One says ground will be broken this year, the other doesn’t

Estevan – On May 17, Pipeline News spoke by phone to the top two people currently involved with Quantum Energy, Inc., whose wholly-owned subsidiary Dominion Energy Processing Group, Inc., proposed a 40,000 bpd refinery at Stoughton in late 2016.

Jeffrey Mallmes (in some instances, referred to as “Jeff Mallmes”) is listed in their Feb. 28, 2018 annual report at chairman, president, treasurer and director, with 14.91 per cent ownership. Andrew J. Kacic is listed as secretary and director, with 18.66 per cent ownership. Kacic had formerly been CEO of Quantum, back when it was proposing five refineries in North Dakota and Montana. He is also the person now listed as the contact at the end of Quantum press releases.

Mallmes’ company featured in the company’s March 6, 2017, S-1 filing with the Securities and Exchange Commission, when presentations were being made throughout southeast Saskatchewan. At that time, he, his company, Sicamous, B.C.-based The Big Barge Company Inc., and his wife Janice Mallmes, were listed as shareholders, effective Feb. 23, 2017. Big Barge makes elaborate dock systems on interior British Columbia lakes. He has also been elected as a Sicamous district councillor. His candidate listed in the Oct. 15, 2014 Eagle Valley News, states, “I am Jeff Mallmes, born in Moose Jaw in 1956. I attended SAIT to complete a B-pressure welders and Level 3 welding inspection ticket. I started a welding business in 1979 and world in oilfields, water filtration and bridge inspection.

“In 1997, I moved to the Okanagan and began building docks. The first commercial marina completed in Sicamous was in 1998. I became a full-time resident of Sicamous in 2005.”

At the end of 2017, Mallmes and Kacic came to the fore in the leadership of the company.

“About all I can tell you is that we’re trying to proceed with it and get the environmental studies started and that, but we’re just waiting for funding to come in. That’s about as much as I can tell ya,” Mallmes said by phone from Sicamous.

Asked if any they have made any applications to the province for permits, Mallmes said, “That was done by Keith Stemler a year and a half ago, so we’re going to have to revisit it. The other thing is that our option on the property is about to expire, so I reached out to them to have a conversation with them as well.”

Stemler had been the CEO of Dominion Energy Processing Group, Inc., and the person who signed that company’s incorporation papers with Corporations Canada. He is still listed as the company’s sole director on Corporations Canada’s website.

Asked if they have taken out a caveat on the property, he said, “No. We don’t own it.”

“Like I said, Keith Stemler was working on that. I’m just familiarizing myself with the file. Keith Stemler is no longer with the company.”

Why is that?

“It wasn’t going fast enough for him,” Mallmes replied. “The funding he was working on never materialized, and he wasn’t sure the funding would ever come in. I’ve been working on completing things for Quantum and the funding for it and I feel pretty confident we’re going to get the funding to do the environmental study, and once the environmental study is done and signed off, then financing is not an issue.”

Asked when was the last time they have spoken with the Ministry of Environment, Mallmes said, “Keith spoke with them in November or December, 2017.”

The Saskatchewan Minister of Environment, Dustin Duncan, told Pipeline News via email on May 16 they had not have any contact with the company in over a year. When told that, Mallmes said, “Oh? Well, I got an email from Keith saying he did speak to them. Like I said, I was not involved in that side of it. I’m managing the company overall. Keith was the fellow that was dealing with it. So I’m not saying we’re starting over. I’m saying I have to get more familiar with the file.”

Asked where they are on the 12 different permits required, he said, “Right now, the only thing that’s been done is the preliminary engineering to figure out what is that we’re going to build. The next step is to start the environmental.”

Regarding a timeline for construction, he said, “I can’t tell you that. That’s entirely based on the environmental. As you well know, the environmental, they talk about a pipeline and a bunch of people show up, and you don’t know if the ministry is going to allow it. I can’t tell you that. That would be up to the environmental firm we hire and the engineering firm.”

When told Stemler had told approximately 300 potential contractors in Weyburn in February 2017 that he intended to break ground by the end of the year, Mallmes replied, “Yeah, well, that’s why Keith’s not with the company anymore. I can’t speak to what Keith said to people, and I won’t speak it. So, I would suggest you contact me again somewhere about the middle of June, and I may have a few more answers for you.”

Mallmes said he took over the company “because I have more money invested in this than anybody.”

He noted he has interest in welding and fab shops in Alberta. “I don’t like to speak out of turn. I like to make sure the ducks are lined up, facts are facts, and things are ready to go. I’m not going to promise anybody an empty promise, like we’re going to be building by November, because we’re not. Those are facts.

“Even if I started tomorrow morning, had $10 million cash in the bank, there’s no way I would be building by November. That’s a pipe dream.”

With regards to the price tag, which Stemler had said was $600 million, Mallmes distanced himself from that, repeating, “Keith is no longer with the company. So read between the lines. What Keith promised people, what Keith said he could accomplish, the money Keith said he could raise – none of it materialized. And I don’t like people being involved with me who have conversations about things they think they’re going to get done, and then they don’t get done. That doesn’t do anybody any favours. I’m not a false hope fella.

“So when I have what I know to be true, I can talk to you. Right now, the thing to do with the refinery – there is a need for a refinery, a microrefinery, in a local area, for supplying product locally. It’s a good idea. That’s why I invested in the company to start with. And I still believe it’s a good idea. But to do it, you have to have everything situated right to most forward. And it’s not there yet.”

Pipeline Newspointed out that at the time Keith Stemler was making these promises, Quantum’s S-1 filing said it had one employee, its head office rent was $230 a month, and the head office was a place you can rent by the hour, because we did do just that. Mallmes replied, “Okay, I’m not telling you something you don’t know. Those are all facts.”

“The fact is, today, sir, today, since I took over the company, November ’17 … I’ve put another $200,000 of my own cash into this thing.”

Mallmes said on June 15, he would have more answers.

Andrew J. Kacic

Speaking to Kacic just before speaking to Mallmes ended up with some substantially different answers. Note that at the beginning of each phone call, the respondent said we should talk to the other person.

Kacic was at Big Fork, Mont., although he said he spends most of his time at Scottsdale, Ariz.

Asked what the status of the proposed Stoughton refinery, Kacic said, “We’re still moving ahead on it,” but suggested we talk to Mallmes, as he was handling it.

“He’s more in tune with it than I am. I’m handling other matters,” Kacic said. “We’re working on an S-1 filing.”

The old S-1 has been redone, he said. They’ve completed two years of audits and have a tentative merger which has been announced. Kacic said, “That’s the part that I handle.”

Asked the purpose of the purpose of the merger, he responded that it is what they issued in their press release, and as a public company, he couldn’t talk beyond that.

Regarding the proposed refineries in Montana and North Dakota, he said, “If anything, there’s really nothing going on in North Dakota. Our main effort is in Saskatchewan. After that, we could possibly be able take it to another location, then we would probably look at some of the sites that we had previously in North Dakota. The primary effort and total focus is for Saskatchewan.”

Kacic also acknowledge that Stemler is no longer with them. Asked why it would take until April to announce his departure in late February, Kacic said, “It didn’t seem to be that pressing at the time.”

“I was part of the initial team, along with Keith, that met with the Saskatchewan provincial government. We met with Crescent Point and also Tundra. We had a number of meetings up there in Saskatchewan.”

Asked when was the last time someone from Quantum or Dominion had spoken to the Ministry of Environment, he said, “I wouldn’t know that.”

He noted there’s been dramatic changes in the corporate structure since the initial S-1 filing.

Head office by the hour

Regarding their head office being used by at least 25 other companies, he said, “It’s an executive office suite. You rent an office. Why would we have anything other than that? Our operations we’re discussing are refineries in North Dakota and Saskatchewan. So it’s an executive office suite complex. It was our corporate office at that time.”

When told we rented their head office, by the hour, Kacic responded, “I’m sorry?

“It’s what you have when you need a corporate office, and you’re looking where the permanent office is going to be. Obviously, our first refinery will probably be our operations based in that location. For a corporate basis, we used a virtual office, like many companies do,” he said.

“You find it weird, and I find it prudent. What’s wrong with that?”

Refineries have difficulties with Bakken oil

When we pointed out Husky Energy, which was also proposing a refinery at the same time last year, does not rent its head office by the hour, Kacic said, “We’re not Husky. We’re a greenfield company looking to make a state of the art diesel refinery using Bakken oil.”

At this point Kacic spoke about how refineries are having difficulty dealing with Bakken oil.

“The refineries are having a problem handling Bakken oil.

“Refineries are up and running, including the ones with Husky, they’re all based on the production they’re going to be running through the refinery.

“And throughout the country, which is international news, there is a problem with the refineries that are built because they cannot handle the light, sweet Bakken crude.”

“So when we were launching our refinery, we were the ones with the state-of-the-art to handle the sweet Bakken crude that really came into fruition in the last five or six years, as far as consistency of production. So we’re looking to build a refinery just to handle the Bakken crude.

“Of course, you probably know there’s a dramatic fluctuation in oil prices, from $100 down to $27, and the whole capital markets got really shaken and rattled because of that.

“So the technology is what we were keying off to handle Bakken sweet for areas that need diesel, like Saskatchewan. Close to production, close to consumption. The biggest variable you have in oil and gas prices is logistics. So instead of shipping it from the coast, we would produce it right by the production and sell it in the areas around there, other provinces. That was the plan that got delayed.

“So until we got a more permanent location, we rented an office,” Kacic said.

“It’s brand new technology. The whole idea of what we’re doing has never been done before.”

Asked what particular technology he was referring to, he said, “Just having the crude oil slate of the Bakken oil, being able to create as much diesel out of it as possible, and to be able to develop the whole barrel, not just get the diesel, naptha and bottoms, but try to get everything a handle and produce a finished product in all three categories.”

“Again, build a crude oil slate around the crude oil slate of the Bakken.”

Production lined up

He said he was not familiar, off hand, with Saskatchewan Bakken production. (Bakken production in Saskatchewan had peaked several years ago.)

“We have plenty of our production already lined up,” he said.

“I used to be an oil and gas producer. If I knew I had an end user, I would probably be drilling more wells.”

He said he can’t disclose anything that’s not public knowledge regarding who that lined up production would be.

When asked to explain why they located their site beside a major Crescent Point facility, but that company isn’t very familiar Quantum, he said, “You probably know that you cannot have a commitment that’s going to become a contingent liability, to lock up either an offtake or production. You can only go so far down the road – until we break ground, we’re not going to be able to get anything firm until we break ground and get all our permits for our refinery. We’re not there yet.

“Hopefully we’ll be there shortly, or at least this year,” Kacic said.

“That’s our goal. There’s a lot of work. How much in the breaking ground category, I don’t know, but our goal is for this year. Now, I’m not the engineer. Knowing how the season or the weather is, it’s already May.”

“We’re looking forward to breaking ground this year,” he affirmed. “We still have testing to do. We’re still looking at the property. Tests have to be done on the property location. It depends on how fast we can move.”

In regards to the permits, we asked which permits they’ve acquired. “I don’t think we have any permits yet. I know Keith was in discussions on quite a few on the staging of the permits, but no permits as of yet.”

Asked if they’ve made any applications yet, he said, “With the applications, you have to submit a set of plans. It’s not just filling out an application. It’s several million dollars of work and engineering that has to be submitted along, to get your permit.”

They have not applied for any permits as of yet.

When asked why the Ministry of Environment had not heard from Dominion or Quantum in over a year, he replied, “Again, the financial markets and oil prices have fluctuated dramatically in the last couple years, and really, the financial market has just stabilized, moreso this year than last year, where we have a lot of interest in financing this operation, where we didn’t have before, or this project, I should say.”

Again asked how they would break ground this year, despite not having applied for one of 12 required permits, he replied, “Okay, then we’ll break ground the first part of next year. We’ll try to move as quickly as we possibly can with the funding that we’re discussing that was made in the news announcement.”

Pipeline connection?

With respect to Tundra Energy Marketing Limited (TEML), the principal oil gathering pipeline system in the region, John Williams, VP of pipeline operations, told Pipeline News on May 10, that they had not heard from the refinery proponents in the past year. “I would have to say no to that. I believe there was a fleeting contact between the guy who did that presentation and one of our engineering staff in the days after the presentation. And that came about because our engineer attended the presentation and handed him his business card. He didn’t follow up again on that, from the refinery.”

When we asked Kacic how they would build a refinery without a pipeline connection, he laughed then said, “As we go through the process, we will have discussions we will finalize before we do that.”

“Why would I discuss the pipeline in any great detail without knowing where we are on our financing?”

He went on, “It’s been pretty rough. It’s been pretty rough to lock up money to get into this industry. We think we have a lot going for us that we’re going to introduce, that our financing seems to be very attracted to, none of which I can get into any detail with until we make an announcement and we should have some more announcements in the next few weeks, hopefully in the first part of the month.”

Financing Stemler was working on “didn’t materialize,” Kacic said, adding, “We really thought it was real, and when it came down to it, it didn’t materialize.

“We’re trying our darnedest to get our financing finalized for that location. And if you spoke to someone in the oil industry whose challenged like the example you gave me, we don’t give up. We try to get prudent. Pissing away money on exotic office space is not prudent. So we’d rather spend it where it counts, to get the interest back into the oil sector, and the Stoughton area. That’s where our focus is.”

“Our revised S-1 will be out by the end of next week, knock on wood,” he said, noting their direction has dramatically changed, and their audited financial statements were posted on OTC Markets.

Refinery targeting light sweet Bakken

Regarding the over 100,000 barrels of refining capacity they announced in Montana and North Dakota, before the Stoughton announcement, Kacic said, “We had the locations and everything was keying up. You should do your homework, Brian, I know. I can tell you do your homework. So we’re kind of keying it off the facility in Dickenson, that was done by MDU and Calumet. You’ve heard of those two companies, right?

“So we were looking at that as our program, because Westcon, who was the contractor on that location, whose a subsidiary of Bilfinger, an international firm, was our partner, when we announced those refineries. Of course, you did your homework, right Brian? You know that,” Kacic said.

“The Dickinson refinery, it didn’t work. We didn’t know that, until everyone found out at the same time that it didn’t work. The market fell apart for naptha, which was a third of it. And the bottoms had no market. So we didn’t know that design didn’t work until everybody found out it didn’t work.”