Shai Even. Senior Vice President & Chief Financial Officer Citi 2015 MLP/Midstream Infrastructure Conference August 2015

Transcription

1 Shai Even Senior Vice President & Chief Financial Officer Citi 2015 MLP/Midstream Infrastructure Conference August 2015

2 Forward-Looking Statements All statements contained in or made in connection with this presentation that are not statements of historical fact are forward-looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 or the Securities Exchange Act of The words believe, intend, plan, expect, should, estimate, anticipate, potential, future, will and similar terms and phrases identify forward-looking statements. Forward-looking statements reflect the current expectations of the management of Alon USA Partners, LP ( Alon ) regarding future events, results or outcomes. These expectations may or may not be realized and actual results could differ materially from those projected in forward-looking statements. Alon s businesses and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in the expectations reflected in forward-looking statements not being realized or which may otherwise affect Alon s financial condition, results of operations and cash flows. These risks and uncertainties include, among other things, changes in price or demand for our products; changes in the availability or cost of crude oil and other feedstocks; changes in market conditions; actions by governments, competitors, suppliers and customers; operating hazards, natural disasters or other disruptions at our or third-party facilities; and the costs and effects of compliance with current and future state and federal regulations. For more information concerning factors that could cause actual results to differ from those expressed in forward-looking statements, see Alon s most recently filed Form 10-Q which has been filed with the Securities and Exchange Commission and is available on the company s web site at Alon undertakes no obligation to update or publicly release the results of any revisions to any forward-looking statements that may be made to reflect events or circumstances that occur, or that we become aware of, after the date of this presentation or to reflect the occurrence of unanticipated events. 2

3 Alon USA Energy Overview Alon USA Energy, Inc. (NYSE: ALJ) owns 81.6% of the limited partner interests in Alon USA Partners, LP (NYSE: ALDW), a variable distribution MLP, which owns an oil refinery in Big Spring, TX. Alon USA Energy is composed of three segments: refining and marketing, asphalt and retail. Corporate Structure Alon USA Energy Asset Base 100% GP 81.6% LP 3

4 Alon USA Partners Overview The 73,000 bpd Big Spring refinery processes oil from the Permian Basin into finished products such as gasoline, diesel, jet fuel and petrochemicals, which are marketed primarily in West Texas, Central Texas, Oklahoma, New Mexico and Arizona through its wholesale distribution network to both Alon USA Energy s retail convenience stores and other third-party distributors. 4

5 Our Strategic Advantages» Strategically located refinery in the heart of the prolific Permian Basin» High quality asset with low operating costs» Physically integrated refining and marketing system» Strong liquidity position and flexibility provided by supply & offtake agreement at the refinery» Focus on operational excellence and organic growth opportunities 5

6 Sustainable Feedstock Advantage» Crude spreads influence crack spreads, and ultimately, refiners profitability» WTI-based crudes are expected to trade at a discount to Brent over the next few years, providing a sustainable feedstock advantage for Mid-Continent refineries like Big Spring» Navigator s new Big Spring Gateway system is expected to provide local, high-quality crude to Big Spring in fall 2015 Brent-WTI Cushing Outlook 1 Forward Curve Barclays 1 Source: Forward pricing from CME ClearPort as of August 10, Barclays forecast as of August 12,

7 MBpd Big Spring: In the Heart of the Permian Basin» Several rigs concentrated in the proximity of the refinery» Permian rig count has increased by 23 rigs since bottoming in late June 2015; rig count has risen to 254 rigs as of August 7, » Permian oil production still increasing; EIA forecasts a small sequential increase in September production 2» The Permian has been the most resilient of the major U.S. oil shale plays Texas Permian Basin Activity Overview 1 Permian Oil Production Outlook 3 3,500 3,000 2,910 3,026 2,844 2,500 2,000 1,628 2,606 2,199 1,977 2,163 2,167 1,815 1,848 1,900 1,771 1,710 1,726 2,491 1,500 1, TPH Raymond James Simmons Oil Rig 1 Source: Baker Hughes, RigData; Rig map as of August 7, Source: EIA Drilling Productivity Report August Source: Simmons & Company; Tudor, Pickering, Holt & Company; Raymond James Research 7

8 Big Spring Refinery Overview» Big Spring refinery: 73,000 bpd (~26 MMbbl/year) sour crude cracking refinery 10.5 Nelson Complexity Processes 100% Midland-priced crude» Integrated wholesale fuels marketing business supplies ~640 branded sites, including substantially all of Alon s retail sites In 2014, Alon s retail gasoline and diesel sales represented 27% and 8%, respectively, of Big Spring s gasoline and diesel production Refinery Product Yield 1,2 Refinery Operating Margin 1 Big Spring Operating Margin Gulf Coast 321 Crack Spread Refinery Throughput (bpd) 1 68,946 67,103 66,033 73,934 Gasoline Diesel/jet Asphalt Other WTS crude WTI crude Blendstocks 1 Refinery Operating Margin, Refinery Throughput and Refinery Product Yield for 2014 were negatively impacted by the major turnaround at Big Spring in 2Q Pro forma for the turnaround in 2Q 2014, Adjusted EBITDA would be higher by $55-65 million. 2 Product yield percentages based on total production. Liquid recovery shown at top of column. Some numbers may not add due to rounding. 8

9 How Big Spring Made Money 1H 2015 Product Yields Crude / Blendstocks Refining Operating Margin 1 Per bbl Per bbl Per bbl $71.86 Gasoline Sour 50.0% Crude 50.3% Gasoline $ $20.16 $ 1.01 Jet $19.72 $71.43 $75.07 Jet 5.1% $ 7.36 Diesel $23.36 Diesel Sweet 31.5% Crude 45.9% $ (2.28) Wholesale & Other ($0.35) $36.06 $51.35 Asphalt 3.9% Asphalt $ (0.61) Other $ (15.65) 9.9% Blendstock 3.8% $69.43 $51.48 $15.56» Big Spring achieved low operating expense of $3.56 per barrel in 1H Some numbers may not add due to rounding. Other includes costs relating to RINs, pipeline fees, supply related costs and other raw materials purchased at the refinery. Chart is not to scale. Chart reflects liquid recovery of 100.4%. 9

10 Highly Efficient Operations Solomon Results Mechanical Availability Net Cash Margin (Rack Pricing) Maintenance Cost Efficiency Q-1 Q-2 Q-3 Q-4 BSR Q-1 Q-2 Q-3 Q-4 BSR Q-4 Q-3 Q-2 Q-1» Big Spring led U.S. Solomon Survey participants in mechanical availability in 2014 and led its regional peer group in net cash margin 2014 Solomon Percent Rankings (0 Represents Best) U.S. 84 refineries Capacity Peer Group 1 14 refineries Regional Peer Group 2 10 refineries Mechanical Availability Net Cash Margin (Rack Pricing) Maintenance Cost Efficiency BSR Source: Solomon Associates. 1 Rank is out of 14 refineries with kedc of 800 1,399. Big Spring s kedc is Rank is out of 10 refineries in the Lower Mid-Continent. Survey conducted every other year. 10

11 Integrated Wholesale Marketing» Integrated wholesale fuels marketing business supplies ~640 branded sites, including substantially all of Alon s retail sites» In 2014, approximately 85% of gasoline and over 90% of diesel produced at Big Spring was transferred to our wholesale business, including branded and unbranded marketing» In 2014, wholesale gasoline and diesel sales volumes totaled 819 million gallons, including volumes sold to Alon USA s retail locations» Entered premium Phoenix market in 2Q 2015 Sold ~6,000 bpd in the premium Arizona market (Phoenix and Tucson) in June 2015 Capture additional RINs with Arizona sales another benefit of selling into Arizona instead of the Group Legend: Phoenix Tucson El Paso Big Spring Wichita Falls Abilene Branded license agreement and payment card location Branded company-operated and distributor location Unbranded supply available 11

12 Business Opportunities» Capitalizing on crude slate flexibility by running lowest cost inputs / highest margin outputs» Continuing to evaluate low-risk projects to enhance gross margin with payback periods of less than two years; projects focused on LPG recovery, increased aromatics recovery, producing chemical-grade propylene» Leveraging integrated wholesale marketing business to expand product deliveries in Texas and Arizona» Evaluating project to increase refinery s ability to process WTI Midland» Evaluating potential for significant expansion of the refinery» Looking at alternatives to unlock value from existing logistics assets 12

13 Guidance and RINs Information» Total throughput at Big Spring is expected to average 74,000 bpd in 3Q 2015 and 74,000 bpd for full-year 2015» The total capital expenditure projection for ALDW for 2015 is $32.0 million Approximately $9.8 million was spent during 1H 2015 The balance of spending for the year is expected to be evenly split between 3Q 2015 and 4Q 2015» RINs costs in 1Q 2015 were $4.5 million; RINs costs in 2Q 2015 were $2.0 million In June, for the first time ever at Big Spring, we blended 100% of our CBOB production with ethanol, maximizing our capture of D6 RINs 13

14 Crude Differentials & Crack Spread Trends WTI 5 Year Average¹--$ $93.10 YTD $53.20 Q $57.86 West Texas Sour ("WTS") West Texas Intermediate - Cushing ("WTI") WTI Midland Brent WTI Cushing - WTS 5 Year Average --$ $6.04 YTD $0.76 Q $(0.21) WTI Cushing - WTI Midland 5 Year Average --$ $6.93 YTD $1.27 Q $0.60 Brent - WTI Cushing 5 Year Average --$ $6.16 YTD $4.54 Q $3.66 GC321 5 Year Average --$ $14.52 YTD $18.73 Q $19.71 GC321(Brent) 5 Year Average --$ $8.36 YTD $14.19 Q $16.05» The Gulf Coast crack spread averaged $24.46 per barrel in July 2015 ¹ 5 Year Average of 2010 to 2014 * All crude differentials above are based on trade-month pricing, except Brent- WTI Cushing 14

15 Financial Summary 15

16 Pricing, Operating and Financial Highlights YTD 2Q 2015 Pricing Statistics: Gulf Coast $27.43 $19.16 $14.52 $18.73 WTI Cushing less WTI Midland $2.92 $2.59 $6.93 $1.27 WTI Cushing less WTS $4.09 $3.72 $6.04 $0.76 Brent less WTI Cushing $17.77 $11.03 $6.16 $4.54 Operating Statistics: Throughput (bpd) 68,946 67,103 66,033 73,934 Refining operating margin/bbl $23.50 $14.59 $16.69 $15.56 Refinery direct operating expense/bbl $4.00 $4.53 $4.39 $3.56 Adjusted EBITDA (in millions) $469 $224 $266 $146 Note: See page 21 for a reconciliation of Adjusted EBITDA to Net Income under GAAP. 1 Results and operations for 2014 were negatively impacted by the major turnaround at the Big Spring refinery in 2Q Pro forma for the turnaround in 2Q 2014, Adjusted EBITDA would be higher by $55-65 million. 16

17 Distributions Current (dollars in thousands, except per unit data) 1Q Q Q Q Q Q 2015 Net income 42,241 7,802 76,993 42,099 36,451 59,426 Interest expense 11,324 11,569 11,584 12,229 11,693 10,847 State income tax expense (benefit) , (395) Depreciation and amortization 10,067 9,508 13,852 14,067 13,993 13,591 Adjusted EBITDA 64,117 29, ,489 69,394 62,487 83,469 less: Maintenance/growth capital expenditures 4,162 7,277 2,492 2,133 2,321 5,465 less: Major and non-major turnaround and catalyst replacement capital expenditures 14,465 10,982 23,703 9,586 1, add: Major turnaround and catalyst replacement capital expenditures previously reserved (11,989) (11,011) less: Major turnaround reserve for future years 1,150 1,500 1,500 1,500 1,500 1,500 less: Principal payments less: State income tax expense , less: Interest paid in cash 12,097 11,106 10,542 11,203 11,539 10,236 Cash available for distribution $ 43,122 $ 8,400 $ 63,567 $ 44,005 $ 44,668 $ 64,782 Common units outstanding (in 000 s) 62,502 62,507 62,507 62,507 62,507 62,510 Cash available for distribution per unit $ 0.69 $ 0.13 $ 1.02 $ 0.70 $ 0.71 $ Results for 2Q 2014 were negatively impacted by the major turnaround at the Big Spring refinery. Pro forma for the turnaround in 2Q 2014, Adjusted EBITDA would be higher by $55-65 million. 17

18 Balance Sheet (In $000's) June 30, December 31, (2015 INFORMATION IS UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 149,884 $ 106,325 Accounts and other receivables, net 81,842 68,545 Accounts and other receivables, net - related parties 11,888 9,466 Inventories 43,189 45,162 Prepaid expenses and other current assets 8,256 9,163 Total current assets 295, ,661 Property, plant, and equipment, net 436, ,706 Other assets, net 76,291 85,879 Total assets $ 807,757 $ 770,246 LIABILITIES AND PARTNERS EQUITY Current liabilities: Accounts payable $ 252,862 $ 186,156 Accrued liabilities 39,531 54,566 Current portion of long-term debt 2,500 2,500 Total current liabilities 294, ,222 Other non-current liabilities 37,779 38,746 Long-term debt 278, ,876 Total liabilities 611, ,844 Common unitholders - 62,510,039 and 62,506,550 units issued and outstanding at June 30, 2015 and December 31, 2014, respectively 196, ,402 Total partners equity 196, ,402 Total liabilities and partners' equity $ 807,757 $ 770,246 18

19 Statement of Operations (In $000's, except per unit data) For the Six Months Ended (ALL INFORMATION IS UNAUDITED) June 30, 2015 June 30, 2014 STATEMENT OF OPERATIONS DATA: Net sales $ 1,167,506 $ 1,582,312 Operating costs and expenses: Cost of sales 957,717 1,424,444 Direct operating expenses 47,701 54,093 Selling, general and administrative 16,118 11,152 Depreciation and amortization 27,584 19,575 Total operating costs and expenses 1,049,120 1,509,264 Operating income 118,386 73,048 Interest expense (22,540) (22,893) Other income (loss), net (14) 613 Income before income tax expense (benefit) 95,832 50,768 State income tax expense (benefit) (45) 725 Net Income 95,877 50,043 Earnings per unit $ 1.53 $ 0.80 Weighted average common units outstanding (in thousands) 62,508 62,504 Cash distribution per unit $ 1.41 $

20 Statement of Cash Flows (In $000's) For the Six Months Ended (ALL INFORMATION IS UNAUDITED) June 30, 2015 June 30, 2014 Cash flows from operating activities: Net income $ 95,877 $ 50,043 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 27,584 19,575 Unit-based compensation 20 Deffered income taxes (736) Amortization of debt issuance costs 1,098 1,018 Amortization of original issuance discount Changes in operating assets and liabilities: Accounts and other receivables, net (13,297) 37,608 Accounts and other receivables, net - related parties (2,422) (1,021) Inventories 1,973 (21,300) Prepaid expenses and other current assets 907 (11,033) Other assets, net 1,500 (1,053) Accounts payable 36,571 (26,977) Accrued liabilities (14,740) (10,959) Other non-current liabilities (231) 9,059 Net cash provided by operating activities 134,398 45,232 Cash flows from investing activities: Capital expenditures (7,786) (11,439) Capital expenditures for turnarounds and catalysts (2,004) (25,447) Net cash used in investing activities (9,790) (36,886) Cash flows from financing activities: Revolving credit facility, net (20,000) Distributions paid to unitholders Alon Energy (71,910) (44,370) Distributions paid to unitholders (16,224) (10,010) Inventory agreement transactions 30,135 (25,200) Payments on long-term debt (1,250) (1,250) Deferred debt issuance costs (1,800) Net cash used in financing activities (81,049) (80,830) Net increase (decrease) in cash and cash equivalents 43,559 (72,484) Cash and cash equivalents, beginning of period 106, ,583 Cash and cash equivalents, end of period $ 149,884 $ 81,099 20

21 Adjusted EBITDA Reconciliation (in $ 000's) YTD 2Q YTD 2Q 2015 Net income 381, , ,135 50,043 95,877 State income tax expense (benefit) 3,536 2,004 2, (45) Interest expense 22,235 40,474 46,706 22,893 22,540 Interest expense - related parties 15,691 Depreciation and amortization 46,009 45,329 47,494 19,575 27,584 Loss on disposition of assets 21 Adjusted EBITDA 469, , ,119 93, ,956 1 Results for 2014 and YTD 2Q 2014 were negatively impacted by the major turnaround at the Big Spring refinery in 2Q Pro forma for the turnaround in 2Q 2014, Adjusted EBITDA would be higher by $55-65 million. 21

22 Appendix Alon USA Energy 22

23 Krotz Springs Refinery Overview» 74,000 bpd sweet crude residual cracking refinery Refinery Operating Margin» 8.3 Nelson Complexity» Historically processed a mix of LLS and HLS type crudes» Transporting 30,000 bpd of WTI Midland-priced crude through the AMDEL pipeline to process at Krotz Springs Krotz Springs Operating Margin Gulf Coast 211 (LLS) Crack Spread Refinery Throughput (bpd) 67,877 64,705 70,345 74,745» High liquid recovery of approximately 102%» One of the newest refineries in the U.S. (1980)¹ with industry low operating costs WTI crude Gulf Coast Sweet Crude Blendstocks Refinery Product Yield 2» High distillate yield capability of over 40%» Evaluating several growth projects, including adding an alkylation unit Gasoline Diesel/jet Other ¹ Source: EIA 2 Product yield percentages based on total production. Liquid recovery shown at top of column. Some numbers may not add due to rounding. 23

24 How Krotz Springs Made Money 1H 2015 Product Yields Crude / Blendstocks Refining Operating Margin 1 Per bbl Per bbl Per bbl $ 5.50 Gasoline $11.74 $69.80 WTI Gasoline 40.0% 46.9% $ 2.79 Jet $13.43 $71.49 $67.81 Jet Diesel $ % $9.74 Light Sweet Diesel Crude 21.5% 55.0% Other $ (1.68) ($19.78) $38.29 Other 13.1% Blendstock 5.0% $65.69 $56.81 $8.71» Krotz Springs achieved low operating expense of $3.64 per barrel in 1H Some numbers may not add due to rounding. Other includes costs relating to RINs, pipeline fees, supply related costs and other raw materials purchased at the refinery. Charts are not to scale. Chart reflects liquid recovery of 102.2%. 24

25 Physically Integrated Retail Network» Largest 7-Eleven licensee in the U.S. with 294 stores (~50% fee owned) in Central/West Texas and New Mexico 1» Remodel program continues to progress» Expanding store count through purchase of 14 retail gas stations in Albuquerque (not included in table)» In 2014, Alon s retail gasoline and diesel sales represented 27% and 8%, respectively, of Big Spring s gasoline and diesel production» Record operating results, fuel volumes and merchandise sales in 2014 New Large-Format Store Opened in Rio Rancho, NM in May 2015 Locations in High Growth Markets 1 Location Total Big Spring, Texas 7 Wichita Falls, Texas 11 Waco, Texas 9 Midland, Texas 17 Lubbock, Texas 21 Albuquerque, New Mexico 24 Odessa, Texas 35 Abilene, Texas 40 El Paso, Texas 82 Other locations in Central and West Texas 48 Total Stores Store count does not include 14 stores in Albuquerque that were purchased in August

26 Improving the Asphalt Business» In 2014, U.S. asphalt demand was down 40% from the peak in 2005; PADD V demand was down 52% from » Asphalt demand is largely driven by federal, state and local spending» The country s highways and bridges require capital investment of $120 billion annually over six years to meet current demand, but only $83 billion is currently being invested 2» Underinvestment in infrastructure is driving pent-up demand that will eventually spur a recovery Steps Alon is taking to improve profitability: Richmond Beach (Seattle)» Focusing on premium products with better margins (recycled ground tire rubber blends)» Working with suppliers to improve sourcing Fernley (Reno) Elk Grove (Sacramento) Bakersfield Mojave» Right-sizing terminal system and leased railcar fleet Paramount / Long Beach Phoenix Flagstaff» Targeting $12 million reduction in direct operating costs in 2015 vs Legend Refineries Asphalt terminals Big Spring Krotz Springs Alon is positioned well when asphalt demand inevitably recovers 1 Source: EIA 2 Source: The American Association of State Highway and Transportation Officials and the American Public Transportation Association s 2015 Bottom Line Report 26

27 $ millions $ millions $ millions Key Financial Metrics Alon USA Energy Adjusted EBITDA 1 Net Leverage (Net Debt/Adjusted EBITDA) 2» Increase in capital expenditures in 2014 and 2015 relates to the turnaround and vacuum tower project at Big Spring in 2Q 2014 and the planned turnaround at Krotz Springs in 4Q 2015» Alon has low sustaining capex requirements Big Spring and Krotz Springs combined require ~$50 million in sustaining and regulatory spending and ~$20 million for turnarounds annually Capital Expenditures & Turnarounds 1 See page 28 for a reconciliation of Adjusted EBITDA to Net Income under GAAP. Pro forma for the turnaround in 2Q2014, 2014 Adjusted EBITDA would be higher by $55-65 million. 27

28 Adjusted EBITDA Reconciliation (in $ 000's) YTD 2Q YTD 2Q 2015 Net income available to stockholders 79,134 22,986 38,457 (6,732) 63,349 Net income attributable to non-controlling interest 11,463 25,129 31,411 8,670 18,568 Income tax expense 49,884 12,151 22, ,817 Interest expense 129,572 94, ,143 57,271 39,254 Depreciation and amortization 121, , ,063 59,331 63,229 (Gain) loss on disposition of assets 2,309 (9,558) (274) (2,117) (572) Unrealized (gains) losses on commodity swaps 31,936 (3,778) 9,510 (7,925) Loss on heating oil call option crack spread contracts 7,297 Adjusted EBITDA 433, , , , ,720 1 Results for 2014 and YTD 2Q 2014 were negatively impacted by the major turnaround at the Big Spring refinery in 2Q Pro forma for the turnaround in 2Q 2014, 2014 and YTD 2Q 2014 Adjusted EBITDA would be higher by $55-65 million. 28