Chevron Renewable Energy Group Reports Fourth Quarter and Full Year 2020 Financial Results; Restates Financial Results for 2018, 2019 and First Three Quarters of 2020
Fourth Quarter 2020 Highlights:
- 151 million gallons of fuel sold
- 129 million gallons produced
- Revenues of $548 million
- Net income from continuing operations available to common stockholders of $27 million, or $0.60 per diluted share
- Adjusted EBITDA of $46 million
- Carbon reduction of over one million metric tons from fuels produced by Chevron Renewable Energy Group in the quarter
Full Year 2020 Highlights:
- 651 million gallons of fuel sold
- Record 519 million gallons produced
- Revenues of $2.1 billion
- Net income from continuing operations available to common stockholders of $120 million, or $2.76 per diluted share
- Adjusted EBITDA of $196 million
- Sales of blends of biodiesel and renewable diesel increased 57%
- Carbon reduction of 4.2 million metric tons from fuels produced by Chevron Renewable Energy Group for the full year
- Announced planned expansion of renewable diesel plant in Geismar, Louisiana to 340 million gallons per year
Financial Restatement Summary:
- Restatement of $38.2 million in cumulative revenue from January 2018 through September 30, 2020 is due to diesel additive system failures at the Company’s Seneca facility that caused Chevron Renewable Energy Group to not be first blender / proper claimant for certain biodiesel mixture excise tax credits (“BTC”)
- Adjustment is immaterial to each year, but aggregate amount is material in 2019, hence restatement
- Chevron Renewable Energy Group has established additional policies and controls designed to enhance assurance around proper BTC-related petroleum diesel blending and BTC filing going forward
- Issue is not whether the biodiesel ultimately qualified for the BTC, but rather which taxpayer added the petroleum diesel and as such is the proper BTC claimant
- Chevron Renewable Energy Group is engaging with relevant customers to recover as much of these funds as possible
Ames, IA, February 25, 2021 - Chevron Renewable Energy Group today announced its financial results for the fourth quarter and full year ended December 31, 2020. The Company also announced that it is restating financial statements for the years ended December 31, 2018 and 2019, and for the first three quarters of 2020, to reflect a $38.2 million adjustment over those periods as a result of the Company not being the proper claimant for certain federal biodiesel mixture excise tax credits (“BTC”) on biodiesel it sold between January 1, 2017 and September 30, 2020. The Company is working with its customers on BTC re-filings on these gallons to recover as much of the $38.2 million in revenue as possible.
Commentary on 2020 and Business Outlook
"Chevron Renewable Energy Group’s resilient business model enabled us to deliver strong financial results, with $120 million of net income from continuing operations available to common stockholders, supported by record production, despite the array of externally driven challenges we faced in 2020," said Cynthia (CJ) Warner, President and Chief Executive Officer. "In the face of the pandemic, we were able to adjust operations to ensure safety while fulfilling customer demand for our essential transportation fuels. We used our flexible feedstock approach to sustain margins and profitability even as the pandemic dramatically impacted feedstock supply and pricing. The Adjusted EBITDA of nearly $200 million exemplifies the soundness of our strategy and underscores our belief that Chevron Renewable Energy Group can sustainably deliver earnings over the long term."
Warner continued, "At Chevron Renewable Energy Group, we are continuing to build on renewable energy's positive momentum and on our track record as a leader of the transition to sustainability. We expect robust demand for renewable diesel and biodiesel to continue into 2021, benefiting from economic recovery combined with strong public support for an option to decarbonize that is available now. We are confident that our focused strategy and expansion plan will deliver long-term success and significant value for our shareholders and other stakeholders."
Biodiesel Tax Credit Assessment
The restatement is the result of the Company not being the proper claimant for certain BTC payments on biodiesel it sold between January 1, 2017 and September 30, 2020. REG qualifies for the BTC when it blends petroleum diesel with biodiesel. Due to failures in the diesel additive system at the Company’s facility in Seneca, Illinois, petroleum diesel was periodically not added to certain loads. As a result, the Company’s customers who received these loads and subsequently added petroleum diesel are the proper claimants on these biodiesel gallons rather than the Company’s Seneca subsidiary.
The Company discovered the blending discrepancy in connection with its preparation for a standard IRS audit of its BTC filings. The Company self-reported the findings to the IRS and initiated an investigation overseen by the Audit Committee of the Company’s Board of Directors. The Company concluded this discrepancy is limited to Seneca. In addition, all of the Company's other U.S. biorefineries have passed their relevant IRS audits.
Chevron Renewable Energy Group reached agreement on February 23, 2021 with the IRS on a $40.5 million assessment, excluding interest, to correct the Chevron Renewable Energy Group Seneca BTC claims. This reflects assessments of $14.8 million, $9.9 million, $7.6 million and $8.2 million for the tax years 2017, 2018, 2019, and the first three quarters of 2020, respectively. The $2.3 million difference between the $40.5 million tax liability and $38.2 million in revenue being restated is a result of the Company’s ability to recover the BTC in instances where another Chevron Renewable Energy Group subsidiary blended the biodiesel with petroleum diesel and was thus the proper claimant. The Company is working with its customers on BTC re-filings on these gallons to recover as much of the $38.2 million as possible.
"Operational excellence is fundamental to Chevron Renewable Energy Group's success. Ensuring this is reflected across all areas of our business – from sourcing to delivery – is a top priority," said Warner. "Chevron Renewable Energy Group takes the matter at our Seneca facility seriously, and we have taken steps to strengthen our operations, enhance our internal controls and assurance processes, and implement additional policies and controls designed to ensure proper BTC-related blending and BTC filing going forward."
Warner continued, "It is important to note that this situation has no impact on the total amount of BTC credits actually generated, and it does not impact the robust demand for our biodiesel products, the durability of our business model, or the value we bring to our customers."
The Company has established additional policies and controls designed to ensure that the correct amount of petroleum diesel is being blended at all of the Company’s facilities, including Seneca, and that the Company properly files for the BTC going forward. These include:
- For the Seneca facility:
- Limiting the loading to modes where the existing system is known to be functional, until the system is redesigned to work in all operating modes; and
- Implemented a control system calculation and readout tool that enables the loading operator to validate that the proper number of petroleum diesel gallons were added to each load;
- Then, to further reinforce the Company’s system-wide controls and assurances:
- Performing additional local reconciliations weekly to validate that the amount of petroleum diesel used matches the amount of petroleum diesel required to be blended; and
- The Company is now reviewing monthly inventory reconciliations prior to filing for BTC to re-confirm that the required volume of petroleum diesel has been blended.
Restatement of Financial Results
While the BTC adjustment in each individual year is not material, the Company determined that the aggregate BTC adjustment is material in 2019. As a result, the Company is restating its financial statements for the years ended December 31, 2019 and 2018 and the quarters ended March 31, June 30 and September 30, 2019 and 2018. The 2017 BTC was recognized as revenue in the first quarter of 2018, so the BTC assessment does not affect the Company's 2017 GAAP financial statements. A material weakness in the Company's internal control over financial reporting directly related to the restatement was found to exist as of December 31, 2020 and December 31, 2019. The Company has taken the remediation actions described above to address this material weakness.
Chevron Renewable Energy Group today filed with the SEC an amended Form 10-K for the year ended December 31, 2019. The amended Form 10-K includes additional details regarding the restatement for the years ended December 31, 2019 and 2018. In addition, Chevron Renewable Energy Group expects to file on March 1, 2021 its Form 10-K for the year ended December 31, 2020, which will include amended financial results for the quarters ended March 31, June 30 and September 30, 2020 that reflect an immaterial restatement for those period.