CVR Partners LP (Partners) has filed a registration with the U.S. Securities and Exchange Commission to raise some $120.75 million from the sale of limited partnership units. The company, commonly known as Coffeyville Resources, says it is a growth-oriented Delaware limited partnership formed by CVR Energy to own and operate a nitrogen fertilizer facility and develop a diversified portfolio of assets that are complementary to its business and CVR Energy’s refining business.
CVR Energy, which has included both the oil refinery and fertilizer plant at Coffeyville, Kan., filed with the SEC to sell shares some time ago, and indicated that it expected to eventually spin off the fertilizer business as a separate entity, most likely as a limited partnership.
Partners says it intends to utilize the significant experience of CVR Energy’s management team to execute its growth strategy, including the acquisition from CVR Energy and third parties of additional infrastructure assets relating to fertilizer transportation and storage, petroleum storage, petroleum transportation and crude oil gathering. Upon the closing of this offering, CVR Energy will indirectly own approximately 87 percent of Partners outstanding units.
Partners’ initial assets consist of a nitrogen fertilizer manufacturing facility, including a 1,225 st/d ammonia unit, a 2,025 st/d UAN unit and an 84 million standard cubic foot per day gasifier complex, which consumes approximately 1,500 tons st/d of petroleum coke to produce hydrogen. In 2007, CVR Partners produced approximately 326,662 st of ammonia, of which approximately 72 percent was upgraded into approximately 576,888 st of UAN. Partners operates the only nitrogen fertilizer facility in North America that utilizes a petcoke gasification process to produce ammonia.
By using low cost petcoke, instead of natural gas, Partners says it is the lowest cost producer and marketer of ammonia and UAN in North America. Historically, some 75 percent of the petcoke for the fertilizer plant has come from the CVR refinery. Partners currently purchases most of its petcoke via a 20-year agreement with CVR. The company says it benefits from high natural gas prices, as fertilizer prices generally increase with natural gas prices, without a directly related change in CVR costs.
Moving forward, Partners sees several initiatives. As of Dec. 31, 2007, it has already spent $8 million toward a major nitrogen plant expansion, with the total expansion assessed at $85 million. The upgrade is expected to be completed in late 2009/early 2010 and will result in an approximate 400,000 st/y or 50 percent increase in UAN production. The expansion will mean Partners will consume substantially all of its ammonia production to make UAN.
Partners is also evaluating a third gasifier unit and a new ammonia and UAN unit. It has already engaged an engineering firm to evaluate construction and operation of an additional gasifier to produce synthesis gas from petcoke. Partners said the new units could result in an increase of UAN production by the rate of 75,000 st per month.
Partners is also looking at efficiency matters to enhance current production. For example, it says a redesign of its gasification process could produce 25 st/d more of ammonia worth $4 million per year in today’s market. This project has an estimated cost of $7 million. It is also looking at plans that could mean it could sell 850,000 st/y of CO2 into the oil and gas exploration industry.
As noted earlier, Partners is also looking at acquiring CVR Energy businesses for crude oil transportation, storage, and asphalt and refined fuels terminaling services. Partners will also consider acquisitions within both the fertilizer and petroleum infrastructure segments.
Partners expects the net proceeds from its IPO to be $93.4 million based on an assumed IPO unit price of $20.00. Of this, it expects $72.5 million will be retained to fund working capital and future capital expenditures, including the ongoing expansion of the nitrogen plant. Some $18.4 million will be used to reimburse Coffeyville Resources for certain capital expenditures made before Oct. 24, 2007. Some $2.5 million will be used to pay financing fees in connection with a new revolving secured credit facility.
As an LP, Partners expects to make minimum quarterly distributions of $0.375 per common unit ($1.50 per unit on an annualized basis), though its ability to do so will be subject to various restrictions.
Partners’ net income was $24.1 million on sales of $187.4 million in 2007, up from 2006’s $14.7 million and $170.4 million, respectively. Operating income was $48 million in 2007, up from 2006’s $43 million.
Partners is estimating net sales for the twelve months ending March 31, 2009 to be $256.6 million. It also estimates it will sell 622,705 st of UAN at an average plant gate price (which excludes delivery charges that are included in net sales) to $289.44 st for total sales of $180.2 million. It sold 576,411 st of UAN in 2007 at an average price of $208.99 with total sales of $120.5 million.
Partners estimates it will sell 104,105 st of ammonia for the year ending March 31, 2009 at an average price of $429.81 st for total sales of $44.7 million. It sold 92,764 st at an average price of $375.55 st for total sales of $34.8 million in 2007.
Partners also will continue selling hydrogen to CVR Energy. Those sales accounted for $17.8 million for the year ending Dec. 31, 2007 and are expected to be $13.4 million for the twelve months ending March 31, 2009.
Partners estimates its total petcoke cost to be $13.5 million at an average per-ton cost of $28.72 for the twelve months ending March 31, 2009, whereas costs in 2007 were $16.1 million at $34.40 per ton.
Partners estimates capital spending at $73.4 million for the twelve months ending March 31, 2009 versus $6.5 million in 2007.
Partners expects to take its operating units down for 16 days in July 2008 for a scheduled turnaround. Partners estimates that the turnaround costs will be $2.75 million for the twelve months ending March 31, 2009.
For the twelve months ending March 31, 2009, it expects the gasifier, ammonia and UAN units to have onstream factors of 90.8, 87.2 and 84 percent, respectively. These factors were negatively impacted in 2007 by a June flood, which resulted in 17 down days for the gasifier and ammonia units and 19 for the UAN. Total gross costs associated with the flood were $5.8 million. In addition, the UAN plant was adversely affected by two mechanical failures in 2007.
Partners estimates that 80 percent of its sales go to agriculture and 20 percent to industrial customers. Major ag customers include MFA, United Suppliers Inc., Brandt Consolidated Inc., ConAgra Fertilizer, Interchem and CHS Inc. Major industrials include Tessenderlo Kerley Inc. and National Cooperative Refinery Association. In 2007, Brandt, MFA and ConAgra accounted for 17.5, 15.2 and 14.3 percent of ammonia sales, while ConAgra accounted for 18.8 percent of UAN sales.
| Operating Data | 2006 | 2007 |
| Ammonia Avg Plant Gate Price | $339 | $376 |
| UAN Avg Plant Gate Price | $164 | $209 |
| Production Volumes 000 st | ||
| Ammonia | 369.3 | 329.7 |
| UAN | 633.1 | 576.9 |
| On-Stream Factors Percent | ||
| Gasifier | 92.5 | 90.0 |
| Ammonia | 89.3 | 87.7 |
| UAN | 88.9 | 78.7 |