Opal Fuels - Q2 2024

Transcript

Operator (participant)

Welcome to the Opal Fuels second quarter 2024 earnings call and webcast. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. As a reminder, this event is being recorded. I would now like to turn the call over to Todd Firestone, Vice President of Investor Relations, to begin. Please go ahead.

Todd Firestone (VP of Investor Relations)

Thank you, and good morning, everyone. Welcome to the Opal Fuels second quarter 2024 earnings conference call. With me today are co-CEOs Adam Comora, Ann Anthony, and Jonathan Maurer, and Scott Contino, Opal's Interim Chief Financial Officer. Opal Fuels released financial and operating results for the second quarter 2024 yesterday afternoon, and those results are available on the Investor Relations section of our website at opalfuels.com. The presentation and access to the webcast for this call are also available on our website. After completion of today's call, a replay will be available for 90 days. Before we begin, I'd like to remind you that our remarks, including answers to your questions, contain forward-looking statements which involve risks, uncertainties, and assumptions. Forward-looking statements are not a guarantee of performance, and actual results could differ materially from what is contained in such statements.

Several factors that could cause or contribute to such differences are described on slides 2 and 3 of our presentation. These forward-looking statements reflect our views as of the date of this call, and Opal Fuels does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this call. Additionally, this call will contain discussion on certain non-GAAP measures, a definition of non-GAAP measures used, and a reconciliation of these measures to the nearest GAAP measures included in the appendix of the release and presentation. Adam will begin today's call by providing an overview of the quarter's results and recent highlights and an update on our strategic and operational priorities. Jon will then give a commercial and business development update, after which Scott will review financial results. We'll then open the call for questions.

Now, I'll turn the call over to Adam Comora, Co-CEO of Opal Fuels.

Adam Comora (Co-CEO)

Good morning, everyone, and thank you for participating in Opal Fuels second quarter 2024 earnings call. Our second quarter results were solid and in line with our expectations. A number of factors are driving our growth outlook for the remainder of the year, including a strong RIN market, which we've taken advantage of by selling forward the majority of our expected RIN sales at favorable pricing, accelerating production growth from our operating facilities, our Sapphire and Polk RNG projects remaining on schedule, and finally, growth in our fuel station services segment. Adjusted EBITDA for the quarter was approximately $19 million, sequentially higher versus the first quarter, as we've continued to see improvements across our business segments driven by higher RNG production, increasing throughput of RNG in our dispensing network, and improved margins in fuel station services.

We expect continued sequential growth over the balance of the year and are maintaining our 2024 Adjusted EBITDA guidance of $90-$100 million. One contributing factor to this sequential growth, which we are happy to announce, is that our Prince William project has received EPA certification, and we expect to begin selling RINs from this project in the third quarter. We remain on track to bring our next two landfill RNG projects, Sapphire and Polk County, online as expected in the third and fourth quarters, respectively. We're executing on our growth objectives and are excited that construction has begun on our 16th RNG project at the Burlington County, New Jersey, landfill. This project is the second with our joint venture partner, South Jersey Industries, and represents 0.46 million MMBtu of annual design capacity.

Combined with the Cottonwood project announced last quarter, we have now placed 1.1 million MMBtu of new RNG production annual design capacity into construction this year and are maintaining our guidance of placing at least 2 million MMBtu of new RNG production into construction for 2024. Our fuel station service segment continues to perform and grow in line with our expectations, supporting our upstream RNG projects with dispensing in the highest value transportation fuel offtake market. We are maintaining fuel station services Adjusted EBITDA guidance of 75%-90% growth in 2024 compared to 2023. I also wanted to mention a change to our full-year RNG production outlook, which is now expected to range between 4.0-4.4 million MMBtu versus previous guidance of 4.4-4.8 million MMBtu, primarily driven by the ramp-up of our most recent facilities, which we expect to be short-term in nature.

Finally, we continue to believe there is a great opportunity for our industry to expand bipartisan support, including renewable electricity produced from biogas. It is important to remember what we do. We capture harmful methane emissions from decaying organic waste in place and convert them into productive and low-carbon energy products that utilize existing pipeline and electricity grids. We believe Opal is well-positioned to continue to be a leader in the development, operation, and distribution of these low-carbon intensity fuels, utilizing proven technologies and a proven track record. With that, I'll turn it over to Jon. Jon.

Jonathan Maurer (Co-CEO)

Thank you, Adam, and good morning, everyone. Opal Fuels continues to execute on building and operating reliable RNG production facilities and fueling stations. Operationally, second quarter production results were in line with our expectations. RNG production was 0.9 million MMBtu for the three months ended June 30, 2024, a more than 50% increase year-over-year. As Adam mentioned, we're making progress on our strategic growth goals by putting projects into construction like Burlington this quarter and Cottonwood last quarter, and we're also executing by moving construction projects into operation. We currently have nine operating RNG projects and seven RNG projects in construction. Construction of our new projects is proceeding well, and they continue to be on schedule. We expect to bring online three large landfill RNG projects during 2024.

We've already brought online the Prince William RNG project, and the Sapphire project is mechanically complete and in commissioning, on track for a third quarter completion date. Polk County continues to be on track for a fourth quarter completion date. We expect to exit the year with 11 RNG facilities online, representing an annual design capacity of 8.8 million MMBtu, compared to 2.3 million MMBtu at year-end 2021, more than tripling over the past three years. Atlantic, our first SJI joint venture RNG project, which we put into construction in the third quarter of 2023, is progressing, and we continue to expect it to begin commercial operation in the third quarter 2025. Atlantic is expecting to contribute 0.3 million MMBtu of annual design capacity net to Opal.

Construction at our 100% owned Cottonwood landfill RNG project is also progressing well and represents 0.7 million MMBTU of design capacity net to Opal. We expect the project to begin commercial operations consistent with recent project timelines. Finally, we are happy to have announced the start of construction at the Burlington RNG project. As mentioned, this project is the second RNG conversion project with our joint venture partner, South Jersey Industries, and represents 0.46 million MMBTU of annual design capacity for our 50% ownership and helps us progress towards our goal of putting 2.0 million of MMBTU of design capacity into construction this year. Industry tailwinds continue to support Opal's mission. We are seeing demand strengthen across end markets. With that, I'll turn it over to Scott to discuss the quarter's financial performance. Scott?

Scott Contino (Interim CFO)

Thank you, Jon, and good morning to all the participants on today's call. Last night, we filed our earnings press release, which detailed our quarterly results for the quarter ending June 30, 2024. Our 10-Q will be filed tomorrow. Looking at second quarter results, RNG production increased to 0.9 million MMBtu from 0.6 million MMBtu in the second quarter of 2023. The increase is largely due to both the Emerald and Prince William RNG projects' contribution to production volumes. Revenue in the second quarter was $71 million as compared to $55 million in the second quarter of 2023. The main driver for the increase in revenues was the timing and pricing of environmental credit sales, including both RNG fuel and fuel station services, where we dispense all of the RNG for our projects, including our joint venture projects, as well as other third-party RNG supplies.

Opal's share of revenues from equity method investments for the quarter was $11.2 million as compared to $2.1 million in Q2 2023, which is not included in revenue as reported on the income statement. Net income for the second quarter was approximately $1.9 million as compared to $114.1 million in the second quarter of 2023. The difference was primarily driven by the gain last year from the deconsolidation of our Emerald and Sapphire projects. Excluding this one-time gain, our adjusted net loss for the second quarter 2023 was $7.8 million. Adjusted EBITDA was $18.9 million in the second quarter, as mentioned, compared to $5.1 million in the second quarter of 2023, partially driven by the timing of environmental credit sales. A reconciliation to GAAP results is provided in our earnings release from yesterday and in our investor presentation updated this morning on our website.

The fuel station services segment revenues were $39.3 million for the quarter as compared to $30.0 million in the second quarter of 2023. The increase in revenues was primarily the result of increased RNG marketing fees, concurrent RIN and LCFS sales, and improved margins. Renewable power revenues were $12.2 million for the quarter compared to $14.5 million in the second quarter of 2023. This decrease was primarily due to the Emerald and Prince William RNG facilities, which are using gas that was previously utilized in renewable power facilities. In the second quarter, capital expenditures were approximately $28.5 million, which includes approximately $5.6 million relating to equity method investments and approximately $7.7 million associated with downstream stations. Our senior secured credit facility provides up to $450 million of term loans over an 18-month draw period and $50 million of revolving credit.

As of June 30, 2024, approximately $211.6 million was drawn down on the facility, and we have utilized approximately $13.7 million of our revolver availability to issue letters of credit. As of June 30, 2024, liquidity was approximately $302 million, consisting of $275 million of availability under the credit facility and $27 million of cash, cash equivalents, and short-term investments. We believe our liquidity and anticipated cash flows from operations are sufficient to meet our existing funding needs. We are maintaining our 2024 guidance, except for RNG production, which is expected to be 4.0-4.4 million MMBTUs compared to our previous range of 4.4-4.8 million MMBTUs, primarily driven by the ramp-up of our most recent RNG facilities. I'll now turn it back to Jon for concluding remarks.

Jonathan Maurer (Co-CEO)

In closing, we are pleased with this quarter's results. We remain committed to furthering Opal's vertically integrated mission together with our partners to build and operate best-in-class biomethane capture and conversion projects that deliver industry-leading, reliable, and cost-effective low-carbon intensity energy products that displace fossil fuels and mitigate climate change. And with that, I'll turn the call over to the operator for Q&A. Thank you all for your interest in Opal Fuels.

Operator (participant)

As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from Matthew Blair with TPH. Your line is open.

Matthew Blair (Managing Director)

Thank you and good morning. I guess just in regards to the guide, so you maintain the full-year EBITDA guidance, but the RNG fuel production number is coming down. Could you talk about the moving parts there and what's the offset? Why is unit profitability, I guess, coming in higher than you expected? Thanks.

Adam Comora (Co-CEO)

Yeah. Hey, good morning. This is Adam Comora here, and I appreciate the question. So on a high level, the math, when we gave our initial guidance of 4.4-4.8 million MMBtu of production and using a $3 RIN, we had our Adjusted EBITDA guidance of $90-$100 million. And you can see in that production spread between 4.4 and 4.8, about 400,000 leads to about a $10 million Adjusted EBITDA between the low end and the high end. And we also had guided folks that every 25 cents in a RIN price move would be about $12 million of Adjusted EBITDA when we were giving out the sensitivity in our initial guidance.

If you think about our new production range being 400,000 lighter than what the original guidance was and the RIN price being stronger than our original guidance and our forward sales position where we've sold forward the majority of our RIN, the vast majority of our RIN production for this year, you can see that the RIN price that we'll achieve for the year will basically offset where that production shortfall came from. We had guided folks that a $0.25 RIN price move was a $12 million move in the Adjusted EBITDA.

Matthew Blair (Managing Director)

Okay. Sounds good. Then, Adam, are you seeing any incremental opportunities for selling RNG into non-transportation markets? I know in the past, Opal has thought that the utility market just doesn't offer enough value. You don't get paid for the full RIN. But what about any sort of other markets, shipping or chemicals? Are there any other opportunities to monetize RNG?

Adam Comora (Co-CEO)

Yeah. Thanks again for that question. There certainly are increasing opportunities, and we are seeing new end markets continue to develop and, quite frankly, strengthen from a demand perspective for RNG. And marine fuel is one that I think is, or we think is, particularly interesting as we're seeing a lot of ships being delivered that can run off of renewable methanol. And certainly, there are some export markets over to Europe that we think will develop as well. I know there are some regulatory matters that are still being figured out in terms of tracking RNG to export over to Europe. And at this point, we think that there are great applications for RNG in marine fuel, and we think that there's going to be continued interest there.

The voluntary markets here in the U.S., I know some folks are contracting out to sell their RNG at fixed-price contracts. There are some California utilities that are really interested in purchasing it and some others as well. I would say that the discount to the transportation fuel market still seems too great for us. So we have not yet engaged in those other end markets, but we think that they're going to continue to develop. Pricing likely will continue to rise there to effectively try and procure or entice folks away from the transportation fuel market. So we continue to see all sorts of interest in RNG, and I know folks are a little bit longer out talking about renewable hydrogen or SAF.

But at this point, we still feel like the discount is too great versus transportation fuel and are continuing to pursue the transportation fuel offtake market. But those markets are developing, and we are keeping a close eye on them and do think they will be part of our portfolio mix, just not yet.

Matthew Blair (Managing Director)

Sounds good. Thanks, Adam.

Operator (participant)

Thank you. Our next question comes from Paul Cheng with Scotiabank. Your line is now open.

Paul Cheng (MD and Senior Research Analyst)

Thank you. Good morning, guys.

Jonathan Maurer (Co-CEO)

Good morning. Hey.

Paul Cheng (MD and Senior Research Analyst)

Adam and Jonathan, two questions. First, maybe it's a little bit from a vision or strategic standpoint. As you grow your RNG upstream production, does the business strategy is that to grow your service station business that in tandem or keep track so that you keep relatively a balanced portfolio between upstream and downstream, or that you say, "Okay, I mean, I have sufficient scale in the downstream, in the service station, and then the industry also has enough, and we really don't need to grow that, and so we will see more till towards into the upstream over time." So what's the business strategy from that standpoint? That's the first question. The second question is, I have to apologize, is a little bit of the detail.

On the second quarter, your LCFS sales price of $100 is actually up sequentially, but if we're looking at the industry actual benchmark for LCFS price is down. So how's the mechanics work in here? Thank you.

Adam Comora (Co-CEO)

All right. Great, Paul. I'll take the first question, and then Jon will talk about our offtake contract in the LCFS market. So I believe the first question was, how are we viewing the downstream distribution and marketing business and fuel station business in conjunction with our upstream? And I will say we are extremely excited on both the upstream development of those RNG assets and the downstream fuel station business. The fuel station business for Opal is attractive in its own right. We're achieving good returns on capital on fuel stations we own with fuel purchase agreements, long-term ten-year-in-nature fuel purchase agreements for those stations, and we have a very profitable business to build and service those stations.

So even if RNG was not part of the picture, we like the growth outlook for our fuel station service business, and we'll continue to grow that business even if we are taking our RNG and finding other offtake markets. It just so happens that there is that terrific strategic tie-in with our upstream business. And so we're seeing great opportunities to deploy capital both in new RNG projects and the downstream fuel station business. And quite frankly, if you went back 10 years, there was a lot of growth experienced by Opal Fuels building fuel stations and servicing those fuel stations just for the commodity price differential of CNG versus diesel fuel. And with that 15-liter engine, we see a lot of opportunities even with just the economics of CNG versus diesel.

We think that's going to be an attractive place for us to continue to invest and grow that business and see a lot of conversion potential for the fuel station service business.

Paul Cheng (MD and Senior Research Analyst)

Adam, do you have a CapEx or the number of station growth kind of matrix you can share per year over the next several years?

Adam Comora (Co-CEO)

Yeah. I think what we do, well, we don't give guidance out past 2024, but we do provide detail in our CapEx for how much is being invested in the fuel stations versus the RNG projects. Again, the vast majority of the CapEx that we spend is on new biogas capture and conversion projects. I think it's somewhere in the 80%+ range that likely will continue, but we do give it at least on a historic basis in our filings.

Jonathan Maurer (Co-CEO)

The average price of RNG projects, obviously, is commensurately larger than the average price of the fueling station projects as well. Paul, turning to your LCFS question, we get LCFS credits principally from two sources. One is our Sonoma Dairy project in Arizona, and there we have an offtake contract that has a floor price of $100 for the credit. So we enjoy a $100 sale price there as long as the price is below that, and that's currently the situation.

Adam Comora (Co-CEO)

Yeah. Just a follow-up there. That contract goes out for multiple years. So that $100 floor is in place for the next.

Jonathan Maurer (Co-CEO)

Another 4.5 years.

Adam Comora (Co-CEO)

Yep.

Jonathan Maurer (Co-CEO)

Then the other place we get our LCFS credits is from our downstream dispensing, where we get a portion of the credits as a marketing fee for low CI projects that we dispense into California. There typically, we're recognizing those credits at market prices, and those market prices have been in the $45-$50 range most of this year.

Adam Comora (Co-CEO)

Yeah. I think in the second quarter, we did not sell at those prices, so we've been holding those credits in inventory.

Jonathan Maurer (Co-CEO)

But they're recognized at that price for accounts.

Paul Cheng (MD and Senior Research Analyst)

I see. Perfect. Thank you. Really appreciate it.

Jonathan Maurer (Co-CEO)

Sure.

Operator (participant)

Thank you. Our next question comes from Ryan Pfingst with B. Riley. Your line is open.

Ryan Pfingst (Senior Research Analyst)

Hey, good morning, guys. Thanks for taking my questions. Maybe just a follow-up on CapEx. A couple of months ago, we spoke about the maintenance CapEx for your operating assets. Can you just remind us what maintenance CapEx is for the current RNG portfolio or on a dollars-per-MMBtu basis to help give folks a sense of what your discretionary cash flow looks like?

Scott Contino (Interim CFO)

This is Scott Contino. Thank you, Ryan, for the question. With respect to maintenance CapEx, for our renewable power portfolio, there is a reasonable amount of maintenance CapEx a year that we add back to Adjusted EBITDA. It's in the $10 million a year range, something like that, maybe a little less in that ballpark. For our RNG projects, there's a lot less major maintenance CapEx that's all capitalized. And I don't have a dollars-per-MMBtu number to give you, but it's not a large number. In fact, since most of our projects are very new, it's not a significant number right now.

Adam Comora (Co-CEO)

Yeah. This is Adam. Just a quick follow-up there because we've been chatting internally where I think it might be helpful for investors to understand the discretionary free cash flow generation of this business. We've told people historically that we'll have 90%-95% free cash flow conversion from our EBITDA, and I think it's lost on folks, and we're going to start really illustrating that. As Scott was just mentioning, one of the beautiful things about our business is after we build these facilities, unlike a traditional energy company, we don't have to drill or spend capital to produce our fuel, right? If you remember what we do, we drop PVC pipes into landfills, and they have perforations, and we connect them all together, and we apply a little bit of suction to gather all that gas to our facilities.

The facilities themselves, if you look across the portfolio where it sits today, it's in the single-digit millions of maintenance CapEx, and these are 20- and 25-year assets, and some of our gas rights even go out longer. So when you really think about us and the valuation of Opal Fuels, our discretionary free cash flow after we build these facilities is really pretty phenomenal. That discretionary free cash flow can be used to invest in new projects, and that's what we're doing today because we still see really attractive opportunities to grow the business. In the future, you've got other things you could be doing with that discretionary free cash flow. You could make acquisitions. You could pay a really healthy dividend. There's all sorts of things that we think can be a powerful sort of shareholder value-driving tool.

I think we're going to get back into that and start illustrating to folks not only is this really, are we growing extraordinarily quickly from an Adjusted EBITDA perspective, but that Adjusted EBITDA translates into discretionary free cash flow to enhance shareholder value. I'm thankful for the question, and we're going to start, I think, showing better descriptors of growth CapEx versus maintenance CapEx and discretionary free cash flow. In total, as Scott was mentioning, our maintenance CapEx across renewable power and the RNG facilities is in the low between $10 million and $20 million, I think, if we aggregated it all up and you look forward, and it's really attractive from that discretionary free cash flow perspective.

Ryan Pfingst (Senior Research Analyst)

Yeah. I appreciate all that color, Adam and Scott. So for my second question, I guess just wondering if you have an update on the ITC and any thoughts on timing there or potential risks you might see if we have a change in administration in November.

Adam Comora (Co-CEO)

Yeah. Another good question. This is Adam here. So I think we're in a pretty good spot in terms of getting a final rule that we think likely will include our RNG projects for that salable ITC credit. As for timing, I feel like what we've been hearing is that Treasury does not want to just issue another piecemeal correction or on specifically Section 48 for RNG projects. They may be trying to issue one set of total final guidance on 48, and I think there may be some other issues that they're trying to work through and finalize. So I feel like our specific Section 48 final rule may be just waiting as they finalize whatever else they're doing in Section 48. I know folks have been saying late summer, we're in late summer, third quarter.

So we're still anticipating that we'll see that hopefully soon. And so there's no change to how we're thinking about it in terms of total dollars that we think we'll be able to sell here as cash proceeds. And we've told folks, not included in our Adjusted EBITDA, something close to that $40 million range, and we've been in discussions with folks to even potentially close some of those sales as Treasury is still coming out with that final guidance. And just in an addendum to that previous question that we talked about in terms of discretionary free cash flow, those kinds of levels may be available for us in the next several years because I think everybody understands that it's everything that you place into construction this year that qualifies.

And we've got a host of projects that we think we're going to pre-qualify here before the end of the year. So if you want to think about our discretionary free cash flow over the next several years, that would be something else that's available to us. And we're still working through the accounting treatment of where it'll show up on the income statement because they are saleable credits. And so, still optimistic that we're going to get that positive final resolution. Disappointed it's taking this long, but it's not slowing us down in terms of setting up projects to pre-qualify it and setting up our monetization for those credits when they ultimately get generated.

Ryan Pfingst (Senior Research Analyst)

Great. Appreciate that, Adam. I'll turn it back.

Adam Comora (Co-CEO)

Oh, sorry. Yeah. Yeah. Thanks, Scott. Just reminded me. I missed the change of administration and, or I should say now potential change of administration or at least change of party. There's been a lot of Republican support for what we do, and I think there was a letter that was sent to the House Speaker signed by 18 or 20 Republicans talking about some of the benefits that are in the IRA and some of the tax credits that go along with it. I don't think that the Section 48 is at particular risk, and there is a lot of Republican support for specifically this tax credit within the IRA. So we don't think that there's a lot of risk that necessarily this piece of the IRA will fall under that kind of scrutiny.

Ryan Pfingst (Senior Research Analyst)

Got it. Thanks for that additional detail.

Operator (participant)

Thank you. Our next question comes from Adam Bubes with Goldman Sachs. Your line is now open.

Adam Bubes (VP of Equity Research)

Hi. Good morning. Can you update us on just how you're thinking about your capacity to build fuel stations? If demand for the 15-liter natural gas engine takes off, how many fuel stations could you build in a given year?

Adam Comora (Co-CEO)

So our current build is in that 40 range, 40-50 range, and that's sort of how we're set up today. I would say it would, in terms of scaling up that business, it would not be difficult for us. We don't have many constraints to how we would continue to add scaling capacity there. It would be to continue to add to our staff, quite frankly, both on the construction side and the service side. And Opal Fuels is in a little bit we like to think of ourselves as being unique in a lot of ways. One of the ways that we're unique is our ability to attract talent. A lot of folks out there want to be part of the Opal Fuels team, really like what we're doing.

We think we'll be in a good spot to continue to add service techs and construction teams to scale up that business and really don't see any constraints from that perspective if Cummins and others are right in the industry for what the uptake will be for that 15-liter engine.

Adam Bubes (VP of Equity Research)

And then as we think about the Burlington and Cottonwood projects, what's the mark-to-market on how you're thinking about project timing today?

Jonathan Maurer (Co-CEO)

So it's interesting because the Polk project, which is coming online in Q4, we expect that to be early Q4, and that project will hit around a 15 or 16-month timeframe. So I would say that's kind of at the faster end of our projects. We're certainly focused more on the time period leading up to getting projects into construction to ensure that those construction timeframes remain tight. For an average project, we would think an 18-20-month period would be a reasonable timeframe for us. Recollect that when we put a project into construction, we have a basic project design, we have the gas rights executed, and a path to pipeline and electric interconnection supply. So those are some of our key critical path items for putting a project into construction. Some people define construction differently.

The actual time of getting out and starting to work, turning over the ground and putting in foundations and whatnot may occur somewhat later in the process. Certainly during that period, we'll complete the pipelines, we'll complete the rest of the permitting and other construction. Sometimes in the past, some of those other items have taken a little while longer to complete, and so it pushed us out. For example, on the Sapphire project, which is in commissioning right now at the front end, the landfill was working on some issues associated with PFAS and other things that delayed our permitting by a couple of months and so set that timeframe longer. But we're seeing projects in the future ought to reach that same 18-20-month timeframe that I alluded to before.

Adam Bubes (VP of Equity Research)

All right. Then the last one for me. In the beginning of the year, I think you guided towards an increase of RNG pending monetization in 2024 of $15 million. Can you just update us on how you're thinking about the difference between the timing of RNG monetization and actual production in the balance of the year?

Adam Comora (Co-CEO)

Yeah. This is Adam here. Once we started talking about our Adjusted EBITDA, not having that RNG pending monetization component, we still think it's helpful for folks to see what is being sold in a given quarter and pricing and that sort of thing to get a sense of how the operations are performing. We don't see any major changes to how we were thinking about it, but we just don't think it's as impactful anymore to talk about as a guidance metric. Likely as we move into 2025 and beyond, likely not be talking about that as much and talking more about what our production outlook and Adjusted EBITDA outlook is and that sort of thing.

Jonathan Maurer (Co-CEO)

I think I can illuminate another part of your question, and that is that we look at our production across the year and we will sell when we feel that the market is a good place, those credits on a forward basis. So that, as Adam said earlier in his comments, we've sold, as he put it, a vast majority of our credits for the year. Typically, we'll look at credit at the projects that are in operation and try to sell as much of those as we can during the course of a given year. As projects come online and complete their commissioning, we'll start to sell those as well. And credits are generally saleable within the current year or the current vintage year. And with regard to 2025, in the merchant RIN market, there's not really a deep market there yet.

That'll develop toward the end of the year. Adam, I don't know if you wanted to add to that.

Adam Comora (Co-CEO)

Yeah. No, I think maybe I missed that nuance in the question. We are anticipating selling all of our RINs that we generate in 2024 in the calendar year of 2024.

Adam Bubes (VP of Equity Research)

Got it. Very helpful. Appreciate the color.

Operator (participant)

Thank you. As a reminder to ask a question, please press star 11 on your telephone. Again, that is star 11 to ask a question. Our next question comes from Alex Kania with Marathon Capital. Your line is open.

Alex Kania (MD and Lead Analyst)

Hi. Good morning. Thanks for taking my question. Maybe the first thing I was curious about is just as you look to in the face of the updated production guidance for this year, do you expect that really by year-end that all of the operating and commissioning assets are going to be roughly at full expected run rate, or will there still be a little bit more to go as you move into early 2025?

Adam Comora (Co-CEO)

Yeah. This is Adam here. So just wanted to provide a little bit more color on the production outlook in some of the newer facilities that have been commissioned. You can see some of that variability in the ramp of those new facilities from time to time. Specifically this year at Prince William, we had done a significant amount of wellfield drilling and expansion at that landfill before the facility came online. We were not able to tie in all those wellfield improvements and expansions into the broader collection system before we began operating the facility. The root cause of that was really flare capacity that the municipality had in terms of us collecting the additional gas and flowing that additional gas.

When we tied in the wellfield expansion and drilling into the base collection system, there was a little bit of a slower tie-in and seeing the gas flow from those additional wells. So we're in the process of remediating them and redrilling some of them. And we believe it's short-term in nature. And for us, we think short-term means several months. So we've been a little bit conservative for when we'll see the gas production from that wellfield expansion. And we are, I'd say, cautiously optimistic that we'll start to see all those improvements in the gas flowing from the expansions that we had done as we move through the balance of the year and certainly provide, obviously, our 2025 guidance sort of later on when we issue our final year results. But that's how we think about sort of short-term in nature.

The plant is performing excellent in terms of its processing of its inlet gas. So that's the one issue that popped in terms of our production. We're also continuing to optimize the equipment at our Emerald facility to be appropriately scaled to the size of the project. You all may recall that it's one of the largest RNG projects in the country. Certain scalability that we're still optimizing when you're looking at the compressor size that we use there or Deoxo skid that we use there. Again, those are relatively short-term in nature as we continue to optimize that equipment. Really, that's really on the margin there. So feel like both of those facilities will show good growth as we move into 2025.

Jonathan Maurer (Co-CEO)

Just to repeat things that we've talked about in the past, that we build projects to a size larger than the current gas resource because these landfills that we're on are all open and growing landfills. So over time, you'll see these projects continue to improve as we call same-store sales as the gas resource continues to grow. We reach fairly quickly on each of these projects an availability and efficiency for these projects in the kind of low- to mid-90s range, which when multiplied together gives you kind of a mid-80% productivity factor. So we look at both of those factors over time: the growth in same-store sales, the efficiency and availability of our projects, and as Adam was talking about earlier, the ramp on the initial front end of the projects.

Adam Comora (Co-CEO)

Yeah. So our initial thinking, just to sort of put a button on that, is really more about 2024 than 2025 at those newer facilities.

Alex Kania (MD and Lead Analyst)

Great. Thanks for that color. Then maybe just to follow up, thinking about maybe on the fueling side and the Class 8 side, I know that the phase III final rules were out. I think there have been some revisions. Just kind of wondering about how you think about the kind of adoption or the pace of acceleration or accelerating pace, I should say, on CNG-related vehicles as it stands relative to kind of what EPA has been kind of giving in terms of their guidance.

Adam Comora (Co-CEO)

Oh, that is a really interesting question. It dovetails into a couple of things. So on the 15-liter itself, really pleased with the feedback that we're hearing, really pleased that Freightliner is going to be rolling it out and make available for those that like to buy Freightliner trucks and to join PACCAR. Really think that it's going to be a terrific product for fleets to replace diesel and save money. If they're working with an RNG supplier, they'll get all the sustainability benefits with it as well. There have been a couple of things out there which I feel like I would say not accelerating adoption has that. One of them is that noise that has come out of the EPA on phase III truck regulations, which I do believe people are starting to listen to industry feedback on.

People in D.C., I think, are going to start to listen to what industry is telling them about those phase III regs. It's one of the interesting things that we and folks in our sector and our industry are really focused on is really educating the Democratic side of things or the more progressive climate side of things that not all molecules are bad. Specifically in our industry, we're collecting waste molecules that exist. Transportation fuel and heavy-duty trucking is a terrific application for them where other technologies are struggling to meet sort of emission reductions for transportation.

So we spend a lot of time talking to Republicans about, "Hey, this is a really great pragmatic solution and really supports a lot of Republican constituencies in ag and municipalities and rural communities that we should be incentivizing and recognizing the benefits of collecting biogas emissions at their source." Specifically with Republicans talking to them about we should really be also embracing some of these electron policies, whether it be e-RINs or other things that promote renewable electricity. On the Democratic side, it's really explaining to them that combustion of molecules isn't always bad depending on where it comes from and what the other options are there.

So yes, the phase III EPA regs have created some noise, have created some confusion, have had some fleets say, "Hey, wait a minute, what do those mean for me deploying RNG?" And look, that's one of the things that we're focused on and doing. And different political outcomes have different areas of focus for us to do education and advocacy-wise. And that's one where if there's a Republican administration, I think we could be off to the races on the use of RNG in heavy-duty trucking and maybe have a little bit more work to do on the electric policies, whether they be e-RINs or some other incentives for renewable power. And we can all talk about electricity demand and what's happening in this country and why this is a good answer.

If the Democrats happen to win the White House, I think we're off to the races on a lot of those electricity policies, whether it be e-RINs or other things. We got a little work to do to make sure that, "Hey, this is a really good answer for heavy-duty trucking and really work on those phase III regs." Needless to say, we think whoever wins, both sides of those policies make sense, which is what we keep talking about. It'll just direct our focus onto which ones we really have to spend more time on.

Alex Kania (MD and Lead Analyst)

Great. Thank you.

Jonathan Maurer (Co-CEO)

Thanks, Alex.

Operator (participant)

Thank you. Our next question comes from Thomas Meric with Janney Montgomery Scott. Your line is open.

Thomas Meric (Director)

Thanks, gentlemen. Thanks for taking the time for a few questions. Just want to touch base on the coming 15-liter. Ask a question in a slightly different way. I know you've talked about it extensively so far. Just want to think through potential fleet owners as they look at supply and demand of CNG. Are they contemplating kind of a front-loading of infrastructure needed for whatever scale of fleet they're looking to operate? Or do they look at it and think the supply of stations is adequate for their needs? And then just a follow-up.

Adam Comora (Co-CEO)

Yeah. Another good question. So we're still in early days of deploying either CNG or RNG as transportation fuel for heavy-duty trucking. And I would remind folks that 85%-90% of what we build is really dedicated fueling distribution centers and now looking at potentially rolling out lanes for folks between those distribution centers and that sort of thing. It takes us also about 12-14 months to build a fuel station, which is about the same amount of time for their trucks to get delivered. So we see those fleets making those decisions at the same time on fueling infrastructure as they're ordering trucks. And they typically go hand in hand where, okay, they're happy with the truck, they know what they're speccing, they're ordering them, and then they're engaged in their fueling strategy.

One interesting thing for Opal Fuels is the beautiful nature of our vertical integration and how certainly RNG has captured the attention of a lot of these fleets because they're also looking for ways to reduce their Scope 1 and Scope 2 emissions. I would remind folks when fleets use RNG versus diesel, the greenhouse gas accounting protocol is zero Scope 1 emissions and also zero Scope 2 because that's derived from your electricity usage. So this is a really powerful product for them. They're engaging with us at the same time that they're thinking about that truck order and really working with us to make sure that the fuel station is aligned and they can get their fuel as those trucks are being delivered.

Thomas Meric (Director)

Thanks. Super helpful. And then my follow-up is really on EPA rules or potential EPA rules as they look to potentially update their landfill emission standards from 2016. I'm curious just how you think about that opportunity. What are the puts and takes from the stakeholders? I know it's early days. The rule hasn't even been proposed yet. But any color you could provide to us would be helpful just as we contemplate the future of landfill gas and what the EPA is requiring.

Adam Comora (Co-CEO)

Yeah. So I think the EPA is really focused on methane emissions wherever they come from. And quite frankly, rightfully so, 80% more damaging than CO2 and really the most impactful thing we can do to halt climate change. So they are looking at methane emissions from a variety of places. And they already came out with a lot of regulations on pipeline companies and E&P companies on how they're going to do methane monitoring and that sort of thing. And I think they're moving on to other sources of methane as well. And I think EPA recognizes and folks in D.C. recognize that it's really important to continue to promote public policies that incentivize the capture of biogas to make sure that it incentivizes the right behavior. And what technologies or how they're thinking about methane monitoring and measurement, I think a lot of that is being worked through.

We don't have a specific opinion on how to do methane monitoring or that sort of thing. But what I do know is that focus on methane emissions or methane emissions from organic waste is likely going to come into focus. And we think we're in a terrific place to help folks capture it and turn it into a beneficial use. So we think it's going to be it's going to be a helpful talent for public policy and what we're doing. And we're happy to partner with folks to make sure we're capturing as many biogenic methane emissions that we can and turning them into their productive use.

Jonathan Maurer (Co-CEO)

Our landfill partners are super focused on collecting methane. They recognize that this is a real opportunity. I think that the value of the RNG projects has really helped them to increase their focus as well. The more methane they're able to collect, obviously, that turns into higher royalties as well as for those who have ownership interests in projects, higher equity distributions as well. So it's a great focus in addition to the RNG projects that the policymakers, as they start to focus on methane emissions, particularly at landfills, you'll see that the e-RIN policy and others really help to promote that capture and conversion, and particularly at smaller landfills that may not have the scale to do a larger RNG project. So we'll be looking very closely at how we work with our great landfill partners to promote that policy and increase that collection.

Adam Comora (Co-CEO)

Yeah. And really what it does is that focus on methane emissions, it's just going to create greater alignment between us and our feedstock hosts where everybody's going to be aligned to make sure we're doing everything that we can to maximize the gas collection and its productive use.

Thomas Meric (Director)

Great. Thanks, gentlemen. Appreciate the feedback.

Jonathan Maurer (Co-CEO)

Thank you.

Operator (participant)

Thank you. I'm showing no further questions at this time. Oh, now I'd like to turn it back to Adam Comora for closing remarks.

Adam Comora (Co-CEO)

Yeah. I appreciate everybody's interest in Opal Fuels. We are really excited about what we're doing here and our growth outlook. I hope everybody has a wonderful rest of their day.

Operator (participant)

This concludes today's conference call.