Good morning. Thank you for standing by. Welcome to the LSB Industries 2Q '20 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Kristy Carver, Senior Vice President and Treasurer for LSB Industries. Thank you. You may begin.

Thank you, David, and good morning to everyone. Joining me on call today are Mark Behrman, our Chief Executive Officer; and Cheryl Maguire, our Chief Financial Officer. Please note that today's call will include forward-looking statements, and because these statements are based on the Company's current intent, expectations and projections, they are not guarantees of future performance. A variety of factors could cause actual results to differ materially. As this call will include references to non-GAAP results, please reference the press release in the Investors section of our website, lsbindustries.com, for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. At this time, I'd like to go ahead and turn the call over to Mark for opening remarks.

Thank you, Kristy, and good morning, everyone. We're glad that you could participate in our call this morning and appreciate your interest in LSB Industries. I'd like to once again begin by thanking all of our employees for their efforts in enabling us to continue to run our business amidst the pandemic crisis. Their hard work and commitment enabled us to continue to deliver an improved safety performance and sustain our operations with a high level of efficiency during the second quarter. We continue to focus on improving our safety performance, which currently stands at a 1.7 recordable injury rate for the last 12 months. I'm extremely proud of our team for this accomplishment and their focus on continuous improvement in both safety and operating efficiency that has come to define LSB's corporate culture over the last several years. While the work never stops to reach our safety goal of zero and our targeted long-term ammonia onstream rates of 96%, we are well on our way. Slide 3 summarizes the main takeaways for our second quarter. In short, while pricing on the agricultural side of our business was not cooperative, and as anticipated, demand for our industrial and mining products weakened due to the impacts of COVID-19, we did a good job of focusing on the aspects of our business within our control, particularly with respect to the performance of our manufacturing facilities, rationalizing our operating costs and maximizing our product balance. In fact, had pricing been in line with the second quarter of 2019, which wasn’t robust itself, and industrial demand been consistent with the pre-pandemic levels of just over 4 months ago, it would have resulted in an adjusted EBITDA that was approximately 10% higher than the second quarter of last year. This demonstrates the improvements that we are making in the business that will allow us to capitalize on the return of industrial demand to pre-pandemic levels and on improvements in nitrogen prices. Cheryl will provide more detail around this analysis later in the call. We were particularly pleased with our 6% year-over-year increase in total agricultural sales volumes for the quarter. This was driven by an 18% year-over-year increase in total UAN sales for the quarter, with our Pryor facility achieving record urea and UAN production for the quarter. The improvement at our Pryor facility was the direct result of the installation of the new urea reactor and other work that was performed on that plant during the 2019 fourth quarter. We also had strong HDAN sales for the second quarter. Looking at the performance of our 3 facilities collectively, we remain on track to exceed our 2019 production and sales volumes for the full year of 2020, which would result in record ammonia and certain other downstream production records. Unfortunately, as I mentioned earlier, selling prices for our agricultural products were significantly lower in the second quarter compared to the same period last year and also declined relative to the first quarter of this year. The weakness was a function of continued excess ammonia inventory carried over from 2019, along with the closure of the Magellan pipeline last fall, which continues to disrupt ammonia movement, particularly in the Southern Plains market around our Pryor facility. UAN prices also weakened as we experienced a year-over-year increase in imports and a year-over-year decrease in exports, resulting in more supply of product available to meet U.S. demand. Lower overall fertilizer prices also reflect the decline in corn prices over the course of 2020, which I'll discuss in more detail shortly. As you know, natural gas is the primary raw material for most of our products. So the lower year-over-year natural gas cost we experienced was a positive for our gross margins. It's worth pointing out, however, that the very low natural gas costs can be a double-edged sword. While we reap the benefit of the lower cost to produce our products, gas costs at the levels we've seen worldwide for the past two quarters tend to allow marginal nitrogen chemical producers around the world to operate their manufacturing operations, leading to higher product supply, which puts pressure on product sales prices, which was another contributing factor to the fertilizer price weakness we experienced in the second quarter. So low natural gas prices are good for our cost of manufacturing, but at some level, the cost benefit is more than offset by a deterioration of product selling prices. On Slide 4, we discuss the actions we have been taking to protect our team from COVID-19. Since the pandemic hit in March, we have been strongly committed to doing everything we can to keep our employees, contractors, vendors, and customers safe and healthy. As the virus has spread more significantly into the states where our facilities are located, we've doubled down on the measures we've put in place. We've continued with strict protocols at all our facilities, including mandatory masks, social distancing, and regular health monitoring for our personnel, extra cleaning and disinfecting of equipment and workspaces, working from home for employees not necessary to be on-site at our plants, adjustments to the manner in which our personnel interact with delivery drivers and restrictions in guidelines around travel, among other measures. These procedures have proven very effective as, to date, we have had no known cases of COVID-19 among our workforce. With no insight as to when we will see an end to this crisis, we will continue doing what we have been doing and continue to review and enhance our contingency plans so that we are prepared for changes as the pandemic continues to evolve. Slide 5 provides an update on the state of our end markets and how demand trends have evolved as various aspects of the economy have reopened since our last earnings call in early May. On the agricultural side of our business, the spring planting season unfolded much as we expected it to. USDA estimates for the 2020 planting season now indicate that approximately 92 million acres of corn were planted in the U.S. While this was below their initial forecast of 97 million acres, which we and most industry participants viewed as aggressive, it still represents a 3% increase compared to 2019. This increase supported a solid rise in demand for fertilizers, although, as they indicated previously, it was not enough to boost product selling prices. Throughout this past spring, as U.S. citizens sheltered-in-place under stay-at-home orders and most aspects of the U.S. economy were shut down, automotive usage across the nation dropped dramatically, which significantly reduced the consumption of gasoline. This is important as the production of ethanol, a gasoline additive, accounts for approximately 40% of total U.S. corn demand. So lower gasoline consumption has led to reduced ethanol demand, which has a significant impact on corn demand, expected corn inventories, and corn pricing. Since hitting a 2020 low point in April, ethanol production has rebounded sharply, returning to near pre-pandemic levels as various aspects of the economy have reopened. While the disruption to the corn market has already been realized and may continue to be felt into 2021 due to expected elevated corn stocks, the ethanol market situation turned out to be better than we had initially anticipated. With respect to our industrial and mining markets, we experienced the drop in demand that we had anticipated for several of our products that are used by industries hard-hit by the pandemic. After halting production in mid-March, the auto industry, which is a major consumer of nitric acid, reactivated their assembly lines during the second half of May. This coincided with a rebound in U.S. light vehicle sales, and while not back to pre-pandemic levels, it is a favorable indicator for nitric acid demand. The home building sector is also a sizable end market for nitric acid. Since bottoming out in April, key indicators of new home construction and demand for new homes have been making steady recovery. Considering these favorable trends and to the extent to which U.S. economic activity continues to gradually increase in the coming months, we are cautiously optimistic that we will see some sequential improvement in our industrial volumes in the third quarter. I'll hand the call over to Cheryl momentarily. But first, I'd like to provide a brief update on the litigation that we've brought against Leidos, the general contractor of our El Dorado ammonia plant expansion project that spanned from 2013 to 2016, in which we incurred substantial cost overruns. We continue to seek more than $100 million in damages as compensation for Leidos' wrongdoing, which involved breach of contract, fraud, gross negligence, professional negligence, and negligence. As we indicated in our call back in May, due to the onset of COVID-19 and the related court closures, the start of the trial was delayed from April until late September. As of today, due to the ongoing pandemic, the trial has been delayed again. We are awaiting a new trial date, and we look forward to having our case heard by a jury. While we can't guarantee any outcome in litigation, we believe our case has serious merits. We will continue to provide updates as appropriate. Now Cheryl will go into more detail about our Q2 financial results.

Thanks, Mark, and good morning. Page 7 bridges our adjusted EBITDA for Q2 2020 of $29.2 million to adjusted EBITDA for Q2 2019 of $32 million. The year-over-year decline is the result of lower selling prices, particularly in our agricultural market. As Mark stated, persistent elevated inventory levels for ammonia combined with increased imports and decreased exports of UAN over the last 12 months have continued to weigh on pricing. Sales volumes for our industrial and mining products decreased year-over-year, largely due to the weaker demand as a result of COVID-19 impacts on our end market. Overall, the impact to EBITDA from COVID-19 related lost volume was approximately $3.5 million for the second quarter and approximately $5 million for the first six months. From a volume perspective, we were able to offset some of this lost industrial and mining sales volume with higher production and sales of agricultural products, primarily UAN, as a result of record production from our Pryor facility. Additionally, these declines were partially offset by favorable natural gas costs, which averaged approximately 25% below the second quarter of 2019. Furthermore, in the second quarter of 2020, we recognized $5.7 million of settlements from vendors to recover certain expenses associated with the start-up and operation of our new nitric acid plant constructed in our El Dorado facility in 2016, where the negative impact to our EBITDA was previously recorded. Lastly, we continue to closely monitor expenses and eliminate or defer spending where possible. And as such, plant costs were approximately $1.2 million lower than the same period last year. As Mark stated earlier, our second quarter operating performance was obscured by the depressed demand for our industrial and mining products as a result of the pandemic, coupled with the very low pricing environment for agricultural products. Page eight is intended to illustrate the improvements we are making in our business. For comparative purposes, we have normalized for both selling prices and natural gas prices to match those we experienced in 2019 and also added back lower sales volumes from lower demand, directly resulting from the COVID-19 economic slowdown. This allows us to view the operational improvement in our underlying business. With these adjustments, adjusted EBITDA would have been $34.9 million in the second quarter of 2020, almost 10% higher than 2019 second quarter adjusted EBITDA. We believe that this illustrates the improvements in our business from the many initiatives that we have completed over the last several years. Also keep in mind that selling prices in 2019 were not what we would consider to be robust. Turning to Page nine, we have outlined gross profit margins for each of our market segments, which represent the true underlying cash margins of each of our businesses. As you can see from this slide, our industrial and mining margins remain robust, averaging approximately 40%, as we've been able to offset lower selling prices with lower natural gas costs, lower fixed costs, and higher production volumes. Although ag margins have been impacted by the very low selling prices we experienced primarily for UAN and ammonia, we would expect mid-30% EBITDA margins in a more normalized mid-cycle pricing environment. Given the future uncertainty around COVID-19 and the likelihood of continued ag pricing weakness, we have taken a number of actions to preserve liquidity, which are summarized on Page 10. We ended the quarter with approximately $69 million of liquidity, and we continue to closely monitor all non-essential spending until further notice. In April, we received a $10 million PPP loan under the CARES Act. The loan has allowed us to avoid laying off or furloughing any employees, and we are maintaining our full employee base and keeping our plants fully operational during the pandemic. Additionally, we have been exploring the sale of certain non-core assets that could generate additional cash after the repayment of debt of approximately $20 million to $25 million. That process has been put on hold due to the pandemic. However, we intend to resume exploring the sale of those assets when market conditions become more favorable. Lastly, we have additional levers to pull, such as the refinance of existing equipment loans that would add additional liquidity. We remain acutely focused on managing the downside risk to our business and maintaining adequate liquidity to operate through a protracted period of market headwinds. Hopefully, this will not be the case, but we believe it could be prudent to plan as if it will. One final note on liquidity. As we move into the second half of 2020, our outlook for sustained low pricing for agricultural products as well as natural gas has implications for working capital, and therefore, the availability on our revolver. Lower selling prices lead to lower receivables, and low natural gas costs mean our cost of inventory is lower. Both factors lead to a lower borrowing base. However, since natural gas is a major input to our production cost, our overall working capital requirements are lower and, therefore, our overall liquidity needs to manage the business are also lower. So at $69 million of liquidity at the end of June, we remain very comfortable heading into the second half of the year. Page 11 outlines our capital structure at the end of Q2. We are actively seeking ways to improve our capital structure and lower our overall cost of capital. We believe that continued improvement in operating performance, combined economic recovery from the COVID-19 pandemic, and improved pricing for our products, will be beneficial in achieving those efforts. Today, our senior notes are callable at 107%. And in May of 2021, the call premium declines to 103.6%. In the near term, we remain focused on preserving liquidity and managing through the pandemic. However, we see several avenues to lowering our cost of capital and continue to work with our Board of Directors on a path forward. With respect to the pricing environment for the third quarter, please turn to Page 12. As you can see from this slide, UAN, HDAN, and Tampa ammonia are expected to remain materially lower compared to 2019 as a result of increased supply from the variety of factors discussed earlier. However, we do expect to offset a portion of the lower selling price with favorable gas dynamics. From a volume perspective, we expect continued pressure on demand related to COVID-19, although to a lesser extent than what we experienced in the second quarter. That being said, we would expect lost volume associated with COVID-19 to impact third quarter EBITDA by between $2 million and $3 million. On a positive note, though, we expect continued increased ammonia, UAN, and sulfuric acid production and sales as a result of the reliability investments made in 2019 and from no planned turnaround work in the quarter. And so to sum up our view for the third quarter, despite the much lower selling price environment, we expect higher production and sales, combined with lower costs, to drive a 15% to 20% improvement in EBITDA compared to the third quarter of 2019. And now I'll turn it back over to Mark to wrap up.

Thank you, Cheryl. Between the pandemic crisis and the record rainfalls in the Midwest throughout 2019, the past six quarters have held their share of challenges for our industry and our company. While these significant obstacles are outside of our control, what we have been successfully managing and will continue to manage are the aspects of our business that we can control. These include our safety performance, our manufacturing operations, sales of our products, our business development initiatives, and our costs. With respect to our plant operations, we expect to deliver another year of improved onstream rates across our facilities for 2020 that would result in record annual production for many of our products. This success reflects the combination of the hard work and discipline of our teams to implement enhanced processes and procedures at our facilities, coupled with the investments we've made in reliability over the past several years. Beyond the increased sales volumes we expect to generate from further improvement in our plant operating and daily production rates, we have secured and are actively pursuing business development and margin enhancement opportunities that, when combined with several cost reduction initiatives, we believe will yield $10 million to $15 million of annual incremental EBITDA when fully implemented. We should see these opportunities and initiatives begin to yield results starting in early 2021. None of these improvements are reliant on increased selling prices for our products and are, of course, in addition to the lost EBITDA from the impact of COVID-19 that we expect to recover. We've discussed several of these opportunities on previous calls, such as our intensified sales and marketing efforts aimed at selling out our higher expected production volumes. During the first quarter, we secured two new contracts with the sale of LDAN, both beginning in the second quarter. And although currently impacted by COVID-19, when fully implemented, should represent between 40,000 and 50,000 tons of new volume. We also executed a new contract to sell approximately 100,000 tons per year of CO2 out of our El Dorado facility, where our customer is building a gas plant. We expect to begin sales under this agreement in the fourth quarter of 2021. In addition to these contracts, we have several other dialogues underway regarding potential long-term supply agreements that we are excited about. As we discussed on our Q1 call in April, we completed a key storage project that will allow us to further maximize our production of high-density ammonium nitrate at our El Dorado facility, which we expect to enable us to achieve higher production, a lower cost per ton, and increased sales of that product throughout the year, particularly during periods of more attractive pricing. We're very excited about the expected returns on this investment and have identified several other similar opportunities we expect to address over the next several quarters that would enhance both production and sales volumes and lead to an increase in our margins. Also included in our plan to bolster our profitability, regardless of the product pricing environment, are identified fixed cost reduction actions that we believe will result in approximately $5 million in annual savings. So to sum it up, we see a clear path to an additional $15 million to $20 million of incremental EBITDA by continuing to focus on what is within our control. The goal is to implement these actions over the next twelve months. With all of that said, while we are constantly focused on improving our EBITDA and cash flow and maximizing value for our shareholders, our number one priority remains the health and safety of our employees, their families, friends, coworkers, and everyone in our communities. The pandemic continues on, and while every day we learn of the accelerating spread of the virus in certain areas of the country and the world, we also learn of progress and hope in the battle to control COVID-19. In the midst of all of this, the U.S. economy carries on, albeit hampered in many sectors, but also strongly rebounding in others. The products we make are an important part of that economy, and we believe that along with our strong operating performance, evidenced by our solid financial performance in the second quarter in the face of a historically challenging environment, this performance makes us more confident than ever in our ability to deliver year-over-year improvement in EBITDA and cash flow for the full year of 2020. With the various actions we are taking, we are well positioned to continue that improvement in 2021. Our goal is continuous improvement so that we can emerge from the pandemic a more efficient company and capitalize on the opportunities to grow our business that we expect will present themselves. Before I pass the call back to the operator to begin the Q&A session, I'd like to mention that we will be participating in the Jefferies Virtual Industrials Conference on August 5th and 6th. We hope to speak with some of you over the course of that event. That concludes our prepared remarks, and we will now be happy to take your questions. Thank you.

Our first question is from Travis Edwards with Goldman Sachs.

Thanks for all the color on the quarter. It's great to see the progress on operations in the plants. Just had a question, kind of on that front. One, historically, you had shared the onstream rates by plant. I was wondering if you would be interested or willing to give that commentary or color now. And then secondly, just as you've talked about deferring some of the nonessential cost to later this year, I was just wondering if that changes anything as far as the turnaround schedule going forward into next year?

Travis, thanks for the interest. It's Mark Behrman. So operating performance across the plants, the ammonia onstream rate was about 90% for the quarter. As you know, downtime or unexpected downtime doesn't come ratably throughout the year; usually, you get it in kind of a spurt, and then you have a great run going forward. So we're still focused on the 94% onstream rate for the year, and we think that's very achievable. As far as turnaround schedule, no, we have no plans to change any of the turnaround schedules. We don't have any turnarounds planned for this year. However, we do have two planned for next year.

You talked a little bit about the capital structure, which I know tends to come up on those calls. But with the call price stepping down next year, just wondering, again, you don't have to necessarily give specifics, but as you think about addressing that capital structure, reducing finance costs, dealing with those preferred shares, are you thinking about potential refinancing from the perspective of we want to hit a certain run rate EBITDA before we come to market? Obviously, you're dependent on market conditions and whether higher markets are open. But more just wondering, what kind of conversations are you having internally, what you're hearing from preferred shareholders, bondholders about addressing both the 9.625% notes and the preferred notes?

Well, I certainly don't like the 9.625% interest rate on our notes, and I don't like our credit rating. So we are very focused on ultimately improving the cost of our debt. Part of that will be improving the credit rating and becoming a single B credit. And so one of the things we're really focused on, as I said earlier in my prepared comments, is the things that we can control to really drive improvement in the business, and obviously, that translates to a bit of financial performance. So with some of the efforts that I outlined, we're really focused on a target of $100 million in annual EBITDA, irrespective of an improvement in price. So part of us addressing our capital structure is clearly to refinance the notes. I believe if we continue to operate well and become more efficient, that certainly would be prudent, subject to credit market conditions, to refinance the notes sometime next year.

Got it. Maybe a quick follow-up. I'll just sneak one more. On that note, regarding getting the single B rating, are you receiving any indications from the agencies as far as any of these metrics? Obviously, we have access to their reports, too, but I was just curious if those conversations are ongoing, or how frequent your conversations with the agency are in talks to get to that single B rating?

Yes. I can't comment on what the agencies' thoughts are or aren't. I think agencies are never definitive, nor do I expect them to be. As markets change in both credit markets and agricultural and industrial markets, their thoughts and feelings change. But we've had a pretty proactive relationship with both Moody's and S&P. We either meet with them or talk to them every quarter. And so I think they understand our metrics and where we're going, and we'll continue to have these conversations. They're aware that we're improving our business, and that should lead to an improvement in credit rating.

Got it. I really appreciate the time. Thanks, guys. I'll back in queue.

Our next question is from Joe Mondillo with Sidoti & Company.

Good morning, Mark and Cheryl.

Good morning, Joe.

So the last handful of fertilizer application seasons have been really weak. And I know this year started off on a slow start, but now that we're sort of through the whole season, I'm wondering how you would describe the spring season?

Yes. I think we actually had a really good spring fertilizer season. Demand was up, obviously, with more acreage planted this year versus last year. So I think the demand was there. But as we mentioned, pricing, unfortunately, wasn't what we had anticipated.

And when we look towards the end of the year, the USDA estimates, even though they brought down the planted acreage estimate, the stock-to-use ratio is still expected to be multi-decade highs, which I think is one of the reasons why corn prices are so low and maybe indirectly why fertilizer prices are low as well. Just curious on your general thoughts regarding demand and application season later this fall and maybe going into next year?

I think you're correct. We will have quite high corn stocks. I'm not sure if they are record levels, but they are definitely among the highest we've seen in the last decade. This will likely affect corn pricing, which in turn impacts fertilizer prices. The price of corn will influence the number of acres that get planted, which could lead to some shifts from corn to beans based on bean prices. That remains uncertain. We were initially concerned about the return of ethanol demand, but as we've noted, it has rebounded quite strongly. Many people are planning vacations this year, which means more driving and less flying. I'm looking forward to seeing the gasoline usage at the end of summer and into the fall, and whether it increases from last year due to more driving. I believe we will at least match last year's planted acreage and may see a slight increase, but I don't expect it to be a strong year for corn planting next spring.

Okay, and any thoughts on the U.S. dollar? It's made a pretty drastic move over the last several months. And how that affects the overall industry as far as corn? I guess, maybe even more directly as far as fertilizer imports, just wondering what your thoughts are and how significant that could probably be a positive?

Yes, I think you're right. What's going to drive imports more is just pricing here in the U.S. and North America. We're seeing some of the lowest pricing throughout the world for fertilizer products here in the States. I think we've seen some pullback, certainly with imports. I mean, this summer, we had an earlier-than-expected field program for UAN, starting about a month earlier than we would normally see. The pricing was fairly low. I don't think it makes it very attractive for imports to come into the U.S. At some point, if you don't get imports into the U.S. to a certain date, say, kind of mid-October, then the prospects of imports really turn off, and you don't have imports coming in until sometime in the early spring. So I think more than the dollar exchange rate or anything like that, it's just the dynamics of where pricing is. I think we are seeing some less imports, particularly with UAN. We're also seeing some less imports with ammonium nitrate as well.

Okay, and then I wanted to follow up regarding the question that was asked before me on the onstream rates. I was going back to what you did second quarter of last year. I think it was around 94% compared to the 90% you did here. You mentioned in the press release that Pryor, I think, was at a record high. I assume maybe El Dorado and Cherokee didn't run as well as last year. Just curious how the quarter went in terms of onstream rates at maybe specifically, Cherokee and El Dorado, and how you're thinking in the third quarter going forward?

Yes. I'm not going to comment on which plant ran well or not well. I mean, I think we've tended to report an average onstream rate across the plants. The one thing I'll say about onstream rates and even production is, as I think I said earlier, you don't get unplanned downtime that happens ratably every month, right? Reporting on a quarterly basis tends to skew things. You really need to think about on an annual basis because you can have some downtime that affects a quarter and then you run really well for two quarters higher than any targeted rate. The average tends to be where your overall target is for the year. So far, we're running well. This quarter, we would anticipate nothing different, and so we anticipate having a really good high onstream and high production and hope to be able to report that for our third quarter.

Okay. And then regarding your preferred equity holders, I haven't asked this question in at least over a year. I'm just wondering about the accruals of the dividends, what is the relationship there or the ability to continue doing that?

Well, we have the opportunity to either pay cash or pay in kind. Until we start to have some significant excess cash flow, we'll wind up paying in kind on the dividend. But as we start to get EBITDA up to $100 million or higher than that, my expectation would be to start paying that dividend in cash.

And is there a threshold, is there something in writing or in terms of the level of EBITDA, where you have to be more disciplined on paying that? Or is it just in kind?

No. I mean, I think that's an option that we have. We have the ability in our bond indenture to use any excess liquidity over $65 million to repay either bonds and/or preferred. I would just encourage you to go through and look at the details of our indenture if you want more detail.

Okay. Last question. The non-core asset sales, can you remind us what that is, and what you're thinking on timing of that is?

Well, I think the timing is kind of unknown, right? I think, as Cheryl said, we are ready when we think the market's attractive for us to sell an asset, and the asset is a natural gas pipeline that we own down at our El Dorado, Arkansas facility.

Our next question is from JP Geygan with Global Value Investment Corp.

You've done a very nice job controlling costs, both from a cost of sales perspective, which shows on your robust adjusted gross margins in a difficult environment, but also from an SG&A perspective. Your press release makes the statement that there are significant opportunities to further enhance operational efficiency. Can you put some more color around that?

Sure. I talked about, with some of the initiatives that we have, whether they're business development initiatives, operating initiatives or even cost-saving initiatives, that we've identified about, through those initiatives, an incremental $15 million to $20 million of annual EBITDA. They would be a combination of business development opportunities, like the new storage facility or dome that we built for high-density ammonium nitrate and the ability to position products and run higher production. We've also talked about CO2 sales out of El Dorado. To date, we do not sell CO2; we actually vent it. It's a product that we sell at our other two plants. Through really good efforts from our industrial sales and marketing folks, we've secured a 20-year agreement with a customer where they build the gas plant, and they'll buy about 100,000 tons of CO2 out of that facility. Better onstream rates are going to give us more production and better absorption of costs. And then, as we mentioned, we've got some fixed cost savings identified that we think can be anywhere from $46 million, $47 million of annual savings. So kind of going through all of those, we're really focused on achieving that $15 million to $20 million of incremental EBITDA from those initiatives. When you add the COVID impact back to that, which we wouldn't expect to see once the pandemic is either over or less and the economy gets back to some level of normalcy, the real focus is getting to $100 million of EBITDA without any pricing improvement from where we are today. The pricing improvement, obviously, will be just on top of that.

You've done a good job putting some numbers around your margin enhancement projects in terms of earnings with the $15 million to $20 million range. I think we understand the timing of those projects and when we would expect to see the results come through to EBITDA. But can you talk a bit about how your working capital situation might develop, particularly as you look at storage projects like this HDAN storage dome, where you presumably make a product or build inventory throughout the year with the intent of selling it in season?

JP, is the question does it, will it require any additional working capital?

Essentially. And can you give us an idea for how much or how that fluctuates throughout the year?

Sure, JP. I'll take that one. Yes, I mean, we generally see some higher working capital needs as we head into the fourth quarter and into the first quarter. So we're producing product in the summer months, putting it in storage, and then selling it in season. We'll see a little bit more working capital carry probably in that December, January, February time frame.

And then as you talk about bringing on new customers and developing existing customers, I'm a little curious. There's obviously some sort of capacity constraint given that you have finite production resources, and I realize that conversation is nuanced, given your ability to shift between products. But can you give us an idea of how much additional capacity you could produce?

Well, obviously, it's going to be different at each plant, right? Yes. I mean, I'm probably not in a position to say that today and be in a better position in the third quarter, on our third-quarter call after we get through some of the additional conversations that we're having.

Okay, great. Thank you for your time.

Our next question is from Brian DiRubbio with Baird.

Good morning. A couple of questions for you. The PPP loan, the $10 million. Do you have to repay that?

Our expectation is that it should be forgiven.

Okay. And when are you going to have a final determination on that?

We're working through the rules and regulations. I suspect over the course of the next six months, we should know more on that.

Okay. Got it. Additionally, regarding the non-core assets, besides the natural gas pipeline, you also have the co-generation facility at El Dorado. Is that something you might consider selling as well?

Well, that's a great question. I mean, we've looked at that, and we have spoken to several parties that focus on either acquiring or building cogen facilities on industrial sites. It's not something that we're focused on today, but if there was someone that was interested in buying the cogen facility and it made economic sense for us, I think we would consider it.

Understood. As you consider these targeted non-core asset sales, you'll definitely obtain the cash flow. However, what cap rate are the buyers using, or alternatively, what impact on EBITDA might you have to expect when offsetting those proceeds?

Yes. I think we're not in a position to talk about that.

Okay. Understood. Just two more for me. You have two turnarounds scheduled for next year. Can you remind me sort of what's been the average hit to EBITDA with those turnarounds?

Generally, from a maintenance cost perspective, probably $5 million to $6 million for each turnaround, and we generally add that back in adjusted EBITDA because a lot of our peer group, they capitalize and amortize those. That would be one of the main parts. Generally, those turnarounds take 30 to 35 days for each facility. So if you think about Pryor, that's about 675 tons of ammonia a day over 35 days, and then Cherokee runs about 515 tons of ammonia, so about 30 to 35 days of lost production.

Okay, got it. And do you have a turnaround scheduled for 2022, or is it now pushed to 2023?

Yes. We've got Cherokee and Pryor, both in turnaround in the third quarter of next year. El Dorado will be in 2022. Cherokee and El Dorado are on three-year turnaround cycles, and for Pryor, we'll make a determination after next year's turnaround.

And just Mark, maybe just more of a broader question. I know the plants are running well after a string of years when they weren't. But given the oversupplied nature of the industry right now, why run the plants full out when they're contributing to the price decline? And then it's not for you specifically. It's obviously an industry question, but just love your thoughts there.

Yes. First off, we're a pretty small player in the industry. Even if we ran our plants lower, I don't believe it has much impact in the industry. From our perspective, if you can run the plants and each incremental ton that you produce, you can make money on, then it makes sense to run the plants. That's probably the general feeling in the industry. I can't speak for others, but as long as you're making money, people are going to run at higher operating rates because once you lower your production rate and you don't produce those tons, they're lost forever; you can't make them back up.

Understood. Great. Thank you.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Mark Behrman for closing remarks.

Thank you. I appreciate your and everyone's interest in LSB Industries. I hope you see that we're making progress. If there are any follow-up calls, feel free to give us a call, and we'll be happy to answer any questions. Thanks so much.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.