Vertex Energy Inc. Q1 2023 Earnings Call
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Hello.
We are pleased to report a continuation of safe and reliable operations and strong financial and operating results, which were in line with our prior expectations.
Our business continued to perform as expected for the quarter as we have enhanced our focus on our Gulf Coast operations. Following the previously announced sale of our Heartland emo assets for $90 million in February of this year.
We reported total adjusted EBITDA of $34 9 million for the first quarter.
Our conventional fuels business at our mobile facility continued to perform smoothly generating a gross profit for the quarter of $65 $5 million driven.
<unk> continued attractive refinery margins.
Set in part by the impact of reduced throughput during planned downtime associated with the R&D project timing.
Operationally, we reported throughput volumes of approximately 71000 barrels per day for the quarter in line with our prior guidance issued in late February .
Shifts in our product yield profile related to the conversion.
Of our hydrocracker.
Through the production of renewable diesel drove a reduction in volume of finished products, such as gasoline and diesel and increase in BDO cut.
Fortunately strength in the VEGF market helped mitigate the impact of a changing yield profile overall per barrel profitability at the refinery.
Youre, having a capture rate of 51%, which was in line with our prior outlook of <unk>.
<unk> to 54%.
We continue to advance several important strategic initiatives aimed at streamlining our business and enhancing efficiency.
As previously mentioned the sale of the Heartland Uml assets as Bob additional liquidity into the business and allows us to tighten our focus on Gulf Coast operations.
Additionally, after a lengthy search for a new chief commercial officer, we announced the hiring of desktop.
I am thrilled to have on our team.
I believe does extensive background and experience, bringing a tremendous benefit to the company as we seek to capture additional value through the optimization of feedstock procurement and marketing and finished products.
On March 31 of this year <unk> reached an important milestone of own schedule and on budget mechanical completion of our R. B project.
Following a ribbon cutting ceremony hosted by the mobile refinery on April 28, our operations team transitioned from the commissioning phase to startup sequencing of the R&D facility. Unfortunately in the days to follow we encountered issues with fee pumping system, resulting in a.
Startup the lag.
Which chief operating officer, Dwayne will cover in more detail shortly.
While this is an unwarranted challenge and not the story, we hope to have reported to you. This morning on our faith in our teams ability to safely resolve the issues with minimum delay as it relates to the first quarter.
I will say I'm very proud of how well this team has executed.
While keeping safety and reliability at the forefront of all of our operations.
<unk>.
I would now like to hand, the call over to James.
Our Chief operating officer, who will provide a detailed update on our operations during the quarter, including a more detailed update on the status of our renewable diesel conversion project and mobile games.
Thank you Ben good morning, everyone and thank you for joining us this morning.
I'll begin with a brief report on our health safety Environmental performance first.
<unk> first quarter 2023 was a clean quarter.
Across the entire business, we had zero Osha recordable.
<unk> zero environmental reportable.
Mobile Additionally had zero process safety events. This is the first quarter since the <unk> acquisition that we had zero safety and environmental record awards across the fleet.
Moving on to operational performance beginning in Louisiana.
Marrero operation saw continued progress in improving plant reliability and performance in the first quarter achieve.
Achieving a 91% capacity utilization at the refinery.
As previously disclosed we closed on the sale of our Heartland facility in February .
Operations continue safely and smoothly during January through the completion of the sale on February one.
We have continued to support the successful transition of this facility to the new owner.
Our conventional fuels business the mobile facilities performed well during the quarter. Once again, despite elevated site activity related during the peak of construction on our Rd conversion project.
First quarter throughput volumes at the mobile refinery averaged 71328 barrels per day or 95% of stated operation capacity in line with our previous guidance.
Direct opex per barrel for the quarter was also in line with our prior expectations at $3 84 per barrel.
We continued processing of crude dock, consisting of West, Texas Intermediate light, Louisiana, Sweet and other local light sweet crudes.
As expected finished products such as gasoline diesel and jet fuel accounted for 62% of our total product yield during the first quarter of 2023, representing a 12% reduction in yield from the previous quarter of 74%.
This reduction was due to the shutdown and conversion of the hydrocracker to renewable diesel.
To the shutdown the unit accounted for eight to 9000 barrels of distillate upgraded chemical feedstocks product yields were in line with expectations and we expect to see similar yields in the conventional business on a go forward basis.
Our fuels gross margin per barrel during the quarter was $16 17.
Driving our capture rate of 51% of the benchmark Gulf Coast 211 crack spread in line with our guidance of 50% to 54%.
The strength in our reported fuels gross margin per barrel and the resulting capture rate versus the benchmark is a function of the strength seen in refining margins for intermediate products, such as <unk> <unk>.
<unk> biggio margins offset the impact of reduced diesel production as a result of the hydro cracker conversion on a per barrel profitability.
On a rent adjusted basis gross margin per barrel was $13 66.
Turning to our renewable diesel conversion project as previously announced we achieved mechanical completion on schedule.
On March 31, we're tremendously proud of the team's achievement in reaching this goal without safety or environmental incident or disruption to the existing operation. Despite the many challenges of executing a project of this magnitude and an operating facility.
In the process of units startup sequencing, we experienced a failure in the feed pumping system.
These pumps are responsible for supplying feedstock to the renewable diesel hydrocracker.
Upon failure or safety systems work as designed and our team responded appropriately to bring the unit down in a safe and controlled manner, preventing further impacts including preserving the catalyst in our hydrocracker.
This event is isolated to the feed system with no known impacts to the reactor.
Or any other process equipment and no impact to the conventional refining capability currently the renewable diesel unit is safely parked and we have a number of internal and external expert resources engaged and root cause analysis repair and restart.
As Ben mentioned, we are confident in our team's ability to take these challenges head on delivering a safe and reliable outcome.
As it relates to the timeline, we expect repairs to be completed prior to the end of the second half of May after which we plan to reinstall and resumed the startup sequence of the renewable diesel unit.
Our team and I are certainly disappointed to have delayed our targeted timeline for startup that said I am proud of how well our team executed under tremendous pressure during this unexpected event.
We believe this is a temporary setback and we look forward to updating you in the future as things progress.
As stated previously our focus has been and will continue to be the safe and environmentally sound operation of the facility.
With that I'd like to now hand, the call over to Chris Carlson, Chief Financial Officer, who will review our financial results for this quarter as well as provide our outlook for the second quarter of this year.
Thank you James and welcome to those joining us on the call today.
For the three months ended March 31, 2023 vertex reported net income attributable to common shareholders of $53 8 million or <unk> 71 per share.
Versus a net loss attributable to common shareholders of $4 9 million or <unk> <unk> per share in the first quarter 2022.
We reported adjusted EBITDA of $34 9 million in the first quarter 2023 versus $13 million in the prior year period.
$75 2 million in fourth quarter 'twenty two.
The sequential decline in adjusted EBITDA reflects the combination of the reduced throughput.
Lower crack spreads and shifts in the product yield profile as expected.
The first quarter financial results include an after tax gain on sale of assets in the amount of $48 9 million, reflecting the recent sale of the Heartland facility.
The increase in capital investment for the first quarter reflects an acceleration of phase one spending geared towards strengthening the site's position ahead of the planned phase II of the project.
As previously outlined phase two of our renewable diesel conversion project includes the installation of additional hydrogen capacity and drive as a planned capacity expansion from the initial 8000 barrels per day expected in phase one to 14000 barrels per day.
As of March 31, 2023, the company had total cash and equivalents, including restricted cash of $95 1 million versus $146 2 million at the end of the prior quarter.
Vertex had total net debt outstanding of $282 1 million at the end of the first quarter of 2023.
Implying a net debt to trailing 12 month adjusted EBITDA ratio of one five times as of March 31 2023.
We continue to remain fully exposed to current refining margins with no fixed crack spread price hedge contracts currently in place.
Looking to the second quarter of 2023, we.
Total conventional throughput volumes that mobile to be between 68070 2000 barrels per day, reflecting total facility capacity utilization of between 91% and 96%.
Opex per barrel is expected to be $3 80 to $4 per barrel for the quarter.
And our capture rate on the benchmark Gulf Coast 211, crack spread is forecast to be approximately 50% to 54%.
We anticipate total capital expenditures for the second quarter to be between 30 million to $35 million.
I would now like to turn the call back to <unk> to provide some final comments before we open it up for Q&A.
Thank you Chris.
Since our last call we've made significant progress and continued transition to what we like to refer to today as vertex to point out.
We managed to further streamline operations in order to improve operational focus on the conventional and renewable fuels businesses.
We achieved our goal of reaching mechanical completion of the renewable diesel conversion project, both on time and on budget.
We also added additional bench strength to the leadership team via the addition of Mr. Doug Haugh.
As James stated we are disappointed in the startup delays for our renewable diesel facility, but I know we have an outstanding team who has demonstrated the ability to overcome these type of challenges.
Overall I am encouraged by the significant accomplishments we've achieved throughout the first quarter and I look forward to providing further updates as we continue forward with that well open the line for questions.
Operator.
Thank you ladies and gentlemen, we will now begin the question and answer session.
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Your first question comes from Jonathan Schaeffer from Northland. Please.
Please go ahead.
Hey, guys. Thanks for taking the questions.
I'm glad to see the fossil fuel side of the refineries seem to be operating quite well it looks like pretty good results there, but I wanted to I wanted to really dig into the delay on the Rd conversion side, just wondering James if you can kind of.
I'm going to ask you two more or less kind of like visually flesh out or or paint the picture for us of kind of what was going on there on the extreme end you can imagine the case of.
Explosions in chaos, which assumes of course not likely given all the Osha and you didn't it doesn't seem like there were presumably spills or anything like that given the environmental incidents.
So is this just like an internal like a sensor goes off or something.
And then thats it sounds like it was isolated just on the pumping side, but there is sort of like and maybe an interplay with the hydrocracker.
Yes.
Other important question here would just be the pump as a feedstock pumping equipment is that specialized equipment.
It's a special type of pump given that its soybean oil.
Or is it something pretty generic just moving fluids and works for all kinds of fluids been sitting there for a while and you're just trying to kind of figure out why this legacy or older piece of equipment is not quite working anything kind of just flushing that out more completely would be great.
Yes.
Thank you Donovan.
Good morning.
<unk>.
So to put this in front. This was not really a material event and these are brand new pumps that were designed specifically for this case.
Different feedstocks with premise.
As we brought in external expertise to look at the the failure of the pumping system plus our own internal plus the.
<unk>.
Technology provider, what we found is they were designed for the products that we had however, there is a transition or a period during startup that they were not designed for.
So as a result of it we damage the pumps these pumps or I would say their specialty pumps.
We are positive displacement pumps, but we took them back to the manufacturer. They are repairing those in returning those to us.
At the same time, we're going through a very rigorous investigation.
Making sure we understand what did occur, which we now know and we're putting hardware and changes in place such that we can protect these pump from this again.
Did that answer your question Dominic.
Yeah, and I'm, just going to kind of the state to make sure I'm grasping. So it's sort of like you have the commissioning process and maybe there is a.
You could graph our charts, the pressure or temperature or some other set of specifications that go through and commissioning.
That's maybe outside of the parameters or just a regular day to day running and so as youre going through the commissioning some kind of a parameter jumped outside of the design spec that was just in the nature of how youre doing things like on the initial ramp up commissioning and so that was just sort of.
Miss there and so is that correct.
My framing that properly.
I think you've characterized it pretty well.
Okay, Okay, great and then.
Moving onto the production mix.
Yes.
Drop in gasoline and diesel that makes perfect sense and as expected kind of per taking the hydro.
During the argue conversion.
It was nice to see an uptick in the jet fuel and I know that also kind of aligns with how the markets have been going.
Gasoline and diesel prices have been coming down, but jet fuels been doing a bit better.
Curious is that a reflection of any ability on your guys. It's hard to kind of quickly adjust within diesel versus gasoline versus.
Kerosene and jet fuel, making kind of adjustments there to benefit from where prices are better or is that just kind of.
Just the incidental kind of artifact of everything else, that's happening and sort of changing simultaneously.
No. Thank you for pointing it out that's really been the hard work of the people inside a mobile adjusting to the market and moving our yield to match what is going on inside of the marketplace. We do have a limited amount that we can do that but they did respond well.
Both the operations and technical group to maximize the amount of debt that we could make out of the hardware that we have.
Okay, great. Thanks, guys I'm going to take the rest of my questions offline, but.
Congratulations on sorry to hear about the delay, but it sounds like a pretty workable issue. So.
Thank you Donovan.
Thank you your.
Your next question comes from Manav Gupta from UBS. Please go ahead.
Hey, guys. So just going back a little on the timeline you bought this refinery you executed some quick hit projects. The capture rate improve then obviously youll move the hydrogen another part.
They were still a whole bunch of projects, which the team has identified.
Jan need to hire captured in the future and I think making premium gasoline is one of them. So can you just quickly talk about some of these other projects, which could potentially be executed in the future that will help you guys hired captain at the refinery.
Yeah.
Yes, Thank you and good morning. Thanks for the question what we have identified.
<unk> really yield improvement projects premium gasoline being one of those that we'll be looking at in <unk>.
Some having to make hardware changes in order to be successful there.
We're working on those the first project is coming online here relatively soon that the team they are brought forward.
This is one of the things that basically the team was waiting for us to show up in US really talk about what the opportunities were and we.
We have a list of.
Low capital high return projects that will improve our yield structure and as I told the market.
<unk> I believe last quarter, you know over the next two two and a half years I expect to recover the profitability that we experienced with the hydrocracker in service with our existing assets.
Good guys and one thing, which is there's a little bit of a misconception, which if you could clear on the call.
Some believe out there that you are tied to refine slab an island you do not have pretreat capabilities, but you do you just have them in the tolling agreement and you can pretty much process anything you want so if you could clarify that youre not tied to refine so they are benign and you cannot can lead on dialogue. These.
These are whatever until your tolling agreements. Thank you.
Yes, Doug Haugh here it is.
Good point I think the it is or is it <unk>.
Ms characterization of our capabilities.
And it's not just about pretreatment. It's also about just feedstocks selected selection development qualification, which we're in the process of doing with several feedstocks today.
So that is not dependent on additional phase II developments, which we've talked about depending on additional hydrogen is not dependent on pretreatment intact. It's just simply pre qualifying those additional feedstocks to make sure that we understand the operating parameters.
James is team has to deal with in a production environment.
It's a.
You are correct, that's a mischaracterization of our capabilities and the units capabilities and the positioning into the facility.
As far as feedstock scale.
Thank you so much guys.
Mhm.
Thank you.
Next question comes from Noah Kaye from Oppenheimer. Please go ahead.
Hi, This is Jason <unk> on for no. Okay, alright. Thank you for taking my question.
So how does the new R&D timeline affect the timing to receive RIN and L. CFS registration when do you expect youll be eligible for both credits.
Yes.
Timeline only effects really else CFS.
We are we've got the applications in for Ryan being able to capture the Rins, we expect that within the next month or so so.
So that will occur.
Or at least we are waiting on government approval. So recognize that we don't control that but we've done all the things we need to do to be able to assure ourselves that we're getting the rins and then we must have 90 days of production data running two and put together CFS.
Right now, we expect that sometime in the fourth quarter or first quarter of next year.
For that for us to get that approval.
Got it thank you and on the <unk> guide for refinery throughput, what's driving the 91% to 96% utilization assumption does the ongoing work on the R&D system impact throughput is there any additional downtime that youre planning to take in the quarter for the plant.
Yes, there's a couple of things that we're playing and we're trying to give the best guidance. We had moving forward. There is some incremental impact with just hydrogen in the fuel system.
But thats incremental we also will do short pit stock and.
It's just really a heater pigging and thats incremental in the next month or so.
One thing we are trying to signal a little bit our one of our third party pipeline suppliers has a risk on their pipeline system of being able to deliver pipeline barrels and so we at least wanted to signal what that looked like in the future.
We are working to mitigate those risks, but did not want to surprise you guys and so therefore, we.
Put that within our guidance.
Got it thanks.
Mhm.
Thank you Yuri.
Your next question comes from Eric Stine from brick Hallum. Please go ahead.
Good morning, everyone.
Good morning, Eric.
Just.
So just following up on that last question on throughput I mean, so obviously youre, calling out a few things that whether it's.
And just the incremental impact of what's going on at the refinery right now the short turnaround in that pipeline risk I mean, what what do you view once the R&D system is up and running I mean is there.
It doesn't sound like we're at a different throughput level, our expectation I mean is it fair to say that if we look out into the back half of the year, we're back to more normal expected throughput levels.
Yes, yes, we are back in the 75000 range.
Of course us going forward.
Our fuel system is back to what we would call more normal.
And that will help us as well as us just positioning ourselves to run full during that time period.
But we have ran pretty well.
For the last 90, plus days with the with the hydrocracker down the team has done a very good job managing that system.
Yes, Okay, yes, I just wanted to confirm how we think about it going forward once we get through this quarter.
Maybe just on the renewable diesel project, obviously top of mind, your you've talked about it quite a bit.
But.
Where does your comp I mean, it sounds like you are pretty confident.
You're basically going to Miss some months here and then you start up.
And then the startup.
Process begins again.
Maybe where does your confidence lie.
One of the reasons for that confidence it doesn't sound like you've received that repair of equipment, yet but is it something that is once you do you've got line of sight, there and once you do it's a relatively quick.
Repair.
Yes, the repair we had purchased repair parts for these pumps prior to <unk>.
Purchasing them and that was part of our purchase agreement. So therefore.
We had at least mitigated the risk because these are specialty pumps.
That's why we're confident there however, we still have to go through some of the hardware and changes that we're going to make to protect these pumps and that includes a rigorous MLC process that requires us to train our personnel on site and then we will have not just the additional subject matter experts.
That we brought in to help us with this but there'll be there watching us and helping us during the startup and making sure that we take care of these pumps now when I look at the rest of the system.
We were able we're pretty well able to operate.
The rest of the unit. So we didn't see anything that looked unusual to us during the time that it was up and operating or the.
You had all the compressors and pumps working so we have.
High confidence that we have tested.
Every bit of the system that we could at that time and now it's going forward and how do we manage around these pumps in and making sure that we do the right thing and be good safety and environmental stewards of the asset and the people.
Okay, Alright, and I would assume that's something that you'll update the street on is a pretty material event when that restart.
Process starts up again.
We are.
We expect.
Relatively.
Short duration and put it in but we do I do.
Do not want pressure additional pressure on the team and I want the team to really go through and be rigorous in just the troubleshooting.
Root cause analysis and the repair.
Sure.
No it makes sense.
Thanks for that and then last question for me just you mentioned, our previous question Rens and El CFS credits.
Confidence on Rins can you just remind us.
I'm thinking about it correctly I believe rens, why you're confident that you'll get that pathway.
Approved that's something that if you were not to get that in Q2, you could do retro you could recognize retroactively and I believe El CFS is different at that is that is not retroactive am I thinking about that correctly.
Yes, you are let Doug has probably even more experienced than I do on dealing with the renewable diesel. So lithium answer yes. It's you have to be a little careful about the retroactive characterization.
As long as we maintain possession of the production, which we will during that period.
And we've accounted for any additional working capital needs.
That might create if there is delays in that certification on the rins, but we don't lose the RIN value Ryan. It's just you don't obtain at the minute you produce but you certainly get it on the first gallon produced assuming you maintain title to that production loss onsite.
Lcs vessels different you require the run times. So we know you don't recover that value on that first 90 days of production. So you've characterized it correct.
One just has to be careful to maintain title to the product. While you are in the process. Okay and just to confirm you said that you think you can get that El CFS.
Not the certification, but when you think you can start.
Capturing that those credits that would be in either <unk> or <unk>.
We expect <unk>, but again subject to the government, which we all understand that.
Okay.
Yes, that's <unk> not starting the 90 days right that would be the.
Correct.
I mean, the values in production at that time and it is worth noting those are specific pathways. So.
When it comes to <unk>.
One is perpetually climbing down the carbon intensity curve, Ryan as you're optimizing to capture those values at the highest levels.
Let's say assign and that gets you in at the base level and then you can continue to enhance your capture of those credits as you improve your carbon intensity, which factored the related question around feedstocks is a big part of our activities.
Yeah.
Okay very helpful. Thanks.
Okay.
Thank you. Your next question comes from Amit Dayal from H C. Wainwright. Please go ahead.
Just going back to the Rd delay with the bumps there was this sort of a human error or mechanical failure could you clarify please.
So even though we haven't closed out the investigation.
There is and the investigation will also point to not just the mechanical failure that occurred with did it but how humans interact with our team responded well and brought it to a safe place.
As we go through the investigation were looking at those items that are there that can also help.
Humans perform.
In the end it was more mechanical than human at this stage would be my characterization.
Understood. Thank you for that.
<unk>.
Also just looking at the.
The inventory it grew by around $52 million.
Was this related to your preparation for the Rd production or was there something else.
Yeah. Good question. So the inventory did grow mostly on soybean oil and yes. You are right that was way ahead of the R&D startup so all in preparation for R&D.
Okay. Thank you.
Just last one for me what is the Capex, the 30 to 35 million going into 14.
Welcome to you.
Yes, I would say the majority of that is going to be part of the phase two.
For R&D.
Of course, we have our normal maintenance capex that makes up the balance of that.
Okay.
That's all I have this I appreciate it.
Thank you.
Thank you. Your next question comes from Brian Butler from Stifel. Please go ahead.
Hi, good morning, Thanks for taking my questions.
Good morning, Good morning, Brian .
Just on the first.
Renewable diesel was any renewable diesel produced before the feedstock pump failed.
No no we were in the startup phase getting the everything condition.
So that we could introduce theme and thats been the failure occurred.
Okay.
And when you think of the repair and then how.
Kind of the ramp up is going to work.
Youre going to be producing something I'm guessing or at least your plan is to produce something in June and how does that ramp through the back half of 'twenty. Three if you think about 8000 kind of target of what can be produced before phase two.
We were gone we have a production plan that was really directed to this by the technologies provider Hal door and we're going to start, let's just say kind of mid rates and they will ramp up as the catalyst this condition.
And that will ramp up over a four to six week period is what our plan is that we won't move forward until we are together with our technology provider and make sure the catalyst and we've got the oversight looking there too.
Prudently and.
Bringing the unit forward up to the Max rates that you described.
Okay and that so that means kind of early second or third quarter, you could be at that 8000.
Call It August .
July .
That that would probably be our guess at this stage, we will continue to provide that as we go forward.
As we progressed through startup and through the first several months of operations in the first month or two of operation.
Okay, and then on the price for renewable diesel can you give some color on kind of where that pricing stands if you think of the <unk>.
Stack I guess you'd call out where you have the ultra low sulfur rens blenders tax credit and then I guess Lcs asked but that's not until fourth quarter or first quarter next year.
Yes, that's correct that is the stack of credits.
Doug here I think the.
Values as well as diesel has come down renewable diesel has come down as well, obviously, the blenders credit when you're calculating that stack that blenders credits constant because its the dollar credit.
Set kind of value the returns obviously will come.
In and out as that market continues to balance rents have remained strong relatively.
This year and we'd expect that to continue.
Given the the supply and demand balance on renewables the the real change in value of the stack if you're tracking in has been L. CFS.
So fortunate or not for us right.
Right now foregoing Neil CFS values on the first 90 days of production as we've described it as a fairly nominal impact because el CFS has come off and value. So much in the past four months.
One couldn't predict that but we'll take it.
And it certainly makes us feel a bit better about not having not having that one on startup.
But otherwise the value is driven by the underlying diesel value.
The volatility in the rain and then the changes in our CFS and then use that as a dollar credit on top of that.
Okay. Do you guys have maybe what a number would have been for first quarter, just kind of a reference point I just want to make sure we're kind of all in the same place.
No I mean, I'd just refer you to public indexes of that.
We don't quote a price on it and.
It changes every day.
Right Okay.
Then I guess on the feedstock side can we can we go through maybe kind of the strategy there and kind of whats what feedstock has been acquired and at what price that inventories have been built that.
Well, let me just speak about infrastructure, which I think is important to appreciate we've had some questions around.
Feedstocks and general pre treatments.
And <unk> just all related so it's important to understand that as we get each pathway qualified <unk>.
Have to obviously procure the feedstock at good values.
Logistically manage that to get it to the plant you're going to have infrastructure storage and segmented you can you can you can co mingle like for like but you can't just commingle feedstocks.
At will.
Violent urine pathway. So there's there's very specific infrastructure that's been developed.
We have.
When we look at feedstock preparation.
The team has done tremendous work to put in the capabilities, we need to supply the plant very economically.
And those are both logistical and storage infrastructure.
It's a couple hundred thousand barrels a barging capability and capacity that we have now in service every day to feed the plant.
And almost half a million barrels of storage for both the feedstock Sammy already production. So I think when you compare this facility to others in terms of the logistical capabilities and capacity storage infrastructure that was available in mobile both at the refinery and commercially available to port.
It's been a tremendous asset in facilitating our startup in terms of building inventory to make sure. We can run at the Max rates.
James can safely C achieved with the operating team.
And the feedstock supply is not a constraint and we were able to do it optimally against the marketplace.
Again, because we have a logistical capability to go get the feedstock and not depend on others.
It's a pretty thin supply chain that can be.
Unreliable, if one doesn't plan for it so we've we've really been focusing on infrastructure to make sure. We can reliably and economically obtained feedstocks, we need to run at tax rates.
Okay, and then one last one just on conventional.
Can you update us on just kind of the sensitivity to the crack spread for like let's.
Barrels are dollar barrel change how should we think about that impact on the conventional business.
Yes.
So Brian this is the tricky question as far as trying to pin down what the cracks are going to do in the market conditions.
What we're looking at obviously.
At the moment cracks have come in.
There is a very broad.
<unk> on where the industry is going and it would be shooting in the dark it can be really good at and it can be not good at all so.
You got to do.
You got to pull those.
Does research.
Yeah again of data points out for yourself.
We think that we're on a good quarter for the second quarter cracks have come in some I mean, you can see that.
<unk> just got to look up to 211 crack.
So we're managing to that and very focused on our efficiencies and our yields and I think we're.
We're set up really well to navigate whatever.
Whatever is coming our way.
Okay. Thank you very much for taking my questions.
Thank you Brian .
Thank you.
Our next question comes from Jason Gere from David Cohen. Please go ahead.
Good morning, Thanks for taking my questions.
I wanted to revisit the third party pre treatment.
And I wanted to confirm one there is an agreement in place with a third party pretreatment facility and if so.
The amount of volumes that that covered for you and what is the fee you have to pay.
To access those feedstocks.
Yes, I think to clarify where in prequalification of those pre treatment processing capabilities.
There is.
Agreements being negotiated those negotiations are subject.
Qualifying the processing capabilities of the plants that were working with and those will vary by feedstock.
We don't know what the yield loss will be in three treatment until you run the molecules through the plant and have proved production and we've got to get through that phase, which we're starting now.
And can you clarify its not one facility, we don't we don't want to be dependent on.
Any one single point of failure in the supply chain. So we will pre qualify multiple facilities.
On that pathway now.
And those are also positioned to allow us to access different feedstocks right.
Ranging.
From the lows and fats market vessels increases market as long as desio market right. So the chemistry and metallurgy necessary process all of those is different.
In all likelihood this will be multiple pretreatment contracts and facilities not a single player.
Got it.
Maybe I'll ask just for a clarification on that what's the target.
In terms of the amount of volumes you expect to access from those facilities and when would you expect that those agreements finalized.
I would expect that volume metrically, we are trying to position.
Pretreatment capacity equal to our production capacity right. So.
The dance there is to sequence those to match the ramp up rate the gains achieved with the plant and also the.
The step up from phase one to phase two.
But as we look at developing that supply chain and continuing to Prequalify these facilities and the feedstocks feeding them.
The production plan is to match the production capacity at the plant so and whether we do that on every barrel or not is optionality that we want to have in hand. It may not be optionality. We use every day. If you look at the value of those feedstocks at the moment.
Theres not.
There is not terribly attractive margins associated with the pre treatment capacity.
Because feedstock should come into a different point of equilibrium on the price of the finished product so.
You want some flexibility there to ramp those up and down and that's one of the advantages we see of contracting versus constructing it.
We don't have fixed capital that forces us to run it when it's uneconomic.
Okay understood.
And my follow ups, just on capital expenditures for the project.
I think when you set out to build this renewable diesel facility you envisioned.
Having a third party build the hydrogen plant and it seems like you may be committing some capital to that and that's what phase two is which wasn't initially envisioned.
Yes.
With phase two what do you expect the total cost of the renewable diesel project to be and.
Is there any adjustment.
Previous guidance for full year 'twenty three capex. Thanks.
Hey, Jason.
Jason This is James so what we've done there is two things we've done on our capital and we are following and supporting our hydrogen provider with it on capital. So I don't have a final number to you there yet, but we have moved some of the capital out from underneath them and executing ourselves because we number one we have the capability to do it number two we.
The cash and number three that really unloaded or.
Hydrogen supplier to allow them to just focus on the unit itself.
So we are also getting the site ready.
For that to be deliberate we're doing the silver work ourselves putting the pilings in.
Let's start in the next week or two and then in turn will move that facility in its already been delivered to the port of mobile and we will be moving in and after that so that's really what you've seen change in our point of view on whats work, we're going to ex cel execute versus what we would have them to do.
That's changed a little bit.
But we are subject to them and where they are on their project to make sure. We know exactly where we are as we get the final investment decision their own on their piece of the work.
Okay.
One thing.
Okay.
If I could maybe sneak a third one in.
I know theres been in the past.
Oh.
Improved.
Our capital stack and refinance some of the data and address some of the convertibles.
Any update you can provide on that front and maybe how are you thinking about things unfolding on the balance sheet and timing around that would be helpful. Thanks guys.
Yes, good question.
I think our near term focus you know, obviously, we were able to pay a little bit down on the term debt during Q1.
Currently the focus is getting the R&D unit up and running.
Utilizing our current cash is working capital around the inventory.
And.
Then we will start looking at what are our options to really clean up the balance sheet and get things structured the way we want long term after that.
Alright got it.
Thank you Dan Thank you.
Okay.
There are no further questions at this time you May proceed.
Okay, everybody. Thank you very much for joining us. This morning on this call were very.
We are pleased with the performance of the company and the business disappointed with the delay we see that is.
A bump in the road not a not a major concern for the company. Our team is on top of it will deliver the production.
As we discussed and we really look forward to as Chris said.
We're prepping to turn our balance sheet.
And two very strong balance sheet.
We have been very reliable in our operations of the site. So we've really put a lot of things the beds. We built our team mouth I'm very excited to have Doug here at the table with us.
He brings a whole new perspective around our feet origination and our finished product strategy. So all of that's good.
We were actively developing our energy transition platform. That's really are our focus less of the core of our company.
Not coming into mobile and acquiring a carbon asset debate another independent refiner were coming in to pull that asset into an energy transition platform and continue to develop the opportunities around that and Theres a lot left to come so I'll leave it with that.
Thank you everybody again for being on the call we look forward to.
Progress report as we start this unit up in really key.
Close this part of our development journey with this R&D plant and then we will go forward. Thank you.
Ladies and gentlemen, this concludes your conference call for jewelry, we thank you for participating and ask that.
Please disconnect your lines. Thank you.