Gevo, HSC Holding sign supply agreement for renewable isooctane

By Gevo Inc. | May 04, 2017

Gevo Inc. announced on May 4 that it has entered into a supply agreement with HCS Holding GmbH  to supply renewable isooctane under a five-year offtake agreement. HCS is a leading global supplier of high-quality hydrocarbon specialty products. Haltermann Carless, a subsidiary of HCS and one of the oldest companies in the world of chemistry, is expected to be the direct customer with Gevo under the supply agreement.

The supply agreement is consistent with the Letter of Intent with HCS that Gevo announced earlier this year.

The supply agreement has two phases:

  1. In the first phase, HCS will purchase isooctane produced at Gevo’s demonstration hydrocarbon plant located in Silsbee, Texas.  This first phase commences in May 2017 and would continue until completion of Gevo’s first large-scale commercial hydrocarbon plant. Gevo estimates that this could generate up to $2-3 million of gross revenue per year.
  2. In the second phase, HCS has agreed to purchase 300,000 gallons of isooctane per year with an option to purchase an additional 100,000 gallons of isooctane per year, under a five-year offtake agreement. The Supply Agreement contains a selling price that is expected to allow for an appropriate level of return on the capital required to build out Gevo’s existing production facility in Luverne, Minnesota. Gevo would supply this isooctane from its first commercial hydrocarbon facility, which is expected to be built at Gevo’s existing isobutanol production facility located in Luverne, Minnesota (the expanded Luverne plant). Based on Gevo’s current estimates, this supply agreement would represent approximately 10-15 percent of the isooctane production from the expanded Luverne plant.

Gevo’s primary market development target in 2017 is to enter into binding supply contracts for its renewable isobutanol, isooctane, and alcohol-to-jet fuel that represents the majority of the production volume to be produced at the expanded Luverne Plant. Gevo believes that such contracts would underpin the economics of the expansion, which should facilitate the raising of the capital necessary to finance the expanded Luverne Plant, potentially at a lower cost of capital than what it has historically achieved through the issuance of common stock and warrants in underwritten public offerings.

“We are very pleased to work with Gevo to further develop the renewable isooctane market,” says Henrik Krüpper, HCS chief commercial officer and member of HCS Executive Committee. He adds, “Sustainability is a key element of our business strategy. With Gevo we have found the ideal partner to further expand our advanced ecological-sound portfolio for our customers. Gevo has created a unique product with very large potential that fits well into our long-term strategy. As our relationship with Gevo builds, we look forward to marketing other bio-based materials.”

It continues to be the intent of Gevo and HCS to establish further offtake arrangements for other products such as Gevo’s ATJ and isobutanol.

“The agreement with HCS is a key milestone for Gevo and represents our first definitive purchase agreement for long-term supply from our first commercial scale hydrocarbon site," said Patrick Gruber, Gevo’s CEO. "As we communicated during our last conference call, one of our critical strategic objectives is to secure binding supply contracts for a combination of isobutanol and related hydrocarbon products representing at least 50 percent of the capacity at the expanded Luverne plant. This is exactly the type of deal I was referencing and we are excited to get the first one on the books."

Gruber continued, “I believe the combination of our restructured balance sheet and the agreement with HCS bodes well for our ability to pursue additional agreements going forward. We are reaching a critical commercial inflection point and excited to work with marque customers like HCS. We are making good progress toward the goals we set out at the beginning of the year and are actively pursuing additional agreements.”