Mead ethanol plant files for bankruptcy protection

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BY ART HOVEY / Lincoln Journal Star

Nebraska’s most cutting-edge ethanol plant has fallen off the financial edge.

E3 BioFuels at Mead, built to use the manure from 30,000 cattle as an energy source, has filed for bankruptcy protection less than six months after it began making grain-based fuel.

Speaking from Shawnee, Kan., on Monday, company spokesman R.J. Wilson tried to put an optimistic twist on a dark development.

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The E3 Biofuels Ethanol Plant in Mead. (Lee Enterprises File)

The E3 Biofuels Ethanol Plant in Mead. (Lee Enterprises File)

“We are into a gradual phase down of operations,” Wilson said. “And we’re hopeful that, through the reorganization of Chapter 11, we will be able to come out the other side and be fully operational.”

Former company president David Hallberg of Omaha put together the closed-loop technology that allowed plant operators to deliver wet distillers grain to an adjoining feedlot and to turn hundreds of tons of manure per year into methane.

Kansan Dennis Langley acquired a majority interest in the $80 million project in early 2005 as it moved into the construction phase.

Along the way to production, the closed-loop design was singled out for praise by the Natural Resources Defense Council, the top administrator at the Environmental Protection Agency, and other people of influence in the energy sector.

But behind the scenes, mechanical problems that Wilson said had nothing to do with the manure-methane conversion were asserting themselves.

Because of what he described as “start-up failures,” the plant never got close to its rated capacity of 25 million gallons of ethanol per year.

Declining prices for ethanol and high prices for corn also took their toll on profit potential. But Wilson said management could have withstood those cost pressures “if we had achieved substantial completion when we were supposed to.”

The E3 bankruptcy comes at a time when the growing economic challenges of ethanol production have attracted an outpouring of skepticism about the future from a wide array of investment experts.

But Todd Sneller, administrator of the Nebraska Ethanol Board, said the E3 setback needs to be examined from an E3 perspective.

In that regard, said Sneller, “any time there’s a new technological wrinkle that’s often proven as the first of its type, it tends to experience developmental problems.”

Furthermore, from the beginning, according to Sneller, E3 was a corn-processing plant that happened to make ethanol.

“They scaled the ethanol production to match the cattle production,” he said, “so, by design, that ethanol facility was smaller than any other contemporary ethanol production unit.”

While E3’s Wilson alluded to prospects for a second try at success “sometime soon,” the bankruptcy filing of last Friday included dozens of pages of creditors that want to be paid.

As one measure of the dimensions of that problem, the 20 largest unsecured claims add up to about $3.25 million. The largest entry on that list is Dilling Mechanical Contractors of Logansport, Ind., at $1.4 million.

The approximately 600 residents of Mead, located about 35 miles north of Lincoln, are also on the creditor list through their town board, because its five members provided tax increment financing for the project.

But Nate Mongan, board chairman, said there is no liability attached to that arrangement, because all it does is route any tax income back to the project for a period of years so that the money can be spent for development purposes.

Mongan said that doesn’t diminish the disappointment.

“It looked like a project that was going to work,” he said. “We were really excited about it.”

Now, “we’re hopeful, with restructuring, that there’s a possibility the plant will re-open and resume producing ethanol.”

Disappointment may run deeper for Hallberg, also a member of the Nebraska Ethanol Board, and he made no secret of his feelings when sought out in Omaha.

Hallberg bowed out of any management role almost three years ago.

“I personally did not like the way Mr. Langley did business,” he said, “and, for that reason, I felt very strongly about separating ourselves.

“I guess, in hindsight, I feel very bad about the facility, about the community, etc.”

Beyond that, “I believe we’ll get it fixed,” Hallberg said, “because it’s not the technology program. It’s a management situation. I have a great deal of confidence it will be brought back together.

“And if I have anything to say about it, I will be involved in it.”

Hallberg joined Sneller in rejecting suggestions that bankruptcy in Mead cast a larger shadow over the future of the industry. “There’s ups and downs,” he said. “It’s a tough business, a commodity business.”

But, he said, E3 technology still represents “the wave of the future” and “this is just something we’ll have to get past.”

Buck Wehrbein, who manages the feedlot that is also owned by Langley, said a gradual shutdown of the plant over the next five weeks would not be a major disruption to beef production.

“We are feeding wet product here and we will continue to purchase wet product from other ethanol plants,” Wehrbein said.

He also noted that the ethanol plant and the feedlot are “separately financed and separately owned.”

The potential remains for the feedlot to eventually get all the ethanol byproducts put into the cattle ration from right next door.

“We never did stop using outside feedstuffs,” Wehrbein said, “because they were never able to operate at full capacity.”

Reach Art Hovey at 523-4949 or ahovey@alltel.net.