Clean Energy Fuels Corp. Should Be Doing Much Better In This Environment

Summary

• Price action favors natural gas over oil-based fuels.
• CLNE shares fell off the side of a cliff.
• A new partner, but the company has struggled to make money.
• Is CLNE a lotto ticket or a good buy at the current price level?
• Lots of announcements, but little gas in the tank for this stock.

The volatile natural gas futures market has traded in a range from just over $1 per MMBtu to over $15 since 1990. The last time the price of the energy commodity was over the $4 per MMBtu level was back in 2014. Since then, it has spent the vast majority of the time below the $3 level, and in March 2016 it fell to the lowest price since the late 1990s when it traded at $1.611 per MMBtu.

Massive reserves of natural gas in the Marcellus and Utica shale regions of the United States combined with technological advances in extraction via fracking have made the U.S. a natural gas powerhouse. The U.S. is home to quadrillions of cubic feet of reserves. The energy commodity has already stolen market share from coal as many power generation plants have moved to gas-fired electricity production. At the same time, advances in liquification of natural gas for transport by ocean vessel to other parts of the world where prices are higher has opened another demand vertical.

These days, there are more natural gas-powered heavy-duty vehicles in operation around the United States. These buses, trucks, and other modes of transport are the addressable market for the product offered by Clean Energy Fuels Corporation (NASDAQ:CLNE). However, as the market has grown, the price of the shares has moved lower to a point where CLNE is almost a penny stock these days.

Price action favors natural has over oil-based fuels

Recent price action in the energy sector has resulted in a higher price for crude oil and stable to weaker prices for natural gas.

Source: CQG

As the weekly chart of NYMEX crude oil futures highlights, the price has moved from lows of $26.05 per barrel in February 2016 to its current level at over $62 per barrel. More recently, the energy commodity has appreciated from $42.05 on June 21, 2017. Oil products, gasoline, and distillates have followed crude oil which has made the price of diesel fuel rise.

At the same time, the price of natural gas has gone the other way.

Source: CQG

While natural gas futures on NYMEX have moved higher from their March 2016 low at $1.611, they are still historically low at the $2.70 per MMBtu level offering consumers a cheaper alternative for fuel. Therefore, demand for natural gas should be increasing which should improve demand for the products offered by CLNE.

CLNE shares fell off the side of a cliff

CLNE provides natural gas as an alternative fuel for vehicle fleets in the U.S. and Canada. The company supplies compressed natural gas (CNG), liquefied natural gas (LNG), and renewable natural gas (RNG) for light, medium, and heavy-duty vehicles. CLNE also designs, builds, operates, and maintains fueling stations. Given the price differential between oil-based fuels and natural gas, CLNE's business should be booming these days. However, the performance of the stock has been nothing short of awful.

Source: Barchart

As the chart illustrated, CLNE stock traded to a high of $24.75 per share in March 2012, and it has been all downhill since. On Monday, March 5, the stock was trading at $1.41 per share. The stock has been on a one-way street to the downside.

A new partner, but the company has struggled to make money

On February 21, 2018, CLNE and the Long Beach, Calif-based Harbor Trucking Association announced that the company is now the exclusive provider of cleaner fuels for the Association's 100-member trucking companies.

While the partnership is good news for the company, it has done little to improve the price of its stock. CLNE has been listed on the Nasdaq for over a decade, and it has struggled to make money. The company will announce earnings on March 13 and consensus estimates for the final quarter of 2017 are for a loss of 11 cents per share. CLNE continues to struggle to make money despite its presence in a market that should be expanding.

IS CLNE a lotto ticket or a good buy at the current price level?

CLNE had become a darling of the alternative energy investment market back in 2012 when the stock rose to its all-time peak price at $24.75 per share. However, poor economic performance in an industry that requires significant capital expenditures to expand business has choked the company's growth and prospects for earnings.

There continues to be a lot of action in the stock. The company has a market cap of $211.52 million as of March 5 and trades an average of over 1.27 million shares each day. Boone Pickens is the top shareholder with over 13 million shares, and institutional holders include an impressive group. Blackrock, Vanguard, State Street, Renaissance Technologies, Northern Trust, TIAA-CREF, D.E. Shaw, and Goldman Sachs are top holders of the shares.

The price action in the stock has been nothing short of lousy, but the stockholders give reason to pause and consider the risk/reward of a long position in this company at its current share price.

Lots of announcements but little gas in the tank for this stock

There has been a consistent stream of announcements about partnerships, technological victories, and positive news from the company over past years, but the stock's price continues to head south. Meanwhile, the impressive list of shareholders could mean that CLNE is a takeover candidate. The company could wind up the hands of a better-capitalized company with the financial means to take the business of supplying natural gas fuels to truckers to the next level. On its own, there appears to be little gas in the tank for CLNE at this time and another losing quarter could send the shares even lower. However, there is lots of financial talent involved in the company that could arrange a takeover that would make their investments look a lot better over the coming months. I think that CLNE could be a buy at its current price, but the upside appears to depend on an acquisition of the company to take some high-profile investors and institutions out of long positions that have been suffering over the past six years.

To me, CLNE is a lotto ticket that could pay off, and a 100% move is not out of the question. Based on the recent price action in the natural gas market, the upside potential for the company could be a lot more attractive than for the commodity.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.

Comments

[kellykelmo]

Everyone barking up the wrong tree.
Many other companys out there doing what CLNE does.
(ie UPS going with someone else for dilivery (ANGI)
Poor management. Wannabes looking at richer people and
trying to get more off other peoples back.
Natural gas is a good idea(LNG,cng}
CLNE is not

[Henrik Alex]

Poor results, huge cash burn and a VERY BAD surprise:

"Although we continue to record revenue from the sale of RINs and LCFS Credits generated from our continued sales of our Redeem RNG vehicle fuel and CNG and LNG, the amount of revenue we receive from sales of these credits decreased in 2017 as a result of our sale of our former RNG production facilities and other related assets in the BP Transaction. This decrease has adversely affected our results of operations, in particular our volume-related revenue, and reduced our effective price per gallon (discussed under “Results of Operations” below). In addition, we recognized no revenue from sales of LCFS Credits during the third and fourth quarters of 2017 because CARB had restricted our ability to sell and transfer LCFS Credits pending completion of an administrative review. We were, however, required to settle preexisting contractual obligations to transfer LCFS Credits to third parties by making cash payments totaling $7.0 million, the equivalent value of the LCFS Credits we would have otherwise transferred to satisfy our obligations. These payments are reported in Asset impairments and other charges in our consolidated statements of operations. In November 2017, CARB invalidated certain LCFS Credits we had generated in prior periods and released the restriction on our ability to sell and transfer LCFS Credits. We are disputing CARB’s invalidation of LCFS Credits."

[TomPendergast]

The market for natgas transportation in North America is making a lot of progress in marine and rail applications but not for over-the-road long-haul transportation. Clean just misjudged the market. In Europe and Russia, natgas-powered transportation is progressing for both marine and over-the-road long- AND short-haul transportation. See Autovaz for NGVs and Gazprom, Tatneft and Novatek for NG refueling stations for examples. All Columbus, Ohio city buses now operate on natgas and a local dairy, Smith Dairy, operates all of its trucks on natgas. The natgas refueling stations in Columbus and my rural area of Ohio are open to the public. The buildout of NG refueling stations is not confined to Clean Energy. There are other participants as well. You and I might like to see this happen more quickly. I'm confident that it will continue to expand gradually. Realistically, there just simply are not many light vehicle options available in North America.

[Jack.Bolander]

Tom, you can count ALL of the trains and boats using LNG in the US on your hands. Zero progress in any areas.

What is most troubling after yesterday's numbers is that the rate of growth in volumes has nearly ceased. 2%-3% growth, is organic. If growth isn't exponential at this stage, then we are looking at the beginning of the end !

[TomPendergast]

9 Great Lakes ore carriers with MAN-Mitsui Engineering & Shipbuilding LNG engines.
23 very large ethane carriers calling at Marcus Hook (Philadelphia) and Houston ship channel powered by Wartsila or MAN-MES LNG engines
Crowley Marine's entire fleet now operates on LNG
Suncor operates 9 Komatsu electric heavy haul mining trucks powered by GE S44C4 LNG gensets and has 141 more on order
many waste haulers including Waste Management and other truck fleet operators are replacing their diesel fleets with OEM trucks from Mack, Kenworth, Freightliner, Peterbilt, Navistar, Volvo, Iveco and Autocar all powered by Cummins-Westport LNG/CNG engines
Ford is the only U.S. company I know of that offers a lightweight LNG vehicle, an F-250. It doesn't seem to be very popular. The situation is quite different in Iran, Russia and China where light CNG vehicles are much more common than in the U.S.

[TomPendergast]

In North America, the market for LNG/CNG-fueled long-haul trucks has not been as robust as many of us had expected. In other areas, however, steady progress is being made. In the Seattle/Vancouver region, many ferries use LNG as does Crowley Marine in both the northwest and Florida/Caribbean. On the Great Lakes, Interlake Steamship has converted its fleet of ore carriers to LNG, bunkered exclusively by Shell in Sarnia (near Windsor/Detroit). Florida East Coast Railway now operates 100% on LNG including its fleet of trucks.

In Europe, the picture is more appealing with LNG bunkering widely available on the Rhine and the Baltic for the maritime trade and Volvo and Iveco achieving good sales for their big-rig LNG trucks.

[Jack.Bolander]

Tom what is your point? Onesy-Twosy...barely a niche?

And none are fueled by CLNE?

[mihaixxy]

Got in at $1.50, put an alert for when it goes under $1.00 to add some more; plan to hold for a long time, as believe the tide may turn faster with the higher demand for natgas worldwide, just IMHO.

[MadAsHellAnd]

Correction to article text, "natural has" vs. "natural gas"

It might just be that no one besides power companies has any interest in NG. Tesla and hybrids have real demand; does a NG vehicle? Maybe a few local fleets, but is there any true demand for long haul NG trucks? So if the big rigs are tepid, and auto drivers could care less - where's the demand?

The price of the fuel is ostensibly super low. So does that mean I can say 25% a year on driving costs? Can a big rig? I find myself asking where's the beef?? I don't see it. And as demand goes, I wonder if anyone else does.

The NG industry used to promote/propagandize itself as "natural,clean gas energy" or such. I think they're far under-utilizing that promotion - if they're even doing it at all now. Maybe too late in stepping on the gas with that. NG sure hasn't gotten its message out very well into the public mind.

I know this: my heating/water heating bill is higher than ever, and my utilization units are LOWER than ever. Personally, I'm tempted to replace my gas furnace with a (electric) heat pump and water heater, because NG is just no bargain. They claimed (and seemed to be correct) that it's been a bargain for decades - when NG was relatively much much much higher priced. Yet my bill feels like a ripoff. So there's no glowing demand from me - although indirectly I may use more indirectly from the power company's converted coal plants.

I just don't know if anybody "wants" NG. I didn't think that way a few years ago; especially with the seemingly sea changing supply discoveries, and price drop, I thought that NG, the "clean energy," would grow like mad. But I guessed wrong. CLNE I believe just guessed wrong too.

Very long CLNE, but I don't know why. Lottery ticket.

[Fluidsdoc]

Down again today. CLNE is headed toward delisting warnings.

[InvestRite#1]

If we are looking well into the future for CLNE, rather than a single qtr's earnings increase, we'll find that it will still be a long slow climb for them unless management does a three big things;

Convinces transportation company owners in the short and long haul spaces of the diesel industry, in addition to UPS, that the cost is worth the price of a ng engine by Cummins and others, and it is, since the engine duration will increase by about 50% of standard diesel engine, remarkably already at over 1,000,000 miles.

Then begin the work with large cities, LA, NYC, Chicago, Houston, Seattle, D.C., and many more, to ban diesel engines in all metro areas, as the EU is doing now, where pollution levels require cleaner air.

Finally, lower executive compensation as performance based, rather than what has been happening. Littlefair, Pratt and Corbus are being paid as if they are running a much more profitable company.

With those three improvements, not done over a year, with the exception of salary reductions, but within 3-5 years, this company would experience a major turnaround and become a take over candidate. And in 1-2 years we'd see a healthy share price increase.

[bob the invester]

The author acts like the price of ng has some thing to do with the use if ng in vehicles
I have a simple answer to that
Most of ng use in the US is delivered by pipe
For 98 % of that use it under a $1 a gallon
Its the cost to compress or make a liquid and the pumps ,storage and cost of vehicles that makes the difference in use

[bob the invester]

you could list o many things that do not give a true view of actual
for clne
1 , its not the price of ng that determines the use of ng vehicles,its the transport price to the stations and the price of vehicles
2 Why would you even mention Calif-based Harbor Trucking
At the port,almost no one has bought a vehicle with out the government paying for it
Is the government going to pay for all US ng vehicles?
So what happens at the port has zero to the use of ng vehicles in the US or the world
Proof
All vehicles in use there where in large part paid for by the government and many more than 1/2.paid the total price of vehicle ,not just the ng part
The port just happens to have large amount of truck traffic and does not have good air circulation and California has chose that era to try new things in ng vehicles and paying for their trials. These are trials and as so have nothing at all to do with success as far as comparisons . Trials are trials. The US and or California are not going pay for the total cost of a ng vehicle but for trials. The chances of the doing the same is .0000000000000000001%
So why did you even mention
Its a place where they do trials and the California government pay for the trials

[a.csuk]

I will take BOTH!

[Jack.Bolander]

With a LOTTERY TICKET ..you at least have a chance of winning.

[Ruskis]

I truly believe natural gas is the only way to go to brake the Middle East strangle hold for ever and electric also has a place

[Jack.Bolander]

Natural Gas as a motor fuel is ridiculous. The cost of new infrastructure is prohibitive. Just one reason why CLNE is at ALL TIME LOWS.

Natural gas for power generation (displace dirty coal) and charge ZEV's. Nearly all of the infrastructure is already in place.

[User 27754773]

Charging infrastructure for heavy duty electric trucks in not in place. Name one truck stop with a battery switching station or fast charger? They don't exist. There are over 2000 CNG/LNG stations connecting almost all major US highways now.

[TomPendergast]

You might like to check out Suncor's oil sands operations in Fort McMurray, Alberta where they are currently running 9 Komatsu heavy-haul driverless electric dump trucks. They have ordered 150 of these trucks.

[DanielHolzman]

If this company is not capable of earning a profit, why would anyone take it over? The author seems to think that somehow fresh management with new ideas and additional capital is going could allow this company to expand and start earning profits, but there is nothing in this article that suggests a realistic path forward.. I think the author's conclusion that the stock is dead is probably much more realistic than some sort of takeover. If I were eyeing this company, I would wait for bankruptcy, then scoop up the assets for ten cents on the dollar.

[a.csuk]

They are not going bankrupt... too many assets that would be very valuable to a larger company like the ones at the port of LA.

[Jack.Bolander]

What assets? What value? A handful of stations? Not worth $1.50 / share.

[a.csuk]

Why don't you call investor relations yourself and find out what assets they hold, CLNE's assets by the port you could never get the permits for today! Give them a call, it's not hard to do.

[buffalosoldiertwo]

Who releases earnings on Friday the 13th?

[kiens6380]

This 13th will be a Tuesday..

[Fluidsdoc]

Good stuff Andrew. I agree the price action on the stock is unfathomable. I did a little investigation on my own a while back and discussed them briefly in an article on LNG based growth stocks. I lost interest when good news (like new contracts etc.) did nothing for the price.

I agree a takeout along the lines you discuss is the only salvation for this company.

[kimbillro]

This article has some good ideas but I don't think that the impressive list of top shareholders comprised of Pickens et al is going to break even at $2.80 or $3.00 per share. The stock has been below $5.00 for only a little longer than 2 years. I am going to guess the breakeven point for the elite group of shareholders is about $10.00. I look for them to engineer a turnaround first and get the stock back up to $10.00 and then engineer a corporate buyout or LBO in the $20.00 + per share area.

The way to play it is to wait for the earnings report on March 13 and hope it is bad, then buy the stock as it gets hammered.