Participants
Andrew J. Littlefair; Co-Founder, President, CEO & Director; Clean Energy Fuels Corp.
Robert M. Vreeland; CFO; Clean Energy Fuels Corp.
Craig Kenneth Shere; Director of Research; Tuohy Brothers Investment Research, Inc.
Eric Andrew Stine; Senior Research Analyst; Craig-Hallum Capital Group LLC, Research Division
Gregory Adrian Wasikowski; Associate Partner; Webber Research & Advisory LLC
Jason Daniel Gabelman; Director & Analyst; Cowen and Company, LLC, Research Division
Manav Gupta; Analyst; UBS Investment Bank, Research Division
Matthew Robert Lovseth Blair; MD of Refiners, Chemicals & Renewable Fuels Research; Tudor, Pickering, Holt & Co. Securities, LLC, Research Division
Paul Cheng; Analyst; Scotiabank Global Banking and Markets, Research Division
Pavel S. Molchanov; MD & Energy Analyst; Raymond James & Associates, Inc., Research Division
Robert Duncan Brown; Senior Research Analyst; Lake Street Capital Markets, LLC, Research Division
Presentation
Operator
Greetings, and welcome to the Clean Energy Fuels Fourth Quarter 2022 Earnings Conference Call. (Operator Instructions)
I would like to turn the conference over to your host, Mr. Robert Vreeland. Thank you. You my begin.
Robert M. Vreeland
Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the quarter end, year ending December 31, 2022. If you did not receive the release, it is available on the Investor Relations section of the company’s website at www.cleanenergyfuels.com, where the call is also being webcast. There will be a replay available on the website for 30 days.
Before we begin, we’d like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects as well as words such as believe, intend, expect, plan, should, anticipate and similar variations identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Such forward-looking statements are not a guarantee of performance, and the company’s actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of the Clean Energy’s Form 10-K filed today. These forward-looking statements speak only as of the date of this release. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release.
The company’s non-GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that the company’s management does not believe are indicative of the company’s core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, and should not be considered as a substitute for or superior to GAAP results. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA and a reconciliation between these non-GAAP and GAAP figures is provided in the company’s press release, which has been furnished to the SEC on Form 8-K today.
With that, I will turn the call over to our President and Chief Executive Officer, Andrew Littlefair.
Andrew J. Littlefair
Thank you, Bob. Good afternoon, everyone, and thank you for joining us. We continue to make excellent progress on the execution of our RNG business strategy over the last quarter. With our investments in renewable natural gas facilities and new stations, we expanded our leadership position. Clean Energy remains the largest supplier of RNG used as a transportation fuel in North America. In the important California market, more than half the RNG used to fuel natural gas vehicles is from clean energy.
In 2022, our California RNG portfolio had a weighted average carbon intensity of minus 51%, which demonstrates the success of our RNG strategy to develop and secure the lowest carbon RNG available in the market. We expect the carbon intensity of our product to continue to decline as our dairy investments begin producing gas this year. We funded our joint ventures for the projects underway while strengthening our balance sheet, leaving us well positioned for the future. The fourth quarter of last year, we sold over 54 million gallons of RNG, which was an increase of 21% compared to the same quarter in 2021.
The expansion of our relationship with Amazon is having a positive impact on this growth. We’re also seeing increased demand for the clean fuel from other heavy-duty trucking firms as well as transit, refuse and other sectors. Our revenue for the quarter came in at $114 million, which was $22 million more than Q4 2021. We generated $13 million of adjusted EBITDA for the quarter. Bob will get into more details about our financial performance momentarily. But let me just say, we acknowledge that our 2022 adjusted EBITDA number ended up lower than we expected it to be at the beginning of the year. We experienced a few sustained headwinds in the latter part of the year that impacted our results. The biggest contributor to this was the lower prices of the environmental credits of California’s low carbon fuel standard program or LCFS, federal RINs program.
The LCFS credit prices declined almost 60% over the course of the year, and it was just too much to overcome in the fourth quarter. Also, the rollout of the new stations that we are building for Amazon around the country has been slower than we projected. Competition for prime real estate near distribution centers, entitlements and permitting approvals put several stations behind our initial time line for completion. We believe we’ve turned the corner on several of the issues that have hindered us and slowed our station construction. Also, we believe we are at the lows of the environmental credit and regulatory situation and credit prices should improve over the medium term.
And as I previously mentioned, we continue to be pleased with the way we are performing on our plans that we’ve laid out to you over a year ago to expand our business, particularly having more control over the supply of low-carbon RNG flowing to our fueling infrastructure with 13 dairy projects underway. We remain confident that the investments we’re making today will generate attractive returns in the future. But for 2023, we believe we will continue to see pressure on the environmental credit prices. And another step to position us for future growth, we secured a $150 million sustainability-linked loan with Riverstone Credit Partners last quarter. This should keep our balance sheet healthy as we continue to build fueling stations and additional RNG facilities with our partners, Hotel Energy’s and BP.
At the end of 2022, we had over $263 million in cash and investments. This is after contributing nearly $178 million into our RNG production joint ventures since their inception and expanding our fueling infrastructure by funding 23 additional station projects during 2022. Speaking of new RNG production, it doesn’t seem that long ago, I participated in the groundbreaking at Del Rio Dairy in the Texas Panhandle, which is Clean Energy’s first biogas digester to be built from the ground up. I’m pleased to announce today that as a few weeks ago, the methane captured from the manure produced by Del Rio’s 8,000 dairy cows is now being injected as renewable natural gas into the pipeline.
At capacity will flow at a rate of 140,000 MMBtus ultimately translating into 1.1 million gallons of ultra low carbon fuel at Clean Energy stations annually. We’ve also made a good progress at other dairies with construction underway on projects in Iowa, Minnesota, Idaho and 3 in South Dakota. Engineering has begun at another 5 sites. Overall, we are pleased with the progress of our new RNG supply facilities. Remember that when these dairy digesters begin to produce RNG over the next 2 years, this fuel will receive some of the lowest carbon intensity scores available for our customers and generate the greatest number of credits. No other alternative fueling solution comes close to the negative CI scores that RNG produced at agricultural facilities received. And the beauty is that R&G drops right into the existing pipelines and into our existing fueling infrastructure.
On the RNG demand side, as I previously mentioned, we opened new stations as part of our announced agreement with Amazon. In addition to the 80-odd existing Clean Energy stations that have been supporting the Amazon fleet of heavy-duty trucks. New stations in 4 states have been added to our fueling network. All these stations are purpose-built for Amazon, but also have public access and are strategically located in and around distribution centers, along for fleets from a variety of companies of fuel with RNG. One station that has been only open for a few months has already become our largest by monthly volume. There are another handful of stations that we’ll be opening in the next few months with a robust schedule through the rest of this year.
We are particularly excited that these stations will be open and accessible for truck fleets on the new Cummins 15-liter natural gas engine hits the market next year. As the commercial introduction of heavy-duty electric trucks and the required charging infrastructure continues to get pushed out. This next generation of Cummins natural gas engines, combined with our already installed RNG fueling infrastructure, we’ll accelerate fleet’s ability to reach their emissions reduction goals a lot quicker. Before I close, I wanted to mention that we added one of the largest transit agencies in the country as our customer in the fourth quarter. San Diego MTS, which signed a contract for 86 million gallons of RNG fuel for its fleet of 764 buses. We also renewed an RNG contract with the largest transit agency in the country, LA Metro during Q4, and we’ll be supplying them 20 million gallons of RNG annually for their bus fleet.
Our relationships with refuse customers continues to expand during the quarter with new contracts with after the services, Vertec Waste and additional stations for Republic Services. Remain as optimistic as ever about the future of renewable natural gas, both as a direct transportation fuel as well as for an ultra clean feedstock for other alternatives. We have quickly become one of the largest developers and owners of dairy RNG production and are growing our leadership position in the distribution of RNG.
Thank you for your time today. And now I’ll hand the call over to Bob.
Robert M. Vreeland
Thank you, Andrew, and good afternoon to everyone. As reported today, we finished 2022 with $420 million in revenue and a GAAP loss of $59 million versus 2021 revenues of $256 million and a GAAP loss of $93 million. Our adjusted EBITDA for 2022 was $50 million versus $57 million in adjusted EBITDA last year, which last year included $4 million of earn-outs from our sale of RNG assets to BP. On an adjusted non-GAAP basis, we reported net income for the year 2022 of approximately $3 million versus non-GAAP net income of approximately $8 million in 2021.
Now, although our adjusted EBITDA fell short of our estimate of approximately $60 million, the variances to our estimates were temporary in nature, we believe, and timing related in terms of volume associated with station builds and SG&A spending. In our view, nothing systemic or permanent in nature. For example, we thought there could be some rebound in the LCFS credit prices during the fourth quarter, and the LCFS credit prices actually remained at their lowest level of the year throughout the fourth quarter. Now LCFS prices have gone up recently, so a little later than we anticipated, but still moving up as we thought as additional information is kind of hitting the marketplace around that program.
We also saw the price of natural gas double for the month of December in California, increasing the equivalent of $1 a gallon in our largest market. And we had some delays in station openings, which pushed out volumes. And our fourth quarter SG&A spending increase, which was largely due to really our own success in adding personnel to accommodate our RNG growth activities. Looking forward, we believe we have upsides ahead given where the credit prices are today, knowing we’re much closer to opening more stations to support Amazon and our RNG dairy projects continue to proceed well with tailwinds from the inflation Reduction Act ahead of us.
And with that, I mean, I’ll go into our 2023 outlook here in a moment. I’d like to take a moment here. Just as a reminder on our presentation, we’ve presented our volumes and revenue tables in our new format in our Form 10-K that we filed today. We made this change in the third quarter on our — in our 10-Q filing, where we separated fuel volumes and the O&M service volumes, and we enhanced our revenue disclosures around our volume-related product and service revenues. So with that, I wanted to inform you that today, we posted an updated company presentation on our Investor Relations website that provides this new volume and revenue table format for all 4 quarters of 2022 in the back of that presentation that was posted. We have had some questions on visibility to the first quarters of ’22 in the new format. So we’re accommodating there.
So now taking a closer look at the fourth quarter of 2022, our revenues were $113.8 million compared to $91.9 million a year ago, with higher volumes and fuel prices, along with higher station construction sales in the fourth quarter of 2022, contributed to the increase over 2021. With the lower environmental credit prices in 2022, offsetting some of those revenue increases. We reported a GAAP net loss of $12.3 million in the fourth quarter of 2022 compared to a GAAP net loss of $2.4 million in 2021. On a non-GAAP basis, adjusted EBITDA for the fourth quarter of 2022 was $12.6 million and the adjusted non-GAAP net income was $2 million. That’s for the fourth quarter of 2022.
This compares to adjusted EBITDA of $18 million and adjusted non-GAAP net income of $6.4 million in the fourth quarter of 2021. Our — for the quarter, our overall product and service margins were slightly higher in the fourth quarter of 2022 versus 2021, despite the lower credit prices. However, our spending on growing our R&D business was higher in 2022 as expected and planned. And as well, as I mentioned, 2021, benefited from the earn-out income of approximately $4 million when comparing the 2 periods. Andrew noted that we finished the year with approximately $264 million in cash and investments, which included proceeds from a debt raise of $150 million in December. As part of that financing, we paid off the equipment financing debt at NG Advantage of approximately $27 million.
Also, as of the end of December 31, 2022, we had contributed — we have contributed $178 million into our RNG supply joint ventures with our partners, Total Energy’s and BP. Cash provided by operating activities for 2022 was $66.7 million, and we had — that’s against — we had $44.5 million of property and equipment purchases. These are both up from 2021, where operating cash flow was $41.3 million and property and equipment purchases was $23.1 million. So nice on the cash front.
Now looking at 2023, we normally provide annual guidance, which we’ll do here. We’ve provided our annual outlook in our press release for a GAAP net loss of a range of $105 million to $115 million, which is reconciled to our outlook for adjusted EBITDA of a range of $50 million to $60 million. On the GAAP net loss, you’ll note a large increase in the Amazon warrant incentive charge, which is associated with an estimated volume increase for Amazon in 2023 as we complete more stations. Revenues are projected to be around $350 million. That’s our GAAP revenue. That’s net of around $66 million in these incentive charges.
Our 2023 outlook reflects continued double-digit fuel volume growth in the range of 15% to 20%. And much of that is R&D, which is also projected to grow in that same range. Service volumes growth is expected to be in the mid-single-digit range. Our outlook reflects environmental credit prices that really don’t rebound much from what we saw in the fourth quarter of ’22 and starting 2023. So as we know, those have been — they were lower in the fourth quarter. And so we’re kind of seeing that continuing on in 2023, and our outlook contemplates that.
Our SG&A spend will increase slightly to around $30 million per quarter, which is up a little bit from the fourth quarter as we’ve added personnel at the end of ’22. And our — the stock compensation kind of levels out, but that is about $5 million to $6 million higher in 2023 versus 2022. We’re estimating around $25 million to $30 million of cash flow from operations, mostly reflecting added interest costs, and our CapEx spend is estimated around $90 million. That’s at the core business of Clean Energy. We may also contribute up to $40 million more into our RNG supply joint ventures, and that’s on top of the $178 million that we’ve already contributed. And frankly, that doesn’t bring in potential pipeline. And for this exercise, that’s really what we have good line of sight on it, but it could be higher.
Clearly, the credit pricing environment, inflation and industry volatility have changed from the beginning of 2022, but we feel very good about the view forward and upside possibilities with continued volume growth, the tailwinds from the inflation Reduction Act and the forthcoming launch of the Cummins 15-liter engine and just frankly, the continued demand for this very low carbon fuel of RNG.
With that, operator, please open the call to questions.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from Manav Gupta with UBS.
Manav Gupta
I first wanted just if you could — you mentioned earlier on the call 13 dairies in progress. So if you could help us understand the pace of development here, what stage of development are they? And if you could be a little more granular and let us know how many of those should be online by end of first half or by year-end? And the bigger question I’m trying to get to here is, Bob, is it looks like the dairies are in progress, but you’re not really accounting for too much of EBITDA contribution from these dairies in 2023. That’s why the guidance is relatively flat. So if you could talk about that also.
Robert M. Vreeland
Correct. Okay. I’ll address that. You’re correct, Manav. Actually, we’ve even a year ago, we kind of we contemplated 2023 would be minimal contribution. So we will be flowing gas in a number of projects, but there’s time between flowing gas and revenue recognition, which has to do with the whole pathway certification and when we really can get to meaningful revenue. So you’re correct, there’s not much of a contribution there in ’23. And then we’ll see how ’24 kind of shakes out. And just for sure, as we go into ’25 and ’26, and there you start to get into the inflation Reduction Act and contributions that could happen there. So that’s why.
But Manav also say a big part of the forecast being kind of flat as well is the credit price deal. We — going into the fourth quarter, we felt that there would be more information about kind of the pathway forward, if you will, particularly in California. But we also knew the RIN had information there that just didn’t really materialize in our view, very meaningful. So the market kind of stayed flat. We’re not going to kind of say that, that try to predict exactly when that will turn around. We’re bullish on it and know that we believe that it will. But we’re — that’s just a big part of the flatness because we’re kind of assuming fairly recent credit prices stick around.
On the dairies — yes, on the dairies, look, they’re probably 9 of those are — well, 7, 8 or constructing for sure, and I think we’ll get a number of those absolutely — well, one is already flowing gas, and we’ll get maybe 4 or 5 in ’23. But again, you’re not really seeing an EBITDA. But which is okay. That’s a long time, and we’ve recognized that. But we’re also very mindful of the execution on operational execution on these, which is going well. I mean, I think we’ve experienced some of the delays that a lot of the folks in the industry are seeing just on equipment and things like that. But relative to — it’s pretty exciting to finally start injecting gas into the commercial pipeline at one of our dairies. So that’s one of the keys as well as getting those things running.
Manav Gupta
Bob, my quick follow-up here is, if I remember correctly, and let me know if I’m wrong. But last year, the RNG Analyst Day, you had come out with a full budget, I think, somewhere between 1.2% to 1.4%, which was what you would have to put in to develop this RNG offering and take it to the gallon volumes that you were targeting. And what I’m wondering here is with the IRA, Inflation Reduction Act and direct pay, there’s a 30% ITC credit now. So in your mind, does that final CapEx number that you need to develop your RNG offering fully, does it drop by 25%, 30%? If you could talk about that.
Robert M. Vreeland
Well, I think, Manav, of course, the ITC will apply, and it will reduce our capital by 30%. Now that tends to flow in a year after. But I mean, no, that’s real. And so it will lighten the capital load by 30%. Our projects will qualify. And you’re right, that is the scope when we talked about a year ago to get to the roughly 100 million gallons of our own equity projects, RNG projects. That number still holds. We still believe that’s a good number. And so there’s more work to be done, and there’s more money to be raised. There’s more debt to be organized. There are a lot of opportunities, a lot of projects still to come. We feel good about the projects 13 that we have underway, which if you look back 18 months ago, we moved quickly.
There’s — we have a robust pipeline of more projects. We haven’t lost any — through all of it, even with the reduction of the credit prices. We haven’t lost any enthusiasm. What we try to stay focused on here is we have the lowest carbon fuel that’s commercially available today in the world. And there are a lot of regulatory policy folks speaking at all sorts of different levels and projecting how that fuel should be used and how it might be used and trying to micromanage the way the market will work. But what we know is we have a really low carbon fuel that can be used today that can be disseminated in the nation’s pipelines now. And when we look at that fuel and we compare it to the other technologies that are available that most people want to talk about right now, we feel very well positioned. So there’s more to be done, and you’ll see that come on. And so don’t be surprised if you see us continue to do things to move along that pathway that we all talked about a year ago because we haven’t lost any interest in that.
Operator
Our next question is from Rob Brown with Lake Street Capital Markets.
Robert Duncan Brown
Andrew and Bob, I just wanted to double check. Did you say $350 million of revenue looking at here, was that the fuel volume revenue or of the total revenue?
Robert M. Vreeland
That was total. That’s net of — I’m just — put it out there, that’s net of about $66 million in noncash incentives.
Robert Duncan Brown
Yes. And then I know you gave some color on the Amazon Station activity. How many stations do you sort of plan this year? And I guess, maybe where is the uncertainty yet on getting some of those things out, but are you still seeing the permitting delays? Or is that sort of started to be worked through?
Robert M. Vreeland
Rob, we — what we’ve announced — I have to be careful with my friends there. They don’t want me talking too much about what we’ve previously announced. So we made an announcement that we would develop 19 stations for them. So we’ve — maybe you can slice and dice this number all out. We build — we built and opened 4 of those. So you can assume that the remainder of that, for the most part, will come on in production in 2023. So we’ve got a lot underway and in various stages right now some of those will be finished right toward the end of the year, October, November time line. But there will be — half of them will come on in the first half of the year. So that’s really important for us.
What we’ve seen, Rob, is it’s different. We’ve built — building stations is not new for us, right. In our history, we’ve built close to 750 station projects. We actually — we — 1 year, you remember, Rob, we built 87 truck stops in 1 year. And then I think the next year was a like number. So building stations is not new to us. What has been a little challenging is Greenfield locations, right? So you’re building took what’s called the truck stops from scratch in and around highly sought distribution centers. So the locating the coordination with Amazon, then the entitlements and the permitting, entitlement is really more, those of you who haven’t built anything in a while.
The entitlement process in the country is daunting, and that can be anywhere from 6 months to a year. So we have a lot of these projects we’ve been working on now for quite a while. And then the permitting (inaudible) 0:31:47, the construction part of it is not anything that’s much different than what we’ve always seen, which is 5 to 6 — 5 months. So a lot more to be done this year, and we hope we’ll just continue on that next year as well.
Operator
Our next question is from Eric Stine with Craig Hallum.
Eric Andrew Stine
So just coming back to the 2023 EBITDA guide. So looking for modest growth there, and I know part of that is you’ve got RNG plants, I guess, pushed out a little bit. You’re still conservative on the credit side and you’ve got higher OpEx, but you’ve got some areas where you’re more optimistic as well. I guess, is that a fair way to characterize it, one. And then secondly, can you just talk about maybe the linearity of it throughout the year? I know that the natural gas spike in California was, I believe, even more pronounced in the first quarter. So, how do you expect to start the year and then maybe for — how it plays out for the remainder of the year?
Andrew J. Littlefair
Rob, when you were — when we’re assigned — I’ll let Bob get on here in a second. But when you’re assigned the EBITDA and what — why that is where we’re guiding to. Look, and it may kill me here. But if you went back to credit prices of last year, you have — you’d add $44.5 million of EBITDA. So we’re trying to be responsible by not trying to project, get over our skis on projecting what’s going to happen in the LCFS. We remain bullish. We think the fact that California is now talking about increasing the obligation curve of 20% to 30%. Look, that’s a huge increase. We believe that when that finally gets done, that will put pressure on LCFS prices. In fact, when you go back from the workshop that happened just a few days ago, the LCFS price is up.
So we actually thought that was supposed to happen and it was supposed to happen back in November last year. So it happened now. So we’re mildly bullish on what’s going to happen with LCFS. And we certainly are in the medium term. That’ll probably be more 24% or 25%. But it’s not the fact that the RNG projects are not on production because we always knew that those would come on and really contribute in ’24 has most to do with the credit prices. Bob, now, you might fix me up here on that.
Robert M. Vreeland
No, I agree there. Eric, you asked about the linearity versus —
Eric Andrew Stine
Yes, I mean it’s Q1.
Robert M. Vreeland
First, get a —
Eric Andrew Stine
Yes, I know. But I mean that would [cross talk]
Robert M. Vreeland
Yes, exactly. Look, here’s — well, last year didn’t bode too well without a little bit of linearity. But I would say that we’re talking about it. So I’m going to say that there’s a little bit of similarity between the years where historically, Q1, we’ve — just a little bit of a slower quarter. And then as we talk about completing stations, they’re not all going to get done here in March, kind of thing. So that plays into increasing volumes throughout the year.
And you are correct Eric, it is interesting. I’ll put the little caveat out there. California did have a huge issue with natural gas prices in January. Like more, I noted that natural gas prices doubled in December. So they went from like $7 and end to $15 and that’s about $1. And then they went from 15 and end to $50. So that’s kind of mind boggling. And we’re going to see some impact from that. There’s no doubt about it. I mean it’s like usual, I mean it may be some painful. The good news is we have a fair amount of the year to try to manage around that and recover from it. But that was — that’s something that — that’s kind of part of how we do things. I didn’t get out there and necessarily change guidance on January at all.
But it’s something that’s — those are the types of things that we had some headwinds in ’22. Frankly, we had it in the third quarter. And then we thought we — again, that was part of the optimistic view of the fourth quarter was that we have that high gas price from the third quarter out of the way and just when we thought we were kind of out of the woods, California, our largest market doubles. So, all of that is temporary volatility. So I mean, our view is long on this solution and the fuel. And we’ve got projects being built out and so we’re in this for the long haul.
Eric Andrew Stine
Got it. That’s helpful. And maybe just turning to the RNG, just maybe an update. I know you’ve provided it before, but as you see that JV is playing out, ultimately, the number of projects you see and then maybe the average gallons per project.
Andrew J. Littlefair
These projects tend to be the dairies tend to be oh, Eric, I’m sorry. Eric, these projects tend to be in the range of 1.5 million to 2 million gallons 2.5%. Now we have one underway in Idaho right now. It’s really big projects, $5 million. But let’s just say $2 million is a good number. So you could see that we’ve got many more projects come on, which we are very excited about the scope and the size of the market is still big.
Now what you’ll have, Eric, is you won’t have as many 10,000 cow dairies or larger, but you’ll begin to cluster these. And so there’s dozens and dozens of projects that are still out there. And in fact, right now, we have 27, I think, in our pipeline. So not of the ones we’ve discussed, not of the 13 that are sort of I put under construction and underway. We’ve got another 27 that we’ve — we’re talking to and treating paper with. So I think we’ve always sort of said that you’d be in the 35 to 40 projects before this is — before we realized what we laid out for you last year.
Operator
Our next question is from Matthew Blair with Tudor, Pickering, Holt.
Matthew Robert Lovseth Blair
Andrew and Bob. So I think if I heard correctly, you were saying that your current profitability would look more like $95 million at 2022 credit prices. And I think at one point, you were providing a 2023 guide of $136 million. So could you walk through the delta between that original 2023 guide, $136 million and then the $95 million? I mean, I guess would that be just an assumption of lower volumes coming through in 2023 than what you originally envisioned?
Robert M. Vreeland
Matt, I would say there’s, yes, a little bit of that. I mean we’re in a little bit of a different world than we were at the beginning. Look back to January ’22, credit prices were extremely high and we just — the world was in a little different place. And so I think that — I mean, for sure, the lion’s share of it is just simply an assumption on credit prices, that’s huge. The other gap there is what I’m going to say, nothing notable other than a little here and a little there, and kind of as your environment changes, you give plans change.
For us, as usual, I really feel that it’s kind of timing related of when the volumes come on is the biggest piece. It really is. And so it’s not if, it’s when and just how — we’re always constantly trying to get engaged when will the trucks show up at the fueling station, going through the buying cycle and the adoption and all of that and getting it there. And as things move and look, moving out stations, these varies. When we open up stations because we’re — they’re purpose-built stations for all of our customers these days. They were building them because there’s a need for volume. So as soon as they open, the fuel starts flowing. So it’s — that volume kind of follows how you’re opening stations for the most part. I mean, we get more volume at our existing stations as well. But that’s it. I mean, it’s just —
Andrew J. Littlefair
I think Matthew probably if you were to go back and look at and try to piece it together. And of course, I was just giving you kind of back a label that gets you close to 95 or 100. It’s timing. It’s timing on the projects, right? We probably realize today, these projects take a little bit longer to come on production than we thought a year ago.
Matthew Robert Lovseth Blair
Okay. And the —
Andrew J. Littlefair
The other thing, and I don’t want — let’s not go down this too long, but there’s sort of — there is some good news in here, right? I mean when we were laying that out for a year ago, we didn’t have the IRA. We didn’t have an ITC and we didn’t insure didn’t have a producer —
Robert M. Vreeland
Production tax credit.
Andrew J. Littlefair
Production tax credit. You lay that in and put any kind of number on it that has been banned about in ’25, ’26, those are really big numbers. So it also are going to work out — it’s all going to work out here in the wash. I mean, in those numbers, when you put play $4, $5 or $6 or whatever you want, I’m going to let you do it, not me. Those are big numbers out there that could be attributable based on the production tax credit.
Matthew Robert Lovseth Blair
Okay. And I just want to confirm that the $50 million to $60 million for 2023, that does not include any ITC add-backs, correct?
Robert M. Vreeland
Correct. Yes. And it wouldn’t necessarily mean the ITC is more of an investment tax credit. But yes, there’s no IRA number in the $50 million to $60 million.
Operator
Our next question comes from Greg Wasikowski with Webber Research.
Gregory Adrian Wasikowski
I don’t mean to beat a dead horse here, but just going back to the financial metrics and projections from the RNG Day a little over a year ago. Obviously, a lot has changed. I’m just wondering what at all can we still take away from the 2022 to 2026 projections, whether it’s can we fly things to the right? Is the general ramp or the shape of the ramp still intact? Should we just be kind of haircutting everything by a certain percentage or should we just wipe it out altogether. Just curious, when you look at that, what can we still take away from those numbers?
Andrew J. Littlefair
Well, let me hit some of the broad strokes is we still see the need almost exactly the same as we did. So the 2026 number of — I don’t have a firm 459 whatever the total was, we still see that. We still see the third party in the — exactly the same place. And by the way, we’re kind of on track on being able to lay that in as we thought. And then the RNG dairy in our account and our partners’ accounts, we haven’t come off of that. Now I think it may be that you might need to slide everything 6 months to the right. I think that’s probably prudent to do.
And of course, as we’ve all discussed here this afternoon, the credit prices that we used back then are different. So we all have to employ our best thinking on those credit prices. We happen to believe that by the time you get to ’24 and ’25, the credit prices will strengthen substantially. And then, of course, we like some of the benefits that we received from the IRA, certainly, the production tax credit is very meaningful out there as well.
So we haven’t really pivoted in terms of saying, you know what, let’s not do this RNG or let’s not pursue dairies or let’s not pursue third party. It’s all pretty much still intact. And if you want to critically look at what’s changed, you could say, well, some of these projects, dairy projects are probably taking a little bit longer to build. But I mean, gosh, in the scheme of things, when you have 35 projects underway, it’s — I don’t know how meaningful that is. And if there’s an impact, it could be late ’23, ’24, early ’24, but I think it’s generally going to hold in pretty well.
Gregory Adrian Wasikowski
Okay. That’s helpful.
Robert M. Vreeland
Yes, I’d say —
Gregory Adrian Wasikowski
Go ahead, Bob.
Robert M. Vreeland
No, go ahead. Well, yes, look, I mean maybe I’m saying the same thing, but — so it gets tempered a little bit. But then frankly, we have tailwinds from the IRA that come in there and really help that out because you can look at a model like that and simply change in credit price and the numbers would go down. I mean I can tell you the math on that. If you take the LCFS from (inaudible) 0:48:17, it’s going to go down. Now we don’t believe that for that 5-year period although —
Andrew J. Littlefair
Meaning to our partners, by the way.
Robert M. Vreeland
Yes. So maybe there’s a little temperament there. But then we also didn’t plan in 25 for production tax credit to come in as well. So world was kind of back in. So I think that in general, the shape of the curves and the potential out there is still there.
Gregory Adrian Wasikowski
Okay. That’s helpful. I’m not going to ask you for exact numbers, but is it fair to say then that when we look out into ’25 and ’26, the delta between your revised estimates for those years is smaller than looking at 2023 kind of rate front of us right now? Is that fair to say?
Robert M. Vreeland
Yes, that’s fair to say.
Gregory Adrian Wasikowski
Okay. That’s helpful. And then one more, if I could. Just I think you just mentioned in your prepared remarks, it’s about competition for the Amazon sites. Could you maybe elaborate on that a little bit more things outside of just permitting what competitive forces were (inaudible) 0:49:36.
Andrew J. Littlefair
Greg, if what I — competition and maybe you thought of competition to build natural gas and RNG fueling. That’s not the kind of competition just pressure on real estate competition.
Robert M. Vreeland
What kind of scarcity (inaudible) 0:49:57 property.
Andrew J. Littlefair
And what kind of properties cities want in their city.
Gregory Adrian Wasikowski
Okay. Okay. So, it clarifies. Just not others kind of doing in the — not other to do the same thing that you’re doing in just different uses for the land in general.
Andrew J. Littlefair
Exactly. Exactly.
Operator
Our next question comes from Pavel Molchanov with Raymond James.
Pavel S. Molchanov
I know you’re not giving guidance formally beyond 2023. But you said that you expect California LCFS pricing to improve over the next 2 years. What gives you the confidence in that directionally?
Andrew J. Littlefair
Yes. Pavel, what gives us the confidence on it is that the low carbon fuel standard is working and RNG is an important component of it. And I think that we feel fairly confident, certainly after the workshop of the 22nd that all of the comments were supportive of an increased obligation curves, increasing the obligation and compliance curves from 20% to 30%. And I think there’s a chance that they could go to 35%. And then you know there’s this new concept that there is — now the staff has actually endorsed, which is kind of a ratchet that if you’re in an oversupplied market that they could ratchet down the the compliance curve. So you can kind of see go from 30% to 32%. So I think all of that is — you’re going to need all the R&D you can get. So I think you’re going to be back in a much more supportive environment for increased prices.
Pavel S. Molchanov
Okay. Let me ask a similar question about RINs, which I think for the year as a whole, RINs were as large as the tax credit and California combined. The EPA seems to be kind of rethinking the entire RVO framework, including these electric RINs that are being discussed. What’s your thinking directionally on where that goes?
Andrew J. Littlefair
Yes. I — Pavel, I actually think that we’ve learned a lot over these last few weeks since they came out with their new proposal on the RVO and for the renewable fuel standard and the (inaudible) 0:52:49. I think they’ve over — I think they’ve overshot. And the EPA has. And when you look at the 4 or so largest organizations that EPA listens to, the Renewable Fuel Association, AFPM and the API and NG — RNGC just to name a few. All of them, growth energy. All of them are unanimous in that the proposed (inaudible) 0:53:22 framework won’t work.
And then specifically, as we look at it Pavel, the way they kind of engineered the equivalency of how they would have credits, what kind of level of credit you would get, depending where you put your fuel where, frankly, (inaudible) 0:53:45 fuel I don’t think that’s probably going to end up being the way it’s going to be enacted. The idea is that they kind of jury-rig the math to create RINs out of thin air, frankly, to incent RNG to go to make electricity for light-duty electric vehicles versus putting RNG into a hard to decarbonize heavy-duty truck. I don’t think that — I don’t think that, that’s going to end up being the case. And I think it was almost just too much. It’s going to fall apart under its own weight. It’s too obvious.
And the move in the origination from the producer at the — that — the other day, Pavel, I was with the Chairman of the Agriculture Committee, and a member of Congress, so that was on the dairy farm and happens to have RNG digester out is dairy farm in the Central Valley, California. We’re standing on the bladder on top of the — on top of it and — of the lagoon there and filled up with methane that this guy is capturing, We, by the way, get all that gas and it goes into heavy-duty trucks. And I said to the Chairman of the Agriculture Committee, I said, well, now there’s one for you. And I pointed to the congressman whose dairy farm was, and I said, can you imagine that the EPA’s proposed that the generator is no longer Congressman (inaudible) 0:55:24 and it’s no longer — they’re not the generator here at the dairy farm. They’re going to pass that on to the — to Ford or to someone making electric vehicles in Detroit or Elon Musk.
And he said, well, you got to be kidding me. How is that — how could that possibly be? So that’s just another example of what was going on in this deal. And I just don’t think that’s going to all is going to end up being enacted that way at all.
Pavel S. Molchanov
Appreciate the color on that.
Andrew J. Littlefair
And I think what’s going to happen, Pavel is you should — you’ll see perhaps they’re under an obligation to enact the RVO by June. Now whether or not they do that, I don’t know. I’m not sure they’re going to get this all cleaned up and figured out the (inaudible) 0:56:12 to be able to make that date. And so it wouldn’t surprise me that the (inaudible) 0:56:21 maybe gets delayed some and restyled some and that they go with some other kind of RVO in June. So we’ll have to see.
Pavel S. Molchanov
Just a quick question at the end. Smaller programs, but do you get anything from Oregon or Washington State LCFS?
Andrew J. Littlefair
We do, but a little bit. We have several customers — I’m looking at one of my guys, Oregon.
Robert M. Vreeland
Yes, Oregan for sure (inaudible) 0:56:55 not quite yet.
Andrew J. Littlefair
(inaudible) 0:56:56 not quite yet but we will there. But Oregon program credit prices are worth more, they’re nice, but we don’t do a lot of people up there yet, be. But I think we have 4 or 5 customers right now.
Operator
Our next question is from Craig Shere with Tuohy Brothers.
Craig Kenneth Shere
So I mean, obviously, neither card or the EPA wants these programs to implode. So I guess what I want to ask is, one, do you see a silver-lining that the regulators feel more pressured with these low prices? And two, do you see any catalyst for other state programs. And there were some draconian possible recommendations with options being evaluated by the card, kind of eliminating projects past a certain line in the sand from west to east or other things. Do you see them starting to shy away from some of those Draconian changes and just focus on total supply/demand and in terms of the carbon reduction track versus tweaking the market in other ways.
Andrew J. Littlefair
Yes. Well, Craig, look, I think — I hope what I’ve been trying to say on this call is that I’m actually somewhat optimistic of the way both these programs are going to end up. And it hasn’t helped as the markets watch this kind of making a sausage and regulatory proclamations and staff workshops and all that, that kind of can be a little bit of a nerve. And it, frankly, has done that to the credit prices in the latter part of the year. But I’m kind of — I think I’m picking up where you are. I don’t believe that either California or the EPA wants to dismal these programs, okay?
I think, unfortunately, there was a tendency to want to micromanage and steer and pick winners and losers and it’s maybe some things that we see governments do from time to time, and certainly staff and governments do from time to time. And — not always well guided and certainly often not market. I think it’s beginning to but having said that, if I look at California, but you know what overpower some of these — the micro managing of West lines in the sand and the West and pathways and book and claim and some of these different things and length of service and all that — some of that stuff that had been kind of proposed is that when they know the program works, they know that half the dairies, the state of California, for instance, have voluntarily gone into capturing methane.
They know they need RNG in order to lower the carbon in the state. It works. Other states don’t works. The governor of the state governor knows it, he knows it works. So the last thing we want to do is kill the bull and cow, if you will. So I think what you’ll see is what kind of overpowers all of those tendencies do want to micromanage the program is the fact that they’re going to increase the obligation curve from 20% to 30%. That’s big. And if they go to 35%, which many have suggested that there’s no better time to do it, you’re going to need all the RNG and a lot of these little programs, little things that they were kind of wanting to test, I think, will go away because you’re going to need it all.
So I feel actually kind of — I’m an optimist, but I feel actually that, that is headed in a better direction. And then as we relate to the EPA, I feel similar in a similar way. For the federal government to decide that they want to decide where this fuel should go and jury rig, the math on generating RINs to force it to go — to make electricity for their electric vehicle program. I just don’t think that is the way it’s going to go. And I know that there’s — be kind of interesting we should tune in tomorrow, there’s confirmation hearing by the fellow in charge of this program.
At the EPA, the charge of the Office of Air radiation, he’s trying to get confirmed tomorrow. And I’m sure these — the questions that we’ve talked about just now about what they were trying to do with the program, probably brought up tomorrow. And so I kind of feel like I don’t have anything guest (inaudible) 1:02:23, but I think the way that it was being done was probably not the right way to do it. Not even sure the EPA has authority to do it, but we’ll see. But I think in particular, some of the things they were doing is probably not the right way to go about it. And I think I’m not the only one with that just about everybody. You should read those comments. I mean, I think there was a general agreement in that.
Craig Kenneth Shere
That’s helpful. And you’re talking about finishing up the 19 stations for Amazon. I guess, do you require similar massive fueling fleet fueling agreements? Or — so what’s next after that? Do you have to have other Amazon-type agreements in order to roll out the next 10 or 20 new stations? Or do you just see increasing widespread adoption with the new Cummins 15-liter engine. And so you’re just kind of going to have more open access and just keep going.
Andrew J. Littlefair
Why don’t you just keep going. And look, ’19, I hope there’s more on that with Amazon, right? There can be many more just with Amazon alone. But like we’ve launched that, look, we’re not just a one-trick pony in terms of just Amazon. I mean, we work with all the largest trucking fleets. And we have an eye — we are really focused on these 40 sort of household name largest fleets that are working right now with Cummins as they introduce the test vehicles for these next 4, 5, 6 months, and then we hope as they order the order book sometime in 2023 on the 15 liter. We’re all over those fleets. To work with them to build and develop stations for them in the future as they we hope, begin to order vehicles.
So there will be — we have a very large network that can take a lot of fuel now. And many of these fleets will use our nationwide network. And then we would be thrilled to work with some of these very large fleets to do what we’re doing with Amazon. And I’m sure that will be the case. For instance, Craig, I don’t know how it will pan out. So I’m just giving us just — I’m just speculating just kind of for fun. I mean, look, we know Wal-Mart’s testing the new Cummins 15. We know Werner, I would love to be the fuel partner using RNG for those kinds of fleets. And there’s a bunch of them.
Craig Kenneth Shere
And last one for me. To the degree, there’s wider spread adoption and these fleets want to drive lower carbon fuel in other geographies nationwide not just California or Oregon or what have you. Do you think that there’s increasing multifold pressure on 2 or 3 or 4 more states to come up with these types of CF programs in the next 2, 3 years?
Andrew J. Littlefair
Yes, that was part of your question. I wrote them down here. I wrote down New York, Illinois and to Mexico. So there will be other states. I think New York is pretty close. And Illinois is, I think, introduced it we’ve got some work to do in North Carolina. You’ll have other states. There will be some that won’t go, but you’ll have other states to do it. And I think New Jersey once New York goes, you’ll probably get New Jersey and the others in the area. So yes, they should. And Craig, if California does something to louse up their program, they will.
Operator
Our next question is from Paul Cheng with Scotiabank.
Paul Cheng
It’s pretty late, so real quick. There’s some discussion. I think California may want to change the way, no longer give the LCFS credit to LNG and net it prove the gas is physically in the state. I want to see if you guys have any read or have you talked to the government official there to see where that stands? And it does get paused, how that impact your operation? I mean, what percent of your projects that currently under construction realistically that you will have the pipeline connection all the way to California. And then also how much is your LNG sales that currently from the third party, you would be able to do that.
Robert M. Vreeland
Yes. Paul, yes, I mean, I think that’s — I mean, it’s kind of around the booker claim — booking claim and they’re going to require us to physically move gas in to do that. And I mean, first, we think that’s yet to be determined. So we’re not really moving around to try to accommodate that. Now in some sense, I think there’d be some cost — there’d be some cost added but, one of the beauties is we’ve got pipelines and already we have certified pathways. So we — actually, we do have to be able to get gas from the farm to the dispenser in San Diego. I mean it has to be able to go there. What we talk about — I mean, but it’s a little tricky, right? Because once it goes — once methane goes into the pipeline, it’s methane. It’s kind of indistinguishable. It’s like putting a dollar in the ATM. I mean you’re going to take it out. It’s not the same dollar, but it’s $1. So that’s — but look, however, we would have to track molecules. I think you’d add a little cost, but it would be done. I don’t think —
Andrew J. Littlefair
From the way I understand it, Bob, I mean, just to — I mean, that there’s discussion that they wouldn’t allow you to use the current booking claim that you have to pay for the — essentially the transportation, right? And that’s not a —
Robert M. Vreeland
Yes, you pay for it.
Andrew J. Littlefair
That’s not a deal killer, Paul. I mean it’s not fair and it’s not the way it should work. And frankly, this is the kind of crazy stuff that’s going on. But again, I’m going to kind of assign it to facial’s bureaucrats, right? I mean — by the way, that’s not the case if you use it for hydrogen, even while they would want to do it for us. I mean that’s the kind of thing that is just — I just think that when cooler heads look at something, I don’t see that. And — but if it were to happen, as they’ve discussed in some of these workshops, there would be an extra cost to it. But it’s —
Robert M. Vreeland
We can accommodate.
Andrew J. Littlefair
Yes.
Robert M. Vreeland
Because I mean we’re certainly the way our pathways —
Andrew J. Littlefair
Yes, we have to prove that now.
Robert M. Vreeland
The connectivity, all of it, it’s — all that work, and that’s a lot of work and it’s time consuming.
Andrew J. Littlefair
But don’t — that’s not in shown yet, Paul.
Paul Cheng
Sure. Just trying to understand that what is the kind of impact (inaudible) 1:10:01 what estimate? And what’s the incremental cost for you guys?
Andrew J. Littlefair
I don’t have it. I don’t know.
Robert M. Vreeland
No, but I mean if you’re getting into kind of transportation costs, your kind of dollars on the MMBtu kind of things.
Andrew J. Littlefair
Our guys know it. I’ll see if we can get it for you, Paul. I don’t know it.
Paul Cheng
Yes, that would be great. We’re being asked by some clients.
Andrew J. Littlefair
I’m busy finding it. So, I’m not worried about — I’m not worried about paying it. So, don’t put me down on the pipe call. Yes. Okay.
Paul Cheng
My final question is that just a simple accounting question. On the — we’re talking about the credit reduction, the capital reduction, say, 30% or so accounting wise, that Bob, how does it work that I — we imagine, you know, your cash flow statement, your CapEx number is still remain the same. You’re just receiving that tax credit or check from the government and showing up way?
Robert M. Vreeland
Yes. Well, it will reduce the basis in our — it will reduce the basis in our asset. So it will lower — it will basically lower the value of what we have capitalized. So if you’re going to $100 million and you get your $30 million, then you’re going to kind of end up net with a $70 million asset there.
Paul Cheng
No. But I guess my question is that from an accounting standpoint, when we’re looking at your 10-K on your cash flow statement, let’s say, if you suppose to have $200 million on the CapEx in 2026, and let’s assume that in 2025, you spent $100 million, so you end up at $30 million. So yes, the cash flow statement is still showing up in your capital spending line at 200 or so 170.
Robert M. Vreeland
It’s going to show gross.
Paul Cheng
Okay. And then just $30 million that way it’s going to show up in the cash flow statement?
Robert M. Vreeland
It’s going to show up in the investing section.
Andrew J. Littlefair
You’re proud of yourself, aren’t your Bob, with accounting.
Robert M. Vreeland
Yes. I’m doing what I think is conservative on what the FASB would want me to say.
Operator
Our next question is from Jason Gabelman with Cowen.
Jason Daniel Gabelman
Two, if I may. The first, on the clean fuel production credit, which I think starts 2025. It seems like the benefit to your RNG production could be pretty high if it’s not — if the credit isn’t capped, could be as high as $6 a gallon. Is that your interpretation? And do you expect that credit value to be capped? And then my second question is just on the near-term numbers. It looked like 4Q, the fuel margin, excluding all the credits was just $0.04 per gallon, which was down quarter-over-quarter, I think, by $0.06. Was that just due to the higher natural gas prices? And do you expect that to rebound back to, I guess, the $0.10 where it was in 3Q? And that’s, once again, just the fuel dollar per margin, excluding any of the credits.
Robert M. Vreeland
Okay. Andrew, do you — I don’t know if you want to talk about the PTC.
Andrew J. Littlefair
Jason, it’s a good question. That as you point out, that — the production tax credit has not been promulgated. It hasn’t been adopted by the treasury department by the Treasury Secretary. And I’ve been told our folks here, let’s be careful. We don’t know how that’s going to come out. And we don’t know — it appears on its face as the law has suggested that it would — it could be a rather big credit based on the carbon intensity. And I’ve seen estimates between $5 to $6. But I also know that’s a big number. And Jason is the first time we really heard anybody ask us maybe because you and I talked about it before something, but whether that it could be capped. But stranger things have happened.
So I don’t know how to handicap that yet. I know that this incentive was designed to get really low carbon fuels produced. And so you want to be careful how much you cap it because then it works against what it was designed to do. But could it be? Do I think it will? I don’t know that. I’m not sure it would be, but it could be. Have you heard something, Jason?
Jason Daniel Gabelman
No, no. That’s — I was saying if you did. I have not heard anything one way or the other.
Andrew J. Littlefair
Well, but I also know politicians and someone said, that’s pretty big. But there are a lot of big numbers associated with all this stuff. So I’m not so sure that it would be. And I don’t know how fair that would be just to cap it because it’s so low carbon. So we’ll see how that goes. Yes.
Robert M. Vreeland
Jason, on your second question, by the numbers that you’re giving to me, I can tell that — and I’m not saying right or wrong at all, but I think you just — you’re taking like the fuel sales value that we report that has the Amazon noncash incentive netted down in there. And then you’re kind of figuring out the product cost of sales and coming out to your $0.04. I will say that there’s a couple — probably a couple of things. I mean, one, the number can be influenced by how — what the value of the Amazon incentive number is, right? Because that nets that — it nets down the revenue and then your cost is kind of the same.
And so your margin gets a little skinnier as a result of the value of that. And whether you want to have that in there or not is up to you. But I can say that the value of that charge was the largest it’s been in any quarter, and it was larger than Q3. So it was like $7 million in Q3 and $8.8 million. So that’s netted in your revenue number. But then I will say, yes, Q4 was impacted certainly by the doubling of natural gas costs in California because it’s such a big market. And — we’re going to see a little pressure on that in the first quarter. I would like to have said that dissipated we’ve got kind of righted itself. But I already know in January that costs went from $15 and then to $50. And I don’t know if any of you have heard on the news about — I mean it’s all the way down into residents. And I mean it’s a complete debacle in my opinion, my own humble opinion there. It’s a bit of a debate on how we’re managing the natural gas here in the state.
But now having said all that, that’s in January, we’ll work our way out of that. In January, we did, by the way, have to. We were forced to our own sales, no one externally, but raise our prices at the pump totally to accommodate that. We don’t always do that because we’re mindful of our customers wanting that to enjoy the spread in the pricing. And so we don’t always jump out there and do that right away, we did. So anyway, I think your $0.04 is influenced — see how it’s influenced by the noncash incentive charge. And then yes, you do have a little bit of pressure on the COGS.
Operator
We have reached the end of the question-and-answer session. I would now like to turn the call back over to Andrew Littlefair for closing comments.
Andrew J. Littlefair
Operator, thank you. Thank you, everyone, for joining us today, and we look forward to updating you on our progress next quarter.
Operator
This concludes today’s conference. You may disconnect your lines at this time, and we thank you for your participation.
