Tesoro to Acquire Virent 

September 6, 2016 |

BD TS 090716 Virent smIn Wisconsin, Tesoro reached an agreement for Tesoro to acquire Virent. The acquisition, the partners said, will support the scale up and commercialization of Virent’s BioForming technology for the production of low carbon bio-based fuels and chemicals. As a result of the acquisition, Virent will become a wholly owned subsidiary of Tesoro and remain in Madison, Wisconsin.

And as a source told The Digest, there’s “more to come” following this announcement. So, watch this space.

In late 2015, Virent was named the #1 Hottest Small Company in the Advanced Bioeconomy by the readers and invited selectors in the Digest’s Hot 40.

The companies initiated a strategic relationship in January 2016, and have worked together to establish a forward plan to scale-up the technology and reduce deployment risks to meet the increasing demands for high quality, renewable fuels and chemicals.

In its January announcements, Tesoro has unveiled a plan to foster the development of biocrude made from renewable biomass, which can be co-processed in its existing refineries, along with traditional crude oil. At the time, the company has identified three new partners in the process:

Fulcrum BioEnergy: Fulcrum plans to supply biocrude produced from municipal solid waste to Tesoro to process as a feedstock at its Martinez, California Refinery. An estimated 800 barrels of biocrude per day will be produced at Fulcrum’s Sierra BioFuels Plant in Reno, Nevada, which is expected to be operational in early 2018.

Virent: Tesoro and Virent are working to establish a strategic relationship to support scale-up and commercialization of Virent’s BioForming technology which produces low-carbon, biofuel and chemicals.

Ensyn: Ensyn has applied for a pathway with the California Air Resources Board to co-process its biocrude, produced from tree residue – called Renewable Fuel Oil – in Tesoro’s California refineries.

Why renewable crude?

Converting renewable biomass into biocrude is expected to enable existing refining assets to produce less carbon-intensive fuels at a significantly lower capital and operating cost than competing technologies. This approach could lower Tesoro’s compliance costs with the federal renewable fuel standard and California’s Low Carbon Fuel Standard by generating credits, while producing less carbon-intensive fuels which are fully compatible with the nation’s existing fuel infrastructure as well as current vehicle fleet warranties.

Why now?

Tesoro is in a unique position at the moment. As it happens, although gasoline prices have fallen, they have fallen much less quickly than crude oil prices, and the downstream side of the petroleum business, refining and marketing, is enjoying stronger refiner margins than one might have expected in this season of depressed crude.

TSO-Refining-Index

Crack spreads have been declining, under pressure from depressed oil prices, but California has continued as a bright spot. Here was the position in Q1, but Reuters reported that crack spreads jumped from $11 to $18 in April, and have recovered north of $20 by August after a decline in the early summer.

The rise of renewable diesel

Though Tesoro can produce a range of fuels including gasoline and diesel, renewable diesel looks very appetizing. Tesoro could produce some very attractive blends.

As we have been reporting for months in the Digest, these are golden days for renewable diesel in California. Sales at Propel Fuels, for example, have risen by a factor of 9 in the past 18 months. And AltAir has come on-line with 40 million gallons of new capacity and CEO Bryan Sherbacow noted that “the challenges for us are about producing in-spec fuels based on affordable feedstock, at capacity. If we hit our cost targets there are five gallons of demand for every gallon we could supply.”

Retail diesel prices near the Digest’s west coast office in Temecula, California are running at $2.69 per gallon, a 30 percent discount to gasoline on an energy content basis.

Diesel is also greatly helped along by the $1.01 biodiesel and renewable diesel tax credit, per gallon, just now extended through the end of 2016. Plus, RINs via the Renewable Fuel Standard, and also California Low Carbon Fuel Standard waiver credit prices.

Marketing? Tesoro’s retail-marketing system includes over 2,200 retail stations under the ARCO, Shell, Exxon, Mobil, USA Gasoline and Tesoro brands.

The Cautionary Note

“Yes, refining margins are strong, and the balance sheet has a lot of cash, but no one can expect margins to stay there,” Tesoro executive vice president Cynthia “C.J.” Warner told The Digest. “So, this is a time to move carefully, and from the most carefully constructed strategy possible.”

What do they get?

Virent brings a lot of heat, even if they have been running on fumes of late, they have been hot ones. Strategic partners include Shell, Coca-Cola, Cargill, and Hond. Then, there are around 35 team members in Madison, Wisconsin. The company received several grants from the U.S. Departments of Commerce, Energy and Agriculture and has been recognized with many honors, including the World Economic Forum Technology Pioneer award, and the EPA’s Presidential Green Chemistry Challenge Award. IP? Virent has more than 45 issued patents and over 150 pending patent applications, covering 28 different technology families.

Reaction from Planet Virent

“The Tesoro announcement is a critical milestone for Virent to establish a pathway to commercialization with a recognized leader in refining, marketing and logistics. While we will maintain our entrepreneurial spirit and culture, Virent will also benefit from the strategic support and capability of Tesoro, capturing the best of both companies,” said Lee Edwards, Virent CEO. “We are excited to start the next phase of work with Tesoro, along with our other strategic partners.”

More on Tesoro and Virent

More on Tesoro here.

More on Virent here.

Virent hits production milestone with Coca-Cola, here.

World’s first plant-based polyester t-shirt created from Virent’s BioFormPX paraxylene, here.

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