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CF Industries has signed a definitive purchase agreement with Incitec Pivot Limited (IPL) for the Australian group’s Waggaman ammonia plant in Louisiana, which has a nameplate capacity of 800,000t per year (880,000 st/year).
The US giant will purchase the complex and related assets for $1.675 billion, with the pair allocating approximately $425 million of the purchase price to a long-term ammonia offtake agreement. CF expects to fund the remaining $1.25 billion of the purchase price with cash on hand.
The arrangement comprises a 25-year ammonia supply agreement with CF for up to 200,000 st per year to support the group’s Dyno Nobel Americas (DNA) explosives business, with that volume procured at producer cost.
IPL – which invested around $850 million in the plant a decade ago – noted that means that the pricing under the offtake agreement is linked to gas-based pricing at a level commensurate with Waggaman’s cost of production.
The transaction has been unanimously approved by the boards of directors of both companies and is subject to receipt of certain regulatory approvals and other customary closing conditions.
At present, ammonia produced at the facility, which sits on the mouth of the Mississippi near New Orleans, is distributed rateably to three customers: Trammo, DNA and Cornerstone Chemical Company.
Trammo takes a third via pipeline, rail, truck and barge under a 10-year contract, with that material primarily destined for domestic agriculture and industrial chemicals markets. That said, the trader has recently loaded cargoes for export, including up to 23,400t on the Oceanic Breeze today.
It is unclear when that decade-long contract expires and if Trammo and CF Industries have any plans to renew it.
Cornerstone receives a third of the plant’s capacity via onsite pipeline under a 20-year contract, with that product primarily for specialty chemical applications.
DNA’s share of the capacity is transferred internally via pipeline to units in the same state and in Missouri, while its Cheyenne, Wyoming plant takes volume through third party swap arrangements.
In aggregate, product is sold at slight discount to the benchmark US ammonia index, the Tampa CFR settlement that is agreed monthly by Yara and Mosaic.
CF estimates that the plant will generate gross margin per ton commensurate with its existing ammonia segment prior to synergies, which it expects to capture through greater capacity utilisation and operational and logistics optimisation.
The company notes that over the last five years CF Industries’ operational capabilities have resulted in ammonia asset utilisation that is approximately 10% higher than the average utilisation rate of the company’s North American peers.
Additionally, CF anticipates implementing CCS at the site on an accelerated timeline, increasing its network’s low-carbon ammonia production capability, supporting Louisiana’s and the country’s climate goals, and earning 45Q tax credits for sequestered carbon dioxide.
“We are pleased to reach this agreement with IPL that benefits from our industry-leading ammonia production capabilities, deploys our capital efficiently and provides long-term value for both companies’ shareholders,” said Tony Will, president and CEO of CF Industries.
“We believe the Waggaman facility will fit seamlessly into our network, as well as our strategic focus on ammonia as a clean energy source, given its proximity and pipeline connection to our Donaldsonville complex, its distribution and logistics flexibility, and its favourable characteristics for the addition of carbon capture and sequestration (CCS) technologies to enable low-carbon ammonia production.”
By Richard Ewing, Head of Ammonia
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