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    Q3 Results: Delek, Alon & Murphy Oil Down, but not Out

    All three companies report a drop in net income for the quarter; Delek and Alon encouraged by the improved performance shown by retail segments.

    NEW YORK -- Delek US Holdings reported a net loss from continuing operations of $5.1 million for the three months ended Sept. 30, vs. net income from continuing operations of $24.4 million in the third quarter 2008. Excluding special items, the company recorded an adjusted net loss from continuing operations of $8.2 million in the third quarter 2009.

    Within the retail segment, same-store sales trends signaled improving business conditions in the company's core Southeastern markets during the third quarter 2009, as both fuel gallons sold and merchandise sales increased above levels seen in third quarter 2008.

    As previously reported, the company's Tyler, Texas refinery was offline between late November 2008 and mid-May 2009 due to a fire at the facility. During the third quarter 2009, the company recorded income of $12.0 million related to claims under its property damage and business interruption insurance policies, including $6.0 million from the company's business interruption policy and $5.8 million from its property damage policy -- a net of $0.2 million in property damage expenses. Since the start of the fourth quarter 2009, the company received additional cash payments on insurance claims totaling $4.1 million. Delek said it expects to receive additional insurance proceeds.

    "Performance in our retail segment has improved in recent quarters, supported by increasingly stable business conditions in our core Southeastern markets. In the third quarter 2009, same-store fuel gallons sold and merchandise sales were higher when compared to the prior year period," stated Uzi Yemin, president and CEO of Delek US.

    "In view of current market conditions, we recently secured financing through our majority shareholder to maintain a healthy degree of financial flexibility. As of Sept. 30, our cash position exceeded $107 million and our net debt to capitalization was less than 30 percent," Yemin concluded.

    Delek's retail segment contribution margin declined to $16.7 million in the third quarter 2009, compared to $21.5 million in the third quarter 2008. The year-over-year decline in third quarter contribution margin was primarily attributed to lower retail fuel margins compared to the prior year period, according to the Tennessee-based company.

    The third quarter 2009 signaled a continued improvement in same-store operational metrics. Same-store fuel gallons sold and same-store merchandise sales increased in the third quarter 2009, following more than a year of negative same-store comparisons. Same-store metrics have improved due primarily to a combination of lower fuel prices, improving consumer confidence and perceived stabilization in employment conditions in the company's core Tennessee and Georgia markets, Delek said.

    Same-store gallons sold increased 2.2 percent in the third quarter 2009 vs. the third quarter 2008. The retail segment sold a total of 102.4 million gallons during the three months ended Sept. 30, compared to 100.9 million gallons in the prior-year period.

    Third quarter 2009 retail margin was 17.8 cents per gallon, compared to 24.1 cents per gallon in the prior-year period. The elevated retail fuel margin reported in the third quarter 2008 was favorably impacted by a dislocation between the wholesale and retail price of fuel that resulted from weather-related supply disruptions in the period.

    Same-store merchandise sales increased 1.9 percent in the third quarter 2009 when compared to the third quarter 2008. Total merchandise sales in the retail segment were $99.5 million for the three months ended Sept. 30, vs. $98.0 million in the prior-year period. Third quarter 2009 merchandise margin was 31.1 percent, vs. 32.2 percent in the third quarter 2008.

    In the first nine months of 2009, the retail segment reimaged 22 stores. From the inception of the company's reimaging program in 2006 through Sept. 30, the retail segment has reimaged nearly 27 percent of the company's total store base.

    During the third quarter 2009, Delek US said it realized a $1.9 million pre-tax loss on the disposition of 16 non-core real estate assets in Tennessee.

    Delek's retail segment markets gasoline, diesel and other refined petroleum products and convenience merchandise through a network of company-operated retail fuel and convenience stores, operated under the MAPCO Express, MAPCO Mart, East Coast, Discount Food Mart, Fast Food and Fuel and Favorite Markets brand names.

    Meanwhile, Dallas-based Alon USA Energy Inc. reported a net loss of $26.6 million for the third quarter 2009, compared to net income of $37.3 million for the year-ago period. Excluding special items, Alon recorded a net loss of $26.3 million for the third quarter 2009 vs. net income of $24.3 million for the same period last year.

    Net loss for the nine months ended Sept. 30 was $24.5 million, compared to net income of $21.9 million for the nine months ended Sept. 30, 2008. Excluding special items, Alon recorded a net loss of $23.3 million for the nine months ended Sept. 30, 2009, compared to net loss of $60.6 million for the same period last year.

    Jeff Morris, Alon president and CEO, said: "We are continuing to implement strategies that best prepare our assets for current and future success. In October 2009, our subsidiary, Alon Refining Krotz Springs Inc., closed an offering of 13.5 percent senior secured notes due 2014 for gross proceeds of $205.4 million. With the proceeds, we prepaid in full the then-outstanding principal balance of $163.8 million under the Alon Refining Krotz Springs Inc. term loan. The remaining proceeds will be retained for general corporate purposes. ... With this change in our capitalization, we are better suited to adapt our operations to the current refining industry economics."

    "Also, we are very satisfied with the improvement in the operating performance of our retail and branded marketing segment during the third quarter of 2009," Morris added. "Adjusted EBITDA for the retail and branded marketing segment was approximately $8 million for the third quarter of 2009."

    In the retail and branded marketing segment, retail fuel sales gallons increased 29.9 percent from 23.8 million gallons in the third quarter of 2008 to 30.9 million gallons in the third quarter of 2009. The company's integrated branded fuel sales increased 18.0 percent from 54.7 million gallons in the third quarter of 2008 to 64.7 million gallons in the third quarter of 2009.

    Retail fuel sales gallons in its retail and branded marketing segment increased 22.1 percent from 73.1 million gallons in the first nine months of 2008 to 89.3 million gallons in the first nine months of 2009. Integrated branded fuel sales increased 19.0 percent from 163.8 million gallons in the first nine months of 2008, to 195.0 million gallons in the first nine months of 2009.

    Alon USA markets gasoline and diesel products under the FINA brand, and operates more than 300 convenience stores primarily in West Texas and New Mexico substantially under the 7-Eleven and FINA brand names. The company supplies motor fuels to these stores primarily from its Big Spring refinery. In addition, Alon markets under the FINA brand name to approximately 700 additional locations.

    Also in earnings news, El Dorado, Ark.-based Murphy Oil Corp. reported net income of $188.9 million in the third quarter 2009, compared to net income of $584.4 million in third quarter 2008.

    The company said its income decreased due to significantly lower sales prices for oil and natural gas produced in the exploration and production operations, and from lower earnings from its refining and marketing operations.

    For the first nine months of 2009, net income totaled $518.8 million, compared to $1.61 billion for the same period in 2008.

    Looking at third quarter 2009 vs. third quarter 2008, Murphy's refining and marketing (R&M) operations generated a quarterly profit of $37.2 million in the third quarter 2009 compared to a profit of $85.8 million in the 2008 third quarter. North American R&M earnings declined in the 2009 period compared to 2008 primarily due to weaker U.S. retail marketing margins. The U.K. results in the 2009 and 2008 third quarters were below break-even due to weak refining margins in each period.

    At the corporate level, after-tax costs of corporate functions were $32.4 million in the 2009 quarter compared to costs of $31.3 million in the 2008 quarter. The company said it earned lower interest income on invested cash balances in 2009 compared to 2008, but lower net interest expense, lower foreign exchange losses and income tax benefits in the 2009 period mostly offset the reduction in interest income.

    Comparing the first nine months of 2009 vs. the first nine months 2008, the company's refining and marketing operations generated a profit of $75.8 million in 2009 compared to a profit of $173.3 million in 2008. The lower 2009 R&M results compared to 2008 in North America were primarily due to weaker retail fuel margins, while results in the United Kingdom were mostly hurt by significantly weaker refining margins.

    Looking ahead to the fourth quarter, David M. Wood, president and CEO, said: "Production in the fourth quarter of 2009 is expected to average 193,000 barrels of oil equivalent per day, but sales volumes are projected to average 184,000 barrels of oil equivalent per day. We currently expect earnings in the fourth quarter to be between $0.75 and $0.90 per diluted share. These earnings are based on projected losses of $24.0 million from our refining and marketing business and total exploration expense ranging from $40 to $75 million. Projected results for the fourth quarter could be affected by commodity prices, drilling results, timing of oil sales and refining and marketing margins."

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