Q4 2022 REX American Resources Corp Earnings Call
Speaker 1: That we the.
Speaker 2: That'.
Speaker 3: Greetings and welcome to the Rex American Resources Fiscal 2022 fourth quarter conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone.
Speaker 3: If at any time during the conference you need to reach an operator, please press star zero. I would now like to turn the conference over to Mr. Doug Brueggemann, Chief Financial Officer. Please go ahead.
Speaker 4: Good morning and thank you for joining Rex American Resources fiscal 2022 fourth quarter conference call. We'll get to our presentation and comments momentarily as well as your question and answer session but first I'll review the safe harbor disclosure.
Speaker 4: In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risk and uncertainty in communities within meetings of the Private Securities Litigation Reform Act of 1995.
Speaker 4: Such forward-looking statements reflect the company's current expectations and beliefs, but are not keys of future performance. As such, actual results may vary materially from expectations.
Speaker 4: The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and 10-Q.
Speaker 4: Rex American Resources assumes no obligation to publicly update or revise any forward-looking statements. I have joining me on the call today Stuart Rose, Executive Chairman of the Board and Zafar Rizvi, Chief Executive Officer.
Speaker 4: I'll first review our financial performance and then turn the call over to Stuart for his comments. Sales for the fourth quarter declined by 5.6% as we experienced lower volume for ethanol and distill as grain. Ethanol sales for the quarter were based upon 63.7 million gallons issued by the U.S. Department of Agriculture.
Speaker 5: prior year.
Speaker 4: In the current year quarter we experienced lower ethanol pricing as well as higher corn and natural gas pricing.
Speaker 4: Corn costs increased by 22 percent and natural gas pricing increased by 12 percent for this year's quarter compared to the prior year. As inflationary pressures and the impact of commodity pricing, the economy has increased by 22 percent.
Speaker 4: increased by 22 percent and natural gas pricing increased by 12 percent for this year's quarter compared to the prior year as inflationary pressures and the impact of commodity pricing from the Ukraine-Russia conflict continued.
Speaker 4: We continue to experience higher basis pricing for corn near the Nugent facility based upon a poor corn harvest and reduced corn availability in that local area.
Speaker 4: SG&A increased for the fourth quarter to $6.7 million from $6 million in the prior year. The increase is primarily due to an increase in the number of ethanol contracts that require the freight to be paid by us compared to the prior year, which we classify as SG&A costs.
Speaker 4: We had income of $2.5 million from our unconsolidated equity investment in this year's fourth quarter versus income of $3.9 million in the prior year.
Speaker 4: The company's interest in other income in the current year increased dramatically to $2.6 million versus $13,000 the previous year, primarily reflecting increased yields on our cash
Speaker 4: The discontinued operations reflecting the prior year numbers are from the refined coal business as we ended those operations on November 18, 2021. There was no impact in the current year.
Speaker 4: We reported a tax provision from continuing operations of $2.2 million for this year versus the provision of $10.7 million in the prior year, primarily reflecting the lower level of income in the current year.
Speaker 4: These factors led to net income attributable to direct shareholders from continuing operations of $8.2 million for this year's fourth quarter versus $21.3 million in the prior year.
Speaker 4: Total net income per share attributable to rec shareholders from continuing operations was $0.47 for this year's fourth quarter versus $1.19 in the prior year.
Speaker 4: Again, I'll point out all shared numbers reflect the 3 for 1 stock split, which was the effect of August 5, 2022.
Speaker 4: Stuart, and I'll turn the call over to you.
Speaker 4: Thank you Doug. Going forward ethanol currently is running at roughly break even year to date. Safar Rizvi in his section will discuss ethanol much further. Our cash is approximately $280 million at the end of the year consolidated. Our uses of cash...
Speaker 4: And the banks that we are dealing with, and this is to the best of our knowledge, are very, very secure. We consider them top quality banks, and we feel very comfortable that our cash is invested in a very, very good way. We are already in decent interest on that cash.
Speaker 4: versus many companies that have debt. We do not have much, we have virtually no debt. So that's in our opinion, as good a way as any to invest our cash at this time. We will buy back on dips. We have some plans for expansion of our ethanol plants, which is a far worse we'll talk about. And we're always looking for additional ethanol plants to purchase at this time.
Speaker 6: challenging operation operating environment throughout the year due to number of factors drought has affected the way with availability of corn and created a strong basis as Doug just mentioned particularly at the Marion South
Speaker 6: Ethanol production is greater than the demand which continue to negatively affect the crash margin. The high price of the natural gas during the last quarter and year also negatively affected the profit margin. In positive news, we have seen natural gas price drop considerably recently.
Speaker 6: According to EIA, yesterday's weekly report shows ethanol production dropped under 1 million barrels a day, 10-week flow, retreated 17,000 barrels a day, week to week.
Speaker 6: But the corn bases are still strong and expected to get worse before the harvest. We are pleased with the availability of corn in the Gibson City, Illinois area. However, because of growth in domestic exports from the state, the corn bases are beginning to strengthen. We have seen weakness in categorization in illegal markets and we have seen weakness in segregating and PapersOMC marketing companies and we have seen weakness inricting and rupturing.
Speaker 6: in the price of corn, oil and DDG but these are still selling above the cost.
Speaker 6: Despite drought, the recent slowdown in export, the decline in the crash margin in other economic headwinds, if we continue to source corn at reasonable price and don't face any major logistical issue or shortage of corn at this early stage of the first quarter of 2023, we expect to.
Speaker 6: are slightly profitable at this time as towards just now.
Speaker 6: Let me give you some progress of our carbon sequestration project. These are the bullets points.
Speaker 6: The university successfully drilled the test well to a total depth of around 7,100 feet, in which almost 2,000 feet of Mount Simon sandstone was incurred. Complete geologically, models are predicting the movement of the CO2 injection into the subsurface.
Speaker 6: The rock core analysis performed indicates very good reservoir quality.
Speaker 6: completed water injection test at the well itself to evaluate the expected movement of CO2 as well as expected plume area. Testing indicates a very suitable storage for carbon sequestration. The 2D and 3D seismic testing was completed and indicates very good performance.
Speaker 6: very good target for carbon sequestration.
Speaker 6: The design of the compressor facility is completed. The contract to build the compressor part of the facility has been signed and long lead time equipment has been ordered. The pipeline hazard material identification number has been received.
Speaker 6: The Class 6 permit for three injection wells with the capacity to store 90 million tons of carbon have been completed and submitted.
Speaker 6: The work on the pipeline feed study is expected to be finished by April 2020.
Speaker 6: All major lead equipment order for the compressor facility which has been engineered and sized. The contract to build the facility have been signed. We are currently working on a front-end engineering design study for short pipeline to deliver carbon from our carbon sequestration facility.
Speaker 6: We expect a pre-built modular plant will be delivered by the end of December 2023 and then the building will be structured around the modular plant.
Speaker 6: We continue. Once again, this is highly technical, very early stage and time consuming project. It has required considerable time to make progress. We cannot predict we will be successful, but we are pleased what we started four years ago now has achieved some big milestone.
Speaker 6: As I also mentioned in our previous call, we are evaluating several other projects that will increase production efficiency, improve energy efficiency to reduce carbon intensity, as well as reduce water consumption at our local plant.
Speaker 6: We believe we will be able to complete most of these projects soon. Completion of these projects will lead to a greater benefit under the Inflation Reduction Act.
Speaker 6: passed by the Congress and will contribute to decrease cost of production. As Stuart just mentioned, we also decided to increase the ethanol production capacity at 1 Earth Energy, Gibson City, Illinois, to 175 million gallons from 150 million.
Speaker 6: The Clean Fuel Production Credit Section 45Z, which is related to reduce fuel carbon intensity score, would provide as much as $1.00 a gallon, depending on carbon intensity of ethanol produced and sold.
Speaker 6: The Section 45 cash payment for the carbon sequestration increased to $85.10, which we plan to switch after the expiration of the 45D, which we will continue to enhance the strong position of our company.
Speaker 6: In summary, we are pleased to announce once again profitable quarter in very, very difficult environment as well as good progress in our carbon sequestration project. We plan to increase ethanol production capacity to maximize benefit of the inflation reduction at section 45D and 45Q.
Speaker 6: once 45D expires.
Speaker 6: If we can achieve what we are planning to accomplish, in the future we will be ready to provide low carbon, ethanol and byproducts while reducing carbon in the atmosphere.
Speaker 6: We cannot hit these carbon sequestration by stones Embark on projects to decrease carbon intensity plan to increase ethanol production and achieve
Speaker 6: 10th consecutive quarter of positive income without the hard work and dedication of our colleagues. We are very appreciative of their efforts to achieve these positive results. I will give the floor back to Stuart for further comments. Thank you, Stuart. Thanks, Subhar. Thank you, Stuart.
Speaker 4: In conclusion, we've outperformed most of the industry competitors again. We've done this again. We believe we have the best plants, great locations, great potential in carbon capture, which we think will be our future. And most importantly, and the biggest difference between us and the rest of the industry as far mentioned is our people, we feel we have the best people in the industry.
Speaker 4: to do that in carbon capture. We look at that as our future. I'll now leave the call open to questions.
Speaker 3: Thank you.
Speaker 3: If you would like to register a question, please press the 1-4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. Once again, to register a question, please press the 1-4 on your telephone.
Speaker 3: One moment please for the first question.
Speaker 3: Our first question comes from Jordan Levy with Truist Securities. Please proceed.
Speaker 7: Morning Stuart, Zafar, Doug, and a nice quarter against another challenging backdrop. I think that's worth recognizing for sure. So, for me, to start out, you mentioned
Speaker 7: The plans for expanding One Earth's capacity certainly seems like CCUS is moving forward in some of the initiatives this year. Maybe if you could just give us any commentary you might have around capital plans for 23 and what we should expect there.
Speaker 6: As I said, we plan to expand to $175 million. We are in the process of evaluating all the costs and the return on investment. We hope to have all of those disclosures disclosed at the June meeting.
Speaker 6: our quarterly call at the shareholders meeting that what exactly total cash will take to the ethanol facility expansion and the carbon sequestration.
Speaker 7: And we will have both numbers at that time. And presumably, would the expansion be throughout the course of this year?
Speaker 6: Yes, exactly. I think we have already had major evaluation as done. We are putting the financial models and we are looking at all of those information to see what's the return on investment. As I mentioned, that with the expansion from 150 to if we go to 175 million, and that's about $25 million more ethanol production. If we look at the benefit of 45Z, if we are able to achieve all those.
Speaker 6: investment and putting the package together and hopefully we will have by that. That's what it leads to saying and 275 million we could have considered to expand 200 million but we want to make sure we do not create deficit of cocoon in that area. Great thanks for that.
Speaker 7: Zafar, I appreciate all the comments and updates you gave on carbon capture. Maybe just to back up and look at this on a high level, can you just lay out for us, I know you mentioned some targets for the end of the year moving into 2024, can you just sort of lay out for us where you expect to be exiting 23, what?
Speaker 6: what will be completed and what you expect to kind of be working on at the time. I think the most of our items as I mentioned that we have ordered all the long lead items.
Speaker 6: equipment, some of those equipment takes as long as time leading is to year and a half. And so we have to order all those equipment. And also, as I mentioned that we will expect to have our modular unit, which will become a pressure facility, will be delivered by the end of this year.
Speaker 6: And then construction will start around that modular unit, because that will take also at least six to seven months or longer, because there's a lot of pipes that need to be connected, electric, building need to be built around it. So our goal is to have these Is to have this
Speaker 6: to finish all this project by the end of 2024. Certainly that's our goal and it can happen some other uncertain things which we do not, you know, come out and delay that project. But that's what our goal is by the end of 2024. Thank you.
Speaker 4: Jordan, one other thing you should know, and that a lot of people are announcing CO2 projects in the ethanol industry, but all they're really doing is tapping into pipelines, and they're not getting the bulk of the economic benefits. The economic benefits are up to, for the years 26, 27, and 28.
Speaker 4: a dollar a gallon, we expect to have 175 million gallon plants. So even if we get half of that, whatever we receive, we will receive it all. Whereas most of these companies tapping into pipelines are dependent on the pipelines being built. They're announcing that they're doing CO2 capture, but they're really not doing their own CO2 capture.
Speaker 4: We are doing our own. We've been doing this, as Zafar mentioned, for four years. And this is our project. This is our shareholders' project. It's not something where we have to share the bulk of the revenues with the pipeline company. And the pipeline company, of course, then has you captive and has the ability. They will take the bulk. They will take a good percentage of the profits. In our case, all profits come to our shareholders.
Speaker 4: Again, we're a small company, 18 million shares, but we think it can be very, very significant. That's our plans and that's what we hope and expect.
Speaker 6: Exactly, yes that's the major difference between us and others. And also I think as I mentioned we were really trying to look at it four years ago when there was no 45z at that time 45q was $50 now it's $85 so all these benefits are really coming.
Speaker 4: to see some productive... They will accrue to our shareholders as a part of saying exactly.
Speaker 7: I think that's great commentary. I really appreciate it. I'll leave it at that. Thanks.
Speaker 7: I think that's great commentary. I really appreciate it. I'll leave it at that. Thanks. Thanks Jordan.
Speaker 3: Our next question comes from Chris Sakai with Singular Research. Please proceed. Take that one for
Speaker 8: Good morning.
Speaker 4: Can you talk about where you see the countries of largest export for 2023?
Speaker 6: Export of ethanol you mean?
Speaker 6: Yes. Okay. Canada has imported 502 million gallons.
Speaker 6: And I think, and South Korea 156, Northland 99, total export for 2020 was 1.3 billion gallons compared to 2021 was 1.2 billion gallons. And that was 9% higher than 2021.
Speaker 8: Okay, thanks.
Speaker 4: Are you seeing any increased costs in rail due to all the recent train derailments?
Speaker 6: Not really. I think the railroad always increase their rates. They basically...
Speaker 6: has a monopoly on that track on the direction, so they really always increase their rates, but recently we have not seen it due to this situation which derailed an increase in the rate.
Speaker 4: Okay, thanks. Can you talk about the permitting process so far for the CCS?
Speaker 6: I'm sorry, could you repeat your question, please?
Speaker 6: How is the permitting process going? The permitting process, we have submitted the permit with all the requirements which they requested. We completed all the documents. Since that time, they have a couple of questions which we answered them and they confirmed them.
Speaker 6: that they have received all the documents and it is under review. So from there we cannot control, it depends on the government agency, how long they were going to take. But we expect that we should receive the permit sooner than anybody else because we already have done previously.
Speaker 6: our test well and they know those area and we applied for the test well permit previously and we received at that time. So we hope that we will receive sooner and we now rest is really depend on the agency.
Speaker 8: Thanks for your answers.
Speaker 3: Our next question comes from Graham Price with Raymond James. Please proceed.
Speaker 3: Thanks for taking the question. First up, I was just wondering about your thoughts around the M&A landscape as it relates to producing assets.
Speaker 4: you know, how valuations are looking versus a year or two ago? We haven't seen anything that's anything up for sale, to be honest. Yeah, so I can't tell you how valuations are, but I would assume they'd be up significantly. People would want significantly more for their plants than they did a year.
Speaker 4: that they're dealing with will end up either, first of all, we think they'll be delayed. Second of all, we think that they will not contribute to the bottom line, what some of these companies think. But in the meantime, they are valuing their companies more than they did a year or two ago, for sure, because of the opportunity, because of the legislation that just passed.
Speaker 3: bulk of it. Okay, got it. Understood. And then, for my follow-up, I had a more macro policy question. So the EPA recently proposed allowing year-round E15 blending in the Midwest.
Speaker 3: Just wondering, do you think this will happen? And does that plan go far enough in your opinion?
Speaker 6: It's hard to say. I think the different as you can see, it's a different states are trying to implement and to be in Iowa and other local several other states are paying to all year around and they applied for the exemption from the EPA.
Speaker 6: I hope it's all year around, E15, because if it's not all year around, it's discouraged by the gas station to have six, eight or nine months in a year, and then they have to discontinue and then start over. So that's what we hope.
Speaker 6: But we cannot predict what Congress or any EPA will probably do that. There is already legislation trying to introduce in Congress to allow all year round. Hopefully that happened.
Speaker 8: Got it. That's clear. Thank you very much. I'll pass it on.
Speaker 8: Thank you very much. I will pass it on. Thank you. Thank you.
Speaker 3: Mr. Rose, there are no further questions at this time.
Speaker 4: Okay, we thank everyone for listening and we look forward to talking after the end of this quarter and talking to everyone again after the end of this quarter. Thank you. Great, thank you very much everyone and we willbane.
Speaker 4: Okay, we'll we thank everyone for listening and we'll look forward to talking after the end of this quarter and talking to everyone again after the end of this quarter. Thank you. Bye.
Speaker 3: That does conclude the conference call for today. We thank you for your participation and as that you please disconnect your line. Have a great day. Everyone.
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Speaker 1: Greetings and welcome to the Rex American...
Speaker 3: at any time during the conference, you need to reach an operator, please press star zero. I would now like to turn the conference over to Mr. Doug Bruggeman, Chief Financial Officer. Please go ahead.
Speaker 4: Good morning and thank you for joining Rex American Resources fiscal 2022 fourth quarter conference call.
Speaker 9: We'll get to our presentation and comments momentarily, as well as your question and answer session, but first I'll review the Safe Harbor Disclosure.
Speaker 9: In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risk and uncertainty within meetings of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs, but are not keys of future performance.
Speaker 9: As such, actual results may vary materially from expectations. The risk and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and 10-Q. Max American Resources assumes no obligation to publicly update or revise any of the documents
Speaker 9: by 5.6% as we experience lower volume for ethanol and distill as grain.
Speaker 9: Ethanol sales for the quarter were based upon 63.7 million gallons this year versus 69.9 million last year as we experienced some weather-related disruptions to their operations during the quarter. We report a gross profit of $14.9 million for this year's fourth quarter versus a gross profit of $38.8 million in the prior year.
Speaker 9: In the current year quarter, we experienced lower ethanol pricing as well as higher corn and natural gas pricing. Corn costs increased by 22 percent and natural gas pricing increased by 12 percent for this year's quarter compared to the prior year, as inflationary pressures and the impact of commodity pricing from the Ukraine-Russia conflict continued.
Speaker 9: We continue to experience higher basis pricing for corn near the Nugent facility based upon a poor corn harvest and reduced corn availability in that local area. SG&A increased for the fourth quarter to $6.7 million from $6 million in the prior year. The increase is primarily due to an increase in the number of ethanol contracts that require the freight to be paid by us compared to the prior year.
Speaker 9: which we classify as SG&A costs. We had income of $2.5 million from our unconsolidated equity investment in this year's fourth quarter versus income of $3.9 million in the prior year. The company's interest in other income in the current year increased dramatically to $2.6 million versus $13,000 the previous year, primarily reflecting increased yields on our cash.
Speaker 9: The discontinued operations reflecting the prior year numbers are from the refined coal business as we ended those operations on November 18, 2021. There was no impact in the current year.
Speaker 9: We reported a tax provision from continuing operations of $2.2 million for this year versus a provision of $10.7 million in the prior year, primarily reflecting the lower level of income in the current year. These factors led to net income attributable to direct shareholders from continuing operations of $8.2 million for this year's fourth quarter.
Speaker 9: versus $21.3 million in the prior year. Total net income for share attributable to REX shareholders from continuing operations was $0.47 for this year's fourth quarter versus $1.19 in the prior year.
Speaker 9: Again, I'll point out all shared numbers reflect the 3-for-1 stock split, which was the effect of August 5, 2022.
Speaker 9: I'll point out all shared numbers reflect the three for one stock split, which was the effect of August 5th, 2022. Stuart, and I'll turn the call over to you.
Speaker 4: Thank you Doug. Going forward, ethanol currently is running at roughly break even year to date. Safar Rizvi in his section will discuss ethanol much further. Our cash is approximately $280 million at the end of the year consolidated. Our uses of cash.
Speaker 4: And the banks that we are dealing with and this is To the best of our knowledge are very very secure We consider them top quality banks and we feel very comfortable that our cash is Invested in a very very good way. We are earning decent interest on that cash Versus many companies that have debt. We do not have much
Speaker 4: We have virtually no debt, so that's in our opinion as good a way as any to invest our cash at this time. We will buy back on dips. We have some plans for expansion of our ethanol plants, which the farmers will talk about. We're always looking for additional ethanol plants to purchase at this time. We have nothing imminent, but if something were to come up.
Very good ethanol plant. We would certainly look at it I'm now turn the call over to Zabar Risley our chief executive officer. Thank you Thank you, Stuart. Good morning, everyone As I mentioned in our previous quarterly call we continue to face challenging operation operating environment throughout the year
Due to a number of factors, drought has affected the availability of corn and created a strong basis as Doug just mentioned, particularly at the Marion South Cradle location. In addition, ethanol production is greater than the demand, which continues to negatively affect the crush margin.
The high price of the natural gas during the last quarter and year also negatively affected the profit margin. In positive news, we have seen natural gas price drop considerably recently. And according to EIA yesterday's...
Weekly report shows ethanol production dropped under 1 million barrels a day, 10 weeks low, and treated 17,000 barrels a day week to week.
But the corn bases are still strong and expected to get worse before the harvest. We are pleased with the availability of corn in the Gibson City, Illinois area. However, because of growth in domestic exports from the state, the corn bases are beginning to strengthen.
We have seen weakness in the price of corn, oil and DDG, but these are still selling above the cost.
Despite drought, the recent slowdown in export, the decline in the crash margin in other economic headwinds, if we continue to source corn at a reasonable price and don't face any major logistical issue or shortage of corn at this early stage of the first quarter of 2023, so this is unfortunately due to an annual ricisserie, yep, to this particular point.
are slightly profitable at this time as towards just mass.
Let me give you some progress of our carbon sequestration project. These are the bullet points.
The university successfully drilled the test well to a total depth of around 7,100 feet, in which almost 2,000 feet of Mount Simon sandstone was incurred. Complete geologically, models are predicting the movement of the CO2 injection into the subsurface.
The rock core analysis performed indicate very good reservoir quality. Completed water injection test at the well itself to evaluate the expected movement of CO2 as well as expected plume area. Testing indicates a very suitable storage for carbon sequestration. But no.
2D and 3D seismic testing was completed and indicates very good storage.
Several other tests and modeling were performed to verify maximum injection pressure, reservoir quality, rock core analysis, and expected movement of CO2 plume. These test results still show this location is a very good target for Carbon Square Station. The design of the compressor facility is completed.
The contract to build the compressor part of the facility has been signed and long lead time equipment has been ordered. The pipeline hazard material identification number has been received. The class 6 permit for 3 injection wells with the capacity to store 90 million tons of carbon have been completed.
The contract to build the facility has been signed. We are currently working on a front-end engineering design study for short pipelines to deliver carbon from our carbon sequestration facility. We expect a pre-built modular plant will be delivered by the end of December 2023 and then the building will be structured around the modular plant.
We continue. Once again, this is highly technical, very early stage and time consuming project. It has required considerable time to make progress. We cannot predict we will be successful, but we are pleased what we started four years ago now has achieved some big milestone.
Once again, this is highly technical, very early stage and time consuming project. It has required considerable time to make progress. We cannot predict we will be successful, but we are pleased what we started four years ago now has achieved some big milestone.
As I also mentioned in our previous call, we are evaluating several other projects that will increase production efficiency, improve energy efficiency to reduce carbon intensity, as well as reduce water consumption at our plant. We believe we will be able to complete most of these projects soon.
Completion of these projects will lead to a greater benefit under the Inflation Reduction Act passed by the Congress and will contribute to decrease cost of production.
As Stuart just mentioned, we also decided to increase the ethanol production capacity at 1 Earth Energy, Gibson City, Illinois, to 175 million gallons from 150 million. The Clean Fuel Production Credit Section 45Z, which is related to reduce fuel carbon intensity score
would provide as much as a dollar a gallon, depending on carbon intensity of ethanol produced and sold. The section 45 cash payment for the carbon sequestration increased to $85, metric 10, which we plan to switch after the XPRS.
of the 45D which we will continue to enhance the strong position of our company. In summary, we are pleased to announce once again profitable quarter in very, very difficult environment as well as good progress in our carbon sequestration project.
We plan to increase ethanol production capacity to maximize benefit of the Inflation Reduction Act, Section 45D and 45Q once 45Z expires. If we can achieve what we are planning to accomplish, in the future we will be ready to provide.
low carbon, ethanol, and byproducts while reducing carbon in the atmosphere. We cannot fit these carbon sequestration milestones, embark on projects to decrease carbon intensity, plan to increase ethanol production, and achieve a Browne.
10th consecutive quarter of positive income without the hard work and dedication of our police. We are very appreciative of their efforts to achieve these positive results. We are very appreciative of their efforts to achieve these positive results.
I will give the floor back to Stuart for further comments. Thank you, Stuart. Thanks, Subhar. In conclusion, we've outperformed most of the industry competitors again. We've done this again. We believe we have the best plants, great locations.
great potential in carbon capture which we think will be our future and most importantly and the biggest difference between us and the rest of the industry as I mentioned is our people. We feel we have the best people in the industry and in the end that's what separates us from the competition.
And a lot of competition can have hopes and dreams, but if you don't have good people to implement them, they just tend to never happen. We have proven in the past that we have good people and can run very, very good ethanol plants, and we plan and hope to do that in carbon capture. We look at that as our future. I'll now leave the call open to questions.
Thank you. If you would like to register a question, please press the 1-4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1-4 by the 3. Once again, to register a question, please press the 1-4 on your telephone.
One moment please for the first question. Our first question comes from Jordan Levy with Truist Securities. Please proceed. Morning Stuart, Safar, Doug and nice quarter against another challenging backdrop.
I think that's worth recognizing for sure. Maybe to start out, you mentioned the plan for expanding One Earth's capacity certainly seems like CCUS is moving forward in some of the initiatives this year. Maybe if you could just give us any commentary you might have around capital plans for 23 and what we should expect there. Okay welcome everyone.
As I said, we plan to expand $275 million. We are in the process of evaluating all the costs and the return on investment. We hope to have all of those disclosed at the June meeting.
We are in the process of evaluating all the costs and investment. We hope to have all of those disclosed at the June quarter.
call other shareholders meeting that what exactly total cash will take to for the ethanol facility expansion and the carbon sequestration.
call others at the shareholders meeting that what exactly total cash will take to for the ethanol facility expansion and the carbon sequestration and we will have those numbers at that time.
And presumably would the expansion be throughout the course of this year? Yes, exactly. I think we already have a major evaluation done. We are putting the financial models and we are looking at all of those information to see what is done on investment. As I mentioned, we are looking at all of those information.
that with the expansion from 150 to if we go to 175 million, and that's about $25 million more ethanol production. And if we look at the benefit of 45Z, if we are able to achieve all those carbon intensity, which we are working on carbon sequestration, and as I was mentioned.
that from a couple of years even before the 45Z, we were trying to make sure that we reduce our carbon intensity. So all of those projects are really coming out to be great benefit for us to moving forward. So it looks like we are trying to evaluate all that return on investment and putting the package together and hopefully we will have by that. That's what it leads to.
I've seen and 275 million we could have considered to expand 200 million, but we want to make sure we do not create deficit of cocoon in that area. Great thanks for that and. The fire appreciate all the comments and updates you gave on carbon capture. Maybe just to back up and look at this on a high level. Just.
layout for us. I know you mentioned some targets for the end of the year moving into 24. Can you just sort of lay out for us where you expect to be exiting 23, what will be completed and what you expect to kind of be working on at the time?
I think the most of our item as you as I mentioned that we have ordered all the long lead items equipment some of those equipment takes as long as time leading is to year and a half and So we have to order all those equipment and elsewhere as I mentioned
So at least six to seven months or longer, because there's a lot of pipes that need to be connected, electric building need to be built around it. And so our goal is to have these, to finish all these projects by the end of 2024. Certainly that's our goal and.
It can happen, some other uncertain things which we do not come out and delay that project, but that's what our goal is by the end of 2020. Jordan, one other thing you should know, and a lot of people are announcing CO2 projects in the ethanol industry, but all they're really doing is tapping into pipelines.
They are not getting the bulk of the economic benefits. Economic benefits are up to, for the years 26, 27, 28, a dollar a gallon. We expect to have 175 million gallon plants. Even if we get half of that, whatever we receive, we will receive it all. Whereas most of these companies tapping into pipelines are dependent on the pipelines being built. For so many years of our afaternal rd Car
that they're doing CO2 capture, but they're really not doing their own CO2 capture. We're doing our own. We've been doing this is a bar mentioned for four years and this is our project. This is our shareholders project. It's not something where we have to share the bulk of the revenues with the Pipeline Company. The Pipeline Company, of course, then has you captive and has the ability and they will take the ball. They will take a good percentage of the profit.
as I mentioned, we were really trying to look at it four years ago when there was no 45Z that time 45Q was $50 now it's $85 so all these benefits are really coming.
to see some productive... They will accrue to our shareholders, as a part of saying exactly that. Yeah. I think that's great commentary. I really appreciate it. I'll leave it at that. Thanks. Thanks, Jordan. Our next question comes from Chris Sakai with Singleton.
export of ethanol you mean?
Yes.
Okay, Canada has exported, imported 502 million gallons.
And I think, and South Korea 156, Northern land 99, total export for 2020 was 1.3 billion gallon compared to 2021 was 1.2 billion gallons.
And that was 9% higher than 2021.
percent higher than 2021. Okay, thanks.
Are you seeing any increased costs in rail due to all the recent train derailments? Not really. I think the railroad always increase their rates. They basically...
has a monopoly on that track on the direction, so they really always increase their rates, but recently we have not seen it due to this situation which derailed an increase in the rate.
Can you talk about the permitting process so far for the CCS? I'm sorry, could you repeat your question please?
How is the permitting process going? The permitting process, we have submitted the permit with all the requirements which they requested. We completed all the documents. Since that time, they have a couple of questions which we answered them and they confirmed.
that they have received all the documents and it is under review. So from there we cannot control, it depends on the government agency, how long they were going to take. But we expect that we should receive the permit sooner than anybody else because we already have done previously.
our test well and they know those area and we applied for the test well permit previously and we received at that time. So we hope that we will receive sooner and we now rest is really depend on the agency. Okay, great. Thanks for your answer.
First up, I was just wondering about your thoughts around the M&A landscape as it relates to producing assets.
you know, how valuations are looking versus a year or two ago? We haven't seen anything that's anything up for sale, to be honest. Yeah, so I can't tell you how valuations are, but I would assume they'd be up significantly. People would want significantly more for their plants than they did a year or two ago.
dealing with will end up either, first of all, we think they'll be delayed. Second of all, we think that they will not contribute to the bottom line, what some of these companies think. But in the meantime, they are valuing their companies more than they did a year or two ago, for sure, because of the opportunity because of the legislation that just passed.
bulk of it. Okay got it understood and then for my follow-up had a more macro policy question so the EPA recently proposed allowing year-round E15 blending in the Midwest just wondering do you do you think this this will happen and
Does that plan go far enough in your opinion? Sephardic one answer. Yeah, it's hard to say. I think the different as you can see, it's a different states are trying to implement and to be in Iowa and other states are trying to all.
year around and they applied for the exemption from the EPA. I hope it's all year around, E15, because if it's not all year around, it's discouraged by the gas station to have six, eight or nine months in a year and then they have to discontinue and then start over. So that's what we hope, but we cannot predict what Congress or any EPA will probably will do that.
There is already legislation trying to introduce in Congress to allow all year round, and hopefully that happens. Got it. That's clear. Thank you very much. I'll pass it on. Thank you.
trying to introduce in Congress to allow all year round, and hopefully that happens. Got it. That's clear. Thank you very much. I'll pass it on. Thank you.
Mr. roles during no further questions at this time. Okay, well, we thank everyone for listening and we look forward to talking after the end of this quarter and talking to everyone again after the end of this quarter. Thank you. Bye.
Mr. roles during no further questions at this time. Okay, well, we thank everyone for listening and we look forward to talking after the end
That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day. Everyone.