OPAL Fuels Inc.

Good morning and welcome to the Opal Fuels fourth quarter 2023 earnings call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. As a reminder, this event is being recorded. I would now like to turn the call over to Todd Firestone, Vice President of Investor Relations, to begin. Please go ahead.

Thank you, and good morning, everyone. Welcome to the Opal Fuels fourth quarter and full year 2023 earnings conference call. With me today are co-CEOs Adam Kimora and Jonathan Moore, and Scott Cantino, Opal's interim chief financial officer. Opal Fuels released financial and operating results for the fourth quarter and full year 2023 yesterday afternoon, and those results are available on the investor relations section of our website at opalfuels.com. Presentation and access to the webcast for this call are also available on our website. After completion of today's call, a replay will be available for 90 days. Before we begin, I'd like to remind you that our remarks, including answers to your questions, contain forward-looking statements, which involve risks, uncertainties, and assumptions. Forward-looking statements are not a guarantee of performance, and actual results could differ materially from what is contained in such statements. Several factors that could cause or contribute to such differences are described on slides two and three of our presentation. These forward-looking statements reflect our views as of the date of this call, and Opal Fuels does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this call. Additionally, the call will contain discussion of certain non-GAAP measures, a definition of non-GAAP measures used, and then reconciliation of these measures to the nearest GAAP measures included in the appendix of the release and presentation. Adam will begin today's call by providing an overview of the course results and recent highlights and update on our strategic and operational priorities. John will then give a commercial and business development update, after which Scott will review financial results. We will then open the call for questions. And now I'll turn the call over to Adam Camora. Co-CEO of Opal Fuel.

Thank you, Todd. Good morning, everyone, and thank you for participating in Opal Fuel's fourth quarter and full year 2023 earnings call. Opal Fuel continues to execute on its business plan and is well-positioned to grow in our industry, which is experiencing strong market fundamentals and expanding tailwinds. I'd like to highlight several points from this quarter's results and recent developments. First, as expected, fourth quarter results benefited from stronger RIN prices, Adjusted EBITDA for the quarter was $32 million, an increase of 57% from 2022 and the strongest quarter in Opal's history, and $52 million for the full year 2023 meeting our most recent guidance. The positive results in the fourth quarter were driven by continued improvement in our fuel station service segment and the monetization of all environmental credits held for sale, including a portion from the third quarter. Second, Emerald, our 50-50 joint venture project with GFL and one of the largest RNG projects in North America, is showing production growth in line with expectations. We began generating and selling RINs from the project in December. Third, we continue to make good progress on our projects that are in construction, expecting to end the year with 8.8 million MMBTUs of RNG design capacity in operation. At the end of 2023, we began construction of a new 2.4 megawatt renewable electricity facility at the Fall River landfill that will utilize approximately 0.2 million annual MMBTU of biomethane equivalent. Fourth, we are encouraged by recent Treasury commentary on the ITC, which although not finalized, we believe that the ITC will include biogas conditioning and cleaning equipment as eligible for saleable tax credits in the final rule. It should be noted the support for this inclusion came not only from industry through comment letters, but also from a letter authored by IRA bill sponsor, Senator Brown, which was co-signed by numerous senators and members of the House, stating clearly the intent of including this property in the Section 48 ITC provision. We expect final rules to be published sometime after March 25th, which will hopefully clean up a couple of remaining technical structural issues. Although not included in our adjusted EBITDA guidance for 2024, we have outlined our current thinking of how successful resolution of these rules would impact cash flows and resulting net income, approximately $40 million in 2024. I'd also like to add that our downstream fuel station service segment is set to have strong adjusted EBITDA growth in 2024, and we are encouraged by the increasing interest from major fleets testing the new Cummins 15-liter natural gas engine, which should lead to continue this upward trajectory over the next several years. John and Scott will go into greater detail regarding our outlook for 2024, but needless to say, we're very excited about our opportunities. R&G production is expected to grow between 60 to 80 percent. Adjusted EBITDOT is forecasted to range from 90 to 100 million, up from 52 million in 2023. And we see continued growth in 2025 and beyond from annualizing the plants coming online this year, continued growth in fuel station services, and our significant opportunity set of new potential projects to put into construction. 2024 also has the potential to be a powerful year in education and advocacy, which can broaden bipartisan support for our industry. Capturing and converting biomethane emissions into low-carbon intensity usable energy products has numerous societal and strategic benefits for all Americans, including fighting climate change, improving air quality in socioeconomically challenged communities, supporting the agricultural sector, driving investment and providing economic value for countless municipalities that own landfills and wastewater treatment facilities, while also providing greater energy security for all Americans. With that, I'll turn it over to John. John?

Thank you, Adam, and good morning, everyone. We're proud of our accomplishments in the fourth quarter of 2023 and the 2023 year-end results. Importantly, the Emerald RNG project is online, and we now have eight RNG projects in operation with an annual design capacity of 5.2 million MMBTU. up from 2.3 million MMBTU at year end 2021. Production was in line with expectations. RNG production was 2.7 million MMBTUs for the 12 months ended December 31, 2023, which is a 23% increase year over year. That number is expected to increase significantly this year. Scott will give more detail on this year's guidance but we're expecting roughly 4.6 million MMBTU of RNG production this year. In addition to our operating projects, we currently have six RNG projects in construction representing an additional 4.4 million MMBTU of annual design capacity and one 2.4 megawatt landfill gas to electric project, which is 0.2 million annual MMBTU of biomethane equivalent. Construction of new projects is proceeding well. Prince William, one which we own 100% and represents 1.7 million MMBTU of design capacity, has reached mechanical completion. Commissioning of the plant will continue over the coming weeks as we approach commencement of operations. Sapphire, which we operate in a 50-50 joint venture with GFL, and representing 0.8 million MMBTU Opal share of design capacity, is on track to begin operations in the third quarter of 2024. Our Polk County, Florida project, where we also own 100%, and which represents 1.1 million MMBTU of annual design capacity, is also on track to begin operations in the fourth quarter of this year. Atlantic, our first SJI joint venture RNG project, which we put into construction in the third quarter of 2023, is progressing, and we continue to expect it to begin commercial operations in mid-2025. Atlantic will contribute 0.3 million MMB2 of annual design capacity net to Opal. As I mentioned, we also began construction of our Fall River 2.4 megawatt renewable electricity project in the fourth quarter of 2023. which will utilize approximately 0.2 million MMBTU of biomethane equivalent and is slated to begin operations by year end. Our two Central Valley dairy projects are delayed due to a contract dispute. We expect this dispute, which is proceeding through an arbitration process, to impact the timing of these two projects, and we plan to give further updates on timing as we move forward this year. Together, our operating and construction RNG projects represent almost 9.6 million MMBTU of design capacity. We expect to place at least 2.0 million MMBTU of RNG projects into construction this year. As OPWL executes on existing opportunities, growth in our relationships across the landfill sector is resulting in additional project opportunities that we believe will mature into continued growth in construction and operating projects in the foreseeable future. Last quarter, we started providing additional detail on how we measure the production output at our RNG and renewable power projects. We added two new metrics. Inlet design capacity utilization measures the percentage quantity of biogas available at the inlet of our facilities compared with the design capacity of these facilities for the relevant period. We said we generally expect our RNG facilities to begin somewhere in the 70 to 80 percent range of inlet design capacity utilization and expect increasing utilization rates as all of our RNG facilities are in open and growing landfills, and we, along with our landfill partners, continue to make improvements in gas collection at the well fields. Utilization of inlet gas, the second new metric, measures the productivity of converting the biogas coming into the RNG facility into product RNG. It's simply the volume of the actual production for a given period divided by the volume of inlet gas. This metric should be relatively stable between 80 to 90 percent with fluctuations based on the efficiency and availability of the system and the quality of the biogas. Both inlet design capacity utilization and the utilization of inlet gas were within their expected ranges, and we expect that to continue this year. With that, I'll turn it over to Scott to discuss the quarter's financial performance and provide additional detail regarding guidance.

Scott? Thank you, John, and good morning to all the participants on today's call. Last night, we filed our earnings press release, which detailed our quarterly results for the quarter and year ending December 31st, 2023. Our 10K will be filed tomorrow. Looking at the fourth quarter results compared to the third quarter of 2023, R&G production increased to 0.8 million MMBTUs from 0.7 million MMBTUs. The increase is largely due to Emerald production coming online. Compared to fourth quarter 2022, production grew 0.2 million MMBTUs due to a combination of same-store sales growth and Emerald coming online. R&G production was 2.7 million MMBTUs for the 12 months ended December 31, 2023, compared to 2.2 million MMBTUs for the comparable period last year. Revenue in the fourth quarter was $87 million as compared to $67 million in the fourth quarter of 2022. The main driver for the increase in revenues was the timing and pricing of environmental credit sales, including both RNG fuel and fuel station services, where we dispense all of the RNG for our projects, as well as 100% for our joint venture projects and other third-party RNG supplies. Net income for the fourth quarter was $20.1 million as compared to $0.3 million in the third quarter. The difference was primarily driven by the increase in revenues from the timing of environmental credit sales, but also recognition of Emerald coming online in equity method investments. Adjusted EBITDA was $32 million in the fourth quarter, as mentioned, partially driven by the timing of environmental credit sales as well as improving margins in our fuel station services segment. A reconciliation to GAAP results is provided in our earnings release from yesterday and in our investor presentation updated this morning on our website. The fuel station services segment revenues increased to $46.9 million for the fourth quarter as compared to $37.3 million in the third quarter. The increase in revenues was primarily the result of increased RNG marketing fees, concurrent RIN and LCFF sales, and improved margins. Adjusted EBITDA for this segment grew to $12 million in the fourth quarter versus $6.4 million in the third quarter. Renewable power revenues decreased to $11.3 million for the quarter from $13.7 million in the third quarter. This was primarily due to reduced operations at Arbor Hills as the biogas was diverted to the new Emerald RNG project. Last September, we entered into a $500 million senior secured credit facility. The credit agreement provides up to $450 million of term loans over an 18-month draw period and $50 million of revolving credit. As of December 31, 2023, approximately $187 million was drawn down on the facility. As of December 31, 2023, liquidity was $348 million, consisting of $300 million of availability under the credit facility and $48 million of cash, cash equivalents, and short-term investments. As a result, we feel our liquidity and capital resources and access to other sources of capital are sufficient for our growth plans. Now I'll turn to this year's guidance. For full year 2024 guidance, assuming $3 D3 RIN, $2 per MMBTU brown gas, and $65 per metric ton LCFS, we expect our full year 2024 adjusted EBITDA to be $90 million to $100 million, and RNG production to be 4.4 to 4.8 million MMBTUs. Our adjusted EBITDA guidance does not include several items of note. One, the potential of $40 million of cash proceeds and income in 2024 that would result from favorable ITC resolution. Two, RNG pending monetization increase of approximately $15 million. And three, project development and startup costs of approximately $12 million, which do not get capitalized. As we disclosed last quarter, we are no longer recognizing RNG pending monetization in our calculation of adjusted EBITDA, although we continue to provide detail on our inventory and credits sold each quarter, as well as a period ending balance. A reminder that this represents the value of our December 2024 RNG production, where the costs have been recognized in our 2024 adjusted EBITDA results, but we have not yet sold and transferred the RINs or LCFS credits associated with that RNG. Effectively, having our 2024 results include revenues associated with December 2023 production, while recording our December 2024 production costs. This impact can be significant if a company has a large growth trajectory, such as Opal, and obviously would not be as impactful if we weren't growing our production so significantly. One other item worth noting is that we are now breaking out our development and plant startup costs as a separate line item on the income statement. We thought this disclosure was important to give investors a sense of steady state from our operating facilities. For 2024, development and plant startup costs include a $12 million operating expense not added back to adjusted EBITDA from a virtual pipeline for Prince William that will be used until the permanent pipeline is operational. We also want to provide some color on the fuel station services segment where we anticipate adjusted EBITDA to grow by 75 to 90 percent compared to 2023. Results driven primarily by increasing RNG marketing revenues through our dispensing network, new OPAL fueling stations coming online, and continued improving trends and margins. We expect full year 2024 capital expenditures at wholly owned and joint venture projects to total approximately $230 million, which includes approximately $41 million relating to equity method investments and approximately $28 million associated with downstream stations. Before I turn it back to John, I would just like to mention our press release earlier this week announcing that our controlling shareholder, Fortistar, has exchanged 71.5 million shares of high vote stock to Class B shares that are entitled to a single vote. As our press release noted, with Fortistar reducing a significant portion of its voting control, we anticipate that our publicly traded Class A common stock will become eligible for inclusion in certain stock market indices. Of course, there are no assurances that OPL will be included in any indices. With that, I'll turn it back to John for concluding remarks.

Thank you, Scott. In closing, we are pleased with the continuing success in the execution of our business plan. We remain committed to furthering OPL's vertically integrated mission. to build and operate best-in-class biomethane capture and conversion projects that deliver industry-leading, reliable, and cost-effective low-carbon intensity energy products that displace fossil fuel and mitigate climate change. And with that, I'll turn the call back over to the operator for Q&A. Thank you all for your interest in Opal Fuels.

Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile the Q&A roster.

Our first question.

comes from John Annis with Stifel. Please proceed with your question.

Hey, good morning, and thanks for taking my questions. For my first one, how should we think about the timing of rent sales this year? With current D3 prices more favorable to start this year, should we think about it being more equally weighted than last year?

Yeah, hi, thanks. This is Adam here, and thanks for the question. We are anticipating to be selling and transferring our RINs pretty uniformly as they're generated and minted throughout the year. And I would also add that thus far we've hedged or sold forward approximately half of our production.

Makes sense. For my follow-up, The EBITDA guidance for the fuel station service implies strong growth this year. Could you offer some additional color on the drivers of this growth and maybe relate it to that? What's the latest feedback you're hearing on the Cummings 15 liter?

Yeah, thanks again. This is still Adam. You know, as Scott was mentioning in the earlier prepared comments, we're excited about the fuel station service segment. And 2024 is set up to be a really strong growth year for it. The primary drivers this year are really utilizing the dispensing network that we've set up and, you know, really generating a lot more profitability at that segment as we're delivering more RNG fuel through that dispensing network. And it's not only from our production, it's 100% from the JV projects and then also numerous third-party suppliers. And then we're also benefiting from a number of Opal Fuel-owned fueling stations coming online and annualizing those that came online, you know, sort of mid-year last year. And then we're also seeing the continued improving trends in the construction and service side of that business. So 2024 really looks to be a good year for it. The results this year are not being driven by what we are hearing is good feedback on that 15-liter engine. That 15-liter engine is still going through its testing periods, but the feedback has been really strong, and that will show up as new business development activity this year and drive growth in 2025 and beyond.

Great, Keller. Thanks for taking my questions.

One moment for our next question. Our next question comes from Matthew Blair with TPH. Please proceed with your question.

Thank you and good morning. I had a question on CapEx. So I think at one point, this might have been a few years ago, you were guiding to CapEx that came out to call it roughly $40 per MMBTU for a landfill project, maybe about $160 per MMBTU for a dairy project. Could you give us a sense of where those numbers are today?

This is Scott Contino. Thank you, Matthew, for your question.

I think we're going to have to get back to you on the dollars per MMBTU for CapEx.

Okay. Is it safe to say that there is, there has been some inflation in just the unit costs?

Yeah, this is Adam Kimora here, and I was just trying to do the math on the last two projects that we are looking at putting into construction here. There's no doubt that there had been some cost inflation over the last several years. We have seen that level out quite a bit over the last three to four months or so as we're putting together some project cost estimations. I see John working the calculator over there. We'll come back to you on what ballpark rule of thumb is. But one of the things that we've also been doing here internally is looking at ways to perhaps do things a little bit differently from a construction standpoint and seeing where there are some opportunities to reduce some of those initial, reduce some of those capex for MMBTU. So it is up from the $40. I don't want to give you an exact number right now. We have seen that level out, and we still see extraordinarily good return on capital projects and still see very good paybacks on these projects. And I know there's going to be a question coming up on ITC, but certainly that also helps as we're looking at projects that we put into construction here.

Matthew John Moore but the you know costs that you're citing about 140 160 is significantly higher than what we're experiencing for landfill projects while that may be more appropriate for dairy where the costs might be you know similar but the output dairy projects being substantially lower than landfill projects obviously our focus is on landfill projects and we're seeing costs that are well below $100 per MMBTU.

Sounds good. Thank you. And then regarding the RNG production guide of 4.4 to 4.8, so I think that implies growth of 1.7 to 2.1 in 2024. It looks like at least part of this 2024 growth is actually coming from higher utilization at your existing plants rather than just bringing on the new projects that you cited. Is that what you're seeing as well? And if so, what would be driving the higher utilization?

Yeah, thanks for that question. And it goes to how we were thinking about our guidance for the whole year, so there may be some follow-ups there. But when we've got our production guidance in the midpoint there, 4.6, about 3.6 of that is from projects that are operating today. So if you look at that 3.6 over the 5.2 design capacity, you're looking at about 70% product output on the design capacity. And I think as we've noted in our disclosures, we do expect same-store sales growth at our projects as they're at open and growing landfills. We're always looking at ways to continue to improve gas collection with our landfill partners. So we do expect these facilities to continue to grow as they mature. So when you look at our guidance this year, about a million of it comes from Prince William, Sapphire, and Polk. The bulk of it really from Prince William, which we're happy has hit its mechanical completion and has entered the commissioning phase. Sounds good. Thank you.

One moment for our next question. Our next question comes from Ryan Inkst with B. Riley. Please proceed with your question.

Hey, good morning. Adam, you mentioned you hedged or sold forward about half of your production. Can you share what the associated environmental attribute and gas prices are there? So we have not yet sold forward the nat gas piece, which we are looking at. And on the environmental piece of it, you know, we feel, you know, you could look at the indices averages or something like that to try and get a feel for it. Okay. And that leads into my follow-up. Could you just provide us with a refresher on how we should think about Opal's average realized sales price compared to what we might see in index prices? Is there a general rule of thumb? for how much of the rent price you're able to realize? Yeah, I think we've got some disclosure in there in terms of what typical brokerage or commission fees are for OPAL. And so I believe we've got that in our disclosure. And, you know, we don't necessarily sell at the index price. We do pick pricing and transact on pricing. So we don't have index-based pricing, but you can assume that our average sales price is just over where we may have given our guidance for the year.

This is John. In terms of RIN price realization, it's important to keep in mind our vertically integrated business model where we capture really 100% of the output both as a portion on the upstream side and the portion that would go to the fueling station on the downstream side of the business. So we really capture the full value chain in there. Adam was addressing, obviously, what we might pay out in brokerage. Some of our trades are done directly without brokerage deductions. Others are done through a third party.

Got it. That's helpful to contextualize that piece. And then it looks like the advanced development pipeline wasn't included in the DEC or the release this quarter. Is there any reason for excluding that here?

Yeah, this is John. So thanks for that question, Ryan. You know, the concept was somewhat associated with our go public phase when we were a smaller company and the conversion of our pipeline of projects was more meaningful. We're now 5.2 million of nameplate and looking to exit 2024 with 8.8 million after the current RNG projects that are scheduled to be completed this year are in fact completed. So the pipeline of projects is now less meaningful. We've also shown that our excellence in bringing projects online and that our ramp up period and high availability operating factors really attract us to other partners and that the development of those partnerships really adds more of an opportunity set. That combined with our vertical integration really gives us a front row seat at a lot of the opportunities that are out there in the marketplace. So we do see that. We're guiding to greater than 2.0 million of MMVTUs into construction. We believe that the tailwinds that we're seeing in the industry will assist us in achieving those goals. But really nothing has changed. The cadence that we've been doing over the last couple of years will continue. with the guidance that we're giving here today.

Yeah, the only thing I would add to that is that, you know, the delineation between prospective opportunities and ADP, you know, it really doesn't, you know, capture the full opportunity set of stuff that we're looking at. And, you know, if we've got prospective opportunities that are, you know, much greater than what we're doing, you know, what we would call as ADP, we just didn't feel like it was a meaningful metric and thought that delineation was was a little unique to Opal Fuels on how we were describing that. Got it. Makes sense. Thank you, guys. I'll turn it back.

One moment for our next question. Our next question comes from Martin Malloy with Johnson, Rice & Company. Please proceed with your question.

Good morning.

I wanted to ask about slide 17, and you mentioned also, I think, using biomethane for power generation in your prepared remarks. Could you maybe spend some time talking about that market, rough economics of that market, and how Opal might play a role? And I realize early history of the company that power generation was fairly important to Opal.

Yeah, this is Adam here. Thank you very much for the question. You know, I think slide 17 is important, and it's really important, you know, in how we're really, you know, trying to communicate, you know, who Opal Fuels does and why there are these policy tailings behind our company and what we do. And, look, we recognize that there is a, you know, a little bit of a, you know, holistic view of energy and transition at this point. But, you know, what we do here at Opal Fuels is we're taking harmful biomethane emissions and turning them into a low carbon intensity energy product. And, you know, when you really think about, you know, it's starting to become a much more broader issue for all Americans and really think that there's a lot of potential here for for bipartisan support for our industry, and we're starting to see it show up in a lot of different places. And, you know, whether or not we're going to talk about ERINs and other types of things that can support, you know, cellulosic electricity, you know, we think that this industry is starting to, you know, get behind this good, better, best strategy where, you know, we have countless, you know, thousands of landfills, thousands of small farms, thousands of wastewater treatment facilities that are owned by municipalities where we're just not capturing biomethane. And, you know, I think there's a lot of room to have this good, better, best where, you know, the first thing we should be doing is capturing this biomethane. And not every biomethane source is going to be big enough or have access to a pipeline. And there's this proven technology to turn it into renewable electricity, which is baseload not dependent on, you know, some intermittent either sun or wind, which is really good where you won't need battery storage. We think cellulosic electricity, you know, makes a lot of sense and is the right public policy. So, you know, ERINs are the one, you know, that already are existing, you know, in the EPA regulations. And there's a really great you know, legal argument that was put forward by Arnold and Porter, you know, on a partnership for the Electric Pathway website that I would encourage folks to read. And, you know, we think that, you know, ERINs are one potential for it. Perhaps it can show up in 45Z where renewable electricity potentially could qualify for those credits. We just think it's the right public policy to support the capture of biomethane

and um you know renewable electricity is certain certainly one product that could come from it thank you uh very helpful and for my second question wanted to ask about slide 20 and non-transportation fuel rng demand could could you maybe talk um about how you see that market developing and could we ever see opal um look into selling into that market under longer term contracts?

Sure. John Moore here. So we see substantial demand outside of the transportation fuel sector. Right now, the transportation fuel sector is the highest value offtake. But certainly, when you think about gas pipeline utilities, for one, having many of them promised their public utility commissions and regulatory commissions to put decarbonized gas into their pipelines. We see this with like Enbridge, for example. We see that with Nextera. We see that with SJI. They're all trying to find decarbonized gas to put into their pipeline and expand that capability. In addition, so that's going to be a very substantial amount of demand over the next couple of years. Currently, the price is substantially below the transportation fuel market. Beyond that, there's certainly industry looking to decarbonize in the U.S., and then overseas markets. We see European carbon markets as being potentially very attractive for this. We've been participating in a small way into those European markets, and we see those European markets growing as a potential end-use offtake. In addition, there's maritime uses. There's probably a bunch more that I haven't talked about. But when you add all those up, there's substantial demand for this low-carbon product, and I think we'll see more of that coming in the coming years. Maybe, Adam, you'd like to elaborate on that somewhat.

Yeah, you know, I just wanted to jump back into the policy tailwinds because I just want to maybe elaborate on why these are tailwinds. And, you know, we had one other thing on that slide talking about 70% of Americans wanting to do something about climate change. And when you break that down by party or age group, that's where, you know, we're really talking about these tailwinds where, you know, if there's over 90% of Democrats and, you know, 74% of independence and maybe somewhere in the forties of Republicans that, that believe we should be doing something. And there were some really interesting testimony from Republican senators, you know, asking for inclusion of, of land of RNG projects in that section 48. You know, it really gets more interesting when you're looking at the age demographics. Every time you move down 10 or 15 years, the percentages keep moving up higher and higher. So those are the tailwinds, you know, that we're talking about. And it's not only, you know, whether or not it's, say, elastic electricity policies. It's also, you know, coming from the SEC now, talking about greenhouse gas disclosure requirements. And our product is, you know, zero scope one and zero scope two emissions versus diesel. These are the kinds of trends that are really supportive, and we think that cellulosic electricity is part of it. Those voluntary markets continue to grow as well, and obviously something that we're always keeping our eye on.

Thank you for taking my questions. I'll turn it back.

One moment for our next question. Our next question comes from Paul Chang with Scotiabank. Your line is open.

Hey, guys. Good morning. The first question is that just curious, the arbitration that in the two California projects dispute, what's the nature of those disputes and what's the risk that in your other projects you will face similar issue or potentially face similar issue? That's the first question.

Hi, Paul. John Moore. Thank you for your question this morning. Just kind of discussing it somewhat here, the situation we have is where we have a fixed-price EPC contract for both the Hilltop and the Vanderskauff projects. The contractor has presented us with a series of change orders seeking to increase the price We think the change orders are not warranted and substantially dispute the change orders that have been presented to us. We commenced, as you said, an arbitration proceeding. While the arbitration proceeding is continuing and the dispute is being resolved, the contractor is required to continue work during the course of this resolution period. The contract itself for both projects, for each of the two projects, is fully bonded by licensed sureties who are on notice of our claim. We believe that our claims have substantial merit. But of course, it's an early stage and we can't really predict the outcome. But I can say this. It is limited to these two projects. It is not affecting other projects, and we don't see that it would affect future projects, Paul.

John, is this the first time you work with this contractor or that you have worked with them before, and also whether this contractor have any other project other than those two that they are working on with you?

The contractor, this is the first time we're working on it with them. The contractor was developed and sourced by our co-developer in the project and is a reputable counterparty and has some other projects in the industry, but just not with us. And we think it's really very narrowly focused on these two projects and not more broader than that.

And maybe this is for both Adam and John, just curious, not just OPPO, but the industry has been having a tough year over the past 12, 15 months, and OPPO looks like very inexpensive and very attractive. When you talk to investors, where do you think is the disconnection? What people do not understand about your business? Which part?

Yeah. So, you know, it's interesting that you say that the industry's had a tough year. I suppose that you mean as exhibited by the stock price, because we see gathering tailwinds in the industry, as Adam was alluding to before. And we're particularly well poised to really benefit from those tailwinds. And we see a lot of optimism as we look forward. But in terms of the stock price of us and our competitors, you know, I can address ours, you know, right off the bat that it's strictly a matter of a low float stock and trying to address matters for improving that float will really take care of that. Before I get to the float section, I will say that we think that the cadence of increasing projects into construction, increasing projects into operation, and increasing the overall output will have a significant benefit to us, not just from a cash flow, but from really expanding company size. So that is what we're going to do is keep our head down, execute on the plan in front of us. But from a float perspective, you saw last year that we started the at the money equity program that we disclosed. And then most recently this week with the disclosure of the voting change, that we disclosed where we expect that that voting change is aimed at having us picked up by some small cap stock index providers. So that would hopefully add some attraction to our stock. But I really think that at the end of the day, it's really executing on what's in front of us and the growth that that will bring about that will result in a stronger stock price. One last point on that, you know, obviously we've seen some precedent transactions going on in the market and those private transactions give us a lot of optimism about the value of our company relative to the stock price. The value of our company, when you market to a transaction such as the Enbridge Morrow transaction at 1.2 billion, where they had a similar amount of gas in operation, but no real development pipeline and no downstream dispensing really gives us a lot of comfort as to the overall value that we're sitting on today and that we're creating in the very near future. Great. Thank you. Thanks, Paul.

As a reminder, if you'd like to ask a question, please press star 1-1 on your telephone keypad and wait for your name to be announced. One moment for our next question. Our next question comes from Adam Bubes with Goldman Sachs. Please proceed with your question. Hi.

Thanks for taking my question. It looks like in fuel station services, margins stepped up by over 800 basis points sequentially. You know, is that seasonality or what's going on under the hood to drive that strong performance sequentially? And as we think about the moving pieces, where are gross margins for dispensing, third-party construction, and O&M tracking, respectively?

Yeah, thanks for the question, Adam. You know, the fourth quarter did benefit from some additional RIN monetization and LCFS credit sales. As we had mentioned, fourth quarter in general benefited from it, and certainly a portion of that flows through on fuel station services. That being said, we see gross margins improving quite a bit in 24 versus 23, both from utilizing more RNG flowing through our dispensing network and see improving margins both in the construction and the service piece as well. You know, in 23, we still had a little bit of a lag effect in fuel station services from inflation rolling through some of our construction revenues on that side, and we've moved through that piece of it. I think that was all your questions. Did I miss one there, Adam? That's helpful.

Separately, you know, the U.S. Treasury and IRS still need to finalize 45Z guidance. So, you know, how and when do you see regulations playing out? And then at the same time 45Z comes online, I believe the alternative fuel excise tax credit would be rolling off. What's the magnitude of tailwind that you receive from the alternative fuel tax credit or does that flow mostly to your partners?

Yeah, no, Adam, I appreciate that because that was also one other thing I wanted to hit upon. I just wanted to remind everybody in our fuel station service segment, we have zero nat gas commodity price risk. That flows all the way through as a variable cost to our fleet customers. So we do not have any impact from a relationship between nat gas and oil and those sorts of things. So all the margin improvement that we're talking about is from, you know, that increasing R&G moving through our network and those other items that I mentioned. Also on the AFTC side, we have negligible impact from AFTC where that was also a pass-through benefit to our fleet customers. So it's under a million dollars in terms of how much AFTC profitability we have received. In terms of timing on the 45Z, you know, I... I do not want to set any timelines out of Treasury because each time we do, they seem to be a little bit later or that sort of thing. You know, we've been waiting for how they're going to do the carbon intensity scoring on 45Z. You know, I'm hopeful we're going to see it pretty soon. That's one of the biggest pieces to see how they're going to score landfill and dairy. And certainly, we do benefit, you know, more so from dairy to and even some of the gas we're going to be dispensing on the dairy side. But we don't know yet how they're going to treat the really negative ultra-low CI stuff. And we don't know yet on the landfill side, A, how they're going to bucket that feedstock and whether or not they're going to allow for individual improvements to those CI scores. You know, we're hopeful we're going to see it pretty soon. And as I had mentioned earlier, too, there could be a potential where, you know, cellulosic or renewable electricity, you know, could be seen as a transportation fuel in that 45Z. You know, we think the way we read it, it certainly could. And it'll be interesting to see how we, you know, what kind of CI scores could get associated with that.

And then maybe if I could just get one more in here. Can you expand on the potential for greater than 2 million MMBQ going into construction this year? Just Any color on specific project details and cadence would be great. Thank you.

Well, we've discussed a lot about our relationships. You're obviously aware of our relationships with GFL, with WM, with SJI, and a couple of the projects that we've been discussing associated with those. While we're not prepared to talk about specific additional projects, we do believe that there's been a little bit of, let's say, a backlog, and that as that backlog gets relieved, you'll see additional projects coming into construction. We discussed a little bit about what some of those projects might look like, but we're principally looking at growth in the landfill area and that that's our principal focus. And we've talked about some of those counterparties that we're growing. And so we do have a great deal of confidence that those improving relationships combined with really our delivering consistently projects that work right out of the box and that operate with high degrees of availability. And our downstream vertically integrated model of delivering into the highest value offtake market will continue to increase our opportunity set there.

Yeah, the only thing I would say there, Adam, is these projects are big. They can be sizable or chunky. And sometimes they can come in bunches. So, you know, if you do see a quarter where we're successful putting, you know, multiple projects into construction and maybe get, you know, two or whatever it is in a single quarter, doesn't mean that we're also on an 8 million, you know, MMBTU into construction run rate. So I just want to caution that as well if we see one of these quarters coming up where they get bunched up.

Great. I appreciate the color.

That concludes the question and answer session. This time I would like to turn the call back to Adam Kimora for closing remarks.

All right. Well, thank you very much for your participation and interest in Opal Fuels. We look forward to continued engagement and dialogue and hope everybody has a great day.

Thank you for your participation in today's conference. This does conclude the program.

You may now disconnect. you music music Thank you.

Good morning and welcome to the Opal Fuels fourth quarter 2023 earnings call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. As a reminder, this event is being recorded. I would now like to turn the call over to Todd Firestone, Vice President of Investor Relations, to begin. Please go ahead.

Thank you, and good morning, everyone. Welcome to the Opal Fuels fourth quarter and full year 2023 earnings conference call. With me today are co-CEOs Adam Kimora and Jonathan Moore, and Scott Cantino, Opal's interim chief financial officer. Opal Fuels released financial and operating results for the fourth quarter and full year 2023 yesterday afternoon, and those results are available on the investor relations section of our website at opalfuels.com. Presentation and access to the webcast for this call are also available on our website. After completion of today's call, a replay will be available for 90 days. Before we begin, I'd like to remind you that our remarks, including answers to your questions, contain forward-looking statements, which involve risks, uncertainties, and assumptions. Forward-looking statements are not a guarantee of performance. Natural results could differ materially from what is contained in such statements. Several factors that could cause or contribute to such differences are described on slides two and three of our presentation. These forward-looking statements reflect our views as of the date of this call, and Opal Fuels does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this call. Additionally, the call will contain discussion of certain non-GAAP measures, a definition of non-GAAP measures used, and then reconciliation of these measures to the nearest GAAP measures, including the appendix of the release and presentation. Adam will begin today's call by providing an overview of the course results and recent highlights and update on our strategic and operational priorities. John will then give a commercial and business development update, after which Scott will review financial results. We will then open the call for questions. And now, I'll turn the call over to Adam Camora, Co-CEO of Opal Fuel.

Thank you, Todd. Good morning, everyone, and thank you for participating in Opal Fuel's fourth quarter and full year 2023 earnings call. Opal Fuel continues to execute on its business plan and is well-positioned to grow in our industry, which is experiencing strong market fundamentals and expanding tailwinds. I'd like to highlight several points from this quarter's results and recent developments. First, as expected, fourth quarter results benefited from stronger RIN prices, Adjusted EBITDA for the quarter was $32 million, an increase of 57% from 2022 and the strongest quarter in OPWL's history, and $52 million for the full year 2023 meeting our most recent guidance. The positive results in the fourth quarter were driven by continued improvements in our fuel station service segment and the monetization of all environmental credits held for sale, including a portion from the third quarter. Second, Emerald, our 50-50 joint venture project with GFL and one of the largest RNG projects in North America, is showing production growth in line with expectations. We began generating and selling RINs from the project in December. Third, we continue to make good progress on our projects that are in construction, expecting to end the year with 8.8 million MMBTUs of RNG design capacity in operation. At the end of 2023, we began construction of a new 2.4 megawatt renewable electricity facility at the Fall River landfill that will utilize approximately 0.2 million annual MMBTU of biomethane equivalent. Fourth, we are encouraged by recent Treasury commentary on the ITC, which although not finalized, we believe that the ITC will include biogas conditioning and cleaning equipment as eligible for saleable tax credits in the final rule. It should be noted the support for this inclusion came not only from industry through comment letters, but also from a letter authored by IRA bill sponsor, Senator Brown, which was co-signed by numerous senators and members of the House, stating clearly the intent of including this property in the Section 48 ITC provision. We expect final rules to be published sometime after March 25th, which will hopefully clean up a couple of remaining technical structural issues. Although not included in our adjusted EBITDA guidance for 2024, we have outlined our current thinking of how successful resolution of these rules would impact cash flows and resulting net income, approximately $40 million in 2024. I'd also like to add that our downstream fuel station service segment is set to have strong adjusted EBITDA growth in 2024, and we are encouraged by the increasing interest from major fleets testing the new Cummins 15 liter natural gas engine, which should lead to continue this upward trajectory over the next several years. John and Scott will go into greater detail regarding our outlook for 2024. But needless to say, we're very excited about our opportunities. R&G production is expected to grow between 60 to 80%. Adjusted EBITDOT is forecasted to range from 90 to 100 million, up from 52 million in 2023. And we see continued growth in 2025 and beyond from annualizing the plants coming online this year, continued growth in fuel station services, and our significant opportunity set of new potential projects to put into construction. 2024 also has the potential to be a powerful year in education and advocacy, which can broaden bipartisan support for our industry. Capturing and converting biomethane emissions into low-carbon intensity usable energy products has numerous societal and strategic benefits for all Americans, including fighting climate change, improving air quality in socioeconomically challenged communities, supporting the agricultural sector, driving investment and providing economic value for countless municipalities that own landfills and wastewater treatment facilities, while also providing greater energy security for all Americans. With that, I'll turn it over to John. John?

Thank you, Adam, and good morning, everyone. We're proud of our accomplishments in the fourth quarter of 2023 and the 2023 year-end results. Importantly, the Emerald RNG project is online, and we now have eight RNG projects in operation with an annual design capacity of 5.2 million MMBTU. up from 2.3 million MMBTU at year end 2021. Production was in line with expectations. RNG production was 2.7 million MMBTUs for the 12 months ended December 31, 2023, which is a 23% increase year over year. That number is expected to increase significantly this year. Scott will give more detail on this year's guidance but we're expecting roughly 4.6 million MMBTU of RNG production this year. In addition to our operating projects, we currently have six RNG projects in construction representing an additional 4.4 million MMBTU of annual design capacity and one 2.4 megawatt landfill gas to electric project, which is 0.2 million annual MMBTU of biomethane equivalent. Construction of new projects is proceeding well. Prince William, one which we own 100% and represents 1.7 million MMBTU of design capacity, has reached mechanical completion. Commissioning of the plant will continue over the coming weeks as we approach commencement of operations. Sapphire, which we operate in a 50-50 joint venture with GFL, and representing 0.8 million MMBTU Opal share of design capacity, is on track to begin operations in the third quarter of 2024. Our Polk County, Florida project, where we also own 100%, and which represents 1.1 million MMBTU of annual design capacity, is also on track to begin operations in the fourth quarter of this year. Atlantic, our first SJI joint venture RNG project, which we put into construction in the third quarter of 2023, is progressing, and we continue to expect it to begin commercial operations in mid-2025. Atlantic will contribute 0.3 million MMB2 of annual design capacity net to OPWL. As I mentioned, we also began construction of our Fall River 2.4 megawatt renewable electricity project in the fourth quarter of 2023. which will utilize approximately 0.2 million MMBTU of biomethane equivalent and is slated to begin operations by year end. Our two Central Valley dairy projects are delayed due to a contract dispute. We expect this dispute, which is proceeding through an arbitration process, to impact the timing of these two projects, and we plan to give further updates on timing as we move forward this year. Together, our operating and construction RNG projects represent almost 9.6 million MMBTU of design capacity. We expect to place at least 2.0 million MMBTU of RNG projects into construction this year. As OPWL executes on existing opportunities, growth in our relationships across the landfill sector is resulting in additional project opportunities that we believe will mature into continued growth in construction and operating projects in the foreseeable future. Last quarter, we started providing additional detail on how we measure the production output at our RNG and renewable power projects. We added two new metrics. Inlet design capacity utilization measures the percentage quantity of biogas available at the inlet of our facilities compared with the design capacity of these facilities for the relevant period. We said we generally expect our RNG facilities to begin somewhere in the 70 to 80 percent range of inlet design capacity utilization and expect increasing utilization rates as all of our RNG facilities are in open and growing landfills, and we, along with our landfill partners, continue to make improvements in gas collection at the well fields. Utilization of inlet gas, the second new metric, measures the productivity of converting the biogas coming into the RNG facility into product RNG. It's simply the volume of the actual production for a given period divided by the volume of inlet gas. This metric should be relatively stable between 80 to 90% with fluctuations based on the efficiency and availability of the system and the quality of the biogas. Both inlet design capacity utilization and the utilization of inlet gas were within their expected ranges, and we expect that to continue this year. With that, I'll turn it over to Scott to discuss the quarter's financial performance and provide additional detail regarding guidance.

Scott? Thank you, John, and good morning to all the participants on today's call. Last night, we filed our earnings press release, which detailed our quarterly results for the quarter and year ending December 31st, 2023. Our 10K will be filed tomorrow. Looking at the fourth quarter results compared to the third quarter of 2023, R&G production increased to 0.8 million MMBTUs from 0.7 million MMBTUs. The increase is largely due to Emerald production coming online. Compared to fourth quarter 2022, production grew 0.2 million MMBTUs due to a combination of same-store sales growth and Emerald coming online. R&G production was 2.7 million MMBTUs for the 12 months ended December 31, 2023, compared to 2.2 million MMBTUs for the comparable period last year. Revenue in the fourth quarter was $87 million as compared to $67 million in the fourth quarter of 2022. The main driver for the increase in revenues was the timing and pricing of environmental credit sales, including both RNG fuel and fuel station services, where we dispense all of the RNG for our projects, as well as 100% for our joint venture projects and other third-party RNG supplies. Net income for the fourth quarter was $20.1 million as compared to $0.3 million in the third quarter. The difference was primarily driven by the increase in revenues from the timing of environmental credit sales, but also recognition of Emerald coming online in equity method investments. Adjusted EBITDA was $32 million in the fourth quarter, as mentioned, partially driven by the timing of environmental credit sales as well as improving margins in our fuel station services segment. A reconciliation to GAAP results is provided in our earnings release from yesterday and in our investor presentation updated this morning on our website. The fuel station services segment revenues increased to $46.9 million for the fourth quarter as compared to $37.3 million in the third quarter. The increase in revenues was primarily the result of increased RNG marketing fees, concurrent RIN and LCFS sales, and improved margins. Adjusted EBITDA for this segment grew to $12 million in the fourth quarter versus $6.4 million in the third quarter. Renewable power revenues decreased to $11.3 million for the quarter from $13.7 million in the third quarter. This was primarily due to reduced operations at Arbor Hills as the biogas was diverted to the new Emerald RNG project. Last September, we entered into a $500 million senior secured credit facility. The credit agreement provides up to $450 million of term loans over an 18-month draw period and $50 million of revolving credit. As of December 31st, 2023, approximately $187 million was drawn down on the facility. As of December 31st, 2023, liquidity was $348 million, consisting of $300 million of availability under the credit facility and $48 million of cash, cash equivalents, and short-term investments. As a result, we feel our liquidity and capital resources and access to other sources of capital are sufficient for our growth plans. Now I'll turn to this year's guidance. For full year 2024 guidance, assuming $3 D3 RIN, $2 per mm BTU brown gas, and $65 per metric ton LCFS, we expect our full year 2024 adjusted EBITDA to be $90 million to $100 million, and RNG production to be 4.4 to 4.8 million MMBTUs. Our adjusted EBITDA guidance does not include several items of note. One, the potential of $40 million of cash proceeds and income in 2024 that would result from favorable ITC resolution. Two, RNG pending monetization increase of approximately $15 million. And three, project development and startup costs of approximately $12 million, which do not get capitalized. As we disclosed last quarter, we are no longer recognizing RNG pending monetization in our calculation of adjusted EBITDA, although we continue to provide detail on our inventory and credits sold each quarter, as well as a period ending balance. A reminder that this represents the value of our December 2024 RNG production, where the costs have been recognized in our 2024 adjusted EBITDA results, but we have not yet sold and transferred the RINs or LCFS credits associated with that RNG. Effectively, having our 2024 results include revenues associated with December 2023 production, while recording our December 2024 production costs. This impact can be significant if a company has a large growth trajectory, such as Opal, and obviously would not be as impactful if we weren't growing our production so significantly. One other item worth noting is that we are now breaking out our development and plant startup costs as a separate line item on the income statement. We thought this disclosure was important to give investors a sense of steady state from our operating facilities. For 2024, development and plant startup costs include a $12 million operating expense not added back to adjusted EBITDA from a virtual pipeline for Prince William that will be used until the permanent pipeline is operational. We also want to provide some color on the fuel station services segment where we anticipate adjusted EBITDA to grow by 75% to 90% compared to 2023, results driven primarily by increasing RNG marketing revenues through our dispensing network, new OPAL fueling stations coming online, and continued improving trends and margins. We expect full year 2024 capital expenditures at wholly owned and joint venture projects to total approximately $230 million, which includes approximately $41 million relating to equity method investments and approximately $28 million associated with downstream stations. Before I turn it back to John, I would just like to mention our press release earlier this week announcing that our controlling shareholder, Fortistar, has exchanged 71.5 million shares of high vote stock, the Class B shares that are entitled to a single vote. As our press release noted, with Fortistar reducing a significant portion of its voting control, we anticipate that our publicly traded Class A common stock will become eligible for inclusion in certain stock market indices. Of course, there are no assurances that OPWL will be included in any indices. With that, I'll turn it back to John for concluding remarks.

Thank you, Scott. In closing, we are pleased with the continuing success in the execution of our business plan. We remain committed to furthering OPWL's vertically integrated mission. to build and operate best-in-class biomethane capture and conversion projects that deliver industry-leading, reliable, and cost-effective low-carbon intensity energy products that displace fossil fuel and mitigate climate change. And with that, I'll turn the call back over to the operator for Q&A. Thank you all for your interest in Opal Fuels.

Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile the Q&A roster.

Our first question.

comes from John Annis with Stifel. Please proceed with your question.

Hey, good morning, and thanks for taking my questions. For my first one, how should we think about the timing of rent sales this year? With current D3 prices more favorable to start this year, should we think about it being more equally weighted than last year?

Yeah, hi, thanks. This is Adam here, and thanks for the question. We are anticipating to be selling and transferring our RINs pretty uniformly as they're generated and minted throughout the year. And I would also add that thus far we've hedged or sold forward approximately half of our production.

Makes sense. For my follow-up, The EBITDA guidance for the fuel station service implies strong growth this year. Could you offer some additional color on the drivers of this growth and maybe relate it to that? What's the latest feedback you're hearing on the Cummings 15 liter?

Yeah, thanks again. This is still Adam. You know, as Scott was mentioning in the earlier prepared comments, we're excited about the fuel station service segment. And 2024 is set up to be a really strong growth year for it. The primary drivers this year are really utilizing the dispensing network that we've set up and, you know, really generating a lot more profitability at that segment as we're delivering more RNG fuel through that dispensing network. And it's not only from our production, it's 100% from the JV projects and then also numerous third-party suppliers. And then we're also benefiting from a number of Opal Fuel-owned fueling stations coming online and annualizing those that came online, you know, sort of mid-year last year. And then we're also seeing the continued improving trends in the construction and service side of that business. So 2024 really looks to be a good year for it. The results this year are not being driven by what we are hearing is good feedback on that 15-liter engine. That 15-liter engine is still going through its testing periods, but the feedback has been really strong, and that will show up as new business development activity this year and drive growth in 2025 and beyond.

Great, Keller. Thanks for taking my questions.

One moment for our next question.

Our next question comes from Matthew Blair with TPH. Please proceed with your question.

Thank you and good morning. I had a question on CapEx. So I think at one point, this might have been a few years ago, you were guiding to CapEx that came out to call it roughly $40 per MMBTU for a landfill project, maybe about $160 per MMBTU for a dairy project. Could you give us a sense of

where those numbers are today?

This is Scott Contino.

Thank you, Matthew, for your question. I think we're going to have to get back to you on the dollars per MMBTU for CapEx.

Okay. Is it safe to say that there has been some inflation in just the unit costs?

Yeah, this is Adam here, and I was just trying to do the math on the last two projects that we are looking at putting into construction here. There's no doubt that there had been some cost inflation over the last several years. We have seen that level out quite a bit over the last three to four months or so as we're putting together some project cost estimations. I see John working the calculator over there. We'll come back on what ballpark rule of thumb is, but one of the things that we've also been doing here internally is looking at ways to perhaps do things a little bit differently from a construction standpoint and seeing where there are some opportunities to reduce some of those initial, reduce some of those capex for MMBTU. So it is up from the $40. I don't want to give you an exact number right now. We have seen that level out, and we still see extraordinarily good, you know, return on capital projects and still see very good paybacks on these projects. And, you know, I know there's going to be a question coming up on ITC, but certainly, you know, that also helps as we're looking at, you know, projects that we put into construction here.

Matthew John Moore but the you know costs that you're citing of 140 160 is significantly higher than what we're experiencing for landfill projects while that may be more appropriate for dairy where the costs might be you know similar but the output dairy projects being substantially lower than landfill projects obviously our focus is on landfill projects and we're seeing costs that are well below $100 per MMBTU.

Sounds good. Thank you. And then regarding the RNG production guide of 4.4 to 4.8, so I think that implies growth of 1.7 to 2.1 in 2024. It looks like at least part of this 2024 growth is actually coming from higher utilization at your existing plants rather than just bringing on the new projects that you cited. Is that what you're seeing as well? And if so, what would be driving the higher utilization?

Yeah, thanks for that question. And it goes to how we were thinking about our guidance for the whole year, so there may be some follow-ups there. But when we've got our production guidance in the midpoint there, 4.6, about 3.6 of that is from projects that are operating today. So if you look at that 3.6 over the 5.2 design capacity, you're looking at about 70% product output on the design capacity. And I think as we've noted in our disclosures, we do expect same-store sales growth at our projects as they're at open and growing landfills. We're always looking at ways to continue to improve gas collection with our landfill partners. So we do expect these facilities to continue to grow as they mature. So when you look at our guidance this year, about a million of it comes from Prince William, Sapphire, and Polk. The bulk of it really from Prince William, which we're happy has hit its mechanical completion and has entered the commissioning phase. Sounds good.

Thank you.

One moment for our next question. Our next question comes from Ryan Inkst with B. Riley. Please proceed with your question.

Hey, good morning. Adam, you mentioned you hedged or sold forward about half of your production. Can you share what the associated environmental attribute and gas prices are there? So we have not yet sold forward the nat gas piece, which we are looking at. And on the environmental piece of it, you know, we feel, you know, you could look at the indices averages or something like that to try and get a feel for it. Okay. And that leads into my follow-up. Could you just provide us with a refresher on how we should think about Opal's average realized sales price compared to what we might see in index prices? Is there a general rule of thumb? for how much of the rent price you're able to realize? Yeah, I think we've got some disclosure in there in terms of what typical brokerage or commission fees are for OPAL. And so I believe we've got that in our disclosure. And, you know, we don't necessarily sell at the index price. We do pick pricing and transact on pricing. So we don't have index-based pricing, but you can assume that our average sales price is just over where we may have given our guidance for the year.

This is John. In terms of RIN price realization, it's important to keep in mind our vertically integrated business model where we capture really 100% of the output, both as a portion on the upstream side and the portion that would go to the fueling station on the downstream side of the business. So we really capture the full value chain in there. Adam was addressing, obviously, what we might pay out in brokerage. Some of our trades are done directly without brokerage deductions. Others are done through a third party.

Got it. That's helpful to contextualize that piece. And then it looks like the advanced development pipeline wasn't included in the DEC or the release this quarter. Is there any reason for excluding that here?

Yeah, this is John. So thanks for that question, Ryan. You know, the concept was somewhat associated with our go public phase when we were a smaller company and the conversion of our pipeline of projects was more meaningful. We're now 5.2 million of nameplate and looking to exit 2024 with 8.8 million after the current RNG projects that are scheduled to be completed this year are in fact completed. So the pipeline of projects is now less meaningful. We've also shown that our excellence in bringing projects online and that our ramp up period and high availability operating factors really attract us to other partners and that the development of those partnerships really adds more of an opportunity set. That combined with our vertical integration really gives us a front row seat at a lot of the opportunities that are out there in the marketplace. So we do see that. We're guiding to greater than 2.0 million of MMVTUs into construction. We believe that the tailwinds that we're seeing in the industry will assist us in achieving those goals. But really nothing has changed. The cadence that we've been doing over the last couple of years will continue. with the guidance that we're giving here today.

Yeah, the only thing I would add to that is that the delineation between prospective opportunities and ADP, it really doesn't capture the full opportunity set of stuff that we're looking at. And if we've got prospective opportunities that are much greater than what we're doing, what we would call as ADP, we just didn't feel like it was a meaningful metric and thought that delineation was a little unique to Opal Fuels on how we were describing that. Got it. Makes sense. Thank you, guys. I'll turn it back.

One moment for our next question. Our next question comes from Martin Malloy with Johnson, Rice & Company. Please proceed with your question.

Good morning.

I wanted to ask about slide 17, and you mentioned also, I think, using biomethane for power generation in your prepared remarks. Could you maybe spend some time talking about that market, rough economics of that market and how Opal might play a role? And I realize early history of the company that power generation was fairly important to Opal.

Yeah, this is Adam here. Thank you very much for the question. You know, I think slide 17 is important, and it's really important, you know, in how we're really, you know, trying to communicate, you know, who Opal Fuels does and why there are these policy tailings behind our company and what we do. And, look, we recognize that there is a, you know, a little bit of a, you know, holistic view of energy and transition at this point. But, you know, what we do here at Opal fuels is we're taking harmful bio methane emissions and turning them into a low carbon intensity energy product. And, you know, when you really think about, you know, there, it's, it's starting to become a much more broader issue for all Americans, and really think that there's a lot of potential here for for bipartisan support for our industry, and we're starting to see it show up in a lot of different places. And, you know, whether or not we're going to talk about ERINs and other types of things that can support, you know, cellulosic electricity, you know, we think that this industry is starting to, you know, get behind this good, better, best strategy where, you know, we have countless, you know, thousands of landfills, thousands of small farms, thousands of wastewater treatment facilities that are owned by municipalities where we're just not capturing biomethane. And I think there's a lot of room to have this good, better, best where the first thing we should be doing is capturing this biomethane. And not every biomethane source is going to be big enough or have access to a pipeline. And there's this proven technology to turn it into renewable electricity, which is baseload not dependent on, you know, some intermittent either sun or wind, which is really good where you won't need battery storage. We think cellulosic electricity, you know, makes a lot of sense and is the right public policy. So, you know, ERINs are the one, you know, that already are existing, you know, in the EPA regulations. And there's a really great you know, legal argument that was put forward by Arnold and Porter, you know, on a Partnership for the Electric Pathway website that I would encourage folks to read. And, you know, we think that, you know, ERINs are one potential for it. Perhaps it can show up in 45Z where renewable electricity potentially could qualify for those credits. We just think it's the right public policy to support the capture of biomethane

and um you know renewable electricity is certain certainly one product that could come from it thank you uh very helpful and for my second question wanted to ask about slide 20 and non-transportation fuel rng demand could could you maybe talk um about how you see that market developing and could we ever see opal um look into selling into that market under longer term contracts?

Sure. John Moore here. So we see substantial demand outside of the transportation fuel sector. Right now, the transportation fuel sector is the highest value offtake. But certainly, when you think about gas pipeline utilities, for one, having many of them promised their public utility commissions and regulatory commissions to put decarbonized gas into their pipelines. We see this with like Enbridge, for example. We see that with Nextera. We see that with SJI. They're all trying to find decarbonized gas to put into their pipeline and expand that capability. So that's going to be a very substantial amount of demand over the next couple of years. Currently, the price is substantially below the transportation fuel market. Beyond that, there's certainly industry looking to decarbonize in the US and then overseas markets. We see European carbon markets as being potentially very attractive for this. We've been participating in a small way into those European markets, and we see those European markets growing as a potential end-use offtake. In addition, there's maritime uses. There's probably a bunch more that I haven't talked about, but when you add all those up, there's substantial demand for this low-carbon product, and I think we'll see more of that coming in the coming years. Maybe, Adam, you'd like to elaborate on that somewhat.

Yeah, you know, I just wanted to jump back into the policy tailwinds, because I just want to maybe elaborate on why these are tailwinds. You know, we had one other thing on that slide talking about 70% of Americans wanting to do something about climate change. And when you break that down by party or age group, that's where, you know, we're really talking about these tailwinds where, you know, if there's over 90% of Democrats and, you know, 74% of independents and maybe somewhere in the 40s of Republicans that believe we should be doing something. And there were some really interesting testimony from Republican senators asking for inclusion of RNG projects in that Section 48. It really gets more interesting when you're looking at the age demographics. Every time you move down 10 or 15 years, the percentages keep moving up higher and higher. So those are the tailwinds that we're talking about. And it's not only whether or not it's cellulosic electricity It's also, you know, coming from the SEC now, talking about greenhouse gas disclosure requirements. And our product is, you know, zero scope one and zero scope two emissions versus diesel. You know, these are the kinds of sort of trends that are really supportive. And we think that cellulosic electricity is part of it. And, you know, those voluntary markets continue to grow as well. And, you know, obviously something that we're always keeping our eye on.

Thank you for taking my questions. I'll turn it back.

One moment for our next question. Our next question comes from Paul Chang with Scotiabank. Your line is open.

Hey, guys. Good morning. The first question is that just curious. The arbitration that in the two California projects dispute, what's the nature of those disputes and what's the risk that in your other projects you will face similar issues or potentially face similar issues? That's the first question.

Hi, Paul. John Moore. Thank you for your question this morning. Just kind of discussing it somewhat here. The situation we have is where we have a fixed-price EPC contract for both the Hilltop and the Vanderskauff projects. The contractor has presented us with a series of change orders seeking to increase the price. We think the change orders are not warranted and substantially dispute the change orders that have been presented to us. We commenced, as you said, an arbitration proceeding. While the arbitration proceeding is continuing and the dispute is being resolved, the contractor is required to continue work during the course of this resolution period. The contract itself for both projects for each of the two projects is fully bonded by licensed sureties who are on notice of our claim. We believe that our claims have substantial merit. But of course, it's an early stage and we can't really predict the outcome. But I can say this, it is limited to these two projects. It is not affecting other projects. and we don't see that it would affect future projects, Paul.

John, is this the first time you work with this contractor or that you have worked with them before and also whether this contractor have any other project other than those two that they are working on with you?

The contractor, this is the first time we're working on it with them. The contractor was developed and sourced by our co-developer in the project and is a reputable counterparty and has some other projects in the industry, but just not with us. And we think it's really very narrowly focused on these two projects and not more broader than that.

And maybe this is for both Adam and John, just curious. Not just OPPO, but the industry has been having a tough year over the past 12, 15 months. And OPPO looks like very inexpensive and very attractive. When you talk to investors, where do you think is the disconnection? What people do not understand about your business? Which part?

Yeah, so... You know, it's interesting that you say that the industry's had a tough year. I suppose that you mean as exhibited by the stock price, because we see gathering tailwinds in the industry, as Adam was alluding to before. And we're particularly well poised to really benefit from those tailwinds. And we see a lot of optimism as we look forward. But in terms of The stock price of us and our competitors, I can address ours right off the bat that it's strictly a matter of a low float stock and trying to address matters for improving that float will really take care of that. Before I get to the float section, I will say that we think that the Cadence of increasing projects into construction increasing projects into operation and increasing the overall output will have a significant benefit to us not just from a cash flow but from really You know expanding at company size so so that that is you know our What we're going to do is keep our head down, execute on the plan in front of us. But from a flow perspective, you saw last year that we started the at the money equity program that we disclosed. And then most recently this week with the disclosure of the voting change that we disclosed where we expect that that voting change will is aimed at having us picked up by some low cap, small cap stock index providers. So that would hopefully add some attraction to our stock. But I really think that at the end of the day, it's really executing on what's in front of us and the growth that that will bring about that will result in a stronger stock price. One last point on that. Obviously, we've seen some precedent transactions going on in the market, and those private transactions give us a lot of optimism about the value of our company relative to the stock price. The value of our company, when you market to a transaction such as the Enbridge-Morrow transaction at 1.2 billion, where they had a similar amount of gas in operation, but no real development pipeline, and no downstream dispensing really gives us a lot of comfort as to the overall value that we're sitting on today and that we're creating in the very near future. Great. Thank you. Thanks, Paul.

As a reminder, if you'd like to ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. One moment for our next question. Our next question comes from Adam Bubes with Goldman Sachs. Please proceed with your question.

Hi. Thanks for taking my question. It looks like in fuel station services, margins stepped up by over 800 basis points sequentially. You know, that seasonality or what's going on under the hood to drive that strong performance sequentially? And as we think about the moving pieces, where are gross margins for dispensing, third-party construction, and O&M tracking, respectively.

Yeah, thanks for the question, Adam. You know, the fourth quarter did benefit from some additional RIN monetization and LCFS credit sales. You know, as we had mentioned, you know, fourth quarter in general benefited from it, and certainly a portion of that flows through on fuel station services. That being said, we see gross margins improving quite a bit in 24 versus 23, both from utilizing more RNG flowing through our dispensing network and seeing improving margins both in the construction and the service piece as well. In 23, we still had a little bit of a lag effect. in fuel station services from inflation rolling through some of our construction revenues on that side. And we've moved through that piece of it. I think that was all your questions. Did I miss one there, Adam?

That's helpful. And then separately, you know, the U.S. Treasury and IRS still need to finalize 45Z guidance. How and when do you see regulations playing out? And then at the same time 45C comes online, I believe the alternative fuel excise tax credit would be rolling off. What's the magnitude of tailwind that you receive from the alternative fuel tax credit, or does that flow mostly to your partners?

Yeah, no, Adam, I appreciate that because that was also one other thing I wanted to hit upon earlier. I just wanted to remind everybody in our fuel station service segment, we have zero nat gas commodity price risk. That flows all the way through as a variable cost to our fleet customers. So we do not have any impact from a relationship between nat gas and oil and those sorts of things. So all the margin improvement that we're talking about is from, you know, that increasing RNG moving through our network and those other items that I mentioned. Also on the AFTC side, we have negligible impact from AFTC, where that was also a pass-through benefit to our fleet customers. So it's under a million dollars in terms of how much AFTC profitability we have received. In terms of timing on the 45Z, you know, I... I do not want to set any timelines out of Treasury because each time we do, they seem to be a little bit later or that sort of thing. You know, we've been waiting for how they're going to do the carbon intensity scoring on 45Z. You know, I'm hopeful we're going to see it pretty soon. That's one of the biggest pieces to see how they're going to score landfill and dairy. And certainly, we do benefit, you know, more so from dairy and even some of the gas we're going to be dispensing on the dairy side. But we don't know yet how they're going to treat the really negative ultra-low CI stuff. And we don't know yet on the landfill side, A, how they're going to bucket that feedstock and whether or not they're going to allow for individual improvements to those CI scores. You know, we're hopeful we're going to see it pretty soon. And as I had mentioned earlier, too, there could be a potential – where, you know, cellulosic or renewable electricity, you know, could be seen as a transportation fuel in that 45Z. You know, we think the way we read it, it certainly could. And it'll be interesting to see how we, you know, what kind of CI scores could get associated with that.

And then maybe if I could just fit one more in here. Can you expand on the potential for greater than 2 million MMBQ going into construction this year? Just Any color on specific project details and cadence would be great. Thank you.

Well, we've discussed a lot about our relationships. You're obviously aware of our relationships with GFL, with WM, with SJI, and a couple of the projects that we've been discussing associated with those. While we're not prepared to talk about specific additional projects, we do believe that there's been a little bit of, let's say, a backlog. And as that backlog gets relieved, you'll see additional projects coming into construction. We discussed a little bit about what some of those projects might look like, but we're principally looking at growth in the landfill area and that that's our principal focus. And we've talked about some of those counterparties that we're growing. And so we do have a great deal of confidence that those improving relationships combined with really our delivering consistently projects that work right out of the box and that operate with high degrees of availability. And our downstream vertically integrated model of delivering into the highest value offtake market will continue to increase our opportunity set there.

Yeah, the only thing I would say there, Adam, is these projects are big. They can be sizable or chunky. And sometimes they can come in bunches. So, you know, if you do see a quarter where we're successful putting, you know, multiple projects into construction and maybe get, you know, two or whatever it is in a single quarter, doesn't mean that we're also on an 8 million, you know, MMBTU into construction run rate. So I just want to caution that as well if we see one of these quarters coming up where they get bunched up. Great.

I appreciate the callers.

That concludes the question and answer session. This time I would like to turn the call back to Adam Kimora for closing remarks.

All right. Well, thank you very much for your participation and interest in Opal Fuels. We look forward to continued engagement and dialogue and hope everybody has a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.