Tesoro

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.

The 20 Mb/d Dakota Prairie refinery commenced operation on May 4, 2015 – becoming the first brand new U.S. crude processing plant to startup in nearly 40 years. The rationale behind this refinery and plans for others like it was surging demand for diesel driven by the shale oil boom in North Dakota. However the market conditions that prompted interest in building refineries in the Bakken region have changed considerably in the past year and led to an unprofitable first quarter for Dakota Prairie. Today we explain why the new refinery made sense at one time and what has changed in the past year.

In 2015 Alaskan crude has enjoyed something of a change in fortunes compared to the past few years – when shale production seemed to threaten its future. Production was up by over 50 Mb/d in the first 4 months of 2015 (according to the Energy Information Administration – EIA). The market share of Alaskan crude in West Coast refineries also crept up by 1% this year compared to 2014 at a time when crude throughput at those refineries increased. Today we discuss the changes and whether they are likely to continue.

Refineries in the Rocky Mountains region, defined by the Energy Information Administration (EIA) EIA as Petroleum Administration for Defense District (PADD) IV, are smaller and less complex than they are in the rest of the U.S. The region is landlocked and the 16 refineries – average size only 42 Mb/d - rely on U.S. light sweet crude produced locally or in North Dakota as well as Western Canadian heavy crude. The combination of rich supplies of crude and increased demand for refined products such as diesel means that refinery margins are high. These healthy economics are encouraging refinery expansions. Today we examine these plans.