White Energy Inc.

Source: Energy Digital

Date :07/08/2007 15:46:40

Ethanol and other biofuels are the hot commodity in America’s Corn Belt, but intense competition is forcing producers such as White Energy to build a better business model

Written and produced by Lynn Haber & Nick Ledue

Amid vast national concern about rising gasoline prices and reducing U.S. dependence on foreign oil - and despite the swirling controversy over alternative energy fuels such as ethanol - White Energy Inc. is doggedly carving out a niche for itself as a producer of renewable energy.

Founded in 2005, the Dallas, Texas-based, privately-held company currently produces 50 million gallons of ethanol per year at its facility in Russell, Kansas, which it acquired in May of 2006.

A second plant in Hereford, Texas, scheduled to be operational in the fourth quarter of 2007, is expected to produce 110 million gallons of ethanol per year; while a Plainview, Texas-based facility, located just 70 miles from Hereford, is expected to produce another 110 million gallons of ethanol annually when it becomes operational in the first quarter of 2008.

White Energy expects to generate more than one billion dollars in revenue by 2008. Long-term, White Energy plans to secure more than 700 million gallons per year of renewable fuel production capacity through acquisitions and Greenfield production.

“With our assets, our value, good equity position and a great debt partner, White Energy is only limited by those opportunities that meet its business plan,” says president and CEO Kevin Kuykendall.

President George Bush’s 2005 energy bill — mandating an increase of more than 50 percent over five years in the amount of renewable fuel, primarily corn-based ethanol, to be added to the country’s gasoline supply — has created a lot of market opportunity. This initiative has given new meaning to the expression “field of dreams,” taken from the

1989 movie of the same name about a corn farmer.

With U.S. gasoline consumption at approximately 142 billion gallons per year, ethanol currently accounts for approximately 4.5 percent — or approximately 6.3 billion gallons — of the total gasoline market.

However, by 2012, when U.S. gasoline consumption is expected to reach approximately 150 billion gallons, ethanol production is anticipated to reach 15 billion gallons. That’s using E10 – a 10 percent ethanol/90 percent gasoline blend.

Today, approximately 120 ethanol plants operating in the U.S. produce approximately 6.3 billion gallons of ethanol annually. With 75 additional plants currently under construction, production is expected to double to a total of 11 billion gallons once all plants are completed sometime in 2008.

With no shortage of competition in the renewable energy industry, White Energy’s current focus is on ethanol. To differentiate itself from its competitors, White’s business model is based on a destination strategy, or proximity to market strategy, rather than the more commonly used origination model.

“We move production capacity closer to the end user market which allows us to lower transportation costs and off-set higher corn prices,” said Kuykendall.

The plant sells ethanol to fuel refineries in Texas as well as other western U.S. markets.

In other words, White Energy — which has close relationships with two of the largest grain companies in the world — gets its corn from all over the nation.

“We’re not landlocked by farmer A or farmer B located next door,” he explained, noting that the destination model reduces its risk on feedstock.

Other ethanol production companies who use an origination model generally locate processing facilities in the same vicinity where the procured corn is grown. In the U.S., that’s primarily in the Midwest, requiring the ethanol to be shipped over longer distances and at substantial costs.

White Energy’s Kansas plant also produces wet and dry distiller’s grain, wheat gluten and carbon dioxide. Located in cattle country, White Energy can sell the wet grain locally as feed. Wet grain enables the company to significantly reduce its operating cost, since it doesn’t have to dry the distillers grain nor ship it long distance to feedlots.

In general, the company sells both wet and dry grain to feedlots as feed grain and wheat gluten to food manufacturers.

By the end of 2008, Kuykendall expects the company to produce 500 to 700 million gallons of ethanol for destination markets on the west and east coasts of the U.S.

“We have several projects under development located closer to our key destination markets, which are on schedule to be operational in 2008,” he says.

The renewable energy company currently has 95 employees — 20 at its corporate headquarters and 75 in Russell, Kansas. White Energy is currently in the process of filling 40 job openings at its Hereford plant. To open the Plainview plant next year, White Energy will hire an additional 40 employees.

The broader view

White Energy is also setting its sights on the biodiesel market, which is increasingly gaining the attention of the commercial transportation industry, and is also concerned about unstable foreign fuel markets and environmental issues.

Biodiesel reduces emissions of carbon monoxide by approximately 50 percent, carbon dioxide by 78 percent, and lowers direct tailpipe emissions by as much as 20 percent, according to Kuykendall.

White Energy is currently in the process of acquiring a biodiesel technology company. Company executives expect to use the same destination model for biodiesel as is used for ethanol.

Rather than mimic other renewable energy companies that license or use technology from someone else, White Energy’s business strategy is to develop its own technology to offer a higher value proposition.

“We plan on extracting corn oil out of distiller’s grain and turning it into biodiesel,” says Kuykendall.

With ethanol, biodiesel, and technology as the company’s core focus, White Energy expects to drive costs down while increasing the value of its products.

Partnerships sit at the heart of White Energy’s success.

“We’ve gotten a tremendous amount of equity from two equity partners allowing us to take our company to the next level,” says Kuykendall.

The two equity partners are Columbus Nova Renewable Energy Group, and Ares Management LLC. German bank West LB, with international locations, is the company’s debt partner.

White Energy also leverages its vendor relationships, such as that with The Scoular Company and Archer Daniel Midland — both providers of grain.

White purchased its Plainview project from Scoular and will continue to partner with the company. Scoular will provide White Energy with risk management, grain procurement and distillers grain marketing services for several of White’s ethanol facilities.

Looking to further differentiate itself from its competitors, White Energy is determined to be a strong player and early adopter of technology for cellulosic ethanol, the kind produced from nonfood plant matter such as plant waste, wood chips or wild grasses, for example.

“In order for ethanol production to grow from 15 billion gallons to 35 billion gallons by 2020, cellulosic ethanol and other types of renewable fuels will have to fill in the void,” says Kuykendall, explaining that rising demands for ethanol will exhaust corn production at about the 15 billion gallon mark.

With the renewable energy market growing at a fast pace, a number of strong partnerships and the government promoting alternative fuel, Kuykendall says he believes the stars are aligned for the company.