Incitec Pivot Ltd. (IPL) said on Nov. 15 it has received a number of unsolicited approaches for a potential acquisition of its Waggaman, La., ammonia plant (WALA), and consequently it now will undertake a review of the strategic options for the facility.
IPL said all approaches were expressed to be “indicative, non-binding, and subject to due diligence” and “at this stage, there is no certainty that a transaction will occur.”
The company emphasized that “under any scenario,” it intends to maintain the strategic value of long-term supply of ammonia from Waggaman into its Dyno Nobel Americas (DNA) explosives business.
“The amount of Waggaman ammonia output that goes into internal purchases by DNA varies on how much we purchase from third parties, but at current production it is between 20% to 30% of the plant’s output,” IPL Managing Director and CEO Jeanne Johns told analysts at a company earnings call on Nov. 15.
Waggaman has production capacity of 800,000 mt/y of ammonia.
As to whether IPL is looking to potentially sell a part or all of WALA, Johns said “all options” will be looked at that preserve the 30% integrated margin that IPL currently holds, as well as maximizing the value of the asset.
“Despite the disappointments of the original construction defect, and the incident at the plant this past February, we have now addressed the vast majority of the issues, and the Waggaman facility is running flawlessly since production restarted on April 19,” said Johns.
The plant suffered a rupture in a section of pipe on Feb. 18 that resulted in a release of hydrogen (GM Feb. 18, p. 1), with production only restarting on April 19 (GM April 22, p. 1).
IPL told shareholders at an Investor Day event on Sept. 6 that Waggaman has been producing above its 800,000 mt/y ammonia capacity since the production restart on April 19 (GM Sept. 9, p. 36).
IPL reported that WALA achieved an EBIT of US$343.8 million for FY2022, up from just US$3.6 million in the previous year, despite the downtime earlier this calendar year.
Responding to an analyst’s question about the replacement cost of the WALA site, Johns reminded that when IPL built the plant, it was achieved at “the low end” of the new build cost profile. But she said US construction costs and US inflation have grown substantially since then.
“I think it would be very, very difficult to build it [now] for less than A$1.5 billion [approximately US1.01 billion at current exchange rates],” she said, adding there is no doubt that there is a significant appreciation of the asset from a replacement value, but also a market outlook value.
“The market outlook is ideally suited for blue ammonia. Waggaman is sitting right on top of the right kind of client reservoirs. There’s a lot of industry players who could get synergies for the infrastructure and the 45Q credits,” Johns said.
The 45Q of the US Internal Revenue Code provides a tax credit for CO2storage. A front end engineering design (FEED) study is underway for a carbon capture facility at the Waggaman plant site that will be capable of processing up to 950,000 mt of CO2to transport via a pipeline to a permanent geological sequestration site (GM Sept. 9, p. 1).
Subject to the successful completion of the FEED study, construction of the carbon capture unit at WALA is expected to begin in 2023 and be completed by the end of 2025. The move is part of IPL’s plans to produce de-carbonized ammonia from the plant.
In response to an analyst’s question as to what had changed given that at the time of IPL’s demerger announcement in late May (GM May 27, p. 1), the company still viewed WALA as very strategically important to the DNA business, Johns said Waggaman’s exposure to excess ammonia has always been something on IPL’s mind.
“The asset is still important for the 30% of integrated margin that it provides, and that is why it was built. The 70% is some [of the output] that is under long-term contract. When we looked at the options, we knew both were value accretive. It was really a matter of timing,” she said, citing the change in how such assets are perceived in the marketplace given that the attractiveness of blue ammonia for use in co-firing or the bunkering industry has grown tremendously.
IPL, Johns said, believes this is the right time to explore that value and that Waggaman is a better strategic fit perhaps with a different counterparty.
Pending the completion of the strategic review of Waggaman, IPL now anticipates that the previously communicated timeline for the release of the demerger booklet and the shareholder approval process for the separation of its fertilizers business will be extended by six to 12 months.
The company originally had been targeting “a practical separation” of the two businesses late in the 2022 calendar year, ahead of the shareholder vote in the first quarter of 2023 and formal separation shortly after, subject to required approvals and consents.
Asked if delay to the demerger timeline is solely dependent upon a successful conclusion of the Waggaman strategic options review, Johns said the delay is “a prudent” time estimate, given that it would likely need to go through regulatory approvals, as well as a deal construct.