Exxon inks 525 million gallon, 5-year renewable diesel offtake deal with Global Clean Energy Holdings

In Texas, ExxonMobil has signed an agreement with Global Clean Energy Holdings to purchase 105 million gallons of renewable diesel per year for five years from a converted California refinery starting in 2022. The strike price was not disclosed.

The news that the Bakersfield refinery would convert over to renewable diesel came out in May. Now, we know how much will be produced and for whom.  The partners in the refinery acquisition had previously noted that “Design, engineering and construction is supported by a consortium of leaders in the downstream and renewable fuels industry. The primary work will be conducted by union trades through a local Bakersfield EPC contractor, ARB, Inc., a Primoris Services Corp subsidiary.” 

According to an 8K filed with the SEC, Orion Energy Partners TP Agent served as administrative agent for a $300 million credit facility and a separate $65 million credit facility to support the acquisition.

In all, GCEH signed $365 million in debt obligations to support the deal. Orion Energy Partners TP Agent was the administrative agent for the debt, according to this 8-K filed with the SEC.

The Deal

The renewable diesel will be sourced from a refinery acquired by Global Clean Energy in Bakersfield, California, which is being retooled to produce renewable diesel from Global Clean Energy’s patented varieties of camelina, a fallow land crop that does not displace food crops, and other non-petroleum feedstocks. Following scheduled production startup in 2022, ExxonMobil plans to distribute the renewable diesel within California and potentially to other domestic and international markets.

Orion Energy Partners, L.P., GCM Grosvenor and Voya Investment Management provided a total of $365 in financing in support of the acquisition, retooling and operation of the facility.

In addition to camelina, various non-petroleum feedstocks, including used cooking oil, soybean oil, distillers’ corn oil and other renewable sources will be refined to produce the renewable diesel.

The Caveats

Couple of caveats here. First of all, ExxonMobil has signed a spectacular renewable diesel offtake contract in the past — with Emerald Biofuels. That one had a $70 million Title III support from DOE, USDA and the Navy, a bond financing via Goldman, and the Exxon offtake, and still didn’t pan out.

Second, renewable diesel is doing great, but this is expensive capital, the $300 million in senior debt went at 12.5% and the $65 million mezzanine debt is priced at 15.0%. And there are some stiff repayment requirements and other contingencies.

The Global Clean Energy Backstory

In the past five years, Alon divested two small California-based oil refineries. The Paramount refinery went to AltAir Fuels (now part of World Energy), the Bakersfield refinery to Global Clean Energy Holdings. The World Energy refinery has been converted over to all-renewables, now the Bakersfield refinery is proposing to convert too, as we can see in a project that aims to complete in 2022. More about the company here.

The interesting aspect is that World Energy and Global Clean Energy, via their renewable diesel subsidiaries, share some common history.

Focus in for a sec on that reference above to camelina, those are the patented varietals from Sustainable Oils, which GCEH acquired back in 2013, from Targeted Growth, a Seattle-based company that was developing camelina for the fuels markets. We reported on the acquisition here. 

Ultimately, AltAir Fuels emerged from the ashes of the fuels aspirations, and Sustainable Oils went on as a feedstock-development company. Now, the two refineries that came from the one parent are owned, separately, by two entities of which the primary subsidiaries were once related in the tangle of partnerships and companies in the Targeted Growth universe.

It’s been a long time coming, this deal, in some ways.

Five years ago, we reported that Sustainable Oils had been issued a first-of-its-kind feedstock-only pathway by the California Air Resources Board for the production of Camelina-based fuels under the Low Carbon Fuel Standard (LCFS).

We noted then that the pathway, when combined with a specific processors production profile, will produce the lowest carbon intensity (CI) virgin oil-based fuel available in the marketplace. Camelina-based biodiesel at a CI of approximately 19 g/MJ can be produced at a fraction of soy (83 g/MJ) or canola (63 g/MJ) based biofuels. Camelina’s extremely low CI will allow obligated parties in California to meet their reduction targets using a fraction of the biofuel otherwise required.

Reaction from the Stakeholders

“Our agreement with Global Clean Energy builds on ExxonMobil’s longstanding efforts to develop and offer products that help meet society’s energy needs while reducing environmental impacts,” said Bryan Milton, president of ExxonMobil Fuels and Lubricants Company. “Chemically similar to petroleum-based diesel, renewable diesel can be readily blended for use in engines on the market today.”

“Our relationship with ExxonMobil is a perfect fit for Global Clean Energy and the Bakersfield biorefinery because it leverages ExxonMobil’s scale and unrivaled market perspective to unlock value for both companies,” said Richard Palmer, CEO of Global Clean Energy Holdings. “By combining upstream feedstock supply and downstream production, we are moving toward the fully integrated production model pioneered by ExxonMobil.”

The Bottom Line

Lots of steps forward needed before we unfurl the “Mission Accomplished” banner — some entities have not made it, starting from an even more advantaged position. These deals get tough. However, suffice to say that it’s a big step forward and an even bigger journey, and a sign that renewable diesel is getting hotter and hotter as a California-based fuel.