DG Fuels - Strategy at the heart of everything

In this episode of The SAF Podcast, host Oscar sits down with Chris Chaput — a former Northwest Airlines executive, Morgan Stanley investment banker, and airline restructuring specialist — to unpack how DG Fuels is not just developing a SAF project, but a SAF platform.

We cover:

• DG Fuels' gasification-to-Fischer-Tropsch technology and their patented 97–98% carbon conversion efficiency
• How strategically building your partners (Johnson Matthey, Honeywell, NextChem) and EPC (Samsung & Black & Veatch) underwrites bankability and execution.
• Why their Louisiana facility on the Mississippi River is strategically positioned for both US and European markets
• Long-term offtake agreements already signed with Delta, Air France, and KLM — and why demand outpaces what one facility can produce
• How ~25% of their output may qualify as eSAF under EU RefuelEU regulations, unlocking premium pricing
• The IRA tax credit landscape (45V, 45Q, 45Y), RINs, LCFS, and how DG Fuels' revenue stack holds up under policy uncertainty
• A $750M equity raise, FID targets for 2025, and what it means to build a SAF platform — not just a project
• Why resilience has been their biggest challenge, and their greatest achievement

This is a fascinating discussion and highlights how both strategy and strong identity makes a strong prospect in SAF.

Transcript

SPEAKER_00 0:09

Hello and welcome to another episode of the SAF podcast. And this week, I'm very excited to be joined by Chris Shapu from DG Fuels. Chris is a long overdue guest, so I'm delighted to have him on finally for this episode. And we are going to be discussing everything DG Fuels and discussing a little bit around the transportation and transition of American SAF heading over to the U EU and other interesting developments that have come up over the last few months. But Chris, how are you?

SPEAKER_01 0:48

I'm great, Oscar. Great to see you this morning, and thanks for having me on.

SPEAKER_00 0:53

Awesome. I'm really excited to um to have you on. So before we get into the weeds of DG Fuels, do you want to give everyone a sense about your background, your career up till up till now?

SPEAKER_01 1:07

Sure. Happy to do that. It's been it's been sort of a long and winding road. But I started uh my pre professional career as a lawyer, practiced law in Minneapolis for about four or five years. Um loved doing that. Uh focused mostly on corporate and tax law, transactional work. Um, but then I had an opportunity to go into the airline business. And um I so I joined Northwest Airlines initially as a lawyer, but very quickly sort of morphed over to the business side. So I was uh I think managing director of corporate finance, did a lot of the aircraft fundings, did a lot of the did the original double ETCs, um, raised a lot of capital in New York, spent a lot of time in New York and Asia and Europe. Um after Northwest, I joined Morgan Stanley, did investment banking, uh, oddly enough, covering airlines and aircraft leasing companies. And um when I when I left in the early 2000s, um I joined Seabury as a partner, and we had a number of really fascinating years uh restructuring a lot of the major US uh airlines. And then after that, did a variety of buy-side and entrepreneurial assignments. I met my my partner uh Mike Darcy, who's the CEO and sort of the principal original founder of DG Fuels in, I believe it was the spring of 2001. And um we've been sort of collaborating and working on ideas ever since.

SPEAKER_00 2:43

Awesome. So how did DG Fuels come about and how did you end up being involved?

SPEAKER_01 2:49

Well, initially with Mike, I was I was an advisor, I was a sounding board. I think he was he had a history of doing a lot of uh what he refers to as dual-use projects. So um different types of projects that were primarily intended for the civilian world, but also had some military applications. And um, so in the in the airline business, there's something called the CRAF program, where uh the military pays airlines, you know, basically to be able to take the planes during times of military necessity. And so he was involved in a lot of those types of projects, not so much on the aircraft side, but more on the ship side. And I think he was working on on a very complicated project. And one of the things that the Pentagon was interested in was, you know, whether uh the ship design could accommodate renewable fuels. So he started working on that, had a bunch of really sophisticated engineers and started penciling out some things. And he called me one day and asked the question how much would how much of a premium would an airline pay to have green jet fuel instead of regular jet fuel? And at the time, again, 2001, maybe today too, uh, I said the uh zero. Uh you know, it's a cutthroat business, uh, pretty tough margins in the best of times, um, you know, lots of risk out there. And because it's so competitive, it's hard for short of sort of government mandates, very hard for airlines to voluntarily pay a premium for some of their jet fuel. So now that's changed over time. I think I was initially on his board or board of advisors, and then um as time went on, um I I assisted in in uh you know capitalizing the company. And you know, at some point it made sense for me to to really sort of come in full-time and work with Mike to get this project over the finish line.

SPEAKER_00 4:51

I was really excited to see how your prediction of how much airlines would pay for SAF compares then till now. But then you said zero and it kind of ruined it. I was hoping for 10 times just something controversial.

Why Low-Cost SAF Matters

SPEAKER_01 5:05

Yeah, no, no, I I I don't court, I don't go out of my out of my way to court controversy these days, quite the opposite, actually. But but you know, I mean the the the lesson that we took from day one is you really have to come up with a um a compelling value proposition. And and I I think sort of the environmental attributes and um you know the the CO2 reduction and all those things are are absolutely do have add value. I mean, evidence that you know some airlines take their scope three, uh their scope three, you know, emissions reductions and sell them to third parties for you know cash on the barrel head. So so there is value there, but but we knew we had to, I mean, the mantra from day one is let's come up with a system that's so uh so incredibly efficient from a technical and scientific standpoint that you know that it follows through and we end up being the low-cost producer of SAS so we can sell it to airlines at a price that they can accept and see value in, right? And still be profitable enough to attract the enormous amount of capital you need. So that's we we've had and you know, more than I than I can even remember, um, sort of back and forth, you know, this design versus that design, this potential improvement versus that, you know, cost, um, cost effectiveness or not. And I think I think we're we're ending up, and my guess is all of these systems will continue to evolve, become more efficient um over time, and many ways of making SAF. But you know, we stick to our knitting and in our design, we're constantly finding ways to to you know improve it, um, both system-wise, um, and and typically that also drops to the bottom line. So I think we may be the low-cost producer of SAF, you know, on paper. And um, and and that's where I think we want to be, because then we can offer it to the airlines at a and in in some cases, not all our customers are airlines, some are sort of traders, oil companies that um you know want to make a market in it, and and and we have at least one industrial company that would use it just for internal purposes.

SPEAKER_00 7:20

Could you maybe put a bit more flesh on your the bone of your process and your technology for those that don't know, sort of what feed stocks are you looking at, what sort of technology are you looking at, and sort of where are the facilities that you're you're looking at, and then we can go into each one of those respectively in a bit more detail.

DG Fuels’ Tech Pathway Explained

Hydrogen Strategy And Site Selection

Louisiana Project And River Logistics

SPEAKER_01 7:42

Sure. So so big picture, we are uh you know, gasification to fissure tropes, and then we upgrade it to jet fuel. So on the front end, we we um we we gasify any type of agricultural waste or timber waste. And you know, we need about in our system today, we need a little over a million dry tons of biomass a year, which which is a fairly large amount, but you know, there's a lot of it available too. You know, you just have to sort of overcome the logistical issues. Um my guess is we'll end up with some combination of uh pelletized corn stover, pelletized uh uh bagass, or as they say down in Louisiana, bagass, um uh, or wood chips or wood pellets. Um but you know there are other types of of organic matter that we could we could also that we could also use in the gasifiers. For us, it's really what's the right form factor, the right size, so that, so that you know the gasification process works optimally. Um so once that's gasified, we match it up with some supplemental green or blue hydrogen. So the blue hydrogen is NA gas, um, where we very carefully sequester all the fossil fuel CO2 permanently or sell it for enhanced oil field recovery purposes, uh, or green hydrogen, which you know, which would be um you know, water electric, you know, renewable power backed water electrolysis. We match that all up and we have sort of the proper you know hydrogen and carbon monoxide formula going into the FT, out it comes, and it gets upgraded on our facility to uh basically jet fuel. Um the places our first project is intended to go up in St. James uh Parish, Louisiana. We have secured land right on the Mississippi River, roughly halfway between uh uh New Orleans and Baton Rouge. Um the river is great for for a lot of uh a lot of things, primarily for, I mean, we can bring in on during the construction period, and when I got into this process, I didn't really appreciate all the benefits that being next to the river offers us. So we can do a modularization strategy, which really sort of helps um on the on the construction side, both on cost and on time of construction. We can bring in fairly large modules and um on the river and just sort of assemble them on site. Um, you know, over the course, once we're up and running, um we have uh we have the ability to basically bring in product tankers very near our property and uh transfer our fuel right into product tankers for delivery to Europe. Um we could go through the Panama Canal to get it to California or you know, conceivably also Asia. So adds a lot of um a lot of flexibility and you know helps us a ton on the logistical side of things. We do have another couple of projects that we're looking at. Um one you know, one that people talk a lot about is one in Nebraska, and we're looking at a couple of different uh places there. Um right now we've identified land and that we've secured in, I would say, sort of west-central um Nebraska in Holdridge. And again, we do all of these plants are kind of carbon copy, so about 200 million gallons of SAF production a year would be planned. We're also looking potentially at some land closer to the eastern part of that, uh, yeah, the eastern part of that state for a bunch of strategic um and and logistical reasons. But so you know, exactly where it goes may may uh morph around a little bit. And then we have a third project, which you know we're we're we're sort of noodling on the best place to put that, and that could be in any of a number of ways. But you know, what's turned out is that as we talk to investors, primarily on the equity side, but potentially also on the debt side, um, they there's a lot of interest in not just investing in one project, but investing in a platform that can you know effectively do multiple projects. And so that's um that sort of affected our thinking and strategy on that.

SPEAKER_00 12:34

Um do are there rivers next to the Nebraska one?

SPEAKER_01 12:40

So in Holdridge, the answer is no. And so there's a number of things we could do in Holdridge. We may actually we may initially put a um a corn stover pelletization plant there, which which was planned anyway. Um, and so I mean it's ideal because in the middle of you know corn corn country, and uh we already have, I think we might have as much as a million, we might have MOUs for up to about a million tons of corn stover. Now we can't just take the corn stover and gasify it, it's just not the right form factor. So it has to be it has to be pelletized. And while I'd prefer to to outsource that to a third party, um, you know, we may initially build the facility ourselves on the premises and do the pelletization there. So that's that will probably, in terms of sequencing, that will happen first. We can also put a SAF plant on that same property in Holderidge. The other, the other property we're looking at the state is, as I say, it's on the eastern edge. It's also it's on the Missouri River. So we could also do that exact same strategy of bringing in modules and uh and help us. It's also closer to, you know, a large, I mean, closer to the Omaha Airport. It's also closer to Offitt Air Force Base, very strategically important uh military installation. And so there's there's some benefits of being located there as well.

SPEAKER_00 14:15

I want to take a step back and go to the technology efficiency aspects because you mentioned that's critical for being competitive on price. So how did you go about working out who to partner with, what technologies you were going to implement, and what was at the forefront of your mind while sort of going through those discussions and actually forming those partnerships?

Nebraska Plans And Pelletization

Designing For 97% Carbon Conversion

SPEAKER_01 14:40

Great question. The um when I talked about the system before, uh, there's there's a piece of it that that I did not um I did not address, and I'll I'll do that now. So I think first you start with the system design. And one of the so right now our engineers are telling us that our carbon conversion efficiency um is about 97 or 98 percent. So what that means is, and I'm not an engineer, so I had to ask what that means. Um, it what it means is of all the carbon that's in the biomass that we're gasifying, 97 or 98 percent of it actually ends up in the liquid fuel product. So one of the ways we and that's that's by historical norms, that's you know, that's a curve record. That's that's sort of you know startling. Um but the way we do that, and it's the also the basis for the patents that we've been granted, is that there's some there's some process, there's some some byproducts when you do your first pass through our system. And so we end up with things like biogenic wax and naphtha, which in the US there's not there's not a great market for those. And so one thing we do is we capture that and then we reform it through the Johnson Matthew hycogen system and technology, and we we basically break that down to make more biogenic carbon monoxide, we match it up with additional green hydrogen or blue hydrogen, run it back through uh the FT system, and make a pretty notable amount of additional liquid fuel with zero incremental biomass. So, in terms of making more SAF with less biomass, this is this kind of system that uh that does that. Now, our patents are not just limited to aviation fuel. So it's really any kind of any kind of liquid fuel where there's this very high focus on you know carbon conversion efficiency is uh is is is covered by our patents, which are granted in the US, but we've also we've been you know diligent enough to file them in all the sort of the major and logical countries where where this type of uh process is of value. So that alone, um, and we can we can get to how you know how we chose our technologies. I mean, because that can there's different ways that you can convert the that the biogenic byproducts into more you know biogenic carbon monoxide. I mean, I think we chose the the Johnston Mathey technology because it was it was the best. We're also using Johnston Matthew for FT. So no, but if you just look at sort of the the the high carbon conversion efficiency, again, we're making more fuel with less input, right? So, you know, sort of the cost of biomass per gallon goes down dramatically. And if you look at all of our fixed costs, biomass is a big one, power is a big one. Um, but um, but but that that alone sort of drives the economics of the deal quite a bit. And then you you know, part of your question was, you know, how do we decide who to work with? These projects are really big, and you know, we need a lot of capital. So it was incredibly important to have bankable, established technologies. So, you know, we're using NextCem on the gasification, you know, Johnson Matthew, as I said, um on the Fisher tropes, and also the uh sort of the reforming of the of the biogenic material into more CO2 and um Honeywell for upgrading. And then we have sort of on the blue on the blue and the green hydrogen side, we also have you know big names um as well, including particular TOPSO for the uh for the for the blue hydrogen, for the for the ATR there. And it's just really important on these big, fairly complicated projects to have you know big names with uh with very, very big balance sheets, strong credit rating, established technologies, because that's it's all about the technology, really. And um so and and then and then in addition to the actual suppliers, you know, we have Samsung and Black and Veach acting as major EPCs. And and again, you need besides the sort of the role they play and the guarantees they make as part of the EPC arrangement and contract, you know, you just need to have you know two of the best engineering firms in the world sort of vouching for this technology and and and frankly getting it right. So that's sort of the approach that we've taken.

SPEAKER_00 19:39

You mentioned there that these projects are massive and very complicated, and particularly in your case, you have got a project on the larger side of output capacity, but you're also looking at developing other projects, and as you mentioned, lots of investors actually quite like the idea of a platform rather than a project, which I'm absolutely going to steal as a phrase. I think that's great. Um, but while I from a producer point of view, it's it's also m vastly more complex. That these projects are very complicated, and doing multiples of them is extremely challenging. So, why are you actively pursuing this multiple facility strategy rather than you know getting the one in Louisiana totally up and running and then copying at that point and sort of implementing elsewhere?

Bankable Partners And EPC Guarantees

SPEAKER_01 20:32

So, Oscar, we're talking a little bit out of both sides of our mouth on that issue. I would tell you on a day-to-day basis, we are 100% focused on Louisiana because if you don't get the first one done and done right, it doesn't really matter. Um the so projects number two, project number three, and you know, potentially projects beyond that, um, that's really in response to what we're hearing from the equity market and and and again also from the debt market. You know, there's a there's at least a couple of lenders out there that that you know are taking the view that if we're gonna do this, let's go, you know, go big or go home. I mean, not to sound too trite, but but again, I would say it's mostly an an equity-driven, an equity-driven thing. I would say the project equity we need um for our deal, and you know, it's roughly about$750 million. Um I am of all the things we have to worry about, placing that amount of equity per project is is is actually not not what keeps me up at night, you know, because I think I think we've got it so that I mean we've we've pre sold so much of this, and so many of our costs are relatively fixed over time, and a lot of our revenues are fixed over time, that you know, the the math and and sort of investors' ability to get their arms around our project and they can see what the potential return on investment is and it's attractive enough to get a lot of attention. So um so that's you know that's probably why again that's it's not at sort of the top of our worry list.

SPEAKER_00 22:22

The managing and understanding and de-risking the cost aspect but also the revenue side is something that often gets talked about and the one of the things that particularly there's a lot of discussion around equity and investment coming in and needing those two pieces in place and then with a de-risking strategy around the technology like like you have and the influence of people like Black and Beach the EPC stuff which helps sort of wrap these projects in sort of a nice technology technological bow. Right. They're the critical pieces around de-risking whole projects aren't they and then so on that side once you've done that once the the cop the the element of sort of repeatability is becomes a lot more it becomes a lot quicker a lot more streamlined as it were for the other for the other products.

Platform Strategy And Investor Demand

Long-Term Offtakes And Price Visibility

SPEAKER_01 23:20

Right. I would say I would say look if you just sort of step back and say on the revenue side um what what investors both debt and equity are looking for is visibility and and I I I certainly debt but even equity I think is is is in many cases prepared to make a trade-off in in terms of slightly lower return in exchange for more certainty on sort of you know returns. And so you know we we we have not had I mean we've been very successful in doing long-term offtake agreements with various parties and a lot of these are public we have we have a long-term deal with Delta that's public Air France KLM that's public we have um uh we we have have a number of other ones that aren't public but I would say of 200 million gallons a year we've probably we we probably have um about 130 million under long-term take agreements already I think we have mous for another 15 in addition to that we have a pending mou for another 45 million beyond that we have an existing mou for about 60 million so if you add that all up it's much more than we can we can actually produce in one in in one um uh in one facility so selling saf has not really been a challenge for us again because I think we can offer a price that you know some of the other SAF producers cannot offer they absolutely have to have a higher price um higher higher than ours I believe um I I don't want to be too dogmatic on this because you know most of what everybody else is doing is not public information and so I don't it I don't want to say that I have sort of perfect inside perspective but um and and also we want everyone to be successful right we want everybody regardless of their pathway regardless of their strategy to be able to get their their their SAF project up off the ground and operating I think it's sort of sort of shines back on all of us um in in that case so so again I would say most of our revenues are in place um most of them are fixed price or you know a slight premium to jet A with a floor price so that the you know the lender or the equity investor can see at the the minimum amount of revenue that will be coming in sort of separate from any kind of government incentives. And you know there's a fair amount of that going on in our business model as well. And so so anyway it's it's pretty easy to trace those contractual cash flows. And again it's they're all two you know pretty strong credits. So from that perspective it's it's really good. You know we do benefit from things like RINS CFS if we sell in California other state incentives if we sell if we try to target other states that have have incentive programs. And um and then there's that whole sort of alphabet soup of IRA credits and and related ones 45 V, 45 Q. We're gonna do a little bit of our own sort of internal power production and so there's a 45 Y that also applies. Not particular material but you know you add up all of our revenue stack and it's it's pretty good. Then you go to the the cost side and you know I I I don't exactly know how the hefe guys do it in terms of sort of locking in their feedstock cost over time. I have a sense that's more of a um a variable market uh in terms of you know when it's available how much is available what it costs but because we're doing long-term contracts maybe 20 or 25 years um almost at a fixed price now there may be some kind of you know inflation escalator or something you know over time but we can pretty much lock in within a band our our feedstock costs for the foreseeable future and then some our other major costs are power but but again we're going to generate a lot of our own internal power so that should be relatively fixed. Natural gas is a variable for us so that goes up and that goes down but in general nat gas particularly in that part of the US you know it's it's it's at a reasonable price and it's always available. So it's it's you know you you connect to the pipeline and and um so but now that price could vary over time but you know but it's also hedgeable because it's such a large market. And then we have labor and again again that's pretty foreseeable and we build in you know escalation over time. So we can lock in our pretty good visibility on our revenues and our expenses and that um and and that goes a long way to to sort of understanding what we've got.

SPEAKER_00 28:39

I want to come back to the off takes where you've signed more MOUs and agreements than can be produced by one facility. Is that a case of like an oversub subscribed flights where some people might get bumped from the from your south plane or is it slightly more nuanced than that?

SPEAKER_01 28:58

It's maybe a little more nuanced than that. So the the um in some cases there is an acknowledgement between the parties that if you know some or all of all of a portion of an MOU might be deliverable from a second follow-on project. Right um in other cases the MOU is non-binding I mean so we we have we have a lot of non we have a lot of actual binding firm contracts and those are all those are all um I I think sequenced and I think they're all coordinated because you're you know what's even once we're up and running you know we're not going to be at 100% every day. And so you have to you have to make sure that that you know you're you're in compliance with all the agreements and so someone may in and whether you do it um pro rata in case you have to sort of you know shave everybody a little bit for for a couple of deliveries or or whether you know one party contractually agrees to take you know more than a pro rata hit until so until you can make it up. You have to make sure that those all sync um but but yeah I mean most of the most of the um the mous are non-binding and it's sort of a good faith thing. And um you know the minute somebody's prepared to and so the the reasons reason that they are non-binding because we prefer to just get a binding deal done and be done with it is you know we're close but you know maybe maybe the maybe the buyer needs a little more time to get sort of final board approval or or whatever. So that's that that that's kind of interesting. But you know we're not going to I mean no we're not no we're not we're not gonna be sued you know no one's gonna no one's gonna sort of you know take offense at that and and I think all the parties that we're dealing with I mean there's an awful lot of good faith here because they all want to see us successful and they're all sort of prepared to yes they have their own sort of selfish interests and they need to they they need to have you know their own fuel require um requirements satisfied you know at the prices that you know that they've negotiated for but everyone's willing to compromise a little bit to get the get the project off the ground. One of the other things I didn't mention which I think is pretty fundamental to our story now is that when we added back the green hydrogen to our design approximately 25% of our output um appears to qualify as ESAF under European rules and regulations. And we've this is this is something that probably has happened only in the last six months or so and so we've been out in the market talking to potential buyers and there's a tremendous appetite for ESAF and you know there's a higher price point for ESAF and that that that helps our business model but it's but it also helps our story right it's a it's a it's a very valuable product and that will definitely be delivered to Europe I want to come back to the the ESAF portion because I think that's really interesting and something that is pretty unique to to you guys.

Incentives Stack: RINs, LCFS, IRA

SPEAKER_00 32:18

But I want to take um a look at there's a really interesting bit on the website on your website where you talk about value that the St James Parish facility brings to the community that it's located in and how that actually brings this economic benefit to the area in which it's surrounded. So I just want to talk see if you could talk about the emphasis that you guys have put on that and why it's such a a big deal for that project and presumably for every project that you're gonna develop forth with we we hired um a professor at the I think University of Louisiana Lafayette who is is is sort of has built up this reputation of doing really thoughtful um economic studies of projects and when the numbers he came back to us with were were eye popping.

Locking Feedstock And Cost Controls

SPEAKER_01 33:16

So his conclusion um this was this probably goes back a a year or so and our by the way our projects gotten bigger since then so these numbers should have increased at least proportionately but at that time his conclusion was one of our projects on a present value basis bring$55 billion of um the initial initial GDP to to the state of Louisiana and you know at first I thought you know this is this is sort of shocking but I read it line by line and when you add up you know all the different you know property tax sales tax income tax jobs um sort of follow-on economic activity I think we have maybe 1500 or more sort of full-time workers during construction maybe 400 450 permanently and these are good jobs um they're not minimum wage jobs by by any stretch and you know and there's other things a lot of these these you know what we're trying to do is ideally we'd love to buy all of our feedstock our biomass you know in state and then the but but sort of the market for pelletizing bagas is or it's sort of the in the infancy of that industry. I think it's going to be more and more available over time. And maybe we can do a little bit to to start off but that's just an example. So it's great for um sort of rural economic development you know St. James Parish itself is pretty agricultural and so um you know it's it just it just brings a lot of economic activity a lot of jobs and honestly a lot of tax revenue um that that really I think is is um is appreciated and same thing in Nebraska same thing in the other places that we've looked at and so from a political standpoint um you know there's an awful lot of enthusiasm for projects like this.

SPEAKER_00 35:28

Do investors look at that and go that's an additional reason to invest in a DG in DG fuels or is that something that's not necessarily on the radar and it's fulfilling a slightly different role in sort of helping develop projects?

SPEAKER_01 35:44

That's a really interesting question I I I would say um it it really depends on who that investor is so if you just if you just look at at equity investors if it's if it's you know your who's who list of big private equity firms and and infrastructure funds probably less so um I think they always look to see well what kind of a relationship you know is this company and this project going to have with um you know with the community and and that's viewed as I mean you always want to make sure it's a situation where there's where there's a good relationship and there's no reason why we can't have a phenomenal relationship. In fact we've we've invested quite a bit already in establishing those relationships so um but I don't think they're primarily focused or motivated by by that type of thing. If the investor is a um you know more of a green fund or a a a a you know a policy driven fund then absolutely that's a you know that's a major consideration because the opportunities that a project like this can bring to individuals and families um you know in in Nebraska is a great example because I think I think out near Holdridge and I can't remember which company it was but there was there was a recent announcement of and I think it might have been a meatpacking or related company that went out of business and you know it's an awful lot of people out of work but a project like ours goes the other way all of a sudden anybody who wants a job can have a job and we do give priority to to people in the in the local community but even beyond that we need more than the local community can can generate so that it draws people into the community um hopefully as permanent residents so so there's a lot of sort of follow-on sort of virtuous circle benefits.

SPEAKER_00 37:47

There's a lot of stuff for ESG related investors that touch on the S and the G, not just the the environmental aspect which often gets a little bit sort of lost behind the the the environmental aspects as opposed to the social and the governance side yeah so um I'm now going to come back to the the ESAF portion and how you say 25% is eligible would be eligible as ESAF in the in the Europe in Europe roughly right so my first question is mildly facetious how do you how in the practical reality terms how do you separate 25% of your production and manage that from a a regulatory and transparency perspective because that's a big sort of concern and challenge that the industry is working against.

Managing Oversubscribed Offtakes

ESAF Opportunity And Exports To Europe

SPEAKER_01 38:42

So is that something that you're sort of working on or have you got a plan in place for sort of marking appropriately this e-suff eligible a little of both so if this were the type of thing where we actually had to segregate it and you know build different storage units and different sort of process streams you know we we would not do that. The only from a from a system standpoint um as I said before we have to add the green hydrogen component right so so we'll have the blue hydrogen coming in we'll have the green hydrogen coming in and um you know at some point um they just get mixed they get they get mixed together so so there is no segregation um yet uh and and and this is one of those areas where it's it's funny because I mean we started this company with the view that hey we don't necessarily have to be experts at European rules because we're an American company located in the US producing it in the US primarily selling it in the US well but but given the mandates in particular the submandate on ESAF you know we've we've grown up a little bit and you know with the help of a number of consulting firms you know we've been given we've been given sort of we've been educated on the opportunity to make ESAF. So yes we have to add you know a fairly substantial amount of additional capital expenditure to to bring in the green hydrogen but it's in the scheme of things it's well justified. So so look I I don't know how else to answer the question other than we have to keep really good records. We have to make sure that you know whatever documentation we need to justify um selling ESAF we we have to have those and all our contracts while we haven't finalized um the ESAF contracts yet the the understanding is it's all subject to because there's a higher price point it's all subject to you know getting final um certification and providing all the you know constantly providing all the documentation so that um a buyer uh who's paying ESAF prices knows they're actually getting ESAF. And I I suppose the extension to that too is if they if they change the you know the ESAF mandate, if they eliminated it then you know I'm not sure I'm not sure our contract can can stay in place at at those price levels. So it may be contingent on um you know the ESAF submandate sort of staying in place which I hear different things but but but most people think it's it will um do you think you're emblematic of a wider sort of industry change where US producers who are highly focused originally on the US market as this behemoth of aviation as untold potential in terms of customers there potentially opening their eyes slightly to other opportunities particularly in Europe with regard to the ESAF submandate and the the other mandates in place to as a look to exporting as a potentially rather than just using domestically I don't know I don't know because it it again it depends on maybe your pathway also where you're located logistics play an awful big role in this and so if you're if you're doing heifa and you're you know you're limited to trucks and rail as opposed to being able to put it on the water you know I think that makes the Europe you know the draw of the European market you know marginally less feasible. For us being right there you know on the Mississippi River export is is in some cases export might be cheaper to Europe than getting it to California right and so so for us it it makes a lot of sense I think if you were if you were a SAF producer and you said Europe is my market and I'm gonna focus on that's where I'm gonna sell it and I need to deliver it there, then I'm not sure you would make it in the U.S. You might you might try to find somewhere else where your where your where land was cheaper cost cost of operating was cheaper. On the other hand the you you got to balance that against the the tremendous incentives that exist for for making it in the US and so it's um it's a bit of a financial Rubik's Cube. And so um I think it works well for us in this hybrid model where we retain the flexibility to sell in Europe um where where it makes sense but also to sell it in the US and we have we have a lot of you know buyers Like right next door. So that works for us at this point in time. But I do think there's going to be evolution here, and you just have to stay flexible.

SPEAKER_00 44:11

How have you found the the last year or just over a year with the changing administration, the adjustments to the policy, the federal level policy incentives, and how that sort of restructuring is done? Because you mentioned it earlier, you are taking advantage of a lot of different policy, whether it's state level or federal level incentives. So has that been a tricky situation to manage? Or is it something that isn't it's sort of something that's more newsworthy and sort of good headlines, but doesn't necessarily affect you guys on the ground all that much?

Community Impact And Jobs

SPEAKER_01 44:48

I I think I think sort of the political aspects are always tricky. And so I would just say we want to be sensitive to it. I think really attractive to government people on both sides of the aisle. So there's environmental benefits that are obvious. But on the other side of the coin, it's domestically produced energy, it's economic development, primarily in rural areas, which has its own political constituency. It's um, you know, we have the ability to sell to the military, and there's aspects of our fuel that are, you know, really, I think, attractive to the military in terms of you know supply chain, in terms of having a 7% higher energy density, which gives larger, you know, more direct um performance uh benefits to uh to aircraft and helicopters, frankly, even um even tanks. I'm told, you know, you know, the equivalent of jet engines in some cases. So um there wasn't there was a you know some, as I recall in the last year, there's been some tweaking to the so-called IRA credits, and there was winners and losers. Um people who are trying to make synthetic fuel like like G fuels, everybody's doing it slightly differently. And so um, you know, when you change the rules, you know, there's some winners, there's some losers. For us, it was kind of a kind of a wash. Um, I think I think for some businesses it really hurt. Um for us, we we lost some things, we gained some things back, maybe got a little bit of certainty. And so um, you know, it it really did not it really did not affect our business model materially. In fact, we have a better, more robust bit uh financial plan than we had a year ago, I would say. And you know, we make every effort um that we can to highlight the benefits of our project to the current administration and and you know make the point that we believe that what we're trying to do is 100% in alignment with the priorities of the administration, and we believe that to be true.

SPEAKER_00 47:32

You guys haven't raised capital in a while now. I can't remember when the last time it was. You you'll be you should you'll be able to tell me. When was the last time you raised capital? About about three years ago. Three years ago now. So that that's quite a long time in a very capital-intensive industry. Have you got plans for doing other investment rounds soon, or is what's sort of the ongoing plan around? God bless you. Yeah.

SPEAKER_01 48:00

We're always thinking about it. So we've we've probably raised between our ourselves internally and through outside investors. I think we've raised 42 to 45 million dollars in total. Um we we hope we can reach FID later this year if if all goes according to plan. We we do need to raise more development capital to to keep us on track. You know, we have a number of we have a number of um uh interested investors that are sort of being teed up as we speak. You know, you never want to you know, don't want to count your chickens till they're hatched, as they say, but uh but we're in the middle of that process. But but a couple of things. One is you know, the better the story, the the easier it is for investors to get enthused and and want to participate. And also sort of the further you are along in the process in terms of visibility on FID, in terms of you know, your feed and FEL3 and sort of close your final sort of costing and pricing of the of the project you are, um, you know, I think the more attractive it is as a relative matter to to investors for coming in at this point in time. Awesome.

SPEAKER_00 49:21

Um one final question, Chris. What what what's the been the biggest challenge that you guys have been facing over the last two years, two or so years, sort of in the sort of the short sort of term for you to deal with?

How Impact Shapes Investor Interest

SPEAKER_01 49:37

That's a great question. I I think um you know, and maybe I'll answer it differently than you would expect. I think it's resilience. We we've had to be extremely resilient because someday someone's gonna write a book, particularly if if if and when we're we sort of acknowledged to be successful, someone's gonna write a book on all the ups and downs that have occurred over time. And I don't really have any capacity to retain memory of the bad things, but there have been ups, there have been downs. And sometimes it has to do with fundraising doesn't fall into place exactly when you want. Or um government policy changes a little bit, or there's the prospect of government policy changing and they haven't made a decision yet, so you have to live with uncertainty. Um, there's keeping all of the um all of the engineering efforts on track uh so that you can sort of keep keep to a timeline. It's keeping investors happy and making sure that we're being as transparent as we can to everyone, because these projects are complicated and they invariably take more time and more effort than you know, perhaps some of us naively thought five, six years ago, right? So it's really keeping the band together, keeping everybody moving forward, you know, coming up with a robust and resilient business plan and keeping the team positive and and focused and moving forward at all times. And so that's been the biggest challenge, but it's also been the biggest joy because I think I think we've done it.

SPEAKER_00 51:27

Awesome. If there are any ghostwriters listening, reach out to Chris and I'm sure he can he'll let you know when it's the right time to write to write this book.

SPEAKER_01 51:38

Absolutely. I've actually already been re- I've actually received a few inquiries from ghostwriters. So, you know, what's the carrier?

SPEAKER_00 51:47

That's amazing. Well, that means that almost certainly means that something's coming, and I'm sure it'll be a great, it'll be a great read as well. Chris, thanks so much for um for your time and for explaining everything about DG Fuels. It's been fascinating stuff.

SPEAKER_01 52:02

Great. Wonderful to talk to you, Oscar.