5 QUESTIONS AND ANSWERS for 2QTR 2018 with BENJAMIN COWART - CHAIRMAN AND CEO
- WILL THE SECOND QUARTER MOMENTUM CONTINUE FOR THE REMAINDER OF 2018?
- WHAT DOES THE COMPANY LOOK LIKE IF PERFORMING AT MAXIMUM CAPACITY?
- WHAT IS IMO 2020? HOW DOES VERTEX ENERGY BENEFIT FROM IMO 2020?
- WILL YOU ACQUIRE MORE COLLECTORS IN 2018? WHAT IS THE CONTRIBUTION MARGIN OF YOUR OWN COLLECTED VOLUME?
- WHAT WOULD IT TAKE FOR THE INDUSTRY TO SHIFT BACK TO A CFO?
We have experienced three quarters of positive cash flow performance starting in the fourth quarter 2017. We see the business operations continuing on the same trend through 2018.
The major catalysts for 2019 are:
• Private capital infusion into our development projects that will allow us to put strategic assets into play in both the bunker fuel, including the new IMO 2020 requirements, and high purity base oil business.
• We will continue to grow our collection business which will prolong the improvements of our merchant spreads.
• We envision higher prices for our products and lower feed cost.
The high sulfur fuel oil currently burned in ships over international waters will be required to burn a very low sulfur fuel oil at .5% compared to the current 3.5% sulfur content. This change is expected to put a high demand on distillates, which includes the Marine fuel we are producing at our Marrero facility, leaving the high sulfur fuel depressed in value. We currently buy our UMO feedstock off the high sulfur fuel oil index and sell our marine fuel off the distillate index. We anticipate our merchant spreads to improve as a result of this regulatory change. Although there is not yet a specification for the .5% fuel oil, we believe our product produced at our TCEP/CMT facility will meet the new IMO specifications as a low sulfur blendstock. We also believe our TCEP facility would be a good location for a crude oil topping unit to produce additional low sulfur fuel oil and distillates for the IMO 2020 bunker market.
Over the last two years, we have grown our collection volume by 20+% annually. This growth has been accomplished through our acquisition strategy as well as organic growth at our branches. We plan to continue the build-out of the collection business over the next few years. We do not anticipate any additional acquisitions to close during 2018 as we are already ahead of our volume growth targets, of collecting 30 million gallons, for this year. Our current contribution margins remain strong.
The IMO 2020 and the impact of high sulfur fuel oil prices could cause the value for UMO to fall to a level that would require a generator charge for oil again. The offset to this happening will be the lack of discipline by the Re-Refining industry along with no index price transparency for the UMO commodity resulting in over paying for feedstock.