Pacific Ethanol increases ownership, releases financial results

By Holly Jessen | April 02, 2013

Pacific Ethanol Inc. recently announced that it bumped up its plant ownership to more than 83 percent and released its latest financial results.

The company, which operates and manages three operating ethanol plants in Boardman, Ore., Burley, Idaho, and Stockton, Calif., and one idled facility in Madera, Calif., announced it had closed a financing transaction April 1. It issued $6 million in Series A subordinated convertible notes; purchased $2.6 million of plant debt originally due in June 2013 and now extended to June 2016; acquired an additional 3 percent plant ownership interest in New PE Holdco LLC, increasing its plant ownership to more than 83 percent; purchased and retired $3.5 million of plant debt and increased a plant credit facility by $5 million. “With the closing of these transactions, we have made significant improvements to the company’s balance sheet by reducing plant debt and extending debt maturities, reducing overall interest costs and increasing our ownership interest in the Pacific ethanol plants to over 83 percent,” said Neil Koehler, the company’s president and CEO, adding that a second tranche under the financing agreements of $8 million of Series B subordinated convertible notes is scheduled to close June 2013.

On April 2, the company held an earnings conference call to discuss its fourth quarter and year-end financial results. “In 2012, we achieved the ambitious goals established earlier in the year,” Koehler said. “We reduced and improved terms on our plant debt, increased our ownership in the Pacific Ethanol plants at favorable valuations and continued to drive cost efficiencies at the plants.”

For the fourth quarter of 2012, net sales were $197 million, compared to $241.8 million in the same time period the year before. For the full year, net sales in 2012 were $816 million, compared to $901.2 million in 2011. The decline, in both cases, was attributed to a decrease in the total gallons sold and lower ethanol prices. Pacific Ethanol reduced production rates in 2012, due to an oversupply of ethanol in the marketplace and lower corn crush margins, issues that affected the industry as a whole.

For the fourth quarter of 2012 the company’s average price per gallon of ethanol sold was $2.52, a drop from the $2.80 average price in the same time period the year before. For the full year, average ethanol sales price was $2.45 per gallon in 2012 and $2.79 per gallon in 2011.

Overall, the company experienced a gross margin loss in 2012, due to a negative corn crush margin and an oversupply of ethanol relative to demand. In 2012 gross margin was negative 2.4 percent, a decline from a positive gross margin of 2.2 percent in 2011.

During the call, the company talked about the fact that it is installing corn oil extraction at Pacific Ethanol facilities. The technology is in startup mode at its Magic Valley facility located in Burley and is being installed at its Stockton plant. Pacific Ethanol anticipates that corn oil production will be under way at both plants by the second quarter of 2013. The company is also talking to vendors about adding corn oil extraction to its Columbia plant located in Boardman and hopes to have it installed by year end, Koehler said.

The challenging market environment in 2012 was formidable and frustrating, he said. But the company was able to minimize the negative impact on its financial results by adding corn oil extraction and taking advantage of favorable pricing for sorghum as an ethanol feedstock, also a step toward qualifying as an advanced biofuel producer. The good news in 2013 is that the company is seeing production margins improve. “Our primary goals this year are to continue to improve operating efficiencies, diversify our revenues and feedstocks, increase product values by further reducing the carbon intensity of our ethanol and to return the company to profitability,” he said.

The company’s position on its idled Madera facility is the same as it has always been, Koehler said in answer to a question during the call. The facility will be restarted when the market is fully ready. He expressed optimism about accomplishing that in the future but said it was too early to tell when it might happen.