Biomass Expected Returns: The Capital Asset Pricing Model

1. Biomass Expected Returns:The Capital Asset Pricing Model Larry Sullivan, Project Management Consultant Adjunct Professor, The Citadel Economic Geography Trident Technical College Lawrence D. Sullivan & Company, Inc. Carla M. Wood, Ph.D. Dubai Bio Expo - 2015 Al GhurairRayhaan by Rotana Dubai 2-4 November 2015

2. My Childhood Home in New Orleans, Louisiana where Hurricane Katrina left its impact.

3. Lawrence D. Sullivan – Past & Present • 20 Years in Oil & Gas (Dresser, Imperial Chemical Industries & Conoco/Dupont) as Petroleum Engineer and Manager • Last 13 Years in Biofuels, Biomass, Biochemicals - Early Stage Firms • 15 Years Living and Working Outside the USA – SEAsia, Middle East, EU & Africa • Speaker at 35 Conferences –Beginning at 2004 Biotechnica America on Biofuels • Advisor to Gerson Lehrman Clients Top 2% Expert since 2004 • Due Diligence for GLG Clients • Turner, Mason & Company - Oil Refiner Acquisitions of Biofuel Assets in 2008 and 2009 • Expert Witness • Adjunct Faculty at Trident Technical College and Adjunct Professor at The Citadel 3

4. Carla M. Wood, Ph.D. Academic Career • B.S., The Evergreen State College - Biochemistry • Ph.D., Texas A&M University – Biochemistry & Cell Biology • Post Doctorate, Baylor College of Medicine, Depts. of Cell Biology – Human DNA Repair, Cellular Transformation & Mutagenesis • Staff Scientist, NIH, National Institute on Aging, Molecular Genetics – Genes of Senescence, Stress Response, & DNA Damage • Research Assistant Professor, University of Minnesota – 1) Expression Analysis of Non-Receptor Protein Tyrosine Kinases in Childhood Leukemia 2) Biomarkers in Multiple Myeloma • Patent Law Technical Advisor, Merchant & Gould, LLC, Minneapolis & Seattle Consulting Career • Consultant at L. D. Sullivan & Co. Since 2004 (Owner Since 1998) • Advisor to Gerson Lehrman Group Clients - Top 2% Experts • Due Diligence for GLG Clients • Expert WitnessBiotechnology Cases 4

5. Outline of Presentation – Themes • What is the Capital Asset Pricing Model (CAPM) and who uses it? • Return on Capital Employed (ROCE) on investments in raw materials production (e.g., Extraction, Forestry, Agriculture, etc.) with focus on the “arm’s length transactions” between owner of biomass and buyers of biomass. • ROCE on the Basic Chemicals (generally has “mining” components) • ROCE on the conversion of raw materials to petrochemical intermediates (and Basic Chemicals as well as Seven Building Blocks) • Capital Investment Expectations and Conclusions • References and Sources: • www.bizstats.com • Measuring and Addressing Investment Risk in the Second-Generation Biofuels Industry. ICCT. December 2013. www.theicct.org • NexantThinking™ “Next Generation Biofeedstocks: Resources for Renewables” www.Nexant.com Addresses raw materials • Luxresearch, http://web.luxresearchinc.com/download-webinar-alternative-fuels-9_23_14 5

6. General Concepts for Presentation – Terms Defined • Private Enterprise without state ownership is foundation in US although government is the single largest landowner and hence biomass owner. And, Crown Lands in Canada is noted. Private Land is the Exception, not rule of our world • Tax Credits (income versus excise) – no income, no credit! • Crop Insurance and Forestry? • Export Import Bank – oil subsidy and incentives for oil (issues of depletion compared to renewables) • Basic Land Value or BLV • “Arm’s Length Transactions” • Lifestyle Ranching & Farming Decisions • Forestry versus Agriculture and the BCAP Program • Bone Dry Metric Tonne (2,205 pounds) • Real Estate Investment Trusts (REIT) - Forestry • Master Limited Partnerships (MLP) – O&G • Farm gate, FOB, ex-works, C&F, CIF, etc. Or, what is the price laid on the side of the road? • What is “Economic Rent” and why few talk about it in public? • CAPM shows early or pre-mature IPOs challenged the investors and resulted in excessive ROI expectations • Beta in the CAPM • Cases with KIOR, GEVO, SYNM, CERE, AMRS, etc. • GEVO should be compared to PEIX and GPRE as they use corn as feedstocks.

7. Capital Asset Pricing ModelReturn on Capital Employed (ROCE) Formula: Terms: Return on Capital Employed (both equity and debt) or Equity or Debt Beta of 1.0 moves with markets Market Return is set by Investors Risk Free example is United Kingdom Perpetual Bonds ICCT reports that Beta on public biotech requires high ROCE for investment 7

8. Oil and Gas Extraction (2011)High Risk, High Rewards • Return on Sales 38.56% • Return on Assets 20.53% • Return on Net Worth 29.28% • Quick Ratio 1.62 • Current Ratio 2.28 • Inventory Turnover 13.86 Note: Oil prices in 2011 averaged $111/bbl (WTI - Cushing, OK) and natural gas was $3.98 per 1,000,000 cubic feet (Henry Hub, LA). Data for typical $25-50 million asset class independent oil exploration firm. 8

9. Farmers and Real Estate Investment Trusts (REITs) • The DOE Billion Ton Study and Update relative to landowners does not look at expected return on Bare Land Value (BLV). • Generally landowner and REIT are passive. They own land the resources under it or on it. Sometimes they retain ownership and lease for value added but are not active in the value chain as Pulp & Paper went offshore and/or exited (MWV, IP, etc.) • Landowners – technology firm with genetics or equipment to convert cellulose to sugars – conversion company to make cellulose into biofuels, biochemicals or power – who is whom? • Levi Strauss was quoted to be “mining the miners….”

10. Extraction Industries: Agriculture and Forestry (2011) • Return on Sales Ag 17.81% Forestry 3.14% • Return on Assets Ag 28.42% Forestry 20.62% • Return on Net Worth Ag 72.02%Forestry 137.39% • Quick Ratio Ag 0.8 Forestry 0.48 • Current Ratio Ag 1.11 Forestry 0.5 • Inventory Turnover Ag 4.53 Forestry 88.26 Notes: LLC, Inc., (no MLPs) with Net Assets from $1000 – 500,000 which would include farmer-owned cooperative societies, cattle ranchers, independent forestry owners and small time miners. Does not cover processors like ADM, Cargill, Bungeor REITs in forestry, agriculture and mining like Plum Creek or Hancock. 65% of SE USA Forestry is “ma and pa” or small time land owners or “Sole Proprietors” who make at 10.86% “net profit….” 10

11. Early stage producers are naïve about the real costs of cellulosic biomass according to luxresearch Lab Concept Development Introduction Scale Company Maturity

12. Gartner’s Time Lines compared to the Typical S Curve

13. Basic Chemicals and/or Mining (2011) • Return on Sales 5.26% • Return on Assets 10.80% • Return on Net Worth 21.25% • Quick Ratio 1.04 • Current Ratio 1.78 • Inventory Turnover 13.03 Notes: Covers Bizstats data for both the chloro-alkali industry (NaCl, NaOH, Na, Cl, soda ash, bicarbonate, NaO) and the sulfur (H2SO4) from both synthetic to mining. Not petrochemicals or TiO2. To a degree this can be considered an extractive industry. Asset class is $100 to 500 million. 13

14. Petroleum Refining (2011) • Return on Sales 24.46% • Return on Assets 31.02% • Return on Net Worth 46.33% • Quick Ratio 2.96 • Current Ratio 3.93 • Inventory Turnover 8.69 Notes: Covers Bizstats data for both independent refiners (e.g., Tesoro, Valero) and integrated oil & gas production companies who own refinery assets (e.g., Shell, ExxonMobil, Total, BP). It does not cover NYSE traded part State Owned Enterprises (SOE) of China, Brazil, Norway. The typical refinery in this class is $25 - 500 million in asset class. 14

15. Conversion of Olefins to Petrochemical Plastics (2011) • Return on Sales 6.04% • Return on Assets 8.72% • Return on Net Worth 18.47% • Quick Ratio 1.08 • Current Ratio 1.97 • Inventory Turnover 6.36 Notes: this includes Bizstats heading “resins, synthetic rubber, and fibers & filaments” for example polypropylene, not propylene, or PET resin, not para-xylene, ethylene glycol or dimethyl terephthalate. Asset Class here is $100 – 250 million. Cargill Natureworks PLA Plastics could be in this class. 15

16. Why Make Biofuels? US Fuel Projections 16

17. What is Corn (Maize) Ethanol All About?Missouri is “The Show Me State” 2011Source: University of Missouri - http://agebb.missouri.edu/ 17

18. Corn Ethanol – Follow the MoneyHigher Yields, Better Basis and Farm Incomes UpUS Farm Policy is a Success Bushels Per AcreFarm Income in Millions 18

19. As Corn (maize) Producers have Done Wellso have the Petroleum (Oil) Producers – However,natural gas producers need to export(note “nominal” US$ per million btu) 19

20. Fundamental Economics - Petrochemicals • If integrated to large refinery complex (BASF, Shell, ExxonMobil, Saudi Aramco, etc.), then petrochemicals are world class cost basis. In biomass it appears algae could be the only integrated pursuit. • If a stand-alone facility, then purchasing of the key intermediates could be disadvantaged depending upon locations in the world. • Historic fuels/refinery ROI over 40 years averages 9.6% • Historic standalone petrochemicals are 16.7% - however it is 5 - 7% the size of the fuel markets with few producers and buyers. • Most integrated refinery and petrochemical plants have ROI between the two above since locations can widely for returns. And there are many national petrochemical firms like Sabic which operate outside these parameters. Source – www.bizstats.com and 35 years in oil and gas, petrochemicals. 20

21. Conclusions • Financial analysts use a variety of tools to evaluate biofuel, biomass, algae, biochemical, etc. investments today. • CAPM is a common tool for equity analysts. • Historic data and benchmarks such as Bizstats allow analysts to advise fund mangers. Transparency is the key term! • To Review – ROCE (Net Equity and Debt): • Oil and Gas Extraction 29.53% • Cooperative Agriculture and Forestry 72.02% and 137.39% • Basic Chemicals 21.25% • Petroleum Refining 46.33% • Conversion to Petrochemicals 18.47% • Advanced Biofuels needs to demonstrate over 20% ROCE to attract capital against these benchmarks using existing IPO Beta and CAPM. • Conclusions of Lux and ICCT work. Thanks to them for insights. Thank you for your time and attention to our presentation. 21