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Tesoro Acquires Bakken Refinery in North Dakota From MDU Resources

A unit of San Antonio, TX-based Tesoro Corp. on Tuesday acquired the Dakota Prairie Refinery in the Bakken Shale play in North Dakota from a unit of Bismarck-based MDU Resources Group. The new refinery opened last year and was losing money for MDU.

Tesoro Refining & Marketing Co. LLC acquired the refinery near Dickinson, ND, from MDU's WBI Energy Inc., which was an equal partner in the facility with a subsidiary of Calumet Specialty Products Partners LP, from which WBI on Monday acquired the remaining 50% interest prior to the sale of 100% to Tesoro. Dakota Prairie is located 100 miles west of Tesoro's other Bakken refinery at Mandan.

In consideration of the purchase, Tesoro is ensuring the continued servicing of the Dakota Prairie facility's $66 million term loan debt and contributing approximately $10 million toward working capital, Tesoro said in announcing the purchase. MDU Resources said it anticipates an after-tax impairment in the second quarter from these discontinued operations in the range of $150 million-$160 million, subject to customary closing adjustments.

Tesoro CEO Greg Goff said the refinery acquisition provides his company with "new opportunities for continued growth." Tesoro has plans to "drive substantial improvements" at Dakota Refining, and they will be started this year, Goff said.

Goff said Tesoro expects to generate "more than $20 million in annual operating income" from Dakota Prairie, "even if the current economic conditions continue." He said Tesoro expects to create system-wide commercial and feedstock optimization, increased efficiencies in distribution, and reduced transportation/refining costs.

Last summer, MDU Resources opened the 20,000 b/d capacity diesel refinery as a joint venture with Calumet Specialty Products, a hydrocarbon products firm (see Shale DailyJuly 23, 2015). The facility was the first new refinery opened in the United States in several decades, producing badly needed ultra-low sulfur diesel for North Dakota's oil/natural gas and agricultural operations, along with several feedstocks.

During a 1Q2016 earnings call, MDU senior executives indicated they were considering a sale of the diesel refinery. CEO David Goodin reported a $7.2 million 1Q2016 loss for MDU's 50% interest (see Shale Daily, May 5).

Earlier this year, a California-based firm, privately held Meridian Energy Group Inc., made initial filings to develop a refinery in the Bakken Shale play in Billings County, ND (see Shale Daily,March 24). Irvine, CA-based Meridian's proposed Davis Refinery is slated for a 620-acre site near Belfield, ND, near a highway, rail and pipeline transportation outlets. Backers acknowledge that longer term, the project will require infrastructure enhancements in the area.

According to MDU, the Dakota Prairie facility is capable of processing up to 20,000 b/d of Bakken crude oil and can produce approximately 8,000 b/d of diesel fuel, as well as the byproducts naphtha and atmospheric tower bottoms. The refinery employs approximately 75 people.

“The refinery is operating well, which is a testament to the good work our employees have done in starting up and running the plant,” Goodin said. “Despite strong operations, the financial results from the refinery have been challenged because of low commodity prices. As a publicly traded corporation and a long-time North Dakota company, we felt a responsibility to our shareholders and to the state to find a solution that addressed the refinery’s financial challenges while ensuring it would continue operating and contributing to its neighboring communities and the state.

“Selling the refinery reduces our risk by decreasing our exposure to commodity prices, and it allows us to sharpen our focus on the growth opportunities at our ongoing businesses,” said Goodin, noting that his utility holding company has a five-year $1.5 billion capital investment plan at the regulated utility businesses, and it recently announced a $50 million potential natural gas pipeline expansion project in North Dakota (see Daily GPIJune 14).

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