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.

Refiners operating in the Permian Basin enjoyed healthy margins over the past four years as takeaway pipeline congestion discounted the price of local crude compared to market centers at Cushing, OK or the Gulf Coast. Although that trend reversed for a few months this summer when a shortage of crude at Midland caused prices to spike higher, the market is once again favoring local purchasers. As a result, refiners have invested in infrastructure to increase deliveries of local crude to their refineries as well as leveraging their gathering pipelines to double as takeaway routes for producers shipping outside the basin.  Today we continue our review of Permian infrastructure build out.

Permian crude production is headed to 1.7 MMb/d by the end of 2014. Current hot spots include the Delaware Basin in Northwest Texas and Southeast New Mexico. Two refiners with plants in West Texas and New Mexico are expanding their crude gathering systems to increase local crude processing. They are also looking to increase their toll revenue from crude flows out of the Delaware. Today we look at expanded refinery gathering systems in the Delaware Basin.