Refiner and marketer of refined products Tesoro Corporation (TSO) plans to invest $50 million to expand its crude oil supply via rail from the Bakken Shale play in North Dakota to its refinery in Anacortes, Washington.
This upgraded rail network will enable the company to minimize its dependence on foreign waterborne feedstock and deteriorating Alaska North Slope production.
Under the project, Tesoro will set up loading and unloading facilities and dedicated rail cars, called unit trains, at its 120,000 barrels per day Anacortes plant. With the completion of the venture, the company expects to increase its daily oil shipment by rail to 30,000 barrels from the current level of 2,000 barrels.
Following the receipt of necessary permits, San Antonio, Texas-based Tesoro will take approximately nine to 12 months to complete construction.
The increase in the supply capacity will aid Tesoro to capture growing drilling activities and higher production in the Bakken Shale. The company also aims to form a strong foothold in the energy sector, through the enhancement of its refining and marketing business.
In another development, Tesoro entered into a long-term deal with Rangeland Energy, LLC for access to the crude oil loading terminal and pipeline facility of the latter in Williams County, North Dakota. The facility that is connected to Tesoro Logistics LP’s (TLLP) High Plains crude oil gathering system will likely come online by the first quarter of 2012.
We remain optimistic on Tesoro given continued favorable trends in the refining industry along with management initiatives to improve reliability and reduce operating costs. Additionally, we believe the company’s strategic actions to improve its performance and competitiveness in a cost-effective manner will drive profitable growth and boost its stock valuation. With these positive factors, we maintain a long-term Outperform rating on the stock.
Tesoro, which faces competition from peers such as Sunoco Inc. (SUN) and Valero Energy (VLO), currently retains a Zacks #2 Rank (short-term Hold rating).
