KiOR announces cellulosic diesel shipment, 2012 financial results

By Erin Voegele | March 19, 2013

On March 18 KiOR Inc. announced the initial shipment of cellulosic diesel from its commercial-scale plant in Columbus, Miss. On the same day, the company reported financial results for the fourth quarter of 2012 as well as the entire fiscal year. According to the financial release, KiOR recorded its first revenues since inception during the fourth quarter 2012.

Fred Cannon, KiOR’s president and CEO, called the cellulosic diesel shipment a major step forward for his company, the biofuels industry, and the renewable fuels sector. “With first production at Columbus, KiOR has technology with the potential to resurrect each and every shut down paper mill in the country and to replace imported oil on a cost effective basis while creating American jobs,” he said. “This facility demonstrates the efficacy of KiOR's proprietary catalytic biomass-to-fuel process with the potential to deliver cellulosic gasoline and diesel to the U.S. We are proud to be making history in Mississippi. The technology is simply scalable and we believe sufficient excess feedstock exists in the Southeast alone to build almost fifty KiOR commercial scale facilities."

Cannon added that the U.S. EPA’s recent actions to qualify cellulosic gasoline for the renewable fuel standard (RFS) market and increase the gasoline blend rate to 25 percent have de-risked KiOR’s business strategy and created a market for the company’s hydrocarbon fuels that is nearly twice the size of the current ethanol market.

During the fourth quarter of 2012, KiOR posted a net loss of $29.7 million, compared to a net loss of $27 million during the prior quarter. Net loss for the full year was $96.4 million, compared to a net loss of $64.1 million in 2011.

KiOR recorded its first revenues since inception during the final three months of 2012. The $87,000 in revenue is attributed to the sale of blended cellulosic diesel from the company’s research and development facility. The fuel was blended with fossil diesel. The cost of revenue for the quarter was $68,000, and related to the first sale, including production, shipping and blending costs.

During a call to discuss the results, Cannon noted his company faces three primary risks: technology scale-up risk, regulatory risk, and financial risk. Since the last financial update was made in November, Cannon said KiOR has made substantial progress in addressing all three risks.

“A mitigation of scale-up risk due to commercial production of cellulosic gasoline and diesel at Columbus is a remarkable achievement by the KiOR team,” he said. “ In four years we have successfully achieved a 20,000 ton scale up in our proprietary biomass to fuels technology from proof of concept in our pilot plant to our demonstration plant and now to our first commercial scale facility at Columbus.”

While KiOR had previously stated it expected commercial shipments of biofuels to commence in late 2012, Cannon noted the company encountered unexpected startup issues unrelated to its technology, but has since overcome those normal startup issues and proven that KiOR’s biomass-to-fuels technology works at commercial scale. “In fact, we know now that our technology performs better in terms of quality as it is scaled,” he continued. “From very good oil at the very small pilot plant to even improved quality oil at the demo and now to our best ever quality oil made at Columbus. So high in quality we’re converting over 90 percent of our oil from Columbus into transportation fuel.” The conversion rate for conventional crude oil is only about 70 percent, he added.

Regarding regulatory risk, Cannon said that the EPA’s recent pathway rulemaking was the last hurdle to KiOR’s ability to fully participate in the mandated RFS2 market. “What this means is that every gallon of cellulosic gasoline and diesel that comes out of KiOR’s Columbus facility and all our future facilities will generate 1.5 or 1.7 cellulosic grams per gallon, which unlocks significant additional value for KiOR relative to nearly all other renewable fuel companies,” he said.

Cannon also spoke about EPA’s approval of an increased Part 79 registration for blending KiOR’s cellulosic gasoline at levels up to 25 percent. “At a 25 percent blend, KiOR has a 33 billion gallon per year domestic market for its cellulosic gasoline. This is more than the entire RFS2 renewable volume obligation in 2022. By comparisons, this is double the size of the ethanol market and without any blend wall limitations,” Cannon continued.

During the call, Cannon also addressed two factors he said KiOR believes will de-risk its funding risk. First, he said, is the achievement of milestones. Second, he continued, is flexibility. “In our experience, one of the best ways to drive value in any financing process, whether debt or equity, is to have the flexibility to raise financing when the market allows a company to maximize the value for its existing shareholders,” he said, noting that Alberta Investment Management Co. and Vinod Khosla have agreed to amend the loan agreement KiOR signed last year in order to give the company flexibility it needs from a liquidity perspective to drive financing for the Natchez facility. “Specifically, we have increased the potential launch under the agreement from $75 million of current principal to $125 million, with affiliates of Vinod Khosla committed to funding that additional $50 million upon request from the company,” Cannon continued. “If funded, this additional funding would automatically convert into equity in connection with future financing for the Natchez project, which further enhances our flexibility going forward.”