REG produces record 519 million gallons of biofuel in 2020

By Erin Voegele | February 26, 2021

Renewable Energy Group Inc. released fourth quarter financial results on Feb. 25, reporting the company produced a record volume of biofuel in 2020. Company officials also detailed adjustments it is making to correct an error related to fuel blending.

"REG’s resilient business model enabled us to deliver strong financial results, with $120 million of net income from continuing operations available to common stockholders, supported by record production, despite the array of externally driven challenges we faced in 2020," said Cynthia (CJ) Warner, REG president and CEO. "In the face of the pandemic, we were able to adjust operations to ensure safety while fulfilling customer demand for our essential transportation fuels. We used our flexible feedstock approach to sustain margins and profitability even as the pandemic dramatically impacted feedstock supply and pricing. The adjusted EBITDA of nearly $200 million exemplifies the soundness of our strategy and underscores our belief that REG can sustainably deliver earnings over the long term."

"At REG, we are continuing to build on renewable energy's positive momentum and on our track record as a leader of the transition to sustainability,” she continued. We expect robust demand for renewable diesel and biodiesel to continue into 2021, benefiting from economic recovery combined with strong public support for an option to decarbonize that is available now. We are confident that our focused strategy and expansion plan will deliver long-term success and significant value for our shareholders and other stakeholders."

REG produced 129 gallons of biodiesel and renewable diesel during the third quarter, an increase of 13 percent. The increase is attributed to more favorable market conditions, including the biodiesel tax credit (BTC) certainty when compared to the fourth quarter of 2019. European biodiesel production was up 20 percent and North American biodiesel production was up 19 percent. Renewable diesel production at REG’s Geismar facility was down 9 percent due to unplanned downtime in December.

REG sold 151 million gallons of fuel during the fourth quarter, down 1 percent. Product mix improved, largely due to a 6 million gallon increase of self-produced biodiesel in North America and a 2 million gallon increase of self-produced biodiesel in Europe. Those increases were offset by a decrease in low-margin petroleum diesel of 6 million gallons and a decrease in third-party North American renewable diesel of 2 million gallons. Gallons sold of self-produced renewable diesel also fell by 2 million gallons.

For the full year, REG produced a record 519 million gallons, up from 495 million gallons in 2019. North American and European biodiesel production were up 5 percent and 7 percent, respectively. Production at the Geismar plant increased 2 percent, reaching 87 million gallons.

REG sold 651 million total gallons, a decrease of 7 percent compared to 700 million gallons in 2019. The decrease in gallons sold is mostly attributable to intentional decreases in lower margin product lines, including petroleum diesel, down 49 million gallons, and third party North American biodiesel, down 16 million gallons. These decreases were partially offset by gains in the company's North American biodiesel business, up 10 million gallons, and European business, as European renewable diesel and biodiesel sales increased by 5 million and 5 million gallons respectively. These changes are partially a result of the company's increased biodiesel blending strategy.

During the company’s fourth quarter earnings call, Warner discussed a problem discovered with the diesel additive system at REG’s biodiesel plant in Seneca, Illinois. “In preparation for the standard IRS audits of our 2018 and 2019 biodiesel mixture excise tax credit, otherwise known as BTC filings, we discovered that our Seneca Illinois biorefinery had fewer gallons of petroleum diesel blended than we had expected and that would be required for the volume of B99.9 that we have sold,” she said.

Warner explained that the BTC credits are realized at the point of blending, when B100 is blended with at least 0.1 percent petroleum diesel, creating B99.9.

“We promptly self-reported the discovery to the IRS and launched an internal investigation,” she continued. “What we learned was that the diesel additive system at our Seneca bio efinery, and unique to that plant, was periodically not including the 0.1 percent petroleum diesel in certain gallons sold as B99.9.”

As a result, some of the gallons sold as B99.9 were actually B100. “We are confident that in keeping with how the product is consumed any B100 gallons that were incorrectly sold as B99.9 were eventually blended with petroleum diesel by our customers,” she said. And accordingly, the issue with these gallons is not whether the gallons qualify for the BTC, but what entity is the appropriate taxpayer to claim the BTC.”

REG reached an agreement with the IRS on Feb. 23 on a $40.5 million assessment, excluding interest, to correct the Seneca BTC claims. The assessment covers tax yeas 2017, 2018, 2019 and the first three quarters of 2020. Warner explained REG is working with customers, and in some cases, its own internal entities, to re-file and claim the credits properly. “We are engaging with relevant customers to recover as much of the $40.5 million as possible,” she said.

REG is also implementing additional policies and controls to ensure that the required blending takes place and that the company properly files for the BTC. For the Seneca facility, Warner said REG is limiting the loading to modes where the existing system is known to be functional until the system is redesigned. The company has also implemented a control system calculation and read-out tool that enables the load operator to validate that the proper number of petroleum diesel gallons is added to each load and is performing weekly reconciliations to validate that the volume of diesel used matches the volume that was required for blending. “We are disappointed in this situation and take full responsibility for it,” Warner said. “Since learning of it we acted decisively and have our hands around this matter. Our system-wide investigation in addition to our stepped up assurance processes give us confidence that this isolated incident won't be repeated."

REG reported revenues of $548 million for the fourth quarter, down $454 million when compared to the same period of 2019. Gross profit was $66 million, or 12 percent of revenues, compared to gross profit of $529 million, or 53 percent of revenues from the same period a year ago. Net income available to common stockholders as adjusted was $27 million compared to a net income of $49 million in 2019. Adjusted EBITDA was $46 million compared to $64 million in the fourth quarter of 2019.

For the full year 2020 revenues were $2.1 billion, a decrease of $488 million, or 19 percent. Gross profit was $268 million, or 13 percent of revenues, compared to gross profit of $514 million, or 20 percent of revenues in 2019. Net income from continuing operations available to common stockholders was $120 million, or $2.76 per share on a fully diluted basis for 2020, compared to $364 million, or $8.61 per share on a fully diluted basis for 2019.

A previous version of this article incorrectly referred to REG's third quarter financial results. 

 

 
 
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