In California, Rentech announced plans to cease operations at, reduce staffing at, and mothball its research and development Product Demonstration Unit, in Commerce City, CO, and to eliminate all related R&D activities.
As a result of these changes, Rentech will eliminate 65 employee and contractor positions in the Company’s alternative energy segment during the first half of 2013. In addition, Rentech will attempt to sell the PDU as well as approximately 450 acres of land in Natchez, MS it acquired for the development of an alternative energy facility.
In a statement released yesterday, Rentech said that its focus on nearer-term profitable growth opportunities is a direct result of the high cost to develop new technologies relative to current energy prices and lack of government incentives and regulations supporting alternative energy, particularly within the United States, which have made it difficult for the Company and other alternative energy companies to commercialize their technologies.
“While Rentech believes that its technologies have commercial value in the future as well as in different geographies, it believes that Company resources are better directed at opportunities that will produce more immediate returns, as it does not expect the market opportunity for alternative energy to improve materially in the United States within the next several years,” the company said.
The future of Rentech in the renewables space had been increasingly gloomy following the formal scrapping of its ambitious Rialto and Natchez fuel projects in October 2011, and no news from Canada on its ambitious Olympiad project based on Western Ontario feedstocks.
In a note to shareholders, Raymond James energy analyst Pavel Molchanov wrote in August 2012 that: “Management is not optimistic for deployment of the company’s synfuel technology in the U.S. and sees a better value for the technology abroad. The company is in active discussions and looking to partner with multinationals that would use their balance sheets to support commercialization – a strategy employed by many of the renewable fuel pure-plays, such as Amyris and Solazyme. For the time being, the alternative fuels segment should be seen as a call option, and the technology would most likely be deployed overseas through a partnership or licensing arrangement. In other words, Rentech clearly doesn’t intend to foot the bill for a massive production facility of its own, a stance which astutely recognizes that the company’s balance sheet is not limitless.”
Going forward, Rentech intends to focus on new businesses that meet the following criteria: unlevered, after-tax returns in the mid-teens or higher; certainty of revenue with long-term contracts for off-take, providing stability of cash flows; reliance upon demonstrated technologies; and leverage Rentech’s expertise. Rentech expects to make an announcement setting forth its next steps within the coming months.
The Rentech-ClearFuels demonstration proved that biomass to drop-in ASTM certified diesel and biomass to jet fuel can be accomplished by a combination of the CF biomass gasification technology and Rentech’s FT technology. Further, it provided additional information on the design criteria needed for scale up of the Rentech-ClearFuels technology to commercial use, should a future buyer be found.
Looking back on the PDU project
The Company’s technologies include the Rentech-ClearFuels and Rentech-SilvaGas biomass gasification technologies, as well as the Rentech Fischer-Tropsch process, all of which have been successfully demonstrated to produce synthetic and renewable fuels and renewable power.
The Company has operated its Fischer-Tropsch technology successfully for more than 13,000 hours, and produced certified, synthetic jet and diesel fuel. This month, Rentech concluded the IBR project at its PDU and obtained the necessary data that would support the scale-up and the deployment of the Rentech-ClearFuels and Rentech Fischer-Tropsch technologies.
The Company operated its Rentech-ClearFuels gasification technology at the PDU for over 2,200 hours, and it operated the integrated biomass-to-fuels IBR project for more than 1,000 hours. The Rentech-SilvaGas biomass gasification technology was previously demonstrated at commercial scale.
The Rentech-ClearFuels and Rentech-SilvaGas biomass gasification technologies, going forward
“There are a number of applications for this technology in other areas of the world for biomass to hydrogen, biomass to power and biomass to ethanol,” noted Rentech VP for Investor Relations Julie Dawoodjee. ”We are considering how best to gain value from the wind down of our alternative energy business, while retaining rights to technologies that may serve us in the future. We are considering a number of deals that may entail sale of parts of the PDU and certain technologies.”
“We are grateful to our employees for their dedication and tremendous effort to successfully develop innovative and workable technologies for alternative energy production,” said D. Hunt Ramsbottom, President and CEO, of Rentech. “While our elimination of these positions is a difficult decision, today’s actions will further position Rentech to drive value for shareholders by cutting R&D spending and focusing on businesses that generate strong returns, with ready markets, and certainty of revenue. The investments we are considering have either immediate or near-term profitability, and will meet our disciplined investment criteria. Our success in growing Rentech Nitrogen and generating attractive returns from that business is the best example to date of the disciplined investment approach that we will follow as we consider additional investments.”
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