Prometheus, $10M in Hand, Poised to Deliver Alternative Fuel for Shell Technology Ventures
Kirt Montague is the Comeback Kid of the Seattle cleantech community. We saw the fire in his eyes back in March when he rocked the room with a killer presentation on waste-to-energy at Xconomy’s cleantech forum in Seattle. And we see it again now that his company, Redmond, WA-based Prometheus Energy, which produces liquid natural gas from waste, has just closed $10 million in financing—with another $10 million to come upon reaching certain milestones—from Shell Technology Ventures Fund, which is managed by Netherlands-based Kenda Capital, a division of the Dutch oil giant.
Prometheus Energy, and Montague, have been through some rough patches. The company was founded in 2003 and raised more than $20 million in venture funding through the alternative fuels heyday of 2006. That year, Montague took Prometheus public on London’s Alternative Investment Market (AIM). The move didn’t work out, and the company was de-listed in 2008. Prometheus went through layoffs, personnel changes, and slumping revenues. Last September, the assets of the company were acquired by Black River Asset Management, a large private equity firm based in Minnetonka, MN, and San Mateo, CA.
“We’ve hung in there, we’ve weathered the storm,” says Montague (pronounced “Mon-tag”), Prometheus’s co-founder and CEO. “It hasn’t been easy. It’s been painful. But we’re still here, and we’re growing. Having Shell [Technology Ventures and Kenda Capital] close this deal validates a lot of what we’ve done.”
Indeed, it’s a big deal for Prometheus Energy, for Seattle cleantech, and for the future of alternative fuels. It also highlights some broader and more globally important business trends. One is that big oil companies are starting to invest heavily in alternative energy technologies, even in the midst of the recession. Another is that the capital for these deals in the U.S. increasingly is coming from overseas. “You’ve got a situation where the market for this technology is not just domestic, it’s global,” says Michael Butler, CEO of Seattle-based Cascadia Capital, the investment bank that brokered the Prometheus deal. “Kirt went to Shell [Technology Ventures] because of the value they bring.”
Gaining a strategic partner like Shell Technology Ventures appears to be quite a coup. The company is the world’s largest producer of liquid natural gas, and it has started to push non-traditional sources of fuel in general, Montague says. Proponents of liquid natural gas say it is cleaner, cheaper, and safer to store and transport than conventional fuels like diesel, propane, and heating oil. For Prometheus, Kenda Capital (and Shell) will provide operational support, guidance on legal issues, and access to projects and customers that a small company like Prometheus would never even hear about otherwise. “They open doors we don’t have access to,” Montague says.
In turn, Prometheus gives Shell Technology Ventures access to new kinds of liquid natural gas-producing technologies—which could potentially become disruptive as an alternative to oil. Prometheus has developed patented machinery for taking waste gas from landfills, wastewater treatment plants, gas wells, coal mines, and farm sites, and turning it into clean-burning fuel for trucking fleets, school buses, and other heavy vehicles.
The technology boils down to two parts: purification, whereby the machinery removes carbon dioxide, nitrates, and other impurities from the waste or residual gas (leaving methane); and liquefaction, whereby the methane gas is converted into liquid natural gas, which can be stored and transported as a clean and relatively dense form of energy. “You’re taking a total waste product and turning it into something valuable,” Butler says. “This is strategic for [Shell]. What’s after traditional fossil-based fuel?”
Prometheus claims its method is cheaper and more efficient than other ways of producing liquid natural gas—plus some of its fuel comes from waste sources. The firm competes in the same space as alternative fuel companies like Clean Energy Fuels (NASDAQ: CLNE), owned by T. Boone Pickens, and Applied LNG Technologies in Texas. But Montague says Prometheus is unique because of its approach, its technology, and its distribution model—its plants are set up to be physically close to key customers, unlike most liquid natural gas plants that may be hundreds of miles away from customers and require high transportation costs. “We find the waste sources of methane, we operate the equipment, and we deliver [fuel] directly to the customer in the end market,” Montague says.
More specifically, the funding from Shell Technology Ventures will allow Prometheus to expand its operations at three key sites. It opened the world’s first landfill-to-liquid natural gas facility in Orange County, CA, last year (see left), and hopes to make its operations there more efficient. (It has shipped more than 500,000 gallons of liquid natural gas from that facility.) Prometheus also plans to expand its residual gas-to-liquid natural gas plant in southern Utah, which has produced 1.5 million gallons of fuel so far. And lastly, the company is getting ready to open a new facility in Poland—the first of its kind anywhere—that converts waste gas from a coal mine to liquid natural gas. The Polish plant broke ground last fall, and Prometheus plans to also reduce methane emissions from the mine and trade carbon credits from the site as a source of revenue. Montague notes that Poland and the rest of Eastern Europe could be a big market opportunity.
So you’d think the field would be pretty crowded, but opportunities abound. “The concept of waste-to-energy is exciting to investors, but a lot of companies are 18 to 36 months away from having proven, robust technology,” says Butler. On the venture side, Butler says there are only about 20 to 30 investors around the country who “get it,” meaning they have a deep understanding of the oil and gas industry, the waste-to-energy market, and the technology. In the end, Prometheus’s choice of investors came down to a Denver firm, a Houston firm, and Shell—and involved months of due diligence.
Plenty of things could still go wrong for Prometheus, of course—everything from falling oil prices to relationships with foreign governments. “Our biggest challenge is execution,” Montague says. “We have some capital, and a strong pipeline of projects. Now it’s executing on those projects, and doing it well. At the end of the day, it’s all about people.” He says he’s not as concerned about the markets; he suspects the price of oil will go above $100 a barrel again (it’s around $70 now). “Could there be macroeconomic factors? Sure,” he says. “We’re closing in the worst recession we’ve ever seen. But we’ve continued to build our business. We’re doing OK now.”
Prometheus currently has 27 employees in the U.S., including operators at its plants in California and Utah, as well as eight workers in Poland. Montague says the company is looking to hire six to eight new employees, mostly engineers, in the U.S.
As for what the deal means to the Seattle cleantech community, it definitely helps put the city back on the map of alternative fuel clusters, for potential investors and strategic partners. But it’s no Houston, say, at least not yet. “Seattle ought to be a leader in this space,” Montague says. “To successfully build a company—that’s the best thing we can do.”
Asked for his advice on surviving tough times as a cleantech startup, Montague points out the mistakes Prometheus made in the past few years. “We grew too fast, we hired the wrong people, and saw our culture shift,” he says. “You’ve got to believe in what you’re doing. The road is rocky, it gets turbulent. 2008 was tough. We could have packed up the tent.” Instead, he forged on. Lastly, he adds, be careful who you choose for a broker. “A big turning point for our company was to pick a local broker. It was a huge difference for us,” he says. “Choose wisely who your partners are.”