Refinery owner reaches deal on completing renewable diesel conversion by April
Jan. 20—An agreement has been struck to finish converting part of the former oil refinery along Rosedale Highway into a renewable diesel plant no later than March 31, potentially rescuing an overdue project that has greatly exceeded its original budget.
Long Beach-based owner Global Clean Energy Holdings Inc. this week unveiled an amended contract that raises by a third the maximum cost of the project's primary engineering, procurement and construction contract. The accord signed Jan. 10 also spreads out GCEH's payment deadlines and establishes a system for resolving a backlog of unexpected expenses accrued by Taiwan-based contractor CTCI Corp.
The two parties' agreement represents a big turnaround from mid-November, when GCEH warned its very survival was on the line if it could not raise money to conclude the job, now a full year behind schedule, after its overall project costs jumped to $510 million from its original estimate of $200 million.
"Is (the amended agreement) good news for the project? Yes," Bay Area refinery consultant Ian Goodman, who is not part of the project, said Friday.
Bakersfield Renewable Fuels LLC, as the local subsidiary is known, would become California's largest producer of renewable biodiesel, a transportation fuel to which state government has attached beneficial subsidies because of its potential to reduce greenhouse gas emissions. GCEH proposes to make 15,000 barrels per day of the fuel using animal fats and other organic sources as feedstock.
On Tuesday, GCEH filed with the U.S. Securities and Exchange Commission its amended deal with CTCI, which took over the job in mid-2021 after an earlier engineering consultant was let go. The agreement's primary provision was that it raised CTCI's guaranteed maximum price to $275 million.
That sum, up from the previous cap of about $205 million, does not include millions of dollars in change orders that remain to be fully addressed and which the accord acknowledges could yet lead to a lien on the property or other legal action.
GCEH said by email Friday the unresolved expenses are not holding up progress on the conversion project.
"CTCI continues to work diligently to complete the project and the parties continue to meet regularly to resolve any items between them," wrote Amanda Parsons DeRosier, GCEH's vice president of investor, public and community relations.
Notably, the amended agreement allows GCEH to reimburse CTCI for its services in 18 monthly installments plus interest, not including change orders. Goodman said that gives the owner time to generate revenue at what is, at least for the present, a time of high energy prices.
Another significant detail, as Goodman saw it, was that the deal came with a payment guarantee from GCEH, rather than leaving only Bakersfield Renewable Fuels on the hook. He called that a sign the holding company was putting more "skin in the game."
"It's an expression that they don't think the project is such a disaster that they'd rather walk away from it," Goodman said. "They think it's worth finishing it."
The project's outlook has clearly improved since last fall, when GCEH reported having lost $15.3 million in the third quarter, nearly a third more than it lost during the same period a year before. At that time, it said it was trying to raise tens of millions of dollars so that it could complete the project after encountering problems ranging from supply chain issues and employee turnover to engineering delays.
When that news hit, observers noted that other refinery projects had encountered similar problems, even as they expressed surprised at the scale of the challenges along Rosedale. They said it appeared the owners had badly underestimated the project's difficulty.
Goodman said one takeaway from this month's contract amendment is that the project is mostly done — "because there's not that much you can do in 2 1/2 months. So, I hope for their sake there's not going to be too many more delays."
