Aemetis Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 12, 2024

There are 8 speakers on the call.

Operator

day, ladies and gentlemen, and welcome to the Aemetis Third Quarter 2024 Earnings Review Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr.

Operator

Todd Waltz, Executive Vice President and Chief Financial Officer of Aemetis Inc. Mr. Waltz, you may begin.

Speaker 1

Thank you, Ali. Welcome to Aemetis Q3 2024 Earnings Review Conference Call. Joining us for the call today is Eric McAfee, Founder, Chairman and CEO of Aemetis and Andy Foster, President of North America. We suggest visiting our website at aemetis.com to review today's earnings press release, the Aemetis corporate and investor presentations, filing with the Securities and Exchange Commission, recent press releases and previous earnings conference calls. Before we begin our discussion today, I'd like to read the following disclosure statements.

Speaker 1

During today's call, we'll be making forward looking statements, including without limitation, statements with respect to our future stock performance, plans, opportunities and expectations with respect to financing activity and the execution of our business plan. These statements must be considered in conjunction with the disclosures and cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward looking statements made on this call involve risk and uncertainty and that future events may differ materially from the statements made. For additional information, please refer to the company's Securities and Exchange Commission filings, which are posted on SEC's EDGAR system and our own company website. Our discussion on this call will include review of non GAAP measures as a supplement to financial results based on GAAP because we believe these non GAAP measures serve as a proxy for our company's source or use of cash.

Speaker 1

A reconciliation of the non GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the Q3 of 2024, which is available on our website. Adjusted EBITDA is defined as net income or loss plus, to the extent deducted in calculating such net income, interest expense, income tax expense, intangible and other amortization expense, accretion expense, depreciation expense and share based compensation expense. Let's review the financial results as of the Q3 of 2024. Revenue during the Q3 of 2024 increased to $81,400,000 compared to $68,700,000 for the Q3 of 2023. Our Keyes plant recognized $45,000,000 of revenue during the Q3 with the production of 15,500,000 gallons of ethanol.

Speaker 1

Our dairy, renewable natural gas segment sold 85,993 MMBTUs from 9 operating dairy digesters and sold 935,000 RINs and 20,000 metric ton of LCFS credits to report $4,200,000 of revenue during the Q3. Our India biodiesel business recognized $32,200,000 of revenue, primarily from sales to the India oil marketing companies. Gross profit for the Q3 of 2024 was $3,900,000 compared to $492,000 profit during the Q3 of 2023. Selling, general and administrative expenses were $7,800,000 during the Q3 of 2024 compared to $9,000,000 during the same period of 2023. The decrease in spending was driven primarily by professional services associated with the sale of tax credits during the Q3 of 2023.

Speaker 1

Operating loss improved to $3,900,000 for the Q3 of 2024 compared to an operating loss of $8,500,000 for the same period of 2023. Interest expense, excluding accretion of Series A preferred units in the Aemetis Biogas LLC subsidiary increased to $11,700,000 during the Q3 of 2024 compared to $10,200,000 during the Q3 of 2023. Additionally, Aemetis Biogas recognized a significantly lower $3,300,000 of accretion of Series A preferred units during the Q3 of 2024 compared to $7,700,000 during the Q3 of 2023. Net loss was $17,900,000 for the Q3 of 2024 compared to net income of $30,700,000 for the Q3 of 2023, which was primarily driven by a sale of tax and of investment tax credits in September 2023. Cash at the end of the Q3 2024 was $296,000 compared to $2,700,000 at the close of the Q4 of 2023.

Speaker 1

We recorded investments in capital projects related to the reduction of capital intensity of Aemetis ethanol production and the construction of dairy digesters of $4,500,000 for the Q3 of 2024. Now, I'd like to introduce the Founder, Chairman and Chief Executive Officer of SurveyMedis, Eric McAfee for a business update. Eric? Thank you, Todd. Before we provide details, let me summarize some key items.

Speaker 1

Number 1, the low carbon fuel standard update passed last Friday, setting 20 years of increasing support for low carbon fuels and transportation in California. In anticipation of the new mandates, the price of LCFS credits has increased from $44 to $74 in the past few months and the late 2025 LCFS credits are already at $82 2nd, to simply simplify calculations, renewable natural gas generates about 40% of the price of LCFS credits per MMBtu. So a $200 LCFS price equals about $80 per MMBtu of revenues to Aemetis when our pathways are in place. Exiting this year, our renewable natural gas business is scheduled to be producing more than 500,000 MMBtu's per year and to increase to a run rate of about 1,000,000 MMBTUs by the end of 2025 as we construct additional dairy digesters. A $100 average LCFS price next year would generate $20,000,000 of revenues from the sale of renewable natural gas, a significant increase from only about $3,000,000 from the sale of LCFS credits this year.

Speaker 1

In 2026, at an average LCFS price of $150 Aemetis Biogas would generate $60,000,000 of revenues from the sale of 1,000,000 MMBTUs of RNG. 3rd, in addition to LCFS revenues, the sale of RNG generates about $35 per MMBtu of D3 renewable separation numbers and about $5 per MMBtu from the sale of the gas as well as up to $99 per MMBtu from the 45Z production tax credit. However, revenues from the sale of RNG without the 45Z production tax credit are between $70 $120 per MMBtu depending on the price of the LCFS credits. 4th, the Inflation Reduction Act Section 45z production tax credit begins on January 1, 2025 according to federal law. The realization of this tax credit is dependent on the IRS releasing the calculation of the renewable natural gas 45z production tax credit.

Speaker 1

And we have yet to see a clear indication that the guidance will be issued by the current administration prior to January 20, 2025. 5th, we are finalizing the sale of investment tax credits from the Aemetis Biogas projects with expected net cash proceeds of about $11,500,000 this month. We expect to sell this to the same buyer an additional $10,000,000 of tax credits in Q1 2025. 6th, the Aemetis Biogas business will be operating 16 dairies and 12 digesters at the end of next month with approximately 550,000 MMBtus per year of renewable natural gas production run rate at a negative 350 carbon intensity. We plan to grow to 26 dairies operating or in construction by the end of 2025, generating 1,000,000 millimeters millimeters

Speaker 2

millimeters millimeters millimeters millimeters millimeters millimeters millimeters millimeters millimeters

Speaker 1

millimeters millimeters millimeters millimeters BTUs in year 2026. Our LCFS pathways are now in the second round of requests for information. Our application is expected to be deemed complete by CARB this quarter, which begins the accrual of the higher level of LCFS credits. As a result, we expect to show significantly increased LCFS credit revenues in Q2 2025 generated by Q4 2024 shipments and a much higher LCFS credit price, which is a delay of 1 quarter from our previous expectations. Though we submitted our LCFS pathway application 18 months ago, we're still at least 4 months away from the approval of our provisional pathway that allows us to generate LCFS revenues above the negative 150 default pathway.

Speaker 1

We expect to begin to show the increased revenues and cash receipts from LCFS pathway approval in Q2 2025. 7th, the USDA has $75,000,000 of Aemetis Biogas loan applications in process and we expect a closing of $25,000,000 this quarter and commitment letters for an additional $50,000,000 in Q1 2025 under the USDA Renewable Energy for America program. Last, the $200,000,000 of low cost EB-five funding is making progress, but the immigration policies of the current administration has been unfavorable for EB-five investors. We expect that the change of administration will support our financing and potentially enable an expansion of the funding. As we have discussed on prior earnings calls, Aemetis benefits from public policy to support renewable fuels.

Speaker 1

This past Friday, the California Air Resources Board approved an updated low carbon fuel standard that establishes 20 years of mandates for the increased use of low carbon energy in transportation. Aemetis has focused our renewable fuels project development on California assets and production in order to be in the position that we now have achieved. Aemetis was listed by a leading stock analyst as the number one stock in the world that would benefit from the adoption of the updated low carbon fuel standard. The price of LCFS credits has increased as we said before from $40 to $74 in the past few months, reflecting the shortage of credits that are designed into the updated LCFS mandates. The 9% decrease in carbon intensity for fuels in year 2025 and the ongoing automatic adjustment mechanism are designed by CARB to provide confidence in a higher price of LCFS credits in order to attract debt and equity investments into low emission transportation.

Speaker 1

The second milestone is the issuance of guidance by the IRS showing the calculation of the Inflation Reduction Act Section 45z Production Tax Credit that by law begins in January 2025. The current administration is not committed to releasing the 45Z production tax credit guidance before January 20, 2025. So we may be delayed for an unknown amount of time before the 45Z revenue begins. The calculation of production tax credits primarily benefits our dairy biogas business, so we are pursuing multiple avenues to communicate to the IRS and political leaders the critical role of the PTC in the growth of negative carbon intensity renewable fuels such as renewable natural gas. 3rd, the approval of the 15% ethanol blend by the federal EPA has been scheduled for mid-twenty 25 as a part of a legal settlement with 8 Midwestern states.

Speaker 1

But California Governor Newsom issued a letter to CARB 2 weeks ago, instructing that the regulatory work should be completed in order to be able to approve E15 in California as soon as possible. A 15% ethanol blend in California would decrease gasoline prices by an estimated $0.20 a gallon and save about $2,700,000,000 per year according to a UC Berkeley and Naval Academy study. E15 approval would increase the market for ethanol by more than 600,000,000 gallons per year in California and a 15% blend nationwide would enable the ethanol industry to grow revenues by 50% to more than 20,000,000,000 gallons per year. Combined, these three regulatory events significantly increase the value of our products and are expected to generate more than $50,000,000 per year of increased positive cash flow starting in January 2025 if the 45z production tax credit goes into effect as stated in the Inflation Reduction Act. Now let's quickly review each of our businesses.

Speaker 1

In the India biofuels business, we completed deliveries of $112,000,000 during the 1 year period ending September 2024, driven by biodiesel sales to the 3 government owned oil marketing companies known as OMCs under a cost plus contract structure. We completed this contract with excellent production and delivery performance. The positive impact of costless pricing that is now being used by the OMCs to purchase biodiesel is expected to continue for the foreseeable future. The India business has positive EBITDA and funds its own operations and capacity growth. Last month, we bid on the current 1 year contract and expect to announce an allocation from the OMCs within the next few weeks.

Speaker 1

This July, our new Managing Director for the India business joined the company after serving as the CEO of the GE joint venture in India to build renewable power plants. We have identified an excellent candidate for Chief Financial Officer who has recent IPO experience and we are expanding our Hyderabad office to support multiple plant sites and new products. We expect to have evaluation for the planned IPO after the offering has been marketed to investors. Now Andy Foster, President of Aemetis Advanced Fuels will review our North American businesses. Thanks,

Speaker 3

Eric.

Speaker 4

In the Aemetis Biogas business, we continue to grow the number of dairies and digesters, funded by the 20 year loans guaranteed by the USDA Renewable Energy for America program. We received the draft USDA conditional commitment approval for the next $25,000,000 REIT loan and expect to close the funding this quarter after an initial internal delay at the USDA. An additional $50,000,000 of USDA guaranteed funding is in process for closing in the next few months for a total of $75,000,000 of new long term financing for biogas digester and pipeline construction. The California Air Resources Board has stated that renewable natural gas is an important feedstock for the production of renewable hydrogen for future truck engines, allowing trucks to be 0 emission using a carbon negative fuel. We believe that Aemetis is well positioned to supply renewable natural gas, renewable hydrogen and negative carbon intensity electricity to power future trucks and cars in California, enabling the transition to 0 emission and below 0 carbon intensity, heavy duty and light duty vehicles.

Speaker 4

For the Aemetis Biogas for the Aemetis Ethanol business, the temporary approval of a 15% blend of ethanol in 49 states for this summer and the EPA's recent statement that a permanent E15 approval will be adopted effective next year is expected to have a positive overall impact on the ethanol on ethanol industry margins as retailers seek to provide lower cost fuel to consumers. A few weeks ago, the California State Assembly voted unanimously in favor of completing the work to adopt a 15% ethanol blend in order to lower gasoline prices at the pump. A recent study, as Eric mentioned, by UC Berkeley and the Naval Academy showed that the adoption of a 15% ethanol blend in California would provide 2,700,000,000 dollars per year savings on fuel costs for consumers equal to about $0.20 per gallon. Though the E15 proposal wasn't called in the Senate for approval after the positive assembly vote, 2 weeks later, Governor Newsom issued a letter to CARB stating that all of the work for the approval of E15 should be completed as quickly as possible. As a result of the focus on reducing fuel prices in California, we expect progress on approval during 2025, which we expect would have a very positive impact on Aemetis as the largest ethanol producer in the state of California.

Speaker 4

A major step in improving our cash flow and energy efficiency at the Keyes plant is the installation of a mechanical vapor recompression system or MVR. We have completed process design and detailed engineering and are now building and fabricating equipment off-site. The MVR system is designed to reduce fossil natural gas usage by 80% and increase cash flow by $15,000,000 to $29,000,000 annually at the Keyes plant, depending on the value of the LCFS credits. The MVR Energy Efficiency Project is budgeted for a direct cost of almost $21,000,000 and has been awarded $20,000,000 of grants and tax credits from the California Energy Commission, PG and E's Energy Incentive Program and the Department of Energy and the U. S.

Speaker 4

Treasury Department. Due to equipment fabrication lead times, we plan to install MVR about a year from now. In the development of our Aemetis sustainable aviation fuel and renewable diesel business, during the Q1, we received authority to construct air permits for our planned 90,000,000 gallon per year sustainable aviation fuel and renewable diesel plant to be built in Riverbank, California. When operated to produce only sustainable aviation fuel, the design capacity of the plant is approximately 78,000,000 gallons per year of SAF. With the expanding demand for SAF and with limited supply, we continue to discuss the use of innovative pricing structures with our airline customers to accelerate the financing, construction and operation of the SAF fund.

Speaker 4

As one of the very few companies with all the key permits needed to build a large scale SAF production facility in the United States, Aemetis will build production facilities to supply renewable aviation fuel to an airline market that is currently not expected to meet its ambitious goals of transitioning to lower carbon intensity operations. Our Aemetis carbon capture subsidiary has received California state approval to drill the characterization well. The first phase of drilling and installation of the conductor pipe for the characterization well was completed about a month ago and we are working on the second phase of drilling. We plan to use the data from the characterization well to obtain a federal Class 6 sequestration well permit and then construct a CO2 injection well and compression system on the Riverbank site with the capacity to sequester approximately 1,400,000 tons of CO2 per year. Eric?

Speaker 1

Thanks, Andy. All 5 Aemetis business segments are synergistic and create what we've referred to as a circular bioeconomy. We are very pleased with the adoption of the updated low carbon fuel standard in California and we look forward to E15 approval as California seeks to reduce gasoline prices at the pump. Our company's values include a long term commitment to building value for stockholders, the empowerment of and respect for our employees and business partners and making significant and positive contributions to the communities we serve. Now let's take some questions from our call participants.

Operator

Thank you. At this time, we will be conducting our question and answer you. Our first question is coming from Manav Gupta with UBS. Your line is live.

Speaker 5

Congrats guys. Behind the scenes, we know you guys worked very hard to get this LCFS amended and approved. So congratulations on your hard work. My first question to you, Eric and team is, in your opinion, this 9% step down coupled with AAM, do you think this should be enough to move prices back to a range where projects like yours generate a good rate of return? Because at $70 that was not the case.

Speaker 5

So do you think this gets us in a situation where you could see LCFS prices back into probably $9,500 range by somewhere in 2025?

Speaker 1

Thank you, Manav. You are correct. We play, I would say, an important role in encouraging the adoption of an updated LCFS to do exactly what you're describing, which is fund projects. This is a question for the traders at major oil companies. There are various analysts that show by 2027 that essentially the bank of credits will be 0.

Speaker 1

And so in a deficit creating environment, which the credits are 0, the price will be at the maximum, which is approximately $2.20 plus And so, we will if California continues to exhibit strong commitment to the LCFS, which I believe on Friday, the Board in a vote of 10 to 2 showed a very strong commitment to the LCFS. I think major oil companies would basically be guaranteeing they're going to have to pay $200 for credits and the sooner they buy as many credits as they can, the quicker they're going to avoid that $2.20 future price, which is almost certain to happen in 2027 when there's nothing in the bank. There's no inventory. All the oil companies have had to deliver their credits in order to ship product in California. And there's just not enough credits available.

Speaker 1

So I think that we're headed toward $2.20 and it's just a question of whether it takes 12 months, which is what Carbs' own internal projection was or it takes 24 months.

Speaker 5

Okay. My quick follow-up is it's very good to hear about the 16 dairies and 100,000 millimeters millimeters millimeters

Speaker 2

millimeters millimeters millimeters

Speaker 5

millimeters millimeters millimeters millimeters millimeters millimeters BTU of RNG. As far as the adoption of RNG is concerned, there were some news items out there that Cummins is getting orders from UPS and so their new 15 liter engine is gaining traction. I'm just wondering what you have heard about this particular engine and do you believe in the near term this engine could be somewhat of a game changer for those guys looking to put RNG into trucks?

Speaker 1

I've spent some time with other dispensers in the industry and the X15 engine has shown itself to be really equal to performance of diesel engines, but at very, very low emissions and with lower cost fuel. And I think if we give ourselves a little bit more time, emissions will actually be able to meet some of the thresholds that CARB is anticipating for 2,030. So this is a long life solution with a carbon negative fuel and I think it has a very good future. And I would hope that Cummins Engine Company will continue to be successful in its large fleets because these fleets of course have a shortage of the product we make. That's actually been a constraint on the industry.

Speaker 1

So the expansion of our production is necessary in order to fuel those fleets with carbon negative fuel.

Speaker 5

Thank you, Eric. Congrats and I'll turn it over.

Speaker 3

Thanks Manav.

Operator

Thank you. Our next question is coming from Jordan Levy with Truist. Your line is live.

Speaker 6

Hi all. It's Henry on for Jordan here. Congrats on the quarter. Maybe just to start with, just want to get any more of your thoughts around perceived risk to future tax credits with the ITC kind of coming off the election here and with the new administration taking over in 2025?

Speaker 1

We expressed some concern about the timing of adoption. If the current administration does not move forward with what we believe they should move forward with, and then that is the adoption before the end of this year of the 45 Z Production Tax Credit guidance. And we are working directly with the IRS and frankly the team that is writing the guidance at the IRS and we have provided them the calculation and the substance of why that is a very simple calculation that they should be able to easily adopt. And so this is a question of whether the current administration, specifically the staff of the IRS wishes to move forward. So it's more of a political question than anything.

Speaker 1

And we do not have good guidance today on whether that's going to move forward before the end of the year or not. If it doesn't move, I think we're going to be sitting here in the Q2 next year finally with the new administration in place discussing what the 45 looks like. Federal law states that starting January 1, we generate these tax credits. And there are other steps with the IRS to determine how to calculate the tax credits properly. And we may very well be taking some of those other steps even without general guidance, we might get specific guidance for our projects.

Speaker 6

Got you. Thanks for that color. And I guess also maybe looking ahead to next year, from your perspective, how much will any potential tariffs and then any related feedstock price increases kind of impact the economics at Riverbank once it gets up and running?

Speaker 1

Riverbank would be oil products. We are currently anticipating to use largely domestic supply, what we would call waste, but distillers corn oil, tallow, other products that are domestically produced and are not currently relying on imported products as the primary source. As you know, we do have 50,000,000 gallons of tallow in India. We're doing quite well and having a nice profitable business over there, turning that into biodiesel, but that is an excellent hedge for us against having imports that are cheaper than domestic products.

Speaker 4

Excuse me, this is Andy. On the corn side, I would say that, it sort of remains to be seen what the incoming administration is going to do on tariffs. But as China has been in the past an exporter or an importer of U. S. Corn that could play a role there, if there's a tariff assessed.

Speaker 4

There might be retaliatory tariffs that happen and that could have an impact. But I really I think at this point, it's just it's too early to tell what the impact would have. But as Eric pointed out, our feedstocks are domestic. So theoretically, we're not going to have a problem getting them. It's just a question of what the world order looks like under a new if there are tariffs imposed on imports into the U.

Speaker 4

S. And what kind of retaliation other countries would take.

Operator

Thank you. Our next question is coming from Amit Dayal with H. C. Wainwright. Your line is live.

Speaker 3

Thank you. Good afternoon, everyone. So Eric, congrats on all the progress. You gave some color about the RNG business going into next year at 1,000,000 MMBtu capacity roughly. Is there a path beyond that in 'twenty six, 'twenty seven?

Speaker 1

Exiting this year, our numbers are approximately $550,000 So our projection next year is to actually exceed $550,000 for the year, but that's the capacity we have exiting 2024 going into 2025. Exiting 2025 going into 2026, it's 1,000,000. So the conservative view is 550,000 MMBtu is produced in 2025 and then 1,000,000 produced in 2026. We're actively working on accelerating that program. We have a total of 48 dairies signed to some sort of a contract, participation agreement, lease agreement or otherwise.

Speaker 1

And we have 16 operating dairies as of the end of this year. So we have actually 32 dairies to build and we've been working with a strategic vendor to accelerate those 32, so that they would actually be built much quicker than our current plan. So current plan is 10 additional dairies constructed or in construction by the end of 2025 and that sets us up for 1,000,000 MMB2s in 2026. We have a total of 1,650,000 MMBtu on schedule, but we're now talking about getting into 2027 to get to those levels. If we have positive experience with the strategic vendor, they're putting up some capital in terms of financing to buy long lead time items and help us deliver quicker.

Speaker 1

And I think we would see an acceleration that would show up by the Q2 of next year in terms of our revised projections and how quickly we're building things.

Speaker 3

Understood. Thank you. And then how should we think about your working capital needs as you scale on the RNG side and other initiatives that are taking place here in the U. S? And I'm not even talking about the India business because it looks like that's standalone a little bit, but just for managing your needs in the U.

Speaker 3

S, how should we think about working capital going forward?

Speaker 1

The ethanol plant is a self funding mechanism. We have relationships with vendors and customers that in effect allow us to run the plant without requiring any working capital. Renewable natural gas is a business which works completely differently. It's basically monthly revenues that are reflected the next month afterwards. We have already had the embedded working capital for operations in place for RNG.

Speaker 1

So its expansion doesn't really increase its overhead. The staffing doesn't increase materially. So the alignment of revenues and payments out to 3rd parties for operations are pretty much self funding. So all we're really funding in the business and India is standalone sitting on $15,000,000 of cash and working capital. So, it's fine, has no debt, long term debt.

Speaker 1

So, it's self financing. So, the only thing we're really funding here is the growth of the assets. We're building more dairy digesters. We're building these projects. That's what we're really using our capital for.

Speaker 1

And as you know, we're using USDA 20 year financing to build those projects. So what we're hoping to do is accelerate the USDA funding process to catch up to this pace at which we are completing engineering and permitting. And if we can get those better aligned, I think you'll see a very smooth transition here with really no working capital requirements for operations. It will be primarily just the use of cash for project financing.

Speaker 3

Thank you, Vivek. And then just last one on the India IPO discussions that we've had previously. Is that I mean, looks like it's still on the table. Is the timeline 2025 potentially when this could get accomplished?

Speaker 1

We have already recruited our CEO. He's been running the business now doing an exceedingly good job, just really terrific executive. And we have a CFO who will be taking all of the IPO processes as his primary duty. And so I would see over the course of the next couple of months an acceleration of that process. We've already been interacting with investment banks, etcetera, But it will be entirely dependent upon market conditions and we have laid the solid foundation in India, but we have not yet announced our current 1 year cost plus contract.

Speaker 1

We need to get that behind us. And I think our new CFO will pick up the ball and run with it. And the candidate we're looking at has completed an IPO recently in India very, very successfully. So I think our pace will be sped up significantly when he joins the company.

Speaker 3

Understood. And just last one, this contract in India, is that expected before the end of 2024?

Speaker 1

Yes, in the next week or 2.

Speaker 3

Okay. Thank you. That's all I have, Eric. Thank you so much.

Speaker 1

Thank you. See you.

Operator

Thank you. Our next question is coming from Matthew Blair with TPH. Your line is live.

Speaker 2

Thank you and good afternoon. Maybe sticking on that India contract, Eric, could you provide a look at with that new contract, is it pretty similar in terms of the same amount of volumes and a unit profitability or are there any differences that we should be thinking about as we model things out?

Speaker 1

Wait for us to announce the volumes, but you will see capacity expansion and volume expansion that work hand in hand. So you'll see some different numbers come up than what we had last year. We completed $112,000,000 at the end of September, that's a 12 month time period and India market is expanding. So we will get you back some updated numbers when we get the contracts.

Speaker 2

Sounds good. And then in the short term for India, is it reasonable to expect the contribution from your India biodiesel segment to ease up a little bit in the Q4 as you shift to different feedstocks?

Speaker 1

Yes. And actually, it's not so much the feedstocks. So you are insightful to point that out. Out. It's actually just the contract timing.

Speaker 1

The contract is from October 1, 2024 to end of September 2025. We will lose a couple of months because of the India government processes. It doesn't affect the overall volumes, but the timing means the 4th quarter will be a little weak from that. Since our overhead is so low, it's not a money losing quarter, but it's just not going to have the size of revenue that you would otherwise expect.

Speaker 2

Great. Thank you.

Speaker 1

Sure. Thank you.

Operator

Thank you. Our next question is coming from Dave Storms with Stonegate. Your line is open.

Speaker 7

Good morning, Eric and team. Just wanted to start with ethanol. It seems to have been producing above nameplate capacity for the year and is a little bit higher than it was at this point last year. I guess my question is how sustainable is that and how do you see that changing through the rest of the year?

Speaker 4

So we're operating at, I would say, what our normal range is. Last year, you might remember that we took an extended maintenance period from basically from the beginning of the year till the end of May. And that was partly due to the crazy pricing that happened in the natural gas market, particularly here in California because PG and E was caught short with low supply when there was an unexpected cold snap. So on a year to year comparison, you're going to see a difference for sure. But we typically run-in the $60,000,000 to $65,000,000 range.

Speaker 4

So I'd say it's absolutely sustainable and the plants performing very well. So I would expect you'll see those numbers continue.

Speaker 7

That's great color. Thank you. And then just turning to the carbon capture project, you mentioned you are starting Phase 2. Any more color you could give us on timeline for that and maybe next steps after Phase 2?

Speaker 1

The characterization well is in 2 phases. We've completed Phase 1, Phase 2. First, a couple of reasons including weather, we expect to complete in the spring. It's an oil drilling rig that gets rolled on-site. And then our finally for the Class 6 license would happen sometime in the second or third quarter next year.

Speaker 1

The EPA has a number of projects. They've actually been tracking them on their website in the public display that it moves through pretty quickly. And so we expect in 2026 to have EPA Class 6 done. Parallel with that, we'd be doing some additional project development design, etcetera. So that when we get to Class 6 well, we would be ready to move forward with drilling by the end of 2026.

Speaker 1

So it's a 24 months process from here to where we want to be, which is commercial operations. And highly dependent upon the pace in which the Class 6 license is processed by the EPA. I should mention that carbon sequestration is a favorite of the oil and gas industry And it also happens to be a favorite of California Governor Newsom. He issued a directive to CARB that he wanted 100,000,000 tons sequestered in the ground over the next 20 years. And so it's a strange business where both sides of the aisle tend to agree that Carbon6 Illustration achieves their goals or they happen to be different goals.

Speaker 1

It's one of those businesses which we're optimistic about.

Speaker 7

Understood. Thank you for the color and good luck in the Q4.

Speaker 1

Thank you, sir.

Operator

Thank you. Our next question is coming from Ed Woo with Ascendiant Capital. Your line is live.

Speaker 2

Yes, congratulations on all the progress and definitely congratulations on what is going to be hopefully a speedy IPO process in India. Have you thought about what you're going to be doing with the capital that you raised in India?

Speaker 1

Yes, we have actually as part of the IPO processes identifying that. We are planning to expand to additional plant sites in India in the biodiesel business at a 5% blend. It's about a 1 point 25,000,000,000 gallon production rate of biodiesel per year. Current production is 1,000,000,000 gallons less than that. So in our current leadership position of being the largest biodiesel producer in India to retain that market share, we'll be expanding production with sites, which we expect to have at other locations in India.

Speaker 1

We also expect to diversify into some related businesses much like we have in the U. S. We have some distinctive competence in renewable natural gas, for example. And so our India business is already synergistically working with our team in the U. S.

Speaker 1

To have some advantages. Those businesses have become very, very attractive in India. There's a 500 biogas project just announced by Reliance Industries over the weekend and describing how big the market was and their investment was just the first step in helping to launch this new market. So our India IPO has some growth initiatives in it that fit well with the Indian economy. And certainly one of their goals is not to be importing as much petroleum because they really don't have any crude oil supply in the country.

Speaker 1

And our business I think aligns with that goal very well.

Speaker 2

Great. Well, thank you and I wish you guys good luck.

Speaker 1

Thanks, Ed.

Operator

Thank you. As we have no further questions in queue at this time, I would like to hand it back over to management for closing remarks.

Speaker 1

Thanks everybody for joining us today. Please review the Aemetis Company presentation that's posted on the homepage of the Aemetis website. We look forward to talking with you about participating in the growth opportunities at Aemetis. Thank you for attending today's Aemetis earnings conference call. Please visit the Investors section of the Aemetis website where we'll post a written version and an audio version of this Aemetis earnings review and business update.

Speaker 1

Holli?

Operator

Thank you. Ladies and gentlemen, this does conclude today's call and you may disconnect your lines at this time. And we thank you for your participation.

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Earnings Conference Call
Aemetis Q3 2024
00:00 / 00:00