Tyson’s Partner Syntroleum At A Crossroads

by Kim Souza ([email protected]) 50 views 

Tulsa-based Syntroleum Corp. recently retained Piper Jaffray & Co. to assess the potential strategies to raise shareholder value. On the table is Syntroleum’s 50% interest in the Dynamic Fuels joint venture it has with Tyson Foods, Inc.

Syntroleum noted in a recent filing with the Securities & Exchange Commission that the timing is ripe for cashing in its interest in the Dynamic Fuels plant in Geismer, La., that has sat idle since last fall burning cash at rate of $1 million per month each for Syntroleum and Tyson Foods.

The cash burn rate is based on fixed costs of $2.5 million — roughly $2.1 million of that are cash expenses and $400,000 in depreciation.

Piper Jaffray is assisting the company with evaluating all of its alternatives and the firm said there can be no assurances that any particular strategy will be recommended by the board of directors or undertaken or, if so, upon what terms and conditions.

Syntroleum said the margins in renewable fuels gas-to-liquids production are near historical high levels.

The Dynamic Fuels plant joint venture with Tyson Foods has been a disappointment to both parties in terms of payback as the plant was idled more than nine months ago. Though the plant is the first and only one of its kind, there have been ongoing difficulties since coming online in November 2010. The plant uses chicken fat to make renewable fuel, which can be used in aircraft and trucks.

Each of the partners committed $75 million toward the $150 million renewable fuels plant venture. They secured $100 million in low interest — 1.3% — government bonds provided to ventures that created jobs in Louisiana. At the plant’s peak, it was to employ 75 workers. The balance of the $150 million was contributed equally between the two partners.

There have been glimmers of hope since 2010, at one time providing test fuel for the U.S. military and a deal in February 2012 to provide renewable diesel to Norfolk Southern Corp.

During September and October of 2012, the plant produced 8.8 million gallons of renewable fuel — running at roughly 71% capacity levels.

But that came to a halt when the plant was idled in November for deteriorating margins. The parties also invested $7.3 million for a new catalyst, which was delivered and installed at the plant by June 28.

Syntroleum said in May that it will cost about $20 million in working capital to restart the plant, most of which is the investment in feedstock.

Yellow grease, the main feedstock is about 45 cents a pound, tallow is slightly higher and chicken fat is about 42 cents a pound. The plant uses about 1.6 million pounds of animal fat per day. A 30-day supply of feedstock runs around $20 million at these prices.

At those feedcosts, the cash margins were just under $1 a pound.

Syntroleum said in May the plant would likely be restarted in mid-to-late July following the new catalyst installation. The recent filing with the SEC indicated no set date for restart.

Analysts have said Syntroleum has gambled big on the success of the Dynamic Fuels venture and every day it’s idle is a concern because of the cash drain.

Both companies are expected to report earnings next week, Tyson Foods on Monday, Aug. 5 and Syntroleum on Wednesday, Aug. 7. The media will ask executives next week for more details on the future of Dynamic Fuels, as both companies refrained from comment during their quiet periods.