Xethanol: Another Multimillion Dollar Loss

Xethanol continues to demonstrate that even with generous subsidies, they can’t make any money:

Xethanol Announces Second Quarter 2007 Financial Results

For the second quarter of 2007, the company reported a net loss of $6.6 million, or ($0.23) per share, as compared to a $5.9 million net loss, or ($0.24) per share, for the same period of the prior year. The increase in the net loss was primarily related to $4.5 million in non-cash charges including a $2.8 million impairment charge on property held for development.

The company reported net sales of $3.3 million for the second quarter of 2007 compared to $3.2 million in net sales in the second quarter of 2006. Cost of goods sold was $3.4 million in the quarter as compared to $2.4 million in the comparable period in the prior year. The increase was attributable to the higher cost of corn compared to the same period in the prior year.

General and administrative (G&A) costs were $2.2 million in second quarter 2007 as compared to $1.3 million for the comparable period in the prior year. The increase in G&A was primarily due to an increase in legal, accounting and professional fees.

As of June 30, 2007, the company had cash, cash equivalents and marketable securities of $18.1 million and $437,000 of long-term debt.

So, a $6.6 million loss on sales of $3.3 million. Regarding their cash on hand, it is down from $21 million at the end of the last quarter. XNL continue their march toward bankruptcy, which is one of the predictions I have made. Given their inability to profit during good times for ethanol producers, how will they fare when margins are squeezed?

29 thoughts on “Xethanol: Another Multimillion Dollar Loss”

  1. It’s one thing that Xethanol is losing lots of money. That’s somewhat expected for start-up companies. What strikes me more is that their sales of $3.3 million is less than their cost of goods of $3.4 million. It reminds me of the joke a co-worker used to make whenever we sold a particular model at a loss. “We’ll make it up in volume.” I’m sure some people will say the loss will go away because the price of corn will drop, and perhaps that will eventually happen, but in the meantime there will be a shake out in the industry and many will go bankrupt. I wouldn’t bet against you about Xethanol being one of them.

  2. Here is an answer from E3 on progress at their plant from Nathan Dayani:

    My apologies for the late reply. Here’s my answer to your question. Thanks.

    First, we need to clarify that the pre-launch estimate you’re referring to was 5:1, from field to consumer – i.e., we projected we would eventually produce 5 units of energy per every unit of fossil fuel used to grow the corn, convert it to ethanol, transport it to market, etc. If you include further savings in fossil fuels from creating a coproduct of nitrogen fertilizer (which would otherwise be obtained from natural gas), we projected the ratio could reach 6:1. Looking just inside the walls of the plant, we projected an eventual fossil-fuel energy-efficiency ratio of 46:1 – i.e., for every one unit of fossil fuels consumed at Mead (largely in electrical energy from the grid), we would produce 46 units of ethanol energy.

    We began making ethanol in April, formally launched the facility in June, and we’re continuing to ramp up production and efficiencies. Our engineers conclude we already have achieved a positive net-energy balance. Additionally, our biogas production has exceeded expectations, and we are feeding wet distillers grains to the cattle rather than using an energy-intensive process to take the grains to market…..

    There was more to the answer, mostly on putative environmental benefits, which seemed real.

    This is what I would expect: In the rush to make ethanol, there are smart ways, and ways which will not be commercially feasible.

    Maybe Xethanol will fail; probably it should have not gone publc, except bankers wanted the fees, while the market was hot. The fact that Street bankers are avaricious and craven does not mean ethanol will poop out as liquid energy source. Many, I would venture most, dot.com firms busted. We still have a thriving and growing Internet, and lots of companies do make money in it.

    Ethanol may pan out the same way, but with some tortured economics, due to subsidies.

  3. Just to clarify for the casual reader, Ben is talking about E3 Biofuels, which I wrote about here.

    This essay was about Xethanol, which made a number of grandiose claims about being the first to bring cellulosic ethanol to commercialization. I have been interviewed a couple of times regarding these claims, and I have said that they were not credible. Since that first interview, the company has essentially collapsed like a house of cards.

    Regarding E3, thanks for that update. Ben’s response from E3 says:

    Our engineers conclude we already have achieved a positive net-energy balance.

    How do you read that, Ben? There is a disconnect in my mind between “our engineers conclude” and “we projected an eventual fossil-fuel energy-efficiency ratio of 46:1.” If you had to guess, what do you think their energy return looks like right now? My take? If it is taking their engineers to figure it out, they are definitely having to feed natural gas into the process. In other words, the biogas is not meeting their needs for the distillation; otherwise the positive energy balance would be a no-brainer.

    That doesn’t mean that they won’t reach their targets, or that their approach is wrong. In fact, I endorse and support their approach. But unless it delivers on expectations, not too many will follow their lead, as their capital costs were much higher than for a traditional ethanol plant.

    I hope, after operating the facility for a year or so, they will put together a comprehensive paper on exactly what the energy balance looks like.

  4. Other Robert,

    What do you think of making ethanol using the waste heat of a coal or nuke 1000MW thermoelectric plant? We can’t site those things close enough to a city to do useful cogeneration, we might as well distill ethanol with the waste heat.

    Real Robert

  5. What do you think of making ethanol using the waste heat of a coal or nuke 1000MW thermoelectric plant?

    I think it’s great, as long as you don’t have a better home for the waste heat. But it would be much better to fuel ethanol plants with waste heat than with perfectly good natural gas.

  6. The Xethanol Scam

    There are scam companies in every field with hot money. There are even (gasp!) scam oil & gas companies.

    As an investor I’m always grateful to those who uncover scams. Thanks.

  7. On E3, yeah, I noticed the tap dancing. Running any kind of factory is difficult; I have done it. It is easier to pontificate!

    Still, it is early at E3. If they have time money and are earnest, they may reach the 6-1 EROEI they say they can.

    If they can do it, and the techniques spread from that plant to others, it will be a boon for all of us. A terrific accomplishment.

    All we can do now is wait and see.

  8. The E3 plant reminds me of Robert’s comments regarding the impact of environmental regulations on the complexity of the average oil refinery (See heading: The Impact of Environmental Regulations): Fourth, and perhaps of greatest importance, additional equipment will increase the complexity of the refinery.

    What happens if E3 generate more biogas than they need for distillation? My guess: the flare (waste) it.

    They have a pretty complex overall system to manage. Keeping it all in balance will be quite the challenge.

  9. OK,
    So here’s the solution: Hot rocks the next big energy source?
    A study released this year by the Massachusetts Institute of Technology said if 40 percent of the heat under the United States could be tapped, it would meet demand 56,000 times over. It said an investment of $800 million to $1 billion could produce more than 100 gigawatts of electricity by 2050, equaling the combined output of all 104 nuclear power plants in the U.S.

    Now, you’re thinking: How much does it cost? The Australian hot rock power plant could produce electricity for an estimated 3.8 U.S. cents per kilowatt hour, according to Queensland-based Geodynamics Limited.

    Of course, there is the slight possibility of earth quakes, but other than that, it’s problem solved.

  10. Of course, there is the slight possibility of earth quakes, but other than that, it’s problem solved.

    This is just one of the essays I intend to write at some point. I have half a dozen rattling around in my head right now. One is on the hypocrisy of Ted Kennedy and the Cape Cod wind farm (John Stewart recently covered this), but I know Odograph hates those hypocrisy articles.

    So much to do, so little time. I need a staff. Cuz if I had a staff, I could hit people with it and coerce them into writing essays for me. 🙂

  11. Robert Rapier said…
    “If you had to guess, what do you think their energy return looks like right now?”

    My take is they have broken even.

    1:1 is the ROI breakeven point. 5:1 – 46:1 is the profit potential.

    Last time I checked 1.15:1 (15%) is standard Capitalist 101. 1.20:1 is considered by any capitalist wanting to buy a company a spectacular ROI, let alone the lower 500% ROI of 5:1 EROEI.

    Robert, maybe you should contact E3 yourself for clarification. You’ve got this blog and all and E3 might actually take you up on any hard questions.

  12. “…as their capital costs were much higher than for a traditional ethanol plant.”

    Yeah, a traditional ethanol plant that doesn’t have a biogas digester or cattle feedlot next door. But how much more is the actual ethanol plant? Are they using a more expensive process to make the ethanol or is the higher cost simply the reselt of co-location of several technologies?

    Robert, I questioned your ability to set proper boundaries earlier, here’s a chance to answer. Seems if you want to do a fair economic analysis you’d need to add a biodigester and feedlot to the cost of any other ethanol plant. As feedlots exist anyways thats a non-issue (just co-locate). The biodigester would seem the only questionable part of the systems design as per value of investment potential.

  13. So much to do, so little time. I need a staff. Cuz if I had a staff, I could hit people with it and coerce them into writing essays for me. 🙂
    How much do you pay?

    Back on earth: you need to form a lobby group – something like the Politician Energy Education Group.

  14. On TOD, you said:

    “In fact, I am working with a group right now on a cellulosic ethanol process that I believe is revolutionary, and unlike anything the public has seen to date. So, I am not negative on ethanol in general. I just want claims to be grounded in reality.”

    But we still won’t be able to supply more than 10% of our current usage?

  15. Optimist said…
    “Of course, there is the slight possibility of earth quakes…”

    Hey now, I’m sure we could find a geologist that can prove lowering the temperature of the earth’s mantle will actually reduce vulcanism. Next, we solve klingonism. 😉

    Another Robert here (rohar) has an idea for a shallow earth version of this.

    Btw, E3 ever flaring is a silly idea.

  16. Robert, maybe you should contact E3 yourself for clarification.

    I used to talk to them all the time when they were building their plant. I have spoken with them on the phone (at their request). I have a copy of the energy model they used to estimate their energy usage. I knew where they thought they would be, and I knew that some of those 46/1 claims were based on a misunderstanding.

    Are they using a more expensive process to make the ethanol…

    No, the extra capital costs are for the biodigester, and associated equipment/connections to enable this to fuel part of the distillation.

  17. How much do you pay?

    Payment is not getting hit with the staff.

    🙂

    Back on earth: you need to form a lobby group – something like the Politician Energy Education Group.

    I don’t like that acronym. How about just Politician Energy Education?

  18. But we still won’t be able to supply more than 10% of our current usage?

    Best case scenario is still well less than half. 20% is my estimate in a best case scenario. But this is light years ahead of current cellulosic technology.

  19. “No, the extra capital costs are for the biodigester, and associated equipment/connections to enable this to fuel part of the distillation.”

    Thus it’s not really an ethanol plant is it? It’s actually an ethanol plant with a co-located biomethane plant. To the extent biomethane plants are being constructed you might as well locate them next to the ethanol plants (or any gas-using industry).

    Again, isn’t claiming the E3 enterprise as being an “higher capital cost” ethanol plant a wrong-headed way of describing two separate biofuel enterprises?

    Actually three if you consider the DWG a cattle-powering biofuel mid-cycle before the biogas bottoming cycle in a combined cycle co-gen operation.

    Your previous answers regarding E3 involved the replacement cycle and longevity of infrastructure. We all probably agree that Peak Oil won’t be seamless and difficult economic choices will be made. Isn’t co-location of operations a relatively simple one? Moving weaning cows next to an ethanol plant rather than an established feedlot is rather simple compared to many options (like paying for $100/lb beef).

    And PEE is soo campy a name.

  20. Thus it’s not really an ethanol plant is it? It’s actually an ethanol plant with a co-located biomethane plant.

    Seems to me that you are completely missing the point, which is: Nobody else is going to follow this model if it doesn’t work as advertised. Instead of buying methane, they are making their own, albeit at some capital cost. So, call it what you like – one big package, an ethanol plant plus digester – but it doesn’t change the fact that whether or not anyone else follows their lead depends on how well this works out.

  21. I’m not completely missing the point. And you’re not answering mine.

    10 years from now when Saudi LNG shipments are trading at crazy prices will the co-located shit fermenter be seen as a brilliant idea?

  22. 10 years from now when Saudi LNG shipments are trading at crazy prices will the co-located shit fermenter be seen as a brilliant idea?

    That gets right back to my point, doesn’t it? It depends on whether it works like it’s supposed to. If not, then no, it will be seen as a waste of money.

  23. Unless biomethane is still hot even though the Suadis donate free LNG to America because biomethane combats global warmings like all the hippys say it will.

    Anybody want to vote on what hippy tech will be sexy 10 years from now?

    1) Ethanol
    2) Biogas (dare you to vote against it)

  24. Has Robert Rapier actually studied the whole biomethane thing? Is he claiming it doesn’t work? That you can’t model it? Hmmm.

    We’ll see what he has to say when he get’s back. 😉

  25. Syn is onto something. As I have stated before, the only fermentation technology worth a second look at this point is anaerobic digestion (which produces biogas, and can be cleaned up to yield biomethane).

    Basically dump any biological matter (including waste) into an oxygen-free tank and start collecting the biogas.

    Compare that to ethanol:
    1. Pretreat the feedstock (food for crying out loud)to liberate the sugars, a balancing act at best: don’t do enough and you don’t get much sugars, do too much and you destroyed much of the sugars.
    2. Ferment with carefully cultured yeast.
    3. Distill to get the ethanol out.

    Pity the politicians had to get involved and distort things…

  26. I have a copy of the energy model they used to estimate their energy usage. I knew where they thought they would be, and I knew that some of those 46/1 claims were based on a misunderstanding.
    OK, here’s my question: What if they were doing this without the ethanol? In other words, feed the corn to the cattle, put the cow dung in a digester and sell the biogas. Biogas can be cleaned up. Cars can drive on LNG. Cleaning up biogas may not be viable on such a small scale, but I’d be interested in how the energy balance compares with E3’s concept.

    In practise, it would be more practical to just generate electric power from the biogas and minimize the use of grid power.

    Of course, I suspect you will actually have corn left over (to feed people). So that would need to figure into the energy balance too.

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