LSB Industries Inc. said it expects an Alabama ammonia plant to lose several months of production after a pipe rupture, the third time this year the company has reported issues at one of its chemical plants.
The news sent shares tumbling in Wednesday trading on the New York Stock Exchange. LSB shares fell $5.10, or 13 percent, to close at $33.04. Volume was almost three times the normal daily trading average.
The Oklahoma City company said a pipe rupture at its Cherokee Nitrogen Co. plant in Cherokee, Ala., caused damage to the heat exchanger part of its ammonia plant. LSB said it's evaluating how much damage went beyond the rupture. No serious injuries or environmental issues were reported.
Executives at LSB called the pipe rupture a “freak” occurrence and said the Cherokee plant had recently undergone routine maintenance and repair.
“Basically, you had a pipe that burst,” said Tony Shelby, chief financial officer. “But because this is a very profitable plant, you had a strong (market) reaction to it. This is a very well-managed, consistently profitable plant. About half their product is nitrogen fertilizer, which as you know, carries pretty good margins today because of the cost of natural gas.”
Earlier this year, LSB had an explosion at an Arkansas chemical plant and took part of a Pryor plant offline after finding excess heat on a pipe. LSB said in May it would spend $6.5 million on parts and components to make repairs and refurbishments.
Executives said the Alabama plant is well-managed and has an excellent safety record. The outage may last up to five months.
“This is a pipe that cracked, and there's no way of knowing what caused it,” CEO Jack Golsen said. “This stops the ammonia production, but we can make nitric acid if we bring in ammonia and make solutions that we usually make at this plant.”
LSB said it had notified its insurer of the damage to the Alabama plant. The policy has a deductible of $2.5 million. The company's business interruption insurance for some lost profits and extra expenses kicks in after 30 days.