Q1 2022 Aemetis Inc Earnings Call
Good afternoon, and welcome to the <unk>.
First quarter 2022 earnings review conference call.
At this time, all participants are in listen only mode.
Question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce them to your host Mr. Todd Waltz, Executive Vice President and Chief Financial Officer.
Mr. Waltz, you may begin.
Thank you Ali welcome to the <unk> first quarter 2022 earnings Review Conference call.
Joining us for the call today is Eric Mcafee, founder Chairman and CEO .
And Andy Foster President of a medicine advanced fuels any meadows biogas.
We suggest visiting our website at <unk> Com to review today's earnings press release.
<unk> corporate and Investor presentations filing with the Securities and Exchange Commission recent press releases and previous earnings Conference calls.
The presentation for today's call is available for review or download on the investors section of the <unk> Com website.
Before we begin our discussion today I'd like to read the following disclaimer statement.
During today's call, we'll be making forward looking statements, including without limitation statements with respect to our future stock performance plans opportunities and expectations with respect to financing activities and the execution of our business plan.
Statements must be considered in conjunction with disclosures and cautionary warnings that appear in our SEC filings.
Investors are cautioned that all forward looking statements made on this call involve risks and uncertainties.
And that future events may differ materially from the statements made for.
For additional information please refer to the company's security and Exchange Commission filings, which are posted on our website and available from the company without charge.
Our discussion on this call today, we will include a review of non-GAAP measures as a supplement to financial results based on GAAP.
A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the quarter ended.
On this.
Yes.
And earnings for the quarter ended.
On March 31.
I'm sorry.
December 31, 2021 is available on our website.
Adjusted EBITDA is defined as net income loss plus to the extent deducted in calculating such net income interest expense income tax expense intangible and other amortization expense accretion and other expense of series a preferred units depreciation expense and share based compensation expense.
Now I'd like to review the financial results for the first quarter of 2022.
Revenues during the first quarter of 2022 increased 22% to $52 million compared to $42 8 million for the first quarter 2021.
Our North America operations in the first quarter of 2022 as compared to the first quarter 2021 experienced an increase in the selling price from $1 91 per gallon to $2 58 per gallon on sales of $14 7 million gallons for 2022 compared to <unk>.
$15 6 million gallons for 2021.
The price of delivered corn rose from an average of $6.87 per bushel during the first quarter of 2021 to $8.75 per bushel during the first quarter of 2022.
Railroad logistics were impactful on both the change in gallons produced in the price of deliberate corn.
Gross loss for the first quarter 2022 improved to $3 $1 million compared to $3 6 million.
Dollar lost during the first quarter of 2021.
This gross loss improvement was attributable to ethanol pricing rising faster.
And the offsetting cost of delivered corn.
Selling and general administrative expense increased to $7 $3 million during the first quarter of 2022.
$5 $4 million during the same period in 2021, driven principally from noncash charges for stock compensation.
Operating loss was $10 $4 million for the first quarter 2022, compared to operating loss of nine $9 million for the same period in 2021.
Interest expense, including accretion of series a preferred units in the <unk> biogas LLC subsidiary and loss on extinguishment accounting for debt decreased to $5 $6 million during the first quarter of 2022 compared to $7 $2 million during the first quarter of 2021.
Additionally, our Metis biogas initiative recognized $1 $6 million of accretion preferred payments on its preferred stock during the first quarter 2022 compared to $1 $9 million during the first quarter 2021.
A charge of $681000 loss recognized on debt extinguishment accounting related to subordinated debt renewables.
And included in the T V.
The interest expense.
Net loss was $18 3 million for the first quarter of 2022 compared to net loss of $18 1 million for the first quarter 2021.
Cash at the end of the first quarter 2022 was $5 $5 million compared to $7 $8 million at the close of the fourth quarter 2021 investments in capital projects of $11 $4 million were made during the first quarter 2021, highlighting our commitment to build ultra low carbon projects.
This completes our review of the first quarter of 2022 now.
Now I'd like to introduce the founder Chairman and Chief Executive Officer of aim at US Eric Mcafee for a business update.
Eric.
Thank you Todd and my.
This is focused on.
Loosing below zero carbon intensity products, including negative carbon intensity renewable natural gas and renewable fuels.
Our projects maximize the value of carbon credits and tax credits, while reducing operating costs by using waste materials as feedstock for the <unk>.
<unk> renewable fuels.
In early 2022, we announced an updated five year plan.
Projected revenues to grow to about $1 5 billion.
You'll EBITDA to increase to more than $460 million by year 2026.
This growth is being funded by lower interest rate senior secured lines of credit at the parent company.
And the project funding by a medicine <unk>.
In the past year, and a half we've repaid about $8 million to reduce higher interest rate bridge loans from third eye capital, which has expanded our access to lower interest rate fundings.
We recently closed two new credit facilities at 8% and 10% interest rates with third eye capital, which have an aggregate availability of up to $100 million subject to certain criteria.
These carbon reduction lines of credit are designed to both fund the completion of the carbon reduction projects at the Keyes ethanol plant.
And to provide the funding prior to project financing for the jet diesel plant and the two C O two sequestration wells.
The working capital line of credit is intended to provide liquidity for ongoing operations.
We're also on track with financing growth using long term 20 year low interest rate project financing from the United States Department of Agriculture.
Our first $25 million of an expected eventual $100 million of USDA renewable energy for America project fronting where our biogas subsidiary.
Scheduled to close in June .
The positive regulatory trends for renewable fuels have continued to improve.
Including the recent approval of 15% ethanol illness, and 15 by the environmental Protection Agency and.
In the release this week of the California Air Resources Board 2022, scoping plan that significantly increases the number of credits required under the low carbon fuel standard program.
These regulations are driven by initiatives to Decarbonize transportation the need to reduce the cost of fuels as petroleum prices increased and a renewed interest in energy security.
During the first quarter of 2022 and that was achieved important milestones towards revenue growth and sustained profitability in each of our four lines of business.
Now Andy Foster the president of the Meadows biogas and they must advance.
Will review highlights Andy.
Thanks, Eric and good afternoon, everyone.
Dairy renewable natural gas business has been producing biogas since September of 2020 and received a negative 426 carbon intensity pathway from carb and 2021.
Our <unk> as a negative carbon intensity renewable fuel that exemplifies the circular bio economy that eight minutes is creating by using agricultural waste products and byproducts from our production facilities as feedstocks to produce sustainable below zero carbon intensity transportation fuels.
This year, we a medicine biogas renewable natural gas project in California progressed with the completion of the construction and testing for 20 of the 36 miles of biogas pipeline complete.
Completion of construction and testing of the $12 million centralized biogas to RMG upgrading facility.
Completing the PGE utility gas pipeline interconnection unit and testing.
Operation of our third dairy digester, which is now flowing gas through our biogas pipeline.
And continued construction of four additional dairy digesters that are scheduled for completion in the next few months.
We anticipate injecting RMG into the P. Jeanie utility pipeline on a fully operational basis. Shortly after their team completes commissioning of their equipment next week.
This will be the first time that it is 30 minutes biogas project generates utility grade renewable natural gas and will be the first time that our RMG delivered into the utility pipeline system.
By the end of the third quarter, we expect to have seven operating dairy biogas digesters connected via our pipeline to the.
U P Genie utility pipeline generating approximately 200000 MMP to use per year of RMG valued at more than $20 million per year of ongoing revenues.
The initial production from a dairy digesters will be delivered to the pipeline and then stored in an improved underground facility until the carb Ci fuel pathway is issued which can be a six to nine month process.
The RMG produce this month onward will be stored until Q4 of 2022 were Q1 of 2023 when the Ci pathways are issued and we can fully monetize the full value of the <unk> in RFS credits from the sale of our LNG.
During 'twenty, one and 'twenty two and in early 2022, we added several key people to our biogas teams supporting our engineering permitting finance and O&M activities. We are scaling our human capital at an appropriate rate to support the business and we have been fortunate to attract a number of very experienced.
Contributors.
To date <unk> has been awarded $23 million of grants related to the biogas project from the California Department of food and Agriculture, The California Energy Commission Pacific gas and electric and other government agencies for the dairy biogas projects and the production of renewable natural gas.
Now, let's just take a few moments to discuss progress at our California ethanol plant.
As Todd mentioned earlier, we generated 22, 22% year over year increase in revenue from sales in Q1 2022 compared to Q1 of 2021.
That said high corn prices combined with ongoing railroad logistical issues have increased the delivered cost of corn to more than $10 per bushel.
On a positive note strong demand and favorable pricing for ethanol and wet distillers grains, and distillers corn oil are helping to offset the increased cost of corn transportation and energy.
Our California ethanol plant is being upgraded to operate using high efficiency electric motors and pumps powered by low or zero carbon intensity renewable power sources, including a solar array.
Solar array in local renewable electricity.
A strong endorsement of this strategy is a strong endorsement of the strategy and that is has been awarded over $15 million of energy efficiency grants by PGE and the California Public Utilities Commission to supplement our own funding to complete these projects.
Let me take a minute to provide a few updates on the keyes ethanol plant projects that are expected to materially increase cash flow when the projects are fully completed.
The Keyes ethanol plant is now operating at nearly full capacity more than 60 million gallons per year, taking advantage of strong ethanol distillers grain and corn oil pricing.
Distillers grain production is completely sold out with more than two 2 million pounds or the equivalent of 45 truckloads being delivered to local varies on a daily basis.
Distillers corn oil deliveries or more than 1 million pounds per month.
And at record prices, which is being largely driven by the use of non edible corn oil and biodiesel and renewable diesel production as well as strong demand from local animal feedlots.
<unk> to production at the Keyes plant is approximately 400 tons per day, which is being liquefied and delivered to local food processors by messer.
<unk> about $3 $4 million per year of tax credits at $30 per metric ton under current law.
Our high efficiency heat exchanger unit has been installed and is now fully operational reducing the amount of natural gas used by the <unk> plant.
The Mitsubishi Zebra dehydration unit, which separates water from alcohol.
Has been installed and the test run has been completed we are currently installing a specialized pretreatment unit. In addition to some additional process upgrades.
We expect to have the <unk> unit fully operational by the end of June .
The <unk> unit will significantly reduce steam consumption in the plan by about 21000 pounds of steam per hour to less than 5000 pounds of steam per hour for ethanol dehydration. This 75% reduction in natural gas generated steam used for ethanol dehydration reduces our operating costs and increased.
Our revenues through lower carbon intensity.
The solar micro grid with battery backup is progressing with signed EPC contract with Sunpower for the installation of a $12 million solar micro grid with battery backup. This project is supported by an $8 million Grant from the California Energy Commission.
The solar unit is designed to generate approximately $1 nine megawatts of zero carbon intensity of electric power.
At low cost for operation for the ethanol plant and through the year.
The power shedding in storage.
The mechanical vapor recompression system to further reduce petroleum natural gas and steam users moving forward with detailed engineering now completed and our contractor bid packages, which have been sent out this.
This project is expected to significantly reduce the use of petroleum natural gas and combined with the zebra system, we plan to eliminate up to 85% of our natural gas consumption at the Keyes plant when the MBR system becomes operational in 2023.
Currently natural gas costs for the Keyes plant on more than $10 million annually.
We expect to save more than $8 million annually of natural gas costs, while reducing the ethanol carbon intensity, thereby increasing the value of ethanol produced Keyes plant.
In summary, operational performance and project milestones for the <unk> biogas and ethanol plant businesses are both on track with the five year plan Eric.
Thank you Andy.
Let's discuss our carbon zero renewable jet and diesel fuel projects with carbon sequestration in riverbank, California.
We are pleased that the <unk> carbon zero by refinery under development in riverbank, California near Modesto continues to achieve major milestones.
In December 2021, after three years of negotiations with the city of riverbank in the U S. Army <unk> signed the acquisition of a 125 acre riverbank industrial complex.
This site is a former U S Army ammunition production facility with 710000 square feet of existing buildings laid out his eight production lines.
A real wide with storage space for 120 railcars onsite.
A 20 megawatt electricity substation and 100% zero carbon intensity renewables renewable electrical electrical power with a direct power line connection to the hydroelectric dam.
Last month, a notice took operational control of the 125 acre riverbank industrial complex for construction of our sustainable aviation fuel and renewable diesel plant.
As well as the riverbank portion of our <unk> sequestration of well project.
We have signed and announced more than three $4 billion of sales contracts with Delta Airlines American Airlines, Japan Airlines, Qantas and other airlines for sustainable aviation fuel.
Along with signed letters of intent, we have contracts for about 45 million gallons per year of <unk>.
London sustainable aviation fuel to be produced at the riverbank plant.
Sales agreements the neat sustainable aviation fuel will be trucked from the riverbank production plant to a tank farm and the San Francisco Bay area for blending with jet fuel.
Glenn did Saf will be delivered via pipeline, the San Francisco Airport used by Airlines.
In addition to the $3 4 billion of blended sustainable aviation fuel sales contracts, we signed a $3 2 billion dollar renewable diesel sales agreements to deliver 45 million gallon per year under a 10 year sales contract with a major travel stop chain for its northern California locations.
We are currently in the engineering phase.
<unk> the closing of the debt financing of the renewable jet and diesel plant.
Feedstock procurement for the 90 million gallon riverbank plant is being launched by the construction of accrued Tello refinery in India near our existing 50 million gallon per year biodiesel plant.
Already purchased Palo for sale to the U S producers, which we expect to expand with our own crude tall oil refinery becomes operational later this year.
We will then divert this feedstock supply chain to the riverbank plant their commission commissioning of production.
We are actively working with our airline customers to obtain tell us supply from Australia. Since there are limited incentives to produce sustainable aviation fuel in Australia compared to California.
Let's review, our new subsidiary that is carbon capture.
In October 2020, the <unk> plant in California was identified in the study issued by the Stanford University Center for carbon capture.
One of three ethanol plants Sidoti sources in California that have the highest potential return on investment from building, a carbon capture and sequestration facilities compared to the oil refinery cement plants and natural gas power plants that comprise the 61 largest COPD emission sources in California. In addition to ethanol.
Our ethanol plant currently captures about 150000 metric tons per year of Cotwo and compresses, the cotwo and the Messer Liquefacient plant.
Transportable liquid carbon dioxide from which we already generate IRS 45 tax credits worth $30 per metric ton from Sidoti reuse.
<unk> operations are now generating up to $4 billion per year of tax credits.
The carbon sequestration study that had medicine commission showed that the <unk> Keyes plant and the riverbank plant site located above the 7000 foot deep strategy known that's a cap rock and an 8000 foot deep strata known as a basement rock.
Between the two layers is the saline formation that was cited by Stanford is ideal for carbon dioxide sequestration.
Over a long period of time.
Oh to react with daily to form a mineral that is permanently sequestered underground it does not return to the atmosphere.
And phase one of the <unk> carbon capture project, we plan to inject up to 400000 metric tons per year of Sidoti <unk> from our biogas ethanol and jet diesel plants into two sequestration of wells, which we plan to drill near our T. Biofuels plant site in California.
We are expecting to construct two <unk> injection wells that each have a minimum of 1 million metric tons per year of indexing capacity with additional <unk> supply biorefineries and other sources and sequester a total of 2 million metric tons per year.
The initial phase of construction.
Includes drilling to characterization wells to provide empirical data for the EPA classic permit the injection wells will then be drilled at the same site site after receiving EPA and other permits we are currently in the engineering and permitting process for the two characterization wells with an expectation that we will drill the FERC characterization.
<unk> at the riverbank site.
Let's review, our biodiesel business in India.
India's recovering from a significant COVID-19 pandemic.
Laughs recently in the first quarter, a two rupee per liter tax was adopted in India for any diesel that is not blended with biodiesel. The new tax becomes effective in October 2022, and has already led to significant discussions with major oil refineries in India regarding supply of more than 125 billion.
Alan's of biodiesel.
Needed to be blended into 25 billion gallons of diesel consumed in India each year in order to avoid payment of the new tax.
We continue to work on an approval to export biodiesel from India to California opening the export market, which has previously been prohibited under the Indian National Biofuels policy.
Price of biodiesel in California has been significantly higher than India prior to the NDA government tax.
Rich bank facility is well positioned to manage project.
Product re heating and trans loading for local truck delivered again in California.
Since our India subsidiary has no debt and is fully constructed and commissioned we are well positioned for rapid revenue increase as we expand biodiesel exports.
Would you expect large oil refinery in government purchases of renewable diesel to the climate change and air quality goals.
The current Covid crisis facing India continues to subside.
In summary.
Hey, medicines, expanding a diversified portfolio of negative carbon intensity projects from dairy renewable natural gas renewable jet and diesel fuel using low carbon waste oils.
Low carbon ethanol using cellulosic sugars from Westwood and <unk> sequestration.
All of these projects are synergistic and creative circular bio economy within and Thats, which we use byproducts of waste products from our facilities and our local areas as feedstock to produce low and negative carbon intensity renewable fuels.
Our company's values include a long term commitment to building value for shareholders. The empowerment of respect for our employees and business partners and making significant and positive contributions to the communities we serve.
Now, let's take a few questions from our call participants Ali.
Thank you Mr.
We will now be conducting a question and answer session.
Ladies and gentlemen, if you have any questions or comments. Please press star one on your phone at this time.
We ask that while posing your question can you. Please pick up your having fashion positioning on speaker phone to provide optimum sand quality. Please hold while we poll for questions.
Our first question is.
Is from Manav Gupta.
Of credits.
Proceed here.
Pete.
Mike My question is at this point you have signed some big long term contracts with Dod and other airlines.
Commendable help us understand a little how these contracts actually work so if you deliver it.
Renewable sustainable aviation fuel, what kind of premium do they give you on that versus normal jet fuel the blended product and when you signed these contracts are the airlines asking for a certain portion of the Rins are N CFS credits or maybe even blenders tax credit so help.
Just to understand how these contracts are structured a little.
So we can better model the profitability. Thank you.
Good good question Manav.
Let's take them in two pieces, how do they work and then what is the percentage of.
Very simple structure that aligns with the cost structure of jet fuel because all airlines.
To buy jet fuel to all of their costs are very similar some hedged and some don't but over time. They all have basically the same cost structure.
They are in jet fuel so.
Structure of the contract is jet fuel plus a premium.
Think of premium in the 10% range.
So as the price of jet fuel gets higher that premium actually gets higher but it is correlated with the price of jet fuel, which is something they can hedge against so they can hedge against there Jeff.
Jet fuel deck to be able to hedge their sustainable aviation fuel commitments.
They are getting zero percent of renewable identification numbers under the federal renewable fuel standard there getting zero percent of low carbon fuel standard credits in California, they're getting zero percent of the tax credit all of the producer related incentives, including those and future ones are to the VA.
Account of a matters.
They are receiving the core C&I credits, which is a voluntary program among airlines and which the airlines that are adopting sustainable aviation fuel more quickly can sell credits those who are not adopting as quickly and that voluntary carbon trading market.
Is a source of revenue for our customers that are buying more SaaS as they sell their credits to airlines that do not have access to sustainable Asian field. So we signed a $1 billion contract with Delta Airlines $1 1 billion with American.
And as you know, Japan Airlines et cetera. These are comp.
A company that will be able to sell credits to other airlines and offset some of the premium that is a part of the contract we have there now so.
So this is currently structured as being 45 million gallons per year, which is 50% of our total production by $80 million and optimizes yields from the plant and I should mention that we can produce more sustainable aviation fuel, but we'd be charging a premium over that.
This model of jet fuel plus 10% because the yields will be lower as we go beyond 45 million gallons and we do have a.
Small group of customers that are quite willing to pay for that Permian specifically, if they are flying into Europe . The costs in Europe are much much much higher than what I've described so theyre able to offset some of the European costs by buying from us in California at a premium above jet fuel plus 10% range calculation.
Perfect and my quick follow up here is I think you mentioned.
Opening comments about the mid dense scoping document, which came out which I think interestingly yesterday, even Darling ingredients mentioned. So my question is looking to back on other discussions that you are having at carb because you know a lot of people at cod.
Do you have confidence that going ahead.
We'll actually as a scoping document is indicating we be raised the targets for 2013, and maybe beyond and in the process try and support the carbon price in California, If you could comment a little on that.
They.
Have a very visionary commitment to reduce carbon emissions in California.
<unk>.
The way that I usually present. This as described if you don't have any incentive to decrease your carbon are you going to actually do that in other words why not just buy.
Diesel and drive on down the road if there is no.
Credit market for the alternative which is renewable natural gas or even ethanol to replace diesel truck. So.
All we're talking about really is what the timing is and as we have spoken to the staff as well as board members of Carb They actually express.
High levels of frustration.
The market is not listening to them because they are very committed to this carbon reduction plan that it will require additional.
Low carbon fuel standard credits and other mechanisms.
To be able to achieve that plan and so.
They believe that the market is just not look at that.
We heard that consistently from several different members, including people who run the program. So the scoping plan I think its 500 plus pages, describing their vision that theyre going to make it so difficult to buy anything it's high carbon in California that the.
The cost of that with the credits that everything else would just be prohibitive and tried to everybody to zero emission zero emission future.
Thank you so much for taking my questions Eric.
Thank you Manav.
Thank you.
Our next question is from.
Jordan Levy a true secure Ashish. Please proceed with your question.
Good afternoon, Eric and Andy Todd.
Maybe first we can just touch on some of the financing work <unk> been doing it seems like the USDA just financing is progressing but maybe taken a little longer than initial expectations. Maybe if you could walk through the timing there one more time I know you mentioned it in the opening comments and then just give us a sense of your confidence and how that's moving forward.
Yeah.
You'll see a bogus financing is.
I would say slightly slow, but not unexpectedly slow we've got a <unk>.
Range that we're within in terms of how this project's going along and Thats why we are.
Announcing for flowing gas from our third digester in our fourth fifth sixth and seventh or all.
Well, along the way as et cetera et cetera. So.
We are expecting to see this biogas funding to get completed in June this is $25 million.
None is a special purpose entity that we put together with a certain.
Defined group of Digesters and pipeline et cetera.
That $25 million and under the renewable energy prepared for America program. The limit is $25 million of debt per entity. So we will have multiple entities. We're in the process right now for entities for a total of $100 million.
No.
The Golar and this would be the 225.
This summer and then this fall do another 25 in their late next year do another 25, probably middle of next year the laboratory, but and so these are the this is basically sort of a template that we're doing for the first time and as we do it the second third and fourth and potentially fifth sixth.
This is getting easier and easier and.
Quicker so the structure.
Is roughly 6% interest rate.
Floating component, there, but roughly 6% of trade, but it's very very long term 20 year financing at very very attractive and it's 80% guaranteed by the U S Department of agriculture. So.
No.
It's an excellent tool wins worth waiting for and we have all of the.
Relationships in place for us to close the 325 and frankly, the second third and fourth or does the same thing, but with different areas and different processes.
Thanks for that and then as a follow up also on the R&D side of things.
A lot of progress on the pipeline side of that.
Curious as you build them.
And we're going to build that out if you got.
Starting to get more interest from other pharma. There is you don't have contracts in place.
Kind of a long term trajectory is playing out.
Yes. Thank you very much we've completed 20 miles and <unk>.
A few months ago, we had four miles from our pipeline and so our schedule is in the fourth quarter. This year to have our entire 36 mile pipeline completed as that pipeline has been going in the ground.
Imagine that these dairy.
Operators are actually driving by our construction site and now they're listening to their neighbors talk about the revenue they're generating off of the project.
It is definitely engendered a lot of additional interest we have roughly two dozen signed.
Participation agreements with various theories that we're working on additional.
Yes, we're running up in excess of 30 here.
Soon so we're making great.
Great strides, but because we've gone past the tipping point now there is really not a second biogas pipeline that's scheduled to go in the ground.
Somebody wants to do biogas, then they know who to call and.
We're seeing increased acceleration in our adoption by by dairies in that process. So by the fourth quarter of this year, we expect to have that pipeline fully in place.
I think from that point on the project because it's very very different.
We've been very focused on the centralized biogas clean up hub and the <unk> interconnection unit and the initial pipeline. So that we could interconnect. These dairies will that that having now been achieved with 20 miles pipeline et cetera.
Our focus is just simply making digesters occur and thats dramatically simpler business plan and frankly, a whole lot quicker because all of our resources to focus on Google.
Thank you all so much.
Thank you Sir Thank you George your next.
Your next question is coming from Amit Dayal with H C Wainwright.
Please proceed with your question.
Hey, good morning, guys. Thank you for taking my questions I mean, it looks like a largely an execution story from here, Eric I mean from a risk perspective, given sort of the supply chain issues I know you probably don't have those.
Right now, but what should we keep in mind with respect to any cost increases or any of those types of things that you may be seeing.
Back to some of these capex plans immuno project deployment efforts that you are undertaking right now.
We definitely will be impacted by a combination of.
Transportation, that's already impacted our ability to just get things are already built physically on site. It has not changed our overall schedule much because as you know it's a long lead time items that really are having impact on things, but we've seen the impact of the slowed down supply chain in terms of cost increases we had the benefit of buying a lot of materials for biogas.
Digesters in the middle of 2020.
When they were being offered quite frankly, a very large discount and so that has helped to accelerate our process I do not think that we'll see anything that significantly.
Parts of our plan, which includes contingencies. So at this point in time, we are not coming up with any revised capex budgets, because theyre contingencies are sufficient to handle that.
What we're seeing in the market at this point.
Understood.
My other questions were already addressed thank you so much.
You bet.
Thank you.
Our next question is coming from Derrick Whitfield with Stifel.
Sir Please proceed with your question.
Thanks, and good afternoon to you and your team Eric.
Hello there.
For my first question I wanted to build on <unk> question regarding the 2022 Carb scoping plan and ask for your initial impression on the Berry and <unk> sorry.
Sorry, dairy and livestock sector proposal, specifically targeting at least 120 additional projects with at least half being digesters.
Is that in line with kind of how youre thinking about it from a marketing.
And certainly a planning perspective.
I would say that that actually exceeded my personal expectation that probably met some of the expectations of others, who are in the middle of this but it's because carb has just gone through a cycle.
On the call environmental pushback.
On the role of renewable natural gas and it has been the decision point and I think that decisions are made.
As you look at the scoping planned without.
Dairy renewable natural gas it will be very difficult for them to achieve the carbon reduction targets and then close anywhere close to what they are talking about.
Because with.
The negative 426 carbon intensity for example, our project is a very significant contributor to the program.
So over the last let's say six months theres been a cycle of environmental pushback on this but I believe <unk>.
Multilateral benefit processes.
Covering up Digesters and capturing methane.
And carb could have.
Spotted with a decreased expectation, but instead I think Beth.
They are accelerating I mean anybody that says that theyre looking for 420 projects or anything.
For the ambitious about it for 50% of that could be dairy is actually exceeding my expectations. So it's a very bullish signal for us and renewable natural gas industry.
And especially a bullish signal about how many L. CFS credits are going to be expected under the scoping plant and so part of the problem. The 500 pages as you kind of want a simple thing which is how many <unk> credits are required and how many are expected and you just want to be able to compare the two.
Well because it's.
Complex document with complex calculations I don't think people will settle in on those numbers for a number of months, but it's easy to conclude that if theyre looking for 420, <unk> carbon intensity R&D facilities and Thats a whole lot of L. CFS credits that are going to be required.
So we're.
We're seeing a very bullish signal out of carpet scope and plan.
That's great Eric.
My follow up.
Just wanted to ask if you could update us on your current thinking around offtake plans for dairy R&D as you progress through phase III.
We have already reached a commercial agreement with a significant.
Offtake opportunity.
A very favorable terms on both side, we're very very happy about the relationship and expect to announce it very soon so we also as you probably know have significant internal needs for renewable natural gas for moving our animal feed 2 million pounds, a day etcetera biofuels and so.
The combination of external standard <unk>.
Distribution into the trucking market as well as internal consumption.
Is giving us I think a significant lower significantly lower distribution cost than <unk>.
Certainly anybody from the Midwest, we're sitting right in the middle of California with trucks thousands of them driving by our client every single day. So we're just very uniquely positioned to have a low cost distribution.
Very helpful. Thanks for your time and comments.
Thank you.
Thank you.
Our next question is coming from Matthew Blair.
P. P. H. Please proceed with your question.
Hey, Thanks for taking my questions.
Eric could you just walk us through the drop off in the RMG volumes in Q1 compared to Q4 was that due to the testing of the upgrading facility and the pipeline interconnect and.
I guess, how would that progress through the rest of the year just keeping in mind I think there are 2000 to 2022 RMG volume guidance was around like 49, or 58 does that number still hold.
First of all define whether we're talking human beta use or millions of dollars. So we have not actually produced any RMG renewable natural gas.
To date that required the commissioning of the biogas cleanup unit and our PP&E interconnection. So we could actually put it in the pipeline. So we technically start production of RMG.
And the modality.
Right now this month so.
What we have historically been able to do that.
Most developers are not able to do is we own our own ethanol plant. So we've been using biogas, which is 40% carbon dioxide.
And has other contaminants and they actually.
Two actually.
Actually power, our ethanol plant, we set up a boiler and we tune that boiler to be able to use biogas rather than petroleum natural gas.
And so we've been able to monetize 100% of low carbon fuel standard credit value of Hypersound the molecule value.
We've really been missing Yossi.
But the six ran we already generate making ethanol we don't we don't get the D. Three red when the naked corn ethanol. So we started that in September 2022, with initial production and got our carb.
Approval effective soon thereafter.
<unk>.
What the numbers, we have out in the market today are basically the biogas numbers.
So I think it was 13, 8%.
<unk> thousand 800, <unk> used in the first quarter from two dairies, which if you multiply that times four is roughly 50000 <unk>.
Per year, each dairy is projected to be approximately 25000 <unk> per year. So we are concurrently running slightly ahead of what I would say, it's an expectation on an average dairy the reason why because it was the middle of winter.
So the first quarter being cold is expected to be one of the lowest production seasons of the year and we exceeded the annual run rate.
The current quarter book.
Four it gets you.
In a place of which we're really going to probably be about 51000 for the year. So.
We are going to be publishing R&D volumes that will show how much we're injecting in the pipeline and putting in storage as we do Q2 of 2022 and those will be the first real revenue volumes.
To date, we've been selling it to our own subsidiary so theres not been any third party quantification that we haven't been producing renewable natural gas with just producing values.
That's helpful. Thank you.
And then could you just remind us the.
So this recently completed upgrade or to take into dairy biogas to R&D for $12 million, what's the capacity of that plant.
It's expandable capacity at relatively lower costs, but it's initially a roughly.
20, plus.
Dairy unit, so were not looking to upgrade it.
Yeah, we're not looking to upgrade until the end of next year. So we're 18 months away from upgrading your business plan.
Great. Thank you very much.
Sure. Thank you I appreciate your time.
Thank you.
Our next question is coming from Ed Woo with <unk> capital. Sir. Please proceed with your question.
Yes, Thanks for taking my question, Eric What's your view on oil prices and gasoline prices are both pretty elevated and how does that affect demand for ethanol gasoline demand does go down.
I think we all recognize there is a temporary impact because the Ukrainian and Russian conflict on both oil and gas prices that do this extreme.
I don't think that it's a sustainable.
Specifically on the gas side, it's definitely not sustainable.
The logistics of bringing in liquid liquefied natural gas into Europe and other things.
Occur I think that the power of the Russians spigot of crude oil and natural gas is going to be less of an international market.
That being said we are recovering from a global pandemic. So supply is not meeting demand.
Logistics supply chains are stalled compared to what you need in order to accelerate into this new demand and so that is putting upward price pressure on gasoline.
Especially diesel.
Andy and I, both Reed regular reports about the supply chain of petroleum.
You're at record lows in terms of whats physically and tanks and youre talking two weeks or less of gasoline or diesel on a tank Europe the border, but crisis right, there and that's where we've been for what importing gasoline and importing gas and everything else. So our expectation would be.
Settlement of the Russian Ukrainian dispute will probably take $20 out of the price of crude oil just because traders or emotional.
But the swing producer is not Russia.
It's not Iran.
It's not Nigeria, it's not Venezuela, the swing producer is Mohammed bin Salmaan.
In Saudi Arabia.
Mohammad bin Salmaan needs $80 crude oil can pay per his economy, where 70% of the people under age 35 did not have a job.
I expect a lot of support from the government is running at almost a lumpier economy, and so between projects and <unk> trying to fund as well as the very heavy social system, Saudi Arabia needs $80 crude oil that's west, Texas intermediate price about 85 Brent.
<unk> price and so I think there's a bit of a price floor, because Muhammad denso Oman.
I have learned that the world is okay with $3, 50% gasoline prices, it's dramatically lower than what it is today and that's what we would end up with that EBIT dollars crude oil and with refinery margins, which are currently $60.
Apparel and historically or if.
If theyre lucky there at <unk>, so take out some of the refinery margin and youre going to be back at oil and gas prices that are in the $80 range and moderated the pump with people very comfortable paying $3 $54 at the compensating the license for a bit. So that's my personal view I am not.
Hedging or trading in that view and should be relied upon with lots of caveats.
It assumes that the war is is rectified and that may or may not occur in Texas.
But youre not seeing any demand destruction for gasoline and ethanol currently.
What people driving us to conserve yes, Andy allow us bundle.
Fact.
Quite the opposite demand.
<unk> has been strong theres been draws in most of the pads. This week and it's setting up nicely where there have been built it's in export export pads some of the Gulf Coast and New York So.
The ethanol business is doing.
Doing fine as Eric mentioned gasoline demand still remains strong even with the higher prices.
We will see with the most recent increase this week if that.
Really starts to take a bite and people change summer travel plans, but we haven't seen a big.
Just demand destruction on the ethanol side and you add into that the complete disaster that are the union Pacific and BN railroads.
Certainly west of the Mississippi.
Is increasing that probably even more so so theres the inventories on the west coast.
Or if not all time lows near that because the railroads can't deliver can't perform haven't been able to perform for over a year.
It's been.
Extremely bad in the last six months so.
When you have that setup.
And then I think that youre going to Youre going to continue to see strong demand for ethanol certainly in our in our world. It is.
Great well, thanks for answering my questions and I wish you guys. Good luck. Thank you.
Thank you.
There are no further questions at this time I would like to turn the floor back over to management for closing comments.
Thank you to admit the shareholders analysts and others for joining US today. Please review the <unk> company presentation, and the medicine Investor presentation posted on the homepage of the <unk> website, we look forward to talking with you about participating in growth opportunities that in metals.
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