Overview

Global Clean Energy Holdings, Inc. (“GCEH”) is a U.S.-based integrated agricultural-energy biofuels company that, directly or through its subsidiaries, holds assets across feedstocks and plant genetics, agronomics, cultivation, regulatory approvals, commercialization, and biorefining and storage. Our strategy continues to be the full vertical integration of our supply chain from development of ultra-low carbon non-food based feedstocks to the production and sale of renewable fuels. Our business strategy also includes forming strategic partnerships along the entire supply chain that will allow us to rapidly scale our business. One of these strategic partnerships is with ExxonMobil Oil Corporation that allows us to access the wholesale and retail markets to monetize the fuels that we expect to produce at our Bakersfield, California, biorefinery (the “Bakersfield Biorefinery”) through the sale and distribution of the finished products.

Our integrated biofuels platform leverages our internal plant science research and development with collaborations with leading academic institutions, private researchers, farmer and cooperative partnerships for crop production, and strategic relationships for product sales and distribution. Our feedstock intellectual property rights and commercialization know-how are primarily held by Sustainable Oils, Inc. (“SusOils”), our wholly owned plant science agricultural subsidiary, and our Bakersfield Biorefinery is owned by our Bakersfield Renewable Fuels, LLC subsidiary.

The integrated field-to-tank platform is data driven, scalable and is a core differentiator that sets us apart from our peer group. By leveraging big data analysis across all aspects of research and development, feedstocks production, logistics and processing (biorefining), we aim to identify insights and efficiencies not otherwise discernable and to turn those inefficiencies into actions which directly reduce the carbon intensity of our fuels, reduce costs and improve bottom line margins.

SusOils is a plant science, commercialization and deployment company with an industry leading portfolio of intellectual property, regulatory approvals and deployment experience for Camelina sativa (“Camelina”). SusOils is engaged in the development of new and enhanced varieties of Camelina intended to advance key agronomic, genotype and phenotype attributes of the crop. SusOils owns patents on three varieties of Camelina, two utility development patents, and has another 13 patent applications in process. SusOils was also granted a first-of-its-kind feedstock-only pathway by the California Air Resources Board (“CARB”)for the production of renewable fuels under the Low Carbon Fuel Standard (“LCFS”) from its proprietary Camelina varieties. Our business plan is to utilize purpose grown Camelina from SusOils’ enhanced varieties that is processed into renewable diesel at the Bakersfield Biorefinery and then sold through our partnership with ExxonMobil Oil Corporation.

Camelina is a fast-growing, low input crop traditionally grown in rotation with wheat and other row crops. Camelina allows farmers to improve total farm economics through better overall asset utilization. As a dryland farmed rotational crop, Camelina does not displace food or create indirect land use change, which makes it unique as an ultra-low carbon intensity feedstock.

GCEH acquired Bakersfield Renewable Fuels, LLC (“BKRF”) in May 2020. BKRF owns a crude oil refinery that we are currently retooling and refurbishing into a biorefinery. The retooling and refurbishment is expected to be completed in early 2022, after which the Bakersfield Biorefinery will produce renewable diesel from both SusOils’s proprietary Camelina as well as a traditional slate of renewable feedstocks such as vegetable oils, waste fats, and greases. When completed, our Bakersfield Biorefinery will be the largest renewable fuels facility in the western United States and the largest in the country that produces renewable fuels from non-food feedstocks. At start-up BKRF will be the second largest biofuels refinery in the United States. Our integrated field-to-tank supply chain differentiates our company from most other biorefinery companies currently in the market today.

To further disintermediate the market for biofuels, we plan to co-locate agricultural and alternative energy technologies within the roughly 500 acre Bakersfield Biorefinery site by hosting both agricultural processing assets and biofuels production assets on the same site. When completed, this co-location will allow all the facilities to optimize operations, energy utilization, and logistics capacity. The co-location and integration of these systems can result in significant operating efficiencies, utility savings and other overall synergies across both the biorefinery and agricultural operations.

Organizational Information

GCEH is incorporated in the State of Delaware. GCEH’s principal executive offices are located at 2790 Skypark Drive, Torrance, California, Los Angeles County, California 90505, and its current telephone number at that address is (310) 641-GCEH (4234). GCEH maintains a website at: www.gceholdings.com. GCEH’s annual reports, quarterly reports, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and other information related to the Company are available on GCEH’s website and on the website of the Securities and Exchange Commission (“SEC”) at www.sec.gov. Our Internet websites and the information contained therein, or connected thereto, are not and are not intended to be incorporated into this Annual Report. Our common stock trades under the symbol "GCEH".

Summary Overview of Prior Business Activities and Recent Developments

Jatropha/Mexico Operations. In 2008, we launched our first venture to produce low carbon non-food based feedstocks for renewable fuels through GCE Mexico I, LLC (“GCE Mexico”), a Delaware limited liability company that we formed with two private investors. GCE Mexico was formed to own and operate renewable fuels feedstock farms in Mexico. We began with Jatropha curcas (“Jatropha”) which is a non-edible plant indigenous to many tropical and sub-tropical regions of the world, including Mexico. During the next seven years, GCE Mexico acquired three farms in Mexico, comprising just under 15,000 acres, and planted over eight million Jatropha trees, consisting of over 20 varieties of Jatropha trees from around the world on the farms. We also tested many other plant species, both perennials and annual in an effort to optimize the land we owned, and developed valuable procedures for optimizing both the crop and our farming operations. Camelina was one of those crops that we planted between the rows of the Jatropha trees. Although we harvested significant quantities of Jatropha fruit and seed from our Mexico Jatropha farms, many of the Jatropha varieties were susceptible to diseases, as a result of which the harvests did not meet our long term requirements for operating a commercial Jatropha only seed energy farm. As a result, we decided to pursue the commercialization of Camelina as our primary biofuel feedstock. Accordingly, in December 2015 we sold our three Mexican farms, retired the associated debt, and thereafter focused our resources on Camelina and Camelina-related biofuel opportunities. Although we sold the Mexico farms, we retained all of the rights to Jatropha varieties that we developed as well as retaining all of our other intellectual property rights to develop biofuels from Jatropha.

Following the divestiture of the Mexican Jatropha farms, we continued to develop our portfolio of oilseed intellectual property at our other research and development farm in the Caribbean and our plant research operations in the U.S. We also continued to develop the additional intellectual property and obtain regulatory approvals for both Jatropha and Camelina. As a result of these efforts, in 2015 the U.S. Environmental Protection Agency issued a pathway for Jatropha oil by approving the application we filed in 2011. This pathway allows Jatropha oil to be used as a feedstock for advanced biofuels, qualifying it to generate Renewable Identification Numbers (RINs) under the Renewable Fuels Standard (RFS2).

Although we continue to believe in Jatropha as a commercially viable feedstock for producing renewable fuels, we currently are not actively pursuing any Jatropha-related projects. However, we continue to own the Jatropha-related intellectual properties that we previously developed.

Acquisition and Development of Camelina Intellectual Property. On March 13, 2013, we expanded our renewable fuels feedstock operations by purchasing certain hard assets, patents, intellectual property and other rights related to the development of Camelina as a biofuels feedstock. Camelina is an annual plant from the brassica family that is grown in northerly regions of the United States, Europe and Asia. Camelina has the potential to produce oil seed crops economically because it generally requires less water and fertilizer than many conventional crops and can be grown on land that is normally unsuitable for food production or is fallow due to crop rotation. Our patented varieties of Camelina provide high and stable yields of seeds that produce a neat oil that can be used as a feedstock for the production of renewable fuel. The Camelina assets that we acquired included three issued U.S. patents on Camelina varieties, all of the seller’s intellectual property related to the research, development, breeding and/or genetic development of Camelina, germplasm, licenses, permits, certifications and approvals granted by any governmental agencies relating to Camelina operations, and certain trade secrets, know-how, and technical data. As part of the purchase in 2013 we also acquired Sustainable Oils, LLC, a Delaware limited liability company, the “Sustainable Oils” name, and the Sustainable Oils logo. Sustainable Oils, LLC was engaged in the development, production and commercialization of Camelina-based biofuels and FDA approved animal feed.

We currently hold our Camelina assets in, and operate our Camelina business through our wholly-owned subsidiary, Sustainable Oils Inc. (“SusOils.”). In February 2015, SusOils was issued the first-of-its-kind LCFS feedstock pathway through CARB for fuels based upon our patented Camelina varieties. As a result, SusOils’s proprietary varieties are currently the only varieties of Camelina that can be supplied into the California market and that qualify for LCFS credits. For additional information regarding our Camelina operations, see, “Item 1. Sustainable Oils, Inc. And Our Camelina Operations,” below.

Organizational Structure

The following is the current business organizational chart for GCEH and its wholly-owned or controlled subsidiaries:

Business Operations-Strategy

The Company’s overall business plan remains focused on vertical integration of the complete biofuels supply chain. The anchor to this approach is to develop proprietary technology that sets us apart from the industry. Since the commencement of our renewable fuels business more than ten years ago, we have been focused on the development and commercialization of feedstocks and feedstock-related intellectual property; and over the last three years we have been pursuing the final piece with the integration of a biorefinery. This integrated approach allows us to control our own feedstock cost and supply, produce additive feedstock volume into a structurally undersupplied market, and scale the business with margin protection and feedstock supply certainty.

Our path forward includes the further development of our technology to produce greater volumes of purpose grown feedstock, improved genetics to increase overall yield per acre, and improved plant oil chemistry to enhance biorefinery efficiency.

The integrated and data driven platform will facilitate our goal of “Driving to Zero” across all areas of the business, in particular the carbon intensity of our fuels.

Acquisition and Financing of Bakersfield Renewable Diesel Biorefinery

In the Acquisition on May 7, 2020 we acquired an existing crude oil refinery in Bakersfield, California. As described elsewhere in this Annual Report, we are currently retooling and upgrading the refinery’s existing infrastructure so it is capable of producing renewable diesel, a drop-in replacement for ultra-low sulfur diesel, renewable jet fuel, renewable propane and renewable naphtha.

The Bakersfield refinery that we purchased has over 80% of the equipment on-site that we need for our biorefinery, including a hydrogen plant, a hydrotreater, reactors, fired heaters, compressors, pumps, heat exchangers and storage tanks that are capable of storing up to 2.7 million barrels of product. The site is fully permitted for grid power, gas, water treatment and disposal. The refinery also has in place much of the logistics that the biorefinery will need, including a rail spur to the mainline of BNSF Railway Company’s freight railroad network, railcar facilities, pipelines and an 8-bay truck rack. We will have to refurbish some of the equipment, including the hydrogen plant, the hydro-processing unit, some of the storage tanks, and the automation controls, and will also have to make other structural upgrades to the rail system and pipelines. In addition, we have ordered certain specialized biorefining reactors, catalysts and process equipment. The engineering and construction, start-up and testing of the biorefinery is planned to take 18 to 20 months from the date of the Acquisition and to be completed in early 2022.

In connection with developing our new renewable fuels biorefinery, we licensed from Haldor Topsoe A/S certain proprietary processes, catalysts, and equipment designs for the hydroprocessing of natural feedstock, and have engaged ARB, Inc., a subsidiary of Primoris Services Corporation, to provide most of the services for the engineering, procurement, construction, and commissioning of the Bakersfield Biorefinery. In order to finance the costs of the Acquisition and the development, construction, completion, ownership and operation of the refinery, we have entered into two credit facilities pursuant to which we can borrow up to a maximum aggregate amount of $365 million (the “Financing Transaction”).

The Acquisition and Financing Transaction were completed through the following subsidiaries of GCEH, each of which is directly or indirectly a wholly-owned or majority-owned subsidiary of GCEH:

Share Purchase Agreement and Call Option Agreement

Effective as of April 29, 2019, GCE Acquisitions entered into a Share Purchase Agreement with Alon Paramount Holdings, Inc. (“Alon Paramount”) to purchase all of the issued and outstanding shares of Alon Bakersfield Property, Inc. (“ABPI”). ABPI was the owner of the Bakersfield refinery. The Share Purchase Agreement was amended on September 27, 2019, October 4, 2019, October 11, 2019, October 28, 2019, March 23, 2020 and May 4, 2020 and is herein collectively referred to as the “Share Purchase Agreement”. The total consideration paid for the shares of ABPI was $40 million. We obtained the funds used to pay the purchase price from funds we borrowed in the Financing Transaction described below.

Prior to the closing of the purchase and sale, ABPI converted its organizational form from a Delaware corporation to a Delaware limited liability company and, at the same time, changed its name to “Bakersfield Renewable Fuels, LLC.” As a condition to the Financing Transaction, on May 4, 2020, GCE Acquisitions assigned its rights under the Share Purchase Agreement to BKRF Senior Borrower. On May 7, 2020 BKRF Senior Borrower purchased all of the outstanding equity interests of Bakersfield Renewable Fuels, LLC for $40 million. As a result, BKRF Senior Borrower now owns Bakersfield Renewable Fuels, LLC, which is the entity that owns the refinery. In connection with the Acquisition, BKRF Senior Borrower agreed to undertake certain cleanup activities at the refinery and provide a guaranty for liabilities arising from the cleanup.

Concurrently with the closing of the Acquisition, GCEH and GCE Acquisitions entered into a Call Option Agreement with Alon Paramount pursuant to which GCEH granted to Alon Paramount an option to purchase from GCEH up to 33 1/3% of the membership interests of GCE Acquisitions. The option will expire on the 90^th days after the refinery has commercially operated for 90 days at certain target production rates. Under the Call Option Agreement, until the expiration of the option, GCE Acquisitions has agreed to not transfer the ownership of any of its subsidiaries other than those contemplated by the Credit Agreements entered into with the Senior Lenders and the Mezzanine Lenders, or to modify or amend the certain material terms of such Credit Agreements.

Senior Credit Agreement

BKRF Senior Borrower and its direct parent, BKRF Senior Pledgor, entered into that certain Credit Agreement, dated May 4, 2020, with a group of lenders (the "Senior Lenders") pursuant to which the Senior Lenders agreed to provide a $300 million senior secured term loan facility to BKRF Senior Borrower to enable BKRF Senior Borrower to acquire the equity interests of Bakersfield Renewable Fuels and to pay the costs of the retooling of the Bakersfield Biorefinery. The Senior Lenders consist of Orion Energy Partners, L.P., GCM Grosvenor and Voya Investment Management. Orion Energy Partners TP Agent, LLC acts as administrative agent for the Senior Lenders.

The senior loan bears interest at the rate of 12.5% per annum, payable quarterly. The principal of the senior loans is due at maturity, provided that the borrower must offer to prepay the senior loans with any proceeds of asset dispositions, borrowings other than permitted borrowings, proceeds from damage or losses at the refinery, and excess net cash flow. The borrower may also prepay the senior loan in whole or in part with the payment of a prepayment premium. As additional consideration for the senior loans, the Senior Lenders have been issued Class B Units in BKRF Mezz Borrower (see "BKRF Mezz Borrower LLC Agreement," below).

The senior loans are secured by all of the assets of BKRF Senior Borrower (including its membership interests in Bakersfield Renewable Fuels), BKRF Senior Pledgor's membership interest in BKRF Senior Borrower, and all of the assets of Bakersfield Renewable Fuels (BKRF Senior Pledgor, BKRF Senior Borrower and Bakersfield Renewable Fuels, collectively, "Loan Parties").

The senior loans mature on November 4, 2026. The Senior Lenders have a right to accelerate the maturity date of the senior loans upon the occurrence of an event of default. Events of default include, in addition to customary events of default, the change of control of a Loan Party, the breach of any material refinery-related agreement, the bankruptcy of any party to a material refinery-related agreement, the failure to substantially complete the repurposing of the Bakersfield Biorefinery by March 31, 2022, and the failure to meet certain project milestones by dates specified dates in the Credit Agreement.

Under the Credit Agreement, the Loan Parties have made a number of affirmative and negative covenants. These include, among others, limitations and restrictions on incurring other indebtedness, encumbering their assets, making distributions and other payments to affiliates, entering into transactions with their affiliates, and modifying material project agreements, in each case without the Senior Lenders' prior consent. Notwithstanding the foregoing, subject to certain limitations, the Loan Parties may obtain a working capital credit facility or facilities without the consent of the Senior Lenders.

Mezzanine Credit Facility

BKRF Mezz Borrower and its direct parent, BKRF Mezz Pledgor, entered into a second Credit Agreement, dated May 4, 2020, pursuant to which the Mezzanine Lenders have agreed to provide a $65 million secured term loan facility to be used to pay the costs of repurposing and starting up the Bakersfield Biorefinery. BKRF Mezz Borrower has not drawn down on the credit facility as of the date of this Annual Report. The Mezzanine Lenders, for whom Orion Energy Partners TP Agent, LLC acts as administrative agent, consist of Orion Energy Partners, L.P., GCM Grosvenor and Voya Investment Management (the "Mezzanine Lenders").

The mezzanine loans bear interest at the rate of 15.0% per annum on amounts borrowed, payable quarterly, provided that the borrower may defer interest to the extent it does not have sufficient cash to pay the interest, such deferred interest being added to principal. In addition, as additional consideration for the mezzanine loans, the Mezzanine Lenders will be issued Class C Units in BKRF Mezz Pledgor at such times as advances are made under the mezzanine loans (see "BKRF Mezz Borrower LLC Agreement," below).

Principal of the mezzanine loans is due at maturity provided that the borrower must offer to prepay the loan with any excess net cash flow. The borrower may also prepay the loan in whole or in part with the payment of a prepayment premium.

The mezzanine loans are secured by all of the assets of BKRF Mezz Borrower and BKRF Mezz Pledgor, including BKRF Mezz Pledgor's membership interest in BKRF Mezz Borrower.

The mezzanine loans mature in November 2027. The Mezzanine Lenders have a right to accelerate the maturity date of the mezzanine loans upon the occurrence of an event of default. Events of default include, in addition to customary events of default, the change of control of a loan party and any default under the Credit Agreement with the Senior Lenders.

The Loan Parties are subject to certain affirmative and negative covenants with the lenders. These include, among others, limitations and restrictions on the Loan Parties and their subsidiaries incurring other indebtedness, encumbering their assets, making distributions and other payments to affiliates, entering into transactions with their affiliates, and modifying material project agreements, in each case without the Mezzanine Lenders' prior consent.

BKRF Mezz Borrower LLC Agreement

On May 4, 2020, GCEH Acquisitions and BKRF Mezz Borrower entered into the BKRF HCB LLC Amended and Restated Limited Liability Company Agreement (the "BKRF Mezz Borrower LLC Agreement"). There are three classes of membership interests (Units) under the BKRF Mezz Borrower LLC Agreement: (i) Class A Units, all of which are held by GCE Acquisitions; (ii) Class B Units, all of which are reserved for the issuance to the Senior Lenders, and (iii) Class C Units, all of which are reserved for the issuance to the Mezzanine Lenders.

On May 7, 2020, concurrently with the initial funding by the Senior Lenders under the Credit Agreement, BKRF Mezz Borrower issued Class B Units to the Senior Lenders. At such time as the Mezzanine Lender advances funds under the Mezzanine Lender Credit Agreement, BKRF Mezz Borrower will issue Class C Units to the Mezzanine Lenders.

Until the later of (i) five years from the commercial operations date of the Bakersfield Biorefinery and (ii) the date the Senior Lenders have received two times the loan amount under the credit facility (the “Termination Date”), the Senior Lenders, as holders of the Class B Units, are entitled to receive quarterly distributions of 25% of the free cash flow until the Senior Lenders have received (collectively, from these cash distributions plus principal and interest on the senior loans) an amount equal to a 2X multiple of invested capital ("MOIC"), or two times the amount of the senior loans, for a total of up to $600 million, and, if the Termination Date has not occurred, thereafter quarterly distributions of 5% of the free cash flow until the Termination Date.

Under the BKRF Mezz Borrower LLC Agreement, the Mezzanine Lenders, as holders of the Class C Units, are entitled to receive out of the distributions by BKRF Mezz Borrower not paid to the Class B Members, the following:

The board of managers of BKRF Mezz Borrower is elected by the Class A Member. The holders of the Class B Units and the Class C Units have no voting rights in the election of such managers. Although the holders of the Class B Units and the Class C Units do not participate in the management of BKRD Mezz Borrower, certain actions require the prior consent of the holders of a majority in interest in both the Class B Units and Class C Units. These approval rights include any affiliate transaction on non-arm’s length terms, the issuance of certain equity securities by BKRF Mezz Borrower or its subsidiaries, any significant tax decision, any reorganization or other transaction or amendment to the BKRF Mezz Borrower LLC Agreement that would adversely affect the rights of the Senior Lenders or Mezzanine Lenders with respect to their respective Units; or any public offering of equity interests of BKRF Mezz Borrower or any of its subsidiaries. Other than these approval rights, the holders of the Class B Units and the Class C Units have no voting rights under the BKRF Mezz Borrower LLC Agreement.

Engineering, Procurement and Construction Agreement

GCE Acquisitions entered into that certain Engineering, Procurement and Construction Agreement dated April 30, 2020 with ARB, Inc. (“ARB”) pursuant to which ARB has agreed to provide services for the engineering, procurement, construction, start-up and testing of the Bakersfield Biorefinery. The agreement, which was assigned by GCE Acquisitions to BKRF Senior Borrower, provides for ARB to be paid on a cost plus fee basis subject to a guaranteed maximum price of $201.4 million, subject to increase for approved change orders. The agreement also requires ARB to substantially complete the Bakersfield Biorefinery within 600 days following notice to proceed from BKRF Senior Borrower, and to fully complete the retooling and start-up of the Bakersfield Biorefinery within six months thereafter, subject in each case to force majeure, certain change orders and certain other limitations.

Haldor Topsoe A/S License

Effective October 24, 2018, GCE Acquisitions entered into a ten-year, non-exclusive, non-transferable license agreement with Haldor Topsoe A/S, a company established in Denmark that owns certain proprietary rights relating to processes, catalysts, and equipment designs for the hydroprocessing of natural and synthesized hydrocarbons (including, without limitation, products from Fischer-Tropsch synthesis). GCE Acquisitions licensed these rights in order to produce renewable diesel from organically derived feedstocks at the Bakersfield Biorefinery. Concurrently with entering into the license agreement, on October 24, 2018 GCE Acquisitions also entered into an engineering agreement with the U.S. affiliate of Haldor Topsoe to have the hydroprocessing unit designed and built at the Bakersfield Biorefinery, and a catalyst supply agreement for the purchase of the catalyst to be used in the hydroprocessing unit. These agreements have been assigned to Bakersfield Renewable Fuels. To date, we have paid 80% of the Haldor Topsoe license fee, with the remaining balance payable when the hydroprocessing unit has been completed and is operational. The Haldor Topsoe license gives the Bakersfield Biorefinery the right to hydroprocess 5,475,000 paid-up annual barrels at the Bakersfield Biorefinery. If the Bakersfield Biorefinery produces more than the paid up annual amount, the Bakersfield Biorefinery will have to pay additional licensing fees.

ExxonMobil Oil Corporation Product Offtake Agreement

We have signed a binding Product Offtake Agreement (the “Offtake Agreement”) with ExxonMobil Oil Corporation pursuant to which ExxonMobil has committed to purchase 2.5 million barrels of renewable diesel per year from the Bakersfield Biorefinery, and we will be obligated to sell these qualities of renewable diesel to ExxonMobil. ExxonMobil’s obligation to purchase renewable diesel will last for a period of five years following the date that the Bakersfield Biorefinery commences operations. ExxonMobil has the option to extend the initial five-year term. Either party may terminate the Offtake Agreement if the Bakersfield Biorefinery does not meet certain production levels by certain milestone dates following the commencement of the Bakersfield Biorefinery’s operations.

Control, Operation and Management Agreement

In order to operate and manage the Bakersfield Biorefinery, we formed GCE Operating Company, LLC, a new wholly-owned subsidiary of GCEH. On May 4, 2020, BKRF Senior Borrower entered into a Control, Operation and Maintenance Agreement (“COMA”) with GCE Operating Company pursuant to which GCE Operating Company agreed to provide all necessary services required to supervise the construction of the Bakersfield Biorefinery and, after the completion of construction, to operate and maintain the Bakersfield Biorefinery. The COMA may be terminated by either party at any time for any reason. GCE Operating Company will not be compensated for its services under the COMA. However, GCE Operating Company will be entitled to be reimbursed for any operating expenses that it incurs in the performance of its obligations under the COMA, but which expenses were not paid from Bakersfield Renewable Fuel’s accounts, which expenses are expected to comprise primarily of labor expenses and overhead of GCE Operating Company.

Sustainable Oils License Agreement

Camelina is expected to be one of the primary biofuels feedstocks used to produce renewable diesel at the Bakersfield Biorefinery. Sustainable Oils, Inc., a wholly-owned subsidiary of GCEH (“SusOils”), owns multiple issued patents on varieties of Camelina that are suitable for commercial production in low-input agricultural areas in the U.S. The patented, patent pending and development varieties of Camelina provide high and stable yields of seeds that can be used as feedstocks for the production of renewable fuel. In order to obtain access to the patented varieties of Camelina, Bakersfield Renewable Fuels and SusOils have entered into a ten-year license agreement. The SusOils license grants Bakersfield Renewable Fuels the limited right to process, refine, produce, market and sell in North America Camelina oil biofuels that are derived from SusOils’s patented varieties of Camelina. Under the license agreement, SusOils also granted the Biorefinery a non-exclusive, non-sublicensable, royalty-free license to use the name "Sustainable Oils" and the Sustainable Oils logo to identify its biofuel as a product of SusOils Camelina. SusOils will manage all the business, farmers management and agricultural activities needed for the deployment of Camelina as a purpose grown crop for the Bakersfield Biorefinery. This includes identifying farmers to grow the SusOils Camelina.

In consideration for the rights granted under the SusOils license agreement, Bakersfield Renewable Fuels has agreed to pay SusOils, on a quarterly basis, a royalty of $0.01125 per pound of SusOils Camelina that is used at the Biorefinery. In the event that the Biorefinery does not purchase all of the Camelina that the farmers produce in any growing season, SusOils will have the right to market and sell such excess Camelina for its own account. The license is a non-exclusive license, and SusOils will continue to have the right to produce its own crop independent of the Bakersfield Biorefinery.

Camelina Farming Operations

In 2013, we purchased (i) certain assets, patents, and other intellectual property and rights related to the development of Camelina sativa as a biofuels feedstock (the “Camelina Assets”) and (ii) all of the membership interests of Sustainable Oils, LLC, a Delaware limited liability company. Sustainable Oils, LLC had been engaged in the development, production and commercialization of Camelina-based biofuels, including Camelina oil renewable jet fuel that was sold to the U.S. Navy for use in its aircraft, and FDA approved animal feed.

The Camelina Assets that we acquired included: three issued U.S. patents on Camelina Sativa varieties; all of the seller’s intellectual property related to the research, development, breeding and/or genetic development of Camelina; germplasm; licenses, consents, permits, variances, certifications and approvals granted by any governmental agencies relating to Camelina operations; the name “Sustainable Oils” and the Sustainable Oils logo; and certain trade secrets, know-how, and technical data.

We hold the Camelina Assets and operate our Camelina business through Sustainable Oils, Inc., a Delaware corporation that transacts business under the name “SusOils”. Sustainable Oils, Inc. currently is a wholly-owned subsidiary of GCEH. However, Sustainable Oils, Inc. has issued a non-transferable warrant for the purchase of 8% to Sustainable Oils, Inc.’s outstanding capital stock. The warrant expires on June 1, 2021 and is exercisable for a purchase price of $20 million.

SusOils owns the intellectual property and related know-how for farming of Camelina, is involved in, and funds, various research programs related to improving the growing characteristics and capabilities, including enhancing the yields, of Camelina. In 2019, SusOils supported approximately 500 acres of Camelina seed production for the purpose of generating certified seed for 2020 plantings. SusOils had approximately 1,500 acres under contractual production in 2020 and will significantly expand Camelina seed production in future years. SusOils will control certified Camelina seed production and development and may enter into business arrangements to accomplish the cultivation, production, storage and transportation of the Camelina feedstock.

In 2013, Camelina was approved as an advanced biofuel feedstock and granted a pathway under the US EPA Renewable Fuel Standard (RFS) program enabling it to produce D4 or D5 RINs from biodiesel, renewable diesel, jet fuel, heating oil, naphtha and LPG. The EPA’s evaluation confirmed Camelina and its co-products met the emissions reduction thresholds prescribed in 40 CFR § 80.1426 of the RFS. As a result of the approval, Camelina is at a competitive advantage over other oilseed crops current with an RFS pathway.

SusOils applied for and was granted a first-of-its-kind pathway from CARB in 2016. The feedstock-only approval applies to SusOils patented Camelina varieties only and must be combined with a biorefinery pathway like BKRF’s to produce a full well-to-wheels carbon intensity. When registered as a fuels pathway, Camelina-based renewable diesel’s carbon intensity is anticipated to be at or below that of other waste products like used cooking oil or distillers’ corn oil.

Principal Products

Renewable Diesel

The Bakersfield Biorefinery will produce renewable diesel as its primary product to be sold into the transportation sector, and it will also produce other co-products such as renewable naphtha, renewable propane, and renewable butane, which will also be marketed.

Renewable diesel is made from the same feedstocks as biodiesel, but a variety of favorable qualities distinguish it as a superior fuel, causing it to carry a price premium to biodiesel. To make renewable diesel, feedstocks such as Camelina, used cooking oil, tallow, or various vegetable oils are hydrotreated and isomerized to produce a fuel chemically identical to fossil diesel but with less contaminants. Since renewable diesel is chemically identical to fossil diesel, it can utilize the same infrastructure and can function as a drop-in, 100% replacement for fossil diesel; renewable diesel does not need to be blended like biodiesel for use in modern engines on the road today. Also, renewable diesel does not experience the cold weather performance issues, water absorption, or microbial growth of biodiesel. Finally, because of lower levels of contaminants, renewable diesel burns cleaner than fossil diesel, reducing emissions by up to 85% as well as reducing engine maintenance issues.

Biofuels Oil Feedstock

Our goal is to use Camelina as our primary feedstock at the Bakersfield Biorefinery. The feedstock oil needed for the production of renewable jet, biodiesel, renewable diesel and HVO that is currently available on the market today is primarily supplied from edible seed oils, including soy, canola (rapeseed), sunflower and palm. There are other types of feedstock that can be converted into biofuels, like animal fats and recycled cooking grease. Until our Camelina production ramps up to significant and sustainable levels, we will produce renewable fuels at the Bakersfield Biorefinery from seed oils, animal fats, recycled cooking grease and other types of feedstocks. However, our goal is to have Camelina oil produced from our patented Camelina varieties become the primary source of our biofuels feedstock. The significant advantages of Camelina over other traditional oilseed crops are that it is ultra-low carbon and does not compete for resources with other crops grown primarily for food consumption.

Camelina sativa is a member of the mustard family, a distant relative to canola, and a relatively new and attractive entrant into the biofuels feedstock sector. Camelina plants are heavily branched, growing from one to three feet tall and have branched stems that become woody as they mature. As the reproductive cycle progresses, seed pods form which contain many relatively small, oily seeds. Because there is no seed dormancy in Camelina, it can be grown in multiple seasons and has a very short maturity curve.

Camelina can produce seeds with relatively little water and can be harvested early. It is classified as a low input crop and can survive on low water/rainfall, and it requires less fertilizer than many other crops. Camelina can be seeded and harvested with conventional farm equipment, making it a perfect rotation crop for existing farmers.

Camelina seeds typically contain between 35-42% oil and are high in omega-3 fatty acids. This makes the oil very desirable for biofuels production and the meal left after the oil has been removed is a very good option for livestock feed—competing directly with soy and canola meal.

SusOils’ patented seed varieties perform reliably across a diverse range of agronomic settings and produce reliable yields, oil content, architecture, height, chemical composition as well as protein and fiber content.

Biomass Feedstock

Camelina produces a co-product from the oil extraction process which is a high protein meal that has been tested and approved by the Food and Drug Administration (FDA) as a livestock (animal) feed for cattle, chickens and pigs. This provides additional revenue and reduces the net production cost of Camelina oil, further improving feedstock economics.

Emissions Reduction Regulations

In response to anthropogenic climate change intergovernmental organizations like the United Nations and World Bank, as well as numerous governments, supranational organizations, like the European Union, and sub-national actors, like California and British Columbia, have implemented regulations to curtail the production of greenhouse gas emissions. Regulations are beginning to span and interlace cap-and-trade policies, low carbon fuel standards, renewable portfolio standards and carbon taxes, as well as others. The overarching objective is greenhouse gas (GHG) reductions and associated climate change mitigation. With the exception of a carbon tax, GHG reduction schemes utilize tradable credit that represent the reduction of a certain amount of carbon dioxide equivalent (CO₂e) or the production of a certain volume of fuel.

Renewable energy and energy efficiency projects make up the bulk of mitigation and reduction strategies currently deployed around the world. Biofuels have been the cornerstone of renewable energy policies since the beginning and offer regulators, end users and consumers a unique set of attributes that include sustainability, meaningful emissions reductions and economic and energy security. Furthermore, as biofuel policies evolve, first generation feedstocks, those based on, or derived from food crops are being replaced with second generation, non-food based crops like Camelina. Camelina is grown on land that is fallow for one reason or another or otherwise unsuitable for food crop production and as a result, sidestep the controversial food versus fuel tradeoff currently hampering certain feedstocks development. Camelina is grown on fallow rotational land or in other formats that do not displace food crops. This distinction between food and non-food is critical as regulated markets mature and policies shift to discourage the conversion of food into fuel.

In the United States, federal legislation called the renewable fuel standard (RFS) mandates that a certain volume of biofuels are blended into the fuel supply every year. In California, the low carbon fuel standard (LCFS) requires regulated parties to reduce the overall emissions of their fuels to a predefined ceiling. In both cases, renewable fuel producers generate tradable compliance instruments, which represent either a volume of fuel or a set amount of CO₂e reduction. These credits are then surrendered by regulated parties to demonstrate compliance. The RFS and LCFS require that fuels are made from approved pathways and feedstocks. Camelina has full EPA approval under the RFS to produce both D4 (biomass-based diesel) and D5 (advanced biofuel) Renewable Identification Numbers (RINs) under the Renewable Fuels Standard (RFS2).

In March 2015, California (CARB) approved a first-of-its-kind feedstock-only pathway for SusOils’s patented Camelina oil. The pathway only applies to SusOils's US Patent and Trademark Office-registered seed varieties - no other Camelina seed or oil can be used to produce LCFS compliant fuel. At a cumulative carbon intensity (CI) of 7.58 g/MJ, final fuels can be produced at less than 20. The result is that fuel producers and obligated parties in California can meet their LCFS emissions reduction requirements with significantly less fuel that would otherwise be required using traditional feedstocks like soybean (53 g/MJ). LCFS credits are generated based upon the carbon intensity of the underlying fuel, which means Camelina-based fuels will generate significantly more value per gallon than any other virgin oil-based fuel. By example, if the LCFS credit price is $200 /MT of carbon, Camelina biofuels can produce more than $1.00 more per gallon than soybean-based fuel.

Technology and Patents

Camelina: SusOils owns a number of patents and other intellectual properties and know-how related to the production and cultivation of Camelina as a feedstock. SusOils also has been issued a patent for a method of (non-GMO) transformation of Camelina plants and its agronomic qualities, and a patent for a method to alter and/or improve the fatty acid composition of a Camelina plant cell. SusOils currently also has 13 patent applications in process.

Jatropha: We do not currently own any patentable technology relating to our Jatropha operations. However, we have developed considerable know-how, trade secrets, and proprietary processes and procedures for farm development and operations management, and we own certain intellectual property related to the genetics of the Jatropha trees that were selectively bred and propagated by GCEH in Mexico and the Caribbean.

Any technology we develop will be in one of three main categories: (i) plant and soil sciences, (ii) agricultural technology and procedure development, or (iii) material processing and end use applications. Such technologies developed are expected to assist in reducing costs, improving efficiency and allowing us to move our products higher up the value creation.

Market

Renewable Diesel. Most renewable diesel in the United States is consumed in California, due to its strong LCFS program. In 2019, almost 700 million gallons per day (MMGal) of renewable diesel was consumed in California, compared to approximately 900 MMGal in the United States; most of the remaining renewable diesel is consumed in Oregon under its Clean Fuels Program. Domestic production accounted for roughly 500 MMGal and foreign imports accounted for 420 MMGal, most of which originated in Singapore. Domestic production is forecasted to increase significantly during the next five years as projects representing over two billion gallons per year of capacity have been announced by various companies; however, we only expect a portion of these projects to actually come online.

Since renewable diesel is a 100% replacement for fossil diesel, the total potential market is represented by the sum of biodiesel, renewable diesel, and fossil diesel consumption by the transportation sector, which was almost 4,000 MMGal for California in 2019. The United States transportation sector consumed 47 billion gallons in 2019. Canada will also represent an important market as it implements its own LCFS program.

Agriculture: When SusOil Camelina grain is processed, extracted neat plant oil and biomass is produced, the latter of which is a protein rich animal feed supplement similar to canola or soybean meal. The market for protein meal in the western United States is roughly 17 MMTPY (million tons per year), and is supplied primarily from interior states that grow and extract row crops like soybeans. The livestock industry in California’s San Joaquin Valley, which has among the largest concentrations of cattle and dairy procures in the US, imports virtually all its portion of California’s 5.7 MMTPY of protein meal from outside its borders. Domestic production of protein meal is estimated to be 125 MMTPY, which does not include imports from other parts of the world.

Environmental Impact

Biofuels have social, economic and environmental benefits that are a major driving force behind their adoption. Using biofuels instead of fossil fuels reduces net emissions of carbon dioxide and other greenhouse gasses, which are associated with global climate change and adverse regional health impacts. Biofuels are produced from renewable plant resources that “recycle” the carbon dioxide created when biofuels are consumed. Life-cycle analyses consistently show that using biofuels produced in modern facilities results in net reductions of greenhouse gas compared to using fossil fuel-based petroleum equivalents. These life-cycle analyses include the well-to-wheel energy equivalent of farming and production of biomass, including harvesting, conversion, transportation and utilization. Biofuels help nations achieve their goals of reducing carbon emissions and reducing importation of foreign oil. They burn cleanly in vehicle engines and reduce emissions of unwanted products, particularly unburned hydrocarbons, carbon monoxide and particulate matter. These characteristics contribute to improvements in local air quality and all associated health benefits.

We believe there is sufficient global demand for alternative, non-food based inedible biofuel feedstocks to allow a number of companies to successfully compete worldwide. In particular, we note that we are the only U.S.-based public company producing non-food based inedible oils for the production of biofuels, which gives us a unique competitive advantage over many foreign competitors when competing in the U.S.

The price basis for our oil and meal products will be comparable to their edible oil and biomass equivalents. To date, we have not identified any substantial effort being undertaken for the commercialization of other inedible oils that could compete with Camelina in the near term. With the growing demand for plant-based feedstocks, and the high price of oil and biofuels, we anticipate that we will be able to sell our plant oils, meal and biofuels profitably.

Employees.

As of September 10, 2020, we had 36 full time employees, of whom 32 were located at our Bakersfield Biorefinery and four were located at our corporate office. As of September 10, 2020, we also engaged 15 full or part-time contract employees and consultants. All of the employees who are located at the Bakersfield Biorefinery are employed by GCE Operating Company, LLC, the wholly-owned subsidiary of GCEH that operates the Bakersfield Biorefinery under the COMA. We anticipate that we will have to hire additional employees at the Bakersfield Biorefinery in the future to support our operational needs. We consider our relations with our employees to be good.