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Executives

Ina McGuinness – IR

Andrew Littlefair – President and CEO

Rich Wheeler – CFO

Analysts

Graham Madison – Lazard Capital Markets

Rob Brown – Craig-Hallum

Brian Gamble – Simmons & Company

Eric Stine – Northland Capital Markets

Peter Christiansen – Banc of America-Merrill Lynch

Pavel Molchanov – Raymond James

Clean Energy Fuels Corporation (CLNE) Q2 2011 Earnings Conference Call August 8, 2011 4:30 PM ET

Operator

Greetings and welcome to the Clean Energy Fuels’ Second Quarter 2011 Earnings 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, Ina McGuinness. Thank you, Ms. McGuinness. You may begin.

Ina McGuinness

Thank you, Operator. Earlier this afternoon, Clean Energy released financial results for the second quarter ended June 30, 2011. If you did not receive the release, it’s 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 website for 30 days.

Before we begin, we’d like to remind you that some of the information contained in news release and on this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words and expressions reflecting optimism, satisfaction with 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 a 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-Q filed today.

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

The company’s non-GAAP EPS and adjusted EBITDA, which will be reviewed on this call, and excludes certain expenses that the company’s management does not believe are indicative of the company’s core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP that should not be considered as the substitute for or superior to GAAP results.

The direct comparable GAAP information reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA and the reconciliation between these non-GAAP and GAAP figures is provided in the company’s press release, which has been posted to the SEC on Form 8-K today.

Participating on today’s call from the company is President and Chief Executive Officer, Andrew Littlefair; and Chief Financial Officer, Rick Wheeler.

And, with that, I’ll turn the call over to Andrew.

Andrew Littlefair

Thank you, Ina, and good afternoon, everyone. Boy, our market timing for announcements is impeccable. But again, we reported revenue of $69.1 million, up 57% from $44 million in the second quarter of 2010. We delivered 39.2 million gallons during the second quarter of 2011, which is up from 31.1 million gallons a year ago. IMW was off a bit during the quarter, which affected our earnings and there are several reasons for this that Rick and I will explain later in the call. But, all in all, I’m satisfied with how the business has performed and our accomplishments over the first half of the year.

One of our biggest accomplishments so far this year, is obtaining Chesapeake Energy’s $150 million investment in Clean Energy that will allow us to accelerate the formation of America’s Natural Gas Highway. We believe this will allow to have a fueling station infrastructure along major trucking quarters comes in a good time and a roller, the last big barrier to using natural gas fuel trucks, which is access to fueling stations.

Also with the 12-liter and 13-liter engines on the way to market in the last half of next year, which is a very popular size – engine size for heavy duty trucking fleets, the introduction of these engines will time up nicely when we have the corridor underway. In addition, fleet operators continue to be interested in the fuel savings they can achieve by operating natural gas.

To recap some of the key points of this endeavor, over the course of the next few years we expect to drill close to 150 stations, we already have eight quarter stations under development and have become – have begun site investigations on another 60 locations.

These stations will be backbone of the corridor. They will provide fueling access along major corridors such as the I-10, the I-5, the I-40 and the I-95. The stations will be spread out at approximately 250 miles inner route and will utilize many pilot Flying J locations under our exclusive agreement with them. Our Northstar subsidiary will play a key role in constructing these stations.

In the meantime our National Fleet Program is gaining momentum. We’re finishing up permitting on the LNG station in Las Vegas that will be anchored by 48 UPS trackers. We’re also beginning to fuel the Dillon transport fleet in Dallas. These trucks consume approximately 45,000 gallons per year each. With substantial fuel savings for both Dillon and Chicago, Owens Corning we are now expanding this effort to plants in Ohio and New Jordan. We expect other plant locations will follow.

We also recently signed the second contract with Fair Oaks Dairy to build and operate additional station Salzburg, Indiana. We like this contract because Fair Oaks is a leader in the Dairy sector and this sector has great growth potential for us because dairies operate 24x7 and they have to move the milk to market making them very high bonds fleets.

Coca-Cola and Pepsi are adding more than 50 vehicles combined for their operations in California and Texas and they’ve indicated there would be additional deployments in 2010. In addition to these deals, Dean Foods just deployed five trackers to serve customers in Southern California.

As an option to purchasing natural gas trucks, there are also leasing opportunities starting to develop in the marketplace. On June 28th, Rider announced a secured lease agreement for 87 heavy-duty natural gas trucks for customers, including Golden Eagle Distributors and Mohawk industries. Riders expect now 202 natural gas vehicles in its fleet by the end of 2011.

In the Refuse Sector, we are in the final stages of negotiating National Services Agreement with nation’s largest refuse fleets. This is an excellent example of how the assets of IMW, Northstar and our service operations can combined to create a compelling customer offers.

This market continues to grow rapidly and you may have seen news in July from Waste Management that they celebrated their 1000th natural gas truck in their fleets. The stated goal is that 80% of their new trucks in 2012 will be natural gas. Republic has indicated that they would purchase 550 trucks in 2012 in 20 stations.

In addition to the big national players in the refuse sector which we just talked about, it’s also important to reiterate that the conversion to natural gas is also happening with the smaller commercial and government fleets around the country. During the past quarter more than 150 trucks were ordered and delivered by such fleets in 11 different states. We see this trend accelerating as local and regional players are moving to CNG.

In the taxi and airport sector, we continue to see good growth around the country including Chicago, Dallas, California, New Jersey and Seattle. More than 225 taxis shuttle buses were delivered during the second quarter, which helped to build volumes at our existing Clean Energy CNG public access stations. In addition, during the quarter, the same fleets ordered more than 300 vehicles, which are scheduled to be delivered before the end of the year.

BAF continues to perform well despite of reduced orders from making AT&T and Verizon. Through June 30, 2011 BAF converted and sold conversion systems for 643 vehicles, compared to 691 a year ago. BAF also continues to submit its reputations for quality. They received a recently completed ISO 9001 Certification and reports only qualified vehicle modifier for gases fuels.

BAF has expanded its product offering to include Ford trucks expect [ph] which seems to be well received especially with taxi. BAF has captured taxi business in Chicago, Connecticut and throughout California with this current certified product. Earlier this year, BAF introduced its Bio-fuel truck and van and these new products certainly serve to broaden new market opportunity.

Although IMW was off this quarter we believe the outlook for behind IMW business remains bright. Our team recently had a good meeting with China Gas, who was taking measures to focus on its natural gas fueling operations, announced to complete 45 stations by April 2012. In addition China gas is now expanding beyond CNG to include LNG and LCNG stations and with our LNG know-how we’re hoping to deepen our relationship with them by providing our expertise in this area.

IMW continues to be an innovator on the product front. Recently IMW introduced its portable CNG fueling station here in the U.S. which will be used to support the transition of vehicle fleets to natural gas in key industries, such as – initial interest on this project – product has been strong and we envision that this product will also allow us to highlight our suite of fleet support services and provide other services to our customers. Also with support from Northstar, IMW recently contracted with a company in Canada to install its first LNG station.

Now let me talk a bit about our engineering carpet. Engineering carpet is growing rapidly and we’re now at 115 stations. This is up from 82 the last time we talked. This includes 36 refuse stations, 18 corridor stations, 15 transit and 38 airport and taxi stations. Our pipeline, which encompasses stations in various stages of validation, qualification and negotiation and new fleet deals totals 348. Since our last call, we have closed 55 deals. Vehicle deals are important because they add volume to existing stations.

Our biomethane subsidiary continues to make good progress in all fronts. We anticipate commencing construction on our plan at Sauk Trail Hills Landfill, Michigan by the end of this summer and we have recently completed well field improvements at our project at McCommas Bluff in Texas.

Planned improvements are underway at McCommas that we believe will lead to a ramp up the gas volumes produced towards the end of the year. Our biomethane team is engaged in due diligence in preparation of proposals with respect to many potential biomethane production sites and we look forward to landing additional projects where we can replicate the success we have had in process.

I know I can’t close this call without giving you an update on the NAT GAS Act. We continue to push our national leaders to formulate a long-term energy strategy that includes natural gas vehicle as part of the solution. It is also true that with incremental cost of the heavy duty engines coming down as more engines are produced with a very significant fuel savings, the economics are compelling for many fleets without the NAT GAS result.

We are not waiting for this act, make the investments necessary to ensure that NAT GAS – natural gas becomes an increasingly important part of our nation’s fuel supply and move our company forward. Given the current political climate, it’s difficult to speculate on timing.

As you are likely aware the House of Representative Committee [ph], two subcommittees actually, scheduled a hearing on August 3rd, in which I was invited to testify. This hearing was postponed due to the activities related to Congress working on raising the debt seeing the August recess. We were told they will be rescheduled in September.

And, with that, let me turn the call over to Rick.

Rick Wheeler

Thanks, Andrew. Before I review our financial results, I’d like to point out that all my references to our results will be comparing the second quarter of 2011 to the second quarter of 2010 and the first six months of 2011 to the first six months of 2010 unless otherwise noted.

Volumes rose to 39.2 million gallons during the quarter, up from 31.1 million gallons. For the first six months of 2011, volumes increased to 74.7 million gallons, up from 59.7 million gallons, the increases between periods were primarily due to the addition of several LA MTA L&L deals, several new refuse customers and the new LNG L&L customers we obtained with the Northstar acquisition.

Revenue increased to $69.1 million during the quarter, up from $44 million. IMW contributed $14 million of the increase. Northstar contributed another $2 million and BAF revenues were off $2 million in three quarters. For the first six months of 2011, revenues increased $134.5 million up from $83 million a year ago.

We were up $0.10 per share on a non-GAAP basis in the second quarter of 2011. This compares with a non-GAAP loss of $0.06 per share in the second quarter of 2010. For the first six months of 2011, our non-GAAP loss per share of $0.15 per share and it was $0.13 per share in the prior period.

Our net loss on a GAAP basis for the second quarter was $5.6 million or $0.08 per share, which included the non-cash gain of $4.8 million related to valuing our Series I warrants. This compares with net income of $9.9 million or $0.14 per share in 2010, which included a non-cash gain of $16.6 million related to valuing our Series I warrants.

For the first six months in 2011, our net loss on a GAAP basis was $15.4 million or $0.22 per share and included a non-cash gain of $1.5 million related to valuing our Series I warrants. For the first six months of 2010, our net loss on a GAAP basis was $14.5 million or $0.24 per share and included a non-cash loss of $2 million related to valuing the warrants.

Before we move on, I’d like to emphasize that the Series I warrants adjustment is not cash liability of the company but rather required to exercise we must view under the accounting rule to mark-to-market of warrants each period due to certain anti-delusion features in the warrants.

Non-cash charge increases or decreases each period based primarily on the increase or decrease in our stock price during the period. We will need to continue to value the warrants in each period and record a non-cash gain and loss until they exercise or they expire which is May 2016.

Adjusted EBITDA in the second quarter of 2011 was $0.9 million, which compared to $1.4 million in 2010. The first six months of 2011 adjusted EBITDA was $4.8 million, compared to $2.3 million last year. The first three quarters of 2010 did not include any volumetric excise tax credit or VETC revenue, as VETC expired on December 31, 2009, and was not reinstated until the fourth quarter of 2010, when it was made retroactive to January 1, 2010. The first of the comparisons, VETC revenue for the second quarter and first six months of 2011 was $4.7 million and $8.9 million, respectively.

Adjusted EBITDA, our non-GAAP EPS or financial measures we developed to highlight our operating results, excluding certain large non-cash or non-recurring charges, which are not core to our business, including the amounts we are incurring for the Series I warrant evaluation and our stock-based compensation charges for our option. Adjusted EBITDA and non-GAAP EPS are described in more detail in the press release we issued earlier today.

Our gross margin this quarter was $18.7 million, which compares to $13.4 million in 2010. For the first six months of 2011, our gross margin was $37 million, compared to $24.8 million.

As Andrew mentioned IMW had a tough second quarter, which impacted our operating results for the period. But margins were negatively impacted by several factors including the impact of the weaker U.S. dollar on the foreign currency exchange calculation, the delay in orders from China Gas, the postponement of orders from its large contract manufacturing customers until sometime next year and the shift in its sales mix from higher margin units to lower margin units during the period. These items contributed to both lower revenues and lower margins relative to our expectations.

We have been working with the team at IMW to improve their productivity, operating efficiency and sales efforts over the last half of the year. But they will be challenged with to replace the last contract manufacturing business over the last six months with the current economic conditions throughout the world.

One thing to keep in mind however, as Clean Energy has increased construction activity more and more of IMW’s production is going to fulfill Clean Energy orders that don’t immediately show up in financial statements of sales revenue or margin. These sales were inter-company sales and they get eliminated in consolidation.

For the second quarter of 2011, IMW sold Clean Energy $3.9 million of equipment that did not show up in our financial statement. Also this amount is anticipated to increase over the last half of the year. Our margin per gallon, on our fuel sales was $0.24, which is consistent with the first quarter of 2011.

And, with that, operator, please open the call to questions.

Ina McGuinness

Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Graham Madison from Lazard Capital Markets.

Graham Madison – Lazard Capital Markets

Hi, good afternoon guys.

Andrew Littlefair

Hey, Graham.

Graham Madison – Lazard Capital Markets

Sort of, question on SG&A, it ticked up quite a bit sequentially in the quarter. Just wondering, if there is some might be in the Q&A, I think, I didn't had a chance to get to that part yet, but is there some one-time items in here I mean, year-end bonuses or is this just the expansion with new engineering people? Going forward, is this a run rate that we should think about, for the rest of the units in 2012?

Andrew Littlefair

Yeah. Graham, it's not at all a one-time stuff in there. We did incur some advertising stuff that I skewed it a little bit. But we do have them from time-to-time so that kind of part of our deal. And basically, we're anticipating some significant growth that we want to make sure we already have the foundation in place to be able to work that growth and consequently we're gearing up our sales force and training up few engineering people and trucks construction people and while we're doing all that, obviously it's a hit to our SG&A line until they get out there and working on projects at which point they become capitalizable.

So though, we've always kind said is from an SG&A perspective, I mean we're always watching it. We want to spend our money wisely but we're also confident in its business opportunity, we don't want to miss anything. So to the extent we see an opportunity we either increase revolving efforts to support some legislation, we're going to do that or we see the advertising opportunities that we think need to be undertaken to aggressive marketing, we're going to do that. We've obviously ramping up as this corridor program, the other things are about to take off with the Chesapeake investment, we've going to build 100s of stations over the next couple of years.

We want to make sure we have everything in place to do that, as well but also on just the general SG&A side, we're doing a lot of things from the system perspective and IT perspective. Again, just to make sure we can satisfy customer needs from billing and information purposes, as well as just internally making sure we have enough field personnel out around the IT and admin and infrastructure side to handle anything.

Graham Madison – Lazard Capital Markets

All right. Great. That makes sense. And then the question on the margins going forward I know that this quarter probably had a lot more transit volume lower margin working there, could you just give a sense of how do think about margins going forward for the rest of the year and as the new retail stations rollout, what type of margins should we be thinking about, is $0.40 a gallons still the right number?

Andrew Littlefair

Well, we don't forecast those types of numbers, I will add or say we were encourage that even without any additional LAMTA volumes during the quarter, our margin per gallons was consisted with the first quarter, which I thought was strong and that to me says we're having other projects off at lower margin primarily in the rough use in the airport sector, which obviously is the higher margin.

Going forward hopefully, we've kind of bundled out and evolved the all the LAMTA business in and with all the other projects coming on a lot of the more were in higher margins will hopefully transit our assuming airport shuttle bus et cetera. We should have a little interim and then the really big increase should come down the road, once we get this quarter build out in the heavy duty trucking deal tick in and that kind of in our commercial retail model, which is where you make higher margins and where we are pricing relative to diesel essentially.

That would laid down the road and that's out happening and the thing we like is the magnitude of that market is so large and you can significantly increase our margin per gallon quickly and then putting on the a couple of 100 million gallons now at $0.24, I mean, it doesn't take life that much higher in margins, 30 billion gallon markets to certain suiting that up. So when it help perhaps that all translates and comes to fruition, I guess we have to wait and see but that's kind of from a strategy perspective what we're looking to do.

Graham Madison – Lazard Capital Markets

Okay. Great. It's very helpful. I'll jump back in queue. Thank you.

Operator

Our next question comes from the line of Rob Brown from Craig-Hallum.

Rob Brown – Craig-Hallum

Hi, good afternoon.

Andrew Littlefair

Hi Rob.

Rob Brown – Craig-Hallum

If you could give us a little more color on IMW is and I guess first question is the kind of quarterly run rate the level we should expect sort of near-term? And then, maybe just give a little more color on the contract that got pushed out and you're saying contract manufacturing?

Andrew Littlefair

Yeah. We don’t forecast revenues, but with the loss of the contract revenue and it's not loss, it's just their business slowed down, so they correspondingly turned around and slowed us down. But we are talking to them now and working with them, trying to get back on track, at some point next year. And we're hopeful and think that will happen. To any interim, with the world economy where it's at and it's probably going to clip along. But China gas is starting to kick it back up a little bit.

As Andrew mentioned, we was going to do 45 stations by April of 2012. The other thing which – it's kind of hidden in there that with Clean Energy doing so much more construction activity and while it's using IMW equipment, a lot of their production is going to us, which just doesn't show up in our numbers. So we are generating economic value, it's just – of course it is not showing in our numbers. So I guess maybe that hopefully enough to kind of help you come up with some sort of estimates of what you think.

Rob Brown – Craig-Hallum

And was that contract manufactured for a different industry segment or did they slowdown in the geography or was there something?

Andrew Littlefair

Yeah. Rob, it’s – we've been kind of careful on this. It is a large conglomerate household name. We will provide actually more and more services for them for this product. It's a large energy – green energy equipment. And it just kind of slowed down. I guess they got a little ahead of themselves or they just put the brakes on the program. But it's a program that will continue but I think it's just taking a little bit of breather.

Rob Brown – Craig-Hallum

Okay. Good. And then last question here, just wanted to get a sense, since you've announced your Chesapeake deal, I guess have you seen an uptick in general interest? Does these bring more interest to the market and then just wanted to get the – sort of thinking on the timeline and how that ramps through the next sort of 12 months.

Andrew Littlefair

Rob. It really has, I don't if they use effective term but I think it's somewhat it transformed the way people have thought about, referred from dozens of shippers, referred from trucking companies, referred from other industry players, other fuel provider we've got a lot of interest there.

We have a Chairman of the – President of the American Trucking Associations came out and looked at our LNG fueling stations because he saw what we announced and probably better, really get his hands on it and got live all over our station. So we had a lot of that kind of thing. It has helped as we've been able to tell the story and meet – as you know we have focused sales group on the shipping community that contract out trucking services and it's given them a great deal of starch to know that the products coming and that there will be stations there.

In addition, we've had details since I've seen in the last three weeks we've had three detailed long conversations phone dealings with manufactures and the manufactures of truck OEMs because this catch their attention, as well. So I think it's been very helpful and we've had other interest from others that would like to potentially do what Chesapeake has done. So it's been back and forth.

Rob Brown – Craig-Hallum

Okay. Thank you.

Operator

Our next question comes from the line of Brian Gamble from Simmons & Company.

Brian Gamble – Simmons & Company

Good afternoon guys.

Andrew Littlefair

Hey, Brian.

Brian Gamble – Simmons & Company

Couple of I guess bigger picture things. When you think about the investment that Aubrey in Chesapeake made, have you to talked to him since then, what has been Chesapeake investor feedback to him as to how his strategy plays in with natural gas long-term and what they are doing with their money, to the answer just gave in and saying that there are, these are the people that express interest, was there anything there that he is gotten as far as either positive or negative attention that would propel people to do this similar thing or to negate them from doing the similar thing?

Andrew Littlefair

It's an excellent question. And I have that conversion, follow-up conversions but I haven't asked that question. So I don't know exactly what his feedback is uncertainty was at the adenoidal [ph] negative feedback, I would have heard that probably.

Brian Gamble – Simmons & Company

Probably.

Andrew Littlefair

I know he talked to others other financial type players in the business that have sort of expressed interest and have wondered asking questions about that. I think it's been received well, you may have noticed Brian the advertising they did that seems to get a lot of positive feedback of others. So I can't answer it precisely but it is a good question.

Brian Gamble – Simmons & Company

Fair enough. And then you talked not to disaster your big macro question just given or you went to the last three days in the market. When you think about that the longer term strategy of regional trucking when you walk into those sorts of meetings and listen to individual people talk about pricing assumptions or margin forecast, what sort of oil price, diesel prices are they using I mean if you look in at and spread that, obviously thought as (inaudible) gas roughly what 20 to 1...

Andrew Littlefair

Right, 21.

Brian Gamble – Simmons & Company

Yeah. And I mean, that’s still...

Andrew Littlefair

It's a good question and we do talk about it and I've said this before but there was a time years ago where it was hardly engaged the end-user and let's say convince them that these all might be under pressure, because there was so much history of having relatively low diesel prices and with the shocking 2000 end the low prices.

And the recent move up to $4, excluding us that when diesel goes over $3.50 and is approaching $4 and we have that out here in California, where we have really sends ripples through the trucking – you've seen the articles in New York Times or Wall Street Journal about the problems with the surcharge and this and that. It really sends ripples through the trucking business.

I think most of the truckers and frankly the shippers who pay the bill, they are convinced that oil is going to be volatile and is going to be – but over time, they believe it's going be more expensive. And of course we saw, we trace back here $17 or so in the last couple of days. We do point is right on mark, I think some people may look at Clean Energy and trade our stock. I think they over played the move down in crude oil and kind of take their eye of the ball on the spreads as you correctly point out, I mean we are just unbelievable about 25-to-1, we're still at 20-to-1.

So the financial incentive is still really dramatic, especially when you take the crude oil and refining it and make diesel, there is still huge revenue. So I think it all bodes well for us. I haven't seen any deterioration. I mean I think, if we're really edgy about the prices, the future prices of diesel and diesel fuel has been reformulated and it – as it's been put into the 2010 and late in these newer engines, it's not as efficient as it once was and so all that ends with diesel engines are more expensive now and so all that factors in to the life cycle analysis that these guys do.

Brian Gamble – Simmons & Company

Great. Appreciate you indulge in the big picture question. Have it going, guys.

Operator

Our next question comes from the line of Eric Stine from Northland Capital Markets. You may proceed with your question.

Eric Stine – Northland Capital Markets

Hi, everyone. Thanks for taking the question.

Andrew Littlefair

Sure.

Eric Stine – Northland Capital Markets

But just first thing to clarify, is it fair to say that it's just a handful of the 150 stations that Chesapeake deal, just a handful are in the pipeline number you quoted?

Andrew Littlefair

Actually, I know these numbers are hard pin down. I try to – we obviously are consistent. The numbers that I just used in the pipeline don't have the court order station numbers in there.

Eric Stine – Northland Capital Markets

Okay. That makes sense.

Andrew Littlefair

So, the 18 or the 16 and all that – and then eventually 150, that number is not in the pipeline number.

Eric Stine – Northland Capital Markets

Okay. That's helpful. That makes a little more sense there.

Rick Wheeler

I think the court order, try to keep, in terms of funding is – the Chesapeake funding is determined year mark for this. What I'm trying for you is trying to help by trying to keep corridor thing separate so you can get a feel for how we're doing.

Eric Stine – Northland Capital Markets

Okay. But you do have, I mean as far as the engineering number. You do have some in that number.

Andrew Littlefair

Yeah. In the carpet. Yeah, I do.

Eric Stine – Northland Capital Markets

Okay. Thanks for that. Just wanted to help in thoughts and what do you think the mix will be in that 150 station number? What the breakdown between pilot and non-pilot might end up being? And then, if you could just maybe discus from a high-level, what the economics might be? What kind of economics you might need to give up the pilot as part of that.

Andrew Littlefair

Okay. On the mix and we are doing investigations on lot of pilot sites right, I think I mentioned 60, made very good headway. Really over the last few weeks we've really got that hold of this, as part of when you are seeing in the SG&A, we've had, we've broadened our team of permitting people and others to do feasibility studies. A lot of these places will finally operate, they are under different – they are under regulations about what they can do with the particular site.

So, some of their locations are larger and others and so as we go through the final location, we have a better sense. Right now, locations of let's call it 18 and sort of 60 that we didn't feasibility check out so far. The vast majority of those are pilots I think 50 somewhat of the 60 are pilots right now and that number will go up.

Some of that will fall out when we're ready to permitting problems somewhere but, we consider private to be excellent partner, they are well positioned our relationship, while still relatively young and it looks to me to be very constructive. And so we'll try to do a lot of those supplies going forward. I don't know 150, I want speculate how many of will fit, but a large number of them will be applied. Rick you wanted to handle the...

Rick Wheeler

Yeah. One thing, I can add is I will give a pilot they were personal view participate with it, if we do station at different site if not on one of their location. So the theory although didn’t state our pilot, saying they want to participate somewhere it could be under the same economics, so we can chat it out. And basically the way that pilot works is we're going to put the capital of to build stations and then ask the station build volume and starts generating operating results. We get a payback our capital plus specified return.

And then after that all done, then we start each providing various services to the entity – we're going to get paid something for doing the old rent, they are going to get something for the rent. And then whatever is left at the end of the day we are going to split those into kind of have us working. So it truly is a partnership type deal, which I mean on the call, we talked about last time, which is what we wanted as opposed to just some sort of kind of, lessor and lessee type relationship.

And they think probably Andrew talked to their President or CEO the other day and he gave big thumbs up to what was going on and we’re really excited about the Chesapeake investment and what's about to happen and he is very excited about the whole deal, as are we.

Eric Stine – Northland Capital Markets

Okay. And so I mean, directionally from here, it should mean higher margins, but it's somewhere in between kind of ONM and retail, that's how we should think about that?

Andrew Littlefair

I would think way skewed more towards the retail.

Eric Stine – Northland Capital Markets

Okay. Right skewed towards retail but some more in between. Okay. And then maybe just touching on BAF, could you just say what the revenue for again and just to clarify that, I think I missed it.

Rick Wheeler

BAF second quarter revenues were $9 million and their margin was $2.8 million. So we're actually keeps more gravity, because we are in the phase of AT&T backing up their orders a little bit. It does a nice job in developing some additional products and going out to get some additional BAF. I can't remember the exact numbers, Andrew perhaps I think they were on off 50 units, so for the six months of 2010 and six months of 2011. So all-in-all there are pretty good and doing a nice job.

Andrew Littlefair

And let me say on the AT&T, not to put, my friends at AT&T they spot, they continue to be pleased with the BAF performance. They just finally with all the different things they are doing, they took a look at their vehicle acquisition budget and they made some changes and they are still committed to their larger program. Remember they made that announcement for 8,000 alternate fuel vehicles and 5000, they've slowed up some.

Although, we don't know the exact number of how many hundreds are 500 or 600, I think that would be behind. But they told us that – they plan to get back on track. And other two other things with AT&T, they – to proceed some of the Transit Connect vehicles, in fact we've seen or we've been growing around to show their operating people that maybe it's time to move to a smaller vehicle.

These bands that they – a lot of the cable companies, telephone companies use our pretty big vehicles out there. They are pretty heavy. They use a lot of fuel and they think that Transit Connect might suit them well, so that's good. And then also we have brought them a look at the first mobile refueling unit that would really I think help them – they got a little worried about deploying the vehicles and being able to get the infrastructure all in place in a timely manner. And so this mobile refueling unit was down there and they looked at it, I think might really fit their business.

So we continue to have good relationship with them and I think works right. We're pleased with our BAF efforts continue the business unit with the phase of losing about half of what the biggest customer that was still. And the good news is the biggest customer we think is coming back. We don't know exactly how many orders left in the fourth quarter, we just got a feel the third quarter and so, we're moving forward with it.

Eric Stine – Northland Capital Markets

Okay. Just some book-keeping things for Northstar and IMW, can you just give the gross profit number? And then also the volume CNG, LNG and biomethane would be helpful?

Rick Wheeler

Sure. Volume first, biomethane $1.7 million, CNG $25.6 million, LNG $11.9 million and that gets you to your $39.2. Margin numbers, IMW was $200,000, BAF was at $2.8 million and Northstar was $0.6 million.

Eric Stine – Northland Capital Markets

Okay. And then last one for me, just an updated CapEx number for the rest of the year and I know that's outside the Chesapeake investment.

Rick Wheeler

As well as outside of the McCommas money will be spent and it was funded with the bond offering we did, twist at both of this about $45 million through the last half of the year.

Eric Stine – Northland Capital Markets

Okay. Thanks a lot.

Andrew Littlefair

Thank you.

Operator

Our next question is coming from the line of Peter Christiansen from Banc of America-Merrill Lynch. You may proceed with your question.

Peter Christiansen – Banc of America-Merrill Lynch

Thank you, this is Peter in for Steve Milano, thanks for taking question. In terms of the – following up on the Chesapeake deal here, has there been a change of sentiment by some of your customers maybe that are in pilot programs and testing out the idea but not get vehicle, has there been a change in sentiment there?

Andrew Littlefair

Peter, I got a little distract the question was – is the because of the...

Peter Christiansen – Banc of America-Merrill Lynch

From you pilot programs?

Andrew Littlefair

Yeah. Well, yes there has been, as describe before we're pleased with what we've seen, we’re kind of liking it a little bit to the refuse. We’re seeing many more fleets trying the product and that’s what I was trying to allude to that, you know, the Mohawk and the couple of hundred vehicles in Rider.

These are going out and these are going out and do major fleets – some of the major trucking operators are using them. And so that’s good. So, in the last several weeks since that a few hundred more trucks have been identified that are going out into these fleets, so it’s very good news.

And you remember Peter also, the product, we have the nine meter and the 15 meter we dropped this 409 meter; it’s a very good engine and just great in the rough use and does well in the transit. The little bit smaller than what major trucking guys are usually using. In the 15 meter levels it’s a very good price and what price we transport. It tends to be a little bit bigger.

So that’s what – we’re on from last week with comments and just getting an update on their outlook and beta testing for the 11.9 meter, and we’re pleased with the fact that it should be on track and coming to the market in lower next year. We think that’s going to be very important, but importantly as well is that they – these trucking firms are trying to get their fleet up to 9 meter right now.

Peter Christiansen – Banc of America-Merrill Lynch

Great, so you would say that a lot of the simple structure that you’re working with Chesapeake is kind of – it’s going to come before some of these engines that come to market.

Andrew Littlefair

Well that’s right.

Peter Christiansen – Banc of America-Merrill Lynch

I mean – it’s not only going to be that the trend that how we should think about it?

Andrew Littlefair

You know, these things don’t get go overnight, right. I mean, the permitting on the pilot stations with us – just can’t be simplified. It’s a three to six month permit for all of these projects. And some of (inaudible), you know, but you might want one of locations, even though you have a really terrible permitting regimen you have to go through.

You might go ahead and get the clock rolling on that and maybe you’ll build the stations that has a nine-month permitting – it will just take longer to come on board, you move to some other easier built sites in evidence. But the stations will be sort of commence, but when you begin to get these – we’ll have done – we’ll have bunch done before the engines hit the market, which is what we want.

But certainly thereafter the engines, the new engines will be in the market in the middle of summer in the third quarter of next year. So we don’t – we won’t have a lot of stranded assets out there for very long. And then remember we are working hard with these shipper customers; we are working very closely with them to get their operating lines and being able to see where they move product. And that – all of that is being blended into where these pilot locations are chosen.

Peter Christiansen – Banc of America-Merrill Lynch

Thanks. And then as in terms of AT&T and their conversion plans, you know it’s great that they are looking at the Connect and a bio-fuel solution, have they indicated or your customers in general indicated that they are looking for something that’s carved, certified as well as EPA certified?

Andrew Littlefair

I don’t know exactly Peter, but we, you know, most of our, it’s not all of our BAF ore [ph] product is carved – is or will very shortly be carved certified, and we think that’s important, that’s really the highest standard, and of course obviously you need it here in California. But, the Transit Connect card certified I think frankly card certification is pretty much about it.

And then – certainly you don’t have to have a card certified to convert a vehicle when it’s in Texas, but our stuff will be card certified.

Peter Christiansen – Banc of America-Merrill Lynch

Okay. And then in terms of the IMW slowdown, would this in any way help you guys roll out your stations faster?

Rick Wheeler

Perhaps from the theory that we still have more opportunity to do stuff for us. We’re always working with them on – changing configurations and working on more efficiency type stuff and improving our production costs and all that good stuff. So we can say they have a little more time perhaps, but they are trying to get back on track and get the China thing going. And so it’s not like they are sitting around idle up there, so maybe a little bit but not much.

Peter Christiansen – Banc of America-Merrill Lynch

Great. And then Rick one last quick question, the LAMTA, was all in this quarter, was that a full run rate for the quarter?

Rick Wheeler

Yeah, I think was in it – it might have been a half of month before was in fully, but yeah it should be all in now and really in the quarter....

Andrew Littlefair

And really in the quarter they were still a little light on volumes.

Peter Christiansen – Banc of America-Merrill Lynch

Okay.

Andrew Littlefair

Now they come back. Now they finished back, I thought maybe early in the quarter; they are still a touch away.

Rick Wheeler

April, May, June, although you are close to off (inaudible) you know what we saw, as we talk about this early in the year, it was very strange actually because usually those transit volumes are very predictable, I mean, they are pretty linked. They run fixed grounds; they use the same amount of fuel.

And really in our transit properties earlier in the year we saw several of them now were off in LA and in the other parts of the country, but they won’t kind of come back.

Andrew Littlefair

Right after here in the first quarter.

Rick Wheeler

Yeah, they were definitely (inaudible) and how they did – didn’t figure that out….

Peter Christiansen – Banc of America-Merrill Lynch

Great. Thank you.

Operator

Our next question comes from the line of Pavel Molchanov from Raymond James. You may proceed with your question.

Pavel Molchanov – Raymond James

Thanks for taking my question; just a couple of quick ones. Regarding the NAT GAS Act, you mentioned that, the hearing was postponed, but more broadly with the Congress very much in cutting mode, how realistic do you think that this will happen before the elections?

Andrew Littlefair

Well, I think you’d have be kind of a fool to say that the world hasn’t changed a little bit surely in Washington and the focus sure seems to be looking at trying to cut expenditures and cut things. However, you know, this is a large government and it’s a large budget, and I think one of the things that keeps the NAT GAS Act up in the flour [ph] is the fact that it’s a job creator.

And you’ll see as the Congress comes back, and I’m sure they’re getting their earful right now while they are at home. The – the NAT GAS Act can really demonstrate jobs and so, if I think if it was just sort of a pork peril thing and didn’t – didn’t have the National Security element, than it does – Energy Security, National Security element and that it didn’t – it wasn’t a great job creator, then I’d say – it’s kind of tough.

But that’s, the tax – the hearing specifically was going to focus on a job growth and economic stimulation and the benefits that this relatively modest tax incentive worth $5 billion plus or minus, what it would mean on jobs and what it would mean on kind of energy and national security. So, if you, you are betting man I mean yeah, does it look kind of difficult right now with Washington environment I would say, you know, things are tough, but there are some attributes to the NAT GAS Act and I think (inaudible) mix.

Pavel Molchanov – Raymond James

Okay. And then regarding the Pickens’ warrants have you got any indication whether there are plans to exercise them by year end or not?

Andrew Littlefair

Well I talk to go to bottom, obviously, this decision and I think the – he continues to believe in what we are doing here and I think, I haven’t talked to him today’s since market dropped 600 points, but, I fully expect that he stills wants to do that in the (inaudible) I think he will exercise.

Pavel Molchanov – Raymond James

Okay. Understood. Thanks very much.

Andrew Littlefair

All right. Thanks.

Operator

I would now like to turn the floor back over to Andrew Littlefair for closing comments.

Andrew Littlefair

Sure, thank you. Thanks, operator. Now, this is dynamic time for us and for the transportation industry. We’ve entered the era in which the availability of domestically produced natural gas reached a scale many were skeptical could ever be achieved.

And finally, engine technology is catching up to meet the needs of the heavy-duty trucking industry. We are very pleased we will be able to close this call by saying that what we are seeing is a new way for us as a result of this progress. We are now in the road using America (inaudible) resources in a way many could not dream possible just a few years ago. We look forward to reporting to you how Clean Energy will benefit in the coming months and years. Thanks. Thanks for being on the call there.

Operator

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

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