D1 Oils - Charts, News and Discussion

Leo

In my view, the original directors made a reckless decision in expecting a tin-pot company who had only ever built one plant to build another for Biofuels 5 times larger than their existing plant and get it working in a year.

Energea's quote was a few £million less than established plant suppliers and, I guess, BFC's directors wanted to give another startup company a chance to prove themselves. As we now know, the plant took a year longer than expected to start production, and it still doesn't work to the original spec.

Barclays insisted on a hedge contract which would have enabled BFC to pay interest on an £18m loan if input and output prices moved against them - but that relied on the plant working to spec and on time. Meanwhile, oil prices soared - BFC would have been very profitable if the plant had been working but meant that BFC had to buy biodiesel on the open market (high price) to supply at the hedge contract price (lower price) - that cost £50m.

You could blame Barclays for insisting on the hedge contract or you could blame the original directors for agreeing the terms - we all make mistakes - this has become the killer.

Now the plant is working, commodity prices have moved against them again - raw material prices have risen and biodiesel has fallen so the plant is not profitable. The original hedge contract was meant to cover that eventuality but it was terminated a year ago.

So I agree that the outcome is disappointing but most of their problems have been beyond management's control.