Range Fuels, Inc., a once ballyhooed company expected to become the first U.S. company to make cellulosic fuel on a commercial scale, is being shuttered and prepared for liquidation, leaving the U.S. Agriculture Department without most of the $40 million it put up to help the company.

"We are disappointed that this company didn't succeed and we will be working on behalf of the American people to protect the federal government's interest in the loan, which was announced by the previous administration," Justin DeJong, a department spokesman, said Friday.

The Broomfield, Colo., company was expected to eventually produce as much as 100 million gallons of cellulosic fuel made from wood chips at a plant in Soperton, Ga., but it became clear in recent months, according to government officials, that was never going to materialize.

Range Fuels stopped making payments on the Agriculture Department-guaranteed $40 million loan in January 2011 and by the end of the month stopped operations at the Georgia plant. Since then the department looked into ways to try to get it back up and running, but eventually agreed with the private lender, AgSouth Farm Credit, to permanently shutter the plant and liquidate assets, according to government officials.

The department purchased the outstanding amount of the loan--$38 million of the original $40 million--from AgSouth in November and a liquidation plan was finalized on Thursday, according to government officials.

-By Bill Tomson, Dow Jones Newswires; 202-646-0088; bill.tomson@dowjones.com

(END) Dow Jones Newswires

December 02, 2011 16:25 ET (21:25 GMT)