Shai Even Senior Vice President & Chief Financial Officer Citi One-on-One MLP/Midstream Infrastructure Conference - August 2014

Transcription

1 Shai Even Senior Vice President & Chief Financial Officer Citi One-on-One MLP/Midstream Infrastructure Conference - August 2014

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), which owns a crude 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 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, 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» Based on analysts' estimates, the Brent-WTI spread should widen in relative to 2014, providing an improved margin environment» Discounts in Midland-priced WTI and WTS relative to WTI Cushing provide an incremental uplift for ALDW The WTI Cushing to WTI Midland differentials that will favorably affect Big Spring s cost of crude for July and August averaged $8.59/bbl Based on the forward curve for 2015, the WTI Cushing to WTI Midland differential is $4.52/bbl 1 Brent-WTI Cushing Spread Analyst Forecasts 2 Wells Fargo Credit Suisse Barclays 1 Pricing as of August 12, Source: CME ClearPort 2 Source: Wells Fargo Securities, LLC, Credit Suisse and Barclays. Estimates as of August 12, estimates rounded. 6

7 Big Spring: In the Heart of the Permian Basin» Simmons expects Permian crude production to grow by ~250 MBpd in 2014 and » 560 active rigs in the Permian in August 2014 vs. the average of less than 300 rigs in » Big Spring is located in Howard County, where 21 oil rigs were operating in August 2 Athlon Energy s second horizontal Wolfcamp A well in Howard County achieved a peak 30-day rate of 1,234 Boe/d (82% oil) and is performing better than the company s relevant type curve 3 Permian Basin Activity Overview 2 Big Spring Oil Rig ¹ Source: Simmons & Company 2 Source: Baker Hughes, RigData; Rig information as of August 8, Source: Athlon Energy 7

8 Big Spring Refinery Overview» Big Spring refinery: 73,000 bpd (~26 MMbbl/year) sour crude cracking refinery 10.5 Nelson Complexity» Integrated wholesale fuels marketing business supplies ~640 branded sites, including substantially all of Alon s retail sites In 2013, 60% of gasoline and 28% of diesel produced at Big Spring was transferred to our branded marketing business In 2013, Alon s retail gasoline and diesel sales represented 28% and 9%, respectively, of Big Spring s gasoline and diesel production» Closest refinery to robust West Texas crude oil production (Permian Basin), which provides a significant crude cost advantage» Processes 100% Midland-priced crude» In addition to ALDW s $240 million revolving credit facility, ALDW entered into a supply and offtake agreement in March 2011, which substantially improves liquidity without the constraints of a traditional revolving credit facility when crude prices rise Refinery Operating Margin 1 Big Spring Operating Margin Gulf Coast 321 Crack Spread Refinery Throughput (bpd) 1 63,614 68,946 67,103 56,050 WTS crude WTI crude Blendstocks Refinery Product Yield % 99.8% 99.8% 99.8% Gasoline Diesel/jet Asphalt Other 1 Refinery Operating Margin, Refinery Throughput and Refinery Product Yield for YTD 2Q 2014 were negatively impacted by the major turnaround at Big Spring in 2Q

9 How Big Spring Made Money YTD 2Q 2014 Product Yields Crude / Blendstocks Refining Operating Margin 1 Per bbl Per bbl Per bbl $ Gasoline Sour 48.0% Crude 42.7% $ $ Gasoline $18.65 Jet $28.59 $ Jet 4.0% Diesel $ 8.28 $26.61 $ $56.75 $92.57 Diesel Sweet 28.9% Crude 52.9% Wholesale and Other $ (0.99) $ (2.95) Asphalt 4.5% Other $ (1.75) Asphalt 14.5% Blendstock $ (38.77) 4.4% $ $95.68 $15.56 ¹ Refining Operating Margin represents liquid recovery of 99.83%. Graph is based on YTD 2Q Some numbers may not add due to rounding. Wholesale & Other includes costs relating to pipeline fees, supply related costs and other raw materials purchased at the refinery. Note: Refinery operating margin and product yield were negatively impacted by the major turnaround at Big Spring in 2Q Charts are not to scale. 9

10 Highly Efficient Operations Solomon Results Utilized EDC%» Big Spring has achieved strong utilization rates and high mechanical availability while maintaining capital discipline 2012 Solomon Rankings Mechanical Availability % U.S. Capacity Peer Group 1 Regional Peer Group 2 81 refineries 14 refineries 9 refineries Refinery Utilization Maintenance Index $/EDC Maintenance Cost Efficiency Net Cash Margin (Spot Pricing) Source: Solomon Associates. Rankings only available every other year. 1 Rank is out of 14 refineries with kedc of 800 1,399. Big Spring s kedc is Rank is out of 9 refineries in the Lower Mid-Continent. 10

11 Business Opportunities» Capitalizing on crude slate flexibility by running lowest cost inputs/ highest margin outputs» Continuing to debottleneck refinery and implement relatively low-cost projects that enhance gross margin» Leveraging integrated wholesale marketing business to expand product deliveries in Texas and Arizona» Evaluating project to increase refinery s ability to process light crudes» Evaluating potential for significant expansion of the refinery» Evaluating the potential acquisition of the Krotz Springs refinery from Alon USA Energy 11

12 Organic Growth Opportunities at Big Spring» Evaluating low-risk projects with payback periods of less than two years to enhance the refinery s gross margin, focused on: LPG recovery Increased aromatics recovery Producing chemical-grade propylene Increasing ability to process WTI Midland crude, which has recently traded below WTS Short-term low-cost projects will drive meaningful returns at Big Spring 12

13 Delivering Organic Growth at Big Spring Initial Goals of Vacuum Tower Project Increase distillate production by 2,000 bpd Enhance energy efficiency Actual Results Exceeded Expectations Increased distillate production by over 3,000 bpd $1.5 million in energy savings» Post turnaround and vacuum tower project, Big Spring is capable of processing 73,000 barrels per day of crude throughput and is expected to generate $22 million in incremental EBITDA 1» The vacuum tower project cost less than $30 million, resulting in attractive returns*» Alon USA Partners will pay $4.2 million annually to Alon USA Energy under a lease agreement for the vacuum tower project, making it immediately accretive to distributions Vacuum tower project yielding better than expected results ¹ $22 million annual EBITDA uplift based on $10/bbl spread between diesel and gasoline, natural gas price of $3.80/MMBtu, and a Gulf Coast WTI-Based benchmark crack spread of $16.90/bbl. * Includes $6 million of sustaining capital 13

14 Financial Summary 14

15 Pricing and Operating Statistics YTD 2Q Pricing Statistics: Gulf Coast $23.37 $27.43 $19.16 $16.61 WTI Cushing less WTI Midland $0.53 $2.88 $2.59 $5.96 WTI Cushing less WTS $2.19 $4.09 $3.72 $5.79 Brent less WTI Cushing $17.10 $18.35 $11.63 $10.25 Operating Statistics: Throughput (bpd) 63,614 68,946 67,103 56,050 Refining operating margin/bbl $20.89 $23.50 $14.59 $15.56 Refinery direct operating expense/bbl $4.23 $4.00 $4.53 $5.33 Adjusted EBITDA (in millions) $371 $469 $224 $93 Note: Adjusted EBITDA per 10-K filing and 2Q Q filing. See page 27 for a reconciliation of Adjusted EBITDA to Net Income under GAAP. 1 Results and operations for YTD 2Q 2014 were negatively impacted by the major turnaround at the Big Spring refinery in 2Q

16 Key Financial Metrics Capital Expenditures 1» Increase in capital expenditures in 2014 mainly relates to major five-year turnaround, which took place in 2Q 2014.» Net debt increased mainly due to the turnaround. ALDW purchased less crude during June 2014, resulting in reduced crude payables and a decrease in the cash balance at quarter end. Net Debt 1 Capital expenditures include growth/profit improvement, sustaining maintenance, regulatory and chemical catalyst and turnaround spending 16

17 Distributions Current (dollars in thousands, except per unit data) 1Q Q Q Q Q Q Net income $ 93,525 $ 45,321 $ (16,120) $ 13,496 $ 42,241 $ 7,802 Interest expense 9,392 8,970 12,127 9,985 11,324 11,569 State income tax expense Depreciation and amortization 12,064 11,243 10,975 11,047 10,067 9,508 Loss on disposition of assets 21 Adjusted EBITDA $ 115,881$ 66,007 $ 7,064 $ 35,098 $ 64,117 $ 29,119 less: Maintenance/growth capital expenditures 2,941 6,216 7,477 6,756 4,162 7,277 less: Major and non-major turnaround and catalyst replacement capital expenditures 3,778 1, ,212 14,465 10,982 add: Major turnaround and catalyst replacement capital expenditures previously reserved (11,989) (11,011) less: Major turnaround reserve for future years 1,150 1,150 1,150 1,150 1,150 1,500 less: Principal payments less: State income tax expense less: Interest paid in cash 9,616 8,296 11,626 9,269 12,097 11,106 Cash available for distribution before special expenses 96,871 48,206 (14,080) 15, ,593 43,122 8,400 less: Special turnaround reserve 4,104 4,104 4,104 4,104 12,312 Cash available for distribution $ 92,767 $ 44,102 $ (18,184) $ 11,412 $ 148,281 $ 43,122 $ 8,400 Common units outstanding (in 000 s) 62,501 62,502 62,502 62,502 62,502 62,502 62,507 Cash available for distribution per unit $ 1.48$ 0.71 $ $ 0.18 $ 2.37 $ 0.69 $ Results for 2Q 2014 were negatively impacted by the major turnaround at the Big Spring refinery 17

18 2013 and YTD 2Q 2014 Financial Highlights (in millions, except per bbl numbers) 2013 YTD 2Q Revenue $3,430 $1,582 Refinery operating margin per throughput bbl $14.59 $15.56 Refinery direct operating expense per throughput bbl $4.53 $5.33 Adjusted EBITDA 2 $224 $93 Net cash provided by operating activities $216 $45 Capital expenditures $(30) $(37) Net debt at year end and quarter end $191 $262 1 Results for YTD 2Q 2014 were negatively impacted by the major turnaround at the Big Spring refinery in 2Q See page 27 for a reconciliation of Adjusted EBITDA to Net Income under GAAP 18

19 Investor Relations Contact Stacey Hudson, CFA Investor Relations Manager

20 Appendix 20

21 Statement of Operations (In $000's, except per unit data) For the Three Months Ended (ALL INFORMATION IS UNAUDITED) June 30, 2014 June 30, 2013 STATEMENT OF OPERATIONS DATA: Net sales $ 725,852 $ 865,694 Operating costs and expenses: Cost of sales 665, ,322 Direct operating expenses 25,152 27,314 Selling, general and administrative expenses 6,784 5,065 Depreciation and amortization 9,508 11,243 Total operating costs and expenses 706, ,944 Operating income 19,010 54,750 Interest expense (11,569) (8,970) Other income, net Income before state income tax expense 8,042 45,794 State income tax expense Net Income 7,802 45,321 Earnings per unit $ 0.12 $ 0.73 Weighted average common units outstanding (in thousands) 62,504 62,502 Cash distribution per unit $ 0.69 $

22 Balance Sheet (In $000's) June 30 December 31 (2014 INFORMATION IS UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 81,099 $ 153,583 Accounts and other receivables, net 86, ,781 Accounts and other receivables, net - related parties 15,642 14,621 Inventories 70,446 49,146 Prepaid expenses and other current assets 15,675 4,642 Total current assets 269, ,773 Property, plant, and equipment, net 460, ,885 Other assets 83,191 31,266 Total assets $ 812,323 $ 849,924 LIABILITIES AND PARTNERS EQUITY Current liabilities: Accounts payable $ 236,857 $ 280,774 Accrued liabilities 47,024 44,492 Current portion of long-term debt 2,500 2,500 Total current liabilities 286, ,766 Other non-current liabilities 43,953 34,894 Long-term debt 340, ,822 Total liabilities 671, ,482 Common unitholders - 62,506,550 and 62,502,467 units issued and outstanding at June 30, 2014 and December 31, 2013, respectively 141, ,442 Total partners equity 141, ,442 Total liabilities and partners' equity $ 812,323 $ 849,924 22

23 Statement of Cash Flows (In $000's) For the Six Months Ended (ALL INFORMATION IS UNAUDITED) June 30, 2014 June 30, 2013 Cash flows from operating activities: Net income $ 50,043 $ 138,846 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 19,575 23,307 Amortization of debt issuance costs 1, Amortization of original issuance discount Changes in operating assets and liabilities: Accounts and other receivables, net 37,608 (25,211) Accounts and other receivables, net - related parties (1,021) 1,586 Inventories (21,300) 3,028 Prepaid expenses and other current assets (11,033) 4,219 Other assets, net (1,053) 553 Accounts payable (26,977) 2,335 Accrued liabilities (10,959) 1,401 Other non-current liabilities 9,059 1,938 Net cash provided by operating activities 45, ,243 Cash flows from investing activities: Capital expenditures (11,439) (9,157) Capital expenditures for turnarounds and catalysts (25,447) (4,819) Net cash used in investing activities (36,886) (13,976) Cash flows from financing activities: Revolving credit facility, net (49,000) Distributions paid to unitholders - Alon Energy (44,370) (104,550) Distributions paid to unitholders (10,010) (23,579) Payments on long-term debt (1,250) (1,250) Inventory agreement transactions (25,200) Deferred debt issuance costs (205) Net cash used in financing activities (80,830) (178,584) Net decrease in cash and cash equivalents (72,484) (39,317) Cash and cash equivalents, beginning of period 153,583 66,001 Cash and cash equivalents, end of period $ 81,099 $ 26,684 23

24 Guidance and RINs» Total throughput at Big Spring is expected to average 74,000 bpd in 3Q 2014 and 75,000 bpd in 4Q 2014» Full-year 2014 RINs cost expected to be approximately $8 million based on a weighted average RINs price of $0.53/RIN Full-year 2013 RINs costs were $14.9 million; average purchase price was $0.85/RIN In 1H 2014, RINs costs were $2.2 million; lower production during the turnaround resulted in a RINs credit of $0.8 million in 2Q

25 Crude Types Driving Big Spring s Profitability» Brent The global crude benchmark, which largely determines global product pricing» West Texas Intermediate ( WTI ) The benchmark light sweet crude for the U.S., priced in Cushing, Oklahoma. An additional pricing point for WTI is Midland, TX, approximately 40 miles from the Big Spring refinery» West Texas Sour ( WTS ) Priced in Midland, TX, it contains higher sulfur content compared to WTI (the sulfur content is what makes it a sour crude) Big Spring processed 42.7% WTS in the first half of 2014, with the balance of crude being WTI Midland WTS has historically priced below WTI in Midland due to its lower quality 25

26 Crude Differentials & Crack Spread Trends WTI 5 Year Average¹--$ $97.97 YTD $ Q $ West Texas Sour ("WTS") West Texas Intermediate - Cushing ("WTI") WTI Midland Brent WTI Cushing - WTS 5 Year Average --$ $3.72 YTD $5.79 Q $7.88 WTI Cushing - WTI Midland 5 Year Average --$ $2.59 YTD $5.96 Q $8.37 Brent - WTI Cushing 5 Year Average --$ $12.40 YTD $10.25 Q $7.56 GC321 5 Year Average --$ $19.16 YTD $16.61 Q $16.42 GC321(Brent) 5 Year Average --$ $7.53 YTD $6.36 Q $8.86 Trade Month 2 WTI Cushing WTS WTI Cushing WTI Midland June $5.95/bbl $6.60/bbl July $9.92/bbl $10.53/bbl ¹ 5 Year Average of 2009 to Trade-month differentials impact refinery operating margin in the following month. June differentials impact July refinery operating margin. * All prices and differentials above are based on trade-month pricing. YTD data is YTD as of 2Q

27 Adjusted EBITDA Reconciliation (in $ 000's) YTD 2Q 2013 YTD 2Q Net income 294, , , ,846 50,043 State income tax expense 2,597 3,536 2,004 1, Interest expense 16,719 22,235 40,474 18,362 22,893 Interest expense - related party 17,067 15,691 Depreciation and amortization 40,448 46,009 45,329 23,307 19,575 Loss on disposition of assets 21 Adjusted EBITDA 371, , , ,888 93,236 1 Results for YTD 2Q 2014 were negatively impacted by the major turnaround at the Big Spring refinery in 2Q 2014 Note: Annual adjusted EBITDA per 10-K filing; adjusted EBITDA for YTD 2Q 2014 per 10-Q filing 27