Syntroleum receives $12 million in committed equity financing, announces site for $135 million synthetic biofuels plant

Synthetic biofuels developer Syntroleum Corporation today announced that it has entered into an agreement with an affiliate of Fletcher Asset Management which requires Fletcher to purchase $12 million of Syntroleum common shares over the next 24 months pursuant to its existing shelf registration statement. The issuance of the securities is subject to certain closing conditions.

In a related development, Syntroleum also reports that Louisiana Governor Kathleen Babineaux Blanco and Dynamic Fuels, LLC have announced Geismar, Louisiana, as the site for Dynamic Fuels' new plant to produce next-generation renewable, ultra-clean diesel and jet fuel from vegetable oils and fats. The $135 million facility will have a capacity of 5,000 barrels per day and is scheduled for completion in 2010. Dynamic Fuels is a 50/50 venture between Syntroleum and Tyson Foods, Inc. to construct and operate multiple renewable synthetic fuel facilities (earlier post).

The agreement with Fletcher will make the investor put up an initial $3 million within the next six months at the market price of Syntroleum common stock plus $0.60 per share. If that market price equals the November 16, 2007 closing price of $1.49 per share, shares would be sold at a premium of 40 percent.

Fletcher will make later investments of $9 million in months 7 through 24 of the agreement at the prevailing price minus $0.20 per share. Warrants will be issued for 50 percent of the shares purchased in the later investments, with an exercise price equal to the price of the first later investment plus $0.40 per share. Wm Smith & Co., based in Denver, Colorado, acted as sole placement agent.

We are very excited about Syntroleum's Dynamic Fuels venture with Tyson Foods to construct renewable synthetic fuels plants. We've invested in Louisiana and the dynamic new field of renewable energy for years and look forward to sharing our insights with Syntroleum as they review alternatives to raise the balance of the capital they require to construct Dynamic's first plant. - Alphonse Fletcher, Chairman of Fletcher Asset Management.

Dynamic Fuels, the joint venture between Syntroleum and Tyson Foods, selected Lion Copolymer's Geismar plant as the site for their first facility. The Geismar plant will have a capacity of 75 million gallons per year and will utilize Syntroleum's Biofining technology and feedstock supplied by Tyson Foods.

The Biofining process [*.pdf] is a 'flexible feed, flexible synthetic fuels' technology capable of processing a wide range of renewable feedstocks including vegetable oils, fats and greases into a broad slate of synthetic ultra-clean fuels, including summer to arctic grade diesel fuel and jet fuel. This dual flexibility is unique in the renewable fuels industry. Biofining processes triglycerides and/or fatty acids from fats and vegetable oils with heat, hydrogen and proprietary catalysts to make renewable synthetic diesel or jet fuel (in this sense it is similar to other hydrogenation based renewable diesel production processes, such as UOP's 'green diesel', Galp Energia's 'H-biodiesel' or Petrobras' 'H-Bio') . The resulting fuel products are extremely stable, exceed all the standards of conventional petroleum based fuels, and are usable across a very wide band of operating temperatures as both diesel and jet fuel.

Syntroleum’s core technologies involve three key, patented processes, which form the starting point for the Biofining process (schematic, click to enlarge):

1. Production and cleanup of synthesis gas consisting of carbon monoxide (CO) and hydrogen (H2)
2. a Fischer-Tropsch process used for the production of biomass-to-liquids (BTL), coal-to-liquids (CTL) and gas-to-liquids (GTL) fuels; the key innovation is a process whereby the synthesis gas is converted to wax
3. Synfining, or product upgrading, which transforms this Fischer-Tropsch wax into diesel and jet fuel.

The Biofining process leverages Syntroleum’s Synfining technology and product upgrading experience to produce renewable synthetic fuels from a variety of renewable feedstocks. The renewable synthetic fuels produced via Biofining are ultra-clean and much higher quality than those produced via conventional processes. The Biofining process is therefore a natural extension of Syntroleum's existing technology and business model:
energy :: sustainability :: biomass :: bioenergy :: synthetic biofuels :: biodiesel :: biomass-to-liquids :: Fischer-Tropsch :: hydroprocessing ::

With its roots in Fischer-Tropsch process technology, Biofining also provides an economical pathway for the company to migrate into the emerging biomass-to-liquids (BTL) industry. By incorporating a gasifier and Fischer-Tropsch reactor to an existing Biofining plant, Syntroleum will then be able to produce ultra-clean and renewable synthetic fuels from biomass. This migration strategy is significant because the amount of potential biomass feedstock in the United States (1,300 million annual tons) dwarfs the current supply of vegetable oils and fats (15 million annual tons), and presents the true long-term growth opportunity in the renewable fuels industry.

A significant advantage of the Biofining process is the flexibility of the feedstock—vegetable oils or fats and greases, of a wide variety of quality levels (both inedible and edible) and in any proportion, can be successfully used by the Biofining process to produce renewable synthetic diesel or renewable synthetic jet fuel—all of the same high quality. Syntroleum plans to use low grade fats and greases in its plants because the cost is typically cheaper than vegetable oils, and because the use of low grade fats does not impact the human food supply.

Biofining fuels have lower emissions, near zero sulfur, no aromatics, and higher cetane levels than comparable conventional fuels. Biofining fuels can be used at much lower operating temperatures, and can be fully utilized in engines without having to be blended with other fuels. They are expected to be completely compatible with existing pipelines, storage facilities and other conventional fuel infrastructures. In summary, Biofining fuels are ultra-clean, flexible in their use, produce fewer emissions and are environmentally friendly.

Louisiana's governor commented on the selection of the site for the first Biofining plant:

I want to thank Dynamic Fuels for choosing Louisiana to create high-paying technical jobs and making the capital investment necessary to employ this new proprietary technology. This decision will allow even more Louisiana agricultural by-products to be converted into premium value-added products. - Governor Blanco, State of Louisiana Economic Development office

Syntroleum and Tyson Foods spokespeople added:

The site provides excellent people, infrastructure and utilities with an outstanding safety and environmental record. We look forward to working with Lion and expect that installing our plant within the existing complex will minimize cost while keeping Dynamic Fuels on schedule for production in 2010. - Jeff Bigger, senior vice president of Syntroleum Corporation.

The state of Louisiana, including Governor Blanco, the economic development team and local officials, have been outstanding partners to work with throughout our site selection process. This marks another important milestone in the execution of our strategy of leveraging access to animal by-products, our trading skills and industry relationships to become a premier player in renewable energy. - Jeff Webster, senior vice president of Tyson Renewable Products Division

Syntroleum has developed an advanced Fischer-Tropsch (FT) conversion process that converts synthesis gas derived from biomass, coal, natural gas and other carbon-based feedstocks into liquid hydrocarbons. It also owns the Synfining Process for upgrading FT liquid hydrocarbons into middle distillate products such as synthetic diesel and jet fuels, and the Biofining technology for converting animal fat and vegetable oil feedstocks into ultra-clean middle distillate products such as diesel, jet fuel, naphtha and propane.

Together with Tyson Foods, Syntroleum is focused on siting, engineering and constructing a plant that produces clean renewable synthetic diesel and jet fuel using low grade fats and greases as feedstock. The 50/50 venture, Dynamic Fuels, was formed to construct and operate multiple renewable synthetic fuel facilities, with production on the first site beginning in 2010. The Company plans to use its portfolio of technologies to develop and participate in synthetic and renewable fuel projects.

Fletcher Asset Management pursues an investment strategy that combines traditional investment management, corporate finance, quantitative methods and social responsibility. Since 1991, the firm has invested roughly $1 billion in promising companies led by solid management teams with responsible business practices.

References:
Syntroleum: Syntroleum Receives $12 Million in Committed Equity Financing - November 19, 2007.

Syntroleum: Syntroleum Announces Site Selection for Dynamic Fuels Joint Venture - November 15, 2007.

Syntroleum: Syntroleum Biofining - Flexible Feed / Flexible Synthetic fuel [*.pdf] - June 2007.

Biopact: Syntroleum and Tyson Foods to produce ultra-clean synthetic biofuels - June 25, 2007