KiOR outlines 2014 plan in operational update call

By Erin Voegele | January 15, 2014

KIOR Inc. recently hosted a conference call to provide an operational update on its Columbus, Miss., facility and outline its plans for 2014. During the call, Fred Cannon, president and CEO of KiOR, spoke about his company’s plan to increase the performance and operational output of the facility.

Cannon opened the call with an overview of KiOR’s 2013 biofuel production. During the fourth quarter of 2013, the Columbus facility produced 385,000 gallons of fuel, he said. Approximately 41 percent of that volume was cellulosic gasoline, 37 percent cellulosic diesel and 22 percent fuel oil. KiOR shipped approximately 115,000 gallons of gasoline, 111,000 gallons of diesel and 26,000 gallons of fuel oil during the quarter. Total fuel production for 2013 was 597,000 gallons.

According to Cannon, The Columbus facility achieved an on-stream percentage of approximately 70 percent during the fourth quarter, up from 20 percent during the first three months of 2013. The plant’s fluid catalytic cracking (FCC) unit operated for about 65 days during the fourth quarter. “Through the last year, the Columbus operations team has learned how to operate the facility through a variety of operating conditions and challenges,” he said.

Moving into 2014, Cannon said KiOR plans to focus on three primary goals. First, the company will aim to complete a series of optimization projects and upgrades. Second, KiOR will continue to its research and development efforts aimed at increasing yields, improving operational efficiency and improving operational economics. Third, the company will focus on managing its cash burn to reduce requirements for additional funding until the next commercial facility can be built.

“Our first initiative is to bring the Columbus facility up to the operational and performance targets that we expected to achieve when we designed the facility over three years ago,” Cannon said. “Over the last year we have proven that our proprietary technology can produce drop-in hydrocarbon fuels from cellulosic biomass at commercial scale. However, we have learned from a year of operating the Columbus facility that additional work is required to bring Columbus from its current performance.”

Information presented by Cannon indicated that the Columbus facility can currently process between 250 and 300 tons of biomass per day, and can achieve yields near 30 gallons per ton. When operating at nameplate capacity, the facility should be able to process 500 bond-dry tons of biomass per day and achieve significantly higher yields.

The optimization project aims to improve throughput, yield and overall process efficiency and reliability. Cannon said it will include changes to the FCC, hydrotreater and wood yard to eliminate structural bottlenecks and reliability issues that have limited the amount of wood that can be fed into the FCC system. Most of the improvements are expected to be made over the first three quarters of 2014, with the majority complete in the first quarter.

As part of the effort to improve yields, Cannon said that KiOR expects to obtain commercial supplies of its next-generation catalyst during the second quarter of 2014. The company also intends to install additional equipment that is expected to improve yield.

Cannon described another series of improvements that KiOR plans to implement in order to optimize its processes and increase reliability and on-stream percentage, including the installation of additional piping to increase operational flexibility and efficiency. He also indicated modification would be made to the hydrotreating unit to decrease the production of fuel oil and off-spec product. Additional improvements will aim to reduce natural gas consumption.

Overall, Cannon estimated that the improvements will require an additional $10 million in capital investment in 2014. “We are actively pursuing a number of ways to finance this project,” he said, noting that KiOR believes the “this relatively small capital investment will bring the facility to a level of operational and financial performance that can serve as the basis for the design and financing of our next commercial facility.”

Cannon also note that KiOR intends to spend approximately $22 million on research and development in 2014, with the goal of increasing yield and improving process efficiencies.

Regarding the previously announced Columbus II project, Cannon said that while KiOR has received positive interest as part of its financing efforts for the plant, several factors are making the immediate closing of that financing more challenging. He cited the U.S. EPA’s 2014 renewable fuel standard (RFS) rulemaking and the transition of KiOR’s chief financial officer as two factors negatively impacting financing efforts. “We expect that these challenges will lessen when the Columbus facility operates at or near nameplate capacity with significantly enhanced yield,” Cannon said.

According to Cannon, the plant has been offline since Dec. 17, when KiOR elected to bring down the FCC to begin work on optimization work and preserve cash. The company intends to keep the plant idle for most of the first quarter. “We have decided to operate the Columbus facility during the first quarter of 2014 only to the extent we want to test and prove our optimization projects,” Cannon said, noting that improvements made during the first quarter should allow the facility to operate in the second quarter with improved throughput, yield and operability. Costs are also a consideration.

“We do not believe that it is prudent to fund the production of our cellulosic fuels out of Columbus at a significant loss relative to the prices we would expect to receive from our customers,” Cannon continued. He elaborated by explaining that the low volumes the plant is currently capable of producing cannot absorb the cost of production. This is expected to improve following planned optimization activities in the first quarter.

Cannon also noted that the EPA’s proposed 2014 RFS rulemaking has impacted the economics of the Columbus plant by reducing the price of renewable identification numbers (RINs). “We believe that the current cellulosic RIN pricing when combined with the current operational performance at Columbus does not provide sufficient support to warrant production…at any substantial level during the first quarter,” he said.

Cannon closed his presentation by speaking about the company’s current financial situation. “We will need to secure additional financing during the next three months in order to continue this strategy. We have engaged in initial discussions with potential sources of financing and while we have received positive feedback on our focused 2014 execution plan, we do not have currently committed sources of financing for our business plan,” he said, noting that KiOR expects to issue updates on its liquidity and financing soon.