Feb 15, 2022
Operator
Hello, good afternoon, and thank you for joining the OCI N.V. Fourth Quarter and Full Year 2021 Results Call.
My name is Gemma and I'll be the operator for today. [Operator Instructions] I'll now hand over to our host, Hans Zayed.
Please go ahead, Hans. Thank you.
Hans Zayed
Yes. Thank you, and 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 2021 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 our outlook.
As usual, at the end of the call, we will host a question-and-answer session. As a reminder, statements made on today's call contain forward-looking information.
These statements are based on certain assumptions and involve certain risks and uncertainties. And, therefore, I would like to refer you to our disclaimers about forward-looking statements.
Let me hand over to Ahmed.
Ahmed El-Hoshy
Thank you, Hans, and thank you all for joining us today. We're pleased to announce a strong set of results in the fourth quarter with an adjusted EBITDA of more than $1 billion for the quarter, resulting in over $2.5 billion for the full year 2021 as our end markets continued their upward trend, which has accelerated our goals to achieve a strong balance sheet.
I'd like to thank all our employees for making this another excellent quarter and for their strong commitment to improving and growing our business. A lot of hard work has gone into bringing it to this point, and I'm excited about what our dynamics team and state-of-the-art asset base can accomplish with this balance sheet and market backdrop.
We're pleased that we can start returning capital to shareholders, as Hassan will discuss in more detail, whilst also having capital left over the strategically deployed in decarbonizing and growing our asset base in a value accretive way for the future hydrogen economy. I'd like to start as always by covering our top priority safety, as we want all our employees and contractors to go home safe every day.
Our 12 month rolling affordable incidence rate at the end of December was 0.35 incidents per 200,000 man hours well below industry averages. Of course, I'd like to reiterate that our goal remains to prioritize process safety and to reduce occupational safety incidents to zero at all our production facilities across the globe.
I'd like to give some highlights also of our performance during the quarter. Despite three large planned turnarounds during the quarter, a shutdown of our European methanol operations since last summer, the shutdown of one ammonia line at OCI nitrogen and the significantly higher feedstock price environment in Europe, our EBITDA and cash flow from operations improved significantly year-over-year.
Our business model showed its effectiveness during the quarter as we continue to operate and maximize our downstream production in Europe by sourcing record volumes of ammonia from our operations in Fertiglobe and the U.S., as well as third party volumes to support our Dutch fertilizer and industrial operations at OCI nitrogen. Effectively, we bought ammonia at a big discount to European natural gas, and the team did an excellent job increasing throughput capacity to -- by an annualized 300,000 tons per annum in our ammonia supply chain in Rotterdam, where we enjoy having the only ammonia terminal in the Rotterdam port.
By doing so, we've been able to combat the volatility in feedstock pricing and continue to provide essential nitrogen fertilizers to the European agricultural community, as well as important industrial products to the value chain there. This unique supply chain is one we can leverage in the future by importing low and no carbon hydrogen in the form of ammonia and methanol to help decarbonize the Netherland and the broader European Union and help them meet sustainability targets over the medium term.
OCI is actually one of the top two largest consumers and producers of hydrogen in the Netherlands. Our own product sales volumes were lower at 2.7 million metric tons during the fourth quarter compared to the fourth quarter of 2020.
Total own produced nitrogen product loans were down 16%, largely due to turn around the Fertiglobe and the shutdown of one ammonia line at OCI nitrogen, partially offset by growth in ammonia volumes at Fertiglobe as well as the DEF volumes in the United States. Methanol volumes declined 44% due to a planned turnaround at Natgasoline extending into the fourth quarter and no production for BioMCN in the Netherlands due to high gas price environment in Europe.
Total own produced volumes in 2021 were down 7% year-over-year overall due to turn around in 2020, being deferred to 2021 due to COVID-19. We expect in 2022 across our platform to benefit from the operational benefits resulting from our manufacturing excellence and improvement program that we've rolled out at all our nine sites.
I’ll now hand it over to Hassan to discuss the financial results in more details. Hassan?
Hassan Badrawi
Thank you, Ahmed. First, I'd like to echo Ahmed's earlier expressed gratitude and thanks to all our employees for their resilience and commitment that is ultimately instrumental to the results that we achieved this last quarter and for the year.
Looking at the Q4 annual results, we believe the business is starting to demonstrate its free cash flow potential, yet still leads room for further improvement, which is the focus of our manufacturing improvement initiatives across our sites. OCI consolidated revenues increased by 112% to $2.2 billion and our adjusted EBITDA rose by 291% compared to the same quarter last year to just over $1 billion at $1.04 billion and as we continue to benefit from higher prices for our products.
Our adjusted EBITDA margin also captured the benefits of higher pricing, coupled with a competitive cost base coming in at 46% in Q4 2021. And this is compared to 20% margin in Q4 2020.
We achieved this result despite the high European gas price environment. Our consolidated adjusted net income line also saw a market improvement and reached $400 million for the quarter.
For the full year, consolidated revenue was $6.3 billion, adjusted EBITDA totaled over $2.5 billion and adjusted net income reached $732 million. Focusing on free cash flow, which is a primary KPI for our financial performance, we generated $789 million of free cash flow from operations during the fourth quarter, bringing the total to approximately $1.6 billion for the full year 2021.
Cash flow from operations precedes growth CapEx and more importantly, several transaction events which occurred during the quarter. These include, firstly, the successful IPO, what is now our 50.1% subsidiary, Fertiglobe, which took place in October.
The IPO resulted in net proceeds to OCI of $447 million following an IPO that was 22 times oversubscribed. Secondly, there was also the special dividend extracted pre-IPO through a dividend recap at Fertiglobe, which totaled $850 million, which is the reason you see a leakage of approximately $357 million in the free -- below the free cash flow from operations in our press release tables.
The net result was a decrease of $825 million in net debt during the quarter to approximately $2.2 billion. We reached the net debt to adjusted EBITDA leverage ratio 4.9 times down from $2.7 billion of net debt and the net leverage of 0.3 times a year just a year ago at the end of 2020.
The drop in net debt was before proceeds of $375 million in the sale of 50% stake in our Methanol group. So adjusting the leverage ratio on a pro forma basis, this takes us to about 0.7 times leverage ratio.
We expect a positive trajectory to continue into Q1 with further improvements to our balance sheets as our LCF continues to improve and our key product markets continue to perform the stronger in a healthy pricing environment. The company has continued to focus on reduction of its growth of our gross debt as well.
During 2021, we redeemed bonds at OCI N.V. and IFCo for a total of $1.8 billion and consequently have reduced gross debt by around $600 million to $3.8 billion, which is further reduced by the proceeds as I mentioned earlier of the divestment of 50% stake in our Methanol group, which takes us to just under a $1 billion of gross debt reductions.
Concurrently, we lowered our weighted average cost of debt from 4.3% during 2020 to around 3.2% by the end of 2021, and reduced our cash interest by more than $60 million per year, which will have an effect 2022 onwards, positively affecting our run rate free cash flow. Following the transformation our capital structure during 2021, we believe we are experiencing a quickened pace towards achieving our objective to reach an investment grade credit rating.
With the upgrade by Fitch in December, we are now one-off below investment grade across all three rating by three - all three rating agencies. From that perspective, we will be re-evaluating outstanding debt to identify refinancing opportunities that could further lower our borrowing costs.
A good example of that is over $860 million of municipal bonds, which are above 5% interest rates where we believe we can meaningfully lower further as we continue to have access to that market. Turning to our newly announced dividends or capital return policies, as we already indicated in our previous conference call, we are pleased to confirm our new capital allocation policy, which was approved by our board under this policy, which we have fleshed out for this results call, we will distribute a consistent semi-annual baseline amount, which we have set a $400 million per year, which will be split to two semi-annual installments.
So $200 million every six months, the policy is subject to maintaining our investment grade profile. In addition to the baseline, in periods of high performance, we aim to pay a variable component which is linked to the level of free cash flow generated, while pursuing the - our value accretive hydrogen focused initiatives and growth opportunities.
We will work to maintain an investment grade profile and we have a target of less than 2 times that leverage through the cycle, which is a bit of a change from our previous objective of 2 times - of add 2 times through the cycle. To put this into practice, as you will have seen in our press release, we are proposing an interim distribution of €1.45 per share or around circa $350 million, which includes the $200 million bid distribution.
We have now clarified the mode of distribution to be effective through a capital repayment. The benefit is removing withholding tax at the source, which we believe extends to all minority shareholders.
The forward distribution requires an AGM, which we have complicated yesterday for both the next two distributions, as you may have read in our AGM documents we are awaiting, we are giving the board the flexibility to determine the variable component in the October distribution, which will be based on the first half of 2022, up to a similar amount that will be, of course, subject to market conditions and company performance. The first interim distribution based on H1 2021, which was envisioned for April, will now likely take place in June due to the capital reduction process.
For the planned October distribution, we have given indication that we expect to be a variable component in addition to the $200 million base distribution. Again, that incremental part would be based on market environment and outlook for volume and priced.
In terms of guidance, looking at important aspects of our cash conversion, namely CapEx, interest, tax and how of course minority interests, we expect around $300 million of maintenance CapEx. In addition to that, anywhere from $75 million to $150 million of growth CapEx, which will depend on the project's progress and FIDs.
Cash tax for regular activities are expected to be somewhat in line with 2021, where cash taxes came in at just above $130 million. For the interest expense, as a result of the actions that we described earlier and the lower cost of debt, we expect more than $60 million of reduction in cash interest in 2022.
And we hope to continue to find new savings opportunities as we capitalize on our rating improvement. So base -- and looking at minority interests, based on the circa 25% of EBITDA guidance at the Fertiglobe level, which is how we quantify leakage relative to EBITDA, we believe you need to add the 50% of dividends distributed by Fertiglobe to the shareholders which is attributable to minorities and strategic partner, ADNOC as well now calculation of dividends are leakage of 50% to our new methanol group partners based on the transaction that we just closed, that we are closing soon actually.
These are contributors -- these are the contributors of leakage at OCI consolidated level. Finally, we are pleased to announce early the execution of definitive documentation for the sale of the 15% stake to ADH and ADQ in February.
OCI expects the deal to close to take place in this including receipt of proceeds, which amounts to $375 million, implying of $2.5 billion equity valuation. What is essentially a debt free business?
The deal marks another positive step towards positioning the company strategically and Abu Dhabi ecosystem, which we see as a catalyst for hydrogen based growth opportunities in the future and further enhancing our future strategic optionality as a group. With that, I would like to hand back to Ahmed for commentary on our markets and operating environment.
Ahmed?
Ahmed El-Hoshy
Thanks Hassan. We're excited about 2022 on the growth, OCI remains positive for this year and into 2023, supported by strong underlying demand for nitrogen fertilizer driven by low grain inventories and healthy farm economic.
We also see continued good demand in our industrial markets for ammonia, methanol, melamine, DEF. Spot urea prices in February have declined compared to the end of last year, but they remain at elevated and healthy levels.
Ammonium nitrate, ammonia and nitrates and melamine prices remain very strong and supportive fundamentals going forward. We have good visibility into H1 2022 with a healthy order book across our core markets and some low price sales in the Q2 2022.
Our distribution capabilities, including the ability to manage inventories close to key demand centers coupled with a disciplined commercial strategy, allows us to optimize benefits from the current market conditions. This bodes well for our outlook, as exemplified by the recent awards to Fertiglobe to supply roughly 0.5 million tons of urea to Ethiopia, which is distributed 150,000 tons in Q1 and 350,000 tons in Q2.
Collectively, at an average price of $725 a ton, as well as supplying approximately 450,000 tons of urea to India this quarter. If I start with the outlook for nitrogen markets, I’ll start by going into the low green inventory and stocks-to-use ratio globally that we're seeing supportive of the sustained crop prices at current levels, which amplifies the need for the application of nitrogen fertilizers to protect crop yields and ease food security concern.
Recent weather concerns in South America have contributed to further tightness in the global grain market. Current crop prices are supportive of foreign income in key grain exporting regions, even with higher input prices incentivizing farmers to expand crop area and maximize yields, which is important to ensure enough output to meet to demand.
Global grain markets in 2022 and 2023 are expected to be tighter than last year, with forward corn futures above $5 a bushel through the end of 2023 and spot prices currently at $6.50 a bushel. We are seeing robust fertilizer demand in key import markets, further supported by low inventories with Europe, Ethiopia, U.S.
and India importing products ahead of the season in Q2 2022, U.S. nitrogen outlook remains strong, supported by low inventories and strong demand.
U.S. agriculture is expected to be one of the best years on record, with net farm income 26% above its 10 year average.
We had one of the best fall seasons for ammonia, with the current ammonia prices in the Midwest over $1,300 a short ton and over $1,300 short ton and the system is the least what we've seen going into the spring season, providing more upside for in-season sales in Q2 2022, which is a plus for our well-located production and assets. On the UAN and urea side, we see significant buying still to be done, where farmers are eager to have the product and retailers are starting to make purchases to ensure supply for the season.
In Europe, we maintain a healthy order book as nitrates demand is strong, with limited pre-buying this season and low inventories across the system. Production curtailments due to high gas prices in the fourth quarter and the ban on Belarusian UAN imports has led to further tightness in the spring season.
Several other factors are at play, affecting supply and demand dynamics. Urea export ban by the Chinese government are limiting their participation at least until the end of their domestic season in July, with China implementing mandatory requirements for summer stocking and tighter environmental restrictions as we all know.
Russia, one of the bigger nitrogen exporting countries in the world, also has export quotas on urea, nitrates and the ban on ammonium nitrate exports until the second half of this year. Further tightening global nitrogen balances and limited imports is likely to lead to increased substitution to our main product, CAN.
We expect markets such as Africa, Australia and Asia to step up in Q2 2022 with the end of the season in the Western hemisphere and purchase large quantities of urea to cover needs. India, a key urea import market is a prime example of where a lack of availability has hampered demand in 2021 and domestic production fell and imports were 3 million tons lower year-over-year, limited by peak buying in most markets.
We expect a significant rebound in 2022 to replenish low inventories and increase stocks from the 3.5 million ton level there are today towards the government's target of 6 million tons, which is supportive for east of Suez supply demand dynamics at the same time, the medium term outlook is tightening, as projected new capacities are below the levels seen over the last five years and with the demand growth continuing and startups being delayed. Switching over to the industrial side, we're also benefiting from a strong rebound in all global major economies and in many sectors.
This gives us good visibility on end markets and will boost demand for methanol, melamine, ammonia, which are used in many downstream end markets ranging from construction, healthcare, automotive, textiles, among others. Ammonia prices in Q4 2021 and into Q1 2022 have been supported by a strong fall application season in the U.S., lowering inventories ahead of the spring season, as well as high demand for downstream phosphates production and a number of planned and unplanned outages across the ammonia the production market.
Over the next five years, the ammonia market is expected to continue to tighten structurally, with incremental demand expected to exceed new supply by 3 million tons without accounting for the medium term low carbon ammonia demand in new applications we expect toward the middle of the decade. Melamine markets have continued to tighten, driven by strong demand from home renovation, construction markets, tight supply in Europe and low global level inventories across the supply chain.
Quarterly contract prices increased by 35% in Q4 2021 and increased a further €775 a ton to €3,965 a ton in 2022 for the first quarter. Tight supply logistics bottlenecks in China following the Lunar New Year expected to continue to support pricing into the second quarter.
DEF now represents more than 30% of our sales from IFCo and DEF prices have been supported by the recovery in truck sales and freight activity across the United States. The higher netbacks from this product enable us to continue to enhance returns for our U.S.
nitrogen operations going forward, and we renewed a three year offtake contract with Dyno Nobel for DEF and other industrial urea projects, we are successful in seven partnership and a successfully grown our volumes for the 2022 season. Methanol markets also remain positive.
U.S. spot and contract prices in Q1 2022 have been supported by continued recovery and demand, low global inventories as we've all seen the recovery in oil prices, where there is no major supply for methanol expected to come downstream in 2022.
Transportation applications also continue to lack other sectors, which is expected to rebound with the COVID-19 restrictions easing and should keep the market conditions tight in 2022. Further strong demand is set to continue as operating rates for major derivative segments including formaldehyde, acetic acid, MTBE and MMA are reportedly high rates in the U.S.
and Europe and provide good visibility on our sales and pricing into the first half of this year. Methanol, the olefins or MTO operating rates have also recovered to approximately 80% in Q1 2022 and are expected to remain healthy in the quarters ahead with the affordability of purchasing in methanol improving on the back of high enough and oil prices.
A new 120 million ton MTO facility starting up in China later this year, which should provide a further capacity boost to consume more Methanol. We've also seen first the strong visibility in the medium term pricing environment as we continue to expect tighter methanol market fundamentals with increase demand expected to exceed new supply by $8 million tons per year through 2026.
This like in the case of ammonia doesn’t consider the additional upside from hydrogen fuel demand notably for marine fuels application or which represents meaningful medium to long-term demand upside we've talked about in prior calls. On GAAP market, globally higher marginal feedstock cost are provided support to market with prices particularly natural gas in Europe currently at approximately $25 in MMBtu for the balance of 2022 and as approximately $15 in MMBtu for 2023 and 2024.
Those levels in 2023 and 2024 are 3 times higher than the levels we witnessed between 2016 and 2020, raising the marginal cost for lowering utilization rates for marginal producers and providing support for selling prices over the medium-term seeking for ammonia and nitrates. For us, we have a strong competitive advantage with our gas contracts and Fertiglobe and continued to benefit from the low cost gas environment in the United States.
In addition, we are fully hedged for Q1 2022 at all our operations in the United States at approximately $3.90 in MMBtu, with some of these hedges in the form of call options that allow for downside participation should the prices of natural gas declines. We also continue to make good progress in our efforts to capture value accretive opportunities from emerging demand for clean ammonia and methanol as we aim to become one of the largest producers of hydrogen fuel and feedstocks in the world.
We recently strengthened our methanol platform considerably through a new strategic partnership in Abu Dhabi, as Hassan highlighted, highlighting our growth leadership in the renewable energy markets and committed -- and commitment to a green future. As one of the largest producers and traders of ammonia and methanol globally, with the strategically located asset base and access to low cost renewable energy sources, OCI is actively pursuing with leverage its existing infrastructure to help decarbonize sectors that make up approximately 90% of global greenhouse gas emissions today.
To conclude, before we go into Q&A, we're excited about the prospects for the company. Shorter-term, we expect healthy fundamentals in our core markets and advantaged feedstock costs in MENA and the United States to continue to support our robust balance sheet and healthy free cash flow as we also expand our free cash flow conversion, the step -- via the step down in gross debt and focus on operational excellence.
We expect to further drop in net debt and net leverage by the end of this quarter, Q1 2022, which positions our new capital allocation strategy well and focused on targeted investments in hydrogen and other growth opportunities. Our end markets are looking positive into 2023, nitrogen and industrial markets continue to be the strongest that we've experienced in years, with robust underlying demand driven fundamentals supporting our medium to long term outlook.
We also see large upside from the additional demand emerging in a range of new applications and sectors as the hydrogen transition continues, where ammonia and methanol are ideally positioned and keep beneficiaries. We're ideally positioned as we leverage our global platform world scale young assets and strong logistics platform, and harmonize our hydrogen strategy with our relentless focus on shareholder value.
With that, we'll open the line for questions.
Operator
Thank you very much. [Operator Instructions] Our first question today comes in from Christian Faitz of Kepler.
Please go ahead, Christian, your line is open.
Christian Faitz
Good afternoon, everybody. Two questions, please, as a start.
First of all, to Hassan, what is your view on cash flow evolution during the course of 2022, you mentioned CapEx, but how do you see free cash flow evolving also in terms of working capital management moves, et cetera? Then second, can you remind us of any plans or currently unplanned outages that you have at any of your operations, whether it's on the nitrogen or the methanol side?
Thank you very much.
Hassan Badrawi
No, thank you for the questions I mean, unfortunately, we don't give that kind of explicit guidance on the free cash flow or adjusted EBITDA for the year. But we do strive to give you guidance on some important components as we share our CapEx guidance, which I have not shared earlier as we first start our plans for the year and also highlighted the interest - the reduction in interest expense, which is the run rate benefits.
And we've helped to estimate our cash tax bill, which should be consistent with last year. But beyond that really is a function of prices.
In terms of planned shutdowns, as Ahmed mentioned in previous calls due to commercial sensitivity, we don't really share with the market, except with the benefit of hindsight with each - in each quarter, what we have done. I mean overall, this is a business which is planned shutdowns are a routine part of our operating model.
In order to maintain asset integrity and maintain our overall utilization rates, which have consistently been improving as we focus on rolling out the manufacturing improvement plans of our nine sites and have also made significant hirings over the past year and various leadership positions that really has drove our technical capabilities and process safety managements.
Operator
Our next question on the line comes from Mubasher Chaudhry of Citi. Mubasher.
Your line is open. Please go ahead.
Mubasher Chaudhry
Hi, thank you for taking my questions. Two please.
Just on the market dynamics, where are you seeing the current shutdowns in the urea and ammonia capacity in Europe. And then could you talk about your thoughts on the farm inventories in Europe as well that would be helpful from a demand side?
And then on capital allocation can you just talk about your decision for the $400 million base dividend per annum please? And given kind of the $300 million to $400 million CapEx guidance that makes the breakeven cash, the requirement of around $800 million and should we see that as and within trough cycle environment OCI being able to achieve higher cash flow than that number or do you think there's a flex in the base dividend as well?
Thank you.
Ahmed El-Hoshy
Sure. So I mean, with regard to the question on Europe, it's always been a dynamic situation with the natural gas pricing in Europe and the decisions on restarts and shutdowns.
On the ammonia side, we think that in December you had an annualized reduction of ammonia capacity of around 9 million tons in December. But a lot of restarts happen in the beginning of January where we think that that number that's offline has dropped to close to 3 million tons.
It's interesting to kind of think about today when you're hovering around $24, $25 of MMBtu for just gas and you add on to that the price of CO2, which is now up to €90 a ton and you're about €2 a ton - I’m sorry, €200 CO2 per ton of ammonia around €180 or $200 in CO2 variable cost. The variable cost of production has a floor that that we think is very supportive for ammonia pricing, as well as nitrate pricing.
And you know, that $24-ish of MMBtu is the projection for the entire year, not just this winter. So, you know, there continues to be volatility on the ammonia side and we've seen ammonia dip below that variable cash costs at times.
And that's what the team did a great job of capitalizing on in Q4. But eventually, you know, the fundamentals will probably cause some shutdowns in the market to the extent ammonia decline from the levels he had today.
On urea side, we've seen some curtailments on urea and nitrate side as well. I don't have the numbers here with me right now.
But some nitrates are lower capacity and on urea side, some of the less efficient plants maybe down with about 0.5 million tons annualized for urea. So that currently is the marginal cost produced globally.
Even with if - when China comes back in the third quarter and we'll have to watch what that looks like. But they don't - they also can't operate, if urea prices decline to give any more, given the pricing on the natural gas side.
The other question you have and I'll hand it over to Hassan on the dividend side, what was the last question?
Mubasher Chaudhry
It was a question on farmer inventories, is that the one you’re missing?
Ahmed El-Hoshy
Yes, I guess that was - your last question on farmer inventories, is your question?
Mubasher Chaudhry
Yes exactly so where you see farmer inventory [ph] from a fertilizer perspective, do you think they will [indiscernible] where do you think they're coming out versus prior year currently?
Ahmed El-Hoshy
I think there's been a lot of in the dynamics the last several months have been a lot of delayed buying. In some cases, lack of the availability of nitrates in the second half of last year prevented buying.
And so the inventories are very I’d say historical lows in many of the key regions. In India, like we said, we're at about 3.5 million tons of inventory with the government targets usually 6 million.
Some of the buying - we would have seen in Europe has been a bit delayed, and we're starting to see that come back in Europe. In the U.S., the retailers were trying to pick the right time to buy and we're seeing now demand, again pick up to buy nitrates as well.
So on the nitrate side, on the urea side, they're low and on the ammonia side, which is applicable to the U.S. fertilizers market, we have never - I mean, that's the most investment.
We've never seen it this low in terms of how much has been bought for the spring for ammonia. So we think that that demand is going to have to come.
There's been a bit of looking to see the demand in front of them before buying given now the price levels we've seen, but we do think that the buying is going to happen. We do think that pricing is going to be in line with last year's tightened [ph] levels plus or minus and it makes sense to add that nitrogen for the ground these crop prices.
Mubasher Chaudhry
Helpful. Thank you.
Hassan Badrawi
Maybe I'll take the remaining part of the question, but before that we - I think we didn't answer the question of working capital as sufficient, so allow me to answer that and I’ll move on to the newer question on the dividend baseline amount. But for the – in terms of working capital in Q4, we did have a net operating working capital inflows of $165 million.
Generally, working capital obviously gets affected by the higher price environment. There's been a number of factors without facing not one thing specifically standing out, but includes having prepayments during the quarter, higher payables in the orderly course of business related to our gas bills, some realization of hedges, et cetera.
But overall, for the year, we would expect normal seasonality and some unwinding of prepayments, and overall our working capital requirements should remain fairly stable - from the perspective of the year. In terms of your question on dividends, as we mentioned, the dividend policy which now is a consistent base return of capital of $400 million per year with an additional variable component, which would be linked to the free cash flow generation I think we demonstrated already with the announcement of the interim distribution related to H2 2021 that we are distributing a number higher than that at circa $350 million or €1.45 per share.
We haven't given specific guidance for the October distribution yet, except that we will be expected to be higher than the baseline based on the outlook for markets and the company performance. This policy is obviously, as we mentioned, subject to maintaining an investment grade credit profile and ensuring a disciplined balance sheets going forward.
We believe based on the sort of underlying improvements that we see in our business. Continued reduction of our interest expense, which has led to higher free cash flow conversion and the impact of our operational excellence projects that coupled that with the demand-led environment that Ahmed described at length earlier in the call that we are well-positioned to maintain a healthy distributions going forward.
I hope that answers your questions.
Mubasher Chaudhry
Yes, just a follow-up, I guess, I wanted to more - touch, I know it makes sense in kind of the current pricing environment, and it's relatively lucrative at the moment. But in terms of from a trough cycle analysis, is there any way to think about that or would you - you talked about maintaining investment grade ratings.
So I assume a $400 million is in [indiscernible] that $400 million could be reduced as well?
Ahmed El-Hoshy
I mean, yes, I mean, again the -- it's a triangulation between maintaining an investment grade profile, looking at the growth initiatives that are turn -- that will turn to be sort of asset-like initiatives with intelligence CapEx deployment and yet this -- and with these with and given the how the low leverage that we've been able to achieve combined with our free cash flow conversion capabilities as a company, which we have started to demonstrate not even a full potential yet, but because we have a lot of concentration of plant shutdowns, we think that we're in decent shape given this market environment to serve, to maintain these other distributions going forward.
Hassan Badrawi
And Mubasher I'll just add that and kind of echoing what Hassan was saying, you know, the operational excellence program, which is one that's focused on utilization rates is a recognition of we're not where we'd like to be in terms of operation. I'll say that now, what we've done is significant focus at the plant level on personnel, we've changed that 6 out of the 12, 6 of 8 plant managers globally in the last 12 months within OCI and have a stronger centralized team that has significant effects on their ability to generate EBITDA and better energy efficiency and conversion.
And then also from a maintenance CapEx perspective, yes, we've given guidance of around $300 million this year, but obviously this year is one where we have significant free cash flow, as was last year 2021. So we're kind of restocking and putting in some state-of-the-art equipment that we have the ability to flex down during lower periods as well.
So between that ability to have lower maintenance CapEx interest expense and as Hassan mentioned the triangulation around our balance sheet, we think it puts us in a good position.
Operator
Rikin Patel from BNP Paribas, you have the next question. Please go ahead.
Rikin Patel
Thanks for taking my questions. Just firstly on the market, can you maybe provide some context to the quite sharp decline in urea prices year-to-date and how that sort of relates to the disconnects versus ammonia and nitrates and where you think the directionality of those products will go in the next couple of weeks and months?
And then secondly, on the clean ammonia side, for the projects you've announced alongside Fertiglobe, can you possibly give us an indication of what the order book looks like for some of those projects and what the sort of indicative interest is at the moment, those tons? And just finally, again, on clean ammonia, could you give some sort of indication on what the CapEx could look like for some of those projects in maybe 2023 and 2024 that will be helpful?
Thanks.
Ahmed El-Hoshy
Sure. No, good relevant questions.
So just starting with the urea one, which has seemed like you said significant decline from the end of 2021, we were at, I think the last India tender last year was $995 and then we’ve seen obviously that come down in Jan/Feb with a few reasons behind that. One is the market is somewhat sentiment-driven.
Right. So with the period where the U.S.
is still the river isn't open until March to be able to take funds up to the Midwest and the seasons more in the May time frame, there is this kind of period of illiquidity where traders continue to focus on building length, having lower prices in the market and shorting the market in Brazil and the United States by making trades and bringing down often few small trade, the sentiment in the market. In terms of outlook, we don't give outlook prospectively with regards to the UAN pricing.
We think that this India tender, the Indian seeking almost $0.5 million funds is going to clean up a lot of the market and excess supply that was there in time for the seasons in Europe and the U.S., which we said are significantly under box. So there's going to be more tons of needs to make their way into the United States and into Europe.
And probably your question in terms of the relative value with ammonium and nitrate versus urea. At this point, I think we're starting to see some people who have the ability to curb urea production and will do and sell ammonia where they can find better value.
So that kind of keeps a little bit of linkage on that front. And in terms of nitrate, the nitrates are a much higher premium than urea today.
And we're seeing even new season sales taking place in Europe at pricing that's more attractive on a nitrogen basis than urea today. So we could see, where possible, some switching to urea in the United States as well as in Europe.
So taking a little bit of market share from nitrates because nitrates are less available. But it's going to be restricted to some extent because of the equipment that people have in place.
So it's going to depend on the locations. In our case in the Midwest, we see that UAN is -- UAN and ammonia are more use rather than urea.
So you'll probably continue to see the UAN demand there. But certain areas like the Northern Plains and in some of the other areas in the United States where Appalachia could see some marginal UAN switching which should add demand and we think in the Midwest there's been some underlying there.
Last year, we've also seen a delay of turnarounds with the high price environment in the second half of last year and the beginning of this year, where we could see some turnaround in Q2 and Q3. Typically, we see them in Q3 in the market that also can help balance that bounce that market to some extent.
That’s on the urea side.
Rikin Patel
Yes. That's good.
Thanks.
Ahmed El-Hoshy
Okay. Your next question was on the market for green ammonia and blue ammonia in terms of what the optics look like and things like that.
We'll share that in more detail with the market as things progressed with the various projects that we're looking at. As we said in the past, our focus is on low hanging fruit opportunities where we're comfortable with the cash flows, which relates to your next question around CapEx.
We're looking at, what makes the most sense? What can we do incrementally.
That's not a big CapEx where we're taking a major, but we are leveraging existing ammonia synthesis capacity that consumed thin gas from a reformer and now dosing in green and blue hydrogen into the backend of existing plants for the most part, and trying to do so with very minimal CapEx so that the return is dependent on a little cash outlay at the beginning. So that's our main focus.
The one exception to that is the project harvest low ammonia plants in Abu Dhabi that we filed FID later this year. There were a minority investor.
We're focused on cash flows and competitiveness. We brought in some long-term offtake of performance in the GS Energy in Matsui into Korea and Japan.
So looking at ways to de-risk these projects and really try to move forward because we So looking at ways to de-risk these projects and really try to move forward because we do need to start making moves towards, you know, decarbonizing and driving that decision.
Operator
Our next question on the line is from Lisa De Neve of Morgan Stanley. Please go ahead with your question, Lisa.
Lisa De Neve
Hi, good afternoon, thank you for taking my questions. I have three, so just going back to Mubasher’s question, you mentioned something about there's some delays in turnarounds which you're now seeing in a market.
Would you be able to share what turnarounds are you're seeing and what parts of the market or regions? That's my first question.
Then secondly, we talked a bit about green and blue ammonia. But can you also share your mid-term growth ambitions for the OCI methanol group and provide maybe an update on the MOUs you have with MAN Energy, Hartman and Eastern Pacific?
And then thirdly, I have a question on the UAE carbon credits. So could you please share the EBITDA contribution that you saw in fourth quarter, if you don't mind?
And of course, as some of your European operations are still not running year-to-date, being by MCN and your OCI nitrogen, one ammonia line, should we assume that you may saw more access credits this year into the market? Or will you keep them for maybe the latter part of this year in the assumption that you will run these assets?
Thank you.
Ahmed El-Hoshy
Thanks, Lisa, for the question. Your first one, yes, I mean, I think we know some public ones in the United States where they said that they've actually moved turnarounds from H2 of last year to this year.
Other than that, I think it's been more kind of market intel that we have on our side around, you know, some other turnaround things when people saw significant pricing increases and ability to push turnaround out. Your second question on MAN energy and Hartman.
You know, we continue to work closely with regular discussions and meetings with MIN on the ammonia engine as well as the retrofitting and the retrofitting methanol engine. We continue to move forward on Hardeman and Eastern Pacific and ship owners.
And we're encouraged that there's actually significant focus on bringing those to the market and others have actually placed orders in the container vessel lines for not just Maersk, but others for decarbonizing container vessels. So more demand around us that it can help create that additional increase in the market.
The last question on UAE, you were asking what was that contribution out of the performance of the European Methanol Group, was that the question?
Lisa De Neve
Yes. And also if we may see some similar sale of credits this year as well, given some of your operations in Europe are still down?
Hassan Badrawi
Yes. So the sale of the key ways in the European performance and in Methanol was approximately $90 million in Q4.
This offset a couple of things on the normal operating expenditures that we have of around $8 million for the plant itself, as well as some covering of contract volumes because we were down and we had annualized contracts in the settlement quarterly basis of around $8 million. The other thing that is in those results is that the fuels business in Q4 did over $20 million of EBITDA, which is great as we've seen transportation demand and the use of a second generation biofuel in the form of bioethanol gain market share as the roads and transportation have moved up.
And we see it as given a second generation and qualified for higher premium grade outlook for us and the ability to take green ethanol out of the market and sell it in the lower carbon biomass markets. With regards to the -- how we've treated this as an EBITDA item, we think and we view that this is an operating cost and we said it in previous calls as well.
People aren't appreciating that e-waste are an operating cost that we have to think about if we sort of shut down. It's not just natural gas, it's variable.
It's also the price of CO2 because if you don't -- if you do produce, you're going to have to buy CO2 credits in the market if you don't have them or if you do have them, then you're going to use them where you could otherwise sell them, so they do have a value. And so we think that affects ammonia by about $200 a ton at today's prices and methanol by approximately $100 a ton just on the CO2 side.
In terms of how we would treat e-waste for this year, we’re not going to be providing guidance about the treatment of e-waste. The allocations changed from year-to-year and depending on operations.
And it's something that we'll share with the market if there’re any big changes on that and as things progress real quick.
Operator
Our final question on the phone lines comes from Kenny Chung of JPMorgan. Please go ahead, Kenny.
Kenny Chung
Thank you for your presentation. I also have a couple of questions.
Firstly, so you talked about the market price in nitrogen. Do you see any lag in realizing this process and if you can remind us historically, do you see any lag versus in 4Q or so far in 1Q 2022, do you see any difference in the lag, if any?
And the second question I want to go back to dividend policy. So you mentioned also the cap allocation on growth projects.
So is it right to understand given the dividend policy right now, you actually prioritize and expand the base dividend of $400 million before considering that growth projects?
Ahmed El-Hoshy
Sure. So with regard to the - with regards to the revised pricing there's often a lag between spot unrealized prices depending on how your order book looks.
So in Q4, you could see there could be a little bit of lag kind of month over month so like my month or so, depending. I mean, the one that kind of really sticks out, I'd say in our Q4 performance was probably fall ammonia in the U.S., where you typically see pre-phase happening in the summer for fall application, people want to know that they have that secured.
So that would have lagged by a few months, but otherwise overall our aim is to try to get that realized pricing in the market. So in Q1, we have some sales that took place in Q4 that are in Q1, which benefit from the higher pricing and we have an order book like we've said on urea with Ethiopia sales into Q2, pretty low.
We have sold into early Q2 as well on some nitrates in Europe, and we have an order book that takes us almost at the end of Q1, early Q2 as well on UAM in the United States. So those types of - that type of order book profile could result in some differences on how realized pricing performs, but that's what kind of specific to us.
Does that answer your question?
Kenny Chung
Yes. That's helpful.
Thank you.
Ahmed El-Hoshy
Yes. And I'll just say, well, actually, one other point is that you sometimes see a one month lag on contract customers on ammonia.
So that kind of as a one month lag for our U.S. business when it's industrial Beaumont.
I’ll hand over to Hassan to discuss the dividend side.
Hassan Badrawi
Regarding your question on the sort of dividend, I think, I mean, we have triangulated our dividend policy on the basis of how we view our business performing going forward. We have the ability to extract consistently dividends from Fertiglobe, which has its own stated dividend policy as you may have seen in the results that were released simultaneously, coupled with what is now a substantially better performing business in the U.S.
without difficult, our plant in Iowa ramping up and really starting to realize its full potential. And of course, the outlook for methanol that is quite positive and tangibly, potentially tangibly benefiting from the new sources of demand going forward.
And we believe we have the balance sheets breadth to maintain a dividend policy. Our dividend policy going forward and continue to deploy CapEx or growth CapEx in a disciplined manner, in a context where we are no longer building these large sort of multi-billion dollar investments that you typically see because of the way these new projects are set up, they're more sort of intelligent asset-light type of projects that we selectively pursue.
So it is sort of a different type of requirements there and spread over time. So we believe that we're really well-positioned to address sort of all -- both aspects of our -- both focus areas going forward.
Kenny Chung
Okay. Sorry, if I may clarify.
So it sound like we should be confident addressing both. So it doesn't sound like there is the priority one or the other.
You might fax your dividend policy accordingly if there's a need to meet both the growth and dividend parts, right?
Hassan Badrawi
I mean, again, I refer you back to the way the dividend policy was stated and we believe we're fairly confident that we can address both areas -- both areas of focus of returning capital to shareholders in a disciplined manner in the parameters of the dividend policy while pursuing our growth initiatives, which we will continue, which we have guided already this year to be anywhere between $75 million to $150 million based on the progress we make on projects and we’ll continue to give future guidance as these projects materialize further and we reach -- and potentially reach FID stages.
Operator
Thank you very much. We currently have no further questions on telephone line.
So I'll hand back over to Hans for the webcast questions. Thank you.
Hans Zayed
Yes. Thank you.
I'll read out some of the questions that have come in and the first one is from Mr. [indiscernible].
Thanks to the company for the great performance last year and especially the fourth quarter. My first question in the report about the Iowa fertilizer company credibility from Fitch Ratings, the agency assumes that after 2022, the fertilizer prices will go back to 2018 levels.
Do you agree with this outlook?
Ahmed El-Hoshy
So we don't give projections in terms of pricing views. But with information we have right now, we see that 2023 and 20 -- if you look at pricing for natural gas in Europe, 2022 and 2023 on average is around $20 MMBtu you compare that to 2018, which was in that kind of trough period.
You were sitting at like $5 MMBtu or $6 MMBtu. So you're basically triple cash cost for the marginal cost producer.
And that's even a little bit higher than that and so, we think that that's probably kind of not an updated or reflected view on the market, given the information in that.
Hans Zayed
Next question is your 4Q 2021 U.S. nitrogen revenue growth was 137%, which was well short of the year-over-year growth in UAN and ammonia benchmark pricing.
Does this simply reflect the pricing lag or is that another pricing dynamic at work. Currently UAN pricing of expensive relative to urea on the nitrogen equivalent basis, we expect weaker UAN volumes as farmers substitute urea for UAN?
Ahmed El-Hoshy
Yes, actually - we ended up covering some of these in two separate questions. But we had a little bit lower volume in Q4, 2021 for ammonia urea in UAN in the United States, and that was coming off of a significant extended turnaround in Q3 that, you know, that ended just the beginning of Q4.
So that was part of the impact. You had some sales, you know, given the turnaround that came from earlier periods.
And like I said on ammonia and specific, that's when whereas prepay market, really saw European gas guided off pit [ph] and ammonia prices go up a lot more than when some of those sales were set earlier. So I kind of attributed mainly to that or regarding UAN and urea switching up to 20% of demand could potentially go from urea to - from sorry UAN, urea and vice versa.
But like we said in the Midwest, where we're at out of the Weaver plant in Iowa, Illinois, Missouri area, Indiana, Ohio, Michigan, we're seeing that the UAN it is maintaining market share and we have a solid order book at good pricing here for Q1 and even in some – with some sales into Q2.
Hans Zayed
And the next question is, how is the run rate still now in the first quarter 2022?
Ahmed El-Hoshy
The run rate…
Hans Zayed
I assume the operational run rates?
Ahmed El-Hoshy
The operational run rate, yes, as Hassan mentioned, we don't guide on, on how we're performing due to the competitive assets around that.
Hans Zayed
Okay and the next question how well-positioned is OCI in the stock market because not all fertilizer producers were able to maximize their profits in Q4 because of long-term contracts that they have during the quarter?
Ahmed El-Hoshy
I mean, it's a good question, when we've talked about in the prior calls. We think that the - when we think about the global traded urea market for example, is the 50 million ton market.
We export around 4.5 million tons. Traders have roughly 30 million tons worth of market share, and they benefit from these netback and index linked contract that can let them send product where it makes no sense for the trader, not necessarily where it makes more sense for the producer.
So when you see that happening, then you can - end up being stuck in contracts - you send your product to a part of the world that doesn't make the most sense for you. I think we've talked about it for Fertiglobe specifically.
You know, you could see Fertiglobe send six vessels to the United States one year and another year you could send to Europe. And we've seen very big differences in how we ship our products, depending on where can we get to that netback.
So I commend the commercial for that focus and that flexibility to not have a system that just send to one location and discretely or gives it to an intermediary that may take it to a market where they have the best benefit. And having more control and visibility on where that stuff is going, leveraging the inland distribution capabilities in Europe and the United States, and increasingly in LatAm and in East Asia to generate better netbacks for our fertilizers.
Hans Zayed
Thank you. Next question is what is the targeted net debt level for the end of Q1, 2022?
Hassan Badrawi
Yes, we haven't given any explicit guidance on that specific number. But we did share that we continue to see a healthy trajectory with more de-leveraging on a net debt basis occurring in Q1 as we continue to benefit from a positive operating environment.
But again, we're only a couple of months away. So our May results will attest to that, when we were issuing our Q1 results.
Hans Zayed
Thanks, Hassan. And the next question is this year you're returning significant dividends to the shareholders.
What were the reasons to prefer paying dividends about starting a buyback program and are you considering a buyback program as a free cash flow allows that possibility in the future?
Hassan Badrawi
Well, there's two parts to this question. The first part is that, this is not a typical dividend.
We have sort of opted for a capital repayment process technically as a company, when we listed in Holland, we were able to establish a certain share premium reserve that we're able to tap into effect these capital reductions, which effectively extends these reductions or make these reductions tax free in terms of withholding tax. And this benefits is extended to - should be extended to all shareholders, of course, subject to any other personal sort of tax circumstances.
In general, they are extendable to all shareholders and we believe that is a very efficient way of returning capital to shareholders. In terms of future buybacks, I think we've alluded in the last conference call that subject to achieving sort of our investment grade - future investment grade rating.
And we are in a good trajectory to achieving this goal we hope that we would then at that juncture potentially explore other avenues of returning capital shareholders. However, we do believe that this capital return or capital reduction, as it's called technically is quite an efficient way of returning capital to shareholders.
Hans Zayed
Thanks. And next question is, how flexible are you in deciding to shift to more ammonia production instead of conversion to urea?
Ammonia prices are looking very profitable and urea prices come a bit down since Q4 2021?
Ahmed El-Hoshy
Yes I mean, I think we're uniquely positioned that on OCI Nitrogen and Iowa [ph] fertilizer companies, we have significant ability to switch between products like urea and DDGS, urea and ammonia. It's no - and in the case of OCI Oxygen in the Netherlands, we can also switch among the products and we make daily decisions if there are big changes in the market, but generally, we can make – sorry, daily decisions if there are big changes in the market.
But generally it's something that we focus on to get the largest contribution margin for our product. In terms of switching - and some of the - into other plants from urea to ammonia, that's something we’ll always keep in mind, we have the benefit in both - in all of our Fertiglobe assets actually have ammonia export infrastructure at Fertiglobe [ph] Abu Dhabi, significant ammonia export infrastructure in Egypt as well as in Algeria.
And I think that's quite unique to our platform, probably a few other companies have that ability, because generally either focus on ammonia export or urea. That doesn't mean it will necessarily do that, but it's something that we monitor if there's a large disconnect in pricing in either direction.
Hans Zayed
Thanks Ahmed. And then after the Fertiglobe IPO does OCI plan to maintain a controlling stake in Fertiglobe for the foreseeable future?
Hassan Badrawi
Yes, there's been no change in the guidance around us, as we mentioned it at the IPO.
Hans Zayed
And then one more question referring to the question on nitrogen price lag just confirming we do not see a material lag in Europe as majority of the lag as contributed by the U.S., do you measure the normal average lag globally?
Ahmed El-Hoshy
It is something that we look at significantly, obviously, the lag and where we are in the markets in Europe, if you are saying specific to us, we have sales that could be one or two months ahead of time, given our order book goes into the first part of next quarter. But there - the kind of some of the pricing levels that we've seen in the last few months have kind of supported for our Q1 and this will be in 2022.
Hans Zayed
Okay, thank you Ahmed.
Operator
I think that's all the time we have for the questions. I’ll hand back.
Ahmed El-Hoshy
All right, thanks everyone for joining the call look forward to the next one in May.
Hassan Badrawi
Thank you.
Operator
Thank you very much for joining us today. Ladies and gentlemen, you may now disconnect your lines.
Have a good afternoon. Thank you.