Green Plains buys ethanol plant in Hopewell, Virginia

October 26, 2015 |

In Virginia, Green Plains Inc. announced that it has acquired an ethanol production facility in Hopewell, Virginia, located approximately 20 miles south of Richmond, from Future Fuels LLP. Operating at full capacity, the facility’s dry mill ethanol plant will increase the company’s annual production capacity by approximately 60 million gallons to nearly 1.1 billion gallons per year.

Production is expected to resume by the end of the year and corn oil processing is expected to be operational during the second quarter of 2016. When the plant is fully operational, Green Plains expects to offer the Hopewell plant’s transportation and storage assets to its master limited partnership, Green Plains Partners LP.

Consolidation

It’s a sign of continuing consolidation in the corn ethanol space. Earlier this year, Aventine merged into Pacific Ethanol. Last September, Flint Hills Resources acquired Southwest Georgia Ethanol’s plant in Camilla, Georgia, the company’s fourth acquisition in a one year period.  The company purchased an Iowa plant from Platinum Ethanol. Since then it had begun retrofitting a Southeast Nebraska plant and bought out Petrologistics.

Capital improvements in Virginia

“We are confident in our ability to significantly improve the plant’s production economics by applying our operational and commercial expertise,” said Todd Becker, president and chief executive officer. “We plan to make several capital investments before restarting the plant to increase its operational efficiency and production volume. In addition, we anticipate using the site to transload distillers grains that are produced locally and at our other plants located on the Norfolk Southern rail line into containers destined for export markets to further enhance the property’s profitability.”

Those capital improvements. Primarily, adding corn oil extraction and improvements to make the facility more efficient. The approximate capex investment is $6-$7 million.

What about those drop down fees to Green Plains Partners?

Raymond James’ Pavel Molchanov writes:

* The Hopewell plant is not currently producing; it was idled earlier this year – as is the case with several of the industry’s smaller, less efficient plants – due to the low ethanol prices. The parent company plans a $6-7 million retrofit aimed at improving the plant’s production volumes and profitability, in particular a $0.04 per gallon margin uplift from corn oil processing. The plan is to resume ethanol production over the next two months, with corn oil operations starting up in the spring of 2016.

* The timing for the dropdown has not yet been set, but it will come after the plant is fully operational, so probably second half of 2016. Then economics will presumably be in line with the existing agreements between the partnership and the parent company. These agreements, as detailed in our initiation report from July, stipulate a fee structure for the storage tanks ($0.05 per gallon), railcars ($0.0361 per gallon), and terminals ($0.355 per gallon). Just the storage tanks associated with the new plant, for example, should add $3 million of incremental annual EBITDA.

* Recall, last week the partnership announced its first cash distribution of $0.40 per unit ($1.60 per unit annualized). For context, we project 4Q15 distributable cash flow of $0.44 per unit. All else being equal, a $3 million EBITDA dropdown equates to an incremental $0.09 per unit (per year) before taking financing costs into account. Just looking at the initial distribution, however, the current yield is 11% – and we regard this as a compelling yield given that it’s a fee-based MLP with zero commodity exposure.

The Green Plains empire

These days, Green Plains processes ten million tons of corn annually, producing more than one billion gallons of ethanol, approximately 2.9 million tons of livestock feed and 250 million pounds of industrial grade corn oil at full capacity. And, Green Plains is the parent company of the afore-mentioned Green Plains Partners, a fee-based Delaware limited partnership formed to provide fuel storage and transportation services by owning, operating, developing and acquiring ethanol and fuel storage tanks, terminals, transportation assets and other related assets and businesses. GPP was spun out in a $150 million IPO.

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