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

The End of an Era

And so, with the November 2014 bankruptcy filing at KiOR, the era of development and deployment gave way to an era of restructuring and recrimination. The company had once been hailed as one of titanic promise, but had been revealed as one of titanic promises which were not matched by performance.

At the heart of the failure? The 22 gallon per ton yields at Columbus, following on from the 30+ per gallon yields at the demonstration plant, and the 40+ gallons per ton yields at the pilot plant. KiOR has banked on steady improvement of yields, but instead there was a steady decline as the company moved towards scale.

As Paul O’Connor observed in August 2014:

Around that time the KiOR board (via Will Roach and Samir Kaul) approached me to help KiOR as a technical expert in reviewing the situation at KiOR and in January of 2014 I signed an NDA and started reviewing the data from Columbus and R&D. My observation was that the low yields and on-stream times at Columbus were reasonably in line with the results and experience in the DEMO plant in Houston. 

This means that the main problems at Columbus are already discernible in the DEMO operations and are therefore structural and not “just” operational issues. My belief then and still now is, that these problems can be solved, but that this will require a different approach in catalyst selection and operation strategy. 

But these are technical issues, and virtually every new technology is replete with stories of ideas that did not work out, clashes between technologists with differing opinion as to how improvement is to be made.

What distinguished KiOR, almost alone among a class of technologies the Digest has covered for a decade, are the management responses to issues. Even at the end, KiOR management was trying the same failed strategy of rosy projections that could not be achieved by its technology at the time. Even in the final months before filing bankruptcy, when cash flow was critical and new investment or even sale of the company was urgently under consideration, O’Connor observed:

In the mean time KiOR has started a marketing process (via Guggenheim) to explore investment and/or sale opportunities for the company. This is a good initiative, as it may help to salvage this interesting and promising technology. However, it is also my conviction that in order to maximize the value and “survivability” of KiOR, KiOR should use the time and funds still available, to focus on the alternative approaches that I have proposed, which I believe will be able to prove on the DEMO scale that the yields and on-stream times of KiOR technology can be substantially improved.

Unfortunately the MT is still not receptive to this and has distributed, what I believe are poorly substantiated projections for Guggenheim to pitch KiOR to potential investors and/or buyers. These projections do not include the crucial learning’s from the DEMO and Columbus. Keep in mind that the MT also convinced the board at the time to build and start-up Columbus based on projections, which have not been substantiated in the DEMO, while we now know that the DEMO predicted reasonably well the poor yields and on-stream times at Columbus. As already communicated to you earlier I cannot support this approach.

The KiOR reorganization that wasn’t

On November 9, 2014, KiOR reported that it had filed Chapter 11, and would continue to operate its businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

Interestingly, KiOR Columbus LLC KiOR’s wholly-owned subsidiary, was “not a party to the Chapter 11 Case”. Clearly it was the troubles at Columbus that led to the bankruptcy event. Clearly the company had for some time indicated that a goal in restructuring the company was to “restart its Columbus facility, build its next commercial production facility and subsequent facilities, continue the development of its technology and products, commercialize any products resulting from its research and development efforts, and satisfy its debt service obligations.”

Even more interesting, KiOR wasn’t headed for a reorganization. Rather, the filing stated the preferred outcome right up front:

KiOR currently intends to seek approval from the Bankruptcy Court for an auction and sale of its assets under Section 363 of the Bankruptcy Code.

Keep in mind these are not the Columbus assets — the plant itself. Rather, these were the KiOR technology assets. These would eventually re-emerge as Anaeris — and, perhaps not surprisingly — remained under the ownership of Khosla’s investment interests.