Gevo signs definitive supply agreement with HCS Holding for commercial supply of renewable isooctane
Gevo, Inc. has entered into a definitive supply agreement with HCS Holding GmbH (HCS) to supply renewable isooctane (earlier post) under a five-year offtake agreement. HCS is a leading global supplier of high-quality hydrocarbon specialty products. Haltermann Carless, a subsidiary of HCS and one of the oldest companies in the world of chemistry, is expected to be the direct customer with Gevo under the agreement.
he agreement is consistent with the Letter of Intent with HCS that Gevo announced earlier this year. The Supply Agreement has two phases:
In the first phase, HCS will purchase isooctane produced at Gevo’s demonstration hydrocarbon plant located in Silsbee, Texas. This first phase commences in May 2017 and would continue until completion of Gevo’s first large-scale commercial hydrocarbon plant. Gevo estimates that this could generate up to $2-3 million of gross revenue per year.
In the second phase, HCS has agreed to purchase 300,000 gallons of isooctane per year with an option to purchase an additional 100,000 gallons of isooctane per year, under a five-year offtake agreement. The supply agreement contains a selling price that is expected to allow for an appropriate level of return on the capital required to build out Gevo’s existing production facility in Luverne, Minnesota. Gevo would supply this isooctane from its first commercial hydrocarbon facility, which is expected to be built at Gevo’s existing isobutanol production facility located in Luverne, Minnesota (the “Expanded Luverne Plant”).
Based on Gevo’s current estimates, this agreement would represent approximately 10-15% of the isooctane production from the Expanded Luverne Plant.
Gevo’s primary market development target in 2017 is to enter into binding supply contracts for its renewable isobutanol, isooctane, and alcohol-to-jet fuel (ATJ) that represents the majority of the production volume to be produced at the Expanded Luverne Plant. Gevo believes that such contracts would underpin the economics of the expansion, which should facilitate the raising of the capital necessary to finance the Expanded Luverne Plant, potentially at a lower cost of capital than what it has historically achieved through the issuance of common stock and warrants in underwritten public offerings.
Gevo and HCS intend to establish further offtake arrangements for other products such as Gevo’s ATJ and isobutanol.
The agreement with HCS is a key milestone for Gevo and represents our first definitive purchase agreement for long-term supply from our first commercial scale hydrocarbon site. As we communicated during our last conference call, one of our critical strategic objectives is to secure binding supply contracts for a combination of isobutanol and related hydrocarbon products representing at least 50% of the capacity at the expanded Luverne plant. This is exactly the type of deal I was referencing and we are excited to get the first one on the books.—Dr. Patrick Gruber, Gevo’s Chief Executive Officer
Gevo has developed proprietary technology that uses a combination of synthetic biology, metabolic engineering, chemistry and chemical engineering to focus primarily on the production of isobutanol, as well as related products from renewable feedstocks.
Gevo’s strategy is to commercialize bio-based alternatives to petroleum-based products to allow for the optimization of fermentation facilities’ assets, with the ultimate goal of maximizing cash flows from the operation of those assets. Gevo produces isobutanol, ethanol and high-value animal feed at its fermentation plant in Luverne, Minnesota. Gevo has also developed technology to produce hydrocarbon products from renewable alcohols.
Gevo currently operates a biorefinery in Silsbee, Texas, in collaboration with South Hampton Resources Inc., to produce renewable jet fuel, octane, and ingredients for plastics like polyester.