Estevan 鈥� 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 鈥淛eff Mallmes鈥�) 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鈥� company featured in the company鈥檚 March 6, 2017, S-1 filing with the Securities and Exchange Commission, when presentations were 小蓝视频 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, 鈥淚 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.
鈥淚n 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.鈥�
At the end of 2017, Mallmes and Kacic came to the fore in the leadership of the company.
鈥淎bout all I can tell you is that we鈥檙e trying to proceed with it and get the environmental studies started and that, but we鈥檙e just waiting for funding to come in. That鈥檚 about as much as I can tell ya,鈥� Mallmes said by phone from Sicamous.
Asked if any they have made any applications to the province for permits, Mallmes said, 鈥淭hat was done by Keith Stemler a year and a half ago, so we鈥檙e 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.鈥�
Stemler had been the CEO of Dominion Energy Processing Group, Inc., and the person who signed that company鈥檚 incorporation papers with Corporations Canada. He is still listed as the company鈥檚 sole director on Corporations Canada鈥檚 website.
Asked if they have taken out a caveat on the property, he said, 鈥淣o. We don鈥檛 own it.鈥�
鈥淟ike I said, Keith Stemler was working on that. I鈥檓 just familiarizing myself with the file. Keith Stemler is no longer with the company.鈥�
Why is that?
鈥淚t wasn鈥檛 going fast enough for him,鈥� Mallmes replied. 鈥淭he funding he was working on never materialized, and he wasn鈥檛 sure the funding would ever come in. I鈥檝e been working on completing things for Quantum and the funding for it and I feel pretty confident we鈥檙e 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.鈥�
Asked when was the last time they have spoken with the Ministry of Environment, Mallmes said, 鈥淜eith spoke with them in November or December, 2017.鈥�
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, 鈥淥h? 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鈥檓 managing the company overall. Keith was the fellow that was dealing with it. So I鈥檓 not saying we鈥檙e starting over. I鈥檓 saying I have to get more familiar with the file.鈥�
Asked where they are on the 12 different permits required, he said, 鈥淩ight now, the only thing that鈥檚 been done is the preliminary engineering to figure out what is that we鈥檙e going to build. The next step is to start the environmental.鈥�
Regarding a timeline for construction, he said, 鈥淚 can鈥檛 tell you that. That鈥檚 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鈥檛 know if the ministry is going to allow it. I can鈥檛 tell you that. That would be up to the environmental firm we hire and the engineering firm.鈥�
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, 鈥淵eah, well, that鈥檚 why Keith鈥檚 not with the company anymore. I can鈥檛 speak to what Keith said to people, and I won鈥檛 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.鈥�
Mallmes said he took over the company 鈥渂ecause I have more money invested in this than anybody.鈥�
He noted he has interest in welding and fab shops in Alberta. 鈥淚 don鈥檛 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鈥檓 not going to promise anybody an empty promise, like we鈥檙e going to be building by November, because we鈥檙e not. Those are facts.
鈥淓ven if I started tomorrow morning, had $10 million cash in the bank, there鈥檚 no way I would be building by November. That鈥檚 a pipe dream.鈥�
With regards to the price tag, which Stemler had said was $600 million, Mallmes distanced himself from that, repeating, 鈥淜eith 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 鈥� none of it materialized. And I don鈥檛 like people 小蓝视频 involved with me who have conversations about things they think they鈥檙e going to get done, and then they don鈥檛 get done. That doesn鈥檛 do anybody any favours. I鈥檓 not a false hope fella.
鈥淪o when I have what I know to be true, I can talk to you. Right now, the thing to do with the refinery 鈥� there is a need for a refinery, a microrefinery, in a local area, for supplying product locally. It鈥檚 a good idea. That鈥檚 why I invested in the company to start with. And I still believe it鈥檚 a good idea. But to do it, you have to have everything situated right to most forward. And it鈥檚 not there yet.鈥�
Pipeline Newspointed out that at the time Keith Stemler was making these promises, Quantum鈥檚 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, 鈥淥kay, I鈥檓 not telling you something you don鈥檛 know. Those are all facts.鈥�
鈥淭he fact is, today, sir, today, since I took over the company, November 鈥�17 鈥� I鈥檝e put another $200,000 of my own cash into this thing.鈥�
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, 鈥淲e鈥檙e still moving ahead on it,鈥� but suggested we talk to Mallmes, as he was handling it.
鈥淗e鈥檚 more in tune with it than I am. I鈥檓 handling other matters,鈥� Kacic said. 鈥淲e鈥檙e working on an S-1 filing.鈥�
The old S-1 has been redone, he said. They鈥檝e completed two years of audits and have a tentative merger which has been announced. Kacic said, 鈥淭hat鈥檚 the part that I handle.鈥�
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鈥檛 talk beyond that.
Regarding the proposed refineries in Montana and North Dakota, he said, 鈥淚f anything, there鈥檚 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.鈥�
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, 鈥淚t didn鈥檛 seem to be that pressing at the time.鈥�
鈥淚 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.鈥�
Asked when was the last time someone from Quantum or Dominion had spoken to the Ministry of Environment, he said, 鈥淚 wouldn鈥檛 know that.鈥�
He noted there鈥檚 been dramatic changes in the corporate structure since the initial S-1 filing.
Head office by the hour
Regarding their head office 小蓝视频 used by at least 25 other companies, he said, 鈥淚t鈥檚 an executive office suite. You rent an office. Why would we have anything other than that? Our operations we鈥檙e discussing are refineries in North Dakota and Saskatchewan. So it鈥檚 an executive office suite complex. It was our corporate office at that time.鈥�
When told we rented their head office, by the hour, Kacic responded, 鈥淚鈥檓 sorry?
鈥淚t鈥檚 what you have when you need a corporate office, and you鈥檙e 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,鈥� he said.
鈥淵ou find it weird, and I find it prudent. What鈥檚 wrong with that?鈥�
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, 鈥淲e鈥檙e not Husky. We鈥檙e a greenfield company looking to make a state of the art diesel refinery using Bakken oil.鈥�
At this point Kacic spoke about how refineries are having difficulty dealing with Bakken oil.
鈥淭he refineries are having a problem handling Bakken oil.
鈥淩efineries are up and running, including the ones with Husky, they鈥檙e all based on the production they鈥檙e going to be running through the refinery.
鈥淎nd 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.鈥�
鈥淪o 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鈥檙e looking to build a refinery just to handle the Bakken crude.
鈥淥f course, you probably know there鈥檚 a dramatic fluctuation in oil prices, from $100 down to $27, and the whole capital markets got really shaken and rattled because of that.
鈥淪o 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.
鈥淪o until we got a more permanent location, we rented an office,鈥� Kacic said.
鈥淚t鈥檚 brand new technology. The whole idea of what we鈥檙e doing has never been done before.鈥�
Asked what particular technology he was referring to, he said, 鈥淛ust having the crude oil slate of the Bakken oil, 小蓝视频 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.鈥�
鈥淎gain, build a crude oil slate around the crude oil slate of the Bakken.鈥�
Production lined up
He said he was not familiar, off hand, with Saskatchewan Bakken production. (Bakken production in Saskatchewan had peaked several years ago.)
鈥淲e have plenty of our production already lined up,鈥� he said.
鈥淚 used to be an oil and gas producer. If I knew I had an end user, I would probably be drilling more wells.鈥�
He said he can鈥檛 disclose anything that鈥檚 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鈥檛 very familiar Quantum, he said, 鈥淵ou probably know that you cannot have a commitment that鈥檚 going to become a contingent liability, to lock up either an offtake or production. You can only go so far down the road 鈥� until we break ground, we鈥檙e not going to be able to get anything firm until we break ground and get all our permits for our refinery. We鈥檙e not there yet.
鈥淗opefully we鈥檒l be there shortly, or at least this year,鈥� Kacic said.
鈥淭hat鈥檚 our goal. There鈥檚 a lot of work. How much in the breaking ground category, I don鈥檛 know, but our goal is for this year. Now, I鈥檓 not the engineer. Knowing how the season or the weather is, it鈥檚 already May.鈥�
鈥淲e鈥檙e looking forward to breaking ground this year,鈥� he affirmed. 鈥淲e still have testing to do. We鈥檙e still looking at the property. Tests have to be done on the property location. It depends on how fast we can move.鈥�
In regards to the permits, we asked which permits they鈥檝e acquired. 鈥淚 don鈥檛 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.鈥�
Asked if they鈥檝e made any applications yet, he said, 鈥淲ith the applications, you have to submit a set of plans. It鈥檚 not just filling out an application. It鈥檚 several million dollars of work and engineering that has to be submitted along, to get your permit.鈥�
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, 鈥淎gain, 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鈥檛 have before, or this project, I should say.鈥�
Again asked how they would break ground this year, despite not having applied for one of 12 required permits, he replied, 鈥淥kay, then we鈥檒l break ground the first part of next year. We鈥檒l try to move as quickly as we possibly can with the funding that we鈥檙e discussing that was made in the news announcement.鈥�
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. 鈥淚 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鈥檛 follow up again on that, from the refinery.鈥�
When we asked Kacic how they would build a refinery without a pipeline connection, he laughed then said, 鈥淎s we go through the process, we will have discussions we will finalize before we do that.鈥�
鈥淲hy would I discuss the pipeline in any great detail without knowing where we are on our financing?鈥�
He went on, 鈥淚t鈥檚 been pretty rough. It鈥檚 been pretty rough to lock up money to get into this industry. We think we have a lot going for us that we鈥檙e 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.鈥�
Financing Stemler was working on 鈥渄idn鈥檛 materialize,鈥� Kacic said, adding, 鈥淲e really thought it was real, and when it came down to it, it didn鈥檛 materialize.
鈥淲e鈥檙e 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鈥檛 give up. We try to get prudent. Pissing away money on exotic office space is not prudent. So we鈥檇 rather spend it where it counts, to get the interest back into the oil sector, and the Stoughton area. That鈥檚 where our focus is.鈥�
鈥淥ur revised S-1 will be out by the end of next week, knock on wood,鈥� 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, 鈥淲e 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鈥檙e kind of keying it off the facility in Dickenson, that was done by MDU and Calumet. You鈥檝e heard of those two companies, right?
鈥淪o 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,鈥� Kacic said.
鈥淭he Dickinson refinery, it didn鈥檛 work. We didn鈥檛 know that, until everyone found out at the same time that it didn鈥檛 work. The market fell apart for naptha, which was a third of it. And the bottoms had no market. So we didn鈥檛 know that design didn鈥檛 work until everybody found out it didn鈥檛 work.鈥�
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