I wrote here a couple weeks go about the beginning of Theodore Roosevelt National Park, created by Congress in 1947, and about the proposed oil refinery that threatens it, a refinery that has now been issued a permit by the State of North Dakota to build the dang thing.
It’s been seventy years since Congress declared that this place in the North Dakota Badlands should be protected forever as a national park. Now this California company, Meridian Energy Group, Inc., a startup company with no experience building or running a refinery, says they’re going to build a refinery just three miles from the park, alongside the road that runs into Medora.
I want to look at this more carefully. I don’t trust them.
On January 27, 2017, Meridian Energy Group, Inc. issued what it called a “Confidential Private Placement Offering” which began:
Meridian Energy Group, Inc. (“Meridian” or the “Company”) is a closely-held South Dakota corporation that will construct and operate the Davis Refinery, a 55,000 barrel per day high conversion crude oil refinery on a 715-acre site in Billings County, near Belfield, North Dakota, in the heart of the Bakken formation.
Don’t be fooled by the “South Dakota” in there. They might be incorporated there for tax purposes, but these guys are from Texas and California. And pay special attention to the number 55,000. That’s important. I’ll talk about that in a minute.
And don’t be fooled by the words “Confidential Private Placement Offering” label on their prospectus. I went digging around the Internet and found it for myself, although I bet they are not happy about that, and it may disappear pretty soon, unless the word “confidential” is just another sham put out there by this sleazy company—more about shams in a minute too.
The first thing you notice in the prospectus, right there in the third line, is that they’re selling stock in a refinery that is going to process 55,000 barrels of oil per day. Somebody at Meridian didn’t do their homework. When North Dakota Public Service Commissioner Julie Fedorchak and her fellow commissioners heard about this, they said “Wait a minute. North Dakota state law says if you are going to process more than 50,000 barrels per day, you have to come to us and let us do a comprehensive site review to determine if that is really a good place to put an oil refinery.”
“Oh, dang,” Meridian responded. “That was a mistake. We didn’t mean 55,000. We meant 49,500 barrels per day. That’s our story, and we’re sticking to it.”
Except that the prospectus is still there, online, selling stock in a refinery that they say is going to process 55,000 barrels per day.
So in spite of that, as of right now, as I pointed out here a week or so ago, there will be no site review, which, if one took place, would probably determine that this is NOT a good place to put a refinery.
Our Health Department has decided that the unproven technology planned for this refinery might—just might, because there’s no way to know until it is built and operating—meet federal air quality standards (this is North Dakota, after all, and we’ll plant big wet kisses on the ass of any oil company executive who shows up here with a fat checkbook). So I guess there’s nothing left to do but watch a refinery go up beside Theodore Roosevelt National Park.
Except, there is one other possibility. I said earlier I don’t trust Meridian. And I’m not alone. I’ve had more than one person mention in casual conversations, including some people in pretty high positions, that this whole deal sounds suspicious. The project has a price tag of close to a billion dollars, but the stock offering is for only $30 million. Now that they have the permit, they’ve got to find a bank willing to lend them at least three-quarters of a billion dollars. Again, as I mentioned, on unproven technology. Would a bank really do that? What’s the collateral on that if this falls through? A refinery that doesn’t work?
I asked Governor Doug Burgum if he wouldn’t mind asking his State Securities Commissioner, Karen Tyler, to take a look at the prospectus and see if they think this is all on the up and up. I mean, the state does have some responsibility to help protect investors in big deals like this in our state. Apparently he did that. Here’s what his spokesman Mike Nowatzki told me the other day:
“Commissioner Tyler informs me that Meridian is utilizing a federal securities registration exemption under Regulation D Rule 506(c) of the 33 Act. This federal exemption requires that they only accept investments from Accredited Investors – income of $200,000-$300,000 or net worth of $1 million excluding primary residence. The exemption largely pre-empts state securities regulatory authority. The Securities Department can require that Meridian put the department on notice that they are soliciting and selling in the state (Note: they’ve done that), and Securities’ anti-fraud authority is preserved, but it does not have the authority to opine upon and set requirements for their offering documents.” (emphasis added)
Well, how convenient. Is there any loophole in the law this sleazy company won’t find?
Would I be surprised if I learned down the road, in a few months, that this company never really intended to build an oil refinery here? No, I would not. In fact, I’d be willing to bet all my shares in the company that there’s at least a 50-50 chance this whole thing is a big stock scam designed to make some quick bucks for a few executives and board members.
On the very first page of the “confidential” prospectus there’s a line that says the total stock offering is for $30 million, but up to 25 percent–$7.5 million—can be used for “cost of issuance,” including “compensation paid to employees of Meridian.” From what I can tell from their website, that might be about a dozen or so people on the “management team” and a few clerical staff dividing up seven and a half million dollars.
But then it also says “Management’s Discretionary Control over Proceeds – Although the Company anticipates that it will apply the net proceeds of its financing as described herein, Management will have complete discretionary control over the utilization of the funds and there can be no assurance as to the manner or time in which said funds will be utilized.”
So that management team can pay themselves way more than $7.5 million. They can use it all. Good grief. Who would invest in a company like this? Ummmm, maybe somebody looking for a tax write-off?
Well, if it’s a scam, too bad for the investors, but good for us. Except I’m not willing to take a chance. I’m going to keep talking and writing about it. Because if they’re serious, and we fail to stop it, shame on us. It will the most egregious example of failed leadership in the history of our state.
I hope North Dakota’s Governor Doug Burgum doesn’t want that to be his legacy.
P.S. Here’s an “Important Notice” from page 3 of their “confidential” offering:
This memorandum contains certain information of a highly confidential and proprietary nature. The receipt of this memorandum constitutes an agreement on the part of the recipient hereof to maintain the confidentiality of the information contained herein or any additional information subsequently delivered in connection herewith. Prospective investors who accept this memorandum or become aware of the information contained herein must understand and comply with the extensive federal and state securities law restrictions placed upon their ability to disclose information contained herein to others or to participate in or otherwise effect or facilitate any transactions relating to any securities of the company. Prospective investors who cannot comply fully with such restrictions should not review the information contained herein and should immedialtely (sic) return this memorandum to the offeror.
Yikes! Well, golly, I’m not a prospective investor, so I guess I can share that much with you, but I won’t tell you anything else that’s in it, because I don’t want to take a chance on going to the pokey. But if you’re interested, and maybe want to invest a buck or two (and if you make 300 grand a year and have a million bucks in the bank you’d like to gamble), just click here and you can read it yourself. Oh, and if it’s disappeared by the time you read this, don’t worry–I’ve got a PDF. Just send me an e-mail and I’ll send it to you.
This story is an edited version of a story that appears in the July 2018 issue of Dakota Country magazine. It’s a magazine you should be reading. You can subscribe here.