JIM FUGLIE: View From The Prairie — Bring On The Whistleblowers

Last month, I began reporting on the apparent financial troubles besetting Meridian Energy Group, the company planning to build an oil refinery near the boundary of Theodore Roosevelt National Park in the North Dakota Bad Lands. Since then, I’ve received more information on the company, which I feel holds much merit and credit. I’m going to share some of that information with you today, and I will continue to report more as I learn or receive it.

I’ve written about this company before. I’ve called Meridian a “sleazy” company because of the way it dodges North Dakota’s environmental regulations — with a good bit of help, I might add, from willing regulators, overlooking potential dangers for what former Gov. John Hoeven used to refer to as them “good payin’ jobs” — and I’ve questioned whether this whole refinery project might just be a big stock scam. I’m not done yet.

To review, there was an Associated Press story in local and national papers this past August that read in part, “Meridian has yet to file for needed building permits in Billings County, records show. Prentice (Meridian’s CEO, William Prentice) said permit applications won’t be filed until detailed engineering drawings are completed later this year for the 700-acre (280-hectare) refinery complex.”

Well, “later this year” has come and gone, and the engineering drawings are not complete. I learned that in an AP follow-up story that ran on The Bismarck Tribune and The Washington Post websites over the weekend. (For some weird reason, the story never appeared in the print edition of The Tribune, so if you don’t look at The Tribune’s website, you didn’t see the story.)

The AP reporter realized that “later this year” has come and gone as well and decided to check on how the refinery was doing. His story started out:

“Anemic funding, alleged unpaid work and legal fights are hobbling developers of a proposed $800 million oil refinery near Theodore Roosevelt National Park in western North Dakota … but the project manager for Meridian Energy Group’s Davis Refinery — which has drawn criticism from environmental groups and others who worry it would add to pollution near the national park — insists it will be built. ‘The project is still on track and moving in the right direction,’ Dan Hedrington said. ‘Is the project still being built? Yes.’”

Enter the whistleblowers. There are some Meridian people, both managers and employees, who read the newspapers, and who read my blog. A few weeks ago, they read here that one of the company’s engineering partners, SEH Design/Build, has filed a $2.2 million lien against the refinery company and the fellow who owns the land it is going to sit on.

In a kind of goofy twist, Dan Hedrington, quoted in the story as the “project manager” for the refinery, is an employee of SEH, the company filing the lien, which makes me pretty suspicious of what’s going on there. More about that in a minute.

The lien, filed in the Billings County Courthouse in Medora, is for unpaid bills related to the preliminary earthmoving work at the refinery site and other engineering and project management stuff.

Thank God, there are still some people with principles in the oil industry. Principles seem to be in short supply there these days, with the vast amounts of money involved. Some people with principles wanted me to know more about what is going on. My phone started ringing this past week.

Because it turns out SEH is not the only company that has not been paid. I have come to learn that all engineering work with a company called McDermott on the project has stopped because there’s no money to pay the bills. I learned that McDermott, which Meridian announced had been awarded the Front-End Engineering Design contract in December 2018, had halted all work in March 2019 due to payment and funding issues with Meridian.

At least four companies, including McDermott International, headquartered in Houston but bragging that it works in more than 50 countries worldwide; Vepica, another international company with offices in Houston and Calgary Alta., as well as Venezuela; SEH; and Martin Construction, have all either stopped work until they get paid or have not received payment for work they performed.

Over the past couple of years, all of those companies were announced with great fanfare in press releases on Meridian’s website. I believe McDermott is owed more than $3.5 million, which I am still working to confirm. I couldn’t find out how much the others are owed. I called all of them, left messages and sent them e-mails, but they don’t want to talk to me. I feel that if this were not the case I would quickly hear back from them to correct my findings.

Martin Construction is a local company, headquartered in Dickinson. N.D. I’ve called it numerous times to find out if it had been paid for all the dirt work it did at the refinery site 15 months ago, probably more than a million dollars worth, but no one there wants to talk to me.

Another engineering firm, Axens NA, is the company that Meridian announced a year and a half ago was going to re-engineer the refinery design down to 49,500 barrels per day to keep it under the 50,000 barrels, which would have triggered a site review by the North Dakota Public Service Commission. This was Meridian’s announcement:

“BELFIELD, N.D., Sept. 28, 2018 (GLOBE NEWSWIRE) — Meridian Energy Group Inc. has selected Axens as the technology provider for the final stages of basic engineering design for its 49,500 BPD Davis refining complex being constructed in Billings County, North Dakota.”

But that hasn’t been done because Meridian doesn’t have the money to pay Axens to redo the engineering. So the completed design work still calls for the original 55,000 bpd facility.

Meridian has repeatedly said it has no plans to expand beyond the limits allowed by the PSC without a site review. In documents filed with the North Dakota Supreme Court, William Prentice, Meridian’s CEO, signed an affidavit last year saying that Meridian “has no current plans for any addition or expansion of the Davis Refinery beyond the capacity of 49,500 bpd.”

But in an interview this past March with the oil industry news site Rigzone, Prentice said, “The throughput at the Davis Refinery in North Dakota is limited because an additional permit would be required to increase capacity to greater than 50,000 bpd, so Meridian will wait until it has been in operation for a substantial period of time before making that determination.”

For the record, I was told, “You can change some items in the design while leaving the process equipment designed and sized to 55,000 bpd and later, with some simple revisions and at low cost, you can change that design and go back to 55,000 pretty quickly.”

Uh huh. I hope someone from the PSC is reading this.

I have also learned that there are a bunch of current and former employees who haven’t been paid in a long while. The company apparently is holding them at bay, promising big bonuses when Morgan Stanley, the giant banking and investment firm, comes through with a loan of hundreds of millions of dollars Yeah, right. Meanwhile, those employees, with no income, are struggling to pay their monthly bills and mortgages.

Investors are also in danger of losing their investments, including some who plunked down good-sized chunks of their 401K portfolios, money they might never see again.

In that Associated Press story in August, Meridian CEO William Prentice said the company had raised about $40 million (about 5 percent) of the $800 million or $900 million needed to build the refinery. It’s all gone. “Nobody’s getting paid. There’s no money.”

Where did it go? Well, there’s a lot of highly paid executives and board members with the company, and lawyers are expensive, but to the tune of $40 million or more? That seems suspicious.

But people out in Billings County named Kessel, I am told, have not yet received full payment for the land on which the refinery is supposed to be located and for some adjacent land being held on a contract for deed.

The mystery of why Meridian wanted to put the refinery so close to the national park is being answered, too. Someone who knows says it was because Greg Kessel was willing to let them go to work on his land without making them pay him for it first because they did not have the money to pay for land anywhere else. Instead, he got a seat on their board and, I’m guessing, a nice stipend for serving on the board. Word on the street in Belfield right now is that Greg Kessel has received about half the money — about a million dollars — he has been promised for the land the refinery is scheduled to be built on. But records at the courthouse show he still owns the land.

The same people say that the rest of the Kessel family is not receiving the payments on the contract for deed for their land across the road from the refinery site. That land, I was told, was the planned site for a power plant sometime down the road. These folks had big dreams, just no money to fulfill them. Meridian made a $50,000 down payment on a $2 million deal to buy the land across the road and was to be making regular payments to the Kessel family, with a final balloon payment due May 1 of this year. But talk in Belfield is that Meridian is way behind on their payments (people talk in small towns).

And they tell me the deal behind the mechanic’s lien for $2 million filed against Meridian and Greg Kessel by SEH, which I wrote about a few weeks ago, is this: It’s likely, I am told, that SEH and Meridian are in cahoots on that deal and that the lien is a way to protect the land from being taken by one of the other companies Meridian owes money. Again, I can’t verify these things because no one will talk to me. But I feel like it is OK to report to you what I have learned to date, as long as I tell you that I think the information has credit. I just couldn’t confirm everything because the people I am writing about won’t respond to my inquiries. I’m going to trust the information provided to me.

In one phone conversation, I heard, “Meridian didn’t have any money when they started, Meridian doesn’t have any money now, and Meridian won’t have the money to build a refinery.”

Well, that’s good news — at least the part about not building a refinery next to a national park.

You have probably read about the lawsuits now pending before the North Dakota Supreme Court, filed against Meridian and the state of North Dakota by several environmental groups, challenging construction and site permits. Meridian has been blaming “environmentalists” for stalling the project, and fundraising, with their lawsuits. “Absolutely, lawsuits have cost us time, and fear over the lawsuits have cost us a lot of money,” Meridian CEO William Prentice said in the AP story last summer.

I’ve talked to some of those conservation group leaders, and they are kind of concerned that they are going to be blamed for killing the project, costing North Dakota lots of jobs and revenue and good economic development.

The reality is, if Meridian had not proposed to put the refinery so close to the park, there would not have been lawsuits. You’d have a hard time finding anyone in North Dakota who would be against building a good, clean refinery somewhere on an industrial-zoned piece of land, away from the Bad Lands and the national park.

One person I talked to said the company had a great idea, building a clean refinery right next to the source of oil, but just put it in the wrong place and couldn’t raise the money.

There have also been newspaper reports that the city of Dickinson is about to spend a million dollars to build a pipeline out toward the refinery to deliver their wastewater for use in the refining process. That would be a good deal for everyone because refineries use a lot of water, I am told, and it would be a lot more environmentally conscious if they could get it from Dickinson instead of from underground wells. A story in The Dickinson Press in September started, “The city of Dickinson is investing roughly $1 million in a new pipeline to sell its reuse water to Meridian Energy Group’s Davis Refinery in Belfield.”

Well, Dickinson better be darn sure the refinery is going to get built before it starts spending a lot of money on a pipeline. Luckily, the ground’s a little bit too hard to dig a pipeline right now.

Meanwhile, there’s also some news on the permit scene. The company received its “Permit to Construct” its refinery on June 12, 2018. It said it had to begin construction in 18 months or it would expire. The 18 months was due to expire Dec. 12, 2019, and as winter arrived construction had not started. Uh oh.

But on Dec. 4, just a week before the deadline, Meridian CEO Prentice had a letter quietly hand-delivered to the North Dakota Department of Environmental Quality requesting an extension of time to begin construction. In his letter, Prentice wrote,

“The PTC (Permit to Construct) has been the subject of litigation, which is ongoing, and that litigation is the direct cause of delays to the financing and construction of the Davis Refinery. Meridian believes than an extension to the timeline for the PTC is justified. Meridian is fully committed to building the Davis Refinery, and assuming the litigation is successfully concluded in the near future, Meridian intends to resume site work in the spring in preparation for the facility construction and expects that Davis will be in commercial operation in early 2023.”

The DEQ said, “Sure. Extension granted.”

Bullet dodged.

But, Meridian does not yet have a “Permit to Operate.” What does that mean?  At some point, “if” Meridian can ever get the detail design done, the regulatory agencies,  DEQ and the PSC, are going to get one more shot at making sure everything has been done right. That will be the time for those folks to drag out their fine-toothed combs. Sure, maybe Meridian can start operations under the Permit to Construct if the reviews are not finalized by regulatory agencies. However even if they do start up, and if the agencies find any issues, the refinery can be issued citations and be forced to shut down.

In summary, there’s a feeling, among people who know, that this project is so screwed up right now that Meridian would like to just blow it off, apologize to their investors and blame the “environmentalists” for killing it. Meridian has announced plans for a “second” refinery in Texas, making all kinds of wonderful promises down there like this, from a story in a Texas newspaper, “We’re going to reduce the price of gas and diesel, that’s what we want to do.”

Well, good, let Texas have it. I hope those Texans aren’t holding their breath waiting for the price of gas to come down.

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