Temasek Holdings' Risky Oil Venture

The April edition of Fortune reports how Kleiner Perkins, Goldman Sachs, and other smart investors lost millions betting on Erlend Olson, who claimed to have a new way to find petroleum. One of the "smart investors" was Temasek Holdings, who incorporated Orchard Energy in 2008 to venture into the oil exploration business.

Olson had come to New York that August to negotiate a financing with Temasek, the sovereign wealth fund of Singapore, which Olson had been romancing for months. The price of oil had recently soared to $145 a barrel, and Temasek planned to invest $1.1 billion, valuing Terralliance at more than $4 billion.

A bit player in semiconductors for years, the former NASA engineer claimed to have developed an algorithm for telling petroleum engineers where to drill. His company, Terralliance Technologies, a secretive startup in Newport Beach, Calif., hadn't found much oil, but its founder and CEO was so adept at locating cash reserves that he believed he was about to close a deal that would seal his company's future -- and his fortune.

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.

An auditor had raised red flags about Olson's dealings in the Congo and referred its findings to the U.S. Justice Department for potential anti-bribery-law violations. As troubling, Terralliance had yet to close its books on 2007. Two lead board members, Joe Lacob of Kleiner Perkins and Joe DiSabato of Goldman, informed Temasek's lead negotiator, Nagi Hamiyeh, that they intended to demote the charismatic but free-spending founder to chief scientist.

It was all too much for someone wielding a city-state's checkbook. Instead of signing on the dotted line, Hamiyeh returned to Singapore. In early 2009 the board fired Olson outright. By then the price of oil had cratered, Temasek's stock market holdings had collapsed, and Terralliance had all but crumbled into a heap of litigation, layoffs, and recriminations.

Because of Olson’s “misconduct” uncovered during the audit, the complaint says, Terralliance lost a “potential major investor,” leaving it with inadequate financing. VentureWire previously reported that the investor was Singapore-based Temasek Holdings. Temasek declined comment for that story.