East Bound and Up? - Tesoro's Acquisition of Western Refining

On November 17, 2016, Tesoro Corp., the second-largest independent refiner in the Western U.S., announced an agreement to acquire Western Refining for an estimated $6.4 billion. This is the second acquisition that Tesoro has made this year, following the purchase of the MDU Resources/Calumet Specialty Products Partners’ joint venture refinery in North Dakota. And—ironically, considering the name of the company Tesoro is buying—the Western Refining deal will expand Tesoro’s footprint further east than ever. Today we evaluate the legacy assets of Tesoro and Western Refining and discuss how the two companies will likely fit together.

First, some background on the two parent companies. Western Refining is a relatively small refining company that owns and operates three refineries with a combined capacity of 254 Mb/d, a 1,000-mile-plus network of crude oil and refined product pipelines (and terminals with 12 MMbbl of storage capacity) that support these refineries (either through the parent company or Western Refining Logistics, its sponsored master limited partnership, or MLP), and a good-sized retail network of 545 convenience stores/gas stations. Earlier in 2016, Western Refining completed its announced acquisition of Northern Tier, a company with one refinery in St. Paul, MN, an interest in some pipeline assets, and retail facilities. Western Refining’s other two refineries are located in El Paso, TX, and Gallup, NM.  Figure 1 shows the locations of the legacy Western assets; as you can see, most of its retail operations are in three states (Arizona, New Mexico and Minnesota) plus the El Paso area, and its three refineries are well-positioned to supply its gas stations.

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