Alon USA Energy Management Discusses Q1 2013 Results - Earnings Call Transcript

| About: Alon USA (ALJ)

Alon USA Energy (NYSE:ALJ)

Q1 2013 Earnings Call

May 09, 2013 11:30 am ET

Executives

Claire A. Hart - Senior Vice President

Paul Eisman - Chief Executive Officer and President

Shai Even - Chief Financial Officer, Chief Accounting Officer and Senior Vice President

Analysts

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Chi Chow - Macquarie Research

Clay Rynd - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Paul Y. Cheng - Barclays Capital, Research Division

Edward Westlake - Crédit Suisse AG, Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Alon USA Partners First Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded, May 9, 2013.

I would now like to turn the conference over to Mr. Claire Hart, Senior Vice President. Please go ahead.

Claire A. Hart

Thank you, Alicia, and just to clarify one thing, this is the Alon USA First Quarter Earnings Call, instead of Partners. Good morning, everyone, and welcome to the Alon USA Energy's First Quarter 2013 Earnings Conference Call. With me are Paul Eisman, President and CEO; Shai Even, Senior Vice President and Chief Financial Officer; along with other members of our senior management team.

You should have received yesterday our earnings release, but 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 Paul, please be aware that information reported on this call speaks only as of today, May 9, 2013, and therefore, you are 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 upon management's current expectations and include known and unknown risks, uncertainties and other factors, many of which the company is unable to predict or control, and 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 the contents of our conference call today are covered by these statements.

With that, I'll turn the call over to Paul.

Paul Eisman

Thank you, Claire, and good morning, everyone. We are very pleased with our results in the first quarter.

Our EBITDA of $157 million for the quarter represents record first quarter results, and we accomplished this despite reduced rates resulting from reformer regenerations performed at both Big Spring and Krotz Springs.

We recorded net income and adjusted net income of $0.86 per share in the first quarter, as compared to an adjusted net income of $0.15 per share in the same quarter last year. We generated almost $161 million of cash from operations during the quarter. As a result, we were able to reduce net debt in the quarter by $137 million to just $334 million at the end of the quarter. This represents continuing significant strengthening of our balance sheet.

As a result, our Board approved a 50% increase in our regularly quarterly dividend, from $0.04 to $0.06 per share. They also approved a special nonrecurring dividend of $0.16 per share. We were pleased to be able to return this cash to our shareholders.

In West Texas, we are finding our marketing system continues to benefit from crude oil differentials that expanded further during the quarter. In addition to the WTI Cushing discount to Brent, we also saw expanding sweet/sour differentials in addition to strong location differentials between Midland and Cushing. The total throughput at our Big Spring refinery in the first quarter was reduced to 59,500 barrels per day. We accelerated our planned second quarter reformer regeneration and diesel hydro treater catalyst change out to coincide with work to repair problems in the vacuum tower.

Upon completion of the maintenance work in February, Big Spring operated exceptionally well in March setting an all-time throughput record. Direct operating expenses during the quarter were relatively high at $5.68 per barrel, resulting from lower throughput rates and higher maintenance costs.

We are looking at a number of projects and actions to further improve the profitability at Big Spring. For example, the conversion to CBOB production at the refinery makes the refinery octane long. Since we have aromatic production capability at the refinery, this octane length provides us an opportunity to produce and sell higher-valued aromatic products such as toluene and heavy aromatic solvents. The value upgrade for these products over their value in gasoline is about $14 million per year, and we expect to start getting this benefit this summer.

We are also working on projects to improve LPG recovery, distillate recovery and incrementally increase crude oil throughput. All of these generate excellent returns, and we'll be telling you more about them as the projects move forward.

Branded sales volume in our wholesale marketing business were in excess of 105 million gallons, an increase of nearly 12% over the same period last year. We continue to be pleased with the acceptance of our new Alon brand.

Our retail marketing business had a very good first quarter, with fuel sales up nearly 7% -- are up nearly 7.5% over the same period last year. Fuel margins were very good at $0.203 per gallon. Merchandise sales were the same as the first quarter last year, with a merchandise margin of 32.3%. We are continuing our remodeling program and in El Paso, we completed our first ground-up new build in several years.

The Krotz Springs refinery operated well during much of the quarter but was down for part of March to complete both planned and unplanned maintenance. As a result, throughput at the refinery for the quarter averaged 58,400 barrels per day. The volume of WTI crude process to Krotz Springs dropped to 25,000 barrels per day during the quarter, as a result of the maintenance work, but we were able to store the remaining 5,000 barrels per day at WTI for processing in the second quarter. Direct operating expenses were higher this quarter at $4.42 per barrel, as a result of lower crude runs and higher maintenance expense.

We are in the process of refurbishing an existing rail rack at Krotz Springs to receive crude oil by rail. We expect to begin receiving crude oil by rail in June and to eventually receive up to 6,000 barrels per day by rail. The rack has the capacity to receive and unload up to 14,000 barrels per day of oil, but we will initially be restricted by railroad operations and tank car availability. We will be working to get around these limitations and take additional steps to increase our capability to receive and process price-advantage crude oil.

These actions include items as simple as continuing to increase the amount of crude that we receive at the refinery by truck. We've increased this volume to 10,000 barrels per day at Krotz Springs and the cost of this crude is below the cost of LLS delivered by pipeline. Also 2/3 of the WTI that we bring through Big Spring is now being purchased there on trucks delivered below the cost of WTI for Midland. We expect to grow these purchases of crude by truck as production grows near our refineries.

There's not much change to report in our California operations. We are continuing to work on the project to restart the Bakersfield refinery, using rail-delivered light crude oil. We still believe that we will have permits for the rail facility and necessary modifications to the refinery by the fourth quarter of this year. We're also continuing to take advantage of our West Coast logistical assets. We are already unloading and delivering oil for third parties in Long Beach and Willbridge, and are looking to expand this to Paramount.

In our Asphalt Marketing business, we're in off-season when sales are typically low. Versus last year in the same quarter, blended asphalt tonnage was off almost 5%. However, margins in this business improved to almost $62 per ton as compared to $55 per ton in the first quarter of 2012. We are continuing to buy winter fill at very attractive prices and expect profitability in this business to improve overall results in 2012.

We are encouraged not only by the improvement in first quarter margins, but also that future sales commitments are at a pace well above last year. Also, we are reformulating some of our asphalt blends to take advantage of less expensive blending oils, which will further contribute to margins, as well as targeting additional OpEx savings in our terminals.

Looking forward to the second quarter, crude oil differentials have obviously been reduced. However, crude -- current differentials remain very favorable relative to history and this will continue to support the profitability of Big Spring going forward. Production is increasing very quickly in West Texas and we expect differentials to be set by the highest cost of transportation to the mid-continent and the Gulf Coast. Also, when increasing amounts of light oil make it to the Gulf Coast, we expect LLS to eventually sell at a discount to Brent, which will benefit Krotz Springs.

Finally, we also have a significant portion of our 2013 distillate margins hedged, which will offset some of the recent declines that we've seen in refining cracks. Throughput guidance for Big Spring is 72,000 barrels per day for the second quarter and 68,000 barrels per day for the year. At Krotz Springs, we recently experienced a fire in a reforming unit that will impact throughput in the second quarter. Repairs are underway in the reformer and we expect to complete these before the end of the month. Throughput guidance at Krotz Springs for the second quarter is 60,000 barrels per day and 66,000 barrels per day for the year.

I want to take a second to talk about ethanol RINs as this has become a big topic in the industry, with the runup in RIN pricing. At Big Spring, we are in pretty good shape. We've converted our distribution system, produced and delivered CBOB out of the refinery, and are blending ethanol at the refinery and at terminals where we sell wholesale products. We estimate that we are currently covering 80% of our ethanol RINs obligation internally. At Krotz Springs, where we sell CBOB into the Colonial pipeline and don't today have the ability to blend ethanol in this field and generate credits, we are investigating several options including the recommissioning of the Krotz Springs sales rack, increasing the blending of biodiesel and developing either branded or unbranded sales along the colonial system or elsewhere to generate additional credits.

We also believe that there is a reasonable chance that by-partisan concern about the volatile runup in RINs prices, may cause Congress or the EPA to act to reduce the renewable fuels mandate and take the pressure off the RINs pricing. At current RINs prices, we estimate our cost to compliance to be in the range of $40 million for the current year.

In summary, this was a very good quarter for the company. We generated record first quarter earnings. We were able to continue to use cash generated to reduce net debt. I'm proud of the team we have here and what they've accomplished. Our balance sheet is getting to where it needs to be and this will allow us to begin investing in projects to increase earnings growth.

With that, we're glad to answer your questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Arjun Murti with Goldman Sachs.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

I just had a question on kind of the philosophy on special dividends versus stock buybacks versus anything else. So it's certainly nice to see the special this quarter. You do, obviously, call it special and therefore, nonrecurring. But should we just think about, if the cash balance gets to a certain level, you'll consider future specials? And why special versus the stock buyback?

Paul Eisman

Yes, I think, first of all, in terms of the regular dividend, what we want to be is competitive with our peers and so we've moved, I think, in that direction. And so that's the first consideration in all of this. Then related to the special dividend, I think the Board looks at it and makes an assessment of where we are with respect to cash position, with the significant improvement we've had at net debt. They felt that in this quarter, we were in a good position to make the special dividend. Obviously, as you said it's special and may or may -- those kinds of dividends may or may not happen in the future. But clearly, also increasing the special dividend -- I mean, the regular dividend, it felt like they want to increase the yield to the shareholders.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

And any thoughts on why do special versus stock buyback? I'm not trying to suggest one is better than the other, just more how you think about it?

Paul Eisman

Yes. I think that's a philosophical issue as you described and I think the return to the shareholders is less direct in the stock buyback issue, and the preference of our Board was to do this, return this cash to our investors through the special dividend. But beyond that, I really can't comment.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Got it. And then just on the California operations, I think you mentioned you're still hoping to get the permits by the fourth quarter. Is there any major holdup or concerns you think you have in terms of getting those permits, or it's just the normal regulatory process in California?

Paul Eisman

No, we feel it's the normal regulatory process. We're essentially where we are today in the same place that we described 3 months ago. So we don't feel it's improved, and we don't think it's materially changed. So we're still fairly confident working with the agencies that we'll get these permits in the fourth quarter.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

And sorry for the accounting question, but I think there were going to be some ongoing operating costs in California. You reported kind of an NA in your supplement, and if they do get stick -- or stuck somewhere else, the ongoing cost for keeping California?

Shai Even

The operating expense for California is the difference between total operating expense. So operating expense is composed of the 3 refining centers that we have for Big Spring, for Krotz Springs and for California. And the difference between total reported amount in the 10-Q for refining segment in Big Springs and Krotz Springs throughput times the per blend operating expense is about $10 million. That is associated with the California system.

Operator

Our next question comes from the line of Chi Chow with Macquarie.

Chi Chow - Macquarie Research

I got a question on hedging, did you incur any realized or unrealized gains or losses on the hedges in the first quarter?

Shai Even

During the first quarter, our commodity hedge position, our book did the cash flow hedges, so we didn't book any unrealized -- as a result, we didn't book any unrealized gain and the realized gains were close to 0 completely in the period.

Chi Chow - Macquarie Research

What's your hedge position now, Shai, in 2013? Has anything changed?

Shai Even

By the end of the -- when we'll file the 10-Q, it will be there to say that at the end of the quarter, we have about $11 million unrealized hedges based on the swap prices, the value at the end of March. As of today, that amount is greater. Don't have the exact amount, it's $2 million higher, and these hedges, assuming the same amount and environment, will be recognized as realized income over the course of the year.

Chi Chow - Macquarie Research

But as far as your volumes and spreads, where are you at?

Shai Even

The volumes is that we have 16,000 barrels a day of the ULSD. 1/2 of that 8,000 barrels a day is against WTI and 1/2 of that 8,000 barrels a day is against the LLS. And the LLS strike price combined is about $25 per barrel.

Chi Chow - Macquarie Research

Okay, great. I guess at Krotz Springs, the potential railing of crude coming in, what crudes are you thinking about bringing in, is it something different than what you're barging and trucking in at this point?

Paul Eisman

Well, I mean we're -- what we're bringing in today is, on average, about 30,000 barrels of WTI. That's our, primarily, price-advantage crude. We're getting some trucks, I mentioned in the talk, about 10,000 barrels per day of truck crude that is coming in at some discount to LLS. But in terms of the rail facilities, we're looking at, this could be a manifest system to start with, and so the nice thing about a manifest system is we can kind of go wherever we want to, to pick up what price advantage crudes might be available. So I really can't tell you because I don't know where that's going to come from, it could come from the Oklahoma shale development, it could come from Niobrara, it could come Bakken, it could come from West Texas. And that's one of the nice things about rail systems is there's flexibility to move those cars around to markets that provide the greatest opportunity. So we're trying to take advantage of it in that way.

Chi Chow - Macquarie Research

Okay. Following in on your RIN exposure there in Krotz Springs, are you purchasing those RINs ratably as we go through the year here?

Shai Even

Right now, we are more focused on the diesel RINs. We didn't buy any ethanol RIN, and we didn't really buy them ratable until now.

Paul Eisman

We have sufficient RINs to cover our first quarter requirement. So we've not purchased anything, but I suspect that as we get into developing the requirement that I mean, directionally, we'll do this ratably.

Operator

Our next question comes from the line of Clay Rynd with Tudor, Pickering, Holt.

Clay Rynd - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

On the -- you've got -- you said about 25,000 barrels a day of WTI as your run through Krotz Springs and then 5,000 barrels a day that you are kind of saving off for 2Q. I assume that that's pretty much all sourced on the Andele line coming from Midland.

Paul Eisman

Yes, that's correct. We get 30,000 barrels for it -- barrels per day down that line pretty ratably.

Clay Rynd - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Okay. And so, it's safe to say you benefited, the maintenance there was not so later in the quarter. So you benefited from the blowout in the Midland-Cushing spread early in the quarter?

Paul Eisman

That's correct.

Clay Rynd - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Pretty well there? Yes, okay. And then I guess, as you think about that asset, have you thought about kind of possibly dropping that down in the variable rate MLP?

Paul Eisman

I mean, one of the nice things about the MLP is that it provides us flexibility and a way to do things like that. I think that one thing about the Big Spring refinery and the reason it was chosen to drop down is because it's a unique asset. And historically, it's generating cash in almost any kind of margin environment. So we felt that that was a unique asset to drop down into that. I think that the improvements that we're seeing in markets could potentially make the Krotz Springs refinery a candidate to do something like that. But I don't think we're there today. And so I think it's got a -- we're continuing to work to improve the Krotz Springs refinery profit performance. And as I guess just to repeat myself, if it gets to the point where we think it's the kind of asset we want to drop down. Certainly, we've got the vehicle to do that.

Clay Rynd - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Right. Okay. And then just one last one for me. Railcars under Krotz Springs, so are those going to be -- are you going to own those or are you going to be leasing those railcars?

Paul Eisman

Yes, we've been able to -- first of all, we had 100 railcars that we had assigned to move gas oil between Paramount and Bakersfield. So we're re-tasking those, and then we've moved another 100 railcars that we've used in our Asphalt business to support this. So we're coming to this with about 200 railcars to begin with. Well, obviously, that's one of the limitations here. We'll continue to work to try to...

Clay Rynd - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Yes, you prefer not to really run much on leased cars, obviously.

Paul Eisman

Well, I mean, leased prices have to be reasonable. That's part of the economic justification. If you're paying $3,000 a month for a car and you can only get 1 to 1.5 turns, that's a significant component to the cost. So that's part of the economics of whether or not transporting this oil by rail makes sense.

Operator

Our next question comes from the line of Roger Read with Wells Fargo.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

I was hoping to follow up a little bit on the dividend versus special dividend, I mean, just in a sense of what is the -- is there an internal sort of metric you're thinking about, amount of cash on hand, cash flow, et cetera, as to where the regular dividend should be set and then the special dividend is going to vary quite considerably, in other words, may not repeat again in the next quarter? Just maybe something to give us an idea of a way to think about the dividend process?

Paul Eisman

Yes, I mentioned earlier. I think this is how we're looking at it. Is that the regular dividend, we'd like to be competitive with our peers. So we'd like to be in the ballpark or the range that our peers are yielding in terms of their regular dividend. So we look at it kind of that way. And then in terms of special dividend, I think the Board looks at where we are with respect to our balance sheet or cash position and will make one-off decisions as to whether or not they want to make the special dividend. So I think it's nothing more than that.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Okay. And then back on to California from an operating standpoint. I think it's safe to assume that doesn't come back online until you're able to source crude more effectively. As I mean, obviously, if crack spreads will open exceptionally wide. But in terms of the way we should be thinking about it, once you can source the crude by rail, that's when we should think about California coming back?

Paul Eisman

I think that's right. I mean, obviously, the equipment is in shape where we could restart it if the economics became compelling out there. But short of that, I think the plan is to source the crude by rail out there, run light crudes, so that we can reduce the amount of asphalt produced in that facility and improve the economics through that. We expect, as we've discussed, to get the permit in the fourth quarter, 6 months, 6 to 8 months or so, to do the project. We'd put startup sometime in the third quarter, sometime in the third quarter of 2014. But I think, generally, that's the time you can look at some sort of disruption that greatly improved the margins out on the West Coast.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

And would that -- would we expect that to be a unit train situation or more manifest like you described with Krotz Springs?

Paul Eisman

We're designing a unit train facility for California.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Okay. And then sourcing railcars for that is already underway, or it's something you get underway once you have the permits?

Paul Eisman

We're working on alternatives for that, either trying to decide whether or not we should do something ourselves. Or in fact, there are third-parties that have access to unit train railcars, so we're looking at alternatives for that.

Operator

Our next question comes from the line of Paul Cheng with Barclays.

Paul Y. Cheng - Barclays Capital, Research Division

Paul, or maybe this is for Shai, in California, you're saying that the expense is $10 million, but you're also going to use the terminal -- use those -- that as a terminal. So how much is the revenue that you generate? Will that be sufficient to launch and recover the expense?

Shai Even

So during the quarter, we have about $7 million of gross income -- gross margin in the -- in California, which is somewhat an offset against the $10 million of operating expense.

Paul Y. Cheng - Barclays Capital, Research Division

Well, Shai, is that $7 million, you say, reasonable baseline we could use into the future quarters or that actually is maybe higher in the future?

Shai Even

The $7 million is -- some of that is actually an income that we're expecting to grow over time, that will derive from our logistical assets from the increase in usage of our logistical assets. And some of that amount out of the $7 million, about $3 million is actually from trading activities that is difficult to handicap with this blend and how sustainable is that going to be.

Paul Y. Cheng - Barclays Capital, Research Division

So $2 million, just trading, and $5 million is the -- more like a baseline, which could grow over time?

Shai Even

$3 million is the trading and about $4 million is from the logistical asset that there is a potential for that to grow over time.

Paul Y. Cheng - Barclays Capital, Research Division

Okay, very good. I'm wondering, do you guys have a same-store sales -- gasoline sales number for the first quarter year-over-year, and also in the second quarter so far?

Paul Eisman

At what level, Paul?

Paul Y. Cheng - Barclays Capital, Research Division

For your gasoline sales in your retail, same-store gasoline sales.

Paul Eisman

In retail?

Paul Y. Cheng - Barclays Capital, Research Division

Yes, I just want to see whether it is in your market. It seems like most of the company recovered, seems to suggest that first quarter is relatively flat and then April actually has been improving reasonably strong. I want to see whether you see the same thing in your market?

Paul Eisman

We've got seasonality in our market. I think I said in my comments that quarter-over-quarter, for the same quarter year-over-year, I guess, that our sales in our retail business increased 7.5%.

Shai Even

Well, we also have disclosed that sales per site and we have an increase over the same period last year, disclosed that we have 50,000 gallons per site versus 48,000 gallons per site last year.

Paul Y. Cheng - Barclays Capital, Research Division

Right, that's why I want to see that whether you have the number on the same-store sales, based on those store has been opened for more than 12 months.

Shai Even

Yes. This is on the same number of stores. It's a per-per store, per store number. We have an increase from 48,000 gallons per store, first quarter 2012, compared to 50,000 gallons per store during the first quarter of 2013.

Paul Y. Cheng - Barclays Capital, Research Division

Okay. Shai, do you have a second quarter number so far?

Paul Eisman

No.

Shai Even

No, we don't have that number with us right now.

Paul Y. Cheng - Barclays Capital, Research Division

All right. In Krotz Springs is a very strong margin, is there anything, one-off benefit, we should be aware or that this is a reasonable baseline for us to project forward?

Paul Eisman

Well, remember that the WTI we sent to Krotz Springs was sourced out of Midland. So in the first quarter, you obviously had very good Midland-Cushing differentials, and I think our delivered cost of crude oil to Krotz Springs, the WTI, averaged 4 40 under the cost of WTI and Cushing. And I think that's primarily driven by the Midland-Cushing differentials.

Paul Y. Cheng - Barclays Capital, Research Division

Okay. But other than the Midland-Cushing differential that we've seen in January and maybe in February, there's no inventory gain or loss or anything, other things that we should be aware?

Shai Even

No, we have no inventory gain or losses. As I mentioned earlier, also we don't have any true-up effects on the margin. So it's a pure calculation of the difference between the value of our products to cost of goods, both crude.

Paul Y. Cheng - Barclays Capital, Research Division

Okay. Shai, do you have a -- your market value of your inventory in excess of both and also your long-term debt?

Shai Even

We have about $53 million, is the difference between market value consolidated for inventories versus LIFO on the balance sheet. And then the long-term debt at the end of the quarter was about $577 million. That's the gross long-term debt, and as we discussed earlier, we have about $253 million of cash at the end of the quarter and then $10 million short tender.

Paul Y. Cheng - Barclays Capital, Research Division

I'm wondering that, Paul, do you guys have any -- do you have an estimate, how much is your logistic or terminal asset EBITDA within your system that they may be qualified for the more traditional regular MLP?

Paul Eisman

Yes, I don't think today it's an amount that's a significant amount that you could really do anything with respect to MLP. But as we talked about in the comments, it's something that we want to grow. We have logistical assets around California. We're already using some of those at Willbridge and at Long Beach. We think Paramount, there's a lot of interest in Paramount. And so, we're continuing to look at ways to develop that and obviously, if you get to a level that's significant then you can look at alternatives for that. But I think that's not going to happen in the short-term, that's going to take a lot of time.

Paul Y. Cheng - Barclays Capital, Research Division

Any -- what estimate, what is that current level, is it $20 million, $15 million, or any kind of number that you can share?

Paul Eisman

Yes, I don't think -- I think the dominant issue would be or the opportunity or those ones we mentioned in California, but I don't think it's anywhere close to the numbers that you specified. I think Shai kind of mentioned...

Shai Even

But during the quarter, that we said that we have about $4 million contribution.

Paul Y. Cheng - Barclays Capital, Research Division

Right. Okay. A final one, in Krotz Springs, as you bring in the Midland crude and this pacing, the Gulf Coast, is there any change in your product yield? And is that all a disadvantage?

Paul Eisman

Yes. It's a good question because historically, if you took the old LLS and you replace that with WTI, you'd see that there'd be a change or reduction in the amount of distillate that you produce, and an increase in the amount of gasoline that you produce. So that's historically, I would tell you that's the primary shift in yields that you'd see. But LLS today is not what LLS was 5 years ago, LLS 5 years ago was LLS, and it was a very high-quality crude, generate a lot of distillate yields. But as the Eagle Ford has come online. I think that it changed the composition of what LLS is, because I think basically a lot of Eagle Ford and a lot of other crudes, as they get down the Gulf Coast, will be sold at as an LLS equivalent. And so what we've seen is that LLS doesn't produce as much distillate as it's done in the past. And so I think the change between LLS and WTI has been reduced as a result. We're actually getting to the situation where we're seeing, like roots, becoming a disadvantaged crude. We're seeing that a little bit in West Texas, but I think as barrels continue to get to the Gulf Coast, I think we're going to see that on the Gulf Coast also.

Operator

[Operator Instructions] And our next question comes from the line of Rakesh Hadvani with Crédit Suisse.

Edward Westlake - Crédit Suisse AG, Research Division

It's Edward Westlake here. Just an update on the -- I don't know if you've done the work yet or finished it, sorry, in terms of what you think is the right effective tax rates for us to tax effect the value of ALBW, from the perspective of an ALJ C-corp holder?

Shai Even

So when we're looking at consolidated effective tax rates, we need to consider that when we are deriving to the line of income -- before income tax expense, we have only 81.6% or about 82% of ALDW, and the first time since 2007, we're getting the benefit of the domestic production activity deduction, which is bringing us to around 23 or 23 -- 29, I'm sorry, 29.3% for the quarter, and around this number for this year, the effective tax rate.

Edward Westlake - Crédit Suisse AG, Research Division

Right. I'm more thinking about if you -- again, looking less at the income statement but looking at the value of your holding in ALDW and as you -- if you were to value that separately and then there would be some tax that would have to be paid because you're a C-corp holder of an MLP, and that's deferred tax. When do you think, or what do you think the overall sort of tax that you feel appropriate to put on ALDW? As you look at it from your sort of valuation of the company at ALJ?

Shai Even

So right now we're in a position, that 100% of the income deriving from ALDW is taxable at the Alon USA Energy level, at 100% of the federal tax rate and we're getting, as mentioned earlier, we're getting the 7%. The 6%, the domestic production activity deduction and in addition, we have 1% of -- that is on the level of ALDW and right now, I don't have really more significant information to disclose. When we book, when we entered into this, we created the deferred tax liability that will be recognized over approximately 20 years, and that will be in addition, more of an additional amount that we'll recognize as an expense.

Edward Westlake - Crédit Suisse AG, Research Division

Okay. That's very helpful. And then I guess, obviously, WTI-Brent spreads have come in, and everyone will have their own view, but it still feels as if there will be an advantage getting crude out to Bakersfield, which gives hope for some decent EBITDA down the road. Any updates as you've been talking to the rail folks about the sort of costs, from say, the Bakken or from Permian?

Paul Eisman

I mean, obviously, this is an important business to them and so they'll work with you on it. I think they -- and I would tell you that they're more interested in unit train economics and manifest, in terms of discussions about rates. But in the discussions we've had, there's give-and-take, but we don't see anything in that, that's a deal killer.

Edward Westlake - Crédit Suisse AG, Research Division

But do you have a rough rate, from say, if you move them from Bakken or from the Permian over there?

Paul Eisman

We've got some estimates, but I'm really not in a position to divulge that right now.

Operator

[Operator Instructions] And our next question comes from the line of Chi Chow of Macquarie.

Chi Chow - Macquarie Research

I'm sorry, Shai, could you go over the tax rate again on guidance and what we should be using for the corporate tax rate going forward here?

Shai Even

The effective tax rate that we have for the quarter for Alon USA Energy was about 29.3%, and that number is our expectation for 2013.

Chi Chow - Macquarie Research

That is your expectation going forward?

Shai Even

Yes, that is the expectation going forward. Correct, yes.

Operator

I'm showing no further questions in the queue at this time. I would like to turn the conference back to management for any final remarks.

Paul Eisman

I just want to say, thanks for your time, your interest in the company, and we're looking forward to talking to you about our second quarter results. 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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