Gevo announces strategic review, reduces staff at Luverne plant

By Erin Voegele | November 07, 2017

Gevo Inc. has released third quarter financial results, reporting that the company’s management and board of directors are reviewing its strategic and financial operations.

The company produced approximately 100,000 gallons of isobutanol during the quarter, bringing the total produced during the first nine months of 2017 to about 200,000 gallons. The company said isobutanol production during the quarter was focused on producing sufficient volumes to provide enough inventory to support market and customer development efforts in the future, to continue to optimize Gevo’s technology, and to generate data that is expected to help decrease operating and capital costs associated with the planned expansion of its Luverne, Minnesota, biorefinery.

Gevo said that during periods of the third quarter it produced only ethanol at the Luverne plant. “Given the Luverne facility has only one production line suitable for isobutanol, Gevo’s current isobutanol production costs are higher than its expected sales price,” said the company in a statement. “As a result, the cash flow profile of the Luverne facility is improved by dedicating production to ethanol, rather than coproducing isobutanol and ethanol.”

The company also noted that the condition of two of its oldest fermentation vessels may limit its ability to coproduce isobutanol and ethanol. In a filing made with the U.S. Security and Exchange Commission, Gevo explains that it hired a third-party engineering firm during the second quarter to test the structural integrity of its two oldest fermentation vessels. The vessels are fabricated from carbon steel and are dedicated to ethanol production. One vessel is estimated to have two years of useful life remaining, with the other estimated to have only three months of useful life remaining under the current operating strategy unless they are replaced or repaired. “We believe that our ability to produce isobutanol will be significantly impacted if we are unable to use both of these fermentation vessels in production,” Gevo said in in the filing. “Therefore, our future isobutanol production will be limited to three additional months of operation until the fermentation vessel that is estimated to have three months of useful life is repaired or replaced.”

Gevo explained that it is currently evaluating whether to repair or replace the two affected fermentation vessels, including the timing of such repairs or replacement. “Depending on the outcome of the evaluation, it is possible that the condition of the two affected fermentation vessels could force us to cease isobutanol production or to completely cease all production activities at the Luverne facility for an extended period of time,” the company continued in its SEC filing.

In its third quarter financial release, Gevo said it does not expect to produce any more isobutanol this year. Going forward, the company said expects to focus on ethanol production and produce limited volumes of isobutanol until the completion of the Luverne facility expansion or until the company has repaired or replaced one or two of the two older fermentation vessels.

As of Sept. 30, Gevo estimated it had approximately 350,000 gallons of isobutanol and approximately 54,000 gallons of renewable hydrocarbons in inventory. During the third quarter, the company also produced and sold approximately 4.2 million gallons of ethanol.

Regarding its strategic review, Gevo said its management and board of directors are exploring all options to improve the cash flow profile of its business, including the Luverne plant, to allow the company sufficient time to develop the markets and customers for its renewable isobutanol and related hydrocarbon products.

Gevo said it is currently engaged in discussions with several strategic parties regarding transactions or investments that would provide capital.

The company also noted it decided to reduce the employee base at the Luverne facility in October “to better match industry norms in terms of staffing levels necessary to produce solely ethanol at the plant.” Gevo said it does not believe that the staffing reduction will impact its ability to periodically coproduce isobutanol and ethanol, as it expects to temporarily shift resources from its headquarters in Colorado to the Luverne plant to make up for any shortfalls.

During an earnings call, Patrick Gruber, CEO of Gevo, noted the company’s isobutanol-blended fuel is now offered at more than 180 pumps in the Houston areas.

Gruber also said that ethanol margins during the quarter were higher than expected. He noted Gevo was able to produce additional quantities of isobutanol and said the company scaled up a new yeast that lowered production costs, hitting its internal targets.

In addition, Gruber spoke briefly about working being conducted in cooperation with the U.S. Department of Energy on biobased jet and missile fuel, and said the licensing agreement program with Praj could be completed as soon as the fourth quarter of this year or the first quarter of 2018.

Gevo reported third quarter revenues of $7.7 million, up from $6.9 million during the same period of last year. Gross loss was $2 million, compared to $2.7 million during the third quarter of 2016. Net loss of the quarter was $4.2 million, compared to $9.8 million during the same three-month period of last year.