Workers install an ethanol tank at Alon USA Energy's facility in Paramount… (Lori Shepler / Los Angeles…)
Flying J Inc. has agreed to sell its 66,000-barrel-a-day Bakersfield refinery to Paramount Petroleum Corp., a division of Alon USA Energy Inc., if that firm is the successful bidder in an upcoming bankruptcy auction.
Flying J, based in Ogden, Utah, filed for Chapter 11 bankruptcy protection in December 2008 after oil prices tumbled from record-high levels and credit markets dried up.
Since then, the refinery operated by subsidiary Big West of California has struggled to keep operating and to maintain a regular supply of crude for processing. A year ago, refinery operations were suspended indefinitely, costing about 175 jobs.
The sale might change the facility's fortunes, although it was unclear who would emerge as the bidding winner and what the final price would be. Flying J's agreement with Alon, which was reached Tuesday, merely gives Alon "stalking horse" privileges. That means it gets to make the first bid when the auction begins.
Analysts said they were surprised that Alon was an interested bidder. The refinery industry has been hard hit by low profit margins, and several of the nation's biggest oil companies reported fourth-quarter losses in that part of their businesses. Companies that mainly refine products have fared even worse.
"Alon may have decided to see what it can get at rock-bottom prices," said Tom Kloza, chief oil analyst for the Oil Price Information Service. Alon, based in Dallas, operates four refineries, with facilities in Paramount and Long Beach.
The bottom was evident in Alon's offer of $40 million for a facility that cost Flying J $130 million in March 2005.
Flying J's refinery can process diesel and gasoline that meet California Air Resources Board standards for air quality. Kloza said that Alon's business plan has focused on asphalt and diesel production.
There are 21 refineries in California, according to the California Energy Commission, including 15 that make California-grade diesel and 14 that can make California-grade gasoline.