Noah Kaye: Okay, great. Thanks. That’s helpful. And then you mentioned that inventories I think specifically on the RD side are a bit more in balance now. It looked like inventory actually ticked up sequentially and so I’m just wondering how you’re thinking about working capital here in 4Q. Is working capital going to be a positive source of cash generation? Do you plan to work down inventories, as you’re running at a lower throughput rate?
Chris Carlson: Yeah. Good question. Noah, this is Chris. Yeah. We saw a slight up-tick in inventory values. The actual volume did go down quarter-over-quarter. So I know that’s a little tricky, when you’re looking at the balance sheet. But as we head into Q4, I do anticipate us reducing inventories, so we should see a working capital benefit from that side.
Noah Kaye: Great. Last question, just what is the CapEx associated with Phase 2 of the RD project? And over what timeframe do you anticipate that outlay materializes?
Chris Carlson: Yeah. What we’re looking at right now is about $35 million to $40 million and that will be largely during 2024, that that outlay will happen.
Noah Kaye: Thanks. Well, it looks like your balance sheet will be in a much stronger shape for that outlay than last quarter, so well done, nice to see you. Thank you.
Chris Carlson: Thank you, Noah.
Operator: Sameer Joshi with H.C. Wainwright. Your line is open.
Sameer Joshi: Great. Thanks for taking my questions. Just following up on some of the previous questions, is this CapEx for Phase 2 or the beginning of work on Phase 2 dependent on any results from the efforts from the strategic side, where you are trying to monetize some of the cash flows there?
Chris Carlson: No. We’re not waiting on the strategic side at all. That’s just part of our normal process that we put in place a year ago for Phase 2.
Sameer Joshi: Okay. So irrespective of what happens on that front, you will continue the developments as planned.
Chris Carlson: Correct. Correct.
Sameer Joshi: On the renewable capacity utilization, is the reason to restrain a constraint to less than 75% related to just feedstock availability? Or is it related to uncertainty on LCFS — or what — or any other operational reasons? Why is it that we’re not doing more than 25% in 4Q now?
Doug Haugh: Yeah. I think the way to look at that — this is Doug here. Just is the — one the available margin in the market. So we’re going to optimize to that and ramp rates up and down, as appropriate. But the other — we have just qualified for the LCFS defaults. Those do add certainly margin structure for us compared to where we were in the trailing quarter. Going forward, we’ll realize those in the fourth quarter for both quarters actually. So that’s going to be helpful. It’s definitely not related to feedstock availability. So we have had — like I stated, we’ve had frankly a lot more feedstock than we needed. So we’re bringing those supply chains in the equilibrium now, but are very confident, because we have originated in a very tight period we still able to originate more than enough feed that we — to run rates that we wanted to run. So that capacity is available. And if the market commands it we can bring it to bear and raise rates appropriately.
James Rhame: Correct. The unit is running extremely well, also.
Doug Haugh: Yeah.
James Rhame: We’ve been very proud of the way it’s operated.
Doug Haugh: And I think it’s important to note that, when you look at the operating cost as allocated, it’s really important to understand that we’re fully burdening the business unit with all of the cost to run at 14-KDD [ph], right? So we’ve got all the infrastructure, all the tankage, all the storage, all the transportation capacity, barging and so forth that’s built for full rates, because we don’t want to wait to build that stuff and then have the unit come up and not be able to run it, right? So the capacity is there in its full sense, not just the available of feeds but ability to manage them ship them, store them, convert them, load vessels to the West Coast efficiently but that comes with a lot of cost burden when you’re just starting up at these run rates.
So really we’ve — you’ve seen RINs collapse meaningfully. And you haven’t seen the feedstock prices capitulate to that re-pricing yet. We believe that it’s coming, it started it started in this quarter certainly. But as we see those come into equilibrium, we’ll use that opportunity to buy in feeds profitably and ramp rates appropriately.
Sameer Joshi: Yes. I was going to ask you about that as well. So the $4.78 per barrel renewable gross margins do they include any impact of — or benefit of RIN? And also, if that is a positive number and if your OpEx is being distributed over a smaller generation or yield, does it not make sense to increase to full capacity so that you have lower — like lower overall OpEx distributed to that unit?
Chris Carlson: Yes. So looking at the $4.78 it does include the RIN. However, it does not include the LCFS credit that Doug mentioned earlier that we expect to get. Hopefully, we’ll get it in Q1 and then it is retroactive to Q3 and Q4.
Sameer Joshi: Okay. And then just the last question on slide 16 under asset utilization the last bullet says vertically integrate from feedstock to retail products. What does this relate to which asset does it talk about?
Doug Haugh: That’s really integrating the entire supply chain for renewables all the way through our part of renewable, right. So we’re not — we’re going back to origin on our feeds. As you go to lower carbon intensity feeds that’s now required by the EPA to actually document every individual origin. So you go as an example you got to know the exact restaurant it came from in order to fully qualify and be fully auditable on your origins and test your carbon intensity outcomes, right? So it really is a different type of supply chain than what you have as an example with crude oil running through the conventional refinery. And then, I guess, when you’re looking at the other end it also requires us to get access to the consumer market in California, which we’re doing with our partner Idemitsu.
So, if we didn’t have a secure partner that had the tanks in the racks — truck racks and finished product marketing actually in that market particularly as other production comes online, you could run the risk of getting squeezed out of that retail market and lose access to that additional credit regime. So it’s really important that we address it on both ends and that we’ve got a supply chain that can reach back to specific origins on the feedstock side, and make sure that we can land that product in the highest netback markets and access that end-use market through both from an infrastructure and marketing standpoint.
