OCI’s Wever greenfield: capex up, lawsuit, and intense monitoring

There’s plenty of new news about OCI’s Iowa Fertilizer Company and its world-scale greenfield nitrogen plant at Wever, IA.

In the last two weeks, we’ve had earnings reports both from OCI and from the project’s EPC contractor, Orascom, which is OCI’s sister company. Plus, we had a response and countersuit in the ongoing lawsuit between Orascom and one of the project’s subcontractors.

All contain useful disclosures, which you can find in my Research Note for Wever, IA.

The plant’s expected start-up date hasn’t changed (since the last disclosures in March 2016), which, at least, demonstrates that progress hasn’t slipped further.

However, there’s clearly been some heavy accounting going on – financial and personal – leading to a major cost increase, senior staff turnover, a $50+ million lawsuit, and a $65+ million counter-suit.

Happily for OCI (and for CF Industries, should the merger close), responsibility for most of these liabilities belongs to the lump-sum turnkey EPC contractor, Orascom. This is cold comfort for the Sawiris family, who own most of both companies, OCI and Orascom.

While the allegations filed by each party to the lawsuit don’t yet amount to much more than he-said-she-said, they do explain some of the rumblings that have been coming out of the construction site over the last 18 months. There were 1,480 workers laid off in April 2015, concomitant union strife, then a construction firm threatening to pull out if it didn’t get paid …

The detail that stuck me most in all this new information was snuck away on page 59 of OCI’s 2015 Annual Report, in the Risk Management section. I sensed a certain wrath behind the calm corporate-speak describing how OCI would mitigate the risks pertaining to its “Ability to execute large greenfield projects on time:”

“Completion … is subject to intense monitoring by OCI N.V.’s senior management.”

I appreciate that kind of furious understatement. More details are in the Research Note for Wever, IA.

Leave a Reply

Your email address will not be published. Required fields are marked *