Updates throughout from management call.
Delek plans to expand a logistics presence in the Permian basin and could sell California or Louisiana refineries following its planned acquisition of Alon USA, chief executive Uzi Yemin said today.
The planned combination, expected in the first half this year, should create a 300,000 b/d refiner with an outsized presence and platform to grow in the Permian basin, Yemin said.
Delek will acquire the remaining 53pc of Alon USA shares it does not already own in a stock-only transaction valued at $464mn, the company said. The US independent refiner began buying Alon shares in 2015.
The acquisition includes Alon's 73,000 b/d refinery in Big Spring, Texas, one of the closest refineries to resurgent Permian basin of west Texas and New Mexico. That refinery, combined with pipeline access from the region into east Texas, would allow Delek to command better quality and prices through purchasing 200,000 b/d of west Texas crude for the company's 73,000 Tyler, Texas, and 80,000 b/d El Dorado, Arkansas, refineries. Alon's retail network of more than 300 stores in the region would also benefit from an uptick in drilling activity.
"I do believe the Permian brings a tremendous amount of opportunity for our company," Yemin said.
Alon's 74,000 b/d refinery in Krotz Springs, Louisiana, can also run Permian crude. Delek holds roughly 20,000 b/d of space on the Colonial products pipeline system running through Louisiana to supply the southeast and US Atlantic coast.
But the light, sweet refinery depends on barges, rather than pipelines, to deliver that supply. Krotz Springs will also need investment to improve both general operations and regulatory compliance. And the facility currently exists in a variable master limited partnership (MLP), a variant of a corporate structure more associated with stable logistics assets. Delek does not plan to continue that structure, Yemin said.
"We do not take an idea of shutting down a refinery too light, so we do not want to make a mistake and regret it," Yemin said. "I am not going to put a gun on the table with a timeline, but, obviously, this is heavy on our mind."
Other assets could prove a tougher fit. An Alon-owned AltAir biofuels operation at a former Alon refinery in Paramount, California, could fit well with Delek biodiesel plants in east Texas and Arkansas, Yemin said. But Alon's 70,000 b/d refinery in Bakersfield, California, idled since 2012, made less sense for the combined company.
"We need to look at that strategically," Yemin said. "Probably see if there is a different use to that, or a different use for somebody else."
