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Alon USA Energy reports on second quarter performance

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Hydrocarbon Engineering,


Alon USA Energy, Inc. has announced results for the second quarter of 2016. Net loss available to stockholders for the second quarter of 2016 was US$(20.4) million, or US$(0.29) per share, compared to net income available to stockholders of US$36.4 million, or US$0.52 per share, for the same period last year. Excluding special items, Alon recorded net loss available to stockholders of US$(14.9) million, or US$(0.21) per share, for the second quarter of 2016, compared to net income available to stockholders of US$46.4 million, or US$0.67 per share, for the same period last year.

Net loss available to stockholders for the first half of 2016 was US$(55.9) million, or US$(0.80) per share, compared to net income available to stockholders of US$63.3 million, or US$0.91 per share, for the same period last year. Excluding special items, Alon recorded net loss available to stockholders of US$(44.2) million, or US$(0.63) per share, for the first half of 2016, compared to net income available to stockholders of US$68.0 million, or US$0.98 per share, for the same period last year.

Paul Eisman, President and CEO, commented, "The refining environment in the second quarter of 2016 remained challenging as crack spreads were pressured by high product inventories. The average Gulf Coast 3-2-1 benchmark crack spread for the second quarter of 2016 was approximately US$6.50 per barrel lower than the average for the same period last year. We continue to optimise our operations and control our costs in this difficult environment.

"As previously discussed, the Big Spring refinery's second quarter results were negatively impacted by a power outage in late May. We estimate the lost opportunity cost and maintenance cost associated with the power outage negatively impacted Alon's operating income by approximately US$10 million. Big Spring's refinery operating margin of US$8.53 per barrel was negatively impacted by approximately US$1.30 per barrel due to the unplanned downtime during the quarter. Despite the interruption to normal operations, the refinery achieved low operating costs of US$3.59 per barrel. We expect to perform maintenance on the Big Spring refinery's reformer in August. As a result, we expect total throughput at the Big Spring refinery to average approximately 69 000 bpd for the third quarter and 70 000 bpd for the full year of 2016.

"The Krotz Springs refinery's results were negatively impacted by weakness in crack spreads, a larger premium in LLS crude relative to Brent crude and maintenance performed on the fluid catalytic cracking unit in the first half of April, which was previously discussed. We estimate the downtime associated with this maintenance work negatively impacted Krotz Springs'refinery operating margin by approximately US$0.86 per barrel and Alon's operating income by approximately US$5 million. Based on the projected margin environment, we expect total throughput at the Krotz Springs refinery to average approximately 63 000 bpd for the third quarter and 66 000 bpd for the full year of 2016.

"Our asphalt business performed very well in the second quarter with the onset of paving season. Relative to the second quarter of 2015, our asphalt sales volumes were up 43 percent, and our asphalt margin was up by 6% to US$107 per tonne. This business is benefiting from a stronger demand environment, as well as operational improvements implemented over recent quarters.

"Our retail results were negatively impacted by headwinds in the Permian Basin. However, we believe we are positioned well to benefit as the markets in which we operate improve and are expecting greater profitability in the second half of the year.

"The results of the AltAir renewable fuels project in California were negatively impacted by an increase in the price of feedstock costs (tallow) relative to the first quarter of 2016. A test run of soybean oil was successfully completed in late June, validating the feedstock flexibility of the unit."

2Q16 results

Special items increased net loss by US$5.5 million for the second quarter of 2016 primarily as a result of employee retention expense of US$2.0 million, losses of US$2.0 million associated with an asphalt inventory adjustment and unrealised losses of US$3.8 million associated with commodity swaps, before income tax and non-controlling interest impacts of US$2.4 million. Special items reduced net income by US$9.9 million for the second quarter of 2015 primarily as a result of employee retention expense of US$1.3 million, losses of US$3.3 million related to an asphalt inventory adjustment and unrealised losses of US$10.5 million associated with commodity swaps, before income tax and non-controlling interest impacts of US$5.2 million.

The combined total refinery average throughput for the second quarter of 2016 was 133 413 bpd, consisting of 71 153 bpd at the Big Spring refinery and 62 260 bpd at the Krotz Springs refinery, compared to a combined total refinery average throughput of 152 092 bpd for the second quarter of 2015, consisting of 75 491 bpd at the Big Spring refinery and 76 601 bpd at the Krotz Springs refinery. The reduced throughput at the Big Spring refinery was the result of unplanned downtime during the second quarter of 2016 due to a power outage caused by inclement weather, which affected multiple units. During the second quarter of 2016, the company performed maintenance on the fluid catalytic cracking unit at the Krotz Springs refinery, which reduced total throughput for the quarter.

Refinery operating margin at the Big Spring refinery was US$8.53 per barrel for the second quarter of 2016 compared to US$17.22 per barrel for the same period in 2015. This decrease in operating margin was primarily due to a lower Gulf Coast 3/2/1 crack spread, a narrowing of the WTI Cushing to WTI Midland spread, a reduced cost of crude benefit from the contango market in 2016 and the unplanned refinery downtime discussed above, partially offset by a widening of the WTI Cushing to WTS spread.

Refinery operating margin at the Krotz Springs refinery was US$3.96 per barrel for the second quarter of 2016 compared to US$7.95 per barrel for the same period in 2015. This decrease in operating margin was primarily due to a lower Gulf Coast 2/1/1 high sulfur diesel crack spread, a narrowing of both the WTI Cushing to WTI Midland and the LLS to WTI Cushing spreads, the premium in LLS compared to Brent, the refinery downtime discussed above and a reduced cost of crude benefit from the contango market in 2016.

The average Gulf Coast 3/2/1 crack spread was US$13.16 per barrel for the second quarter of 2016 compared to US$19.71 per barrel for the same period in 2015. The average Gulf Coast 2/1/1 high sulfur diesel crack spread was US$7.92 per barrel for the second quarter of 2016 compared to US$10.21 per barrel for the same period in 2015.

The average WTI Cushing to WTI Midland spread for the second quarter of 2016 was US$0.17 per barrel compared to US$0.60 per barrel for the same period in 2015. The average WTI Cushing to WTS spread for the second quarter of 2016 was US$0.75 per barrel compared to US$(0.21) per barrel for the same period in 2015. The average Brent to WTI Cushing spread for the second quarter of 2016 was US$(0.18) per barrel compared to US$3.66 per barrel for the same period in 2015. The average LLS to WTI Cushing spread for the second quarter of 2016 was US$2.04 per barrel compared to US$6.28 per barrel for the same period in 2015. The average Brent to LLS spread for the second quarter of 2016 was US$(1.64) per barrel compared to US$0.32 per barrel for the same period in 2015.

The contango environment in the second quarter of 2016 created an average cost of crude benefit of US$1.49 per barrel compared to an average cost of crude benefit of US$1.90 per barrel for the same period in 2015.

Asphalt margins for the second quarter of 2016 were US$106.90 per tonne compared to US$100.92 per tonne for the same period in 2015. On a cash basis (i.e., excluding inventory effects), asphalt margins in the second quarter of 2016 were US$105.55 per tonne compared to US$99.51 per tonne in the second quarter of 2015.

Retail fuel margins increased to 20.8 cents per gallon in the second quarter of 2016 from 20.3 cents per gallon in the second quarter of 2015. Retail fuel sales volume increased to 50.9 million gallons in the second quarter of 2016 from 49.5 million gallons in the second quarter of 2015. Merchandise margins decreased to 31.0% in the second quarter of 2016 from 31.8% in the second quarter of 2015. Merchandise sales decreased to US$83.7 million in the second quarter of 2016 from US$84.9 million in the second quarter of 2015.

Year to date 2016 results

Special items increased net loss by US$11.8 million for the first half of 2016 primarily as a result of employee retention expenses ofUS$6.7 million, losses of US$2.0 million related to an asphalt inventory adjustment, unrealised losses of US$7.1 million associated with commodity swaps and US$2.1 million associated with losses recognized on disposition of assets, before income tax and non-controlling interest impacts of US$6.2 million. Special items reduced net income by US$4.6 million for the first half of 2015 primarily as a result of employee retention expense of US$1.3 million and losses of US$14.0 million related to an asphalt inventory adjustment, partially offset by unrealised gains of US$7.9 million associated with commodity swaps and US$0.6 million associated with gains recognized on disposition of assets, before income tax and non-controlling interest impacts of US$2.1 million.

The combined total refinery average throughput for the first half of 2016 was 136 206 bpd, consisting of 69 345 bpd at the Big Spring refinery and 66 861 bpd at the Krotz Springs refinery, compared to a combined total refinery average throughput of 148 679 bpd for the first half of 2015, consisting of 73 934 bpd at the Big Spring refinery and 74 745 bpd at the Krotz Springs refinery. The reduced throughput at the Big Spring refinery was the result of planned downtime to complete a reformer regeneration and catalyst replacement for the diesel hydrotreater unit in the beginning of the first quarter of 2016, as well as unplanned downtime during the second quarter of 2016 due to a power outage caused by inclement weather, which affected multiple units. The reduced throughput at the Krotz Springs refinery during the six months ended 30 June 2016 was the result of the election to reduce the crude rate to improve the refinery yield structure, as well as maintenance that was performed on the fluid catalytic cracking unit.

Refinery operating margin at the Big Spring refinery was US$8.16 per barrel for the first half of 2016 compared to US$15.56 per barrel for the same period in 2015. This decrease in operating margin was primarily due to a lower Gulf Coast 3/2/1 crack spread, a narrowing of both the WTI Cushing to WTI Midland and the WTI Cushing to WTS spreads and the refinery downtime discussed above, partially offset by the cost of crude benefit from the market moving further into contango in 2016.

Refinery operating margin at the Krotz Springs refinery was US$2.69 per barrel for the first half of 2016 compared to US$8.71 per barrel for the same period in 2015. This decrease in operating margin was primarily due to a lower Gulf Coast 2/1/1 high sulfur diesel crack spread, a narrowing of both the WTI Cushing to WTI Midland and the LLS to WTI Cushing spreads, the premium in LLS compared to Brent and the refinery downtime discussed above, partially offset by the cost of crude benefit from the market moving further into contango in 2016.

The average Gulf Coast 3/2/1 crack spread for the first half of 2016 was US$12.20 per barrel compared to US$18.73 per barrel for the same period in 2015. The average Gulf Coast 2/1/1 high sulfur diesel crack spread for the first half of 2016 was US$7.33 per barrel compared to US$11.79 per barrel for the same period in 2015.

The average WTI Cushing to WTI Midland spread for the first half of 2016 was US$0.02 per barrel compared to US$1.27 per barrel for the same period in 2015. The average WTI Cushing to WTS spread for the first half of 2016 was US$0.32 per barrel compared toUS$0.76 per barrel for the same period in 2015. The average Brent to WTI Cushing spread for the first half of 2016 was US$0.15 per barrel compared to US$4.54 per barrel for the same period in 2015. The average LLS to WTI Cushing spread for the first half of 2016 was US$1.82 per barrel compared to US$4.48 per barrel for the same period in 2015. The average Brent to LLS spread for the first half of 2016 was US$(1.26) per barrel compared to US$0.57 per barrel for the same period in 2015.

The contango environment in the first half of 2016 created an average cost of crude benefit of US$1.66 per barrel compared to an average cost of crude benefit of US$1.28 per barrel for the same period in 2015.

Asphalt margins for the first half of 2016 were US$97.96 per tonne compared to US$94.41 per tonne for same period in 2015. On a cash basis (i.e. excluding inventory effects), asphalt margins in the first half of 2016 were US$99.87 per tonne compared to US$105.77 per tonne in the first half of 2015.

Retail fuel margins decreased to 20.4 cents per gallon in the first half of 2016 from 21.9 cents per gallon in the first half of 2015. Retail fuel sales volume increased to 100.9 million gallons in the first half of 2016 from 95.6 million gallons in the first half of 2015. Merchandise margins decreased to 31.3% in the first half of 2016 from 32.5% in the first half of 2015. Merchandise sales increased to US$161.5 million in the first half of 2016 from US$161.0 million in the first half of 2015.

Alon also announced that its Board of Directors has declared the regular quarterly cash dividend of US$0.15 per share. The dividend is payable on 6 September 2016 to stockholders of record at the close of business on 19 August 2016.


Adapted from press release by Rosalie Starling

Read the article online at: https://www.hydrocarbonengineering.com/refining/29072016/alon-usa-energy-reports-on-second-quarter-performance-3810/


 

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