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

A split in the management team

By the first quarter of 2012, KiOR team members pointed to a spilt in the management team, which had previously insulated itself from the technical staff.

“The modus operandi was “Reckless rush to Commercial,” recalled Dennis Stamires.

“Khosla and Kaul made the important decisions,” Stamires added, “while Ditsch and Cannon simply executed the orders. And Ditsch, Hacskaylo, Artzer, and Cannon set the [day-to-day] policies, and communicated with the public and investors. The rest of the management team were kept in the dark. It created confusion, poor morale, fear, discord, and mismanagement. On February 20th, I resigned from KiOR Management team, and notified the CEO, Fred Cannon, that I would devote all my time and available resources to developing a new, economically feasible technology capable of meeting KiOR’s business objectives.”

Paul O’Connor agrees that there was an unhealthy organization. “There was this tactic to silence people and [prevent them from] revealing secrets. At BIOeCON we would ask our technical people to tell shareholders what issues there were. Our perspective was that, if you know what the problem is you can solve it.”

The most obvious sign of technical trouble was over work on the company’s BFCC technology.

Despite claims of higher yields in the IPO documentation and elsewhere, the demonstration unit, using the latest ZSM zeolite catalysts, was still a dud. When the oxygen content was kept below 15%, the actual bio-oil yields reached into the 30s in gallons per ton. And 15% was the technical threshold where scientists at the time that the bio-oil could be converted into a salable fuel, by anyone.

Think of it this way. KiOR projected it could acquire its feedstock, Southern yellow pine, at an average cost of $66 per ton. Even at 40 gallons per ton, that would equate to $1.65 in cost. Before paying for the conversion technology. Or the building of the plant. Or the operating of it. Or anything to pay the workers. Much less pay back the investors. Or lenders like Mississippi.

Today, on a wholesale basis, finished gasoline blendstock sells for $1.40 per gallon. A financial debacle of immense proportions loomed, unless something could be done.