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Green Plains Partners LP (NASDAQ:GPP)
Q4 2019 Earnings Call
Feb 11, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Green Plains Incorporated and Green Plains Partners Fourth Quarter and Full Year 2019 Earnings Conference Call. Following the Company's prepared remarks, instructions will be provided for Q&A. At this time, all participants are in a listen-only mode.

I will now turn the conference call over to your host, Phil Boggs, Senior Vice President, Investor Relations and Treasurer. Mr. Boggs, please go ahead.

Phil Boggs -- Senior Vice President, Investor Relations and Treasurer

Thanks, Daniel. Welcome to Green Plains, Inc. and Green Plains Partners fourth quarter 2019 earnings call. Participants on today's call are Todd Becker, President and Chief Executive Officer; Patrich Simpkins, our Chief Financial Officer; and Walter Cronin, our Chief Commercial Officer. There is a slide presentation available, and you can find the presentation on the Investor page under the Events and Presentations link on both corporate websites.

During this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in yesterday's press releases and the comments made during this conference call and in the Risk Factors section of our Form 10-K, Form 10-Q and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement.

Now, I'd like to turn the call over to Todd Becker.

Todd Becker -- President, Chief Executive Officer & Director

Good morning, and thank you for joining our call today. For the quarter, we reported adjusted net loss of $14.4 million or $0.41 a diluted share, which excludes a reversal of a deferred tax asset of $25 million that affected EPS negatively. This was a non-cash adjustment and had no impact on our financial strength. As expected, the financial results were improved from the prior quarter due to the ethanol margin environment at the beginning of the fourth quarter.

We reported $16 million in adjusted EBITDA for the quarter, and we were free cash flow positive as well. We remain net debt zero against our convertible debt, as the debt at GPP is non-recourse to the parent and the revolvers at Green Plains, Inc. are secured against receivables and inventories. We are in a position -- we are in this position as an outcome of our portfolio optimization plan.

We are now embarking on a total transformation plan, which I will discuss later in the call as well. Our quarter was also impacted negatively by a shutdown -- by the shutdown of Wood River for our Project 24 upgrade and the final stages of the Madison shutdown as these occurred during a positive margin environment, and we believe this affected our quarter negatively by $0.02 a gallon to $0.03 a gallon. Both plants came back to full rates during December, and we expect them to continue to operate well during 2020.

We produced approximately 239 million gallons of ethanol, which put us at an 84.5% utilization rate for the quarter. While this was lower than our stated goal of 90%, it was the highest utilization rate in two years. More importantly, in December, we ran at 94% once Wood River fully came up to speed after our Project 24 upgrade, and the repairs at our Madison plant were completely lined out, which is also the highest single month in over two years. With these projects now complete and running well, we expect to achieve 90% or above for each quarter in 2020. Our goal has been to run maximum production levels in order to maximize the benefit of our cost initiatives, and we believe we will finally be able to demonstrate what this platform can do.

The consolidated crush margin for the fourth quarter was $0.02 per gallon, but the spot crush continued to decline during the quarter, as industry production edged higher. The weekly EIA data printed the fourth highest production on record earlier this year. While the production levels have dropped since then, this industry continued to be oversupplied. We will continue to focus on things within our control, reducing operating expenses through our Project 24 initiative and driving additional value through our protein rollout.

Our first Project 24 modification at our Wood River, Nebraska location continues to exceed our expectations and leave us excited about completing the rollout across the remaining non-ICM plants in our platform. In December and January, our opex was at an average of $0.21 a gallon at Wood River. Let me explain one more time how we look at this, so you can do a like-for-like comparison of other companies and plants, as there seems to be continued confusion on the math and how it works.

First, we take the five commodities we buy and sell to get a gross margin. Our corn cost, natural gas, ethanol revenues, distillers revenues and corn oil revenues are converted into a gross margin. From there, we take the cost of plant operations to get the EBITDA per gallon. Inclusive in this is denaturant, railcar cost, chemical, yeast and enzymes, electricity, repair and maintenance, production and admin payrolls related to the plant, supplies in G&A, and finally corn purchase commissions of $0.01 per gallon. For your reference, an illustration of these points are shown on Page 6 of the conference call presentation.

In addition, what is not included in the opex per gallon calculation is the fact that natural gas usage is reduced by 25% with the Project 24 upgrade, further improving the returns on this project. We are expecting all plants to reduce natural gas usage, which helps overall CI scores and sustainability scores. Wood River operated at a similar cost structure to all of our ICM plants of similar size and achieved the second-lowest operating cost level in our platform in December, showing that these modifications can make our non-ICM Delta-T and Vogelbusch plants competitive with our best ICM plants in our fleet and even across the industry.

Our operators are being retrained to operate these like an ICM plant, and think very differently as a retro spread is basically making these ICM, as the front and back ends are similar already. Lastly, we were told by ICM that these modifications are even better than what is in many legacy plants. We're obviously very excited about the outcome. With the improved December results, we believe we are on track to achieve our overall goal before the end of the third quarter.

We are making progress on the next three Project 24 upgrades, and they should be running in March or April. And we should complete the remaining non-ICM plants during the second and third quarters. Upon completion, and once the plants are fully lined out, we anticipate the entire platform to be below $0.24 a gallon as originally expected. We believe we could likely achieve $0.23 a gallon overall and we are starting to think about the next steps to drive our platform costs even lower in the future.

The key here is that in order to be successful in our transformation to protein, we must continue to reduce our operating costs so we can run in any environment. I will get further into protein in my closing comments and spend most of the time discussing this initiative. During the quarter, we completed the sale of our 50% interest in Jefferson Energy Companies to our joint venture partner for $29 million. This largely completes the portfolio optimization plan that we embarked on two years ago. All told, we have sold approximately $780 million in assets and paid off or deconsolidated nearly $1 billion of debt.

Green Plains Partners reported $13.3 million of adjusted EBITDA and a coverage ratio of 0.99 times for the fourth quarter and a 1.0 times for the trailing 12 months. We anticipate that as Green Plains production level hits the targets laid out during the -- during 2020 of greater than 90%, these coverage ratios will improve. We will continue to look for opportunities to grow the partnership through accretive acquisitions, and we'll be on the offensive during 2020. Ideally, these would be in multi-product terminals backed by multiple long-term customers.

Lastly, our cattle business had a record quarter and we expect this to be continue -- to be continued in 2020 with strong returns as well. Now I'll turn the call over to Patrich to review both Green Plains, Inc. and Green Plains Partners financial performance, then I'll come back and discuss the outlook for 2020, give a bit of a policy update, provide more details on our protein initiatives.

Patrich Simpkins -- Chief Financial Officer

Thank you, Todd. Green Plains, Inc. consolidated revenues were $715.7 million in the fourth quarter, up $132.2 million or 23% from the fourth quarter a year ago. The increase in revenue was driven primarily by higher ethanol production rates as compared to the fourth quarter of 2018. Our production run rate was 84.5% of capacity in Q4 2019, compared to 71.1% run rate for the prior-year fourth quarter.

Our consolidated net loss for the quarter was $39.7 million, including a non-cash tax valuation allowance adjustment of $25.3 million, compared to net income of $53.5 million in the fourth quarter of 2018, where we recognized $150 million gain on the sale of assets. Adjusted EBITDA for the fourth quarter totaled $16 million, compared to adjusted EBITDA of $128 million for the fourth quarter a year ago, which also included the impact of the gain on asset sales mentioned earlier. For 2019, adjusted EBITDA was a negative $35.1 million versus $225.8 million in 2018.

For the quarter, our SG&A costs for all segments was $20.6 million, down $11.9 million or 37% from $32.5 million in Q4 of 2018, driven primarily from a reduction of controllable expenses and the asset sales completed last year. This change does not include an additional $2.6 million reduction to SG&A from discontinued operations related to our cattle business. For the full-year 2019, our SG&A costs were $77.1 million for all segments as compared to $108.3 million for 2018.

Interest expense decreased $20.4 million to $8.7 million for the quarter due to lower debt balances, lower interest cost and the write-off of unamortized debt expense in 2018 due to the retirement of our term loan B. Capex for 2019 was about $75 million, with approximately $24 million of maintenance capex for ethanol production and additional $49 million of growth capex primarily for Project 24 in the high-protein feed project in Shenandoah, Iowa. For 2020, we will focus capex spending primarily on the completion of our Project 24 initiative and expansion of our high-protein development plan, along with normal maintenance capex. Opportunities to deploy capital can always be impacted by the overall margin environment, but, as of now, we are targeting approximately $100 million to $120 million in capex spending on our operating -- based on our operating and financing plans.

On Slide 9 of the investor deck, you will see our balance sheet highlights. We had $275 million of cash and working capital, net of working capital financing at the end of the fourth quarter, compared to $428 million at the end of 2018. The balances for 2019 numbers excluded balances from our cattle business that was deconsolidated in September. Our liquidity position at the end of the quarter remained solid with $269.9 million in total cash, along with approximately $221.8 million available under our working capital revolvers. This amount does not include availability of $67.9 million under the credit facility of a partnership.

For Green Plains Partners, we had 240.1 million gallons of throughput volume at our ethanol storage assets during the quarter, which was up 32 million gallons or 15% from the fourth quarter of 2018 as a result of higher production rates at Green Plains plants. The partnership reported adjusted EBITDA of $13.3 million for the quarter, which was $1.9 million lower than the fourth quarter of 2018 as a result of the sale of the three plants.

Distributable cash flow was $11.2 million for the quarter, $1.9 million lower than the same quarter of 2018, again reflecting the sale of the previously mentioned plants. The distribution of $0.475 per unit declared on January 16, resulted in coverage ratio of 0.99 for the fourth quarter. On a last 12-month basis, adjusted EBITDA was $54 million, distributable cash flow was $45.3 million and declared distributions were $45.1 million, resulting in a 1 times coverage ratio for 2019.

Now, I'd like to turn the call back over to Todd.

Todd Becker -- President, Chief Executive Officer & Director

Thanks, Patrich. Let me discuss the industry briefly. Last year, we faced numerous industry headwinds. However, there are a number of positive opportunities as we begin 2020, even as margins remain under pressure. As we've continued to remind everyone, the solution remains the same. The industry remains oversupplied and needs to rationalize supply. At this point, undercapitalized players continue to find a way to survive.

In the past, it was the Green Plains' slowdown that was the main driver for reduced supply, but because of Project 24 and the fact we loose more money slowing down, our strategy is to run full out and drive our cost per gallon lower. The last time we slowed down, all that happened was the industry sped up. We have positive net income margins begin to appear in October, as supply was below 970,000 barrels per day. And since then, the last five-week average was 1,065,000 barrels a day with some weeks even higher. We believe some of the slowdowns never happen that were announced by other players.

Our carrying capacity as an industry to the best of our knowledge is 1,150,000 barrels per day when everyone is running and some of the good eastern plants come back online. The good closed eastern plants come back online, which is over 17.6 billion gallons per year. I'm not saying we will run consistently there, but we can take care of any demand that shows up.

I would say our average estimate going forward is 1,100,000 barrels a day or 16.8 billion gallons annually. So where is demand going to come from? While we know that 10% of the fuel supply is 14.3 billion gallons and exports are 1.5 billion gallons, so our baseline demand is 15.8 billion gallons. Can China take a billion gallons? Yes. Will they? We will find out. Can E15 grow fast enough to help? Yes. Will it? We are working hard to get there.

We currently have 2,070 stations selling E15 and are projecting we will be at 3,000 by the end of 2020, with demand of 200 million gallon -- 200 million incremental gallons. And if we can achieve our 2021 goal of over 10,000 stations, it will increase incremental demand to over 800 million gallons per year. Now, we could blow past this number in the event USDA comes through with $100 million for infrastructure, which they are moving quickly on. It was in the President's budget proposal of the Congress. When added to the base demand, it starts to have a real impact on margins and excess supplies. We also believe that other countries will continue to increase demand as well.

So, regarding the Tenth Circuit EPA -- Tenth Circuit ruling, EPA Administrator indicated Tenth Circuit ruling would have an impact on the way they handle small refinery exemptions and they would be announcing soon how they intend to move forward on it. But they do have 45 days to appeal the decision, should they chose to go that route. Our guess is that they don't rock the boat either way in an election year, but find a way to adhere to the deal so that 15 billion means 15 billion.

If these things happen, we may finally see the law and the RFS work as intended. As I had said before, our story was hijacked by the oil industry, and we must take it back. This is the most successful low-carbon program ever implemented globally, as we continue to reduce tailpipe emissions by 40% to 45%. And even more importantly, the industry's footprint continually -- continuously gets better with reduced natural gas usage and reduced water use per gallon of production, which is not even calculated in the emissions yet.

We remain focused on controlling what we can control, which is reducing our costs through Project 24 and extracting value through new sustainable feed ingredients by capitalizing on our investments and protein technology. This is what we are referring to as a Total Transformation Plan for Green Plains. If you refer to the last slide of the presentation before the appendix, it illustrates what our year would have looked like if all of our plants had this technology deployed at very reasonable expected protein levels of 50% and 53%. You can see the results are impressive, which is why we are headed to become a true bio refinery that is maximizing the value of each kernel corn through the application of technology and new yeast and enzymes, all while not being dependent on government policy, and this is why our partnership with Novozymes as well as our joint venture with Optimal Aqua are so important.

I'm happy to report that Shenandoah has begun commissioning our first high-protein production facility last week, and we expect the dryer to come online 30 days later to achieve maximum production shortly after. We have recently increased the volumes of the offtake agreement, and for all intensive purposes, Shenandoah production is spoken for. Additionally, we have begun the engineering for our second and third high-protein location and expect one more unit to be fully constructed before the end of the year.

We are discussing offtake agreements for a second and third facility as well. We will make the final decisions on the location and announce that shortly. We continue to focus on the current technology running successfully and available in the market, which is Fluid Quip Technologies. Thus far, we have not seen another technology that gives us the base quality we need from solely mechanical separation, which gives us a baseline 50% protein product.

We have seen some chemical and flocculent processes, but our aquaculture and pet food customers have indicated they do not want a product produced like this. And more importantly, we don't believe we can get those products accepted globally from those processes, so we continue to focus on the technology we have chosen and is operating at scale today producing product that has been used around the world. This technology is another step in the transformation of Green Plains to a world-class protein provider.

In addition, by partnering with Novozymes, we believe we will be able to increase the value of the products we produce every day and together provide solution for our nutritional partners in the aquaculture, animal feed and companion animal food markets worldwide, utilizing advanced biology with potential pathways up to 60% protein.

So let's talk about the margin potential in front of us, which is much higher than the $0.12 per gallon to $0.15 per gallon we talked about in the past on protein. This was based on our 50% protein product. Let me walk you through what we have been calling the J-curve of protein profitability. At 53% pro, the potential margin contribution rises to about $0.21 a gallon, and at 56% pro the potential is approximately $0.36 a gallon. The North Star for us to achieve is a 60% protein product combined with novel feed ingredients that could add as much as $0.57 a gallon at prices near $1,200 a ton for the product. This illustrates why we are so excited about the direction we are headed.

We are currently in aquaculture trials to validate novel ingredients that will be used in combination with our high-protein products as either a complete feed or premix, further enhancing the profitability of this product. We are on a path to transform this company to be an ag-tech focused company, maximizing the value of the assets in coming years and it begins now.

In combination with our transformation to sustainable ingredients, we are also launching our ESG initiatives, as much of what we do already gets us close to what the market is looking for in this investment thesis. We just haven't articulated all of what makes this company an industry right for a new round of investment from investors and capital looking for ESG opportunities. We will begin to highlight things like carbon intensity, greenhouse gas emissions and carbon reductions, natural gas and water reductions, land use efficiency gains, protein increases to help conversion efficiencies in aquaculture, which reduces land used to feed ourselves.

Finally, we were just awarded a patent for the novel process of using thin stillage from an ethanol plant to produce algae oil, a protein-rich biomass, which we have been quietly and successfully scaling in our York, Nebraska pilot and research facility, which is now in full trials for use in aquaculture feeds. This is a bolt-on technology that can be applied to any corn-based ethanol plant. This is different from the other novel ingredients mentioned earlier. What most don't know is York, Nebraska has a full scale, world-class pilot fermentation facility that we acquired along with the ethanol facility. Not many of these exist in the world today. This has helped accelerate the ability to prove out and get this technology patented.

Lastly, another aspect of our ESG initiative is our corn oil production. This is one of the base feedstocks used in the renewable diesel processes. A benefit of our protein initiative is the fact that corn oil production goes up between 50% and 100% depending on the facility. We have a very constructive price view on vegetable oils and fats pricing with the expansion globally of renewable diesel production and we will benefit from this in our ESG strategy overall. We have already been exporting our oil for this purpose, even before the U.S. has scaled up. This is a low CI score oil that helps plants achieve their targets. More to come on our overall ESG strategy, but we believe we are already a very environmentally sustainable company.

When we combine these new protein initiatives with what is going on in Optimal Aqua and the early results from Project 24, we truly believe that 2020 will be looked upon as an inflection point in Green Plains history, now we are firmly on the path to more predictable and sustainable margins and cash flows. The challenges in this industry have been numerous over the past year and couple of years. We will continue to do our best and to be transparent with you. We believe we have positioned ourselves through our portfolio optimization plan and through our cost reductions, as you cannot transform unless your generation one platform is efficient and low cost, in addition to the protein strategy we have outlined, which puts us in the best possible position to succeed as we continue to transform ourselves in the Green Plains 2.0.

What is important as well ethanol margins have been under pressure for the last 18 months. We have a very dynamic plan to reinvent the Company, and while it may take a while, we are set up very well to succeed.

Thanks for joining the call today. And now, I'll ask our moderator to start the Q&A session.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Adam Samuelson with Goldman Sachs. Your line is now open.

Adam Samuelson -- Goldman Sachs -- Analyst

Yes. Thanks. Good morning, everyone.

Todd Becker -- President, Chief Executive Officer & Director

Hi, Adam.

Patrich Simpkins -- Chief Financial Officer

Good morning.

Adam Samuelson -- Goldman Sachs -- Analyst

Hi. So Todd, you just went through a lot of details on the high-pro initiatives. And I guess, first in the capex that you outlined, I mean -- I presume this is cash on hand and any cash from operations. But talk about the financing plan, both for the capital spending this year and also to get the whole fleet converted to high-pro, I think you talked about $350 million to $400 million opportunity in the slides. Just any pathway on the financing of getting there and timing, and maybe how do we accelerate some of these investments to get to this end state?

Todd Becker -- President, Chief Executive Officer & Director

Yeah. So that's the key. We want to accelerate this project and go as fast as we can to roll this out. So, we've been talking with several different financial partners on -- from the debt side, in terms of banking and other lenders. And we believe that our goal is to get somewhere between $100 million to $150 million of debt for these projects to get them kick started. In addition, we have also been talking with other partners around accessing partnership in terms of equity investments into some of these ventures to accelerate them. So, we're kind of being -- we're going to look at it to be very creative.

The first though is if we can get to $150 million line to start, we believe we can build three or four of these very quickly. Those three or four would add to Shenandoah, which gets us to five of these projects. They start to self-finance each other very quickly. So five projects will self-finance another two to three, that gets us up to eight self-finances -- self finances, the rest.

Now in terms of off cash balance sheet, we also want to make sure we always retain a strong cash position. We still believe we should have some liquidity available through other levers that we can pull as well to finance another one of these with equity. So, it's a little bit of everything. We're going to look at everything across our platform as well to make sure that we are optimizing and where we can also find other sources of liquidity. But our goal is to now really begin to think about more aggressively funding this plan because of what we're finding out in terms of offtake agreements, Shenandoah is starting up, we already know there's a plant -- two plants operating that are doing very well.

The product has been very widely accepted globally in the market. And so our goal is to move as quickly as we can and we're developing that plan right now, but we are in talks right now to potentially use debt financing to move quicker.

Adam Samuelson -- Goldman Sachs -- Analyst

All right. That's helpful color. And then just on the -- on Shenandoah, I mean, I know the base investment plan here was predicated on a 50% protein content. I mean, any sense at this point kind of where you think your initial product will be from protein content perspective and timeline to get that higher toward the upper band of your hopes on the 56% to 60% range?

Todd Becker -- President, Chief Executive Officer & Director

Yeah. So, our goal initially is obviously the whole thesis was based on 50% protein, but we already know that mechanically, just mechanically, we can get a little bit higher than that. And then -- and that will kick off our partnership with Novozymes to continue to work with them to move up the J-curve. And we believe quickly we can get to the 53% type pro within six months to eight months and then from there start to move up. As we laid out 53% would be the first stop, 56% is the next stop. We think that's a year to 18-month development program, and then from there, move up the J-curve which is a two year to three year development program to get the 60% pro with novel ingredients.

I think the key is that it's a combination of not just the high-pro, but also some ingredients that we've been using in our aqua trials and in our aqua feed that we've been producing for some of our customers already through the Optimal venture. And so from that standpoint, I think we'll move very quickly to 53%, and then from there step by step as we move up the J-curve.

Adam Samuelson -- Goldman Sachs -- Analyst

Okay. And then just finally for me. Just on the base ethanol outlook and any comments on exports, and I know, I mean, the Phase 1 trade deal did include ethanol in the language in the document. Any signs of any product inquiries from Chinese customers? Any sense that they're getting the tariff waivers to really make that arb make more sense of the current fuel prices? Just comments on that demand outlook ramping up a little bit.

Todd Becker -- President, Chief Executive Officer & Director

There is some discussion. We're going to learn a lot more later this week, but we're going to have to wait and see on that. I don't think anybody seen much inquiry on the Phase 1 trade deal yet, as we're just -- obviously, we've got a trade deal, but we also got -- we got a virus at the same time. So as we work through that and as the administration said they've talked to their counterparts in China that they're going to continue on with their idea that they're going to purchase these products. So, our view is constructive. I think we'll learn a lot more potentially later this week. We have been told that ethanol and DDGs are included in the trade deal. And we're hopeful that we'll learn more soon. But in terms of inquiries, I'm not sure anybody has seen very much at all on any of these products yet, as I think the virus put it off just a bit.

Adam Samuelson -- Goldman Sachs -- Analyst

Okay. I appreciate that color. I'll pass it on. Thanks.

Todd Becker -- President, Chief Executive Officer & Director

Thank you.

Operator

Thank you. Our next question comes from Pavel Molchanov with Raymond James. Your line is now open.

Pavel Molchanov -- Raymond James -- Analyst

Thanks for taking the question. Actually, going back to the previous one. Regarding China, have you gotten any clarity from your kind of traditional Chinese counterparts, if the tariff -- 70% tariff on US ethanol will be lifted at any point in the foreseeable future as part of Phase 1?

Todd Becker -- President, Chief Executive Officer & Director

Well, yeah, I mean, I think we're -- we know that from what we've been told is that 70% will go down to their more traditional level, and then from there what we're hearing is positive developments in terms of -- it could go lower than what it was before we started. So -- but thus far all we've been told is, the 70% was the level that was put on as punitive when they increased tariffs on many products during the trade war. And I think we'll go back to our normal -- I think it was 20% to 30% tariff. I don't know the exact number on top of my head, but it was 20% to 30% tariff originally, and then the potential for that to even go down further. So yeah, I think, we're going to come off the high one. But again what happens after that, we don't know yet.

Pavel Molchanov -- Raymond James -- Analyst

Okay. And in that context, China's decision, this was actually before the virus, to suspend its E10 mandate for 2020. Do you have any sense of when they may restore kind of revive the E10 target?

Todd Becker -- President, Chief Executive Officer & Director

I think there is some confusion in that as well. I mean, when you look at the announcement, E10 is already being -- has been accepted and being used in many provinces, in many large provinces. And so while that came out, it doesn't necessarily affect the fact that they still blend ethanol and still want to blend ethanol. I think what they realize is that internally, it's going to be hard to hit some of these mandates because they haven't built plants and they don't have those plants, but that doesn't mean they're not going to buy ethanol at all. In fact, we remain very constructive on Chinese ethanol demand going forward, even without that, because I don't think that that was really that impactful to what our program will be. Because even if they use E5 or E6, it's still is a significant amount.

But some provinces have already made the switch fully to E10, and we believe they will continue to buy that even more aggressively as these trade barriers are lifted.

Pavel Molchanov -- Raymond James -- Analyst

Okay. Very helpful. Thank you.

Todd Becker -- President, Chief Executive Officer & Director

Thank you.

Operator

Thank you. Our next question comes from Ben Bienvenu with Stephens. Your line is now open.

Ben Bienvenu -- Stephens -- Analyst

Hey, good morning.

Todd Becker -- President, Chief Executive Officer & Director

Good morning.

Ben Bienvenu -- Stephens -- Analyst

I wanted to ask -- so you guys sold 230 million gallons of ethanol in the quarter, which is just shy of 80% of the capacity. I assume that's because of Wood River and Madison being down for Project 24 implementation and then some improvements at Madison. Is that right?

Todd Becker -- President, Chief Executive Officer & Director

That's correct. So if you take a Wood River plant, which produces about 9 million gallons a month, and a Madison about 8 million gallons a month, that would be 17 million gallons a month times approximately a couple of months of production overall. And so, yeah, that would -- that negatively affected our quarter and it negatively affected our EBITDA per gallon, because those plants both had positive EBITDA margins during some of the highest margins experience and they were down and they were offline. So we weren't able to take advantage of that at two large plants, which we think overall affected our quarter by $0.02 a gallon to $0.03 a gallon on our ethanol gallon. But look that's a short-term investment for a long-term solution. And so we knew that the risk is when any of our plants go down for these transformations, that we would be potentially giving up margin opportunity, and that's what happened in the fourth quarter.

Ben Bienvenu -- Stephens -- Analyst

Got it. Okay. So as you guys work through Project 24 implementations in 2020, what percentage of your capacity would you expect to be offline in the midst of that?

Todd Becker -- President, Chief Executive Officer & Director

So, we're probably going to take offline one plant a month for -- and it was just before, call it, two weeks to three weeks, is the switch over time depending on the size of the project at each plant. So potentially it's one plant per month or at least a two-thirds of the month that would be down. Starting with the first three that are going down right now, there's two small ones and one big one and then after that another small one goes down, and then two large ones and then a small one.

So, it's basically going to be every couple plants become one of our bigger plants, but that's going to be over a seven-month period where it's not all down during the same time.

Ben Bienvenu -- Stephens -- Analyst

Okay. Perfect. Helpful. Thank you. And then I wanted to ask, the agri business segment had a nice quarter and still total segment EBITDA down relative to years passed. I'd just be curious to hear kind of what happened in the quarter? Help us understand mechanically what drove that nice result. And then how should we be thinking about that segment, as it relates to kind of your full-year EBITDA contribution to the overall business?

Todd Becker -- President, Chief Executive Officer & Director

Yeah. So that segment had good earnings from storage returns on -- range that we had in storage that basis went up and we are able to achieve much better sales levels. In addition, as our RIN went up as well, they achieved little more service revenues. And then finally in our ag and energy -- in the energy side, we just didn't have the same fourth quarter opportunities in our natural gas merchant businesses that we've seen in the past, just because the reduced volatility, reduce prices and weather.

And so sometimes that sometimes supercharges our quarter. Still very committed to that program, but it just wasn't a year that it was a big contribution work in prior years past that was off from their strongest quarter in our merchant businesses. So, we still think we'll still hit 2020 as much, we'll return back to normal where that segment has been running for the last several years, but just not as much opportunities in our merchant energy businesses this quarter.

Ben Bienvenu -- Stephens -- Analyst

Okay. Great. Thanks. Best of luck guys.

Todd Becker -- President, Chief Executive Officer & Director

Thank you.

Operator

Thank you. Our next question comes from Craig Irwin with ROTH Capital Partners. Your line is now open.

Craig Irwin -- ROTH Capital Partners -- Analyst

Hi. Good morning, and thanks for taking my questions. So, Todd, your comments on Project 24, both today and on previous calls, have been really clear. And I should say congratulations on the progress there. Last call, you discussed a side benefit of Project 24 that you uncovered an opportunity to address natural gas usage at Wood River, the opportunity to save maybe as much as $0.08 a gallon.

Can you maybe share with us whether or not you're uncovering similar side benefits as you execute Project 24? The plants that are in the pipeline for the next couple of months? Are there potential projects that you're in planning to execute that could deliver similar returns?

Todd Becker -- President, Chief Executive Officer & Director

Yeah. So, I think, if you take a history lesson on Wood River, which is really the best one to look at, when we bought that plant in 2014, it was running at $0.35 a gallon. And that's while a similar Obion plant was probably running in the low-20s at the time cents per gallon. And so that was the delta that we needed to overcome, and a lot of it was driven by the difference in distillation and energy use and other inconsistencies that were in those plants.

Fast forward to today, we still -- we were reducing overall our costs at Wood River, but never could get much below $0.30 a gallon. We ran at sub $0.21 a gallon, below $0.21 a gallon in December, and a little bit above $0.21 a gallon in January. And so you can see the impact of this transformation in Project 24. Now that's just operating costs. That's basically just straight in operating costs that we outlined for you in the slide, in our presentation, not inclusive of energy reductions that we're finding out as well. So, what will happen is, it's not just a function of reducing. 2019 operating costs per gallon at Wood River was $0.30 a gallon. 2020 should be in that $0.21 a gallon to $0.22 a gallon. So, we're going to pick up the whole $0.08 a gallon reduction and it will run very similar to an ICM plant.

Now, there are definitely a handful of ICM plants that run below $0.20 a gallon, and sometimes ours do even. So, we've -- but we believe that, in relative terms, that gets us very close to much of the rest of anything that's ICM out there. But beyond that is the fact that our cost of goods sold are going to go down as well as we use about 20% to 25% less natural gas because of this Project 24 upgrade, and that's not in our cost reduction, it is just in a reduction of COGS from commodity procurement. And so if you look at a plant, now the thing is that depending on that gas prices are $2 today, so the benefit is not significant at a low gas prices. But if a plant uses 3 Bcf and its $2, you bought $6 million in gas, maybe it saves us another $1.5 million -- $1 million to $1.5 million in overall costs, which is just about another $0.01 a gallon, $0.015 a gallon. But even without that, take another $0.01 a gallon to $0.015 a gallon across all of the Project 24 plants and now you're talking about another $6 million to $8 million of savings just on our COGS. So that's what we discovered.

Now beyond that, once we complete this, we're not done yet. I mean, we still actually believe there are other things we could do. Once we start to operate like an ICM plant, there is still another step after this that now you can start to debottleneck even further your cost structure because you are much like an ICM plant. And as I said, ICM has made it very well known to us that what we did to improve that middle part of the plant is actually a bigger and more robust than a lot of legacy ICM plants out there, because their technology has changed over the years as well. So, we're very happy about it.

I think the interesting next step will be Superior and Fergus Falls, and those are two 60 million gallon plants. So, we'll see what the impact on a 60 million gallon plant is next. Now, we don't expect them to operate like a 100 million. But overall, Craig, what we believe is, we will be below $0.24 a gallon, trending toward $0.23 a gallon across the whole platform, and then we'll take it from there and see how much lower we can get it.

Craig Irwin -- ROTH Capital Partners -- Analyst

Great. Thank you for that. So then on high pro, I guess, we've been hearing that the pricing is may be in the range of -- pricing for the offtake agreement is just may be in a range of roughly $100 over soymeal. Can you maybe discuss that? And whether or not there is opportunity for this to achieve a greater premium as maybe some of the things you're working on with Novozymes and greater customer experience out there accumulates over time?

Todd Becker -- President, Chief Executive Officer & Director

Yeah. So, our first contract was not quite a $100, but was not far from that in terms of just value for 50% protein being put into aqua and into pet. And so that was the first step. And it's really a function of getting it in more aggressively and consistently into products, where it gets on to label or gets into the diet. And once it's in, we believe it will stand. And so that's why our initial customer came back and upsized the original offtake agreement because it's working so well for them, and they like the product so much. So with that said though, most interesting is the question being will aqua lose this product to pet or will pet lose this product to aqua, or will it be enough for both.

Today, it's a bit of a competition starting at the 50% pro, because it does have other qualities around amino acids, around other factors in terms of certain things in the diet and certain things that happen in the process. So they like the product a lot. It's already been included in all veg diets, in poultry producers as well. And so we're starting to see that coming, because the way that they like the product as well. But I think going forward, as we move up the protein curve, it's not a linear curve in terms of value of protein, where soymeal -- high-protein soymeal has been at 47% on high pro forever, we are not really going much higher or the great thing about high pro coming out of an ethanol plant is the fact it starts or you using to Fluid Quip system it starts at 50% pro mechanically before even do anything else and then you can start to move up the curve and I gave you those numbers.

So, we believe there is another $100 a ton to $150 a ton if you can get to 53% pro and then we believe there is another $300 a ton to get to 56% pro, and each $100 a ton is worth about $0.06 a gallon to $0.07 a gallon of uplift in the ethanol margin. So, we're very excited about it and we know it works because the offtakes have been increased, because we've been delivering our -- the product to our customer from alternative sources that are producing today, as the industry does not have a lot of redundancy and we're helping each other out. But more so, we're very excited to start delivering them our first products next month and start to include those.

So, we have a plenty of interest for offtake agreements from multiple different species, and we believe that when we announce -- as we get close to announce the second location, our goal is to have an offtake agreement very close behind that or at the same time.

Craig Irwin -- ROTH Capital Partners -- Analyst

Thanks again for taking my questions.

Todd Becker -- President, Chief Executive Officer & Director

Thank you.

Operator

Thank you. Our next question comes from Elvira Scotto with RBC Capital Markets. Your line is now open.

Elvira Scotto -- RBC Capital Markets -- Analyst

Hey. Good morning, everyone. This question is on the MLP. So, given all the transformation at GPRE, can you talk about how Green Plains Partners fits in the broader Green Plains strategy?

Todd Becker -- President, Chief Executive Officer & Director

Actually, the great thing about what we're doing at Green Plains is the fact that in order to be very successful in the Green Plains 2.0 and our Total Transformation Plan, our generation one platform has to operate continually at high levels and at low cost, which is very beneficial we believe for the MLP going forward. As we have stated publicly, we want to run higher than 90%. We ran at 94% in December and we want to continue to run as hard as we can going forward which then increases the volumes at least or stabilizes and potentially increases the volumes at the MLP for everything that goes through there, which keeps the dividend and the distribution very, very stable and potentially growing.

So, our view is that it's very constructive for GPP to have Green Plains transform, reduce our costs and run more consistently than we have in the past. In addition, the way that we used to be the governor of supply and reduce our supplies during low-margin environments, we don't really have to do that anymore as we lose more money reducing than we do running. So, overall -- and then you take into consideration things like China, E15, our terminal in Birmingham, which is very well, in terms -- running very well with lots of capacity that goes through it. So overall, we think it's very beneficial to Green Plains Partners for us to do everything we're doing to invest behind it in our original generation one platform.

Elvira Scotto -- RBC Capital Markets -- Analyst

Okay. And then just as a follow-up, I think you said that you want to grow Green Plains and maybe diversify the asset mix beyond ethanol. So, when we think about Green Plains Partners -- sorry, I was talking about GPP, would you -- do you have any sort of targets in terms of what's the target for third parties as a percent of GPP's customer base or what kind of diversification across products you're thinking of?

Todd Becker -- President, Chief Executive Officer & Director

Yeah. We have targets to reduce the dependence on Green Plains as a parent organization to GPP and get it to be more independent in terms of volumes that go through. And so I think as we've been fixing Green Plains and getting it to a point where it can operate more consistently in any environment and drive more volumes for Green Plains Partners assets, our goal now is to start to refocus on what we originally have put in place at Green Plains Partners to expand it as a vehicle to find third-party terminals that we believe we can help in terms of our own volume going through there as a base volume, but have a multi-product terminal because ethanol is always a very important part of a lot of terminals that we see or that we go through.

And so overall, we are starting to then reassess how to grow Green Plains Partners in the future and use it as a vehicle it was originally intended for and reduce the dependence on sponsor volumes.

Elvira Scotto -- RBC Capital Markets -- Analyst

Great. Thank you very much.

Todd Becker -- President, Chief Executive Officer & Director

Thank you.

Operator

Thank you. And our next question comes from Laurence Alexander with Jefferies. Your line is now open.

Laurence Alexander -- Jefferies -- Analyst

Good morning. Two questions. One is, can you just speak little bit about how you see your competitive moats evolving? And I'm thinking in terms of which of your competitors have the knowledge of the aquaculture markets to follow you along this path and then which assets can follow you along this path of optimization and are the assets that can be upgraded in the wrong hands who actually be upgraded?

And then second question is, can you speak a little bit about -- it's been a very long times since I heard you this enthusiastic about a platform. Can you speak a little bit about how are you seeing guardrails, that is what would have to go wrong for you to pivot and say it's the time to look for something else?

Todd Becker -- President, Chief Executive Officer & Director

In terms of the competitive moat, we know that the customers we deal with will not buy and not depend on a single location high-protein production facility, because if that one location goes down, there is no redundancy, and they are very dependent on a high level of quality assurance and quality controls to make sure that that product causes no damage to their diet or their -- what they're using it for.

And so we believe that alone is a potential competitive moat, which is why we have to work together with those who have also put it in to their locations, there is only a few, so that we can provide some initial redundancy. But our goal to roll it out to all 13 facilities, provide an customer aqua customer -- aquaculture customer globally or domestically with redundancies, which is extremely important. And it's not just redundancies in volume with redundancies in quality and quality control. And so while certainly there will be more of these built, we all -- the key to building these protein operations is to maintain quality but also to maintain price discipline on this product, because it would be the dream of many for us to produce a lot of high-protein and commoditize it and reduce the price. But I don't think that we're on any type of path as an industry to do that. And anybody that looked at high protein understands, in our view, when you get into the 50s and the 60s that that is a very unique special product that needs to be protected at all costs.

And so I think that those that are interested in high protein around the industry understand some of that, and believe that if -- because it's not a cheap investment. When you're talking about $35 million to $50 million, you can't start these up and immediately cheapen the value of your product. You've got to increase the value of the product. And everything we're doing with our customers on aqua trials at Shenandoah, and Shenandoah will open up a world-class aqua lab that is now doing trials of these and other novel ingredients for customers globally as well as other areas -- other customers that are using our high protein and other aqua trials as well and seeing the benefit of that.

So, I think there is a good competitive moat that we will have as a company, but also around others that -- or want to participate in protein and understand that they have to maintain value because the investment is very big.

Now, the second thing on Project 24 optimization. Yes, we have developed this alongside with ICM on rolling this out across our platform. Now, the one thing we do is that when we're done with it, we do have a -- a bit of a non-compete time that gets us mostly through 2021 and then other plants obviously could always look at spending the money to roll this out as well later on after late '21 and potentially into '22. But we feel like we'll be at a good competitive advantage by then and we'll roll it out throughout our whole platform, but we did get a head start. It doesn't mean that we're going to be the only ones that ever do that, but at least we know that we have protected a head start for a little while, and then at that point others can do this. But again, capital is going to be the key for any of this.

If you want to invest in 24, you want to invest in protein, these are -- we're talking about lots of capital needed at individual plants and the way that this industry has shaped up over the last 18 months, capital has become very tight. In terms of guardrails with everything that we're doing, obviously, we can only do what we can do from the standpoint of others and what -- and how they participate and how they behave, but in terms of the guardrail's capital to start. And there is not a wide availability of capital to anybody that wants to do this. We believe because of the -- what we've done around Project 24 and what we've done around our portfolio optimization plan delevering this balance sheet significantly where we really have no -- all of our assets are unencumbered at this point, we have the ability than, based on off take agreements, to get we believe access of cheap financing -- cheaper financing, not cheap financing, but low-cost financing to build it out again.

We don't want to lever up the balance sheet. But when you have the opportunity to earn $0.16, $0.18, $0.28, $0.35 a gallon on off take agreements, we believe you can pay those back very quickly, because our goal is never to get into a position again where we have a term debt maturity facing us as a company.

Laurence Alexander -- Jefferies -- Analyst

Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from Eric Stine with Craig-Hallum. Your line is now open.

Eric Stine -- Craig-Hallum -- Analyst

Good morning. I was wondering if you could just talk a little bit on kind of your updated thinking on marginal production in the industry. I know if you went -- if we went back a couple quarters, it kind of looked like, given the financial troubles, given the market conditions, that there was actually a structural change under way and now your commentary today would suggest that some of those didn't even happen, some of those plants didn't even come down.

I mean, how long do you think that these marginal plants can hang on in this current environment? Just updated thoughts would be great.

Todd Becker -- President, Chief Executive Officer & Director

Yeah. I think, I mean, we are very surprised by the EIA data. We're actually not sure if it's correct or not, but that's all we have. Okay? This is -- obviously, first quarter is always a weak quarter, cyclically that's weak, and we're living up to our expectations this quarter as well. But during the fourth quarter, we did see reductions without 9.60[Phonetic] a day and we saw that -- evidence of that.

I think if we didn't reach a breaking point of these lower-quartile plants, then I do believe now we are in this 30-day period where people are going to have to make decisions on what they want to do in terms of cash burn and what have they should approve running or not. I think some want to try to make it to the first quarter to see if they can get the driving season, but I'm not sure. I think the banks have reached their breaking point as well in terms of allowing plants to term out their revolvers, and that happened last year as margins got better.

So, I think we're at that point. It kind of feels like we're at that point where the bottom 10%, 20% of this industry is -- does not have a lot of capital left to continue -- if any to continue to support running. Look, we just need to get back to that 9.60 [Phonetic] a day, and we'd be in a very different margin situation. And 960 a day, we had margins throughout 2020 along the whole curve in high-single digits, and we haven't seen that for a while. So, we're gonna have to watch production closely, it's a combination of production and stocks. I mean, stocks right now at 23 million barrels are high and we need those to come down as well. But overall, I think it feels like we are starting to reach some breaking points on some of the industry players out there, and we'll see what -- see how the reaction is.

But overall, it does -- we're not -- it doesn't take much of our Chinese program and some E15 to kick in, but we have shown that we could also make a lot of ethanol very fast. So our view is that, let's continue to build our protein, let's continue to do the things with Project 24, and if we had all of those in line today, you would see the result of 2020 on the last page of our slide deck.

Eric Stine -- Craig-Hallum -- Analyst

Yeah. Okay. And then last one for me. In the release, you mentioned being complete with the portfolio optimization plan. I mean, should we take that as that the plant sales, you're done with those, or is that something that you still would consider if you're able to accelerate Project 24 in the high-protein initiatives?

Todd Becker -- President, Chief Executive Officer & Director

Yeah. I mean, look at -- I don't think today the market is very deep for people that want ethanol plants at this moment. I can never say that we wouldn't continue on with the program with the right -- if something there that would help us accelerate Project 24. But at this point, we don't have very active processes going on, just because of the kind of last three months to four months in ethanol has put some people on the sidelines.

I do believe overall, there is still a -- there is still demand for good plants. Our goal is to get all of our plants to look like and feel like the best plants in the industry, because I think there is a misconception that a Delta-T is not an ICM or a Vogelbusch is not an ICM. And really it comes down to the middle of the plant, which is what we work with an ICM to basically transform all our plants. The front end is the same, where you grind the corn and add the Eastern -- or the chemicals to an enzyme to transform it into sugar. The middle of the plant in fermentation and distillation, obviously, is where the money is made. And that's why we're transporting basically full ICM systems into the middle of our plan.

And the back end of the plant is to load our distribution, that's all the same. So, we didn't want to just sell plants to sell plants when we knew we can invest, yeah, under -- about $0.10 a gallon for an upgrade that pays us back about $0.10 a gallon. And so we believe when we come out of Project 24, you will not be able to differentiate our technology from the best technology in the industry and that we believe alone, in any margin recovery environment, increases the value of our assets aggressively. And then from there, put protein on top of that, and then you start to be able to really start to predict cash flows over and above ethanol margins.

And even ethanol -- if ethanol margins or zero, because of what we've done on Project 24 utilizing the protein in our Total Transformation Plan, we could be earning $0.15 a gallon to $0.30 a gallon just on protein alone. And that's really the transformation that is run very -- run the plant very best you can, low-cost, drive your cost down, your generation one assets, buying it better and selling it better and making it better is extremely important. And then moving into the protein, which just basically stabilizes and cash flows to be very predictable. And you'll be able to see that most of -- we probably will not just build a protein production facility without significant offtake agreements, and we believe that for every protein facility we will build, we will have an offtake agreement if we want one.

Eric Stine -- Craig-Hallum -- Analyst

Got it. Very helpful. Thanks.

Todd Becker -- President, Chief Executive Officer & Director

Thank you.

Operator

Thank you. And our next question comes from Ken Zaslow with BMO Capital Markets. Your line is now open.

Ben -- BMO Capital Markets -- Analyst

Hi, everybody. This is actually Ben [Indecipherable] on for Ken. I just have one question for you today. I'm just wondering about the domestic demand environment. And what is assumed in your 15.8 billion gallon sort of base case assumption? And does RFS have any upside to that, given the recent court ruling? Thanks.

Todd Becker -- President, Chief Executive Officer & Director

Yeah. And so that -- we use that as a -- we use the 14.3 billion as the base demand, but we also know that any waiver issued will be added to 15 billion and then reduced back to 15 billion from the standpoint of that's the base demand in the United States. Now, you can buy a RIN and get out of the blending requirement if you're a blender and not blend 15 billion, or you could blend it and $0.20 a gallon to $0.30 a gallon in the blend, and not buy the RIN.

So, our view is that, while I outlined to you, that 14.3 billion gallons is 10% of the fuel supply today, 15 billion does equal 15 billion, one way or the other. So we're either going to reduce the RIN bank through these -- through the 15 billion equals 15 billion program and people will have to buy a RIN to get out of their blending, or with this recent court ruling, people will just blend 15 billion. And it will come through a little bit of E15 uplift and potentially the rest have just increased blends overall, as we are working very hard with EPA and relabeling and labeling concerns that we had on E15 from the beginning. But more importantly is what the President put it his budget around E15 infrastructure, and we think that could even move very, very fast to start to rollout E15 on a much bigger platform nationwide.

In fact, New York, obviously, they've approved it. So, while I use 14.3 billion, if you use 15 billion and use 700 million gallons, all of a sudden, you are 10 million, 15 million, 20 million barrels more of demand and you can take care of that supply that's [Indecipherable] very quickly. So it's really hard to say what the blender will do, because I think they're nervous about the outcome of this ruling, and our view is that Tenth Circuit is the law that EPA must comply with.

And they probably won't do much with that -- they probably won't do much to feel that.

Ben -- BMO Capital Markets -- Analyst

Got it. Thank you so much.

Todd Becker -- President, Chief Executive Officer & Director

Thank you so much.

Operator

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Chief Executive Officer, Todd Becker, for any closing remarks.

Todd Becker -- President, Chief Executive Officer & Director

Yeah. Thanks for the coming on the call today. We are embarking. We've left portfolio optimization behind and are embarking on Total Transformation. We think we have a great plan, where we're going to figure out how we finance this plan. It's transformational to the way Green Plains looks in the future. It helps out all of our ESG initiatives that we're embarking on. And we believe that it will put Green Plains in a very good position in the future to give you predictable cash flows and predictable earnings streams, while reducing the volatility of the original generation one environment.

So, thanks for supporting us coming on the call, and we'll talk to you next quarter.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Phil Boggs -- Senior Vice President, Investor Relations and Treasurer

Todd Becker -- President, Chief Executive Officer & Director

Patrich Simpkins -- Chief Financial Officer

Adam Samuelson -- Goldman Sachs -- Analyst

Pavel Molchanov -- Raymond James -- Analyst

Ben Bienvenu -- Stephens -- Analyst

Craig Irwin -- ROTH Capital Partners -- Analyst

Elvira Scotto -- RBC Capital Markets -- Analyst

Laurence Alexander -- Jefferies -- Analyst

Eric Stine -- Craig-Hallum -- Analyst

Ben -- BMO Capital Markets -- Analyst

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