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Gevo sees hydrocarbon sales begin to take off in 4Q; plans to expand production

Last updated: 20:12 17 Mar 2020 GMT, First published: 18:14 17 Mar 2020 GMT

Sprouts growing from stacks of quarters leading to a jar of quarters
Delta Air Lines agreed to purchase 10 million gallons of Gevo's advanced renewable biofuels per year

Gevo Inc (NASDAQ:GEVO) reported 2019 fourth-quarter results after the bell Tuesday that showed revenue growth and a narrowing loss thanks to a jump in hydrocarbon sales. 

The environmental company saw 4Q revenue of $6.9 million, up 4.5% from $6.6 million a year earlier. Its gross loss for the period narrowed 16% year-over-year from $3 million to $2.5 million. 

The revenue growth was due in part to a bump in hydrocarbon production at the company’s South Hampton facility. In the year-ago quarter, the company said, production was down due to facility upgrades. 

READ: Gevo subsidiary shows off new wind turbines, waves goodbye to fossil fuels at Minnesota facility

Hydrocarbon sales, which include its sustainable alcohol-to-jet fuel and isooctane, a fuel additive, improved to $1 million in the quarter from $100,000 in the same period in 2018.

Fueling the future

In December, Gevo announced that Delta Air Lines Inc (NYSE:DAL) will purchase 10 million gallons of its advanced renewable biofuels per year once the company has completed expansions at its Luverne facility. 

“The agreements with Delta Air Lines and our other customers demonstrate that the demand for our renewable hydrocarbon products is real and growing,” CEO Patrick Gruber said in a statement. “We expect to secure even more contracts for hydrocarbons in the near future. The world is changing, and companies appear to be waking up to the reality that they will be held accountable for greenhouse gas emissions. 

“Gevo technologies de-fossilize liquid transportation fuels, directly addressing the greenhouse gas problem. We need to focus on financing the build-outs and growing the business. It’s a new game, and it looks like the timing is right for Gevo,”

All told, Gevo has roughly $500 million worth of take-or-pay-off-take agreements in place for a combination of renewable jet fuel and renewable isooctane for gasoline. 

In response to growing demand for its products, Gevo plans to operate more as a developer, licensor and plant operator rather than a majority owner, the company said. As the public becomes increasingly concerned about greenhouse gas emissions and climate change, Gevo said it expects to attract equity and debt financing partners.

In 2020, the company plans to secure long-term financing to construct one or more expanded production facilities to produce its low-carbon hydrocarbon products for Delta and others. 

The plan, the company laid out in a statement, is this:

  • Secure debt and equity required to build out at least 17 millioin gallons per year up to 70 MGPY, which could take until early 2021 or later
  • Enter into additional binding, financeable off-take contracts
  • If off-take agreements exceed 17 MGPY, secure an additional production facility
  • Use renewable electricity at Luverne to lower Gevo's carbon score under the low-carbon fuel standard and get products approved during the 4th quarter 
  • Finance its three-dairy 350,000 milion BTU Renewable Natural Gas project with debt and equity from third parties, the benefits of which would realize in 2021
  • Refinance the Whitebox convertible senior secured notes due 2020/2021
  • Continue to produce renewable jet fuel and isooctane at South Hampton Resources Inc in using isobutanol produced at Luverne
  • Use third party financing for and begin construction of a 1 MGPY renewable isooctane and jet fuel plant at Luverne, increasing production capabilities 10x
  • Upgrade the isobutanol section of the Luverne facility so that isobutanol can be run at a consistent rate to supply the 1 MGPY hydrocarbon plant, which is expected to be financed/constructed before the larger expansion to Luverne
  • Depending on the price, produce approximately 15 million gallons of ethanol 
  • Sell roughly 30,000 metric tons of higher-margin, premium animal feed, protein products and corn oil in 2020, which should improve profits at Luverne

Gevo is commercializing the next generation of gasoline, jet fuel and diesel fuel with the potential to achieve zero carbon emissions, addressing the market need to reduce greenhouse gas emissions with sustainable alternatives.

—A previous version of this article mistakenly reversed 'to' and 'from' regarding the company's narrowing loss—

Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com 

Follow him on Twitter @andrew_kessel

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