cash flow of Q4 2022 versus Q4 2021?
Yes, I can take that question. I mean, yes, we did report that on a Q4 basis, looking at the free cash flow metric, which we report, which is the free cash flow before growth CapEx and after minority distribution was approximately breakeven for Q4.
The fourth quarter had a concentration of distributions, including the actual payout of the Fertiglobe dividend. So there is around $375 million of minority leakage associated with that. We also had a lumpy distribution quarter from EBIC, where over $40 million was upstreamed and also some distributions from Metco.
So the combined total of minorities distributions during that -- distributions to minorities during Q4 was a little bit lumpy of around $427 million. You also had a concentration of maintenance CapEx in Q4, maybe close to 40% of maintenance CapEx was deployed in Q4, reflecting the heavy turnaround program that we had during the quarter. It's also typically a high interest payment quarter as well.
So the combination of factors really -- and that's why usually, it's good to look at the business on a rolling basis rather than a specific quarter per se.
And the next question is also from the web. It is, do you expect BioMCN to restart fully due to lower European gas prices?
So it's a good question. Today, European gas price is at $17 an MMBtu. So that puts the cash cost similar to where we see the cash cost of ammonia. If you can ballpark, it will be similar for methanol. Cash cost of ammonia, excluding CO2 is over $650 a ton. So by definition, cash cost of methanol is going to be in that same range, excluding CO2. So I would not put it as a near-term possibility because we're seeing methanol pricing in the $350 to $400 range, right now in Europe.
But that's exactly why we're excited about the low-carbon future and prospects here because to the extent European gas is staying high, which is what the forward curve is showing, which is supported for our nitrogen business. We're developing this project, which will be independent of natural gas pricing and will be based on a feedstock like I said, that is biomass related and waste related, which have an entirely different pricing set, and that waste is converted into syngas just like natural gas is converted into syngas and used and sold into a market that has a higher regulatory value for that low-carbon methanol.
So [indiscernible] on grey methanol does not make -- [indiscernible] point, and that's why we've been monetizing over the last couple of years, some of the EUAs, which are the CO2 credits we no longer have to give away for lack of production. And those come down over time, as you may know.
Thanks, Ahmed. Next question is, reading your outlook in the press release, do you expect a stronger first quarter performance compared to the fourth quarter in terms of EBITDA and cash flow?
Yes. Unfortunately, we don't provide guidance on a quarter-to-quarter basis. We're in the middle of the quarter right now. But generally, we don't provide specific guidance on that front.
I think the next question was also on outlook. So -- the next question is how do you see the current shareholder value? And are you starting up the buyback program to bring shareholder value back compared to 2022, while fundamentals remain still robust?
Yes, it's a good question as well. So you saw a chart that Hassan was walking through a little bit earlier. We saw that a lot of shareholder value was created by just delevering from the higher leverage levels we had a few years ago to the levels we're at today. So a lot of that was cemented in that way. But obviously, our share price has drifted lower over the last several months. In terms of returning capital to shareholders, that can be in the form of dividends is what we've done in the past through capital -- returning capital back to shareholders in that way. But it's always a possibility to look at share buybacks. It's just not something we've done recently, and it's something that would be discussed at our Board level and considered particularly in light of some of the lower share prices that we've seen now. This is Slide 8, I was referring to. Not Slide 8, sorry, slide, Hassan if you have it in front of you. Let's see which slide it was... Slide 7.
Yes, Slide 7. Yes.
Next question is with current fertilizer prices and expectations into 2023, do we expect a higher than proposed -- proposal-based dividends in 2023?
Yes. I mean we've -- I'm happy to take that question. I think it's a continuation of the previous question to some extent. As we covered earlier in the call, we've already announced our intention for the April distribution. That number has been fixed, EUR 3.5 per share. I think as we will determine our approach for the October distribution as we get closer to the data and as we see how markets evolve. Again, the calibration we do is a combination of looking at our -- looking at the sort of market backdrop, looking at how -- look at our balance sheet and of course, maintaining an investment grade framework.
Thanks, Hassan. The next question is, in Q3, did you expect such a big drop in prices in the next quarter? And what are the fundamentals to bring the upside back?
Ahmed, do you want to take that?
Yes. I was speaking to myself on mute. So in Q3, we didn't expect to see as much of a decline in pricing, driven by the fact that there was one of the most -- one of the warmest winters on record. I think one of the key aspects of the price sharp movement is that during a period of low liquidity that you typically see in late Q4 and early Q1 before the typical buying in kind of late February that we see in the U.S. and the big push in Europe.
During that period of low liquidity, [ you had ] gas go from in November around the time -- a little bit after the conference call, I think we were looking at $60 MMBtu gas in Europe, and it collapsed. We all know the discussion going into the winter and concerns in Europe with outages and secure supply.
Europe did a great job of securing inventory for natural gas. And then it had a good fortune. I think it was good fortune to have a very warm winter, so less draws on that gas. So that really changed the outlook a lot more sharply than we would have anticipated our marginal costs which, as that's happening, and you're having discussions with some customers who are looking to buy nitrate fertilizers, urea fertilizers, some customers looking at ammonia. They'll start -- they'll step back a little bit and they want to see, well, where does this shake out? And we've seen the pricing of gas drop to 20 and -- the $17, $18 MMBtu is that we've been seeing now. So I'd say that's been probably the most critical factor. On the flip side of that, I think that affordability has really accelerated on the industrial side because of the lower pricing and affordability on the nitrogen side was already decent, and now it's gotten much stronger, particularly for urea, but also for nitrates. So I'd say that we're going to see larger demand but it's much -- it is lower pricing than what we've seen in the last few months or what we anticipated in November.
Thank you, Ahmed. The next question is, why was maintenance in Fertiglobe carried out during the usually strong fourth quarter?
So with maintenance -- sorry, Hassan? So I was going to say with maintenance, it was -- it was carried -- usually, we carry out maintenance. We carry it out every 4 years from most plants plus or minus. And you plan a maintenance or turnaround 1 to 2 years in advance. You order equipment, you get contractors secured, et cetera. So it's hard to time the markets around what's the best price because obviously, fourth quarter pricing was quite strong in Fertiglobe, both for urea as well as ammonia, where we had our production outages in Egypt and as well as in the UAE.
But those were preplanned turnarounds. And we executed them on the plants have been running very well since those turnarounds have taken place. We couldn't delay them further. And we try to the extent possible when setting them doing them during periods of lower liquidity as we did.
Obviously, that was part of the result of the lower free cash flow that we saw this last year, lower EBITDA and lower free cash flow because our utilization rates had these Egyptian and [indiscernible] plants off-line for such a long period of time. So that's important to kind of keep in mind. And as we continue on our operational excellence program as we get turnarounds done, that will put us in a better position. I will say that there have been several of our peers in the nitrogen space who have come out and delayed turnarounds publicly in the last 12 months.
So we anticipate with this lower pricing environment that we've seen in the last month or 2 that we're going to see quite a bit of turnaround activity towards the summertime period and later in the year in the space, which could help when price is on the lower side. And demand is not post-season. Demand is not high, absorb and create tightness in the market.
Thanks, Ahmed. Next question is, any plan to use free cash flow in 2023 to buy back any debt specifically 2025 notes or to refinance them?
Well, happy to answer that question. Now we -- as we mentioned in the previous calls, we constantly monitor our capital structure. And of course, we will look to refinance outstanding debt at the appropriate time if we see an economic benefit. And of course, to maintain a conservative long-duration balance sheet. Our weighted average cost of debt at year-end was around 4.6%. I think it will continue to be in the area of 5%, and we'll evaluate future debt issuances as-needed going forward.
Awesome. The next question is, will you continue to provide volumes by segment data in your presentation each quarter? I think this is the first time you have provided this detail. And that is correct, if I can answer that. And as we have had this question from several of our investors who provide these data, and we will continue to provide them going forward. And I think that is the last question from the web as well. I'd like to hand back to Ahmed unless there are new questions coming through.
Yes. Thanks, everybody, for the questions on the conference call as well as via the webcast. We look forward to continuing to give us -- give you more updates in our next discussion on the projects as well as the developments of OCI. Bye.
Thank you.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.