Coffeyville Resources announced Sunday, July 1, that it had to shut down its 108,000 b/d oil refinery and 700,000 st/y nitrogen fertilizer plant due to flooding from the Verdigris River. Coffeyville spokesman Steve Eames told Green Markets that the entire facility was flooded with water, though the nitrogen facility is on higher ground and would not be as severely damaged. Estimates were that the entire complex had at least two-to-six feet of water.
Eames said the company is still assessing the extent of the damage and when the plants will be able to restart. He noted that any impact on electrical systems would complicate matters. Industry sources recalled that water-damaged electrical systems were a major problem for the Mississippi Phosphates facility that was significantly damaged by Hurricane Katrina. On the other hand, Katrina brought with it more corrosive salt water. Regardless, left to speculate, both the oil and fertilizer industries last week opined that the outages could be more like months as opposed to weeks, with one source predicting the facilities may not be back up until after Labor Day.
Even if the nitrogen plant could resume operations before the refinery, it sources most of its petroleum coke feedstock from the refinery. Petcoke could conceivably be sourced elsewhere in the interim.
Flooding in Coffeyville was some 12.17 feet above flood stage on July 1, and much of the area had been pummeled with 18-19 inches of rain in the prior week.
Coffeyville management also confirmed July 1 that a tank system containing crude oil overflowed during the early hours of the flood, and flood waters swept the oil from containment areas within the refinery. Local reports estimated that 42,000 gallons of oil spilled, and that it was due to a pumping malfunction. Initial fears were that the oil would make its way downstream to the reservoirs of several local communities; however, sources said late in the week that it dissipated before reaching the Oologah Lake, which serves Tulsa.
The company also reported a small ammonia release to the atmosphere and believes there was no threat to the immediate community.
On July 3 company representatives entered the operations by boat for a preliminary assessment, in addition to monitoring the plant by air. They were able to confirm that a refinery tank containing crude oil that overflowed has been isolated and secured. With the overflow stopped, officials are investigating to determine the root cause of the spill and the amount of crude oil lost during the flood.
The company began moving back into its administrative facilities and some warehouses on July 4 at its refinery and fertilizer plant, as water from weekend flooding slowly receded. As of that date, part of the facility still remained under water.
“We will not resume operations at either facility until it can be done safely,” Jack Lipinski, Coffeyville Resources CEO, said July 4. “Once we know the extent of the damage, we will have a better idea of when we might be able to restart the facilities.”
In the meantime, the company said its crude oil gathering system in Oklahoma and Western Kansas remains fully operational, and crude oil disbursements are being handled in a timely manner. Officials are managing crude supplies through a combination of time trades, storage, and resale.
As of July 4, some workers at the refinery and the fertilizer facility had already returned to work. Others have been told to remain home until contacted by their supervisors to return.
Local estimates in the city of around 11,000 were that some 80 businesses were destroyed, along with 500 homes being uninhabitable.
The Coffeyville refinery had just ended a major $77 million upgrade in April, with plans for $156 million in additional upgrades by the end of 2007 (GM June 25, p. 15). The upgrade and derivative losses caused the company to post a $154.4 million loss in the first quarter.
On July 5, the company participated in a local Town Hall meeting to bring residents up-to-date on the flooding. In addition, the company announced that it has established a toll-free number to help local residents file claims related to the flooding and the oil overflow.
Call center operators will schedule appointments for insurance adjusters to visit area homes and assess damages. Operators also will be able to direct callers to local, state, and federal disaster response agencies for additional assistance. The toll-free number, which will be answered 24 hours a day, is 1-800-958-5380. In addition, a claims office has been opened at 900 Hall Street in Coffeyville.
“We are committed to helping our neighbors in the community recover from this disaster as quickly as possible, even as we work to restore operations at our facilities,” said Lipinski. “We’re all in this together.”
Company officials have been invited to meet with U.S. Senators Sam Brownback and Pat Roberts, U.S. Rep. Todd Tiahrt, and several civic and community leaders in Coffeyville as a part of a tour of the area, which includes the Coffeyville Resources facilities. “We are coordinating closely with city, state and federal agencies as they work to mitigate the environmental impact of the oil overflow, and are actively reaching out to those people affected,” Lipinski said.
Besides establishing its toll-free claims center line, the company also announced it will make a $25,000 contribution – as well as a dollar-for-dollar match of employee donations – to the local chapter of the American Red Cross to assist local families who have been displaced by recent flooding, and to cover all expenses of the area animal rescue operation. The company is also expected to keep its approximately 600 employees on the payroll.
At least one law firm had put up on its website their offer to give Coffeyville residents a free case review – www.yourlawyer.com.
Gasoline and fertilizer players were expecting higher regional prices for their respective commodities last week. UAN prices were already showing strength the few weeks prior to the flooding, and the event fed into the existing hoopla (See Market Report). Still, the industry is in its traditional mid-summer lull prior to the Southwestern Conference. The incident will likely give ammonia and UAN legs going into that meeting, according to sources.
During the three months ended March 31, 2007, Brandt Consolidated Inc. and MFA accounted for 23.1 percent and 18.9 percent of the business’s ammonia sales, respectively, and Agriliance LLC and ConAgra Fertilizer accounted for 2.2 percent and 22.9 percent of its UAN sales, respectively.
Approximately 80 percent of Coffeyville’s nitrogen goes to the ag market, with other major buyers including MFA, United Suppliers Inc., Interchem, GROWMARK, Inc., Mid West Fertilizer Inc., and DeBruce Grain Inc. The remaining 20 percent goes to the industrial market, with major customers including Tessenderlo Kerley Inc. and Truth Chemical.
Coffeyville sold 117,300 st of ammonia in calendar year 2006, and 20,700 st in first quarter 2007. It sold 645,500 st of UAN in 2006, and 166,800 st in first quarter 2007.
Coffeyville is owned by the investment firms Goldman Sachs and the Kelso Fund. They have filed with the Securities Exchange Commission to sell stock in the company under the name CVR Energy Inc.