Waggaman, LA: owner ramps up, EPC books loss


Dyno Nobel’s new plant at Waggaman, LA, is producing ammonia above its daily rated capacity. Conversely, total production in 2017 is expected to be closer to 80% of annual capacity, because it is likely to be taken offstream regularly this year while it ramps up.

Dyno Nobel’s Australian parent company, Incitec Pivot, recently published its March Investor Presentation, disclosing that the Waggaman plant’s maximum daily production, at 2,579 short tons, exceeded its nameplate capacity of 2,300 metric tons (2,535 short tons).

In addition, the company will be taking the Waggaman plant out of service at the end of this month, for a “pit stop,” and reaffirms its prior guidance for just “80% uptime in FY17.” For comparison, CF Industries recently reported that both its ammonia plants, at Port Neal, IA, and Donaldsonville, LA, are running far above nameplate capacity:

The ammonia plant at Port Neal is running at a 110%-ish of nameplate right now. So, I would say we’re well past full capacity at the moment. The urea plant has run about at – is running about at nameplate and it’s a little bit like happened at Donaldsonville because it’s a sister plant to the D’ville plant which is we brought it up to nameplate and then continued to step it up over the next couple of months and ultimately where the D’ville plant is currently operating is between about 10% and 15% above the nameplate.
Seeking Alpha: Anthony Will, CEO, CF Industries Q4 earnings call transcript, 02/16/2017

Click to enlarge. Incitec Pivot investor presentation, 03/02/2017
While I celebrate Incitec Pivot’s transparency (I’ve seen nothing comparable from the other companies with new plants), I question their calculations.

(If this doesn’t make sense, see my discussion of what does capacity mean?).

Waggaman has a daily rated capacity of 2,300 metric tons, according to KBR, the ammonia plant’s licensor and builder. However, the same plant has an annual capacity of 800,000 metric tons, according to Incitec Pivot.

If you compare those two figures, you can conclude that Incitec Pivot anticipates shutting down the plant for maintenance roughly 17 days per year or, conversely, expects to produce at the maximum daily capacity for only 348 days per year. In other words, Waggaman’s 800,000 ton annual capacity has a built-in assumption of a 95% capacity utilization rate. However, when Incitec Pivot presents its expectation of “80% uptime in FY17,” it is doing so against the annual capacity not the daily capacity.

Its expectations, therefore, are for 80% of 95%, which is 76%. This only matters if we care precisely how much the company is utilizing its assets.

There’s no obvious explanation for the difference between production rates at Dyno’s Waggaman (76%) versus CF’s Port Neal or Donaldsonville (~110%), but I should point out that CF has provided little transparency about how it calculates its reporting of capacity utilization, so these figures may not be comparable.

In other news, KBR disclosed the size of its Waggaman cost overruns in its Q3 2016 earnings presentation, saying “$40M in increased costs related to the mechanical failure of a vendor-supplied compressor and pumps during commissioning as well as various mechanical issues encountered during startup.”

As KBR previously put it in its 3Q 2016 earnings call, “we’ll burn some cash on the ammonia plant,” wiping out its Engineering and Construction profits for the quarter.

Better news from KBR came in the fourth quarter, when it was clear that it had contained costs on Waggaman (now a “legacy” project) among others:

We have gone through the analysis of the legacy projects. I think the key take away from me is, there is much that we can improve in execution. But the real issue is not execution, the real issue [is] signing up to deals that were probably not good deals at the beginning …

It’s been a very expensive ticket to that dance as far as I’m concerned and quite painful …

I think we’ve de-risked the business considerably. I think there’s a very good understanding of some of the legacy projects that were in the portfolio, when I joined and we’re driving them to conclusion. So, my sense of the business going forward, again, is that there’s a far greater proportion coming through in reimbursable services [ie, not lump-sum EPC contracts like Waggaman], and I think that would de-risk the business considerably.
Seeking Alpha: KBR 4Q 2016 earnings call transcript

One comment

  1. Gary R Hilberg says:

    Trevor – with air being a feedstock, the ambient temperature can impact the rate of production and certainly the efficiency of the air machine. Also during the colder months, the cooling towers perform better also improving production in other areas of the facility. These season differences are dramatic in older plants where they are suction air limited, but even with new plants I suspect that season cooling will move production somewhat.

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