Syntroleum Corporation ( SYNM)

Q3 2010 Earnings Call Transcript

November 8, 2010 11:00 am ET


Karen Gallagher – SVP and Principal Financial Officer

Gary Roth – President and CEO

Jeff Bigger – SVP, Business Development

Ron Stinebaugh – SVP, Finance and Acquisitions


John Bell [ph]

Jim West [ph]

Joel Stan [ph]

Carlo Curt [ph]

Richard Colbecht [ph]

Dave Henry [ph]

George Bernard – Cox Advisors

Eric Burns [ph]

Kim Souza – Northwest Arkansas

Chuck Howard [ph]

Charles Nelson [ph]

George Polas – SIG

Rodney Odal [ph]

Steve Sparrow [ph]

Lewis Nawaro [ph]

John Anderson [ph]

John Smith [ph]

John Sims [ph]

Mike Walker [ph]



Greetings and welcome to the Syntroleum third 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, Ms. Karen Gallagher, Senior Vice President and Principal Financial Officer for Syntroleum.

Thank you, Ms. Gallagher, you may now begin.

Karen Gallagher

Good morning and thank you for joining us today. Remarks for today's call will be presented by Syntroleum's President and Chief Executive Officer, Gary Roth, followed by Jeff Bigger, Senior Vice President of Business Development, who will provide an update on our Dynamic Fuels Geismar plant, Ron Stinebaugh, Senior Vice President of Finance, who will provide an update on our marketing efforts and government legislation status and Karen Gallagher, Senior Vice President and Principal Financial Officer, who will report the financial results for the nine months ended September 30, 2010.

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 those 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 these risks and uncertainties. Now I will turn the call over to Gary Roth for opening remarks [ph].

Gary Roth

Thank you, Karen. We're excited to announce that our Dynamic Fuels plant in Geismar, Louisiana is up and running and producing commercially renewable products. The plant is on a 39 million gallon per year ramp-up plan. We have the hydroprocessing reactors at full design flow rates and have achieved 100% conversion of the renewable feedstocks into ASTM pipeline quality diesel, naphtha and propane.

The diesel meets all ASTM D975 standards and we have produced diesel with a cloud point as low as 26 degrees below Fahrenheit and with a cetane of 88, more than twice that of ASTM petroleum diesel specification. We have processed multiple feedstocks, including beef tallow, poultry fat and yellow grease. With the plant now online, we are filling the supply chain with a wide variety of feedstocks from more than 20 independent sources. We expect to have stable 4A production in the fourth quarter.

I'm also pleased to announce that Dynamic Fuels is producing renewable jet fuel at the Geismar Plant for the United States Air Force. This demonstrates our ability to make product with excellent cold flow properties. The jet fuel has a freezing point of 56 degrees below zero. Since 2002, Syntroleum has been working with the military on synthetic fuel development. We provided the synthetic aviation fuels for the certification of the B-52 in December of 2006. This was the first U.S. military airframe certified on synthetic fuels.

In 2008, Syntroleum supplied the military with 500 gallons of renewable jet fuel for engine testing. The renewable jet fuel from Dynamic Fuels, we'll deliver is part of the hydrotreated renewable jet fuel certification program. Dynamic Fuels is the only commercial provider in the testing program using readily available feedstocks.

During our marketing efforts, we have received and continue to receive significant interest from major oil, chemical and consumer products companies both in the U.S. and internationally. Demand substantially exceeds plant capacity. We have agreed commercial terms with the buyers for the sale of all the products from our plant. We expect margins to be superior to competing plants due to our ability to produce premium diesel fuel using lower-cost feedstocks. We are also aggressively pursuing specialty product markets with prices significantly higher than diesel prices.

Now that we are producing commercial quantities of fuel, I would like to remind you of our timeline for the commercialization of our Bio-Synfining technology. We began developing our technology in the fall of 2006. Nine months later, in June 2007, Dynamic Fuels was formed as a 50-50 joint venture with Tyson Foods. Six months later, we selected the Geismar site and began construction in November of 2008 and achieved mechanical completion 19 months later, in July of 2010.

During the construction, we employed 470 workers, resulting in approximately 1 million man hours and we currently employ 44 full-time personnel. Final construction costs are projected at 8% over our original estimate. In four years we have commercialized the technology, partnered with Tyson Foods, a Fortune 100 company with specialized renewable feedstock, logistic and marketing skills and created the first second-generation renewable fuels plant in the U.S. We have achieved these goals with an excellent safety record.

I will now turn the call over to Jeff Bigger.

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