On Thursday, February 23rd, President Obama spoke at the University of Miami about what he thought was big news for his energy agenda. Obama touted the $30 million of funding that the Department of Energy will make available for a “research competition… that will engage our country’s brightest scientists, engineers and entrepreneurs to find ways to harness our abundant supplies of domestic natural gas for vehicles.”(1)
Before I get into the relative insignificance of this $30 million announcement when compared to the money it made for other people, let’s begin with an interesting quote from the NGV funding press release:
“Today’s natural gas vehicle technologies require tanks that can withstand high pressures, are cumbersome and either too large or too expensive to be suitable for passenger vehicles.”(2)
The above statement is not entirely true. Check out the MV-1 compressed natural gas vehicle made by The Vehicle Production Group http://www.vpgautos.com/. Excluding potential tax credits for the buyer and ancillary fees charged for delivery, you can buy this car for about $50,000.(3) Yes, that is on the high end and resembles luxury car price points. But, it’s a suitable passenger vehicle.
The MV-1 has successfully accessed private sector and government funding resources. Private sector investors, including T. Boone Pickens and Clean Energy Fuels Corp., invested $160 million in VPG. VPG also qualifies for “Buy America Act” funding requirements and received an ~$50 million loan from the US DOE in March 2011. In September 2011, Marc Klein, a co-founder of the Vehicle Production Group, was honored at the White House as a “Champion of Change.”(4) When Mr. Klein accepted the award, he had changed jobs and was now a Vice President at Clean Energy Fuels Corp., a position he still holds. (5)
Here goes the next part of the story…
Let’s compare the significance of the $30 million US DOE funding announcement to some other recent facts. Before I go here, I want to be explicitly clear about the following:
• I am a proponent of natural gas
• I applaud the Vehicle Production Group’s delivery of “the first factory-direct wheelchair accessible vehicle that meets or exceeds the vehicle guidelines of the Americans with Disabilities Act (ADA) and that is available in a compressed natural gas model (CNG)”(6)
• I think Clean Energy Fuels Corporation (“CLNE”) is a fantastic company, and I believe in the economic and social value of the work they are doing
AWESOME STORY #1
On Wednesday, February 22, the day before Obama made the NGV research funding announcement, Clean Energy Fuels stock price closed at $17.52. On Friday, February 24, the day after Obama’s announcement, CLNE stock closed at $18.74, a 48-hour gain of $1.22.
Here is the best part of this – IN LESS THAN 2 DAYS, CLEAN ENERGY FUELS’ SHAREHOLDERS MADE OVER $85 MILLION IN CAPITAL GAINS AFTER THE PRESIDENT ANNOUNCED $30 MILLION IN FUNDS WOULD BE GIVEN TO NATURAL GAS VEHICLE RESEARCH. Do you see how awesome that is? CLNE shareholders made ~2.9x more in stock price gains than the entire nominal value of the yet to be deployed US DOE funding for NGV research! *Shareholder value creation calculated by multiplying the CLNE shares outstanding from the most recent 10-Q filing (~70.4 million) by the $1.22 share price gain.
AWESOME STORY #2
On January 24, 2012 the following headline came across marketwatch.com – “Notable Call Options Activity in Clean Energy Fuels.” Some excerpts from the text: “The strike seeing the heaviest volume is the February 2012 $16 call.”(7) In simplistic terms, on Jan. 24, it cost $0.25 cents to bet that CLNE would be trading above $16 by the call contract expiration date of Feb. 17, 2012 (the 3rd Friday preceding the 3rd Saturday of the contract month per options exchange rules).
So what happened to the people that bought that option in late January? CLNE closed at $16.70 on the contract expiration date (Feb. 17). That means you exercised your option for a $0.45 gain per share (gain calculated as follows: $16.70 value at exercise less $16.00 stock purchase cost less $0.25 option cost =$0.45).
Now what if you held on for one more week (until Feb. 24), which is the day after Obama made the $30 million NGV research funding announcement? Well, you made another $2.04 in CLNE share price gains.
Think about how smart and forward thinking these option buyers were in late January. Ignoring taxes and transaction costs, these people basically set aside $16 for a few weeks to earn more than a 16% return in less than a month. That’s an annualized return of 187%!!! How awesome are these investors?
They are so awesome that everyone is resting easy that Congress had yet to pass the Stop Trading on Congressional Knowledge Act. The Smart Money buying calls on January 24 knew it would be a couple weeks before they could get in trouble for that.
(6) http://www.vpgautos.com/experience-MV-1/mobility-vehicle-featuresCached – Similar
President Obama Announces Funding for Breakthroughs in Natural Gas and Biofuels as Alternative Fuels: $30 Million Will Fund Breakthrough Natural Gas Vehicles Technologies