JIM FUGLIE: View From The Prairie — DEQ To Meridian: You’ve Got 90 Days

At midnight Saturday, Meridian Energy Group’s Air Pollution Control Permit To Construct an oil refinery next to Theodore Roosevelt National Park, issued by the North Dakota Department of Health, will expire. Now don’t get too excited. This nightmare isn’t over. This has happened before. This is the second time the permit has expired.

The Health Department (now the Department of Environmental Quality) gives companies 18 months to “commence construction” when it issues these permits. If it hasn’t happened, the department wants to know why. Is the technology bad? Is the company unable to raise the capital? Is it badly managed? Or is it just a bad idea?

Last time it happened, in December 2019, because Meridian had not “commenced construction” on the refinery within the 18-month window after the permit was originally issued, the department granted the company an 18-month extension. David Glatt, director of the North Dakota Department of Environmental Quality, which has taken over the permitting process from the Health Department, wrote to Meridian on December 10, 2019, “The permit shall become invalid if construction is not commenced by June 12, 2021.”

That’s Saturday. And construction is not going to “commence” Saturday. Meridian has asked for another extension, This time, the DEQ is not going to be so generous. This time, the DEQ is telling Meridian, in essence, it’s time to shit or get off the pot.

Let’s review.

Three years ago today, on June 11, 2018, Terry O’Clair, director of the Division of Air Quality at the North Dakota Department of Health, sent a memo to his boss, North Dakota’s State Health Officer Mylynn Tufte, recommending that she issue an Air Pollution Control Permit to Construct an oil refinery three miles from the boundary of Theodore Roosevelt National Park in western North Dakota, to a company called Meridian Energy Group, LLC.

In his memo, O’Clair wrote “The Department received over 10,000 comments (note: one of them was mine) during a public comment period. The division reviewed all comments … and recommends that the attached revised Permit to Construct be issued.”

Well. I’d like to know that definition of “review.” Must have been quite a task.

Tufte, one of five state health officers to serve under Gov. Doug Burgum in the past year — ”Who’s the State Health Officer this week?” has become kind of a standing joke around the Capitol — wasted no time. The next day, June 12, 2018, Tufte signed her name to the bottom of a 45-page permit and gave it to David Stroh, an environmental engineer in the Division of Air Quality. Stroh sent it with a cover letter to Tom Williams, vice president of Planning and Permitting for Meridian (Williams is no longer employed by the company but serves on its advisory board) at Meridian’s now-closed office in Irvine, California, which said “Based on the results of an extensive review, this Department hereby issues the enclosed North Dakota Air Pollution Control Permit to Construct No. PTC17020 … Please notify the Department within seven days after commencing construction and within 15 days after completing the project (yeah, right) to allow for an inspection by the Department.”

Buried deep on page 44 of the permit was this:

“Permit Invalidation: This permit shall become invalid if construction is not commenced within 18 months after issuance of such permit, if construction is discontinued for a period of 18 months or more; or if construction is not completed within a reasonable time.”

Shortly, Meridian instructed its engineering firm, SEH, to get to work. SEH hired a contractor named Kurt Martin, owner of Martin Construction in Gladstone, N.D., 30 miles down Interstate 94, to level a quarter section of land owned by Greg Kessel, three miles west of Belfield, N.D., and build a 10-foot high wall around it with the dirt moved from the site.

Martin went right to work. In just a couple of months, the land was bare dirt, and flat as a pancake. He sent Meridian a bill. He never got paid. I’ve called him a couple of times, including Thursday, to see if he’s been paid, but he doesn’t want to talk about it. I’m sure the whole thing is a painful experience for him.

Apparently the total cost of the job, including SEH’s consulting fees, was $2.2 million. A year went by, and the bills went unpaid. Finally, in November 2019, SEH filed a construction lien for that amount against Meridian and Kessel, who by that time was a member of Meridian’s board of directors.

They put Kessel on the board and presumably paid him a board member’s stipend because Meridian never had the money to buy his land. They had taken an option on it several years earlier but never had the money to pay for it. I stopped in the Billings County recorder’s office last week to see if the purchase had been made yet. Nope. Kessel still owns the land.

And the $2.2 million lien is still in place. SEH and Meridian are in a pretty tight relationship, and I suspect they filed the lien to protect Kessel’s land from some other creditor or creditors — I’m sure there are many.

But moving dirt was as far as Meridian ever got. It never “commenced construction.” And so Dec. 4, 2019, Meridian CEO William Prentice wrote to the DEQ requesting an extension, citing ongoing litigation (lawsuits filed by conservation organizations challenging the permit) as the reason they had not been able to obtain financing for the nearly $1 billion project. A reasonable request — anybody financing a nearly $1 billion project might want to know it’s clear of legal entanglements before laying the cash on the table. That’s when Glatt granted Meridian the 18-month extension, which ends tomorrow.

The lawsuits were settled in 2020. Now Prentice is blaming the COVID pandemic for his failure to obtain financing for the project once the court docket was cleared. In an April 14, 2021, reassuring letter to Director Glatt, CEO Prentice wrote that the company “plans to commence construction of the Davis Refinery in the spring of 2021, notwithstanding the lingering effects of the COVID-19 pandemic on Davis’ activities,” and that Meridian “intends to accelerate work at the jobsite and is entering into substantial binding contractual commitments before June 12, 2021.”

Well, there’s only nine days left until “Spring of 2021” is over. June 12, the permit expiration date, has arrived, and construction hasn’t “commenced.” Last week Prentice realized he wasn’t going to make it happen and wrote another letter to DEQ. On June 2, he wrote that he remained confident construction would start this week, but just in case it didn’t, he’d like a four-month extension of the deadline to Oct.12, 2021.

At about the same time Prentice was writing that letter, I called the DEQ and asked, with the upcoming deadline looming, whether the department was going to grant another extension. Engineer David Stroh told me he expected a request for an extension, since work had not commenced, and the DEQ was going to give Meridian 90 days more to get going. “After Sept. 12, we pull the plug,” he told me.

Indeed, this week, on June 9, Stroh wrote to Prentice and said “no” to the four-month extension, instead saying “… the department believes an additional three months is a reasonable amount of time to commence construction at the Davis Refinery.”

“In addition,” Stroh wrote, “the department requests an update regarding the construction status of Davis Refinery by July 23, 2021. The update may be provided in-person, via video conference or through writing communications. Please contact me as July 23 approaches to coordinate the progress update meeting.”

Meanwhile, Meridian still doesn’t own any land on which to build a refinery. I can’t imagine it would “commence construction” of a billion-dollar refinery on land it doesn’t own.

It seems like, if they were serious, Meridian could have bought the land by now. According to their SEC filings, Meridan has sold nearly $28 million worth of stock shares since the first stock offering in 2015. But that money is all gone, most of it in salaries to a seemingly endless cast of characters with the title “vice president,” and stipends for board members. I looked at their original stock offering, and it contained language to the effect that all funds generated by sales of stock can be used at the discretion of the board. No stockholders’ meetings or anything like that. From what I can tell, investors still haven’t received a penny of dividends six years after the stock went on sale. Hmmm. Buyer beware.

Those board members and vice presidents (there are pictures and biographies for ten of them on the Meridian website) have been hanging paper all over the western half of the United States. Meridian is still sitting on nearly $3 million in unpaid bills and salaries. The $2.2 million construction lien has not been satisfied, and the company still owes more than $650,000 to seven employees who sued for back wages and salaries last winter. And, as I reported here a few weeks ago, Meridian has closed all its offices.

As for the  refinery site itself, Greg Kessel apparently got tired of waiting and seeded it to barley this spring. He got rain and has the beginning of what looks like a pretty good barley crop. Here’s a picture I took last week:

All of this is pretty concerning for the folks at the DEQ. In addition to setting a time certain — Sept. 12 — for the company to “commence construction,” its given Meridian six weeks, until July 23, to report on its progress — to get off the pot. By then, Greg Kessel should be combining his barley. I’ll report on whether Meridian intends to build a refinery or a brewery.

Footnote: The Health Department/DEQ has a website with all this information on it. If you click on the entry for June 6, 2018, you can read the entire permit to construct. And the most recent communication between Meridian and the DEQ are in the first two lines. The department also included a sampling of comments received, most of them in opposition to locating the refinery there, but a scattering of support. It is on the Jan. 30, 2018 line. It was there I found a few comments from people who had purchased stock in the company and were eager to see it go forward. I’ve been in contact with one of those and have written about him from time to time. He invested his whole 401(k) in the refinery stock. He said he thinks he might be “half a millionaire” now. Or not.

And one final footnote: As I was writing this over the past couple of days, I started getting anonymous e-mails from someone who seems to know something about Meridian. I wrote (ESP?). Here’s our e-mail exchange over a couple of days (I’ll just call him John for now):

John: I hear u may not stop this new meridian

Me: Who’s this? You want to talk about something?

John: I hear big money from Texas getting involved

Me: Nacero? (The big energy company where Lance Medlin landed after leaving as Meridian’s COO earlier this year — just speculation on my part.)

John: I got cuz in Dallas saying someone w big bucks, looking to get involved up there. Wants a big chunk of the action. I find out who.

Well, if I learn any more, I’ll let you know. This could just be a Meridian trick. Nothing about this bunch surprises me any more.

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