1. Biomass Expected Returns:
The Capital Asset Pricing Model
Larry Sullivan, Project Management Consultant
Adjunct Professor, The Citadel
Economic Geography
Trident Technical College
Lawrence D. Sullivan & Company, Inc.
Carla M. Wood, Ph.D.
Advanced Bioeconomy Feedstocks Conference
Royal Sonesta Hotel, Vieux Carré
New Orleans, Louisiana
June 9-10, 2015

2. It is a challenge to visit NO and see my childhood home from
the late 1950s to the early 1960s on London Canal where
levee breached. This is 2007, two years after Katrina.

3. Lawrence D. Sullivan – Past & Present
 20 Years in Oil & Gas (Dresser, Imperial
Chemical Industries & Conoco/Dupont)
as Petroleum Engineer and Manager
 Last 13 Years in Biofuels, Biomass,
Biochemicals - Early Stage Firms
 15 Years Living and Working Outside
the USA – SEAsia, Middle East, EU &
Africa
 Speaker at 35 Conferences –Beginning
at 2004 Biotechnica America on
Biofuels
 Advisor to Gerson Lehrman Clients
Top 2% Expert since 2004
 Due Diligence for GLG Clients
 Turner, Mason & Company - Oil
Refiner Acquisitions of Biofuel
Assets in 2008 and 2009
 Expert Witness
 Adjunct Faculty at Trident Technical
College and Adjunct Professor at
The Citadel
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4. Carla M. Wood, Ph.D.
Academic Career
 B.S., The Evergreen State College -
Biochemistry
 Ph.D., Texas A&M University –
Biochemistry & Cell Biology
 Post Doctorate, Baylor College of
Medicine, Depts. of Cell Biology – Human
DNA Repair, Cellular Transformation &
Mutagenesis
 Staff Scientist, NIH, National Institute on
Aging, Molecular Genetics – Genes of
Senescence, Stress Response, & DNA
Damage
 Research Assistant Professor, University of
Minnesota – 1) Expression Analysis of Non-
Receptor Protein Tyrosine Kinases in
Childhood Leukemia 2) Biomarkers in
Multiple Myeloma
 Patent Law Technical Advisor, Merchant &
Gould, LLC, Minneapolis & Seattle
Consulting Career
 Consultant at L. D. Sullivan & Co.
Since 2004 (Owner Since 1998)
 Advisor to Gerson Lehrman
Group Clients - Top 2% Experts
 Due Diligence for GLG Clients
 Expert Witness Biotechnology
Cases
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5. Outline of Presentation – Themes
1. What is the Capital Asset Pricing Model (CAPM) and who uses it?
2. Return on Capital Employed (ROCE) on investments in raw materials
production (e.g., Extraction, Forestry, Agriculture, etc.) with focus on
the “arm’s length transactions” between owner of biomass and buyers
of biomass.
3. ROCE on the Basic Chemicals (generally has “mining” components)
4. ROCE on the conversion of raw materials to petrochemical
intermediates (and Basic Chemicals as well as Seven Building Blocks)
5. Capital Investment Expectations and Conclusions
References and Sources:
 www.bizstats.com
 Measuring and Addressing Investment Risk in the Second-Generation
Biofuels Industry. ICCT. December 2013. www.theicct.org
 NexantThinking™ “Next Generation Biofeedstocks: Resources for
Renewables” www.Nexant.com Addresses raw materials
 Luxresearch, http://web.luxresearchinc.com/download-webinar-
alternative-fuels-9_23_14
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6. General Concepts for Presentation – Terms Defined
 Private Enterprise without state
ownership is foundation in US
although government is the single
largest landowner and hence
biomass owner. And, Crown Lands
in Canada is noted. Private Land
is the Exception, not rule of our
world
 Tax Credits (income versus
excise) – no income, no credit!
 Crop Insurance and Forestry?
 Export Import Bank – oil subsidy
and incentives for oil (issues of
depletion compared to
renewables)
 Basic Land Value or BLV
 “Arm’s Length Transactions”
 Lifestyle Ranching & Farming
Decisions
 Forestry versus Agriculture and
the BCAP Program
 Bone Dry Metric Tonne (2,205
pounds)
 Real Estate Investment Trusts
(REIT) - Forestry
 Master Limited Partnerships
(MLP) – O&G
 Farm gate, FOB, ex-works,
C&F, CIF, etc. Or, what is the
price laid on the side of the
road?
 What is “Economic Rent” and
why few talk about it in
public?
 CAPM shows early or pre-
mature IPOs challenged the
investors and resulted in
excessive ROI expectations
 Beta in the CAPM
 Cases with KIOR, GEVO,
SYNM, CERE, AMRS, etc.
 GEVO should be compared to
PEIX and GPRE as they use
corn as feedstocks.

7. Capital Asset Pricing Model
Return on Capital Employed (ROCE)
Formula: Terms:
 Return on Capital
Employed (both equity
and debt) or Equity or
Debt
 Beta of 1.0 moves with
markets
 Market Return is set by
Investors
 Risk Free example is
United Kingdom
Perpetual Bonds
 ICCT reports that Beta
on public biotech
requires high ROCE for
investment
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8. Oil and Gas Extraction (2011)
High Risk, High Rewards
 Return on Sales 38.56%
 Return on Assets 20.53%
 Return on Net Worth 29.28%
 Quick Ratio 1.62
 Current Ratio 2.28
 Inventory Turnover 13.86
Note: Oil prices in 2011 averaged $111/bbl (WTI - Cushing, OK) and natural
gas was $3.98 per 1,000,000 cubic feet (Henry Hub, LA).
Data for typical $25-50 million asset class independent oil exploration firm.
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9. Farmers and Real Estate Investment Trusts
(REITs)
 The DOE Billion Ton Study and Update relative to landowners does not
look at expected return on Bare Land Value (BLV).
 Generally landowner and REIT are passive. They own land the resources
under it or on it. Sometimes they retain ownership and lease for value
added but are not active in the value chain as Pulp & Paper went
offshore and/or exited (MWV, IP, etc.)
 Landowners – technology firm with genetics or equipment to convert
cellulose to sugars – conversion company to make cellulose into biofuels,
biochemicals or power – who is whom?
 Levi Strauss was quoted to be “mining the miners….”

10. Extraction Industries: Agriculture
and Forestry (2011)
 Return on Sales Ag 17.81% Forestry 3.14%
 Return on Assets Ag 28.42% Forestry 20.62%
 Return on Net Worth Ag 72.02% Forestry 137.39%
 Quick Ratio Ag 0.8 Forestry 0.48
 Current Ratio Ag 1.11 Forestry 0.5
 Inventory Turnover Ag 4.53 Forestry 88.26
Notes: LLC, Inc., (no MLPs) with Net Assets from $1000 – 500,000 which would include farmer-
owned cooperative societies, cattle ranchers, independent forestry owners and small time
miners. Does not cover processors like ADM, Cargill, Bunge or REITs in forestry, agriculture and
mining like Plum Creek or Hancock.
65% of SE USA Forestry is “ma and pa” or small time land owners or “Sole Proprietors” who
make at 10.86% “net profit….”
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11. Early stage producers are naïve about the
real costs of cellulosic biomass according
to luxresearch
$-
$20
$40
$60
$80
$100
$120
$140
$160
$180
1 2 3 4 5
Expectedfeedstockprice$/dryMT
Estimated
Price
Average
Lab Concept Development Introduction Scale
Company Maturity

12. Gartner’s Time Lines compared to the
Typical S Curve

13. Basic Chemicals and/or Mining (2011)
 Return on Sales 5.26%
 Return on Assets 10.80%
 Return on Net Worth 21.25%
 Quick Ratio 1.04
 Current Ratio 1.78
 Inventory Turnover 13.03
Notes: Covers Bizstats data for both the chloro-alkali industry (NaCl, NaOH, Na, Cl,
soda ash, bicarbonate, NaO) and the sulfur (H2SO4) from both synthetic to mining.
Not petrochemicals or TiO2. To a degree this can be considered an extractive
industry. Asset class is $100 to 500 million.
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14. Petroleum Refining (2011)
 Return on Sales 24.46%
 Return on Assets 31.02%
 Return on Net Worth 46.33%
 Quick Ratio 2.96
 Current Ratio 3.93
 Inventory Turnover 8.69
Notes: Covers Bizstats data for both independent refiners (e.g., Tesoro, Valero)
and integrated oil & gas production companies who own refinery assets (e.g.,
Shell, ExxonMobil, Total, BP). It does not cover NYSE traded part State Owned
Enterprises (SOE) of China, Brazil, Norway. The typical refinery in this class is
$25 - 500 million in asset class.
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15. Conversion of Olefins
to Petrochemical Plastics (2011)
 Return on Sales 6.04%
 Return on Assets 8.72%
 Return on Net Worth 18.47%
 Quick Ratio 1.08
 Current Ratio 1.97
 Inventory Turnover 6.36
Notes: this includes Bizstats heading “resins, synthetic rubber, and fibers &
filaments” for example polypropylene, not propylene, or PET resin, not
para-xylene, ethylene glycol or dimethyl terephthalate. Asset Class here is
$100 – 250 million. Cargill Natureworks PLA Plastics could be in this class.
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16. Why Make Biofuels? US Fuel Projections
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17. What is Corn (Maize) Ethanol All About?
Missouri is “The Show Me State” 2011
Source: University of Missouri - http://agebb.missouri.edu/
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18. Corn Ethanol – Follow the Money
Higher Yields, Better Basis and Farm Incomes Up
US Farm Policy is a Success
Bushels Per Acre Farm Income in Millions
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19. As Corn (maize) Producers have Done Well
so have the Petroleum (Oil) Producers – However,
natural gas producers need to export
(note “nominal” US$ per million btu)
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20. Fundamental Economics - Petrochemicals
 If integrated to large refinery complex (BASF, Shell, ExxonMobil, Saudi
Aramco, etc.), then petrochemicals are world class cost basis. In
biomass it appears algae could be the only integrated pursuit.
 If a stand-alone facility, then purchasing of the key intermediates
could be disadvantaged depending upon locations in the world.
 Historic fuels/refinery ROI over 40 years averages 9.6%
 Historic standalone petrochemicals are 16.7% - however it is 5 - 7% the
size of the fuel markets with few producers and buyers.
 Most integrated refinery and petrochemical plants have ROI between
the two above since locations can widely for returns. And there are
many national petrochemical firms like Sabic which operate outside
these parameters.
Source – www.bizstats.com and 35 years in oil and gas, petrochemicals.
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21. Conclusions
 Financial analysts use a variety of tools to evaluate biofuel,
biomass, algae, biochemical, etc. investments today.
 CAPM is a common tool for equity analysts.
 Historic data and benchmarks such as Bizstats allow analysts to
advise fund mangers. Transparency is the key term!
 To Review – ROCE (Net Equity and Debt):
 Oil and Gas Extraction 29.53%
 Cooperative Agriculture and Forestry 72.02% and 137.39%
 Basic Chemicals 21.25%
 Petroleum Refining 46.33%
 Conversion to Petrochemicals 18.47%
 Advanced Biofuels needs to demonstrate over 20% ROCE to attract
capital against these benchmarks using existing IPO Beta and CAPM.
 Conclusions of Lux and ICCT work. Thanks to them for insights.
Thank you for your time and attention to our presentation.
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