Syntroleum Corporation (SYNM)

Q4 2010 Earnings Call

March 15, 2011 11:00 a.m. ET

Executives

Karen Gallagher – SVP and Principal Financial Officer

Gary Roth – President and CEO

Jeff Bigger – SVP, Business Development

Ron Stinebaugh – SVP, Finance and Acquisitions

Analysts

John Bell – Private Investor

Orin Hirschman – AIGH Investment Partners

John Brifogel (ph) – Private Investor

Jim West – American Specialty

Chuck Howlett (ph) – Private Investor

Jack Helm (ph) – Private Investor

Ezra Burn (ph) – Private Investor

John Smith – Private Investor

John Anderson – Private Investor

William Jaxheimer (ph) – Private Investor

Thomas Victor – Private Investor

Wayne Eric (ph) – Private Investor

Ernest Williams – Lee, Danner & Bass

Charles Nelson – Private Investor

Aaron Martin – AIGH Investment Partners

Presentation

Operator

Greetings, and welcome to the Syntroleum Fourth 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 the current state of the renewable fuels industry markets, and Karen Gallagher, Senior Vice President and Principal Financial Officer who will report the financial results for the nine months ended December 31, 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.

Gary Roth

Thank you, Karen. We’re excited to announce that our Dynamic Fuels plant in Geismar, Louisiana is currently producing at design rates of 75 million gallons per year or 5,000 barrels per day, and has produced and sold millions of gallons of renewable products.

We have built product acceptance for renewable diesel in the United States and demand continues to outpace supply. We have run the three hydro-processing reactors at designed flow rates and have achieved 100% conversion of 20 different renewable feedstocks into ASTM quality diesel.

During our start up in commissioning process, we have encountered mechanical and liability issues with one critical pump in our hydrogen compressor. The technical issue with the pump is the operation of a mechanical seal. The pump itself meets all process criteria.

Working with our global seal supplier, we’ve made a number of improvements in both the seal design and utility system associated with the seal. I’m confident we will reach industry reliability standards in the coming months. When the pump is in maintenance, the plant is still capable of producing at 40% of design capacity.

Second piece of equipment with which we have experienced learnings is the hydrogen compressor. Again, the compressor meets all process criteria related to temperature, pressure, and flow rates.

The issue we face is valve life. The compressor supplier has manufactured in excess of 27,000 compressors with more than 180 in hydrogen service. Working with the supplier, we’ve installed second-generation valves and have third-generation valves in design. Again, I’m confident we’ll reach industry-standard levels of reliability in the coming months.

In summary, we’ve converted fats, oil and greases from 20 commercial sources into ASTM quality products. The Syntroleum Bio-Synfining reactor and catalyst technology has performed as per design. We have not experienced any conversion issues and are able to make product quality raising from jet fuel to summer-grade diesel.

We will continue to work on improving equipment reliability over the coming months by working with the site technical team and our world-class equipment suppliers.

Let me give you a couple of example that attest to our product quality. We’ve delivered to the Air Force, 40,000 gallons of renewable jet fuel in November. The latest update from the Air Force was the certification of the C-17 Globemaster, the largest military-transport aircraft. The certification clears the C-17 to fly on blends of up to 50% renewable jet fuel. The Air Force states they expect to conclude flight testing in the first quarter of 2012, supporting fleet-wide renewable jet fuel certification by the end of 2012.

Another example relates to the supply of renewable jet clean – renewable jet fuel and technical support to Rolls-Royce America and the execution of the FAA CLEEN program. The CLEEN program stands for continuous lower energy emission and noise. The FAA announced in 2010, 125 million in new contracts for five global companies including Rolls-Royce America. The five-year program is expected to develop technologies for reducing commercial jet fuel consumption, greenhouse gas emission and noise. We’ve supply 4,300 gallons of jet fuel to Rolls-Royce and Cessna, another 10,000 gallons of fuel in various technical services will be provided to this project in 2011.

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