Refinery backers trying to fix tax exemption ‘fiasco’

BISMARCK – Backers of a new refinery in North Dakota say a bill asking for a tax exemption for oil refined in the state was a “fiasco,” but a corrected bill expected to be filed today would benefit the state.

Chester Trabucco, chairman and CEO of Dakota Oil Processing, which is developing a diesel refinery near Trenton, said a bill that was unanimously rejected in the House seeking an exemption from the 6.5 percent oil extraction tax for oil refined in North Dakota should not have been introduced.

Instead, Dakota Oil Processing is seeking an exemption that would only occur during months when the average profit margin for a refinery in the state dropped below $11 a barrel – a situation that has not occurred in the past three years, Trabucco said.

Dakota Oil Processing is in the final stages of financing the $200 million refinery and the exemption they’re working with legislators to propose would help secure private funding.

“It’s sure comforting to a bank or other lenders to know that if you did dip below (the profit margin) that there is some assistance,” Trabucco said.

The Dakota Oil Processing facility, which is not far from the heart of oil activity in Williston, would receive up to 20,000 barrels of crude oil per day and distribute between 6,000 and 8,000 barrels of diesel daily for use in North Dakota.

“Diesel is running your state,” said Trabucco, who is based in Seattle. “The ag sector depends on it heavily and the oil sector depends on it heavily.”

Mel Falcon, a Trenton native who serves as vice chairman of Dakota Oil Processing and has been working to develop this refinery since 2007, said a one-sentence bill draft that got sent to the House was a mix-up.

“That was a fiasco to start with,” Falcon said. “It failed miserably because it wasn’t a very good bill. It was just lousy.”

The North Dakota Chamber of Commerce testified against the bill, which was House Bill 1032. The state Tax Department estimated that North Dakota would lose more than $258 million in revenue over the next two years based on production at the Tesoro refinery in Mandan, currently the only refinery in the state.

Falcon said the bill was perceived as giving Tesoro a windfall, but that’s not what proponents intended.

“Poor Tesoro got the brunt of it and had nothing to do with it,” Falcon said.

Sen. Stan Lyson, R-Williston, said he expects to file a new bill today that calls for an exemption in the oil extraction tax only when the profit margin – known as a crack spread in the oil industry – hits a certain trigger.

Lyson said he’s introducing the bill for a constituent and he believes it deserves a hearing.

“Anything that we can do that is going to benefit the state of North Dakota, I’m willing to give it a shot, take a look at it and see if it’s the right thing for us,” Lyson said.

Sen. John Andrist, R-Crosby, said he plans to sign as a co-sponsor.

“Anything we do to encourage building refineries takes some of those trucks off the road,” Andrist said.

Although the bill is backed by Dakota Oil Processing, it would benefit all refineries in North Dakota. At least two other refineries are in the works – one involving the Three Affiliated Tribes on the Fort Berthold Reservation and the other near Dickinson involving a partnership with WBI Energy, a business arm of MDU Resources Group, and Calumet Refining LLC.

The last major refinery built in the lower 48 states of the United States began operating in 1977 in Garyville, La., according to the U.S. Energy Information Administration.

North Dakota currently imports about 40 percent of its diesel, Trabucco said.

“Even if all three of the refineries are successful, the total amount of new diesel production will not equal what is now being imported into the state,” he said.

A second piece of legislation supported by Dakota Oil Processing also is key to making the project more attractive to lenders, Trabucco said.

House Bill 1031, which has been unanimously approved by the House, adds “refinery” to the definition of “pipeline” for the purpose of falling under the North Dakota Pipeline Authority. That’s significant because the Pipeline Authority has the ability to issue bonds up to $800 million.

However, Dakota Oil Processing also is pushing to establish $200 million in a reserve fund under the Pipeline Authority that would provide leverage to help the refinery and other projects secure private loans.

Craig Richards, an Alaska attorney who is working with Dakota Oil Processing, said Alaska has set up similar reserve funds with revenue from oil exploration for economic development.

But the $200 million reserve fund is not currently included in House Bill 1031.

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