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Oil-refining master limited partnership Alon USA Partners LP (NYSE: ALDW) reported financial and operating results for the first quarter on May 8, and the results had Alon USA Partners' units trading up nearly 10% at 3:25 p.m. EDT today.
Alon USA Partners reported net income of $0.32 per share in the quarter, up from a net loss of $0.14 per share one year ago. CEO Alan Moret said that the partnership's refining operations benefited from a more favorable crack spread -- that is, the price it pays for the oil it refines, versus the prices it realizes for the products it makes -- as compared to both the year-ago quarter, and sequentially.
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Alon USA Partners also reported improved efficiency in its refining operations, with improved throughputs helping drive better operating leverage. Combined with the pricing benefit on its crude feedstocks in the quarter, this helped it generate strong cash flows, resulting in cash available for distribution of $0.38 per share. And since the partnership operates under a variable distribution policy and distributes all of its CAFD (cash available for distribution) generated each quarter, that led to the big increase in the quarterly payout to $0.38 per share, up from $0.11 per share sequentially. This is after not paying a distribution, thanks to not generating positive cash flows, in the year-ago quarter.
Not only was Alon USA Partners' first quarter better than expected, but management indicated that the things that led to strong cash generation have continued into the second quarter, including strong operating results, and favorable prices for crude.
If this environment remains in place, it is likely to help this refining MLP continue to pay a nice dividend in coming quarters. If the MLP can maintain the $0.38-per-unit distribution in coming quarters, that's worth a very strong 15% yield at recent prices. However, that rate is more than triple the prior payout, and it could be difficult for it to maintain or grow the distribution if oil prices start to increase and cut into its spread.
Bottom line: If it's predictable income you're looking for, Alon USA Energy Partners is probably a poor investment because of the wild swings in its distribution, which can affect your income stream and the value of your investment. Even after today's 10% jump, Alon USA Partners has lost half its value over the past three years.
If you're willing to take on the risk that the distribution could fall again, costing you capital when income-chasers jump ship, you have a decent chance of seeing a pretty solid distribution over the next year. Beyond that, it's hard to say what the impact of rising oil prices will be on the company's crack spreads. They haven't been good over the past year.
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