Tesoro expects continued growth in Bakken's core

OREANDA-NEWS. December 10, 2015. Bakken crudes remain valuable on the west coast, US independent refiner Tesoro says as it nears a regulator decision on a massive Washington oil terminal and as arbitrage for the movement erodes.

Superior yields compared to other west coast crudes still offer a \\$3/bl to \\$5/bl benefit for refiners running Bakken on the west coast, Tesoro chief executive Greg Goff said today during the refiner's annual analyst day. But the movement had lost some of the strength it showed when Tesoro first proposed a 360,000 b/d joint venture terminal in Vancouver, Washington, Goff said.

"We see economic value to moving it here, but it's not as great as when the Bakken differentials were blown out, that's for sure," Goff said.

Tesoro has for years pursued increased access for its west coast refining system to North Dakota production of light, sweet crude. Midcontinent shale offered a critical new option for refiners locked in to waning Alaskan North Slope (ANS) production or waterborne barrels. Washington refiners including Tesoro were among the first to jump on railed deliveries of Bakken barrels before concerns over safety and environmental hazardous dramatically slowed crude offloading projects in the region.

Midcontinent production proved both better yielding and less costly than than ANS. But that advantage has withered with global oil prices, inverting to Bakken's highest premium to ANS since the movement began in 2012, based on Argus assessments. Over the 31 months since Tesoro made its pursuit of the Vancouver Energy project public, Bakken delivered by rail to the coast has flipped from a more than \\$10/bl discount to ANS to \\$6/bl above the west coast benchmark in late November.

Tesoro has only solidified its position in the Bakken as the prices have dropped. Volumes across gathering lines in its North Dakota logistics business increased 30pc this year compared to 2014, the refiner said. The company plans to acquire in the first quarter next year a 154,000 b/d railed crude loading system and gathering and pipeline assets near its existing infrastructure in the Bakken.

Tesoro does not expect the low prices affecting Bakken production to change much in 2016. But the lower cost to move barrels to the west coast versus the Atlantic coast should over time sustain movements of midcontinent crude to California and Pacific northwest refineries, Goff said.

The company hopes for approval to begin construction at Vancouver next year.