KiOR: The Inside True Story of a Company Gone Wrong. Part 5, The Collapse 

Good news for public consumption

In May 2013, the company reported relatively rosy news to the public. As KiOR disclosed in its quarterly SEC 10-Q filing:

In 2012, the Company completed construction of its first, initial-scale commercial production facility in Columbus, Mississippi. This facility is designed to produce up to 13 million gallons of cellulosic diesel and gasoline per year. During the fourth quarter of 2012, the Company successfully commissioned its proprietary biomass fluid catalytic cracking, or BFCC, operation, and produced its first “on spec” cellulosic intermediate oil in limited quantities. During the first quarter of 2013, the Company successfully commissioned the plant’s hydrotreater and fractionation units, and began the Company’s first cellulosic diesel shipments in March 2013. The Company has had limited continuous production at its Columbus facility and has not yet reached “steady state” production.

No mention of the massive shortfall in yields. And to date, the costs had been high. Again, from the SEC Q2 report:

The Company has incurred substantial net losses since its inception, generating cumulative operating net losses of $234.1 million and an accumulated deficit of $258.1 million as of March 31, 2013. The Company expects to continue to incur operating losses through at least 2015 as it moves into the commercialization stage of its business. 

“You are not lying, but stating a future number that is possible.”

On June 5, 2013, Mark Ross joined KiOR, appointed as Senior Biomass Fluid Catalytic Cracking Engineer. Ross was based in the Pasadena, Texas facility. During his first week of employment, Ross received an email warning  him “to be careful about the politics at KiOR” because “the management at KiOR does not want to hear the truth about what is actually going on with the process.”

Nevertheless, Ross undertook a candid assessment of the Columbus plant’s operations, and in late June he emailed Mitch Loescher regarding the actual state of KiOR’s yields.

The State of Mississippi alleges that “Ross walked into Loescher’s office to discuss his concerns “about the yields that I observed at the plant versus the fraudulent numbers quoted to the public by Fred Cannon the CEO … Mitch’s reply was something like this (although I don’t remember the exact words), ‘Assume you just started a new restaurant and you were being interviewed about your restaurant. The interviewer asks you how many people you are serving every night. You answer 200 although you are only actually serving 20. You are not lying because you designed the restaurant to handle 200 a night even though you only have 20 a night currently. Eventually you will be serving 200 a night so you are not lying but stating a future number that is possible. You are just not telling the whole truth.’”

In July 2013, Ross approached KiOR’s Chief Fellow Scientist, Dennis Stamires, looking for more confirmation of what he termed his “quick back of the envelope calculation” that “the Columbus facility was only producing 22 gallons of oil per ton.”

As Ross explained in a sworn statement:

“I wanted to check the numbers to make sure I was calculating the yields correctly. Dennis was noticeably concerned about what I was telling him  because he only knew what Fred was telling him which was the fraudulent 72 gallons per ton of dry wood. I told Dennis I would look into this in more detail and get back with him. I ran the calculations several more times and kept coming up with the same numbers, about 22 gallons of oil per ton of dry wood. I was still alarmed so I sought out Neil Wang and Gil Ceballos, who share an office. Neil was a Senior Process Engineer and Gil a Technologist and both were responsible for the material balances around the Demo Plant and the Columbus unit… Neil and Gil both confirmed that indeed the numbers I calculated were the same they had calculated and they too had raised concerns in the past but it fell on deaf ears. Gil had told me that to the best of his knowledge “the management at KiOR was not interested in hearing about the actual yields.”

Shortly afterwards, Ross explained in his sworn statement that he also sought the advice of KiOR’s Process Engineering Manager, Chris Cargill.

Cargill explained to Ross “that if it was possible to extract all of the potential hydrocarbons from the water and gas produced in the process we could improve the yields slightly but not 72 gallons per dry ton of wood. I asked Chris if any computer simulations were performed to simulate the recovery of the hydrocarbons from the water and gas and he suggested I speak to Senior Process Engineer, Agnes Dydak.”