Pacific Ethanol this year will continue to increasing its focus on diversifying feedstock, among its other initiatives, CEO Neil Koehler said Thursday.
"Growing initiatives on advanced biofuels, corn oil, expansion of market, which can include distribution assets, opportunities as this industry continues to rationalize and consolidate on the M&A front are areas where we will stay open to provide the best values for our shareholders," Koehler said in a first-quarter conference call.
Pacific Ethanol plans this year to install corn oil extraction facilities at its recently reopened Madera, California, plant and to its Columbia, Oregon, facility and this could bring 5 cents/gal of potential operating income, Koehler said. The Madera facility restarted on April 30 and it should take several weeks for the 40 million/gal plant to be working at full or capacity, he added.
The Sacramento, California-based company believes it can increase the use of waste beverage as a feedstock for ethanol production, which is classified as an advanced biofuel under the EPA RFS and generates D5 RINs.
"It is not a huge volume, but is something we think we can grow," Koehler said. The company receives one truck daily of wine that is not fit for sale, he said.
Pacific Ethanol also benefited from the US Department of Agriculture's Feedstock Flexibility Program and the fact that most of the sugar is held in warehouses in Idaho, only eight miles from its Magic Valley facility in the state.
The company estimates raw beet sugar use represented 15% of the feedstock input in the Magic Valley and Columbia plants and provided $1.4 million in savings in material costs in the first quarter.
REGULATORY ENVIRONMENT
Despite a recent drop in carbon intensity premiums to 2 cents/gal from an estimated 4 cents due to uncertainty in the Low Carbon Fuel Standard and a recent California court decision on the LCFS, Pacific Ethanol remains confident in the future low carbon market in state.
A California's appeals court in July 2013 upheld the LCFS program, requiring the California Air Resources Board to correct certain aspects of the program's implementation.
"California still remains very committed to this program they have been very explicit in their messaging, which is they will get this program back on track and at the 10% reduction by 2020, they will stick with it," Koehler said. "And in fact now they have been talking about a 15-20% reduction in the 10 years subsequent to that."
Concerning the Renewable Fuel Standard mandate volumes for 2014, Koehler expects an upwards adjustments given the cost competitive nature of ethanol as a transportation fuel and is very optimistic on the long term basis.
"Over the next year or two anticipate there will be a migration in some markets to 15% ethanol and will again start to see some fairly significant growth in the domestic market."
Pacific Ethanol first-quarter net sales were $254.5 million, a 13% growth compared to $225.5 million from the same period in 2013. Gross profit was a record $38.5 million, compared to $0.8 million a year ago.
EBITDA improved to a record $35.4 million for the first quarter of 2014, compared to adjusted EBITDA of $0.4 million for the first quarter of 2013.
The company's increase in net sales was attributable to an increase in production gallons sold and an increase in the company's average sales price per gallon of ethanol.
The improvement in gross profit was driven by significantly improved production margins and an increase in production gallons sold.