Gevo to acquire operating N.D. ethanol plant

Gevo, Inc., a developer of net-zero hydrocarbon fuels and chemicals, has entered into a definitive agreement to acquire the ethanol production plant and carbon capture and sequestration assets of Red Trail Energy, LLC for $210m.

Gevo expects to finance the transaction with a combination of asset level debt and cash from the balance sheet, according to a news release.

Ocean Park Securities, LLC is acting as exclusive financial advisor to Gevo and Faegre Drinker Biddle & Reath LLP is acting as legal advisor.

Acquisition highlights:

• The Adjusted EBITDA¹ from Red Trail Energy ethanol and CCS assets, when combined with Adjusted EBITDA¹ from Gevo’s renewable natural gas (“RNG”) business, and other businesses, including Verity, is expected to make Gevo’s Adjusted EBITDA positive in 2025.
• The purchase price includes the ethanol production asset and the CCS asset. Gevo expects that its capability of marketing carbon abatement in conjunction with delivery of advanced liquid fuels should deliver superior value to shareholders.
• This acquisition is consistent with Gevo’s strategy while providing an ideal Net-Zero site for future sustainable aviation fuel (“SAF”) production that is well positioned to serve the U.S. and Canadian markets.
• Synergistic with Gevo’s Net-Zero 1 SAF project in Lake Preston, South Dakota, by providing access to a wholly owned CCS site and additional supply of low carbon intensity (“CI”) ethanol.
• The acquisition includes existing CCS assets with total sequestration capacity of 1 million metric tons per year, of which 160,000 metric tons per year are currently being utilized. This site could accommodate many future Net-Zero-type and related projects.
• Accelerates Gevo’s fundamental capabilities related to feedstock procurement, plant operations, and the business of carbon abatement, which are expected to benefit Net-Zero 1 and other future SAF projects.

STRATEGIC RATIONALE

This acquisition accelerates Gevo’s mission to transform renewable carbon and photosynthetic energy into net-zero liquid transportation fuels and chemicals while abating carbon.

• Expands the footprint and platform for Gevo for future alcohol-to-jet (“ATJ”) SAF at an operating site with existing low-carbon ethanol supply and CCS. Gevo expects to expand the site to include net-zero SAF production, leveraging the low-carbon ethanol combined with defossilized energy.

• Accelerates cash flow focused on Gevo’s core business of carbon abatement via fuel products and is synergistic with its Net-Zero projects. Gevo plans to continue operating the Red Trail Energy facility while integrating Gevo’s proprietary solutions to further enhance the plant’s efficiency, sustainability and further reduce the ethanol CI.
• Provides operating assets that have years of demonstrated financial performance, including:
  • Low-carbon ethanol plant with 65 million gallons per year of capacity.
  • Operating CCS site that has been in operation since 2022, currently capturing 160,000 metric tons of carbon annually and generating monetizable tax credits under section 45Q of the tax code.
  • The plant has a long track record of safe, reliable operations. Gevo plans to retain the employees currently operating the plant and CCS well.
  • CCS site that can be used for Gevo’s own fuel and chemical products and energy production.
• Ownership of the CCS asset, which is on well-located acreage in the core of the Broom Creek formation and provides carbon sequestration expansion potential of more than five times current operations by utilizing available pore space and wellhead capacity. One of the few operating CCS sites in the country, the large capacity enables the future production of defossilized energy and steam needed for net-zero fuels and chemicals and provides opportunities for Net-Zero 1, if needed.

• Underscores Gevo’s dedication to providing innovative solutions that address the challenges of global climate change, U.S. energy security, and rural community development.

MANAGEMENT COMMENTARY

Gevo CEO, Dr. Patrick Gruber:
“We accomplish several things with this investment. It immediately puts us on a path to becoming self-sustaining and profitable as a company in advance of our Net-Zero 1 project’s commercial operation. Not only are we securing an excellent site for additional SAF asset deployment, but we also mitigate risk around carbon sequestration regarding our Net-Zero 1 plant site in South Dakota. This acquisition gives us the opportunity to build capability as a company and is a terrific training ground for our Net-Zero 1 project, as we inherit a trained cadre of employees who understand plant operations.”

“Carbon abatement for fuels and chemicals is core to our business. This acquisition enables immediate market development for sequestered carbon. We expect our ownership of these assets to generate significant near-term and long-term value for our shareholders, while adding new jobs and economic growth to rural communities in the region.”

Red Trail Energy CEO, Jodi Johnson:
“We are proud of what we have accomplished at Red Trail Energy and are excited about the future under Gevo’s leadership. Gevo’s vision for a sustainable future aligns with our philosophy of ‘our farms, our fuel, our future.’ We are confident this acquisition will drive positive change in the renewable energy sector.”

Gevo President and COO, Dr. Chris Ryan:
“As Net-Zero 1 and other production facilities come online, the infrastructure and resources that we will have acquired in North Dakota offer tremendous flexibility for how we might operate in the area. We believe this site is ideal for production of sustainable aviation fuel using Gevo’s integrated alcohol-to-jet technology and defossilized energy, combined with CCS. The CCS well gives us optionality for our Net-Zero 1 carbon sequestration needs. The regional synergies with Net-Zero 1, our development facility in Luverne, Minnesota, and our RNG operations in Northwest Iowa, are fantastic.”

ASSET OVERVIEW

The 65 million gallon per year ethanol facility is located on 500 acres with pore space lease agreements for 5,800 acres in the Broom Creek formation, which has pore space sufficient for 1 million metric tons of carbon capture and sequestration annually. The permitted CCS well currently sequesters approximately 160,000 metric tons of carbon annually. In addition, the facility generates more than 200,000 tons annually of distiller grains and vegetable oil co-products. The facility distributes its low-carbon ethanol across the U.S. and Canada, including low-carbon demand markets in Oregon, Washington, British Columbia and Alberta. Gevo expects to retain all of the approximately 50 full-time employees currently operating the assets being acquired.

The transaction is expected to close by the first quarter of 2025, subject to receipt of regulatory approvals and the satisfaction of other customary closing conditions, including obtaining the approval of Red Trail Energy’s equity holders and the procurement of financing for the acquisition.