A few days after Alon USA Energy published a first-quarter net loss of $33.6 million - down from a profit of $35.6 million a year earlier - the company has announced the acquisition of another refinery.
Last weekend Alon said it was buying the Krotz Springs refinery in Louisiana, the second largest refinery in the southwestern United States, from American refining giant Valero Energy for $333 million in cash.
Alon will pay an additional sum for the refinery's working capital (including its inventory), whose fair value will be determined according to the market price when the deal is finalized in a few months.
Advertisement
Alon USA is controlled by Alon Israel Oil, whose major shareholders are Shraga Biran, Africa Israel Investments, the Kibbutz Purchasing Organization and David Wiessman. Wiessman estimates Krotz Springs' working capital at $50 million to $100 million.
The refinery was built in 1980 and uses the most advanced technologies in the oil industry. Wiessman notes that the parties also agreed to a profit-sharing scheme in which Alon will pay Valero further sums that could exceed $100 million, depending on the refinery's profits in the three years after the closure of the deal.
"I figure, as do U.S. analysts, that the deal was done at attractive prices," said Wiessman.
Alon USA president and CEO Jeff Morris told analysts in the U.S. that his company was attracted by Krotz Springs' proximity to the big oil pipelines, as well as what he described as the best logistics setup of all refineries in the Gulf of Mexico, with pipeline access to the Mississippi River.
The Alon-Valero deal comes against the background of narrowing profit margins for refineries as oil prices soar. Wiessman believes, however, that margins will improve in the future, as they have in the past.
Valero chairman and CEO Bill Klesse says the deal is part of the company's strategy to sell its holdings in refineries with relatively low capacities (of up to 200,000 barrels a day) and concentrate on refineries with greater profitability. According to U.S. press reports, Yitzhak Tshuva's Delek USA, managed by Uzi Yamin, is among three contenders to buy three other Valero refineries.
Krotz Springs has a capacity of 83,000 barrels a day, and will increase Alon's production capacity by about 50% to 255,000 a day. Alon currently operates four refineries in Texas, California and Oregon, an oil pipeline and more than 300 Fina and 7-Eleven convenience stores next to Alon and Fina filling stations.
Alon's increased oil refining capacity will contribute to the company's growth and increase synergies. Wiessman added that the company plans to invest $50 million to $150 million in upgrading Krotz Springs over the next five years, and to produce low-sulfur diesel fuel.
Alon's plans for the coming year also include increased retail activities and fuel marketing, and possibly a stock issue of Alon Israel Oil on Wall Street.
Last week Alon appointed Kyle McKeen, 44, to head the company's branded marketing and retail operations. McKeen has spent the past two years as president and COO of Carter Energy, but before that served as vice president of marketing at Alon USA.
Wiessman sounded very optimistic last weekend on Alon Israel's chances of an initial public offering; he believes the company will resume its preparations for the IPO as soon as the markets settle down.
Haaretz.com, the online edition of Haaretz Newspaper in Israel, offers real-time breaking news, opinions and analysis from Israel and the Middle East. Haaretz.com provides extensive and in-depth coverage of Israel, the Jewish World and the Middle East, including defense, diplomacy, the Arab-Israeli conflict, the peace process, Israeli politics, Jerusalem affairs, international relations, Iran, Iraq, Syria, Lebanon, the Palestinian Authority, the West Bank and the Gaza Strip, the Israeli business world and Jewish life in Israel and the Diaspora.
