Green Refinery

Saturday morning started bright, clear and cold. This year’s Competitive Entrepreneurial Opportunity (CEO program) marked a departure from my usual solo act: one of the Entrepreneurs in Residence (EIR) strongly recommended that I get a business partner. In September I approached my fellow student and all-things-petroleum-aficionado, Zack Malone, and invited him to the team. My team of one.

“I want to bring a refinery to South Dakota. It needs to be so green, so earth friendly, that it is LEED certifiable. This refinery also needs to provide jobs for South Dakotans, be located West River, and financially benefit South Dakotans. This project is too big for me to do properly by myself, so if you are interested, I would love to work with you.”

This pitch caught Zack off guard and he looked at me mutely, no expression. So I continued, “Also, you need to pull your weight. I’m not paying you 50% of the winnings if you only do 10% of the work. Take the weekend to think about it. If you have a better idea, let me know.”

Monday Zack came back and told me he was in. First order of business? The company name. Second? Division of duties. We played around with various names, synonyms for green, combinations of “development,” “resources,” and “refining,” settling on Green Hills Resources. My Sweetie said that name sounded like a retirement home, a la Shady Pines from Golden Girls. Zack agreed. I punted with South Dakota Refining Company and called it good.

We set up regular meetings with our mentor, Jim. Before we could begin on the business plan, we needed to establish limits on our business: the size of the refinery and products to be refined. These limits then guided who we targeted as our suppliers and our customers.

Immediate Challenges

• Zack and I worked in exploration and production – we get it out of the ground and then mid-stream takes over; what does downstream entail?
• Only one refinery has been built in the continental U.S. in the last 40 years;
• Is it even possible to build a LEED Certified refinery?
• As my problem with last year, other students will be presenting turn-key projects that could be seeded with $3-5,000 and started tomorrow; we need on the order of $350 million;
• Does SD have access (pipeline or rail) to the ND Bakken crude oil?
• Given the lengthy Environmental Impact Study and permitting time, would we be able to make any money? That is, after all, the purpose of a business.
• How to differentiate our refinery from the Hyperion refinery (failed business project in East Rivery, SD)?
• Where do we locate this refinery in SD?

Over the next three months, these two upstream petroleum engineering types learned everything they could about the downstream business. Zack took on the financials – from start-up costs to 7-year projections. I cold-called engineers and specialists to find out how exactly one goes about building a refinery and a green one at that. Then I drafted the business plan.

We chose Mitchell, SD for the home of South Dakota Refining Company (SDRC). Mitchell has the ideal nexus of rail, pipeline access, interstate, and a sizeable population with a Technical Institute. And, importantly for me, a Caribou Coffee.

Competition day arrived. My opening statement focused on three critical statistics:

1. Brain drain – 90% of SDSMT graduates leave the state upon graduation;
2. SD is number one in the country for residents needing to hold multiple jobs to make it to the end of the month’s bills;
3. ND produces 1,000,000 bpd of crude oil but only has the capacity to refine 15% of it.

SD’s top two industries, Ag and Tourism, although vital to the economy, will not bring in technical jobs — we need industry. SDRC will bring in 85 permanent jobs, with the possibility of creating an additional 9.1 jobs per employee (based on a study of the refinery in Anacortes, WA). We planned to spend the first three years determining the best location for the refinery, conducting the Environmental Impact Study, acquiring the necessary permits, and lining up investors.

Once this initial work was complete, Zack and I would sell the “pre-packaged” refinery to the next group who would do the actual refinery construction, commissioning, and operation.

SDRC will refine diesel from Bakken crude, which we would sell to local users at a lower price. No longer would South Dakotans pay for transportation of crude to a far off refinery and then transportation to bring diesel back to South Dakota.

SDRC creates jobs, lowers the price of a much-needed and widely used fuel, and keeps some of SDSMT’s graduates in the state.

Although we initially tied for first place – presentation and business idea – we slipped to 4th in the end because of the size of our project.

The question remains… can we really pull this off?

You already know what I think.