Providing coverage of Alaska and northern Canada's oil and gas industry
June 2007

Vol. 12, No. 25 Week of June 24, 2007

‘Gorilla’ project unveiled

U.S. oil refinery would be first in three decades; cost ranges from $8-to $10B

Ray Tyson

For Petroleum News

After months of speculating among farmers and community leaders near Elk Point, S.D., the so-called “Gorilla” project has finally been unmasked: a huge 400,000 barrel per day “green” oil refinery and related energy facilities that could take a decade to fully develop and cost upward of $10 billion.

Gorilla, so named because of the project’s immense size, also could be the first oil refinery to be constructed in the United States in more than 30 years.

So secret was the project that South Dakota Gov. Mike Rounds kept Gorilla under wraps for competitive reasons until its formal announcement on June 13 by project sponsor Hyperion Resources, a little known private oil and gas company based in Dallas, Texas.

“This is not your grandfather’s oil refinery,” Rounds said in a prepared statement. “This is a major technological breakthrough that will set an example for all future energy development centers.”

Hyperion project executive J.L. “Corky” Frank, former president of Marathon Ashland Petroleum, said Hyperion intends to build “the most environmentally sound energy center in the United States.”

“Gas prices are the highest in U.S. history, and the U.S. refining infrastructure hasn’t seen a significant change since 1976,” he said. “The fact is refining capacity in this country has not kept pace with demand. We believe there’s a growing belief among people in this country that North American oil should stay in North America.”

Elk Point, S.D., on short list

Elk Point, a farming community located in Union County, S.D., is said to be on a short list of areas being considered for the Hyperion energy center. Other possible locations were not disclosed.

“The Union County site is sufficiently attractive that we’ve taken several options on land there, and we may take a few more,” Frank said. The company said it hoped to decide on a location within the next 12 months.

Concerned local resident Kim Quam, who posted a Web site (www.elkpointgorilla.com) to track the project and provide updated information, said Gorilla representatives are trying to acquire options on mainly farm land in an area that encompasses 20 square miles. Approximately 2,000 acres would be covered by the facility and the remainder would be considered a “buffer zone,” he added.

“The project had been shrouded in mystery and there was very little actually known about the project,” Quam says on his Web site. “Although the name Hyperion and the nature of the project are now known, there are still many questions that remain unanswered.”

In announcing the refinery plan, Hyperion left out details including financial sources for the estimated $8 billion to $10 billion refinery project.

Bloggers weighing in on Quam’s Elk Point Gorilla Web site appear to be divided over having a large refinery in their community, with the pros often citing the importance of new jobs and the cons largely worried about pollution and foul-smelling air from the refinery.

“How about a little regard for the people who own land near the prospective refinery,” one blogger commented. “While the people within the optioned land will get paid, the people nearby will see their land values plummet. So much for caring about your neighbors.”

Oil refinery would be central component

The central component of Hyperion’s energy center would be the oil refinery, which Hyperion said would process roughly 400,000 barrels of oil per day “into clean, green transportation fuels,” including ultra-low sulfur gasoline and ultra-low sulfur diesel.

“The refinery will use only the best available environmental technologies and will go the extra mile to protect the environment, particularly air and water quality,” the company promised.

Construction of the refinery would employ an average of 4,500 workers over a four-year period, with a peak of about 10,000. When operational, the refinery would provide about 1,800 full-time, “good-paying jobs, complete with benefits,” the company said, adding that the refinery would process heavy crude oil from Canada and ship it to markets in the United States.

Additionally, the company said the integrated refinery would incorporate a power plant with the latest technology, consuming petroleum coke byproduct from the refinery to supply hydrogen, steam and electricity to the refinery itself.

Leveraging integrated gasification combined cycle technology, the state-of-the art in power production, emissions would be substantially lower than conventional power generation plants, Frank said.

In addition to Hyperion’s refinery, the energy center is being designed to incorporate a broad range of other facilities, depending on the markets and what’s most appropriate for the region. Hyperion said it would demand that any other companies siting facilities at the center must also meet the company’s highest standards for environmental protection.

“Our proposal addresses all those issues and does it in a way that has never been done in this country,” Frank said. “Hyperion is ready to step in to fill this need for additional refining capacity.”

The Gorilla project, near the Missouri and Big Sioux rivers, would also use 12 million gallons of river water per day for cooling purposes, Union County commissioners have been told.

No third-party pipeline in immediate area

Though Hyperion says the company plans to use Canadian oil for feedstock, it’s unclear just how Hyperion would actually tap into the resource, with no third-party pipeline system in the immediate area of Elk Point to transport the product to market. Reportedly, a Hyperion representative said the project is of sufficient size to build and operate its own pipeline.

He also said that if needed, undisclosed pipeline operators told Hyperion that a bullet line could be constructed from Alberta, Canada, to the Gorilla refinery.

However, Hyperion spokesman Eric Williams reportedly said that neither Marathon nor TransCanada has any involvement in the refinery plan. But he said that in addition to Frank, the Hyperion refinery team includes two other former Marathon executives: Carl Clay, a former president of Marathon Pipe Line Co.; and Dick White, a former senior vice president of marketing for Marathon.

Hyperion describes itself as an oil and gas company that has “made its mark by achieving maximum value from challenging properties including mature energy fields.” The company is said to be headed by Albert Huddleston, an oil patch veteran.

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