Agrium closes purchase of Unocal business

Problems cause delays for state's vaccine orders

Posted: Tuesday, October 03, 2000

A cloud of uncertainty lifted for 290 Alaska Nitrogen Products employees Saturday when Unocal closed the sale of its agricultural products business to Agrium Inc. of Calgary, Alberta.

"The sale effort has been going on for close to two years, now," said Mike Nugent, manager of the ANP fertilizer plant in Nikiski. "For a long time, the people working here have wanted to get through the sale process and start working for a new company. It's finally happened."

Nugent said Alaska Nitrogen Products signs at the plant were to be replaced Monday or today with Agrium signs. Alaska Nitrogen Products LLC will persist until the Nikiski plant switches to Agrium business systems. Then it will dissolve, and the plant simply will be part of Agrium U.S. Inc., the company's U.S. subsidiary.

"We'll be Agrium U.S. Inc. Kenai Nitrogen Operation," Nugent said.

Agrium produces 2.8 million metric tons of ammonia, 2 million metric tons of urea and 1 million tons of other nitrogen products each year, said Jim Pendergast, Agrium director of investor relations in Calgary. It produces about a million metric tons of phosphate fertilizers and about 1.8 million metric tons of potash per year. In 1999, it reported $1.7 billion in gross revenues and $64 million in net earnings, with sales in Canada, the United States and Argentina.

That is down from net earnings of $185 million in 1997 and $121 million in 1998, Pendergast said, largely because of declines in the prices of nitrogen-based fertilizers. However, commodity prices are up this year, and Agrium profits are improving.

The Nikiski plant produces ammonia from Cook Inlet natural gas and nitrogen from the air. It combines some of the ammonia with carbon dioxide to produce urea. In 1999, it sold roughly 634,000 metric tons of ammonia and 837,000 metric tons of urea, mainly for fertilizers, to places such as Korea, Thailand, China and Southeast Asia.

Nugent said the Nikiski plant should be in a much better position with Agrium than it was with Unocal, which has been shedding sidelines to its oil and natural gas production business.

"The most important thing for people at the plant is, we'll now be part of an organization that looks on us as part of their core business," he said. "We'll feel like we're on somebody's team, where as before, we didn't always feel like we were wholly on the team."

Agrium's $321 million purchase also includes Unocal manufacturing facilities in Kennewick, Wash., and West Sacramento, Calif., Unocal's Pacific Northwest fertilizer distribution system, its Rivergate Terminal in Portland, Ore., and its Hedges Terminal in Kennewick. To satisfy Federal Trade Commission concerns, Agrium has agreed to sell the Rivergate Terminal and part of the Kennewick facilities to a competitor, J.R. Simplot.

Unocal received roughly $246 million in cash, $50 million in principal amount of Agrium 6-percent-convertible securities and roughly 2.6 million shares of Agrium common stock.

"The sale is the latest step in the ongoing transformation of Unocal into a significant upstream (exploration and production) company," said Roger C. Beach, Unocal chairman and chief executive.

Agrium has hired 88 percent of 525 Unocal agricultural products workers. In Alaska, Nugent said, Agrium has hired all but five of 290 ANP employees. Unocal has extended termination and redeployment benefits to the remaining five, who held supervisory and engineering positions.

Unocal retains its Alaska oil and gas business and will continue to supply natural gas to the Nikiski plant under a contract that runs until 2009.

ANP is working with Homer Electric Association to move HEA's Soldotna 1 generator to Nikiski, where the generator's waste heat will produce steam for the fertilizer plant. ANP and HEA are sharing the $25 million cost. When the project is done, it will replace about a third of ANP's present steam production and cut several dollars from the cost of producing each ton of fertilizer, Nugent said.

He said he expects Agrium will be more interested than Unocal was in making additional improvements to the plant. This fall, the Alaska staff will meet with Agrium management to discuss the possibilities. Nugent said Nikiski should compete well for the company's capital.

"We're in a strategic position in our marketplace. We're a profitable plant. That's why they bought us in the first place," he said.

The Nikiski plant gives Agrium its first large presence in overseas markets, he said.

Pendergast said he expects no immediate changes to the plant, but agreed that Nikiski should compete well for capital.

"There may be opportunities after we've operated the assets for a while," he said. "It's going to be one of our premier plants. It's a very large complex. We have a plant in Redwater, Alberta, that is very large. This will rival that for production."

Natural gas is a big component in the cost of ammonia and urea production, he said. The cost of gas at the Nikiski plant, which the Alaska Division of Oil and Gas calculates at about $1.20 per thousand cubic feet, is the lowest cost for any of Agrium's plants. That is because Cook Inlet has no pipeline to the Lower 48 states, Pendergast said.

"The gas in Cook Inlet is trapped gas. There are not a lot of markets for it," he said. "Alberta gas can be shipped to Chicago and the rest of the United States."

The Nikiski plant should compliment an ammonia-urea plant Agrium is now opening in Argentina with a Spanish firm, Repsol-YPF, he said. The Argentine plant will sell fertilizers in Argentina and likely also to nations such as Brazil, South Africa and Australia.

"Where those two plants are located allows us to serve a large part of the globe," Pendergast said. "We'll have a plant in the Northern Hemisphere, a plant in the Southern Hemisphere, a plant on the east coast of South America and a plant on the west coast of North America. How we're going to take advantage of those geographical features has yet to be determined, but there is potential for synergy."



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