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Partners Pull Out Of Great Plains Project

August 2, 1985

BISMARCK, N.D. (AP) _ Five companies that owned the nation’s first commercial synthetic fuels plant abandoned the project on Thursday, defaulting on $1.53 billion in federally guaranteed loans and tallying losses of some $330 million, authorities said.

The decision by Great Plains Gasification Associates came almost a year to the day after the $2.1 billion facility near Beulah, N.D., began producing synthetic ″natural″ gas from low-grade lignite coal, of which North Dakota has vast reserves.

The consortium decided to abandon the project after the Reagan administration announced earlier this week that it no longer would agree to subsidies that included price guarantees. Great Plains had been seeking a $720 million financial aid package from the Synthetic Fuels Corp.

″We are extremely disappointed with the rejection of the proposed agreement,″ Clifford Rackley, chairman of the consortium’s management committee, said in a statement released in Bismarck. ″We believe that the Department of Energy’s decision is a blow to the nation’s efforts to assure our future energy security.″

The plant has been handed over to the U.S. Department of Energy, which was expected to announce later what it would do with it.

″We are continuing to put gas in the pipeline hour after hour and will continue to do so until somebody tells us to stop,″ said Thomas Haan, a Great Plains spokesman.

The plant employs 973 people, working on two 12-hour shifts, Haan said.

By last weekend, the plant was producing gas above the facility’s design capacity of 137.5 million cubic feet per day, Haan said.

Great Plains already was being allowed by the Federal Energy Regulatory Commission to charge its customers $5.50 per 1,000 cubic feet of gas produced, more than double the current spot market prices for the fuel, Energy Department officials have said. Still, the plant would need to sell the fuel for $6.60 per 1,000 cubic feet to cover its costs.

″It’s been known by us that the project is close to the break-even point if you don’t have to pay (the loans) back,″ Haan said.

The five companies with a stake in Great Plains were Tenneco Inc. of Houston, which held a 30 percent interest; American Natural Resources Co. of Detroit, with 25 percent; Transco Energy Co. of Houston, with 20 percent; MidCon Corp. of Chicago, with 15 percent, and Pacific Lighting Corp. of Los Angeles, with 10 percent.

The partners had put up $543 million for construction of the plant and the balance came from federally guaranteed loans.

Last March, American Natural Resources was taken over by Coastal Corp. of Houston, which announced on Thursday that the abandonment of the Great Plains project would not affect its earnings.

However, MidCon expects to report project losses of $85 million to $90 million against its fourth-quarter earnings, company spokeswoman Pat Wees said in a telephone interview. That figure includes losses of equity and repayment of unvalidated tax credits, she said.

Pacific Lighting planned to report a $60 millon loss against third-quarter earnings, including both loss of equity and repayment of tax credits, said company spokesman Rick Terrell.

Preliminary figures indicated Transco would report a $91 million loss against third-quarter earnings, said spokeswoman Gretchen Weiss.

Tenneco did not have its loss figures immediately available, said spokesman Tony DeHaas.

Overall, the partners stood to lose some $330 million if the project were abandoned this year, Rackley has said.

The Energy Department had sought assurances from the partners in the project that they would not abandon it for at least nine years, according to Sen. Mark Andrews, R-N.D. The partners would not commit themselves to more than two years, about the time it would take to exhaust the price guarantees and tax benefits, he said.

Gov. George A. Sinner on Wednesday led a delegation of state officials who met with Energy Secretary John Herrington in an unsuccessful effort to salvage the project.

Later on Wednesday, the House voted overwhelmingly effectively to abolish the quasi-governmental Synthetic Fuels Corp, chartered by Congress in 1980 to hand out $15 billion in subsidies for what was intended to be the first generation of commercial synfuels plants.