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Alon USA Energy, Inc. (NYSE:ALJ)

Q2 2008 Earnings Call Transcript

August 7, 2008 10:00 am ET

Executives

Claire Hart – SVP

Jeff Morris – President & CEO

Shai Even – VP & CFO

Analysts

Chi Chow – Tristone Capital

Jeff Dietert – Simmons & Company

Paul Cheng – Lehman Brothers

B.J. Persaud [ph] – Lyon Capital Management

Timothy Smith [ph] – CRT Capital Group, LLC

Matthew Safado [ph] – Churchill Pacific Asset Management

Operator

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Alon USA Energy second quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today, Thursday, August 7th of 2008.

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

Claire Hart

Thank you, Mary. Good morning everyone and welcome to Alon USA second quarter 2008 earnings conference call. With me are Jeff Morris, President and CEO, 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 Jeff, please be aware that information reported on this call speaks only as of today, August 7, 2008, and therefore you're advised that time sensitive information may no longer be accurate as of 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 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, that may cause the company's actual results or performance to materially differ from any future results or performance expressed or implied by these 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 Jeff.

Jeff Morris

Thank you, Claire. First I would like to say how proud I am of our organization to have accomplished a significant acquisition in this current environment. It's not me who could have done that. Long term I'm sure we're going to be rewarded for executing this opportunity at this time.

Also considering everything we've been through over the last few months, I am pleased that we were able to report $18 million of net income, all those on a non-recurring basis.

Nevertheless, it is obvious from the results that our second quarter was very challenging for the company. As we leave the second quarter, we look forward humbled and optimistic. February 18th were indeed humbling for us, but I can tell you I've been very pleased with the response of the organization since that time and I'll discuss that in greater detail later.

As significantly, we've been very humbled by the significant support from all of our stakeholders over the last few months. Over that time, our majority shareholder has injected $80 million of equity and provided $55 million of LC support. Credit Suisse has provided a $300 million term facility and Bank of America has provided a $400 million revolving facility, all of which allowed us to complete a very attractive acquisition.

In addition, Bank Leumi and Israel Discount Bank have provided additional $60 million LC facility. And our insurers have advanced us $200 million in cash, and we expect an additional $50 million in August. This level of support is truly phenomenal, and we as management are humbled by the confidence exhibited in us by all of these entities.

Most importantly, this support leaves our balance sheet surprisingly strong even after the events in the last quarter. At the end of the quarter we had $214 million of availability under our loan impairment revolving facilities. And in addition, the value of our inventory exceeds our LIFO value by over $300 million.

We're nearing the end of the major work at Big Spring, and we’ll soon begin building cash for working capital and from earnings. I will remind you that for a domestic crude refinery, payable terms exceed the receivable terms in inventory, that's when we start increasing throughput; we will begin to generate cash from working capital. Thus I'll tell you at this time I'm very comfortable with our balance sheet position.

Going on to the Big Spring repair, I've been very pleased with the execution at the facility. We will return the plant to full operation many months prior to what many have predicted. Our current schedule is to complete the mechanical repairs of the Cat cracker on August 13th and to have oil into the Cat cracker on August 26th. We've also scheduled to mechanically complete the Appalachian unit on September 3rd and have oil on September 9th.

I will point out that we are engaged in commissioning activities in parallel with the mechanical completion. There are several areas of the Cat cracker which have already been completed, and we are doing the commissioning work at this time.

Over the past 5.5 months, we have replaced over 160,000 feet of pipe, a million feet of electro cable, poured over 900 truckloads of concrete and other equally phenomenal results. And I'm very proud of my colleagues at Big Spring. They've worked tirelessly and effectively to complete these repairs in record time.

I know many of you also interested in the cost of these repairs. Through today, we have spent about $265 million in property damage repairs, of which $200 million has already been funded by our insurers, and we expect another $50 million advance in August. We've also claimed $72 million in business interruption insurer claim through the end of June.

At this time, we cannot estimate our total claim, but are still exerting our best efforts to complete this work or less than our total $385 million of coverage.

Nevertheless, the financial results in Big Spring during the quarter were quite disappointing. The major negative beyond our initial expectations was a $30 increase in crude price through the quarter. Since Big Spring has been operating as a high (inaudible) since April 4, only one-third of our product is being sold as fuels. The remainder has been sold as gas or vacuum tower bottles.

The price of these products has not kept pace with the increase in crude price and this caused our margins in Big Spring to be a negative $8 per barrel for the quarter. Obviously this will correct itself upon the restart of our Cat cracker.

The financial results for our West Coast business have also been very disposing although I'm quite encouraged by the increase in our asphalt pricing over the quarter. The increased asphalt pricing over $100 a ton for the quarter to average $460 per ton, and have continued to increase pricing with current expectations in August of $630 to $640 per ton. Nevertheless the increase in pricing has caused a reduction in sales and we have continued to reduce throughput of Paramount to match sales.

We are planning to go through a one-unit operation at 25,000 barrel per day to match sales during the next quarter.

In addition, we have continued to reduce our cost of crude at Paramount and are currently purchasing crude on a blended basis at about $9 per barrel under WTI.

We are currently renegotiating all of our local California crude supply arrangements to reduce the price of our crude further. And if we are unsuccessful in reaching agreement with these producers, we will replace these crudes with lower cost foreign crudes. Thus with the increase in asphalt pricing and further reductions in crude cost, we anticipate returning Paramount the profitability at the EBITDA level in the third quarter on a combined basis with the asphalt marketing segment.

Additionally, we continued progress on hydrotreater and hydrocracker projects at Paramount. We have received our permits for the hydrotreater expansion and have begun construction. We expect to have this improvement online by year end and will increase our reformer throughput by 50% to 12,000 barrel per day.

In addition, we are scheduled to complete our Schedule A package for the hydrocracker in October and we'll have a plus or minus 15% estimate at that time with a schedule for completing the project.

We have received preliminary drawings for the heavy wall reactors and have submitted them to manufacturers for preliminary bids and schedules. Thus by year end, we should be requesting permits and be able to provide a definitive estimate and schedule for the project.

Since our acquisition, the Krotz Springs facility has performed as expected, of the refineries producing cash as we modelled and we expect to have the revolver fully paid within the 60 days as we modelled it following the acquisition.

We're also very pleased that all members of the Krotz Springs organization with the exception of one has chosen to join Alon, and included in the individuals chosen to join with us is the refinery manager. So we go forward with a very strong workforce.

Krotz Springs refinery is running with the Cat cracker at full rate, 30,000 barrel per day, using all produced gasoil, and a crude charge rate of 73,000 barrel per day. And our margins and our hedging programs are performing to date as we modelled and as we expected.

In addition, results of our retail business were encouraging with June being our best month on record. Inside sales on a same-store basis are up slightly, but most encouraging result as they increase in our merchandise margin to 31.5% versus 28.9% last year. This increase is primarily due to a significant increase in our (inaudible) sales.

We also continued to have very strong fuel margins, offsetting to a great extent the decline in fuel sales.

In summary, we have completed a quarter which I will assure you that none of us ever want to repeat, but we are humbled and hardened by the support we received and are ending this period optimistic and strong.

I look forward to what we will accomplish in the next quarter. I'm happy to address any questions you may have.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. (Operator instructions) And our first question comes from the line of Chi Chow with Tristone. Please go ahead.

Chi Chow – Tristone Capital

Jeff, you mentioned in your comments that you expect 50 million in insurance proceeds in August, is that on property damage?

Jeff Morris

Well, at this time, we have not tried to separate projects to BI at this point in time. As you saw the second quarter results, we applied all of the proceeds to property damage. As we go through the third quarter, we paying all of our gains, then we will make that choice. One thing to keep in mind, Chi, is that we have spent already 265 million on property damage repairs and chalking correctly. But if I understand correctly, the accounting rules require that we apply proceeds from the insurers to property damage first before we apply to BI.

Chi Chow – Tristone Capital

Okay. And any issues with negotiations on BI insurance carriers?

Jeff Morris

No, we – I'd tell you I've been very pleased with the support of our insurers. We have not – with claims we have some dialogs continuing tat this point in time in regard to the BI. But there's nothing unusual. Really, as I said, insurance companies really have been very good with us, very fair. They're protecting their interest, of course, they should, but I have no complaints.

Chi Chow – Tristone Capital

And there's been a lot of talk on the asphalt market by editors as well. Could you give us your sense of how this is going to play out the rest of the year? Is it a short-term sort of seasonal impact on kind of tight supply demand here or do you see this continuing on into back half of the year as well?

Jeff Morris

Well, we can definitely see supply/demand asphalt tightening. There's been three major events this year that have reduced supply to the market. One is Cenex starting up their coker which is on line. Second is Sinclair using their coker on line, and then the third most recent event was the SemGroup bankruptcy which is although SemGroup is not a manufacturer, they are the largest reseller of asphalt in the country, and that has caused a significant disruption in the marketplace. So, demand is definitely off. There's no question about that, probably off 30% or 40% this year, but it seems now that supply is off even more. And so, that's one of the reasons that we have been successful in increasing our pricing to the levels we have.

We as an industry need to get asphalt pricing where we can at least make a little bit of money at $140 a crude, that's where crudes are going to be. So the other side of the big effect in asphalt business been, there's enormous run-up in crude pricing. We are not priced at a level that if crude does not run above $140 or so that we can at least breakeven on a combined basis at the Paramount refinery. And if crude falls, we will do well. Very interesting to me, Chi, is to see what the pricing is for winterfield last fall, this winter.

Tendency in the business is for users to go buy filler tanks in the winter from the producers primarily in the Rocky Mountains, and we see the pricing this fourth quarter, going forward, as more than double what it was last winter. Whatever the winterfield pricing is, I think we'll set the pricing for next year. I'm pretty – in spite of the crude price, I think our strategy is working out because I – the supply up here is really, really tight even at low demand. If demand increases, it's really going to be tight.

Chi Chow – Tristone Capital

For your asphalt segment, you talked about pricing, but what sort of margins?

Jeff Morris

We did a $35, $38 margins in the second quarter.

Chi Chow – Tristone Capital

Okay.

Jeff Morris

And what we've done is – pricing is going sustain our margins on asphalt business, we actually need better margins than that to offset the losses at the refinery. And so we look at this on a combined basis between the refinery and the asphalt business. And we believe in the third quarter that we'll get that EBITDA level back breakeven level or better.

Our business plan was for $40 margins on asphalt and we've been trying to sustain the level. And I have to give the asphalt marketing guys a lot of credit. They've worked very hard to sustain the margins and the business has done a nice job.

Chi Chow – Tristone Capital

Okay, great. One more question. I think on the last call you mentioned that you will be increasing headcount at the G&A level with Krotz Springs acquisition. Can you give us any sort of guidance going forward here on for a G&A level, and I expect?

Jeff Morris

I think based upon our recent discussions we're probably adding about 30 people total to the company, so that would be on an annualized basis something around $3 million, which I think will actually improve the economics of Krotz Springs because as I understand that the allocations that Krotz Springs had from Valero were significantly higher than that.

Chi Chow – Tristone Capital

Hey, great. Thanks, Jeff.

Jeff Morris

No problem.

Operator

Thank you. Our next question comes from the line of Jeff Dietert with Simmons. Please go ahead.

Jeff Dietert – Simmons & Company

Good morning.

Jeff Morris

Yes.

Jeff Dietert – Simmons & Company

Did you mention in your opening remarks the business interruption that you've requested?

Jeff Morris

I guess I did. We've claimed through the end of June $72 million.

Jeff Dietert – Simmons & Company

$72 million. Okay, thank you. And now with the Krotz Springs acquisition, I was wondering with the performance so far, one of the things that we were concerned about was the basis differential between the NYMEX and the Gulf Coast. Could you talk about how that is performing so far in the third quarter?

Jeff Morris

Since – we started pricing our hedges August 1st.

Jeff Dietert – Simmons & Company

Okay.

Jeff Morris

And since that time, our correlations have performed as expected. We correlated the diesel cracks, we sold to the Gulf Coast, and we're quite satisfied. So we had over 93% correlation coefficient, and we haven't seen anything to cause us to question that at this time.

Jeff Dietert – Simmons & Company

What – how are operating expenses looking so far in your operations.

Jeff Morris

I think it looks fine. I mean the great thing for us about Krotz Springs is it's kind of boring everyday, which is good. I can deal with boring right now. It's quietly hitting its yields, hitting its OpEx, hitting the throughputs. It's a very effective workforce and they're performing very well. So it's a nice thing since July – come in no surprise is that Krotz Springs.

Jeff Dietert – Simmons & Company

And how – back to the business interruption insurance, how are you going to report that? It seems like there is some benefit that you've yet to receive for the second quarter. And then I would expect business interruption insurance will be collective for July and August as well. How is that going to flow through the income statement?

Jeff Morris

Well, that has to be worked out probably at end of the third and maybe even the fourth quarter. Once we see exactly what the final cost of the property damage repairs are, then that would make it much easier for us to allocate those numbers. Because as I said earlier, as I understand the accounting rules, we have to apply our proceeds from the insurers first to the property damage and then the remainder goes to business interruption.

When the Cat cracker comes back on line, within a few weeks after that, we'll have a much greater level of clarity in regard to our property damage, then I think we can make that determination.

Jeff Dietert – Simmons & Company

Thanks for your comment.

Operator

Thank you. Our next question comes from the line of Paul Cheng with Lehman Brothers. Please go ahead.

Paul Cheng – Lehman Brothers

Hey guys.

Jeff Morris

Hi Paul.

Paul Cheng – Lehman Brothers

Hi. Jeff, I don't know whether you will be willing to comment. Krotz Springs, given the market conditions it's pretty tough in July. Are they making money in July?

Jeff Morris

Yes, they are.

Paul Cheng – Lehman Brothers

With all hedging on the operation?

Jeff Morris

They are hedging at the EBITDA level.

Paul Cheng – Lehman Brothers

With our hedging on the EBITDA will be positive, but –

Jeff Morris

Correct. They're doing pretty well. They're doing as we modelled. I mean they're –

Paul Cheng – Lehman Brothers

Does that mean they lost money on it?

Jeff Morris

Gross margin is around the range of $5 or $6 a barrel.

Paul Cheng – Lehman Brothers

So the gross margin is $5 to $6 per barrel?

Jeff Morris

Right.

Paul Cheng – Lehman Brothers

In July?

Jeff Morris

Yes.

Paul Cheng – Lehman Brothers

Can you remind us that how – the hedging, I mean both our hedges that you put in?

Jeff Morris

Yes, we have distiller [ph] cracks is that we have. We've hedged 18,750 barrel a day of distiller cracks. We have on one side the ultra-low sulfur diesel, and on the other side we have WTI.

Paul Cheng – Lehman Brothers

Okay.

Jeff Morris

And those, again, the hedges are performing just as we expected. In fact, for the first eight days of August, we're making money on the hedges than what we sold the hedge for what the market is.

Paul Cheng – Lehman Brothers

Right. Jeff, what's the – at the time you end up, what is the crack that you hedge it for or the 18,750 barrel per day of diesel?

Jeff Morris

Around, on average over the term, it's around $22.

Paul Cheng – Lehman Brothers

$22, and that's for the low-sulfur diesel?

Jeff Morris

Right, low-sulfur diesel over WTI.

Paul Cheng – Lehman Brothers

Is that ultra-low or low sulfur?

Jeff Morris

NYMEX over WTI.

Paul Cheng – Lehman Brothers

So, it's heating oil over WTI?

Jeff Morris

Right.

Paul Cheng – Lehman Brothers

And your 18,700 barrel per day diesel crack, and is that for the next few years or that is less?

Jeff Morris

27 months from starting August 1st.

Paul Cheng – Lehman Brothers

From August 1st to for 27 months?

Jeff Morris

Right.

Paul Cheng – Lehman Brothers

Thank you. And going back into the business interruption insurance, the (inaudible) Assume that let's say your property damage just not going to paint the entire $385 million and you will be booking some business interruption insurance. I assume that you're going to book in as part of revenue and the impact on the gross margin. Is that how you're going to treat it or you're going to put it under the other income line?

Jeff Morris

I'll ask Shai. He has a view on that.

Shai Even

Business interruption policy, as we're expecting them, they will be part of our operating income and to further extent, they will offset expenses relative to the file itself, and further expenses will be related to the gross margin level.

Paul Cheng – Lehman Brothers

I mean the gross margin also?

Shai Even

And what we also mentioned it well is that advantage of now booking the interest positive part of the property damage claim was, as part of the gain on the conversion is that those deposits are not subject to income statement payment. And basically (inaudible) business interruption posted. So those are subject to immediate tax payment. That's part of the immediate benefit that we have here.

Paul Cheng – Lehman Brothers

And Jeff, I just want to make sure I get the number right. You indicated that so far you already spent $265 million for the repair, right?

Jeff Morris

That's correct.

Paul Cheng – Lehman Brothers

Now since that the SEC is going to start up towards the end of this month, and you pretty much pun with all the mechanical, can you give us some rough idea that what is in your basket at this point toward incremental property repair cost is going to be? And also, when you say $265 million, is that as of the end of the second quarter or as of the end of yesterday?

Jeff Morris

$265 million was as the end of yesterday, and I wish I could give you an estimate, see that I really cannot – I could stand behind. Now what we've chosen to do in regard to this repair is to work as hard and fast as we can each day and get this done early, and we're going to get it done in six months or so versus, what most would have said, most experts told us it'll take a year to get it done, and we're going to do it in half that time. By doing that we just basically have to spend the money as fast as we can and our belief is that we'll spend less by doing it fast, and we would have the other way. But I can't give you a total.

Paul Cheng – Lehman Brothers

Sure. And Jeff, earlier that you say based on today's oil price, your budget is $40 for the asphalt premium over the margin. And should we assume that based on that, what do you – since you're saying that your oil price stay where they are today and not changing that the second quarter, you believe the asphalt premium or the margin will be around $40 per ton from – improve from the second quarter, say, $35, $36. Is that what you –

Jeff Morris

I'll just try and put in perspective. If we have to pick a crude price, let's say, crude is $130 to $140 range, then we would expect our asphalt margin to be in the $40 a ton range.

Paul Cheng – Lehman Brothers

Right, because right now it's actually lower, so why not it's around in the $120?

Jeff Morris

Crude is lower then the margins may be higher. If crude is higher, the margins may be lower. So, that's why I want to put a reference. So, based on the $630, $640 a ton asphalt price at $130 to $140 crude, our margin will be in the range of $40 a ton.

Paul Cheng – Lehman Brothers

Oh, I guess my question is actually the other way that I mean, you always have some contract that's going to reset throughout the quarter. So, when you're looking at the $630 per ton, even, let's say if the oil price don't change anymore, but you still should have some movement in your product selling price, is it?

Jeff Morris

We will have some.

Paul Cheng – Lehman Brothers

Because of the contract that's being reset.

Jeff Morris

Right, that's reset primarily late – that's why we've been squeezed going up and should if crude prices fall, depends on – really what's most important is the slope of the curve of crude, not the absolute price of it. When the crude was going up $10 a barrel per month, we were struggling, just always $20 to $30 per ton asphalt margins.

If crude – let's speculate crude falls $10 per barrel per month, then we will be benefited by that amount, because the price – a lot of our California crude as an example re-sets on the California index and that's set on the fifth day of every month for that, and they use the previous month's pricing incentives. So we're always month out in time.

Paul Cheng – Lehman Brothers

Okay. Final question from me. The hydrocracker, any kind of rough estimate, if any change to your cost?

Jeff Morris

So far, we haven't revised anything. The last numbers we have came from our – from Chevron Lummus, our licensor that we received actually early this year on the hydrocracker and side battery limits and their indication at that point in time was similar to what we were expecting. So at this time we haven't changed.

Paul Cheng – Lehman Brothers

Jeff, can you remind me about what's that number may be?

Jeff Morris

Right now – our number right now is about $200 million.

Paul Cheng – Lehman Brothers

$200 million, and what is your CapEx for next year? Any rough idea that you can share?

Jeff Morris

We haven't gone through the business planning process. Geez, I don't have a number for that.

Paul Cheng – Lehman Brothers

Okay, thank you.

Jeff Morris

You're welcome.

Operator

Thank you. Our next question comes from the line of B.J. Persaud [ph] with Lyon Capital Management. Please go ahead.

B.J. Persaud – Lyon Capital Management

Hi, thanks. Just a couple of quick questions. Could you sort of talk about your throughput in the second quarter versus the amount of products sold, and I believe your throughput was 70000 barrels a day and amount sold was $55,000. Could you just talk about that a little bit?

Jeff Morris

Well, we didn't build inventories in the second quarter, so I would – I’ll have to see for the numbers came from – we sell what we made, maybe something – the numbers were difficult to interpret I know in the second quarter because of that back in tower bottom sales out of Big Spring and the BGO which is very unusual for us. So, we ran 70,000 barrel per day and we sold 70,000 barrel a day basically actually pulled a little bit of inventory during the quarter.

B.J. Persaud – Lyon Capital Management

Okay. Because your sales volume barrels per day in the press release is about 55,727?

Jeff Morris

Let me check. I'm looking at the release and looking at the yields of the refinery showing 72,150 is what I see.

B.J. Persaud – Lyon Capital Management

Okay.

Jeff Morris

You had Big Spring at 61,649 at California. So, if you have us – maybe you can call Shire, Joseph.

Shai Even

Sure. Okay. I believe you were looking at the integrated granded fuel sales, so they're on 55,000 but this is only related to Texas.

Jeff Morris

And that's just fuel, such as gasoline and diesel.

B.J. Persaud – Lyon Capital Management

Got it. Okay. Sorry. Okay, and could you just also give just an update on the upgrade in the California refinery that you're expecting by year end? Just how much more are you planning to spend and sort of sources for that?

Jeff Morris

Right. The expenditure for that project is $22 million. We've already spent about $8 million of it, so we have another $14 million or so to spend. So it's a moderate level of spend. We have the liquidity inside that business to support that. And we expect that current margin environment it would contribute about a million dollars per month of additional income.

B.J. Persaud – Lyon Capital Management

Okay. And this overall 22 is for the full completion to hydrocracker?

Jeff Morris

That's for the hydrotreater. That's the project we're doing this year. The hydrocracker is about $200 million project we've alluded earlier, and it will be done over the next two years, we expect to start up. Our current plan is to start-up at the end of 2010 but also I do want to point out that we will get the final numbers on that regard in the fourth quarter this year as I point out in my remarks.

B.J. Persaud – Lyon Capital Management

Okay. And just one last question. Can you give some sort of OpEx per barrel guidance for third quarter?

Jeff Morris

No. Let me add, as the Big Spring refinery comes up to full rate, they'll return to normal in the $3 range, and the Krotz Springs is running as expected, it's a little under $3, and the Paramount Refinery will continue to be high because of the lower throughput, it's running down around the $5 range.

B.J. Persaud – Lyon Capital Management

Okay, great. Thank you.

Operator

Thank you. (Operator instructions) And our next question is a follow-up from the line of Chi Chow with Tristone. Please go ahead.

Chi Chow – Tristone Capital

Hi Jeff. Just a quick follow-up on the Krotz Springs' hedges.

Jeff Morris

Okay.

Chi Chow – Tristone Capital

Were the hedges established all at one time or were they phased in?

Jeff Morris

They were phased in. We didn't want to put that much in the market in any one day. So they were phased in over the months of May and June.

Chi Chow – Tristone Capital

Okay. Thanks.

Operator

Thank you. Next question comes from the line of Timothy Smith [ph] with CRT Capital Group. Please go ahead.

Timothy Smith – CRT Capital Group, LLC

Thank you and good morning. I'm wondering, Jeff, if you could please comment on or give me some clarification please on the SemGroup bankruptcy? I know you will file the reclamation claim for about $40 million worth of high-sulfur gasoline and some vacuum tower bottoms. So I’m just wondering what your exposure here is or are there any set-offs that we can think about?

Jeff Morris

My current update is, as you are aware, SemGroup indicated in their releases, our receivables were around $40 million from them. We have filed with the court to get quick repayment of $17 million, which is the value of what we sold within the 20 days prior to the filing. And the court is reviewing the filings, and there are other filings have been made. At this point in time, we are willing to see what the outcome is and SemGroup speaks for themselves.

I understand that they've said that they believe the value of their assets exceeds their receivables, they're payables, and we will wait and see – it's – we don't like it of course. But I guess it's another indication of risk in this business. I probably didn't expect SemGroup to go bankrupt. I presume the lot others didn't expect them go either if you look at their creditors list.

Timothy Smith – CRT Capital Group, LLC

Sure. Thank you. That's really the only question I have.

Operator

Thank you. Next question comes from the line of Matthew Safado [ph] with Churchill Pacific. Please go ahead.

Matthew Safado – Churchill Pacific Asset Management

Hello gentlemen. I just had a question regarding Big Springs and the California Refineries. What type of available credit do you have available for them and what's the liquidity available?

Jeff Morris

As I indicated in my remarks, in the second quarter, we had $214 million of availability under our revolvers for the facilities at Alon and at Paramount. So, we are obtaining liquidity and I also indicated, that of your inventories over $300 million, above that on our balance sheet are LIFO value. So, we've had very good support from our banks, and very comfortable.

Matthew Safado – Churchill Pacific Asset Management

Okay. And also, this quarter guidance. I know you can't really forecast anything but right now what's been the trend compared to the second quarter. Has margins per barrel improved in California? I know there are still issues in Big Springs but maybe some little more clarity on what's going on currently right now?

Jeff Morris

I hate to avoid the question. One thing I have learnt over 34 years is I'm clueless in regard to refining margins and crude price. So, I'll leave that to the experts, you guys.

Matthew Safado – Churchill Pacific Asset Management

Okay. And is there going to be a private lender call?

Jeff Morris

We haven't scheduled one as yet.

Matthew Safado – Churchill Pacific Asset Management

Okay. That's all. Thank you very much guys.

Operator

Thank you. (Operator instructions) And our next question is a follow-up from the line of Paul Cheng with Lehman Brothers. Please go ahead.

Paul Cheng – Lehman Brothers

Hi Jeff.

Jeff Morris

Yes, Paul.

Paul Cheng – Lehman Brothers

I don't know whether you guys already have a press release – yes, you do, I apologize. For the 80 million debt, the equity or the convertible preferred contribution from the parent corporation, do you have the terms for that?

Jeff Morris

Terms of that are similar to the – the return on is similar to the term facility we have at Credit Suisse, of course, the income.

Paul Cheng – Lehman Brothers

And what – is that a mandatory convert or that they say option by the parent corporation?

Jeff Morris

I'll turn it over to Shai.

Shai Even

There is an option for the company to purchase, to convert – there is a requirement to convert at the end of the three-year period, and there is an option to do sufficient liquidity and it will be favourable to the company to buy back up to 18 months.

Paul Cheng – Lehman Brothers

And Shai, what is the conversion rate or the price?

Shai Even

Price was at the day that it was issued.

Paul Cheng – Lehman Brothers

I'm sorry.

Shai Even

Price was at the day that it was issued

Paul Cheng – Lehman Brothers

Can you remind me what's that price?

Shai Even

It was approximately $15.

Paul Cheng – Lehman Brothers

$15? Thank you.

Operator

Thank you. And there are no further questions. Mr. Morris, I'll turn it to you for closing comments.

Jeff Morris

Thank you, Mary. Well, I just want to reiterate on which we appreciate for not only you on the phone but our owners, shareholders, the majority shareholders, the banks has afforded us, it's a phenomenal for us to get an acquisition done during this time period and I'm very confident that this is going to pay off for the company. And thank you again, let's talk to you next quarter.

Operator

Thank you. Ladies and gentlemen, that will conclude today's teleconference. If you would like to listen to a replay of today's conference, please dial in 2303-590-3000 or 1800-405-2236 and enter the access code of 11116431 followed by the pound sign. We thank you again for your participation, and at this time you may disconnect. Have a good day.

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Source: Alon USA Energy, Inc. Q2 2008 Earnings Call Transcript
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