Imperium Renewables is Cruising

Great news for Imperium Renewables (previous post). The biofuel start up recently signed a long term (4 years with a 3 year option) pact with Royal Caribbean Cruises (RCL) to provide the cruise line with biodiesel for the four ships that make harbor in Seattle (the site of Imperium's operations). From Imperium's S-1 filing with the SEC:

"RCCL [will] purchase, at a minimum, approximately 15 million gallons of biodiesel in 2007 and thereafter approximately 18 million gallons of biodiesel annually for four years with an option for a three-year extension. We believe this is the single largest long-term biodiesel sales contract to an end user in the U.S."

Royal Caribbean will also sell it's 7% stake in Imperium's Grey Harbor production facility back to Imperium.

The deal would appear to be a win-win for both companies. The benefits for Imperium are obvious. It provides long term contractually secured revenue for much needed operating income, delivers a large, high profile client to use in future sales initiatives, and showcases (hopefully) the company's ability to deliver products and services to a large commercial entity. For Royal Caribbean, well, let's just say the the cruise industry isn't exactly known for its "tread- lightly-on-the-environment" approach. Using biofuels to generate even a small portion of ship power can only help.

Still, Imperium's got a long way to go before it's all milk and honey for the company. Key issues will include:

• Crop reliance and expense: The company produces fuels from 3 main feedstock oils: soy, canola and palm. Increasing competition and unpredictable yields require that the company explore greater diversity and cheaper sources (these already occupy 60 - 70% of cost of sales. ADM is moving aggressively in this direction by gobbling up corn production infrastructure in Illinois.
  
• Production facility: Increasing production capability in major port and transportation centers is key. Seattle is hell and gone from everywhere.
  
• Diversify customer base: Royal Carribean is a great customer. Hopefully it will serve as a catalyst for securing others.

Still, if you're looking for a market leader in the biofuels space, Imperium is as good as it gets. Their management team is still solid and they've raised over $200 million in venture funding. Perhaps they'll leave the choppy waters and head out to smooth sailing in the near term.