CHS Strikes $2.8 Billion Deal with CF Industries for Nitrogen Supply, Axes Major Fertilizer Project in North Dakota

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Researched by Industrial Info Resources (Sugar Land, Texas)--CHS Incorporated (St. Paul, Minnesota), the largest farmer-owned cooperative in the U.S., agreed to enter into a strategic venture with CF Nitrogen, a subsidiary of CF Industries Holdings Incorporated (NYSE:CF) (Deerfield, Illinois), a major manufacturer and distributor of nitrogen products. CHS will be entitled to purchase up to 1.7 million tons of urea and urea ammonium nitrate (UAN) annually, at market prices. CHS also agreed to purchase a minority equity interest in CF Nitrogen for $2.8 billion. Industrial Info is tracking more than $1 billion in active projects involving CHS, and more than $4.6 billion involving CF Industries.

Under the agreement, CF Nitrogen will sell CHS up to 1.1 million tons of granular urea and 580,000 tons of UAN at market prices. In a press release, Carl Casale, the president and chief executive officer of CHS, said that this will position his company and its owners "for long-term dependable fertilizer supply, supply chain efficiency and economic value." He also said that it would provide CHS with "strategically positioned access to essential fertilizer products."

The companies expect the transaction to close February 1, 2016, or earlier. The $2.8 billion investment from CHS will account for about 8.9% of CF Industries' total system capacity.

CF Beefs Up Iowa, Louisiana Facilities for CHS Deal
Industrial Info is tracking $4.15 billion in expansion and addition projects at CF Industries' Donaldsonville Nitrogen Complex in Donaldsonville, Louisiana, and Port Neal Nitrogenous Fertilizers Facility in Sergeant Bluff, Iowa. Upon completion, CF Industries will have a total production capacity of 18.9 million product tons, about 1.7 million of which will be available for purchase by CHS.

The $2.1 billion expansion of the Port Neal facility will involve a second ammonia unit that will produce 2,425 metric tonnes per day, and a third to produce 3,850 metric tonnes per day, both utilizing ThyssenKrupp's (Essen, Germany) Uhde technology. The project is expected to be completed in the third quarter of 2016.

The Donaldsonville projects, which are under construction or near completion, include the $900 million addition of a urea unit, with an expected capacity of 3,850 tonnes per day; the $850 million addition of an anhydrous ammonia unit, with an expected capacity of 3,600 metric tonnes per day; the $150 million addition of a UAN unit, with an expected capacity of 4,500 metric tonnes per day; and the $150 million addition of a nitric acid unit, with an expected capacity of 1,600 metric tonnes per day. Each of the units will utilize ThyssenKrupp's Uhde technology.

CHS Drops Plans for Fertilizer Plant in North Dakota
Concurrent to the agreement with CF Industries, CHS decided to abandon what it considered a riskier project: a $3 billion nitrogen fertilizer plant in Spiritwood, North Dakota, that was set to be completed in 2018. CHS had planned to use natural gas from the Bakken Shale as a feedstock to produce approximately 2,400 tons per day of anhydrous ammonia, urea and UAN liquid fertilizer.

Costs associated with the plant's construction had risen sharply since the plans were announced, while water supply was proving to be a challenge. CHS said the cancellation would incur an $85 million write-off.

CF Nitrogen has U.S. production facilities in Donaldsonville, Louisiana; Port Neal, Iowa; and Yazoo City, Mississippi. CF Industries expects to add its plant in Woodward, Oklahoma, to CF Nitrogen before the agreement is finalized.

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