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KiOR expects to produce 920K gallons of cellulosic biofuels by year end; short-term focus on economics

Cellulosic gasoline and diesel company KiOR, Inc. expects that, given current and anticipated operations through the remainder of the year, its Columbus, Mississippi facility will produce approximately 410,000 gallons of renewable fuel during the fourth quarter of 2013, bringing full year production total from the facility to approximately 920,000 gallons. (Earlier post.) The ratio between gasoline, diesel and fuel oil expected to be produced during the year is approximately 35% gasoline, 40% diesel, and 25% fuel oil.

In August, the US Environmental Protection Agency (EPA) finalized the 2013 percentage standards for four fuel categories that are part of the Renewable Fuel Standard (RFS) program. With the final 2013 overall volumes and standards requiring 16.55 billion gallons of renewable fuels to be blended into the US fuel supply (a 9.74% blend), EPA projected 6 million gallons (0.004%) of cellulosic biofuels. Of that, EPA projected the bulk to come from the KiOR Columbus plant (5-6 million gallons of renewable gasoline and diesel).

For the 2014 percentage standards, EPA proposed reducing the overall target to 15.21 billion gallons, with 17 million gallons of cellulosic biofuel. (Earlier post.) Of that 17 million, EPA expected 0-9 million gallons from KiOR.

Commenting on the production for 2013, Fred Cannon, President and CEO of KiOR, said:

We are pleased that we expect to reach our best quarter in terms of production volumes from the Columbus facility. It continues to demonstrate the progress that we have made in bringing the world’s first cellulosic gasoline and diesel commercial facility to steady-state operations.

Despite our accomplishments to date, we still have a lot of work to do to bring the Columbus facility towards target throughput, yield and financial performance levels. The financial performance of the facility was also negatively impacted by the temporarily depressed pricing for RINs caused by proposed 2014 renewable volume obligation rulemaking by the USEPA.

Given these factors, we believe that, from both an operational and financial perspective, we need to focus our execution on three simple goals: first, bringing the Columbus facility to the levels of operational and financial performance that we expected when we designed that facility over three years ago; second, continuing to develop our technology so that we can improve our yields and process improvements both at Columbus and at future facilities; and third, aggressively managing our cost without sacrificing our long term goals.

To that end, from now through the end of the first quarter of 2014, we expect that our efforts at Columbus will be focused on implementing a series of mechanical improvements to the facility rather than production volumes. We plan to operate the facility on a limited campaign basis only to verify the expected impact of improvements we intend to implement. In addition, we continue to see encouraging developments in our catalyst and process development efforts that we believe will continue to drive improvement in yields and overall plant economics.

The uncertainty caused by USEPA’s proposed 2014 RVO rulemaking has already made and will continue to make our expansion financing efforts more challenging, but we believe that once USEPA adjusts the 2014 RVOs in a manner consistent with the policy goals of the Renewable Fuel Standard, some of these short term challenges will lessen. While our strategy is taking longer to execute than we anticipated two years ago, we believe that successful execution of our strategy will build a sustainable business that will deliver long-term value to our shareholders.

KiOR has developed a proprietary catalytic pyrolysis process to convert non-food biomass into drop-in fuels. The company’s technology platform combines its proprietary catalyst systems with a process based on existing Fluid Catalytic Cracking (FCC) technology, a standard process used for more than 60 years in petroleum refining. The efficiency of KiOR’s process—Biomass Fluid Catalytic Cracking (BFCC)—and the proven nature of catalytic cracking technologies allow for cost advantages, including lower capital and operating costs, versus traditional biofuels producers, the company says.



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