May 18, 2012:

MAKOTI - With two subcontractors onboard, the Three Affiliated Tribes is moving forward with its refinery project, said Richard Mayer, CEO of the refinery project. Thunder Butte Petroleum Services, Inc., a clean fuels refinery to refine Bakken Formation crude oil, is planned for a site on the Fort Berthold Reservation near Makoti in southwest Ward County. The tribes own 467 acres of land there. Mayer said Corval Group, a St. Paul, Minn-based company, is helping develop the business plan and financial analysis for the refinery, and ASRC Energy Services, Inc., based in Alaska, is providing its expertise in engineering and operations of a refinery. Corval also has an office in Beulah.

Corval Group was recently involved in a North Dakota Refining Capacity study, Mayer said. He said among reasons for selecting ASRC Energy Services as a subcontractor was it is Alaska Native owned. "They'll help get us through a lot of the issues and to move forward," he said of the subcontractors. ASRC Energy Services, based in Anchorage, Alaska, is a subsidiary of Arctic Slope Regional Corp., a private, for-profit Alaska Native owned corporation representing the interests of 11,000 Inupiant Eskimos, and considered one of the most successful corporations in Alaska. Mayer said ASRC, the parent company of ASRC Energy Services, has two refineries in Alaska one at North Pole and the other at Valdez. Both are located along the Trans-Alaska Pipeline. Mayer said the refinery at Valdez, built in the early 1990s, was the last refinery built in the U.S.

The Three Affiliated Tribes' refinery will be the first refinery built in the contiguous United States in many years. The last one was built in Garyville, La., and began operating in 1976. Representatives of Corval Group and ASRC Energy Services were at the MHA Nation's Annual Bakken Oil & Gas Expo held May 8-9 at the 4 Bears Casino & Lodge, west of New Town. About 300 people attended the MHA Nation's Annual Bakken Oil & Gas Expo, said Fred Fox, administrator of the tribal Energy Department.

Mayer said the clean fuels refinery would be capable of refining 15,000 barrels per day of Bakken Formation crude oil into diesel fuel, propane and naphtha products. He said studies show there's a high demand for ultra low sulfur diesel for the local markets and naphtha for regional markets. He said a sensitivity analysis showed there would be a stronger return for diesel versus gasoline. Kurt Swenson, vice president, Corval Group, said naphtha will be produced as a product from the refinery. "It is similar in composition to gasoline, but not fully refined to be used as a motor fuel. The naphtha is intended to be sold as a pipeline diluent for Canadian oil sands crude," he said.  Swenson leads Corval's Northwest region with offices in Beulah, Billings, Mont., and Helena, Mont.

Bakken crude feedstock

Originally, the feedstock for the refinery was syn-crude from the Canadian tar sands oil production, but the feed stock was changed in 2007 to Bakken crude, Mayer said. Since early 2000, the Three Affiliated Tribes have been working on the refinery project, a project initiated by Tex Hall, tribal chairman, and approved by the tribal business council. The initial feed study was conducted in 2002-2003. However, it has taken a number of years for the tribes to obtain the environmental clearances.

In August 2011, the Environmental Protection Agency issued the final permit for the refinery, the National Pollutant Discharge Elimination System permit, to the tribes. Late last year the EPA reissued portions of the permit. "The NPDES operating permit does not affect and is not required for construction activities; it applies to discharges from the facility once it is operating," said Richard Mylott, a spokesman for EPA's Region 8, in Denver told The Minot Daily News. Mayer said the commentary on the NPDES operating permit has closed and they are waiting for the final EPA review and issuance. This past October, the tribes requested proposals for financing and developing the refinery. Mayer told participants at the Bakken Expo last week that initially, more than 30 interested parties responded to the request and 22 official responses were made 12 of them directly related to financing and the others for construction and engineering consideration.

As of May 11, Mayer said, they have screened the top five proposals, reviewed them and interviewed them about two weeks ago. "We're still analyzing those results," he said. A rating team established by Tex Hall, tribal chairman, is working on the proposals. Mayer said they also are reanalyzing the information from the original feed study done in 2003.

Thunder Butte board

Thunder Butte Petroleum Services now has a board: Dennis Fox Jr., chairman and president of the board who also is CEO of the Three Affiliated Tribes; Jim Simon, president, Corval Group; Oliver Leavitt, former chairman of the board for Arctic Slope Regional Corp.; and Robin Kovash, a banking and financial attorney in Denver who is an enrolled member of the Three Affiliated Tribes. Through their current partnerships or subcontractors, Mayer said they have developed a key plan to move forward.

According to Mayer's presentation at the Bakken Expo, key agreements and potential partnerships for the refinery include: -Crude supply: Enbridge, Saddle Butte and MHA Nations.  -Refined products: CHS (Cenex) and Aux Sable. Additional agreements and potential partnerships include:

-Rail transportation: Canadian Pacific Railway.

-Power supply: Verendrye Electric Cooperative and Otter Tail Power Co.

-They are still in process of working on the natural gas supply.

The refinery site is by N.D. Highway 23, Canadian Pacific Railway tracks and a pipeline owned by Enbridge Pipelines ND. 

Engineering, construction status

Mayer said the construction of the flare stack foundation and pedestal at the site near Makoti was completed last May. He said the civil engineering plan for the site - grading, roads and the rail spur - is about 50 percent complete. He said refinery vendors are being reviewed for capabilities and an request for proposals is being developed to select a firm for refinery design and fabrication. He said the negotiations are going well for a crude pipeline to the site. Initially, they figured a diesel-based refinery would cost about $410 million, conservatively, but further reviews have resulted in reducing the cost to around $370 million. "We're looking at financing options," Mayer said. The refinery construction has two options, Mayer said. One option is to complete the components and have all refinery components online in a single construction period.

The other option would mean two phases of construction. The first phase would come online without the hydrocracker providing minimal capital costs. The second phase would bring in a vacuum gas oil hydrocracker and ancillary components. A hydrocracker would be utilized at Thunder Butte Petroleum Services refinery to "upgrade the lower value components of Bakken crude to distillate products," said Swenson. "In this case, that includes Vacuum Gas Oil getting upgraded to diesel fuel." Last week, Mayer said signs were placed at the refinery site. He said they are doing some demolition work at the site of an old grainary and barn. "The administration building will go in there," he said. He said a house at the former farmstead will be moved and other work also is being done at the site. Hall told the Bakken Expo audience that he asked Mayer to run some numbers and for every day the refinery is not built, how much is the MHA Nation losing? "$165,000 a day," Hall told the group.

"So you've heard that saying, 'time is money,' and that's why we've been pushing so hard because that money can go a long ways toward helping our tribe and our people. This refinery is going to create a lot of jobs as well as good paying jobs, it's right by Highway 23 a truck stop, hotel, convenience store a lot of jobs, a lot of opportunity. We look forward to continue toward getting this thing online," Hall said.

By MinotDailyNews.com