Alon Acquires Krotz Springs Refinery from Valero

Alon USA Energy Inc. signed a purchase agreement to acquire the Krotz Springs refinery from Valero Energy Corp. The purchase price of this transaction consists of $333 million in cash plus an amount for working capital, including inventories, to be determined at closing. Also, both parties have agreed to a five year off-take agreement along with a service agreement for one year. Valero is eligible to receive potential “earn-out” payments for three years following closing. The deal, pending regulatory approvals, is expected to close by the third quarter

The Krotz Springs refinery, with a nameplate crude capacity of approximately 83,100 barrels per day (bpd), services multiple demand centers in the Southeast and East Coast markets through the low-cost Colonial pipeline. The 2007 refined product mix from the Krotz Springs refinery, with a current 6.5 complexity rating, consists of approximately 96% light products, with the following yields: 44% gasoline, 44% distillates and light cycle oils, 8% petrochemicals and 4% of heavy products.

The plant will boost Alon’s refining capacity by 50% and provides a new platform for its integrated business model.

“This refinery ranks among the lowest operating cost U.S. refineries and placed in the first quartile for lowest maintenance costs, refinery utilization and liquid volume recovery in the latest Solomon survey,” said Jeff Morris, Alon’s President and CEO. “We believe we can further improve operations at the refinery with minimal costs and we plan to upgrade the refinery to produce low sulfur diesel and to process a Mars-like crude slate. We are also signing a 5-year off-take agreement with Valero for High Sulfur Diesel and Light Cycle Oil that should provide Alon with significant flexibility in terms of the timing of the anticipated refinery upgrades.

“We are very pleased to have joined ranks with a strong management team and group of employees that has achieved one of the best track records in the industry. We anticipate the existing management team to remain at the refinery following closing of the transaction, which we believe will facilitate the integration of Krotz Springs into our refinery portfolio under our current corporate infrastructure.”

The Krotz refinery is strategically located with the majority of its crude supply originating from two major pipelines and has a crude storage capacity of 665,000 barrels.

Financing for the transaction is expected to include a $245 million term loan arranged by Credit Suisse, who was also the financial advisor for Alon in this deal. In addition, Wachovia has provided a commitment for a $425 million revolver facility with an accordion feature of an additional $75 million to support ongoing working capital needs, and Alon has arranged for a $50 million letter of credit facility to support substantial hedging. This transaction is expected to generate strong free cash flow that should enable substantial delivering of the aforementioned debt in three years.

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