Newest US refinery cuts rates as market slumps

By Ernest Scheyder

HOUSTON, May 5 (Reuters) -- The owners of a North Dakota refinery that was the first to be built in the US since the 1970s have curtailed output and may try to sell it, the latest victim of the oil price slump roiling the energy industry.

MDU Resources and Calumet Specialty Product Partners, which jointly own the refinery, said on Wednesday the refinery is running at 75% capacity due to high operating costs and slipping demand for diesel, its main product.

"In light of current market conditions, we are assessing various options with respect to our ownership interest in the refinery," Dave Goodin, MDU's chief executive, told investors on Wednesday.

MDU said it lost $7.2 million on the refinery, which opened a year ago, during the first quarter.

The pullback and sale potential is a reversal of fortune for a state that had prided itself on leading the North American energy renaissance.

MDU and Calumet had hoped that strong regional demand for the engine fuel would justify the project's cost when ground was broken in Dickinson in 2013. Construction delays, weather and other factors pushed the final cost to about $430 million, about 40% above initial estimates.

Before the Dickinson refinery's construction, North Dakota had only one refinery and was importing much of its diesel from the US Gulf Coast.

The oil price slump has eroded demand for diesel across North Dakota as fewer wells are brought online, thus resulting in fewer diesel-powered trucks and other equipment in operation.

Beyond North Dakota's pain, the refinery industry itself is stressed, an unusual situation as it is historically boosted by cheap crude. Growing fuel inventories and weak demand are now hammering refiners both large and small, turning a typical advantage on its head.

To operate the refinery, MDU supplied oil from its own drilling operations, and Calumet, which runs several refineries throughout the United States, helped run it.

Calumet said the company has started a "comprehensive review of our existing assets," including the North Dakota refinery.

"We believe every asset in our portfolio must be financially self-reliant to remain part of this long-term portfolio," Calumet CEO Tim Go said in a statement.

The weak performance from the MDU/Calumet facility likely will cool efforts by others in the state, including the three affiliated American Indian tribes of the MHA Nation, who had hoped to build their own North Dakota refineries.