Management Comment
Commenting on the fourth quarter of 2023 and recent corporate events, Dr. Patrick R. Gruber, Gevo’s Chief Executive Officer, said “We released some detailed guidance in January of our expected uses of cash in 2024, and our fully-funded development plan for Net-Zero 1. We hope our shareholders will take a look at that and take note of our latest corporate investor presentation as well, which lays it out visually. Simply put: we ended the year with what we believe is enough cash to service the remaining spend by Gevo to deliver Net-Zero 1 in a project finance format. We don’t expect a need to spend more than that on the project. We believe Net-Zero 1 will be the cleanest ultra-low carbon ethanol and net zero sustainable aviation fuel plant in the world, and we are very excited to be working with McDermott and the U.S. Department of Energy on the requirements for a loan guarantee to help fund that construction.
We are pleased that our RNG business achieved strong utilization last quarter, including the capacity expansion we completed last year. We see significant embedded upside from that business to Gevo from a cash flow perspective, simply by continuing to operate it at the expanded capacity and delivering meaningful carbon abatement to our customers. We look forward to announcing Verity’s first revenue this year. And we look forward to working with our partner, LG Chem, on commercializing our Ethanol-to-Olefins (“ETO”) technology, which started pilot-scale production, to deliver ultra-low carbon plastics and materials to the world.”
Dr. Gruber concluded, “We are pleased that the Department of Treasury has made significant progress toward implementation of the SAF tax credits in the Inflation Reduction Act, starting with the guidance released in December 2023 confirming that an updated Argonne GREET method and model would be used for this purpose. We look forward to reviewing the final GREET model and guidance from the SAF Interagency Working Group and Department of Treasury. The guidance already given indicates that both carbon capture sequestration and improvements in agriculture are planned to be included in the section 45-Z rules once finalized. We believe science-based methodologies must be used to account for emissions reductions from feedstock production, encompassing climate-smart agriculture practices, as well as for emissions reductions from carbon capture and storage, to acknowledge, incentivize and increase carbon reduction efforts across the value chain. A growing market for SAF made from low-carbon feedstocks is expected to open up new markets for American farmers to sell their products.”
Full Year 2023 Financial Results
Operating revenue. During the year ended December 31, 2023, revenue increased $16.0 million compared to the year ended December 31, 2022, primarily due to sales of RNG and environmental attributes from our RNG project. Sales under our RNG project commenced in the third quarter of 2022. During the year ended December 31, 2023, we sold 313,572 MMBtu of RNG, resulting in biogas commodity sales of $0.7 million and environmental attribute sales of $14.8 million. Additionally, we recognized $1.3 million of licensing and development revenue from the agreement with LG Chem as well as $0.4 million from the sale of isooctane during the year ended December 31, 2023.
Cost of production. Cost of production increased $3.3 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the production and sales from our RNG project, which significantly increased in 2023, after the ramp-up phase, as well as lower costs at the idling Luverne Facility in 2023.
Depreciation and amortization. Depreciation and amortization increased $11.1 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a full three quarters of additional depreciation expense in 2023 for RNG assets placed into service in the third quarter of 2022 and accelerated depreciation on Agri-Energy segment assets due to shorter lives stemming from the impairment assessment during the third quarter of 2022.
Research and development expense. Research and development expense decreased $0.8 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a reduction of consulting expenses, partially offset by an increase in personnel related costs due to additional headcount added during the year ended December 31, 2023.
General and administrative expense. General and administrative expense increased $2.7 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to increases in personnel costs related to the hiring of highly qualified and skilled professionals, professional consulting fees, and stock-based compensation.
Project development costs. Project development costs are related to our future Net-Zero projects and Verity which consist primarily of employee expenses, preliminary engineering costs, and technical consulting costs. Project development costs increased $4.7 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to increases in personnel costs and consulting fees.