Marathon Petroleum has converted its Dickinson Refinery into a plant that turns soybean and corn oil into renewable diesel, and soon the facility will run in part on wind power.
Plans to convert the refinery west of Dickinson have been in the works for years after it opened in 2015 and struggled financially. The facility stopped processing oil in April 2020. The transition took place a few months earlier than planned after the coronavirus pandemic hit and caused demand to fall for motor fuels made at the refinery.
Heat and hydrogen are used to process soybean and corn oil into
renewable diesel. The fuel differs from biodiesel, which usually made
from vegetable oils but is blended into petroleum diesel for use in
certain vehicles. Biodiesel can gel up inside a vehicle when the
temperature drops in winter, so it tends to make up a smaller fraction
of the fuel into which it’s blended.
Renewable diesel, on the other hand, flows well
even when it’s cold and can be used alone in diesel engines, though it
too is often blended.
The Dickinson plant began
producing renewable diesel late last year and has ramped up to its full
capacity in recent weeks. It has the ability to produce 12,000 barrels
per day of the biofuel.
California
is the primary consumer of renewable diesel in the United States. To get its oil there, Marathon is shipping fuel from the
Dickinson facility to the West Coast via train. It’s then loaded onto
ships that take it south.
Much more at the link. Incredible photo at the link. Original article by Amy R. Sisk, May 18, 2021.
The refinery deal is a bigger deal than folks realize. Another loss for California. I assume North Dakota is watching closely.
Re-posting:
MPC: "7-11" to buy Marathon's Speedway for $21 billion; link here; at the close on Friday, trading at $38.20/share; Monday: $38.89, pretty much unchanged; Reuters says the deal could fetch between $15 billion and $17 billion;
Martinez, CA: to comply with California's Low Carbon Fuel Standards objectives and greenhouse gas-reduction targets; fourth largest refinery in California
Gallup refinery, in New Mexico: 26,000 b/d
May 5, 2020, earnings call: said these refineries were being looked
at because they are the company's highest-cost facilities among its
sixteen refineries
note to folks in ND/Mandan refinery: too much global refining
capacity and existing refineries will be pressured by new facilities
coming online
Marathon Petroleum plans to permanently close two small U.S. oil refineries in Martinez,
California, and Gallup, New Mexico, the company said, eliminating 800
jobs in response to lower fuels demand.
The largest U.S. refiner
by volume had earlier idled the two facilities following weak demand
due to COVID-19 outbreaks in the United States. U.S. refiners on average
idled about 20% of total processing capacity on falling vehicle and air
travel.
Marathon said it plans to use the Martinez facility as
an oil-storage facility and is evaluating its future use to produce
renewable diesel, a fuel made from industry waste and used cooking oil.
Martinez is California’s fourth largest refinery.
I provided my thoughts to the reader but I will not post those thoughts now. I will post them later, but they will be buried in the blog for the archives. My opinion and 69 cents will get you a cup of senior coffee at McDonald's.
From Geoff Simon's top ND stories, and from NDLTAP Truck Weight Expert:
In March, 2020, the Stark County Highway Department authorized LoadPass
Permits to issue permits to Mammoet USA South Inc. for two loads, each
weighing nearly 1.5 million pounds.
The approved routes authorized travel for three miles on county and
township roads. The loads were reactors being hauled to the Marathon
refinery west of Dickinson. Two self-propelled modular trailers with 56
axles and 224 tires were used to haul each reactor from the railhead to
the refinery. Remote controls were used to steer the trailers. Not only
were these loads excessively overweight, they were also very over
dimensional. Permits were issued for up to 26’3” in width, 24’ in height
and 210’4” in length.
Just one of the loads weighed the same as nineteen 80,000-pound
tractor trailers. That many 18-wheelers lined up on a highway would
create a train of vehicles 1,425 feet long – more than a quarter of a
mile! The process to find a route for these loads was not any easy
task.
Janet Sanford, Operator for the LoadPass Permit Program, said
Mammoet contacted her more than a year ago. The first requested route
was denied. Al Heiser, Stark County Road Superintendent, worked with the
company on a route that was better designed to accommodate the large
loads. A major challenge with the route was that it crossed a two-span,
141-foot-long bridge. Marathon Oil hired an engineering firm and worked
with the county and NDDOT Bridge Division to analyze the bridge to
assess its capacity to withstand the load. In the end, three bridge
analyses were done before the movements were approved by the county and
permits could be issued.
“The Largest GVW I have ever seen by far,” Sanford said. “It was exciting and scary. I was pleased that everything went well.”
Looks like 28 axles at this photo. Amazon Prime free delivery?
The North Dakota Supreme Court has sided with state regulators in a
challenge to a proposed oil refinery near Theodore Roosevelt National
Park in the western part of the state.
In a unanimous opinion, the state’s high court upheld a lower court
ruling that affirmed permitting decisions by the Department of
Environmental Quality.
The Bismarck Tribune reported Tuesday that the state Supreme Court
ruled that the department “did not act arbitrarily, capriciously, or
unreasonably in issuing the permit.”
William Prentice, the CEO of Meridian Energy Group, called the ruling “very welcome.”
Refinery: not looking good. Google planned refinery by national park hurt by funding, lawsuits or go to KXNET news. A reminder:
greenfield refinery
$800 million
near Theodore Roosevelt National Park
Williston would love to have it
Snow: overnight here in Grapevine.
Autos: quick! Name the #1 selling sedan in the US for the past 14, maybe 15, years. Hint: a member in that same family made the top 10 list also. Name the #1 selling SUV in the US for the past four years for so. I'll come back to this. I heard this on the radio while driving into work this morning -- I need to confirm. We'll see. Answers here.
Recommendation: if you are an investor, and like to trade/invest on-line, there are many, many options out there. My personal favorite: Schwab. I am completely blown away by their service -- but, we are fortunate to have a local branch. But I was with Schwab decades before I lived near a brick-and-mortar branch.
One example: no matter how little or how much money I deposit in the local Bank of America, there's generally a hold on it overnight despite the fact that Bank of America owns Merrill Lynch and my ML account is linked to the bank. I've been banking with BofA for decades. On the other hand, when I drop by the Schwab branch, a) there is no standing in line; b) one is greeted with genuine smiles; c) offered coffee (sometimes an accompanying snack); d) the deposit is made in less than a minute; e) a "complete" receipt is returned; and, most amazing, f) the deposit shows up in the account at the same time as one gets the receipt and one can begin trading immediately.
It blows me away.
Okay, enough of this. To the top stories of the week.
The parent company building
the nation’s first greenfield refinery since 1976 in North Dakota has
secured a silent partner to handle its midstream logistics.
Meridian
Energy Group, which is building the Davis Refinery in southwestern
North Dakota, announced Wednesday that it had signed a letter of intent
with an industry leading firm for midstream logistics support. Midstream
generally refers to pipeline companies.
The
unidentified company will build, own and operate the crude oil and
refined product midstream and logistics facilities for the greenfield
refinery, which will allow Meridian to focus on operations inside the
Davis plant.
I think the best thing about "the original post" is the human interest aspect.
I never met Hugh Routh. I wish I had. I would have enjoyed listening to his stories. Paraphrasing Stephen Hawking, "we all stand on the shoulders of great men and women." But here is another individual who came to remote, cold, desolate northwestern North Dakota and stayed for 33 years, even after retiring, did not want to leave his "home." Of the names mentioned in his obituary, I recognize a lot of the names but do not recall any personal anecdotes.
I did meet Bill Shemorry. I knew him as well as I knew anyone of his generation when I was in high school. He would not remember me, and he never had time for me. That's probably fortunate; had he taken me under his wing, I would probably be a photo-journalist struggling in some remote region of the world. But he was way too busy to mentor me. Wow, he was everywhere. Every Williston High School sports event; every Virgil Syverson "Band Day"; every political event; every civic event; every significant oil story, and even some not so significantly. One of his most famous oil rig photographs was on the cover of the Williston telephone directory some years ago. I had a copy of that directory for years; don't know if it's still in storage or not. I'm sure the photo is available in his collection. I always admired Bill Shemorry (from a distance). Willistonites are incredibly fortunate he captured the early history of Williston. It's almost as if he knew that Williston was destined for fame and notoriety. As I'm rambling...I have to look him up in my books on the history of North Dakota ... something tells me I will find more than a few mentions of his name.
The Original Post
Just for the fun of it, let's see if we can find anything on the Flying J Refinery, Williston, ND.
Fact sheet.
42 acres
built in the early 1950s
refining activities have been shut down since 1984
commercial product storage activities ceased in 1986
in 2004, Flying J initiated landfarming; risk-based concentrations were established for contaminated soils; served as cleanup goals; after two seasons of landfarming, all concentrations were between or below the RBCs. Based on those results, in-situ landfarming had met its cleanup goal and is considered complete
Shemorry photograph, this would be from the north, looking to the south, toward the river:
My hunch is that the "Muddy River boys" explored the Missouri River marsh seen in the photograph above.
I was given a soft cover copy of this book as a gift -- from a reader of the blog. A huge "thank you." Given to me some years ago. It looks like it may be out of print but available electronically.
I knew the most recent ruling was in favor of the refiner. I did not know the appeal "was dismissed with prejudice." From the Bakken oil report:
Meridian Energy Group, Inc., the emerging growth refining firm and leading innovator in advanced technology and environmentally-beneficial full-conversion petroleum processing facilities, announced on January 25, 2019 that a North Dakota District Court has upheld the Permit to Construct (“PTC”) for the Davis Refinery that was issued on June 13th, 2018 as a Synthetic Minor Source. The PTC issued by the North Dakota Department of Health – Air Quality Division was challenged after a thorough 18-month review process one in which involved numerous governmental agencies.
Meridian continues to make big strides, as all of the four appeals have been ruled in favor of the Company.
Four appeals. All upheld in favor of the company.
So, what does "dismissed with prejudice" mean? From uslegal:
A dismissal with prejudice is dismissal of a case on merits after adjudication.The plaintiff is barred from bringing an action on the same claim. Dismissal with prejudice is a final judgment and the case becomes res judicata on the claims that were or could have been brought in it.
Also from uslegal:
A court has inherent power to dismiss an action with prejudice if it is
vexatious, brought in bad faith, or when there has been a failure to
prosecute it within a reasonable time. When a plaintiff who has
commenced an action fails to comply with discovery devices, a court,
which has issued the order of compliance, may sua sponte dismiss the
case with prejudice. [sua ponte: his/her own accord; doesn't require prior motion from either party]
What does res judicata mean?
From the "dictionary":
a matter that has been adjudicated by a competent court and may not be pursued further by the same parties
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2018 is 4.6 percent on June 8, up from 4.5 percent on June 6.
After this morning's wholesale trade release from the U.S. Census Bureau, the nowcast of the contribution of inventory investment to second-quarter real GDP growth increased from 0.99 percentage points to 1.06 percentage points.
*********************************
"Fed Rate"
The "Fed" raises "rate" to 2.5%. Two more rate increases this year would bring the "Fed rate" to 3.0%.
US: gained four to 804, which is 152 more than last year at this time
Canada: lost 58 (after losing 54 last week, losing 29 the week before that); now down to 161 rigs, or 84 fewer rigs than one year ago
did I hear someone say "ouch"?
Big North Dakota energy stories this past week, from ndenergy.org, briefly:
DAPL adding $10 million / month to ND coffers; DAPL alone would have paid for schools in Williston in less than a year
Baby boom: Bakken communities are experiencing a baby boom
The number of children born in McKenzie County,
located at the heart of the Bakken, has more than quadrupled, from just
60 births reported in 2007, to 245 babies born in 2016. Birth rates in
other parts of western North Dakota have more than doubled since the oil
boom began. There were 712 babies born in Williams County in 2016,
compared to only 306 in 2007. Stark County saw 549 births in 2016,
compared to 290 in 2007.
too bad we're not going to have the necessary school rooms
Natural gas processing expansion: Dunn County supports ONEOK plant expansion; Bear Creek Plant expansion would increase capacity from 80 million to 175 million cf/d
New refinery: Meridian's Belfield refinery, 45-day comment period
more than 11,000 comments
of those, 10,068 were form letters via e-mail; none with relevant comments
of all comments, 22% received from the west coast, specifically Oregon, Washington, and California
1.8% of the comments were from North Dakota respondents
********************************
Back to the Bakken
Active rigs:
$65.90↑↑
3/23/2018
03/23/2017
03/23/2016
03/23/2015
03/23/2014
Active Rigs
60
49
32
104
198
Four new permits:
Operator: Kraken Operating
Field: Squires (Williams )
Comments: Kraken has permits for a 4-well Anseth/Anseth-Sukut pad in NENE 29-155-103;
Another day with no producing wells (DUCs) reported as completed.
No permits canceled.
Three permits renewed:
Whiting: a Pronghorn State Federal permit (Billings County); a Niemitalo permit (Mountrail County); and a Crosby Creek permit (Dunn County)
Perhaps readers know better what is going on with these projects or can direct me to a better link. This is the best I could find overnight.
From Stratas Advisors, dated almost two years ago: largest-yet refinery project announced for North Dakota. Data points, again, this is almost two years old:
the state now has five refinery projects that may come online with the next ten (10) years
the five would add a combined processing capacity of about 155 Mbbl/d
Davis Refinery, near Belfield, Meridian Energy, begins first round of permit applications (this project has been discussed several times on the blog since then; it continues to move through the permitting process)
update, June 13, 2018: air quality permit approved
would be the largest new refinery int he state, and second largest refinery in ND overall
first phase: 27,500 bopd capacity; online in 2017 (did not happen)
second phase: permits to be filed when phase one is placed into service; will expand capacity to 55,000 bopd
Commerce Commissioner Jay Schuler, whose department includes both
economic development and tourism, said Wednesday he supports the Davis
Refinery and doesn’t believe the project will deter people from visiting
the national park.
“We
support the economic development. It’s up to the local officials, the
zoning and it’s the health department as far as what they come up with,”
Schuler said.
Don sent me the link. In an e-mail reply from me I wrote:
That's incredibly important for the refinery developers.
If the ND
tourism board is not worried, my hunch is that will be the "cover"
needed for the regulators to say "ok" to the refinery.
The regulators
will probably mandate some stuff like planting a forest around the
refinery to block the view of the refinery and turn off the lights when
the park has a 4th of July fireworks display.
Original Post
Electricity (how's that renewable energy working out)?
looks like wind energy is not as free as one would think
Trump tax cuts. Australia: afraid that their country won't be able to compete with the US following the Trump tax cuts.
Shale and BP CEO: justifies why his company is not going to join XOM, Shell, COP others in going after shale. If blocked by paywall, google: BP chief says shale will have limited effect on global oil market.
September 12, 2012: Shell acuires Permian acreage from Chesapeake. The acquisition covers 618,000 net acres in the Permian Basin in West Texas that currently produces some 26,000 barrels of oil equivalent per day and has significant growth potential.
regular readers know the shell story vis-a-vis XOM and COP
Good eyesight: Davis refinery in Belfield, ND, area to begin construction in early 2018. The refinery is 3.5 miles from the nearest point to the national park. Environmentalists say they will be able to see the refinery from the park. Good eyesight.
***********************************
Back to the Bakken
Active rigs:
$58.35↑
12/22/2017
12/22/2016
12/22/2015
12/22/2014
12/22/2013
Active Rigs
53
41
65
174
191
Two new permits:
Operator: MRO
Field: Bailey (Dunn)
Comments:
Thirteen permits renewed:
CLR (4): four Polk Federal permits in McKenzie County
Thunderbird Resources (2): one Franks Creek Federal permit and one Lower Thirty Federal permit, both in Billings County
Hunt (2): two Palermo MCNIC permits in Mountrail County
Statoil (2): two Olson permits in Williams County
EOG (2): two Parshall permits in Mountrail County
Murex: one Sophia Drake permit in Mountrail County
One producing well completed:
32888, 6,278, MRO, Forsman USA 44-22H, Antelope, Sanish, 45 stages; 15 million lbs, t12/17; cum --
Tesoro oil refinery in Dickinson, North Dakota, has plans to co-process renewable feedstock along with regionally sourced Bakken crude oil to produce a 5 percent renewable diesel blend. Construction is planned to begin in October with start-up expected in December.
Some data points:
Tesoro acquired the Dakota Prairie Refinery in Dickinson last year
capacity: can refine 20,000 bbls per day
renewable feedstock: regionally sources soybean oil and distillers corn oil from ethanol plants
Tesoro has applied for a $500,00 grant through the NDIC
capacity: up to 16,800 gallons per day of renewable feedstock
the total cost of the project: $3.5 million
It's all about the RINS:
As an obligated party under the federal Renewable Fuel Standard,
Tesoro indicated the project’s motivation is the increased environmental
value of renewable diesel under the RFS.
“The co-processed renewable diesel will generate about 1.7 D5 RINs
per gallon,” the refiner stated. “The current market value of a RIN is
approximately $1 per RIN.”
The company said the results of this project will help determine the
potential for a larger future renewable project at the Tesoro Dickinson
Refinery.
Reminder: Tesoro will change its name to Andeavor on August 1, 2017.
to be located between Belfield and Fryburg in Billings County, about 3 miles from the park
Paddlefish: season opens in North Dakota today. [Update, May 8, 2017: season matches shortest on record; will close this weekend -- in less than a week; the largest fish taken as of Friday was 115 pounds and the smallest 13; area stores where paddlefishing tags had reported selling more than
3,000 tags at the beginning of the season, but more were being purchased
as anglers arrived in the area.]
b/sd: definition -- barrels per stream day -- the maximum number of barrels of input that a distillation facility can
process within a 24-hour period when running at full capacity under
optimal crude and product slate conditions with no allowance for downtime
operator: Meridian Energy Group, Inc
announced today: MOUs from regional firms to purchase and distribute refined products
268 million gallons / year of refined products
from two-phased grassroots 55,000-b/sd high-conversion Davis refinery
the MOUs account for more than 67% of production capacity from the Davis refinery's first 27,500-b/sd Phase 1 development as well as a portion of output from the completed 55,000-b/sd refinery
once completed, the refinery will produce more than 800 million gallons/year of refined products
Quantum Energy Inc., a diversified energy development company attempting to build multiple refineries within the Bakken shale play, has closed on a land contract for a refinery site near Stoughton, Saskatchewan, Canada. Stoughton is roughly 55 miles north of Noonan, North Dakota.
A week after forming a Canadian subsidiary with Dominion Energy, Quantum was able to secure land for a 40,000 barrels per day refinery that would utilize crude sourced from the Bakken and Three Forks formation.
The proposed facility will be located in the Viewfield production region and near a Crescent Point Energy gas capturing plant. According to Dominion Energy Processing Group, the entity formed by Quantum to led the construction and design of the facility, the plant will produce roughly 21,500 bpd of retail gasoline and 13,600 bpd of ultra-low sulfur diesel.
The Arizona company is planning to develop up to five refineries designed to produce diesel fuel from Bakken crude oil.
Quantum
announced earlier this month that it had signed a two-year option
agreement on a 260-acre refinery site in Stanley, N.D., a town of around
2,000 people and the county seat of Mountrail County about halfway
between Minot and Williston.
In addition to the Stanley
agreement, the company has signed option agreements for property in
Baker and Fairview, towns about 100 miles apart on the Montana and North
Dakota border.
********************************
Other News
JV team: ISIS (aka ISIL, IS, EIEIO)takes control of Syrian oil fields. Islamic State fighters have taken control of the Jahar and Jazl oil fields, as well as the al-Mohr area and the al-Mohr company.
The Western states continue to ramp up their renewable energy
mandates—California and Oregon, for instance, plan to get at least 50%
of their electricity from renewable sources, and Colorado has set a 30%
requirement. Ironically, this renewable energy trend puts a spotlight on
natural gas, whose at-the-ready supply will be needed to fuel the
West’s increasing number of gas-fired power plants at a moment’s notice
to offset the up-and-down output of solar facilities and wind farms. One
way to help ensure natural gas availability is have gas storage
capacity close at hand. Today we look at ongoing efforts to add tens of
billions of cubic feet of natural gas storage in the Western U.S.,
primarily to help ensure the fueling of nearby gas-fired power plants
that back up variable-output solar and wind.
The interconnectedness of the crude oil, natural gas and natural gas
liquids (NGL) markets is a mantra of ours in the RBN blogosphere.
Another joined-at-the-hip connection that gets less attention is the
one between natural gas and renewable energy.
The gas/renewables link
relates to the fact that solar and wind—the two renewable-energy sources
whose development and use have been rising exponentially the past few
years—produce power efficiently and without any fuel costs, but only
intermittently (when the sun shines and the wind blows). While
experience has given electric-grid operators an ever-improving ability
to anticipate the ramping up and down of both solar and wind output,
there will always be variability—surprises too—in how much power solar
facilities and wind farm produce, as well as a need to replace
renewable-energy drop-offs with power from other generation sources. As
it turns out, modern gas-fired power plants—either “simple-cycle”
combustion turbines (CTs) or “combined-cycle” plants—are the most
flexible and most responsive in that their output can pretty much be
dialed up or down on an as-needed basis.
But gas-fired power plants need
gas to run, and sufficient pipeline gas supply (at the moment it’s
needed) is not a given. Enter gas storage capacity, which in much of the
rest of the country is used primarily to stockpile excess gas each
spring through fall for winter-time consumption, but which also plays a
year-round, day-to-day role in ensuring that regional pipeline networks
stay balanced.
********************************
Sophia's New "Ray-Ban" Sunglasses
Sophia needed a new pair of sunglasses yesterday; the winter sun in north Texas can be quite brighta t 4:00 p.m. when she is getting out of Tutor Time.
At the mall, she saw the Ray-Ban Sunglasses kiosk and picker out a pair. $95.
Later, 6:10 p.m. Central Time: by now, everyone who has wanted has done their own back-of-the-envelope calculations on this deal. Everyone who has written me seems to agree that Tesoro got this little refinery that cost $430 million (way over budget) for about $77 million. And considering that most of that may be debt, there may be some tax advantages. Regardless. I am thrilled that the Dickinson folks got a world-class refiner to take over this refinery. I sincerely hope it all works out for all involved. Now ... upward and onward to that $4 billion ethane processing plant. Or in the words of Buzz Lightyear, "to infinity and beyond!"
Later, 9:18 a.m. Central Time: from the AP:
Texas-based Tesoro Corp. has bought an oil refinery in southwestern North Dakota that has struggled to turn a profit.
North
Dakota-based MDU Resources Group Inc. and Indianapolis-based Calumet
Specialty Products Partners LP spent $430 million on the Dakota Prairie
Refinery in Dickinson. It began selling fuel last year but hasn't been
profitable due to the slumping oil industry and low diesel prices.
The
plant lost $7.2 million in the first three months of the year, and
officials in May announced plans to operate it at only 75 percent
capacity. The developers also had considered a similar plant in Minot
but late last year delayed those plans because of the red ink at the
Dickinson plant, which currently totals about $66 million.
Tesoro will assume the $66 million in debt and contribute about $10 million toward working capital, the company said.
Later, 9:05 a.m. Central Time: from SeekingAlpha --
Calumet Specialty Products Partners sells its 50% equity interest in the Dakota Prairie Refining joint venture to MDU Resources Group, which then sells the entire JV to Tesoro
TSO winds up acquiring
Dakota Prairie Refining in exchange for the continued servicing of
DPR's $66M term loan debt and ~$10M towards working capital
DPR's
refinery has a crude oil capacity of 20K bbl/day and produces
ultra-low sulfur diesel, naphtha and resid; TSO says it will continue to
market the ultra-low sulfur diesel to local customers and utilize the
naphtha and resid in its integrated value chain system
Original Post
For one day, MDU owned the whole refinery.
From the press release:
MDU Resources Group, Inc. announced today that its subsidiary, WBI Energy, Inc., has sold Dakota Prairie Refining LLC to Tesoro Refining & Marketing Company LLC, an affiliate of Tesoro Corporation.
WBI Energy had been equal partners in building and operating the refinery with Calumet North Dakota LLC, a subsidiary of Calumet Specialty Products Partners LP.
To effect the sale of the refinery to Tesoro, WBI Energy on June 27 acquired Calumet North Dakota’s 50 percent membership interests.
Dakota Prairie Refining is capable of processing up to 20,000 barrels per day of Bakken crude oil and can produce approximately 8,000 barrels per day of diesel fuel, as well as the byproducts naphtha and atmospheric tower bottoms. Located just west of Dickinson, North Dakota, the refinery began operating in May 2015 and employs approximately 75 people.
Calumet Specialty Products Partners LP, Indianapolis, has completed a long-planned project to more than double crude processing capacity at subsidiary Calumet Montana Refining LLC’s refinery in Great Falls, MT.
The refinery’s 25,000-b/d crude unit is now on stream and scheduled to reach full operating capacity by the end of March, 2016.
Initially intended to lift crude processing at the refinery to 20,000 b/d from its original 10,000-b/d capacity, the $400-million expansion also was to include installation of a 25,000-b/d mild hydrocracker (MHC) to convert gas oil to higher-value distillates, a hydrogen plant to support the MHC, and a treatment unit to handle increased fuel gas production from the MHC.
Alongside expanding overall capacity, the crude unit is designed to process heavy sour crudes to enable Calumet to benefit from nearby access to cost-advantaged heavy Canadian crudes.
Years ago when traveling cross-country, I passed through Great Falls. The amount of oil-truck traffic intrigued me; I did not know why; now I know. Great Falls is another city that would fascinate Ayn Rand.
From a recent presentation (2016) by Calumet:
Keep the graphic above in mind when you read the following excerpts from MDU and Calumet 4Q15 transcripts:
Our refining segment includes the company's 50% interest
in the Dakota Prairie Refinery which began commercial operations just
in May of last year. Our share of 2015 refining results is an adjusted
loss of $20.5 million. Earnings were impacted by unplanned outages in
October and November due to equipment problems that have since been
repaired. Economics have also been affected by historically low Bakken
differentials from the West Texas Intermediate pricing, which has
reduced the discount for our oil feedstock.
In addition, reduced oilfield activity in the Bakken has
decreased the demand for diesel fuel along with the slowdown in
Canadian tar sands development has also reduced the demand for naphtha.
Our share of projected 2016 EBITDA is at a minus $25 million to zero. As
we talk about our overall guidance for 2016, you will see that refining
has been moved from the pipeline business to a separate segment. This
will provide investors with transparency both on the refinery and the
value of our regulated pipeline business.
We're excluding it from adjusted guidance because the
refining industry tends not to give earnings guidance due to the
volatility and unpredictable nature of the key commodity assumptions
supporting its financial results. We believe this approach to adjusted
EPS allows for a narrower, more meaningful range for investors, while
still providing sufficient guidance for investors to evaluate the
refining segment. We are initiating 2016 adjusted guidance in the range
of $1 to $1.15 per share. Adjusted earnings guidance includes results
from the utility, pipeline, and midstream and construction businesses.
GAAP earnings per share guidance, which includes results from the
refinery, is expected to be in the range of $0.85 to $1.10 per share.
Q & A on the refinery:
Q: On the refinery, I know market conditions have been
tough there. There seemed to be lot of moving parts, though, this
quarter, and in terms of the unplanned outages, is there a way we can
think about the drag on earnings this quarter for that segment?
A: Yes. Brent, we were down almost approximately a month.
It was all related to the hydrogen plant and we are past that. We're
probably going to have some issues with our vendor on that plant, but
ultimately we think we've got that handle. So, on a go-forward basis
we're really happy with where operations are in terms of operating the
plant day-to-day. I would characterize what we put out there as a 90%
target in terms of about 21 days maybe for the year outage, and so
that's the guidance. I hope that helps.
And:
Q: Okay, and then a follow up, and excuse me if this sounds
like a stupid question, but you mentioned the guidance includes an
expectation for 90% utilization in 2016. I guess that just seems high to
me given kind of the demand outlook. I guess why would you expect it to
run at these levels or why does it make sense to continue running at
these levels if we're going to continue to see losses?
A: Well, there is still a margin on diesel. It's not as
robust as it was. So ultimately that is – as long as there is a margin
we will continue to operate at a percentage. If we don't see it, we
would obviously take it down. Our marketing group has also been having
some success taking some diesel out of the basin also. So we think that
over the whole year period, we think we'll probably be able to attain
those levels, but obviously one of the things you see in our guidance is
we have given a range based on pricing because that's one thing we've
learned over the years we can't control, and so you've got to operate as
well as you can and react to when it's there. So, obviously, if we are
having negative pricing, we would turn down the plant.
And finally:
Q: That's helpful and I guess it would also be helpful to
get your current thoughts kind of longer term strategically thinking
about how the refinery fits in with your longer term plans?
A: Yeah, obviously longer term – short-term, we are working
on optimizing where the plant is at. Longer-term, you know this is a
business you have to get in on scale, not just one refinery, you have to
have several or else you would exit. Obviously, we may not be the right
long-term owner but at this point that decision hasn't been made.
We do have local niche markets that we believe we are
advantaged for in the long-term. I think what we saw in the fourth
quarter was as the Bakken drilling was the slowing down, as diesel
demand continued to drop in that North Dakota region, obviously that
impacted our DPR Refinery significantly. We also saw some carry on
effects in both our Montana, and specifically our Superior refiners.
So what’s happening is as diesel demand was extremely
high one or two years ago, it was pulling diesel in from those out of
state markets, and as the diesel demand started coming back in, what we
saw was a backing up of the diesel back into those respective production
areas. And so we saw a significant drop in the fourth quarter at both
our Superior racks, as well as our Montana rack. As we continue to
launch that, we've seen that the inventory is starting to clear, and the
Superior racks in particular have rebounded significantly here in the
last week or two. So we’re hopeful that as the inventory has been run
off, that we’re going to return back to the more typical supply demand
balances that we have seen in those local regions.
And more:
Let's start with the last one on Dakota Prairie. You
know, clearly that has been weighing on our earnings in the fourth
quarter as the Bakken field has slowed down significantly. We've made
several -- we've taken several steps to improve the profitability of
that operation. Remember in the first place that we just started that
plant up in the middle of last year, and as we work through some of the
startup kinks, I think we're in a position now where our reliability has
been significantly improved, and we hope to be able to realize an
improvement 2016 based on that improvement.
We have also taken some leadership changes, just to be
frank at the plant, and we think that has made a significant change.
We've already seen the difference here in the last couple of months. And
one example of that is we were running a diesel yield at the plant
somewhere in the 32%-33% range, and after we brought in some additional
resources from some of our other assets that were more familiar and
experienced with distillation columns, we were able to make some
significant moves to increase our diesel yield to 44% or in that range.
So those are some of the significant opportunities that
we believe we still have to take at our Dakota Prairie refinery. Our
objective is to be cash flow neutral during this bottom of cycle
condition. I would tell you we're not there yet, but we have many more
steps that we're trying to execute on today to get us into that
position. At that point, once we become cash flow neutral, then the role
that an asset like Dakota Prairie refinery has in my portfolio is it's a
call. It's a call on future increases in crude price, and that has some
value in my portfolio.
Vision:
So when I say we have a vision of becoming a premier
specialties petroleum products company in the world, what I mean is
going forward that's what we're going to be focusing on in terms of our
growth strategy. It doesn't mean we're going to try to fire sale any of
our assets that are currently in our portfolio, because they do have
value to me. However, in the event that someone else views any one of
our assets in our portfolio with a higher valuation than what we view it
at, of course we would consider selling that asset. That would include
any of our field assets, any of our specialty asset, any of our oil sub
services assets to the extent that it has higher value to someone else
because their portfolio has different synergies or competitive
advantages that could take advantage of that asset, we would certainly
consider moving that asset out.
And what I would say Christina, is in the past I don’t
think we really held that view. We pretty much held on the assets until
like they were in our portfolio for good. And I think what I'm bringing
to the discussion now is an openness to say hey, maybe other people view
these assets at a higher valuation than we do. So that's our philosophy
going forward.
Now, go back to the graphic above. Note that the MDU-Calumet refinery in Dickinson is not even listed. Not listed. Not loved. Just a matter of time for ...
It's Just a Matter of Time, Brook Benton
Perhaps it's just me, perhaps it's just this recording, but all of a sudden I long for the good ol' days when we had the 1950's wooden cabinet "hi-fi" and the vinyl records. And the living rooms the children were not allowed to go into.
