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Syntroleum Corporation (NASDAQ:SYNM)

Q4 2010 Earnings Call

March 15, 2011 11:00 a.m. ET

Executives

Karen Gallagher – SVP and Principal Financial Officer

Gary Roth – President and CEO

Jeff Bigger – SVP, Business Development

Ron Stinebaugh – SVP, Finance and Acquisitions

Analysts

John Bell – Private Investor

Orin Hirschman – AIGH Investment Partners

John Brifogel (ph) – Private Investor

Jim West – American Specialty

Chuck Howlett (ph) – Private Investor

Jack Helm (ph) – Private Investor

Ezra Burn (ph) – Private Investor

John Smith – Private Investor

John Anderson – Private Investor

William Jaxheimer (ph) – Private Investor

Thomas Victor – Private Investor

Wayne Eric (ph) – Private Investor

Ernest Williams – Lee, Danner & Bass

Charles Nelson – Private Investor

Aaron Martin – AIGH Investment Partners

Operator

Greetings, and welcome to the Syntroleum Fourth Quarter 2010 Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Karen Gallagher, Senior Vice President and Principal Financial Officer for Syntroleum.

Thank you, Ms. Gallagher, you may now begin.

Karen Gallagher

Good morning, and thank you for joining us today. Remarks for today's call will be presented by Syntroleum's President and Chief Executive Officer, Gary Roth, followed by Jeff Bigger, Senior Vice President of Business Development who will provide an update on our Dynamic Fuels Geismar plant, Ron Stinebaugh, Senior Vice President of Finance who will provide an update on our marketing efforts and the current state of the renewable fuels industry markets, and Karen Gallagher, Senior Vice President and Principal Financial Officer who will report the financial results for the nine months ended December 31, 2010.

Before we begin our remarks, I would like to remind everyone that during this call we will make certain forward-looking statements as well as use historical information. Words such as believe, estimate, expect, intend, plan, anticipate, could or should are intended to identify forward-looking statements.

Although Syntroleum believes that expectations reflected in these forward-looking statements are reasonable, these statements involve risks and uncertainties. Future results may differ materially from those projected in these forward-looking statements. You are encouraged to refer to our SEC filings, including our most recent annual report on Form 10-K for a full disclosure of these risks and uncertainties.

Now, I will turn the call over to Gary Roth for opening remarks.

Gary Roth

Thank you, Karen. We’re excited to announce that our Dynamic Fuels plant in Geismar, Louisiana is currently producing at design rates of 75 million gallons per year or 5,000 barrels per day, and has produced and sold millions of gallons of renewable products.

We have built product acceptance for renewable diesel in the United States and demand continues to outpace supply. We have run the three hydro-processing reactors at designed flow rates and have achieved 100% conversion of 20 different renewable feedstocks into ASTM quality diesel.

During our start up in commissioning process, we have encountered mechanical and liability issues with one critical pump in our hydrogen compressor. The technical issue with the pump is the operation of a mechanical seal. The pump itself meets all process criteria.

Working with our global seal supplier, we’ve made a number of improvements in both the seal design and utility system associated with the seal. I’m confident we will reach industry reliability standards in the coming months. When the pump is in maintenance, the plant is still capable of producing at 40% of design capacity.

Second piece of equipment with which we have experienced learnings is the hydrogen compressor. Again, the compressor meets all process criteria related to temperature, pressure, and flow rates.

The issue we face is valve life. The compressor supplier has manufactured in excess of 27,000 compressors with more than 180 in hydrogen service. Working with the supplier, we’ve installed second-generation valves and have third-generation valves in design. Again, I’m confident we’ll reach industry-standard levels of reliability in the coming months.

In summary, we’ve converted fats, oil and greases from 20 commercial sources into ASTM quality products. The Syntroleum Bio-Synfining reactor and catalyst technology has performed as per design. We have not experienced any conversion issues and are able to make product quality raising from jet fuel to summer-grade diesel.

We will continue to work on improving equipment reliability over the coming months by working with the site technical team and our world-class equipment suppliers.

Let me give you a couple of example that attest to our product quality. We’ve delivered to the Air Force, 40,000 gallons of renewable jet fuel in November. The latest update from the Air Force was the certification of the C-17 Globemaster, the largest military-transport aircraft. The certification clears the C-17 to fly on blends of up to 50% renewable jet fuel. The Air Force states they expect to conclude flight testing in the first quarter of 2012, supporting fleet-wide renewable jet fuel certification by the end of 2012.

Another example relates to the supply of renewable jet clean – renewable jet fuel and technical support to Rolls-Royce America and the execution of the FAA CLEEN program. The CLEEN program stands for continuous lower energy emission and noise. The FAA announced in 2010, 125 million in new contracts for five global companies including Rolls-Royce America. The five-year program is expected to develop technologies for reducing commercial jet fuel consumption, greenhouse gas emission and noise. We’ve supply 4,300 gallons of jet fuel to Rolls-Royce and Cessna, another 10,000 gallons of fuel in various technical services will be provided to this project in 2011.

Now I would like to turn the discussion to our Fischer-Tropsch technology. Sinopec has completed re-erection of our Catoosa Demonstration facility in China and is now in commissioning a start-up. We expect the demonstration of our FT technology on coal-derived Syngas and this could lead to commercial-scale development by Sinopec.

As you are aware, natural gas supplies in the United States has increased significantly primarily due to the growth of shale gas reserves. As a result, we are seeing growing interest in gas-to-liquids in the United States. We believe this interest is being driven by historically wide, 25-to-1 crude oil to natural gas ratios, resulting from $100-per-barrel crude oil and $4 natural gas.

GTL to natural gas liquids requires about 10 to 11-to-1 gas per barrel. Therefore, the current crude oil GTL equivalent cross is about 40 to $45 per barrel. Due to these attractive economics, we have received multiple inquiries from creditable parties about our GTL technology. Interest has ranged from 5,000 to 20,000-per-day units.

Cobalt catalyst is the most efficient catalyst for conversion of natural gas to liquid; therefore, Syntroleum’s cobalt-based FT technology is uniquely suited to become a domestic supplier of GTL technology to U.S. gas producers.

Our number one focus as a company at this time is to support Dynamic Fuels plant and its effort to maximize plant production. We have achieved design flow and conversion rates, and met all product quality specifications. Increasing RIN values demonstrate the market concept works and provides sustainable product margins required to meet the renewable fuel standards.

We have achieved client acceptance of our product and in my seven years with Syntroleum, I have never seen such a bright future given our operating plan at Geismar, and the economic environment for our gas-to-liquids business.

I will now turn the call over to Jeff Bigger.

Jeff Bigger

Thank you, Gary. The Geismar plant has produced millions of gallons of renewable diesel, naphtha, and LPG. We have also produced jet fuel for the Air Force and for jet engine manufacturer, Rolls-Royce.

The Geismar plant has processed a wide range of feedstock that have been delivered by more than 20 different suppliers. The feeds processed to date include beef tallow, choice white grease from pigs, poultry fat, and a wide range of yellow greases which typically are vegetable oils that have been used in restaurant frying operations.

The plant chemistry has worked very well converting the fats, oils, and greases into diesel, naphtha, and LPG.

There have been a number of mechanical issues that we have been dealing with. This includes typical start-up items like calibrating and tuning the instrumentation and computer control system. We have also had issues with seals on one of our primarily pumps. The vendor has upgraded the seal design and upgraded the materials of construction to improve the reliability of the seals. This is not unusual in a new facility and as the plant continues to run; we will identify incremental improvements to extend the reliability.

The hydrogen compression is used to circulate gas streams in the process and has met our process design criteria. The compressor valves have not met our operating life expectations. The vendor has replaced the valves and has also supplied an upgraded valve design that is currently installed. A third-generation valve design is being fabricated and will be installed should the second-generation valves need replacing.

Right now, we are producing at design rates of 75 million gallons per year of diesel, naphtha, and LPG into our tanks for loading into our customer’s trucks. Bio-Synfining process is converting a wide-range of low quality fats, oils, and greases into very high-quality ASTM renewable fuels.

Now, I’ll turn the call over to Ron Stinebaugh.

Ron Stinebaugh

Thank you, Jeff. To-date, the Geismar plant has sold millions of gallons of renewable fuels to a variety of different customers via both term contract and spot-market sales. We continue to receive many inquiries about our fuel. Since we are the only producer in the U.S. who has sold renewable diesel, we have developed unique insights into this market.

Among the lessons and insights we have learned include the following. Renewable diesel is generally most valuable at the intersection of mandates and cold weather markets. Mandates generate demand and cold weather favors products with superior cold-flow properties.

Our renewable diesel can be manufactured at minus-22 degrees centigrade cloud point and competing biodiesel such as canola methyl ester has a cloud point of only minus-3 degree centigrade.

U.S. refiners, for the most part, have not spent the capital required to blend bio-diesel. Bio-diesel must be splashed blended with petroleum diesel at the truck rack. Renewable diesel can be blended at the refinery terminal and transported by pipeline. U.S. refiners must acquire at least 800 million gallons or the equivalent number of RINs in 2011.

Renewable diesel generates 1.7 RINs per gallon versus 1.5 per bio-diesel making it 13% more valuable to an obligated party than bio-diesel. Refiners generally cannot blend physical bio-diesel to obtain RINs, they must buy RINs from middlemen who can blend bio-diesel. These middlemen typically buy bio-diesel at a significant discount to ULSD.

Renewable diesel is ASTM D975 diesel fuel, therefore it can significantly mitigate RIN discounting by selling direct to end users.

Since we can mitigate RIN discounting, we have a significant advantage over bio-diesel. As of March 11, the spot margin for renewable diesel, which assumes full RIN value, was approximately $1.30 per gallon, delivered Geismar by truck. Actual realized margins will vary based on contract terms and delivery point. This spot margin compares to our estimate of current bio-diesel spot margins for CME and SME of less than zero, and fame zero and fame ten margins of approximately $0.35 per gallon.

We expect further improvements to our margins when we can generate RINs for our renewable naphtha. We are applying to EPA for naphtha RINs which generate 1.5 advanced bio-fuel RINs per gallon. Advanced bio-fuel RINs are currently trading at approximately $0.50 which means this could add $0.75 in value to each gallon of naphtha that we make.

As the only producer of renewable diesel in the United States, we see a bright future. We believe that our product quality advantage combined with our ability to utilize the lowest cost fat feedstock provide us a substantial margin advantage.

Regulatory environment has stabilized significantly, as congress reinstated the dollar tax credit for production of renewable fuel and renewable diesel and the $0.50 tax credit for production of renewable naphtha and LPG.

RIN prices, which are the mechanisms by which producers can cover feedstock costs, have reacted strongly to the RFS2 mandate increasing from approximately $0.15 in January 2010 to over $1 today. Please refer to the graph on Page 17 of our recently posted investor presentation.

As a result, we believe that our Geismar plant will have attractive sustainable margins. I will now turn the call over to Karen.

Karen Gallagher

Thank you, Ron. I would like to update you on the earnings results of our year ended December 31, 2010. For the year just ended, December 31, 2010, the company reported an operating loss of 2.3 million resulting from total revenues of 8.4 million and operating expenses of 10.7 million.

The total net loss for the year was 9.5 million. We used 1.1 million in cash from operating activities during 2010. The company had a cash balance of 12.5 million at December 31, 2010 compared to 25 million at year-end 2009. The majority of the change in cash results from investments in Dynamic Fuels.

As of December 31, 2010, we had invested 40,500,000 into Dynamic Fuels. In December, we contributed 5 million to Dynamic Fuels in the form of a working capital loan. The partners may need to contribute additional working capital loans to the plant in the future.

In summary, we are looking forward to 2011. This is the year the company expects to make the transition from research and development to an operating company with recurring revenues from the Geismar facility.

We are encouraged with the prospects of commercializing our Fischer-Tropsch technology in today’s oil and gas pricing environment.

Thank you for your attendance today, we will now open up the call for question.

Question-and-Answer Session

Operator

Thank you. At this time, we will be conducting a question-and-answer session. (Operator Instructions). Our first question is coming from John Bell, Private Investor.

John Bell – Private Investor

Good morning, gentlemen, and lady. Gary, during the November 9 conference call, you made the statement that the “the product is profitable in the current environment”. I’m taking that to mean that the plant would have been profitable had it been producing at full rate, which at the time it wasn’t. That in itself, I think, is a form of guidance. The environment at the time was RINs were about $0.50, the tax credit hadn’t been passed and for all practical purposes didn’t look like it would be and oil was around $80 a barrel. You said you were looking to some stability in those areas and in the plant itself before you would attempt any forecasting.

Today, RINs have doubled, not even counting the 1.7 multiplier with no sign of them retreating any time soon. Currency [inaudible] too and it’s compliance and reporting. Tax credit has been retroactively renewed until the end of the year and oil is at 100 bucks a barrel. So it would seem that all of your conditions have been met, even including working through start-up problems. Reasonable investors look to you for guidance at this point, at least over the next several quarters where production and sales could only increase. So without getting into specific margins or contractual discussions, which I wouldn’t expect at all, what is the outlook for Syntroleum for the remainder of the year? What can it’s actual investors look forward to? Thank you.

Gary Roth

Thank you for the question, John, but we’re going to remain our position as, we don’t give guidance. This is a brand new business, the regulatory environment continues to change and until we understand this business, it’s not – we don’t believe it’s prudent for us to be giving guidance at this point in time.

Operator

Thank you. Our next question is coming from Aaron Martin of I (ph) Investment Partners.

Oran Hirschman – I (ph) Investment Partners

Hi. This is Oran Hirschman, [inaudible]. How are you?

Gary Roth

Good morning.

Orin Hirschman – I (ph) Investment Partner

Good morning. Just one confirmation to make sure we heard correctly, and then one question. The company’s standpoint – we understood from the comments that when the plant is operating perfectly, you are able to operate at full capacity. I just wanted you to confirm that we understood that correctly.

Gary Roth

You understood that correctly. As of today, we are operating at full capacity.

Orin Hirschman – I (ph) Investment Partners

Okay. And the issue is only when it goes down, you know, then obviously you’re not operating anywhere near full capacity.

Gary Roth

That’s correct.

Orin Hirschman – I (ph) Investment Partners

Okay. And my question is just, with regards to the cash, you know, can you just go through the change in the last quarter on cash? You mentioned the $5 million of working capital; just any other highlights in terms of change of cash that we can do a rec to the previous cash balance?

Ron Stinebaugh

Are you talking about this petroleum cash balance?

Orin Hirschman – I (ph) Investment Partners

Yes.

Ron Stinebaugh

Other than our normal operating expense and the 5 million loan, there would be no other material reconciliation.

Orin Hirschman – I (ph) Investment Partners

Okay. But your consolidated cash, again, at the quarter end was 12.5?

Karen Gallagher

That’s correct.

Orin Hirschman – I (ph) Investment Partners

Okay. And that is after the – any raises or anything that was – I don’t remember, I apologize for that.

Karen Gallagher

I’m sorry. I didn’t hear you.

Orin Hirschman – I (ph) Investment Partners

In terms of any additional raises, I know there was one small raise. I don’t remember the date on that off hand.

Karen Gallagher

Yes, that’s correct. That’s net.

Orin Hirschman – I (ph) Investment Partners

That’s net. Okay. Are you okay cash wise because that’s kind of the key metric for everybody here because now that you’re a commercial company, you know, yes, it could take time, you could have ups and downs in terms of getting to [inaudible] state of run rate on capacity where you’re shifting on a regular basis. But clearly, you know, this is not a small plant and anybody can do the math and realize this is a massive revenue producer at full steam, which you’re a 50/50 partner. The big question is, you know, do you have to go through additional dilutions to get there or can you make it here? I know that the loan, the working capital loan, do you think that’s coming back any time soon? I’ll let you go take the floor.

Gary Roth

This is Gary Roth. As Karen pointed out, our operating burn was about 1.1 million last year and our overheads have been reduced as well as we have revenues associated with our technical sales. So right now, we believe our cash position is okay for the plant, but that would be based on us continuing to be able to run at these full rates. So our focus is improving the reliability of the plant and if the plant reliability improves, the margins are good, we don’t believe we’ve have a cash issue.

Operator

Thank you. Our next question is coming from John Brifogel (ph), Private Investor.

John Brifogel (ph) – Private Investor

Hi, Gary. What are the current reliability figures on the plant? For over the past three months how many days have it been operating at full capacity?

Gary Roth

We’re not going to give out reliability issues at this time. Right now the plant is what we consider fully commissioned and from this point we’ll be happy to issue reliability information. But so far, we have been what I’ll call commissioning and start-up mode and to us that’s not a metric we really measure. We measure how well we’re solving problems and the longevity of those problems solved.

John Brifogel (ph) – Private Investor

Okay. So we can expect the reliability figure next quarter then?

Gary Roth

You can expect that next quarter.

John Brifogel (ph) – Private Investor

Okay. Thank you.

Operator

Thank you. Our next question is coming from Jim West of American Specialty.

Jim West – American Specialty

Good morning. Congratulations on a fabulous job that you’ve done in putting in the Geismar plant, which is the only one of its kind in America as I understand it. It might be the only one of its kind in the world. You might clarify that. But you mentioned that you made 40,000 gallons of jet fuel for aviation and I was wondering, since you didn’t have the capability initially to make – to take it to the final step of making jet fuel, there was one more process and I was wondering if you had added that capability to your structure or are you still sending this out for final polishing stage?

Gary Roth

I guess this would be directed to Jeff.

Jeff Bigger

Yeah, Jim, this is Jeff Bigger. We have produced a artic-grade diesel and sent it off site for fractionation into final jet fuel. And until the jet fuel is certified in all the commercial airlines to run we won’t install a capital to do it on site. But we have the ability to do it off site.

Jim West – American Specialty

Thank you.

Operator

Thank you. Our next question is coming from Chuck Howlett (ph), a Private Investor.

Chuck Howlett (ph) – Private Investor

Good morning. I’m a private investor and very excited about this year. On the last call you mentioned that the grand opening was scheduled for early 2011. If possible, I would like to attend that. Can you give any guidance, or should I say provide any insight on the grand opening date?

Also, could you also give an update on the second or third plant?

Ron Stinebaugh

This is Ron Stinebaugh. As far as an opening date, you know, we have not set a date yet. We obviously have our partner, Tyson, to coordinate all that with and a date has not been set.

As for a second plant, you know, we believe our Geismar site is a fine place for a second plant, but we’re working on getting this one maximized first.

Chuck Howlett (ph) – Private Investor

So no ordering of any equipment trying to build the plant for enlarging G1?

Gary Roth

This is Gary. What we –part of this commissioning and start-up process is to identify the equipment that we purchased that’s working very well and that’s not working so well, and then what improvements need to be made to make it work well. So it was our plan from the start not to have spare equipment in the first-of-a-kind plant to where if we made the wrong purchase, we didn’t make the wrong purchase twice.

Chuck Howlett (ph) – Private Investor

Sure.

Gary Roth

And what we’re doing now is working with the suppliers, all of them are major global suppliers, optimizing the run times, optimizing the reliability and then based on that we can prepare the equipment list for the second plant. The reactors are running fine. The catalyst is doing well. We’ve had some axillary issues with pumps and compressors; they’re starting to come in line. Obviously, we’re at full rates now, so we are planning, but in the plans we’d like to see these equipments optimize so we know what to buy.

Chuck Howlett (ph) – Private Investor

Will you be able to update the website with information as things become available to us?

Gary Roth

Yes, we will.

Chuck Howlett (ph) – Private Investor

I appreciate that. Thank you.

Gary Roth

Thank you.

Operator

Thank you. Our next question is coming from Walter Hahn (ph), a Private Investor.

Jack Helm (ph) – Private Investor

Yes, Jack Helm, actually. Most the question have been answered. Thank you very much and I think all of us as investors understand the de-teething issues you have. I just want to also focus on cash availability at the present and the issue of another raise. So there is current cash on hand at present to operate through the teething process and you don’t anticipate further large capital expenditures in excess to cover the valve costs or retrofitting? Can you comment on that or have the total estimate of that amount?

Gary Roth

Well, I can’t say – this is Gary – that we won’t experience any other teething problem. I just can’t say that. We have not had to have any capital replacement of equipment. The equipment does work as designed in terms of the process; temperatures, pressures, flow rates. Where we experience issues is related to reliability and run life in those pieces of equipment. So therein lies the major cost, is the cost of the overheads of the business and financing costs while we’re down.

Walter Hahn (ph) – Private Investor

Okay. Again, I want to thank you also for all the work you’ve done and your communications. Conservatism has its place in startups, so I for one am very grateful to what you’ve done so far and we look forward to more information. And I think the biggest concern is sensitivity of dilution, which I know you’re aware of. So thank you very much, gentlemen.

Gary Roth

Thank you.

Operator

Thank you. Our next question is coming from Ezra Burn (ph), Private Investor.

Ezra Burn (ph) – Private Investor

Hi, guys. Thanks for the conference call and the information. I want to – I regret to move away from guidance for a second. In a recent article I saw that [inaudible] seems to have been blocked by the Chinese government and that cold-liquid gas liquid and [inaudible] seems to be the one that will lead the way. I know you guys are with [inaudible]. I wanted to know if you could give us any information on peripheral projects such as the sapphire deal going on, [inaudible] liquid in Australia and the [inaudible] rebuild and what you think that will do to your margins? Thank you.

Gary Roth

I can comment on [inaudible]. The unit is erected. They have started initial flows through the [inaudible] demonstration facilities and they have an extended text program to text coal-derived Syngas and that’s always been the plan, is coal conversion to either chemicals or petroleum products. So that program is moving on as planned.

In the United States, of course, the natural gas market is the change in low gas prices and high oil prices, which benefits GTL. We have a cobalt catalyst. Cobalt is most suited to gas-to-liquid so we believe we’re uniquely positioned in the United States to benefit from the current oil and gas pricing environment.

Operator

Thank you. Our next question is coming from John Smith, Private Investor.

John Smith – Private Investor

Well, I was going to ask about the oil too, but I see that that’s already been asked and answered.

Operator

Thank you. Our next question is coming from John Anderson, Private Investor.

John Anderson – Private Investor

Yes, I want to first thank everybody for all their efforts. We really appreciate all the hard work that goes into these plants. I did have kind of a two-part question on the next plants. Is there any particular milestone that you’re looking for, consecutive days of good operations or gallons of fuel, that you’re waiting for before you finalize plans for the next plant?

And also, you, in the previous call, mentioned – or talked a lot about specialty chemicals. Part of that, there was a frustration on the uncertainty in the regulatory market and also the allure of the specialty chemicals market. Is that still part of your considerations in terms of second and third plant? Will they just produce diesel or will you be looking at the specialty chemicals also?

Gary Roth

So on the next plant, I would suggest that the industry typically looks at six months run time as kind of a standard of where you believe equipment reliability should be at this level. And then we would expect to extend from there. Specialty chemicals, we are still moving forward in the qualification and certification process with vendors and I believe that’s what we discussed is that we’d like to see a contractual commitment surrounding those chemicals related to a second plant. But that, I don’t think that we would call that a condition precedence. We just think it’s a good diversification strategy away from fuels and into specialty chemicals.

John Anderson – Private Investor

Does it affect the design of the plant?

Gary Roth

It may add one or two pieces of equipment that are fairly stand design. That’s why one would like to contractually get obligated to those chemicals so you know what you’re going to make and the deliveries and the split.

John Anderson – Private Investor

Okay. Thank you.

Operator

Thank you. Our next question is coming from William Jaxheimer with Syntroleum.

William Jaxheimer (ph) – Private Investor

Yes, good morning. This is Bill Jaxheimer and I’m a private investor and my question is regarding whether or not you’ve established a record of performance for your diesel fuel and what kind of milage you’re expecting from that?

Gary Roth

I’m not sure what you mean by record of performance. We have about 98-plus percent energy content of standard diesel fuel and typically we run at [inaudible] 2 or 1% less of milage performance on petroleum-based diesel fuel.

Operator

Thank you. Our next question is coming from Thomas Victor, Private Investor.

Thomas Victor – Private Investor

Hello. First off I’d like to say I hope everyone’s having a great day and thank you for the conference call and for the opportunity. And my question has kind of been touched on I guess. I was interested in the grand opening ceremony and I believe, in my opinion, I think it would be great public relations for the company, and you would get some press out of it. And more specifically, I want to know, is there going to be a grand opening celebration and you don’t have to tell anyone, you know, in concrete terms, but is there anyone you’re looking to invite to this celebration?

Jeff Bigger

Thanks, Thomas. This is Jeff Bigger. We are planning to have a ceremony for the grand opening of the plant and celebrate the fact that we’re up and running and selling product. We have some preliminary plans and we are targeting quite a few of the political – politicians that helped us get to this point with their support for the program and we look to have those people and others at the local, state and federal level participate in this. We will get back and issue plans out to the public once we’ve got those nailed down.

Operator

Thank you. Our next question is coming from Wayne Eric (ph), Private Investor.

Wayne Eric (ph) – Private Investor

Hi gentlemen, and lady. Thank you. Two questions. One, you mentioned that the operating margins were approximately $1.30 when delivered by truck. I was – the first part of the question is; one, I’m interested to know the break-even run rate where you used that buck-thirty to cover your fixed costs. And second, I give you my investment here as kind of a technology play and the GTL and the CTL being ways to have longer-term dramatic growth and share price. So – and view that the Dynamic Fuels is a way to help fund the growth of those other initiatives. So any clarification you can give on – if you could reiterate the size of the GTL plans that you’re in discussions with parties and whether or not you would expect any of the GTL deals to be signed this year?

Gary Roth

This is Gary Roth. I’m going to break even once again. We just don’t have enough running information, sustained running information to be able to tell you what is the number to break even at. I think that would be giving guidance and we don’t give guidance.

On the technology play, the size of the units people typically look at are 5,000 to 20,000 barrels a day. They’re driven by site-specific economics more than anything. For example, Geismar here, we have hydrogen, electricity, water, roads versus some other parts of the country one may have to build in all infrastructures. And the size of unit often is a function of the amount of existing infrastructure.

Operator

Thank you. Our next question is coming from Ernest Williams of Lee, Danner and Bass.

Ernest Williams – Lee, Danner & Bass

Gary, you – to follow up on that last question, you’ve talked about getting interest in GTL. And as you probably know, on February 23, Chesapeake had a conference call in which Aubrey McClendon (ph) said that they believe that commercial-scale GTL facilities will be in operation in the U.S. by yearend 2016. And he also said that Chesapeake has an entire group set up to pursue GTL technology and that they expect groundbreaking on at least one project by yearend 2013. My questions are these. Have you seen, first of all, have you seen any evidence to support those statements? Secondly, would it be fair to assume that Syntroleum has been in GTL discussions with Chesapeake? And third, if Syntroleum has not been in those discussions, who are your major competitors in the GTL area that we should be aware of? Those are my three questions.

Gary Roth

Well, the first two I can’t answer. The third one is in the United States, there’s really two gas-to-liquid type suppliers. One, of course, is Sasol, the biggest in the world and then we believe ourselves that supply catalysts – cobalt catalysts and cobalt is the most efficient conversion on gas-to-liquid. There are other technology providers who have Fischer-Tropsch but are not using cobalt catalysts.

Of course, we like this environment with the low gas prices and high oil prices, it’s what GTL was designed to do. We believe we are uniquely positioned here in Geismar with large natural gas infrastructure, hydrogen, electricity, water and then, of course, our operating facility here, which is right at the 5,000 barrels a day.

Operator

Thank you. Our next question is coming from Charles Nelson, Private Investor

Charles Nelson – Private Investor

Good morning, gentlemen. So understanding where you would put your next plant, it would be exactly where it is today, your GTL?

Gary Roth

This is Gary Roth. We sure like this location. When you have infrastructure and an existing technology base, it’s the natural place one would look.

Charles Nelson – Private Investor

That’s fantastic. One other quick question. If you folks are making statements today that you are making at full capacity, are you selling at full capacity?

Gary Roth

Well, we’re putting it out just as fast as we can make it.

Charles Nelson – Private Investor

Fantastic. Thank you very much for your hard work.

Gary Roth

Thank you.

Operator

Thank you. Our next question is coming from Aaron Martin of AIGH Investment Partners.

Orin Hirschman – AIGH Investment Partners

Hi, it’s Oran Hirschman again. When you mentioned that spread on the spot margin for $1.30, can you just reiterate that what you wanted to convey to us in terms of an illustrative point?

Gary Roth

That the business has a margin.

Orin Hirschman – AIGH Investment Partners

Okay. Thank you.

Gary Roth

What else would you like me to confer with that?

Orin Hirschman – AIGH Investment Partners

Okay. Got it.

Gary Roth

Well done.

Operator

Thank you. Your next question is coming from John Bell, Private Investor.

John Bell – Private Investor

Hello again. During the last conference call you gave us all a primer on phase-change materials and I’m curious as to the status of that commercialization project that you’re involved in. It seems to me, if memory serves, that it would be coming to fruition just about now. Thank you.

Gary Roth

Your memory is correct and it’s just about now coming to fruition in the test trials and when the test trials finish we’ll be able to report that. But it is moving along on the schedule.

Operator

Thank you. Our next question is coming from John Smith, Private Investor.

John Smith – Private Investor

Yes, on the $1.30 margin, can you expound on that a little bit? Does that include the RINs for the dollar-tax credit? And also, can you comment on the knowledge [inaudible] of those still intact?

Gary Roth

The $1.30 includes RINs and it includes the tax credit. And I didn’t hear your second question.

John Smith – Private Investor

Yes, my second question concerned the net operating losses . Are those still intact or is Syntroleum still carrying those forward?

Gary Roth

Yes. We reported on our 10-K, we have 315 million of net operating loss carried forward.

John Smith – Private Investor

Thank you.

Operator

Thank you. There are no further questions at this time. I’d like to hand the floor back over to management for any closing comments.

Karen Gallagher

This is Karen Gallagher and on behalf of the company we’d like to thank you for joining us today on this conference call. Thank you.

Operator

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

Gary Roth

Thank you, everyone.

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