Going Green in the Bakken

For years, the Bakken has been known to be a major oil and gas hub and it is the third largest U.S. shale oil field, behind the Permian Basin and Eagle Ford, in Texas. Primarily located in North Dakota, it also runs through Montana and two Canadian provinces – Manitoba and Saskatchewan. Because of the oil play there, McDonalds’ workers have been known to make upwards of $20 per hour to accommodate the high numbers of clientele. You can also buy shirts there that say “Rockin’ the Bakken.” It’s a hot place to be – not really – it’s actually fairly cold, but with 3.65 billion barrels of recoverable crude oil under its surface, it is definitely a “hot spot” for companies wanting to conduct business there.

Location

The advantageous Bakken location was not lost on Meridian Energy Group, Inc., a leading developer of innovative advanced technology and environmentallycompliant oil refining facilities, as they are currently in the process of building a stateoftheart crude oil refinery on over 700 acres of land (actual refinery footprint is about 150 acres) near Belfield, North Dakota – the heart of the Bakken. The Davis Refinery will be located close to oil and gas pipelines and major transportation highways. The Burlington Northern Santa Fe rail line runs directly through the refinery site, facilitating the construction of a crude oil feedstock offloading and refined fuels uploading terminal. Its location is strategic, placing it with direct access to major transportation infrastructure.

While the location of the refinery seems ideal in most respects, it was the location that stirred up controversy among the surrounding community because of its proximity to Theodore Roosevelt National Park. The Park is the state’s top tourist attraction and it brings in more than 700,000 people each year. Pollution from the refinery, which needed to meet Class 1 air quality regulations, was a major concern among several environmental groups and they made sure their opposition was clearly stated.

Permitting

In July of 2016, Meridian was granted the Conditional Use Permit for the refinery – it took them just under a year to have it approved and the approval was done so under much scrutiny. After the permit was granted, Meridian could begin the engineering and modeling necessary for the Air Quality Permit, which they filed to the North Dakota Department of Health – Air Quality Division in October of 2016. “We then entered into probably one of the most intensive permitting efforts that the state of North Dakota has ever seen. It was our contention that the Davis Refinery could achieve emissions levels so low that would allow it to be permitted as a Synthetic Minor Source, even though the thought of doing it that way was considered heresy, since all of the full conversion refineries were supposed to be Major Sources,” said William Prentice, CEO of Meridian Energy Group.

It took many months to get the Air Quality Division to see what Meridian was trying to achieve and how all of it worked technically. It was vital that they proved that they weren’t just fantasizing about the emissions levels that could be obtained. “Our emissions coming out of this plant were tremendously low. There was no expectation that we could actually achieve that,” said Prentice. After the initial effort of showing the state what they could do on the permit for the air quality, Meridian realized that they could do better than what was previously proposed in October 2016. Certain areas of the project were reengineered and another design concept came about that was even cleaner. The modified application was resubmitted in April 2017. The state went through the process of reviewing it and met with EPA regularly throughout the review to make sure they were complying with all of their guidelines and proposed regulations, The Department of Health even met with the National Parks Service regularly as well. The draft Permit to Construct was received in fall of 2017 showing that the Davis Refinery would be permitted as a Synthetic Minor Source. This was the first time in history that a fullconversion refinery has been able to receive its Permit to Construct under classification as a Synthetic Minor Source for air contaminants. This was definitely a historic event and an incredible achievement for Meridian.

As part of the Permit to Construct process, in December of 2017, Meridian went through a public comment period with a public hearing. As part of the public review process the Department of Health received nearly 11,000 public comments and each and every one was answered by Meridian and the Department of Health. After 20 months and probably the most lawyered permit application in the history of the state, the Permit to Construct was issued by the North Dakota Department of Health – Air Quality Division in June 2018.

Advantages

The Davis Refinery will be the first fullconversion “greenfield” refinery constructed in the U.S. since 1976. As a new, modern plant, the refinery will have all new equipment configured in the most efficient manner.

Currently, more than 1.2 million barrels of oil are being produced in the Bakken every day. Over 95 percent of it is being shipped at great expense to refineries hundreds of miles away on the east, west and gulf coasts. The current refining capacity in North Dakota is 94,000 barrels per day. Locating the Davis Refinery in the heart of the Bakken will ensure a steady supply of below market crude oil feedstock from production companies seeking transportation savings and a local market for refined fuels.

The coproduction of a significant amount of natural gas, has been the byproduct of the tremendous growth of the Bakken oil play. About onethird of this gas is currently being flared, vented or is “no bid” and is available to Meridian at a cost well below hub prices paid by competing refineries. The use of gas to operate the plant will allow 100 percent of the crude intake to be processed without a parasitic effect. The plant will have emissions so low that it will not require an EPA permit.

In addition to environmental advantages, there are many advantages that the community will see, as well, because of this project. Over 2,000 local jobs will be created in the community and Meridian has asked for no tax breaks and according to Prentice, “We would not take them even if they were offered to us.” They want to be good corporate neighbors and an asset to Billings County. Meridian’s presence is an integral part of the state’s plan to solve three major issues it faces: the creation of permanent jobs, the shortage of diesel fuel and the environmental crisis of the flaring of natural gas.

Starting Construction

Meridian recently entered into an agreement with CIBC World Markets Corp. (CIBC) and they will act as Meridian’s financial advisor for the refinery along with another major investment banking firm. CIBC will assist in structuring and arranging for both debt and equity transactions for the full project. CIBC is a market leader in providing corporate finance and advisory services and, has decades of experience in major energy project financing in general, across the oil and gas value chain, with unique market insights and creative solutions for all downstream capital needs. Meridian has raised a significant portion of project financing to this point and will continue to raise development financing for completion of preEPC work.

In addition, on December 5, 2018, Meridian signed an agreement with McDermott International to be the FrontEnd Engineering Design (FEED) contractor on the refinery. “In our initial work after the McDermott signing, we really lucked out. We have a great partner and their enthusiasm for the project is phenomenal and all the people assigned to it are first rate,” says Prentice. Following the completion of the FEED effort, the Parties will be prepared to enter into a comprehensive turnkey Engineering, Procurement and Construction (EPC) agreement to build the refinery. McDermott is a premier, fully integrated provider of technology, engineering and construction solutions to the energy industry.

Meridian has initiated site preparation and grading at the Davis site, and is proceeding with final design and equipment fabrication and procurement with full construction activities and foundation work resuming in Spring 2019.

Looking to the Future

According to Prentice, “2019 is a very critical and formative portion of this project.” With the McDermott team, they are looking to get a fast start in the beginning of the new year. In the next four or five months, Meridian will be wrapping up engineering and getting the full EPC finalized. Closing on the financing will take place toward the end of the second quarter. “The rest of 2019 will be spent in fabrication and construction getting as much steel up in the air as we can before we have to button it up for winter conditions,” says Prentice. As materials, equipment and modules are finished, they will pull them up to North Dakota, even over the winter, and have them collected there and ready for when warmer conditions return.

In North Dakota right now, all of Meridian’s supporters are unable to see the team of people working feverishly in offices behind the scenes to get this project kicked off. So much activity is taking place in Meridian’s Houston and California offices and McDermott’s Houston office, it’s just not physically visible on site yet. “The exciting thing is when this all starts to take shape on the ground and people get to see pipe racks and modules being set,” says Prentice.

The plan for all of 2020 will be finishing construction and getting mechanical completion, startup and completion. Full commercial operation of the refinery is expected in late 2020 or early 2021.

Making History

Meridian Energy Group is indeed making history, as nothing like this refinery has ever come before it. It has been a bit of a long road and was met with opposition in the beginning, but ultimately, the verdict was handed down and the Davis Refinery is a positive thing for this community. It is a win for both the state of North Dakota and Meridian Energy Group, Inc. Rest assured, that even though the Davis Refinery is the first of its kind, it definitely will not be the last. When you build something that has a nearzero environmental impact and it can be qualified as the first synthetic minor source in history for a refinery of its size, you have no choice but to replicate it and that is exactly what Meridian intends to do. They have permitting currently taking place in a location that has yet to be disclosed but anticipate it all being released in the near future. Meridian has truly raised the proverbial bar and hopefully set the new standard for not only oil refining, but the entire oil and gas industry as a whole.

Illustration and photos courtesy of Merdian Energy Group

RefComm 2019