Alon Buys 2 Refiners in State
Dallas-based Alon USA Energy Inc. gained a foothold in California’s lucrative gasoline market Monday, announcing plans to buy Paramount Petroleum Corp. and Edgington Oil Co. -- two of the state’s smallest fuel refiners -- for nearly $360 million.
Alon, a refiner and convenience store operator that went public last year, said it hoped to boost production at Paramount’s flagship Southern California plant -- a move that could help ease the state’s chronically tight fuel supplies.
“We’re just excited to be coming to California,” said Jeff Morris, Alon’s chief executive. “We do know that California is getting shorter [on fuel].... It would be our intent to expand and grow the gasoline and diesel production.”
A big incentive, Morris acknowledged, was the sharply higher refining profits available to gasoline makers in the Golden State. Fuel profits often are richer in California than in other parts of the country because few outside refineries are able to produce the state’s cleaner-burning gasoline, and in-state refineries can’t keep up with ever-growing demand.
“It’s attractive,” Morris said of the California market.
Alon’s operations are concentrated in Texas, Arkansas, New Mexico, Oklahoma and Arizona. It owns a refinery in Big Spring, Texas, as well as pipelines and petroleum product terminals. The company also operates more than 165 retail 7-Eleven convenience stores and sells gasoline at those locations under the 7-11 and Fina brands.
Alon shares rose $3.85, or more than 14%, to $30.68 on Monday in response to the refinery deal. More than 70% of Alon’s stock is held by Alon Israel Oil Co., which operates supermarkets, convenience stores, gas stations and fast-food outlets in Israel.
Alon will pay $307 million and assume $100 million in debt to acquire Paramount, a private company. Paramount executives did not return a call for further information about the deal.
“It’s a very big profit for the sellers -- huge,” said Malcolm Turner, president of Turner, Mason & Co., a Dallas-based industry consulting firm. Less than four years ago, he said, Paramount was in negotiations to sell the operation for “much less than half” the current price.
Paramount’s flagship refinery, based in the city of the same name, can process as much as 54,000 barrels of crude oil a day and is one of California’s largest asphalt producers.
Equipment upgrades last year allowed Paramount to begin making California-grade gasoline and diesel. Today, gasoline, diesel and jet fuel make up about 42% of the plant’s output, Morris said. “Potentially, we could increase that to up to 80%,” he said.
Some of the increase can come without significant equipment upgrades, but some would require close collaboration with regulators and community groups, Morris said. Last year, a Paramount spokesman said the company planned to make as much as 336,000 gallons a day of gasoline -- a tiny fraction of the state’s daily consumption of 43 million gallons. Still, experts have often noted that even small increases can have a noticeable effect in California’s market.
As part of the deal, Alon will get Paramount’s asphalt refinery in Portland, Ore., seven asphalt terminals in Western states and half ownership in Texas-based Wright Asphalt Products Co.
In a second acquisition, Alon said it would pay $52 million to buy Edgington Oil, which runs a refinery in Long Beach. An additional payment will be made for the company’s inventory.
The Edgington refinery, which is not sophisticated enough to make gasoline, processes about 24,000 barrels of crude oil a day and makes jet fuel, asphalt, fuel oil and certain gasoline components.
Founded in 1941 by Ralph Edgington, the company is owned by Apex Oil Co., a St. Louis-based company with a variety of oil-related holdings.
The Paramount and Edgington plants in Southern California are about 2 miles apart and connected by pipeline. They would be run as a single refinery, Morris said.
Alon plans to keep all 350 workers employed by Paramount and Edgington, he said.
