NEW YORK (TheStreet) -- I was talking to Joe Deaux Wednesday about the latest merger deal between Western Refining (WNR) and Northern Tier Energy (NTI). It is a strongly accretive deal that adds fuel to my thesis that the refining space is right now the strongest sector of the oil patch.
What Western did is unique in that it gives it a strong access point, through NTI's 535,000 gallon pipeline, to cheap Bakken crude oil, to fuel its refineries to stronger margins. But the process by which refiners and midstream companies are using the capital markets and the MLP structure to unlock share value is not unique. Already there have been more than a dozen MLP creations of midstream and refining assets undertaken by refiners and by integrated oil companies that are spinning off downstream units.
This takes advantage in two ways, one that uses the tax advantages of the MLP and another that continues to keep the parent company as a significant limited partner in the new company.
This is undoubtedly the reason that WNR bought the 37% stake in NTI -- the plan is to add NTI's one refiner to its own two refineries and spin off an MLP. They will also likely drop down the NTI pipeline into their own midstream MLP, Western Refining Logistics (WNRL).Call these accounting tricks or not, but they have been widely successful methods of unlocking value in refining companies all year and should continue to work through the first half of 2014. It is another reason that I believe refining stocks continue to be great investments to own right now. I talk more about refining stocks with Joe in the video above.
At the time of publication, Dicker was long TSO, but positions can change at any time. This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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