4th Dec 2007 07:57
D1 Oils Plc04 December 2007 4 December 2007 D1 Oils Q3 2007 Business Update D1 Oils plc ('D1' or 'the Company'), the UK-based global producer of biodiesel,today announces its quarterly business update for the third quarter ended 30September 2007. We believe continuing high prices for both crude oil and conventional, edibleoils for the production of biodiesel reinforce the validity of D1's strategy tofocus on the plant science and related crop technology of sustainablefeedstocks. We believe that the growing "food versus fuel" debate furtherdemonstrates the global need for the development of sustainable biofuel cropsthat are outside of the food chain. Our principal feedstock, Jatropha curcas,addresses this concern. We are pleased to report that both our jatropha planting programme and the plantscience research that underpins it are progressing well. Our planting jointventure with BP, D1-BP Fuel Crops, commenced commercial operations on 1 October.The joint venture leadership team is now managing the planting interests of thebusiness. The first quantities of crude jatropha oil are expected to arrive on time in thesecond half of 2008. Higher feedstock prices and heavily subsidised US imports, B99, continue toadversely impact our refining and trading operations, and, as previouslyannounced, we are scaling these back as appropriate until conditions improve. We welcome the decision of the European biodiesel industry to lodge a complaintto the European Commission against US B99 exports in the form of a jointanti-dumping and anti-subsidy complaint, possibly supported by WTO measures at alater date. Agronomy - plant science programmeWe continue to make good progress in our plant science programme. In particular,plant science operations to support the D1-BP Fuel Crops joint venture are ontrack. Multiplication of the selected E1 seedlings, offering higher yield and agood biodiesel profile, is now underway in all three operating regions. Aspreviously indicated, the first planting of this material will take place aheadof schedule in Q4 2007. We expect to plant approximately 50,000 hectares of E1jatropha seedlings in 2008. Our central development facility in Cape Verde has now been established and ourglobal collection of accession material for jatropha is being transferred tothis site. We are also in the process of establishing new research sites inIndonesia and Thailand. In addition to focusing on jatropha, we are investigating several other cropsand technologies for the production of biofuel in order to maximise the value ofour plant science business. Under the terms of our joint venture arrangements,D1-BP Fuel Crops has a right to access (with the agreement of its shareholders)any new fuel crops that D1 may develop. Agronomy - plantingUp to 30 September 2007, D1 has planted or obtained rights to offtake from atotal of 200,290 hectares of jatropha worldwide. This represents an increase ofover 25,000 hectares on the total of 175,081 hectares as at 30 June 2007, asannounced in the quarterly update on 27 July 2007; and an increase of 1,600hectares on the total of 198,690 hectares as at 15 September 2007, as announcedin the Company's interim results on 27 September 2007. The increase in planting is accounted for predominantly by planting in India,with planting under contract farming in the North East with Williamson Magormaking particularly good progress. Due to favourable weather conditions,planting in North East India was able to continue for several weeks longer thanusual beyond the end of the September. Planting in India will resume in March2008. Planting in Africa has now restarted following the rains, and is underwayagain in South East Asia with the onset of cooler weather. From 1 October 2007 all of D1's planting of Jatropha curcas is intended to bethrough D1-BP Fuel Crops. D1's effective economic interest in total plantingassets, including its 50% share in planting undertaken by local joint venturepartners, is in the process of being transferred into the D1-BP Fuel Crops jointventure. D1-BP Fuel Crops has a promising new business pipeline of potential partners andland opportunities, and is exploring opportunities in a number of new countries,including Brazil, Mozambique and Australia. Over the next four years, D1-BP FuelCrops is targeting to plant a further one million hectares of jatropha. The cumulative planting and offtake position as at 30 September is summarised inthe table below: Managed Contract Seed purchase Total plantations farming and oil supply agreements hectares --------- --------- ---------- -------India North East - 50,800 2,000 52,800 South - 8,264 - 8,264 Rest - 4,905 17,123 22,028 --------- --------- ---------- ------- - 63,969 19,123 83,092 --------- --------- ---------- -------Africa Zambia 2,411 20,760 - 23,171 Swaziland 1,227 - 8,017 9,244 Rest - - 8,629 8,629 --------- --------- ---------- ------- 3,638 20,760 16,646 41,044 --------- --------- ---------- -------South East Asia Indonesia - 36,640 1,758 38,398 China - - 28,000 28,000 Rest - 4,780 4,976 9,756 --------- --------- ---------- ------- - 41,420 34,734 76,154 --------- --------- ---------- -------Total 3,638 126,149 70,503 200,290 --------- --------- ---------- ------- The level of investment costs and security of future oil supply are proportionalto the degree of direct involvement by D1 and its joint venture partners. Wheretrees are lost due to natural wastage or mortality, or where planting has nottaken, either replanting or new planting is undertaken in the following plantingseason and only the net increase in planting is recorded. Where replanting isnot possible or inappropriate, a provision is made and the planting is reportednet. D1's planting and rights are generally categorised under three broad types ofarrangements; managed plantations, contract farming and offtake agreements. Managed plantations are those farms where land and labour is directly controlledby D1 or its joint venture partners. Under contract farming, the farmer plantshis own trees on his own land. D1 and its partners assist with the provision ofseedlings and the arrangement of bank finance for planting, and offer a buybackof harvested grains with an offtake agreement, subject to a floor price and theachievement of agreed quality standards. We provide support and advice duringcultivation, and monitor the condition of the crops. Seed and oil supplyagreements are arms-length supply contracts with third parties whereby D1,either directly or through joint venture partners, has offtake arrangements inplace over future output from jatropha plantations which the third party isdeveloping. D1 has limited involvement in this planting and relies on thirdparties to measure and manage the crop effectively. Backed up by the ongoing work of D1's Sustainable Oil Supply Programme,significant fieldwork is being undertaken on the cropped area. Inter alia, thiswork assesses the quality of planting and provides farmers with advice onappropriate maintenance regimes. The Sustainable Oil Supply Programme is anessential tool to assist in predicting yields and to ensure that oil quantitiesare maximised. Based on initial data gathered to date, the D1-BP Fuel Cropsjoint venture is on track to deliver the first quantities of jatropha oil duringthe second half of 2008. Initial quantities of oil are expected to be modest butshould increase substantially year on year as pre-existing trees mature and asnew trees become productive. Now that it is an independent entity, D1-BP Fuel Crops has commenced a processto establish its business plan for 2008 and beyond. As part of this exercise itis surveying the performance of planting with a view to establishing its own oilforecasts and is also considering the most appropriate form of reporting to itsshareholders going forward. Refining and trading Our activities in refining and trading continue to be impacted by the ongoingchallenges of high feedstock prices, exacerbated by heavily subsidised biodieselimports from the United States. Refining margins across the industry remainunder very significant pressure. As announced at our interim results, we are nolonger refining virgin oil. We are, however, taking advantage of the flexibilityand precision of our modular D1 20 refinery units to rework parcels of materialpurchased from other suppliers and to investigate the potential for refining awider range of feedstocks. We have completed the commissioning of our fifth D1 20 refinery unit on Teessideand a programme to fully test the operational limits of the unit is underway.Commissioning of the first 50,000 tonnes of capacity at our Bromborough site isalso ongoing. Between these two sites, our total UK capacity is presently 92,000tonnes. Until we have more data to fully assess the impact of the RenewableTransport Fuels Obligation (RTFO) on the UK market following its implementationin April 2008, we do not believe it is in shareholders' interests to increasefurther our total UK refining capacity. However, having completed the necessarypreparatory work for its installation, we are in a position to expand ourcapacity rapidly should market conditions improve. We continue to have confidence in our biodiesel technology and in particular ourmodular D1 refining units. As plantations of jatropha and other crops mature, wesee increased demand for biodiesel hardware and technology in a number ofoverseas markets. Several opportunities to sell or license our technology arebeing examined. Although we expect the RTFO to have a positive impact on trading conditions forUK biodiesel refining, we continue to believe this benefit is likely to becounterbalanced in the short term by both higher feedstock prices and thecontinuation of subsidised soya methyl ester imports from the United States,so-called B99. In the medium term, as supplies of jatropha come on stream, weexpect that higher feedstock prices for competing food grade oils will bebeneficial to D1. We welcome the decision of the members of the European Biodiesel Board (EBB),representing the majority of producers in the EU, to lodge a complaint to theEuropean Commission against B99 exports from the US. This comprehensive legalaction will take the form of a joint anti-dumping and anti-subsidy complaint,possibly supported by WTO measures at a later stage. However, we would notexpect a formal EU response to this complaint to arrive quickly. It is thereforelikely that the initial market created by the introduction of the RTFO in Europewill be met through imports of B99 from the United States. We believe that unless the B99 "double dip" taxation and dumping issues areaddressed, it will be difficult for the EU to develop a robust biodieselrefinery industry and for UK refiners to supply motorists and road transportbusinesses under the RTFO. We share the frustration of the rest of the industrythat these issues cannot be addressed more rapidly. As commercial volumes of low-cost jatropha oil are not yet available, we havebeen purchasing and selling modest quantities of B99 to enable us to meet ourobligations to clients and to develop our supply chain. We currently plan tocontinue to do so until the issue of asymmetric subsidies is resolved orfeedstock prices reduce. The Company's arrangements include a fixed price supply from a US distributorand onward sale in the UK, largely to the Company's principal offtaker,Petroplus. D1's offtake agreement with Petroplus will not be renewed once itends in December 2007. Our experience is that prices currently bid for suchcontracts are not at a level where we believe there is an adequate return evenbefore the costs of any hedging to lock in profit margins. At the same time theCompany's US distributor is not delivering the requisite quantities under thepurchase agreement and as a result we are taking steps to enforce ourcontractual rights. All of the above are symptomatic of a highly competitive andprice-driven market in which ever higher feedstock prices and subsidised importsare dictating market practice and prices. OutlookBiodiesel market conditions positively reinforce our view that sustainablefeedstock solutions are the key to success in the sector. Our pioneering effortswith Jatropha curcas have been successful and will continue to provide themainstay of our sustainable biodiesel strategy. With the advent of our planting joint venture, D1-BP Fuel Crops, and in thecontext of market conditions, we are currently reviewing a number of options forour downstream refining and trading operations. In our upstream plant sciencebusiness we believe that there are opportunities for growth through additionalsustainable crops and technologies. Such developments would capitalise on ourplant science expertise and would further consolidate our position as a marketand technology leader. These are being actively addressed in order to broadenD1's business and technology interests. Contacts: D1 Oils plc: Graham Prince, Director, Communications Tel: +44 (0)20 3043 8732 Mobile: +44 (0)7973 323 840 Brunswick Group: Mark Antelme Tel: +44(0)20 7404 5959 Notes to Editors D1 Oils plc is a UK-based global producer of biodiesel. We are building a globalsupply chain and network that is sustainable and delivers value from'earth-to-engine'. Our operations cover agronomy, refining and trading. We arepioneering the science, planting and production of inedible vegetable oils; wedesign, build, own, operate and market biodiesel refineries; and we source,transport and trade seeds and seedlings, seedcake, crude vegetable oils andbiodiesel. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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