May 13, 2018
Executives
Eric McAfee - Founder, Chairman and Chief Executive Officer Todd Waltz - Executive Vice President and Chief Financial Officer
Analysts
Carter Driscoll - B. Riley FBR
Operator
Welcome to the Aemetis First Quarter 2018 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.
Todd Waltz
Welcome to the Aemetis First Quarter 2018 Earnings Review Conference call. We suggest visiting our website at Aemetis.com to review today's earnings press release, updated corporate presentation, filing with the Securities and Exchange Commission, recent press releases and previous earnings conference calls.
This presentation is available for review or download, on the Aemetis.com homepage. Before we begin our discussion today, I'd like to read the following disclosure statement.
During today's call, we will be making forward-looking statements, including, without limitation, statements with respect to our future stock performance, plans, opportunities and expectations with respect to financing activities. These statements must be considered in conjunction with the disclosure and cautionary warnings that appear in our SEC filings.
Investors are cautioned that all forward-looking statements made on this call involve risks and uncertainties, and that future events may differ materially from the statements made. For additional information, please refer to the company's Securities and Exchange Commission filings, which are posted on our website and are available from the company without charge.
Our discussion on this call 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 directly comparable GAAP measures is included in our earnings release for the quarter ended on March 31, 2018, which is available on our website.
Adjusted EBITDA is defined as net income or loss attributable to Aemetis, Inc. plus to the extent deducted in calculating such net income, interest expense, loss on extinguishment, income tax expense, intangibles and other amortization expense, depreciation expense and share based compensation expense.
Now, I'd like to review the financial results for the First Quarter of 2018. Revenues increased 36% to $43 million for the first quarter of 2018, compared to $31.6 million for the first quarter of 2017.
North America generated a revenue increase of 24% due principally to strengthening in our feed business and increasing demand for ethanol, rising from 13.5 million gallons to 16.1 million gallons, while India generated a revenue increase of 262% from stronger domestic demand with sales rising to 5.3 thousand metric tons. Gross profit for the first quarter of 2018 improved by $2.5 million to $1.9 million compared to gross loss of $600,000 during the first quarter of 2017.
Selling, general and administrative expenses were $3.8 million during the first quarter of 2018, compared to $3.3 million during the first quarter of 2017. Operating loss was $2 million for the first quarter of 2018, compared to operating loss of $4 million for the same period in 2017.
Interest expense was $9 million during the first quarter of 2018 compared to $4.5 million during the first quarter of 2017. Included in interest expense was a onetime loan fee charge of $3.6 million.
Net loss was $11.1 million for the first quarter of 2018, compared to net loss of $8.5 million for the first quarter of 2017. Aemetis improved adjusted EBITDA by $2.4 million, generating $138,000 during the first quarter of 2018 compared to an adjusted EBITDA deficit of $2.4 million during the first quarter of 2017.
Cash at the end of the first quarter of 2018 was $393,000 compared to $428,000 at the close of the fourth quarter of 2017. That completes our financial review of the first quarter 2018.
Now, I would like to introduce the Founder, Chairman and Chief Executive Officer of Aemetis, Eric McAfee, for a business update. Eric?
Eric McAfee
Thank you, Todd. For those of you who may be new to our company, let me take a moment to provide some brief background information.
Aemetis was founded in 2006, and we own and operate production facilities with more than 110 million gallons per year of renewable fuel capacity in the US and India. Included in our production portfolio is a 60 million gallon per year capacity ethanol, distillers grain and corn oil plant located in Keyes, California, near Modesto.
We also built, own and operate a 50 million gallon per year capacity distilled biodiesel and refined glycerin biorefinery on the east coast of India, near the port city of Kakinada. Aemetis is expanding our biofuels production capacity and the profitability of our production plants by upgrading or expanding our first generation plants to utilize lower cost, lower carbon waste feedstocks.
These waste feedstocks enable us to generate significantly higher product revenue for the same biofuel due to the various mandates and incentives in place to achieve the goals of reducing carbon emissions and not competing with food supply in the production of renewable fuels. We are making excellent progress toward achieving the higher profitability expected from advanced biofuels production.
We recently announced the construction of a feedstock pretreatment unit at the India plant to enable the use of lost cost waste oil feedstocks and Aemetis is building the first of several planned advanced biofuels production plants in California to convert waste orchard, vineyard, forest and construction demolition wood into high value cellulosic ethanol to reduce air pollution and carbon emissions from agricultural field burning. Our business is a beneficiary of the rise in crude oil prices that is occurring while facing significant confusion in the biofields marketplace due to the lack of enforcement of the US Federal Renewable Fuel Standard by the EPA.
The ongoing meetings at the White House to discuss whether the Renewable Fuel Standard should be fully enforced has dramatically reduced the value of renewable identification numbers, which is a direct representation of the decreased demand for biofuels that resulted from the EPA granting an estimated 1.8 billion gallons of biofuels compliance waivers to as many as 40 oil refiners in secret and without public disclosure of the number of waivers and the refiners receiving wavers. We believe that the president's consistently strong support of agriculture and biofuels will result in positive policy changes that overturn the lack of compliance with federal law demonstrated by the EPA.
During 2018, despite these temporary political issues at the EPA impacting the commodity markets for biofuels, the rising price of crude oil and the expanding India domestic market for biofuels enabled Aemetis to have an improvement in key financial metrics compared to Q1 of 2017. During Q1 2018, revenues increased significantly in both India and US operations, with the India business generating a 262% increase in quarterly revenues compared to the prior year as our India business began scaling up production to meet domestic demand for distilled biodiesel and refined glycerin.
We recently announced that the glycerin unit in India was operating above nameplate capacity to supply domestic customers in India using imported crude glycerin from Argentina and other biodiesel production countries. The increase in crude oil prices during the quarter had a direct to positive impact on revenues and margins in India since India bioproducts are sold at a discount to diesel and glycerin products made from petroleum.
Our North America operations generated a significant 24% increase in quarterly revenues compared with prior year with an increase in production of both ethanol and distiller's grains contributing to the ramp up in revenues. I'd might note that though the reported loss for Q1 2018 was $11 million, EBITDA was above breakeven for the quarter.
So let's begin by reviewing our biodiesel business in India. The first quarter of 2018 included significant announcements regarding the completion of the feedstock pretreatment unit construction at our India biodiesel plant.
We also ramped up production at the 18,000 tons per year capacity India glycerin unit by importing crude glycerin and refining glycerin for sales to domestic India customers whom would otherwise require the purchase of a higher priced glycerin product from nonrenewable sources. In March 2018, the advanced feedstock pretreatment unit at the India biodiesel plant was completed.
In April, initial feedstock testing was successful for the production of high margin biodiesel for the India market using imported stearine feedstock with high free fatty acid content. The increased price of crude oil to more than $70 per barrel has created a high margin biodiesel business in India, but requires the preprocessing of imported or local stearine to remove high free fatty acid content in order to import feedstocks without a high tariff charge.
Our pretreatment unit was designed with the capability to process low quality feedstocks to supply BP under a three year supply agreement. The initial production runs of BP low quality feedstock into distilled biodiesel have been completed and discussions are now underway based upon the yield and product data generated from the production runs.
The rapid revenue increase in India has occurred without any export shipments and we expect further increases in revenues and profitability based upon domestic India demand driven by the increased price of petroleum based diesel. Biodiesel is not subsidized in India and is sold as a less expensive alternative to diesel, but India is the only major country in the world that has approved 100% biodiesel fuel, so the rise in crude oil prices directly benefits our India biodiesel business.
We affirm our previous guidance that the India subsidiary is on track to increase revenues from about $1 million per month in 2017 to more than $6 million per month run rate in 2018 while generating healthy, positive cash flow. The refined glycerin business is expected to continue to be a significant contributor to this revenue and operating cash flow expansion.
Now, let's review our ethanol business. During the first quarter, we also announced the completion of several final milestones related to the funding and construction of the California cellulosic ethanol advanced biofuels plant.
The new plant is expected to add about $80 million of revenue at a high profit margin by producing cellulosic ethanol from low cost waste orchard, vineyard, forest and construction/demolition wood as feedstock. We previously announced a signed 20 year supply contract for orchard wood that will supply all the approximately 140,000 tons per year of feedstock required for the first cellulosic ethanol plant in Riverbank, California.
During Q1, we completed the key environmental review and permitting milestones for the Riverbank cellulosic ethanol plant, as well as preliminary engineering design. The environmental approvals often delay projects for years, so the ability to break ground on the construction of the plant this year is based on these environmental approvals that have already been obtained.
The Richland Washington demonstration plant completed four months of continuous operations with scheduled maintenance cycles, setting records for high yields of cellulosic ethanol from waste biomass feedstocks, production rates and uptime. We operated the demon plant on almond wood, walnut wood and other waste orchard wood and nutshells.
The integrated demonstration unit proved out a yield of 77 gallons of cellulosic ethanol per ton of biomass. Using adjusted engineering models and subsequent results from the demonstration unit, we expect the yield from the IDU to translate to commercial yields of approximately 96 gallons of cellulosic ethanol per ton of biomass.
The demonstration plant was a key deliverable required for a US Department of Agriculture Commitment Letter for a $125 million low interest rate, federally guaranteed loan for the construction of the 12 million gallon per year capacity cellulosic ethanol plant in California. We are now working with the USDA to receive a rating from the Office of Management & Budget, which we are expecting within a few weeks based upon the expectations set by USDA management.
During Q1 2018, procurement of equipment was commenced for the Riverbank cellulosic ethanol plant site. We have invested about $8 million in the project to date, including the demonstration unit, plant permitting and engineering work.
The initial procurement of long lead time equipment is accelerating the construction of the facility. We plan to complete a financial closing this year and then complete construction of the plant in the second half of 2019.
Our first generation ethanol business continues to make excellent progress with the goal of reducing energy and other costs while reducing carbon intensity of our ethanol, which generates higher revenues and margins. The low carbon fuel standard credit price has risen from $62 per credit in July 2017 to a sustained $150 per credit directly increasing the value of our corn ethanol product as we decrease the carbon content of each gallon delivered.
By implementing advanced process technologies into our plant, we can potentially achieve an 11carbon intensity point reduction in our corn ethanol business, which could provide $10 million or more of improved annual cash flow from our 60 million gallon Keyes plant. In summary, we look forward to the favorable resolution of the EPAs enforcement of federal law thereby increasing the US demand for ethanol.
We expect crude oil prices will be consistently above $60 per barrel, driving strong profitability at our India business. Aemetis continues to achieve remarkable progress toward the deployment of proprietary and patented technology, to upgrade or expand our first generation biofuels plants, to generate increased revenues and higher margins funded by the USDA and other large financings on favorable terms that are not materially diluted to shareholders.
Q1 2018 is a solid building block in this transition from commodity businesses to patent protected plants that have significant moats protecting our profit margins and expansion plants. Now, let us take a few questions from our call participants.
Michelle?
Operator
Thank you, Mr. McAfee.
We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Carter Driscoll with B.
Riley FBR. Please proceed with your question.
Carter Driscoll
Good morning Eric and Todd.
Eric McAfee
Hi, Carter.
Todd Waltz
Hello.
Carter Driscoll
So maybe the first question is starting with the policy because it seems to be an ever shifting landscape, at least recently. It's Senator Cruz tweeting a win-win proposition, which was immediately refuted by Senator Grassley for obvious reasons.
Give me the context at which you think both the time frame that plays out to go back to what was originally, I think, the intent of the meeting to get to RVO parity versus and potentially slowdown, if not stop, the waivers for the small refiners and/or the wild card of potentially attaching RINs to exports, which would essentially make them worthless. How do you think it plays out, over what time frame?
What is the legality of the RFS? That certainly matters, but it doesn't seem like a lot are paying attention to legality at this point.
Eric McAfee
Agreed with that. There's a biofuel association that actually filed the litigation on the ability of the EPA to provide these waivers in secret and frankly, provide them after the RVO, the lending percentage has been announced for a given year because the regulation actually does not provide for that.
You have to announce those waivers prior to the RVO, so it's very possible that all the waivers that have been provided will be set aside as the court takes a look at that. I don't think this operates necessarily only in the legal system.
I think in the legal system, we see very strong enforcement to the Renewable Fuel Standard. As you know, a year ago in July, there was an 80 page opinion issued that defined a very narrow path for the EPA to comply with enforcing the RFS.
So our view is that the court will be consistent in enforcing the Renewable Fuel Standard and the biofuels industry will see consistent improvement demand as set forth in the law. What we're dealing with here is just the temporary political issue, and we have all read plenty about the Secretary of EPA.
I'm hoping he's very temporary in his job and that these issues all culminate in a change of the secretary's seat. I think you will immediately see the EPA step back, certainly the issue of refinery waivers issued in violation of the RFS.
That's issue number one. I think you'll see E15, which has been supported by the president as a year round blend being more rapidly adopted by the EPA.
I think you're going to see the cellulosic ethanol plant applications for this advanced technology that turns corn kernel fiber into cellulosic ethanol that has been bottled up in the EPA start to get approvals. So you'll see expanded cellulosic ethanol production.
As we all agree -
Carter Driscoll
If I may interject for just one second here because there's been a couple of questions on that in particular, so as I understand it, the exemptions are retroactive and essentially, there's no way to roll those into the next compliance year. So unless they were clawed back, isn't that 1.8 billion gallons that's just vanished?
Eric McAfee
Well, interesting enough, we have seen this picture. It's what Obama did in 2014 and '15, and what the court came up with was the EPA did not comply with the law for those two years and starting 2016 they would have to comply with the law.
So this is going to be, I think at the end of the day, a court question of whether they set aside the waivers. The impact on the commodity market will be a reversal of this 50% decline in RINs and I think you could see a 50% premium in RINs over where it was before this game starting being played out a few months ago.
It would be very easy to see the court just set aside these waivers as not complying with the RFS. Too bad, if the market ends up with not 1.5 billion excess RINs but instead ends up with zero excess RINs, it's a very simple environment.
You just have to buy biofuels and blend it in order to comply with the 15 billion gallon domestic policy marker, which is exactly what the RFS was set up to do. So I don't see why it's that confusing for people to realize that this entire market has been gamed to create, literally, 1.5 to 2 billion excess RINs and that removal of those excess RINs is actually a very healthy market environment where people actually physically have to buy 15 billion gallons.
The RINs are simply a tracking mechanism to assure the regulator that the 15 billion gallons is being blended, but historically, we have never gotten even close to 15 billion. I'm looking forward to getting rid of those excess RINs.
I think that's a very reasonable request is that we just enforce the law.
Carter Driscoll
I'm sorry to interrupt. Wasn't the grand compromise even, again, just for the moment leaving legality aside to therefore attach into the export market, which would make the value of the RIN essentially zero, which I can see being both a positive and a negative.
Obviously, a positive from the perspective of you would then potentially have an increase in export demand and certainly a negative because it reduced the realized price and it would also reduce the value of the RINs held on, in particular, some of the bigger oil companies' balance sheets. Isn't that the compromise that really - I guess it really doesn't hold water and again, just leaving legality aside, what I'm concerned about is that they try to push those RINs back, you're going to get a major pushback from people that were in compliance at least from their own production and now you're spreading that pain against maybe a smaller base of people in the refining market.
Eric McAfee
Two points, first of all, the grand compromise is with the wrong people in the room. I think we all know that the legislative branch is the only branch that can actually legislate and set law.
The executive branch and the judicial branch then interpret what congress' intent was. What we have is a very clear statement, the Renewal Fuel Standard that exporting a gallon cancels the RIN.
There's no lack of clarity there. So the grand compromise is a one way proposal by Ted Cruz.
It's not an agreed to transaction by either major oil companies or the biofuels industry or the corn or soybean industries. I would say it's a voluntary proposal by Mr.
Cruz that was immediately rejected by certainly the biofuels industry. So as I said in my commentary, it's the confusion that is problematic because the law is very clear and the court has already spoken with an 80 page answer to the questions of how much flexible EPA has.
What we have here is a rogue secretary somewhat breaching the campaign promises made by the president and I would suggest that the quick and easy solution is to remove the rogue secretary of the EPA and get back to enforcing the law. As you may recall, that EPA secretary was put in his job because he promised to fully enforce the RFS, and he's just failed to do that.
It's a very clean way forward. They have a deputy secretary already appointed.
You simply announce that Scott Pruitt is gone and I think it avoids a tremendous amount of litigation. It avoids a huge problem in mid-term elections.
We're in recession in the corn industry in the Midwest and rapidly going to depression, and when you start seeing banks collapsing in the Midwest during the mid-term elections, I think that's going to be bad for a number of people that would like to see support from the Trump administration. So I think politically, this plays out pretty cleanly, and I think that now with the fourth meeting being done, the biofuels industry has actually won and I would like to underscore this, we have the president's support of 15% ethanol blend, year round, throughout the entire United States.
That's a 50% increase in the demand for biofuels. Current capacity in the US is approximately 17 billion gallons on an optimistic day, so a 50% increase from 15 billion gallons would take us to over 20 billion gallons of demand.
We actually are short ethanol production in the US if you take the Grand Bargain as being that E15 is the way to drive down RINs. So I personally think this was a big win for the biofuels industry and there's an EPA secretary, who is partnering with Ted Cruz, to create confusion and obfuscate the fact that the biofuels and corn and soybean industries have partnered with major oil and really had a big win on this one.
Carter Driscoll
Maybe just shifting gears but staying on maybe the topic of the export market. So it looked like China was going to become a decent sized export market until machinations with the trade rhetoric became increasingly hostile between the US and China.
Can you maybe characterize some of what you're seeing in different export markets and obviously with the - what you're doing on the biodiesel side in partnership with BP, that's positive for biodiesel but can you comment on the corn ethanol market opportunity to increase exports? We've had our record 2017.
It looked like it was off to a very strong start with a little bit of setback with China. I'm just trying to get a sense of incremental demand from the export market.
Eric McAfee
I'll start by commenting that we don't directly export, so I will give you an industry view that's not transactionally oriented. The earnings calls from a couple other players in the biofuels space have described lower end of the projections, so 1.5, 1.6 billion gallons exported, rather than the higher end which was in the 1.8 range.
That's largely driven by China's tariff wars with the US, which are currently verbal, none of them have been really adopted yet, but we'll see how that plays out. I would describe that we have emerging economies in Vietnam, just adopted a 5% blend in January.
India adopted 10% blend. China, which we all know, is going to fail their 10% blend target because they can't build domestic capacity rapidly enough and their domestic capacity is based upon high cost feedstocks.
So they will end up having to import or they're going to have to miss their own 10% target, which cleans up air pollution problems in China and a variety of other smaller things going on around the world, including Europe. So I think we could have an upside surprise, and here's why.
Ethanol is cheap. We sell it for $1.75, $1.80.
Just come on by our plant and we'll give you a gallon of it in a bucket. And so you can drive about a half mile away and you're going to pay $3.65.
There's $0.65 of taxes in there so you're going to pay $3 a half mile from our plant for a commodity that we sell for $1.75. The only rational reason for why we sell it at a $1.25 discount times 60 million gallons, so we're shipping a $75 million profit to the guys that buy from us is because of the Renewable Fuel Standard not being enforced, the supply demand equation artificially depressing the ability to blend our product.
As that goes to E15 in the US, it's globally people are looking at $70 crude oil, ethanol is just a very inexpensive 113 octane, 34% oxygen component you can put in gasoline. So I would actually say I'm bullish on the export markets.
We've spent a lot of time in Asia, in particular, and India is very committed to 10% ethanol. I think that we're going to see further demand especially from India that could be an upside for us.
Carter Driscoll
Okay, I appreciate the commentary. You mentioned earlier that you feel comfortable that the Kakinada plant is going to scale from one to six per month.
Also if I heard correctly, you thought refined glycerin would be a big portion of that. I'm just trying to square that between the biodiesel production and then the byproduct.
I'm just trying to get a sense of the mix for modeling purposes, different ASPs, obviously on different tonnages, as well. Can you just comment on that?
Eric McAfee
Sure, the glycerin plant usually is correlated with biodiesel production because 10% of what comes out of the biodiesel plant is crude glycerin, and then we design the plant to upgrade that crude glycerin. In our particular situation, we were the first bulk crude glycerin importers into India, saving several hundred thousand dollars per shipment by putting the material into a ship hold rather than into flexi-tanks and some other more expensive way to transport material.
So we've been able to then go to biodiesel production countries, such as Argentina, load the ships up with literally several thousand tons of glycerin and then bring it to India and in bulk, bring it to our plant. That efficiency has driven our margins and enabled us to get our glycerin plant to full capacity ahead of our biodiesel plant being in capacity.
The answer to your question about blend is that we are at glycerin production capacity numbers now and that business is a business that's a $15 million per year kind of a business, and margins are healthy. So that's already happening.
And then, separately, as we ramp up our biodiesel business, that's really about this pretreatment unit that we had to take the plant through a complete clean out in order to get that pretreatment unit up to speed. So as we see biodiesel ramp up, the revenue growth will really be on biodiesel, with a slight growth in glycerin just based upon commodity price increase in crude oil and driving up glycerin prices.
But, I would put glycerin at being a nice solid profit contributor and revenues are going to be more significant in early quarters and less significant in further quarters. The biodiesel plant at 12,500 tons a month, 50 million gallons a year is today expecting to ramp up to a business that's over $100 million of revenue.
Last year combined revenues were, I believe, about $20 million for the entire unit, biodiesel and glycerin.
Carter Driscoll
Okay, so it's just - I guess, long story short, it's a temporary phenomenon and you expect biodiesel to far outstrip the glycerin revenue over time.
Eric McAfee
Yes, by a factor of six times, yeah.
Carter Driscoll
Got it, okay. Two others from me, and then I'll get back in the queue.
So help me understand just the timing of the qualification for the USDA loan. It sounds like you've spent some funds on permitting and beginning of long lead-time securitization of long lead-time equipment.
What left do you have to spend, and when can you do so in the timing? If say, the approvals were delayed at all, would that impact your plans to have the plant up and running in the back part of '19?
Help me understand how you got to the $80 million figure. Would that be from one full plan, or is that the two - the three stages you're hoping to build it in, just trying to get a better sense of the economics.
Eric McAfee
Let's start at the back end of what we're building. The $80 million range is one 12 million gallon plant with its animal feed byproducts.
We produce fish meal as a byproduct. It's worth about $1,500 to $2,000 a ton.
From our corn ethanol business today, we generate less than $200 a ton from our byproducts. So it's a dramatic increase in the value of the byproduct of being produced.
We also have some biogas and other materials that are sold as byproducts. So all in, including 12 million gallons of cellulosic ethanol, it's slightly more than $80 million of revenue and that kind of increases over time as various things, such as the federal D3 RIN value, which goes up slightly every year by federal law.
So to get there, we have $125 million USDA loan guarantee that was internally approved by the USDA in Q4 2017. They are now doing a White House Office of Management Budget rating.
It has no impact on us as a borrower. It doesn't change the interest rates or anything.
It's an internal issue that describes how much capital needs to be set aside at the USDA to back up the loan, let's call it. So that process we're completing this month, and we are being lead to expect that over the next few weeks we should see the commitment letter in place.
From that commitment letter to closing, I'm going to set the expectation, it's a 90 to 120 day process, but we have seen, just in the last few months, that process being completed in only a 60 day period or so. So I would expect that this summer we would then close 125 million and the other related financing, which would fully fund the entire project.
The way that the program's currently set up is that they want all of the cash in an account at the time of closing. So we would end up with a total of $158 million of funding at the closing and then draw down from that as we construct the plant.
The USDA loan is set up so that the first two years has no interest payments, has no principal payments, so we're able to construct the plant, operate the plant, and frankly, take the cash flow and use that to kind of buttress the balance sheet of the company prior to starting the interest and principal payments to the USDA. It's a 20 year amortized loan, so every year we have significant positive cash flow from that loan after paying principal and interest payments.
Of an estimated $13 million a year, we expect positive cash flow to be easily in excess of $30 million per year, after paying that principal and interest amount to the USDA.
Carter Driscoll
Okay and then does your belief or desire to see Mr. Pruitt removed have any potential impact on this stall and approvals for different types of advanced biofuel facilities in the US?
I mean, is it a requirement, I guess is what I'm asking?
Eric McAfee
No. And actually, the construction of our plant is not being impacted by Pruitt.
Because we're using existing pathways, they're already approved processes to take the feedstock we have. What we're seeking though is that there are a number of corn fiber cellulosic ethanol applications that have just not gone through very quickly and accelerating that process will improve the number of D3 RINs in the market, will have a positive impact on the perception of the growth of cellulosic ethanol.
If you don't have the RIN, you can't produce it, so obviously it would be an acceleration of the entire momentum to support what we're doing here. As a reminder, we're doing 12 phases.
In four plants, we're doing 12 phases. Each phase is this 12 million gallon investment we're doing.
So we have a very large ramp up of production in order to solve an air quality crisis that's happening in the Central Valley of California from orchard and other wood burning. So four different plants, each built with three phases, means that there would be a significant contribution by California to the national cellulosic ethanol production number, with about 160 million gallons of cellulosic ethanol coming just from one small region of the Central Valley of California.
We think that meets the goals of the Renewable Fuel Standard, it meets congressional intent, it meets the major oil companies needs for RINs, and quite frankly, I think it's very good for the Trump administration going in to midterm elections to announce their strong support for advanced biofuels by fully enforcing Renewable Fuel Standard.
Carter Driscoll
A couple of housekeeping items before I turn it over. So first question is, the jump in the interest expense from a onetime fee, Todd, could you help me understand that.
And then, maybe a small source of confusion for me, I saw - and the relief that the EB5, at least on the balance sheet, was down to 16. Is that just short versus long term?
Because I see it in the Q as the statutory figure I saw similar to last quarter, just trying to reconcile a little bit.
Eric McAfee
I'll let Todd take both of those.
Todd Waltz
Yeah, thank you Eric. On the EB5, you're absolutely right.
That was just a movement between the classifications, so you're seeing the EB5 investor moving from - some of those notes, moving from long term into the current. It's still a $35 million outstanding.
So just take each of those components and add them together and the EB5 is the same number.
Eric McAfee
Let me interject quickly, that the processing of these investor's immigrations - the immigration paperwork has what's called retrogression involved and so most of these investors are Chinese, and there's a limit on the number of visas and green cards being issued to Chinese every year. So though these notes move into current column, the investors are actually signing extensions so that their investment stays in place while they're pending with the immigration program.
That can add another couple years, maybe even three years to most of these notes. So as we go over the next year and see these extensions get filed, you could see numbers move back in to the long term out of short term.
Todd Waltz
I was going to say, on the second point with the onetime charge of interest. We had an extension on the loan with Third Eye, and rather than doing a one year, we arranged for a two year extension, and we received sort of a lesser renewal fee as a part of that extension.
It turns out we touched a bit of the accounting literature that said we actually received a concession from our lender, and when you receive a concession from the lender, the accounting literature tells us that we have to take a charge immediately for all of those fees. So this was a fee that normally would have been charged in the income statement over the next two years, but because we saw a lower fee on the renewal, the accounting literature had us take that as an immediate charge.
Carter Driscoll
Sounds similar to the federal government the lower increases in the rate of taxes are considered tax cuts.
Eric McAfee
Are cuts, yeah, dramatic cuts, yeah.
Carter Driscoll
Alright, not big there and then just lastly, is there any effect, Todd, from the retroact - well, I should say the new rev rec rules put in place Jan 1?
Todd Waltz
The biggest impact we will see from those new rev rec rules is just additional disclosure and that disclosure is - we started down that process with the 10-Q that we filed today, but we're not expecting it to have a transactional impact or any kind of significant recognition impact in terms of the overtime, so no, very little impact outside of additional disclosures.
Carter Driscoll
I appreciate guys for taking all my questions. I'll get back into queue.
Eric McAfee
Thank you, Carter. Why don't we go ahead and wrap up the call today?
Eric McAfee
And I want to thank all the Aemetis shareholders, analysts and others for joining us today. We look forward to meeting with you and continue our dialog about pursuing growth opportunities at Aemetis.
Todd?
Todd Waltz
Thank you for attending today's Aemetis earnings conference call. Please visit the investor section of the Aemetis website, where we'll post a written version and an audio version of this Aemetis Earnings Review and Business Update.
Operator
Thank you. This concludes today's teleconference.
You may disconnect your lines at this time. Thank you for your participation.