At least parts of a complex legal dispute between Agrium Inc. and Union Oil of California over critical natural gas supplies to Agrium's Nikiski fertilizer plant heads for arbitration later this month.
The issues to be decided by an arbiter arose over the terms of the Gas Purchase and Sale Agreement (GPSA) that the two corporate giants signed when Agrium bought Unocal's fertilizer plant in September 2000.
Agrium said it anticipated Unocal would supply a certain amount of natural gas, the very life's blood of the fertilizer manufacture. But beginning in mid-2002, Agrium alleges, Unocal breached its contract by turning down the gas valve, reducing the supply to the fertilizer plant.
Arbitration over that issue is set to begin around May 24.
According to Unocal documents filed with the Securities and Exchange Commission, Agrium filed suit in mid-2002, citing Unocal's failure to meet its gas delivery obligations under the GPSA.
Furthermore, Agrium sued over environmental liabilities, specifically arguing that Unocal had misrepresented the condition of the general effluent sewer at the plant and "other environmental matters," and over the terms of an "Earn-Out" arrangement basically an agreement that required Agrium to make additional payments to Unocal for six years depending on the price of ammonia after the September 2000 sale.
In its own SEC filing, Agrium said "the liability for, and the manner of calculating" the earn-out payments were in dispute. Agrium stopped all earn-out payments in May 2002, saying they believed no amount would be payable under the earn-out arrangement "in the event Unocal fails to meet its (gas delivery) obligations." Agrium acknowledged that additional earn-out payments "may become due if we are ultimately unsuccessful in the litigation."
The earn-out payments and the environmental issues will not be part of the arbitration hearings, according to Agrium spokesperson Lisa Parker. They remain subjects of litigation.
Agrium is seeking unspecified damages for the misrepresentations and declaratory relief concerning the base price of gas under the GPSA and earn-out calculations. The company also seeks punitive damages and attorney's fees.
In a supplemental amendment to the suit filed in September 2002, however, Agrium added several claims, alleging that Unocal had breached conditions of the sale's closing, certain indemnification obligations, and that Unocal had "violated the pertinent health and safety code."
But Agrium went further still.
According to Unocal's SEC filing, Agrium also has asked for rescission of the sale of the plant a cancellation of the sales contract in addition to, or as an alternative to, monetary damages. That issue remains in litigation.
Whether the Agrium fertilizer plant remains open beyond the end of 2005 hinges directly upon securing a steady and predictable supply of gas, the company has said.
Agrium has been able to operate at a reduced level (at an average 71 percent of capacity during 2003) by purchasing gas from other suppliers. However, according to Agrium, Unocal further reduced the gas supply going to Agrium to 50 percent in November 2003, and Agrium said it now expects to operate its Nikiski plant at an average of 50 percent of capacity in 2004 and 2005.
Agrium wants an arbiter to order Unocal to supply Agrium from its gas wells at Ninilchik, Happy Valley and elsewhere to meet Unocal's obligation.
Unocal, meanwhile, has counter-sued Agrium, filing papers simultaneously with Agrium in mid-2002. For its part, Unocal is seeking a favorable ruling against Agrium's allegations and a judgment for an earn-out payment of $17 million, plus interest accrued since May 2002.
Unocal also seeks $900,000 in "reliability bonuses" due under the GPSA and reimbursement of the $5 million in excess royalties it paid to the state of Alaska. Agrium disputes any liability for the royalty payments.
Roxanne Sinz, Unocal spokesperson, said the company declined to comment.
Peninsula Clarion © 2015. All Rights Reserved. | Contact Us