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Intrepid Potash (NYSE:IPI)
Q4 2020 Earnings Call
Mar 02, 2021, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Thank you for standing by. This is the conference operator. Welcome to the Intrepid Potash, Inc., Q4 and year-end 2020 results conference call. [Operator instructions] I would now like to turn the conference over to Matt Preston, vice president of finance.

Please go ahead.

Matt Preston -- Vice President of Finance

Thanks, Therese, and good morning, everyone. Thanks for joining us to discuss Intrepid's fourth-quarter 2020 results. With me on the call today is Intrepid's co-founder, executive chairman, president and CEO, Bob Jornayvaz. Also available to answer questions during the Q&A session following our prepared remarks will be our chief operating officer, Brian Stone, and our vice president of sales and marketing, Zachry Adams.

Please be advised that our remarks today, including answers to your questions, include forward-looking statements as defined by U.S. securities laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated. These statements are based on the information available to us today, and we assume no obligation to update them.

These risks and uncertainties are described in our periodic reports filed with the SEC, which are incorporated here by reference. During today's call, we will refer to certain non-GAAP financial and operational measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in yesterday's press release. Our SEC filings and press releases are available on our website at intrepidpotash.com.

I'll now turn the call over to Bob.

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

Thank you, Matt, and good morning, everyone. Solid cash flow and EBITDA highlighted our fourth quarter and put a positive end on a unique year. The encouraging trends we saw emerging in the fourth quarter are continuing into spring as commodity markets show strength across both our fertilizer and oilfield segments. The last couple of months, we have seen gradual yet sustained improvements in our ability to combat the COVID-19 pandemic, we are optimistic that the good news will continue as cities begin to relax restrictions now that significant portions of our most vulnerable populations are protected.

We wish the world well. Our nutrient business ended the year with significant momentum and hasn't slowed down in the first quarter. We called the bottom in the potash market on our November earnings call and recent pricing and demand has exceeded our expectations. We announced another potash price increase in February, up $50 per ton, increasing our posted potash prices $140 per ton above summer fill levels.

Trio has also seen strong demand and has currently posted $60 per ton higher than the summer fill values. Customers have been eager to secure product as prices continue to move up and have locked in some volumes through second quarter with additional spot buying occurring throughout the spring and farmers who are eager to replenish nutrients at today's crop prices. Strong commodity pricing in soybeans, corn, wheat, palm oil, sugar, cotton and bottoms in the cocoa market in the coffee market, all in strength to a continuing global demand. During the fourth quarter, we continue to position ourselves to capitalize on the return of the oilfield demand in the Delaware Basin, leading ESG initiatives with a clear emphasis on full cycle water management.

Full cycle water management means minimizing traditional source water use and produced water disposal with environmentally friendly treated produced water recycling. With environmental and sustainability goals, front and center for so many oil and gas management teams, regulatory bodies and governments, the need for responsible and innovative use and reuse of water is the key to capturing the full potential of the Delaware Basin. Intrepid is uniquely positioned with its variety of assets and water rights in Southeast New Mexico, to become a leader in the space, touching every aspect of the market from fresh and brine water delivery to recycled and produced water handling and disposal. We are in the early stages of construction of a produced water disposal system adjacent to our South Ranch and should have our first produced water well drilled in the first half of this year.

As we finalize our capital plans, we are also working on minimum volume commitments with operators that will provide a solid base of demand to support our investments. We expect to produce water well will cost approximately $2 million and will complete incremental capital for the surface facility at the appropriate time. Total capital for our first well and surface facilities is estimated at $7 million. We expect additional wells can be added as demand and volume commitments require at a cost of approximately $2 million each.

In addition to produced water, we're investing in recycling infrastructure and expanding our capabilities to deliver the services and products necessary to operate in an increasingly ES&G focused environment. We are currently in talks with multiple companies about partnering in new and exciting areas of oilfield and full cycle water management business that will leverage our unique position and inherent optionality of our Intrepid freshwater and brine water assets across the Northern Delaware Basin. The Northern Delaware is full of long-term-focused, well capitalized operators, and we are seeing many of these operators revisit their expectations for 2021 as oil prices have improved significantly in recent months. Frac demand is increasing and source water demands per completion are higher than ever.

During the first quarter, we sourced water from third parties had positive margins to supplement our own water rights and existing infrastructure to meet the increasing volume requirements of operators. Our strong relationships with those operators and our ability to meet significant refresh rights sets us apart from many other source water providers in the Delaware Basin. The next few quarters are pivotal for Intrepid, as we will execute on our strategy to expand our oil and gas midstream business in the Delaware Basin and tap into the significant opportunity that full cycle water management offers. Proper water management and the ability to provide operators with a single source capable of meeting both their operating and ESG goals will be essential in unlocking the potential value of this business over the coming months.

And now, I'll turn the call over to Matt for a review of the financial results and outlook.

Matt Preston -- Vice President of Finance

Thanks, Bob. Our fourth quarter was highlighted by strong improvements in earnings and EBITDA compared to the third quarter as good fertilizer fundamentals and an improving oilfield outlook drove increased gross margin across all our business segments. We recorded fourth quarter adjusted EBITDA of $9.7 million, an increase of over $8 million compared to the third quarter of 2020. As Bob noted, the potash market really took off in the fourth quarter with three announced price increases, good weather across the country and rising commodity prices.

Customers look to replenish potash inventories after a strong fall application season that was evidenced by the 78,000 tons of potash sold in the quarter up significantly from the prior year. Looking toward 2021, we still expect first half potash volumes to exceed prior year by about 5% to 10% despite the large volumes in the fourth quarter. Average net realized sales price will continue to increase into the second quarter as we've layered in ag sales at varying price levels throughout the spring. We have fully realized the fourth quarter price increases in our second quarter volumes and expect some additional spot tons at our current pricing.

All said, we expect our net realized pricing to increase from $248 per ton in the fourth quarter of 2020 to 300 to $310 per ton for the second quarter of 2021, with the first-quarter net realized sales price about halfway between the two. Going forward, we continue to focus significant effort on expanding our specialty potash sales, specifically into the premium armory and feed markets, areas where we saw significant growth in 2020. For the trio segment, our domestic market saw great early season demand in the fourth quarter as we continue to grow sales in key markets throughout the U.S., total fourth quarter sales volumes were down slightly compared to last year. Due to large international sales in the fourth quarter of 2019.

Our posted price is now up $60 per ton compared to the summer fill levels, and we are seeing good subscription at current pricing into the spring. We expect our net realized sales price will increase to approximately 220 to $230 per ton in the first quarter and 230 to $240 per ton in the second quarter of 2021. The oilfield segment improved significantly over Q3 as water sales increased from our higher-margin sources and contracts, benefiting the bottom line. Total water sales, including byproducts, were $5.8 million in Q4 an increase of $2.2 million compared to the third quarter of 2020.

Operators are adding more crews than they expected just a few months ago and commodity pricing is clearly supportive of the world-class reserves in the Northern Delaware Basin. Our debt position is unchanged since the third quarter with $55 million outstanding, of which $10 million relates to the PPP loan. Our forgiveness application is being reviewed by the SBA with our 90-day review period ending in April. Availability under our credit facility was $20 million at year-end.

Cash flow from operations was $12.7 million in the fourth quarter and $31 million for the full year. 2020 capital investment ended the year at $16.4 million. We estimate 2021 capital investment of 25 to 35 million, of which 12 to 15 million will be sustaining capital with the remainder as potential opportunity capital projects. We have significant discretion over our opportunity capital investments in 2021, and we may adjust our investment plans as our expectations for 2021 change.

With a strong early start to the spring season, our cash position today is $28 million with no change in our outstanding debt from year-end. That concludes our prepared remarks for today. Operator, we're ready to take questions.

Questions & Answers:


Operator

[Operator instructions] The first question comes from Joel Jackson with BMO Capital Markets. Please go ahead.

Bria Murphy -- BMO Capital Markets -- Analyst

Bria Murphy on for Joel. Thanks for taking my question. How much spring potash demand in the U.S. was pulled forward to the fall, good growth by earlier than usual? And how much does that lead -- or how does that lead the channel for potash inventory currently?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

No, I'll let Zach give you a little more color on that. But what we're seeing is a very diverse market because all crops are up. So, if we look across our entire distribution chain across the entire United States, we're seeing pretty low inventories. So, one of the great things about having strong commodity prices across the board means that the potato growers are buying as much product as the cotton growers in the delta of Mississippi.

And so, when you have that kind of across the board, commodity price strength, you see drawdown throughout the country. The other good news is we're not seeing the level of imports from the European countries. So, I think that we're extremely well positioned to see 2021 from an entirety standpoint. Be a very solid year.

I'll let Zach lend some color to that.

Zach Adams -- Executive Director

Yeah. Thanks, Bob. Yeah, I think we saw the inventories to close 2020 on the field be very low out there just based on the historical fall application season. But even with that said, we're really expecting a continued really strong spring application just due to the -- as Bob mentioned, the strength in the commodity values out there.

And through the first quarter, so far, we've seen the realization of that. We think that will continue with a strong spring well into April and May.

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

Does that answer your question?

Bria Murphy -- BMO Capital Markets -- Analyst

Yeah. That's helpful. And then, just turning to water, how should we think about the trajectory of water sales in 2021 versus, I guess, 2019 levels?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

We're definitely going to sell a lot more water in 2021 than we did in 2020. I don't know how much you follow Department of Interior policy, New Mexico State Land Office policy. One of the benefits that Intrepid has is we also, on top of our freshwater rights on very significant non-potable water rights as well. So, we have a unique ability to mix to -- as we mentioned earlier, service the water market on a full cycle basis, which means taking some freshwater, some brine water, also taking produced water and recycling it and reselling the recycling water, and so our full hope is in the next 30 to 45 days is to have an investor day where we really walk through the infrastructure that is under construction.

Beyond the fly recycling that we're doing, the disposal projects that we have under way and give a much fuller, robust picture of everything that Intrepid has been working on during the 2020 COVID season.

Bria Murphy -- BMO Capital Markets -- Analyst

OK. Great. And then, just the last one from me. Can you talk about your margin outlook for Trio in 2021, just given the few quarters of negative margin now?

Matt Preston -- Vice President of Finance

Sure. As I mentioned on the price, we don't see the -- we hadn't seen the domestic price really in our results in Q4 for a variety of reasons, our mix of international versus domestic and expect that to really rebound in Q1 and Q2 as we realize that full $60 up, as far as on the cost of goods sold side, I think we've been pretty steady state here for a while now. And so, certainly, the nice part about our business with pretty low royalty rates compared to competitors on the potash side. About 95% of those increased prices fall to the bottom line.

So, we expect improvements going forward into 2021.

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

Yeah. I would also add on the last potash price increase. We did not take a Trio price increase. And so, I think the market is well positioned for additional upside potential in the Trio market as well.

So, I think we'll just continue to see very continued improvements, don't forget, we've also got capacity opportunities at our plant as well. So, we're just seeing the overall market for Trio improved pretty dramatically.

Bria Murphy -- BMO Capital Markets -- Analyst

Thank you.

Operator

The next question comes from Mark Connelly with Stephens. Please go ahead.

Mark Connelly -- Stephens Inc. -- Analyst

Thanks. Yeah.I wondered, Bob, if you could just give us a little more of a sense of the pace of development. Are there bottlenecks in what you can get done quickly as this ramp comes? Obviously, there's so much uncertainty in terms of how quickly things are ramping back up, but now it seems to be coming very fast. And I'm just wondering, are you finding yourself racing to catch up now? Or are you a little bit ahead? And is there -- not just yourselves, but obviously, the partners that you're working with?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

I would say we're keeping up with everything. The one thing that we are seeing as people ramp up is, don't forget the levels that we're ramping up from. And so, we're still not back to 2019 levels. And as we see the ramp-up, I just can't describe the level of communication with the major partners that were supplying to.

So, there's virtually daily, if not twice daily communication around frac crews, availability, working through the current department of Interior suspension, what they will allow, what they won't allow. So, there's just a tremendous amount of collaboration between the oil companies and the service providers. So, I think we're going to be able to keep up with it just fine if we continue to collaborate in the fashion we are.

Mark Connelly -- Stephens Inc. -- Analyst

OK. But you're still sort of in a good position because the current demand is behind 2019. So, you're not racing just to catch up with where you are today?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

No. I see frac crews -- see frac crews coming on. Just continually, gradually and continually as we talk to the variety of operators that we're dealing with, we're not seeing frac crews just appear. There's a tremendous amount of planning that's going on this time.

I think that they're -- because the downturn in 2020 was so vicious, there's a lot more active participation with the operators, their bankers, their hedging programs, the timing of their hedging programs. And so, there's just an inordinate amount of collaboration to make sure that the well-funded operators that did hedge get their timing just right. So, I'm probably answering a lot more of your question. But I see very sustained, organized, thoughtful development occurring in the Northern Delaware.

Mark Connelly -- Stephens Inc. -- Analyst

That's super helpful. Just a question. Has weather affected your expectations for fertilizer production this year. I'm just wondering if what we just went through was enough to turn off track anywhere?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

The only place we got thrown off track was the freezing weather in Texas and New Mexico. We had some power outages. I'd say everywhere else that we market fertilizer products, we were just fine. I would say that it provided more of a challenge for four or five brief days in Southeast New Mexico.

In Texas, as it relates to our water business. So, that's behind us. I think everybody, when they saw the weather coming, did a good job of shutting things down. And we're seeing some of the major operators just turning things back on now, making sure everything is in total repair.

What happened in the State of Texas, in terms of the electrical grid, and Southeast New Mexico was pretty much unprecedented. So, the good news is the repair has happened, and everyone's check things out, things are working. And so, we're just slowly bringing everything back on.

Mark Connelly -- Stephens Inc. -- Analyst

OK. And then, just one quick question on Trio. You had a bigger international sale last year. Can you just talk sort of about your thoughts about where the Trio market is going versus domestic versus international? You made a lot of changes last year on where and how and size of shipments.

I'm just curious where you come out in terms of where you think the best opportunities are for that product over the next year or two?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

Well, we've got two very specific customers that we really enjoy doing business within a certain part of the world. Given we only have one competitor, I'm not going to tell you who our favorite customers are. And so, it's -- I would imagine that we'll continue to service those customers. Because they really are joy to work with.

There are other markets that we're just choosing not to be a part of until they come back and knock on our door. As you know, the last several years, we're extremely competitive. And so, we chose to exit certain markets and let other people take that business. Some of those people are coming back and knocking on our door.

And so, we're just going to reenter the global market much more thoughtfully than we did several years ago.

Mark Connelly -- Stephens Inc. -- Analyst

That's helpful. And obviously, it's not just Trio, that's struggling to get paid for nutrient value. We've seen a lot of uneven performance across the specialties.

Appreciate it. Thank you.

Operator

The next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.

Steve Haynes -- Morgan Stanley -- Analyst

Hi. This is Steve Haynes on for Vincent. Just wanted to ask a quick one on the above-average evaporation you talked about in the press release. I guess, as its kind of in regard to your expectations for cost per ton in 2021, and then also, I think there was a comment about being able to operate a bit longer in the spring.

So, any comments around your production volumes as well?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

I'll just say we had great evaporation years. As you know, we've had -- part of being in the solar evaporation business is that you're dependent upon the weather, and it is cyclical, and it creates variability. And so, there are years where we have slightly higher costs in years where increased evaporation, we're able to take advantage and achieve a higher margin because our cost structure goes down a touch. So, I'll let Matt -- Matt, if you want to add to that with some specificity?

Matt Preston -- Vice President of Finance

Yeah. No real change from our previous comments. We touched a little bit on some of the freezing weather earlier in the year. And really no impact on our potash production.

It was very cold weather, and we didn't operate for a few days, but it wasn't a major precipitation event that would impact our pond inventory. So, still above-average evaporation, we do think we'll operate a bit longer than normal just to get through the ponds. And all else equal, that will certainly help our cost per ton heading into 2021.

Steven Haynes -- Morgan Stanley -- Analyst

OK. Thank you.

Operator

The next question comes from John Roberts with UBS. Please go ahead.

John Roberts -- UBS -- Analyst

Thank you. How much does the transition to brine water increased the resources available to you?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

Is your question, how many more water rights do we have of brine? Or, I guess, I don't understand the question.

John Roberts -- UBS -- Analyst

Yeah, is brine to -- your freshwater availability or over time as you develop it? Or I don't know, I don't have a sense of the order of magnitude of how big brine is relative to fresh?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

That's a great question. We currently own about half the water rights that we do in terms of freshwater as brine, but getting an appropriation is much easier. And so, because it's non-potable, high TDS brine, it's much easier to get an appropriation and get supplemental wells approved because you don't have the protest composition of farmers that are competing or municipalities. So, the transition is -- it's just an easier transition, if that makes sense from an appropriation standpoint.

John Roberts -- UBS -- Analyst

OK. And then, adding full cycle water management, what's kind of the revenue opportunity maybe per customer barrel? Or I don't know how to measure it, but how much does it increase your addressable market by having full cycle capabilities versus what you were doing previously? And do you need to partner or acquire additional capabilities to be able to fully offer that?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

No. That's the beauty. Part of the capital that was spent in 2020 and some of the team members that we've brought on. We use 2020 as an opportunity to really, I hate to use the word upgrade, but acquire talent that came from significant oil companies with vast recycling experience.

We've already purchased a lot of the equipment necessary. We're under construction right now. We're looking at a matter of months to be up and running. From a margin standpoint, the margins are equal to, if not better, than freshwater because you can take a produce -- take a barrel of produced water and recycle it several times, which means you resell the same barrel of water multiple times.

You have a small fixed chemical cost and a small labor cost. And then, they actually are mobile units. And so, having a produced water outlet side that we're developing on the backside allows us that capacity. So, it's having the source water, the variety of geographically, the source water literally all throughout the basin in different forms, having the ability to have modular recycling and then having the disposal capacity that we're building out as we speak, as well as an interesting project that we'll be talking about in future months as well.

Operator

The next question comes from Jason Ursaner with Bumbershoot Holdings. Please go ahead.

Jason Ursaner -- Bumbershoot Holdings -- Analyst

Good afternoon. Just following up on the last answer there. I guess you mentioned that the next couple of quarters are going to be pivotal for that business. Is there anything you would point to that investors could be looking for that would either signify the success or not getting traction in that business? Or is that kind of what the investor day that you have planned would be about?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

That's exactly what it's planned for, Jason. We spent 2020 trying to get a lot of projects designed, get the right teams around them, work them through the regulatory agencies. I'll be honest, the Department of Interior suspension was just a touch of a blip. The State of New Mexico Regulatory agencies because we're helping them fulfill their legislative agenda.

I think we'll get everything accomplished that we want to. So, we really look forward to being able to share with the market, the things that we're doing and creating a lot more transparency. I think had COVID had not gone into the first quarter. Where we are.

We'd be having that investor day in this quarter, but COVID is what it is. And so, we're finding certain regulatory agencies. Court systems, legislative bodies are all still operating virtually, and it still slows things down. So, that's just a reality of life that we're dealing with.

It is improving week to week. In terms of being able to get things done either legislatively or regulatory-wise. So, I hope I'm answering your question that we know the market is really wanting a lot more transparency. And we have every intention of getting it as quickly as we can, ensuring the nature of the projects that are ongoing.

Jason Ursaner -- Bumbershoot Holdings -- Analyst

That is the answer. I guess, but is it the type of business where you'd be able to announce like customer wins or contracts? Or it's really just going to be waiting for it to start showing up in the numbers?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

It's going to be a little above. Some of the recycling, you don't necessarily need a big contract and some of the other projects that we're working on, those were all being discussed and negotiated as we speak.

Jason Ursaner -- Bumbershoot Holdings -- Analyst

OK. And then, it's been a couple of quarters, but any update on the lithium reserves or the tests that had been going on there?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

That is a great question. We've been reapproached now by a couple of company. The original company that did the testing for us. Lilac has come back with promising results.

As you know, the lithium market has been a bumpy ride. And so, we've got the appropriate personnel retargeted back on that project. It's interesting to have a lithium opportunity. And so, we're yeah.

I got to be honest. I'm not as prepared to discuss lithium today. I thank you for asking about it. But I got to be honest, off the top of my head in my prepared remarks, I just don't have the numbers with me to share.

So, I apologize.

Jason Ursaner -- Bumbershoot Holdings -- Analyst

No problem. Does the proximity, though, with the gigafactory, would that matter in the long-term viability of the reserves potentially being in terms of the cost to get it out versus some other methods?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

Well, as you know, lithium, it's all a function of to what degree do you want to process it too. And so, given where we're located, there are companies that would be interested in using our facility to process lithium from theoretically obtainable other sources that are somewhat nearby. So, lithium is all about to what degree do you process it to. So, we're still focused on that.

We understand it. I don't think we want to be a full-service lithium processing entity. We'd rather look to monetize the lithium reserves that we have, either through a royalty structure or allowing someone to take that lithium on site, combined it with lithium from other sources and continue to process it further.

Jason Ursaner -- Bumbershoot Holdings -- Analyst

OK great. Appreciate the answers. Thanks.

Operator

The next question comes from Matt Farwell with ROTH Capital. Please go ahead.

Matt Farwell -- ROTH Capital -- Analyst

Hi. Thanks for taking my question. I was wondering if on the water business, I wonder if you could make a point of clarification, just because I'm not sure if I quite caught it. I have in my notes that there's a certain amount of water resources that the company owns.

I have 13,800-acre feet or 107 million barrels. There's also a slide on this in the August 2019 presentation. I understand you may not have this data at your fingertips, but I'm wondering if the brine reserves are included or in addition to the reserves you've disclosed to the market?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

They're not included.

Matt Farwell -- ROTH Capital -- Analyst

OK. Great.

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

And quite frankly, if you follow New Mexico Policy, the State Land Office Policy, if you follow what's going on in the legislature as we speak today, there are several bills. So, we've been very adaptive to not only the ESG requirements of several companies. But we've been adaptive to what's going on with the State Land Office, the administration changes federally, as well as what's going on in the New Mexico State Legislature.

Matt Farwell -- ROTH Capital -- Analyst

OK. And I'm definitely looking forward to the investor day. I guess I'm still trying to get a peek into what you might say. So, I'll ask, is the recycling opportunity? How does -- as you see it now, how that compares to the market opportunity that's a little bit more tangible in freshwater rights and water disposal.

Is it equal or greater or perhaps earlier stage?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

I think it's greater. Quite frankly, every single oil company is trying to move toward a recycling component, but you need source water, either fresh water or brackish water, to start the flywheel. And so, despite operators' claims of very high percentages of recycled water. I'd say right now, it's in the 25 to 30%.

But we're seeing the technology that can easily take it to 50% in 2021 and grow it from there. So, we see it as first and foremost, where the regulators and the politicians want to take it so that we're not fighting battles over river water, Agawala water, etc. It enables everyone to get on the same ESG page and move it forward.

Matt Farwell -- ROTH Capital -- Analyst

OK. Great. And then, last question is obviously, with the higher prices, there's a high probability that the company generates free cash flow this year, there's the obvious improvement in financial strength in terms -- in the equity markets. Can you give us an idea of what potential uses of free cash and/or financial strength might be? Would it be repayment of debt or other initiatives?

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

I would say, first, it's to -- right now, our leverage ratio is in good shape. We don't have any real risk there. We'd like to reduce debt a little bit more. I'm the first one to admit because I'm the largest shareholder, I would love nothing more than to announce a buyback program when we're financially able to and return money to shareholders.

As we all know. Had we done that like many other oil companies in 2019, we'd have never made it through 2020. So, it's a good thing we didn't despite the urging of many people. So, I think we just got lucky on that one.

But as we do, our goal is to return funds to shareholders as quickly as we possibly can. We understand that. We hear that. I just can't stress how much we appreciate the need to do that.

If I can say it any more clearly, I will.

Matt Farwell -- ROTH Capital -- Analyst

Great. Thanks for taking my question, Bob.

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

I want to thank everyone for their interest. Go ahead.

Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Bob Jornayvaz for any closing remarks.

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

Just want to thank everyone for their time, and their interest in Intrepid. We hope that everyone stays healthy and look forward to catching up with you. So, thank you, and thank you for your interest. Have a great day.

Operator

[Operator signoff]

Duration: 41 minutes

Call participants:

Matt Preston -- Vice President of Finance

Bob Jornayvaz -- Co-Founder, Executive Chairman, President and Chief Executive Officer

Bria Murphy -- BMO Capital Markets -- Analyst

Zach Adams -- Executive Director

Mark Connelly -- Stephens Inc. -- Analyst

Steve Haynes -- Morgan Stanley -- Analyst

Steven Haynes -- Morgan Stanley -- Analyst

John Roberts -- UBS -- Analyst

Jason Ursaner -- Bumbershoot Holdings -- Analyst

Matt Farwell -- ROTH Capital -- Analyst

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