Crude Oil ( ) Brent Crude ( ) Natural Gas ( ) S&P 500 ( ) PHLX Oil ( )

Partnership with Native Son Holdings set to build refinery in North Dakota

Quantum Energy (ticker: QEGY) and Native Son Holdings announced that they plan to form a joint venture in order to construct and operate a 40,000 barrel per day (BOPD) refinery in Berthold, North Dakota. According to a press release from the companies, the JV will be known as “Quantum Native Processing Partners, LLC,” and will be owned by Quantum and Native Son Refining (NSR), a subsidiary of Native Son Holdings.

“Native Son Refining includes a team of engineers who have prepared a construction permit application for a 40 MBOPD facility that doubles our planned capacity. Teaming with NSR on a Berthold site accelerates our plans and is the equivalent of building two of our previously planned facilities,” said Quantum Energy Chairman Stan Wilson.

“Our engineers have successful prior experience with the North Dakota permitting process for refineries and we are excited to lend that capability to Quantum,” said NSR Managing Member Rob Monday. “This alliance with Quantum fast tracks our own previous plans for a 40 MBOPD refinery and is a welcome strategic event to our efforts.”

The companies’ press release also says that the partnership has been approached by a Canadian TSX company for a possible JV to build a 40 MBOPD facility in either Manitoba or Saskatchewan. The release does not indicate which company approached Quantum Energy and NSR, but the companies say talks are ongoing.

Low oil prices driving higher margins at refineries

Quantum Energy has signed two year Option Agreements with landowners in Berthold and Stanley counties of North Dakota, in addition to Baker and Fairview counties in Montana, for refinery sites as the company continues to expand its refining capacity. As much of the rest of the oil and gas industry feels the pressure of lower oil prices, the downstream segment has enjoyed strong margins on the back of lower oil costs.

In the past four years, the top four performing energy companies on the Standard & Poor’s 500 Index have been downstream companies: Tesoro Corp (ticker: TSO), Valero Energy (ticker: VLO), Marathon Petroleum (ticker: MPC) and Phillips 66 (ticker: PSX) according to Bloomberg.

Quantum Energy

All four have seen four-year share returns over 100%, with TSO showing returns of 350%. Refiners have benefited from low-cost feedstock, which is essentially landlocked since U.S. producers are prohibited from exporting crude oil. With nowhere else to sell their production, U.S. E&P companies sell their crude at a discount that might not be seen elsewhere.

Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.