Abengoa’s Hugoton cellulosic ethanol project goes on the Block

July 18, 2016 |

BD TS 071916 Hugoton smIn Missouri, Ocean Park Advisors has been retained by Abengoa Bioenergy to find a strategic partner or to complete a sale of Abengoa cellulosic ethanol plant, electricity cogeneration plant and related assets in Hugoton, Kansas. Additionally, there is an opportunity for interested parties to acquire the cellulosic technology and other intellectual property assets that are owned by Abengoa Bioenergy New Technologies, LLC.

Abengoa’s cellulosic ethanol plant, where is it?

Abengoa’s project is located in Hugoton, Kansas on a 400 acre site, its assets comprise of a state-of-the-art cellulosic ethanol biorefinery with an integrated, co-located biomass to electric power cogeneration plant and a wastewater treatment plant.  The design capacity is 25 MPGY of denatured fuel ethanol and 21 MW gross electrical power production per year.  But it suspended production earlier this year when the parent company filed for re-organization.

What about that intellectual property?

Abengoa Bioenergy New Technologies, LLC contains the intellectual property assets for the production of cellulosic ethanol and other technologies that have been developed over the past 12 years.  ABNT’s intellectual property portfolio comprises of 16 issued patents in the US and 44 issued patents internationally including Spain, Canada, China, Czech Republic, France, Germany, Netherlands, Poland and the United Kingdom.  In addition, there are 10 pending patents in the US and 56 pending patents internationally.

Christopher Columbus and the advanced ethanol sector

The high point of the standard tour of Seville, home to Abengoa’s Focus Foundation, is the tomb of Christopher Columbus, located in the Seville Cathedral.

Columbus, as you’ll recall, was noted for establishing permanent contact between Europe and the New World, and bringing a whole raft of hot tech to the Americas. Very Abengoian of him, one must say.

He got government financing for the voyage after convincing the heads of state that Asia was much closer than most experts projected, and could be reached by sailing West across the Atlantic — turned out the experts were right. Accordingly, the Columbus project, which expected returns based on the wonders of the Indies, experienced what we might refer to today as “cost and timeline issues.” That might ring a bell for many observers of Abengoa’s cellulosic ethanol fortunes.

Ultimately, Columbus’ fortune was tied up in a court battle that lasted until 1790 – a timeline ratio of litigation to initial due diligence of about 1000 to 1. Let’s, er, hope not.

Columbus himself? He was brought back to Spain in 1500 in chains, amidst claims of mismanagement.  We’ll let that one pass in terms of an Abengoa comparison.  But we’ll note the story, in case you see any corn suppliers spending excessive amounts of time in the locksmith shop and you’re wondering what they might be doing there.

Ultimately, post-mortem, his body was buried in Valladoliid in Spain, thence moved to Seville, then to Hispaniola and then to Cuba, and ultimately back to Seville where he lay undisturbed until a coffin with his name on it turned up back in Hispaniola. Best guess we have is that his bones have been scattered between Spain and the New World — transferred to the care, as it were, of new management.

That’s a lot of trips across the seas for one set of, to put it delicately, non-operational assets. One hopes that Ocean Park et al will avoid a similar fate for Abengoa’s considerable and impressive portfolio.

The long line for the body parts

However, the dispersal may well be under way. We reported last month that companies are lining up to bid for Abengoa’s US ethanol assets, with Green Plains offering $200 million in cash for the Mount Vernon and Madison plants, an affiliate of KAAPA Ethanol LLC bidding $115 million in cash for the Ravenna plant and BioUrja Trading offering $35 million in cash for the York plant. The sales are subject to a court overseen auction process that is currently set for Aug. 22 with bids welcomed until  that the 18th. A decision by the court will be made following an Aug. 25 hearing.

The dealmaking is well underway on the European side. Two weeks ago we reported Abengoa reached a deal to sell its Rotterdam ethanol plant to a consortium led by Alcogroup including Vanden Avenne Commodities and Vandema which is expected to close in the next few weeks, a move that has helped to stabilize supply fears in the market. The plant has been closed since May 11. Abengoa’s biodiesel plant in San Roque, Spain that is co-located at the Cepsa refinery will be absorbed by the oil major as part of its Abengoa divestment agreement.

And we reported in March that there was interest from Brazil for the assets in that country.

Maintaining the assets

The courts and Abengoa have done a good job of keeping the plants going during this difficult period. At the end of May we reported that Abengoa restarted its two ethanol plants in Ravenna and York as of May 20. The company is negotiating with natural gas supplies to reduce its fuel bill for production. Court filings showed at the time  that Abengoa’s financial advisors have had success in drumming up interest in buying the company’s ethanol assets but no deals have been done yet to offload Ravenna or York. Having the facilities operating is expected to facilitate the sale.

Over the objections of corn suppliers, the US Bankruptcy Court for the Eastern District of Missouri had approved in April the use of $41 million in bankruptcy funding for Abengoa Bioenergy to restart ethanol production at its Ravenna and York facilities as well as payroll obligations and other costs to keep the company operating.

Some of those suppliers are hoppin’ mad, and went after the $41M bankruptcy loan, as we reported in March.

Abengoa’s Descent into Hell

Well, if it isn’t Hell, Abengoa’s certainly in the Inferno.

In February Abengoa Bioenergy US Holding, LLC filed for Chapter 11 bankruptcy relief on behalf of itself and 5 of its US bioenergy subsidiaries — at the time aiming to keep the cellulosic ethanol facility out of the filing, Abengoa Bioenergy CEO Antonio Vallespir said, “Filing and consolidating the cases in St. Louis…provides the opportunity for a coordinated and supervised reorganization or sale process, while still allowing each involved debtor company substantial control over its own costs, debts and assets.”

Immediately, there was Misery in the Money Markets. Moody’s downgraded the corporate family rating of Abengoa and its senior unsecured ratings to Ca, from Caa3. “The downgrade reflects Moody’s view that based on the company’s reported year-end 2015 debt levels and the viability plan published on 16 February 2016, the expected recovery rate will no longer be commensurate with a Caa3 rating and more likely be in a range consistent with a Ca rating level,’ the rating service said, adding, “in addition, an event of default is highly likely and chances to avert this are diminishing the longer the current creditor protection process according to Article 5 bis of the Spanish Insolvency Lay (Ley Concursal) lasts.”

About that re-organization plan – what’s next?

Meanwhile, Abengoa S.A. is currently in the process of negotiating a viability plan for the global organization of the company and aims to maintain business activity in all areas.

The thrust of the plan is selling off assets and writing down paper to reduce debt to around 3B from today’s €9B.

Once bioenergy has been peeled off, the company will focus on engineering, EPC for third clients and some project development especially in solar and thermal solar technologies. In order to pay off immediate debts as required by the bankruptcy court, it will sell off various properties in Spain, Germany and the Middle East, including its headquarters in Seville, for around $163 million. In addition, it will look to sell various energy, water and other installations located around the world for another $1.3 billion.

What dragged Abengoa down?

In a word, debt. In a more sophisticated sense, building assets that did not generate sufficient cash flow.

It didn’t help that the Obama Administration crushed cellulosic ethanol with news that they would not aggressively set cellulosic targets or bump overall ethanol numbers — leaving cellulosic projects in the unenviable position of competing for market share with first-gen ethanol.

Observers pointed to the EPA’s 230 million gallon target for cellulosic biofuels for 2016 — almost double the 123 million target for 2015 — but biogas producers as of September had ratcheted up production sharply and had reached a 160 million gallon annual rate, leaving not much headroom for either liquid cellulosic biofuels of any flavor.

Hugoton – is it viable?

Lux Research reported earlier this year that Abengoa’s second-generation ethanol facility in Hugoton has the most expensive production cost in the world at about $4.55 per gallon while Raizen has the lowest at $2.17 per gallon. The report says the problem comes from feedstock cost, accounting for around 40% of the production cost, with Abengoa having to pay $90 per dry ton of stover while Raizen only pays $38 for its bagasse.

Well, turns out that that’s exaggerated. Source checks revealed that Abengoa’s feedstock costs are materially lower than reported in the Lux report, which drew on third-party sources, primarily academic estimates.

But even Abengoa’s own viability plan demonstrated that the company was making very little money from bioenergy at the moment. Overall, a 2% return on revenue — and that’s before a consideration of debt costs. So, that’s put pressure on the overall business that it didn’t need. But hardly is the source of all of Abengoa’s troubles.

For more on the sale

Ocean Park Advisors is currently inviting interested parties to evaluate the opportunity. Proposals are to be submitted to OPA by mid August with target closing by the end of October 2016.  For more information, please contact Bruce Comer (310-670-2721; [email protected]) or John Campbell (402-680-7111; [email protected]).

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