Alon USA Energy Inc.: New Pipelines, 7-Elevens And Lost Profits

July 10, 2007
Oil refiner and marketer closes key acquisitions after a disappointing first quarter.

As one of the largest producers of asphalt in Texas and an operator of 7-Eleven stores throughout the Longhorn State and New Mexico, Dallas-based Alon USA Energy Inc. already had roots firmly planted in the Southwest. However, just as most companies on IndustryWeek's 50 Best Manufacturers list for 2007, Alon USA has capitalized on opportunities to elevate its status as a leading producer in its market regions.

Most recently, on July 2, the company closed a deal to purchase the crude and unfinished products pipeline system, known as the Black Oil System, from Kinder Morgan Inc. for $4.5 million. The Black Oil system comprises a total of 19 active and inactive pipelines in the Long Beach, Calif., area. The pipelines will help support the expansion of the company's California refinery system to 90,000 barrels per day (bpd) and provide it with more logistics flexibility in the Long Beach area, according to Jeff Morris, president and CEO.

Alon USA Energy Inc.
At A Glance

Alon USA Energy Inc.
Dallas, Texas
Primary Industry: Petroleum and coal products
Number of Employees: 21,000
2006 In Review
Revenue: $3.2 billion
Profit Margin: 4.92%
Sales Turnover: 2.27
Inventory Turnover: 14.66
Revenue Growth: 37.34%
Return On Assets: 20.74%
Return On Equity: 56.30%
"Logistics are critical in any environment, but they are especially valuable in densely populated areas such as the Los Angeles basin," said Morris in a prepared statement. "The acquired pipeline system will allow us to better optimize our current pipeline network along with giving us direct access to marine terminals and refineries in the Los Angeles and Long Beach Port area."

The pipeline purchase complements Alon USA's acquisitions of the Paramount Petroleum Co. and the Edgington Oil Co. in 2006. The Paramount purchase increased the company's throughput to 70,000 bpd with the addition of a refinery in Paramount, Calif., and a refinery in Portland, Ore. The purchase also included seven asphalt terminals located in Seattle and throughout the Southwest and Paramount's 50% interest in the Wright Asphalt Products Co. From Edgington, the company acquired a topping refinery with a heavy crude capacity of about 24,000 bpd.

In addition to adding refining capacity, the company expanded its network of convenience stores by acquiring Skinny's Inc. on June 29. Through the acquisition, Alon USA takes over 102 FINA-branded stores formally owned and operated by Skinny's in Central and West Texas. Alon USA will convert the FINA stores into 7-Elevens, giving the company more than 300 7-Elevens throughout Texas and New Mexico.

Alon USA has been providing FINA with motor fuels from its Big Spring, Texas, refinery. The $70 million acquisition builds on the company's goal to expand and physically integrate the Big Spring refinery, according to Morris.

The closing of the company's most-recent buyouts came on the heels of a reported first-quarter profit decline of 34%. Profit fell due to the exclusion of after-tax gains relating to the sale of the company's Amdel and White Oil pipelines last year and lower refinery throughput. The Big Spring refinery averaged 65,451 bpd in first-quarter 2007 compared with 70,529 during the year-earlier period. The lower production at the Big Spring refinery was due to a scheduled turnaround that was completed in January.

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