Pacific Ethanol in Trouble

Don’t say I didn’t tell you so. I warned about PEIX’s poor fundamentals a year and a half ago, and the share price has fallen steadily since then.

Pacific Ethanol suffers a bigger-than-expected loss

Pacific Ethanol Inc., a California biofuels darling that boasts political connections and an investment from Bill Gates, is short on cash and suffering from higher corn and plant construction costs, which threaten to derail the once-promising biofuels maker.

The Sacramento company on Monday posted record-high sales but a larger-than-expected $14.7-million loss in the fourth quarter, reflecting a financial squeeze that has clouded prospects for ethanol producers nationwide.

Pacific Ethanol reported the loss just days after it shored up its depleted coffers with a $40-million cash infusion from Lyles United, a company whose affiliates have provided construction services to Pacific Ethanol and had previously lent it funds.

The Lyles investment provided a bit of good news for the company and helped remedy several violations of Pacific Ethanol’s credit agreement with a group of lenders. The company recently postponed construction of its Imperial Valley ethanol plant, said it suffered from large construction cost overruns and admitted to having a “material weakness” in its financial controls — problems it says it has since fixed.

“Pacific Ethanol is probably having a harder time than other, larger peers,” said Eitan Bernstein, energy analyst at Friedman, Billings, Ramsey & Co., who doesn’t own shares in the company and rates the stock “underperform.”

The company operates ethanol plants in Madera, Calif., and Boardman, Ore., and has a major interest in an ethanol production plant in Windsor, Colo. Two others have yet to come on line; a plant in Burley, Idaho, is in the start-up process and a plant in Stockton is set to open this year.

Are the posters who kept calling this a buy at $15, then $10, then $7 still hanging around? I am just wondering if it’s a super-duper buy now at $4.62.

12 thoughts on “Pacific Ethanol in Trouble”

  1. I shorted PEIX in the 30’s and made a quick profit. Wish I’d have known it would head to single digits. I always liked ANDE better. Picks and shovels always outperform during gold rushes. Have been checking out STP. Anyone know of a good American Solar company?

  2. From the solar thermal ideas:
    Ausra (backed by Khosla) stands out, eSolar has a deal with Google RE<C and these: Stirling Energy Systems, SkyFuel, Solel, BrightSource, Rocketdyne, Abengoa are all solar thermal ventures.

    In my opinion, PV has the same scalability problems as Ethanol. It’s a great remote power and limited use technology, but the whole PV industry is going to come undone on semiconductor supply issues if it continues to scale without restraint. Again, just my opinion and I am some joker on the internet.

  3. FWIW (and I’m not sure how much my opinion is worth here), I think Bob Rohatensky makes a good point. I believe that you are also the person who observed that the biggest problem the biofuel industry faces is not the technology (RR and others will come up with cool ways to convert organic matter to fuel), but the logistics of getting feedstock. Which is basically what I have been saying all along. The large-scale biofuel industry is doomed.

    Instead of trying to prop up the petroleum economy with renewables (impossible), we should be powering down, changing land-use patterns, and moving away from the car culture as quickly as possible. But as I said before, “power down” is a dirty word in industrial society. People are stuck in the mindset that we are going to use more and more energy. Here in Japan, they are moving ahead with construction of a maglev train line. The maglev — an energy-guzzling relic of the fading industrial age — is indicative of this mentality. The government and electric utilities still show us energy consumption graphs whose lines keep climbing upward.

    So, biofuel plants should be small-scale and local, so local people can make fuel for local needs.

  4. Completely off topic for this post, but I saw this over at one of my favorite autoblogs:

    Never realized our automakers actually had spent much in the way of effort at some potentially game changing technology (that they have since apparently forgotten in their other pants now…..)

  5. Rice Farmer-I suspect people will use more and more energy (though perhaps not Japan). With wind, solar, geothermal, nukes, clean coal, I do not see a problem producing energy.
    Oil? Maybe we use less. So what? Oil is but one form of energy, and we have better sources anyway.
    I see nothing wrong with increasing energy production. Energy production makes lives easier, more enjoyable.
    I sleep wih using the heat, and the mornings are bitter. I can’t imagine in colder climes….

  6. Thanks for the tips Bob. I don’t see any big lifestyle changes coming down the pike. A switch from internal combustion to electric/plug-in vehicles will be about it. Then,it’s just a matter of how the electricity gets generated. Coal is dirty,but the U.S. is blessed with 27% of the worlds coal. It’ll get used if push comes to shove. I’m still hoping we go solar in a big way. I’m gonna have to read up on the semiconductor issue. The U.S. added 5000 megawatts of wind power last year. That’s about what Iraq has available on its entire grid. Then there’s nuclear,hydropower,geothermal,biogas,and a dozen other schemes people are dreaming up. Every one of them would have to fail before people would be willing to give up their lifestyle imo.

  7. I will add here that I have found that most people DO NOT want to be ‘confused’ by facts when they have a preconceived notion of what they want. For americans(and I am one, BTW) this seems to apply very strongly about energy. I can give two contemporary examples: I posted several times on the yahoo PEIX board. My opinion was that ethanol was a losing deal, and the stock was going to tank. I have two advantages in saying it. My family still farms in eastern south dakota, and I have a scientific background. Even the most elementary examination would show that we are using a LOT of petroleum to make a relatively equal amount of ethanol, with less energy content. I have the fuel bills to prove it, which also dovetails with the practical experience of less mileage whenever I run a truck on it back there. You would have thought I was a living, breathing communist for even saying it was a bad idea, much less sharing my thought that the stock might drop. I was also shouted out of a town meeting in jefferson, sd for offering a opinion that biofuels might be a losing deal, energy-wise. Given the unrealistic expectations, buying puts(LOTS of puts) was easy.
    So far, the put options on pacific ethanol have paid for half of my wife’s PhD… The second example:
    after the ansari automotive X prize was announced, I sent in a letter of intent, and have been working a a vehicle for the alternative class. There is a certain point where it crossed my mind that this might also be a bad use of energy, time, and money, not to mention giving the general public the idea that a 100mpg will allow us to drive the same as we do now. The car, if you think about it, seems to actually be the small part of it, its the rest of the car-centric infrastructure that I believe to be the real issue. our roads(and bridges, obviously) need repair now. Will expensive, and possibly scarce oil make it more or less likely that the needed maintenance
    will occur? The state I live in is deep in debt now, how will this happen? In addition, most of the proposed vehicles in the X prize alternative class have an even higher need for well maintained roads, as they usually have narrower tires, and have less robust construction, to save weight. After some wine ‘tasting’ and hand wringing, I withdrew my LOI, and posted my reasons on the X prize forum. Again, I recieved a blizzard of vitriolic private messages that I was unpatriotic, anti-business, and plain, just an *sshole. When taken together, it, along with a host of other bits of evidence, indicate me that americans are nowhere near ready to understand where we are in terms of energy, and more importantly, make(or even allow) changes that might change the most probable future for the US. For the rest of my life, I will always laugh when I remember being lectured by folks who firmly believe that intelligent design should be taught in public education, but who also believe that somehow, science will come up with “something!” that will allow them to live as they always have. One way or another, we will have to live lower, in terms of energy, and IMHO, the general public is not ready to do that. I can’t think of a better example of cognitive dissonance at the moment…


  8. Yeah! Where is James today? (Well, this is why Mr. Gates has money and you don’t.) Now if only RR would start an (renewable energy) investment bank, the world would be a better place.

  9. One way or another, we will have to live lower, in terms of energy, and IMHO, the general public is not ready to do that. I can’t think of a better example of cognitive dissonance at the moment…
    That’t the beauty of capitalism: Even as you are losing the intellectual argument, the price of gasoline is beginning to reign in demand. No need for long lectures on EROEI: let the markets do their thing.

    When you think about it, energy to cheap to meter really is NOT such as good thing. If you want people to conserve, you’ll love the new price paradigm.

  10. “energy to cheap to meter really is NOT such as good thing”

    I think that depends. Solar energy too cheap to meter would be a good thing, I think. It would allow the have nots to better their lot in life.

  11. Winelover, you came to very similar conclusions that I did about the X-prize. Cognitive Dissonance is the correct term to describe Americans attitudes about cars and driving, and the planet as a whole.

    Go to the various Caltrans district pages. That tunnel for Highway 1 at Devil’s Slide is 41 million dollars! That isn’t even a mile of road folks.

    The most disappointing thing about the automotive X-prize is the lack of reality. It is analogous to creating a prize for the “greatest lightweight house”, promising to build it for the masses. Well, if it isn’t code, it might win a contest but it won’t go into production. I don’t see any mention in the X-prize comments about DOT standards, SAE standards, by the contestants. It will take YEARS for any of those standards to change, and that is why you don’t see the major car companies throwing in “an effort” just for the promo. The “bad pub” from building a car to win a prize, that then cannot go into production, is a non-starter.

  12. I have not received any credible refutation for the opinions and ideas I have put together on my blog:

    It’s pretty simple. Driving slower requires less fuel. If no car can physically go faster than 35 miles an hour, cars can be built with lighter tires, engines, frames…pretty soon, everyone is well over 100 mph in newer vehicles built under a low speed regime.

    “But how….??” Eh, read the whole blog. I cover just about all the angles. Happy to hear from anyone!!

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