Gevo Q4 results highlight isobutanol upgrades, ASTM approval

By Katie Fletcher | March 31, 2016

On March 29, Gevo Inc. released its financial results for the three months ended Dec. 31, highlighting restarted production of isobutanol in Luverne, Minnesota, ASTM revision approval to support isobutanol-based alcohol-to-jet (ATJ) aviation biofuels and agreements to construct isobutanol plants in Argentina.

The day before the company released quarter-four financial results, Gevo announced that ASTM International Committee D02 on Petroleum Products, Liquid Fuels and Lubricants, and Subcommittee D02.J on Aviation Fuel have passed a concurrent ballot approving the revision of ASTM D7566 (standard specification for aviation turbine fuel containing synthesized hydrocarbons) to include alcohol-to-jet synthetic paraffinic kerosene (ATJ-SPK) derived from renewable isobutanol (the D02.J Ballot).

The D02.J Ballot passed two levels of ASTM technical scrutiny—subcommittee and main committee ballot—and is in the final stages of society review. In order to fully complete the process, the ASTM still needs to close the society review, perform a final ballot tally and publish the revision of ASTM D7566 on its website. Gevo expects that these final actions will be completed by the ASTM in early April.

Once the revision of ASTM D7566 is published by the ASTM, Gevo’s ATJ will be eligible to be used as a blending component in standard Jet A-1 for U.S. commercial airline use and in other countries. Gevo’s ATJ would be eligible to be used for up to a 30-percent blend in conventional jet fuel for commercial flights.

Patrick Gruber, Gevo CEO, said on the earnings call that this is something that has been in the works for five to six years and represents only the third time a biobased jet fuel has been included in the ASTM spec. “We’re hopeful this approval will exonerate our jet fuel partnerships with commercial aviation companies,” Gruber said.

As previously announced, Alaska Airlines is Gevo’s launch partner, now poised to fly the first-ever commercial test flight using Gevo’s renewable ATJ.  Gevo is preparing the shipment of ATJ to Alaska Airlines for this first flight.  Alaska Airlines will work with the Federal Aviation Administration to schedule the flight using Gevo’s ATJ. The company’s been operating its demonstration plant producing jet fuel in cooperation with Southampton Resources in Silsbee, Texas, since 2011.

Gruber began the call discussing production details at Gevo’s isobutanol plant in Luverne. Last year, Gevo began a $5-million project to upgrade isobutanol capabilities, which Gruber said is now complete. The project included adding a distillation system, a new production fermenter and upgrading the fermentation system, particularly in the seed train. “We began our isobutanol fermentations a couple weeks ago and while we are still in the learning curve phase of the operation on the isobutanol side of the plant with the new equipment, the initial results look good,” Gruber said.

The company announced it continues to target production levels at the facility in the range of 750,000 to 1 million gallons for 2016, and a decrease in the variable cost of isobutanol production to a range of $3 to $3.50 per gallon. This production cost enables isobutanol to be produced at a positive contribution margin, based on an expected average selling price for isobutanol in the range of $3.50 to $4.50 per gallon. Gruber stated that actual annualized production run rate would be about 1.5 million gallons per year and they expect to be running on a continuous basis from here on out rather than doing campaigns as they have done in past years.

Gruber mentioned that Luverne experienced a fire at its plant last week due to a flow problem causing the dryer to overheat in the animal feed area making feed catch fire. The fire was limited to the dryer and the equipment is repaired and cleaned up.

Gevo is targeting three market areas in the near term. In addition to the isobutanol and jet fuel, the company is also targeting specialty fuel blend stock and isooctane. Gruber said the company expects to sell the majority of its production into the specialty gas and blend stock market during the year focused on marinas, gas stations that serve boaters and small engine off-road users. “Collectively, we estimate the market potential of the boating and off-road market segments to be in the hundreds of millions of gallons per year,” Gruber stated.

Gruber spent time explaining why customers may be willing to pay the higher price for gasoline blended with Gevo’s isobutanol that has begun to be introduced at marinas and gas stations that serve boaters and small engines. The company is marketing the product as a high-octane, ethanol-free fuel that meets RFS requirements. Gevo recently announced it will be collaborating with ValvTect—a supplier of marine fuel additives—in bringing renewable isobutanol fuel blends to its marinas. “It gives more choice to customers and we think broadens the appeal of biofuels,” Gruber said. “Isobutanol blended gasoline addresses the concerns in some markets caused by ethanol containing gasoline.”

Gulf Racing has distributed Gevo’s isobutanol product to outlets like Lee Oil where they have introduced isobutanol blends with 93 and 100 octane. Gulf helped get this fuel at the Express Care retail pump in Fredericksburg, Texas, with prices ranging around $3.89 to $4.99 per gallon. Gulf has also introduced 93 and 100 isooctane-blended fuels at Motorsports Ranch in Houston. Gevo began selling its isooctane into Europe for high-performance fuels as gas for airplanes. The company is producing the fuel in Silsbee.

Gruber also discussed progress on licensing. Gevo completed a license for isobutanol production with Porta Hermanos in Argentina. The first plant is to be wholly-owned by Porta and anticipates beginning production of isobutanol next year. The plant is expected to have a production capacity of up to 5 million gallons per year.

Revenues for the fourth quarter of 2015 were $7.3 million compared with $9.5 million in the same period in 2014. During the fourth quarter of 2015, revenues generated at the Luverne plant were $6.5 million, a decrease of $2.3 million from the comparable period in 2014. This decrease was primarily a result of lower ethanol production, as well as lower ethanol prices.

Gevo also generated grant revenue of $500,000 during the fourth quarter of 2015, an increase of $400,000 from the same period in the prior year. Gevo’s grant revenue is primarily generated through the work it is doing with the Northwest Advanced Renewables Alliance to produce isobutanol from cellulosic feedstocks, such as wood waste, which can then be converted into Gevo’s ATJ.

Gevo reported earnings per share of -44 cents for the fourth quarter, and the company ended the quarter with cash and cash equivalents of $17 million.

Cost of goods sold decreased by $1.9 million during quarter four of 2015, compared with the same quarter in the prior year, due primarily to a decrease in ethanol production, as well as the halt in isobutanol production while Gevo was installing new capital equipment at Luverne. The primary expense decreases related to raw materials of $600,000, other variable costs of production of $800,000 and repairs and maintenance of $300,000. Gross loss was $1.7 million for the three months ended Dec. 31, 2015.

Research and development expense decreased by $1.1 million during the three months ended Dec.31, 2015, compared with the same quarter in 2014. Selling, general and administrative expense decreased by $1.5 million during the three months ended Dec. 31, 2015, compared with the same quarter in 2014.

Loss from operations in the fourth quarter of 2015 was $6.6 million, compared with $8.9 million in the same quarter in 2014. Cash earnings before interest, taxes, depreciation and amortization loss in the fourth quarter of 2015 was $4.2 million, compared with $6.7 million in the same quarter in 2014. The net loss for the fourth quarter of 2015 was $8 million, compared with $11.1 million during the same period in 2014.