Montauk Renewables, Inc. (MNTK) on Q3 2021 Results - Earnings Call Transcript
Operator: Good afternoon, everyone, and thank you for participating in today's conference call. I would like to turn the call over to Mr. John Ciroli as he provides some important cautions regarding forward-looking statements contained in the earnings materials or made on this call. John, please go ahead.
John Ciroli: Thank you, and good afternoon, everyone. Welcome to Montauk Renewables Third Quarter 2021 Earnings Conference Call. I'm John Ciroli, Vice President, General Counsel and Secretary, at Montauk. Joining me today are Sean McClain, Montauk's Chief Executive Officer and President, and he will discuss business developments; and Kevin Van Asdalan, Chief Financial Officer, to discuss our third quarter of 2021 results. During this call, certain statements we make will be forward looking and based on management's beliefs and assumptions and information currently available to management at this time, including without limitation, statements relating to the company's future results of operations and financial conditions as well as our expectations and plans for the company, such as with our Montauk Ag Renewables asset acquisition, the Pico Improvement Project and Pico CI score. These statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control, including those set forth in our safe harbor provision for forward-looking statements that can be found in our third quarter 2021 earnings press release, in our Form 10-Q for the third quarter of 2021 and our most recent annual report on Form 10-K and in our other reports on file with the SEC, and that provides further detail about the risks related to our business. Additionally, please note that the company's actual results may differ materially from those anticipated. And except as required by law, we undertake no obligation to update any forward-looking statement. Our remarks today may also include non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures can be found in our slide presentation and in our third quarter 2021 earnings release and Form 10-Q issued and filed this afternoon. These are available on our website at ir.montaukrenewables.com. After our prepared remarks, we will open the call to questions. . With that, I will turn the call over to Sean.
Sean McClain: Thank you, John. Good day, everyone, and thanks for joining our call. I would like to start this call with an update on 2 important developments we are focused on as we continue to grow. In May 2021, we completed the Montauk Ag Renewables asset acquisition in North Carolina to purchase developing technology to recover residual natural resources from waste streams of modern agriculture and to refine and recycle such waste products through proprietary and other processes in order to produce high-quality renewable natural gas, bio oil and bio char. During the third quarter of 2021, we continue to execute on our plans for Montauk Ag renewables. In August 2021, we were granted a patent over 24 specific aspects of continuous feed closed-loop reactor technology acquired in the acquisition. We believe that the reactor enables near-zero emissions conversion of agricultural waste into multiple nonfossil renewable fuel alternatives, is capable of producing multiple units of renewable energy for each unit of conventional energy consumed and is capable of sequestering multiple tons of greenhouse gas equivalent emissions for every ton emitted. We expect the reactor with certain enhancements to better address some of the environmental challenges of industrial agriculture, including lagoon capacity constraints, watershed contamination, motor issues, nutrient abundances, and containment and disposal waste regardless of location or size. The reactor is operational, and we continue to make improvements to the reactor to optimize its functionality, and currently expect this facility to be commissioned with these improvements during 2022. In October of 2021, we also closed on a $5.4 million transaction to acquire approximately 146 acres and an existing approximately 500,000 square foot structure, which we plan to use as we expand the production processes acquired in the Montauk Ag Renewables acquisition. We have also executed master service agreements that provide access to wait speed stock for Montauk AG to process. The waste feedstock will be sourced from swine waste contained in anaerobic lagoons, and its removal will help to improve lagoon water flow and reduce capacity in the lagoons. As we commission and increase our production capabilities, we intend to add additional farms to these agreements as feedstock sources, which have the potential to secure more feedstock for our facility. I also want to provide an update on our Pico facility in Jerome, Idaho. During the third quarter of 2021, and as part of our overall previously announced capacity expansion at the Pico facility, we undertook significant efforts to improve the performance of the existing digestion process at our Pico facility. We have temporarily idled RNG production at this facility in order to clean out settled solids in the digester, replace the cover of the digester and make various other efficiency improvements. After the improvements are completed, we expect production to measurably increase from the current production levels of approximately 150 MMBtus per day once we resume full operations at the Pico facility, currently expected during the first quarter of 2022. The improvement project has impacted the time line for modeling Pico's initial CI score pathway model and subsequent auditing approval by the California Air Resource Board. We currently expect to submit the CI pathway model and reapply for a temporary CI pathway in the fourth quarter of 2021. The results of this approval could have a significant impact on our ability to generate LCFS revenues in 2022 on our 2021 production. And with that, I will turn the call over to Kevin.
Kevin Van Asdalan: Thank you, Sean. I will be discussing our third quarter of 2021 financial and operating results. Please refer to our earnings press release and the supplemental slides that have been posted to our website for additional information. Total revenues in the third quarter of 2021 were $39.7 million, an increase of $11.5 million or 40.7% compared to $28.3 million in the third quarter of 2020. An increase in the number of rigs sold accounted for over half were $6.9 million of the increase during the third quarter of 2021. Increased natural gas index prices of approximately 79.8%, have contributed to increases in our gas commodity revenues over the comparable period in the prior year. Higher revenues of approximately $1.3 million recognized under counterparty sharing agreements also contributed to this increase. As a reminder, we entered 2021 with forward commitments of approximately 50% of our expected 2021 RIN generation. These forward commitments were based on D3 rent index prices at the time of the commitment, which is now below the D3 rent index. As a result, realized prices for environmental attributes monetized in a year may not correspond directly to index prices in the current year due to the forward selling of commitments. Our current RIN commitments expected to be recognized during the fourth quarter of 2021 will be realized at an approximate average realized price of $2.09. We do not have any 2022 vintage RINs currently committed. Total general and administrative expenses were $7.5 million for the third quarter of 2021, an increase of $3.4 million or 82% compared to $4.1 million for the third quarter of 2020. Of the total quarter of 2021, $2.6 million related to stock-based compensation costs primarily associated with the IPO and reorganization transactions. Excluding the impact of IPO-related stock-based compensation, general and administrative expenses increased approximately $0.8 million. Corporate insurance for the third quarter of 2021 increased approximately $0.8 million or 99.64% compared to the third quarter of 2020 due to increased premiums associated with the IPO. Turning to our segment operating metrics. I'll begin by reviewing our renewable natural gas segment. We produced 1.5 million MMBtu of RNG during the third quarter of 2021, a decrease of less than 0.1 million MMBtus or 0.7% over the 1.5 million MMBtus produced in the third quarter of 2020. Of the third quarter 2021 volumes, 31,000 MMBtu of RNG was produced from development sites commissioned during 2020. Of the $0.1 million lower MMBtus of RNG produced at our other locations, this reduction relates primarily to wellfield issues at our McCarley facility. The collection system at the McCarty facility has been hampered by increased volumes of water impacting collection. As water volumes vary or increase, the ability to draw feedstock can be reduced. We are working with the landfill host to mitigate these matters, but expect this issue to continue into the fourth quarter of 2021. Revenues from the Renewable Natural Gas segment in the third quarter of 2021 were $35.0 million, an increase of $11.0 million or 45.9% compared to $24.0 million in the third quarter of 2020. The primary driver for this increase relates to RIN volumes sold during the first 9 months of 2021. During the third quarter of 2021, we sold 13.3 million RINs, representing a $2.8 million increase or 27% compared to $10.4 million in the third quarter of 2020. The increase was primarily related to inter-period timing of transfers of RINs as the majority of our RINs are self marketed, resulting in higher commitments for the third quarter of 2021 versus the third quarter of 2020. Average pricing realized on RIN sales during the third quarter of 2021 was $1.65 as compared to $1.54 in the third quarter of 2020, an increase of 7.1%. This compares to the average D3 rent index price for the third quarter of 2021 of $3.11, being double the average D3 RIN index price of $1.55 in the third quarter of 2020. Operating and maintenance expenses for our R&D facilities in the third quarter of 2021 were $8.7 million, a decrease of $0.3 million or 3% as compared to $9.0 million in the third quarter of 2020. Approximately $1.3 million of the third quarter 2020 operating and maintenance expenses related to development sites commissioned during 2020. Exclusive of the effects of these development sites operating and maintenance expenses for the third quarter of 2021 were $7.4 million, a decrease of $1.5 million or 17% compared to the third quarter of 2020. Due to fewer media change out and disposal expenses our McCarty, Atascacita and Apex facilities, operating and maintenance expenses decreased approximately $0.2 million, $0.2 million and $0.6 million, respectively, compared to the third quarter of 2020. Our Rumpke facility had decreased operating and maintenance expenses of approximately $0.5 million in the third quarter of 2021 due to general preventative maintenance work related to an annual planned outage. We produced approximately 43,000 megawatt hours in renewable electricity during the third quarter of 2021, a decrease of 6,000 megawatt hours from the 49,000 megawatt hours or 12.2% produced in the third quarter of 2020. The decrease is a result of engine maintenance at our Bowerman facility or 3,000 megawatt hours, and our security facility having 0 production in the third quarter of 2021 due to previously announced edging failures compared to 2,000 megawatt hours produced in the third quarter of 2020. Operating and maintenance expenses for our renewable electric facilities in the third quarter of 2021 were $3.5 million, an increase of $1.2 million or 51.4% compared to $2.3 million in the third quarter of 2020. We reported the results of Pico within the renewable electric generation segment until October 2020. And Pico contributed $0.6 million to the 2020 period. Exclusive of Pico, renewable electricity facility operating and maintenance expenses increased in the third quarter of 2021 compared to the third quarter of 2020 by $1.8 million or 102.1%. The increase is primarily a result of the timing of scheduled engine preventive maintenance intervals at our Bowerman facility which was approximately $1.6 million higher in the third quarter of 2021 over the third quarter of 2020. Operating profit in the third quarter of 2021 was $6.7 million, an increase of $1.9 million or 39.2% compared to operating profit of $4.8 million in the third quarter of 2020. R&D operating profit for the third quarter of 2021 was $16.0 million, an increase of $6.5 million or 68.1% compared to $9.5 million in the third quarter of 2020. Renewable electric generation operating loss for the third quarter of 2021 was $1.4 million, a decrease of $0.9 million or 198.5% compared to an operating loss of $0.5 million for the third quarter of 2020. During the third quarter of 2021 associated with our risk-adjusted analysis of the assessment of our Pico facility earn-out obligation we recorded a reduction to the liability of $0.7 million, which was reported within royalties, transportation, gathering and production fuel in our RNG segment. Turning to the balance sheet. As of September 30, 2021, $22.5 million was outstanding under our term loan and $36.7 million was outstanding under the revolving credit facility. The company's capacity available for borrowing under the revolving credit facility was $39.4 million. During the first 9 months of 2021, we generated $21.3 million of cash from operating activities, a 5.9% decrease from the first 9 months of 2020 of $22.6 million. For the first 9 months of 2021, our capital expenditures were $7.7 million, of which approximately $2.4 million of our first 9 months of 2021 capital expenditures were related to optimization projects at our recently commissioned facilities and $1.0 million related to the Pico feedstock amendment. Including acquisition costs of $0.3 million, we acquired assets for the Montauk Ag Renewables acquisition in North Carolina of $4.1 million. We present EBITDA and adjusted EBITDA metrics because we believe the measures assist investors in analyzing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Adjusted EBITDA for the 3 months ended September 30, 2021, was $12.8 million, an increase of $2.7 million or 27.2% over adjusted EBITDA of $10.1 million for the 3 months ended September 30, 2020. The increase in adjusted EBITDA in the third quarter of 2021 is primarily from our $11.0 million increased net income as compared to net income in the third quarter of 2020. This increase was partially offset by an increase in our income tax expense of $9.7 million as compared to our income tax benefit in the third quarter of 2020. I'll now turn the call back over to Sean.
Sean McClain: Thanks, Kevin. In closing, we want to provide our fourth quarter 2021 outlook. We expect RNG production volumes to range between 1.4 million and 1.7 million MMBtu with corresponding R&D revenues between $38 million and $46 million. We expect renewable energy electricity production volumes to range between 47,000 and 57,000 megawatt hours with corresponding renewable electricity revenues between $3.8 million and $4.7 million. And with that, we'll now pause for any questions.
Operator: . Your first question comes from the line of .
Unidentified Analyst: A 2.5% sequential increase in revenue and a $0.1 million increase in RNG from the second quarter is certainly a step in the right direction. But it looks like your RIN hedges that are considerably below market are still limiting your upside. Can you elaborate on the sequential improvement from the second quarter and provide some color as to the extent to which below-market hedges are rolling off into the fourth quarter and first quarter '22?
Kevin Van Asdalan: Sure. Craig. Thank you very much for that question. Yes, as we noted that when we entered the fourth -- 2021, we had forward committed throughout 2021 for the now below market hedges. Those will be rolling. We're still working through a few of those commitments in the fourth quarter of 2021, but we anticipate having more reasonable, and consistent with these 3 RIN price in commitments recognized in the fourth quarter this year, bringing that average realized RIN price up to $2.09, however, still significantly below that the existing D3 rent index. But we're working through the vast majority of those order commitments that are pulling down our realized sales price as compared to the existing index.
Unidentified Analyst: And will all that be done by the first quarter '22? And any more color on -- I know you talked year-over-year, but any more color on the sequential improvement.
Kevin Van Asdalan: Yes, we do not currently have any 2022 vintage rents committed starting in January 2022. So unlike last year at this time when we had 50% of our expected production forward sold. We do not currently have any commitments for 2022 vintage rents. So the underperformance of the rent that we've recognized throughout this year will clear itself by the end of the fourth quarter. And then in regards to the RIN sales improvement. Yes, we're -- it's associated with clearing through these inter-period transfers that we've experienced throughout the rest of the year. And finally, clearing off the closing out of the 2021 vintage by the end of the fourth quarter.
Operator: . There are no further audio questions at this time. I will now turn the call over to Sean McClain for closing remarks. We still have the question of .
Unidentified Analyst: Sorry. I thought we're limiting to a question, but if it's okay, I'll just try to finish off, if that's all right. So the Pico dairy RNG digester improvements, are those seen ultimately improving the CI score? I assume that they're intended to increase ultimate volume. And any idea if we could get a final CARB CI score in the first half of next year? Or could it take as late as the second half?
Sean McClain: The first question that you asked, Craig, relative to will some of the changes that we're making improve the CI score, make it more negative for that Pico project. The answer is it can. It can in a couple of different factors. One of the factors are the convergence of the manner in which we beat the digestion capacity through boilers as opposed to the legacy the electric engines that we have on site. That can have a positive impact to make the CI score more negative. The second piece of that is how the expansion of the herd by the 5 separate farms that we support for that project are allocated and the representation of the cattle that are under roof, which yields a higher collection of the volumes, which can have a positive benefit and more negative CI score as opposed to what the project had sort of pre expansion. As far as the second piece is concerned. We are in process of applying for those CI pathways. It is possible, but not definitive, that we can receive that score during sort of mid to late 2022.
Unidentified Analyst: Got you. And what drove that sequential drop of 4-megawatt hour, 4,000 megawatt hours from the second quarter in REG? And is the security projects engine repairs all done at this point?
Kevin Van Asdalan: Craig, I'll jump in. It's Sean. The Bowerman facility is doing presented the maintenance on and engine at a time, the Bowerman facility has 7 production engines, manufacturers suggested PM schedules have us taking an engine offline for routine preventative maintenance throughout 2021. That's generally the explanation for the decrease of Bowerman as compared to 2020 as all 7 engines were operational during 2020. And in regards to security, yes, our existing expectation is that facility will be up and running in the fourth quarter of 2021 and producing renewable electricity for us.
Unidentified Analyst: Great. And the guidance -- I mean things are getting better, but the guidance ranges are very wide. Is there a point in the future? Or what would it take for future guidance in coming quarters to narrow?
Sean McClain: It's a good question, Craig. We have not historically given any forward-looking guidance in the past. Obviously, this is the first time the company has issued guidance, albeit only for the fourth quarter. And we're looking to continue to refine that process and to give more helpful, more detailed narrower guidance to help drive modeling and investment purposes.
Unidentified Analyst: Okay. And last question for me, sorry to go on so long. I know you've historically focused on diversification and flexibility across your revenue stream, including project types, offtakers, emission credit regimes as well as limiting the duration of your fixed or floor price offtake. If I understand that your fixed floor price offtake on RNG is maybe 3 to 5 years. But after the close, a pure landfill gas operator announced a 21-year fixed price RNG offtake agreement with a gas utility. Do you plan to continue to limit the duration of offtake hedges? Or could you start laddering your offtaker contracts to diversify across time as well?
Sean McClain: Our intentions and our strategy that we're currently deploying for fixed versus market of the attributes, predominantly the RNG, is to ensure that the fixed component is sufficient for all of our working capital purposes sufficient for a near-term line of sight to the development capital that we need for any due diligence, any transactional costs in the initial stages of any additional expansion projects or expansions of existing projects or potential acquisitions of portfolios or projects or technology like we did with the North Carolina acquisition for Montauk Ag. The reason for that is the growth of the attribute programs under which we monetize. And with that growth has come opportunities to not only look at potentially locking those opportunities longer than your 3- to 5-year duration, but more importantly, has made opportunities like what we do to enable the export of our fuel products into the EU at prices that are starting to become more and more competitive with the domestic attributes opportunities that we have on the spot market here today. And so as we continue to move into 2022, we're optimistic to look to continue that balance of walking what we have to ensure the working capital needs, but to allow for the monetization of those attributes at prices that are more conducive similar to your first question, at what point will our market prices be more in line with what you see in the attribute spaces for RINs and LCFS credit today. We're committed to have a portion, a majority of our portfolio start to reflect those current prices, but at the same time, constantly keeping abreast of opportunities that allow for us, not necessarily limited to utilities or 10- or 20-year agreements, but looking at long-term fixed price offtakes, domestic and abroad.
Operator: Your next question comes from the line of Craig Irwin of Roth Capital Park.
Craig Irwin: That's close. Congratulations on the really strong quarter here. So I just want to ask about is the Carty Road. The facility had some bumps along the way. It's still a very large chunk of your RNG production capacity. How should we look at potential volatility there? Is this something that every year or 2, there are items that you come up and you have to address? Is this a highly unusual situation given that you've owned this facility for many years? And how volatile is the production out of major facilities like this?
Sean McClain: That's a great question, Craig. One of the difficult challenges of highlighting a specific facility in your earnings releases is it does bring into question the reliability of the facility itself or the predictability of the facility. That large facility in Houston area is well maintained. It is an older facility that has a very strong regimen of operating and maintenance protocols. It has been subjected to a number of failure incident in the last 2 years that were specific, isolated, and are not expected to reoccur. The items that resulted in those failures were met with a combination of insurance coverage or met with a combination of critical spare deployments even so much as the larger componentry of the compressors that were at those facilities and were immediately responded with any adjustments or embellishments of our maintenance protocols as long in addition to the replacement of the critical spares themselves. So the expectation is that those items are isolated and they won't reoccur. The overall volatility of the type of production in our RNG facilities will always be subjected to some form of ebbs and flows in the landfill itself, everything from the type or componentry of the waste intake. Large weather events that can bring in high degrees of construction materials, which could elevate levels above the normal or optimized production capability or removal capability of our production facilities. Weather events can cause water, changes in filling patterns of landfills as they move from one phase of the landfill to the next, cause a sort of follow-on adjustment or pairing with our ability to maintain and enhance the collection system itself. All of those items are all and all over the life cycle of these projects relatively balanced, and they're done so to prioritize production and also do so as a complement to what the landfills are doing themselves. But definitively, we would not look at this facility as an anomaly that would have a disproportionate level of occurrences either in terms of mechanical failures or in terms of systemic issues associated with the landfill just so happens that this particular facility has had a number of events that have been in sequential reporting periods.
Craig Irwin: Understood. So my second question is, you guys were the first RNG company to a pure-play RNG company to get public, right? I guess, had their portfolio that was pretty successful for a while between here and there, there's been a lot of others to work to chase you into the market. People are excited about the carbon reduction potential and the profit that's available in that. But there have been a couple of sale transactions, companies that have gone out with business plans and list of projects they look to build, but limited real-world experience. Some of them got substantial capital upfront before they really even got nothing built. And I was hearing that they were pushing prices on different opportunities out there. and that the site hosts were skeptical, but others weren't. Can you maybe talk a little bit about the market psychology out there on the part of your customers. You do work with many of the biggest names in environmental waste, what's the appetite for new project development? Are people rational about their expectations for projects that are available for investment. How do you see this playing out for Montauk over the next few years?
Sean McClain: We see the market as the most exciting that we have operated in, at least with my tenure in the organization going on 11 years. The market is very dynamic in terms of opportunities to enhance or convert landfill projects from medium to high to BTU to take landfills that have not yet reached NSPS compliance and make them viable projects. The opportunity of the virtualization of pipelines are making projects that you would normally look at because they're not a size to justify the economics of the build and operation to projects that can be clustered together because of the prevalence or the cost reductions you're seeing of pipeline virtualization across the country, the exciting opportunities to deviate from a core landfill gas business into fuel decarbonization, agriculture projects are very exciting. They do come at very commanding multiples oftentimes when these projects are sort of at least initial stage developed and then they're put out into the transaction space, but we're seeing such an abundance of opportunities to grow existing projects that we are incorporating already into our portfolio and then paving the way into North Carolina to specifically address the swine waste opportunities across that state in particular right now, there is an abundance of opportunity for folks that know how to develop projects that know the realistic economics of those projects to easily come in and to secure long-term agreements from the waste intake, the monetization of those attributes and to be able to work closely with partners to be able to get those projects off the ground from a material standpoint and equipment standpoint and a deployment standpoint. And so the motion, the tenor of the marketplace right now is still very exciting. It is more aggressive than it's been in previous years in terms of how many projects are coming to market. We have looked at more project opportunities in the past 6 months than we've probably looked at in the past 3 years. And those opportunities continue to come to a business like Montauk, that has been in this space going into its fourth decade that knows that we can effectively model those projects. We know the economics behind it. We know how to stress test those projects to ensure that they will not only do well in thriving attribute markets like we see today or if the prices start to normalize, either due to regulatory changes or there being a lesser economic barrier to entry at this point with the prices where they're at now. that those projects as the prices start to normalize, there's still strong contributors to our portfolio and to be able to articulate why we may pass on a lot of opportunities because they're not as strong as they look at on their white paper or models of grand expectations that a transaction might present to a buyer or a potential buyers such as us. Does that answer your question, Craig?
Craig Irwin: Absolutely. No, it definitely does. It definitely doe. One of the criticisms out there that third parties are making right is that their people are whispering. There's no growth at Montauk. We know that that's just categorically not true. But can you sort of lay out some approximate guidepost is what you see as a clear growth rate that's both responsible and achievable for Montauk over the next number of years? What would you also call out as risks for pushing the pedal maybe a little too hard on growth versus what you typically target?
Sean McClain: The business is not currently excited over opportunities that are buying EBITDA off of its balance sheet. It's looking for projects that add accretive value to the portfolio, but are doing so in a way where, one, we are prioritizing good stewardship of the environment. These are projects that definitively produce renewable energy at multiples of fossil fuel parasitic usage, projects that can sequester multiples of the carbon minimis, opportunities to do those projects and also add value to the host businesses that give us the opportunity to be on their space to be part of their projects and to add value to solve environmental needs to avoid folks from not being able to manage their core businesses. And then thirdly, to do so at project strength that allows for normalization of pricing that allows for flexibility in your cost per unit of operations to allow you to push the envelope a little when prices justify that strategy but to also dial it back in the event that you sort of have a normalization of pricing and a allow for you to focus on more sort of steady-state operations. What we see as opportunities is the ability to continue to take advantage of existing strong long-term relationships with projects that are in our portfolio that have room for expansion, room for conversion, room for growth with a line of sight to the type of fuel that we are managing, the type of feedstock, the relationships with those hosts, existing pathways for attributes, both at a federal state level and even internationally. And to be able to take advantage of those line of sight projects. So we definitively expect those opportunities to be in the near-term future for the company. Beyond that, as we had mentioned, we are evaluating multiple transaction opportunities for midstream projects, late-stage projects, portfolios of projects that span the gamut between landfill projects and also agriculture. And we're looking at those projects under exactly the same criteria that we had just mentioned and prioritizing the progress that we're making on those not only with the burden and opportunities that we have with the existing portfolio. but also the opportunity to add meaningful value, increase or broaden the relationships that we have in the industry and the counterparts that are the likes of landfills and agriculture farmers. And then thirdly, the exciting opportunity that we have to go into North Carolina and to deploy a now patented technology that is more efficient than other forms of traditional anaerobic digestion that can solve real needs of swine farming communities that are pressed with pressures from an environmental standpoint to maintain increase, in some cases, by decrease of their farming operations and to do so in a way that is complementary to other folks that are in that space to address waste that cannot be done with traditional anaerobic digestion because of the need for microbes, the ability to do it in a modular way that allows you to scale very quickly allows you to do so strategically in proximity to dozens of farms in clusters through these material feedstock service agreements that we'll have with these folks, and the ability to do so multiple times as we move on as a core component of our development strategy. So all of those items will be the way in which Montauk will approach its growth and then continue to look for ways to maximize the value it gets from that growth, to have a large part of the portfolio to continue to be self-marketing in these growing federal and state attribute programs, to allow for it to take advantage of its pathways to ultimately have their fuel utilized internationally at prices that will be respective of the federal and state attributes that you can receive domestically at the time that you bid into those international opportunities. And then lastly, to find ways to continue to look for a diversification of products, in particular, with the deployment of this technology in North Carolina to reach beyond the confines of traditional electricity and RNG production and just start to look at electric generation that comes from oil and char products, the ability to look at soil and then the product sales, the ability to get service revenue from the soil remediation and the good remediation efforts that we'll have in the farming community. So it is definitively a very exciting time for Manta from a growth standpoint.
Craig Irwin: Perfect. And then last question for me, if I may. You have a, I believe, a very large chunk of your RNG production that is hedged where those specific hedges, I believe, roll off at the end of this month. Can you talk to us about your considerations for potentially entering new hedges? Or has Montauk ever historically operated at unhedged on more than half of its production what do you see as a reasonable outlook?
Sean McClain: The company has almost exclusively operated at less than 50% of its products being hedged. The phenomenal -- right, the phenomenon that we are rolling off this year is -- again, it's a byproduct of the uncertainty in the 2020 political election, where there was an appropriate amount of production hedged to sort of counterbalance. And again, taking the approach that in a variety of scenarios that could have come out of that election, what would be the responsible level to ensure that you have sufficient cash flow from operations and from a development standpoint near term. Coming out of 2021, where Kevin had previously mentioned that none of our 2022 vintage RINs have been committed. You always have a little bit of a chasing the market index, if the market continues to rise from a price standpoint, you'll always be trailing a month or 2 in terms of the settlements of those commitments. So you won't be always 100% paired with the markets. But it will track much more closely than it has in this particular year. We're always looking to hedge a component of the portfolio. And to break that apart, hedge not in terms of forward sales of your attributes, but hedge in terms of fixed price offtake the fixed price offtake will be a component of the play that we have into the European Union. We'll continue to look at opportunities to take medium- to long-term fixed price opportunities. We do look at opportunities to hedge with utilities. Those do present themselves, but they do present themselves in this space at substantial discounts off of what the marketability is for your environmental attributes. So it is a very calculated equation to determine whether or not that makes the most sense for the business given the growth trajectory that it's trying to achieve.
Craig Irwin: And a question of clarification just for people that are maybe new to the story or haven't followed us closely. Can you remind us approximately when those hedges were entered?
Kevin Van Asdalan: Yes. It was throughout the fourth quarter of 2020, Craig. Yes, September, October, November time frame before the election was settled in January of 2021, definitively or December of 2021. So I think if you go back and track what the D3 index was throughout the fourth quarter of 2020, you'll see some price points that are, again, just significantly below the index price that D3 RINs are currently trading at.
Operator: . There are no further questions at this time. I will now turn the call over to Sean McClain for closing remarks.
Sean McClain: Thank you, May. And thank you all for taking the time to join us on our conference call today. We look forward to speaking with you again on our 2021 year-end call.
