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Alon USA Partners (NYSE:ALDW)

Q4 2012 Earnings Results Conference

March 7, 2013 10:00 AM ET

Executives

Paul Eisman - President, CEO and Director

Shai Even - SVP and CFO

Amir Barash - VP, Investors Relations

Analysts

Evan Calio - Morgan Stanley, Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Alon USA Partners Fourth Quarter Earnings Conference Call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be opened for your questions. (Operator Instructions) Today this conference is being recorded, March 7, 2013.

I’d now like to turn the conference over to Amir Barash, Vice President of Investor Relations. Please go ahead.

Amir Barash

Thank you, Alicia. Good morning, everyone, and welcome to Alon Partners Fourth Quarter and Year-End 2012 Earnings Conference Call. With me are Paul Eisman, President and CEO; Shai Even, Chief Financial Officer; along with other members of our senior management team.

You should have received our earnings release, but in case you didn’t, you can obtain a copy from our website, alonpartners.com, under the Investor Relations section.

Before I turn the call over to Paul, please be aware that information reported on this call speaks only as of today, March 7, 2013, and therefore, you’re advised that time-sensitive information may no longer be accurate as of the time of any replay. Also let me 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 on management's current expectation and 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 risk and uncertainties include the risk factors disclosed by the Company from time to time in its filing with the SEC.

Furthermore, as we start this call, please also refer to the statements regarding forward-looking statements incorporated in our news release issued yesterday. And please note that the content of our conference call today are covered by these statements.

With that, I will turn the call over to Paul.

Paul Eisman

Thank you, Amir, and good morning, everyone. Welcome to the very first quarterly earnings call for Alon USA Partners. We are very excited about this new Company and the reception that it's received in the market. We believe that the assets of this Company, the Big Spring refinery and Associated Wholesale Marketing business are uniquely positioned to take advantage of a thoughtful change in the market that will provide us a vantage in crude oil or as far as we can see into the future. We also believe that the excellent price performance that these units have experienced since the initial offering reflects a similar market view of the structural and sustainable change.

Operationally and financially we’re pleased with our fourth quarter and annual results. As you’ve seen in our earnings release, we reported fourth-quarter net income of $113.2 million as compared to $45.5 million in the same quarter last year. For the year, we reported net income of $381.9 million as compared to $294.4 million in 2011. We are also pleased that unitholders have already received their first distribution. We made prorated cash distributions in accordance with the prospectus of $0.57 per unit for the period following the IPO transaction. If the cash distribution had been for the entire quarter, it would have been $1.92 per unit.

Our business continues to benefit from crude oil differentials that expanded during the quarter. In addition to the WTI Cushing discounts of brand, we also benefited from widening location differentials between Midland Cushing, which averaged $9.55 per barrel in the quarter. As a result, refinery operating margin was $25.26 per barrel in the fourth quarter and $23.50 per barrel for the year. With very good margins available to it, the refinery operated very well. The total throughput at our Big Spring refinery in the fourth quarter was in excess of 72,000 barrels per day. Our average throughput for the year of almost 69,000 barrels per day is the highest in the history of the refinery.

Direct operating expenses during the quarter were acceptable at $4.17 per barrel, for the year our direct operating expenses averaged $4 per barrel, and improvement over the $4.23 per barrel we reported in 2011. Oil production in the Permian Basin continues to increase at a rapid pace. A particular interest to us is the development of the Cline Shale in and around the Big Spring area. Estimates of recoverable reserves in this formation are increasing nearly daily and the potential for recoverable oil is estimated to be as much as 30 billion barrels. The big Spring refinery truly is in a perfect position to take advantage of these dramatic increases in domestic production.

In our wholesale marketing business, branded fuel sales during the quarter reached almost 103 million gallons, an increase of nearly 7% over the same period last year. We continue to be pleased with the acceptance of the new Alon brand that we introduced in 2012. Among other benefits, this brand gives us the platform that allows us to grow without the geographical restrictions that we have had in the past.

Looking forward into the first quarter and 2013, we completed some required maintenance at Big Spring in the first quarter and the refinery is operating well. Our throughput guidance for Big Spring is 60,000 barrels per day in the first quarter, as a result of this maintenance we’re in 68,000 barrels per day for the year.

As I mentioned early in the call, this is a very exciting time for the Company. We have very good markets and the rapid growth in West Texas oil production leads us to believe that these good markets are sustainable over time. With good markets we have been able to sustain good operations that allow us to take advantage of this opportunity. Of course, all this comes together and result in strongest reasons for our unitholders.

With that, we are ready to answer any questions that you might have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Evan Calio with Morgan Stanley. Please go ahead.

Evan Calio - Morgan Stanley, Research Division

Hey, good morning guys.

Paul Eisman

Good morning.

Evan Calio - Morgan Stanley, Research Division

Let me – might be this as introduction of other any season there, so thank you. Question, could you just update us on the [when] is crude ramp across Spring and where we are and where – when you think you will be at capacity for TL increase?

Paul Eisman

Evan – I will tell you, we’re going to cover that during the Alon USA conference call, that we’ve little bit later today, if you can – if we can all (indiscernible) on that question.

Evan Calio - Morgan Stanley, Research Division

Oh, I got you. I got you.

Paul Eisman

Yeah.

Evan Calio - Morgan Stanley, Research Division

Okay. I’m going to – I will just – I will check back into that, I’m sorry.

Paul Eisman

You bet. We will be glad to answer that at that point.

Evan Calio - Morgan Stanley, Research Division

Perfect.

Operator

Thank you. (Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back to management at this time.

Paul Eisman

Okay. Well, thank you very much for sitting in on the call and your investments and thank you for their interest in the Company. We look forward to talking to you in just a few months. Thank you.

Operator

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation. You may now disconnect.

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