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As we move from research and development to commercial production, we plan to grow from both expansion of current production capabilities and through expansion of new locations and processors. In the future, we do not anticipate providing updates at a processor by processor level. However, in an effort to give a update, the following is the current status of our processors:
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Processor #1 – This is our first processor that was built and provided key research and development data. During the second quarter of 2012, processor #1’s reactor began displaying severe signs of wear due to extensive research and development performed on it since 2010. In order to maximize future production from this processor, the original reactor was replaced. This reactor included a more modular design and several technical improvements to the original reactor. Processor #1 then had to be reassembled with certain pieces of updated hardware, mainly piping and connections that accommodated this nearly 20% larger reactor. Processor #1’s reconstruction and upgrade was completed during the fourth quarter of 2012 and currently is in start-up mode, however, we did not produce any fuel from processor #1 during the third quarter of 2012. The lack of production from processor #1 during the third quarter of 2012 was a factor that negatively impacted our revenue from the P2O business.
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Processor #2 – This is the second processor which we built and began production late in the first quarter of 2012. During the latter part of the first quarter of 2012 and during all of the second quarter of 2012, processor #2 primarily produced No. 6 Fuel Oil and Naphtha. Early in the third quarter of 2012, we made the decisions that due to the considerably higher market price for No. 2 Diesel Fuel Oil as compared to that for No. 6 Fuel Oil and Naphtha, we would make modifications (i.e. the addition of a cyclone) to the processor to enable the consistent production of No. 2 Diesel Fuel Oil. The modification caused approximately two weeks of down time during July 2012. Since completion of this modification, processor #2 has been producing ASTM D975 #2, Fuel Grades 2 & 4. Processor #2 also continues to produce a small amount of light naphtha as a by-product of #2 fuel production. The Company continues to focus on producing high quality fuel products that have the potential to generate the highest revenue for us.
Additionally, during both July and August of the third quarter of 2012, we experienced issues with feedstock quality in the system that caused downtime. These issues resulted in the need to shut down the processor down and perform a full system clean out in order to remove the material causing the issues. The inability to process feedstock during these periods was a significant factor affecting our ability to generate more substantial revenue for the quarter. In September 2012, we were able to identify and remove the problem sources from our feedstock supply chain.
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Other – All of the components for a third processor in our Niagara Falls facility have been ordered and nearly all of the key components have been received. We will begin assembly of the third processor in the very near future in Niagara Falls. We are continuing to negotiate the final site details with RockTenn and have ordered many of the longer lead time components for this site.
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As mentioned above, during the third quarter of 2012, we were able to switch the output from processor #2 to a variety of fuel grades based on current market pricing. Routinely, our fuel buyers have communicated that they are very pleased with the quality of all of our fuel products. Our fuel is currently being sold without the need for additives or further refining, directly from our processors to our customers. We remain extremely satisfied with our processors’ ability to make a range of fuels, which allows us to take advantage of changing market conditions.
