Bakken refinery struggles alongside producers
Dakota Prairie, a 20,000 b/d refining joint venture of MDU Resources and Calumet Specialty Products Partners that began operating in April, posted a $19.1mn loss in the third quarter. The joint venture owners expected to supply roaring Bakken producers operating heavy equipment starved for diesel. But their outlook has collapsed with drilling activity in the North Dakota fields.
"We are experiencing a narrower margin than we anticipated," Calumet interim chief executive Bill Hatch said in a call to discuss earnings. "We're still hoping that will come back, but it will probably take an increase in rig count for that demand to come back to that level — at least to the level it was."
At full rates, Dakota Prairie produces 7,000 b/d of diesel, 6,500 b/d of naphtha shipped to Canada for diluent and 6,000 b/d of atmospheric bottoms shipped to a Calumet refinery in Montana for processing through a hydrocracker. MDU Resources anticipated gross earnings of $60mn to $80mn at the facility, and considered a second refinery at similar scale as an April startup approached last year.
"Demand for diesel in North Dakota continues to be well above local supply levels," chief executive Dave Goodin said in February.
But upstream activity supporting that demand withered. Rig activity in the oil-rich Williston basin of the Bakken formation has fallen by 71pc from a 2012 peak of 219, and by roughly 30pc since the refiner began operating in April, according to data compiled by service company Baker Hughes. The drop has crushed demand as the refinery works through startup costs and operational issues.
Calumet Resources earlier this month did not include the refinery in a presentation of growth projects that came online in 2015 and expected to produce revenue.
MDU Resources still expects the refinery to become profitable. Dakota Prairie has begun making a winter-grade diesel that MDU Resources expects could earn a 10?/USG to 20?/USG premium to other diesel. Contractor expenses will drop off next year as the facility gains more operating experience and needs fewer start up personnel, joint venture chief executive Martin Fritz said last week. Repairs to a hydrogen plant and optimization projects cut run rates during the third quarter. And minor projects could increase throughputs at the refinery to the crude unit's 30,000 b/d capacity, the company said.
"In the long run, we expect market conditions for the refinery to recover," Goodin said.
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