Fundamental Stock Analysis: Northern Tier Energy LP (NTI)
A fundamental analysis of Northern Tier Energy LP (NTI) is primarily a historical case study for investors, as the company is no longer a publicly traded entity. NTI was acquired by Western Refining Inc. in a transaction completed on June 23, 2016. Western Refining was subsequently acquired by Tesoro, which later rebranded as Andeavor, and is now part of Marathon Petroleum Corporation (MPC).
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| Fundamental Stock Analysis: Northern Tier Energy LP (NTI) |
Therefore, the NTI common units (NYSE: NTI) are delisted and inactive. Any "fundamental analysis" must focus on the business model, financial dynamics, and market positioning it held prior to its acquisition, as its former assets and operations are now integrated into MPC.
I. Business Model Before Acquisition (2010–2016)
Northern Tier Energy was structured as a Master Limited Partnership (MLP), a type of business entity common in the energy sector that typically distributed a significant portion of its cash flow to unitholders (equivalent to shareholders).
A. Core Assets
NTI was a vertically integrated downstream energy company serving the Petroleum Administration for Defense District II (PADD II) region, primarily in the U.S. Midwest. Its operations were split into two main segments:
Refining Business: The flagship asset was the St. Paul Park refinery in Minnesota, which had a capacity of approximately 97,800 barrels per stream day. The refinery was flexible, capable of processing light, heavy, sweet, and sour crude oils.
Retail Business: NTI owned and operated a network of convenience stores and gasoline stations under the SuperAmerica brand, along with related logistics and transportation assets like pipelines and terminals.
B. Competitive Advantage: Crude Oil Differentials
As a refiner, NTI’s profitability was heavily influenced by the crack spread—the difference between the price of crude oil (the input) and the price of refined products (the output, like gasoline and diesel). NTI had a unique advantage due to its location:
Access to Cheap Crude: The St. Paul Park refinery was positioned to access discounted Canadian crude oil and Bakken shale crude via pipelines and rail.
Favorable Differentials: This access allowed NTI to source its input crude at a significant discount compared to benchmark crudes like Brent or West Texas Intermediate (WTI), leading to superior gross margins compared to coastal refiners.
II. Quantitative Analysis Highlights (Pre-2016)
As an MLP, NTI's financial performance was characterized by high cash flow generation and distribution consistency, though it was highly susceptible to commodity cycles.
A. Revenue and Earnings Volatility
Cyclicality: Revenue and net income were highly volatile due to their direct exposure to the cyclical nature of the refining industry and the crack spread.
Example (2014): NTI reported substantial revenue (around $5.56 billion) and net income (around $241.6 million), but these figures fluctuated year-to-year based on crude oil prices and demand for refined products.
B. Focus on Distributable Cash Flow (DCF)
For an MLP, the key metric for fundamental value was not EPS but Distributable Cash Flow (DCF).
High Payout Ratio: NTI, like most MLPs, was structured to pay out most of its available cash to unitholders, making its distributions a primary factor for investors.
Variable Distributions: The distributions were variable; they were not fixed dividends but rather payments based on the quarterly DCF, making NTI an attractive but risky income investment.
C. Valuation Drivers (The Acquisition Thesis)
The ultimate fundamental analysis of NTI rested on its acquisition value. Western Refining's move to acquire the remaining publicly-held units was fundamentally driven by three factors:
Simplification: Consolidating the MLP structure into a single C-Corp simplified tax and corporate reporting.
Margin Capture: Gaining full control of the high-margin St. Paul Park refinery and its discounted crude advantage.
Vertical Integration: Securing the retail SuperAmerica assets provided a stable outlet for the refinery's products, insulating the combined entity from some wholesale market volatility.
The final deal was valued at approximately $2.52 billion in late 2015, representing a significant premium to the trading price at the time, reflecting the market value of its strategic, high-quality assets.
III. Legacy and Modern Relevance
While NTI no longer exists as a stock, its legacy assets continue to be a valuable part of its acquirer's portfolio.
SuperAmerica Brand: The retail assets were initially merged into Western Refining's network and later into the massive Marathon Petroleum portfolio, ensuring the refinery had a built-in customer base.
Refining Capacity: The St. Paul Park refinery remains a crucial asset in the PADD II region, maintaining its logistical advantage in accessing favorable crude oil supplies.
For modern investors, NTI serves as an example of an energy MLP that successfully executed its lifecycle from IPO to full acquisition, providing unitholders with strong distributions and a profitable final exit.
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