Good afternoon, and welcome to the Aemetis First Quarter 2022 Earnings Review Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Todd Waltz, Executive Vice President and Chief Financial Officer of Aemetis Inc. Mr. Waltz, you may begin.

Thank you, Ali. Welcome to the Aemetis First Quarter 2022 earnings review conference call. Joining us for the call today are Eric McAfee, Founder, Chairman, and CEO of Aemetis, and Andy Foster, President of Aemetis Advanced Fuels and Aemetis Biogas. We recommend visiting our website at aemetis.com to review today's earnings press release, Aemetis Corporate and Investor Presentations, filings with the Securities and Exchange Commission, recent press releases, and previous earnings conference calls. The presentation for today's call is available for review or download in the Investors section of the aemetis.com website. Before we begin our discussion today, I would like to read the following disclaimer statement. During today's call, we will be making forward-looking statements, including, but not limited to, statements regarding our future stock performance, plans, opportunities, and expectations related to financing activities and the execution of our business plan. These statements should be considered alongside disclosures and cautionary warnings in our SEC filings. Investors should be aware that all forward-looking statements made on this call involve risks and uncertainties and that future events may differ significantly from the statements made. For more information, please refer to the company's Securities and Exchange Commission filings, which are available on our website and can be obtained from the company at no charge. Our discussion today will include a review of non-GAAP measures as a supplement to financial results based on GAAP. A reconciliation of the non-GAAP measures to the most comparable GAAP measures is included in our earnings release for the quarter ended December 31, 2021, which is available on our website. Adjusted EBITDA is defined as net income or loss plus, to the extent deducted in calculating such an income, interest expense, income tax expense, intangible and other amortization expense, accretion and other expense of Series A preferred units, depreciation expense, and share-based compensation expense. Now, I would like to review the financial results for the first quarter of 2022. Revenues during the first quarter of 2022 increased by 22% to $52 million compared to $42.8 million for the first quarter of 2021. Our North America operations in the first quarter of 2022 experienced an increase in the selling price from $1.91 per gallon to $2.58 per gallon on sales of 14.7 million gallons for 2022 compared to 15.6 million gallons for 2021. The price of delivered corn rose from an average of $6.87 per bushel during the first quarter of 2021 to $8.75 per bushel during the first quarter of 2022. Railroad logistics significantly impacted both the change in gallons produced and the price of delivered corn. Gross loss for the first quarter of 2022 improved to $3.1 million compared to a $3.6 million loss during the first quarter of 2021. This improvement was driven by ethanol pricing increasing at a faster rate than the costs of delivered corn. Selling, general, and administrative expenses rose to $7.3 million during the first quarter of 2022 from $5.4 million in the same period in 2021, primarily due to non-cash stock compensation charges. Operating loss was $10.4 million for the first quarter of 2022 compared to an operating loss of $9 million in the same period of 2021. Interest expense, including accretion of Series A preferred units in the Aemetis Biogas LLC subsidiary and loss on debt extinguishment, decreased to $5.6 million during the first quarter of 2022 from $7.2 million in the first quarter of 2021. Additionally, our Aemetis Biogas initiative recognized $1.6 million in accretion of preferred payments on its preferred stock during the first quarter of 2022 compared to $1.9 million in the first quarter of 2021. A charge of $681,000 was recognized on debt extinguishment related to subordinated debt renewals and included in the interest expense. The net loss was $18.3 million for the first quarter of 2022 compared to a net loss of $18.1 million for the first quarter of 2021. Cash at the end of the first quarter of 2022 was $5.5 million compared to $7.8 million at the close of the fourth quarter of 2021. Investments in capital projects of $11.4 million were made during the first quarter of 2021, highlighting our commitment to developing ultra-low carbon projects. This concludes our review of the first quarter of 2022. Now, I would like to introduce the Founder, Chairman, and Chief Executive Officer of Aemetis, Eric McAfee, for a business update. Eric?

Thank you, Todd. Aemetis is focused on producing below zero carbon intensity products, including negative carbon intensity renewable natural gas and renewable fuels. Our projects maximize the value of carbon credits and tax credits, while reducing operating costs by using waste materials as feedstock for the production of renewable fuels. In early 2022, we announced an updated five-year plan, which projected revenues to grow to about $1.5 billion in annual EBITDA to increase to more than $460 million by year 2026. This growth is being funded by lower interest rate senior secured lines of credit at the Aemetis parent company and project funding by Aemetis subsidiaries. In the past year and a half, we have repaid about $80 million to reduce higher interest rate bridge loans from Third Eye Capital, which has expanded our access to lower interest rate funding. We recently closed two new credit facilities at 8% and 10% interest rates with Third Eye Capital, which have an aggregate availability of up to $100 million, subject to certain criteria. These carbon reduction lines of credit are designed to both fund the completion of the carbon reduction projects at the Keyes ethanol plant and to provide the funding prior to project financing for the Jet diesel plant and the two CO2 sequestration wells. The working capital line of credit is intended to provide liquidity for ongoing operations. We're also on track with financing growth using long-term 20-year low interest rate project financing from the United States Department of Agriculture. Our first $25 million of an expected, eventual $100 million of USDA Renewable Energy for America project funding for our biogas subsidiary is scheduled to close in June. The positive regulatory trends for renewable fuels have continued to improve, including the recent approval of 15% ethanol known as E15 by the Environmental Protection Agency and the release this week of the California Air Resources Board 2022 scoping plan that significantly increases the number of credits required under the low-carbon fuel standard program. These regulations are driven by initiatives to decarbonize transportation, the need to reduce the cost of fuels as petroleum prices increased, and a renewed interest in energy security. During the first quarter of 2022, Aemetis achieved important milestones towards revenue growth and sustained profitability in each of our four lines of business. Now, Andy Foster, the President of the Aemetis Biogas and Aemetis Advanced Fuels will review highlights. Andy?

Thank you, Eric, and good afternoon, everyone. Aemetis' dairy renewable natural gas business has been generating biogas since September 2020 and achieved a negative carbon intensity pathway in 2021. Renewable natural gas is a negative carbon intensity fuel that reflects the circular bio-economy Aemetis is building by utilizing agricultural waste and byproducts from our facilities to create sustainable, below-zero carbon intensity transportation fuels. This year, our Biogas renewable natural gas project in California made significant progress, including the completion of construction and testing for 20 out of 36 miles of biogas pipeline; finishing the construction and testing of a $12 million centralized biogas to RNG upgrading facility; completing the interconnection with PG&E's utility gas pipeline and testing; fully operating our third dairy digester, which is now supplying gas to our pipeline; and continuing work on four additional digesters set to be completed in the coming months. We expect to start injecting RNG into the PG&E utility pipeline soon after their team finalizes the commissioning of their equipment next week. This will mark the first time our Biogas project supplies utility-grade renewable natural gas to the utility pipeline system. By the end of the third quarter, we anticipate having seven operating dairy biogas digesters linked via our pipeline to the PG&E utility pipeline, generating around 200,000 MMBtu of RNG annually, translating to over $20 million in ongoing revenue. Initial production from our digesters will be directed to the pipeline and stored at an approved underground facility until the CARB CI fuel pathway is approved, which can take six to nine months. The RNG produced from now onward will be stored until Q4 of 2022 or Q1 of 2023 when the CI pathways are released, enabling us to fully capitalize on the value of the LCFS and RFS credits from our RNG sales. In 2021 and early 2022, we recruited several key personnel for our Biogas team to support our engineering, permitting, finance, and operations and maintenance activities. We are expanding our workforce at a suitable pace to meet business needs and have been fortunate to attract experienced contributors. To date, Aemetis has received $23 million in grants related to the biogas project from entities such as the California Department of Food and Agriculture, the California Energy Commission, Pacific Gas and Electric, and other government bodies for our dairy biogas initiatives and renewable natural gas production. Now, let’s explore developments at our California ethanol plant. As Todd noted earlier, we achieved a 22% year-over-year revenue increase from sales in Q1 2022 compared to Q1 2021. However, elevated corn prices and ongoing railroad logistical challenges have pushed the delivered cost of corn above $10 per bushel. On a positive note, strong market demand and favorable pricing for ethanol, wet distiller grains, and distillers corn oil are helping to offset the increased transportation and energy costs associated with corn. Our California ethanol plant is currently being upgraded to operate with high-efficiency electric motors and pumps powered by low or zero carbon intensity renewable energy sources, including our solar array and locally sourced renewable electricity. Aemetis has been awarded over $15 million in energy efficiency grants from PG&E and the California Public Utilities Commission, which will help fund these upgrades. Let me update you on the Keyes ethanol plant projects, which are expected to significantly boost cash flow upon completion. The Keyes plant is now nearing full capacity, exceeding 60 million gallons per year, benefiting from strong market pricing for ethanol, distillers grains, and corn oil. Our wet distillers grain production is fully booked, with over 2.2 million pounds being delivered to local dairies daily. Distillers corn oil deliveries surpass 1 million pounds monthly and are at record prices, driven mainly by demand for non-edible corn oil in biodiesel and renewable diesel production, alongside solid interest from local animal feed lots. The Keyes plant produces approximately 400 tons of CO2 each day, which is liquefied and sent to local food processors by Messer, creating about $3.4 million annually from tax credits under current laws. A high-efficiency heat exchanger has been installed and is operational, lowering natural gas usage at the Keyes plant. The Mitsubishi ZEBREX dehydration unit, which separates water from alcohol, has been installed, and testing is complete. We are currently adding a specialized pretreatment unit, along with some additional upgrades. We expect the ZEBREX unit to be fully operational by the end of June, which will significantly decrease steam consumption in the plant from around 21,000 pounds per hour to under 5,000 pounds per hour for ethanol dehydration. This 75% reduction in natural gas-generated steam used for dehydration lowers our operating costs and increases revenues through the production of lower carbon intensity ethanol. The solar microgrid project with battery backup is advancing, with a signed contract with SunPower for a $12 million installation, supported by an $8 million grant from the California Energy Commission. This solar unit aims to produce approximately 1.9 megawatts of zero carbon intensity electric power at low costs for the ethanol plant, facilitated by power shedding and storage. Moreover, the mechanical vapor recompression system, designed to further curtail petroleum natural gas and steam usage, is progressing with detailed engineering completed and contractor bid packages distributed. We anticipate this project will significantly curb petroleum natural gas use. Combined with the ZEBREX system, we aim to eliminate up to 85% of our natural gas consumption at the Keyes plant by the time the MVR system is operational in 2023. Current natural gas expenses for the Keyes plant exceed $10 million annually. We expect to save over $8 million yearly on natural gas costs while simultaneously reducing ethanol's carbon intensity and thereby enhancing the value of the ethanol produced at the Keyes plant. In summary, both operational performance and project milestones for our Aemetis biogas and ethanol plant businesses are progressing according to our five-year plan.

Thank you, Andy. Let's discuss our carbon zero renewable jet and diesel fuel project with carbon sequestration in Riverbank, California. We are pleased that the Aemetis carbon zero biorefinery under development in Riverbank, California near Modesto continues to achieve major milestones. In December of 2021, after three years of negotiations with the City of Riverbank and the U.S. Army, Aemetis signed the acquisition of a 125-acre Riverbank Industrial Complex. This site is a former U.S. Army ammunition production facility with 710,000 square feet of existing buildings laid out as eight production lines; a rail line with storage space for 120 railcars on-site; a 20-megawatt electricity substation; and 100% zero carbon intensity renewable electrical power with a direct power line connection due to hydroelectric dam. Last month, Aemetis took operational control of the 125-acre Riverbank Industrial Complex for construction of our sustainable aviation fuel and renewable diesel plant, as well as the Riverbank portion of our CO2 sequestration well project. We have signed and announced more than $3.4 billion of sales contracts with Delta Airlines, American Airlines, Japan Airlines, Qantas, and other airlines for sustainable aviation fuel. Along with signed letters of intent, we have contracts for about 45 million gallons per year of blended sustainable aviation fuel to be produced at the Riverbank plant. Under the sales agreements, the renewable sustainable aviation fuel will be trucked from the Riverbank production plant to a tank farm in the San Francisco Bay Area for blending with jet fuel. The blended SAF will be delivered via pipeline to San Francisco Airport for use by airlines. In addition to the $3.4 billion of blended sustainable aviation fuel sales contracts, we signed a $3.2 billion renewable diesel sales agreement to deliver 45 million gallons per year under a 10-year sales contract with a major travel stop chain for its Northern California locations. We are currently in the engineering phase to support the closing of the debt financing of the renewable jet and diesel plants. Feedstock determined for the 90 million gallon Riverbank plant is being launched by the construction of a crude tallow refinery in India near our existing 50 million gallon per year biodiesel plant. We've already purchased tallow for sale to U.S. producers, which we expect to expand when our own crude tallow refinery becomes operational later this year. We will then divert this feedstock supply chain to the Riverbank plant during commissioning of production. We are actively working with our airline customers to obtain tallow supply from Australia, since there are limited incidents to produce sustainable aviation fuel in Australia compared to California. Let's review our new subsidiary focused on carbon capture. In October 2020, the Aemetis plant in California was identified in the study issued by the Stanford University Center for Carbon Capture as one of three ethanol plants CO2 sources in California that have the highest potential return on investment from building a carbon capture and sequestration facility compared to oil refineries, cement plants, and natural gas power plants that comprise the 61 largest CO2 emission sources in California in addition to ethanol. Our ethanol plant currently captures about 150,000 metric tons per year of CO2 and compresses the CO2 in the Messer liquefaction plant into transportable liquid carbon dioxide, from which we already generate IRS 45 new tax credits worth $30 per metric ton from CO2 reuse. Current operations are now generating up to $4 million per year of tax credits. The carbon sequestration study that Aemetis commissioned showed that the Aemetis Keyes plant and the Riverbank plant site are located above a 7,000-foot deep strata, known as a caprock and an 8,000-foot deep strata, known as a basement rock. Between the two layers is the saline formation that was cited by Stanford as ideal for carbon dioxide sequestration. Over a long period of time, the CO2 reacts with saline to form a mineral that is permanently sequestered underground and does not return to the atmosphere. In Phase 1 of the Aemetis carbon capture project, we plan to inject up to 400,000 metric tons per year of CO2 emissions from our biogas, ethanol, and jet diesel plants into two sequestration wells, which we plan to drill near our biofuels plant sites in California. We are expecting to construct two CO2 injection wells that each have a minimum of 1 million metric tons per year of injection capacity. With additional CO2 supplied by oil refineries and other sources, we can sequester a total of 2 million metric tons per year of CO2. The initial phase of construction includes drilling two characterization wells to provide empirical data for the EPA Class VI permit. The injection wells will then be drilled at the same site after receiving EPA and other permits. We are currently in the engineering and permitting process for the two characterization wells with an expectation that we will drill the first characterization well at the Riverbank site. Let's review our biodiesel business in India. India is recovering from a significant COVID pandemic. But recently, in the first quarter, a INR2 per liter tax was adopted in India for any diesel that is not blended with biodiesel. The new tax becomes effective in October 2022 and has already led to significant discussions with major oil refineries in India regarding supply of more than 1.25 billion gallons of biodiesel needed to be blended into 25 billion gallons of diesel consumed in India each year in order to avoid payment of the new tax. We continue to work on an approval to export biodiesel from India to California, opening the export market, which has previously been prohibited under the India National Biofuels Policy. The price of biodiesel in California has been significantly higher than in India prior to the new India government tax. Our Riverbank facility is well-positioned to manage product for reheating and transloading for local truck delivery in California. Since our India subsidiary has no debt and is fully constructed and commissioned, we are well-positioned for a rapid revenue increase as we expand biodiesel exports. We do expect large oil refinery and government purchases of renewable diesel to meet climate change and air quality goals as the current COVID crisis facing India continues to subside. In summary, Aemetis is expanding a diversified portfolio of negative carbon intensity projects from dairy renewable natural gas, renewable jet and diesel fuel using low-carbon waste oils, low-carbon ethanol using cellulosic sugars from waste wood, and CO2 sequestration. All these projects are synergistic and create a circular bio-economy within which we use byproducts and waste products from our facilities and our local areas as feedstock to produce low and negative carbon intensity renewable fuels. Our company's values include a long-term commitment to building value for shareholders, the empowerment of and respect for our employees and business partners, and making significant and positive contributions to the communities we serve. Now, let's take a few questions from our call participants. Ali?

Thank you. We will now be conducting a question-and-answer session. Our first question is from Manav Gupta of Credit Suisse. Please proceed.

Eric and team, my question is, at this point, you have signed some big long-term contracts with Delta and other airlines and which is very commendable. Help us understand a little how these contracts actually work. So, if you deliver renewable, sustainable aviation fuel, what kind of premium do they give you on that versus normal jet fuel the blended product? And when you sign these contracts, are the airlines asking for a certain portion of your RINs or LCFS credits or maybe even blenders tax credit? So, help us understand how these contracts are structured a little, so we can better model their profitability? Thank you.

Good question, Manav. Let's take them in two pieces, how do they work and then what is the percentage. It's a very simple structure that aligns with the cost structure of jet fuel because all airlines have to buy jet fuels. So, all their costs are very similar, some hedged and some don't. But over time, they all have basically the same cost structure in jet fuel. So, the structure of the contract is jet fuel plus a premium. Think of premium in the 10% range. So, as the price of jet fuel gets higher, that premium actually gets higher, but it is correlated with the price of jet fuel, which is something they can hedge against. So, they can hedge against their jet fuel deck to be able to hedge their sustainable aviation fuel commitments. They are getting 0% of renewable identification numbers under the federal renewable fuels standard. They're getting 0% of low carbon fuel standard credits in California. They're getting 0% of the tax credit. All of the producer-related incentives, including those and future ones, are to the account of Aemetis. They are receiving the CORSIA credits, which is a voluntary program among airlines in which the airlines that are adopting sustainable aviation fuel more quickly can sell credits to those who are not adopting as quickly. And that voluntary carbon trading market is a source of revenue for our customers that are buying more SAF as they sell their credits to airlines that do not have access to stabilization field. So, we signed a $1 billion contract with Delta Airlines, $1.1 billion with American, and Japan Airlines, et cetera. These are companies that will be able to sell credits to other airlines and offset some of the premium that is a part of the contract that we have now. So, this is currently structured 45 million gallons per year, which is 50% of our total production of 90 million and optimizes the yields from the plant. And I should mention that we can produce more sustainable aviation fuel, but we would be charging a premium over that business model of jet fuel plus 10% because the yields will be lower as we go beyond 45 million gallons. And we do have a small group of customers that are quite willing to pay for that premium, specifically if they're flying into Europe, the costs in Europe are much, much, much higher than what I've described. And so they're able to offset some of their European costs by buying from us in California at a premium above the jet fuel plus 10% range calculation.

Perfect, Eric. I have a quick follow-up. You mentioned in your opening comments about the May 10th scoping CARB document, which was released yesterday. It was interesting that both Darling and Julian referenced it as well. My question is about your discussions with CARB, since you have many connections there. Do you believe that CARB will, as the scoping document suggests, possibly raise the targets for 2030 and beyond, and in doing so, support the carbon price in California? If you could elaborate on that, I would appreciate it.

They have a very visionary commitment to reducing carbon emissions in California. And the way that I usually present this is described, if you don't have any incentive to decrease your carbon, are you going to actually do that? In other words, why not just buy diesel and drive on down the road, if there is no credit market for the alternative, which is renewable natural gas or even ethanol to replace diesel-only trucks. So, all we're talking about really is what the timing is. And as we have spoken to the staff as well as Board members of CARB, they actually express high levels of frustration that the market is not listening to them that they're very committed to this carbon reduction plan that it will require additional low carbon fuel center credits and other mechanisms to be able to achieve that plan. And so they believe that the market is just not listening and we heard that consistently from several different numbers, including people who run the program. So, the scoping plan, I think, is 500-plus pages, describing their vision that they're going to make it so difficult to buy anything as high carbon in California that the cost of that with the credits, everything else, would just be prohibitive and try to provide a zero-emission future.

Thank you so much for taking my questions Eric.

Sure. Thank you, Manav.

Thank you. Our next question is from Jordan Levy at Truist Securities. Please proceed with your question.

Afternoon Eric, Andy, Todd. Maybe first, we can just touch on some of the financing work you've been doing. It seems like the USDA biogas financing is progressing, but maybe taking a little longer than initial expectations. Maybe if you can walk through the timing there one more time, I know you mentioned it in the opening comments? And then just give us a sense of your confidence in how that's moving forward?

USDA biogas financing is, I would say, slightly slow, but not unexpectedly slow. We've had a range that we're within in terms of how this project is going along and that's why we're announcing flowing gas from our third digester and our fourth, fifth, sixth, and seventh are all well along the way, etc. So, we are expecting to see this biogas funding get completed in June. This is $25 million. It's known as a special-purpose entity that we put together with a certain defined group of digesters and pipelines, etc. in that $25 million. And under the renewable energy for America program, the limit is $25 million of debt per entity. So, we'll have multiple entities. We're in the process right now with four entities for a total of $100 million. So, the goal on this would be to do $25 million this summer and then this fall, do another $25 million and then next year do another $25 million, and probably the middle of next year, do another $25 million. And so this is basically sort of a template that we're doing for the first time and as we do with the second, third, and fourth and potentially sixth, this is getting easier and easier to do and quicker. So, the structure is roughly a 6% interest rate, there's a floating component there, but roughly 6% interest rate, but it's very, very long term, 20-year financing and very, very attractive and it's 80% guaranteed by the U.S. Department of Agriculture. So, it's an excellent tool and it's worth waiting for and we have all of the relationships in place for us to close this for $25 million. And frankly, the second and third and fourth is just the same thing, different areas and different processes.

Thanks for that. And then as a follow-up also on the R&D side of things, you all made a lot of progress on the pipeline side of that. Just curious, as you've been going to build that out if you've got starting to get more interest from other farm owners, you don't have contracts in place with that and how that kind of long-term trajectory is playing out?

Thank you very much. We've completed 20 miles, and just a few months ago, we had four miles under development. Our schedule indicates that by the fourth quarter, we will have half of our total 36-mile pipeline completed. As this pipeline has been installed, dairy operators have been seeing our construction site and hearing from their neighbors about the revenue generated from the project, which has sparked significant interest. We currently have around two dozen signed participation agreements with various dairies and expect to exceed 30 agreements soon. We are making substantial progress. Since we have passed a critical point, there isn't a second biogas pipeline planned. If anyone is interested in biogas, they know who to contact, and we are observing a quicker adoption by dairies in this process. By the fourth quarter of this year, we anticipate having that pipeline fully established, and thereafter, the project will change significantly. We have concentrated on the centralized biogas cleanup hub and the initial pipeline to interconnect these dairies. With the achievement of 20 miles of pipeline, our focus is now on facilitating the installation of digesters, which is a much simpler and faster business strategy since all our resources are directed towards building.

Thank you all so much.

Sure. Thank you, Jordan.

Thank you. Our next question is coming from Amit Dayal with H.C. Wainwright. Please proceed with your question.

Hey, good morning guys. Thank you for taking my questions. I mean, it looks like largely an execution story from here, Eric. I mean from a risk perspective, given sort of the supply chain issues, I know you probably don't have those in play right now, but what should we keep in mind with respect to any cost increases or any of those types of things that you may be seeing in respect to some of these CapEx plans and project deployment efforts that you are undertaking right now?

We definitely will be impacted by a combination of transportation that's already impacted our ability to just get things that are already built physically on site. It has not changed our overall schedule much because, as you know, it's long lead time items that really are having the impact on things, but we've seen the impact of a slowed-down supply chain. In terms of cost increases, we had the benefit of buying a lot of materials for biogas digesters in the middle of 2020 when they were being offered, quite frankly, a very large discount and so that has helped to accelerate our process. I do not think that we'll see anything that significantly departs from our plan, which includes contingencies. So, at this point in time, we are not coming up with any revised CapEx budgets because the contingencies are sufficient to handle what we're seeing in the market at this point in time.

Understood. And that’s all I really. My other questions were already addressed. Thank you so much.

Thank you, Amit.

Thank you. Our next question is coming from Derrick Whitfield with Stifel. Sir, please proceed with your question.

Thanks and good afternoon to you and your team Eric.

Hello Derrick.

For my first question, I wanted to build on Manav's question regarding the 2022 CARB scoping plan and ask for your initial impression on the dairy and livestock sector proposal, specifically targeting at least 120 additional projects with at least half being digesters. Is that in line, Eric, with kind of how you're thinking about it from a marketing and certainly a planning perspective?

I would say that, that actually exceeded my personal expectation. It probably met some of the expectations of others who are in the middle of this. But it's because CARB has just gone through a cycle of, on the call, environmental pushback on the role of renewable natural gas. And it has been a decision point and I think that decision's been made. As you look at the scoping plan, without dairy renewable natural gas, it will be very difficult for them to achieve the carbon reduction targets and they lose anywhere close to what they're talking about because with the negative 426 carbon intensity, for example, our project is a very significant contributor to the program. And so over the last, let's say, six months, there's been a cycle of environmental pushback on this, what I believe to be multilateral benefit process of covering up digesters and capturing methane. And CARB could have responded with a decreased expectation, but instead, I think they have accelerated. I mean anybody that says that they're looking for 420 projects if anything, it's pretty ambitious about it for 50% of that could be dairy is actually exceeding my expectations. So, it's a very bullish signal for us in the renewable natural gas industry and especially, a bullish signal about how many LCFS credits are going to be expected under the scoping plan. And so part of the problem to 500 pages is you kind of want a simple thing, which is how many LCFS credits are required and how many are expected, and you just want to be able to compare the two. Well, because it's a complex document with complex calculations, I don't think people will settle in on those numbers for a number of months. But it's easy to conclude that if they're looking for 420 bigger carbon intensity RNG facilities, then that's a whole lot of LCFS credits that are going to be required. So, we're seeing it very bullish in the CARB and scoping plan.

That's great, Eric. And as my follow-up, I just wanted to ask if you could update us on your current thinking around offtake plans for dairy RNG as you progress through Phase 2?

We have already established a commercial agreement with a significant offtake opportunity, with very favorable terms for both parties. We're extremely pleased about this relationship and anticipate making an announcement soon. Additionally, as you may know, we have substantial internal requirements for renewable natural gas to support our animal feed operations, which process 2 million pounds daily, as well as for biofuels. The combination of external distribution in the trucking market and our internal needs is allowing us to achieve significantly lower distribution costs compared to others in the Midwest. Our location in California, with thousands of trucks passing by our plant every day, uniquely positions us for low-cost distribution.

Very helpful. Thanks for your time and comments.

Good. Thank you.

Thank you. Your next question is coming from Matthew Blair with TPH. Please proceed with your question.

Hey, thanks for taking my questions. Eric, could you just walk us through the drop-off in the RNG volumes in Q1 compared to Q4? Was that due to the testing of the upgrading facility and the pipeline interconnect? And I guess how would that progress through the rest of the year, just keeping in mind, I think your 2022 RNG volume guidance was around like 49 or 50, does that number still hold?

First, we need to clarify if we're discussing MMBtus or millions of dollars. To date, we haven't produced any renewable natural gas (RNG) because that depends on the commissioning of the biogas cleanup unit and our PG&E interconnection, which allows us to put it in the pipeline. We officially start RNG production this month. Historically, we've had an advantage that many developers don't: we own our own ethanol plant. We have been using biogas, which contains 40% carbon dioxide and other contaminants, to power our ethanol plant. We installed a boiler specifically tuned to use biogas instead of petroleum natural gas. This has allowed us to fully monetize the low carbon fuel standard credit value and the total moleculer value. The only credit we haven't been able to capture is the D6 Renewable Identification Number (RIN) from ethanol production, and we do not obtain the D3 RIN when producing corn ethanol. We initiated production in September 2022 and received our CARB approval shortly thereafter. Currently, our market numbers reflect biogas production of about 13,800 MMBtus in the first quarter from two dairies, which we project could reach around 50,000 MMBtus per year. Each dairy is estimated to produce about 25,000 MMBtus annually. Right now, we're slightly surpassing what I would consider the average dairy's output. This is noteworthy, especially since we are in the middle of winter, a time typically characterized by lower production. If you multiply the first quarter production of 13,000 by four, it indicates that we are on track to exceed 50,000 for the year. We plan to release RNG volume data showing how much is being injected into the pipeline and stored, starting in Q2 of 2022. These figures will represent our initial real revenue volumes, as until now we've only been selling biogas to our own subsidiary without any third-party quantification.

That's helpful. Thank you. Could you remind us about the recently completed upgrader that converts dairy biogas to RNG for $12 million? What is the capacity of that plant?

It's an expandable capacity at relatively lower cost, but it's initially roughly a 20-plus dairy units. So, we're not looking to upgrade until the end of next year. So, we're 18 months away from our caving.

It is expandable.

Great. Thank you very much.

Sure, thank you. Appreciate your time.

Thank you. Our next question is coming from Ed Woo with Ascendiant Capital. Sir, please proceed with your question.

Yes, thanks for taking my question. Eric, what's your view on oil prices and gasoline prices, they're both pretty elevated? And how does that affect demand for ethanol in gasoline demand does go down?

I think we all recognize there is a temporary impact because of the Ukrainian-Russian conflict on both oil and gas prices. This is extreme. I don't think that it's sustainable. Specifically on the gas side, it's definitely not sustainable. As the logistics and bringing in nullified natural gas into Europe and other things occur, I think that the power of the Russian spigot of crude oil and natural gas is going to be less in the international market. That being said, we are recovering from a global pandemic. So, supply is not meeting demand. Our logistics supply chains are stalled compared to what you need in order to accelerate into this new demand and so that is putting upward price pressure on gasoline, especially diesel. Andy and I both read regular reports about the supply chain of petroleum and we are at record lows in terms of what's physically in tanks. And you're talking two weeks or less of gasoline or diesel on a tank, you're at the border of a crisis right there and that's what we've been for what prices, and importing gas and everything else. So, our expectation would be a settlement of the Russian-Ukrainian dispute will probably take $20 out of the price of crude oil just because traders are emotional. But the swing producer is not Russia. It's not Iran, it's not Nigeria, it's not Venezuela. The swing producer is Mohammad Bin Salman in Saudi Arabia. Mohammad Bin Salman needs $80 crude oil to pay for his economy, where 70% of the people under age 35 do not have a job and expect a lot of support from the government. He's running almost a welfare economy. And so between projects he's already trying to fund as well as a very heavy social system, Saudi Arabia needs $80 crude oil, that's West Texas Intermediate price, it's about $85 Brent, which is the European price. And so I think there's a bit of a price war because Mohammad Bin Salman has learned that the world is okay with $3.50 gasoline prices. It's dramatically lower than what it is today and that's what we would end up with, at $80 crude oil. And with refinery margins, which are currently per $60 barrel and historically if they're lucky, they're $20. So, take out some of the refinery margin and you're going to be back at oil and gas prices that are in the $80 range and moderated the pump with people very comfortable paying $3.50, even $4 at the pump and life is pretty good. So, that's my personal view. I'm not hedging or trading in that view and should be relied upon with lots of caveats that assumes that the war is rectified and that may or may not occur in time.

So, you're not seeing any demand obstruction for gasoline and ethanol currently where people driving that to conserve?

Yes, Andy.

In fact, demand has been strong. There have been draws in most of the pads this week, and it's setting up nicely where there have been builds. It's in export pads, so it's the Gulf Coast and New York. The ethanol business is doing well. As Eric mentioned, gasoline demand remains strong even with the higher prices. We'll see with the most recent increase this week if that starts to affect people's summer travel plans. But we haven't seen a significant demand obstruction for ethanol. Additionally, the issues with the Union Pacific and BN railroads, especially west of the Mississippi, are exacerbating the problem. Inventories on the West Coast are at, if not all-time lows, near all-time lows because the railroads haven't been able to deliver or perform for over a year, and the situation has been extremely bad in the last six months. Given this setup, I believe you will continue to see strong demand for ethanol, certainly from our perspective.

Great. Well, thanks for answering my questions and wish you guys good luck. Thank you.

Thank you.

Thank you.

There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

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