KiOR: The Inside True Story of a Company Gone Wrong. Part 4, the Year of Living Disingenuously

September 18, 2016 |

bd-ts-091916-kior4-smOur story so far

In 2011, KiOR raised $150 million in its June IPO, claiming that it was generating yields of 67 gallons per ton in its Demo unit operations. But it was miles short of that.

In our previous installments, we have charted how KiOR moved from a promising early-stage technology to a public company with serious technological flaws that could have been fixed, but were ignored in what a senior team member speaking for the record, Dennis Stamires, characterized as a “reckless rush to commercial”.

But so far, the company and its celebrity investors and directors such as former Secretary of State Condoleezza Rice and famed venture capitalist Vinod Khosla had escaped close scrutiny.

Read the previous Parts in this Series

KiORThe inside true story of a company gone wrong, Part 1

KiOR: the inside true story of a company gone wrong, Part 2

KiORThe inside true story of a company gone wrong. Part 3, “You’ve Cooked the Books”

The methods for keeping the truth bottled up were not pretty. According to our sources for this story, dissenters had been fired, data had been faked, and opportunities to address the impending debacle with improved technology were ignored, underfunded or shelved. Meanwhile, the Board was misled either proactively or through lack of guidance on key performance indicators. Trouble that had been looming in 2010 had boiled into outright crisis in 2011.

Some progress had been made on technology, but not enough, Not nearly enough. The critical success factor, the bio-oil yields, had been increased from “the low 30s to the low 40s,” one staffer recalled.

And, worse, the production cost was “several dollars per gallon” according to those familiar with the state of technology development. The progress achieved had stemmed from changing the Technology from the original BCC reactor design and using a new ZSM Zeolite catalyst

Fatally, the progress on yields had been made at a catastrophic increase in the catalyst cost. One source close to the technology at that time recalled, “it was too far away from a production cost necessary to sustain an economically feasible business without government subsidies.”

The Spreading Fear

The result? Fear inside the company’s management team. The funds needed to be able to continue operations would soon be depleted. Potential investors, said one company insider, became skeptical about the over-glorified, profitable financial picture the Management team was claiming and deceitfully presenting to the public and to investors.”

Technical staff members at the time were particularly incensed over claims that yields were increasing from 67 to 72 gallons per ton, the projection of 90+ gallon per ton yields at the proposed Natchez, Mississippi commercial-scale plant, and a claim that production costs were being reduced to “close to $2 per gallon of fuel.”

“They were scared of exposure,” former CTO and board director Paul O’Connor recalled, “and [they made] a series of reckless actions.” And small wonder, for story that was told to the public was one of steadily increasing yields and progress in major company partnerships.

As the Motley Fool observed in March 2012:

“KiOR has been successful in steadily improving yield over the last few years from 17 gallons per ton to 67 gallons per ton. Notably, it has backing of large industrial companies like Chevron…The Columbus facility is on schedule to begin production in the second half of this year with an annual production capacity of 13 million gallons of biocrude. We cannot overemphasize how important a positive outcome at Columbus is.”

Yet, the yields were lower and the Chevron relationship, as originally envisioned in the form of an offtaker of crude bio-oil, was in tatters. Chevron would only take a finished fuel.

The Motley Fool was right on the money in one respect. Columbus was key. But there were intense risk factors implicit in the company’s yield targets. With the plant’s stated capacity of 500 tons per day, even with an 82% uptime, the yields would have to reach 87 gallons per ton to reach the targeted 13 million gallons of biocrude production.

That was more than double what the company had yet achieved in the demo or pilot plants, according to staff familiar with the state of technology development at the time.

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