Syntroleum Management Discusses Q2 2010 Results - Earnings Call Transcript

Syntroleum Management Discusses Q2 2010 Results - Earnings Call Transcript
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Syntroleum Corporation (SYNM)

Q2 2010 Earnings Call Transcript

August 16, 2010 9:00 am ET

Executives

Karen Gallagher – SVP and Principal Financial Officer

Jeff Bigger – SVP, Business Development

Ron Stinebaugh – SVP, Finance and Acquisitions

Analysts

Eric Wayne [ph] – Royal Investment Partners [ph]

Bob Weisman [ph]

Dan Fawcett [ph]

Frank Leonardo [ph]

Ervin Smith [ph]

John Smith [ph]

Bill Bright [ph]

Lloyd Crumrine [ph]

Presentation

Operator

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Previous Statements by SYNM
» Syntroleum Corporation Q1 2010 Earnings Call Transcript
» Syntroleum Corporation Q3 2009 Earnings Call Transcript
» Syntroleum Corporation Q2 2009 Earnings Call Transcript

Greetings and welcome to the Syntroleum Corporation second quarter 2010 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Karen Gallagher, Senior Vice President and Principal Financial Officer for Syntroleum. Thank you. Ms. Gallagher, you may begin.

Karen Gallagher

Good morning, and thank you for joining us today. Remarks for today’s call will be presented by Jeff Bigger, Senior Vice President of Business Development, who will provide an update on our Dynamic Fuels Geismar Plant. Gary Roth, our Chief Executive Officer, is away on business.

Before we begin our remarks, I would like to remind everyone that during this call we will make certain forward-looking statements, as well as use historical information. Words such as believe, estimate, expect, intend, plan, anticipate, could or should are intended to identify forward-looking statements.

Although Syntroleum believes that expectations reflected in these forward-looking statements are reasonable, these statements involve risks and uncertainties. Future results may differ materially from these projected in these forward-looking statements. You are encouraged to refer to our SEC filings, including our most recent Annual Report on Form 10-K for a full disclosure of such risks and uncertainties.

Let us begin by summarizing our results over the first half of the year and provide you with an update on activity at Dynamic Fuels, our joint venture with Tyson Foods.

The commissioning of the Geismar Plant is 40% complete and the project remains on budget. We expect full rate production in the third quarter. Jeff Bigger will provide more details in his update on Dynamic Fuels.

We have received the final payment from Sinopec for the relocation of the Catoosa Demonstration Facility to China. We have now received the full $20 million contract value.

The Department of Energy awarded us a $1 million demonstration contract to demonstrate the market potential for the phase change material and building envelopes such as wallboards and attic insulation. Phase change materials are compounds that melt at room temperature and are used to control the temperature inside a building and maybe sold at a substantial premium to our fuel products.

Oak Ridge National Laboratory has conducted a number of studies on phase material-enhanced building materials. These studies record a 35% to 40% reduction in building energy consumption. Our project will develop commercial applications for phase change materials that can be produced at our Geismar facility. The project is expected to be completed in the first quarter of 2012.

For the first six months ended June 30, 2010, the company reported operating income of $461,000 resulting from total revenues of $5.5 million and operating expenses of $5.1 million. This is compared to $12.3 million of operating income during the first six months of 2009 with $21.9 million of revenue and $9.6 million of operating expenses. Our total net loss for the six months ended June 30, 2010 was $622,000 compared to income of $7.4 million for the same period last year.

Finally, the company had a cash balance of $24.7 million at June 30th compared to $25 million at year-end 2009. We have a remaining commitment to Dynamic Fuels of $10 million.

I will now turn the call over to Jeff Bigger to update you on the status of Dynamic Fuels venture.

Jeff Bigger

Thank you, Karen. Today, I will update you on the status of the Geismar facility. Plant commissioning and startup is underway with commissioning 40% complete and on budget.

We have completed the following milestones in the commissioning process. The instrumentation and control has been commissioned. Feedstock has been delivered and is ready for processing. We commissioned all utility systems, including steam, water, nitrogen, and the flare. We commissioned the compression system. We have pressurized the reactor loop and are circulating hydrogen.

The major milestones left to complete include loading of some of the catalyst materials, processing of the feed, and commissioning of the fractionation system. We expect full rate production of fuels at the end of the third quarter 2010.

Let me now address our marketing activities. Regulatory mandates continue to be legislated around the world. These developments demonstrate increasing global demand for our products. For instance, the EPA recently confirmed the 800 million gallon requirement for biomass-based diesel for 2011. This is a substantial increase over the 490 million gallons of biodiesel that were produced in the U.S. in 2009, as reported by the EPA.

In July, Argentina increased the biodiesel mandate from B5 to B7, which has had the impact of reducing their exports to Europe. The B5 mandate had been in place since the beginning of 2010. Brazil instituted a B5 blend requirement at the beginning of 2010, up from a B4 in 2009. And the Canadian provinces of British Columbia, Alberta, and Manitoba have all recently implemented biodiesel mandates, which range from 2% to 5%.

Our renewable diesel has greater ability to penetrate a broader range of markets at lower handling and transportation costs compared to biodiesel, because of its ability to utilize existing infrastructure. We are in the process of qualifying renewable diesel for shipment on pipelines, first in segregated batches and ultimately, as a blend with petroleum diesel. We expect approval for shipment on certain key pipelines in segregated batches by the end of this year and approval for shipments of blended batches in early 2011.

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