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On October 30, 2013, members gathered to discuss market conditions and outlooks. Spot margins remain positive despite a highly inverted market for the next five months. Anticipating an inverse break, strong exports are expected to drive margins into Q1 2014. Local grain supply is favorable while cattle number declines may affect demand. The EPA remains silent on new legislation, with environmental carbon markets stable. Key operational highlights include production efficiency improvements and financial updates. Members addressed questions regarding potential risks and distributions.
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Members’ Meeting October 30, 2013
How Are the Markets Looking? • Spot Margins are Still Positive • Markets are Still Highly Inverted for the Next 5 Months • We are Anticipating the Inverse Break as Harvest Fills the Pipeline • Exports Still Look Strong for Q4 ‘13 and Q1 ’14 • Exports Will Still Drive Q1 ‘14 Margins • It Doesn’t Look Like Brazil Will be a Factor at Least Thru Apr ‘14 • We Have a Good Local Supply of Grain for the Upcoming Year • Declining cattle numbers could impact WDG demand
How is the Industry Looking? • Nothing new From the EPA at This Point • CA Carbon is Still Strong • We Hope to Hear Back from CARB by Year-end • We Scheduling our Enogen Startup at BBE for Dec. • AE is Scheduled for mid 2015 • California Will Continue to be the Market for BBE • AE Will Participate in the Robust Export Market
No decisions have been made on the RFS2 • EPA is scheduled to announce ‘14 blending requirementsin Nov. • We are not aware of any adverse decisions at this time • 14.2B gals would support current domestic production • Or any combination of domestic usage and exports • We believe there will be changes to the cellulosic and advanced biofuel requirements • The current RBOB / Ethanol spread should encourage higher blend usage. • 2014 will bring significant decisions impacting our industry. • RIN prices have declined from a high of $1.50 to $0.22 cents
Operational Summary • Production • AET – 102% of Nameplate Q3 and 101% YTD • BBE – 100% of Nameplate Q3 and 102% YTD • Both Plants Had Annual Maintenance Shut Downs in Aug • Yields • Arkalon Averaged 2.77 YTD Adjusted for Export Sales • Bonanza Averaged 2.83 for Q3 • 2012 Crop Starch Content was Lower Than Average • 2013 Crop Starch Should be Higher • Operational Initiatives • Working With Marshall Institute to Dial in Efficiency and Preventative Maintenance as Plants Age
Things are Better in 2013 Crush Margins Improved $.20 per Gallon YOY at AET Crush Margins Improved $.58 per Gallon YOY at BBE – CA Markets Were Very Good
Conestoga Energy Partners Net Revenues = Total Fee Revenue + Logistics Gross Profit
Arkalon Refinance • Arkalon Will be Refinanced by end of October • Will Ultimately Save • $5.5MM in Principal, or $0.05 per gal • Reduce Interest Costs by 125bps based on Fixed Rate of 5% • Increase in Unit Equity Equity of $98/Unit • We Will Begin the Process of Seeking to Combine all Term Debt Under Conestoga Energy Holdings
Questions • Will There be a Distribution This Year? • We are Expecting to Make Distributions but Need to see how Things Shape up in Q4/Q1 to Determine the Amounts • Will There be a Tax Liability This Year? • We are Projecting a Positive NI and There Will be a Liability. We are Working on Mitigating the Impact to our Members and Will Have Some Communication to our Members in Q4.
Questions • Are There any Risks That we Haven’t Already Discussed? • No new Risks at This Time. We Will Always Have Market Risk, Weather Risks and for the Time Being Legislative Risks.
