Tesoro acquires Flint Hills marketing operation

Tesoro will acquire Flint Hills Resources’ fuels marketing and logistics facilities in Alaska, the company announced Nov. 23. The Interior Alaska refinery closed by Flint Hills in April 2014 is not included in the transaction.

Tesoro operates a refinery at Nikiski, on the Kenai Peninsula in southern Alaska.

“This investment represents our commitment to efficiently and reliably serve customers in the state of Alaska, said Tesoro CEO Greg Goff in a statement.

“We have been part of the Alaska community since 1969 and over the last five years we have invested $300 million in our Alaska facilities. We look forward to continuing our operations in the state.”

Under the deal Tesoro will acquire Flint Hllls’ wholesale fuel marketing contracts in Alaska, a terminal in Anchorage with 580,000 barrels of storage capacity, truck racks and rail-loading facilities.

A 22,500-barrel capacity jet fuel storage facility at the Fairbanks International Airport in the state’s Interior is also included as well as access to rail offloading facilities in Fairbanks that will provide Tesoro better access to the Interior market, according to the company’s statement.

The transaction is expected to close in 60 days, Tesoro said. No purchase price was given.

Tesoro has been supplying diesel and jet fuel to Flint Hills for that company’s Interior Alaska customers since Flint Hills shut down operations at its refinery at North Pole, east of Fairbanks.

“What’s important to us is to be as close to our customers are possible, and this transaction allows us to connect our refinery more efficiently to people we serve in Fairbanks,” through Flint Hills, said Nate Weeks, Tesoro’s vice president for strategy and business development.

Tesoro has been investing corporate-wide in infrastructure and logistics in recent years and the new acquisition in Alaska fits that strategy, said Weeks.

An important aspect of the purchase is that the former Flint Hills bulk fuel facilities and logistics chain will be open to third parties to use under contract, which is not currently possible with Flint Hills, Weeks said.

As an example, a large volume customer could contract to store its fuel in the Anchorage or Fairbanks fuel terminals. Now only Flint Hills-owned products are stored.

Tesoro does this at many of its other Lower 48 terminals and even at storage facilities near its Nikiski refinery.

“Obviously this is on a space-available basis, but we want to make it available because there is limited fuel storage capacity in the market and we don’t want to appear to be choking off competition by buying more storage capacity,” he said.

Flint Hills’ refinery was closed mainly for economic reasons and Flint Hills would like to sell the refinery, the company has said, but buyers are reluctant because of potential liability for soil and groundwater contamination at the site. Flint Hills is currently engaged in a protracted negotiation with Williams Co., a previous owner of the refinery, over cleanup costs.

Tesoro’s Nikiski refinery has a capacity to process up to 72,000 barrels per day of crude oil and makes a full range of products including gasoline, jet fuel and ultra-low sulfur diesel.

The Nikiski refinery is connected to Anchorage with a 69-mile, 48,000 barrels-per-day pipeline, which gives the company the ability to ship jet fuel to air carrier customers at Ted Stevens Anchorage International Airport by pipeline.

The Flint Hills refinery in Fairbanks, in contrast, could make jet fuel and gasoline but not ultra-low sulfur diesel, which put the plant at a competitive disadvantage. Flint Hills also had to ship its jet fuel to Anchorage, to customers at the airport, by rail, which is less efficient than Tesoro can do with its pipeline.

At one time Tesoro considered closing its Nikiski refinery because of high costs and supplying Alaska customers from Washington State but the plan was shelved. The Nikiski refinery is now benefitting from a surge of new oil production in Cook Inlet, which allows Tesoro to reduce imports of crude from other regions.

The refinery was originally designed to process Cook Inlet crude.

Tim Bradner can be reached at [email protected].

11/24/2015 - 2:48pm