CVR Partners' CEO Discusses Q3 2013 Results - Earnings Call Transcript

| About: CVR Partners, (UAN)

Call Start: 10:00

Call End: 10:40

CVR Partners, LP (NYSE:UAN)

Q3 2013 Earnings Conference Call

November 1, 2013 10:00 AM ET


Wes Harris - VP of IR

Byron Kelley - CEO

Stan Riemann - COO

Susan Ball - CFO

Jack Lipinski - Executive Chairman


Vincent Andrews - Morgan Stanley

Adam Samuelson - Goldman Sachs

Matthew Korn - Barclays

Christopher Ferrara - Bank of America/Merrill Lynch

Charles Lieber - Cowen and Company


Greetings, and welcome to the CVR Partners Third Quarter 2013 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host; Wes Harris, Vice President, Investor Relations of CVR Partners. Thank you, Mr. Harris. You may now begin.

Wes Harris

Well, good morning everyone and thanks for joining us today. With me today are Chief Executive Officer, Byron Kelley; Chief Operating Officer, Stan Riemann; and Chief Financial, Officer, Susan Ball. Also joining us today is Executive Chairman, Jack Lipinski.

As is typical, before we discuss our 2013 third quarter results, we're required to make the following Safe Harbor statements. In accordance with federal securities law, statements in this earnings call relating to matters that are not historical facts are considered forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions using currently available information and expectations as of this day. These forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, including those noted in our filings with the Securities and Exchange Commission.

In addition, today's presentation includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures are included in our 2013 third quarter results press release. Adjusted EBITDA is an example of such non-GAAP measures. Adjusted EBITDA represents net income adjusted for depreciation, amortization, net interest expense, income tax expense, and share-based compensation.

So with that, I'll turn the call over to Byron.

Byron Kelley

Thank you, Wes and good morning everyone. We certainly appreciate your participation this morning. I’ve got a lot I want to cover today but I’m going to begin with a few highlights on our financial and operating performance for the 2013 third quarter. During this quarter, we recorded net income of $19.7 million on $69.2 million of net sales and this is compared to net income of $31.6 million on net sales of $75 million in the third quarter of 2012. Adjusted EBITDA for the quarter was $28.2 million versus $39 million in the same period last year.

This morning we announced a distribution of $0.36 per common unit outstanding for the third quarter of 2013 and this distribution will be paid on November the 18th to unit holders of record as of November 11th. The third quarter marked the second full quarter of operations for our expanded urea ammonium nitrate plant that you may recall we placed in service in February. This drove, the expansion drove a more than 30% increase in our UAN production as compared to last year’s third quarter. This increase actually would have been higher but as we discussed with you on our last earnings call, an unexpected and sudden electrical outage on May 31st this year forced an immediate shutdown of the plant. This resulted in some damage to our catalyst in the shift reactor that had reduced our ammonia production by approximately 50 tons per day. And so as we mentioned on that call it was our plan to take the plant down for seven days in late July to replace the damaged catalyst.

This work was completed; it was completed on time and full ammonia production was restored to the plant and the plant is run extremely well since placing it back in service. However, due to the downtime it did impact our on-stream factors for the third quarter because of the seven day outage. During the third quarter, the gasifier ran at 91% compared to 99% in 2012 and ammonia synthesis loop operated at a rate of 90% versus 98% last year and the UAN plant operated at 90% compared to 97% in the third quarter of last year.

However, if you exclude the seven days you can see a downtime we had for replacing the catalyst you can see just how well the plant has been running since the change-out. The on-stream rates without those seven days would have been 99% for the gasifier, 98% for the ammonia synthesis loop and 98% for the UAN plant, all very good numbers. In the third quarter, we produced 100,400 tons of ammonia and we purchased an additional 1,000 tons from third parties.

During the period, 3,400 net tons of ammonia were available for sale with the rest upgraded to a record 239,300 tons of UAN. This is compared to the 2012 third quarter when we produced 104,200 tons of ammonia with 29,400 net tons available for sale and the reminder upgraded to 181,900 tons of UAN so those numbers easily show you the 30% increase in UAN production.

Turning our attention to pricing in this quarter, the average netback price we received for UAN and ammonia in this past quarter was $259 per ton and $505 per ton respectively as again $259 a ton for UAN and $505 for ammonia, and this is compared to an average netback in 2012 of 290 tons for UAN and $578 per ton for ammonia.

I will discuss our forward view on pricing and some other consideration related to our outlook after Susan reviews our financial results in more detail. So with that I’m going to hand the call over to Susan, our Chief Financial Officer. Thank you, Susan.

Susan Ball

Thank you, Byron and good morning everyone. As Byron discussed net sales for the 2013 third quarter was $69.2 million as compared to $75 million in 2012. Contributing to the decrease was lower sales prices for urea and ammonia and lower ammonia sales volumes which was primarily due to the increased conversion of ammonia afforded by the expanded UAN plants. Partially offsetting the overall decrease in net sales was higher UAN sales volumes and related freight revenue due to the planned expansion as well as the net impact of increased hydrogen sales to the adjacent refinery.

Cost of products sold for the 2013 third quarter was $13 million as compared to $11.3 million in the third quarter of 2012. The increase was primarily associated with the ammonia purchases previously mentioned as well as higher freight expense and distribution cost in this year’s third quarter. Partially offsetting the overall increase in cost of product sold was reduced consumption of pet coke in the 2013 third quarter due to the previously discussed plant downtime. During both 2013 and 2012, our average cost for consumed pet coke during the third quarter was $30 per ton.

Direct operating expenses were $23.7 million for the third quarter of 2013 as compared to $21.1 million in the prior year period. The increase was primarily attributable to higher utilities due to the expanded UAN plant, increased repairs and maintenance expense and catalyst amortization related to the replacement of the damaged catalyst in the shift reactor and to a lesser extent higher cost for chemicals and outside services. Partially offsetting the overall increase in direct operating expenses were lower property taxes resulting from the settlement with Montgomery County which we entered into in late February of this year.

Selling, general and administrative expenses were $4.6 million for the 2013 third quarter as compared to $5.1 million in the third quarter of 2012. The decrease was primarily due to lower base share compensation expense partially offset by higher management services expense. Depreciation and amortization expense increased to $6.6 million in the third quarter of 2013 from $5.2 million in the 2012 third quarter. This was substantially due to the UAN expansion assets being placed in service in this year's first quarter.

The increase in interest expense from $900,000 in the 2012 third quarter to $1.6 million for this year was primarily associated with decreased capitalized interest due to the completion of the UAN plant expansion. Net income for the 2013 quarter was $19.7 million or $0.27 per common unit compared to $31.6 million or $0.43 per common unit in the third quarter of 2012.

During the 2013 third quarter, we spent $4 million on capital projects including $800,000 for maintenance cap spend. Capital expenditures for the nine months ended September 30 were $35.8 million with $2 million associated with the maintenance CapEx. The substantial majority of the remaining $33.8 million of capital spending was associated with the UAN plant expansion.

For the 2013 full year, we expect to spend $40 million to $48 million on capital projects excluding capitalized interests, this amount includes $5 million for maintenance CapEx and $35 million to $43 million for growth projects, including approximately $25 million associated with the UAN expansion projects earlier in the year. As we have discussed in the past our plan profit and growth spending will be fully funded by cash on hand that originated from our IPO in April of 2011.

Turning to the balance sheet, we enjoy an enviable financial position that should continue to allow us to grow our business. As of September 30, we had $87 million in cash and cash equivalents and $25 million available under our revolving credit facility. Additionally, our long-term debt remained low at $125 million. With that I will turn the call back over to Byron.

Byron Kelley

We now have nine months of actual results behind this we have orders in place for our expected product deliveries throughout the remainder of the year and so with those fundamentals in place we're raising the lower end of the range of our 2013 full-year outlook for cash available for distribution by $0.05. As such our full year outlook is now $1.85 to $2 per unit. While we will not provide any formal guidance for 2014 until we report our 2013 fourth quarter and full year results. I would like to spend a few minutes discussing some of the things we’re seeing in the market as we head begin thinking and turn our attention to 2014.

Following an active period in July of this year where we secured orders for product deliveries during the year -- this year's sales season, basically U.S. nitrogen fertilizer market has been relatively quiet. It appears most producer, dealers and distributors want to get a better feel for this year's expected corn harvest before entering into transaction for additional 2014 first quarter deliveries, and as we see this all across our industry.

Getting a good hand on crop harvest on yields this year is a little bit challenging due to several factors. First is simply related to a late harvest that we're seeing, this year's crop progress report from USDA showed that 59% of the corn crop has been has been harvest so far and this is significantly less than 91% that we saw harvested at this point last year. And additionally, due to the government shutdown the USA did not issue a revised crop estimate in October, actually the next estimate we should see roughly a week from today, sometime next Friday.

So far we have been seeing some local reports coming in from locations in the corn belt that have indicated some very strong yields and while it's premature to extrapolate a nationwide average from this limited information, I would have said that it appears right now that this year's final year figure may be in line with the current USDA forecast which is in the range of 155 bushels per acre.

In next week’s advisor (Ph) report we do expect USDA to update the number of corn acres planted this spring. Their current estimate is 97.4 million acres of planted corn. This was primarily based on field surveys that were compiled in the first half of June before the planting window had actually closed for this year's crop. Given the extremely wet conditions that we saw in mid June we expect that as much as 3 million acres of the USDA's estimate may actually have moved to prevent plant or move to soybeans (Ph).

If you look at USDA’s dimension, we have to go back to October but if you look at their published estimate from then they were estimating at 14.6% year ending stocks the used ratio basis I mentioned earlier on 155 bushels of harvested acre. As we look at it if the actual planning ends up roughly 3 million acres lower than their 97 million acres that were in their last estimate, the year ending corn inventory level could be around 11%. That, of course, assumes all else is constant, in terms of our exports and market demand.

If you look at that 11% number it's actually below the 20-year average of 13% and if this is the figure we see it in this year, it could certainly be a very positive sign for the industry going into next year's planning cycle. Another thing that we're keeping an eye on is China's production over urea and exports into the world market. Similar to our plant the Chinese producers utilized mostly a gasification process to produce the base ammonia for its urea production.

However instead of using pet coke as we did every stock is called from China coal production. For the past two years typically the urea plants in China have run about 75% of capacity. But last year, due to a slowdown in certain parts of the Chinese economy, as well as some higher domestic coal production, the China source coal prices came down and urea plants did run at a higher utilization rate. And this ended up and resulted in higher urea production and larger than normal Chinese urea exports into the world market.

In addition, it appears there may have been a few million metric tons of urea actually exported outside of the Chinese government's lower export tariff window. So with that as a backdrop what are we seeing regards to China as we look forward into 2014. First, industry sources are indicating that the low coal prices that led to some of the increased urea production in China have hit a floor and may have actually begun increase. Supporting even future higher coal prices increases as Chinese government’s indication that it plans to shut down 11% China’s total coal mine capacity by the end of 2015. And third, it also appears that the Chinese custom agents may be more stringent than they were last year and accepting vessels for loading outside of the lower tariff of export window that actually ended yesterday.

So, as we look going forward we think we could see less China producer in the world market next year. Turning our attention little more specifically back to our own operations, we see a number of very positive events for 2014.

First has to do with small expansion project and reworking of our turn-around schedule. On our last earnings call we disclosed that we were doing a $6 million capital investment in expansion to our pressure swing absorption unit. The project will allow us to recover sufficient hydrogen to produce as much as 25 tons per day of additional ammonia beginning in the third quarter of 2014. This event will require a seven-day plant shut down to complete the project and to tie in the expansion. The benefits of the production even allowing for those 7 days shut down and UAN production that we will see out of our expanded PSA unit equates to approximately 4 additional days of full plant ammonia production in 2014.

So basically you take 6 months production and average it over the year and you’re essentially looking at equivalent four days of current production incremental that we should see next year. Another benefit though I mentioned we would take the plant down seven days to make this tie in during that period we now intend to complete a mini turnaround of the rest of the facility and by so doing we will eliminate the need for the two to three week by annual turnaround that previously was scheduled for the fourth quarter of 2014.

So, you take all of these factors and put them together and you compare them to 2013 projected production levels, we make the combination of all the events I just mentioned should result in almost two additional weeks of incremental production in 2014 as compared to 2013, so, a very positive year ahead for us in production levels. A second positive that we expect is certainly seeing 2014 is a fact that we’ll have a full year of our UAN production from our expanded plant as good as it was in February and this will allow us to capture two additional months of nitrogen content price premium afforded to UAN as compared to ammonia.

And then there are two smaller projects that are nearing completion that will also contribute next year. The construction of our distribution facility in Dartmouth, Kansas, is proceeding smoothly and we expect to begin using this facility by the end of the year. This terminal combined with the Phillipsburg terminal we installed last year as well as additional lease storage in our market area should allow us to further optimize product prices we received by potentially differing the sale of the portion of our inventory in the spring planting season when prices are typically higher.

Then one final project that is underway and nearing completion is expansion of our diesel, our ability to sell diesel exhaust fluid or DEF. We are expanding our storage and load out facilities at the plant, the first phase of the this project we’re going to service by year end and will allow us to produce and sell about 6 million gallons for DEF in 2014 up from the current level of about 3 million gallons. The second phase will be completed around mid 2014 and it will double our capacity so it will have the ability to sell load out and move 12 million gallons per year of DEF.

And then as you recall, we’ve talked about this in the past, we’ve talked about UAN sells at a premium to ammonium while DEF sells at a premium to UAN. So, every ton or gallon of this that we can produce ourselves is just another premium over what we even get for selling our urea ammonia nitrate.

And finally on our last call we also discussed briefly another project that can materially increase our ammonia production. Over the past three months we made substantial project in review of this opportunity. While signs are very favorable, we’ve not yet firmed up the final cost estimate for the project. We are now targeting a decision by the end of the year on whether to pursue with the full front end engineering design analysis and if we do move forward with the project we expect that increased ammonia production would come online in 2017.

One additional comment I would make about this project is one of the reasons that our analysis time is been extended a little bit is that we have expanded the number of options that we’re looking at around the size of this plant and trying to optimize the right size. But I can tell you this that the options that we’re looking at can vary from 100 tons a day to 500 tons a day.

So, this could be anywhere from a nice to very substantial project and so we’ll continue working on our valuation throughout the end of the year and hope to be at a point to make a decision about moving forward with that point.

So, let me do a real quick summary, I’ve covered a lot of information, we posted a good third quarter highlighted by record UAN production. We raised lower end of the range of our 2013 full year distribution outlook by $0.05 that range is now $1.85 to $2 per unit and this can represent as much as a 10% increase over 2012. In regards to 2014, we believe that we should see the stock used ratio end up around 11% and this could do well in access of 90 million acres of corn to be planted next year.

We anticipate in terms of our operations almost two weeks of additional production next year, we also expect the benefit of a full year of our expanded UAN plant and we’ll see the benefit of the PSA expansion as well in the last half of the year and then the two smaller projects around our storage and DEF. And then as I mentioned just minute ago, we will continue to work in getting close to finalizing our thoughts about expanding ammonia plant and by the way if we do that project it will in service in 2017, most likely.

So, with that we’re going to move to Q&A, before do that I’m going to turn the floor over to Jack.

Jack Lipinski

Good everyone and thanks for joining us and I’m sure as you’re aware in this morning’s press release, we announced that Byron has decided to retire effected January 1, 2014. When Byron let me know about his plans I truly had mixed emotions. I was disappointed he’ll be leaving us but I was happy that he gets to spend more time with his wife, Melva, his family and especially his one year old grandson, Nolan. It’s been an interesting couple of years, we were very fortunate that Byron come out to retirement shortly after CVR partners went public in April of 2011 and he took over as his current role of President and CEO. Byron's experience in growing companies and his executive leadership is what attracted me to him, and I couldn't be more pleased with the job that he has done over the last couple of years.

During this period, he successfully has led the Company through a number of key initiatives. He led the expansion of our UAN plant. He broadened our distribution footprint. He increased our presence in the DEF market as well as many, many other initiatives that you’ve guys heard about and I know. There is no doubt Byron is leaving CVR Partners in a much better position than when he started. And for that, I and the board are truly grateful.

As released, as we discussed in our release, I will be reassuming the role of President and CEO of CVR Partners. I will also continue to remain Executive Chairman. Over the coming month, we will evaluate whether I continue as President and CEO for the long term. Whatever path Board decides that will be based on what is best for our partnership and unit holders. And, you know, I just hope join me in wishing Byron a heartfelt thanks for everything he has done and wishing him a happy retirement, and I will be staying in touch with him. He has done a great job for us and it’s kind of hard to see a good friend leave.

So, with that, I will turn it back over to Byron in Q&A.

Byron Kelley

And thank you Jack and certainly thank you for those very nice comments you made. I want everybody to understand that I’ve really enjoyed my tenure here. I have enjoyed working with Jack and actually all of the staff at CVR Energy. They had been very supportive of what we wanted to do. Our Board has been very supportive. I am very appreciative to what they have done and how they supported during this. Jack listed some accomplishments and I wish I can take credit for those but I can’t. Truthfully, I have to give the special thanks to the staff and CVR Partners and all the employees of CVR Partners.

I have been very fortunate to have such knowledgeable group, such a dedicated group. They have made my job very easy during my tenure. So any success that we’ve seen here, the credit should go to the folks that operate our assets and manage our assets and handle our marketing group, not to me, but it’s been fun, and Jack thank you again for those kind of comments and also a word of thanks to all of you that have been following us over the years and hopefully we will, I’m still going to be here two months till the end of this year. So my work is still ahead of me and I am sure we will be in contact during that period.

So with that, I am going to open the floor to questions.

Question-and-Answer Session


Thank you. (Operator instructions) Our first question today is coming from Vincent Andrews from Morgan Stanley. Please proceed with your question.

Vincent Andrews - Morgan Stanley

Thank you and good morning everyone. And obviously congratulations, Byron, it’s been a pleasure to work with you. Good luck in your retirement. What I just would like to get more insight into would be it looks like imports of UAN into the Gulf actually have been lower than maybe what was going to be expected in the last couple of months and then one of your competitors looks like they have an outage, so what are you seeing in the market today and I know you made a lot of comments on China we which would echo, what are you seeing in the market today in terms of price direction that you think coming out of the fall application season maybe going into the spring next year?

Byron Kelley

I really think that when you look at actual market signals, there have been almost none. As you typically see, as you move out of the fill season and then into fall negotiations for additional spring deliveries, you get into debt assets sort of lingers on for a number of weeks. I think now it’s been lingering over for closer to a month. We really like seeing a lot of place, I mean we’ve done some localized deliveries and we have been very pleased with the prices we’ve got on some truck deliveries that we made.

But just not getting really any firm signals in regard to pricing for this next round, yeah, I think we have seen less imports, where actually - there is some indication there may have been some exports as well. And so I am still hopeful that things are going to come in, we’re going to see some pretty descent pricing but actually just not much out there yet.

Vincent Andrews - Morgan Stanley

Okay, thanks very much. I will pass it along.


Thank you. Our next question today is coming from Adam Samuelson from Goldman Sachs. Please proceed with your question

Adam Samuelson - Goldman Sachs

Yes, thanks, good morning, and Byron again congratulations on the retirement. Maybe just on the capacity expansions first for next year, next year we have the timing of the turnaround correct, so you’re doing one week mini (Ph) turnaround in the second quarter, there is no plant turnaround in the fourth quarter and there is no turnaround again in 2015, is that correct?

Byron Kelley

I think the mini (Ph) is as at the same we time we tie in the plant, that maybe around just think about mid July probably in that timeframe, it could move a week or so either way but that should be seven days where we do the tie in on [indiscernible] project and then we do the mini (Ph) turnaround and so yes with that, we think we will not have a need to do what would be traditionally our fourth quarter turnaround where we’re down 2, 3 weeks.

Adam Samuelson - Goldman Sachs

Okay, got it, and so then you go back onto your normal schedule for the fourth quarter turnaround in 2016?

Byron Kelley

That could be, yes, we’re looking at some options as to where we go with the turnaround and we continue to learn. We have our expansion on and we continue learn the business, but yes you would be looking at 2016 certainly before you have another turnaround.

Adam Samuelson - Goldman Sachs

Okay, that’s helpful. And the on the fall sale activity, I appreciate that it’s been a late harvest and that’s kind of pushed out some dealer activity, can you comment on how much of the fall sales at this point have been booked or how much you have left really to price?

Byron Kelley

Basically in terms of this year’s production, we are sold out and so what we’re talking about or making some sales for production that we will be doing essentially in the first quarter of next year and delivering in the first quarter. And so that business just hadn’t been booked at this point and what we expect to see maybe is some pickup on that after we get the [indiscernible] report next week and people start getting a little confidence about what this year’s total harvest is going to look like and then we think the market will, right now the farmers are so focused on just getting their crop in they’re not very focused on next spring yet. But yes from our standpoint, the good news is, we really don’t have any production from this year left to sell. We have put all that to bed in July.

Adam Samuelson - Goldman Sachs

Okay, that’s helpful and then maybe finally for me, your third party Pet coke contract comes up for renewal or it lapses at the end of the year or maybe talk about how you’re thinking about that as you move into 2014?

Byron Kelley

Well basically what we think when we look in the next year that our whole Pet coke price is probably going to be $29 to $30 on average for all of our purchases next year and still we saw prices move down this year and so that's where I think we will come out on average next year.


Our next question today is coming from Matthew Korn from Barclays; please proceed with your question.

Matthew Korn - Barclays

Well, Byron, again let me pass on my congratulations, I’m still hoping for a tour down [Unclear] someday.

Byron Kelley

Come on down Matt, we’ll do that; I’ll have time to do it for sure.

Matthew Korn - Barclays

All right, sounds good to me. Well, you just said that right now the farmers are really focused on the harvest, the late season, when you talk to them or distributors, is there any, I mean what are they saying about next year or in terms of expectations of plantings - are people seeing any indications of more corn, less corn; are they worried about the income levels next year versus this year; what they're going to be able to pay. Is there been any concern about the leak of this EPA and potential revisions to the RFS, does any of this come into play when you're talking with them?

Byron Kelley

Generally, no, the dealers are probably more focused on where the stock-to-use ratio is going to come out at the end of this year. I think right now we don't hear much from them at all about where ethanol's going to come out, our opinion is we're probably going to see ethanol next year at about what we saw this year and so you know the amount of corn associated with that then should be level with this year, but we're not here to lock (Ph) them on that and concerned, they just want to see what the ending stock–to-use ratio, the farmers are sort of interested in that because that's going to determine a lot on what they think prices will come out next year and on the planning.

Generally if we come out this year at around 11% level I think you’re going to see a pretty decent corn crop next year, you're probably going to see a little rebound in corn prices as we get into pricing for next year because you won't plant 97 million acres next year for sure or even 94, but you could well see 90 to 92 million acres and with that the farmers are going to expect that at that level they're going o sees some improvement in prices as well as so, that's generally where we're seeing it coming out is some improvement in corn prices, a good year, I mean if you start planting 90 million acres to 92 million acres those are good years, of historically on planting of the crop acreage, so we still think you're going to see a good year but no, you're not going to see 97 million and probably not going to see quite the 93 or 94 we saw last year or 95 I guess but it should be a good year.

Matthew Korn - Barclays

Following up on that, if we're down maybe just a little bit in corn acres we have more of a kind of a normal weather year, or there’s maybe there's less moisture stress one way or the other, it seemed that this year spring UAN demand is really pushed from the fact that there was a more attractive product relative to ammonia, there wasn't as much availability for ammonia for laying down that ammonia in the spring. Is it fair to think UAN demand over all might be a little bit lighter, if that type of prediction plays out?

Byron Kelley

I think you could see some fallouts from exports, I mean imports next year, I don't like the domestic producer getting troubled more than their product but you can see some of the higher priced Ukrainian stuff, I mean we saw some of that off the market this year and you can see that continued, so you can see maybe the imports come down a little bit next year but I don't think when we look at our market area that we've got any concern about placing our product.


(Operator instructions), our next question is coming from Christopher Ferrara from Bank of America-Merrill Lynch; please proceed with your question.

Christopher Ferrara - Bank of America - Merrill Lynch

Question for you with the mini turnaround next year in the third quarter, is that going to have a similar impact operations to the turnaround you did this year in the third quarter.

Byron Kelley

I'm guessing in terms you're talking about the catalyst replacement there were both down seven days and so even seven days of production, yes. What we gain out of that is the extra 25 tons a day for six months that we get out of the expanded project and then we also don’t have to go through another two, three weeks of turnaround that we would normally have done next year, so net-net, we're going to gain days of production next year.

Christopher Ferrara - Bank of America - Merrill Lynch

And can you upgrade that extra 25 tons a day of ammonia to UAN or is that going to be sold on an ammonia basis?

Byron Kelley

Yes, I think we can, certainly in part of the year we know we can, you know when you've got the right temperatures and one of our goals is fairly new in our plant, we certainly will have the capacity to do that, I would say most of the time yes, there may be a few occasions where we sell a little of that as ammonia but we should be able to absorb that and convert most of it.

Christopher Ferrara - Bank of America - Merrill Lynch

And last question on a, per ton of UAN basis how much of a price lift do you get for converting that up to DEF?

Byron Kelley

You know that number obviously is going to vary, the way the pricing mechanism on this thing works is really tied to basically urea, but we typically see $80, $100 uplift per ton on that, per ton of nitrogen now, not for a ton of UAN.


Thank you our next question will be coming from Charles Lieber from Cowen and Company, please proceed with your question.

Charles Lieber - Cowen and Company

Quick question, when you had to replace the catalyst due to the, that created the downtime, do you guys think you got a pickup in the activity level overall in throughput and you do think that there is going to be a normal, sort of slight deterioration in activity through 2014 because in effect you’ve got a new catalyst earlier than you normally would have put it in., So you think that's going to have a slight negative for next year?

Byron Kelley

Obviously we regained what we lost from the damaged catalyst and put us back on target, the catalyst itself generally doesn't vary that much over time. The one thing in the plant, we have to change out gauze about every 60 days or so, and when you get a new gauze in, you exceed production design and as it gets towards the end of its 60 day life, you'll get a little below it. Overall you're going to average your design capacity. So now we just pick back up what we lost but the catalyst normally does not deteriorate I mean not that you would see in a year, you might over a five year period see some deterioration that's why you'll change this out in subsequent turnarounds every three to five years, something like that.


We have reached the end of our question and answer session; I'd like to turn the floor back over to management for any further and closing comments.

Byron Kelley

All right, gentlemen, I'm going to close it out but again let me give you my thanks for joining us today and also many of you I’ve met personally and had plenty of chances to talk to at other events. It’s been my pleasure to know you and appreciate your calling our company and your interest in your company and as always if you have any kind of follow up questions you can contact either Wes or myself and we'll be glad to other all the discussions if there's something we need to clarify, so thank you again and have a good day.


Thank you that does conclude today's teleconference, you may disconnect your lines at the time and have a wonderful day; we thank you for your participation today.

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