Pryor Chemical Co., a wholly-owned subsidiary of LSB Industries Inc., on March 3, 2016, entered into a UAN purchase and sale agreement with Coffeyville Resources Nitrogen Fertilizers LLC, a unit of CVR Partners LP, effective June 1, 2016. In doing so, it did not renew an offtake agreement with Koch Nitrogen Co.
Under the agreement, CVR will have the exclusive right (but not the obligation) to purchase all the tons of UAN that Pryor makes available to it (i) that will be produced at the Pryor Chemical Facility in Pryor, Okla., and (ii) that are in excess of the needs of Pryor or its affiliates, which shall be no more than 30,000 short tons per year and no more than 10,000 tons in any calendar quarter. If CVR fails to take delivery of certain tons of UAN produced at Pryor and such failure causes Pryor’s storage capacity to be more than 75 percent utilized, or the production unit at the Pryor facility to be slowed down, shut down, or idled, Pryor may immediately sell such unpurchased product to a third party without restriction.
Approximate UAN capacity at the Pryor plant is 300,000 st/y, according to the Green Markets Nitrogen Supply & Demand Model.
The deal is another growth spurt for CVR, which is in the process of buying Rentech Nitrogen LP’s East Dubuque, Ill., nitrogen plant (GM Aug. 17, 2015). That deal may close as early as the end of March.
And since LSB is currently eyeing its strategic options, this deal gives CVR, which is in an acquisition mode, the opportunity to forge a closer relationship with LSB.
The initial term of the Pryor-CVR agreement is for three years. It automatically continues for one or more additional one-year terms unless terminated by either party by delivering a notice of termination at least twelve months prior to the end of term in effect. However, CVR may unilaterally terminate the agreement upon 180 days advance written notice of termination to Pryor, provided that each party’s rights and obligations pertaining to UAN that CVR committed to purchase before such advance notice will survive termination. Additionally, Pryor can terminate the CVR agreement upon 90 days advance written notice of termination to CVR, provided that each party’s rights and obligations pertaining to UAN that Pryor committed to sell prior to such advance notice will survive termination.
On March 1, 2016, Pryor said it provided notice of termination under the UAN agreement that it had with Koch Nitrogen Co., dated May 7, 2009. The termination will be effective as of May 31, 2016. Under the Koch agreement, Koch had the exclusive right to purchase substantially all of the UAN produced at the Pryor facility and the limited first right to purchase additional amounts. Pryor said it did not incur any early termination penalties in connection with the termination of the Koch agreement.