Syntroleum addresses Dynamic Fuels shutdowns in Q1 financials

By Erin Voegele | May 14, 2012

Syntroleum Corp. has announced financial results for the first quarter of 2012. As part of the announcement, the company provided the public with an update on the operations of Dynamic Fuels, a 50/50 joint venture owned by Syntroleum and Tyson Foods that produces biobased jet and diesel fuels. Regarding financial results for the quarter, Syntroleum reported total revenues of $1.25 million, an increase over the $849,000 reported during the same period last year. Net losses for the quarter were $1.933 million, a decrease from the $3.907 net loss recorded during the first three months of 2011. According to Syntroleum Senior Vice President and Principle Financial Officer Karen Power, $830,000 of the quarter’s $1.933 loss relates to Dynamic Fuels operations for the last quarter of 2011.

Gary Roth, president and CEO of Syntroleum, spoke about Dynamic Fuels’ operations during a call announcing the quarter’s financial results. For the first quarter of 2012, he said that Dynamic fuels experienced a net operating loss of 2 cents per gallon and a positive cash margin of 11 cents per gallon at a run rate of 47 percent of designed capacity. He also noted that the offtake agreement with Mansfield Oil, which went into effect on Jan. 1, allowed for better product pricing during the first quarter of 2012. “In the fourth quarter of 2011 diesel product delivery costs and discounts averaged 80 cents per gallon, versus 14 [cents] per gallon for the first quarter of 2012, resulting in an increase of 66 cent per gallon on average for 2012 diesel sales,”  Roth said. “These prices specifically exclude approximately 121,000 gallons of military marine-grade diesel sales in the quarter ending March 31.”

Roth also noted that 26 percent of Dynamic Fuels’ sales went to fleet operations during the first quarter of 2012. No fuel was sold to fleets during the same quarter of 2011. “We expect to have fleet sales contracts totaling approximately 1.6 million gallons per month by July 1,” he added. “All of our diesel product is contracted.” An additional 163,000 gallons of marine diesel and jet fuel was delivered to a port in Washington during the same quarter. Roth added that additional shipments of 287,000 gallons of jet fuel and marine diesel are scheduled to be completed in early May. “We expect to recognize revenues and collect cash from these remaining shipments in the current quarter,” he said.

Regarding feedstock price, Roth said that Dynamic Fuels’ weighted average feedstock price for the 3 months ended March 31 was 51 cents per pound, a slight increase over the price paid during the final quarter of 2011, which was 50 cents per pound. On a per-gallon basis, this equates to a price of $3.93 per gallon during the most recent quarter and $3.83 during the final three months of 2011. “Of the 36.5 million [pounds] of feedstock purchased for the first three months of 2012, approximately 15 percent was supplied from Tyson’s facilities, compared to 45 percent in the previous quarter,” Roth said.

During the call, Roth also addressed recent shutdowns of the Dynamic Fuels facility. The facility was taken down for planned maintenance activities on March 27 and restarted on April 16. A second, unplanned shutdown was initiated on April 27 due to an unanticipated problem with the supply of hydrogen to the plant. According to Roth, Dynamic Fuels was notified by its hydrogen supplier Praxair Inc. that the planned turnaround for Praxair’s facility was delayed one month, from late March to late April, due to supply disruptions with hydrogen plants in the region. Roth said that Praxair notified them of the change on March 22, at which time the company was told it would have adequate supply of hydrogen for the restart of the Dynamic Fuels plant. However, Roth said that the company was notified by Praxair on April 26 that Dynamic Fuels would not have hydrogen as of April 28, and that its hydrogen supply would be disrupted for up to 4 weeks. As a result, Dynamic Fuels instigated a controlled plant shutdown on April 27. Praxair has since notified Dynamic Fuels that its hydrogen supply will be restored by 5:00 p.m. on May 22. Roth said that operations will continue at that time, and that he anticipates Dynamic Fuels will resume full capacity operations.

Dynamic Fuels is also working to implement a new feedstock pretreatment process. One new pretreatment unit has been installed, with final tie-ins and commissioning proceeding, Roth said. Two additional pretreatment units have been procured and scheduled for delivery in September. Installation of the remaining units is expected to take place in October.