Aemetis, Inc. (NASDAQ:AMTX) Q2 2018 Earnings Conference Call August 9, 2018 2:00 PM ET
Eric McAfee - Founder, Chairman and Chief Executive Officer
Todd Waltz - Executive Vice President and Chief Financial Officer
Carter Driscoll - FBR Capital Markets
Edward Woo - Ascendiant Capital Markets, LLC
Greetings and welcome to the Aemetis Second Quarter 2018 Earnings Review Conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I’ll now turn the conference your host, Todd Waltz, Executive Vice President and Chief Financial Officer. Thank you, you may begin.
Thank you, Matt. Welcome to the Aemetis second quarter 2018 earnings review conference call. We suggest visiting our website at aemetis.com to review today's earnings press release, updated corporate presentation, filing with the Securities and Exchange Commission, recent press releases and previous earnings conference calls. This presentation is available for review or download, on the aemetis.com homepage.
Before we begin our discussion today, I'd like to read the following disclosure statement. During today's call, we will be making forward-looking statements, including, without limitation, statements with respect to our future stock performance, plans, opportunities and expectations with respect to financing activities.
These statements must be considered in conjunction with the disclosure and cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements made on this call involve risks and uncertainties, and that future events may differ materially from the statements made. For additional information, please refer to the Company's Securities and Exchange Commission filings, which are posted on our website and are available from the company without charge.
Our discussion on this call will include a review of non-GAAP measures as a supplement to financial results based on GAAP. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the quarter ended on June 30, 2018, which is available on our website.
Adjusted EBITDA is defined as net income or loss, plus to the extent deducted in calculating such net income, interest expense, loss on extinguishment, income tax expense, intangibles and other amortization expense, depreciation expense and share based compensation expense.
Now, I'd like to review the financial results for the second quarter of 2018. Revenues significantly increased to $45 million for the second quarter of 2018, compared to $40.8 million for the second quarter of 2017. Gross margin for the second quarter of 2018 increased to $2.8 million compared to a gross margin of $1.7 million during the second quarter of 2017.
Selling, general and administrative expenses were $3.6 million in the second quarter of 2018, compared to $3.3 million in the second quarter of 2017. Operating loss was $0.9 million for the second quarter of 2018, and improvement from the operating loss of $1.7 million for the same period in 2017. Net loss was $6.2 million for the second quarter of 2018, compared to net loss of $6 million for the second quarter of 2017, due to higher interest expense.
Adjusted EBITDA for the second quarter of 2018 was $0.8 million, an improvement from adjusted EBITDA of negative $2.4 million for the same period in 2017. Cash at the end of the second quarter of 2018 increased to $1.1 million compared to $0.4 million at the close of 2017. That completes our financial review of the second quarter of 2018.
Now, I would like to introduce the Founder, Chairman and Chief Executive Officer of Aemetis, Eric McAfee, for a business update. Eric?
Thank you, Todd. For those of you who may be new to our company, let me take a moment to provide some brief background information. Aemetis was founded in 2006, and we own and operate production facilities with more than 110 million gallons per year of renewable fuel capacity in the U.S. and India.
Included in our production portfolio is a 60 million gallon per year capacity ethanol, distillers grain and corn oil plant located in Keyes, California, near Modesto. We also built, own and operate a 50 million gallon per year capacity distilled biodiesel and refined glycerin biorefinery on the east coast of India, near the port city of Kakinada. We announced in late June that the company was selected to join the Russell Microcap Index effective June 25. This Index is expected to improve shareholder liquidity and the awareness of the Company among investors.
Now let's review our biodiesel business in India. We have made solid progress in the upgrade of our India plant and are on tract for significant revenue and profitability improvements as the upgrades are completed and production expanded. During the second quarter of 2018, we announced that our Universal Biofuels subsidiary completed the production of high-quality distilled biodiesel from lower quality high free fatty acid feedstock using a recently constructed pretreatment unit at the biorefinery located on the East Coast of India.
This pretreatment unit was built to process a specific low-quality and low-cost feedstock under a supply agreement with a major oil company that was signed in mid-2017. Coincidentally, the India Government changed tariff policy to require 20% free fatty acids in imported feedstock to avoid a heavy tax. So the completion of the new high FFA feedstock pre-treatment unit at the India plant was very well timed for this type of special processing.
The new unit allows for the importation of lower cost and waste feedstocks for the production of distilled biodiesel for sale to customers in India, Europe, and the U.S. including the contract with a major oil company. The pre-treatment unit has now begun operations, but the expansion of onsite utilities to support the new pre-treatment unit are now being built to enable operations at full plant capacity by the end of this year. We are thankful for the hard work, commitment, perseverance and innovation demonstrated by the India plant team in designing, fabricating, and installing the plant upgrades which we expect will provide Aemetis with a sustainable, strategic and operational advantage.
As we stated earlier this year, we expect crude oil prices will be consistently above $6 per barrel, driving a higher price of diesel that has improved revenues and profitability at our India business as we commission new processing capabilities. Since the country of India consumes about 20 billion gallons of imported diesel each year, the rise in the global price of diesel during Q2 allowed increases in the selling price of biodiesel.
After commissioning the new utilities upgrades and with the pre-treatment capability at the plant to process lower cost feedstocks, we expect rapid increases in revenues and profitability at the India plant driven by domestic India demand and export sales primarily to Europe under existing supply agreements. The refined glycerin business is expected to continue to be a significant contributor to the revenue and operating cash flow expansion at the India plant.
Now let's review your California ethanol business, including our advanced cellulosic ethanol project. We were pleased to announce, on June 19 that the Aemetis advanced biorefinery under-development in Riverbank, California was named as the number one Waste-to-Value Project in the world by Biofuels Digest, the world's largest daily biofuels producer. The Aemetis project earned its number one ranking as a result of our low cost almond and walnut wood waste contracted for 20 years with a fixed price for 10 years.
Planned production of high value cellulosic ethanol worth about $6 per gallon, including valuable fish meal and other byproducts. The proven LanzaTech microbial ethanol production technology that recently became operational at a 16 million gallon per year capacity plant using waste gases from a steel plant in Northern China, and the planned $125 million USDA guaranteed loan to fund the Riverbank plant. The Aemetis Riverbank facility was ranked above well-known and funded advanced biofuels projects, including those developed by Fulcrum, Red Rock, Clariant, Poet and Enerkem.
The successful funding of multiple advanced biofuels projects in 2018, the rise in the price of crude oil is more than $60 per barrel. The rising price of California low carbon fuel standard credit and the pricing predictability of federal D3 RIN for advanced biofuels has created a demand among major oil companies for supply agreements and investment into new projects. The Riverbank plant is expected to add more than $80 million of revenue and generated more than $50 million per year of positive cash flow by producing cellulosic ethanol from low cost waste, orchard, vineyard, forest and construction demolition wood as feedstock.
The financial closing to begin construction of the Riverbank plant is expected this year primarily driven by the timing of the USDA guaranteed loan. The USDA 80% guaranteed loan is a 20-year low interest rate debt financing under the 9003 Biorefinery program with only interest payments and no principal payments during the first three years. We are now working with the USDA to complete an issue the loan commitment letter, which we expect should be issued this month based on discussions with the USDA.
The 60 million gallon Keyes ethanol plant continues to operate significantly above nameplate capacity with production increasing by more than 3 million gallons in the first half of 2018 compared to the first half of 2017.
The Keyes plant operation team – operations team continues to achieve excellent ethanol yields and plant up time, while engineering and implementing several ethanol plant related upgrades that are planned to significantly improve profitability. We expect to announce these plant upgrades later this year with a goal of reducing the carbon intensity and increasing the price of the ethanol produce at the Keyes plant.
A key factor in our plant upgrade and expansion decisions has been the strong market for California low carbon fuel standard credits, which have increased from $62 per credit in July 2017 to about $190 per credit this week, and the price of D3 renewable identification numbers for cellulosic, biofuels and biogas that is set by federal law.
The production of lower carbon corn ethanol, below zero carbon cellulosic ethanol from waste wood and other low carbon products that generates – generate low carbon fuel standard credits and federal D3 RINs, our direct opportunities to meet the goals of regulations that seek to create a lower carbon economy.
In summary, our name Aemetis means “The One Prudent Wisdom”. We are in a quest to achieve One Prudent Wisdom for our society, which is to become less dependent on petroleum. Aemetis builds, operates, and upgrades low carbon and below zero carbon biofuels production facilities to reduce carbon emissions, improve air quality, create local jobs, attract investment in rural areas and support energy independence and security.
Aemetis has achieved leadership in operational execution and is now in the most exciting time of our Company's growth. The deployment of the patented at LanzaTech cellulosic ethanol and other innovative processes to produce low carbon, low pollution, high performance renewable fuels from abundant low cost waste feedstocks is an industry growth phase in which Aemetis is now being recognized as a leader.
Now let's take a few questions from our call participants. Matt?
Great, thank. [Operator Instructions] Our first question is from Carter Driscoll from FBR Capital Markets. Please go ahead.
Good afternoon, gentlemen. So let me start with the timing of the USDA loan commitment letter. Are there any gating factors in terms of what you have to probably secure that is it a bureaucratic issue? And then just remind us again once that is secured, what the next steps are in terms of financing – the rest of the facility and in terms of the timing impact if any on the construction and eventual operation in late 2019?
Our overall deliverable is the closing of the financing, which is the debt financing and the required 20% non-USDA guaranteed loan amount. And we're projecting that to occur in the fourth quarter of this year. So we would be in the construction phase exiting 2018 calendar year.
To get to that process, the last deliverable from the USDA is called a commitment letter and it's actually not made to us. It’s made to the syndicated banks that fund a loan and we are in the final – few weeks of that process. So we do expect to see that as early as mid to late August and certainly going into September.
And we have already been informed by the USDA that we should start with effectively as a closing process and not wait for the final version of the commitment letter, because a draft version is now complete – is now completed. So we are in the process of completing the other activities necessary to get a financial closing done.
We do have other investors other than the syndicated banks doing senior loan these would be what’s you could call the equity but frankly can be preferred equity and other mechanisms and other common equity and already have the small group of parties that would be involved with that equity funding.
Already identified in already in term fee process so we are moving toward a closing that would be in the fourth quarter of this year and they really in the fourth quarter we can get the better but this process is primarily can be driven by the timing of the USDA and getting committed letter issued.
So if we can get that achieved this month then it will then be handed over to the syndicate of banks and us in a couple of outside investors. So I can…
You are primarily were past with getting the syndicate put together I realized they had often is directly to syndicate itself, but view the primary…
This particular syndicate it has already funded two USDA 903 biorefinery projects this year already. And so it's the same syndicate banks and they have a very close relationship with USDA. So this will be I think the third financing they’d done this year with essentially the same group of about a dozen banks.
So that part of the equation is fairly well known and at this point almost boilerplate the equity portion is getting a tremendous amount of interest from major oil companies and Wall Street very, very large firms who see the long-term contract over inputs and the essentially statutory values of D3 RIN in the LCFS credits in California and see this is a project finance and has really locked in a substantial amount of cash flow in excess of $50 million a year.
So we actually have a very strong interest from a number of parties we have our favorites of course and so we are into new clothes of the favorites and may add a couple of other ones to the mix because of the high level of interest.
And the timing of construction and still roughly nine months. Is that correct?
Yes, the timing construction is we're in the engineering cycle now we've already funded almost $10 million into the project over the course of this project development and engineering process. So med assessment funding the process engineering and detail engineering and so we expect that will enable us in the fourth quarter of this year to break ground and be completed in the first quarter of 2020. So it's about a 15-month actual construction cycle that would be wrapping up the fourth quarter of 2019 that commissioning and all that would pushes in the first quarter 2020.
Okay. So now we are looking at 1Q 2020 or 4Q 2019 for…
I think if we have some upside surprise we're looking at Q4 2019, but in the essentially the one quarter delay we've experienced for the USDA has pushed back a quarter.
Thank you. Maybe we can shift gears talk about Kakinada. So I think you guys when you got the BP contract last year. And upon the GST which seems to be resolved you felt comfortable that you would be ramping in the second half in terms of volume production and when you got the pretreatment proven now.
It sounds know now though there's some power issues with getting utilities to expand the plan and just probably understand wide sounds more or like you'll be ramping towards the end of 2018 into the first half 2019 rather than second half this year. I thought we were on a path towards ramping throughout second half 2018 to maybe just some color there would be helpful? Thank you.
I would reconfirm that we're ramping in the second half of 2018. We are currently operating the plant without the – when I say utilities we're talking about boilers that create steam and power for the utility for the plant. And so we have expansion of our boiler capacity specifically that is the last component of our upgrade. And so this ramp in the second half of 2018 is still on calendar.
We've already begun that ramp, but it's just in order to get to the full production capacity we need to add in additional boiler. And so the preliminary civil work is I think virtually completed and then we're in the equipment initialization phase of that. So it's not a long-term three-month process to complete that. It's a third quarter event, and so our ramp is already happened, so it should start and it just won't be able to be achieved without that additional boiler capacity being in place.
And 12/5 is nameplate right now on a monthly basis?
On monthly basis, yes exactly, and we have a glycerin plant as well. And what we've seen in domestic market is that the price of diesel has not risen and so we see expanded domestic demand in India, and I guess the Brent crude number hitting about $80 for Europe has again opened up even more opportunities in Europe. But we're not planning to do any additional international supply agreements beyond the existing relationships we already have. What we're doing really is just debottlenecking the capacity the plant, so we can scale our production.
Okay. You commented a higher level Eric about the resignation of Mr. Pruitt and hire the potential [indiscernible] the positive fact on maybe D6 prices and/or maybe restart assumingly come to terms with China in some reasonable manner. The Chinese export market how that could help in terms of pricing for corn oil. Obviously, it’s been a tough and very volatile test, six the nine months, just try and get your high level thoughts about where your base business could go from a pricing perspective with regulatory uncertainty seeming to relax? And then maybe if you can layer in your thoughts on where an E15 waiver potentially could impact that same industry capacity supply balance seem to be situated in currently? Thank you.
Good. All very good points and all very relevant. I want to start by saying that we have specifically designed the business, so that we are not directly impacted by the factors that you described that all impact to corn ethanol business. The cellulosic ethanol business is correlated with California Low Carbon Fuel Standard credits and the federal congressional price that is set at $3 plus the cost of living index minus the wholesale price of gasoline, call it D3 RIN. So whether we have a trade dispute with China, whether the price of crude oil is $100 or $20, it doesn't actually even directly impact the revenues and deposit cash flow from our Riverbank facility.
The low carbon projects, we're working on announcing this quarter, expanding our corn ethanol business into D3 and low LCFS versus a high LCFS credit markets. And we specifically designed the business, so even it upgrade in India would allow us to go into low carbon products that are complicated by the California Low Carbon Fuel Standard and enable us to be buffered from the market conditions you describe. But first generation ethanol specifically was and is impaired with overcapacity because Mr. Pruitt did his secret issuance of about 2.25 billion gallons of waivers to oil refineries and did not react to a 500 million gallon per year court order that was issued in July of 2017 that the EPA had erred and had provided waivers incorrectly.
So there's about 2.75 billion gallons of demand that Mr. Pruitt almost by himself, decided to eliminate from the ethanol marketplace. Now how that played out in the market, is that the current Chicago price for gasoline is about $2.14 a gallon, up from $1.60. The price of ethanol eight months ago was the same as the price of gasoline, but has decreased to about $1.40 or $1.45. So you look at the price of gasoline going up $0.54 and the price of ethanol going down $0.15. These products are essentially in the same pump being sold to the same customer for the same price, and you can see that all this is a direct impact on the demand for ethanol by the EPA and as a result decrease in the price of the commodity in market space.
The underlying question is really – a question for [Mr. Wheeler] which was asked to him and he did answer it. And that was, will you fully enforce federal law? And a Secretary of EPA, who states to Congress, he will force federal law and then does not should be handled appropriately by Senators Grassley and Ernst, and others, and I think that they should be more aggressive about enforcing what these individual state when they are hired by the federal government in their testimony in front of Congress.
I think that they've been very accommodating with the discretion of the EPA secretary and I think they should be less accommodating in a go forward basis because of the Chicago Board of Trade price damaging the ethanol industry as a whole while rewarding the gasoline industry as a whole specifically because of the actions of the secretary that has recently departed.
So my firm position is that federal law should be fully enforced and that we do not need any legislative action. We don't need any – frankly any new regulatory action. What we need is a recovery to the concept that federal law actually is congressional intent and that we did not need court action in order for the EPA to fully enforce federal law.
The impact on our business would be at least a minimum of $0.50 a gallon of increase value for ethanol that would still be by the way a discount to gasoline and our corn ethanol business would rightly be a very nicely profitable business, if you had $0.50 a gallon to a 60 million gallon plant.
But regardless of all that, our management team has taken the position that eliminating the corn – feedstock costs plus taking $1.70 molecule called corn ethanol and making it a $6 per gallon molecule called cellulosic ethanol is a sustainable high margin financeable process that that we should pursue, and we have multiple ways to do that.
So as you watch our Company closely, you'll see our Riverbank cellulosic ethanol plant is the first of building four plants in California. You'll see the additional D3 RINs and low carbon fuel standards credits come from the projects related to our corn ethanol plant and you'll see our India plant upgraded with the low carbon, high LCFS credit products that we can make coming out of our India plant.
And I think increasingly as investors get the vision of what we're doing, they'll see that the daily news items have less and lesser than impact on the profitability and positive cash flow of our business.
Last one point I want to make is about China. China has effectively blocked ethanol from the U.S. They've twice increased the tariff on U.S. ethanol. But they have a domestic 10% ethanol blend that they have adopted and they have a significant air pollution and help crisis in China, which is really only alleviated by the mixing of the high oxygen additive and ethanol is the only one that’s available.
So they have backed himself into a temporary corner from which they will emerge either with continued health problems and air pollution crisis and frankly capital flight because of the poor living conditions in major cities or they will emerge and they will be a very large customer for ethanol and the lowest cost molecule make ethanol in the world of corn starch from the United States.
So as a viewer, I would say that, we're just caught up in a temporary discussion between the United States and the government of China and that that discussion will be resolved largely in favor of the United States. On many topics and I think this is one of the topics where we're going to end up with the Chinese market being a growing market rather than what it is today essentially zero market for our product.
That being said, the E15 market opportunity in U.S., the ability to blend 15% ethanol year round is from a practical manner almost a 50% increase in the amount of ethanol that could be blended in U.S. U.S. is roughly 15 billion gallons market. If you just enforce federal law by the way that is over 1.5 billion gallons more than what we're really consumed in the U.S. today – over 1 billion gallons.
Now we go from 15 billion or 22.5 billion, obviously we would have a lack of ethanol supply in the U.S. We would not be able to supply our own domestic market much less supply foreigners. So the E15 approval in the U.S. will gradually over a number of years create a natural called reconciliation of the price – gasoline the price of ethanol in the U.S.
So it's a bullish indicator that the President has stated publicly and repeatedly that he's in support of the 15% here around blending for ethanol in the U.S., which is fundamentally growing the U.S. market beyond what it is today.
What is the hindrance to adopting E15?
The oil industry. There's a perception that in order to do something for corn farmers then you have to do something for the oil industry because they have significant lobbying power because of – I think the last number I saw was $100 billion a year of annual profits that they can use to the fund political goals. And so there's a perception that they need to get something the oil industry we tend to get something to the corn farmer.
And the ethanol industry is the only growth industries in the corn marketplace meat in other markets are shrinking and export markets are challenged by foreign producers. So ethanol is the only growth market there is for corn and corn is the number one commodity grown, U.S. is grown on 90 million acres of land. So there's a direct votes in about 28 states correlated with whether corn farmers are being treated well and there's a perception that if the oil industry uses that lobbying money that that life can be very uncomfortable. So don't do something for corn farmer without doing something for oil industry player.
And that perception I think is wrong, I think the reality is those 28 states both the Senate, they also the President. And you could completely ignore the loud lobbying noise from the oil industry and still be very successful politically in the United States. But you know you get some volatility in that as people finally figure out where the votes really lie and the closer we get in November I think the more positive news you're going to get from the corn ethanol industry.
Thank you for my commentary. Appreciate it. And last question for me, is there an update on the litigation with EdenIQ and add their timing or any change in the legal case that you're pursuing against them?
Yes. No direct comment on the litigation process of than it's going through the discovery phase with that positions and the like. We see some opportunities for the EdenIQ technology that that interestingly might not be as correlated directly corn fiber. So there's some opportunity that is perhaps to make a bigger piece of pie so that the slices are larger.
And we see an ongoing dialogue with their company as being productive we'll see how much willing if they have to come to the table and have those discussions. But we have a very strong position in litigation and frankly to see it as something will discontinue to move along with and get it resolved, but it anytime we are to discussions about bigger business opportunities in our making proposals to that effect.
Our goal is to maximize a cellulosic ethanol production their focus has been on the corn fiber that's already in the plant we have technologies enables to expand that cellulosic feedstock and deploy their technology in ways that they perhaps don't fully – they don’t fully have implemented yet.
So we think there's a lot of synergies there it's why we have an intention to complete the acquisition and certainly absent an acquisition have an intention to play the technology. So we're very open to being business like about it and investing properly in the litigation to enforce existing contract, but looking for other upside that they perhaps themselves might not be aware.
I'm sorry, one last one for me. Any update on the pursuit of EB-5 financing in the second phase?
Yes, very positive. I've done more than a dozen worldwide trips. I was just in China two weeks ago, I’ll be in China next week again doing seminars with EB-5 investors. We have a unique value proposition because we are a rural project, a countryside project and there is a shortage of those, and we are also very interested in the value of our project as a national interest kind of a project which could accelerate the approval cycle for investors. So we are doing a couple of really exciting applications that if accepted could move quite a lot of capital this year under this program.
So lots of efforts being spend and we have more than a half dozen brokers retained worldwide and have extensive travel and presentations that I continue to do and continue to get very positive feedback. So expecting to see continued progress there and I hope to see great progress by the end of Q4 this year.
I appreciate for taking all my questions.
Thank you, Carter.
Our next question is from Edward Woo from Ascendiant Capital. Please go ahead.
Thank you for taking my question. Going back to the EP-5, will you be doing or closing altogether when everything is done? Or will you be kind of getting money and as you complete different [indiscernible]?
Ed, we collect cash on a per investor basis and in general that amount which is $500,000 per investor is actually received by the project company as the investor funds and follows their paperwork. So you could call it a dribble of money, but traditionally you would see $500,000 to $2 million or $3 million be closed at a time and it would be done at least on a on a monthly basis if not more frequently. So money kind of dribbles in and you might call it as a couple million happens here and a couple million happens there. But the overall goal today is $50 million and we might expand it as we did expand our first offering which we completed for $36 million.
We very possibly would expand this $50 million to as much as $75 million. We created enough jobs to actually raise $100 million. 3% interest rate, subordinated debt, five-year minimum maturity and very, very attractive low cost capital and we could in theory raise up to $100 million, we leave a buffer for job creation, and so our current target would be in the $75 million range.
Last point I want to make on that is we did complete a cycle of job study verification and it showed that our first project where we raised $36 million from 72 investors actually created 50% more jobs than was required under the program. And so we have completed all jobs creation, completed all the actions really required for the project to support the program, and we're just very pleased that we're able to use that as a part of our discussion of Phase 2 and our expanded Riverbank project.
Have you collected any money from this $50 million new round?
No, we've collected the $36 million from Phase I and we expect to see funds frankly this quarter under Phase II.
Great. And I know you mentioned that ethanol is running actually some issues in China with the tariff issues. Have you heard any concerns about [indiscernible] maybe factored in and trade issues as well?
It is definitely a factor in the trade issues. We have read that the Chinese see that this has an impact on corn farmers and therefore corn votes. That actually gives me quite a high level of optimism because we're coming up on important elections in November in which corn farmer votes and in the states that matter will be central to the outcome of these elections.
So I think the Chinese realize that and have just in the past week or so again increased import taxes very, very stiffly. So the impact on the ethanol business has been relatively low because China is not a large customer of product or has not been historically. But it is expected to be in the future. So I think this tariff spat is going to in the case of ethanol be resolved favorably and if anything it really have to be an important part of any U.S. strategy because the number of votes involved in 28 or so states it could be considered corn states.
Great and my last question is overall outlook for oil. I know there is always be very difficult to predict, but I would just like to get any insight you may have on what [indiscernible] oil is going to go into next six to 12 months?
I think oil – let me back of a second, I just attended the Annual Global Energy Outlook in Singapore, at the invitation of a major oil company and their Chief Economist and CEO's of their various operating divisions in Asia presented on exactly this topic. And every one of them stated that they expect the price of oil to be essentially either flat or up.
I would agree with that analysis and underpinning that is that the fact that the Saudi Arabians have stepped back into the role of swing producer, which they didn't have a choice about because the low price of crude oil was essentially bankrupting the country, and now that they're the swing producer, I think that they have the opportunity to create a more stable price of oil and a gradually increasing price of oil.
I think the numbers still are true that about $80 per barrel is a breakeven price for the Saudi Arabian National budget and so $80 – Brent is roughly $72 to $75 U.S., West Texas Intermediate price. So I think we're in this range of $68 to $75 because the Saudis need it. They need it to pay for their various military expenditures and welfare expenditures and capital budgets and anything else.
And so we're largely back to the Saudis controlling price of oil and I think that will be positive for the biofuels business. One of the things that might be a misperception among some is that a $100 or higher price is good for the biofuels business. I personally would say that no best price for the biofuels business is in the $70 range, because biofuels are cheaper to produce, higher value added oxygenate and octane and replace the nasty BTEX benzenes et cetera in gasoline. There’s all those benefits at a lower cost at $70.
However, at $100 or $120, you end up with calculations of electric cars and batteries and other things that might become economic at $120, but are absolutely not economic at $70. So the sweet spot for biofuels is the $70 to let’s say $100 per barrel price and we are in that sweet spot today.
And I believe we're going to be in that price range for a long time, a long time to come. So I think that we're very well positioned with our advanced products like cellulosic ethanol et cetera that make D3 RINs to take full advantage of what essentially is a new era of relevant price stability because of the swing producer status that Saudi Arabia has done itself back in.
Great. Well, thank you for the insight and good luck.
Thank you, Ed. I appreciate it. Operator, I think that's it for discussion today.
End of Q&A
That concludes the question-and-answer session. Do you have any closing comments to make?
Thank you to our shareholders, analysts and other who joined us today. We look forward to meeting with you and continue our dialogue about pursuing growth opportunities at Aemetis. Thank you for attending today's Aemetis earnings conference call. Please visit the Investor section of the Aemetis’ website. We will post a written version and audio version of this Aemetis earnings review and business update. Matt?
This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.