How Terralliance's Billion-Dollar Bet Against Big Oil Failed
It’s not a name known to many. But Terralliance
Technologies, a California company started by former NASA
engineeer Erlend Olson, briefly thought that it
would trump widely-recognized names like Exxon and
Occidental Petroleum, the latter of which has a
$68 billion market capitalization.
In the process, it convinced famed venture capital firm
Kleiner Perkins Caufield & Byers to invest,
along with Goldman Sachs and other normally savvy
investors. Singaporean sovereign wealth fund
Temasek promised the company $1.1 billion alone,
although by the time Terralliance was shut down, it had probably
“only” spent about half a billion dollars.
The core idea behind Terralliance was sending low-flying planes
over large tracts of land to find oil fields. By picking up a large
variety of data — geographical formations, electrical signals,
trace chemicals in the air — the company figured it could sense oil
that bigger companies would never find with their stodgier
technology.
To some, this description might scream out “snake oil”, but the
investors didn’t think so; it was probably Kleiner Perkins’ largest
investment ever. As to why you (probably) haven’t heard of
Terralliance, both the company and the investors operated under
strict secrecy. Adam Lashinsky at
Fortune magazine is the only journalist who has
bothered to dig for info on the company over the years.
On Monday, Lashinsky published his last big piece on
Terralliance,
a post-mortem examining Olson, the
larger-than-life founder, and his profligate habits.
Some snippets:
What is certain is that Terralliance’s gambit to become a force
in oil exploration ended badly. Despite Olson’s high expectations,
the unraveling began during those August 2008 meetings in New York…
Before taking Temasek’s cash, Kleiner and Goldman thought it was
important to share concerns they had about Olson. Terralliance’s
globetrotting CEO may have been an oil industry neophyte, but he
had spent like a Saudi prince. His shopping list ran the gamut from
oil wells in Turkey and Mozambique to demilitarized Soviet fighter
jets…
Excitement about a sure-fire way to find oil — and all sorts of
other valuable things — isn’t new, of course. “The real story, to
boil it down, is as old as mankind: a charismatic individual with a
compelling story you just want to believe,” says [oil exec Joe]
Foster, who says he lost several hundred thousand dollars of his
own money in Terralliance. “My whole career I’ve been interested in
alternative exploration tools. By force of personality, [Olson]
convinced a lot of people. There’s a real psychological story
there. This was beyond numbers and contours.” …
One PowerPoint obtained by Fortune sheds light on Olson’s
technique. In an October 2007 presentation to Kleiner’s partners,
he proclaimed Terralliance a “Revolution in Oil and Gas
Exploration.” He declared that the company had 500 million acres in
“oily places” under its control, more than Exxon Mobil, a claim
that seems to have encompassed everything from partnership
agreements to discussions with governments.
The story is a bit more nuanced than what I’ve shared above
might suggest; I’d highly recommend reading the full
article. Olson did have a decent explanation for needing
fighter jets, and some of the wells that Terralliance drilled
reportedly struck oil — though not all, and obviously not enough to
support the company.
Today, the jets are on sale, and some of the investors are suing
Olson, who was outed as CEO before the company fully gave up on
becoming an oil giant. But is it still prospecting for oil? That
question is left a bit unclear, at least from my reading.
Olson’s original aim was to find underground water, not oil, so
it’s possible that Terralliance has gone back to that. But
Joe Lacob, a Kleiner Perkins partner, is also
quoted saying that Terraliance is, “arguably, stronger than
ever”.
That could just be damage control from a firm that lost its
shirt — especially since it still has vulnerable energy investments
from the same era, like the secretive ultracapacitor maker
EEStor and Bloom Energy. But
outside the company and its remaining investors, nobody knows for
sure; Terralliance could yet become the next big technological
breakthrough in oil exploration.
http://industry.bnet.com/energy/10003728/how-terralliances-billion-dollar-bet-against-big-oil-went-sour/
How a big bet on oil went bust: Full version
http://money.cnn.com/2010/03/26/news/companies/terralliance_tech_full.fortune/index.htm#full