Alon buy boosts refining competitiveness: DLK

OREANDA-NEWS. Purchasing a major stake in peer US independent refiner Alon USA puts Delek on a path to the refining capacity it needs to compete, chief executive Uzi Yemin said this morning.

Delek expects to close on the purchase of 48pc of refiner Alon USA as early as next week. Although the company continues to evaluate Alon, that refiner was a motivated seller and Delek is very interested in purchasing full control.

Both companies operate less than 200,000 b/d of active refining capacity, wholesale and retail fuel networks and have budding logistics operations.

"We believe that two refineries are not sufficient enough to be in our business," Yemin said during a conference call to discuss earnings. "We felt that, with their footprint and the fact that they have logistics assets, they have retail, they fit very nicely with our assets."

Yemin said he took his first call on the sales proposal during the Super Bowl in early February. Talks took just six weeks to progress. Delek will acquire the shares from Alon USA's overseas parent Alon Israel. Delek will have five seats on the Alon board, with Yemin as chairman.

Alon operates 156,000 b/d of active refining capacity in Louisiana and Texas and another 168,000 b/d of idled and uneconomic refining capacity in southern California. The company plans to build a 140,000 b/d railed crude unloading facility in Bakersfield at the site of its 70,000 b/d refinery there. Local regulators approved that project last year.

Alon also operates 300 retail stores in Texas and New Mexico and says it is the largest licensee of the convenience store chain 7-11. The company supplies 644 retail stores in Texas, Oklahoma, New Mexico and Arizona.

Delek recently completed expansions adding 25,000 b/d to its now 155,000 b/d of refining capacity in Texas and Arkansas. The US independent refiner operates wholesale and retail fuel networks with terminals, racks and 362 stores in seven states.

Delek has also formed a logistics-focused master limited partnership to attract investment in fee-based businesses such as terminals and pipelines supplying its refining and retail network. Recent projects include an 80-mile, 12-inch pipeline with Plains All American connecting between Longview, Texas, and Caddo, Louisiana, to supply Shreveport-area refineries and feed the system supporting Delek's 100,000 b/d refinery in El Dorado, Arkansas. Delek also joined Rangeland Energy Partners on the Rio pipeline in the congested Delaware basin of west Texas to move crude to Midland, not far from Alon USA's 73,000 b/d refinery in Big Spring, Texas.

Delek must receive the approval of an independent committee to increase its share above 48pc within the next year. Yemin said the company has a good relationship with both the committee and Alon USA chief executive Paul Eisman.

"I don't see us, at this point, not thinking about the remaining share," Yemin said.