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spk04: Good day and welcome to the Vertex Energy fourth quarter and full year 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the start key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press more than one on a touch-tone phone. To withdraw your question, please press star than two. Please note, today's event is being recorded. I would now like to turn the conference over to John Ragazzino of Investor Relations. Please go ahead.
spk00: Thank you. Good morning, and welcome to Vertex Energy's fourth quarter and full year 2022 results conference call. Leading the call today are Chairman and CEO Ben Cowart, Chief Financial Officer Chris Carlson, and Chief Operating Officer James Rame. Also attending the call are Chief Strategy Officer Alvaro Ruiz, Vice President Bart Rice, and Vice President of Black Oil Operations, John Strickland. I want to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the risk factors that could cause actual results to differ, please refer to the risk factor section of Vertex Energy's latest annual and quarterly filings with the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during our call in the press release issued today. Today's call will begin with remarks from Ben Cowart, followed by an operational review from James Rehm, and financial review from Chris Carlson. At the conclusion of our prepared remarks, we'll open the line for questions. With that, I'll turn the call over to Ben.
spk13: Thank you, John. And good morning to those joining us on the call today. This morning we issued a press release detailing our financial and operating results for the fourth quarter of 2022. We are pleased to report the continued safe and reliable operations with the improved financial and operating results which exceeded our prior expectations. We feel these results reflect the true earnings potential of our conventional fuels business at the Mobile Refinery facility, which contributed the majority of our fourth quarter adjusted EBITDA of $75.2 million. Reportive results benefited significantly for continued strength in conventional fuels refining margins. Increased market exposure following the expiration of our prior hedge positions beginning on September 30th. Attractive refining yields of high margin distillate products following the turnaround were performed in the third quarter. Operationally, we reported strong throughput volumes of approximately 78,000 barrels per day for the quarter, 5.4% ahead of our midpoint of our prior guidance issued in November. Our product yield profile and premium pricing for diesel and jet fuels drove a strong capture rate of 61%, which exceeded our prior outlook of 52%, and generated very attractive refining profitability on a per barrel basis. In addition, we made notable progress on several strategic initiatives aimed at streamlining our business. First, We continue to expand our team by adding experienced talent throughout our key areas of the business. Secondly, we recently completed the sale of our Heartland UMO business, enhancing our ability further to prioritize the optimization of our current refining business. And third, we have continued advancement of our construction of our RD conversion project for own schedule mechanical completion by end of March. with carefully planned startup early second quarter of this year. I'm proud of our employees and contractors who work together for the results achieved for 2022. The transition from our legacy operations to the advantage position we find ourselves in today would not be possible without the team's relentless pursuit of our goals while keeping safe and reliable operations as our highest priority. With that, I'd like to hand the call over to James Rain, our Chief Operating Officer, who will provide a detailed update on our operations during the quarter, including a more detailed update on the status of our renewable diesel conversion project in Mobile.
spk03: James. Thank you, Ben. Good morning, everyone. I will begin with a brief report on our health, safety, and environmental performance. During the fourth quarter, of 2022, our mobile operations had zero OSHA recordables, zero environmental recordables, and zero process safety events. Our legacy operations saw two OSHA recordables, both minor in nature, with zero environmental recordables. Moving on to operational performance, beginning with our legacy business. Our Columbus refinery maintained safe and reliable operations during the fourth quarter and through the close of the recently announced divestiture. This is to the credit of our former Heartland employees and clearly demonstrates the quality of the team running those operations. We are proud of their contribution and grateful for the opportunity to have worked with them over the last eight years. In Louisiana, our Marrero operations also saw continued progress in improving plant reliability and performance in the fourth quarter. achieving strong run rates and 106% capacity utilization at the refinery. Mobile performed well despite challenging weather conditions and increased site activity around the RD conversion. Fourth quarter throughput volumes at the mobile refinery averaged 77,964 barrels per day, or 104% of stated operating capacity, exceeding our initial guidance of 74,000 barrels per day and slightly ahead of our updated guidance of 77,000 barrels per day issued in January. We continue to process a crude diet consisting of WTI, LLS, and local light suite crudes. Total production of finished high-value light products such as gasoline, diesel, and jet fuel represented approximately 74% of total fourth quarter production versus 69% in the third quarter of 2022. reflecting improved performance following the previously discussed catalyst change in our distillate and reforming units. Our fuels only gross profit per barrel during the quarter was $20.50, driving a capture rate of 60.6% of the benchmark Gulf Coast 211 crack spread, slightly ahead of our guidance of 50 to 54%. The strength in our reported Fuels' only gross profit per barrel and resulting capture rate versus the benchmark is a direct function of the strength we continue to see in refining margins for diesel and jet fuel, which contributed to the strong per barrel profitability reported. On a rent-adjusted basis, which we believe provides an additional layer of clarity around the per barrel refining economics for a conventional fuels business, gross profit per barrel was $16.54. Now turning to our renewable diesel conversion project, I'm pleased to report that the development and construction activities are advancing as planned, keeping the project on schedule for targeted mechanical completion by the end of the first quarter, with anticipated initial production to follow early in the second quarter of this year. Our budgeted total project capex has been adjusted slightly from the 90 to 100 million range that was reported to $110 to $115 billion. The upward cost revisions reflect three primary drivers, extremely tight local labor market, incremental rental equipment and scaffolding costs necessary to ensure adherence to all site safety protocols, along with some additional supply chain related costs, which we chose to pay in order to keep the project on schedule. Despite inflationary pressures, and supply chain complexity, we remain laser-focused on a safe, reliable, and timely execution of the project. Progress toward these goals, we are proud to report, continues without compromise due to the cohesive efforts of all employees and contractors involved in the project. Notable milestones include the safe shutdown of the hydrocracker unit, completed as planned on January 6th, with over 55% of the outage-related work completed our crews have logged in excess of 290,000 work hours thus far with zero reportable incidents to date, a performance of which I'm very pleased to share. While we have an understandable bias in our pride over our team's performance, the significance of what our legacy and mobile teams have accomplished throughout 2022 cannot be overstated. Continued prioritization of our strict safety standards and relentless focus on achieving our goals by each individual team member is something I'd like to take time to personally acknowledge and commend. With that, I'd like to hand the call over to Chris Carlson, Chief Financial Officer, who will review our financial results for the quarter, as well as provide an outlook for the first quarter of this year.
spk10: Thank you, James, and welcome to those joining us on the call today. For the three months ended December 31st, 2022, Vertex reported net income of $44.4 million or $0.56 per share on a full diluted basis versus a net loss of $5.3 million or $0.09 per share on a full diluted basis in the fourth quarter 2021. We reported adjusted EBITDA of $75.2 million in the fourth quarter 2022. versus $9.5 million in the prior year period. On a standalone basis, the Mobile Refinery generated $78.6 million of adjusted EBITDA during the quarter, versus a $500,000 loss in adjusted EBITDA during the third quarter of 2022. Our legacy operations in the black oil and recovery segment contributed $3.9 million adjusted EBITDA. Overall, fourth quarter results benefited from a continuation of consistent operational reliability and resulting throughput volume, continued strength in refined product margins, reflecting the robust conventional fuels market fundamentals we continue to see. The fourth quarter financial results include a loss related to continued backwardation in the crude and products markets in the amount of $9.6 million. A return to contango during the quarter helped offset a substantial portion of this charge relative to what we have seen in the prior two quarters, where backwardation charges came in at $17.9 million and $23.2 million, respectively. As of December 31, 2022, the company had total liquidity, including restricted cash of $146.2 million, versus $122.4 million at the end of the prior quarter. Vertex had total net debt outstanding of $214.1 million at the end of the fourth quarter of 2022, including lease obligations of $100.1 million, implying a net debt to trailing 12-month adjusted EBITDA ratio of 1.3 times as of December 31, 2022. we continue to remain fully exposed to current robust refining margins with no fixed price hedge contracts currently in place. Subsequent to quarter end, we successfully closed on the planned divestiture of our Heartland UMO facility for total gross proceeds of $90 million. We are extremely pleased with the results of this sale, as we originally purchased this asset for $8.3 million in stock back in 2014. The net proceeds of $85 million are largely being used to finance the significant working capital requirements associated with our planned RD production, with volumes of soybean oil feedstock currently being purchased in preparation of our April production startup. A portion of the proceeds are also being directed towards the repayment of our $165 million term loan, which carries a 15.25% interest rate. We were able to make a prepayment of $11 million of the term loan, saving over $1.5 million in future interest expense on the loan through year-end 2023. Looking to the first quarter of 2023, we anticipate total throughput volumes at Mobile to be between 69,000 and 72,000 barrels per day, reflective of the shutdown in the hydrocracker to accommodate completion of the RD conversion project by the end of the quarter. OPEX per barrel is expected to be $3.85 to $4 per barrel for the quarter. And our capture rate on the benchmark Gulf Coast 211 crack spread is forecast to be approximately 50 to 54%. We anticipate total capital expenditures for the first quarter to be between $30 million to $35 million. I'd now like to turn the call back to Ben Cowart to provide some final comments before we open it up for Q&A. Thank you, Chris.
spk13: The fourth quarter of 2022 sets a bar for financial and operating performance, which I'm extremely proud of. We continue to be encouraged by the fundamental outlook for refining margins on both the conventional and the renewable fuel side of the business. As we approach the startup of our renewable fuels production in April, We look forward to establishing Vertex as an important player in the rapidly developing renewable fuels market. We remain extremely enthusiastic about the outlook for potential profitability in this business, knowing each player in this market faces widely differing circumstances that ultimately determine their individual performance. Therefore, we anticipate updating the market with a detailed look at our expectations for this business as we build confidence in our ability to accurately forecast and deliver on these expectations. Until then, we will continue to take a very measured, thoughtful, and prudent approach to each decision we face as the RD business ramps. On the conventional side of our business, the macro environment continues to be extremely robust. Product margins for lighter distillate products, including diesel and jet fuel, continue to maintain historically elevated levels, fueled by the tight refining capacity and domestic inventory levels well below historic averages. As a result, we expect to continue to see strong financial performance on that side of the business. I'd like to thank all of you for joining us on this call this morning, and I look forward to being able to deliver another positive update on our next quarter performance. With that, we will open the line for questions. Operator?
spk04: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Today's first question comes from Manav Gupta with UBS. Please go ahead.
spk01: Guys, congrats on a great quarter. My first question is, you acquired the asset on April 1. You are showing a material improvement in capture in the last couple of quarters. Throughput has gone up. Help us understand some of the changes you have brought about which are allowing you to learn from this experience and improve the performance of this asset. And a follow-up on this one is, Help us also understand once the RD project actually goes into the picture, does it change the throughput or does it change the clean product yield? If you could walk us through some of those parameters.
spk03: Good morning, Nav. This is James. I'll answer that. So what occurred and allowed us to increase the capture rate in the fourth quarter were really three things. During the third quarter, as you remember, we changed our reformer catalyst, which was at end of life and was affecting yields. And while we did change both the reformer and the distillate hydrotreater, we increased the capacity of catalyst that we were able to put in there, which we were able to capture that improvement in yields between the aged catalyst and the improvements we made inside the reactor space. Those are the two main things. The other one that I would also say is we have We bought the site, and this site was one that had many very good projects that we could go execute that were relatively simple that focused on maximum distillate strategy, and that's what we've been doing. Everywhere from crude selection to how we're running the unit and making sure that yields or matter, we're paying attention to those. That answered that question. In the end, you also saw the amount of crude throughput that we had, and we were able to make sure that we didn't lose yields during the crude throughput also. Did that answer the first question? Then I'll go to the next one.
spk01: That did answer the first question.
spk03: All right. All right, so what's going to change? Number one, in the first quarter, so you'll see slightly down on crude performance, and that's primarily because I don't have a hydrocracker up to absorb hydrogen. So therefore I've got to limit my fuel system that's there. But once the hydrocracker comes up, the capture rate will change. And actually what you do see is we're back to what the capture rate was from our initial purchase because of the benefits we saw in the fourth quarter. But what will occur is now I no longer have VGO going to a hydrocracker making roughly 8,000 barrels a day, 8,000 to 9,000 barrels of diesel I'll be selling VGO out on the open market as a result. All of that affects capture rate. But I will run the same amount of crude once I get the RD unit up. I'm sorry, I should have added that in too, Manav. Our crude rate will be consistent with what it was prior to, you know, prior to taking the OFH down for the conversion.
spk01: So perfect. So the VGO, which is selling at a massive premium, the yield of VGO goes up. Is that right?
spk03: That's correct. It goes from, you know, let me give you some rough numbers, 10,000 barrel a day-ish to about 20,000 barrels a day.
spk01: Perfect. And my very quick follow-up here is we recently saw another Louisiana project get an excellent valuation from a European major, almost $6 a gallon. Is this something you could be open to if a European or U.S. major approaches you? with that kind of valuation, would you be open to that kind of a deal, or do you want to do this on your own? And I'll turn it over after that.
spk13: Manav, good morning, and thanks for being on the call. This is Ben. We've taken note. There's two projects now that have set a value on RD production. And, you know, for us... We have planned to go down this path on our own if necessary, but we've also legally bifurcated our renewable business on site in the event that our whole value is exceeded by someone of interest, at least for a portion of that business. We will be prepared to look at those opportunities, but we're very excited to own 100% of this business today based on the performance of the rest of the company and our ability to continue down this path.
spk01: Perfect. Thanks. Congrats on a great quarter, guys. Thank you. Thank you.
spk04: Thank you. Our next question today comes from Donovan Schaefer with Northland Capital Markets. Please go ahead.
spk08: Hey, guys. Thanks for taking the questions. You know, I'll second the first analyst's comment, just that, you know, the results broadly seem quite positive. I think the only, you know, I mean, the only thing is there is this sort of incremental negative thing, if you could call it that, is the higher CapEx. But, you know, you provided some explanation, you know, that corroborates with what we're seeing generally, tight labor markets. You know, of course, it makes sense that you're making it a priority to stay on schedule. So, of course, supply chain stuff, that could mean a higher, you know, higher sort of expediting costs. But my question is, like, if we can dig down just a tiny bit more on that, you know, sometimes you, let's say, for instance, tight labor market, you know, you can... you can pay up more, and that means you get your hands on people, but you are in a very kind of rural area. You know, you've talked about employees at the fossil fuel refinery being third-generation folks. And so sometimes, you know, there's a difference between having to pay up for something versus just not even being able to get it, you know, period, or say with expediting or something. So I'm trying to, you know, really hone in on kind of Is there anything in the nature of those what's behind the cost overruns that could give you any, that would incrementally cause some potential of a further delay? I know you're still on track like as of now, like as of today, of course you're on track, but say you're waiting on, you know, 10 large components and you've had to expedite three of them because you found out there's a delay. Is it the type of thing where, well, therefore... you know, you could potentially learn about delays in the other seven. And then you might have to expedite those, but, you know, sometimes, you know, maybe you can't. So is there anything in the attributes or the aspects of what's underneath that that would give a basis for a little bit of caution or a little bit of reservation around there? Just really digging into that.
spk03: Yeah, yeah. No, thank you for the question. We have... every single piece of hardware on site today to finish the project. And if I was in the, so that's first on hardware. So the supply chain, even though we did pay to maintain schedule, every one of those components, we were, our team on site was really focused on making sure every little valve, and I say little, these aren't little. These are big high pressure valves were on the ground as we took feed out. As I had previously told you, By the time feed out, we'd have most of it on the ground, and I think we had all but a handful of components, and every one of those have arrived. So that's on the supply chain. And on the people side, I think we've seen what the market has performed and what everyone else is seeing in the market. We could have made some different choices there and not got the quality of people we had and not paid, but we have had very, very good quality customers. work and performance by our contractors on site. And hats off to them. They've brought the A team for us, and they've done very well. And with that, we are now in the process of de-staffing the project as we're coming down from our peak. So if I was ramping up, I would be worried. But that's not where we are on the project at this stage. We are ramping down from peak manpower requirements.
spk08: OK? OK. That's great. OK. So that's very helpful. And then as a follow-up question, just for the $9.6 million loss on the hedge roll or backwardization, I want to make sure I'm understanding that clearly. So my impression is that this is a bit different from the initial hedges you guys had in place sort of in prior quarters, where this is really more about the implicit commodity price exposure. that it's almost sort of a working capital exposure you know you're you're buying the crude one day but those exact barrels of crude that you're buying you want to kind of lock in that margin when they go in the feeder you know and they go into the process and then there's you know some amount of lag or delay before they come out the other side and so is the is the 9.6 million you know is that an explicit hedging that's tied to that specific exposure And or alternatively, is it even hedging or is it more sort of an implied hedge? Just that if you're not hedging, you just have that exposure. And so you're you're highlighting the impact of that exposure as commodity prices move in the interim between when you get crude in and refined product out.
spk10: Yeah, this is Chris. I mean, you kind of laid it out well in your explanation, but yes, it's a combination of the impact of the inventory that we have on hand and the changing in the commodity markets, which are in a backwardation position today. We're seeing it go back and forth a little bit, but it's still backwardated at the moment.
spk08: Okay. And so in the release, in the adjusted EBITDA reconciliation, it calls it gain loss on hedgeroll, parentheses, backwardation. So we say hedgeroll. You're using that just more broadly kind of, you know, there's not actually like hedge contracts in place. It's more the impact of that exposure. Is that right?
spk10: No, to clarify that, there are hedge contracts in place in remediation agreement on our inventory.
spk08: It's kind of effectively a mix of both in a way, or there's a certain amount of netting and figuring it out?
spk10: It is.
spk08: It's a combination of both. I see. I see. Okay, great. Thank you. I'll take the rest offline. Congratulations, guys. Thank you, Donald.
spk04: Thank you. Our next question comes from Amit Dayal with HC Wainwright. Please go ahead.
spk06: Thank you. Good morning, guys. Great results. I appreciate you taking my questions. To begin with, you know, operating expenses, the $385 to $4, is this sort of the range for the near term, and how will this change with RD coming online soon?
spk03: Yeah, so this is James. Thanks. I'll answer that question. Our costs are competitive. If we go in comparison on a per barrel basis, we're continuing to look at that. We'll always look at what our costs are. As a one refiner site and without some of the conversion, we believe this cost is competitive. If we go back through the history of the site, With RD, what will occur on that per barrel basis, we may split the pie up as the RD, once it's up, takes its share of the cost of the site. But the size of the pie will not change. It will be the same amount with both the RD operating now as a separate business. And we will bifurcate it in that manner. Does that answer your question?
spk13: So I'll add, just to make sure it's clear, we already carry the burden of running the hydrocracker in those costs so as we bring rd on we don't anticipate our operating costs to change very much it will be kind of baffricated as as we discussed earlier yes yes thank you it's clear now thank you appreciate that uh james um
spk06: Just with respect to the RD, another question I have is, are we deploying the pretreatment unit in this initial ramp, or is that coming later? And if it's coming later, you know, what's the timeline for that and, you know, capex, et cetera, that you expect to incur related to that?
spk03: Yeah, thank you. This is James again. I'll answer that. We've been looking real hard at pretreatment and how does it fit and what is the best path forward for that. However, in this process of our investigation, we have found a commercial arrangement with a pretreatment facility that's at a cost below our capital hurdle rate. And even though it's not settled yet, we believe it's a path towards settlement commercial arrangement that would tell us we would not have to, it'd be economically best for us not to invest in a pretreatment facility as of today.
spk06: Okay. Is this local to you guys or are you getting this from another state or something?
spk03: Yes, and there's actually two of these facilities. They're relatively local to our mobile refinery. Okay, understood.
spk06: Just one last one for me. Congrats on the sale on the UMO business. Just wondering what is remaining of that business and what do you expect to do with anything that is remaining for the UMO side of things?
spk13: Yeah, so thank you, Amit, for coming in to the call and just the coverage work and what you guys have done over the years. We're very pleased with the sale of Heartland. We're very excited about our legacy business that remains. It's three times bigger, maybe a little more than that, than what we were doing at Heartland, and very fitting to what we're focused on in the Gulf region. We will continue to combine our mobile operations with all the work that we're doing on our UMO collections and refining. And so we see some real synergies and upside as we move that business forward. So it's just a refining of our focus to the Gulf and really focused, continued focus on low carbon products and the molecules that come from our legacy business. are becoming more and more valuable. So, you know, we're going to really dial that business in.
spk06: Understood, Ben. Thank you so much. That's all I have. Thank you. Thank you.
spk04: And our next question comes from Michael Hoffman at Steeple. Please go ahead.
spk09: Hey, team Vertex. Thanks for taking the call. And I echo everybody's comments. It's nice to see this plant hit its strides for you, given some of the bumps initially. Um, you have a working capital arrangement. I'm sorry, Ben, go ahead.
spk13: Oh, I just want to thank you. You've been here a long time, you know, fighting a fight with us. So I was looking forward to, uh, sharing this moment with you and, uh, appreciate all the work you've done.
spk09: It's been 15 years, Ben.
spk13: So, uh, Hey, I owe that to you, man. And so, uh, Go ahead with your question.
spk09: I apologize for interrupting. No, not at all. You have a working capital arrangement with Macquarie that hasn't kicked in yet. What needs to happen next for that to kick in? And then when it does, some of that 75, of the 85 million net proceeds, you've got 74 you're using for working capital. Can I peel that back and that goes to paying down more debt and get some more of that 15% money off your balance sheet?
spk10: Yeah. Hey, Michael. It's Chris. So, yeah, we're in probably the 50-yard line of working through the next agreement with our lender for the soybean oil product. Should be a lot simpler than the first one. And as far as cash, once we get into that deal, yes, we will have a little bit more cash that will come back to us. And, you know, the uses of that are going to be to continue to finish out the RD project, which is almost done. And then, you know, as noted, we'll focus on a healthier balance sheet, and we will look at opportunities where we can to reduce debt.
spk09: Okay. I mean, at 15%, you're really in the cost of equity territory, so it would be nice to see that come down. Q on Q, sequentially, from 3Q to 4Q, there's a $34 million reduction in inventory. Can you talk us through what was going on there and what should we see as the trend 1Q versus 4Q?
spk10: Yeah, the real story there in the inventory is the value. The cost of the commodities, you know, Brent, diesel, et cetera, came down, what, $10, $15 a barrel. So that obviously reduced the financing requirement quarter over quarter.
spk09: Okay, so it wasn't a drawdown on it as well physically, so actual volume drawdown. So the total volume is consistent, just the underlying mark-to-market's changed.
spk10: Yes, it's just the dollars involved. That's right. And you'll see that the way those commodities go up and down.
spk09: Okay, and then... You alluded to the press release. You put a boiler point in about hedging, not currently hedging today, but future could. But I presume you would approach hedging differently than you did last year for the second and the third quarter. Could you talk a little bit about if you did it, how you would think about it, and what sort of the approach you would take if you chose to hedge?
spk03: Sure.
spk13: Yeah, I'll take that question, Michael. Keep in mind, you know, there's certain things like Chris mentioned on intermediation that is just, you know, normal housekeeping with inventory. That's really not what was reflective in our second and third quarter hedge decision. We were hedging the crack spread. So when you look at that 2-1-1 crack spread, We were locking that in for the purpose of protecting the limited cash we had and making a safe passage to our RD project and delivering long-term on what our goals and objectives were. Obviously, hindsight's always 20-20 and we clearly see that for what it is. As we look forward, we have the capacity in the company and the credit capacity to hedge as necessary, and we have a team and a deep bench today that looks at the markets and looks at what our exposures are, and we'll make those decisions as we go. We believe, as we indicated, that the market is very strong for our business in the foreseeable future, and we're going to maintain the exposure to the market. I think our shareholders have kind of expressed where they're at on that. So we hear them loud and clear, but we will also be diligent to be looking at things that other people may not see and protect our margin as we go.
spk09: Okay, fair enough. And then where do you stand on feedstock arrangements April literally is around the corner. You snap your fingers, it's going to be here. So what's the status of feedstock to support production through the facility?
spk03: Yeah, and so Bart Rice is here. We'll have him, but I'll talk about operation and let him talk more about who the suppliers, not the suppliers, but where we are. But we are already acquiring feedstock and getting them into the third-party terminals in front of us. And Bart and his team have done a fantastic job securing those, and I'll let him speak to that.
spk07: Thanks. Hi, Michael. This is Bart Rice. You know, the feedstock piece of the puzzle is the most important for our success, and we look at it as one of our most confidential, important avenues as well. We have already lined up logistics with all the big ag companies, And each of those ag companies have already shipped product to us. We have it in tank, in storage, in mobile. We'll be taking this feedstock by barge, by rail, and some by truck. We're going to focus a lot on some of the fat soils and greases that need to be pre-processed. They have the better CI score and would extend more value to the company. But our logistics is the key to our success on this feedstock. We're east of the Mississippi River. We've got all the people that have historically been taking their feedstocks right past us to our competitors, and they're happy to find a home with Vertex now and Mobil.
spk02: Perfect.
spk13: Michael, let me make a point here just for future reference as we move this business forward. And again, you've been involved with the company for a long time. So feed origination is a strong point for Vertex. And it's how we founded the company 22 years ago. So we're very excited about our ability to move materials, as Bart said. you know, our ability to capture the right feed opportunities, negotiate that at ground level, and then the geographic location advantage we have for a lot of feedstock will weigh in heavy. So we're very positive and bullish on, you know, the feed side of the business.
spk09: Okay. And what I heard Bart say is there's a focus on getting, my words, dirty oil's pre-process, that's why you're arranging these third-party pre-processing, but you will balance that with the cleaner soybean types as needed.
spk13: That is correct. We're going to start up clean just for smooth operations, and then we'll start integrating.
spk09: Okay. And then what did base soil selling prices do in the fourth quarter?
spk13: Yeah. I don't have that information.
spk01: I've got John Strickland here. It went down some. Not major, but it did go down.
spk09: Yeah. Okay. Okay. And then just to be clear, the question was asked earlier, you know, Vertex will seek to maximize and maintains an open profile of maximizing shareholder value. So whatever the best way is to maximize shareholder value, you'll do that. Whether it's sell it, keep it, and run it, That's the message. Okay.
spk13: We have a whole value no different than our renewable capacity we're bringing online. You know, we're going to look at the best value we add to our shareholders, as you said.
spk09: And then lastly, on the legacy – sorry, go ahead, Ben. No, no, no, go ahead.
spk13: No, and the legacy business is no different than that. And we believe we've got a line on how that will play out, but, you know, we – As we've handled inquiries and things, we continue to look at what's in our best interest, and that's leading the decisions that we've made so far.
spk09: Okay. Well, you anticipated my last question, which is I would suspect, given you've got a great VGO business in Marrero, but there are other pieces of legacy that maybe aren't all that relevant going forward that we could continue to see. cleaning up of that portfolio and we might end up with just the Marrero producing, processing that 60 million gallons of used oil into VGO and tying that into the 20,000 barrels a day that you're going to sell out of mobile.
spk13: We will continue to look at each piece of the business, you know, withhold values that we've already started to assign to each one of them. And the answer is yes. That's going to be our approach.
spk09: Okay. Cool. Thanks for making the time for me. Thank you, Michael. Thanks.
spk04: And our next question today comes from Eric Stein and Craig Howell. Please go ahead.
spk11: Good morning. I'll just sneak with you in here at the end. Good morning, Eric. Hey, good morning. I'm hoping we can go back to capture rate. You know, and I can appreciate first quarter, obviously, with the hydro trader offline or as part of the RD expansion. But, you know, I know you don't guide, but any thoughts on what we should think about for the capture rate, you know, 2Q and beyond?
spk03: I think the best way to think of it, we're not going to be, even though our crude rate may be slightly higher, it will not be that much different than it is today in the first quarter that we provided guidance on. We will continue to try to creep the capture rate. However, if you had asked me, I would tell you it would be in the range of where we are for the first quarter, the rest of the year.
spk11: Okay. And then maybe just longer term, I mean, where can that go? Obviously, we saw it in this quarter that capture rate is a huge driver, you know, not necessarily by the end of 2023, but as you look longer term for this business, you know, where do you think that can go and what are some of the steps that you might take to get there?
spk03: Yeah, that's a great question because one of the things that we've really unlocked at Mobile is the ideas that our people have had there to improve the profitability of the site. And so far, every single time that we're there, they're looking at what the next opportunity is and where can we do that cost competitively. I would tell you that we are, you know, right now I can't even predict it because I see some projects in front of us that may take us several years to go execute, but they will continue to creep that. You know, my goal is to recover back to where we were in the fourth quarter and beyond. And I see that coming from the people. They have been sitting there in a site that was not strategic and now being in a strategic site with a lot of focus and an extremely strong market. And they're coming forward with ideas daily.
spk11: Gosh, you're very helpful. I guess I'll take the rest offline. No need to ask five, six questions. Thank you.
spk02: Thank you, Eric. Appreciate all your work, bud.
spk04: Thank you, and our next question comes from Noah Kay in Oppenheimer. Please go ahead.
spk12: Hey, good morning. Thanks for taking the questions. You know, echo that comment from others. Really nice quarter. Great to see the execution here. You know, with the RD conversion timetable on track, and I know we got to walk before we run in terms of, you know, standing that up, but I've seen... a number of other projects in the industry doing sustainable aviation fuel conversions. And so maybe can you just talk a little bit about the technical feasibility of doing a SAF project at this refinery, how much you've looked into that, and when you might think about actually doing a project of that nature?
spk03: Yeah, we're, you know, let's just put it straight. We're very interested in SAF. We're really trying to see what's the best path forward for us. You know, understanding the economics, what is the impact associated with the IRA? And as we analyze what's the best path forward for us, what has the lowest capital with the highest return? What can we use that can either bolt on to the RD project or as a standalone project? And we're not prepared for that. conversation yet. We are very early in it, but you can guess from the conversation, this is something that's on my agenda and the team's agenda to help determine the best path forward for us.
spk12: Very good. I think we'll stay tuned for more details on that. I want to go back to Michael's question earlier about hedging. I thought it was a thoughtful response around how you're approaching hedging hedging, but when you anticipate maybe articulating kind of a standing profile or posture for the company on a go-forward basis, is that something you might actually be able to communicate to investors? Either, you know, we will hedge or, you know, we will hedge X percent of our exposure. When do you think you might be able to kind of communicate that clearly to folks?
spk13: You know, I can give you a base, you know, for today as we move forward. And it's pretty straightforward. You know, we're going to do right by protecting our inventory from market exposure. So there's always going to be paper around that. That's just, you know, standard operating procedures. And then, you know, we have a team in place. with the ability to hedge, with a much deeper view of markets and cracks and a lot of outside consulting that we look to. So we are going to work hard to protect our margins and provide the upside exposure to the market for our shareholders. So if we see that turning, then we have the tools to make decisions at that point in time. But as of today, as long as our team has the view that we have, we're going to keep our exposure on the crack spreads and make sure that we deliver that back to the shareholder. But we are in a position, if things turn, to protect that margin.
spk12: Okay, great. Thanks, Ben. I'll take the rest offline.
spk02: Thank you, Noah. Appreciate the help.
spk04: Ladies and gentlemen, this concludes the question and answer session. I'd like to turn the conference back over to management for me closing them off.
spk13: Thank you, Rocco, and thank you, everybody, for the time, joining the call today. We're very proud of what our team has accomplished. We look forward to our next call. It shouldn't be too long, and We will be available if anyone has any questions. You can reach out through our IR at vertexenergy.com so that we can provide, you know, more comments and answers if there's anything else that we hadn't covered today. Appreciate you joining in.
spk04: Thank you, sir. Thanks for joining today's conference, Phil. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
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