Gevo Inc (GEVO) 2011 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth quarter 2011 Gevo earnings conference call. My name is Derrick and I will be your operator for today. At this time all participants are in a listen-only mode. We will facilitate a question-and-answer session at the end of the conference.

(Operator Instructions)

As a reminder this conference is being recorded for replay purposes. I will now like to turn the conference over to Mr. Mark Smith, Chief Financial Officer. You may proceed.

Thank you, Derrick. Good afternoon and thank you for joining Gevo's fourth quarter and full year 2011 conference call. As introduced, I'm Mark Smith, Gevo's CFO. With me today are Pat Gruber, our Chief Executive Officer and Brant DeMuth, our EVP of Strategy and Corporate Development.

Slides for today's presentation can be downloaded from the webcast and presentation section of our IR pages on our website at www.gevo.com. Also earlier this afternoon we issued a press released, which outlined the topics that we've planned to discuss here today and a copy of this release is also available at our website at www.gevo.com.

I would like to remind our listeners that this conference call is open to the media and we are providing a simultaneous webcast of this call to the public. A replay of our discussion will be available on our website later today. We want to advise you that this discussion will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements relate to a variety of matters including without limitation expressed or implied statements concerning the Company's ability to acquire access to and retrofit existing ethanol production facilities, the timing and cost associated with the availability of capital to schedule retrofits of existing ethanol production facilities.

The Company's future isobutanol production capacity and the timing associated with bringing such capacity online. The timing associated with the Company's first commercial shipments of isobutanol, the expected cost competitiveness and related performance attributes of isobutanol and the products derived from it. The expected applications of isobutanol, including its use to produce renewable para-xylene and Alcohol-to-Jet biofuel addressable markets including the size and the expected future growth of such markets, potential customers and market demand.

The availability of suitable and cost competitive feedstocks, the Company's ability to utilize agricultural residues and other cellulosic feedstocks in the future, the Company's ability to produce and sell co-products of isobutanol productions such as fertilizer or animal feedstock. The future price and volatility of corn and other renewable feedstocks, the future price and volatility of petroleum, the strength of the Company's intellectual property position and other statements that are not purely statements of historical fact.

Investors are cautioned not to place undue reliance on such forward-looking statements as they are only predictions of the company's actual results and the company's actual results may differ materially from what maybe expressed or implied as forward-looking statements. All such forward-looking statements speak only as of February 28, 2012 and we undertake no obligation to update or revise these statements whether as a result of new information, future events or otherwise.

These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of management of Gevo. Although the company believes that the least expectations and assumptions reflected in these forward-looking statements are reasonable. These statements may involve many risks and uncertainties that may cause actual results to differ materially including without limitation the risk of the production of isobutanol down at Luverne, Minnesota facility could be delayed or we could experience significant cost overruns in comparison to our cost of current estimates.

The risk of additional funding might not be available to us when needed on terms that are acceptable to us or at all and the risk that we aren't able to adequately protect our proprietary technologies or may lose some of our intellectual property rights through costly litigation. For a discussion of these and other risk and uncertainties that could cause actual results to differ from those expressed in these forward-looking statements as well as risks relating to the business at Gevo in general see the risk disclosures in the annual report on Form 10-K of Gevo for the year ended December 31, 2010 and in subsequent reports on Form 10-Q and 8-K and other filings made with the SEC by Gevo.

This conference call will also include our discussion of non-GAAP financial measures as that turn is defined by Reg G including EBITDA adjusted to non-cash compensation contributed by a Gevo development segment. The company's believes this information is useful to investors because it provides the basis for measuring the operating performance of the company's business and the company's cash flow.

Company's management uses these non-GAAP financial measures along with comparable GAAP financial measures in evaluating our operating performance and cash flow. Non-GAAP financial measures should be considered in isolation from or as a substitute for financial information presented in accordance with GAAP and non-GAAP financial measures presented by the company may not be comparable to similarly titled reports by other companies. As appropriate to most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the company's financial statements prepared in accordance with GAAP are included in the earnings release that was posted on our website.

In today's call Pat will begin with a review of our recent accomplishments and update our progress towards commercialization of isobutanol. Following Pat's presentation I will review our financial statements or results for the fourth quarter and full year 2011. Following the presentation we will open the call for questions. I will now turn the call over to Pat Gruber, Gevo's CEO.

And thank you Mark for that rendition of one of the longest statements that I haven't heard in a long time. All right, welcome everybody to our Gevo conference call this one summarizes the fourth quarter and the overall year. Okay, the first most important question in everybody's mind where are we at with Luverne, we are on track. We are on track to start shipping butanol in the first half of this year. So by July we would expect to have stuff on its way to Sasol.

In this deck that's available to you on page four you will see a picture of our retrofit in the construction. We are in good shape the weather has been pretty kind to us. There is a couple of things that you see here in this picture, that scalable structure building we are going to be in closing that pretty soon and then we will be able to do the finishing work inside that's a good thing that will protect us from the weather. One thing that you want to point out is that over on the right side of this picture you see a tank its right behind part of the blue crane. That tank to put this in perspective is a 250,000 gallon fermenter. Now there are several more of those inside of our plant 250,000 gallons that 1 million liters the point of this is, this is a real scale plant, real live commercialization focused on real markets.

Now I will come back later and talk more about our goals at the end of this, near the end of this call. But first I want to step back for a minute and talk about how we think about our business. Our commercialization strategy so if you are following along on the slide deck, which I'm sure that many of you had time to go get it given that speech of Mark. We have, go to page five and you will see that we are focused on six primary market opportunities or strategic verticals.

Specialty Chemicals, C4s not that's not the explosive we mean butenes that's a four carbon building block molecule for petrochemical industry, Bio-PET means polyester made from renewable resources that's the stuff that bottles and packaging materials are made from fibers. Specialty fuel blendstocks here would refer to isobutanol as an oxygenate from specialty markets. Bio-JET fuel is kerosene standard jet fuel except for this stuff is renewable and then renewable hydrocarbons more broadly.

Now it's interesting is that all of these can be served with isobutanol it's about direct replacement of petrochemicals with renewable, the focus is on true drop-ins not new molecules our focus is cleaner, greener, cheaper safe performance that's the word out that's how we think about the business. And what rides with them is where we stand on the cost of pool carbohydrates versus the cost of oil that's what will drive as substitution. And then we have to work our efficiency down in processing, cost to be effective.

So let me take the first one Specialty Chemicals, this is the first commercial market that we will be addressing. The addressing market here is about $7 billion it's growing at a rate of about 35 million gallons per year. This will be isobutanol sold into paint, solvents, coatings and other specialty applications. Value proposition here is that we could, we believe we could make it cheaper than from petroleum and that is what causes the company like Sasol who is our lead customer to partner up with us.

Now Sasol is a $32 billion global chemicals company, we've been out the industries first taker pay agreement and I think to our knowledge we are still the only ones with the real taker pay agreement in our space at least in the emerging companies. Once fully lined out the plant level EBITDA margin is expected to exceed about $0.80 a gallon and its index to corner. Isobutanol at this case is a true drop in isobutanol is a one more molecule that will help in the commercialization. We can eliminate the uncertainty about all the other stuff because all the analysis is well known the product itself is well known so that helps.

We also have other ongoing discussions with Specialty Chemical producers these are things for lighter fluid or isobutyl acetate and there is other chemical intermediates. We will talk more about this in the future as Chris our President and COO develop that business.

Let me turn my attention now to the butenes market those are the C4s that I mentioned earlier. These are not isobutanol they are derivates of isobutanol so here we remove water from an isobutanol and leave behind butenes. Butenes are typically made by cracking of oil. Butenes themselves represent an $8 billion total addressable market growing approximately 100 million gallons per year while half of this will be used in Asia. Now here the value proposition is different it's about strategic supply. It turns out that there is demand in balance particularly in the future and that the world is changing and what gives best to crackers and as and it's changing from oil to natural gas liquids and as that happens fewer butenes is bought.

Now to protect that forward when you think of a cost of apetrochemical complex or refinery those are things like $20 billion kind of expenditures no one builds one to drive butenes this is how it works. So we present an opportunity where we could be a cost competitive alternative for petrochemical butenes. It's a very diverse number of applications it cuts across isobutylene, which goes to rubber, lubricant entering plastics and other butenes based intermediates. It's a fundamental building block and the opportunities will increase as it becomes cost advantage.

Now LANXESS continues to be our lead customer here. They are the world's largest synthetic rubber manufacturer, I'm on page nine by the way. They had sales of $7.1 billion in 2010 16,000 employees and 30 countries. We have ten years supply agreement notice I say supply agreement we had a ten year supply agreement in place. We've recently expanded our relationship to include Southeast Asia so that's new. Bringing online I synthetic rubber facility in Singapore and that's a good opportunity for all of us.

LANXESS has outstanding leaders they are focused on their business. They've done a great job with their company. We have off-take agreements in place to contemplate the feedstock formula that balance the risk/reward for both parties to drop-in exact chemical replacement. And yes, we are still working on the exact delivery terms. And we expect these guys to be off taking product late from Redfield or it would have to be in plant three by the time that they are ready to take it because they will build a converting facility to produce synthetic rubber from our isobutanol through isobutylene.

The next vertical is Bio-PET. All right, Bio-PET that means renewable polyester. PET is polyester, PET stands for Polyethylene Terephthalate for those of you who like that technical stuff. What we have is an alien technology to take PET from partially renewable to fully renewable. How do we do that? We do it through a molecule called para-xylene PX is how the industry refers to it. Para-xylene has eight carbons butanol remember has four put two butanol's together turn them into a ring with some chemistry and that would be para-xylene. Para-xylene is the raw material to make terephthalic acid that's the T part of PET.

Now, this market is mixed $100 billion total addressable market. Huge diverse number of applications coming across packing materials like bottles and packaging films, to fiber, for carpet or apparel or even in car parts huge opportunity. The drive in the early days is that brand owners desire to green their supply chains. They also have a focus on for the future and of course we make great progress with our friends at Coca-Cola under our lead partner. We've got a great deal with them and that they want, they are totally committed to bringing renewable, fully renewable PETs at the marketplace. They choose to do a deal with us out of 20 plus candidates. We are one of the two companies selected and the focus for these guys is to get all of their packaging plastic to be fully renewable by 2020.

Now to put this in perspective they do 1.7 billion servings per day and expect it to double by 2020. We are already working with them in the first phase this again is a true drop in exact replacement chemical that simplifies the issues all the way through the value chain in that it's the same product, same molecules, it gets us to recycle. So in other words, the end of life issues are mitigated as well by having a fully recyclable PET bottle made from renewable.

We also continue to make progress with Toray. Toray they are a world leader in films and fibers. You will see their films and you've probably, you all have used them you might not know that but it is in common packaging materials and also in technical fibers. And they have been successful in producing fully renewable PET films fibers from our raw material base.

The next market segment is Specialty fuel blendstocks. Here I'm referring to isobutanol as an oxygenate the reason to this interest is that isobutanol has very excellent properties as a fuel blendstocks. Isobutanol has low vapor pressure, it's of course renewable, has a high octane level, higher energy mass than ethanol. So people are interested because it has great accountability with existing infrastructure. So we have low emissions and some evaluated properties to work with so there is interest.

Now there is an upside opportunity with advanced that's kind of interesting. You know that there is the mandate under RFS for refiners to own what's called RINs. RIN's are tracking numbers approved that in fact that they have some renewable to meet a mandate in their business system. A refiner has a few ways to do that they can make something or they can buy it so it's a buy versus produce decision. When they look at an isobutanol, isobutanol has potential to allow them to be in the case to buy, sorry they could be in the produce position by participating.

So we are in the mix of analyze these opportunities, it's a balancing and a risk reward capturing the value of all of these RINs we all think in Gevo anyway that the RFS2 probably is going to change but it won't go away, it won't go away. Now isobutanol is interesting in that it could be made from corn, cornstarch and yet achieve advanced status if we show a 50% greenhouse gas reduction ethanol can't do it as concluded by law. So this is a way that ethanol plants could achieve advanced status if they use isobutanol instead and have 50% greenhouse gas reduction.

We've submitted a pathway to the EPA to obtain advanced status and that will be interesting to see the outcome and that will be sometime in the first half of the year. And so we will be the first and only cornstarch based pathway to achieve advanced status. Now the upside I mentioned right now advanced RINs and as we are talking about that would be, they are currently trading above $1 per gallon on an isobutanol basis so it's a significant upside.

The next one well we have two main customer sets there we have Mansfield Oil and Total. Now Mansfield Oil you might not have heard of but they have 900 supply terminals they are a distributor with all kinds of fuel products. They are a very excellent company and they have the ability to segment market and that's particularly interesting as we enter the market. Because there is no possible way we can step in at large scale coming from Luverne we have most of our capacities committed to Sasol so we have seeding opportunities and so we want to skim some niches first and that allows us the chance to prove other products and perfect everything. Do it very diligently and carefully.

Now, the RIN market is particularly and Mansfield is the company with the capability to segregate that market and take advantage of it. Now the value of isobutanol in a Marine market is that isobutanol does not absorb into water. That's different than ethanol and so it doesn't cause some of the same issues that are common with marine engines. I will talk more about that in just a minute. Total has refinery in Texas and they are continue to move forward they are interested because they want to be able to make a fuel that meets the stringent Texas Reformulated Gasoline fuel specifications. So this is a value added player to be an optimization for their plant. Those two are coming along still in development.

Now we've had a couple of validations done for Specialty fuel blendstocks one of them was done by the National Marine Manufacturers Association and the American Boat and Yacht Council. Here they were comparing isobutanol with ethanol they found out that isobutanol has very excellent properties that work very, very well with marine engines. We haven't seen some of the same problems that have come common.

Second test that was done was with the Outdoor Power Equipment Institute they conducted tests on Briggs & Stratton engines and here it's important because ethanol because of its work side ability and its octane and all the other things it has problems with some engines. Well isobutanol in these tests they shown to be compatible with these small engines that's exciting for these guys because that's the first time that they get a bio-fuel option that they could support right it works in all their engines it's a big deal for them. Because otherwise it's a fight to protect their product against the fuel product that causes the problem. So that holds special opportunity as well.

Bio-JET, I'm turning my discussion on to Bio-JET it's on page 15. Now this is a very, very interesting one. Here with the strategic driver is reducing dependence on oil and in particular it's associated price volatility. This military markets in fact jet fuel accounts for more than half the Department of Defense's energy bill. As a desire Europe in particular to lower emissions and the airlines themselves know that that's the trend of the future and of course is always energy security. Now we've completed construction and successfully commissioned our Silsbee, Texas alcohol-to-jet facility. That there is a picture of that in page 16. Well that is the world's largest alcohol-to-jet facility we refer to alcohol-to-jet as ATJ.

The industry is figuring out and I mean by the industry the people who use jet fuels that this is actually holds a lot of potential because it's a simple technology to convert isobutanol into a finished jet fuel. It's a well known technology and in fact we did this demonstration plant that has the capacity of 10,000 gallons a month. We built this in less than six months and that's including the engineering time. Well that's because it uses a lot of off the shelf technology and know-how and capability.

That's exciting right? It simplifies life consider that with retrofitted ethanol plants well that means that here is our solution where it should actually grow at a rate relevant without the point huge amounts of new capital that's a big deal when one is trying to plan for true substitution. Our ASTM certification is ongoing and it remains on track for 2013 but I will tell you this ATJ facility is already shipping jet fuel to the airports of South Hampton. So we are pleased with that. A lot of people didn't think we could get that done.

We are now on page 17, our lead customer is the Air Force we are serving it to them and they are using it for engine testing and later they will do airplane testing. We are still working on the LOI with that airlines they are a good partner of ours and here we see the real opportunity to move to cellulosic and make it happen. I think we have the pieces to pull that together you will be hearing more about that from us in the future. We also have opportunity with multiple air carriers because we know that this has the potential to grow fairly quickly without deploying huge capital. Better ability to scale.

The last vertical is renewable hydrocarbons here we are talking about gasoline, I'm talking about the same gasoline that you use today to fill your car up or diesel you know because from these building blocks you could make diesel the technology exists or bunker fuel all of those things to be made from this simple building block and the chemistry that's out there today. We are currently analyzing these opportunities and we will start to sort them out we are already gauging the stake holders that fuel refiners and oil industry people and remember our goal really is to replace the whole barrel. We want the whole barrel overtime that won't happen immediately but that's how we think it's about cleaner, greener, cheaper over the long run.

We have some other important developments that on page 19 you will see those one of them I want to point out here is that we are a huge believers of heavy and optimal business system. One of things that you have when you consider growing something is that you want to use protein for animal feed or for food and you use the excess carbohydrate for making a chemical product or a fuel.

So in these business systems the starches are separated from the protein the protein captures 100% of the nutritional value of the corn. That enhanced value leads in essence to a lower net carbohydrate cost that's a big deal because that allows expanded opportunities for the future and that if we add more value to the protein side we get a lower carbohydrate cost. And so each time around the world that's how we think it doesn't have to corn for our feedstock in US that's what make sense but if we move around the world we think in terms of the business system. We will be in a position to take advantage and optimize the whole.

We've got a deal with Land O'Lakes Purina, everybody all of you have heard of Purina that is the brands, that's the largest brand in the states for animal feed and we've done a deal with them they will take our iDGs that's our protein product produced at Luverne, they will be the exclusive marketer and we work together to enhance the value further. It's a good opportunity they like us because we are a strong technical organization pays attention to detail and we have a manageable quantity of materials to start and we can perfect some technologies.

The next thing is that we have signed a non-binding MOU to access the capacity that covers essentially 70% of our expected 2015 volumes. Everybody always asks me what are you doing with excess ethanol well we are doing pretty good actually and make good progress. So that's so well done our friends Mike Slaney and David Black who have response for this area in fact they did the Luverne acquisition and the Redfield JV and are instrumental getting this forward here on this next incremental capacity. They have now left the company and I have to tell them it's job well done. So we've made good progress on that.

On the IP front there are you will find in page 20 a list of patents some of these are kind of interesting. I'm not going to go through the detail of most of things remember the pathway for isobutanol with a note at 1965 and written many times since and the fact that someone knows that doesn't make it good enough to actually use in a commercial sense. It needs quite of lot of work to convert that yeast into something that can produce at commercial economics and at commercial scale it was about the yield in particular in the past been optimizing the pathways.

So these patents that have all the goofy names in bold letters these are all things that relate to how do you make something actually work really well. The second one that's interesting that I will point to as the GIFT patent. This GIFT patent is very broad it covers C3 through C6 alcohols much broader than butanol. And in our last earnings call we have we aren't idle we are thinking about additional products and technologies. This is an interesting patent application because it broadly covers a variety of technologies to get these alcohols out of fermentation process. I'm very pleased with that.

And then there is one at the bottom of the page that I will draw your attention to it, for short version we call it NKR. The pathway for producing isobutanol as it exists in typical yeast that's making whisky or beer or even bring ethanol in ethanol plant there is a sequence of five steps, each of those steps are catalyzed by the enzyme. Those enzymes one of them in particular will not get the job done in a commercial basis why because it needs oxygen you can't get there from here with that naturally occurring enzyme.

What we did is we genetically engineered an enzyme that works in that pathway that its anaerobic meaning it doesn't need air. Now, that's very fundamental in that why this is why, we say we don't in French it's (Inaudible) this is specifically the reason. You know once the patent model seems to agree that this is different and haven't been slow as before. So because they granted this patent in light of all the prior argument.

So overall we are finally straightening our positions we are continuing to make progress. I will turn over to Mark and then I will come back and I will sum up where we are headed for 2012 and then we will do question and answer. Mark?

Thank you, Pat. Fourth quarter of 2011 we reported revenues of $17.2 million compared to $14.1 million in Q4 2010. The increased revenue reported in the fourth quarter of 2011 was due to higher ethanol prices in the quarter, compared to the fourth quarter of 2010. The full year of 2011 we reported revenue of $64.6 million. Full year 2010 revenues of $16.4 million reflected only a positive year of ethanol revenue as our acquisition of the Luverne plant was completed in September 2010.

For the fourth quarter of 2011 we generated a gross margin of $1.7 million this compared to a gross margin of $1.5 million in the fourth quarter of 2010. And for the full year 2011 we generated a gross margin of $4 million principally through our ability to operate the Luverne plant as an ethanol plant during its retrofit to isobutanol production. These results also benefited from grants and research and development related revenue of $235,000 in the fourth quarter and $807,000 for the full year 2011.

Cost of goods sold is $15.5 million in Q4 and $60.6 million for the full year wholly related to Luverne's operations. During the fourth quarter, Gevo development which includes our operations of Luverne generated an EBITDA of $1.7 million and for the full year 2011 Gevo development segment operations contributed $3.6 million in EBITDA. Their operations focus at Luverne remains and completing the retrofit in transitioning to isobutanol production in the first half of this year. However the fact that the Luverne facility is continues to contribute to our operating results by continuing to generate additional working capital during the retrofit confirms the underlying strength of those operations.

Research and development expense increased to $5.9 million in the fourth quarter of 2011 compared to $3.4 million in the same period in 2010. The increase primarily includes resources deployed to bring our hydrocarbon demonstration plant in South Hampton site near Houston, Texas up, as well as work in preparing to bring our Luverne plant online in the coming months. As Pat mentioned, this hydrocarbon demonstration plant in Texas is now producing test volumes of alcohol-to-jet or ATJ product under our agreement with the US Air Force.

For the full year 2011 research and development expenses increased to $19.8 million from $14.8 million in 2010. The increase in full year research and development expense reflected essentially the same factors as the fourth quarter that is development and use of our demonstration facilities and preparations for the commercial production of isobutanol in our Luverne facility in the first half of this year.

SG&A expense for the fourth quarter of 2011 increased to $8.9 million compared to $4.5 million for the same period in 2010. The increase is primarily due to compliance costs related to being a public company, preparations to commercialization of renewable isobutanol, legal and litigation related expenses and increased investments in people and related costs to support these activities. For the full year 2011 SG&A expense increased to $28.9 million compared to $23.6 million in 2010. The factors that contributed to increased full year SG&A expense was similar to the factors that contributed to the increase in the fourth quarter.

Included in our operating expenses for the fourth quarter of 2011 was $1.9 million the non-cash stock based compensation. Non-cash compensation for the full year 2011 was $6.8 million, these amounts are allocated among SG&A, research and development and Luverne operations.

After accounting for expense of $1 million we reported a net loss before paying dividend of $14.2 million for the fourth quarter of 2011 and for the full year we reported a net loss before paying dividend of $48.2 million. For the full year 2011, we recorded a negative EBTIDA of $33.3 million, which is in line with the projections that we provided at the second and third quarter conference calls. I will reiterate that that these projections are in line with the projections that we provided at the second and third quarter conference calls.

We finished the year with $94.2 million of cash on hand. Cash on hand included borrowing $10 million under our debt arrangement with TriplePoint Capital in October 2011. These borrowings are used directly in funding the retrofit of Luverne and we increased this borrowing by $5 million in January 2012 bringing the total borrowings for the retrofit to $15 million.

Looking ahead to 2012, as Pat has described we are planning for the transition from ethanol production to renewable isobutanol production at the Luverne facility. This will entitle a brief shutdown period for a couple of weeks to complete the tie in of retrofit equipment and commence start up of isobutanol production. As with any plant start up we anticipate operating in less than full capacity initially.

Projecting plant operations through 2012, which includes ethanol production, the shutdown and the start up of operations at Luverne and the initial isobutanol production is challenging. The based on projected operation at the Luverne facility we anticipate using $10 million in 2012 to support plant startup and working capital needs. One of our key measures will be variance from operating capacity at Luverne and we anticipate being able to give guidance on this metric in the coming quarterly calls.

We do anticipate the Luverne facility will exit the year at or above an annualized production rate of 10 million gallons per year. Moving forward into 2013 operations, we anticipate production and volumes to continue to ramp up to attain full [name plate] capacity. To be clear, we do anticipate shipping renewable isobutanol by July 2012, meeting our targets of commercial shipments to start in the first half of 2012.

Beyond our Luverne operations we anticipate non-plant net spend to be approximately $40 million for 2012, excluding non-cash compensation, depreciation and amortization. This rate of operating expenses is not an increase from the fourth quarter 2011 run rate it is consistent with the fourth quarter. It does give recognition to ongoing resources to deploy Luverne on time resources for near term and longer term market development opportunities for renewable isobutanol and retaining our freedom to operate within the intellectual property landscape. I will now turn the call back to Pat.

All right, thanks Mark. So let's turn back to Luverne I was talking about the 2012 goals we have one goal that's bigger than all the others and that's to get that plant started up. What that needs is we are going to get isobutanol made, put into wheel cars and ship off to Sasol that's where we are focused on. And I will tell you what we are laser focused on this one with our whole team.

I would ask all of you people who met me we've done lots of road shows over the last several months I've asked you how do you want to measure startup progress. Because anyone and if you met me you know my opinion is that startups never go quite right for a first technology fresh out of the gates. Now we feel what we've mitigated things as best we can we picked the Luverne plant why because that plan has never had an inspection in 12 years, inspections when you are doing a bio-processor a big deal.

So I already know that that plant works good now we are retrofitting it. We bought the plant, by buying the plant we put it under our full control so I don't have to have complicated decision making in order to quickly solve problems so we've taken that step. We planned all along to be able to have a start up period that where we have a flexibility, it's been all of our financials throughout all of our filings, so that isn't a surprise either.

So we've asked all of you that what is the what's your recommendation how do we measure ourselves and production run rate is probably the best one as part of the capacity. So by the end of the year where I want to be what I expect to be is at about 1 million gallon per month production run rate and that should be continue to increase in there up to the full capacity. We are going to give more specific guidance at our next guidance as to how that might work.

Now Redfield is interesting that's a joint venture plan. Redfield is a fascinating company they do a great job up there. Those farmers that co-op that we just deal with they have 10 million acres of land that's four times the land of Cosan the largest shipping producer in Brazil just to put things in perspective. The Redfield plant we are looking at it very carefully because we learned that we believe that we can get more capacity from our plants than we originally thought, why is that? Because of our GIFT system our GIFT system has the ability to remove one of the key limitations in ethanol fermentations that is you run up to a certain concentration of production and you hit a wall basically, you can't get more throughput. Our GIFT system removes that limitation by taking the isobutanol out of the fermentation. So working pretty carefully at this and trying to make sure we get it right.

So from both Redfield and Luverne in the long run I expect more capacity than what we previously stated. Second thing is that before I can stay clear to spend money on Redfield I want to make sure I know what I'm dealing with fully on Luverne to be as the right thing to do, plus many of the engineers continue to work at Luverne focused. So we are doing the field registering nearing work rate now we are scoping out the project at Redfield, we are figuring out the size and the bottlenecks of where it might lie. We anticipate construction to commence in the second half of '12 and the plant will be operational in 2013.

Now I said an important thing here I'm going to say it again now. When we did the IPO road show I talked to you all and said that I needed three plants to become EBITDA positive at the corporate level. That's changed, we believe that we can get to EBTIDA positive with Luverne and Redfield plants that are a big deal. I mean half of those plants already are under our control we have deals done with those guys already, our foundation is set and that gives us a whole lot more freedom. So now we just start to think about different business models before I want to own the next one at the joint venture but you know what we might license it those are possibilities now that will start nearing into our business plan. We will be able to get more guidance from that in the next conference call.

We feel good about where we are we've made great progress in those last year reaching all of our milestones. We are feeling pretty good about it. The next piece of work is to get these startups done and I've got through a lot of these plant startups. And there is always something surprising pops up even though we've thought of we put in the featuring, we've done extra capital spend, just try to mitigate everything we could think of, you know so it will be whatever curve balls we get. But I have a great team who has been through this kind of thing before and will be able to solve those problems and jump all over them. So with that let me turn it to questions and answers.

Derrick, do you want to open up the lines for us please.

Sure. (Operator Instructions)

And our first question will be coming from the line of Mike Ritzenthaler from Piper Jaffray.

Good afternoon guys. If you could just talk a little bit more about may be on a quantitative basis on the differences and scope of Redfield versus Luverne. I guess maybe settle it differently with any surprises either positive or negative at Redfield's since your engineers have started to do more of the detailed work.

No, surprises so far. It's more of just trying to figure out the right answer on how many gallons what makes sense and what's the right answer.

And then so over the next couple of calls well we should see more detailed estimate on Redfield?

Yes.

Okay. And on South Hampton it sounds like a lot of the production from South Hampton has been supplying jet fuels market development. Has there been any particular feedback come back from Air Force today or is it more of a formal process.

You know what they are doing the testing right now at the engines actually claim there to be specification for jet fuel.

Okay, alright.

That's the beauty of doing Bio-Fuels are already known and fuels that already known and that we actually have a specification to work again. So it simplifies the problem dramatically from what you would normally expect from some fermentation based process.

And so then from here it would be just certification and it works on the engines as expected.

Right.

And then I guess over the course of the year start to seed more of these other opportunities perhaps there is only being one by allocating some production from South Hampton that's accurate?

Yeah, what's interesting about it is that the steps in order to configure exactly that goes from butanol, butane to octane and octane is what's been made in raw material for even from the jet fuel that also serve as the raw material for para-xylene. So one of the things we have to do with Coco-Cola is work out the exact details of how we are going to scale this up. They are a great partner, super committed I was just down there in Atlanta with them I don't know 10 days or so ago and I would tell you what these are good partners, I like them a lot and it's, that's exciting. And they are committed to drive this into the marketplace.

And then just one last quick one on Mansfield I think the uptick was announced without any specific volumes attached I know that strategically we want to be able to use that as sort a swing volume sort of opportunity. As that agreement matured at all since its been announced or it is more or less sitting in with those kinds of specifications.

Yeah, no I can't give you anymore guidance on it yet but you are right the way we think about it is that we are trying to segment that market properly because isobutanol has very nice performance advantages compared to some of the other Bio-Fuels that are out there with an oxygenate. And how do you capture the value from that we want to do it and get it right same time we want to reserve some capacity for our self test to get another things with for auto immune such. So all of that we take into consideration is that w can effective change and solve whole bunch of problems for people that are depending on us.

Okay, thanks and congratulations.

Thanks, Mike.

Your next question will come up from the line of Ben Kallo from Robert W Baird. Please proceed.

Hi guys. On slide 19, I just wanted to talk about that fourth bullet point there where it's MOU for capacity that comes 70% of your 2015 volume.

Yeah.

Can you give me any kind of detail around that or how are you approaching I guess everyone asks about plant three when are you guys going to do a deal there. Are you kind of thinking you know will get Luverne on track produce maybe we can do something bigger than one planning all at once is that what that should mean there to look forward.

You know I wrote this bullet with you in mind Ben you asked me about plant three and beyond yes that will be a reasonable interpretation.

And then is that would that be under a similar type of JV structure or license and tax agreement?

Well you know I think that one I don't know the answer till yet it could depend on either one whatever one works best. I think there is some attractiveness to do licensing models because then it's not us putting up the capital. But to make the licensing model work we have to be able to show that fact that the technology works. And to that we got to go ahead and get our plant running and have a growing marketplace that people actually is credible and believe in. So those are the things that guide it and at the same time we have this opportunity I mentioned about being advanced that's the real deal.

Where the interest has been surprising in that people generally believe this is a surprise to me that advanced RINs are going to be here to stay, they are going to have a value. I know that all of our peer companies have been counting on them we've never put them in our business model. So I think that that's a probable that it could occur. Isobutanol is interesting as it get to being easier than building brand new Greenfield plants that are interesting. But I got to tell you that the way that it has to work is that if the customer wants to put up the deal to make it advance then it's attractive for us because we ourselves won't put up that capital. I would probably think of that.

Right, so we can see that Luverne.

Yeah, probably you can do it. They're all telling me to shut my mount.

And then with I thought I heard you say that Luverne would start production in the first half of deliveries in July.

Well we are going to start shipping product you know the, we will start shipping product to Sasol in the June July timeframe.

We should have said by July Ben.

Okay, great. I will hop back in queue.

Yes, there is no surprise in such factors it's actually just sticking to the schedule we had previously published and the weather Gods have been kind to us in so far and everybody who has a piece of wood norm should now knock.

Okay great.

Your next question is coming from the line of Tim Arcuri from Citi. Please proceed.

Hey it's Stat for Tim.

Hey Stat.

If you could just remind us and refresh us on the plans for capital in terms of kind of what you need here for the next 12 months or so and plans for funding the next round of projects anything else?

Sure, we even looked back at the idea of where we told everybody that you know we need about $75 million to raise -- we have to raise $75 million at least in 2012, that hasn't changed. And the way we are thinking about this is we will raise, we got to go ahead and raise it I mean that's just a fact of life in order to get the number of gallons to get to breakeven. So everyone has known that and people talked about it as an overhang on our stock so I think it's pretty well publicized. So we will be putting together definitive plans here we've already been working on it and the way that we will think about this is that we are going to do thing that possibly at least from our solution and gets the job done effectively. Mark if you want to add anything or Brant do you wants to add anything to this.

I think the point there is that we will continue to monitor markets first from an equity perspective as we've talked about a lot of the debt is also a potential opportunity for us primarily around the structure of the contracts that we have with for example Sasol and the board agreements we have with LANXESS. Thus we will monitor markets in both those front and continue in excess and patent as efficiency.

Yeah, I would just reiterate that the primary objective is to reduce the cost of capital as much as possible.

Great thanks.

We will be tribute, we are going to be transparent we will see to be transparent as we go through this.

Your next question is coming from the line of Colin Rusch from ThinkEquity. Please proceed.

Hello gentlemen it's Noah Kaye in for Colin who sends his regards from a plane 10,000 feet in the air.

Thanks.

So I just wanted to first ask about your comments about the big deal with Land O'Lake Purina you talk about enhancing the value of the iDGs so can you give a little bit more sense I think it would be interesting to hear about, you know what kind of a premium you might be able to realize and reduce your net cost.

Well let me give it a broader perspective this is the fundamental difference between us and lot of our peer companies. We are in the position in the value chain as a primary processor meaning that we produce our own sugars for fermentation as compared to being an over the fence buyer of the sugar. Now what's interesting about that is that we are taking even the agricultural raw material such as corn it's fractionated and we are able to separate the protein and the oils out and leave the carbohydrates and using the carbohydrate to do the fermentation.

Simple things are just managing the quality effectively not everybody can do that when you have a giant plant that's 100 million gallons that's a little bit tricky. We have a nice sized plant here in Luverne where we could do those sorts of things so we could tailor it specifically to what cream I might need that's a simple example. Future examples this is now speculation of the types of ideas will be that you can enhance certain types of amino acids or even certain types of trace chemicals that make value added wheat products but you have to have it waiting to go to market. That's the kind of things we think about Purina. So as first job is to get that plant running, get it up get our stuff produced and shipping gets ourselves stable and then start to optimize.

Sure, sure that's very helpful. I just wonder if you would also touch a little bit on the latest patent for anaerobic fermentation I guess specifically the interesting thing to know is the how much does this block off potential pathways both for iso and for n-butanol.

I think that when you look at our portfolio, we have 300 plus patents in our overall portfolio. We have the earliest patents on PDC, which there is this harsh amount of ethanol and yeast is something that we patented with early priority days I think it dominates everybody else who went into this space, who wanted to do this in yeast by the way not this is going to apply to all books but to yeast.

We have earliest priority dates on several of the key inventions on how to do the optimization of the yields and then how to do the switch with the anaerobic is tends to be a little bit more specific. So we are in a good patent position we have several more patents that are coming down the pike here that are pretty interesting, it will open people's eyes. And I feel pretty good about where we are its GIFT patent the fundamental patent it covers very broadly the different separation technologies to get the glued alcohols out of fermentation process. And in the basic principles that we use it covers more than one alcohol. So it covers all the butanols, the propanols, the hexanols and pentanols so that's kind of interesting too.

Right well thanks so much congrats on the strong execution this quarter.

Thank you.

We have a follow up question coming from the line of Mike Ritzenthaler from Piper Jaffray. Please proceed.

Hey guys, just one last question here. Are there any assumptions in the EPS calculations that you submitted for the advanced Bio-Fuels that would require additional CapEx or OpEx.

Not for us, we do this truly is that we have a customer who is willing to pony up the dough either through a guarantee contract or a actual capital deployment. Then we would pursue it otherwise we wouldn't do it.

Okay.

I'm not going to speculate to the risk and put up more capital. So we in much more of we are in the trained ascending with the group.

So it's just sort of a methodology that will open up other potential end markets?

It is and it's interesting because remember when we redid the IPO I was bound, I had to have three plans right had to and everybody knew it that means the third guy was sitting there are going to play games. Guess what we figured out how not to have to have the third plan that's a big deal. So now I can do a lot more flexibility we can go big or sooner this is what Ben was asking about he said you do what you want but you talked about this even in the last earnings call. Is that now the focus is get these market seated and this game moving forward, get all the products proven out, show that the fuels work properly and get out of light unless playing a new game and get moving.

Perfect. Thanks.

Your next question is coming from the line of John Quealy from Canaccord Genuity. Please proceed

Hey guys, do you have me.

Yes John.

Hey John.

Hey, so let's go back to Luverne if we could so you guys seems very confident on the startup of this if there is a chance that things get to later what are you focusing on when you starts up when you fill the tanks when Sasol takes it what's the riskiest part of that chain as we get to July.

I have one focus in life and this is the foot commercial quantities of isobutanol into rails cars that's the only metric I care about internally.

Okay and then the other part.

Sorry, let me example because that drives everything right because I had, they have large quantities it went through the whole plant or it doesn't exist and it has some quality specification attached to it. Right, so that's how we are focused.

In terms of the uptake with these guys once they start receiving they are going to receive formally or how should we think about that as we go into '12 and '13.

It will ramp upwards in '12 and in '13. In '12 it's going to be however we deliver it they are a great partner in super flexible and they've been through plant startups themselves so they know that things could be lumpy initially we know that. And so part of the planning that we've done is to make sure that we don't screw up anybody in the marketplace and our customers we have good partners.

Okay and then my last question about the Butamax litigation et cetera so Luverne up and running, Redfield is coming on strong no plant number 3 and this thing is working. Does this change the strategy and litigation i.e. cross licensing or is this just going to go down to the final bout in April.

Well I can't you know what in any kind of -- I can't comment on any specifics. But I can tell you that we are always open minded and that it is if you are not talking about Butamax and us in particular but if you just looked at the sooner way of how lawsuits get settled usually they get settled before having to go to a nasty trial it's one way or the other. You know it's about business in the end and everybody is pragmatic about that and we have a strong patent portfolio too.

So I do want to come back to one other point that you guys asked me about and this is something that you will hear us talk more and more about so this isn't quite directed at your questions. What if it has been what Mike was asking us too if that I want to shift I'm talking about plants to gallons. So you are going to hear us stop talking so much about plants like plants three or four whatever and you are going to hear us talk about accessing gallons because that's actually what we care about. Because the cheapest gallons that I could acquire could very well be on Luverne plant by expanding it or on Redfield by expanding it, it puts it under more of our direct control and that's how we want people to start to think about us. And then also offer enough opportunities and options as you bring another partners.

Thanks, guys.

Thanks, John.

Your next question is coming from the line of Pavel Molchanov from Raymond James.

Hey, thanks for taking the questions. Originally you've talked about gross margins under your off-take agreements in $0.50 to $0.80 a gallon range anything changing in that regard or are that still what you envision as you move towards firm off-take.

That has not changed at all the only evidence we have is the fact it's actually a little higher than $0.80 so far. But I think that's you know the fact that we are doing Specialty Chemicals in a certain circumstance and you know, so I think $0.50 to $0.80 the right thing still.

Okay, what are the things that did change since you talked about the $0.50 to $0.80 a gallon range just the fact that natural gas went from $5 down to $2 and change who captures the savings from the cheaper gases you guys or is it your customers?

Under the contract formulas that we have actually we capture that cheaper net gas although that's not a, that's well the second most the energy is the second most significant cost in producing isobutanol to feedstock just the formula and the results to primarily driven by net carbohydrate costs.

Okay.

So the way that formulas have been set out is that we benefit from it.

Understood so it's not that's the source of upside to the $0.50 to $0.80.

Yes and that would be and you know these like I say the Sasol agreement is a little better than the $0.80 anyway and that covers a majority of our capacity over the next couple of years.

Well I think Pavel as the other way to think about the broader benefit of that natural gas weakness is the continuation of the switching of the crackers from natural gas like woods and the macro driver that's causing the structural short in C4s broadly speaking, which drives our demand i.e. our customers like LANXESS needing an alternative supply.

We are planning for the future so it is interesting. So natural gas helps us both in production front and strategically in the marketplace and the ethanol industry. The ethanol industry is a great job building up a base of plants but we should think of those plants as not ethanol plants but a general fermentation plant that can be used to make different products.

Okay.

And as opportunities become more available to as that industry troubles.

Understood well last question from me you know we all number of your peers like both competitors have been talking about going overseas to pursue potential projects I feel Latin America has caught a lot of interest some folks going to Asia as well. Is that anything that you have on you radar screen.

Yeah sure it is. And it's a question of when we start to get a card up along so I could constantly tell you what's going to happen. But as I mentioned LANXESS is in same part we just expanded the relationship to include that plant. And so it is true that we could shift stuff probably from US, Central US pretty cheaply get over there but it might make more sense to make it nearby. So we are starting to sort those things out. Here is an interesting fact that is for people are that this Redfield co-op has 10 million acres.

They actually produce more carbohydrate than the biggest sugar producer in Cosan in Brazil. They have four times more land in Cosan. So people forget that how big things are here and how capable the business is from here in the states. But we are paying attention to that because we are not trying to do these specialty products for the longer or trying to play the big game and recognize that these products that perform well, compatible industry infrastructure, existing supply chains and we want to be able to leverage existing capital both upstream and downstream.

I appreciate it, guys.

One of the things I want to point out is that on our radar screen is cellulosic we are total believers that cellulosic are going to happen and the way to think about it is that it enhances the pool of carbohydrates. We are indifferent pretty much to whether it's a cornstarch or wheat sugar, cane sugar or cellulosic sugar and we need to have some particularly good opportunities for cellulosic sugars.

Your next question is coming from the line of Brain Gamble from Simmons and Company. Please proceed.

Hey Brian, how are you?

Doing great guys. How are you guys doing?

Good, good.

Good results, good call I appreciate the questions I had I just have one on the plants getting down from three plants to two developments to need to go positive obviously a huge positive. What's has changed in the economic front you mentioned natural gas prices coming down slight, you mentioned also the capacity growing could you quantify the capacity growth, that you actually had Redfield specifically that you mentioned and any other factors that allow you to be confident in that EBITDA breakeven with just the two points.

I don't want to quantify it just yet though but you could kind of do the math and speculate. In that you know what our burn rate is et cetera. And so it's one of these things where I don't want to get box into a number before I'm ready because I have to have a little more information to figure out what makes the most sense.

Look Brian part of the driving core decision is better than infected economics on majority of our volume which is going to Sasol. So that certainly helped the math in addition to the increased capacity.

So you know Pavel asked earlier about it is $0.50 to $0.80 still a good guidance and it is because we tend to be more on the conservative side but as Brant just said it's more towards the eastern side.

Alright, sorry that it was that way I mean that was something new the plus $0.80 as it means that a new item that you just get in to look more profitable.

Right, so what we are figuring out is that we are looking at the bug we are looking at the ability of how to manage these plants looking at some of the technologies that we can deploy, wrapped in ourselves how best we maximize returns on these assets and it's interesting because we had way more flexibility in these business systems than what would be conventional in that.

If you take all the benefit while the cool things that we've done with ethanol that make isobutanol steady. For instance one of the things that we look at is industry related how we interact with Purina who deals with them and others that you can do it right what's called a fractionation up front to the fermentation. So that's kind of interesting because what you can do is first you separate the carbohydrate from the protein that goes into the fermenter. That allows you to sell the value added animal feed stream but it also gives you more room and the fermenters should get more capacity.

Now ethanol plants are limited by either if you did that in ethanol plant you could get a little bit of a boost in productivity but we can get a major boost because we are removing the butanol form so there are no inhibitory effects during the fermentation. That's one of the benefits of a GIFT system and it solves one of the fundamental problems of producing alcohol through isobutanol.

I love this Coco-Cola deal and I think it's great visibility in addition with brand recognition standpoint. Can you quantify the 1.7 billion servings on a day on a gallons basis or what did actually need from some players like you guys to make that point a goal.

You know what I can't that's like that's complicated math man.

I agree but my point being that you know they are going to need a lot of products you guys need a little bit of money I think you should go to them and 75 million if there is.

My God and you are not the first suggest that either.

I mean that's the thing like an (Inaudible) present if they really want to hit that goal at 2020. Lastly, just quickly the cost of the ATJ did you mention what that total cost all the way it was.

Yeah do you mean as a demo plane or out in the long run.

No, just as that demo plane.

We sell them to the Air Force for about $59 a gallon.

Which covers the operational as well as capital thoughts of that.

Yeah, that restricts variable capital.

Okay perfect. Okay, I appreciate it.

Your next question is coming from the line of James Medvedeff from Cowen & Co.

Good evening.

Hi.

On the last call you mentioned that Sasol was sampling the product with its customers.

Yes.

And so how did that work out are the customers excited about it are they buying it and where are you delivering to Sasol from?

Well it will come out of Luverne and we have to figure out which port is a go to from Luverne and if the sampling has gone well we have with Sasol we don't we aren't interacting with Sasol's customer we just interest with Sasol, Sasol is excited.

But this the small quantities that you are shipping to Sasol where are those being made.

We made those in for the bio based one we made those in St. Joe, Missouri.

Okay, so is that ongoing today?

No, we just made sample quantity so that we could, everyone could validate in fact that really was isobutanol exactly the same as the other kind of isobutanol made from petroleum.

Okay and when you talk about the 1 million gallon per month exit rate for this year that's kind of just a little bit over half of what the name plate of what the reduced name plate capacity is. When do you anticipate that being up to full 18 million.

I will give you guys on the next conference call when I know a little more about what I think the certain problems might be or what's going on. Right now I could say a number I'm confident that 1 million gallons a month rate. We've talked about and beat that up against our team and threw it against the wall we feel pretty confident about it. I will give you better guidance next time.

Okay, would we anticipate well I think it's a move question but would we anticipate a similar sort of ramp in period at Redfield?

No when we have something under our belt to know what the problems are and the gotcha's are we can avoid them. And so usually the second plant starts up way, way, way better.

Okay, final question do you have any hard information from ASTM. You say that it's on track for certification I think that's mid next year. But is there any interim milestones or interim reports or things like that that are being hit or is it just you haven't heard anything bad no news is good news.

No, because I'm going (Inaudible) and the committees meet a couple of times a year and then the committees both move things forward through the process and so we don't have any surprises to stop it straight forward it's a relatively defined process. In the group that is doing the ASTM interpretation are all companies are doing ETJ I guess there is a whole bunch of folks that are keen on making sure it gets figured out sooner rather than later.

We remain in the lead of that group and one of the larger challenges in fact that they only meet twice a year.

So in that way so Glen Johnston is our regulatory guy he is the Chairman of that group.

Okay, thank you. We will talk again soon.

Your next question is coming from the line of Gregg Goodnight from UBS. Please proceed.

Good afternoon gentlemen.

Hey Gregg.

Hey Pat it tends like you are targeting volumes perhaps in the 5 to 7 million gallon range from Luverne this year is that a good way to think about it?

I looked it over to Mark, Mark nodded and said yes.

Okay and with respect to your $0.80 a gallon, $0.50 to $0.80 a gallon margin range I assume that you don't have a fixed margin that if you have some volume variance that you would heave out. So you are expectational margins for the first year is certainly going to be lower than the say $0.80, which might be a longer term target.

Yeah I would say the $0.80 is the number that you plug in once we are lined out and when we are doing a plant startup is that we take it even steps to make sure that suppose for instance we have a hiccup in a fermentation. We could make isobutanol but we have an impurity that we got to take care of we set it up for instance on process to make sure that we can get rid of that impurity before we ship it out. And it will eat up some margin too so I much of that I have to do yet I don't know I got to go run this one at Luverne and see what things I don't know about. And so we've anticipated that stuff it is in our business plan.

Okay, second question your LANXESS agreement it's I believe they have a sort of a hard start in terms of getting their isobutylene up, which corresponds to the 2014 conversion of the ethylene plant to light feeds. And my question do you are in your agreement with LANXESS do you have a targeted percentage of if the supply that you are going to fill I assume they are going to have multiple suppliers. But I mean what are the reasonable long-term expectation in terms of how much of their requirement are they going to need from you guys?

You know what they've said publicly is that they are over as they ramp up overtime they would switch it over completely. Now that depends upon the overall cost. And so but they are sizing they are thinking as to me what they are working on is the engineering and sizing of their butylenes plant to cover their whole rubber capacity.

Okay, very good. Could you explain the expanded relationship to include Southeast Asia does that imply plants in Southeast Asia or does that imply shipment of materials from the US stage.

In a long run that implies that we think there is a right opportunity in Asia.

Okay.

That's what it implies in the near term you might serve as little bit from North America but really keep carbohydrates because they are we do think of it as locally grown regionally produced and covered. That's how they have to be done to get into a liquid form for transportation.

Okay, the last question I had is with respect to your jet fuel pilot plant. I know you have the flexibility or at least a sighting of a possibly putting in the para-xylene a pilot plant next to your jet fuel pilot plant. What are the potential timing and cost of that and will you guys have to bear all the cost for that development unit.

You know what those details are we have, we will do them in conjunction with our good partner Coke and sort that out. And you are right you've been to that facility so you know that has a pad set aside for it.

Yeah, could those your existing pilot unit has the adaptability where you could make para-xylene and that I mean you are going from (Inaudible) station it seems like you might be able to use that unit. It might be flexible enough to produce para-xylene.

Well you know what there is we have an interesting technology and that we can do a very high yielding conversion with high selectivity to make para-xylene. It's a normal process of course is to do what's called a BTX Benzene Toluene Xylene process you get it mixed up with three. Here we have a technology because our products appear and we can control the way the Octane is produced stereo selectively we are able to convert that to very high yield that offers potential because that allows a lower capital business system to be set up. So that is an interesting question and we it has potential of course you get out to the BTX process already first in place in large quantity of the feedstock. So there are two ways to go about it build some special which I kind of like that idea or we could just supply the Octane to someone who does BTX.

If I could sneak in one more the 200,000 gallons for the Air Force what percentage of that will be filled by the end the year.

We haven't given guidance on that we are doing the initial testing and based on the feedback and results that we get we will go from there.

Hey Gregg, this is Brant. I want to clarify one thing about the LANXESS relationship in Sarnia, Canada. For that facility we would anticipate supply to half their isobutylene need that's the scale of their engineering work on the dehydration unit.

Okay, very good. Thanks a lot Brant.

I show no further questions in queue I would like to turn the call back over to Mr. Pat Gruber for any closing remarks.

Alright, I appreciate you all sticking with us through this conference call and listening to it. I appreciate your attendance and I appreciate your support. And I will look forward in meeting those of you I haven't met. Thanks a lot.

Ladies and gentlemen that concludes today's conference. We thank you for your participation. You may now disconnect.