November 2, 2008 at 4:54 pm #3344
Ethanol giant VeraSun declares bankruptcySkyrocketing corn costs one factor
By ABIGAIL McWILLIAM , Messenger news editor and The ASSOCIATED PRESS
POSTED: November 2, 2008
VeraSun Energy Corp., the nation’s second largest ethanol producer, is seeking Chapter 11 bankruptcy protection after skyrocketing corn costs and a deterioration in capital markets left the company short on cash.
VeraSun, which has 17 ethanol plants including one in Fort Dodge, said it was working with lenders and expected to reach an agreement on additional financing to fund normal operations before a court hearing scheduled for Monday. The company, which produces about 13 percent of U.S. capacity, said it plans to resume operations during the Chapter 11 proceedings, and it doesn’t expect to reduce raw material purchases. The announcement was made late Friday.
Despite the financial woes, the effect in Fort Dodge is anticipated to be minimal.
“I don’t expect this to have a ripple effect at our plant in Webster County,” said David Fierke, Fort Dodge city manager, “This is one of their newest and most modern plants that they have.”
In 2007, VeraSun received a $1 million tax incentive from the state in order to develop the technology to extract corn oil from the ethanol byproduct, distillers dried grain. That oil was expected to be sold to a biodiesel refinery.
The plant said the new process would create 14 new jobs, paying an average of $16.60 per hour at the plant. It would also represent a $30 million investment in processing machinery. The company also received $200,000 from the state’s Value Added Agricultural Products and Processes Financial Assistance Program to build a 1,300-ton-a-day corn oil extraction facility in Fort Dodge. Half of the funds were to be repaid within five years on a low-interest loan. The other half would be forgiven if VeraSun created the 14 jobs.
To date, that facility has not been built.
”Today’s filing allows VeraSun to address its short-term liquidity constraints as we navigate historically challenging market conditions while we focus on restructuring to address the company’s long-term future,” Don Endres, VeraSun’s chief executive, said in a statement.
VeraSun said it had significant losses in the third quarter due to a ”dramatic spike” in the cost of corn it turns into fuel. The company also said the capital markets and a tightening of trade credit placed ”severe constraints” on its liquidity.
The Brookings, S.D. based company, founded in 2001, went public in June 2006 amid perfect market conditions. Corn was cheap, gas cost a bundle and refiners were clamoring for more ethanol to use as a cleaner-burning alternative to the additive MTBE.
But skyrocketing corn costs began cutting into ethanol producers’ profits, and many tried to use hedging to control costs. Hedging sets future prices for corn sellers, while helping buyers avoid the risk of volatile price swings by letting them lock in at a set cost.
After VeraSun locked into prices for its feedstock for the third quarter, corn went into a sharp decline from almost $8 per bushel to a low of less than $5 per bushel in mid-August.
After a mid-September announcement of an expected third-quarter loss of $63 million to $103 million, the Sioux Falls-based company tried to raise $20 million in a public offering. VeraSun canceled the offering after several companies expressed a ”strategic interest,” it said.
The nation’s 177 ethanol plants have the capacity to produce about 10.9 billion gallons annually, according to the Renewable Fuels Association. VeraSun’s 16 biorefineries can produce 1.4 billion of the renewable fuel each year, second only to privately held Poet LLC.
Bankruptcy reports started moving across financial news wires Tuesday when Debtwire, which covers distressed companies from early stages of financial distress to Chapter 11 filings, stated that two unnamed sources reported that VeraSun, one of the largest manufacturers of ethanol in the nation, was filing for Chapter 11.
After news of the possible Chapter 11 filing was released Tuesday, VeraSun’s stocks fell from more than $1 to 73 cents and to 49 cents on Wednesday.
Contact Abigail McWilliam at 573-2141 or email@example.com
November 24, 2008 at 12:06 am #6438
More Bad News for UCBs Partner in Ethanol Refinery
By Richard Brenneman
Thursday November 20, 2008
Despite a wave of bankruptcies and canceled or stalled refinery construction, the ethanol industry got some good news this week. But there was especially bad news for one company with financial ties to UC Berkeley and Lawrence Berkeley National Laboratory.
Pacific Ethanol, which is partnered with the federally funded Joint Bioenergy Institute (JBEI) to build a new ethanol refinery, announced Monday that it had been forced to re-state its financial results for the quarter ending Sept. 30 by claiming an additional $14.3 million impairment charge on top of a previously reported $26.6 million sum.
Both result from the companys decision to halt construction of a plant in the Imperial Valley. The new costs come on top of other losses caused by high corn prices, and take the companys quarterly losses to $69.2 million.
The company had delayed the previously scheduled release of its quarterly statement to recalculate its balance sheet.
While the company had reported a $28,000 profit for the first nine months of 2007, during the same period this year Pacific Ethanol reports losing $112.7 million.
The companys stock was trading at 62 cents a share Wednesday afternoon, its lowest rate for the past year and well below an all-time high in the $32 range three years ago.
JBEI, which is headed by UC Berkeley/LBNL bioengineer Jay Keasling, is one of two major crops-into-fuel programs now under way under the UC Berkeley banner. Other JBEI partners include other UCB energy labs and UC Davis.
JBEI was funded by a $135 million grant from the federal Department of Energy, and the federal agency has put up $24.3 million for a Pacific Ethanol plant in Oregon that would transform plant fibersrather than sugarsinto ethanol.
The second program is the Energy Biosciences Institute (EBI), a $500 million program based at the lab and the University of Illinois Urbana-Champaign. EBIs proposed headquarters, the yet-to-be-built Helios Building at the lab, has been placed on hold by the university pending a redesign.
The good news for ethanol producers comes in the form of a new federal regulation which raises the amount of ethanol targeted for use in the American gasoline supply from this years 7.76 percent requirement to the 2009 figure of 10.21 percent.
The new requirement will raise ethanol consumption from 9 billion gallons to 11.1 billion.
But the ethanol industry remains in turmoil, with the Des Moines Register reporting Wednesday that at least 16 plants are in various stages of bankputcy proceedingsincluding five in Ohio, which has the largest concentration of crop-to-fuel facilities.
November 24, 2008 at 12:07 am #6437
Here is update on Ethanol Industry – JBEI & Pacific Ethanol are in trouble along with US 2nd largest producer & 16 other ETOH plants in wave of bankruptcies or stalled construction.
Despite all problems some good news from the industry (bad for US consumer & tax payer) comes from stupid Fed regulations increasing ETOH percentage in gasoline from 7.76% to 10.21% in 2009 (means the production would need go from 9 to 11 billion gallons ETOH). This could turn out to be a paper move unless the US imports ETOH (which defeats purpose putting ETOH in) because US Corn crop production is down, plants are bankrupt/shutdown and public is wise to both decrease mileage and taxpayer subsidy required. And with US gas prices less than $2/gallon instead $3.5-4/gallon…. the subsidy required for ETOH gets much larger at time when subsidy is being phased out for established plants (which is why they are going under).
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