US refineries had a good year in 2011, after several bad years during which several refineries closed. The share price of Valero Inc. (NYSE: VLO), the biggest company in the industry with 15 refineries, which serves as the industry benchmark, has risen 53% since the beginning of the year, reflecting the industry's mood. Some analysts believe that the refining industry is on the verge of a new "golden age", a nickname from the mid-2000s, when refineries were cash cows and the darlings of investors.
Two Israeli-owned refinery companies - Delek US Holdings Inc. (NYSE:DK), controlled by Yitzhak Tshuva, and Alon USA Energy Inc. (NYSE:ALJ), controlled by David Wiessman and Shraga Biran - are seeking to cash in on this new golden age.
Alon Israel Oil Company Ltd. subsidiary Alon USA owns three refineries and 300 gas stations and convenience stores. Last week, the company filed a prospectus with the US Securities and Exchange Commission (SEC) to float subsidiary Alon USA Partners LP, which owns the Big Spring Refinery, a move made by several refinery companies, including Delek US, which two months ago filed a prospectus with the SEC to float subsidiary Delek Logistics Partners LP
US refineries are floating some of their operations for tax reasons. US energy companies can float some of their operations as limited partnerships (a structure similar to Israeli oil and gas exploration limited partnership), which pay the individual tax rate, rather than the corporate tax rate, on dividends, thereby lowering the tax liabilities of their controlling shareholders.
While Delek US chose to float its logistics operations, Alon USA opted to float its first and most successful business, its Big Spring refinery in Texas, which was incorporated into Alon USA Partners, and will be listed under the ticker "ALDW", if an when the IPO is held. Two years ago, Alon USA filed a prospectus to float its retail operations, Alon Brands, but never held the IPO.
Alon USA hopes to raise up to $230 million for Alon USA Partners. According to the prospectus, the company will use the net proceeds to repay its $342 million loan from Alon USA, with the balance of debt to be converted into partnership units in Alon Energy Partners. Alon USA will wholly own the management of the subsidiary, similar to the general partner in Israeli gas exploration limited partnerships.
The Big Spring refinery, considered Alon USA's best asset, refines 70,000 barrels of oil a day, and has a very high profit margin due to the structure of the US oil market. According to the prospectus, Alon Energy Partners posted a profit of $146 million in the first half of 2012, after a profit of $294 in 2011.
Alon USA's share price closed at $13.46 yesterday, giving a market cap of $757 million.
Tshuva sells Delek US shares at a big profit
Delek US owns two refineries, one each in Texas and Arkansas, and 374 gas stations and convenience stores. Delek Logistics initial assets include 200 miles of transportation pipelines and a 600 mile crude oil gathering system with associated storage facilities with 1.4 million barrels of active shell capacity supporting the company's US’ El Dorado and Tyler refineries; the 185-mile Paline crude oil pipeline in Texas; Delek US’ wholesale marketing business in Texas; and five light product terminals - the Abilene, Big Sandy and San Angelo terminals in Texas and the Nashville and Memphis terminals in Tennessee. These operations posted a net profit of $32.6 million on $765.8 million revenue in 2011. Delek US plans to raise up to a gross $135 million in the Delek Logistics IPO.
The IPO is primarily aimed to create value for Delek US's shareholders, especially controlling shareholder Delek Group Ltd. (TASE: DLEKG). It seems that a successful IPO is no longer critical: since filing the prospectus with the SEC on July 12, Delek US's share price has risen 43% to $25.89 (as of yesterday's close), giving a market cap of $1.52 billion.
Delek Group has exploited the rise in Delek US's share price to sell 10% of Delek US in two blocs, for a total of NIS 591 million, reducing its stake to 56.8%.
A comparison of Delek US and Alon USA:
- Delek US owns two refineries, and Alon USA owns three refineries as well as paving and roofing asphalt products manufacturer Paramount Asphalt Corporation
Delek US owns 374 gas stations and convenience stores under the Mapco and other labels in Alabama, Georgia, Tennessee, Arkansas, Louisiana, Mississippi, Kentucky, Virginia. Alon USA owns 300 gas stations and convenience stores in Texas and New Mexico as licensee of the 7-Eleven label
Delek US posted a net profit of $67.8 million for the second quarter, and Alon US posted a net profit of $43.1 million for the second quarter.
Delek US had $321.1 million in cash and a debt of $422.8 million at the end of June, and Alon USA had had $57.5 million in cash and a debt of $874 million.
Delek US's share price has risen 121% since the beginning of the year and Alon USA's share price has risen 49.3%.
Published by Globes [online], Israel business news - www.globes-online.com - on September 12, 2012
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