$GEVO In the third quarter of 2017, Gevo produced approximately 100,000 gallons of isobutanol at its Luverne Facility, and approximately 200,000 gallons thus far in 2017. Consistent with Gevo’s Luverne Facility production guidance, isobutanol production this quarter was focused on producing sufficient volumes to provide enough inventory to support market and customer development efforts in the future, as well as to continue to optimize Gevo’s technology and to generate data that is expected to help decrease operating and capital costs associated with the Luverne Facility Expansion. Gevo’s current isobutanol production goals are not to maximize production, but rather to align such production with isobutanol sales and technology efforts. As a result, during certain periods of the third quarter of 2017, Gevo only produced ethanol at the Luverne Facility. Given the Luverne Facility has only one production line suitable for isobutanol, Gevo’s current isobutanol production costs are higher than its expected sales price. As a result, the cash flow profile of the Luverne Facility is improved by dedicating production to ethanol, rather than co-producing isobutanol and ethanol.
In addition, the condition of two of the Company’s oldest fermentation vessels may limit the Company’s ability to co-produce isobutanol and ethanol (for more information, see the Luverne Facility Update section in the Company’s Form 10-Q for the Quarter ended September 30, 2017). The Company does expect to produce any more isobutanol during 2017. Going forward, the Company expects its operating strategy will be to focus on the production of ethanol and to produce limited volumes of isobutanol until the completion of the Luverne Facility Expansion or until the Company has repaired or replaced one or both of two older fermentation vessels.
During the third quarter of 2017, the Company sold limited quantities of isobutanol and renewable hydrocarbons (ATJ, isooctane and isooctene). In the quarter, the Company’s isobutanol market development efforts were focused on gaining market acceptance in its core gasoline blendstock markets such as marinas and on-road gasoline fueling stations, while maintaining its targeted selling price. The Company continued to work with its distribution partners to make investments to develop end-customer relationships, as well as to establish value chains to deliver its isobutanol to those end-customers. The Company believes that gasoline end users such as boat owners and car owners remain interested in purchasing isobutanol containing gasoline because of the improved properties compared to ethanol containing gasoline. The demand for the Company’s renewable isobutanol, in terms of the number of retail pumps selling isobutanol-blended finished gasoline in Houston and other markets, has grown rapidly during 2017. However, given the low number of pumps that were selling isobutanol-blended gasoline at the beginning of 2017, limited quantities of isobutanol have been sold during 2017. The Company expects that sales of the Company’s isobutanol will increase in 2018 as the markets for isobutanol-blended finished gasoline further develop.
Gevo’s market development efforts related to its renewable hydrocarbon products were mainly targeted towards entering into binding supply agreements to underpin the economics of the Luverne Facility Expansion that Gevo plans to construct. Gevo has been in discussions with numerous potential ATJ and isooctane customers to enter into long term supply agreements, with a goal of signing contracts representing the majority of the isobutanol production volumes to be produced at the expanded Luverne Facility. Currently, Gevo is discussing or negotiating terms for long-term supply agreements with two large potential customers. There can be no assurances that these discussions or negotiations will result in definitive binding agreements.
As Gevo develops markets for its products, there will be a mismatch in timing between isobutanol production and sales. As a result, at times Gevo will build isobutanol inventory levels. At September 30, 2017, Gevo had approximately 350,000 gallons of isobutanol and approximately 54,000 gallons of renewable hydrocarbons in inventory.
Also, during the third quarter of 2017, Gevo produced and sold approximately 4.2 million of ethanol.
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