- ALDW’s first quarter’s throughput at 105%.
- Transportation cost low for crude and final products.
- Big Springs Refinery capable of all crudes from West Texas area.
- Expect the company to continue double-digit returns.
Alon USA Partners, LP (ALDW) paid a quarterly distribution of $0.69 on May 21, 2014. This was after a distribution of $0.18 in February 2014 for the fourth quarter of 2013 and the MLP did not pay a dividend for the third quarter due to the Fluid Catalytic Cracking unit that cost the company about $12 million in costs to repair and lost income. The repairs included a regeneration of the catalyst and a diesel hydro-treater catalyst replacement. With the refinery operating at full capacity, the MLP is again paying double-digit distributions.
Alon USA Partners, LP is a Delaware limited partnership formed in August 2012 by Alon USA Energy, Inc. (ALJ). Alon Partners owns and operates a crude oil refinery in Big Spring, Texas, with total throughput capacity of approximately 70,000 barrels per day. Alon Partners refines crude oil into finished products, which are marketed primarily in West Texas, Central Texas, Oklahoma, New Mexico and Arizona through its wholesale distribution network to both Alon Energy's retail convenience stores and other third-party distributors.
Alon USA Partners' refinery in Big Spring Texas operates at a capacity of 70,000 bpd (~26 MMbbl/year) of sour crude. The refinery has a rating of 10.5 on the Nelson Complexity scale which allows the refinery the flexibility to process 100% WTS or 100% WTI as the company selects the best priced crude for their profit margin.
Alon's refinery is in the heart of the Permian Basin. It is the closest refinery to the robust West Texas crude oil fields, which provides a significant cost advantage on reduced transportation costs. Alon has a near-by marketing area that buys all the refinery can produce. Transportation costs are held to a minimum for the company.
First quarter 2014 Financial Report described operations in a positive report. The refinery operating margin was $14.77 per barrel for the first quarter of 2014, compared to $28.76 per barrel for the same period in 2013. This decrease was mainly due to lower Gulf Coast 3/2/1 crack spreads and a narrowing of both the WTI Cushing to WTS spread and the WTI Cushing to WTI Midland spread. The refinery's throughput for the first quarter of 2014 averaged 73,296 barrels per day ("bpd"), compared to 59,476 bpd for the same period in 2013. The lower throughput rate during the first quarter of 2013 was due to maintenance on the crude vacuum tower.
The refinery operating margin was impacted by $2.9 million of costs associated with RINs obligations for the first quarter of 2014, which were completely offset utilizing carryover RINs from 2012 for the first quarter of 2013. RINs will be an additional operating cost each quarter.
The average Gulf Coast 3/2/1 crack spread was $16.81 per barrel for the first quarter of 2014, compared to $28.40 per barrel for the first quarter of 2013, which was influenced by a reduction in the Brent to WTI Cushing spread. The average Brent to WTI Cushing spread for the first quarter of 2014 was $10.46 per barrel, compared to $19.25 per barrel for the same period in 2013. The average WTI Cushing to WTS spread for the first quarter of 2014 was $3.67 per barrel, compared to $11.41 per barrel for the first quarter of 2013. The average WTI Cushing to WTI Midland spread for the first quarter of 2014 was $3.54 per barrel for the first quarter of 2014, compared to $7.72 per barrel for the first quarter of 2013. These numbers reflect a more competitive environment for the cost of crude and sale of product going forward.
(Map from Alon presentation below)
Alon USA Partners has established a distribution network with selected partners to provide product to markets that will allow for growth, and should control their market area due to well controlled costs allowing for a good profit margin compared to the rest of the market activity.
We recommend Alon USA Partners, LP as a solid MLP that we anticipate will pay a distribution each quarter above the 10% threshold. Outside of another accident at the refinery, the company operations are good and should remain profitable.