Clean Energy Fuel Inc Q3 2008 Earnings Call Transcript

Nov.13.08 | About: Clean Energy (CLNE)

Clean Energy Fuel Inc (NASDAQ:CLNE)

Q3 2008 Earnings Call

November 13, 2008 03:00 am ET

Executives

Andrew Littlefair - President and Chief Executive Officer

Richard Wheeler - Chief Executive Officer

Ina McGuinness - Integrated Corporate Relations

Analysts

Patrick McGlinchey - Sidoti & Company

Pearce Hammond - Simmons & Company

Eric Stein - Northland Securities

Ron Oster - American Technology Research

Graham Mattison - Lazard Capital Markets

Rob Brown - Craig-Hallum Capital

Operator

Greetings and welcome to the Clean Energy Fuels third quarter earnings conference call. At this time all participants are in a listen-only mode and a brief question-and-answer session will follow the formal presentation. (Operator Instructions)

It is now my pleasure to introduce your host Ina McGuinness of Integrated Corporate Relations. Thank you Ms. McGuinness, you may now begin.

Ina McGuinness

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the third quarter and nine months ended September 30, 2008 quarter. If you’ve not received the press release, it is available on the Investor Relations section of the company’s website at www.cleanenergyfuels.com. This call is being webcast and a replay will be available on the company’s website for 30 days.

Before we begin we would like to remind you that some of the information contained in the news release and on this conference call consists of forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Words and expressions reflecting optimism and satisfaction of current prospects, as well as words such as “believe,” “intend,” “expect,” “plan,” “anticipate,” and similar variations identify forward-looking statements but their absence does not mean that the statement is not forward-looking.

Such forward-looking statements are not a guarantee of performance and the company’s actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of the Clean Energy’s Form 10-K filed with the SEC on March 19, 2008 and subsequent filings.

These forward-looking statements speak only as of the date of this release and the company undertakes no obligation to publicly update any forward-looking statements to reflect new information, events or circumstances after the date of this release.

Participating on today’s call from the company are President and Chief Executive Officer Andrew Littlefair and Chief Executive Officer, Richard Wheeler and with that I’d like to turn the call over to Andrew.

Andrew Littlefair

Thank you Ina and good afternoon everyone. This quarter we have good progress to report to you. We saw our revenue increase by 21% with volume up over last quarter and our adjusted margins per gallon expanded by 17%. Rick will cover our financial performance in much more detail, but in general we think awareness in this country of what natural gas can do for transportation is growing. More and more clean operators are looking at how natural gas can benefit their operations and this increasing interest is positive for our future.

In the third quarter, in order to benefit from that increased interest we raised approximately $32.5 million to help fund capital projects and carryout our station build-out strategy. We are pleased to raise this capital in light of the difficult state our economy is in.

We had planned to raise the money late last summer, but the pending purchase of FuelMaker complicated our ability to access the capital markets and when the FuelMaker deal was terminated in October and those constraints were lifted of course, the financial markets and the economy had deteriorated. So overall we are pleased to get this financing completed in such a tough market. We will put that money to good use for station construction and business expansion.

Since our last conference call oil has dropped in price about 50% and natural gas is off about equally. We will continue to see the prices fluctuate, but what is most important is that we still offer a compelling solution for fleet operators even at lower prices with good margins for our business. The exorbitant prices for diesel that we saw over the past several months created a impetus, but fleet operators take a hard look at their fuel diversity.

Most of the fleets that we are working with realize that they will inevitably see higher diesel prices again. Moreover the new diesel emission standards that are just around the corner in 2010 will likely mean higher engine and maintenance costs and increase efficiency for diesel engines. This is yet another strong incentive for them to be thinking longer term about which fuel is best to power their fleets.

Let me give you a real life example of the significant savings that an operator can generate by running on natural gas. Today at the port of Los Angeles and Long Beach there is a trucking fleet that is running new energy trucks and each truck uses about 6,000 to 8,000 gallons of fuel per year. Now this is a lower fuel use example, but there are many millions of short haul trucks that operate in our nation, so this example is representative of a lot of trucking fleets.

This trucker saves $0.78 per diesel gallon equivalent which equates to about $4,500 per year and on a monthly basis the savings is equivalent to $400 monthly payment on its new energy truck. No other alternative fuel can do that and imagine the savings for trucks that use 15,000 to 20,000 gallons per year.

On a legislative front, as part of the economic stabilization bill that was signed in October, V Tag was extended through December 2009. We view this as important as V Tag will now be aligned with other alternative fuels when extensions are considered and they will be.

Turning to Proposition-10, California voters last week turned down the California renewable energy and clean alternative fuels initiatives. The passage of Prop-10 would have provided a funding mechanism for a wide variety of clean energy projects in California, including consumer rebates for the purchase of alternative fuel vehicles and the construction of renewable energy generating facilities such as solar and power plants.

As you know we supported the initiative, and while Prop-10 may have served as a catalyst to accelerate our growth, its failure does not reduce our business opportunities. Our core business remains strong and we still see a significant pipeline in new customers for our fueling stations. We have completed 12 station projects to date this year and we have 27 more in various stages of completion. We are targeting to complete up to 20 of these projects by year-end.

We are pleased to see Toyota unveil its CNG Camry Hybrid at the Los Angeles auto show next week. We believe Toyota’s decision to show this product reflects that growing public focus of natural gas is a cheaper, cleaner, and domestic alternative to fuel.

We now like to discuss a key acquisition we made in the quarter; the 70% interest in the Dallas Clean Energy which owns the McCommas Bluff landfall fuel gas processing plants in Dallas, Texas. McCommas is the third largest land field gas operation in the United States. This is a major strategic action for us as it enables us to introduce renewable biogas into the pipeline system.

By developing biogas resources we intend to create programs that will enable customers to reduce their carbon emissions, lower their costs, and increase the green valley of their operations by fueling natural gas vehicles with renewable biogas. A lot of these companies which were among our biggest customers are seeking our help and making the connection between methane gas from their landfills and it’s used for transportation to fuel their trucks.

Since our acquisition of McCommas we’ve increased production by 60% to about 800,000-gallon equivalent per month. Going forward we intend to invest additional capital into this joint venture to increase production further. This program primarily will be funded through our $12 million line of credit with Plains Capital Bank that we established as part of the debt facility we obtained to acquire McCommas.

Our plain acquisition of FuelMaker from Honda was recently terminated due to FuelMaker and Honda’s inability to supply audited financial statements which of course was a term of the acquisition. We still like the idea of FuelMaker which manufactures the vehicle home fueling appliances.

Let me bring you up to speed on the construction of our Clean Energy, California Energy Plant. I’m pleased to report that we commenced the commissioning process two weeks ago and deliver our first load to our Carson Energy Fueling station last night. While the plan is operating and we have a few feet of liquid in the tank, this is a landmark step for us as we prepare to supply the LNG needs of trucking and transit in the southwestern region of the United States.

Turning to the ports of Los Angeles long beach, progress is steady, albeit slower that we would like. On the original 100 LNG trucks that we financed to launch the program, 90 are on the road and being fueled at our station. The remaining 10 will be service shortly and another 132 have been delivered and are being placed in to service. Requests for another 89 LNG trucks were submitted, so we believe there will be about 300 in service by the end of the year.

The port opened the next source for new trucks about three weeks ago and what that means is the port has gone out and asked people to put in orders for new trucks. Kenworth is in the final stages of expanding production capabilities that will allow for full-scale factory productions starting in April 2009 and Peter Gott made a similar announcement that they expect to be in production at their Texas facility in late spring 2009.

Also Swift Transportation Company which operates 37 major terminals in the United States and is the largest concession area to have signed up with the San Diego ports today has committed to use LNG trucks in its fleet serving the ports. Details of that arrangement are still being negotiated.

To review the truck plan, 4,000 older diesel trucks are targeted to be replaced in 2009. We’ve been assured by the ports and the port commissioners that their intent remains to replace 50% of these with alternative fuel vehicles and of course we believe that predominantly means LNG. We continue to work closely with the ports to keep this program moving.

Here are some of our recent business highlights. We are awarded a contract for up to 10 years from the sanitation bureau of the city of Los Angeles, the largest municipal LNG rough use fleet in the United States with 340 LNG trucks. The LNG fleet currently uses approximately $3.5 million gallons of clean burning LNG fuel each year. We will be using LNG produce in our new Boron facility to fuel this fleet.

Also on the rough use front, we are building and will operate a station for CleanScapes, a Seattle solid waste contractor that is a fleer of 40 CNG power rough use trucks. We are very proud to be working with CleanScapes’s to support one of the first CNG powered trash truck fleets in Washington State.

In Atlanta, at the extremely busy Hartsfield-Jackson Airport, we opened a public access CNG station. The station will serve a range of light, medium and heavy-duty vehicles including regional public transit buses, municipal vehicles, rough use hauling trucks and airport parking hotel and employee shuttle buses.

Next in Oklahoma City, Will Rogers Airport officials contracted with the Clean Energy to build and manage a large-scale public access CNG fueling station airport property. In addition to CNG powered airport transit and shuttle vehicles, the new facility will serve a growing number of CNG fleets in the area. These two contracts underscore a growing presence at airports across the United States.

Just last Friday, we announced that we’ve taken ownership of five existing Las Vegas CNG public access fueling stations. These stations are severing an every growing number of CNG powered municipal fleet vehicles, airport and hotel shuttle vans, limousines, taxis and passenger cars. Las Vegas is a very good market for us, because it’s relatively small geographically and the traffic concentration makings our fuel station access very convenient. We think Las Vegas presents a great opportunity for natural gas vehicles.

We have dozens of project proposal before customers and its sizeable backlog of stations in the pipeline. I remain extremely confident in our growth opportunities and our ability to capitalize on opportunities ahead of us. We continue to have an economic advantage with our fuel and with all the natural gas that’s been found in the U.S. We see the opportunities continuing for a very long time.

With that, I’d like to now turn the call over to Rick to discuss our financial results.

Richard Wheeler

Thanks Andrew. Before I review our financial results, I would like to point out that all my reference to our results will be comparing the third quarter of 2008 to the third quarter of 2007. We’re comparing the nine-month period ended September 30, 2008 to the nine-month period ended September 30, 2007 unless otherwise specified.

With that clarification for the quarter, our revenues increased to $35.5 million, which is up 21% from $29.2 million. For the first nine months, our revenues totaled $99.8 million, which is up from $88 million. Adjusted margin for the quarter was $10.3 million, which compares with $9.3 million and adjusted margin for the nine months was $27.6 million, which is up from $26.2 million.

Our net loss for the third quarter was $10.6 million or $0.24 per share, which compares to a net loss of $1.5 million or $0.03 per share. Our net loss for the nine months was $18.9 million or $0.42 per share versus a loss of $6 million or $0.15 per share in the prior period.

During the third quarter as you recall, we recorded the loss of $6 million on certain futures contracts we liquidated in connection with the portion of a fixed price bid for the city of Phoenix’s LNG supply contract that we were not awarded. This offset the gain we recorded in the second quarter of $5.7 million related to these futures contract. The net impact of these contracts ended up being $300,000. Including this loss, the loss per share would have been $0.10 for the third quarter 2008 and $0.41 for the nine-month period ended September 30, 2008.

As a reminder, under our modified hedging policy, we don’t speculate on futures contract, but rather we put contracts into place to lock in the economics on our fixed price contract. The largest contributors to our year-to-date increased loss were the gross margin on our fixed price contracts and the increase in our SG&A expenditure.

First looking at SG&A; for the first nine months of 2008 stock based compensation expense increased by $2.4 million. We saw marketing expenses increase by $4.2 million, primarily related to supporting Proposition-10 and salaries and benefits increase by $700,000, primarily related to the hiring of additional marketing personnel. We also spent $15 million in the fourth quarter supporting Proposition-10; you will see that in our SG&A expense next quarter.

Now looking at our margins; our actual margins in the first three quarters of 2008 have been negatively impacted by the net increase in the price of natural gas during the period. As you recall, the increased price of natural gas eats into our margin on the older fixed price contracts, where we were un-hedged. In fact our whole Phoenix contract was under water from an actual margin perspective and approximately $0.50 per LNG gallon through June 30 of this year, when it expired while obviously this weighed on our actual margin during the period.

With the expiration of the old contract and new pricing of the new Phoenix LNG supply contract on July 1, 2008, we’re starting to see our actual margins increase as alluded to last quarter. For example our actual margin in the third quarter of 2008 was $0.49 per gallon, which was up from $0.32 per gallon in the second of 2008, which is last quarter of the old Phoenix team.

Non-GAAP loss per share in the third quarter of 2008 was $0.18, was breakeven in the third quarter of 2007. Non-GAAP loss per share for the first nine-months of 2008 was $0.24 and was a loss of $0.02 per share last year. Including the hedge loss mentioned above non-GAAP loss per share would have been $0.04 for the third quarter of 2008 and $.23 for the nine-month period ended September 30, 2008. Invested margin in non-GAAP EPS are discussed in more detail in our press release we issued earlier today.

Turning to our volumes, we delivered 18.7 million gallons in the third quarter of 2008, versus 20 million gallon last year. Year-to-date we delivered 54.8 million gallon of fuel to our customers, compared with 57.1 million gallons delivered during the same period in 2007.

To reference our last call, we have three legacy non-core customers who accounted for 3.5 million gallons in the first nine months of 2007 that are not in our 2008 numbers. Including these legacy gallons, our volumes with new and existing customers actually increased by approximately 1.2 million gallons between periods.

Also of note, our volumes in the third quarter of 2008 increased by approximately 200,000 gallons from our volumes in the second quarter of 2008, which includes making up for approximately 1 million gallons related to loss portion of Phoenix LNG supply contract during the quarter.

With the $32.5 million dollars of net proceeds we raised that Andrew mentioned earlier, we have enough cash to fund our CapEx plan to the rest of the year and into next year. How far into next year and how much more cash we may need year, will depend on how quickly our satiation project and LNG supply needs continue to unfold.

I think it is important to remember that we do not burn cash when looking at our business from a normal operating perspective. Cash we need is for our growth projects: for example if you take our operating loss of $10.6 million in the third quarter, you have back the derivative loss, our depreciation expense and out stock option expenses during the quarter to the number, the resulting amount is a positive $400,000.

With that operator please open the call to questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Rob Brown - Craig-Hallum Capital

Rob Brown – Craig-Hallum Capital

Could you maybe just throw a little more color on your pipeline of news stations? I know you said a number of them would be completed in Q4. How much additional volume does that get you for the Q4 stations and then how many kind of stations you going to falling in the ‘09, and how does that pipeline look?

Andrew Littlefair

Rob, let me speak to the backlog, the pipeline and I think I’ve said this in the last quarter as well. I’ve never seen as many projects in the pipeline, and I was just reviewing that the other day and it changes and they come and go, but the number continues to increase. They don’t make our station carpet until we’re in negotiation with the customers and we’re well down the road negotiating with the customers with contracts.

Literally there’s 120, 125 stations in the pipeline. I can’t tell you exactly when those will come on and how many actually will get built in 2009, but I think I’ve said before; we’ll construct this year about 50% more than we did last year and that wouldn’t surprise me that we’ll do more than that next year.

Now the volumes; I don’t know that we’re going to project that for you, but you know and you remember in our discussions, we don’t spec these stations and they have to come with contracts and with volume of course. Some of them are large and some of them are smaller, but remember we like to think and this is really a kind of a broad brush -- we like to think that these stations have to do a minimum of 1000 gallons per day. That’s typically what we target for and some of them will be much larger than.

There are several large transit opportunities in the offering and in offing and some of those will be brought on in the quarter. So I can’t give you a number, I don’t know that I should, because we don’t really give that kind of guidance, but I’m beginning to start seeing the volume go in the direction I’d like to see it.

Rob Brown - Craig-Hallum Capital

And then on your natural gas project or acquisition, I guess has that yet started to bring additional rough use business to you and then maybe could you comment on how much additional volume your capital can bring in?

Andrew Littlefair

I’m not sure I understood the last part of the question, but let me say this, the landfill, the making vehicle grade fuel or even pipeline quality fuel from landfills as I said before it’s not without a lot of tricks to it and there’s a lot of constituency to landfill gas. The clean up technology, while it’s available it’s significant. Its one thing to make landfill gas and make electricity out of it, burn it to make electricity; it’s another to get it clean enough to be accepted into a utilities pipeline system, which they protect very carefully or to make it clean enough to meet methane standards that you need for a vehicle.

So our customers, we had a meeting last week where our Vice President who handles our rough use, he was a former Regional Vice President of Waste Management and I’m really very excited about what’s happening in the rough use industry. A lot of these companies are wanting us to look at working with them on their landfills, because as I’ve said before, they see it, they understand it, they really would love the concept of taking methane out of their landfills and putting it in their trucks.

They really see that as a nice closed loop system that they feel like it makes economic sense and they get good green benefits from it, but now we have to be very mindful of the fact that all these landfills are a little different, all of the life spans of the gas coming from them are different and you have natural gas going down in value. So we have to look at them closely where we are working with and we made a decision to go work with several of our rough use customers to move to the next phase on different projects and we’ll kind of see how it goes.

Now the second part of your question, I don’t know that I understood.

Rob Brown - Craig-Hallum Capital

I’ll clarify it. I think you said you put some additional capital in and you got the volume coming out of that facility up to 800,000 gallons a day. Excuse me and you also alluded to addition capital to increase that and I’m just curious how much --?

Andrew Littlefair

We have about another $12 million credit line that we’ll continue to spend some of that to increase the volume some more. I don’t know that I know exactly.

Richard Wheeler

I don’t know that we can answer that question right now, we are working with our partner right now to kind of figure out the best course to proceed in drilling additional wells and kind of maximize that, so fortunately we’re kind of going through that process right now.

Operator

Your next question comes from Graham Mattison - Lazard Capital Markets.

Graham Mattison - Lazard Capital Markets

A quick question on the SG&A; I know you mentioned it was going to be impacted in Q4 with a Prop-10 funding and also the share options, but what’s a run rate? How do you look at that? How should we think about that going forward in terms of what level that would run at in a normalized basis?

Richard Wheeler

Well, it certainly won’t be a $15 million hit going forward after the fourth quarter; its partnership does turns obviously down and they’re going to sit on the electrical wire. SG&A as we talked about before, I mean looking at the current quarter excluding the incremental $4 million or so that we have in there, is that year-to-date in incremental $700,000 we have in.

For the Prop-10 deal this quarter you factor out the stock based comp and you get to a kind of the cash base number, that number it’s going to go up a little bit as we continue to grow and expand and we’ve got a higher addition. Well and so into our existing markets and expand into other markets and capitalize on the growth that we think are out there and we believe that that deal is not going to grow anywhere near as fast, we are going to have good leverage relative to how fast our revenues start to grow and all that good stuff.

So with that caveat and with all other caveat that we talked about before that if something does come up, like albeit a tax situation or another cost situation and if it does make sense.

Graham Mattison - Lazard Capital Markets

And then just looking at the remaining fixed price contracts, I mean when will those start to roll over? When will we get to a point where we’re not going to see any real material impact on the --?

Andrew Littlefair

In 2009, the last big one, the fixed one expires in December of 2008. This phenomenon will eventually go away at that point.

Graham Mattison - Lazard Capital Markets

So by the end that it should be gone and then just finally looking at the ports, I know you mentioned that your, it’s not moving as quickly as you want, compared to where we were sort of three months ago at the last call; what’s your level of comfort with the ports rolling out on the time schedule that you though we’d see and so the potential that we could be adding a 100 trucks a month.

Andrew Littlefair

I’m stick with that. Obviously I was a little off in 2008, and when I kind of go back and replay history, we were getting serious about seeing truck deployments about mid-year. So we obviously didn’t do a 100 month in ’08, but if you look at what should happen, it should be about 2,000 trucks, 2,000 LNG trucks added in 2009.

Now, some of that will come at the end of 2009 and it may not be quite that many, I don’t know it could be more, so I’m going to stick with our 100 a month. Certainly Kenworth and Peterbilt will be able to produce that easily, so I like the capability and we might pleasantly surprised that later in 2009 it’s more than 100 a month, but I think that’s still a safe way to look at it.

Now, if Swift goes ahead and does something with that several hundred trucks, is what we think it could be, then it adds in on top of that.

Operator

Your next question comes from Ron Oster - American Technology Research.

Ron Oster - American Technology Research

I was wondering with regards to the ports, have you been able to capture all or most or nearly all of that business thus far? I know it’s early, but has competition popped up yet or how is that --?

Andrew Littlefair

So far, we’ve got that volume. I haven’t seen any competition, but it’s lurking out there I’m sure, but nobody so far has built an LNG station. Of course remember LNG’s in tight supply and we have a leg up on that with our new plant. I continue to say that competition is a good thing and some day when we have several thousand trucks down there, don’t be surprised if you see competition, but so far we don’t see any.

Ron Oster - American Technology Research

And your minority interest was negative this quarter, I believe that is your Peru operations. Is that losing money or can you give us an update on the status of your Peruvian operations.

Richard Wheeler

The minority interest is actually our joint venture and the reason it is negative, is that the positive result that when have to back out the minority interest from our results that we consolidate, it is making money. The Peru deal we have lost a little bit of money so far, primarily related to just start up costs, related to opening the station and getting it up and going.

Ron Oster - American Technology Research

And Rick, can you give us an update of where CapEx is going to end this year and directionally next year I would anticipate it’s going to be down since your LNG plans is going to be completed; any guidance for ‘09 CapEx?

Richard Wheeler

Well, we don’t provide guidance, but I would add that your point is very good and one thing to keep in mind is that we haven’t spend or will spend $50 million on the LNG plant this year that obviously will hop in again next [Inaudible] as far as when and how much next year, it’s kind of the million dollar question and [Inaudible] I know how fast they show up and how fast we can build the station and how much we spend next year, but clearly the rate should slow down, because we won’t be building another LNG plant.

Ron Oster - American Technology Research

And then Andrew I know Prop-10, a big risk, big reward; I’m just wondering if you would walk us through your thought process and a significant amount of money, $20 million especially for a development stage company, with huge growth opportunities elsewhere, how did you come to the conclusion that $20 million was worthwhile for this opportunity?

Andrew Littlefair

Yes sure, I’d be happy to answer that. We started looking at Prop-10 a year ago and of course you may not be aware, but a couple of years ago there was another prop called Prop-87 mid-lost. It was similar to Prop-10, but the way it was going the raise money it was going to tax the major oil companies and by doing that. They spent $80 million to try to pass Prop- 87 and $120 million got spent against them.

We learned from that experience, we worked with the people that were creating Prop-10 to design what we thought was a very fair alternative fuel and renewable Prop. We felt like at the time that to go with the general obligation bond was the best way to go.

Now the polling that we had all long and our board reviewed and this isn’t something I just decided to do here, but we raise this all the way to the board and they approved the expenditures. Even in the loss which I didn’t like of Prop-10, even in the week before we lost, 60/40, 67% or 70% of the people like the idea of having alternative fuels and wanting to reduce foreign oil.

The Prop was qualified in March, throughout the spring and even into the summer, it was pulling very well and then of course we’ve understand what happened and in the summer we had oil going up to $140 and then all of a sudden, weeks before the election it’s at $60, so the fuel price just totally collapsed; the economy collapsed; the housing prices out here went down 40%, people raise did and unfortunately in July, August, September, finally the state of California adopted a budget after not having one for 80 days, it looked like the budget problem was behind us and two weeks before the election the governor announced that we’re out of balance for another $20 billion. So I think this is the headwinds and people pocket book and the states pocket book, was just too much to overcome.

Let me say this; in Los Angeles county, Prop-10 was 55:45; actually it’s 54:46 I think, so its closure and 4.5 million people voted for Prop-10, so I’m heartened by that. We looked at it and we’ve always been on the lead of pushing policy and that is something that we’ve done for almost twenty years. I mean boom was the advocate early on in the energy policy act and that’s going back 15 years ago on pushing for transit buses.

We’ve always believed that we had a role in pushing for clean air policy and we’ll continue to do that. We spent a couple of million dollars a few years ago on promoting the concept that natural gas ought to have a V Tag like the Ethanol guys didn’t and people we didn’t think we’d do it and we did do that and that’s been meaningful to the industry.

In this case while it would have given a jump-start to all the alternative fuels, we know and I was watching Boone on TV last night, we know that heavy-duty vehicles, it’s not easy to move a truck on a battery. So the renewal that while hybrids and electric vehicles and others wouldn’t be funded with the Prop-10, we knew that the medium and heavy-duty applications, a lot of that was going to be natural gas.

So when you step back and look at it with me, literally 0.5 billion gallons or 600 million gallons a year would have come to the natural gas vehicle industry in our home state, where we’re headquartered and where we have an LNG plant; almost $1.5 billion worth of fuel per year, many times larger than where we are today.

It was a big risk, it is a lot of money, understand that; $20 million, $18 million would get you nine to 10 fueling stations that you might be very proud to do 20 million gallons and this was 600 million gallons for the same price. So, when we weighed it we thought it was a risk to take, sorry it didn’t pass; I wish it would have, but that’s kind of where we came out.

Operator

Your next question comes from Eric Stein - Northland Securities.

Eric Stein - Northland Securities

Just a few questions; just a bookkeeping one; can you give us the breakdown on CNG and LNG, DGE’s?

Richard Wheeler

For the quarter; that’s CNG 12.9, LNG 5.8.

Eric Stein - Northland Securities

And do those volumes include any, albeit small from the McCommas

Richard Wheeler

Yes, there is McCommas volumes after the acquisition date on August 15.

Eric Stein - Northland Securities

I guess just moving to the ports, on past calls I know you guys have talked about plans for five stations. Can you just update us where you are right now. I know you have opened your first and made some progress on the next two.

Andrew Littlefair

Yes, good question. As you know we have the one, we broke the ground on the second one which would be the largest LNG station. It kind of looks like it will be a truck stop and Eric it looks like it will be the largest in the country I guess and we’re close to breaking ground on the third station, which will also be in the port down there.

Then we turned our focus, we are lining up two or three LNG station sites that will be in what we call the empire. We’re kind of the distribution centers for these trucks, but part of them leave the port and head into Riverside and we need some stations out there. So, we’re kind of on track for that 5, 6, 7, that we’ve talked about; that will need sometime next year, when we get these trucks on the road.

Eric Stein - Northland Securities

Can you talk about this progress made at other ports? I’ve read and heard that Oakland is considering some of the same initiatives that are going on in LA and Long Beach?

Andrew Littlefair

They are kind of wrestling around with this Clean Port initiative. I would say they are ahead almost every other port in the United States, they are behind LA. There are some LNG trucks operating up there, but I don’t know exactly the date for how that’s going to work out, but they’re a little bit behind.

Other ports are all looking at this of course and the port of Houston and also out in New Jersey. So, we are working in both those places. We have specialists on the ground to try to do what we’ve done here and I think it’s safe to say that they’re just further behind than what we are out here in Los Angeles.

Eric Stein - Northland Securities

Okay, and then just one last question, then I’ll jump back in the line. It’s regarding the fixed price contract; it’s the transit customer in Texas. Can you just maybe give us an update on where you are in the process, thoughts about your chances as far as getting that back and whether it will be fixed or index plus.

Richard Wheeler

Eric, I would love to answer that question, because we’ve looked at the bid and we want to [Inaudible].

Eric Stein - Northland Securities

Okay, can you remind us just what the GTEs are on that contract?

Andrew Littlefair

It is roughly, $2.5 million to $3 million a year.

Operator

Your next question comes from Pearce Hammond - Simmons & Company.

Pearce Hammond - Simmons & Company

I was just curious with the credit crisis, if you’ve noticed any change in customer behaviors and how it might be impacting you?

Richard Wheeler

Well, I’m sure everybody is doing the same thing and wrestling with how we’re going to pay for capital plant and all. We haven’t seen much of it yet. Many of our customers have to replace vehicles. I’m sure some of that will slow down, I’m sure that will happen, but many of those vehicles are kind of at the end of their useful life. So far we haven’t seen much of that. I’m sure if this economy continues to go in kind of in the tank, I’m sure certain fleets well begin to slow down.

Now the one thing that is good is as they go to replace those vehicles, the trucking guys really don’t like the way the 2007 engines are working and they’re really nervous about the way the new 2010 are going to work and I think that’s in our favor; they know those vehicles are going to be more expensive and they know that our fuel is cheaper. So, while people are laying out money for a new truck that is obviously a very serious consideration, I’m sure in this market, but we have a pretty good economic advantage, I think.

Pearce Hammond - Simmons & Company

And then under President-Elect Obama how do you see some of his policies benefiting clean energy?

Richard Wheeler

Well, I would like to think that his statements, about green jobs and he’s been pretty strong. In two separate occasions the President-Elect said that he wanted to reduce over the next 30 years, all the oil coming from the Middle East countries. Now that’s a tall order and when you then look at how you do that, you obviously have to go up to transportation; there’s only one fuel that really can do it.

So, remember with me that Senator Obama, what 60 days ago introduced a natural gas vehicle bill. Now, it didn’t go anywhere, but I like that and he talked about increasing incentives and he talked about doubling incentives for fleets that did over 100 vehicles. Rahm Emanuel did the same thing. So, I kind of like the way they’ve teamed up in the White House, with Congressman Emanuel as the Chief of Staff and the President-Elect.

So, I’m hopeful that Boone continues on the Pickens plan to push for the President-Elect consider his wind plant and his natural gas for transportation plant, so that’s good for us..

Pearce Hammond - Simmons & Company

And then just one final question; I know in the past you worked with Aubrey McClendon in the Chesapeake and try to push natural gas vehicle. So, I’m just curious if there had been any other discussion with any other E&P companies or it certainly seems like there’s a lot of synergies there between Clean Energy Fuels and some E&P companies.

Andrew Littlefair

I think there is. We did meet with EnCana which is the other very large E&P Company. I think through Chesapeake and Aubrey’s good work, many of the E&P companies, we have heard from a lot of them. Of course, you know that the natural gas has gone from $3 to $6, so it’s been a little tough for some of them too, but many of them have indicated their interest of due vehicles themselves and asked us what they can do to help promote gas as a transportation fuel.

I think many of the E&P guys know that because of the shale plays they are creating and potential to create an awful lot of natural gas production and they are wanting to do what they can to make sure that natural gas will be a transportation fuel because I think they are going to have a lot of it. So we’ll continue to work with them; I have a standing call with Chesapeake and Aubrey and his team our team every Friday at 5.30 in the morning out here in California with them and so we’re working closely with them.

Operator

Your final question comes from Patrick McGlinchey - Sidoti & Company.

Patrick McGlinchey - Sidoti & Company

I think you said you’re going to have 20 new stations that will be completed by year-end. Could just give an idea on the type of size you’re going to see there? You did say that volume varies from station to station?

Andrew Littlefair

Yes. It’s kind of hard to do that. I mean some of those are specifically designed for tax ease, some of them are airport stations, a couple of those will be transit.

Richard Wheeler

A couple of trash projects coming in.

Andrew Littlefair

A few trash projects, a few LNG, the new LNG, that won’t make it in this year, it will be certainly after the first year. So, it’s hard to do, it’s hard give you that, but what we do, is we do stay focused on our core markets and so as I said early in the call, we’re not out speculating on the stations where we stick to meeting on our target markets.

Patrick McGlinchey - Sidoti & Company

Okay and then so then just looking for the end of the year here, as far as volume goes compared to ’07; can you give us an idea if you think that in these last three months, do you think you’ll finish up above or below 2007’s volume?

Richard Wheeler

Well, that’s another guidance question and we really can’t answer.

Andrew Littlefair

I like the way the volume is trending and I don’t know that we’re going to give you a number, but we’re making up for lost ground, so I guess that’s really what we can say there and with the station backlog and the stations coming on and those trucks coming, we have actually a lot of proposals out right now with customers. So some of those could come on immediately that we’ll try and win customers back, so let’s just keep our fingers crossed; I think you’ll like where the volumes are beginning to head.

Operator

Thank you. There are no further questions at this time. I would like to hand the floor call back over to Andrew for any closing remark.

Andrew Littlefair

Thank you very much operator. Thank you everybody. You know how to get a hold of us. We’re busy here working hard and we’ll keep in touch with you as it unfolds. Thank you for your support.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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