Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Renewable Energy Group Inc (NASDAQ:REGI)
Q2 2020 Earnings Call
Aug 4, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to Renewable Energy Group, Inc. Second Quarter 2020 Earnings Conference Call Webcast. [Operator Instructions]

I would now like to turn the conference over to your host, Mr. Todd Robinson, Treasurer. Please go ahead, sir.

Todd Robinson -- Treasurer

Thank you, Hector. Good afternoon everyone, and welcome to our second quarter 2020 earnings conference call. With me today is our President and Chief Executive Officer, CJ Warner, and our Chief Financial Officer, Chad Stone. Let me cover a few housekeeping items before I turn the call over to CJ. First, I would like to remind everyone that this call is being webcast and is available at the Investor Relations section of our website at regi.com. A replay will be available on our website beginning later this afternoon. The webcast

Includes an accompanying slide deck, which will appear automatically with the webcast. You will need to advance the slides manually as we prompt to you.

For those of you dialing in, the slide deck can be downloaded along with the earnings press release in the Investor Relations section of our website. Turning to Slide 3, we would like to advise you that some of the

Information discussed on this conference call will contain forward-looking statements. These statements involve risks, uncertainties and assumptions that are difficult to predict, and such forward-looking statements are not a guarantee of performance. The Company's actual results could differ materially from those contained in such statements. Several factors could cause or contribute to those differences. These factors are described in detail in the risk factors and other sections of our annual report on Form 10-K and

Subsequent quarterly reports on Form 10-Q, which are on file with the SEC. These forward-looking statements speak only as of the date of this call. The Company undertakes no obligation to publicly update any forward-looking statements based on new information or revised expectations.

Today's discussion also includes non-GAAP financial measures. We believe these metrics will help investors assess the operating performance of our core business. Please see the press release or the appendix to the accompanying slide deck for a reconciliation of the non-GAAP measures to the most

Comparable GAAP measure. Let me also remind you that near the end of last year, the Biodiesel Mixture Excise Tax Credit, or BTC, was retroactively reinstated for 2018 and 2019. It was also put in place for 2020 through 2022. The net benefit of that retroactive reinstatement for both years was reflected in our GAAP financial statements for the fourth quarter of 2019. Because the credit related to our 2018 and 2019 operations, our adjusted EBITDA and other line items reflected an allocation of the net benefits of the credit to our 2018 and 2019 results by quarter to reflect the period in which the associated gallons were sold. Chad

Will provide more details on this when he reviews the financial results.

With that, let me turn the call over to our President and CEO, CJ Warner. CJ?

Cynthia J. Warner -- President & Chief Executive Officer

Thank you, Todd. And good afternoon everyone. We are halfway through quite a volatile and challenging year, and especially given that backdrop, I'm incredibly proud of what the REG team has accomplished. We are operating our business safely within CDC and government-sanctioned sanitary practices in place and thus far have identified zero cases of covered illnesses resulting from infection at the workplace. Our biodiesel and renewable diesel plants, maintained high run rates throughout the crisis, enabling us to consistently supply fuel to our customers and deliver essential products.

We have supported our people and the communities in which we operate, most noticeably by maintaining employment, company operations and reliable feedstock uptake from our suppliers. We have provided all employees, an additional two weeks of flexible time off to deal with any illness, family issues and the like. We believe that this is both, the right thing to do for our people and removes any incentive to try to come to work, rather than self quarantining when in doubt.

Finally, we have sustained our profitability, generating nearly $80 million of net income and close to $100 million of adjusted EBITDA in the first half, this would not have been possible without the dedicated and conscientious effort of everyone of REG's over 800 employees. Looking at the first half, obviously first Q was strong. One of our best quarters, while second quarter was much more challenging due to the oil price was and the pandemic. Nonetheless, we earned over $8 million of adjusted EBITDA in the second quarter.

Please refer to Slide 4, the COVID crisis really struck the U.S. in late March. So the second quarter was the first full reporting period with COVID impact. We sustained our sales and production levels, despite significant reductions in overall diesel demand and the need for major internal adjustments such as remote work and highly stepped up hygiene practices in all of our workplaces. Having said that, margins were extremely volatile and particularly narrow in May. We are pleased that adjusted EBITDA exceeded our revised guidance. This was the result of several factors, some price changes were more favorable than we had estimated. Other transactions closed earlier than we had estimated that they would. Together, these factors coupled with some other smaller elements resulted in better than estimated quarterly performance.

Focusing on the macro dynamics of the second quarter with the economy seriously impacted by effective shutdowns of major business sectors, demand for fuel decreased significantly. Jet fuel was down approximately 62% and gasoline down nearly 30% year-over-year, as you can see on Slide 6. For diesel, a primarily commercial fuel in the U.S. and which enabled the ongoing and vital transportation of goods during the shutdowns, demand held up relatively well, dropping only about 16%. Within that context, it is notable that biodiesel and renewable diesel demand remained stable, demonstrating resiliency and inspite of the petroleum fuel demand drop, supported by societies continued desire, for more renewable lower carbon intensity fuel.

ULSD prices responded to the simultaneous large crude price and fuel demand drops declining in April to an historic low of $0.61 per gallon. Since then ULSD has been trending upward, although it remains nearly $1 a gallon, below the average fourth quarter 2019 price. Similarly, feedstock markets were in disarray as the closures of restaurants, packing plant and ethanol production restricted supply of used cooking oil, animal fats and distillers corn oil, respectively. Despite this situation, a combination of strong contracted relationships and our ability to flex feedstocks, enabled us to stay fully charged with feed and to optimize our feed fleet.

For example, we shifted a majority of our distillers corn oil supply to the then more attractively priced soybean oil. The feedstock used chart on Slide 8 demonstrates how we successfully adapted to the environment. Our feedstock mix change significantly in Q2 2020 compared to Q2 2019, as our usage of soybean oil doubled while usage of distillers corn oil and used cooking oil dropped 50% and 20%, respectively. As a result, we held our average feedstock cost per gallon relatively flat year-over-year, even with this huge shift in the feedstock market. This helped us to significantly reduce the hit to our margins. As the economy reopens, these feedstock sources have been coming back online bringing our margins back to were at 2019 level.

The margin swings of the second quarter, first dramatically downward and then with subsequent improvement can be seen as seen on Slide 9 with the HOBO spread steadily increasing since late April through the end of the quarter. While we are not yet back to fourth quarter 2019 pre-crude price war level, the margin recovery trend is continuing thus far in 3Q. Our strong first half results were driven by solid execution in the operational aspects of our business that are within our control, or what I like to call underlying performance.

This was especially important in the second quarter with the extreme volatility in the external environment and the high potential for distraction of our workforce. Our operations remained strong with outstanding safety performance. We have had zero recordable injury since January 2020 and our total injury rate is currently at 0.46%, which is within industry leader performance.

We successfully conducted the planned Geismar turnaround on time, on budget and with our injury or infection. As I mentioned earlier, we shifted feedstock used heavily to soybean oil, which was in more plentiful supply and therefore more attractively priced on a yield adjusted basis. With our key product of renewable diesel, we increased gallons sold in the second quarter by 4 million gallons and directed sales to the most profitable market.

We sold around 40% of our RD to the U.S. West Coast, 25% to Canada and 35% to Norway. We also continued to develop our downstream business, which is one of our key initiatives to boost margins and demand in attractive regions and channels. As you can see in slides 10 and 11, we grew sales of REG Ultra Clean, our proprietary cleaning -- cleaner burning low carbon liquid transportation fuel by 107% year-over-year and gallons sold the fleet customers increased 62%, as we continue to expand this important channel.

Importantly, our sustained profitability in the first half enabled us to improve our balance sheet. This gives us the strength to survive a prolonged economic downturn should one occur, also creates the foundation for sustainable growth. Chad will provide more detail along these lines in just a moment. Looking forward, we are confident in our long-term strategy and optimistic around 3Q performance while we remain mindful of the tumultuous and evolving external situation. My confidence in our future is supported by a number of factors. Our great operational execution in the first half, the strength of our strategy and finally, the stability and relative certainty brought about through constructive regulatory support and driven by an increasing desire by the public for clean energy solutions. Growth in renewable diesel remains an important element of our strategy. Engineering work continues for 250 million gallon renewable diesel plant and site selection and associated commercial agreements are progressing the plan with an ongoing view for a late 2023 start-up. As you know, expanding into the downstream and delivering products directly to our customers is also a key element of our growth and margin strategy. Even as we made progress with our current products and network, we are pursuing new initiatives. Last week, as shown on Slide 12, we announced a deal of REG entered into an agreement with Hunt & Sons, a leading California based petroleum products distributor to supply and sell branded REG Ultra Clean select Hunt & Sons cardlocks. This deal is an example of our strategy to drive demand and expand margins for both our biodiesel and renewable diesel by selling to end-users.

In keeping with our disciplined approach to capital allocation, we continue to act on our repurchase authorization with strong Board support. Chad will provide more details on this shortly. We are encouraged by the expanded regulatory initiatives related to biodiesel and renewable diesel. For instance, the State of Iowa has extended through June 2026, a differential sales tax benefiting biodiesel. British Columbia also extended their program to 2030 and increases their carbon reduction to 20%. And in Oregon, a recent executive order direct state agencies to strengthen the clean fuels program to increase carbon reductions to 25% by 2035. Before Chad provides details on our financial results, I want to highlight that we issued our first ESG report, which you can access on the Investor section of our website. We welcome the momentum around ESG investing and we'll continue to be transparent in our reporting in order to support investment decisions. Also as shown on Slide 13, our 132 million gallons of production resulted in another 1 million metric tons of carbon reduction for the quarter.

Now I'll turn the call over to Chad to review our financial performance for the second quarter and the first half. Chad?

Chad Stone -- Chief Financial Officer

Thank you CJ and good afternoon everyone. Before I get into my comments on the quarter, I want to align everyone on comparisons. As Todd mentioned, the BTC was retroactively reinstated for 2018 and 2019 and extended to 2022 in December. Accordingly, we will provide analysis of the non-GAAP numbers adjusted for the allocation of the BTC for the second quarter of 2019. This apples to apples comparison will allow you to better understand the real change in underlying economic performance. Slides 15 and 16 contain our results for the second quarter and first half of 2020. Revenue was down due to both reduced gallons sold and significantly lower average selling prices, average selling prices were impacted by the drop in ULSD prices. This was partially offset by substantially higher LCFS credit revenue, recall that in the second quarter of 2019, $29 million of LCFS credits were pushed from the second quarter into the third quarter due to a one-time administrative change enacted last year.

Gallons sold exceeded our guidance and the reduction in sold gallons was entirely from fewer petroleum and third-party gallons. This reflects our ongoing emphasis on improving our product mix toward higher-margin elements of our portfolio. We continue to optimize our sales mix in order to boost profitability. Most notably by directing more renewable diesel to the more incentivized markets.

Renewable diesel gallon sold, both our own and third party, were up meaningfully. Sales of REG produced, our renewable diesel increased 25%. Production was solid despite the impact of COVID. We produced 4% more gallons in the second quarter of last year with renewable diesel production up 17%. We had catalyst turnaround in the second quarter of both years, but this year we did it in the midst of the pandemic and still increased production year-on-year. We think this reflects the strength of our operations team and our ability to act on our core values of safe operations.

SG&A was up $1.4 million, primarily due to higher wages and benefits and an increase in legal and professional service expense. Not surprisingly, travel and meeting expenses were substantially lower. As a percentage of revenue, SG&A remained around 5%. As CJ mentioned, we're pleased to have reported positive adjusted EBITDA for the second quarter in such a challenging environment. Taken together, our first-half results were quite good, reflecting strong ongoing underlying operational performance.

Considering the volatility in energy prices, we think the first -- the full first-half results best represent our progress so far in 2020. As mentioned in our first-quarter earnings call, some of the risk management gains we recognized at that time applied to second-quarter gallons. Of the $54 million risk management gains we booked in Q1, around 60% of that reflected risk coverage of future sales beyond Q1, most notably second quarter. This is a main reason that for 2020 we are emphasizing full first half results for a better sense of our true economic performance.

To smooth out the quarterly volatility, we also tracked trailing 12-month for figures. Slide 17 shows trailing 12 months adjusted EBITDA and slide 18 shows trailing 12 months return on invested capital, which is in excess of 18%. Out of our ability to sustain profitable operations in such a challenging environment is our strong balance sheet. Highlights are shown on Slide 19. At quarter end, we had cash and cash equivalents of over $320 million and net current assets of over $0.5 billion. We collected all the remaining BTC amounts for 2018 and 2019 from the IRS in April and have been making tax-sharing payments to our customers.

In addition, we still have tax receivables from customers. At the end of the second quarter, we were in a net BTC receivable position of around $10 million. Furthermore, we're collecting the 2020 BTC amounts due as expected, despite the government administrative challenges presented by COVID. A major topic in the current market environment is liquidity. We ended the quarter with plenty of cash and liquid securities. Over the course of the first half, we reduced our debt substantially as well with cash and marketable securities of $328 million and debt of $72 million we are in the excess cash position of over $255 million.

In addition, we have nothing drawn on our asset-backed line of credit as we fully paid that down in April. We continue to follow our capital allocation framework. Midway through the year, we have spent $31 million out of the $60 million capex budget. Recall that we budgeted roughly $20 million to each of the following three categories. First, safety reliability and asset integrity for our existing fleet, next high return, rapid payback projects that we tend to recoup our investment in less than two years and third, Board-approved growth projects.

We are progressing well and tracking on budget, even in the current environment. As a reminder, our target growth and capital projects is 20% internal rate of return and an overall 15% return on invested capital. These projects compete with debt retirement and repurchases to maximize returns. We also allocate capital for return to shareholders through our repurchase authorization, which includes convertible bond repurchases. We use $30 million to repurchase convertible bonds in second quarter and we have $110 million of remaining authorization.

Now I'll turn the call back to CJ to discuss the outlook. CJ?

Cynthia J. Warner -- President & Chief Executive Officer

Thanks, Chad. Turning to third quarter guidance. Although the COVID crisis is no longer new news, the intense impacts are still being felt and the forward look is far from certain. With that in mind, to formulate our outlook we are once again taking into account both potential positive and negative market forces. As you can see on Slide 21, on the positive side, our outlook is that renewable diesel and biodiesel demand will remain robust. There will be improved availability and pricing for low carbon intensity feedstocks, distillers corn oil and choice white grease. Overall margins will continue to recover and the broadening public support for cleaner fuel solutions with low carbon intensity will continue.Now on the downside, low crude prices will continue as well, currently high diesel inventories and resulting depressed diesel prices. Low jet fuel demand will very likely continue to drive refiners to push lighter distillate cost normally used for jet fuel into diesel, resulting in ongoing oversupply. Used cooking oil availability will likely remain lower than typical due to ongoing restaurant closures. And finally, we must keep in mind the potential for a significant COVID resurgence.

With all that being said, as shown on Slide 22 for third quarter, we expect gallons sold in the range of 165 million to 185 million. We expect adjusted EBITDA in the range of $35 million to $50 million. Given biodiesel and renewable diesel demand stability, even in the face of COVID, our outlook for the full year 2020 has been revised slightly upward. We expect to sell from 625 million to 675 million gallons and intend to produce 490 million to 530 million of those gallons. Of course, any changes to ULSD prices, margins, RINs or LCFS credit values or a level of market volatility through the end of the quarter could effect actual results. And note that this third quarter guidance includes $2 million of risk management losses.

Building on our first half track record, we remain optimistic about the year ahead and we will continue to focus on underlying performance, optimization, shareholder value and implementation of our strategy.

At this time, I'd like to turn the call over to the operator for the question-and-answer segment of our call. Victor?

Questions and Answers:

Operator

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Your first question comes from the line of Craig Irwin with ROTH Capital Partners. Please proceed with your question.

Craig Irwin -- Roth Capital Partners -- Analyst

Good evening, and thanks for taking my questions. So first, I should say congratulations for a stronger quarter than I guess what everybody was looking for just a few weeks ago. As we looked into the third quarter, right, your guidance of $35 million to $50 million, is pretty clear. It seems to indicate that your switching to soybean oil has continued and maybe accelerated in the third quarter. Can you maybe discuss your feedstock flexibility and the opportunity to arbitrage different feedstocks? And if soybean oil, this dislocation versus other feedstocks was to collapse, what your opportunity would be to switch on to the most profitable feedstock at that time, if this does happen, sort of, later in the quarter?

Cynthia J. Warner -- President & Chief Executive Officer

Hi, Craig. Thanks for your question and for your congratulations, we really appreciate that. So as we said in the script, we are actually seeing a rebound and a change because the market is starting to open up, particularly with respect to ethanol production as well as the rendering industry. So while UCO isn't quite back to where it was before with restaurants continuing to -- at least only be half open, we are getting a rebound in distillers corn oil as well as choice white grease. And the mix that we have planned and already, primarily purchased for third quarter reflects that.

Craig Irwin -- Roth Capital Partners -- Analyst

Okay. The next one...

Chad Stone -- Chief Financial Officer

I was just going to add to that, Craig, it's Chad. If you look at our feedstock slide in the deck, you'll see that distiller corn oil because of the downtime at the ethanol plants or the shut-ins inverted and went north of the soybean oil on a converted price, and you can see that correcting later in June in that slide. And so that really intensifies and shows the effect of why we had to switch the soybean oil, where we traditionally use lots of distiller corn oil, which is low carbon intensity and designed for premium incentivized markets, where soybean oil is destined for more of the local Midwest markets because they don't have the same carbon intensity benefit, and it may not justify quite yet getting to California. So I just wanted to highlight that one slide to support what CJ just said.

Craig Irwin -- Roth Capital Partners -- Analyst

Excellent. Thank you. My second question is the $6.1 million in other non-operating income that you reported on -- in your abbreviated results, right. Is that the same as the gain on lease termination that you back out in your EBITDA disclosures...

Chad Stone -- Chief Financial Officer

Yeah.

Craig Irwin -- Roth Capital Partners -- Analyst

Or is it potentially backed out elsewhere? Can you maybe give us a little color?

Chad Stone -- Chief Financial Officer

Yeah, it's Chad. That is exactly what it is. There is also some interest income and other income down there because of the large cash infusion in April that we put in some interest bearing accounts.

Craig Irwin -- Roth Capital Partners -- Analyst

So then just a follow-up on that. What would the interest be excluding this one-time gain again in the quarter? Is it -- can you share an adjusted interest expense for us?

Chad Stone -- Chief Financial Officer

Yeah, I think, no, I mean it's just didn't A1P1 securities is really really safe, pretty low, but it's a big dollar number. But the the lease gain was like $4.5 million and the rest was largely the interest, there is little cats and dogs in there other than that.

Craig Irwin -- Roth Capital Partners -- Analyst

Okay, understood. I'll jump back in the queue. Thank you.

Chad Stone -- Chief Financial Officer

Thanks, Craig.

Operator

Your next question comes from the line of Sameer Joshi with H.C. Wainwright. Please proceed with your question.

Sameer Joshi -- H. C. Wainwright & Co. -- Analyst

Thanks. Good afternoon, guys. Thanks for taking my question. The first question relates to the buybacks and I think you mentioned 110 million remaining and authorized buybacks, what is the timeline for that? And what is the cadence that you have plan?

Chad Stone -- Chief Financial Officer

Sameer, it's, it does not have a limitation or a requirement, so it's just governed by the the Board's will and authorization that they provide to management. So it doesn't have an expiration.

Sameer Joshi -- H. C. Wainwright & Co. -- Analyst

Okay. And then -- OK. And then, are there any plans, I mean, I know you mentioned the capital allocation, but now you're sitting on a bunch of cash, how do you plan to spend that or use that over the next few quarters?

Cynthia J. Warner -- President & Chief Executive Officer

Thanks Sameer, this is CJ. The big, that I was highlighting in our strategy really pretty much bracket, that, so we are progressing, those very well and we're positioned nicely to be able to take advantage of the arrangements that we're working on in short order now that the cash is in the bank. So that helps us...

Sameer Joshi -- H. C. Wainwright & Co. -- Analyst

Okay.

Cynthia J. Warner -- President & Chief Executive Officer

Progress our strategy robustly.

Sameer Joshi -- H. C. Wainwright & Co. -- Analyst

Understood, understood. One last one from me, is there any -- can you give us some -- elaborate some more on the downstream strategy and what is the progress being made on that front?

Cynthia J. Warner -- President & Chief Executive Officer

A pleasure. The whole idea of the downstream strategy is really getting closer to the customer. We've got some excellent experience now through distribution business that we own, that selling direct to the customer does a great job of helping them understand the value of the lower carbon fuel as well as the quality of it, and with that confidence the blending levels that we've experienced come up rather robustly, once we are in those channels. So there is a dual element of capturing the full value, across the whole value chain as well as being able to increase the uptake of our products more rapidly, by being able to sell direct-to-customer.

So that in essence is the purpose of the strategy and the progress of course is about defining the channels where we can sell. So you've seen uptick with a 107% increase in the blend of biodiesel into renewable diesel. The Hunt & Sons deal has a very good manifestation of that and that will help us to continue that sort of uptick.

Sameer Joshi -- H. C. Wainwright & Co. -- Analyst

Understood. Thanks again, and congratulations on a good quarter.

Cynthia J. Warner -- President & Chief Executive Officer

Thanks a lot Sameer.

Chad Stone -- Chief Financial Officer

Thanks, Sameer.

Cynthia J. Warner -- President & Chief Executive Officer

Appreciate it.

Operator

Your next question comes from the line of Greg Wasikowski with Webber Research. Please proceed with your question.

Greg Wasikowski -- Webber Research & Advisory LLC -- Analyst

Hey, good afternoon guys. How are you?

Chad Stone -- Chief Financial Officer

Hey, Greg.

Cynthia J. Warner -- President & Chief Executive Officer

Hey Greg, great. How about you?

Greg Wasikowski -- Webber Research & Advisory LLC -- Analyst

Doing well. Thanks for taking our questions. I wanted to start with the EBITDA versus your guidance. You mentioned some favorable price changes and maybe some timing in your prepared remarks. So, just wondering if you could delve a little deeper, give us a little bit more color on what drove that?

Cynthia J. Warner -- President & Chief Executive Officer

Well, docketing too much more granular, in some cases, there were some really good opportunities that we identified because of price changes being more favorable than what we had seen. So we are able to make some select sales. We -- as a really good example from a pricing standpoint, our co-product glycerin, which normally doesn't really receive much attention, had extremely favorable pricing this quarter versus normal and that's of course because with COVID the demand for glycerin had gone up for hand sanitizer etc. And although our glycerin is not of the same grade that will go into hand sanitizer, it was backing into the glycerin that was going into the hand sanitizer. So overall, we were able to supply into that market need and it did give us a nice uptick on our co-product.

Greg Wasikowski -- Webber Research & Advisory LLC -- Analyst

Okay, got it. That's helpful and then jumping to the potential renewable diesel new facility. Can you just update us how are those conversations going, with any potential partners operationally or financially to the extent that you can give any color on that? And then what would you say is the biggest remaining hurdle and or hurdles to getting something done and making it an answer.

Cynthia J. Warner -- President & Chief Executive Officer

We have a few things that we're monitoring closely and actually progressing very nicely to plan, that all kind of converge together and we do not want to make an announcement ahead of that. So as we imagine, we have certain arrangement related to the site and commercial access to things. So we don't want to make a final selection for site until we get that nailed down, those are progressing well but we need to finalize and that will help us finalize the selection. There are some incentives related to the site that we're working on, that's working quite nicely also. And then we're also speaking with varying partners, commercially, to contribute to the overall value of the venture.

Greg Wasikowski -- Webber Research & Advisory LLC -- Analyst

Okay, on it. Awesome. Thanks for your time.

Chad Stone -- Chief Financial Officer

Thanks Greg.

Cynthia J. Warner -- President & Chief Executive Officer

Thank you. Thanks for your questions.

Operator

Your next question comes from the line of Hamed Khorsand with BWS Financial. Please proceed with your question.

Hamed Khorsand -- BWS Financial -- Analyst

Hi. So my first question was, are you changing your strategy at all or seeing any kind of competitive pressures as far as the sourcing feedstock is concerned?

Cynthia J. Warner -- President & Chief Executive Officer

Hamed, thanks for that great question. We are not really changing our strategy but we're definitely doubling down because we're expanding our desire need and we're expending our horizons of places that we can go for seed, which is giving us greater optionality. It is a great history of REG that we have excellent relationships with suppliers that we continue to enjoy and that enables us to say full under volatile circumstances like what we've experienced over the first half. And then meanwhile, we continue to expand our horizons of, with whom we're speaking what feedstocks we're developing to get into the market and the types of optionality that we can bring to bear.

Hamed Khorsand -- BWS Financial -- Analyst

Okay and then my other question was how much can the industry consume of your blend and how much capacity do you have on the blend? I am referring to is your, the biodiesel and renewable blend.

Cynthia J. Warner -- President & Chief Executive Officer

Well, there is a view expressed occasionally by CARB, but that 100% in the diesel demand in California, which is a very large market could go to RD or RD BD blend. So that's a very significant volume and we don't actually have that to hand, but there is quite a bit more space to substitute in a market like California. And California is not alone, because any other markets that are actually incentivizing low carbon intensity have a good thirst for renewable and biodiesel and that's because it's carbon reduction that's fairly significant available now, it's not waiting for new infrastructure or for new technology development. So it's been a very robust and steady uptick in those market.

Chad Stone -- Chief Financial Officer

Yeah, I happen to have been looking at those numbers over the weekend and California is about a 4 billion gallon market, it would like 3.8 billion last year and the recent blend data which is includes biodiesel and renewable diesel into California has been growing almost each quarter and it is all the way up to 23% now and to CJ's point, it could go -- it can go higher, particularly with renewable diesel at high concentration rates.

Hamed Khorsand -- BWS Financial -- Analyst

Okay, thank you.

Chad Stone -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Ryan Todd with Simmons Energy. Please proceed with your question.

Ryan Todd -- Simmons Energy -- Analyst

Great, thanks. Maybe just a couple of quick ones to follow up on some of the earlier questions. There is -- you're seeing significant growth in interest right now among traditional refiners here in the U.S. and I guess in Europe as well. In renewable diesel quite a bit more capital has been put to work, which is I think is the testimony to the strength of the market that you guys find yourselves in. How do you see as more players, I mean do, how do you see the competitive landscape changing as more players enter the market? How much is that a risk for increased competition versus an opportunity for greater partnerships or just any thoughts on how you see that evolving in the coming years?

Cynthia J. Warner -- President & Chief Executive Officer

It's definitely a dynamic picture isn't it right now and I believe with the dynamics for refiners in general are extremely challenging because of a lot of the things that I talked about earlier with demands of the fuels that they produce being down but not in a uniform way, which makes it quite challenging to operate and scheduled properly. We are seeing announcements, our whole refinery closures now as a result of this. So it is a very distressing time and the attractiveness of switching over to renewable diesel is becoming obvious because renewable diesel is attractive and customers are wanting to pull that at higher levels, all the time. So we are seeing more announcements, of course, we need to recognize that those require permitting acceptance as well as feedstock procurement in order for them to be actually viable. So some of them will go through and some probably won't. And to your point, it's very likely that some of them could constitute excellent partnership for us. So we have an open mind and as always change can create risks or it can opportunity depends on the way we look at it.

Ryan Todd -- Simmons Energy -- Analyst

That's great. Maybe a quick follow-up on your comments earlier on the downstream efforts that you guys are making in particular the Slide 11 that shows a pretty material impact -- uptick in the second quarter on fleet customers, or sales to fleet customers. How do you, I mean is that -- as you see that upward trend in growth to the right is all of is the volume sold the fleet customers, is that all sustainable or is there anything unique or was that just the new partnership that was added during the second quarter? And on the fleet side, how much, how big is the market that you see in terms of the opportunity to continue to grow that?

Cynthia J. Warner -- President & Chief Executive Officer

This is definitely the result of a consolidated focus of our sales team getting closer to the customer. And this is an important channel for us and it's very early days for us in terms of tapping into it, so we're quite optimistic about the opportunity there.

Ryan Todd -- Simmons Energy -- Analyst

Great. Thank you.

Cynthia J. Warner -- President & Chief Executive Officer

It really a -- it's basically a shift. If you think about the history of the company, where we started producing and then selling pretty much right outside the plant gate into the wholesale market and as we become more sophisticated and more capable and have high quality products, we're able to sell right down through the channel.

Ryan Todd -- Simmons Energy -- Analyst

Great.

Operator

[Operator Instructions] Your next question comes from the line of Craig Irwin with ROTH Capital Partners. Please proceed with your question.

Craig Irwin -- Roth Capital Partners -- Analyst

Thank you. I wanted to ask a series of questions to better understand the moving parts in the quarter. If I can. The first is, earlier in the year you had indicated that the majority of Geismar production had gone to Norway. Can you maybe update us on where things stood in the second quarter and should we expect much of the production to be sent to Norway, maybe in the third quarter or is that not planned at this time?

Cynthia J. Warner -- President & Chief Executive Officer

Well Craig, it's part of our optimization to keep some of that opens so we're able to switch where we're shipping based on where the margin draw it. So you're going to see some stability because of our underlying contractual agreements, similar to what we were talking about a minute ago with fleet customers. And then we have some that enables us to flex, so that as margins move, we're able to capture those increased margins depending on what's happening in a particular region. And we do see that it moved around. So at times, we'll have a stronger signal for Norway for example and at other times we will have a stronger signal in California.

Craig Irwin -- Roth Capital Partners -- Analyst

Okay. So my -- really the question that I wanted to get to the bottom of is, did you have additional sales into California of renewable diesel to back fill any gallons that might have gone to Norway in the second quarter? And is that potentially something that's the tapping in the third quarter that might help economics? And I guess as a part of that question, are you still looking at roughly a third of your gallons going into the California market this year?

Cynthia J. Warner -- President & Chief Executive Officer

Well for commercial reasons, we wouldn't speculate exactly where things are headed at any given time, but I would say, if you just continue to think about cutting roughly a third, you're not going to be too far off.

Craig Irwin -- Roth Capital Partners -- Analyst

Okay, OK. Excellent. And then self blending has been an initiative, an important initiative at REGI over the last couple of years, you guys have obviously been gaining a little bit of traction there. Can you update us on the run rate, sort of, what you think is a fair number for us to use for either the full year or quarterly number? And what sort of growth do you think is fair over last year and sort of moving forward?

Cynthia J. Warner -- President & Chief Executive Officer

I think if you projected Slide 10 through the rest of 2020, you'd be in great shape in terms of that slope.

Craig Irwin -- Roth Capital Partners -- Analyst

Understood, understood. And then, the unfavorable treatment, soybean oil product and canola oil product in the California market, has us think that your Grays Harbor and Ralston, Iowa product probably does not end up in California, is that a fair assumption? And then also, is it fair for us to assume that the Grays Harbor facility is maybe above industry profitability, given that it's one of the largest canola only facilities in the industry?

Cynthia J. Warner -- President & Chief Executive Officer

Well, you are correct in your observation that a low CI feedstock is going to preferentially find us way or products from a low CI feedstock, it's going to find its way into the carbon incentivized market. So a canola based product, we will not go to California and neither will in SBO, unless it's nearby. But the logistics wouldn't be justified versus the net backs for incentivized markets closer to those producing plant. The plants that, even in the Midwest, do process lower CI feeds, can justify getting to those low carbon incentivized markets because the improvements override the logistics requirement.

Chad Stone -- Chief Financial Officer

Yeah, I would say in California, the carbon intensity for, call it distiller corn oil relative to soybean oil or canola is about half and so it gets almost twice the benefit. In my view, I agree completely with what CJ just said, my view is that, when this goes to 8.75 and then 10% reduction and 12.5 and 20%, there is not enough distiller corn oil and used cooking oil and you'll have to start to incentivize other animal fats and use cooking oil and potentially canola, unless those producers are getting pulled into say, canola gets pulled back in and incentivized into Canadian programs, or local tax incentives that override though willingness to pay the freight to get out that way, with a little bit less of a carbon intensity benefit. But I view that it will be needed in future years in that market if they want to achieve their goals.

Craig Irwin -- Roth Capital Partners -- Analyst

Understood, understood. And then, it's not just California that has those goals, I guess there is something like 24 states and then Canada, in the process or some stage of the process to adopt a low carbon standard. Can you maybe share with us what sort of conversations or discussions you might be having with different regulators from other states as they look at potential ways to meet their they low carbon mandates that they're going to put in place? Is there a broad slate of potential suitors facing REGI that would want you to cite a renewable diesel facility in their local state or province? Is this something that you think is building to larger commitments from these different geographies?

Cynthia J. Warner -- President & Chief Executive Officer

Focusing on the first part of your question, Craig, there are some very interesting ongoing conversations in multiple geographies about expanding their programs to improve their carbon footprint. And it does come in a lot of different flavors. Some of it is municipalities seeking to completely convert their fleets to 100% low CI. We didn't talk about B100 today, but that's actually an option, that's very attractive to some of these municipalities. And when that does happen, it does create a very interesting opportunity because B100 isn't necessarily readily available, so it gives us the opportunity to co-locate at least from a blending and service standpoint.

There are regions looking at increasing their biodiesel requirements for heating oil. There are states looking at adopting low carbon fuel standards, I think it's well known that Washington State has been debating that for a while and continues to get fairly close to the finish line, as they work through what the details of our program would like that would entail. Colorado is actually having the early stages of those conversations, as well, as is the entire country of Canada.

So there are a lot of different things. We didn't -- we haven't really spoken much about Europe, but Europe has RED II, which is currently now being promulgated by the member states and they're each defining exactly what that will mean for them, and that is creating some very interesting opportunity as well.

Chad Stone -- Chief Financial Officer

One other area I'd highlight is the Northeast region has a very strong desire, in the Northeast heating oil market to introduce and encourage higher and higher blends of biodiesel into bio-heat. There is a lot of momentum there and there's also a lot of green initiatives on both coasts that could be attractive.

Craig Irwin -- Roth Capital Partners -- Analyst

Great. And then last question if I may, it's really a clarification. So the renewable diesel facility you're talking about, hopefully announcing later on this year. 250 million gallons, is that incremental on top of the 75 or are we talking 175 net addition? And then can you share with us what the cost would be on that facility?

Cynthia J. Warner -- President & Chief Executive Officer

It is purely incremental and the cost we're looking at is very competitive. I think you probably know, the range of capital cost is anywhere between, maybe a low of $2 up to $4.50 or $5 a gallon, and we're sort of on the lowish end of that.

Craig Irwin -- Roth Capital Partners -- Analyst

Excellent. Well, congratulations on a really strong quarter, and it sounds like we're going to have a pretty great quarter in the third quarter. So keep on doing what you're doing. Thank you.

Cynthia J. Warner -- President & Chief Executive Officer

Thanks,Craig. Keep working it.

Chad Stone -- Chief Financial Officer

Thanks, Craig.

Operator

[Operator Instructions] Ladies and gentlemen, we have reached the end of the question-and-answer session and I would like to turn the call back to C.J Warner, CEO for closing remarks.

Cynthia J. Warner -- President & Chief Executive Officer

Thank you, Hector. To conclude, we are cautiously optimistic about near-term outlook and highly confident about our long-term prospects. Looking at the balance of the year, there are three key things to keep in mind. First, our fuels are essential and demand is relatively good. We fuel national transportation networks and goods still need to be delivered. Furthermore, because we produce a low carbon clean burning fuel, we create significant environmental value. Second, our feedstock markets have stabilized, with our multi-feedstock strategy, we've been able to adapt and keep running despite significant feedstock disruption, as the economy continues to recover, our sources of various waste, fats, and oils are producing again bringing back supply and reducing price pressure on these lower carbon feedstock. This bodes well for an improving margin environment going forward.

Finally, we're performing well on the elements of our business that we control. We're maintaining a strong safety record, operating at robust utilizations, we're directing fuel sale to the most profitable markets and we are executing on our strategies. All in all, I'm very proud of the outstanding performance this team is delivering and look forward to more success in the quarters ahead. And now, before we close, Todd will announce upcoming investor events for REG. Todd?

Todd Robinson -- Treasurer

Thanks, CJ. Please turn to Slide 23. First off, I would like to announce that we will host an Analyst Meeting on October 13th at NASDAQ MarketSite in New York City. At this point, we plan to have a live in-person meeting with appropriate precautions of course. We will also webcast the meeting for those who are unable to attend in-person. To the COVID situation, not allowing in-person meeting, it will be fully virtual. So mark your calendars for October 13th. Formal invitations will be sent around a month beforehand.

In terms of investor conferences on Wednesday October 12th, August 12th, excuse me, we will participate at BWS Financial Growth and Value Virtual Summer Investor Series. The company will host investor meetings throughout the day. Attendance by the conference -- attendance at the conference is by invitation-only for clients of BWS. Interested investors should contact your BWS sales representative to secure a meeting. On August 13th, we will present at the 40th Annual Canaccord Growth Conference, which will be virtual. We will host investor meetings throughout the day and attendance at the conference is by invitation-only for clients of Canaccord. So if you're interested, please contact your Canaccord sales reps to secure meeting.

On September 2nd, CJ will participate on an RD panel at the Piper Sandler Gleneagles Virtual Conference. We will also host investor meetings throughout the day. Attendance at this conference is also by invitation-only for clients of Piper Sandler. So if you're interested, please contact your Piper Sandler sales representative to secure a meeting.

Lastly on September 14th, we will present at the H.C. Wainwright Global Investment Virtual conference. We will also host investor meetings throughout the day. Attendance at this conference is also by invitation and clients of H.C. Wainwright should contact their sales reps to secure a meeting. Thank you all again. This concludes the call. You may now disconnect.

Duration: 53 minutes

Call participants:

Todd Robinson -- Treasurer

Cynthia J. Warner -- President & Chief Executive Officer

Chad Stone -- Chief Financial Officer

Craig Irwin -- Roth Capital Partners -- Analyst

Sameer Joshi -- H. C. Wainwright & Co. -- Analyst

Greg Wasikowski -- Webber Research & Advisory LLC -- Analyst

Hamed Khorsand -- BWS Financial -- Analyst

Ryan Todd -- Simmons Energy -- Analyst

More REGI analysis

All earnings call transcripts

AlphaStreet Logo