Tesoro Affiliate Acquires Refinery Business In North Dakota

Tesoro Refining & Marketing Company LLC, an affiliate of independent refiner Tesoro Corp. (NYSE:TSO) , has purchased Dakota Prairie Refining, LLC. The acquired company is an oil refinery in southwestern North Dakota with strategic access to advantaged Bakken crude oil.

Dickinson-based Dakota Prairie Refinery, which became operational in May, 2015, has a crude oil capacity of 20 thousand barrels per day. The refinery, which has a workforce of around 75,000, has a production capacity of approximately 8,000 barrels per day of diesel fuel. It can also produce byproducts naphtha and atmospheric tower bottoms.

The aforementioned refinery was previously purchased by North Dakota-based MDU Resources Group, Inc. (NYSE:MDU) and Indianapolis-based Calumet Specialty Products Partners LP (NASDAQ:CLMT) for $430 million. However, as low oil prices took a toll on the region's energy industry, the duo lost around $7.2 million during the first quarter on the investment and saw their debt levels rise to approximately $66 million. Hence, the companies sold the refinery to decrease their exposure to commodity prices and to shift their focus toward core operations.

On the other hand, the motivation behind Tesoro’s acquisition of the refinery is to create substantial value for its shareholders and local communities by growing its business in North Dakota, thereby opening up new growth opportunities.

Tesoro, which also owns a refinery in Mandan, ND, about 100 miles to the east, will assume the $66 million debt and invest about $10 million toward working capital of the refinery.

San Antonio, TX-based Tesoro Corporation (TSO) is an independent refiner and marketer of refined petroleum products in the western U.S. A major advantage for the company is the scale and diversification benefits offered by its portfolio of six refineries. Moreover, given that Tesoro is a buyer of crude, its profitability has been favored by the weak input cost.

However, with cost of gasoline, heating oil, and other refined products catching up on the beaten down crude price, crack spreads have come under pressure.

Hence, the company currently carries a Zacks Rank #3 (Hold), which implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.

A better-ranked player in the energy sector is Sasol Ltd. (NYSE:SSL) . The stock sports a Zacks Rank #1 (Strong Buy).