Most investors may have never heard of Alon USA Energy but they've probably heard of the 7-Eleven chain of convenience stores and gas stations. Alon operates hundreds of them and supplies them with their refined petroleum products. Headquartered in Dallas, Texas, Alon USA Energy, Inc. is an independent refiner and marketer of petroleum products, operating primarily in the western and south-central regions of the United States.
Their business is divided into three key areas: refining, asphalt and retail/branded marketing. Alon Energy owns and operates crude refineries in Texas, California and Louisiana, with an aggregate crude oil throughput capacity of approximately 217,000 barrels per day. They are also a leading marketer of asphalt, which they distribute primarily through asphalt terminals located predominately in the Southwestern and Western United States. Finally, through Alon Brands, they operate nearly 300 7-Eleven convenience stores, and market and supply ALON motor fuels to independent and company-owned retail locations.
Their business is divided into three key areas: refining, asphalt and retail/branded marketing. Alon Energy owns and operates crude refineries in Texas, California and Louisiana, with an aggregate crude oil throughput capacity of approximately 217,000 barrels per day. They are also a leading marketer of asphalt, which they distribute primarily through asphalt terminals located predominately in the Southwestern and Western United States. Finally, through Alon Brands, they operate nearly 300 7-Eleven convenience stores, and market and supply ALON motor fuels to independent and company-owned retail locations.
Alon USA Energy, Inc. refines and markets petroleum products, primarily in the South Central, Southwestern, and Western regions of the United States. It operates in three segments: Refining and Marketing, Asphalt, and Retail. The Refining and Marketing segment operates sour crude oil refinery located in Big Spring, Texas with a crude oil throughput capacity of approximately 73,000 barrels per day (bpd); light sweet crude oil refinery located in Krotz Springs, Louisiana with a crude oil throughput capacity of approximately 74,000 bpd; and heavy crude oil refineries located in Paramount, Bakersfield and Long Beach, California. This segment refines crude oil into petroleum products, such as gasoline, diesel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt, and other petroleum-based products. It also markets motor fuels to third-party distributors under the Alon brand, as well as licenses Alon brand name. The Asphalt segment offers asphalt primarily as paving asphalt to road and materials manufacturers, and as ground tire rubber polymer modified or emulsion asphalt to highway construction/maintenance contractors. The Retail segment operates convenience stores that offer various grades of gasoline, diesel, food products and services, tobacco products, non-alcoholic and alcoholic beverages, and general merchandise, as well as money orders to the public primarily under the 7-Eleven and Alon brands. As of December 31, 2015, this segment operated 309 owned and leased convenience store sites primarily in Central and West Texas, and New Mexico. Alon USA Energy, Inc. was founded in 2000 and is headquartered in Dallas, Texas.
(Summary) (Company) (Chart)
| 20 March 2016 Price $11.37 1yr Target $12.50 Analysts 8 Dividend $0.60 Payout Ratio 84.50% 1yr Cap Gain 9.93% Yield 5.27% 1yr Tot Return 15.20% | EPS (ttm) $0.71 EPS next yr $0.38 EPS next 5yr 29.90% 1yr Price Support $11.36 P/E 16.01 PEG 0.54 Beta 1.69 Market Cap $806.82 Mil Revenues $4.34 Bil Earnings $52.70 Mil Profit Margin 1.22% | 1yr EarnGR 36.36% 3yr EarnGR -15.29% 5yr EarnGR --- 1yr DivGR 13.20% 3yr DivGR 54.67% 5yr DivGR 30.25% Quick Ratio 0.90 Current Ratio 1.20 Debt/Equity 0.87 ROA 2.40% ROE 7.90% |
Business Operations
Alon USA Energy operates along 3 principal business segments: (i) refining and marketing, (ii) asphalt and (iii) retail.
Refining and Marketing
The company's refining and marketing segment includes a sour crude oil refinery located in Big Spring, Texas, a light sweet crude oil refinery located in Krotz Springs, Louisiana, and heavy crude oil refineries located in Paramount, Bakersfield and Long Beach, California (“California refineries”). Their California refineries have not processed crude oil since 2012 due to the high cost of crude oil relative to product yield and low asphalt demand. The company refines crude oil into petroleum products, including various grades of gasoline, diesel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt, and other petroleum-based products, which are marketed primarily in the South Central, Southwestern and Western regions of the United States.
Alon USA Partners, LP (NYSE: ALDW)
Alon owns the Big Spring refinery and its integrated wholesale marketing operations through Alon USA Partners. As of December 31, 2015, the common units held by the public represent 18.4% of the Partnership’s common units outstanding. Alon USA Energy owns the remaining 81.6% of the Partnership’s common units and Alon USA Partners GP, LLC (the “General Partner”), their wholly-owned subsidiary, owns 100% of the general partner interest in the Partnership, which is a non-economic interest. This Partnership is consolidated within their refining and marketing segment.
Big Spring Refinery
The Big Spring refinery has a crude oil throughput capacity of 73,000 bpd and is located on 1,306 acres in the Permian Basin in West Texas. Major processes at our Big Spring refinery include fluid catalytic cracking, naphtha reforming, vacuum distillation, hydrotreating, aromatic extraction and alkylation.
The Big Spring refinery has a Nelson complexity of 10.5, which allows the company the flexibility to process a variety of crudes into higher value refined products. The Big Spring refinery has a sulfur processing capability of approximately two tons per thousand bpd of crude oil capacity, which provides the capability to process significant volumes of high-sulfur, or sour, crude oil to produce a high percentage of light, high-value refined products. The Big Spring refinery is also capable of processing significant volumes of light, sweet crude as market conditions dictate. All of the crude oil processed at the Big Spring refinery is West Texas crude oil based on Midland pricing, which has generally traded at a discount to Cushing pricing.
The Big Spring refinery produces ultra-low sulfur gasoline, ultra-low sulfur diesel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt and other petroleum products. This refinery typically converts approximately 90% of its feedstock into high-value products such as gasoline, diesel, jet fuel and petrochemicals, with the remaining 10% primarily converted to asphalt and liquefied petroleum gas. In 2015, this refinery achieved a liquid recovery of 100.2%.
Krotz Springs Refinery
The Krotz Springs refinery has a crude oil throughput capacity of 74,000 bpd with a Nelson complexity of 8.4 and is strategically located on 381 acres on the Atchafalaya River in central Louisiana. This location provides access to crude from barge, pipeline, railcar and truck. The refinery has direct access to the Colonial product pipeline system (“Colonial Pipeline”). This combination of logistics assets provides the company with diversified access to locally-sourced, domestic and foreign crudes, as well as distribution of their products to markets throughout the Southern and Eastern United States and along the Mississippi and Ohio Rivers. Major processes at the Krotz Springs refinery include vacuum distillation, catalytic cracking, basic distillation and naphtha reforming to minimize low quality black oil production and to produce higher light product yields.
The Krotz Springs refinery has the capability to process substantial volumes of low sulfur, or sweet, crude, which has historically accounted for 100% of the Krotz Springs refinery’s crude oil throughput. This refinery typically converts approximately 90% of its feedstock into high-value finished products such as gasoline and distillates, with the remaining 10% primarily converted to liquefied petroleum gas. This refinery generally achieves a high liquid recovery, which was 101.9% in 2015.
California Refineries
The California refineries historically operated as one integrated refinery. However, due to the high cost of crude oil relative to product yield and low asphalt demand, the California refineries have not processed crude oil since 2012. The Paramount refinery is located on 63 acres in Paramount, California. The Long Beach refinery is located on 19 acres in Long Beach, California. The Bakersfield refinery is located on approximately 600 acres in Bakersfield, California. The California refineries have the capability to produce gasoline, distillates, vacuum gas oil and asphalt.
The company owns a minority interest in AltAir Paramount, LLC (“AltAir”), a renewable fuels project that is located at their Paramount refinery. Upon the achievement of certain operational milestones, this ownership can be converted into a majority interest. The project utilizes existing equipment at the Paramount refinery and newly installed equipment to convert tallow into renewable biofuels. These renewable biofuels are drop-in replacements for petroleum-based fuel, requiring no modification to factory-standard engines or aircraft, with which they are fully compatible. This fuel provides the same performance as conventional, petroleum-based jet fuel.
In the third quarter of 2014, the company received a permit to construct a new 140,000 bpd rail unloading facility at the Bakersfield refinery and to modify the refinery to process light crude. The rail facility would be capable of receiving shipments of light Mid-Continent crudes or heavy crudes for use by third parties or by us upon the restart of the Bakersfield refinery. However, the reduction in crude prices and subsequent decrease in U.S. oil production has caused crude differentials to narrow. The rail facility would require a widening of current crude differentials to be economically viable.
Asphalt
The company owns or operates eleven asphalt terminals located in Texas (Big Spring), Washington (Richmond Beach), California (Paramount, Long Beach, Elk Grove, Mojave and Bakersfield), Arizona (Phoenix and Flagstaff) as well as asphalt terminals in which they own a 50% interest located in Fernley, Nevada, and Brownwood, Texas. The operations in which they have a 50% interest are recorded under the equity method of accounting, and the investments are included as part of total assets in the asphalt segment data.
The company purchases non-blended asphalt from third parties in addition to non-blended asphalt produced at the Big Spring refinery. They market asphalt through their terminals as blended and non-blended asphalt. They have an exclusive license to use advanced asphalt-blending technology in West Texas, Arizona, New Mexico and Colorado, and a non-exclusive license in Idaho, Montana, Nevada, North Dakota, Utah and Wyoming, with respect to asphalt produced at their Big Spring refinery.
Asphalt produced at the Big Spring refinery is transferred to their asphalt segment at prices substantially determined by reference to the cost of crude, which is intended to approximate wholesale market prices. The company then markets asphalt primarily as paving asphalt to road and materials manufacturers and as ground tire rubber polymer modified or emulsion asphalt to highway construction/maintenance contractors.
Retail
As of December 31, 2015, the company operated 309 owned and leased convenience store sites located primarily in Central and West Texas and New Mexico. Their convenience stores typically offer various grades of gasoline, diesel, food products, food service, tobacco products, non-alcoholic and alcoholic beverages, general merchandise as well as money orders to the public.
The merchandise requirements of the convenience stores are serviced at least weekly by over 100 direct-store delivery vendors. In order to minimize costs and facilitate deliveries, the company utilizes a single wholesale distributor, Core-Mark Mid-Continent, Inc., for non-DSD products. They purchase the products from Core-Mark at cost plus an agreed upon mark-up. The current supply contract with Core-Mark expires in January 2017.
Alon USA Energy is the largest 7-Eleven licensee in the United States and have the exclusive right to use the 7-Eleven trade name in substantially all of their existing retail markets and many surrounding areas. They are party to a license agreement with 7-Eleven, Inc. which gives then a perpetual license to use the 7-Eleven trademark, service name and trade name in West Texas and a majority of the counties in New Mexico in connection with their retail store operations.
In August 2015, the company acquired 14 retail convenience stores in the Albuquerque, New Mexico area, which doubled the number of our fueling positions in the Albuquerque market.
The following table shows our owned and leased convenience stores by location:
Alon USA Energy and Delek US Holdings
In May 2015 Delek US Holdings, Inc. (NYSE: DK) announced that it had completed the acquisition of approximately 33.7 million shares, or approximately 48 percent of the outstanding shares, of Alon USA Energy, Inc. (NYSE: ALJ) common stock from Alon Israel Oil Company, Ltd.
Prior to commencing negotiations with Alon Israel, Delek US entered into a stockholder agreement with Alon USA. During the first year following the closing of this transaction, the stockholder agreement allows Delek US to acquire up to 49.99 percent of the outstanding shares of Alon USA at its discretion, with additional ownership above this threshold subject to the approval of the independent members of Alon USA s board of directors. The stockholder agreement will expire on May 14, 2016, and Delek US will then have no further restrictions under this agreement related to increasing ownership in Alon USA.
This provides the opportunity to acquire all of the assets of Alon USA Energy if they so choose. If they do it will most likely be a windfall for current Alon USA Energy shareholders.
In May 2015 Delek US Holdings, Inc. (NYSE: DK) announced that it had completed the acquisition of approximately 33.7 million shares, or approximately 48 percent of the outstanding shares, of Alon USA Energy, Inc. (NYSE: ALJ) common stock from Alon Israel Oil Company, Ltd.
Prior to commencing negotiations with Alon Israel, Delek US entered into a stockholder agreement with Alon USA. During the first year following the closing of this transaction, the stockholder agreement allows Delek US to acquire up to 49.99 percent of the outstanding shares of Alon USA at its discretion, with additional ownership above this threshold subject to the approval of the independent members of Alon USA s board of directors. The stockholder agreement will expire on May 14, 2016, and Delek US will then have no further restrictions under this agreement related to increasing ownership in Alon USA.
This provides the opportunity to acquire all of the assets of Alon USA Energy if they so choose. If they do it will most likely be a windfall for current Alon USA Energy shareholders.
My Perspective
I understand that most people don't want to go near the oil companies these days due to the fall in oil prices over the last couple of years. But the reality is that low oil prices actually helps the down stream oil companies because for the most part, they don't explore for, or have a large inventory, of petroleum. The buy oil for the exploration and production companies at the current price so their "costs" have actually fallen as the price of oil has fallen.
I also own shares of other companies in the oil and gas refining and marketing industry so I feel comfortable and confident in owning these companies. Alon USA Energy will fit well into my portfolio along side the other companies. In addition, I can accumulate these shares through either open purchases or through the sale of cash secured puts.
I also like the above 5% dividend from a company that has the potential to grow its stock price too. Add in the remote possibility that one day this company may be completely acquired by Delek US at a premium and this company is just asking to be owned.
I plan to start a small position in this company with the intent of growing that position as quickly as possible to capture that dividend.
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