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Clean Energy Gets Cash Infusion, Stock Bump

A strategic investment and new partnership with one of the world’s largest oil and gas companies has improved Clean Energy Fuels Corp.’s Wall Street story after years of financial losses.

Total SA in Paris is now the largest shareholder of the Newport Beach-based company after acquiring 50.8 million shares of common stock for $83.4 million.

Shareholders overwhelmingly approved the deal, which gave Total SA a 25% stake in the company and two board seats.

The markets also approved, boosting Clean Energy shares, which were trading at about $3.24 as of presstime, up 29.6% this year to a market cap of $494 million.

The equity investment, a first for Clean Energy, will link the country’s largest operator of natural gas fueling stations with a global giant that runs more than 16,000 fueling stations that generate $128 billion in annual sales.

The deal represents “a big endorsement by the fourth-largest oil company in the world toward natural gas as a vehicle fuel for heavy-duty vehicles,” Clean Energy Chief Financial Officer Robert Vreeland told the Business Journal.

The company will use the proceeds to fuel growth and shore up its balance sheet, improving its cash position and helping pay down convertible debt, which amounts to about $235 million through 2020.

In a separate agreement, and perhaps more influential, Total SA is opening a $100 million credit line for Clean Energy (Nasdaq: CLNE) to establish a leasing program aimed at putting thousands of new natural gas trucks on the road and pumping at one of its fueling stations across the country.

The initiative, scheduled to launch this quarter, is designed to eliminate the incremental cost between purchase and operation of natural gas trucks versus diesel counterparts.

That could amount to $40,000 over the life of a vehicle.

The agreement includes a five-year, fixed-rate discount on Clean Energy natural gas fuel to entice heavy- duty truck fleets.

“We think this is an important event and should help spur adoption,” Eric Stine, senior research analyst at Craig-Hallum Capital Group LLC, wrote in a recent investor note.

The Minneapolis-based investment bank estimates the program will fund about 2,500 trucks and could increase delivery by 37 million gallons annually starting this year.

Mixed Reaction

Clean Energy delivered 351 million gallons of liquefied and compressed natural gases last year, when it posted sales of $341.6 million, down 15.2% and a net loss of $79.2 million.

The company has lost $225.6 million in the past three years.

“We have the capacity,” Vreeland said. “It’s all about loading our stations with volume. We’re primed to do that.”

Raymond James & Associates Inc. analyst Pavel Molchanov is more bearish.

“The [liquefied natural gas] adoption curve for trucking remains slow, and there is emerging competition from [electric] buses,” he wrote in a recent note to investors.

The biggest adopters have been trash haulers and large fleet operators, such as FedEx (NYSE: FDX), United Parcel Service Inc. (NYSE: UPS) and The Kroger Co. (NYSE: KR).

St. Petersburg, Fla.-based Raymond James & Associates is staying on the sidelines, with a “market perform” rating on Clean Energy, which has had debatable success in other strategic deals through the years.

In 2011, the company raised $150 million from Oklahoma City-based Chesapeake Energy Corp. (NYSE: CHK) through a convertible debt offering to fund construction of 150 liquid natural gas fueling stations at Pilot-Flying J Travel Centers across the U.S. to form what it called America’s Natural Gas Highway, which now surpasses 500 stations.

A year later it struck a deal to buy two natural gas production plants and related technology on undisclosed terms from General Electric Co. (NYSE: GE) with $200 million in financing from subsidiary GE Oil & Gas.

Clean Energy said the plants would rapidly liquefy natural gas into fuel sold primarily at Pilot-Flying J truck stops.

“The partnership with Chesapeake was somewhat productive but brief, and the one with GE failed to materialize altogether,” Molchanov wrote in the investor note. “There is a mixed history of partnering with large strategics.”

Clean Energy ultimately found more cost-effective sources of liquid natural gas and decided not to build more LNG plants or access the credit line.

Promising Signs

The latest development comes during a period of high oil prices and a bump in Clean Energy’s share price, which often correlate.

West Texas Intermediate, the benchmark crude for North America, was trading last week at $65.09, off from a nearly four-year high of $72.35 in late May that was partly fueled by presummer travel, summer blend gasoline requirements and President Donald Trump’s decision to pull the U.S. out of the Iran nuclear deal and likely impose new sanctions on Iran’s economy and oil exports.

The company is in line to receive $25.5 million from a 2017 retroactive extension of the federal alternative fuels tax credit, positioning it to be cash flow positive with ample liquidity for its upcoming convertible debt payments, according to Craig-Hallum’s Stine, who has a 12-month price target of $6 per share.

The analyst said he believes Clean Energy can become a $1 billion revenue generator, with EBITDA eclipsing $200 million and earnings topping 50 cents per share.

“Clean Energy is in the early stages of a significant growth ramp driven by tightening pollution standards, volatile oil prices and an increased focus on both ‘green’ energy and domestically produced energy,” he wrote in an investor note. “With an economically viable alternative fuel, a recurring revenue business model and a favorable regulatory tailwind, we believe Clean Energy is a very attractive open-ended growth company that can become much larger over time.”

France, home of new Clean Energy shareholder and partner Total SA, laid out a plan in 2014 to phase out diesel fuel use in private passenger vehicles and introduced a system to pinpoint the most polluting vehicles, thereby limiting their access to cities. At the time, most French motorists drove diesel-fueled cars.

Clean Energy projects a net loss of $20 million to $25 million this year, in line with Wall Street expectations.

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