Sameer Joshi: Understood. Great. Thanks for that, and good luck.
Operator: Jason Gabelman with TD Cowen. Your line is open.
Jason Gabelman: Hey, good morning. Thanks for taking my questions. I wanted to just clarify a point you just made about receiving LCFS credit value. And I think I heard 1Q just now in the press release it says that you’ll receive credit in 4Q. So I just wanted to clarify that. And I was wondering if the value you capture is based on LCFS credit prices at the time the volume was produced or at the time you’re actually crediting yourself with the LCFS values?
Chris Carlson: Hey, Jason it’s Chris here. Yes I guess to tackle the statement on the LCFS credit. We expect to receive the credit for Q3 and Q4. My expectation is the cash that — when we receive the cash will be sometime in Q4 Q1. Who knows when we will get it exactly as we’re dealing with government agencies and timing. So that’s kind of where that stands at the moment.
Doug Haugh: Yeah. Just to be clear the filing for the credits is always the following quarter. So we’ll file fourth quarter production and imports into California that was produced in third quarter, right? So you’re always a quarter trailing. And the commercial value of those credits depends on, how you’re executing those transactions with your partners. So when they’re actually put in the credit bank and monetize and the terms of which that’s done and the price at which that’s done, is going to be unique to every party that you talk to depending on their commercial arrangements, with the importer of record into California, which for us is Idemitsu.
Q – Jason Gabelman: Got it. And then in terms of, how much value you’re going to generate, if we look at some of the indicator margins of your peers, they suggest the value they get is 0.007 times the LCFS credit price. Is that kind of a ballpark of what we should expect to see reflected in Vertex’s earnings?
Doug Haugh: Yes, I haven’t done the math that way. But I think the way, we think about it is, we’ve got a — on the temporary pathway, for the third and fourth quarter production, which is at a CI value of 65 and 45 depending on whether you’re plant-based or waste-based. That translates into a kind of a sense per gallon value for us, on the finished product. Obviously, that’s just the starting point. It’s helpful. I think Chris, we have an estimate of that at $8 million for the third and fourth quarter coming in.
Chris Carlson: Yes, combined.
Doug Haugh: So that’s round math how that will work out. I think the way to forecast it going forward, so when you speak to others in the industry, I don’t know where they’re at on their kind of CI journey if you would. So the value will increase as the carbon intensity goes down, and you generate additional credits under the LCFS regime. So we believe that our focus right now is getting on the specific pathways. So it’s a pretty complicated process, but you move from the temporaries to what’s called provisional. So now we’ll file our provisional pathways, which are based on our proprietary production, right? So it’s the exact carbon intensity, as calculated under their carbon intensity models that you use for car, on our actual production for each actual feedstock.
But even for and the reason, I say that is even for soybean oil, it’s typically much better than the default value, if you use your actual production values and you’re running an efficient facility which we expect that we are. So it’s not just the feedstock mix. It’s even the carbon intensity values that you’re producing at on your conventional feeds as well. So it’s going to be beneficial across our feedstock mix, in its entirety not just for the DCOs and tallows, the waste products.
Q – Jason Gabelman: Great. And then my last one, if I could squeeze another one in was just kind of — I wanted to get your sense on the market outlook for renewable diesel especially, in light of Vertex conducting the process that you are in terms of monetized — or increasing kind of the value, you’re getting for the project. I think a lot of investors are concerned about a potential oversupply next year of renewable diesel and pressure on RIN prices. There’s been some volatility in the RIN prices recently. Just wanted to get a sense of your market outlook for the next 12 months, and how you think that impacts at all this process that you’re running? And I’ll leave it there. Thanks.
Doug Haugh: Yes, I think we’re — I mean we don’t materially differ from that — the challenging outlook that we see. I mean RINs have come off almost 50% that’s obviously, very favorable to our conventional business, but it’s a headwind for the renewable business. We do actually like the fact that we are more balanced now and have that opportunity to meet our obligation. But really, the anticipation of those margins depends on how fast the feedstocks react to the new margin environment, right? So, as RINs go — if you look historically since 2016, all the way back to when RD really started to scale you’ve got these medium periods of volatility where RINs go up, LCFS goes up, feedstocks go up, RINs go down, LCFS goes down, feedstocks go down, but they don’t do it in perfect timing.
So I think our outlook fundamentally for 2024, is going to depend on how fast is the RD capacity ramp in comparison to how fast the crush capacity on the feedstocks ramps. And we don’t pretend to have a crystal ball on that. But we do see tremendous feedstock capacity under development. In our meetings with suppliers, there’s a lot of new crush and refining capacity coming online. And there’s also a massive influx of imports that the US has never seen before because with these credit regimes we’re now pulling feeds from the entire planet into the US at accelerating rates. So that’s the push and pull. Obviously, as the production is ramped, the government programs frankly have worked right because they’ve created the production and they’ve continued to scale but they have come off as that production ramps up.
We’re very focused on 2025 in terms of running the process. That’s when really our unit is at full capacity, right? So we’re focused on the margin environment further out where once the LCFS program is kind of “reset” they published their guidance for that. It’s a 75 page [Technical Difficulty] that acted on early next year, which basically puts the glide path in place for California to fully convert. So we’re – that builds a lot of confidence on our side that puts kind of a floor into the market, continues to pull those products into California for conversion from conventional to renewable and will create the margin environment long-term for that to be. So that’s our focus from a process standpoint is to have a very low cost capacity RD facility at 14 KBD that is feedstock flexible and has continued to improve its carbon intensity quarter-over-quarter-over-quarter both in terms of the feedstock selection and our operating efficiency.
