Montauk Renewables, Inc. - Annual Report: 2021 (Form 10-K)

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware		85-3189583
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
680 Andersen Drive, 5th Floor, Pittsburgh, PA		15220
(Address of principal executive offices)		(Zip Code)

Title of each class		Trading Symbol		Name of each exchange on which registered
Common Stock, par value $0.01 per share		MNTK		The Nasdaq Capital Market

Large Accelerated Filer		☐		Accelerated Filer		☒
Non-accelerated filer		☐		Smaller Reporting Company		☐
				Emerging Growth Company		☒

						Page
PART I							1
		ITEM 1.		BUSINESS			1
		ITEM 1A.		RISK FACTORS			19
		ITEM 1B.		UNRESOLVED STAFF COMMENTS			47
		ITEM 2.		PROPERTIES			47
		ITEM 3.		LEGAL PROCEEDINGS			47
		ITEM 4.		MINE SAFETY DISCLOSURES			47
PART II							48
		ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			48
		ITEM 6.		RESERVED			50
		ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			50
		ITEM 7A.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			68
		ITEM 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			70
		ITEM 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			103
		ITEM 9A.		CONTROLS AND PROCEDURES			103
		ITEM 9B.		OTHER INFORMATION			104
		ITEM 9C.		DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS			104
PART III							104
		ITEM 10.		DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			104
		ITEM 11.		EXECUTIVE COMPENSATION			105
		ITEM 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			105
		ITEM 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			106
		ITEM 14.		PRINCIPAL ACCOUNTING FEES AND SERVICES			106
PART IV							106
		ITEM 15.		EXHIBITS AND FINANCIAL STATEMENT SCHEDULES			106
		ITEM 16.		FORM 10-K SUMMARY			109

This Annual Report on Form uses several terms of art that are specific to our industry and business. For the convenience of the reader, a glossary of such terms is provided here. Unless we otherwise indicate, or unless the context requires otherwise, any references in this Annual Report on Form to:

This Annual Report on Form contains “forward-looking statements” within the meaning of U.S. federal securities laws that involve substantial risks and uncertainties. All statements other than statements of historical or current fact included in this report are forward-looking statements. Forward-looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance, and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “assume,” “believe,” “can have,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “likely,” “may,” “might,” “objective,” “plan,” “predict,” “project,” “potential,” “seek,” “should,” “target,” “will,” “would,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operational performance or other events. For example, all statements we make relating to future results of operations, financial condition, expectations and plans of the Company, including expected benefits of the Pico amendment and the Montauk Ag project in North Carolina, the anticipated completion of the engine repairs and resumption of operations at the Security facility, the resolution of gas collection issues at the McCarty facility, our estimated and projected costs, expenditures, and growth rates, our plans and objectives for future operations, growth, or initiatives, or strategies are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expect and, therefore, you should not unduly rely on such statements. The risks and uncertainties that could cause those actual results to differ materially from those expressed or implied by these forward-looking statements include but are not limited to:

See the “Risk Factors” section and elsewhere in this report for a more complete discussion of the risks and uncertainties mentioned above and for discussion of other risks and uncertainties we face that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in our other Securities and Exchange Commission (“”) filings and public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.

Our business is subject to a number of risks and uncertainties, including those highlighted in the section titled “Risk Factors” in this Annual Report on Form Some of these principal risks include the following and may be further exacerbated by the pandemic:

We are a renewable energy company specializing in the recovery and processing of biogas from landfills and other fuel sources for beneficial use as a replacement to fossil fuels. We develop, own, and operate RNG projects, using proven technologies that supply renewable fuel into the transportation and electrical power sectors. We are one of the largest U.S. producers of RNG, having participated in the industry for over 30 years. We established our operating portfolio of 12 RNG and three Renewable Electricity projects through self-development, partnerships, and acquisitions that span six states and have grown our revenues from $33.8 million in 2014 to $148.1 million in 2021.

Montauk continuously evaluates sources of waste methane in the United States that could serve as potential future commercial-scale project opportunities. We also continue our growth through optimization of our existing assets and project portfolio, securing greenfield developments and acquiring existing projects. We also include in our growth other vertical integration opportunities adjacent to our core operations. Additionally, we are actively exploring third-party service offerings to further monetize Montauk’s deep experience in operating LFG and ADG projects. Our successful evaluation and execution of project opportunities is based on our ability to leverage our significant industry experience, relationships with customers and vendors, access to interconnections for and capabilities to construct pipeline and electrical interconnections that ensure the economic viability of opportunities we pursue. We exercise financial discipline in pursuing these projects by targeting project returns that are in line with the relative risk of the specific projects and associated feedstock costs, offtake contracts and any other related attributes that can be monetized.

Our revenues are generated from the sale of RNG and Renewable Electricity under termed agreements, along with the Environmental Attributes that are derived from these products. RNG has the same chemical composition as natural gas from fossil sources, but has unique Environmental Attributes assigned to it through government incentive programs due to its origin from renewable sources, which we can also monetize. Virtually all of the RNG we produce is used as a transportation fuel because this market generally provides the most value for our RNG production. The RNG we process is pipeline-quality and can be used for transportation fuel when converted to CNG or LNG. CNG has been the most common fuel used by fleets where medium-duty trucks are close to the fueling station, such as city fleets, local delivery trucks and waste haulers.

Whenever possible, we seek to mitigate our exposure to commodity and Environmental Attribute pricing volatility. Through contractual arrangements with our site hosts and counterparties, we typically share pricing and production risks while retaining our ability to benefit from potential upside. A portion of the RNG volume we produce is sold under bundled fixed-price arrangements for the RNG and Environmental Attributes, some of which include a sharing arrangement where we benefit from prices above certain thresholds. For our remaining RNG projects, we may enter into sharing arrangements where our partners receive the Environmental Attributes instead of a cash payment, thereby sharing in Environmental Attribute pricing risk.

LFG and gas from livestock digesters can be processed into pipeline-quality RNG by removing the majority of the non-methane components including carbon dioxide, water, sulfur, nitrogen, and other trace compounds. RNG can be used for transportation fuel when compressed (CNG) or liquefied (LNG) and virtually all of the RNG we produce is used in this manner.

RNG has the same chemical composition as natural gas from fossil sources, but has unique Environmental Attributes assigned to it due to its origin from organic sources. These attributes qualify RNG as a renewable fuel under the federal RFS program, established pursuant to the EPACT 2005 and EISA, allowing RNG to generate renewable fuel credits called RINs when the RNG is used as a transportation fuel.

CA LCFS credits are environmental credits generated in California in order to stimulate the use of cleaner, low-carbon fuels. This program encourages the production of low-carbon fuels by setting annual CI standards, which are intended to reduce GHG emissions from the state’s transportation sector. One of the key aspects of the program is that it encourages the use of low-carbon transportation fuel, such as CNG, in vehicles instead of gasoline. This program further encourages use of renewable fuels in vehicles over CNG from fossil fuels.

Electricity is a commodity that trades and is priced on a regional basis in and among regional control areas. Pricing for commodity-sold electricity can be based on day-ahead prices for scheduled deliveries or hourly, real-time prices for unscheduled deliveries. Prices vary across the country based on weather, load patterns and local power and transmission restrictions. The Renewable Electricity produced at our biogas-to-electricity projects is sold under long-term contracts to credit-worthy counterparties, typically under a fixed price with escalators. The terms of these contracts range from 5 to 22 years, with a weighted average remaining tenure of 14 years, based on 2021 expected electricity production.

. Biogas is considered to be a renewable resource in all 37 states that encourage or mandate the use of renewable energy. Thirty states, the District of Columbia, and Puerto Rico have RPS that require utilities to supply a percentage of power from renewable resources, and seven states have a Renewable Portfolio Goal that is similar to RPS, but it is an objective or goal and not a requirement. Many states allow utilities to comply with RPS through tradable RECs, which provide an additional revenue stream to RNG projects that produce electricity from biogas.

We undertook an agricultural project when we closed on the acquisition of Pico, the anaerobic digester and two Jenbacher engines at the Bettencourt dairy farm in Jerome, Idaho in September 2018 The project sources manure from a dairy farm with up to approximately 18,500 milking cows. While Pico was initially a Renewable Electricity site, we brought an RNG facility at that location online in 2020. The facility sells transportation fuel into the California transportation market The collection of the fuel supply is much easier at dairy farms than at landfills due to higher quality, more uniform feedstock, less volatility in inlet gas and biogas collection in a more controlled environment. During the second quarter of 2021, we completed an amendment to our Pico feedstock agreement (“Pico Feedstock Amendment”). The amendment will increase the amount of feedstock supplied to the facility for processing over a one to three-year period.

During the second quarter of 2021, we, through a newly formed wholly-owned subsidiary, Montauk Ag Renewables, LLC (“Montauk Ag”), completed a series of transactions with Joseph P. Carroll, Jr. (“Carroll”), Martin A. Redeker (“Redeker”) and certain of their affiliates to purchase identified assets related to developing technology to recover residual natural resources from waste streams of modern agriculture and to refine and recycle such waste products through proprietary and other processes in order to produce high quality renewable natural gas, and biochar (the “Montauk Ag Renewables Acquisition”). The assets acquired include real property, intellectual property, mobile equipment, and other equipment related to operating the business. The real property includes the purchase of an approximate 9.35-acre parcel in Duplin County, North Carolina. Additionally, Messrs. Carroll and Redeker joined Montauk as full-time employees, focused on refining and scaling the technology and capabilities to develop new agricultural waste stream projects.

farms with biogas processing capabilities. Additionally, roughly 23% of WRRFs have biogas processing facilities, however, most process biogas for electricity production creating additional opportunities for acquisition and conversion to RNG facilities. As with LFG and dairy farms, biogas from both swine farms and WRRFs qualify for D3 RINs under the RFS program. We believe our demonstrated versatility to operate processing facilities using multiple fuel supply sources will give us a competitive advantage in these markets relative to other new entrants who have only demonstrated capabilities with one fuel supply source. Our Montauk Ag venture is currently evaluating a approximately development cluster project that will seek to optimize revenue streams from swine waste lagoon close-outs, and in particular, lagoon waste that cannot otherwise be processed through conventional digestion technology.

The drive toward voluntary and most likely regulatory-required organic waste diversion from landfills is of particular interest as we leverage our current experience base, and we believe this trend will provide long-term growth opportunities and that the market has not yet unlocked the full potential of RNG and Renewable Electricity. In August of 2021, Montauk Ag Renewables was granted a patent on technology to convert agricultural waste into multiple renewable fuel alternatives. We believe this technology will provide a competitive advantage that will enable us to utilize a broader range of organic waste materials from the agricultural and WRFF sectors for the production of biogas and associated new RNG and/or Renewable Electricity projects. As our biogas processing technology continues to improve and the required energy intensity of the RNG and Renewable Electricity production process is reduced, we expect that we will be able to enter new markets for our products.

. We monitor biogas supply availability across our portfolio and seek to maximize production atexisting projects by expanding operations when economically feasible. Most of our landfill locations continue to accept waste deliveries and the available LFG at these sites is expected to increase over time, which we expect to support expanded production. In 2021, this has allowed us to maintain average production availability of approximately 87% at our RNG projects and 61% at our Renewable Electricity projects. The 2021 average production availability of our Renewable Electricity projects was lower compared to 2020 due to the delayed restoration of production at our Security facility.

We treat our existing assets as an integrated portfolio rather than a collection of individual projects. This allows us to utilize any new business practices or technologies across our entire project portfolio quickly, including advances with respect to troubleshooting, optimization, cost savings, and host site interaction. Our integrated, and approach helps us maintain strong relationships with our partners, which we seek to leverage to optimize the performance of our existing projects.

We also experience organic growth in production at our existing projects as a result of increases in biogas supply at our projects and on-going optimization initiatives. We size our projects to account for this increase in the biogas supply curve over time For example, at many of our newer projects, such as Apex and Galveston, we expect gradual increases in production as those landfill sites continue to grow Additionally, many of our capacity expansion efforts to date, such as those at McCarty and Rumpke, have helped to optimize our project capacity to take advantage of excess biogas at older landfills that are still open and growing Not only have our projects achieved an initial increase in production following the capacity expansion project, but we also expect to see continued gradual increases in production over time.

We periodically evaluate opportunities to convert existing projects from electricity generationto RNG production These opportunities tend to be attractive for our merchant electricity projects given the favorable economics for RNG plus RIN sales relative to merchant electricity rates plus REC sales To date, we have converted two projects from to and a third project from to We will continue to explore the feasibility of other opportunities across our existing Renewable Electricity portfolio.

. We apply a financially disciplined model toward new project development that considers the relative risk of a given project and associated feedstock costs, offtake contracts and any other related Environmental Attributes that can be monetized. We are currently evaluating three project expansion opportunities at existing project sites. We regularly analyze potential new projects that are at various stages of negotiation, engineering design and financial review. The potential projects typically include a mix of new project sites and strategic acquisitions. Currently, no new potential projects are subject to definitive agreements and each potential opportunity is subject to competitive market conditions

We currently own and operate 15 projects, 12 of which are RNG projects and three of which are Renewable Electricity projects. Of our three Renewable Electricity projects we currently operate, we are considering options to convert one of them to produce RNG. In addition to the conversion project, we are currently in the process of developing one additional RNG project from LFG. We are also working on other projects which will repurpose equipment from existing biogas facilities for use at new project sites. The below graphic does not include the Montauk Ag project, which is currently under development.

Renewable Electricity Generation
Site		COD (1)		Capacity (MW)		Source
Bowerman Irvine, CA		2016		23.6		Landfill
Security Houston, TX		2003		3.4		Landfill
AEL Sand Spring, OK		2013		3.2		Landfill
Total Capacity (MW)				30.2

Renewable Natural Gas
Site		COD(1)		Capacity (MMBtu/ day) (2)		Source
Rumpke Cincinnati, OH		1986		7,271		Landfill
Atascocita Humble, TX		2002*/ 2018		5,570		Landfill
McCarty Houston, TX		1986		4,415		Landfill
Apex Amsterdam, OH		2018		2,673		Landfill
Monroeville Monroeville, PA		2004		2,372		Landfill
Valley Harrison City, PA		2004		2,372		Landfill
Galveston Galveston, TX		2019		1,857		Landfill
Raeger Johnston, PA		2006		1,857		Landfill
Shade Cairnbrook, PA		2007		1,857		Landfill (3)
Coastal Plains Alvin, TX		2020		1,775		Landfill
Southern Davidsville, PA		2007		928		Landfill
Pico Jerome, ID		2020		903		Livestock (Dairy)
Total Capacity (MMBtu/day)				33,850

We have a long history of operating our projects with partners, with our oldest relationship going back 48 years. On average, we have had an history with our current project site owners. As of December 31, 2021, our operating RNG projects have an average expected remaining useful life of approximately 19 years and our operating Renewable Electricity projects have an average expected remaining useful life of approximately 25 years.

Electricity production has been monetized under fuel supply agreements with expiration dates more than 15 years from December 31, 2021. Concurrent with our fuel supply agreements, we typically enter into property leases with our project hosts, which govern access rights, permitted activities, easements and other property rights. We own all equipment and facilities on each leased property, other than equipment provided by utility companies providing services Lease termination typically requires the restoration of the leased area to its original condition. We have successfully ended leases on four facilities and completed associated restoration activities, and are currently completing restoration of two other facilities.

Electricity is generated using engines or turbine-driven electrical generators, which are designed to operate efficiently on gas. As such, electricity generation typically involves producing gas, which is then pumped into a generating facility. The electricity is metered and sold under long-term contracts to utilities and municipalities or at spot prices.

Our customers for RNG and RINs typically include large, long-term owner-operators of landfills and livestock farms, local utilities, and large refiners in the natural gas and refining sectors. Royalty structures included in our agreements, as well as the large size of our counterparties, limit their credit risk. Victory Renewables, LLC and Valero each represented approximately 13.1% and 12.4%, respectively, of our operating revenues in 2021 from the sale of Environmental Attributes. We sell RINs to numerous RIN parties and our largest RIN as a percentage of revenue can vary year to year given the short-term nature of these contracts. In addition to revenues from sales of RNG and RINs, we also share a portion of our Environmental Attributes with our pathway providers as consideration for the counterparty using our RNG as a transportation fuel.

Our customers for electricity typically include investor-owned and municipal electricity utilities. For the sale of Renewable Electricity and RECs, the City of Anaheim represented approximately 9.6% of our operating revenues in 2021. These sales occurred under a PPA between us and the City of Anaheim, in which electricity and RECs are sold at fixed prices. In 2021, we converted 100% of the monetization of our Renewable Electricity production and Environmental Attributes under fixed-price agreements. For our electricity sales, all of our customers with whom we have agreements are investment-grade entities with low credit risk.

We have made substantial investments in a centralized Enterprise Resource Planning (“”) system (Microsoft Dynamics) to better integrate operations across our projects. This system centralizes maintenance operations across all of our projects. Our proactive approach to maintenance, corrective maintenance, root cause analysis, failure reporting, project management, and budgeting are all completed using the ERP system.

There are several other companies operating in the renewable energy and space, ranging from other project developers to service or equipment providers.

Our primary competition is from other companies or solutions for access to biogas from waste. Evolving consumer preferences, regulatory conditions, ongoing waste industry trends, and project economics have a strong effect on the competitive landscape and our relative ability to continue to generate revenues and cash flows. We believe that our status as one of the largest operators of projects, our track record of operating and developing projects, and our deep relationships with some of the largest landfill owners and dairy farms in the country position us very well to continue to operate and grow our portfolio, and respond to competitive pressures. We have demonstrated a track record of strategic flexibility across our history which has allowed us to pivot towards projects and markets that we believe deliver optimal returns and stockholder value in response to changes in market, regulatory and competitive pressures.

We are aware of several competitors in the United States that have a similar business model to our own, including Archaea Energy and Morrow Renewables, as well as companies with facilities as a segment or subsidiary of their operations, including DTE and Ameresco. In addition, certain landfill operators, such as Waste Management, have also chosen to selectively pursue biogas conversion projects at their sites.

Our recordable cases and total recordable incident rate (“TRIR”), excluding related incidents, was 1.68 in 2021, lower than the 2020 national average of 2.9 TRIR for all industries. We continue to focus on practices and measures to lower our TRIR.

Montauk Renewables, Inc. is incorporated in the State of Delaware. Our principal executive offices are located at 680 Andersen Drive, 5th Floor, Pittsburgh, PA 15220. Our telephone number is (412)

We also make financial information, news releases and other information available on our corporate investor relations website at www.ir.montaukrenewables.com. Our annual reports on Form quarterly reports on Form current reports on Form and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “”), are available free of charge on this website as soon as reasonably practicable after we file these reports and amendments with, or furnish them to, the SEC. The information contained on or connected to our website is not incorporated by reference into this Annual Report on Form and should not be considered part of this or any other report filed with the SEC.

We are a “controlled company” within the meaning of the Nasdaq Stock Market LLC (“”) corporate governance standards. Certain stockholders, which are affiliates of two of our directors, Mr. John A. Copelyn and Theventheran G. Govender, own approximately 52.3% of our common stock and have entered into a Consortium Agreement (the “”) whereby the parties thereto will agree to act in concert with respect to voting our common stock, including in the election of directors, among other matters. As a controlled company, we may elect not to comply with certain Nasdaq corporate governance standards. See “Risk Factors—Common Stock Risks” for certain risks related to our status as a controlled company.

. Mr. McClain has served as our President and Chief Executive Officer and a member of our Board of Directors (the “”) sinceJanuary 4, 2021. He previously served as a member of the Board of Directors of MNK from August 2014 until January 2021 and as its President and Chief Executive Officer since September 2019 and Chief Financial Officer of Montauk Energy Holdings (“MEH” from April 2011 until August 2014. Prior to such roles, Mr. McClain served as MNK’s Chief Financial Officer from August 2014 until September 2019. Prior to joining MNK and its affiliates, he held various management positions with BPL Global Limited, Bayer A.G. and Dick’s Sporting Goods, Inc. and was in public accounting at Arthur Andersen LLP. He has over 25 years of business and financial management experience. He is a Certified Public Accountant.

Mr. Van Asdalan has served as our Chief Financial Officer and Treasurer since January 4, 2021. He previously served as a member of theBoard of Directors of MNK from September 2019 to January 2021, and as Chief Financial Officer of MEH. Prior to that time he was Controller of MEH from March 2018 to September 2019. Prior to joining MEH, Mr. Van Asdalan served as Controller, Construction Products, Controller, Tubular Products, and Manager of External Financial Reporting at the L.B. Foster Company, a manufacturer and distributor of products and provider of service for transportation and energy infrastructure (“”), from July 2011 to March 2018. Prior to L.B. Foster, Mr. Van Asdalan held senior associate positions at PricewaterhouseCoopers LLP and Sisterson & Co LLP, both accounting firms. He has 20 years of business and financial management experience including accounting, financial reporting, corporate compliance and acquisitions. He is a Certified Public Accountant and Chartered Global Management Accountant.

Mr. Shaw has served as our Vice President of Operations since January 4, 2021. He has also served as the Vice President of Operationsof MNK since September 2019. He previously served as North Region Manager of MEH from May 2016 to September 2019. He also held the position of Site Manager for five MEH operating sites in Pennsylvania from April 2015 to April 2016 and two MEH operating sites in Pennsylvania from June 2010 to March 2015. Prior to joining MEH, he was a facility manager for SONY Electronics Inc. at the world’s first vertically integrated television manufacturing facilities. Mr. Shaw has more than 25 years of experience in facilities operations and management.

Mr. Hill has served as our Vice President of Business Development since January 4, 2021. He has also served as Vice President of BusinessDevelopment of MNK since December 2020. Mr. Hill served as MEH’s Vice President of Engineering from April 2018 to December 2020, Vice President of Engineering and Operations from September 2015 to April 2018, and Vice President of Operations from May 2010 to September 2015. Mr. Hill has over 30 years of experience in landfill and operations and engineering, including contract negotiation, permitting, construction, design, and management. Prior to joining MEH, he held positions with Energy Systems Group, Energy Developments Inc., Ecogas Corporation, HDR Engineering, Inc. and the City of Los Angeles. Mr. Hill is a registered Professional Engineer.

Mr. Ciroli has served as our Vice President, General Counsel and Secretary since January 4, 2021. He has also served as MNK’s VicePresident General Counsel and Corporate Secretary since July 2020. From July 2016 to July 2020, Mr. Ciroli was the North American Counsel and HR Manager for the North American

. Ms. Frank has worked at the Company since 2007 and has served as our Vice President of Environmental, Health and Safety since October 2021. Ms. Frank previously served as Director of Environmental, Health and Safety from April 2020 until October 2021. Prior to that, Ms. Frank, served as Manager of Environmental Compliance from June 2007 until April 2020. Prior to joining the Company, Ms. Frank was Manager, Environmental Affairs for Duquesne Light Company’s unregulated business group from 2000 to 2007. Ms. Frank has over 30 years of regulatory and environmental compliance experience.

In December 2019, there was an outbreak of a novel strain of coronavirus (“”) in China that has since spread to nearly all regions of the world. The outbreak was subsequently declared a pandemic by the World Health Organization in March 2020. To date, the COVID-19 pandemic and preventative measures taken to contain or mitigate the pandemic have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas and significant disruptions in the financial markets both globally and in the United States.

In response to the COVID-19 pandemic and related mitigation measures, we began implementing changes in our business in March 2020 to protect our employees and customers, and to support appropriate health and safety protocols. For example, we arranged shifts at facilities to stagger employees to assist with following social distancing protocols, utilized overnight and weekend remote facility monitoring during normal operating shifts, implemented extensive cleaning and sanitation processes for both facilities and office spaces, incorporated temperature checks and facial covering requirements, instituted employee and visitor fitness questionnaires, restricted corporate travel and visitor access to sites and implemented work-from-home initiatives for certain employees. Further, we established the Infectious Disease and Response Committee (the “”) to lead the development and implementation of Montauk’s Infectious Disease and Response Plan and to oversee the company’s response to any infectious disease event. These measures resulted in additional costs, which we expect to continue as we continue to work to address employee safety.

Our projects generally are, and any of our future projects are likely to be, located on land occupied pursuant to long-term easements, leases and rights of way. The ownership interests in the land subject to these easements, leases and may be subject to mortgages securing loans or other liens (such as tax liens) and other easement, lease rights and of third parties (such as leases of oil or mineral rights) that were created prior to our projects’ easements, leases and As a result, certain of our projects’ rights under these easements, leases or may be subject, and subordinate, to the rights of those third parties. We may not be able to protect our operating projects against all risks of loss of our rights to use the land on which our projects are located, and any such loss or curtailment of our rights to use the land on which our projects are located and any increase in rent due on such lands could adversely affect our business, financial condition and results of operations.

Certain of our PPAs, fuel supply agreements, RNG agreements and other agreements require us to make payments or adjust prices to counterparties based on past or current changes in gas price indices, project productivity or other metrics and involve complex calculations. Moreover, the underlying indices governing payments under these agreements are subject to change, may be discontinued or replaced. The interpretation of these price adjustments and calculations and the potential discontinuation or replacement of relevant indices or metrics could result in disputes with the counterparties with respect to these agreements. Any such disputes could adversely affect project revenues, expense margins, customer or supplier relationships, or lead to costly litigation, the outcome of which we would be unable to predict.

Our agreements for the sale of RNG are typically shorter in duration than our fuel supply agreements. Accordingly, if we are unable to renew or replace an agreement for a project for which we continue to produce RNG, we would be subject to the risks associated with selling the RNG produced at that project at then-current market prices. We may be required to make such sales at a time when the market price for natural gas as a whole or in the region where that project is located, is depressed. If this were to occur, we would be subject to the volatility of gas prices and be unable to predict our revenues from such project, and the sales prices for such RNG may be lower than what we could sell the RNG for under an agreement.

We depend, in part, on Environmental Attributes, which are federal, state and local government incentives in the United States, provided in the form of RINs, RECs, LCFS credits, rebates, tax credits and other incentives to end users, distributors, system integrators and manufacturers of renewable energy projects, that promote the use of renewable energy. RINs are created through the RFS program administered by the EPA, which requires transportation fuel sold in the United States to contain a minimum volume of renewable fuel and permits refineries and importers of transportation fuel to satisfy their RVOs by purchasing either (i) D5 RINs and cellulosic waiver credits (“”) or (ii) D3 RINs. RECs are created through state law requirements for utilities to purchase a portion of their energy from renewable energy sources. 62% and 60% of our revenues for 2021 and 2020, respectively, were generated from the sale of Environmental Attributes. These government economic incentives could be reduced or eliminated altogether, or the categories of renewable energy qualifying for such government economic incentives could be changed. These renewable energy program incentives are subject to regulatory oversight and could be administratively or legislatively changed in a manner that could adversely affect our operations. Further, the generation of LCFS credits on our dairy farm project is expected to increase the percentage of our revenues generated from Environmental Attributes. Reductions in, changes to, or eliminations or expirations of governmental incentives could result in decreased demand for, and lower revenues from, our projects. Changes in the level or structure of the RPS of a state for electricity could also result in a decline in our revenues or decreased demand for, and lower revenues from, our electricity projects.

In addition, in June 2019, the EPA issued the final Affordable Clean Energy (“”) rule and repealed the Clean Power Plan (the “”), which had previously established standards to limit carbon dioxide emissions from existing fossil-fueled power generation facilities. Under the ACE rule, emissions from electric utility generation facilities would be regulated only through the use of various “inside the fence” or onsite efficiency improvements and emission control technologies. In contrast, the CPP allowed facility owners to reduce emissions with “outside the fence” measures, including those associated with renewable energy projects. On January 19, 2021, the United States Court of Appeals for the D.C. Circuit vacated the ACE rule and remanded the rule back to EPA for reconsideration of the “best system of emission reduction.” On February 22, 2021, the

Authorization for the use, construction, and operation of systems and associated transmission facilities on federal, state, and local lands will also require the assessment and evaluation of mineral rights, private and other easements; environmental, agricultural, cultural, recreational, and aesthetic impacts; and the likely mitigation of adverse effects to these and other resources and uses. The inability to obtain the required permits and other federal, state and local approvals, and any excessive delays in obtaining such permits and approvals due, for example, to litigation or third-party appeals, could potentially prevent us from successfully constructing and operating such projects in a timely manner and could result in the potential forfeiture of any deposit we have made with respect to a given project. Moreover, project approvals subject to project modifications and conditions, including mitigation requirements and costs, could affect the financial success of a given project. Changing regulatory requirements and the discovery of unknown site conditions could also adversely affect the financial success of a given project.

We are required to register an RNG project with the EPA and relevant state regulatory agencies. Further, we qualify our RINs through a voluntary Quality Assurance Plan, which typically takes from three to five months from first injection of RNG into the commercial pipeline system. Although no similar qualification process currently exists for LCFS credits, we expect such a process to be implemented and would expect to seek qualification on a state by state basis under such future programs. Delays in obtaining registration, RIN qualification, and any future LCFS credit qualification, or CI rescoring through CARB annual audits, of a new project could delay future revenues from the project and could adversely affect our cash flow. Further, we typically make a large investment in the project prior to receiving the regulatory approval and RIN qualification. By registering each RNG project with the EPA’s voluntary Quality Assurance Plan, we are subject to quarterly third-party audits and semi-annual visits of our projects to validate generated RINs and overall compliance with the RFS program. We are also subject to a separate third party’s annual attestation review. The Quality Assurance Plan provides a process for RIN owners to follow, for an affirmative defense to civil liability, if used or transferred Quality Assurance Plan verified RINs were invalidly generated. A project’s failure to comply could result in remedial action by the EPA, including penalties, fines, retirement of RINs, or termination of the project’s registration, any of which could adversely affect our business, financial condition and results of operations.

Consolidated EBITDA, as used in the Amended Credit Agreement, may be calculated differently than EBITDA or Adjusted EBITDA, as used in this report. Consolidated EBITDA is defined under the Amended Credit Agreement as net income plus (a) income tax expense, (b) interest expense, (c) depreciation, depletion, and amortization expense, unrealized derivative expense, (e) any extraordinary, unusual, or adjustments to certain components of operating income, as agreed upon by Comerica in certain circumstances, and (f) any unrealized derivative income during such period, and various extraordinary, unusual, or income or expenses and/or gains or losses included in determining our operating profit or loss or net income, as defined in the agreement, subject to approval of the agent. Additional information on Consolidated EBITDA as used in the Amended Credit Agreement can be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations under “Liquidity and Capital Resources.”

In accordance with GAAP, we capitalize certain expenditures and advances relating to our acquisitions, pending acquisitions, project development costs, interest costs related to project financing and certain energy assets. In addition, we have considerable unamortized assets. In 2021, we recorded impairment charges of $0.8 million related to the ongoing Renewable Electricity facility decommissioning and $0.4 million related to certain assets at one RNG facility. In 2020, we recorded impairment charges of $0.3 million related to our digester joint venture. In 2019, we recorded impairment charges of $0.9 million, $0.8 million and $0.8 million related to one digester joint venture, one RNG facility, and one Renewable Electricity facility, respectively. In addition, from time to time in future periods, we may be required to incur a charge against earnings in an amount equal to any unamortized capitalized expenditures and advances, net of any portion thereof that we estimate will be recoverable, through sale or otherwise, relating to: (i) any operation or other asset that is being sold, permanently shut down, impaired or has not generated or is not expected to generate sufficient cash flow; (ii) any pending acquisition that is not consummated; (iii) any project that is not expected to be successfully completed; and (iv) any goodwill or other intangible assets that are determined to be impaired. A material or impairment change could adversely affect our ability to comply with the financial covenants under the Amended Credit Agreement, and otherwise adversely affect our business, financial condition and results of operations.

As of December 31, 2021, we had U.S. federal net operating loss (“”) carryforwards of approximately $73.6 million, of which $32.9 million were incurred prior to the enactment of the U.S. Tax Cuts and Jobs Act of 2017 (the “”) and, therefore, can be carried forward for 20 years to fully offset taxable income in a future year, and of which $40.7 million were incurred in 2018 or later taxable years and, therefore, can generally be carried forward indefinitely to offset 80% of taxable income in a future year. The CARES Act temporarily lifts the 80% limitation, allowing us to use our NOLs to offset 100% of our taxable income for our 2018, 2019, and 2020 taxable years. Our NOL carryforwards incurred in 2017 or earlier taxable years expire between 2027 and 2037, while our NOL carryforwards incurred in 2018 or later taxable years survive indefinitely. Our ability to utilize our U.S. NOL carryforwards is dependent upon our ability to generate taxable income in future periods.

In addition, our U.S. NOL carryforwards and certain other tax attributes may be limited if we have experienced or experience an “ownership change” under Section 382 of the Internal Revenue Code of 1986, as amended (the “”), which generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our shares increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling period that begins on the later of three years prior to the testing date and the date of the last ownership change. Similar rules may apply under state tax laws. Previous issuances and sales of MNK’s ordinary shares or of our common stock, and future issuances and sales of our common stock (including certain transactions involving our common stock that are outside of our control) could have caused or could cause an “ownership change.” If an “ownership change” either had occurred or were to occur, Section 382 of the Internal Revenue Code of 1986, as amended (the Code) would impose an annual limit on the amount of change NOL carryforwards and other tax attributes we could use to reduce our taxable income, potentially increasing and accelerating our liability for income taxes, and also potentially causing certain tax attributes to expire unused. It is possible that such an ownership change could materially reduce our ability to use our U.S. NOL carryforwards or other tax attributes to offset taxable income, which could adversely affect our profitability.

We are an emerging growth company, as defined in the JOBS Act. For as long as we are an emerging growth company, which may be up to five full fiscal years following the completion of the IPO, we, unlike other public companies, will not be required to, among other things: (i) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii) comply with any new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer; (iii) provide certain disclosures regarding executive compensation required of larger public companies; or (iv) hold nonbinding advisory votes on executive compensation and any golden-parachute payments not previously approved. In addition, the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “”), for adopting new or revised financial accounting standards. We intend to take advantage of the

longer periods for the adoption of new or revised financial accounting standards permitted under the JOBS Act until we are no longer an emerging growth company. If we were to subsequently elect instead to comply with these public company effective dates, such election would be irrevocable pursuant to the JOBS Act.

We will remain an emerging growth company for up to five years after the IPO, although we will lose that status sooner if we have more than $1.07 billion of revenues in a fiscal year, have more than $700.0 million in market value of our common stock held by or issue more than $1.0 billion of debt over a three-year period.

Broad market and industry fluctuations, as well as general economic, political, regulatory and market conditions, may also adversely affect the market price of our common stock, particularly in light of uncertainties surrounding the ongoing pandemic and the related impacts.

Pursuant to our Amended and Restated Certificate of Incorporation, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law (“”), our Amended and Restated Certificate of Incorporation, or our Amended and Restated Bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine. We refer to this provision in our Amended and Restated Certificate of Incorporation as the Delaware Forum Provision. The Delaware Forum Provision does not apply to any claim arising under the Securities Act or the Exchange Act. Furthermore, unless we consent in writing to the selection of an alternative forum, the U.S. federal district courts are, to the fullest extent permitted by law, the sole and exclusive forum for any action asserting a claim arising under the Securities Act. We refer to this provision in our Amended and Restated Certificate of Incorporation as the Federal Forum Provision. Any person or entity purchasing or otherwise acquiring an interest in any of our securities shall be deemed to have notice of and to have consented to the Delaware Forum Provision and the Federal Forum Provision, provided, however, that such security holders cannot and will not be deemed to have waived compliance with the U.S. federal securities laws and the rules and regulations thereunder.

The following stock performance graph compares our total stock return with the total return for (a) NASDAQ Composite Index and (b) an industry peer group. Our 2021 peer group, which is comprised of companies that we believe have comparable characteristics and are in the same industry or consists of Aemetis Inc., Clean Energy Fuels Corp., Gevo Inc., Archaea Energy, Inc., and Renewable Energy Group Inc. The graph assumes that on January 22, 2021, the date our common stock began trading on the Nasdaq Capital Market, $100 was invested in our common stock and in each index based on the closing market price on that day and that all dividends were reinvested. The returns shown are based on historical events and are not intended to suggest future performance.

The information required by Item 5 of Form regarding equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report.

On January 21, 2021, our Registration Statement on Form as amended (File (the “”), was declared effective by the SEC in connection with the IPO. The underwriter for the IPO was Roth Capital Partners. A total of 3,399,515 shares of our common stock were sold pursuant to the Registration Statement, which was comprised of (1) 2,702,500 shares of new common stock issued by the Company and (2) 697,015 shares of the Company’s common stock held by MNK. The 3,399,515 shares were sold at an offering price of $8.50 per share and resulting in net proceeds to the Company of approximately $15.0 million, after deducting the underwriting discount of approximately $1.6 million and offering expenses payable by the Company of approximately $6.2 million.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this Annual Report on Form The historical consolidated financial data discussed below reflects the historical results of operations and financial position of Montauk USA, prior to the Equity Exchange on January 4, 2021. The consolidated financial statements of Montauk USA became our historical financial statements for the periods prior to the Equity Exchange.

Montauk is a renewable energy company specializing in the recovery and processing of biogas from landfills and other fuel sources for beneficial use as a replacement to fossil fuels. We develop, own, and operate RNG projects, using proven technologies that supply RNG into the transportation industry and use RNG to produce Renewable Electricity. We are one of the largest U.S. producers of RNG, having participated in the industry for over 30 years. We established our operating portfolio of 12 RNG and three Renewable Electricity projects through self-development, partnerships, and acquisitions that span six states.

On May 10, 2021, the Company, through a newly formed wholly-owned subsidiary Montauk Ag, completed a series of transactions with Joseph P. Carroll, Jr. (“Carroll”), Martin A. Redeker (“Redeker”) and certain of their affiliates to purchase identified assets related to developing technology to recover residual natural resources from waste streams of modern agriculture and to refine and recycle such waste products through proprietary and other processes in order to produce high quality renewable natural gas, and biochar (the “Montauk Ag Renewables Acquisition”). The assets acquired include real property, intellectual property, mobile equipment, and other equipment related to operating the business. The real property includes the purchase of an approximate 9.35 acre parcel in Duplin County, North Carolina.

During the third quarter of 2021, we continued to execute on our plans for the Montauk Ag Renewables Acquisition. In August 2021, we were granted a patent over 24 specific aspects of continuous-feed, closed-loop reactor technology acquired in the acquisition. We believe that the reactor enables conversion of agricultural waste into multiple renewable-fuel alternatives, is capable of producing multiple units of renewable energy for each unit of conventional energy consumed and is capable of sequestering multiple tons of greenhouse gas equivalent emissions (CO2e) for every ton emitted. We expect the reactor, with certain enhancements, to better address some of the environmental challenges of industrial agriculture, including lagoon capacity constraints, watershed contamination, odor issues, nutrient abundances and containment and

After the improvements were completed, production volumes have more than doubled in first quarter of 2022. As of December 31, 2021, we recorded an increase to the Pico liability of approximately $801 within royalties, transportation, gathering and production fuel based on our current estimate of expectations under this obligation. The improvement project has impacted the timeline for modeling Pico’s initial CI Score pathway model and subsequent auditing approval by CARB. We did not receive a temporary CI pathway in 2021 and were not able to generate LCFS credit revenue on 2021 production. We will be storing 2022 production while CARB completes its CI Score Pathway. We expect to receive the results of this approval during the second half of 2022. However, we do not currently expect to receive LCFS credit revenue on 2022 production until 2023.

Disruptions to waste placement operations at our active landfill sites, severe weather events, failure or degradation ofour or a landfill operator’s equipment or interconnection or transmission problems could result in a reduction of our RNG production. We strive to proactively address any issues that may arise through preventative maintenance, process improvement and flexible redeployment of equipment to maximize production and useful life. In November 2019, our McCarty facility lost production capacity of one of its engines due to its failure. Production was not restored until March 2020 when a replacement was commissioned. We recorded $3.9 million as a gain on insurance proceeds related to the replacement of property and business interruption. In October 2020, California wildfires forced our Bowerman facility to temporarily shut down. While production resumed in November 2020, our fourth quarter 2020 Bowerman revenues were approximately 20.0% lower than the prior year period.

Our Renewable Natural Gas and Renewable Electricity Generation segments’ revenues are primarily driven by the prices under our agreements and PPAs and the amount of RNG and Renewable Electricity that we produce. We sell the RNG produced from our projects under a variety of short-term and medium-term agreements to counterparties, with contract terms varying from three years to five years. Our contracts with counterparties are typically structured to be based on varying natural gas price indices for the RNG produced. All of the Renewable Electricity produced at our projects is sold under long-term contracts to creditworthy counterparties, typically under a fixed price arrangement with escalators.

Revenues from the Renewable Natural Gas segment in 2021 were $131,803, an increase of $48,567 (58.3%) compared to $83,236 in 2020. Average commodity pricing for natural gas for 2021 was 46.0% higher than the prior year. During 2021, we self-marketed 42,604 RINs, representing a 3,269 increase (8.3%) compared to 39,335 in 2020. The increase was primarily related to an offtake agreement change in 2021 providing more RNG volumes available to self market. Average pricing realized on RIN sales during 2021 was $1.91 as compared to $1.31 in 2020, an increase of 45.8%. This compares to the average D3 RIN index price for 2021 of $3.02 being approximately 102.7% higher than the average D3 RIN index price in 2020. All our RIN sales in 2021 and 2020 were priced generally on the D3 index with none based on CWC. At December 31, 2021, we had approximately 0.4 million MMBtus available for RIN generation and had approximately 0.1 million RINs generated and unsold. We had approximately 0.4 million MMBtus available for RIN generation and approximately 0.1 million RINs generated and unsold at December 31, 2020.