Oil and Gas Undergrond Storage Keystone Project

07-340 Buchanan Dome, LLC

Revised for oil. Can be reduced to one cavern and 2 disposal wells.

BUCHANAN DOME, LLC

Feasibility Study of Oil Storage at the Batson Salt Dome Hardin

County, Texas Phase II – Regulatory Requirements, Exploratory Test Well,

Solution Mining Infrastructure, Gas Handling Facilities, Land, Pipelines, and Project Timeline and Budget

Additional Work – Securing Rig, Test Well Drilling / Coring,

Core Analysis, RRC Permit Application, FERC Application

Presentation to Buchanan Dome, LLC

March 5, 2015 (rev. 1)

http://www.sabinestorage.com/


Revised for oil. Can be reduced to one cavern and 2 disposal wells.

Gulf Coast Salt Dome Map

TEXAS LOUISIANA

Houston

Batson

Salt

Dome

.Source: Salt Domes-Gulf Region, United States and Mexico

– M.T.Halbouty



Location Map

TEXAS



Phase I:

Task 1 – Geologic Review

Task 2 – Cavern and Well Engineering

Summary

Phase II:

Task 3 – Regulatory Requirements

Task 4 – Exploratory Test Well Engineering, Permitting and Cost Estimate

Task 5 – Solution Mining Infrastructure

Task 6 – Land

Task 7 – Pipelines

Task 8 – Project Timeline and Budget



Salt Geology and Cavern

Layout



Phase I Conclusions

Phase I confirmed:

23



Phase I Conclusions

• Adequacy of the Milhome survey to store 20 MBO in two caverns

• SE quarter of Milhome survey is in a good position for the development of storage

caverns

• Sufficient distance from the edge of salt

• Adequate depth of salt

• No apparent geological hazards or artificial penetrations present in the salt in the

area of the proposed caverns

• Existence of adequate brine disposal (off dome)

• Existence of water supply sources (aquifers) – on and off dome



Task 3 – Regulatory

Requirements

In Texas, underground storage of natural gas in salt formations is regulated by the Railroad Commission Texas,

under Statewide Rule #97.

Final revisions to Rule #97 were adopted by the Commission on January 10, 2007 and became effective on

January 20, 2007.

Permit Duration Life of well

Well Record Retention Life of facility

Surface Casing Depth Below USDW defined by TCEQ

Electric Log of USDW Not specified but recommended as evidence for TCEQ

Cement To surface or Sufficient cement shall be used to fill the annular space outside the

casing from the casing shoe to the ground surface, or from the casing shoe to a

point at least 200 feet above the shoe of the previous casing string.

Minimum Cement Quality Not specified

MIT New, 5 years, and post work over

SONAR Before storage begins and every 10 years

Casing Inspection Single Casing Domal -Every 15 years or after every physical change to the

casing.

Wellhead Inspection Every 10 years




Requirements (cont’d)

The specific requirements for gas storage caverns in Texas are:

All new storage wells into domal salt must have two (2) casing strings cemented into the salt

The maximum operating pressure (gauge) at the casing seat or chamber ceiling, whichever is the shallowest,

shall not exceed 0.85 psi per foot of overburden.

There are no definitive requirements for offset from the edge of the salt dome.

The Texas Railroad Commission has adopted the following new safety and construction requirements

pertaining to gas storage caverns:

All injection and withdrawal operations must be observed and monitored by experienced / trained personnel whom

will be trained tested as to the operational safety commensurate with that employee’s duties and responsibilities.

Each operator shall hole safety meetings with each contractor prior to commencing any work at that facility.

A plan to implement fire suppression for each individual storage wellhead designed to protect and personnel and

equipment during an evacuation of the facility shall be in place with in three years, or within one year an exception

can be requested.

Barriers shall be constructed to prevent unintended impact by vehicles operating around the above grade

equipment, process, equipment, piping, and surface storage vessels. Additionally, these barriers will present where

normal operation of vehicles will travel within 100 feet of a Public road.

Cavern capacity / configuration for caverns in domal salt will be verified by SONAR every 10 years.

All movement into and out of caverns, shall be metered at each individual well head.




Requirements (cont’d)

Verification of a caverns capacities will be done by direct metering of the brine into or out of the cavern.

All new gas storage wells into domal salt shall have 2 cemented strings into the salt.

Each hydrocarbon storage well shall be tested by integrity tests every 5 years.

The results of each integrity test shall be filed in duplicate with the TRRC within 30 days.

A Warning alarm system that is integrated with the gas, leak and fire detectors and manually activated, must be

installed within 2 years.

A written Emergency Response Plan must be submitted.

Storage wellhead and casing shall be inspected every 15 years.

A Piping Integrity Plan must be submitted for approval within one year, and within 3 years the applicable piping

must be maintained by said approved plan.

ESV’s will be installed on all wells within two years.

Gas Detectors will be installed in brine / solution mining piping within 2 years.

Leak Detectors will be installed around each well head, compressor building,



Task 4 – Test Well Eng.,

Permitting & Cost Est.




Permitting & Cost Est. (cont’d)




Letter “Depth of Usable-

Quality Ground Water to

be Protected (Form

TNRCC-0051, Rev. 09-

17-96) was submitted to

the TNRCC on June 20,

2007 together with a

copy of the Survey Plat

and log of a nearby well

(DH-91) and location

map.






Phase

Cost

Code

Description

Cost Estimate

($)

01 LABOR 01 Labor - Office $ 59,000

02 Labor - Field $ 83,000

03 Expenses $ 10,000

04 Miscellaneous TOTAL LABOR & EXP. $ 152,000

02 SUBCONTRACTORS, SERVICES, AND RENTALS 01 Location $ 198,000

02 Rig Mobilization/DeMobilization $ 297,000

03 Drilling Rig (33 days total) $ 790,000

04 Fuel $ 150,000

05 Water $ 26,000

06 Drilling Fluids $ 258,000

07 Bits $ 82,000

08 Rental (LQ, BOP's,DC, HWDP, HO, stab, UR) & Fishing Tools $ 180,000

09 Directional Drilling $ -

10 Cement, Cement Services & Hardware -- P&A $ 190,000

11 Logging & Wireline Services & Testing/nitrogen $ 117,000

12 4, 4" Cores, Rotary SW Cores & Core Analysis $ 389,000

13 Workover Rig 14 Perforating 15 Stimulation, Nitrogen, Pump Units 16 Casing Crews & Tools $ 30,000

17 Welding & X-ray $ 12,000

18 Testing, Inspection & Repair Services 19 Hauling, Transportation & Disposal $ 134,000

20 Miscellaneous Materials & Supplies $ 27,000

21 Mud Logging & Misc. Services $ 17,000

22 Site Communications $ 18,000

SUBTOTAL - 02 SUBCONTRCTORS, SERVICES & RENTALS $ 2,915,000

03 MATERIALS 01 Tubulars: $ 118,000

02 Wellhead Equipment, 3M rental $ 15,000

03 Downhole Well Equipment $ -

SUBTOTAL - 03 Materials $ 133,000

Grand Total $ 3,200,000



Task 5 – Solution Mining

Infrastructure



Refinery

Crude distillation unit



Refinery

(ADU/VDU) Crude distillation unit – Atmospheric and vacuum preheating train

The heat exchangers on crude distillation units need to deliver high heat transfer efficiency and operational reliability.

Proper material selection is mandatory in order to minimize corrosion risks. For revamp projects there are often space constraints, creating a physical limit to the addition of new heat exchangers

and increasing refinery capacity.

Solutions for increased energy recovery and reduced CO2

Alfa Laval’s compact and fully welded heat exchangers can provide solutions for increased energy recovery and reduced CO2 emissions. With short payback times and the elimination of corrosion

risks through the use of higher alloy grades, Alfa Laval heat exchangers have a much lower CAPEX and OPEX compared with traditional shell-and-tube solutions.

The inherent capabilities of the Compabloc and spiral heat exchangers to deliver high heat transfers and handle tough fluids, make these compact heat exchangers an excellent solution for both

atmospheric and vacuum distillation units.

Can save 1.9 MEUR per year

For a 100 kbpd refinery approximately 120 MW is needed to preheat the crude oil up to 350°C. Obviously, the more efficient the heat recovery is, the greater the savings. One single Compabloc in

a crude preheating train can save 1.9 MEUR per year with a large reduction of fuel consumption and CO2 emissions.

The compact design of the Compabloc means a smaller footprint, and/or higher capacity in the same space. In demanding processes where corrosion resistance is a priority, a Compabloc costs

considerably less than a shell-and-tube unit because it contains significantly less material.



Refinery

The compact design of the Compabloc means a smaller footprint, and/or higher capacity in the same space. In demanding processes where corrosion resistance is a priority, a

Compabloc costs considerably less than a shell-and-tube unit because it contains significantly less material. This leads directly to a reduction in fuel consumption and

CO2 emissions.


http://media.alfalaval.com/industries/oil-refinery/Pictures/fluid_catalytic_cracking_process_1013x708.jpg


Refinery


Task 6 – Land


50 acres will be required for the storage caverns, water wells, solution mining plant and gas

storage compression facilities.

ROW required during construction: 75 to 100 feet wide

Permanent ROW: 25 to 50 feet wide.

For interstate natural gas transmission pipelines, there is a federally granted power of eminent

domain to establish ROWs.

The FERC delegates its power of eminent domain to the pipeline operator to acquire necessary

ROWs.

FERC requires a permanent ROW of 50 feet for inspection and maintenance.



Task 7 – Pipeline

TransCanada Keystone XL Cushing, OK 36” 700,000 Bbl/day 3.5 miles Pipe size, cost and interconnect to be determined.

TransCanada Keystone XL Pipeline to Baker Montana (Bakken) in development. Kinder Morgan Double H Pipeline (Dore, ND) to Tall Grass Energy Pony Express Pipeline (Guernsey, WY) to Cushing, OK. Enbridge Flanagan South Pipeline to Cushing. (Bakken & WCSB)


Located in Hardin County, TX will consist of 2 high deliverability salt caverns totaling 2,000' in height, 200' wide with 20 MBO storage capacity. 20,000 Bbl/d diesel refinery. Batson Salt Dome, three miles east of TransCanada Keystone XL, four miles west of West Texas Gulf Pipelines with numerous gas, crude pipelines and railroad in 8 mile radius. Batson Corridor, LLC 3.5 mile gas pipeline to Trunkline. The cost of large underground storage facilities in salt domes is substantially less expensive than additional above ground storage capacity. The rental cost of that storage per barrel is considerably less than the same per barrel cost in above ground storage. Additionally it is more secure and safe regarding terrorist and other risk both weather and man-made. Transporting crude oil by pipeline is generally cheaper than by rail, at a cost of about $5 a barrel compared with $10 to $15 a barrel, according to a February report by the Congressional Research Service.

Refinery Economics & Profitability

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Minimum two years permit and build: 150M Storage 300M Refinery The underground storage facility should lower the cost of the refinery as per cost of the Dakota Prairie Refinery, which is the desired operation.

www.ndoil.org/image/cache/John_Stumph.pdf

http://www.ndoil.org/image/cache/John_Stumph.pdf


07-340

Batson Dome Storage Project is located three miles east of the TransCanada Keystone XL Pipeline. Located in Hardin County, TX will consist of 2 high deliverability salt caverns totaling 2,000 feet in height, 200 feet wide, and can hold 20MBO. The Project can have interconnections with the following: Keystone XL Oil Pipeline (TransCanada) 3 miles west West Texas Gulf Pipeline (SUNOCO) 4 miles east Union Pacific Railroad 8 miles south 20,000 Bbl/day refinery diesel/jet fuel/naptha 10,000 Bbl/day diesel 1 Bbl = 42 gallons Net profit $0.50/gal. from wholesale to retail $210,000/day net profit Cost of storage facility(1 time cost) $150,000,000 Cost of Ventech refinery(1 time cost) $300,000.000 $0.50/gal profit a two year payout or less. $0.50/Bbl saved on storage fees (Cushing fees)


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Reconnect 3.5 mile 3" pipeline to Trunkline for use by refinery after you use it for water supply from Pine Island Bayou for leaching saving on drilling new water wells. Also, we will only need two disposal wells and there is one plugged disposal well that can be re-permitted and reentered. Know the company that plugged for TxRRC in 2007 has 8" casing all the way to 6500'.

Hardin County (Batson,Tx) very rural. Low tax rate. Benefits both county and community of Batson. They need the jobs! Local SMSA Houston/Beaumont I/59, I/10 & I45 Jet Fuel: IAH, Hobby & Jack Brooks Regional.


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VENTECH MOBILE DIESEL REFINERY North Dakota Replicate for Buchanan Dome Project Quantum Energy Inc. (QEI), Tempe, Ariz., said it has secured land for the construction of a

20,000-b/d grassroots hydroskimming refinery in North Dakota’s Williston basin Bakken shale

region.

QEI signed a purchase and sale agreement with Northstar Transloading LLC to purchase 80

acres of land adjacent to Northstar’s transloading terminal in East Fairview, ND, for the

plant’s construction, the company reported.

The planned Fairview plant, which is to be called the Mondak plant, will process crude oil

from the Bakken shale region and will operate as a topping plant to produce about 7,000 b/d

of diesel for local use, QEI said.

“We anticipate further announcements soon on funding for the expected $250 million

investment,” said QEI Pres. Stan Wilson.

According to project documents, the Mondak plant will include a crude distillation unit,

naphtha stabilizer, mid-distillate hydrotreater, sour water stripper, amine unit, LO-CAT

sulfur recovery unit, and hydrogen generator unit.

When constructed, the Mondak plant would become North Dakota’s second topping plant for

Bakken crude oil after Dakota Prairie Refining LLC’s new 20,000-b/d plant (OGJ Online, Feb.

7, 2013).

A joint venture of Calumet Specialty Products Partners LP, Indianapolis, and MDU Resources

Group Inc., Bismarck, ND, the $300-milllion, 20,000-b/d Dakota Prairie plant also will

produce mostly diesel for regional use (OGJ Online, Dec. 11, 2013; Mar. 27, 2013).

“The Dakota Prairie refinery in Dickinson has served as the model for our proposed Fairview


07-340

https://www.youtube.com/watch?v=q0fW4pbxFbM&feature=youtube_gdata_player

refinery and helped demonstrate to our funding sources the feasibility for our project as

well,” said Wilson.

While Calumet recently said it expects the Dakota Prairie plant to be commissioned during

this year’s fourth quarter (OGJ Online, Feb. 21, 2014), QEI has yet to issue a firm

timeline for its Mondak plant.

MDU Resources Group and Calumet Specialty Product Partners are designing a refinery that

will be built by Ventech, a company that specializes in building refineries in remote

areas.

https://www.youtube.com/watch?v=q0fW4pbxFbM&feature=youtube_gdata_player


07-340

Futures traders beginning to see upside of oil prices Posted on December 23, 2014 at 12:39 pm by Robert Grattan in General, Markets

(AP Photo/Charles Rex Arbogast, File)

HOUSTON — While the news has been somber for oil markets recently, professional futures traders have

begun to bet on a somewhat brighter future.

In the U.S. crude market, futures contracts only recently outpaced the price of present-day physical oil,

said Francisco Blanch at the Bank of America Merrill Lynch Global Research. U.S. oil storage — mostly at the

crude pricing hub in Cushing, Oklahoma, have begun filling, he said.

“As inventories build across the country around the world, ultimately it’s feeding back into Cushing,” he

said. “Anyone that has access to storage is going to benefit. If you have storage capacity and you can lock in

these prices through the market you’re being paid a handsome premium to store oil over the next few months.”

http://fuelfix.com/blog/2014/12/23/futures-traders-beginning-to-see-upside-of-oil-prices/

http://fuelfix.com/blog/author/robertgrattan/

http://fuelfix.com/blog/category/general/


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Refinery Economics

Oil refineries produce value-added petroleum products from crude oil. Profitability is thus determined by several different variables:

Feedstock costs (primarily crude oil) Fuel costs and other operational costs for the refinery itself Costs of complying with emissions regulations (particularly NOx) Market prices for the products produced.

Determining profitability for a specific refinery is very difficult since data on operational and environmental compliance costs are generally not available. A rough measure could be obtained by calculating the cost of

crude-oil feedstock (though to do this with precision would require knowledge of the crude blends used in a specific refinery) and comparing that cost with the market value of the suite of products produced at the refinery. This still requires more information than might be publicly available for a typical refinery, and is subject to market conditions for the various products produced.

A useful but simplified measure of refinery profitability is the “crack spread.” The crack spread is the difference in the sales price of the refined product (gasoline and fuel oil distillates) and the price of crude oil. An average refinery would follow what is known as the 3-2-1 crack spread, meaning for every three barrels


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of oil the refinery produces an equivalent two barrels of gasoline and one barrel of distillate fuels (diesel and heating oil). This ratio of refined product output closely mirrors the composition in Figure 2.4, but remember that the crack spread is only a first-order approximation of how profitable a refinery would be at the margin! The higher the crack spread the more money the refinery will make, so it will be utilizing as much capacity it has available. Inversely, at some lower crack spread prices, it actually may be in the refinery’s best interest, due to costs for the plant, to scale back the amount of capacity utilized.

Calculating the 3-2-1 crack spread typically uses published prices for crude oil, gasoline and distillates. These prices are typically taken from the New York Mercantile Exchange. The NYMEX has traded contracts for crude oil and gasoline but no contract for diesel fuel (the most-produced of the distillate fuel oils). In calculating the 3-2-1 crack spread, prices for heating oil futures are typically used instead. Below is an example of how to calculate the crack spread, using data from 2012.

Oil Price: $84.54/barrel Gasoline Price: $2.57/gallon Heating Oil Price: $2.79/gallon (remember that 42 gallons = 1 barrel) (2 barrels * 42 gallons/barrel * $2.57/gal of gas) + (1 barrel * 42 gallons/barrel * $2.79/gal of heating oil)

- (3 barrels * $84.54/barrel of oil) = $79.44 profit / 3 barrels of oil. The crack spread would thus be $79.44 / 3 = $26.48/barrel of oil

The crack spread, of course, is not a perfect measure of refinery profitability. What it really measures is whether the refinery will make money at the margin – i.e., whether an additional barrel of crude oil purchased upstream will yield sufficient revenues from saleable products downstream. In reality, existing


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refineries must consider their refining costs in addition to just the cost of crude oil. These costs include labor (though that is generally a small part of refinery operations); chemical catalysts; utilities; and any short-term financial costs such as borrowing money to maintain refinery operations. These variable costs of refining may amount to perhaps $20 per barrel (depending on conditions in utility pricing and financial markets). In the example above, the true margin on refining would be $6.58 per barrel of crude oil – much lower than the simple crack spread would suggest.

The crack spread tends to be sensitive to the slate of products produced from the refinery. In the example above, we used gasoline and distillate fuel oil (heating oil) because those are two typically high-valued products, and U.S. refineries are generally engineered to maximize production of gasoline and fuel oil.

The crack spread is also sensitive to the selection of the oil price used. In the example above, we used the NYMEX futures price for crude oil, which recall is based on the West Texas Intermediate blend - a fairly light crude oil. Many U.S. refineries, however, are engineered to accept heavier crude oils as feedstocks. If there are systematic differences in the prices of heavy crude oils versus West Texas Intermediate, then the crack spread calculation (while illustrative) may not be sensible for a particular refinery.

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RRC Permit Application

TOC

ADDITIONAL WORK

Rig Identification, Inspection and Contracting Test Well Drilling / Coring

Core Analysis

RRC Permit Application (see TOC in following slides) FERC Application

(see discussion in the following slides)

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TOC

OVERVIEW AND EXECUTIVE SUMMARY

Permitting History

The Proposed New Wells

REFERENCES

RR Commission References

American Petroleum Institute (API) References

APPLICABLE RAILROAD COMMISSION STATEWIDE RULES (SWR’S)

Statewide Rule 97

RULES 1 AND 97 SUBMISSIONS

Forms P-5 and H-4

Notice Letters and Newspaper Public Notice

Supporting Technical Information

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TOC

Geological and Hydrological Information

Geology of Batson Salt Dome

Structure top of Caprock / Salt

Cross Section AA’

Cross Section BB’

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TOC (Cont’d)

Groundwater Hydrology

TCEQ Determination of Depth of Usable – Quality Groundwater To Be Protected

Engineering Information

Process and Flow Diagrams

Complete Process & Instrumentation Diagrams

Wellbore and Wellhead Schematic Diagrams

Wellhead Specifications

Workover/Drilling Programs

Cavern Development Program

Tubular Specifications

Logging Program

Cementing Program

Centralizer Program

Coring Program

Stored Product Composition

Abandonment Procedures

Plugging and Abandonment Schematics

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TOC (Cont’d)

DOCUMENTATION TO DEMONSTRATE COMPLIANCE WITH SAFETY RULES

Standard Operating Procedures

Emergency Response Manual

Area of Review (AOR)

Well Records

GENERAL INFORMATION

Administrative Information

Maps and Figures

AOR, Storage Well Locations, Property Owners, Mineral Lease Holders / Operators

Aerial Photograph Illustrating the Storage Facility’s Layout and AOR

Surrounding Communities, Nearest Residences, USGS Topographic Map 7.5

Minute Quadrangle Where the Facility is Located

APPENDIX A – ELECTRIC LOGS

APPENDIX B – STRATIGRAPHIC AND HYDROGEOLOGICAL DATA …


Permitting Responsibility

FERC Pre-Filing Procedures, including Open Season

FERC 7(c) Application (environmental & commercial)

Other Regulatory

Land and ROW acquisition & condemnation

Storage

Items within dashed border = SSO scope
