To: Ferick who wrote (9120 ) 4/8/1998 12:41:00 PM From: Norman H. Hostetler Respond to
Ned: 1) The limited partners own 90% of the Charleston processor, unless any of the partners have put their units back to the company in exchange for stock, which they have had as an option since April 1. 2) "Limited" means limited liability (we can't be sued), in exchange for which we can have absolutely no input into the operation of the business. Our one power is to determine who the general partner shall be. 3) I'll reiterate--neither the company nor the partnership has the cash on hand to operate when there are $100 of expenses for $95 in revenue. If the processor were able to run at its full capacity, there would be no problem--the fixed expenses don't increase, so virtually every penny between the cost of waste oil and the rack rate for diesel falls to the bottom line. By my calculations, the break even point for a 1000 gph processor (the size the company intends to manufacture) is no higher than $0.32 per gallon for diesel, and could well be significantly less if there were opportunities to reduce costs on the waste oil supply side, as everybody thinks there is when the company can make long-term contractual commitments. 4) The price of diesel has also risen some from its recent lows and may be back at a break-even point already, but I can understand if Bill doesn't want to be turning the machine (and the labor) on and off every time the price goes up or down a few cents. If there were a reasonable cash reserve, the processor would, of course, just keep operating in these circumstances. Most of the original profitability estimates were based on an annual average diesel price of $0.55, with about a $0.20 range between $0.50 and $0.70, which had been a consistent pattern for several years prior to the present oil glut. With the higher capacity processor, you can drop the average and the range by $0.10 and still come out with similar profitability, and, of course, with huge upside potential whenever the supply/demand situation in oil reverses, as it always does periodically.
