…hurt by oil price slump
29 June 2016, Houston — A North Dakota refinery that was the first to be built in the United States since the 1970s has been sold at a loss, with profit elusive since it opened last year, as low oil prices took a toll on the region’s energy industry, crimping the appetite for diesel.
The sale to Tesoro Corp, which owns the only other refinery in the state, makes it unlikely another refinery will be built in the United States in the near future, despite the glut of cheap crude due to shale oil production.
Beyond North Dakota, the refinery business in the past year has been hammered by growing fuel inventories, turning a typical advantage – cheap oil – on its head.
MDU Resources Group Inc and Calumet Specialty Product Partners LP, which were equal partners, broke ground on the refinery in 2013, with executives eager to supply diesel to the trucks, drilling rigs and other equipment powering an oil boom North Dakota was then experiencing.
The state’s governor, two U.S. senators and other dignitaries showed up for the groundbreaking in Dickinson, about two hours south of the oil capital of Williston.
Yet construction delays, weather and other factors pushed the refinery’s cost to $430 million, about 40 percent above initial estimates.
The Dickinson refinery was designed to produce only 8,000 barrels of diesel per day, far less than refineries on the U.S. Gulf Coast, and not gasoline or jet fuel.
Despite that small size, it opened later than expected, in May 2015, and started hemorrhaging cash. MDU lost $7.2 million during the first quarter on its investment.
“Selling the refinery reduces our risk by decreasing our exposure to commodity prices,” Dave Goodin, MDU’s chief executive, said in a statement.
To complete the deal, MDU paid off Calumet’s $28.5 million in refinery debt on Monday and absolved Calumet of any environmental obligations, effectively taking full ownership.
MDU then sold the refinery to Tesoro, which owns a refinery near Bismarck, the state capital.
The sale price was not disclosed, but Tesoro assumed the refinery’s $66 million in debt and said it would invest $10 million.
MDU’s board voted to approve the deal on Friday. The company said it expects an impairment charge of at least $150 million.
Wall Street cheered the decision: shares of Calumet rose 5.3 percent to $4.53 while shares of MDU rose 0.5 percent to $23.34.
Tesoro owns more than five refineries around the United States.
*Ernest Scheyder, Jessica Resnick-Ault; Editing – David Gregorio – Reuters