ENVIA plant update

RNS Number : 2364A

Velocys PLC

10 September 2018

 

News release

Velocys plc

("Velocys" or "the Company")

10 SEPTEMBER 2018

ENVIA plant update

Velocys plc (VLS.L), the renewable fuels company, announces that the Board of ENVIA Energy (ENVIA) has decided to suspend operations at the Oklahoma City plant and to undertake a review of strategic alternatives in order to preserve the value inherent in the facility.

This decision was driven by financial circumstances following a leak at the plant, as announced on 15 May 2018. ENVIA's investigation into the leak identified the ancillary coolant system as the root cause. This determination has subsequently been independently verified by ENVIA's appointed third-party insurance company, which found that the leak was not a result of any flaw in the core Velocys Fischer-Tropsch (FT) technology.  

ENVIA has been working to assess the likely funding requirements of the plant to achieve positive cash flows, whilst progressing its insurance claims and receiving technical support from Velocys as technology licensor during the insurance process.

During this period ENVIA has been operating the plant at reduced capacity using a single reactor to generate products, but in this configuration the plant does not meet the specific process energy requirements applicable under its RFS pathway to generate RINs, which has further exacerbated ENVIA's operating losses. Such status would be expected to continue until the second reactor was restored to operation. ENVIA has provided the JV partners with additional financial information including the projected timing of the insurance settlement, and the projected costs to implement a full plant remedy to sustainable and reliable cash generation.

Following careful consideration of the facts, financial projections and available financing, the ENVIA Board has decided to suspend operations at the facility. The Velocys Board fully supports the ENVIA Board's decision given the likely capital requirements of the plant and believes that Velocys' capital is better invested in progressing its Mississippi Biorefinery and UK waste to jet projects, which have the potential to generate significant value for shareholders.

In addition to its minority shareholding in ENVIA, Velocys has to date supported the JV through the advancement of secured loans totalling £15.2 million. Whilst it is likely that this loan balance will be significantly impaired, this additional funding has enabled Velocys to acquire a significant quantity of valuable commercial, technical and operational data and experience during ENVIA's 20 months of plant operations.  The key milestones delivered are:

·   Demonstrated successful operation of Velocys' Fischer-Tropsch technology from commissioning and start-up through full commercial operation, including two years of operations without a lost time accident.

·   Enabled extensive data capture that is commercially important to Velocys, as it progresses its Mississippi Biorefinery and UK waste to jet projects and licensing its technology to third parties. 

·   Sold over 10,000 barrels of products to commercial offtakers.

·   The successful manufacture of fuels that have generated RIN credits under the Renewable Fuel Standard (RFS), another key commercial validation of the Velocys technology.

Velocys will issue a further statement on the progress of the ENVIA Board's strategic review in due course.  A Q&A to accompany this announcement will be available on the Company's website shortly.

David Pummell, CEO of Velocys, said:

"The decision to suspend plant operations was taken after careful consideration by the Boards of ENVIA and Velocys and with our ENVIA JV partners.  We are working with ENVIA to find a strategic alternative that will realise the maximum value potential inherent in the facility.

I am very proud of the Velocys team who had to intervene during plant commissioning and start-up and provide leadership and support.  The design and engineering of the integrated plant by Ventech ("Ventech XTL Oklahoma City, LLC"), the EPC contractor, created significant operational issues that needed considerable effort and additional investment to resolve.  Without the Velocys team, the decision that has now been made by the ENVIA Board, would likely have been made many months ago. Nonetheless, the Oklahoma City plant has demonstrated the scalability and commerciality of our technology, providing a strong strategic foundation for Velocys to deliver our UK and US biorefinery projects."

- Ends -

For further information, please contact:

Velocys David Pummell, CEO	[phone]
Numis Securities (Nomad and joint broker) Alex Ham Stuart Skinner Jamie Lillywhite Tom Ballard	[phone]
Canaccord Genuity (Joint broker) Henry Fitzgerald-O'Connor Ben Griffiths	[phone]
Camarco (UK financial communications & PR) Billy Clegg Georgia Edmonds Tom Huddart	[phone]
Scoville Public Relations (US public relations) John Williams	[phone] #1

Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) prior to its release as part of this announcement.

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