Aemetis, Inc. (NASDAQ:AMTX) Q2 2022 Results Conference Call August 4, 2022 2:00 PM ET
Company Participants
Todd Waltz – EVP and CFO
Eric McAfee – Founder, Chairman and CEO
Andy Foster – President, Aemetis Advanced Fuels and Aemetis Biogas
Conference Call Participants
Manav Gupta – Credit Suisse
Jordan Levy – Truist Securities
Derrick Whitfield – Stifel
Amit Dayal – HC Wainwright
Matthew Blair – Tudor, Pickering, Holt
Marco Rodriguez – Stonegate Capital
Edward Woo – Ascendiant Capital
Operator
Welcome to the Aemetis Second Quarter 2022 Earnings Review Conference Call. At this time, all participants are in a listen-only. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.
It is now my pleasure to introduce you to your host, Mr. Todd Waltz, Executive Vice President and Chief Financial Officer of Aemetis, Inc. Mr. Waltz, you may begin.
Todd Waltz
Thank you, Kelly. Welcome to the Aemetis second quarter 2022 earnings review conference call. Joining us for the call today is Eric McAfee, Founder, Chairman and CEO of Aemetis; and Andy Foster, President of Aemetis Advanced Fuels and Aemetis Biogas.
We suggest visiting our website at aemetis.com to review today’s earnings press release, the Aemetis corporate and investor presentations, filing with the Securities and Exchange Commission, recent press releases and previous earnings conference calls. The presentation for today’s call is available for review or download on the Investors section of the aemetis.com website.
Before we begin our discussion today, I’d like to read the following disclaimer statement. During today’s call, we’ll be making forward-looking statements, including without limitation statements with respect to our future stock performance, plans, opportunities and expectations with respect to financing activities and the execution of our business plan. These statements must be considered in conjunction with the disclosures and cautionary warnings that appear in our SEC filings.
Investors are cautioned that all forward-looking statements made on this call involve risks and uncertainties and that future events may differ materially from the statements made. For additional information, please refer to the Company’s Securities and Exchange Commission filings, which are posted on our website and are available from the Company without charge.
Our discussion on this call will include a review of non-GAAP measures as a supplement to financial results based on GAAP. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the three and six months ended June 30, 2022, which is available on our website.
Adjusted EBITDA is defined as net income or loss plus to the extent deducted in calculating net income, interest expense, gain on debt extinguishment, income tax expense, intangible and other amortization expense, accretion and other expense of Series A preferred units, loss on lease termination, gain on litigation, depreciation expense and share-based compensation expense.
Now I’d like to review the financial results for the second quarter of 2022. Revenue during the second quarter of 2022 increased 20% to $65.9 million compared to $54.9 million for the second quarter of 2021. Our California Ethanol operation experienced steady sales volume with an increase in the selling price of ethanol from $2.78 per gallon in the second quarter of 2021 to $3.13 per gallon in the second quarter of 2022. Delivery corn price significantly increased from an average price of $8.04 per bushel during the second quarter of 2021 to $10.21 per bushel during the second quarter of 2022, as continued poor railroad performance impacted both the delivery cost and supply of corn into California.
Gross loss for the second quarter of 2022 was $214,000 compared to $3.6 million gross profit during the second quarter of 2021. Our California Ethanol segment accounted for substantially all of the reported consolidated gross loss of profit respectively in both periods.
Selling, general and administrative expenses were $7.1 million during the second quarter of 2022 compared to $5.8 million during the second quarter of 2021 as a result of investments in our ultra-low carbon initiatives and noncash charges for stock compensation.
Operating loss was $7.6 million for the second quarter of 2022 compared to an operating loss of $2.1 million in the second quarter of 2021. Interest expense during the second quarter of 2022 was $6.7 million, excluding accretion and other expenses in connection with Series A preferred units in our Aemetis Biogas LLC subsidiary compared to $5.2 million during the second quarter of 2021. Additionally, our Aemetis Biogas LLC subsidiary recognized $1.5 million of accretion and other expenses in connection with preference payments on its preferred stock during the second quarter of 2022 compared to $3.8 million during the second quarter of 2021.
The EdenIQ litigation was settled during the second quarter of 2022 for $4.8 million, including litigation costs, allowing for the release of $1.4 million of litigation reserves. Additionally, a grant of $14.2 million was received from the United States Department of Agriculture Biofuel Producer Program.
Net loss was $209,000 for the second quarter of 2022 compared to a net loss of $10.6 million for the second quarter of 2021. Cash at the end of the second quarter of 2021 was $3.6 million compared to $7.8 million at the close of the fourth quarter of 2021. Investments in capital projects of $12.1 million were made during the second quarter of 2022, further highlighting our commitment to build ultra low-carbon projects.
This completes our review of the second quarter of 2022. Now I’d like to introduce the Founder, Chairman and Chief Executive Officer of Aemetis, Eric McAfee, for business update. Eric?
Eric McAfee
Thanks, Todd. Aemetis is focusing on producing below zero carbon intensity products, including negative carbon intensity renewable natural gas and renewable aviation fuel with carbon sequestration. Our projects maximize the value of favorable federal and state carbon reduction programs, while reducing feedstocks and operating costs by using waste materials as feedstock, hydrogen supply and energy sources for the production of renewable fuels.
In early 2022, we announced an updated five-year plan, which projected revenues to grow to about $1.5 billion and annual EBITDA to increase to more than $460 million by year 2026. We are monitoring federal legislation that strongly supports almost every aspect of our business and, if passed, would be expected to significantly improve our five-year plan. If the legislation becomes law, we will provide further updates.
Our plan is to fund growth by using the approximately $100 million of lower interest rate senior secured lines of credit that were signed in March of this year, in addition to low interest rate U.S. government guaranteed long-term loans. In the past 1.5 years, we have repaid more than $80 million to reduce higher interest rate bridge loans from Third Eye Capital, which has expanded our access to lower interest rate funding. We recently closed two credit facilities at 8% and 10% interest rates with the same lender, who will have an aggregate availability of up to $100 million subject to certain criteria.
The carbon reduction line of credit is designed to fund the completion of the carbon reduction projects at the Keyes ethanol plant and to provide the development funding prior to project financing for the jet/diesel plant and the two CO2 sequestration wells. The working capital line of credit is intended to provide liquidity for ongoing operations.
We’re also on track with financing growth using long-term 20-year low interest rate project financing from the U.S. Department of Agriculture. Our first $25 million of an expected $100 million or more of USDA Renewable Energy for America funding for our biogas subsidiary was approved last week by the National USDA Investment Committee and is in the closing process now for funding this month.
The positive regulatory trends for renewable fuels have continued to improve, including the recent approval of year-round 15% ethanol known as E15 by the EPA and the release of the California Air Resources Board 2022 LCFS scoping plan that significantly increases the number of credits required under the Low Carbon Fuel Standard Program. We expect that LCFS credit prices will increase significantly as traders learn more about the number of LCFS credits that will be required starting in January 2024 in order to meet the expanded decarbonization goals set forth by CARB.
Last week, investors were pleasantly surprised to hear the news that the energy provisions of the Build Back Better legislation received the support of key congressional leaders and the White House, and the bill is now on a fast track for approval. Though the legislation is not final, a brief summary of the provisions and the potential impact on Aemetis includes the following direct benefits to Aemetis projects, a $1.25 to $1.75 tax credit for sustainable aviation fuel. The proposed sustainable aviation fuel tax credit could result in up to $80 million per year to support the construction and operation of the 90 million-gallon per year Aemetis Carbon Zero one sustainable aviation fuel and renewable diesel plant in Riverbank, California, assuming a 50% SAF production allocation and a 50% renewable diesel production allocation. Renewable diesel is expected to continue to receive the dollar per gallon blenders tax credit.
Next, a 30% investment tax credit for renewable natural gas capital investments. The ITC for renewable natural gas projects is expected to result in more than $90 million of cash received by Aemetis in the next five years from investment tax credits. This cash will be additional equity investment into the Aemetis Biogas project, which makes project financing much easier by reducing the amount of long-term project debt by $90 million and reducing interest costs by more than $60 million over the life of the 66 dairy digester project.
Also, an increase in the carbon sequestration tax credit from $50 to $85 per metric ton of CO2, but paying the credit in cash as an IRS tax refund to companies in a process called Direct Pay. We are developing two CO2 injection wells located at the Aemetis biofuels plant sites in California to sequester 2 million metric tons per year of CO2 into a saline formation about 7,000 feet underground. 2 million tons x $85 per ton equals $170 million per year of cash that could potentially be paid to Aemetis by the IRS each year for the first five years of the project, providing $850 million of IRS funding to repay the capital costs and operating costs of the two projects.
With another seven years thereafter as a tax credit valued at $1.2 billion, the total value of the $85 per metric ton tax credit would be $2 billion in just the first 12 years of operations of the two Aemetis carbon sequestration wells. Several provisions in the legislation are valuable to the ethanol business, including $500 million for biofuels fueling infrastructure to support 15% and 85% ethanol blends, a tax credit for low carbon intensity ethanol and adopting the GREET model, so the carbon intensity of ethanol is calculated correctly. These regulations are driven by initiatives to decarbonize transportation, the need to reduce the cost of fuels as petroleum prices increase and a renewed interest in energy security.
In the second quarter of 2022, Aemetis achieved important milestones toward revenue growth and sustained profitability in each of our businesses.
Now Andy Foster, the President of the Aemetis Biogas and Aemetis Advanced Fuels businesses, will review some highlights. Andy?
Andy Foster
Thanks, Eric. The Aemetis Biogas renewable natural gas project in California has progressed with the completion of construction of more than 20 miles of the 40-mile biogas pipeline and is on track for completion later this year. Additionally, we’ve completed construction and testing of the $12 million centralized dairy biogas-to-RNG upgrading facility and construction of four additional dairy digesters that are scheduled for completion this quarter is well underway.
Importantly, we have successfully completed and been approved by PG&E for product and mechanical testing of the interconnection unit, which will inject RNG into their utility pipeline. By the end of this quarter, we plan to have seven operating dairy biogas digesters connected to the utility pipeline, generating approximately 200,000 MMBtus per year of RNG valued at more than $20 million per year of ongoing revenues.
We plan to begin injecting RNG into the pipeline later this month, storing RNG underground initially until we receive CARB pathway approval for LCFS credit generation, which takes about six to nine months. Since we believe that the LCFS credits are presently undervalued as the market waits for the revised LCFS targets to be adopted, beginning sales of RNG early next year will potentially provide increased revenues compared to RNG sales that would have occurred this month.
With the completion of the central RNG production facility and the utility gas pipeline connection as well as more than 20 miles of biogas pipeline, our focus will be on the construction of dairy digesters to fill the pipeline. We have signed 24 leases or participation agreements with dairies and have many more dairies in progress. While continued supply chain challenges for items such as compressors could impact project schedules, our existing backlog of new dairy digesters takes us into year 2024. So we expect to be on track with the five-year plan.
To date, Aemetis has been awarded $23 million of grants related to the biogas project from the California Department of Food and Agriculture, the California Energy Commission, Pacific Gas and Electric and other government agencies for the dairy biogas project and the production of renewable gas.
As Eric mentioned earlier, we expect to close $25 million of a 20-year debt at a low interest rate under the USDA Renewable Energy for America Program. This month was our first USDA funding for the biogas project, and we expect to receive approximately $6 million of grants during the next few months for the RNG projects.
Let’s briefly discuss our California Ethanol plant. As Todd mentioned earlier, we generated a 20% year-over-year increase in revenues from ethanol sales in Q1 2022 compared to Q1 of 2021. That said, higher energy and corn prices, combined with inexcusable railroad price increases, coupled with poor performance issues, increased the delivered cost of corn to more than $10 per bushel. Ongoing labor issues with the major rail carriers continues to cast a negative shadow on our industry and the economy as a whole. We are hopeful that the President’s Emergency Board will resolve this issue as soon as possible.
On a positive note, strong demand and favorable pricing for ethanol, wet distillers grains and distillers corn oil helped to offset the increased cost of corn and energy in the quarter. Our California Ethanol plant is being upgraded to operate using high-efficiency electric motors and pumps powered by low or zero carbon intensity renewable power sources, including our solar microgrid and local renewable electricity. As a strong endorsement of this strategy, Aemetis has been awarded approximately $16 million of energy efficiency and other grants by PG&E, the California CPUC and other entities to supplement our own funding to complete these projects.
Let me take a moment to provide a few updates on the Keyes ethanol plant projects that are expected to materially increase cash flow when the projects are completed. The Mitsubishi ZEBREX ethanol dehydration unit has been installed and a test run has been completed. We are currently installing a specialized pretreatment unit and additional process upgrades. We expect to have this ZEBREX unit fully operational this month. The ZEBREX unit is designed to significantly reduce steam consumption in the plant by approximately 20,000 pounds of steam per hour. This is a 75% reduction in natural gas generated steam use for the ethanol dehydration and is expected to reduce our operating costs by decreasing petroleum natural gas use and increasing our revenues through lower carbon intensity ethanol.
The solar microgrid with battery backup is progressing nicely, and we have a signed EPC contract with Total for the installation of the $12 million solar microgrid system. This project is supported by an $8 million grant from the California Energy Commission. The solar unit is designed to generate approximately 1.9 megawatts of zero carbon intensity electric power at low cost for operation of the ethanol plant.
Mechanical vapor recompression system, which will further reduce petroleum natural gas and steam use, is now in the detailed engineering phase and contractors have submitted initial bids. When completed with the ZEBREX system, we expect to reduce about 85% of our natural gas use at the Keyes plant when the MVR system becomes operational next year. Currently, natural gas cost the Keyes plant more than $10 million per year. So we expect to save on natural gas costs while also reducing our ethanol carbon intensity.
In summary, operational performance and project milestones for the Aemetis Biogas and Ethanol plant businesses are well on track with our five-year plan. Eric?
Eric McAfee
Thank you, Andy. Let’s discuss our Carbon Zero one sustainable aviation fuel and renewable diesel project in Riverbank, California.
We are pleased that the Aemetis Carbon Zero biorefinery under development at Riverbank near Modesto continues to achieve major milestones. In December 2021, after three years in negotiations with the City of Riverbank and the U.S. Army, Aemetis signed the acquisition of the 125-acre Riverbank Industrial Complex. This site is a former U.S. Army ammunition production facility with 710,000 square feet of existing manufacturing space, a rail loop with storage space for 120 railcars on site, a 20-megawatt electricity substation and 100% zero carbon intensity renewable power with a direct power line connection to the hydroelectric dam.
In Q2 of this year, Aemetis took operational control of the 125-acre Riverbank Industrial Complex for construction of our sustainable aviation fuel and renewable diesel plant as well as the Riverbank portion of our CO2 sequestration well project. We have signed and announced more than $3.4 billion of sales contracts with Delta Airlines, American Airlines, Japan Airlines, Qantas and other airlines.
Along with signed letters of intent, we have contracts for about 45 million gallons per year of blended sustainable aviation fuel to be produced at the Riverbank plant. Under the sales agreements, the neat SAF will be trucked from the Riverbank production plant to the San Francisco Bay Area for blending with jet fuel. The blended SAF will then be delivered via pipeline to the San Francisco Airport for use by airlines.
In addition to the $3.4 billion of blended sustainable aviation fuel sales contracts, we signed a $3.2 billion renewable diesel sales agreement to deliver 45 million gallons per year under a 10-year sales contract with a major travel fueling chain for its Northern California locations.
Incentives included in the pending federal legislation expand the market for sustainable aviation fuel by allowing a price to airlines that is competitive with petroleum jet fuel. We look forward to completing engineering and permitting in order to begin construction of the plant early next year.
Let’s review our new subsidiary, Aemetis Carbon Capture. In October 2020, the Aemetis plant in California was identified in the study issued by the Stanford University Center for Carbon Capture as one of three ethanol plant CO2 sources in California that have the highest potential return on investment from building a carbon capture and sequestration facility compared to the oil refinery, cement plants and natural gas power plants that comprise 61 largest CO2 emission sources in California.
Our ethanol plant currently captures about 150,000 metric tons of CO2 per year, which is compressed in the Messer liquefaction plant into transportable liquid carbon dioxide, from which we already generate IRS 45Q tax credits worth $30 per metric ton from CO2 reuse. Current operations generated about $4 million per year of tax credits under the 45Q program. That could increase to about $8 million per year under the pending legislation.
The carbon sequestration study that Aemetis commissioned from Baker Hughes indicated that the Aemetis Keyes plant and the Riverbank plant site are located above a 7,000-foot deep strata known as a caprock and an 8,000 foot deep strata known as a basement rock. Between the two layers is a saline formation that was cited by Stanford University as ideal for safe carbon dioxide sequestration. Over a long period of time, the CO2 reacts with saline to form a mineral that is permanently sequestered underground and does not return to the atmosphere.
In Phase 1 of the Aemetis carbon capture project, we plan to inject up to 400,000 metric tons per year of CO2 emissions from our biogas, ethanol and jet/diesel plants into two sequestration wells, which we plan to drill near our two biofuels plant sites in California. We expect to construct two CO2 injection wells that each have a minimum of 1 million metric tons per year of injection capacity with additional CO2 supplied by other emission sources to sequester a total of 2 million metric tons per year of CO2.
The initial phase of construction includes drilling two characterization wells to provide empirical data for the EPA Class 6 permit. The injection wells will then be drilled at the same site after receiving EPA and other permits. We are currently in the engineering and permitting process for the two characterization wells with an expectation we will drill the first characterization well at the Riverbank site.
A direct feature of the pending legislation would provide $85 per metric ton of CO2 as a cash refund to Aemetis each year. As we mentioned earlier, the 2 million metric ton per year Aemetis carbon capture project would generate $170 million per year from the Federal Direct Pay tax credit as well as an estimated $400 million per year at a projected $200 per ton of sequestered CO2 from the Low Carbon Fuel Standard in California. The fixed amount of $850 million provided by the Direct Pay funding over the first five years of the project could support funding of the estimated $250 million capital cost of the two injection wells and related equipment.
Let’s review our biodiesel business in India. The National Biofuels Policy in India was updated in 2022 and is now being implemented to achieve a 5% blend of biodiesel that is equal to about 1.25 billion gallons of biodiesel per year. This month, our India Biodiesel subsidiary bid on a tender offer from the three government oil marketing companies, where about 180 million gallons per month of biodiesel was tendered for purchase by the OMCs.
For the past 15 years, the pricing formulas have largely been driven by petroleum diesel prices. For the first time, a feedstock plus pricing formula was used for the OMC tender, reflecting the actual cost for feedstock to produce biodiesel in India. The pricing formula and the timing of the two months tender by the oil marketing companies is expected to be the ongoing format for sales to the OMCs. We expect the formula to be a successful mechanism for the rapid growth of biodiesel production in India due to the predictability of the pricing formula.
We began operations of our India Biodiesel plant in early August and expect to produce at full capacity to fulfill the tender offer. We believe this revised OMC purchasing process will allow us to maintain strong production levels on an ongoing basis. Since our India subsidiary has no debt and the 50 million-gallon per year biodiesel plant is fully constructed and commissioned, we are well positioned for a rapid revenue increase as we restart biodiesel production after a long delay.
In summary, Aemetis is expanding a diversified portfolio of negative carbon intensity projects, Dairy Renewable Natural Gas, sustainable aviation and diesel fuel, low-carbon ethanol using zero carbon intensity electricity and CO2 sequestration. All these projects are synergistic and create a circular bioeconomy within Aemetis, in which we use byproducts and waste products from our facilities in local areas as feedstocks to produce low and negative carbon intensity renewable fuels. Our company’s values include a long-term commitment to building value for shareholders, the empowerment of and respect for our employees and business partners and making significant and positive contributions to the communities we serve.
Now let’s take a few questions from our call participants. Kelly?
Question-and-Answer Session
Operator
[Operator Instructions] Your first question is coming from Manav Gupta with Credit Suisse.
Manav Gupta
So the first question, Eric and team, I wanted to ask is this letter that Gavin Newsom seems to have sent on July 22 to Liane Randolph, the CARB Chair. And looking at the letter, he clearly wants a faster pace of decarbonization in California. I think he’s calling for 20% sustainable aviation fuel, and again, pretty much higher carbon reduction targets everywhere. And I mean, looking at the comments you have provided where you just went through the calculations, where you’re calling on like a $200 LCFS price, again. So when we put these things together, are you optimistic that this letter and everything else that you’re seeing out there will have an impact, the carbon targets will be raised and the LCFS price will rebound in your opinion?
Eric McAfee
I think that if you talk to CARB staff, they will tell you they have worked as hard as they can to communicate to the market that the goals that they have set forth in scoping plan are realistic, achievable and that they are now being asked to stretch even beyond those goals. And so there’s a very significant gap between traders and investors and their current view of the current requirements of LCFS credits and what the January 2024 and onward credit requirements the CARB stated very clearly in the scoping plan and other disclosures. And so the governor’s letter, I think, just seals that CARB is committed to this.
You may know that the Board of Directors of CARB is largely appointed by the governor. So this is not a casual commentary by the governor. This is a direct instruction. And so I think it’s very hazardous to be obligated to deliver LCFS credits and not own them. So I think as traders over the next 18 months, increasingly get more and more information about the specific numbers on an annual basis, we have two analyst reports that say we will be at the cap. There is a $200-plus cost of living index, current cap is roughly $250. The system is just structurally set up so that we’ll be at the price cap.
And the only question really is, does that happen in the next six months as traders start to see the information come out in the first quarter of next year? Or does it take us 18 months as traders wait for the actual legislation and regulatory activities to be completed in the first quarter of 2024?
Manav Gupta
Perfect, Eric. The second thing which I wanted to touch base was clearly this Inflation Reduction Act. There was a lot of revisions, which help you guys, whether it’s renewable diesel, whether it’s $85 a ton. The one which I just quickly wanted to focus was because this really disproportionately benefits you is the 30% ITC. Help us understand why this works for you, how this means that the money that you’re spending you can get credit for it, how you can monetize it. And does it also mean that given this benefit, if it comes through, is there a possibility that Aemetis increases the pace of dairy farm development because you’re basically getting cash for the money you’re putting in? Help us understand how this all works.
Eric McAfee
Thank you, Manav. First of all, it’s about a $100 million contribution of equity. So we don’t have to enter into $100 million worth of debt financing, which is available to us and which we’re currently executing on. That decreases the interest payments from the project by about $60 million, which means it increases the profitability of the project by about $60 million. And by providing $100 million of essentially new equity of the project, of course, the debt financing is that much easier. It’s approximately 1/3 of our total capital expenditure. And so we now already have equity, but this is a tremendous boon to our equity commitment, making our debt even less expensive.
In terms of the pace of the project, we’ll be revising our five-year plan. We are scheduled to do that in the first quarter next year. What I think we’re going to do in the interim if this passes is probably in the September time frame issue some indications. We talked today about some of those indications. But the actual five-year plan, I think, will still be updated first quarter next year. But the indications could be added to the 2022 plan to kind of see what the annual impact would be for us.
It’s certainly — in terms of being able to execute more rapidly, this would definitely have a positive impact on being able to do it by reducing the lead times involved with the debt financing. So the net effect is acceleration of methane capture, quicker improvement in air quality in California and all the benefits of biogas would happen quicker with the passage of this legislation.
Manav Gupta
And the last question, sir, by, let’s say, year-end 2022, how many dairy farm RNGs would you be able to connect and start producing from? Even if you’re not directly making a sale at this point, which you explained why you won’t be for the credits, but how many of those would be complete and ready to produce by year-end 2022? And I’ll leave it there.
Eric McAfee
Yes. We have seven that will be fully producing actually. And we — as you know from our process, we inject into storage. And then we’ll be in the process of construction of five more in the fourth quarter this year. But we’ll have seven that are fully producing and going in storage, and we’ll be rapidly scaling that up to 12 early next year.
Operator
Your next question is from Jordan Levy with Truist Securities.
Jordan Levy
First, maybe you’ll have a lot of high-impact projects going on in different stages. Maybe so we kind of know the trajectory over the near to medium term here. Can you just touch on pretty briefly what the big milestones for the Company we should be looking towards or and, call it, the remainder of this year and into early next year, if there’s anything on each of the big projects going on?
Eric McAfee
Not any particular order, but seven fully operating digesters injecting — upgrading to RNG and injecting into the pipeline. Major milestone that I think is valuable because the positive cash flow from that business is really a major step forward for us, and additional five under construction, leading to a total of 12 that will be going into next year.
I think on CO2 sequestration, the characterization, well number one leads us to a whole pathway that as — if you see the math that we just talked about today, is a tremendous injection of about $570 million a year of new revenues in the Company. And we are in just excellent position to be one of only a couple of CCS, carbon capture and sequestration, companies in California. So I think that would be something to look for is the characterization well process.
We also have completion of several upgrades at our Keyes ethanol plant. We’ve completed our heat exchanger upgrade. We have a ZEBREX upgrade being completed this month. That was a five-year investment of time in effort and money. We have our solar project that will be well underway and get completed next year and then mechanical dairy compression. So you’ll see a couple of press releases just as we move through permitting and construction on those projects.
We also have a set of off-takers, customers in the airline business. We have a couple of letters of intent that’ll be converted into offtake orders. And I think we’re talking about a couple — maybe $0.5 billion more of contracts there to kind of wrapping up that process. Everybody is already in LOI, so we’re just converting it to [tentative] agreements, but should have that all wrapped up this year. And further progress on permitting and final signed EPC agreement, which we would expect to be done in the first quarter of next year. So you’ll see some progress, press releases as that comes to pass.
And then lastly, I should mention our India plant has begun operation. It’s in full production right now. And so over the next couple of months, we’ll see ongoing progress as we ship to customers first purchase orders for two months. And we expect to see another purchase order to come out here October and ongoing months. So this new OMC purchasing process is much more rapid than the one year at a time, fixed price structures they had before. Now it’s a flexible feedstock plus contracting mechanism, and it happens every two months. So I think you’ll see more news coming out of India as we operate that business.
Jordan Levy
Maybe just briefly as a follow-up. Can you just talk to the regulatory environment for the CCS side of things and how that maybe evolved since you first announced that business and what you’re kind of looking towards there in terms of Class 6 well permitting and that sort of thing?
Eric McAfee
In some recent federal legislation, the EPA has been — provides some additional resources in order to staff the Class 6 well process. We have been directly supported by the White House as well as top EPA well drilling executives in both federal as well as the state level. And we’ve gotten a lot more support and, frankly, a lot more interest in our project than we expected.
And so I would say from when we initially announced a subsidiary where we expected quite a long and arduous process with the EPA, we’ve gotten the opposite. I would tell you, they are enthusiastically supporting what we’re doing and making every attempt possible to make this process move smoothly. So we expect further support. And I’m not talking financially here, I’m really talking the staff work that needs to happen to get our Class 6 characterization well process done. And so we’re very, very pleased with that support, and that starts with the White House.
Operator
Your next question is coming from Derrick Whitfield with Stifel.
Derrick Whitfield
For my first question, I wanted to ask if you could offer color on the dairy RNG competitive landscape. More specifically, are you guys sensing less competition as a result of the weaker LCFS pricing environment? Or do you sense competitors are looking through this period of weakness?
Andy Foster
Derrick, this is Andy. Good question. I think we have seen some backing off, I would say, by outside investors. I mean, as you know, in California, where there’s primarily been three developers that have largely been driving the business here and it did — two others in addition to Aemetis. And I think that still continues to be largely the case here. They’re with lots of discussions. Some other groups were poking around in here last year. And it’s not to say that there isn’t some additional outside private investment that’s going on, but I do think that there has been some pullback from other parties.
Derrick Whitfield
Great. And then for clarification on Manav’s earlier question, if the IRA is approved next week, what’s your understanding or assumption on how soon you could begin to receive funds from the $90 million you noted in your prepared comments?
Eric McAfee
The current structure is that we file our tax returns and then get a refund. So we have planned at our projections, that would be Q2 of the following year. So for CapEx happening this year, we wouldn’t receive a refund until probably the almost [June] time frame, so Q2 of next year. And you plan that out over a five-year span and it ends up being about $100 million.
Derrick Whitfield
Terrific. And lastly, regarding REIT financing, are there any remaining steps that are required for approval between now and later this month when you guys receive funding?
Andy Foster
No, it’s just — this is Andy again. It’s just — right now, it’s just paperwork. No more approval process. It’s just us kind of ramping up the paperwork with our lender.
Operator
Your next question is coming from Amit Dayal with HC Wainwright.
Amit Dayal
With respect to the India operations, what is the time line within which the plant could be restarted, et cetera, over there?
Eric McAfee
The plant was restarted in early August, so we are in full production right now. During this time of COVID, we took advantage of the opportunity to have our, what is it, [90] employees spend their time on replacing equipment and upgrading seals and doing tests and really got an opportunity to go through the plant and be ready for full operations. So the operational restart was smooth. Probably the only delay we have was getting the local power authority to give us the power to switch back on. That took us an extra week. But other than that, we’ve acquired billions of dollars of feedstock ahead of this restart and are well positioned to be running at full production capacity under this two-month contract. And then the customers are telling us it’s just going to keep on flowing from that point onward.
So there’s always minor technical issues around testing and temperature and some other stuff as we get into winter, but we’re managing through that. Certainly, for the next two months, we’ve got a plan laid out for execution. And at 180 million gallons a month, our entire production capacity is only about 4 million gallons a month. The demand is 180 million. So you can see there’s a significant — we can basically grow our business over there for the foreseeable future without a lack of appetite by the OMCs in terms of meeting their needs.
Amit Dayal
So are there any additional start-up costs that we should be sort of thinking about as you enter the — in this phase of restarting the plant over there?
Eric McAfee
Yes, the plant is fully restarted already, and we didn’t have any onetime CapEx or operating costs that were notable. We planned for this and we’re, if anything, waiting for this for a while. So there was no unexpected startup.
Amit Dayal
And then revenues, et cetera, from this will show in maybe the 4Q results?
Eric McAfee
It would be in the Q3 results and also just continue on into Q4. So our goal is full operation for the foreseeable future. What we have in hand is the two-month tender offer that has been accepted. And so we’re expecting, though, that the oil marketing companies will be an ongoing customer base that we could supply with all of our capacity.
Operator
Your next question is coming from Matthew Blair with Tudor, Pickering, Holt.
Matthew Blair
I was hoping we could revisit the CapEx guidance for 2022. I think at one point, you were expecting around $85 million. Think you spent about $22 million in the first half of the year. Is that $85 million, is that still a good number? Or should we expect something lower? And at this stage, do you have any early thoughts on 2023 CapEx?
Eric McAfee
I think we’re on track for 2022. The — there’s a blend of different projects, as you know, that goes into that number. And so our five-year plan for 2022 does have some flow of biogas between the fourth quarter this year and the first quarter of next year based entirely upon how the pace of construction goes. So there’s some variability there. No real diversion on anything else we’re doing. The budgets haven’t changed, and I don’t think the timing has materially changed. So we’d probably be on track to certainly be within $10 million of that CapEx number.
Matthew Blair
Sounds good. And then I wanted to clarify on the timing of the RNG monetization. It sounds like you’re waiting for the LCFS pathway to come through. Would you be able to monetize any D3 RINs in Q3 or Q4? Or should we really expect everything to happen in sometime in the first half of 2023?
Eric McAfee
Andy, you want to…
Andy Foster
Yes, I would say that’s the right expectation. Well, we’ll take it to storage, and then following the approval by CARB for the pathways, well, that’s when we’ll actually exchange the gas out of storage and start to monetize it.
Matthew Blair
Got it. And then last question, could you provide any sort of a rough range on profitability per gallon for this India Biodiesel restart?
Eric McAfee
Not with any specificity at this point in time. It’s a price of INR 106 in per liter. That is a publicly announced price. And so you can do some math on what the market looks like and probably can get pretty close. But right now, the numbers are definitely positive, and we expect to be able to put these numbers in the third quarter and as well as the fourth quarter. And it’s a restart of the entire industry. So the formula of feedstock plus is structured so that we would be provided not only just profitability, but frankly, growth capital to be able to expand our capacity from 50 million gallons to 100 million gallons and even more. So the design of the program is to be able to fund the growth.
Operator
Your next question is coming from Marco Rodriguez with Stonegate Capital.
Marco Rodriguez
I was wondering if maybe, Eric, you could spend a little time just coming back to the CapEx plan for the five-year plan. Just kind of give us a little bit better of a sense or an update on the funding sources. I know you’ve got the new line here. But if you can maybe frame the sources, the mix of the sources, whether that’s from capital markets, grants, cash flow would be helpful.
Eric McAfee
Certainly. Each one of our businesses have different sources. But in general, we combine a combination of grants and now, frankly, investment tax credits, either direct pay or transferable, because it appears that all these biofuel tax credits will either have transferability or direct pay as a feature. Essentially, they turn into cash rather than us having to wait for some number of years before we can get the tax benefit.
So the grants we’ve already received is about 50 — grant awards we’ve received about $57 million and that’s across the portfolio. These ITCs, as I described it, are just very, very large contributions of additional equity that are an adjustment to our five-year plan. And so in addition to grants and ITC, we also have government-guaranteed debt. And USDA is probably the partner that we have the most relationship with. Certainly on biogas, that is true. And so we can grow our business just using that.
But in addition to that, we have the California municipal bond market for what are called private activity bonds. They’re typically in the $50 million range, whereas the Renewable Energy for America Program under USDA is a $25 million loan per project company. So I wouldn’t be surprised to see some California municipal bond money mixed in with the USDA to fund our biogas business.
Same template, frankly, for our jet and diesel business, where we have a signed $125 million commitment letter from the U.S. Department of Ag under the 9003 Biorefinery Assistance Program with the U.S. Department of Ag. So expanding that relationship, adding some Renewable Energy for America Program funding there. There’s even tax-exempt financing available for that project. When you add in the value of the $1.25 to $1.75 tax credit, that’s essentially additional equity being contributed into the project, which makes us debt financing that much easier to arrange.
And then carbon sequestration, we spent about $18 million in carbon sequestration characterization wells for our two wells plus the consulting for permitting. And that’s pretty much our only investment. And we’re expecting in 2024 to then get a Class 6 license, and at that point in time between the $850 million of direct payments and using that for a financing source and just good old USDA relationships we have, we think we’ll be able to fund the scale-up of that business using those long-term financing sources.
So in general, we’re looking for the confidence of the U.S. government that their policies will be enforced to be reflected by the U.S. government’s loan guarantee programs. And we’ve seen that, that actually is a good business strategy. And if the municipal bond market in California has a strong appetite for these kind of projects, which it currently does, then we can add that in as needed. But if for some reason, it does not have an appetite, then with these U.S. government-guaranteed 20-year bond structures have worked for us, and I expect it would continue to work for us in the future.
Marco Rodriguez
Great. And last quick question. Just on the gross margins that you guys saw in this quarter from ethanol. Just kind of can you talk about how you’re thinking about the mechanics behind that, just kind of given the rising price in corn and the rail issues, how you’re thinking about that in the second half?
Eric McAfee
I would say that we are all suffering under the railroads insufficient reaction to the recovery after COVID. They should have hired a lot quicker, trained a lot quicker, and that added some rail cost. That is temporary. They are fixing it. The [indiscernible] Management Board is aggressively following their progress. So I would anticipate over the next six months that there will be gradual improvement in that.
The other side of the equation is what everybody knows, which is when you shut off Ukrainian corn, you’re going to have a reaction, somewhat speculative by the market. And as we get through this corn harvest and the yields seem to be doing better than some expected and as some corn starts flowing into Ukraine, we will see how that market reaction occurs. We are largely subject to how the Ukrainians do to see a steep down curve. If we saw a resolution in Ukraine next week and a flood of corn in the market because it’s — where in the middle of harvest, that would have an impact. But I personally think we’re in a temporarily elevated situation through the combination of rail and the Ukrainian lack of supply in the marketplace.
Andy, do you want to add anything to that?
Andy Foster
No, I would say that this is — August typically in the ethanol industry is usually one of our rougher months from a corn pricing perspective because there’s a lot of wishing, hoping and praying about what the harvest is going to look like, what the carryout is going to look like. And so I think if you go back and look, typically in August, we — I kind of identified January, February and August is my three least favorite months of the year when it comes to purchasing ethanol.
So the actual price of corn has come down some, but corn basis is very high right now. So we’re not really getting a lot of relief because farmers aren’t selling. And that’s typical at this time of the year. As we get closer to the harvest, they have to start making room and elevators for the new crop corn. I think this is going to be an average corn year. I don’t think it’s going to be a spectacular year. I think it’s going to — there’s some very dry — the Western corn belt is pretty dry right now, but the rest of the corn belt is kind of doing as expected.
So barring any major disruptions, any further escalation in Ukraine, as Eric was talking about, that’s more of a psychic thing than a real grain supply issue, and a lot of that’s wheat. But I think as we start to get into the harvest, we’ll start to see things normalize a little bit more. And if there’s opportunities for us to take advantage of some of that pricing, we’ll try to do so.
Eric McAfee
In the medium term, though, I think that investors should reflect on the fact we don’t actually sell corn as one of our products. We sell ethanol. So it’s a demand for ethanol that generates our margins. Our most profitable year, we generated $40 million of EBITDA from our ethanol plant in California, and we had corn prices were roughly the same as where they are right now. So E15 and E85 funding of $500 million will significantly expand the market for ethanol.
Andy Foster
Yes. And I don’t know if you saw the EIA numbers yesterday, but demand fell right off the cliff as we sort of all expected sooner or later that was going to happen with high gas prices. And so gasoline demand, ethanol demand was down almost double digits. And that is just a week of data. And I don’t — I tend to look at more weeks combined of data or a month of data. But I think with sort of back-to-school time, you’re going to start to see that. And I think people have sort of gotten to their — the edge of their limits in terms of paying for a high price of gas. So I think Eric’s point is correct.
It’s — let’s look at the ethanol demand and how we go into the in the fall with that because the ethanol industry in the U.S. has had record exports this year. That’s one really positive spot. And we haven’t had a lot of imports from Brazil. I think one just landed in California. I don’t think we’ll see another one this year. So largely speaking, we’ve had positive trends in that perspective. But demand has really, really dropped off pretty sharply. Refiners will tell you that, everybody will tell you that. So I think that’s kind of the thing we’re keeping our eye on right now. Corn is running its normal cycle, but we’ll have to see where ethanol demand goes.
Operator
Your last question is coming from Edward Woo with Ascendiant Capital.
Edward Woo
You answered a lot of my questions about the outlook for ethanol. But we’ve seen some pullback in gasoline prices from record levels, and there’s been a lot of [grumpy] by the federal government to get oil prices down. Do you think we’ll see sustainable decreases in the outlook for oil? And may that possibly increase demand for gasoline and obviously back for ethanol to rebound?
Andy Foster
This is Andy. I kind of think we’re — again, a lot has to do with geopolitical stuff in terms of the price of oil. I’m not going to speculate. I’m not an oil expert, and I follow it like you do. But Ukraine and things going on with China and all the rest have weird influences on traders in New York. So I’m not going to guess there. I think we’re sort of starting to feel like we’re getting back into our normal rhythm when it comes to cycles for demand, at least on the ethanol side. Usually at this time of the year, you do see a decrease in demand as you get toward the end of the summer and people stop summer vacations and you get back to school.
So I kind of feel like we’re — barring any outside events, which in the world we’re living in today could be tomorrow, but I think it starts to feel like we’re getting into more normalized. I mean, definitely, the price of gas has come down. As you look around, I was on East Coast last week and that was incredibly cheap compared to California. But California gas prices have gone down a little bit. So I think we’re kind of cycling back into, as I look at the ethanol business, it’s back-to-school time of the year.
And I think people have kind of wrapped up summer vacation time or they will this week, and then we’re sort of getting back into more of a normal cycle. So I’ll put that out there with all the caveats that, as of this afternoon, we could have some other international crisis that jacks the price of oil and makes all that go away.
Operator
There are no further questions at this time. I would now like to turn the floor back over to management for any closing comments.
Eric McAfee
Thanks, Kelly. Thanks to Aemetis shareholders, analysts and others for joining us today. Please review the Company presentation and the investor presentation that is posted on the home page of the Aemetis website. We look forward to talking with you about participating in the growth opportunities at Aemetis.
Todd Waltz
Thank you for attending today’s Aemetis earnings conference call. Please visit the Investors section of the Aemetis website, where we’ll post a written version and an audio version of this Aemetis earnings review and business update. Kelly?
Operator
This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
Be the first to comment