Refiner and marketer of refined products, Tesoro Corporation (TSO) plans to increase the crude-oil processing capacity of its Mandan refinery to 68,000 barrels per day (bpd) from the current level of 58,000 bpd. Over the last three years, the North Dakota based refinery generated an average throughput of about 52,000 bpd. The expansion is expected to be completedby the second quarter of 2012 and cost around $35 million.
The facility, which was constructed in 1954, gets its supply of crude from the Williston Basin in Montana and North Dakota through pipelines. The refinery distributes the converted refined products (gasoline, diesel, jet fuel, propane, butane and residual fuel) to customers in Dakotas, Minnesota and Wisconsin.
Tesoro intends to expand the supply of crude oil to the plant with supplementary volume from the adjacent Bakken Shale/Williston Basin area via the Tesoro High Plains Pipeline system.
Last week, Tesoro management reported that repair works at the Mandan refinery has been completed, following the break out of a fire at the gasoline-producing unit in mid-January. Although, the accident lowered the plant’s output by 10%, it was able to meet the supply obligations of its customers.
The refinery expansion is a part of the company’s strategy to capture growing drilling activities and higher production in the Bakken Shale and Three Forks formations. Tesoro also aims to form a strong foothold in the less competitive region of Northern Great Plains, through the enhancement of its refining and marketing business.
In recent times, major independent refiners are appraising their downstream portfolio by boosting their refinery capacities. A few days back, Valero Energy Corporation (VLO) announced capacity expansion plans at the Sunray, Texas based McKee by 25,000 bpd to 195,000 bpd over the next three years.
Given the overall improved refining margins scenario and Tesoro’s initiatives to sharpen its performance and competitiveness in a cost-effective manner, we believe the company is set to move ahead of its peers. Hence, we maintain a long-term Outperform rating on the stock.
Tesoro currently retains a Zacks #2 Rank (short-term Buy recommendation).
TESORO CORP (TSO): Free Stock Analysis Report
VALERO ENERGY (VLO): Free Stock Analysis Report
Zacks Investment Research
