Tesoro Corp. affiliate Tesoro Refining & Marketing Co. LLC has completed a deal with WBI Energy Inc., a subsidiary of MDU Resources Group Inc., Bismarck, ND, to become 100% owner of Dakota Prairie Refining LLC (DPR), the former MDU Resources-Calumet Specialty Products Partners LP joint venture that operates a 20,000-b/d diesel refinery near Dickinson, ND.
To execute the transaction, WBI acquired Calumet’s 50% membership interests in DPR on June 27, the same day on which it completed its sale to Tesoro, MDU Resources said in a filing to the US Securities & Exchange Commission.
As consideration for the purchase, Tesoro is ensuring continued servicing of DPR’s existing $66-million term-loan debt as well as contributing about $10 million toward working capital, the San Antonio-based independent operator said.
With the sale of the refinery, MDU Resources said it expects an aftertax impairment in the range of $150-160 million in this year’s second quarter, subject to customary closing adjustments, as a result of its discontinued refining operations.
Despite the plant’s strong and smooth operations, MDU Resources decided to shed the Dickinson refinery as a result of its poor financial performance due to low commodity prices, according to David L. Goodin, MDU Resources president and chief executive officer.
Alongside reducing exposure to commodity prices, the refinery sale will enable MDU Resources to focus on other growth opportunities, which include a $1.5-billion, 5-year capital investment plan at its regulated utility businesses as well as a $50-million potential natural gas pipeline expansion project in North Dakota, Goodin said.
The first US refinery to be commissioned in nearly 40 years upon its startup in May 2015, the Dickinson refinery processes nearby Bakken crude feedstock to produce about 8,000-b/d of ultralow-sulfur diesel (ULSD), naphtha, and atmospheric tower bottoms.
Last year and as recently as early 2016, MDU Resources was evaluating operational improvements to the refinery that could increase its daily processing capacity and profitability.
In its 2015 annual report to investors issued in February, however, MDU Resources warned that increased crude feedstock costs as well as weaker demand for diesel and naphtha amid ongoing reduced oil field activity in the region likely would continue to negatively impact the refinery’s profitability.
For Tesoro, which operates its 74,000-b/d Mandan refinery about 100 miles east of the Dickinson refinery, the recent acquisition presents new opportunities for continued growth in the region.
“We have already identified plans to drive substantial improvements [at the refinery], and we are prepared to execute on these plans in 2016,” said Greg Goff, Tesoro chairman, president, and chief executive officer.
Proposed improvements include system-wide commercial and feedstock optimization, increased efficiencies in distribution, and reduced transportation and refining costs.
Even if currently weaker economic conditions persist, Tesoro expects its improvement plan for the Dickinson refinery will help generate more than $20 million in annual operating income from the business, Goff added.
Tesoro, which plans to utilize naphtha and resid produced by the refinery in its integrated refining system, said it will continue to market ULSD produced at the plant to local customers.
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