Headwaters Inc. announces coal-to-liquids agreements

Following signing of a federal Energy Bill that creates tax incentives to support it, Headwaters Inc. has completed two agreements linked to potential coal-to-liquid fuels projects in Arizona and North Dakota. Parties to the Arizona project include Headwaters and the Hopi Tribe. Parties to the North Dakota project include Headwaters, Great River Energy, North American Coal Corp. and Falkirk Mining Co...

SOUTH JORDAN, UT, Aug. 9, 2005 (BUSINESS WIRE) -- Headwaters Inc. has completed two non-binding Memoranda of Understanding (MOUs) linked to potential coal-to-liquid fuels projects in Arizona and North Dakota.

Parties to the Arizona project include Headwaters and the Hopi Tribe. Parties to the North Dakota project include Headwaters, Great River Energy, North American Coal Corp. and Falkirk Mining Co.

Each MOU anticipates Headwaters will act as the principal developer of an indirect coal liquefaction plant that will produce approximately 10,000 barrels per day of ultra-clean diesel and other liquid fuels, as well as electricity from an IGCC power station. Plant expansions could increase output up to 50,000 barrels per day of liquid fuel production. The other parties to the MOUs will participate as equity partners in the project development and will contribute coal resources sufficient to serve the lives of the respective plants.

Development of each project will be subject to negotiation of definitive agreements, permitting, board of directors' approvals, project financing and other conditions. Headwaters estimates that design and construction of a facility, including the permitting, will take between five and seven years. Although the projects are major undertakings in their preliminary stages, Headwaters believes that the demand for liquid fuels today and over the next 20 years will drive the continued development of America's coal assets.

"We are excited to make progress on this ambitious initiative," said Kirk Benson, Headwaters chairman and CEO. "In a world of rising oil prices and ever-increasing environmental concerns, coal-to-liquids projects provide an attractive option for meeting our growing transportation fuel needs. Headwaters is uniquely positioned to lead the deployment of these technologies in the United States."

Headwaters has deep roots in coal chemistry and value-added coal processes, including coal-to-liquids processes. At its New Jersey research center, Headwaters has developed expertise in both direct and indirect coal liquefaction. Primarily because of capital cost considerations, the initial coal-to-liquids facilities in the United States are expected to be indirect liquefaction projects. Indirect coal liquefaction technologies initially gasify coal and then convert the coal-derived syngas into ultra-clean diesel, and other fuels and petrochemicals using Fischer Tropsch technology. There are several technology alternatives for this approach to coal-to-liquids projects. Headwaters has also developed direct coal liquefaction technology that is currently being deployed or studied for deployment in China, India and the Philippines. Headwaters is also active in the traditional oil refining industry as it moves toward commercial testing of its HC3 heavy oil upgrading technology.

From a business development perspective, Headwaters is a leader in creating value through innovative advancements in the utilization of natural resources. Enhancing the value of coal, the company has established market-leading positions in providing pre-combustion and post-combustion products and services.

For instance:
-- Headwaters Energy Services is the largest supplier of technology and reagents to the coal-based synfuel industry and is currently deploying new pre-combustion clean coal technologies, including dry coal cleaning and, in cooperation with Great River Energy, lignite fuel enhancement (coal drying).
-- Headwaters Resources is the largest manager and marketer of coal combustion products, such as fly ash, which are created by coal-fueled power plants when coal is burned.
-- Headwaters Construction Materials enjoys leading market positions in several building materials sectors. Coal combustion products are utilized in many of these products.

"The emerging alternative fuels market presents Headwaters with an excellent opportunity to continue to fulfill our company mission," said Benson. "We have the opportunity to take an under-utilized resource -- America's abundant supply of coal -- and use it in an environmentally responsible manner for the domestic production of vital transportation fuels and electricity."

Headwaters previously announced that its initial project as an alternative fuels production facility developer would be a 50 million gallon per year ethanol production facility in North Dakota. Development of that unique facility, to be located on land adjacent to Great River Energy's Coal Creek power plant, is continuing in partnership with Great River Energy. The facility -- to be named Blue Flint Ethanol -- will be designed to access its steam, water and other ancillary services from the adjacent coal-fueled power plant.

"Ethanol production offers attractive synergies for our energy business," said Benson. "Headwaters is already a leading supplier of pre-combustion and post-combustion services to coal-based electric utilities nationwide. Advantages related to co-locating ethanol production with power plants could be substantial. Furthermore, as we move our coal-to-liquids program forward in the United States, access to alternative fuels markets will be important. A position in the existing ethanol industry will help us build our alternative fuels capabilities."

Headwaters Inc. is a diversified growth company providing products, technologies and services to the energy, construction and home improvement industries. Through its alternative energy, coal combustion products, and building products businesses, the company earns a growing revenue stream that provides the capital needed to expand and acquire synergistic new business opportunities.

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