Richard Palmer of Global Clean Energy used Exxon money to overhaul an aging California oil refinery in order to process the oil-rich seeds of a plant called camelina. Now Exxon is suing.
By Christopher Helman, Forbes Staff
It was May 2020, and despite the encroaching wave of Covid-19 pandemic lockdowns, Richard Palmer, founder and chairman of Global Clean Energy Holdings was thrilled with his new acquisition. Palmer’s prize was a rusting, 90-year-old refinery in Bakersfield, California that GCEH was buying for $40 million cash. The seller, Israeli energy conglomerate Delek Holdings, had bought the 500-acre pile of pipes, tanks and distillation towers a decade earlier from the bankruptcy estate of the Flying J truckstop company. Dissuaded by tough California carbon regulations, Delek had hardly touched it.
So what did Palmer and GCEH, a publicly traded microcap company, have in mind? To help lead the low-carbon revolution, he says. Ever since he left Enron two decades earlier, Palmer had been striving to build a biofuels business — one vertically integrated and optimized “from seed to fuel.” Despite missteps, here he was closing on a big piece of the puzzle, a refinery. His vision: never again would fossil petroleum enter the grounds; instead GCEH would make only greener fuels, like renewable diesel and sustainable jet fuel. And they would do so using a feedstock with the lowest carbon intensity they could find — the oil-rich seeds of a bushy plant called camelina sativa.
Camelina is a potential wonder crop. It thrives in semi-arid conditions, with a short growing cycle, little need for fertilizer or pesticide, and yields seeds that are 40% oil by weight — twice the oil content of soybeans. Before electricity, humans prized camelina for lamp oil. But don’t try eating it, due to high levels of nauseating urisic acid (also found in rapeseed-based canola oil).
ExxonMobil thought camelina had enough potential that in 2019 it agreed to buy 100 million gallons of camelina-blended fuels that GCEH could produce. After the refinery acquisition, Exxon invested $150 million into GCEH in exchange for preferred stock, giving the oil giant a 20% stake and two seats on the board. What more could a biofuels upstart want than to have the backing of an oil giant like Exxon under pressure from all sides to do something about climate change and carbon emissions?
GCEH’s President Noah Verleun says it would have been hard enough orchestrating a refinery overhaul without the pandemic complications: “We knew enough that we weren’t sure what we were doing. But we had no idea what we were getting into.” What could go wrong? Cost projections soared during the pandemic from $200 million ultimately to $550 million. Citing project delays, Exxon, in early 2023, pulled out of its guaranteed offtake contract. Then in July 2023 Exxon sued GCEH in Delaware Chancery court to compel the company to open their books for examination by Exxon’s representatives. Exxon in its complaint alleged that Palmer’s management team had been committing “bad behavior,” including “breaking promises, missing construction deadlines, and expressing a general antipathy toward good corporate governance.” GCEH denies the allegations, and has since agreed to voluntarily share documents. The case is currently stayed, pending hearings later this month. Palmer says specialized industrial labor was impossible to find in California during the pandemic. “We were fighting for productivity in a Covid world.”
An Exxon spokeswoman wouldn’t comment on the case or share Exxon’s assessment of camelina’s potential. Exxon has reason to be skittish around biofuels, having nothing to show for pouring a half billion dollars into a 15-year-long JV with billionaire DNA-savant Craig Venter’s Synthetic Genomics to engineer lipid-rich green algae that could be squeezed to make biofuels. Exxon finally abandoned that greenwashing venture last year. It makes sense not to hype a new plant only to underdeliver again.
Global Clean Energy says the Bakersfield refinery will be operational by midyear, initially producing 9,000 barrels (380,000 gallons) per day. Helping offset those startup costs will be federal and state tax credits to the tune of $2.50 per gallon. California low carbon fuel standards have caused demand for fossil diesel fall by 20% in recent years, while biofuels demand has surged, especially along the Interstate-5 trucking route that passes right by Bakersfield. “If you want the credits and the molecule, that’s fine. Or we can detach the molecule from the credits,” says Palmer. Maybe they don’t need Exxon? “It’s not a proprietary material that needs particular customers.”
But Camelina does need enthusiastic growers. “The problem with sustainable, low-carbon fuels is that the finite amount of feedstock makes it hard to scale,” says Palmer, 64. “You can’t just double the amount of restaurant grease available, or slaughter more animals just to boost supplies of tallow.” Palmer thinks back to his time at Enron as an energy systems engineer, structuring deals for corporate clients and learning to treat energy demand as a liability for companies, but also as an asset to manage. When Enron imploded Palmer and some colleagues launched Mobius Risk Group, and began looking hard at biofuels. With feedstocks making up 80% of biofuel costs, he knew he needed to find the best plant to grow. After considering switchgrass, pennycress, sorghum and others, in 2006 Palmer formed GCEH, acquired 15,000 acres in the Yucatan Peninsula of Mexico, where the first crop they got serious about was called jatropha, an evergreen shrub that yields oil rich seeds. Yet after planting a few hundred acres it became clear that three years was too long to tie up capital waiting for trees to mature enough to seed. So they planted camelina in the rows between jatropha bushes, and soon abandoned jatropha.
In 2013, GCEH bought a Seattle-based company called Sustainable Oils, which already had patents on promising varieties of camelina, bred in Spain the old-fashioned way via selective cross breeding. Sustainable Oils even won a contract with the Department of Defense to provide enough green jet fuel — made with a blend of camelina and other renewable oils — to certify all the nation’s military aircraft. No surprise, the planes performed identically as with their regular jet fuel.
That’s because both camelina-based biodiesel and renewable aviation fuel are “drop ins” — chemically near-identical to traditional versions distilled from fossil petroleum. This is in contrast, for example, with corn ethanol, blended at 10% into most of the nation’s gasoline supply. Ethanol and gasoline don’t mix well, and ethanol doesn’t combust with the same explosive power as gasoline. But ethanol is firmly entrenched in America’s fuel supply, and ag industry. Farmers grow 30 million acres of corn (amounting to 40% of the crop, using 10% of national farmland) to provide the feedstock for ethanol.
“We’re not going to replace corn or soy in any way,” says Mike Karst, a senior VP at GCEH who heads up relationships with farmers. Rather, they envision farmers using camelina as a cover crop in between regular plantings, to stop erosion and improve soil quality. “We want farmers to grow our crop instead of no crop. They’re finding that it works like a cover crop, but pays like a cash crop.” To fill up the initial capacity of the Bakersfield plant with camelina, Karst figures they would need the harvest from 1 million acres. This year’s camelina plantings will be closer to 70,000 acres.
It’s hard getting farmers to plant a new crop. “We were really skeptical,” says Darren Sackman, who grows peas, sorghum, millet, alfalfa and wheat on his family’s 3,000-acre homestead in Montana, the N Triangle Ranch. He tried camelina last year for the first time, even though his dad was against experimenting with an unfamiliar crop that might have unintended consequences on the health of their soil. “He thought I was crazy. I got it put in late, and had some weed issues,” says Sackman. “And we had a lot of people wondering what we were doing.” His verdict: “It’s really easy to grow, easy to harvest. I’m hoping it’s the up and coming thing.” Dad was swayed when he saw how engaged GCEH’s crew was in trying to optimize harvesting techniques — spending hours adjusting blade heights on their combine. “He was back there in the dust going at it. That’s what got my dad going.” Karst says his team provides the seed and helps farmers plant it; “I was in every field when it was harvested.”
Steve McIntosh, of SW & Crew Farms in Haver, Montana, has been growing camelina for five years, now on 1,000 acres that see only about 10 inches of rain a year. He’s been impressed how the plant thrives with no irrigation or fertilizer and with minimal spraying for bugs and weeds. Last year he yielded about 1,300 pounds of camelina seed per acre, from fields that would have been laying idle in between rotations.
“It could be a big deal,” says Robert Bonnie, Undersecretary for Farm Production and Conservation at the U.S. Department of Agriculture, which he says is keen to promote such “climate-smart commodities.”
“Camelina is extremely efficient,” says Jerry Hatfield, an independent agronomist who worked 36 years with the U.S.D.A. and is now conducting studies on what the plant takes out of the air and soil and what it puts back in. Hatfield says camelina’s aggressive root systems improve the soil by raising its carbon content. Based on what he’s seen so far, he thinks camelina in cultivation could surge to more than 1 million acres in the next few years. And because it can be grown in short cycles in between regular cash crops, camelina doesn’t contribute to deforestation (a big issue with oil from palm trees). The result is a crop that yields a fuel with a very low “carbon intensity.”
To be sure, combusting any gallon of renewable biodiesel in your truck’s engine will put the same 22 pounds of carbon dioxide into the air as burning a gallon of petroleum diesel. It’s only when the carbon accountants consider the entire “life-cycle” of the fuels that they conclude biofuels from soy, canola and other plants have an 80% lower carbon footprint — because the crops suck so much CO2 out of the air. (According to research from Argonne National Lab, biofuels emit roughly 25 grams of CO2 per megajoule of energy, versus 90 grams/MJ for fossil petroleum.)
Of course, federal and state incentives abound. Each gallon of renewable diesel qualifies for some $2.50 in tax credits for producing and blending. The highest value states are those like California, Oregon and Washington, which mandate a low-carbon fuel standard. Until GCEH can source sufficient camelina, it will fill up the refinery’s capacity with used cooking oil and other biofeedstocks.
Will ExxonMobil end up taking over? Its lawsuit in Delaware Chancery Court alleges that GCEH management had defaulted on its shareholder agreement with Exxon — particularly when it agreed to extend and inflate its deal with general contractor CTCI without informing Exxon’s board members. GCEH has filed a stipulation to answer in abeyance while the two parties try to work it out. The stakes could be significant; Exxon’s court filings suggest that if their allegation were to be proven in court it could potentially give Exxon the right to appoint a majority of the board.
At $.95 a share (down from $7 in 2021), GCEH has a total market cap of less than $100 million, against $450 million in debt. It would be just a morsel for the $472 billion market cap oil giant.
GCEH stresses that Exxon is a valued stakeholder. “Exxon has been involved through the years in what we do,” says Palmer. “They are a resource pool. Their folks have visited our refinery. They have had their people out at our farm. They are better at refineries than anybody.”
Other big holders include include Ebay billionaire co-founder Jeff Skoll’s investment company, as well as investor Michael Zilkha (who added to his family fortune two decades ago as an early player in wind farms). The player with the best position is probably Delek Energy, which sold the site to GCEH but retained an option to buy back a 33% stake in the Bakersfield plant once it’s completed, for just $13 million. As for Palmer, he won’t say whether Exxon pressured him to step down from the CEO role in March, handing the day-to-day reins to president Noah Verleun. Palmer still owns 30% and chairs the board, for now.
MORE FROM FORBES
Read the full article here
