UPDATED: 03/22/2018 — see Change Log

OWNER: Cherokee Nitrogen LLC (LSB Industries Inc)
PROJECT: Nitrogen production complex[memberful does_not_have_subscription=”1314-ammonia-industry-annual-subscription,1311-ammonia-industry-monthly-subscription,3338-ammonia-industry-30-day-subscription”]

COST (reported): None given
JOB CREATION (reported): 133 permanent — see Job Openings [LINK]
START-UP DATE (reported): 1961

CAPACITY	USGS[1]	COMPANY[2]	PERMIT[3]	ADJUSTED[4]
Ammonia	159,000 mtpy	180,000 stpy	[Membership required]	[Membership required]
Units: stpd, stpy, mtpd, mtpy = short/metric tons per day/year. [1] United States Geological Survey (USGS) Mineral Yearbook, Nitrogen gives capacity in metric tons per year, calculated as “engineering design capacity adjusted for 340 days per year of effective production capability,” rounded to three significant digits. Source: most recent year, Table 4: Domestic Producers of Ammonia, http://minerals.usgs.gov/minerals/pubs/commodity/nitrogen/. [2] LSB investor presentations. Sources: linked below. [3] [Membership required]. Sources: linked below. [4] [Membership required]. See Methodology.

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[memberful has_subscription=”1314-ammonia-industry-annual-subscription,1311-ammonia-industry-monthly-subscription,3338-ammonia-industry-30-day-subscription”]

SUMMARY STATUS: Operational
The Cherokee plant has been producing nitrogen fertilizers since 1961, and was acquired by LSB Industries in 2000. With repeated outages over the years, LSB is focused on improving reliability at the site, which serves agricultural and industrial markets; most recently, in 2Q 2017, the Cherokee site reported a 100% on-stream rate.

COST: None given
JOB CREATION: 133 permanent — see Job Openings [LINK]
START-UP DATE: 1961

CAPACITY	USGS[1]	COMPANY[2]	PERMIT[3]	ADJUSTED[4]
Ammonia	159,000 mtpy	515 stpd 180,000 stpy GROSS 45,000 stpy NET	189,800 stpy	172,184 mtpy GROSS 40,823 mtpy NET
Urea		300 stpd 96,000 stpy GROSS		99,337 mtpy GROSS
DEF		50,000 stpy GROSS 15,000 stpy NET		45,359 mtpy GROSS 13,608 mtpy NET
Nitric Acid		40,000 stpy NET	375,950 stpy GROSS	341,056 mtpy GROSS 36,287 mtpy NET
Ammonium Nitrate		SOLUTIONS: 290,000 stpy GROSS 55,000 stpy NET	189,041 stpy GROSS PRILL: 149,000 stpy	171,495 mtpy GROSS SOLUTIONS: 49,895 mtpy NET PRILL: 135,171 mtpy
UAN		210,000 stpy		190,509 mtpy
Units: stpd, stpy, mtpd, mtpy = short/metric tons per day/year. [1] United States Geological Survey (USGS) Mineral Yearbook, Nitrogen gives capacity in metric tons per year, calculated as “engineering design capacity adjusted for 340 days per year of effective production capability,” rounded to three significant digits. Source: most recent year, Table 4: Domestic Producers of Ammonia, http://minerals.usgs.gov/minerals/pubs/commodity/nitrogen/. [2] LSB investor presentations. Sources: linked below. [3] Alabama DEM Title V permit documents. Sources: linked below. [4] Adjusted Capacity is in metric tons per year assuming operations for 365 days per year; gross capacities based on permit data, net capacities based on company data. See Methodology.

FEEDSTOCK: Natural gas
END PRODUCTS: Ammonia, Urea, DEF, Nitric Acid, Ammonium Nitrate solutions, UAN, Carbon Dioxide

RESEARCH NOTES:
Armour Agricultural Chemicals, a subsidiary of Armour & Co, built the Cherokee complex in 1961 and began producing ammonia in April 1962, using technology from M. W. Kellogg. The new plant was part of Armour’s $60 million corporate expansion plan that included a phosphate plant in Polk County, FL, and a number of fertilizer mixing plants.

Armour Cherokee opened with six production plants with capacities of 360 stpd ammonia, 50 stpd urea, 250 stpd nitrogen solutions, 300 stpd nitric acid, 250 stpd ammonium nitrate, and 500 stpd ammonium phosphate.

In 1968, USS Agri-Chemicals, the fertilizer division of US Steel, acquired Armour’s production assets, including the Cherokee plant and an ammonia plant at Crystal City, MO. In 1986, these were purchased by LaRoche Industries Inc. LaRoche entered Chapter 11 bankruptcy protection in May 2000 and sold the Cherokee and Crystal City plants to Orica LLC. Orica promptly sold the facilities to LSB Industries in November 2000.

LSB Industries already operated a plant at El Dorado, AR, and later restarted the plant at Pryor, OK. The company’s business model appears to be to take over ancient plants with the hope that they’ll operate well. Unfortunately, this hasn’t been the case.

The Cherokee plant has been in and out of service throughout the years, with regular unplanned downtime, most notably in 2012, when an explosion in the ammonia unit’s heat exchanger took that and other plants out of service for some months.

According to LSB’s 3Q 2015 results presentation, from November 2015, the Cherokee ammonia plant was producing “at improved average daily rates of 515 TPD vs historical of 500 TPD,” with a “100% on-stream rate for Q3 2015 and over 95% the last three quarters.” Sadly this performance was short-lived, and the plant went out of service again in December 2015. This outage only lasted a week, but that week was estimated to cost $2.5 to $3 million in repairs and lost sales.

By May 2016, when LSB held its Q1 2016 earnings call, plant reliability was back on track: “Cherokee was at 96% [onstream rate] this quarter and has been 95% or above in four of the last six quarters or five of the last seven quarters.” Nonetheless, maintaining this level of reliability is a major ongoing focus for the company.

The next planned turnaround at Cherokee was in the Fall of 2016 – although the cash-strapped company had warned it might need to postpone the work in its Q1 2016 results: “Some of the 2016 planned capital additions, not related to the El Dorado expansion projects, may be deferred should we need to do so.”

The turnaround went ahead but, unfortunately, the planned downtime drifted into more unplanned downtime, and further eroded the company’s income expectations, and investors’ confidence:

Turnaround activities and various operational issues resulted in unplanned downtime at its three primary chemical facilities during the third quarter of 2016 … our main focus has been on proactively identifying and completing the repairs and upgrades necessary to position LSB to deliver significantly improved financial performance in 2017. We are confident that the recent work that we have done at Cherokee, Pryor and El Dorado, and over the past year, will yield improving on-stream rates.”
LSB Industries press release, 10/05/2016

By the end of February 2017, when LSB published its Q4 2016 earnings, the Cherokee plant had “operated at an on-stream rate of 98% or better for the past four months. We expect this to continue throughout 2017.” However, in its 2016 10-K, LSB actually derated (lowered) the ammonia capacity from the previously announced 530 stpd to 515 stpd, and stated that this rate included their assumption that the plant would require “28 turnaround days,” even though there is no turnaround scheduled at Cherokee in 2017. The next turnaround at Cherokee is scheduled for 2018.

LSB teetered on the edge of bankruptcy in 2015-16 after the expansion costs for new ammonia and nitric acid plants at El Dorado, AR, spun out of control. Since then, the company has done everything it can to bring in cash: it announced a costly financing deal, in November 2015, and then announced the sale of its climate control division, in May 2016, to a Swedish company, NIBE Industrier AB, “for a total cash consideration of $364 million.”

Proceeds from the transaction will primarily be used to pay down debt. As a result, LSB will have greater financial flexibility and an improved capital structure to execute its growth strategies for its core Chemical Business, including improving the Company’s chemical plant on-stream rates.

Dan Greenwell, LSB’s President and CEO, stated, “This transaction represents an important milestone for LSB and our shareholders … As a focused chemicals company, our management team can now concentrate entirely on growing our Chemical Business by leveraging the substantial investments we have made over the last several years to enhance the reliability and profitability of our facilities … Importantly, this transaction will enhance our financial flexibility and allow us to continue to invest in improving our plants.”

LSB closed the sale of its climate control business in July 2016, and is now a pure-play nitrogen producer.

For context looking forward, LSB reps explained during its Q1 2016 earnings call that “general maintenance CapEx in the chemical business will run between $40 million and $60 million,” per year, across all three of LSB’s ammonia producing plants, as well as its upgrading facility at Baytown, TX.

In its May 2016 Investor Presentation, LSB gives capacities for all its plants and products. Curiously, the Cherokee plant’s ammonium nitrate capacity, serving the industrial and mining market, fell to 80,000 stpy from the previously announced 145,000 stpy, without any increase in other end products.

In its November 2016 Investor Presentation, LSB specified its ammonium nitrate solution capacity as 290,000 stpy (gross – some is upgraded to UAN). It also gave capacities of 575 stpd / 200,000 stpy at #2 Nitric Acid Plant (Weatherly, 1990) and 170 stpd (65%) at #1 Nitric Acid Plant (C&I Girdler, restarted 2013).

The site’s agricultural and industrial products ship out via truck, rail, and barge, on the Tennessee River, as well as through an ammonia pipeline; some AN Solution is also sold via pipeline to an on-site emulsion facility. The site receives natural gas from BP via pipeline.[/memberful]

View larger map with all ammonia plants.

ADDRESS: 1080 Industrial Drive, Cherokee, Alabama, 35616, United States

WEBSITE: http://www.lsbindustries.com/cherokee-nitrogen-company

REGULATORY SOURCES:

• USGS: Minerals Yearbook, Nitrogen [RECENT / ARCHIVE]
• EPA Emissions data: Greenhouse Gas Emissions from Large Facilities: CHEROKEE NITROGEN [LINK]
• Risk Management Plan: Right to Know Network: Cherokee Nitrogen LLC [LINK]
• Operating Permit (Title V): Alabama DEM permit documents, search ID #7381 [LINK]
• US Securities and Exchange Commission regulatory filings: EDGAR Search Results, LSB Industries Inc CIK#: 0000060714 [LINK]

NEWS SOURCES:

• 07/25/2017: LSB Industries press release: LSB Industries, Inc. Provides Update on Its Strategic Alternatives Review Process [LINK]
• 07/25/2017: LSB Industries press release: LSB Industries, Inc. Reports Improved Operating Results for the 2017 Second Quarter [LINK]
• 06/19/2017: LSB Industries investor presentation: June 2017 [PDF]
• 11/2016: LSB Industries investor presentation: November 2016 [PDF]
• 10/05/2016: LSB Industries press release: LSB Industries, Inc. Provides Operational Update on Its Chemical Manufacturing Facilities, Revises Product Sales Volume Outlook for 2016 [LINK]
• 07/01/2016: LSB Industries press release: LSB Industries, Inc. Announces Closing of Sale of Climate Control Business to NIBE Industrier AB [LINK]
• 05/12/2016: LSB Industries press release: LSB Industries, Inc. to Sell Climate Control Business to NIBE Industrier AB [LINK]
• 05/05/2016: Seeking Alpha earnings call transcript: LSB Industries Q1 2016 Results [LINK]
• 05/04/2016: LSB Industries press release: LSB Industries, Inc. Reports Operating Results for the 2016 First Quarter [LINK]
• 12/30/2015: LSB Industries press release: LSB Industries, Inc. Provides Update on the Status of Its Cherokee, Alabama and Pryor, Oklahoma Facilities [LINK]
• 12/17/2015: LSB Industries press release: LSB Industries, Inc. Provides Operational Update on Its Cherokee, Alabama and Pryor, Oklahoma Facilities [LINK]
• 12/15/2014: LSB Industries press release: LSB Industries, Inc. Reports Downtime at Cherokee Plant [LINK]
• 11/14/2012: LSB Industries press release: LSB Industries, Inc. Reports That Its Chemical Business – Cherokee, Alabama Facility Suffered Damage from Pipe Rupture and Will Limit Production until Repaired [LINK]
• 06/20/1986: The Times Daily: Candidates Allege Conflict of Interest [LINK]
• 02/22/1964: The Florence Times: Armour Rewriting Cherokee History with Big Success Story [LINK]
• 04/25/1961: The Florence Times: Ground Breaking Marks Start of Construction Armour Cherokee Plant [LINK]