Company warns investors to plan for Nikiski facility to close in October

No gas, no Agrium

Posted: Friday, August 04, 2006

 

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  Agrium's Nikiski plant uses natural gas to produce urea fertilizer and ammonia. Photo by M. Scott Moon

John A. Johnson works on equipment oat Agrium's Nikiski fertilizer plant earlier this year. Company officials on Thursday told investors the plant will shut down Oct. 31 unless Agrium can acquire additional natural gas.

Photos by M. Scott Moon

Unless a new supply of affordable natural gas is found soon, Agrium Inc.’s Kenai nitrogen operations will cease production Oct. 31.

The anticipated closure was announced for investors as a forward-looking statement in the corporation’s second quarter results, reported Thursday.

Forward-looking statements are made to advise shareholders in a publicly-traded company of expected performance in the upcoming quarter. They are made based on a set of assumptions about production, sales growth and other factors likely to affect those profits.

The report assumes the Nikiski operations will cease unless more gas is found.

Christine Gillespie, a Calgary-based investor relations manager for Agrium, said the company continues to search for natural gas contracts.

“We’d love to be able to continue to operate, but in terms of financial forecasts, we have to assume the plants will close,” Gillespie said.

Forward-looking statements are nonbinding and the report does say “future gas prices and availability at Kenai” could cause results to differ from the statements.

 

Agrium's Nikiski plant uses natural gas to produce urea fertilizer and ammonia.

Photo by M. Scott Moon

However, “we don’t have any gas today, so that has to be our assumption,” she said.

Agrium should be ready to make an official announcement about the future of the facility by the end of this month, Gillespie said.

The facility currently runs at half capacity, employing 150 workers at one of two ammonia and one of two urea plants. At full capacity, the plants employ 230.

Agrium as a whole reported $142 million in net earnings for the second quarter of 2006, up from $133 million in the same period of 2005. Net earnings for the whole year, however, were down $157 million last year to $94 million.

Gross profits companywide from nitrogen products— which include those manufactured at the corporation’s North Kenai facility — were down $50 million in the second quarter.

“The decline was mainly due to lower gas supply volume to our Kenai facility, weaker farm economics and poor weather conditions in localized market regions,” the report said.

Weather affected Agrium’s customers and its Kenai facility this year. Operations ceased for a short time during a January cold snap, when high natural gas demand by residential users didn’t leave enough for the plant and residential users.

Agrium is conducting studies to determine the feasibility of opening the Beluga Coal Mine and building a coal gasification plant to provide feedstock for future operations in a project dubbed “Blue Sky.”

Should the project go forward, however, the earliest the plants would be able to come back on line would be 2011.



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