It appears that Northern Tier Energy (NYSE:NTI) was able to join the refining party that was this past quarter. The decline in oil prices has led to uncommonly high refining margins across the country. So, despite a small operational hiccup that kept Northern Tier from running full tilt, it was still able to generate a strong performance compared to last year.

Let's take a look at what went so right for Northern Tier and whether the company can repeat that sort of performance in the coming quarters. 

By the numbers
Northern Tier ended the third quarter with net income of $103.5 million, a 7.6% increase compared to the same quarter last year. That may not sound like a huge improvement, but it also includes a $36.8 million non-cash charge to write down the value of its inventory. After adjusting for this charge, net income for the quarter was actually 46% higher than the same quarter last year. The big reason we can point to for such a drastic improvement is the change in refining margins. In the third quarter, refining margins per barrel of throughput was $24.97, almost 50% higher than this time last year.

Just to add a little icing on top, Northern Tier's retail segment was also able to generate exceptional earnings. Operational profits for the quarter came in at $9.4 million, up from $5.8 million the same time last year. Retail is not a huge factor when it comes to the overall results at Northern Tier, so investors shouldn't be jumping for joy when retail does great. However, it was a good enough performance that management deserves a high five for expanding its retail store presence. 

What was working
Those per barrel margins are some of the best we have seen across the refining space so far this quarter.

Company Refining Margin (Q3 2015) Direct Operating Costs Per Barrel
Northern Tier Energy $24.97 $4.84 
CVR Refining (NYSE:CVRR) $16.17 $5.27 
Marathon Petroleum (NYSE:MPC) $17.27 $5.87 
Tesoro (NYSE:ANDV) $20.49 $4.84 

Source: Company earnings releases.

A large part of favorable refining margins happens to come from cheap oil and the benefit of cheap feedstocks. If we look deeper at those numbers, though, Nothern Tier does have some advantages over some of its larger peers. Something that jumps out immediately is crude sourcing advantages. With a single refinery in Minnesota, Northern Tier has access to Bakken & Canadian crudes at much lower transportation costs than a refiner with its operations in the mid-continent or Gulf Coast regions like CVR Refining and, to a large degree, Marathon. 

Another quick assumption is that lower transportation costs of its refined products leads to higher realized prices on barrels sold. With a smaller refinery located near a major metropolitan city and its own retail network -- something more common among larger refiners such as Marathon & Tesoro, but less common among smaller refiners such as CVR -- Northern Tier is able to get slightly above average price realizations on products sold.

NTI Chart

NTI data by YCharts.

On top of it all, Northern Tier has been very effective at keeping its direct operating costs low. This quarter's $4.84 in per barrel operating costs even came when refining throughput declined more than 6% compared to this time last year due to a unplanned shutdown of one of its refining units in September. With so many fixed costs associated with refineries, it's imperative a refiner run at or near full capacity to lower per barrel costs.

So, to see Norther Tier keep costs low while experiencing a operational hiccup is rather impressive. 

What a Fool believes
Since Northern Tier Energy is a smaller player in the refining space with only one facility, it is in some ways a riskier investment. If something goes wrong with that one facility, it can wreak havoc on the bottom line. However, the company isn't without some advantages. Its access to feedstocks at a discount to most of its competitors gives it a decent leg up.

As long as management can keep its facilities running at low cost and without any major operational shutdowns, Northern Tier Energy should be able to continue generating solid payouts to its investors. 

Tyler Crowe has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.