The owners of Coffeyville refinery and nitrogen plants filed an IPO Sept. 26 to sell $300 million worth of stock in CVR Energy Inc. Coffeyville Refining & Marketing Inc. and Coffeyville Nitrogen Fertilizers Inc. will be direct, wholly-owned subsidiaries of CVR, which is headquartered in Sugar Land, Texas, with its major production facilities in Coffeyville, Kan.
Prior to March 3, 2004, these assets were operated as a small component of Farmland Industries Inc., which filed for bankruptcy protection on May 31, 2002. Pegasus Partners II LP, a Connecticut-based firm, put together a deal to buy the assets. As a result, Coffeyville Resources, LLC, a subsidiary of Coffeyville Group Holdings, LLC, won the bankruptcy court auction for Farmland’s petroleum business and a nitrogen fertilizer plant, completing the purchase of these assets on March 3, 2004.
Coffeyville/Pegasus did an IPO in February 2005 (GM Feb. 21, 2005, p. 1). However, on June 24, 2005, pursuant to a stock purchase agreement dated May 15, 2005, Coffeyville Acquisition LLC acquired all of the subsidiaries of Coffeyville Group Holdings LLC. The Goldman Sachs Funds and the Kelso Funds own substantially all of the common units of Coffeyville Acquisition LLC, which currently owns all of the company’s capital stock.
According to the new IPO, Goldman made capital contributions of $112.8 million and Kelso $110.8 million in connection with the acquisition from Pegasus, with the total proceeds received by Pegasus and other unit holders being $526.2 million after the repayment of the predecessor’s credit facility. Pegasus bought the assets via bankruptcy for $107 million and the assumption of $23 million of liabilities. These are the same assets that the U.S. bankruptcy judge labeled an “albatross” around Farmland’s neck.
After the new stock sale Goldman and Kelso will continue to control the company, though their approximate stake has not been revealed.
CVR said revenues for the year ending June 30, 2006, were $3 billion, with an adjusted EBITDA of $357.4 million. Some 81 percent of operating income came from the petroleum side of the business, with the rest being fertilizer.
CVR noted significant upgrades at both the refinery and fertilizer plant since the Goldman/Kelso acquisition. The Coffeyville refinery produces 108,000 barrels per day at the Coffeyville, Kan., refinery. Historically, that figure had been 90,000.
Coffeyville’s nitrogen plant, built in 2000, has run at full capacity since 2003. It underwent a scheduled turnaround in 2006 and recently completed an expansion of the spare gasifier to increase the fertilizer production capacity. Ammonia capacity is 430,000 st/y, while UAN is 720,000 st/y. The company is considering a further expansion that could increase its ability to upgrade ammonia into UAN by approximately 50 percent, to 1,040,000 st/y. CVR already notes that it has the largest fully integrated single train UAN production facility in North America.
Nitrogen net sales increased 16 percent, or $13.1 million, to $95.6 million for the six months ended June 30, 2006, as compared to the year-ago net sales of $82.5 million. Nitrogen operating income was up 6 percent, or $2.1 million, to $37.1 million during the recent six months, versus the year-ago $35 million.
Company-wide operating income was $214.9 million on sales of $1.55 billion for the recent six months, versus the year-ago $98.7 million and $1.03 billion, respectively.
CVR says nitrogen sales have increased since it started doing its own marketing. Its primary geographic markets for fertilizer include Kansas, Missouri, Nebraska, Iowa, Illinois, and Texas. Approximately 80 percent of its ammonia goes to the ag market, with the rest to industrial. Major ag customers include MFA, United Suppliers Inc., Brandt Consolidated Inc., Interchem, Growmark Inc., Mid West Fertilizer Inc., DeBruce Grain Inc., and Agriliance LLC. Major industrial buyers are Tessenderlo Kerley Inc. and Truth Chemical. During the six months ending June 30, 2006, Brandt and MFA accounted for 22.9 percent and 12.5 percent of ammonia sales, respectively, while Agriliance and ConAgra Fertilizer accounted for 6.4 percent and 5.5 percent of UAN.
CVR said its UAN production represents 5.7 percent of U.S. demand, and its ammonia less than 1 percent of demand.
CVR estimates that the nitrogen plant will continue to have a production cost advantage in comparison to U.S. Gulf producers at natural gas prices as low as $2.50/mmBtu. CVR estimates that its distribution cost advantage over U.S. Gulf importers is approximately $65/st for ammonia and $37/st for UAN. CVR currently upgrades two-thirds of its ammonia into UAN.
CVR uses 950-1,050 st/d of pet coke from its refinery and another 250-300 st/d sourced from third parties, and converts its to 1,200 st/d of ammonia. A majority of the ammonia is converted to 2,075 st/d of UAN. CVR says capacity utilization has steadily increased over the past 5.5 years. As of June 30, 2006, the gasifier was at 97.4 percent, ammonia utilization at 103.2 percent, and UAN at 121 percent.
CVR said as of June 30, 2006, total debt was $508.3 million and availability of $55.2 million under its revolving credit facility. Assets as of June 30, 2006, were listed at $1.4 billion, with long-term liabilities of $930 million.
Wesley Clark, a 2004 presidential candidate and a former Supreme Commander of NATO, is among CVR’s board members. Other directors include Scott Lebovitz and Kenneth Pontarelli of Goldman Sachs, and George Matelich and Stanley Osborne of Kelso.