Q2 2022 Aemetis Inc Earnings Call
Yeah.
Welcome to the second quarter 2022 earnings Review conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
Now my pleasure to introduce you to your host Mr. Todd Waltz, Executive Vice President and Chief Financial Officer of <unk>.
Inc. Mr. Waltz, you may begin.
Thank you Kelly and welcome to the <unk> second quarter 2022 earnings Review Conference call.
Joining us for the call today is Eric Mcafee, founder Chairman and CEO of <unk> and Andy Foster President of a medicine advanced fuels and <unk> biogas. Please.
We suggest visiting our web site at a metastatic com to review today's earnings press release.
<unk> corporate and Investor presentations filing with the security and Exchange Commission recent press releases and previous earnings conference calls the.
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. These statements must be considered in conjunction with the 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.
Additional information please refer to the company's security and Exchange Commission filings, which are posted on our website and are available from the company without charge.
Our discussion on this call 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 three and six months ended June 32022, which is available on our website at.
Adjusted EBITDA is defined as net income or loss plus to the extent deducted in calculating net income interest expense gain on debt extinguishment income tax expense intangible asset amortization expense accretion and other expense of series a preferred units.
On lease termination gain on litigation depreciation expense and share based compensation expense.
Now I'd like to review the financial results for the second quarter of 2022.
Revenue during the second quarter of 2022 increased 20% to $65 9 million.
Compared to $54 9 million for the second quarter of 2021.
Our California ethanol operation experienced steady sales volume with an increase in the selling price of ethanol from $2 78 per gallon in the second quarter of 2021 to $3 13 per gallon in the second quarter of 2022 delay.
<unk> delivered corn price significantly increased from an average price of $8 four per bushel during the second quarter of 2021 to $10 21 per bushel during the second quarter of 2022.
As continued core railroad performance impacted both the delivery cost of supply of corn into California.
Gross loss for the second quarter of 2022 was $214000 compared to $3.6 million gross profit during the second quarter 2021, our California ethanol segment accounted for substantially all of the reported consolidated gross loss or profit respectively in both periods.
Selling general and admin and administrative expenses were $7 $1 million during the second quarter of 2022 compared to $5 $8 million. During the second quarter of 2021 as a result of investments in our ultra low carbon initiatives and noncash charges for stock compensation.
Operating loss was $7 6 million for the second quarter of 2022 compared to an operating loss of $2 $1 million the second quarter 2021.
Interest expense during the second quarter of 2022 was $6 $7 million, excluding accretion and other expenses in connection with series a preferred units and our <unk> biogas LLC subsidiary compared to $5 2 million during the second quarter of 2021. Additionally, our <unk> biogas.
<unk> LLC subsidiary recognized $1 $5 million of accretion and other expenses in connection with preference payments on its preferred stock during the second quarter of 2022 compared to $3 $8 million during the second quarter of 2021.
These deneke litigation was settled during the second quarter of 2022 for $4 $8 million, including litigation costs, allowing for the release of $1 4 million of litigation reserves.
Additionally, a grant of $14 2 million was received from the United States Department of Agriculture.
Fuel producer program.
Net loss was $209000 for the second quarter of 2022 compared to a net loss of $10 6 million for the second quarter of 2021.
Cash at the end of the second quarter of 2021 was $3 6 million compared to $7 $8 million at the close of the fourth quarter of 2021 investments in capital projects of $12 1 million were made during the second quarter of 2022 further highlighting our commitment to build ultra.
Low carbon projects.
This completes our review of the second quarter of 2022, now I would like to introduce the founder Chairman and Chief Executive Officer of <unk>, Eric Mcafee for a business update Eric Thanks, Todd a medicine, focusing on producing below zero carbon intensity products, including negative carbon into.
Entity renewable natural gas and renewable aviation fuel with carbon sequestration.
Our projects maximize the value of favorable federal and state carbon reduction programs, while reducing feedstocks and the operating costs by using waste materials as feedstock hydrogen supply and energy sources for the production of renewable fuels.
2022, we announced an updated five year plan, which projected revenues to grow to about $1 5 billion.
And annual EBITDA to increase to more than $460 million by year 2026.
We're monitoring federal legislation that strongly supports almost every aspect of our business and if passed would be expected to significantly improve our five year plan.
If the legislation becomes law, we will provide further updates.
Our plan is to fund growth by using the approximately $100 million of lower interest rate senior secured lines of credit that were signed in March of this year. In addition to low interest rate U S government guaranteed long term loans in the past year and a half we have repaid more than $80 million to reduce higher interest rate bridge loans from <unk>.
Capital, which has expanded our access to lower interest rate funding.
We recently closed two credit facilities at 8% and 10% interest rates with the same lender, who will have a aggregate availability of up to $100 million subject to certain criteria. The.
The carbon reduction line of credit is designed to fund the completion of the carbon reduction projects at the Keyes ethanol plant and to provide the development funding priority project financing for the jet diesel plant and the two <unk> secret exploration 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 U S Department of agriculture.
Our first $25 million of an expected $100 million or more of USDA renewable energy for America funding for our biogas subsidiary was approved last week by the National USDA Investment Committee and is in the closing process now for funding this model.
The positive regulatory trends for renewable fuels have continued to improve including the recent approval of year round, 15% ethanol known as <unk> by the EPA.
And the release of the California Air Resources Board 2022, L. CFS scoping plan that significantly increases the number of credits required under the low carbon fuel standard program.
We expect that <unk> credit prices will increase significantly as traders learn more about the number of El CFS credits that will be required starting in January 2024 in order to meet the expanded decarbonization goals goals set forth by carb.
Last week investors were pleasantly surprised to hear the news that the energy provisions of the build back better legislation received the support of key congressional leaders and the White House and the Bill is now on a fast track for approval.
So the legislation is not final.
In summary of the provisions and the potential impact on the medicine includes the following direct benefits to <unk> projects.
A dollars 25 to $2 75 tax credit for sustainable aviation fuel that.
The proposed sustainable aviation fuel tax credit could result in up to $80 million per year to support the construction and operation of the 90 million gallon per year <unk> carbon zero, one sustainable aviation fuel and renewable diesel plant in riverbank, California, assuming a 50% Saf production allocation and a 50%.
Renewable diesel production allocation.
Enable diesel is expected to continue to receive the dollar per gallon blenders tax credit.
Next a 30% investment tax credit for renewable natural gas capital investments.
The ITC for renewable natural gas projects is expected to result in more than $90 million of cash received by embed us in the next five years from investment tax credits. This cash will be additional equity investment into the <unk> Biogas project, which makes project financing much easier by reducing the amount of long term project debt by 91 million.
And reducing interest costs by more than $60 million over the life of the 66 dairy Digester project.
Also an increase in the carbon sequestration tax credit from $50 to $85 per metric ton of Cotwo.
Paying the credit and cash as an IRS tax refund to companies and a process called direct pay.
We are developing two <unk> injection wells.
Located at the Meadows Biofuels plant sites in California to sequester 2 million metric tons per year of cotwo into a ceiling information about 7000 feet underground.
2 million tons times $85 per ton equals $170 million per year of cash that could potentially be paid to <unk> by the IRS.
Each year for the first five years of the project, providing $850 million of IRS funding to repay the capital cost and operating cost of the two projects.
With another seven years thereafter, as a tax credit valued at $1 2 billion.
The total value of the $85 per metric ton tax credit would be $2 billion in just the first 12 years of operations of the two <unk> carbon sequestration wells.
Several provisions in the legislation that are valuable to the ethanol business, including $500 million for Biofuels fueling infrastructure to support 15% at 85% ethanol plant blends.
A tax credit for low carbon intensity ethanol and adopting the greet model. So the carbon intensity of ethanol is calculated correctly.
These regulations are driven by initiatives to Decarbonize transportation, the need to reduce the cost of fuel as petroleum prices increase.
And a renewed interest and energy security.
During the second quarter of 2022, <unk> achieved important milestones towards revenue growth and sustained profitability in each of our businesses now.
Now Andy Foster the president of the <unk> biogas and <unk> advanced fuels businesses.
We will review some highlights Andy.
Thanks, Eric the <unk> biogas renewable natural gas project in California has progressed with the completion of construction of more than 20 miles of the 40 mile Biogas pipeline and is on track for completion later this year. Additionally, we completed construction and testing of the $12 million centralized dairy.
Biogas to RMG upgrading facility and construction of four additional dairy digesters that are scheduled for completion this quarter is well underway.
Importantly, we have successfully completed and been approved by PGE need for product and mechanical testing of the interconnection unit, which will inject RMG into their utility pipeline.
By the end of this quarter, we plan to have seven operating dairy biogas digesters connected to the utility pipeline generating approximately 200000 MMP to use per year of RMG valued at more than $20 million per year of ongoing revenues.
We plan to begin injecting RMG into the pipeline later this month storing RMG underground initially until we receive carb pathway approval for Lcs credit generation, which takes about six to nine months.
Since we believe that the CFS credits are presently undervalued as the market waits for the revised LLC a fence targets to be adopted beginning sales of RMG. Early next year will potentially provide increased revenues compared to RMG sales that would have occurred this month.
With the completion of the central RMG production facility and the utility gas pipeline connection as well as more than 20 miles of biogas pipeline, our focus will be on the construction of dairy digesters to fill the pipeline.
We have signed 24 leases or participation agreements with dairies.
And have many more dairy is in progress.
While continued supply chain challenges for items, such as compressors could impact project schedules, our existing backlog of new dairy Digesters take excuse me. It takes us into year 2024, So we expect to be on track with the five year plan.
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 project and the production of renewable gas.
As Eric mentioned earlier, we expect to close $25 million of the 20 year debt at a low interest rate under the USDA renewable energy for America program.
This month as our first USDA funding for the biogas project.
And we expect to receive approximately $6 million of grants during the next few months for the Orange.
Let's briefly discuss our California ethanol plant it's.
As Todd mentioned earlier, we generated a 20% year over year increase in revenues from ethanol sales in Q1 2022 compared to Q1 of 2021.
That said higher energy and corn prices combined with inexcusable railroad price increases coupled with poor performance issues increased the delivered cost of corn to more than $10 per bushel.
Ongoing labor issues with the major rail carriers continues to cast a negative shadow on our industry and the economy as a whole we are hopeful that the President's emergency Board will resolve this issue as soon as possible.
On a positive note strong demand and favorable pricing for ethanol and wet distillers grains, and distillers corn oil helped to offset the increased cost of corn and energy in the quarter.
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 our solar micro grid and local renewable electricity.
As a strong endorsement of this strategy a medicine has been awarded approximately $16 million of energy efficiency and other grants by PGD, The California, CPUC and other entities to supplement our own funding to complete these projects.
Let me take a moment to provide a few updates on the keyes ethanol plant projects that are expected to materially increase cash flow when the projects are completed.
The Mitsubishi Zebra ethanol dehydration unit has been installed in a test run has been completed we are currently installing a specialized pretreatment unit unit and additional process upgrades. We expect to have this <unk> unit fully operational this month.
The <unk> unit is designed to significantly reduce steam consumption in the plant by approximately 20000 pounds of steam per hour.
This is a 75% reduction in natural gas generated steam used for the ethanol dehydration and is expected to reduce our operating costs by decreasing petroleum natural gas use and increasing our revenues through lower carbon intensity ethanol.
The solar micro grid with battery backup is progressing nicely and we have a signed EPC contract with total for the installation of the $12 million solar micro grid system.
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 electric power at low cost for operation of the ethanol plant.
Mechanical vapor Recompression system, which will further reduce petroleum natural gas and steam use is now in the detailed engineering phase and contractors have submitted initial bids when completed with the zebra system, we expect to reduce about 85% of our natural gas use at the Keyes plant when the MBR.
System becomes operational next year.
Currently natural gas cost the keyes plant more than $10 million per year.
So we expect to save on natural gas costs, while also reducing our ethanol carbon intensity.
In summary, operational performance and project milestones for the <unk> biogas, an ethanol plant businesses are well on track with our five year plan, Eric. Thank you, Andy let's discuss our carbon zero, one sustainable aviation fuel and renewable diesel project in riverbank, California.
We are pleased that the <unk> carbon zero by refinery underdevelopment of riverbank near Modesto continues to achieve major milestones.
In December 2021, after three years of negotiations with the city of River Bank in the U S. Army <unk> signed the acquisition of the 125 acre riverbank industrial complex.
As a former U S Army ammunition production facility with 710000 square feet of existing manufacturing space.
Rail loop with storage space for 120 railcars onsite, a 20 megawatt electricity substation and 100% zero carbon intensity renewable power with a direct Caroline connection to the hydroelectric dam.
In Q2 of this year <unk> 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 Cotwo sequestration well project we.
We have signed and announced more than $3 4 billion of sales contracts with Delta Airlines American Airlines, Japan Airlines, Qantas and other airlines.
Along with signed letters of intent, we have contracts for about 45 million gallons per year of blended sustainable aviation fuel to be produced at the riverbank plant under.
I think the sales agreements the need Saf will be trucks from the riverbank production plant to the San Francisco Bay area for blending with jet fuel.
Blended SaaS will then be delivered via pipeline to the San Francisco Airport for used by Airlines.
In addition to the $3 $4 billion of blended sustainable aviation fuel sales contracts, we signed at $3 2 billion renewable diesel sales agreement to deliver 45 million gallons per year at a 10 year sales contract with a major travel fueling chain for its northern California locations.
<unk> is included in the pending federal legislation expand the market for sustainable aviation fuel by allowing a price to airlines that is competitive with petroleum jet fuel, we look forward to completing engineering and permitting in order to begin construction of the plant early next year.
Let's review, our new subsidiary <unk> carbon capture.
In October 2020, the <unk> plant in California was identified in the study issued by the Stanford University Center for carbon capture as one of three ethanol plant Cotwo sources in California that have the highest potential return on investment from building a carbon capture and sequestration facility.
Paired to the oil refineries cement plants and natural gas power plants that can comprise 61 largest cotr mission sources in California.
Our ethanol plant currently captures about 150000 metric tons of Cotwo per year, which is compressed and the messer liquid.
Vacation plant into transportable liquid carbon dioxide from which we already generate IRS 45, Q tax credits worth $30 per metric ton from Sidoti reuse current operations generated about $4 million per year tax credits under the 45 acute program.
That could increase to about $8 million per year under the pending legislation.
The carbon sequestration study that a <unk> Commission from Baker Hughes indicated that the <unk> Keyes plant and the riverbank plant site located above a 7000 foot deep strategy known as the cap rock and an 8000 foot deep strategy known as a basement rock between the two layers is a saline formation that was cited by Stanford.
<unk> is ideal for safe carbon dioxide sequestration over a long period of time, the Sidoti reacts with saline to form a mineral that is permanently sequestered underground and 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 wells, which we plan to drill near our two biofuels plant sites in California.
We expect to construct two <unk> injection wells at each have a minimum of 1 million metric tons per year of injection capacity with additional <unk> supplied by other emission sources to sequester a total of 2 million metric tons per year of Cotwo.
The initial phase of construction includes drilling to characterization wells to provide empirical data for the EPA classics permit the injection wells will then be drilled at the same site after receiving EPA and other permits.
We are currently in the engineering and permitting process for the two characterization of wells with an expectation we will drill the first characterization well at the riverbank site.
The direct pay feature of the pending legislation would provide $85 per metric ton of cotwo as a cash refund to <unk> each year.
As we mentioned earlier, the 2 million metric ton per year <unk> carbon capture project will generate $170 million per year from the federal direct pay tax credit as well as an estimated $400 million per year at a projected $200 per ton of sequester <unk> from the low carbon fuel standard in California.
The fixed amount of $850 million provided by the direct pay funding over the first five years of the project could support funding of the estimated $250 million capital cost of the two injection wells and related equipment.
Let's review, our biodiesel business in India.
The National Biofuels policy in India was updated in 2022 and is now being implemented to achieve a 5% blend of biodiesel does equal to about $1 5 billion gallons of biodiesel per year.
This month, our India biodiesel subsidiary bid on a tender offer from the three government oil marketing companies.
180 million gallons per month of biodiesel was tendered for purchase by the <unk>.
For the past 15 years, the pricing formulas have largely been driven by petroleum diesel prices for the first time, a feedstock plus pricing formula was used for the OFC tender, reflecting the actual cost for feedstock to produce biodiesel in India.
The pricing formula and the timing of the two months tender by the oil marketing companies is expected to be the ongoing format for sales to the <unk>.
We expect the formula to be a successful mechanism for the rapid growth of biodiesel production in India due to the particularly the predictability of the pricing formula.
We began operations of our India biodiesel plant in early August and expect to produce at full capacity to fulfill the tender offer. We believe this revised OFC purchasing process will allow us to maintain strong production levels on an ongoing basis.
Since our India subsidiary has no debt and a 50 million gallon per year of biodiesel plant is fully constructed and commissioned we are well positioned for a rapid revenue increase as we restart biodiesel production after a long delay.
In summary, a medicine is expanding a diversified portfolio of negative carbon intensity projects dairy renewable natural gas sustainable aviation and diesel fuel low carbon ethanol using zero carbon intensity electricity and Cotwo sequestration. All of these projects are synergistic and create a circular.
Bio economy within a met us and which we use byproducts and waste products from our facilities in local areas as feedstocks 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 in 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 Kelly.
Thank you Mr. Mcafee, we will now be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
While posing your question please pickup your handset.
Speaker phone to provide optimum sound quality. Please hold just a moment, while we poll for questions.
Your first question is coming from Manav Gupta with credit Suisse. Please pose your question your line is live.
So the first question I think Tim I wanted to ask is this letter.
Gavin Newsome seems to center on July 22nd two Liane Randolph.
<unk> Chan and looking at the looking at the latest he clearly once the faster pace of de Carbonization in California, I think is calling for 20% sustainable aviation fuel and again pretty much higher carbon reduction targets heavily there and then looking at the comp.
The comment of comments you have provided that you just went through the calculations that you're calling on to get to $100 LC at this.
Price again, so when you put these things together are you optimistic that this letter and everything else that youre seeing out there will have an impact the carbon targets will be raised and CFS price will rebound in your opinion.
I think that if you talk to carb staff. They will tell you they have.
Worked as hard as they can to communicate to the market.
The goals that <unk> set forth and scoping plan are realistic achievable and that they are now being asked to stretch even beyond those goals and so there is a very significant gap between traders and investors and their current view of the current requirements without CFS credits and what the January .
2024 and onward.
Credit requirements that carbon stated very clearly in the scoping planned and others.
Other disclosures and so the governance letter letter I think just seals.
<unk> is committed to this you may note that the board of directors of Carb is largely appointed by the Governor. So this is not a casual commentary by the Governor. This has a direct instruction and so I think it's very hazardous to be.
Obligated to deliver LTE FFS credits and not own them. So I think as traders over the next 18 months increasingly get more and more information about the specific numbers on an annual basis.
We have two analysts reports that say, we will be at the cap. There is a $200 plus type of cost of living index current cap is roughly $250.
This system is just structurally set up so that will be at the price cap and.
The only question really is does it happen in next six months as traders start to see the information come out in the first quarter of next year or does it take US 18 months as trainers wait for the actual legislation and regulatory activities to be completed in the first quarter of 2024.
I think the second thing, which I wanted to touch base with us.
Clearly in all this inflation reduction that has a lot of provisions, which help you guys with that it is renewable diesel within its $85 a ton the one which I just quickly I wanted to focus list because this really disproportionately benefits. You is this 30% ITC help us understand why this works for you.
How this means that the money that you're spending you can get because it's what it how you can monetize it and does it also mean that given this benefit if it comes through is there a possibility that it made this increases the pace of daily farm development, because youll basically getting cash for the money youre, putting and help us understand how this all works.
Thank you.
Yeah.
Thank you Bob first of all it's about $100 million contribution of equity. So we don't have to enter into a $100 million worth of debt financing, which is available to us and which we're currently executing on that decreases the interest payments from the project by about $60 million, which means that increases the profitability of the project by about six.
Million.
And by providing a $100 million of essentially new equity the project of course, the debt financing is that much easier it's approximately.
A third of our total capital expenditure and so we know.
Already have equity, but this is a tremendous boon to our equity commitment, making our debt even less expensive than <unk>.
The pace of the project, we will be revising our five year plan. We are scheduled to do that in the first quarter next year, but I think we're going to do in the interim if this passes is probably in the September timeframe issue.
Some indications we talked today about some of those indications, but the actual five year plan I think we will still be updated first quarter next year, but the indications can be added to the 2022 plan to kind of see what the annual impact would be for us.
It certainly in terms of being able to execute more rapidly. This would definitely have a positive impact on be able to do it by reducing the lead times involved with the debt financing so the.
The net effect is acceleration of methane capture.
Quicker improvement.
And air quality in California, and all the benefits of biogas would happen quicker with the passage of this legislation.
And the last question. So it is up by let's say year end 2022, how many datacom LNG would you be able to connect and start producing from even if you're not directly making a sale at this point can you explain why you won't be for the credits, but how many of those would be complete and ready to produce by year end 2022.
I'll leave it there.
Yes, we have seven that will be fully producing actually.
And we as you know from our process, we inject into storage and.
Then we will be in the process of construction of five more in the fourth quarter. This year, but we will have seven that are fully producing in going into storage and we'll be it rapidly scaling that up to 12 early next year.
Thank you so much.
Sure. Your next question that given us from Jordan.
Jordan Levy with true Securities. Please pose your question your line is live.
Good afternoon all.
First maybe youll have high impact projects going on at different stages, maybe so we kind of know the trajectory over the near to medium term here can you just touch on.
Briefly what the big milestones for the company, we should be looking toward or yes.
Yes call it the remainder of this year.
Early next year.
If theres anything big.
A big project.
No.
Being completed this month that was a five year investment of time and effort and money.
We have our <unk>.
Project that will be well underway in getting completed next year, and then mechanical vapor compression. So youll see a couple of press releases, just as we move through permitting and construction on those projects.
We also have.
A set of.
Off takers customers me in the airline business, we have a couple of letters of intent they'll begin to convert it into.
Take orders and.
I think we're talking about a couple maybe 1 billion more of contracts. There just kind of wrapping up that process process everybody's already in LOI. So we're just converting it to kind of agreements, but should have that all wrapped up this year.
And.
Further progress on permitting and final.
Find EPC agreement, which we would expect to be done in the first quarter next year. So youll see some progress press releases is that comes to pass and then lastly, I should mention our India plant has begun operation.
It's in full production right now and so over the next couple of months, we will see ongoing.
Progress as we ship to customers. This first purchase orders for two months.
And we expect to see another purchase order to come out here for October and ongoing months. So this new OFC purchasing process is much more rapid than the one year at a time fixed price structures. They had before now it's a flexible feedstock plus.
Contracted mechanism and it happens every two months, so I think youll see more news coming out of India as we operate that business.
Eric maybe just briefly.
Can you just talk to the.
Good regulatory environment for the Ccs side of things and how that has maybe evolved since you first announced that.
The business.
What you're looking towards in terms of classics worker welfare mitigating from that sort of thing.
Okay.
Yes.
In some recent federal legislation the EPA has been.
It provides some additional resources in order to staff the classics well process.
We have been directly supported by the White house as well as top EPA well drilling.
Executives.
Both federal as well as the state level.
And we've gotten a lot more support and frankly, a lot more interest in our project that we expected and so I would say from when we initially announced the subsidiary where we expected quite a long and arduous process with the EPA.
We've gotten the opposite I would tell you I'll tell you. They are enthusiastically supporting what we're doing and making every attempt possible to make this process went smoothly.
No.
We expect further support.
I'm not talking financial here Im really talking the staff work that needs to happen to get our classics.
Our characterization well process done and so we're very very pleased that that support and that starts with the white house.
Thanks, so much.
Your next question is coming from Derrick Whitfield with Stifel. Please pose your question your line is flat.
Thanks, and good afternoon to you and your team Eric.
Hello there.
For my first question I wanted to ask if you could offer color on the dairy R&D competitive landscape.
More specifically are you guys thinking less competition as a result of the weaker <unk> pricing environment or do you sense competitors are working through this period of weakness.
Sandy.
Derek This is Andy.
Good question I think.
We have seen some.
Backing off I would say by outside investors I mean, as you know in California, where there is primarily been three developers that have.
Largely been driving the business here.
Two others in addition to a met us.
And I think Thats still continues to be largely the case here there was lots of discussion and some other groups, where we're poking around in here last year and that's not to say that there isn't some additional outside private investments thats going on but I do think that there has been some pullback from other parties.
Great and then for clarification on <unk> earlier question. If the IRA is approved next week, what's your understanding our assumption on how soon you could begin to receive funds from the $90 million.
Our prepared comments.
The current structure is that we file our tax returns and then get a refund so we have.
Planned that our projections that would be Q2 of the following year. So for Capex happening. This year, we wouldnt receive a refund until probably the almost June timeframe. So Q2 of next year and your plan that our five year span and it ends up being about $100 million.
Okay.
Terrific.
Lastly regarding refinancing are there any remaining steps are required for approval between now and later this month when you guys receive funding.
No. It's just this is this is Andy again.
Right now it's just paperwork.
No more Nomura approval process, it's just us kind of wrapping up the paperwork with our lender.
That's terrific. Thanks for your time.
Thank you Dara Thanks Derek.
Your next question is coming from Amit Dayal with H C. Wainwright. Please pose your question your line is open.
Thank you Eric.
Hello.
With respect to the India operations.
As the timeline within which the.
The plant could be restarted et cetera, all of it.
The plant was restarted in early August so we are in full production right now during.
During this time of Covid, we took advantage of the opportunity to have our what is it 90 employees.
And their time on replacing equipment and upgrading seals and doing tests.
Really got an opportunity to go through the plant and be ready for full operation. So the operational restart with smooth.
Probably the only delay we have whats getting local power authority to give us the.
Power to switch back on that took us extra week, but.
Other than that we've acquired millions dollars of feedstock ahead of this restart and are well positioned to be running at full production capacity under this two year two month contract and then the.
Customers are telling us it just going to keep on flowing from that perspective.
Onward, so there's always minor technical issues around testing and temperature and some other stuff as we get into winter, but we're managing through that certainly for the next two months, we've got a plan laid out for execution.
At 180 million gallons a month, our entire production capacity is only about 4 million gallons a month. The demand is 180. So you can see there is.
Significantly we can basically grow our business over there for the foreseeable future without a lack of appetite by the <unk> in terms of meeting their needs.
So are there any additional.
The startup costs that we should be sort of thinking about as you entered the.
This phase of restarting.
The groundwater.
Yes, the plant is fully restarted already and we didn't have any.
One time capex or operating costs.
Notable wed.
We plan for this.
If anything waiting for this for a while.
There was there was no unexpected startup.
And then revenues et cetera from the sort of show in maybe the fourth Q results.
It would be in the Q3 results and also just continue on into Q4 so.
Our goal is full operation for the foreseeable future, while we have in hand as the two month tender offer.
It has been accepted and so were.
But were expecting though that the oil marketing companies will be an ongoing customer base that we could supply with all of our capacity.
Understood.
Yes, my other questions were already addressed thank you so much Eric.
Okay. Thank you Amit.
Your next question is coming from Matthew Blair with Tudor Pickering Holt. Please pose your question your line is live.
Hey, good afternoon.
Hoping you could revisit the capex guidance for 2022, I think at one point you were expecting around $85 million. Thank you spent about $22 million in the first half of the year does that 85 is that still a good number or should we expect something lower in at this stage do you have any early thoughts on 2023 Capex.
I think we're on track for for 2022.
The there's a blend a blend of different projects as you know that goes into that number.
And so our five year plan for 2022 does have some flow of biogas between the fourth quarter. This year in the first quarter of next year are based entirely upon how the pace of construction Gov. So theres some variability there.
No real diversion on anything else we're doing.
Budgets have been changed in.
I don't think the timing is materially changed so we probably be on track to certainly be within $10 million of that Capex number.
Sounds good and then I wanted to clarify on the timing of the RMG modification it sounds like Youre waiting for the Elk GFS.
If were to come through would you be able to monetize any G. III rins in Q3, or Q4 or should we really expect everything to happen.
Sometime in the first half of 2023.
And I would say.
That's the right expectation.
We will take it to storage and then.
Following the approval by carb for the pathways, that's when we'll actually.
Exchange the gas out of storage and start to monetize it.
Got it and then.
Last question could you provide any sort of a rough range.
Profitability per gallon for this India biodiesel restart.
Not not with any.
Not with any specificity at this point in time.
It is a.
Sure.
It's a price of 106 group.
<unk> per liter.
That is a publicly announced price and so you can do some math on what the.
The market looks like.
Probably get pretty close but.
Right now.
The numbers are definitely positive.
We expect to be able to put these numbers in the third quarter and as well as the fourth quarter and the rest is the restart of the entire industry. So the.
Formula of feedstock plus is structured so that we would be provided not only just profitability, but frankly growth capital to be able to expand our capacity from 50 million gallons to 100 million gallons and even more so the design of the program to be able to fund the growth.
Great. Thank you.
Sure. Thank you Matthew.
Your next question is coming from Marco Rodriguez with Stonegate capital. Please pose your question your line is flat.
Good afternoon, everyone. Thank you for taking my questions.
Okay.
Hello, Mark.
Hi, I was wondering if maybe you could spend a little time, just coming back to the Capex plan for the five year plan, just kind of give us a little bit better of a sense or an update on those funding sources I know you got the new line here.
If you can maybe frame.
The source is the mix of the sources, whether thats from capital markets.
Grants cash flow that would be helpful.
Certainly.
Each one of our businesses have different.
Different sources, but in general we combine.
A combination of grants and now frankly investment tax credits either direct pay or transferable because it appears that all of these biofuel tax credits will either have transferability or direct pay as a feature.
Essentially big turned into cash rather than having to wait for some number of years before we can we can get the tax benefit.
So the grants we've already received is about 50 Grant awards, we've received about $57 million and thats across the portfolio. These itc's as I described are just very very large contributor contributions of additional equity.
Or an adjustment to our five year plan and so.
In addition to grants and ITC. We also have government guaranteed debt and USDA is probably the partner that we have the most relationship with certainly on biogas that is true and so we can we can grow our business just using that but in addition to that we have the.
Yes.
This full bond market for what are called private activity bonds. They typically in the $50 million range, whereas the renewable energy for America program and the USDA has a $25 million loan per.
Per project company so.
I wouldn't be surprised to see some California municipal bond Buddy mixed in with the USDA to fund our biogas business.
Same template frankly for our jet and diesel business, where you have a signed $125 million commitment letter from the U S Department of AG under the.
9003 refinery assistance program with the use of our deck.
So expanding that relationship, adding some renewable energy for America program funding there.
There is even tax exempt financing available for that project when you add in the value of the $1 25 to $1 75.
Tax credit that's essentially additional equity being contributed into the project, which makes this debt financing that much easier to two <unk> range and then carbon sequestration, we spent about $18 million in carbon sequestration characterization wells for two wells plus the consulting for permitting and that's pretty much our only investment.
And we're expecting in 2024 to then get a classics license and at that point in time between the $850 million of direct pay payments.
And using that as a financing source and just good old USDA relationships we have.
We think we'll be able to fund the scale up of that business using those long term financing sources. So in general we're looking for the confidence of the U S government to their policies will be enforced to be reflected by the U S governments.
The loan guarantee programs and we've seen that that actually is a good business strategy and.
And if the municipal bond market in California has a strong appetite for these kind of projects, which is currently does that we can add that in as needed, but if for some reason it does not have an appetite and with these U S government guaranteed 20 year bond structures.
Have worked for us and I expect we'll continue to work for us in the future.
Great and last quick question just on the gross margins that you guys saw in this quarter.
From ethanol just kind of can you talk about how youre thinking about the mechanics behind that just kind of given the rising price in corn the rail issues, how youre thinking about that in the second half.
I would say that we are all suffering under the railroads.
Insufficient reactions the recovery after COVID-19.
They should have hired a lot quicker trained a lot quicker and that added some railcars that is temporary they are fixing at the surface management board as aggressively falling.
Their progress so I would anticipate over the next six months that there will be gradual improvement in that the other side of the equation is what everybody knows which is when you shut off Ukrainian corn youre going to have a reaction somewhat speculative by the market and as we get through this corn harvest and the yields seem to be doing better than some expected and as such.
Corn start flowing into Ukraine.
We will see how that market reaction occurs.
Largely subject to how the Ukrainians due to see.
A steep.
Curve. It if we saw resolution of Ukraine next week and a flood of corn in the market because it's where the middle harvest that would have an impact but I personally think we're at a temporarily elevated situations with a combination of rail and Ukrainian lack of supply in the marketplace. Andy do you want to add anything to that no I would say that this.
August typically in the ethanol industry is usually one of our rubber months from our corn pricing perspective, because there's.
Got it.
A lot of.
Wishing, hoping and praying about wasn't with the harvest is going to look like what the Carryout is going to look like and so I think if you go back and look typically in August .
I kind of identify January February and August is my.
Least favorite months of the year when it comes to purchasing ethanol. So the actual price of corn has come down some but corn basis is very high right. Now so we're not really getting a lot of relief because farmers arent selling.
And Thats typical of this time of the year as we get closer to the harvest they have to start making room in the elevators for for the new crop corn.
I think this is going to be an average fournier I don't think its going to be spectacular year I think it's going to there's some very dry in the western corn belt is pretty dry right now, but the rest of the corn belt is doing as expected so.
Barring any major disruptions any further escalation in Ukraine as Eric was talking about that's more of a psyche thing then.
A real grain supply issue and there's a lot of that suite, but.
I think as we start to get into the harvest will start to see things normalize a little bit more and if there's opportunities for us to take advantage of some of that pricing will try to do so in the medium term, though I think that investors should reflect on the fact, we don't actually sell corn is one of our products.
We sell ethanol so the demand for ethanol that Jerry so our margins.
Our most profitable year, we generated 40 million of EBITDA from our ethanol plant in California, and we had corn prices were roughly the same as what they are right now so E <unk> and E 85 funding of $500 million.
Willie and significantly expand the market for ethanol.
You saw the EIA numbers yesterday, but demand fell right off the cliff.
As we sort of all expected sooner or later that was going to happen with high gas prices and so.
Gasoline demand.
Ethanol demand was down almost double digits and now there's just a week of data and I don't tend to look at more weeks.
Data month of data, but I think with sort of back to school time.
Youre going to start to see.
And I think people have sort of gotten to the edge of their limits in terms of paying for high priced so I think Eric's point is correct.
Let's look at the ethanol demand in and how we go into the into the fall with that.
<unk>.
The ethanol industry in the U S has had record exports. This year, that's one really positive spot and we haven't had a lot of imports from Brazil, I think one just landed in California, and I don't think we'll see another one this year so largely speaking with.
We've had.
Positive trends in that perspective.
Demand has really really dropped off pretty sharply.
Refiners will tell you that everybody will tell you that so I think that's kind of the thing we're keeping our eye on right now corn is running its normal cycle, but we will have to see where ethanol demand goes.
Got it very helpful. Thank you for your time I really appreciate it.
Thanks Marco.
Your last question is coming from Edward Woo with <unk> capital. Please pose your question your line is live.
Yes. Thank you you answered a lot of my questions about the outlook for ethanol.
We've seen some pullback in gasoline prices from record levels and there's been a lot of grumpy by the federal government to get oil prices down.
Do you think we will see sustainable decreases and the outlook for oil and maybe that possibly increased demand for gasoline and obviously back for ethanol to rebound.
Yes.
This is Andy I kind of think we're.
Again, a lot has to do with geopolitical stuff in terms of the price of oil im not going to speculate I'm not an oil expert.
I'll follow it like you do but Ukraine, and things going on with China and all the rest.
Have have weird influences on traders and New York. So we're not going to guess there I think we're sort of starting to feel like we're getting back into our normal rhythm when it comes to cycles for demand at least on the ethanol side usually at this time of the year you do see a decrease in demand as you get towards the end of the summer and people stopped summer vacations and you get back to school so.
I kind of feel like we're barring any outside events, which.
In the World we're living in today could be tomorrow, but I think but I think it starts to feel like we're getting into a more normalized I mean definitely the price of gas has come down as you look around I was on the East Coast last week and I was right.
Incredibly cheap compared to California, but California gas prices have gone down a little bit so.
I think we're kind of cycling back into as I look at the ethanol business.
Now back to school time of the year end and I think people have kind of wrapped up summer vacation time or they will this week and then we're sort of getting back into more of a normal cycle. So I'll put that out there with all the caveats that.
As of this afternoon, we could have some other international prices.
Jack the price of oil and makes all of that goes away.
Great well, thanks for answering my questions.
Thank you Ed.
Yes.
There are no further questions at this time I would now like to turn the floor back over to management for any closing comments.
Thanks, Kelly, Thanks to a met its shareholders analysts and others for joining US today. Please review the company presentation in the Investor presentation that is posted on the homepage of the <unk> website, we look forward to talking with you about participating in the growth opportunities at <unk>.
Thank you for attending today's a modest earnings conference call. Please visit the investors section of the <unk> website, where we'll post a written version and an audio version.
<unk> earnings review and business update Kelly.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Okay.