Strong MLP - Price Down And Production Back Up

Nov. 6.13 | About: Northern Tier (NTI)

Northern Tier Energy LP (NYSE: NTI) opened on November 6, 2013 at $22.96, which is down 10.14% for the year, with a stock price range of 17.83 - 33.24 over the last 52 weeks. NIT's value dropped over the last quarter due to the fire at the St. Paul Park Refinery, but that has been repaired and production is back up to full operating capacity.

Over the last year, NTI has paid quarterly distributions of $1.48, $1.27, $1.23 and $0.68 respectively, which totals $4.66 for the year and a 20.3% return based on the current stock price. 3Q's distribution will likely be lower because of the September 22, 2013 fire that damaged part of the larger crude distillation unit. Repairs were complete by

October 14, 2013 and the refinery is back to full production. This is a statement from the company's website:

"All repairs related to the previously announced fire in late September have been completed and both crude towers are fully functional at this time. The cost of the repairs amounted to less than $3 million. Since October 14, the Company's Saint Paul Park Refinery has been operating at a crude oil charge of between 85,000 - 90,000 barrels per day ("bpd"), which is consistent with throughput constraints related to the planned Fluid Catalytic Cracker ("FCC") turnaround currently being performed. Northern Tier Energy expects to complete the FCC turnaround by the end of October, at which point the Company is expected to resume full operations. The Company will provide further detail and fourth quarter throughput guidance on its third quarter earnings call, which will be held on November 12, 2013. Third quarter throughput amounted to approximately 81,000 bpd."

Based on their statement of 81,000 bpd production for the third quarter, the earnings and profit are expected to be slightly down, but the company should still produce a profit for the quarter and a distribution for its investors. The good news here is since the stock price has dropped due to the fire and expected decrease in the distribution, the buy-in price to own more shares is better than two months ago. Fourth quarter production should range in the higher bracket due to catching up on production and with the company focus on safety we expect an excellent quarter.

With the crack spread being a revenue generator for the company, Northern Tier has the potential to process low-price crude oil and generate a better cash flow through a higher crack spread. The company states on its website that due to the "Refinery's strategic location allows it direct access, primarily via the Minnesota Pipeline, to what the company believes are abundant supplies of advantageously priced crude oils. Many of these crude oils have historically priced at a discount to NYMEX WTI."

At the open on November 6, 2013 the spread between Brent priced at $105.64 per barrel and WTI at $93.72, is $11.92. This spread allows refineries to purchase crude at lower prices and market refined products at better prices, providing increased profits. This spread has been growing over the last month and if it holds here or continues to grow, NTI will do extremely well in the fourth quarter.

Northern Tier Energy will report its financial results and provide quarterly distribution details to common unit holders for the third quarter of 2013 on November 11, 2013, following the market's close. The Company will also host a conference call to discuss its third quarter 2013 results on Tuesday, November 12, 2013 at 11:00 am Eastern Time. Callers may listen to the live presentation, which will be followed by a question and answer segment, by dialing 800-237-9752 or 617-847-8706 and the passcode 31834776. An audio webcast of the call will be available at within the Investor portion of the site under the Calendar of Events section. This audio webcast will be available on the website for fourteen days after the conference call. A replay will also be available by teleconference for seven days from the conference call. The replay teleconference will be available by dialing 888-286-8010 or 617-801-6888 and the passcode 98333364.

Northern Tier Energy's refining business primarily consists of an 89,500 barrels per calendar day (92,500 barrels per stream day) refinery located in St. Paul Park, Minnesota. The refinery's complexity allows it to process a variety of light, heavy, sweet and sour crudes into higher value refined products. The St. Paul Park Refinery is one of only two refineries in Minnesota and one of four refineries in the Upper Great Plains area within the PADD II region. The PADD II region covers Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Ohio, Oklahoma, Tennessee and Wisconsin. The refinery's strategic location allows it direct access, primarily via the Minnesota Pipeline, to what the Company believes are abundant supplies of advantageously priced crude oils. Many of these crude oils have historically priced at a discount to NYMEX WTI. Further, over the past twelve months, NYMEX WTI has traded at an additional discount relative to waterborne crude oils such as Brent, which has contributed to strong refining margins at the St. Paul Park refinery.

The Company expects to continue to benefit from access to these growing crude oil supplies. By 2030, according to the CAPP, total Canadian crude oil production is expected to grow to 6.2 million bpd from 2011 production of 3.0 million bpd. Crude oil production from the Bakken Shale in North Dakota has also increased significantly, helping to grow crude oil production in North Dakota from approximately 98,000 bpd in 2005 to approximately 769,000 bpd as of December 2012, and is expected to continue to grow due to improvements in unconventional resource production techniques. The refinery's location also allows it to distribute its refined products throughout the Midwestern United States. The refinery produces a broad slate of refined products including gasoline, diesel, jet fuel and asphalt, which are then marketed to resellers and consumers primarily in the PADD II region.

Northern Tier Energy also owns various storage and transportation assets, including a light products terminal, a heavy products terminal, storage tanks, rail loading/unloading facilities and a Mississippi river dock. The refining business also includes a 17% interest in the Minnesota Pipe Line Company, which owns and operates the Minnesota Pipeline, a 455,000 bpd crude oil pipeline system that transports crude oil (primarily from Western Canada and North Dakota) for approximately 300 miles from the Enbridge pipeline hub at Clearbrook, Minnesota to the refinery. The Minnesota Pipeline has historically transported the majority of the crude oil used and processed in the refinery.

Retail Businesses

As of June 30, 2013, the retail business operated 163 convenience stores under the SuperAmerica brand and also supported 73 franchised convenience stores, which are also operated under the SuperAmerica brand. These convenience stores are located primarily in Minnesota and Wisconsin and sell various grades of gasoline and diesel products and immediately consumable items. The refinery supplies substantially all of the gasoline and diesel sold in the company-operated and franchised convenience stores. Northern Tier Energy also owns and operates SuperMom's Bakery, which prepares and distributes baked goods and other prepared food items for sale in the company-operated and franchised convenience stores and other third party locations.

As an investor, like many of my readers, I look for investments that provide a double-digit return and protect my principle. NTI just had a fire, a negative event that decreased their income, reduced the quarterly distribution to all of us investors, and lowered the stock price. Since the company is back to full operations, my intent is to buy more of this stock while the price is lower and take the distributions over the long haul. As you read other articles I have written, you will find I search for, and personally invest in many of my recommendations. Over the years my investments have paid double-digits returns in the combination of dividends/distributions, and stock price increases.

Disclosure: I am long NTI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.