Alon USA Energy, Inc. (ALJ)

Q2 2010 Earnings Call

August 6, 2010 10:00 AM ET

Executives

Claire Hart – Senior Vice President

Jeff Morris – Chief Executive Officer

Paul Eisman – President

Shai Even – Chief Financial Officer

Analysts

Ann Kohler – Caris & Company

Jeff Dietert – Simmons & Company

Chi Chow – Macquarie

Christina Cheng – Barclays Capital

Evan Templeton – Jefferies & Company

Presentation

Operator

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Alon USA’s Second Quarter Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode, and following the presentation conference will be open for questions, and instructions will be given at that time. As a reminder, today’s conference is being recorded today is Friday, August 06, 2010.

And now I’d like to turn the conference over to Claire Hart, Senior VP. Please go ahead.

Claire Hart

Thank you, Josh. Good morning, everyone. Welcome to Alon USA second quarter 2010 earnings conference call. With me are Jeff Morris, Chief Executive Officer; Paul Eisman, President; Shai Even, Chief Financial Officer, along with other members of our senior management team.

You should have received yesterday our earnings release, in case you didn’t, you can obtain a copy from our website, alonusa.com, under the Investor Relations section. Before I turn the call over to Jeff, please be aware that information reported on this call speaks only as of today, August 6, 2010, and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay.

Also let remind you that certain statements made by management during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management’s current expectations, include known and unknown risks, uncertainties and other factors, many of which the company is unable to predict or control, that may cause the company’s actual results or performance to materially differ from any future results or performance expressed or implied by those statements.

These risks and uncertainties include the risk factors disclosed by the company from time to time in its filings with the SEC. Furthermore, as we start this call, please also refer to the statement regarding forward-looking statements incorporated in our news release issued yesterday, and please note that those contents of our conference call today are covered by these statements.

With that, I’ll turn the call over to Jeff.

Jeff Morris

Thank you, Claire. In the second we performed as was expected and I tell you, I’m very satisfied with the progress that we made in the quarter towards implementing Alon’s long-term strategy. First, we completed an agreement with [JM] for the Krotz Springs refinery which provides crude supply and product takeaway for the refinery, but also retains for us full access to our refining margins.

This arrangement does not include any of the constraints of the classical borrowing based facility and is also at a lower cost than our previous working capital facility. Thus, this agreement provides significant additional flexibility for Krotz Springs at reduced cost. Paul Eisman will update you on the specific operational results. But we are very happy to have Krotz Springs running again.

Secondly, we completed the acquisition of the Bakersfield refinery. The total cost of this acquisition to us, to Alon USA was $18.7 million for the assets and $11.5 million for the inventory. Of the $18.7 million, we received an advance payment from a major crude supplier to lease the crude tanks at Bakersfield, which we will not need in our planned configuration. Additionally, we are recovering and selling the platinum and palladium from the second reformer, which we will not operate for about $5 million.

And finally, we financed the inventory via short-term note, but we are liquidating this inventory now and will payoff this note by the end of August. There’s a potential that the total proceeds from the sale of inventory will exceed the $11.5 million, which will further reduce the net purchase cost.

Thus, we believe the final net purchase price for the Bakersfield refinery to Alon will be in the range of zero to $5 million.

We are very excited by this outcome since this acquisition will allow us to increase the throughput of the refinery to 60,000 barrels per day and avoid the expenditure of hundreds of millions of dollars to build a new hydrocracker. It’s a very significant step towards the execution of our long-term plan.

In addition, our Board of Directors has instructed us to pursue a Rights Offering of convertible preferred shares from which we expect net proceeds of $40 million or more. We have also received an indication of interest from our shareholder, Alon Israel, to exercise its rights and to invest in the Rights Offering up to $30 million This offering will further facilitate the execution of our long-term plan.

I will now ask Paul Eisman to provide a more detailed review of our operations.

Paul Eisman

Thank you, Jeff. In the second quarter we made significant progress towards getting our operations where they need to be to be profitable over the long-term and cash flow positive in almost any economic environment. Specifically, I’d like to highlight three areas in which we made strides that are going to improve the long-term performance of the company.

First, I’d like to address the operations of the Big Spring refinery. As you all aware, the refinery has been in a recovery mode since February 2008 explosion and fire. Our long-term focus at all of our refineries is to operate them safely and reliably. Till that end, in 2009, we hired a leading consulting firm as another set of eyes to review our operations and make recommendations for improvements.

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