Seal Beach-based Clean Energy Fuels Corp. is calling a $150-million investment by Chesapeake Energy Corp. a game-changing boost in a sector that has faced plenty of skeptics.
The money from the second-largest natural gas producer in the country will help Clean Energy build some 150 liquid natural gas fueling stations at Pilot-Flying J Travel Centers across the U.S. The plan is to form what it’s calling “America’s Natural Gas Highway.”
Clean Energy develops and runs natural gas stations near airports, utility companies, colleges and universities, city yards and other places they’re likely to see a lot of use. For years it has struggled to become profitable due to a minimal number of stations offering natural gas, slow commercial adoption and cheaper fuel alternatives.
There are about 1,000 natural gas stations in the country and half are open to the public, according to Washington, D.C.-based Natural Gas Vehicles for America.
Clean Energy has annual revenue of more than $200 million and hopes to clear earnings hurdles by building a network of fueling stations for the largest segment of the market: heavy-duty haulers that consume some $30 billion of fuel annually. That dwarfs the public sector and waste management industries combined.
Construction is slated to begin immediately on the first phase of the project, with about 75 stations expected to be completed by the end of 2012. When the multi-year project concludes, major transportation arteries in California, Texas and the Midwest will have natural gas stations spread out every 250 miles or so.
“It’s the next critical piece in our development,” said Clean Energy cofounder and Chief Executive Andrew Littlefair. “I do think it’s generally a game changer.”
Wall Street Weighs In
Wall Street lent some credence last week as investors sent Clean Energy shares up double digits on news of the deal.
Bank of America Merrill Lynch followed with an upgrade to “buy” from “underperform.”
Analyst Steven Milunovich said a savings of up to $2 per gallon on fuel costs for natural gas-powered trucks could be enough of an incentive for truck owners to make the switch, even if a proposed tax break supporting conversion costs for trucks gets defeated in Congress.
The pay back time on conversions of trucks to run on natural gas—long a thorn in the side of the clean technology sector—could be cut to one or two years, he said.
“That’s what’s different about this today—we have an economic proposition,” said Littlefair.
The tax break is backed by legendary oilman and corporate raider T. Boone Pickens, who started Clean Energy as a tiny part of his Dallas-based Mesa Petroleum in the late 1980s. He split it off in the late 1990s.
Pickens and Littlefair have partnered with Chesapeake cofounder and Chief Executive Aubrey McClendon in the past to push natural gas, pitching it as a way to reduce oil imports and promote the use of alternative sources of energy.
War of Words
Pickens has been in a public war of words recently about legislation with fellow billionaire Charles Koch, chief executive of Kansas-based Koch Industries and cofounder of Americans for Prosperity, a conservative group that champions limited government and opposes the legislation.
One of Koch’s companies imports crude oil and benefits from ethanol subsidies, Pickens said on Bloomberg Television last week.
Littlefair said he believes the timing might finally be right for Clean Energy to seize on market opportunity and shifts playing out in the trucking industry and at the pump.
More Converts
There now are more than 1,300 natural-gas trucks in regular use at the Port of Los Angeles. The City of Los Angeles has its entire transit fleet running on natural gas.
The cost of diesel, hovering around $4 a gallon last week, is widening from natural gas, which was about $2.20.
Big companies such as Houston’s Waste Management Inc. have said the majority of their new fleets will be using natural gas as other corporations push sustainable practices.
Truck manufacturers also are turning to natural gas alternatives as demand increases, according to Littlefair.
The move to build new stations is expected to bring hundreds of new jobs here and throughout the country.
Clean Energy has hired more than 180 employees this year alone. It now has close to 900 workers, with about 100 in Orange County.
The economies of scale that would come with strings of natural-gas stations along major commercial highways will be crucial for the company.
“We’re way ahead of the crowd,” Littlefair said.
Oklahoma City-based Chesapeake made the investment through its newly formed subsidiary Chesapeake NG Ventures Corp.
Under the deal, Clean Energy convertible debt will be issued in three $50 million phases. The first investment closed last week and the other two will close in June 2012 and June 2013.
The debt carries an interest rate of 7.5% and is convertible at Chesapeake’s option in Clean Energy’s common stock at a 22.5% premium of the weighted average closing price of the 20-day period leading up the deal.
Clean Energy, under certain circumstances, can force conversion of the debt if its common stock is trading at a 40% premium to the conversion price.
The entire principal balance of each note is due and payable seven years after its issuance.
Clean Energy may repay each note in cash or shares of its common stock.
$1 Billion Total
The Clean Energy investment was one of two Chesapeake announced last week as part of a $1 billion initiative to promote the wider use of natural gas.
In the other deal, Chesapeake paid $155 million to acquire a 50% stake in Colorado’s Sundrop Fuels Inc., a clean energy provider.
