July 12, 2002 --- Vol. 8, No. 71July 2002

Unocal, Agrium file suits over Nikiski fertilizer plant gas sale agreement

Unocal Corp. and Agrium Inc. have been unable to negotiate a resolution to a dispute about their gas sales agreement for Agriumís fertilizer plant in Nikiski. The dispute is headed to court, but it is yet to be determined which court will actually hear the case.

On June 10 Unocal filed suit over the agreement against Agrium in U.S. District Court in Los Angeles, while Agrium filed its own suit against Unocal in California state court.

Unocal sold the Nikiski plant to Agrium in 2000 for $321 million, plus annual participation payments for six years related to future ammonia and urea prices.

According to Unocalís complaint, Agrium has failed to pay the annual earn-out amount of $16.6 million, which was due Jan. 15.

Agrium said in its 2001 annual report it withheld payment from Unocal because the liability has been set off against other amounts currently owing by Unocal, and because Agrium disputes the calculation of the earn-out due to differences over the application of a reference price adjustment factor.

Agrium said no payment is due to Unocal in the event that Unocal cannot meet its obligation to deliver gas under the Kenai gas contract.

At the time of the sale, the companies said that Unocalís Alaska oil and gas business unit would continue to supply natural gas to the Nikiski plant until Jan. 30, 2009, at $1.20 per thousand cubic feet, subject to annual adjustment dependent on gas reserves in specified Cook Inlet fields.

A third, independent party was tasked with assessing the gas reserves in those fields and adjusting them annually. If reserves fell, then the amount of gas that Unocal had to supply dropped.

According to Unocal Alaska spokeswoman Roxanne Sinz, adjustments to date have been negative, so contractually Unocal should be able to cut its supply of gas but Agrium has not wanted it to do so because gas prices have increased and Agrium would be forced to buy gas at higher prices from other suppliers. Unocal is currently receiving $2.75 per mcf for gas sales to Enstar, subject to adjustment depending on Henry Hub prices and inflation.

ďWe have supplied over 100 billion cubic feet of gas to Agriumís plant to date and have met their gas needs 99.9 percent of the time. Weíre going to continue to supply them with gas during the litigation and will work with them to facilitate the purchase of a third party gas supply that can meet their needs,Ē Sinz told PNA July 11.

Sinz said the two companies have been negotiating for months but came to an impasse and decided to let the courts decide.

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