KiOR: The Inside True Story of a Company Gone Wrong-- Parts 1 and 2

May 18, 2016

Print This Article Share it With Friends

by Jim Lane (Biofuels DIgest) ... Old KiOR was exciting, dramatic, and fast, and the headlines it produced between 2008 and 2011 were candy for a renewables-hungry world.

A Breakthrough in Catalytic Pyrolysis to make cost-competitive, drop-in renewable fuels. A “Magic Catalyst”. The backing of a celebrity investor in Vinod Khosla. An impending venture with Chevron and Weyerhaeuser. A star-studded board featuring former Secretary of State Condoleezza Rice. A massive loan from Mississippi. A celebrated IPO. Reports of high yields. Construction at full-scale. 13 million gallons to start, multiple projects on the way.

...

And then the shortfalls started. KiOR fell further and further behind on its production goals throughout 2013, and ran out of cash and tumbled into bankruptcy in 2014. Ultimately, the state of Mississippi filed a lawsuit alleging that the KiOR technology hadn’t been ready for scale, its management knew that fact, that the company had faked technical data, and overstated commercial progress to lenders to secure financial support.

...

In late 2014, The Digest published a string of correspondence from co-founder Paul O’Connor to the KiOR board, alleging a wide range of scientific mis-steps and warnings unheeded on the technology’s viability.

...

Alex Major, best known for his “Can We Still Fly Jets & Save the Planet?” presentation given at a number of industry conferences ... had a plan to acquire the on-site assets at Columbus and produce jet fuel and green power.

...

Looking towards the future, Inaeris Technologies is the emerging remnant, described by its President Chris Artzer as, in essence, a Series A venture-backed company, at pilot stage, aiming to demonstrate the technology it believes will be robust and which it aims to demonstrate in time. In the case of Inaeris, as Artzer adds, it has the benefit of being at pilot stage but having produced a million gallons of in-spec, drop-in renewable fuels.

What of the past? Since last winter, we have visited with multiple parties intimately familiar with KiOR’s science and commercial progress dating back to its formation, and we have reviewed dozens of documents relating to technology development, yields, and commercial claims from 2007 — that tell the true story of KiOR.

The pressing question is, exactly how and why did the yields and costs promised in the IPO, 67 gallons per ton of biomass with an eventual target of 90 and at a cost of $1.80 per gallon, fail to be realized in the first commercial plant at Columbus?

...

There were five basic scientific questions.

1. Could the biomass be sufficiently pretreated, and how, to become FCC ( fluidized catalytic cracker) -compatible?

2. Could a catalyst be designed to work with biomass and achieve similar results to catalysts working on petroleum hydrocarbons?

3. What would the reactor look like?

4. Would any resulting bio-oil contain too much oxygen to be refined into a fuel using standard refinery equipment?

5. Could all of the above be achieved by a design that was economical? READ MORE (Part 1)

...

Part 2

... By the end of 2008, it is clear from discussions with multiple KiOR sources that the KiOR scientific staff had divided into two groups. One group believed that the BCC Technology had been sufficiently tested, was not working, had no value to KiOR’s business and should be immediately stopped.

The other group, which was headed by (Paul) O’Connor, focused on improving the BCC Technology, and on support of the three European Labs doing so. The controversy over the R&D Plan for 2009/2010 — to the extent that it exacerbated a growing rift between O’Connor andb (André) Ditsch — would have far-reaching consequences as 2009 unfolded.

...

By all accounts, at the beginning of 2009, as one source familiar with the state of technology development described it, “KiOR had no Technology that was sustainable, competitive, cost-effective, and economically/technologically feasible, and the operating funds were practically depleted.”

...

Paramount the need to ascertain why the CPERI FCC Pilot Plant produced higher bio-oil yields than the KiOR pilot. The Stealth Team decided to conduct a “Round-Robin” testing program where both Pilot Plants would use the same biomass feed, sand/catalyst and process conditions.

...

Ultimately, the sand test was carried out, using sand obtained from CPERI, and confirmed that higher oil yield was produced at the Pilot Plant at CPERI in Greece.

...

With this, the Reactor at KiOR’s Pilot was replaced with a new Reactor constructed according to the design of the CPERI Pilot Plant. With some process variables optimizations, the KiOR Pilot Plant was able to produce higher Bio Oil yields.

...

By March 9th, the Stealth Team had obtained, via “a friend at BASF”, 5 gallons of high temperature calcined clay microspheres, which were tested secretly at the KiOR Pilot Plant. In a memo on March 27th, (Robert) Bartek reported to O’Connor, (Steve) Yanik and Stamires an overall substantially improved performance over the BCC Technology and its Catalyst. Oil yields were higher, there was less coke, and a reasonably low oxygen content in the oil.

...

The problems facing KiOR at the time were substantial, but not unheard of for a young company in the advanced bioeconomy. They were summed up internally at this time as:

*Finding new investors to provide further funding as KiOR was soon running out of monies.

*Having not yet developed and demonstrated a feasible, sustainable and profitable technology, it was difficult to convince new investors to provide funds for KiOR’ operation.

*Soon running out of monies, will be difficult to keep the R&D function going on, which was needed to develop new sustainable technology.”

*The large processing capacity Demonstration Pilot Plant Unit (DEMO Unit ) was being designed and will require several millions of dollars to be constructed and installed at the Houston KiOR site.

*Negotiations were going on with Chevron / Weyerhaeuser/Catchlight Energy, involving the formation of a joint venture, in which KiOR will provide the technology to convert waste wood to liquid fuels. However at that time, KiOR did not have technology that was sustainable and commercially feasible and profitable.

*KiOR was in a great need to have a feasible demonstrated technology which can be commercialized and be economically sustainable and profitable, for use in the discussions and application to the DOE for getting a loan guarantee of a $1 billion, for use in building commercial Plants.

*KiOR was in need to have, at pilot plant / DEMO Unit scale, its Technology demonstrated and validated that was feasible, economically sustainable and profitable, while discussing with the Mississippi Development Authority a $75 million loan.

*Morale of KiOR’s employees was very poor with a fragmented Management leading in different directions, while key technical personnel, either had left or were looking for new jobs outside KiOR.”

*KiOR’s competitors Ensyn and Dynamotive were fast developing and improving their technologies, and preparing for commercialization.”

...

Overall, Ditsch projected a break-even for KiOR at a yield of 65 gallons per ton of biomass, or a 22.5% yield of bio-oil from the biomass.

From this point forward until the end of 2013, it will be impossible to find a commercial projection or communication based on less than 60 gallon per ton yields, or a scientific set of data from any KiOR pilot, demonstration or commercial unit that has a yield of 50 gallons per ton or higher (even at an oxygen content of 17% that would be very difficult to upgrade).

...

The NASA cautionary tale is instructive; there are correlations between KiOR and Columbia.

Specifically, reluctance to test to understand why systems were not performing in accordance with requirements, organizational barriers that prevented effective communication of critical information and stifled professional differences of opinion; lack of integrated management across program elements; and the evolution of an informal chain of command and decision-making processes that operated outside the organization’s rules.

...

An uproar ensued regarding the (early 2010) draft statement. Bottom line, there were heavy complaints about false claims, misleading information and fake terms like “KiOR’s Proprietary Magic Catalyst“. CFO Kevin Denicola indicated to team members that he too had serious concerns about the truthfulness of the proposed Technology Statement.

...

It is not known whether financial motives, data confusion, or honest mistakes went into the July report or into the criticism thereof. It can be noted that executives of KiOR were rewarded with stock options for meeting milestones and accomplishing goals, but there’s no direct evidence that data was changed for monetary gain. It is clear however that the new data was not supported by those familiar with the raw data coming from the pilot plant. The Digest has obtained and carefully reviewed original data from the pilot from this period and the July 2010 report, and can confirm that the raw data and the July 2010 report do not agree.

...

Why the rush to scale? All venture-backed companies rush. But was there a special rush on with Khosla-backed companies, and did that rush apply successfully to industrial technology? The State of Mississippi quoted this passage from the Harvard Business School case study, Khosla Ventures: Biofuels Gain Liquidity:

“Khosla played an active role in helping his portfolio companies determine appropriate milestones in the process of moving from a pilot to a commercial operation. He encouraged his companies to focus on 15-month or 15-day or 15-hour innovation cycles, unlike the 15-year cycles of innovation in the nuclear business, in order to “test, modify, allow lots of mistakes and still succeed.” READ MORE