Clear Skies Ahead For Clean Energy Fuels

The Company: Clean Energy Fuels, the largest provider of compressed and liquefied natural gas for alternative-fuel vehicles in North America.
The Filing: Form 8-K filed on June 20, 2008.
The Finding: Phoenix's Public Transit Department declined to renew Clean Energy's contract to supply liquefied natural gas (LNG), and instead the city awarded the contract to Applied LNG Technologies. The total fuel consumption supplied under the existing contract, which ran from April 2007 through March of this year, was approximately 11.8 million LNG gallons, or about 29 percent of the total LNG gallons supplied to all customers during this time.

The Upshot: Once this contract expires, Clean Energy's operating results will improve significantly. The contract was issued at a fixed price that generated losses for Clean Energy at current natural-gas prices. Clean Energy is moving forward on other major opportunities, including its biggest domestic play, the Ports of Los Angeles and Long Beach / Clean Truck Rollout -- representing a potential of more than 8,000 LNG trucks and volume of 4-6 million gallons of LNG annually.

Clean Energy opened its first LNG station at the port in December 2007, with plans for five additional stations within the next 18 months. The company is also constructing a 60 million gallon natural gas liquefaction and distribution facility in Boron, Calif., to meet the fuel needs of the port LNG trucks. Commercial production is scheduled to start this fall, according to Chief Executive Andrew Littlefair.

Little noticed, but of significant value to Clean Energy as a supplier of LNG, Sound Energy Solutions abandoned its plans to construct a proposed $750 million LNG terminal in Long Beach due to environmental opposition.

In the refuse market, the City of Fresno awarded Clean Energy a contract to supply LNG to its municipal refuse fleet for up to five years, which should boost LNG volume significantly. The present fleet now has 80 natural gas trucks and the City has ordered 22 more, making it the largest municipal LNG refuse fleet in California's Central Valley, and the second largest in all of California.

In the municipal transit market, Clean Energy signed a fueling contract to supply compressed natural gas (CNG) for two transit stations in Las Vegas, Nev. These two stations currently fuel more than 50 CNG buses and transit vans serving the greater Las Vegas region. With the addition of 45 new CNG buses on order for delivery in 2009, the volume of these two stations is expected to exceed 1.5 million gallons per year beginning in 2009. Clean Energy's also services more than 14,000 fleet vehicles daily at over 170 CNG stations across North America. Leveraging this natural gas fueling expertise, General Motors signed a venture for Clean Energy to operate a hydrogen fueling station near Los Angeles International Airport. The hydrogen station is expected to open in late summer or early fall -- and will be used by drivers taking part in Chevrolet's Project Driveway, the world's largest market test of fuel cell vehicles.

The Question: T. Boone Pickens, founder of Mesa Petroleum, beneficially owns 60.6 percent of Clean Energy. Given the controversies surrounding ethanol as a fuel substitute, might it be prudent for others to do the same?

David Phillips

David Phillips has more than 25 years' experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. He sifts through SEC filings for his blog The 10Q Detective, looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. He has been widely quoted in outlets such as BusinessWeek, The International Herald Tribune, Investor's Business Daily, Kiplinger's Personal Finance, and The Wall Street Journal.

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