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Dakota Prairie Refinery sold to Tesoro at a loss, hurt by oil price slump

The Dakota Prairie Refinery west of Dickinson is shown in this file photo during the day of its grand opening on June 29. The refinery posted $12.6 million losses so far this year after going online in May. (Forum News Service photo by Dustin Monke)

A refinery west of Dickinson 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 and Calumet Specialty Product Partners, 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.

"Selling the refinery reduces our risk by decreasing our exposure to commodity prices," Dave Goodin, MDU's chief executive, said in a statement.

Gov. Jack Dalrymple and both Sens. John Hoeven and Heidi Heitkamp, along with other dignitaries, showed up for the March 2013 groundbreaking in Dickinson.

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.

MDU's board voted to approve the deal on Friday.

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 in Mandan.

The sale price was not disclosed, but Tesoro assumed the refinery's $66 million in debt and said it would invest $10 million.

Tesoro Corp. CEO Greg Goff said in a news release the company expects to generate more than $20 million in income each year from the refinery “even if the current economic conditions continue.”

“Because we have an integrated refining system that includes our Mandan refinery as well as other refineries in our network, we believe we can make improvements in the operations there and efficiencies with distribution and transportation and better utilization of the byproducts at the refinery,” said Destin Singleton, manager of communications for Tesoro.

Tesoro began operating the refinery as of 12:01 a.m. Tuesday, Singleton said.

Singleton said it’s too early to know whether Tesoro will make any changes to the operation of the facility, but she said at this time the plan is to maintain the jobs at the refinery.

“We don’t expect any significant job changes,” Singleton said.

The refinery employs about 75 people.

Gaylon Baker, Stark Development Corp. executive vice president, said he had spoken briefly with Dennis Haider of MDU Resources about employment at the refinery after the sale. Baker said it appeared that most, if not all, of the jobs at the refinery will stay in place.

“They’re going to keep operating refinery and they still needs the workforce it has,” Baker said.

He added that he believed it “makes a lot of sense” for Tesoro to add the Dakota Prairie Refinery to its North Dakota operations and said he intended to speak with the company’s leadership in North Dakota to see if there’s any role for assistance from Stark Development in the transition.

“They have a lot of resources at their disposal, so there might not be room at a local level, but we want to make sure we can help them be as successful as possible,” Baker said.

State Senate Majority Leader Rich Wardner, a Dickinson Republican, said he was “thankful that Tesoro bought it” and called the refinery an important piece of the community.

“I’m glad there was a buyer and I’m glad it was Tesoro, because they’re experienced in refineries,” Wardner said. “We’ve got people who will make it go.”

Wall Street cheered the decision as shares of Calumet rose 5.3 percent to $4.53 while shares of MDU rose 0.5 percent to $23.34.