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Sundrop announces $450M biofuels project in Louisiana

| November 25, 2011

In Colorado, Sundrop Fuels announced that they have agreed to purchase about 1,200 acres of land near Alexandria, Louisiana to build their first plant.  Using forest waste and hydrogen from natural gas, their plant will produce up to 50 MGy of renewable gasoline.  The plant will cost $450 to $500 million to build and will be financed in part through the sale of tax-exempt Private Activity Bonds.

The biofuels plant will salvage wood waste from renewable forests in Central Louisiana and adjacent regions and use that biomass as a feedstock. Sundrop Fuels also will extract hydrogen from abundant supplies of Louisiana natural gas, combining the hydrogen in a proprietary reactor with carbon extracted from wood waste. The result — up to 50 million gallons of fuel a year — will represent the world’s first renewable green gasoline that’s immediately adaptable to existing pumps, pipelines, engines and transportation infrastructure.

By 2020, Sundrop Fuels expects to produce more than 1 billion gallons of renewable fuel annually through its process (including but not limited to its Louisiana facility), meeting nearly 10 percent of the federal government’s stated goal for renewable fuels refined from cellulosic material and other alternatives to crude oil.

Economic impact

Colorado-based Sundrop Fuels will create 130 manufacturing jobs and 20 research and development jobs in Louisiana, with construction of the facility beginning in 2012, hiring beginning in 2013 and full commercial operation starting in 2014. Pay at the biofuels facility will average more than $58,000 a year, plus benefits. Because of the refinery’s broad use of suppliers and support industries, Louisiana Economic Development estimates nearly eight indirect jobs will be created by the project for every direct Sundrop Fuels job.

Oklahoma City-based Chesapeake Energy Corp., which holds the leading position for natural gas reserves in the Haynesville Shale in Louisiana, has provided major investment backing for Sundrop Fuels. Other investors include a pair of major venture capital firms, Oak Investment Partners and Kleiner Perkins Caufield & Byers.

The Louisiana deal

LED’s Lead Development Group identified and began actively cultivating Sundrop Fuels in early 2011, and the Alexandria area emerged as a promising location because of its access to major electrical and natural gas supplies and because of the abundance of wood byproducts the region boasts. The state’s targeted incentives for workforce training and research and development helped Louisiana win the project over several other states in the South and Southwest.

To secure the project, LED offered Sundrop Fuels performance-based grants for building and financing costs ($14 million over 10 years), as well as $4.5 million to reimburse relocation costs of research and development operations and key employees.

Sundrop Fuels also will receive assistance from Louisiana FastStart, ranked by Business Facilities magazine as the nation’s No. 1 workforce development program. And the company is expected to utilize Louisiana’s Quality Jobs, Industrial Tax Exemption and Research & Development Tax Credit programs. Sundrop Fuels also will apply for a private activity bond allocation of $330 million or greater, which will help the State utilize capacity that otherwise would have gone unused; the private activity bond allocation will enable the company to reduce its project financing costs.

The Central Louisiana Economic Development Alliance played a key role in helping Sundrop Fuels locate and acquire the proposed refinery site eight miles northwest of Alexandria at the junction of Rapides Station Road and Interstate 49, where the company will build on approximately 1,200 acres and have space available for future expansion.

Sundrop’s backstory

In July, Sundrop Biofuels received $175 million in investment, $155 million of which has come from Chesapeake Energy, accounting for a 50% stake in the company. It is one of the first investments to come from Chesapeake’s new $1 billion investment facility it will undertake with its new company Chesapeake NG Ventures Corp during the next 10 years. The remaining investment comes from Sundrop’s existing investor Oak Investment Partners.

Sundrop Fuels was originally a solar gasification-based renewable energy company. Since emerging from stealth mode last year, plans have changed.

“As you know, Sundrop Fuels did indeed begin as a “solar fuels” company, but over the last year or so that model has changed,” the project’s Steve Silvers told the Digest in July. “The biomass to advanced drop-in biofuels process uses natural gas to power the RP Reactor. The economics of the business made considerably more sense if we could run the thermochemical plant 24 hours a day – hence natural gas, rather than solar.

According to Silvers, “We already had to have natural gas coming into the facility because we’re stealing the hydrogen from natural gas to add to the biomass being gasified as to create the fuel-ready 2-to-1 hydrogen to carbon ratio. Additionally, like other biofuels companies, we are benefiting from the strategic partnership of a large energy company.”

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