Gevo, Inc. (NASDAQ:GEVO) Q3 2024 Earnings Call Transcript

Gevo, Inc. (NASDAQ:GEVO) Q3 2024 Earnings Call Transcript November 7, 2024

Gevo, Inc. misses on earnings expectations. Reported EPS is $-0.09 EPS, expectations were $-0.07.

Operator: Good day and thank you for standing by. Welcome to the Gevo Incorporated Quarter Three 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is recorded. I would now like to turn the conference over to your speaker today, Dr. Eric Frey, Vice President of Finance and Strategy. Eric, you may begin.

Eric Frey: Good afternoon, everyone. Thank you for joining us today’s call to discuss Gevo’s third quarter 2024 results. I’m Eric Frey, Vice President of Finance and Strategy at Gevo. With us today are Gevo’s CEO, Dr. Patrick Gruber; and CFO, Lynn Smull. Earlier today, we issued a press release that outlines the topics we plan to discuss. A copy of this press release is available on our website at www.gevo.com. Please be advised that our remarks today, including answers to your questions, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated.

Those statements include projections about the timing, development, engineering, financing and construction of our sustainable aviation fuel projects, our recently executed agreements, our renewable natural gas project, and other activities described in our filings with the Securities and Exchange Commission, which are incorporated by reference. We disclaim any obligation to update these forward-looking statements. In addition, we may provide certain non-GAAP financial information on this call. The relevant definitions and GAAP reconciliations may be found in our earnings release, which can be found on our website at www.gevo.com in the Investor Relations section. Following the prepared remarks, we’ll open the call for questions. I’d like to remind everyone that this conference call is open to the media and we are providing a simultaneous webcast to the public.

A replay of this call and other past events will be available via the company’s Investor Relations page at www.gevo.com. I’d now like to turn the call over to the CEO of Gevo, Dr. Patrick Gruber. Pat?

Patrick Gruber: Thanks Eric. Good afternoon, everyone, and thanks for joining us on our call. We have filed our Form 10-Q today. We ask that you refer to it for more detailed information after this call. During the third quarter and shortly after the close of the third quarter, we achieved several important milestones. Not only do these milestones enhance our financial outlook, but they also reinforce Gevo’s commitment to advancing drop-in, cost-effective, scalable carbon abatement solutions for those difficult to electrify market sectors and industries. In fact, two of the milestones we achieved are transformative to our company even when you consider them individually. Let’s start with our acquisition of Red Trail Energy’s low-carbon ethanol and carbon capture sequestration assets in North Dakota.

This acquisition, which we expect to close by the first quarter of next year, brings a well-operated low-carbon ethanol plant along with an active CCS site into our portfolio. Red Trail assets will be a valuable addition to Gevo. In fact, they generate approximately $200 million in revenue in the fiscal year of 2023. They’re going to be a great addition to our company. It’s transformative. This positions us for long-term success, providing a platform for further growth by developing our carbon abatement capabilities. For example, we are exploring converting low-carbon ethanol at the site to SAF using our Verity business to track the farms and count carbon and make sure that we can account for all the carbon abatement that occurs throughout the business system.

We also, by acquiring this site provides our Net-Zero 1 project in South Dakota with access to a wholly-owned CCS site that could be important for the future. In short, this acquisition once closed, is expected to accelerate our plans to scale SAF production, we call it Net Zero North and strengthen our footprint in the region with abundant renewable resources, strong rural communities and resilient domestic circular economies. Now let’s talk about the other transformative milestone we achieved. That is the conditional commitment from the U.S. Department of Energy. This is a major milestone for our Net-Zero 1 SAF project in South Dakota. This $1.63 billion loan facility marks the first large-scale, alcohol-to-jet project to receive such a commitment.

We believe this commitment validates the strength of our project, reduces our execution risk and supports our financing plan. Net Zero 1 is the largest economic development project in South Dakota’s history based on our research, and we expect to attract other capital investments to unlock SAF commercialization, given the robust due diligence conducted by the DOE. We are grateful for the support from the DOE, Loan Programs office. We also recently acquired Cultivate Agricultural Intelligence, LLC or CultivateAI. It’s a proven business with expected 2024 revenue of $1.7 million and correspondingly positive cash flow. CultivateAI provides agricultural data, including that from drones with near infrared sensors to clients through a Software-as-a-Service platform, a SaaS platform.

We are combining CultivateAI’s digital agricultural data and analytics platform with Verity’s carbon accounting and tracking solutions to provide the highest quality data-driven solutions for carbon abatement in food, feed, fuels also industrial markets, while simultaneously helping farmers improve their operations, sustainability and profitability. Finally, in the third quarter, we were granted not one, but two patents for our Breakthrough Ethanol-To-Olefin Process. We also monetized investment tax credits related to our RNG business, generating cash proceeds and further bolstering our liquidity. So in summary, we’ve been pretty busy, and there’s a lot more to come. We are looking forward to next year with this acquisition of Red Trail Energy assets and in combination with our RNG business.

We believe this will help us achieve a positive adjusted EBITDA in 2025. That’s very exciting. This quarter’s achievements reinforce our commitment to reducing the carbon footprint of the things we — people need. That is food, fuel materials while transforming Gevo into a large-scale platform for growth. With each milestone, we’re advancing our vision, to scale drop-in, low-carbon molecules such as sustainable aviation fuel and of course, to create value for our stakeholders. Now I’ll turn it over to Lynn, our CFO, to discuss the financial results for the quarter. Lynn?

Lynn Smull: Thanks, Pat, and good afternoon, everyone. Starting with our financial position, we ended the third quarter of 2024 with $292.9 million in cash, cash equivalents and restricted cash. Our continued strong liquidity position reflects our disciplined approach to Net Zero 1 development and other capital expenditures, our attention to corporate G&A expense and our strategic approach to financing and our receipt of proceeds from the recent sale of RNG investment tax credits. Combined revenue and interest income for the third quarter was $5.8 million. The third quarter’s results include $2 million in revenue generated by our RNG business, including $1.8 million in net proceeds from environmental attributes and $0.2 million in RNG sales.

This also represents a reduction in sales by choice due to our preference to build up environmental attributes inventory in anticipation of our final carbon intensity pathway approval under California’s low carbon fuel standard We expect this approval targeted for early 2025 to substantially increase the revenue potential from our RNG business. Operationally, the business has been running well, generating more than 100,000 MMBtu of RNG sales last quarter. And as previously announced, we sold RNG investment tax credits, netting about $14 million of cash to the balance sheet. Our corporate spend, that SG&A was $8.6 million for the quarter, excluding non-cash stock-based compensation of $3.1 million. The primary driver for these costs is personnel costs in critical areas to support execution and growth, the majority of which we expect to allocate to our projects, segments and legal entities.

During the nine months ended September 30, 2024, we invested $36.5 million into our capital projects comprised of $23 million for Net-Zero 1 development, $11.4 million for the NZ program modularization design and engineering work, $1.6 million in RNG project expansion and $0.5 million in other projects. Our strategic growth investments also include cash of $6 million we spent on Cultivate AI and $10 million of earnest money deposited in connection with the announced Red Trail asset acquisition. Our loss from operations in the third quarter was $24 million, and our non-GAAP adjusted EBITDA loss was $16.7 million. This includes personnel and consulting expenses associated with our Net-Zero and Verity growth initiatives. Notably, our development spend for Net-Zero 1 is tracking to come in under the previously estimated range, and we expect reimbursement of our development capital at financial close, allowing us to reinvest in Net-Zero 1 project equity and possibly recycling capital into other projects, depending on the total recovery and fee amounts, which will be negotiated with third-party equity investors.

This project level financing strategy also means we do not expect to have to commit further cash to the project once it’s in the construction phase. The Red Trail Energy asset acquisition is going well. We’re advancing due diligence and term sheet discussions with multiple project finance lenders and plan to combine third-party project debt with Gevo equity capital to consummate the acquisition early 2025. In summary, we remain focused on prudent management of our capital with a view to supporting the continued development of Net Zero 1, the Red Trail asset acquisition and other value-generating projects. We’re excited about the path forward and look forward to the opportunities in 2025. And now I’ll hand it back to Pat.

Patrick Gruber: Thanks, Lynn. Before we open the line for questions, let me reiterate how proud we are of the progress we have made this quarter. This is hard work we’re doing between our DOE loan commitment, our pending acquisition of Red Trail assets and the advancements in our Verity, RNG and Technologies businesses, we’re making meaningful strides towards this vision of Net-Zero business systems, where we can really, truly drive out and abate carbon throughout the whole of the business system, and that cuts across the fuels, the food and the feed. This is important stuff, and it matters. Now remember what we’re doing. This is about making something that’s cost effective. It works economically and compete with petrochemicals on a cash cost basis.

That’s what we’re trying to achieve and the vision. Yes, we got to spend the capital and build it. We got to get on and go get that done. It’s a different game to play. This isn’t just about taking — it’s not a giveaway. We’re delivering products that are really, really valuable, and they truly abate carbon and cost competitive. That’s what the future holds here. And that’s what makes it so darn exciting. That’s why we’re able to get this DOE loan commitment. We’re looking forward to continuing this momentum into our coming quarters and sharing further updates on the transformed company and a new platform in 2025. All right. Let’s open it up for questions. Go ahead, operator.

Q&A Session

Operator: Thank you very much. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Sameer Joshi of H.C. Wainwright. Sameer, your line is open.

Q – Sameer Joshi: Hi, guys. Thanks, Patrick, Lynn, Eric. We have discussed this before, the $1.6 billion conditional commitment is not dependent on any change in the administration. But can you explain what are the remaining steps before the money gets released? And is there a cadence to the release of the money?

Patrick Gruber: So yes, you’re correct. This conditional commitment is a real commitment. It survives administration changes. They’ve designed it that way. And so yes, we just got to go through and do the work. The right now, I think that everyone in the — everyone is trying to sort out what’s what, where. So they will — we can’t talk about specific details of that according to their rules. That’s just the way it is. So we have to go and once the dust settles a little bit, we’ll have more insight into that, and then they’ll let us know what we can say when. But it does survive is the important thing. And now it’s about we still got to go push forward and get it done. Our project is a good one. So that’s the thing that people forget.

This is — our project is a good one. It creates a huge number of jobs. Our project capital is high when we deploy in part because these are really good paying jobs that we’re doing to go hire these thousands of people to build things. And so it plays to lots of agendas. And remember, the Charles River study shows that it creates $170 million regionally in South Dakota, and it creates a bunch of tax revenue. So it’s a good, solid project, and it makes money, right? That’s the thing. So it’s a good overall project. That’s what makes it good.

Q – Sameer Joshi: Yes. I mean it’s a tax generator. It’s a job creator, and it is in a traditionally Republican state. So…

Patrick Gruber: Yes. And yes. — And there’s one other important thing that everybody seems to forget is that these net zero type system like we put together, the cash cost of our product would be competitive with petro jet. It’s in that realm.

Q – Sameer Joshi: Yes

Patrick Gruber: So that people forget that. This isn’t like it’s a free handout for carbon. No, it’s not. Yes, the carbon credits — remember, it’s $1 of carbon credit value creates $6 back to the general economy according to Charles River. Well, that’s pretty important. And then of course, there’s the RIN value and all the rest. But those — all those kind of values, the RINs, the LCFS, what comes down the pike from other federal programs, those things are — they all pay for the capital. And you’ll notice this thing is a conditional commitment without the finalization of the 45Z. Someone should ask themselves why. I can’t talk about it in detail, but you’ve got to notice that. How did that happen?

Sameer Joshi: Yes. No, it’s very interesting. On the other major news from you guys, the Redfil acquisition merger. I know it will be early 2025. But from now until then, are there any financing discussions? Are there any other steps that need to be accomplished, milestones to be accomplished before the merger can take place?

Patrick Gruber: Yeah, we’re going to do debt. And so we’ve been doing a debt process, and it’s really — it’s going quite well. We’re very pleased with it.

Sameer Joshi: Okay. And then the CultivateAI acquisition, of course, is there a pathway or any plan of integrating the Wei program into this? Or are these going to be independently operating?

Patrick Gruber: They’re going to be — they’re together. They’re already being integrated, and it’s a — makes for a more complete offering. And of course, for everyone who’s listening, the big game here is it’s not good enough just to say, “Oh, I hope my corn is good. You got to prove it’s good with real data. That’s the thing that gains good bipartisan support, and it’s true also in the marketplace. You got to be able to show it’s not that even if it’s corn or soybeans or something, it’s not just growing at that counts. It’s how did you process it? What energy did you use? And you got to track things all the way through the whole supply chain. This point is lost on the world at large, it seems to us, and that creates the opportunity for Verity.

Now CultivateAI has some outstanding tools available for — that are in operation and working with farmers and helps them measure their crops and how the crops are performing or what’s needed in the fields, and it’s valuable. And so that’s one more component. And you’ll look for us as we grow Verity to add in other technologies into the overall portfolio of Verity.

Sameer Joshi: Interesting. No, yes, that is — we agree, it is a big opportunity and have a wide market that you can address. On the R&D front, I know you have intentionally not sold these environmental attributes. — do we — the amount we see on the inventory in the balance sheet in the press release, what is the basis of the valuation for that? Is it based on a higher carbon intensity value? Or like how do we gauge — should we say that the inventory will be translated into revenues going forward in subsequent months or it will be at a higher than the inventory that we see there?

Patrick Gruber: Yes, it would be — yes. So what we expect to happen, we’re holding them right now because we expect to get the pathway approval in California. We can see that they’re working on it. We’ve done the site visits and stuff. So we know that it’s progressing. It’s just a question of when it gets done. And if we hold the gas until we have the pathway done, then we can get a higher value for it rather than selling it at the 150 pathway. And so if the question is, what is it currently booked at in the inventory, that’s what you were asking?

Sameer Joshi: Yes, yes.

Patrick Gruber: We’re going to plan on monetizing it at the full value. But I’ll have to get back with you and check. Lynn is telling me it’s booked at minus 150.

Sameer Joshi: Okay. So it is on. Okay. Got it. And then last question. Sequentially, the cost — operating costs are slightly lower. Should we expect these new lower levels for operating costs, R&D, SG&A, those line items?

Patrick Gruber: Yeah. Stacy Buchkol, who runs that plant, she’s on a mission to keep driving out cost. So that’s what I expect.

Sameer Joshi: Thanks for taking my questions and congratulations on all the progress.

Patrick Gruber: Thank you very much.

Operator: Thank you very much. One moment for our next question. Our next question comes from the line of Saumya Jain of UBS. Your line is open.

Saumya Jain: Hey. How are you guys feeling about raising your, I guess, equity portion of the project financing? Are you guys looking towards that?

Patrick Gruber: Yeah. There’s a lot of interest in it. The thing about having a conditional commitment from the DOE loan office is that the amount of diligence that’s done is absolutely mind-boggling, detailed. And so that helps. All the questions that can be asked have pretty much been asked. So people know that there’s built-in extra cost to protect the project financially, and that benefits equity holders, too. So yeah, there’s a lot of interest in it. So we’ve got to go work through it with the equity firms.

Saumya Jain: Got it. Okay. And then how is your annualized RNG production looking this year compared to last?

Patrick Gruber: Well, I think last year, the actual — the rate — annualized rate was at 3.25, something like that. We’re up about 325,000 million BTUs last year. This year, we’re going to be at like 400,000 million BTUs or so. On instantaneous rates, we’re above that.

Saumya Jain: Okay. Perfect. Thank you.

Operator: Thank you very much. One moment for our next question. Our next question comes from the line of Greg Gumer [ph] at LPI. Greg, your line is open.

Unidentified Analyst: Hi, everybody. Can you talk more about the conditional loan with the DOE? When did you say you’d be giving us more information on that?

Patrick Gruber: When they tell us we can.

Unidentified Analyst: Okay.

Patrick Gruber: Yeah. It’s one of these things where they’re super du.

Unidentified Analyst: Dr. Gruber are you there?

Patrick Gruber: Hello?

Unidentified Analyst: Hello?

Patrick Gruber: Okay. There we go. We’re back.

Unidentified Analyst: Okay. Dr. Gruber are you there?

Patrick Gruber: Yes, I’m here.

Unidentified Analyst: Okay. Sorry about that. Yeah, as far as the — so they’ll let you know and then you’ll pass it on to us. But the big thing I heard while go from the previous question was that this does survive the change and as far as president. So that’s good.

Patrick Gruber: It feels pretty good.

Unidentified Analyst: Okay. Because I was very concerned about that. So I’m glad to hear that.

Patrick Gruber: Yeah. That’s the most important thing. And the other part I was trying to get across is that our project plays to both sides of the aisle. We’re in a red state. It’s a creating jobs. It’s rural economic development, rural infrastructure development, lift the price of corn in the region. It’s a big economic impact. And it also sets a precedent and it’s think of it instead of oil from under the ground, this is oil at the surface of the ground captured. And the paradigm buster is, yes, it can be cost competitive with oil. Hello, — that’s an important point. It’s not that these things are just pie in the sky, it’s going to cost 10x x. No, that’s not the case of a project like ours. That’s what makes it important. That’s why we get lots of bipartisan support.

Unidentified Analyst: And this is something I should probably already know. But as far as fuel, it’s coming from things like corn and soybeans and…

Patrick Gruber : Corn starch. Corn starch — so yes, just so the business system works like this. They do climate smart corn. And so depending upon how you grow corn, you could actually improve the carbon footprint and actually make it negative. Not that we would get credit for that anytime soon, but in the future, we would. You take the corn kernel, you fractionate the corn kernel in the process, and you’re using the carbohydrate portion and making that into ethanol and then ethanol into jet fuel. In the meantime, you’re generating enormous quantities of protein. In fact, on a tonnage basis, it’s three times the tons for making protein than it is for jet fuel in a plant like this. And then you also get a bunch of oil that you can use for the food market or to sell it into one of the other industrial markets for oil.

And so you’re capturing value from the protein, the oil and then the carbohydrates is transformed into jet fuel. That’s how the business system works. And then we’re applying renewable energy across the whole of it, and that’s what drives it down to a net zero. One of the important analyses that people need to do and pay attention to is that when we’re going to very low CI scores or even negative in our business system when we include carbon capture, it’s pretty darn interesting in that, that makes it more valuable. Why is it more valuable? Because when we take that net zero fuel and if I have one gallon of our net zero fuel and I blend it with one gallon of petro jet, I get — if I got two gallons when I’m done blending, I got two gallons at a 50% reduction.

Think about what that means in the marketplace. That’s a big deal in terms of value that’s created for the customer, right? A lot of other technologies that are out there in our space, they struggle to get to a 50% reduction. You can get two gallons for one by blending one of ours. That’s what’s possible here. And in the future world, I mean we’re just talking with a bigger — with a group today talking about what future looks like, and it’s going to be driving the CI scores down and negative. That because it takes less gallons to move the needle in the marketplace. That’s the kind of technologies we’re on and why they’re important and why people care.

Unidentified Analyst: How high quality — to make your SAF, how high quality does the corn have to be? For instance, if we have a drought condition and that’s in edible corn, can you work with that? Or does it have to be very high-quality corn?

Patrick Gruber : No, no. So the corn that’s grown in the United States is only 1% has actually grown for food. None of the corn that’s used for food is what we’re using. This is field corn. Yes, yes. So sweet corn and all that kind of stuff, that’s not we’re talking about here. So stuff that’s in a corn flake box or in a bag of corn or a can of corn or corn in the cup, it’s none of that. This is a different kind of corn. It’s field corn, standard field corn. And instead of making into more high fructose corn syrup or making — feeding it to cows and making give them a sick stomach because you know when you feed too much sugar to a cow, they get a sick stomach and they burnt methane. Well, how about this? We don’t do that. We separate the protein from the carbohydrate and now they’re happier cows. And in fact, that’s how the world is working. So no, no, the standard field corn.

Unidentified Analyst: Drought conditions would not impact.

Patrick Gruber : Not the way you’re talking about it. And so that’s one of the beauties of the supply chain is that it’s well established, fundamentally no new creation of this. This is about what we’ve done in this business system is taking giant business systems that exist, and we’re adapting them to make them decarbonized. And we’re even — the technologies that we’re using in converting the carbohydrates from the corn into jet fuel, we’re even co-opting things that are already existing in other industries and bringing them all together and putting it with renewable energy. And that’s how we achieve a net zero. So we — in that sense, we don’t have technology risk like you do in new magical things. Yes, we’re boring. We use things that work for sure at giant scale. That’s what we’re doing.

Unidentified Analyst: Speaking of co-opting, how — do you have any relationships with other countries? Like I think at one time, maybe you still do with India, for example. Are you still having any partnerships overseas?

Patrick Gruber: Yes, we do. We do. We work with Praj all the time and the other companies. So when they flew jet fuel in India that was ours, when India did. So yes, we’ve had many discussions. We stay involved with them and in other parts of the world, too. So it isn’t just — yes, we are very focused on execution here. We love our Net Zero 1 project. We want to get that done. I want to get it financed to prove the point that these things do work financially and then get on with it. And then we want to build our Net Zero North plant, get it going and get it financed up there in North Dakota, because it’s a great site already having sequestration right there on site. And we have other sites here in the States, but we’re in discussions in other parts of the world as well.

Unidentified Analyst: Okay. Lastly, I’m sorry, take [indiscernible]. Is there any plans to dilute this current share base in the near term…?

Patrick Gruber: I don’t — no.

Unidentified Analyst: Yes. Okay. I think you might be raising capital through debt. Is that what you say?

Patrick Gruber: Yes, yes. We’re not — there’s — so we don’t — okay, so let me add more color to this. To finance, it’s going to be a project level financing for Net-Zero 1. That means it’s a separate company than Gevo. We have already spent $210 million or so in the development of this project. That gets contributed as equity into the project. By the time this is finally done, we get the financial close maybe we’ll have spent $250 million. That gets credited to us as an equity contribution in the project, and we get ownership for that. It shouldn’t take any more capital unless we’re in the mood to spend more capital down there. And then as far as anything else, we’ve got — we’re doing a Red Trail acquisition. I think we bought three things actually is the way to think of it.

We bought an ethanol plant. We bought a CCS plant where it obviously operates. And we also bought a big field of pore space under the ground that can be expanded. That’s pretty darn important, too. And so, to finance that, we’re bringing in debt. So no, I don’t see us having — to support these two projects, I don’t see any need to raise capital at a Gevo level. We have more than enough cash on the balance sheet.

Unidentified Analyst: All right. Thank you, Doctor Gruber. Appreciate it.

Patrick Gruber: Got it.

Operator: Thank you very much. One moment for our next question. Our next question comes from the line of Peter Gastreich of Water Tower Research. Peter, your line is now open.

Peter Gastreich: Thank you very much. So thanks for the presentation and congratulations to Doctor Gruber and team, just really a transformational quarter there. A question on CCS, the Summit Carbon pipeline appears to have hit a snag with this referendum in South Dakota. Gevo already has the industry’s lowest CI score. So CCS is kind of a nice to have, so to speak, I understand that. But still would be interested in your thoughts there? And also related to that, could you discuss how Red Trail could be brought in as a CCS option for NZ1? So considering that we’ve got some distance there between the two between NZ1 and Red Trail is that something you can work with in terms of logistics? Or is that something that’s not on the table? Thank you.

Patrick Gruber: Yes, sure. So what was so bizarre about that referendum in South Dakota was that it was a landowner rights bill. People commonly talked about it as a pipeline referendum. It wasn’t a pipeline referendum. It was about making sure that people got paid more money if a pipeline went through and they had more protections if a pipeline went through. That got defeated. That’s astounding. What you saw was a bunch of activists talk about it as, oh, this is a pipeline approval. It has nothing to do with pipeline approval. That wasn’t what it was. That’s astounding that it even gets out that way, and that’s what happens. It’s like you’re kidding me. Now, so it doesn’t change anything. The authority rests in the Public Utilities Commission, that still hasn’t changed one bit.

And so this is — nothing has changed from a fundamental real-life standpoint of what has to happen. The ball is in Summit’s Court. They tell us they’re moving forward. They’ve got a plan to move forward. Great. And we’ll help them to get people educated about what really goes on with this pipeline. I mean, my goodness, people are opposing a CO2 pipeline. And guess what, it’s the green — the far active as green people who are trying to do that. And it’s because they think it’s somehow dangerous. What — they need to get — we’ve got so much education to do with people. So it will take some time. We’ll get there. And our position is that in South Dakota, there is a — I think — well, when you’re putting up a pipeline, you also have to respect landowners’ rights and someone has done a great job of working on that, too, and making sure that people are in cooperation.

This playing of is playing up of fears on all sides. That’s not good for anybody. Remember, get this. This is a piece of data I want everyone to understand. For every gallon of jet fuel burned, it makes 21.5 pounds of CO2 for every gallon. That’s also true of gasoline. 21.5 pounds for each time you burn a gallon of gas, that’s 21.5 pounds of CO2 that goes in the air, unless, of course, you have ethanol, in which case, it’s only 18. Those numbers come from the Energy Information Agency. So, people don’t realize that this is a real issue. It’s a big issue. It’s a tremendous amount of thing. The pipeline itself is capturing biogenic carbon, biogenic carbon. That’s the CO2 from the atmosphere. You see all this talk all around the world that people want that capture.

Well, here’s a way to do it. And now you have environmental groups opposing it directly in opposition to what they say is true, what do they want, more fossil stuff burned, are you kidding? So, it’s this whole — we got a lot of education work to do here. But I think it’s a practical matter. If it’s going to — and why the people of CO2 — people of South Dakota should be punished and have markets work around them makes no sense to me. I don’t understand it. Why would you want to have disadvantaged corn? Why? I don’t understand. It has to be competitive. So, it’s just — it’s going to take work. But as far as decision-making goes, that ball is all about still in the PUC. Someone’s got a plan. We’ll work with these guys. Now, in the meantime, you know what, it could take some time to get that pipeline built.

In which case, we could rail stuff up to our site up there in Richardton at our Net-Zero 1 North site. We could do that. We could do that. And yes, it costs a little more, but you know what the economics look like they work. So, it’s — in the course, if we ever believed that there really was never going to be a pipeline, well, then you know what, South Dakota has a big time problem, way bigger than something we can deal with. And in which case, you know what, it’s probably not the place to be. Now, that’s all stuff that we’ll have to all work through and develop a point of view. But as far as I can see right now, that pipeline, I think, is still going to happen. It’s just a question of when.

Peter Gastreich: Okay, that’s great. Thanks very much.

Operator: Thank you very much. Our next question comes from the line of Emily Sorensen of Sorensen Farms. Emily, your line is open.

Emily Sorensen: Yes, thank you. I guess on the coattails of that last gentleman, could you — will you still go forward when the loans approved to build — start building without the pipeline?

Patrick Gruber: I think — well, we’re going to make sure we’re going to make that case. Now the way that case has to look is, it’s got to be attracted to Wall Street and the equity investors. This is the thing that we’ll be focused on, and we could do that, but it is one of these cases where, like I say, we could rail stuff up and help solve the problem. There’s definitely — that’s the beauty of us owning our own sequestration site. So the answer is, yes, that could happen. But I got to tell you, there’s a bigger issue at play here about business in South Dakota and how will people respond. It’s a bigger issue that needs to be understood, and we’re going to be working on it because we have options about other places. We do.

So it’s just kind of a — I can’t give definitive answers other than to say, we’re going to execute this project. We’re going to get — we’re going to work and make NZ project number one happen. I want it in Lake Preston, South Dakota. That’s what I want. And we’re going to do our very best to make that happen and convince everybody. Now, like I say, that pipeline is important. And why everyone would want to give away value or not is like, it’s not a well-understood issue. So it’s work to be done is what I would say.

Emily Sorensen: Okay. And I guess my second question and last question is, kind of working backwards, I guess. But with the new administration, I know he is pro ethanol and pro-farmers. So I get that. If he is not pro green deal, working backwards where you give credits to the airlines for their carbon neutral, if they lose those credits, would that affect what they purchase?

Patrick Gruber: Well, you know what’s interesting about that is there isn’t that credit that the airlines get. It’s in a section — it’s IRA Section 45Z. The way that the Section 45Z works has quite broad bipartisan support. The reason is to get the credit, it’s a tax credit. And the tax credit to get it even in the — get on the scoreboard on the tax credit, you have to do a 50% CI reduction, meaning the carbon score reduction is by 50%. So you got to show you have 50% less emissions of CO2. And then for every point of reduction, you get rewarded further. You also have to prove how you did it with bulletproof information, okay? Now that means it’s not a broad bucket giveaway. You actually got to work hard to get this. We like that approach because it start — that can get bipartisan support.

When it’s a broad bucket giveaway, that causes rock throwing from every side that there is at different points in a political life cycle. Here, it’s set up so that it goes down this path of you got to prove what you said you’re delivering, you got to validate it, have it audited, make it transparent and then get credit for it. I like that approach. That’s the right approach because that way, we can build credibility and stop all this fighting because the data is the data. So we like it a lot. And they got to finalize the rules and all that kind of stuff, and we want to see it extended. It seems to be the good bipartisan support for that, too. Now, as I mentioned, the conditional commitment we have was given to us without a finalization of Section 45Z.

That is telling, isn’t it, in that the DOE thinks that the marketplace will accommodate it somehow. So it’s a not — is it important? Yes, — is it the right thing? Yes, I think it was — I think that portion of that IRA bill was well done. And I think they’ll have — the new administration will have their hands full on doing the things that don’t make sense. This one does make sense. And remember, every credit, every dollar tax credit under 45Z returns $6 back to the general economy. That’s what Charles Rivers did the analysis and published. So that’s a big deal. And it’s real economic development, it’s jobs. It’s about energy infrastructure because with Net-Zero 1, you also get a bunch of wind energy. That’s why would it ever be built there?

There’d be no demand for it. So this is about economic development, job creation. It’s about fundamentally making a cost competitive jet fuel. Forget all subsidies. Remember what I’m talking about here. If the plant was built and paid off, depreciated and paid off, it competes head-to-head with Petrojet except for the footprint would be net zero. So that’s…

Lynn Smull: And we’re not talking about getting rid of jet fuel anyway. I mean we’re going to work together. I mean it’s not one or the other. You can work together. So you can make — that’s the thing I think people forget. You don’t have to do 100% SAF. You don’t have to do 100% jet fuel. You can do a combination and everybody can be happy.

Eric Frey: You got it. And so that’s the thing that is so important is this carbon abatement. The jet fuel itself is just jet fuel. It’s made from renewable carbon, but it’s just jet fuel. It has to meet the specs, couldn’t fly it if it wasn’t just jet fuel. And you’re going to blend it with Petro-jet. And so the idea is that the more carbon — the lower the carbon score we can get, the more carbon negative we can make it, the less of it we have to make to move the needle on the overall emissions of the blend. That is a big deal. And remember, this is using all existing infrastructure. But the same thing is possible with gasoline and diesel fuel. We can do the same thing. Those are all possibilities. We can do those. And so that means you can keep a combustion engine of whatever type and we can drive the emissions down.

That’s what this technology that we have holds as a promise. That’s what makes it exciting. It’s a different game to play about what’s possible. And when you take it then and start thinking about energy infrastructure and energy security, you won’t see — this is going to be spread out across the country in places. It’s not all concentrated on the Gulf Coast, for example. So it’s a different game to play in the long run. And I think that from having all the discussions with political people over the last couple of years, it’s been — they didn’t know it’s possible. So we just show them the economics openly. Show them, here’s what’s possible. It’s pretty exciting, and it changes how they think about things.

Emily Sorensen: Well thank you. Thank you. And wish you all the best. I’m an investor, so I wish all the best.

Patrick Gruber: You bet. Thank you for best luck.

Emily Sorensen: All right. You bet.

Operator: Thank you very much. At this moment, I am showing no further questions. I would now like to turn it back to Dr. Gruber for closing remarks.

Patrick Gruber: In fact, I’d like to thank all the investors for investing with us. It’s been quite a ride lately. And it’s going to get, I hope, better from here. And we definitely — whenever there’s an election like this, it causes people to go what and all they hear all this crazy talk. You know what, practical ideas, job creation matter, practical solutions to carbon matter. There’s a marketplace that’s growing that demands that there be carbon abatement. So that’s what we’re talking about. It’s serving a new segment of market that demands it. And so we have a practical solution. Yes, we got to get that first plant financed, get to the ground and do it at scale and show people. But it’s an exciting, exciting opportunity, and we are extremely well-positioned in the furthest along in the space. Thank you all for joining us on this call today. Thanks for your questions, too. I appreciate it.