US Independent Refiners - Credit Suisse

DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683 US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®

Client-Driven Solutions, Insights, and Access

10 July 2013

Americas

Equity Research

Oil & Gas Refining & Marketing

US Independent Refiners FORECAST REDUCTION

Despite Near Term WTI Headwinds, Best Still

to Come for Gulf Refiners

■ Bottom Line: A compressing WTI-Brent spread and temporary surge in

global capacity additions in 2H13 is driving a continued sell-off in the group.

We cut near term EPS further and remain below consensus for '13. However,

we are above consensus in '14 for the Gulf Coast names (MPC, PSX) and

for TSO (Mid-Con names still have further EPS risk). Indeed we can see

higher EBITDA than '12 (a perceived peak) for these names – the best is yet

to come. Perhaps even more powerful is the theme of logistic monetization

over time, particularly at MPC, PSX and TSO. New pipes bringing crude

down to the Gulf in 4Q13 and 1H14 suggest time is running out to initiate

long positions in Gulf refiners. Although we are already below 2Q consensus

following our April cuts, we make further cuts leaving us 12% below 2Q13

EBITDA consensus, 11% below 3Q13. We cut TPs for ALJ, ALDW and PBF.

(See Material Changes table on page 18.)

■ Bull-bear valuation case: Our base case valuation embeds a 22% decline

in international margins vs 2012, which benefited from outages, and a WTI-

Brent medium term of $9/bbl in our valuation year (2016). Our bear case

embeds a 37% decline in margins and a WTI-Brent of $5/bbl (which could be

possible in a crude export scenario but feels narrow even then). In all cases,

our preferred names offer value upside. Logistics is a key support.

■ WTI-Brent Following the Script: In September 2011 Avoiding a WTI

Blowout Needs More Rail we argued 4Q12 would be the peak of WTI-Brent.

This January, we argued in the Great LLS Debate that WTI-Brent would

narrow as early as April and potentially undershoot to the downside. WTI-

Brent is following an expected script, and could remain narrow until the Gulf

Coast is overwhelmed. We forecast an incremental 800 KBD of incremental

barrels hitting the Houston market in 2014. As light crude and heavy

Canadian crude make their way, first to Texas, and then over time to

Louisiana (via Ho-Ho, Trunkline), Gulf Coast profits should improve. As Gulf

flows increase, the breakeven cost to absorb these flows should support

WTI-Brent expanding into the $8-10/bbl range. Even under an export

scenario, logistics costs still suggest a WTI-Brent of around $7/bbl.

■ We Favor Gulf Coast and Logistics: This year we have favored coastal

names with large logistics businesses to monetize and with catalysts (e.g.

MPC). For adventurous money, we would revisit WNR given valuation and

the MLP potential. HFC is becoming more interesting for those willing to wait

until 2015/16 when black wax projects are completed, but still feels early.

Research Analysts

Edward Westlake

212 325 6751

[email protected]

Rakesh Advani, CFA

212 538 5084

[email protected]

Scott Willis

212 325 2664

[email protected]

10 July 2013

US Independent Refiners 2

The Best Is Yet to Come - for the Gulf

As we laid out in the Great LLS-Debate early in 2013, “In the short term, WTI-Brent could

actually undershoot the futures curve – perhaps to below $8/bbl and maybe as early as

April this year”. This is because the first light barrels that make it down to the Gulf are

transported on low cost pipelines and are the easiest to absorb by the Gulf coast refiners.

However, the markets focus on WTI-Brent could be creating an opportunity. The best

might still be to come for the Gulf Coast Refiners. We highlight MPC in particular. This

note outlines the reasons why the Gulf Coast advantage should improve and also includes

EPS changes and scenario valuations (for these please turn to page 13 for further detail).

Although we are already below consensus following our April cuts to EBITDA, we make a

further round cutting 3Q by 9%, leaving us 11% below 3Q consensus

The chart below shows the upside/downside to theoretical value in three scenarios:

■ Base Case: We model a decline in international margins (our East Coast Brent proxy)

of 22% from $11.8/bbl in 2012 to $9.25/bbl mid-cycle. We include a widening of WTI-

Brent from today’s narrow levels towards $9/bbl, in our 2016 mid-cycle valuation year,

reflecting our view that WTI-Brent will widen as the Gulf becomes oversupplied.

■ Bear Case: We model a higher decline in international margins (our East Coast Brent

proxy) of 35% and a WTI-Brent of just $5/bbl. Even if exports were allowed, crude

would cost money to ship from Cushing to the Gulf, for transshipment in the Gulf onto

tankers and for further shipment to Atlantic Basin light sweet crude demand centers in

the East Coast of the US and in Europe – i.e. $5/bbl could prove too narrow. In this

scenario the advantage of Gulf Coast refiners would clearly be reduced.

■ Bull Case: In an economic recovery, it is possible to envisage more stability in global

refining margins. Despite new capacity additions, our global refining cost curve

intersects with demand at around $10.2/bbl East Coast 6-3-2-1. In a faster recovery,

and depending on resolution of production disruptions in MENA, there could also be a

higher call on OPEC’s medium/heavy barrels leading to wider light-heavy spreads

than our $13/bbl Brent-Maya mid-cycle forecast. 48% of global crude reserves are

heavy and just 30% of refineries outside the US have good upgrading facilities for

heavy oil.

Exhibit 1: Upside-Downside (Bear, Base, and Bull Case) For US Refiners

-100%

-50%

0%

50%

100%

150%

200%

250%

DK WNR MPC HFC ALJ PSX VLO TSO ALDW PBF

% U

psi

de/

Do

wn

sid

e

Bear Case Base Case Bull Case

Source: Company data, Credit Suisse estimates

10 July 2013


Crude About to Get Cheaper in the Gulf

Regardless of current WTI-Brent gyrations, onshore production is still surging in the US

(+1MBD yoy in April) and this will pose challenges. Importantly much of future production

growth is coming out of Texas, from the Permian and from the Eagle Ford. The natural

market for these barrels is the large Gulf refining system (whether the refineries are

configured for light crude or not).

Exhibit 2: US Crude Production Trends

2,400

2,900

3,400

3,900

4,400

4,900

5,400

5,100

5,600

6,100

6,600

7,100

7,600

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

KB

D

KB

D

Domestic Crude Production [LHS] Domestic Crude Production (ex PADD V & Offshore GoM) [RHS]

Source: EIA

Exhibit 3: Credit Suisse Production Outlook By Basin, 2012-2019

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Oil

Pro

du

ctio

n G

row

th, k

bd


Gulf Coast refiners are about to enjoy the benefits of these rising crude flows, both light

sweet crude from the Permian/Eagle Ford and from pipe shipments from further north,

from the Bakken, from Canada, from the Wattenberg via the under construction pipeline

system.

US Production is still

surging in the onshore

Our model suggests fast

growth in Texas and the

Gulf, an incremental

2.5+MBD of light/medium

crude

10 July 2013


■ Texas production should grow by c400kbd pa in 2013, 2014 and 2015. There is

potential upside to these forecasts given downspacing tests in the Eagle Ford and

recent industry success in the Northern Midland basin of the Permian.

■ The addition of the southern leg of Keystone and the expansion of Seaway increase

the ability of Mid-Continent crude to access Texas markets, particularly once

Enbridge's Flanagan South is on-stream in mid-2014.

■ Although there are no readily available benchmarks for Houston crude discounts

(which we currently believe are in the $2/bbl range), the real stress in the system

occurs once pipes are built to deliver crude into this region. In 2014, the excess over

and above our estimate of the “light-medium” refining capacity in the region could rise

towards 800 KBD and to 1,500 KBD by 2015.

Exhibit 4: Light Flows from Texas, New Mexico and from

Cushing Should Overwhelm Texas Refineries

Exhibit 5: Crude Flows into Texas Gulf

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

5500

6000

2010 2011 2012 2013 2014 2015 2016 2017

KB

D

Light/Medium Refinery Pipeline

Ho-Ho Rail/Other (net flows)

Light Flows-TX

0

1000

2000

3000

4000

5000

6000

2009 2011 2013 2015 2017

KB

D

New Mexico Production Texas Production

Seaway XL Southern Leg

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

It will take time for this surge in production to be more evenly spread out across the large

refining capacity in the Gulf, so it may take time for the stress to show up in the quoted

LLS market in St James, Louisiana. This will make confidence in earnings power more

opaque. Directionally, crude purchasing costs for Texas refineries should fall. Thinking

about LLS:

■ Phase 1 of the Ho-Ho reversal (E. Houston to Nederland/Port Arthur) was completed

in January 2013, with Phase 2 (Houston to Houma) expected to be operational by the

end of 2013. Phase 3 (which will raise capacity to c250 KBD from 200 KBD) is

expected to be operational by early 2014.

■ Direct pipe access for Canadian and Bakken crude into St. James Louisiana will need

to wait for Enbridge’s Trunkline system (2015 on-line, 440-640 KBD).

■ There may be limits to how much crude can be barged around the Gulf given barge

availability and Houston ship channel limits.

10 July 2013


Exhibit 6: Ho-Ho Reversal Exhibit 7: Enbridge Pipeline Map Showing Trunkline to St.

James

Source: RDS Source: ENB

As crude potentially builds up in the Gulf, there could be wider “Houston” discounts than

are currently the case. As VLO indicated on the Q1 call the Houston discount “is anywhere

from $1 to $2, but we are seeing the crudes traded below LLS".

LLS may take longer to derate as it will take a while for crude to overwhelm the Eastern

Gulf. Our LLS-Brent forecasts are mainly designed to indicate that light sweet crude will

become cheaper in the Gulf. In practice, Texas refining capacity should benefit most, and

this is how we run our earnings models for the Gulf coast refiners with VLO and MPC

enjoying the greatest benefit.

Exhibit 8: % Gulf Coast Capacity by West/East Exhibit 9: % Light-Heavy Capacity in Gulf

0%

10%

20%

30%

40%

50%

60%

70%

MPC VLO ALJ PSX XOM

% G

ulf (

vs T

otal

CD

U C

apac

ity)

% Capacity Split - Louisiana (vs Total CDU Capacity)% Capacity Split - Texas Coast (vs Total CDU…

0%

10%

20%

30%

40%

50%

60%

70%

MPC VLO ALJ PSX XOM

% G

ulf (

vs T

otal

CD

U C

apac

ity)

% Light Capacity - Gulf (vs Total CDU Capacity)% Heavy Capacity - Gulf (vs Total CDU Capacity)


Costs to Solve Gulf Coast Oversupply of Light Will

Drive WTI-Brent Wider Again

As we laid out in the Great LLS Debate, the first barrels to arrive in the Gulf are the easiest

to deal with, hence the risk of an undershoot in WTI-Brent. Indeed, the system is not that

stressed in 2013. There is sufficient refining capacity that can be freed up from backing out

medium imports, there are outlets that can be reached with non-Jones Act ships in

Canada. By 2015-2016 we would need one of two additional options – either condensate

10 July 2013


exports or shipment of crude up into the East Coast via Jones Act ships. The most

expensive option for Gulf Coast refiners to absorb light crude would be to back out heavy

crudes for which Gulf Refineries are designed – but on our production forecasts this does

not look necessary.

We remain comfortable with WTI-Brent in the $8-10/bbl range medium term.

Exhibit 10: Potential Costs to Absorb Light-Sweet Crude in the Gulf Crude End-Market

WTI-Gulf Transhipment Shipping Competition Discount WTI-Brent

Exporting to World Markets 4.0 1.0 2.0 LLS vs Medium Imports 0.0 7.0

Clearing at Gulf Refiners 4.0 2.0 LLS vs Medium Imports 3.0 9.0

Clearing into Canada 4.0 2.0 2.0 LLS-Brent 0.0 8.0

Clearing into East Coast 4.0 2.0 4.6 LLS-Brent 0.0 10.6

Backing out Heavy Crude 4.0 2.0 LLS-Maya 7.0 13.0

Memo:

Brent-Maya 15

Brent-Mars 7 Source: Company data, Credit Suisse estimates

Exhibit 11: Increasing Costs to Solve Gulf Coast Oversupply

0

2000

4000

6000

8000

10000

2010 2011 2012 2013 2014 2015 2016 2017

KB

D

Net Inflows to Gulf CoastEagle Ford condensate ExportsPADD 3 Light+Medium CapacityPADD 3 Light/Medium Capacity + Crude Exports to CanadaPADD 3 Light/Medium + Crude Exports to Canada/PADD 1

WTI - Brent: $13.0

WTI - Brent: $10.6

WTI - Brent: $9.0

WTI - Brent: $8.0


Key Catalysts to Watch for Gulf Crude Oversupply

Downward pressure on crude prices in the Gulf needs new supply to physically appear.

Looking at the near term, the main pipes that will contribute to additional crude supply in

coming quarters are Permian Express (150 KBD), Keystone XL South (400-500 KBD) and

the Seaway Expansion (end 1Q14, 450 KBD). We think a million barrels a day plus

volumes out of the Eagle Ford will make a difference to Gulf coast crude prices.

10 July 2013


Exhibit 12: Pipes from Permian and Cushing into the Gulf (Note Eagle Ford volumes

ramp also)

0

200

400

600

800

1,000

1,200

1,400

1,600

Dec-12E Feb-13E Apr-13E Jun-13E Aug-13E Oct-13E Dec-13E Feb-14E

WTG Seaway Keystone XL Permian Express Longhorn Reversal Pipeline - Wrangler/Seaway Expansion


What if the US allowed crude exports?

In a shift from our last visit to Washington, DC in late 2012, there seems to be a

consensus among the Administration and Legislative Branches that crude oil exports from

the US will be the next big discussion on The Hill. The discussions on exporting natural

gas and coal provide for a natural transition to discussing crude exports, e.g. If the WTO or

other Free Trade Agreements were to include LNG exports, it is likely that pressure would

mount to treat crude exports in the same manner.

The rational arguments that we have expressed in the past (to some pushback) to allow

exports of light crude from the US, seem to have become louder. Access to export

markets would give more confidence to investment in the upstream sector of the US

(currently $150bn pa of estimated investment). US refineries are not designed to run light

crude – it would be better for this crude to be processed in Europe. This may even

increase the effective yields of global light products which consumers actually use –

exports could be good for jobs and consumers. We note the oil industry are pro- free trade

in general.

However, the export of crude does not automatically close WTI-Brent to zero. There are

still costs to ship crude to the Gulf, to load the crude onto new export facilities that would

need to be built, and to ship crude to world markets from the Gulf.

Where Next for Heavy Differentials?

Given that the formula for Maya is linked to WTI/WTS with an adjustment factor that lags

the prompt market, the volatility in WTI-Brent has led to large swings in Maya-Brent over

the last 24 months. We believe a fair trading range for Maya vs Brent is $8-18/bbl on a

coker economics basis, or $10-20/bbl including transport. Our long run Maya forecast is

$13.5/bbl, i.e. to the lower end of this range. While the surge in light shale oil production

Cokers are an overlooked

source of option value for

the US Gulf Coast Refiners

10 July 2013


from the US is overshadowing light-heavy, we note that the US Gulf refiners embed

significant option value given their cokers. If non-OPEC production outside North America

fails to match demand growth and we need to dip into heavier Middle East production,

light-heavy differentials could easily widen. There is limited coking and vac tower capacity

outside the US to upgrade heavy ends. Half of the reason that VLO was a $50-70/sh stock

in 2007 was a strong economy, the other half was wide light heavy differentials.

Exhibit 13: Brent – MAYA Exhibit 14: API Gravity vs Sulfur Content

0.00

5.00

10.00

15.00

20.00

25.00

30.00

1/2/2008 1/2/2009 1/2/2010 1/2/2011 1/2/2012 1/2/2013

Source: Bloomberg Source: VLO

Exhibit 15: Vacuum and Coking Capacity as % of Total CDU Capacity, 2010

Survey

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

US Europe Africa Asia Pac Mid-East Latam

% VDU % Coking

Source: OGJ

Rising Inventories and Capacity Will Stress Markets

BUT International Margin Fears May Be Overdone

As we laid out in “Marginal Musings”, refinery margins have generally surprised in 2012

and 1H13. It was difficult to tell whether this was a function of some shift in the cost curve

or a result of surprise closures and maintenance outages. Indeed refining runs were set to

rise by 3.5mbd from April to July of this year. As refining runs increase, one would expect

product inventories to build and refining margins to fall. Gasoline inventories look plentiful.

Limited upgrading capacity

outside the US

10 July 2013


Distillate inventories are low – but there are substantial refinery capacity additions in 2H13

which could allow distillate inventories to recover through 2014.

Our base case incorporates a 22% decline in Brent related product cracks versus 2012.

Our bear case, incorporates a 35% decline.

Exhibit 16: Light Distillate Inventories (gasoline) Exhibit 17: Middle Distillate Inventory (diesel)


Exhibit 18: IEA Refining Run Forecasts


However, we are wary of extrapolating short term normal seasonality in refining runs into a

secular negative argument for international product cracks. Transport fuel demand is still

rising globally and auto sales are robust.

10 July 2013


Exhibit 19: Global Gasoline and Distillate Demand Exhibit 20: Outlook for the Global Auto Fleet-Global LV

New Sales/Registrations (mn cars): 4% CAGR (2010-15)

0

10000

20000

30000

40000

50000

60000

70000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

KB

D

Light Distillate Middle Distillate

0

10

20

30

40

50

60

70

80

90

100

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Source: BP Stats Source: Company data, Credit Suisse estimates

Comparing capacity additions against rising demand - our global cost curve points to a

sustainability of margins rather than the 20% decline that we forecast. Yes, there is low

cost capacity being added BUT not enough to drive the cost curve substantially lower,

given demand is also increasing over the same period.

Indeed a strengthening economic recovery in the US, some stabilization in Europe and

continued EM demand growth could provide some small upside towards $10/bbl margins

vs our $9.25/bbl East Coast 6-3-2-1 mid-cycle assumption.

One observation, though, the true peaking margin level of $14+/bbl for East Coast 6-3-2-1

cracks looks more difficult to attain sustainably given the increasing amount of refinery

capacity that is below the typical upward kink at the end of the cost curve.

Exhibit 21: Global Refining Cost Curve (East Coast 6-3-2-1 Equivalent Basis)

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000

Eas

t C

oas

t EQ

uiv

alen

t Bre

akev

en m

arg

in

$/b

bl

Cumulative Throughput

2012 Throughput

2016 Throughput


Although refining capacity additions don’t derail the indicative cost curve, there are certain

localized time periods when capacity additions are meaningful versus demand growth and

10 July 2013


could cause some temporary weakness. The first of these is 2H13 (an imminent worry),

the second is 2015.

Exhibit 22: East Coast Margins and Credit Suisse Mid-

Cycle Forecast, $/bbl

Exhibit 23: Upcoming Major Global Capacity Additions

and Startup-Date

$0

$2

$4

$6

$8

$10

$12

$14

$16

1Q 04

4Q 04

3Q 05

2Q 06

1Q 07

4Q 07

3Q 08

2Q 09

1Q 10

4Q 10

3Q 11

2Q 12

1Q 13

4Q 13

3Q 14

2Q 15

1Q LT

4Q LT

$/bb

l

East Coast Brent Margin Avg Margin (2004-12)

Country Location Add'l Capacity Year Quarter

China Pengzhou/Sichuan 200000 2013 Q3

Saudi Arabia Jubail 200000 2013 Q3

China Fujian/Quanzhou 240000 2013 Q3

China Yunnan/Kunming 200000 2013 Q4

Saudi Arabia Jubail 200000 2013 Q4

India Paradip 300000 2014 Q1

India Cuddalore 120000 2014 Q2

Brazil Pernambuco State / Abreu e Lima 230000 2014 Q2

U.A.E. Ruwais 417000 2014 Q3

China Huizhou 200000 2014 Q3

China Huabei 100000 2015 Q1

Iran Assaluyeh 120000 2015 Q1

China Jieyang/Guangdong 400000 2015 Q1

Saudi Arabia Yanbu 400000 2015 Q1

Angola Lobito 200000 2015 Q2

US Corpus Christi/Houston 160000 2015 Q2

Brazil Rio de Janeiro 165000 2015 Q3

China Hebei 200000 2015 Q4

Brazil Abreu e Lima 230000 2015 Q4

Turkey 200000 2015 Q4

China Guangdong/Zhangjiang 300000 2016 Q1

China Zhenhai 300000 2016 Q1

China Jiangsu 240000 2016 Q3

Algeria Tiaret + Biskra 200000 2017 Q1

Brazil Maranhao state 300000 2017 Q2

Kuwait Al-Zour 415000 2018 Q1 Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Exhibit 24: Global Capacity Additions

Source: VLO

Significant Self-Help Provides an EBITDA Offset

One other important factor to consider when looking at the EBITDA outlook for different

refiners is the significant EBITDA contribution from self-help. The primary drivers of this

self-help are recent acquisitions at MPC (Galveston Bay in the Gulf) and at TSO (Carson

in California). VLO should benefit from large hydrocracker investments. Some of this self-

help is crude differential related (e.g. processing additional heavy crude at DHOUP for

MPC or railing crude from North Dakota/Canadian Heavy to TSO’s facilities in the North

10 July 2013


West). Over time, self-help allows for the prospect of higher EBITDA in the future even as

margins pull back.

Exhibit 25: MPC Self-Help Waterfall vs 2012 Exhibit 26: TSO Self-Help Waterfall vs 2012

6,342350

106 210202 33

300

700 1,385

6,858 6,677

$5,000

$5,500

$6,000

$6,500

$7,000

$7,500

$8,000

$8,500

$9,000

20

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1,730205

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42525 98

353 162 115 10

284 830

1002,612

2,481

$0

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Exhibit 27: VLO Self-Help Waterfall vs 2012

6,12555

1,494 47110

594 179753

452

236287

6,516

$0

$1,000

$2,000

$3,000

$4,000

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Significant Logistics Value Means MPC Is Trading On

2.1x EBITDA (Too Low)

As we outline in detail in the valuation sensitivities, there is significant logistics value in

many of the US refiners. Indeed stripping this logistics value from current EV and the

“refining only” EV/EBITDA multiples of the group look too low.

10 July 2013


Exhibit 28: Logistics Value as percentage of Current EV Exhibit 29: EV/EBITDA Excluding Logistics (ex-MLP)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

DK PBF WNR ALJ MPC TSO PSX VLO HFC

Company 2013 2014 2015

ALDW (*) 4.4 5.9 5.2

ALJ ** n.a. n.a. n.a.

DK ** n.a. n.a. n.a.

HFC 3.1 3.2 3.2

MPC 2.1 2.0 1.8

PBF 3.4 2.8 2.1

PSX 2.0 1.8 1.9

TSO 2.0 1.6 1.5

VLO 3.8 3.6 3.3

WNR 2.3 2.5 2.5

Average Large Cap 2.6 2.4 2.3

Overall C-Corp Average 2.7 2.5 2.3

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates (*) MLPs. (**) DK and

ALJ Refining Only EV is negative post backing out potential value of

logistics and other non-Refining segments (e.g. Retail)

EPS Changes and Valuation Sensitivities

As a result of actual margin conditions in 2Q, and changes to our macro assumptions

(narrower 2H13 WTI Brent and slightly lower 3Q refining margins), we are reducing EPS.

In 2Q, margin conditions deteriorated sharply at the end of the quarter (June), notably

driven by narrower WTI-Brent spreads and Mid-Continent margins.

Exhibit 30: Change to EPS (include Refining MLP)

Source: Bloomberg, Credit Suisse estimates

10 July 2013


Exhibit 31: Change to EBITDA (include Refining MLP)

Source: Bloomberg, Credit Suisse estimates

Exhibit 32: Base Case Sum of the Parts MPC PSX DK WNR HFC TSO VLO PBF ALJ

Current Net Debt/(Net Cash) (1,133) 2,218 (313) 84 (2,054) (440) 3,522 307 225

Free Cashflow 2Q13-2016 (10,514) (15,132) (770) (1,800) (2,631) (1,920) (8,635) (707) (62)

Current Debt Less Free cash Through 2015 (11,647) (12,914) (1,083) (1,716) (4,685) (2,360) (5,113) (399) 162

Shares Bought Back as % of Outstanding -40% -28% -50% -46% -44% -26% -21% -14% 14%

EV/EBITDA Multiple, C-Corp 5.0 5.1 5.0 5.3 5.3 4.0 4.2 4.1 3.5

"See Through" EBITDA (Chemicals + Refining) 5,110 5,763 286 666 2,083 1,793 5,916 582 84

EV (Refining and Chemicals) 25,548 29,521 1,431 3,495 10,938 7,259 24,777 2,410 295

EV/ 2015 Share Count 128 65 47 59 95 70 57 29 4

(+) EV/Sh - Logistics 46 34 46 22 20 41 8 13 6

(+) EV/Sh - Retail 24 24 13 3 0 14 1 0 5

(-) Minority Stake (4) 0 (10) 0 0 (18) 0 0 15

(-) HEP Minority Stake 0 0 0 0 (13) 0 0 0 0

(-) Pension Liabilities (8) (3) 0 (0) (0) (4) (2) (1) 0

(-) Debt in Associates 0 (8) 0 0 0 (3) 0 0 0

(+) WRB Cash Receipts 0 3 0 0 0 0 0 0 0

(+) Ethanol 2.8

Total Non-Refining/Chemical Value 58 51 49 25 7 31 10 12 26

% of Total 31% 44% 51% 30% 7% 31% 15% 29% 87%

Total Value/2016 Sh 186 116 97 84 102 101 67 40 29

Implied EV/EBITDA, 2016 5.6 5.9 5.8 5.9 5.0 4.2 4.6 4.8 12.5

Equity 186 116 97 84 102 101 67 40 29

Discounted to 2013 @10% 139 87 73 63 77 76 50 30 22

Current Share Price 70 59 28 28 42 53 34 23 13

Potential Upside 99% 48% 155% 127% 82% 43% 46% 30% 66%

Memo: Group EBITDA 2016 6,677 8,863 500 838 2,338 2,481 6,516 702 191 Source: Company data, Credit Suisse estimates

10 July 2013


After these changes:

■ We are still below consensus for 2Q and 3Q13.

■ We are above consensus for MPC, PSX, TSO and WNR in 2015. For the Gulf Coast

refiners this likely represents our view of advantaged crude costs. For TSO the Carson

acquisition.

■ There is substantial upside for our preferred names looking at the sum of the parts

value in 2016 mid-cycle conditions and discounting back to today. This does assume

free cash is used for buybacks.

■ Free cash yields and clean balance sheets lend a lot of firepower to managements

wishing to defend share prices after recent weakness.

Exhibit 33: Base Case EV/EBITDA Exhibit 34: Base Case FCF Yield

Company 2013 2014 2015

ALDW (*) 4.4 5.9 5.2

ALJ 2.9 3.3 2.4

DK 2.9 2.9 2.8

HFC 3.5 3.6 3.6

MPC 3.8 3.6 3.2

PBF 4.6 4.0 3.1

PSX 5.2 4.8 4.9

TSO 3.8 2.9 2.7

VLO 4.1 3.9 3.7

WNR 3.6 3.8 3.8

Overall C-Corp Avg 3.8 3.6 3.4

Company 2013 2014 2015

ALDW (pre tax) 23.2% 8.1% 13.1%

ALDW (post tax) 17.3% 4.3% 8.5%

ALJ 10.5% 8.4% 17.1%

DK 11.1% 14.0% 16.0%

HFC 10.7% 11.1% 11.4%

MPC 16.0% 11.3% 13.3%

PBF 7.6% 5.3% 11.3%

PSX 10.3% 10.0% 9.2%

TSO 10.2% 11.7% 12.7%

VLO 7.2% 7.8% 9.3%

WNR 17.0% 10.0% 12.8%

AVG 11.2% 9.9% 12.6% Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Exhibit 35: Base Case Refining Margin Assumptions (Through 2016)

1Q12A 2Q12A 3Q12A 4Q12A 1Q13A 2Q13A 3Q13E 4Q13E 2010A 2011A 2012A 2013E 2014E 2015E LT

NEW MACRO ASSUMPTIONS

Refining Margins $/bbl

US East Coast (PADD I) 6-3-2-1 (Brent)10.07 11.92 14.58 10.76 12.74 10.89 10.00 8.00 7.28 8.38 11.83 10.41 9.25 9.25 9.25

US Midwest (PADD II) 3-2-1 (WTI) 19.45 28.45 35.36 28.18 27.64 31.16 22.00 16.00 12.18 25.32 27.86 24.20 20.88 19.00 18.25

US Rockies (PADD IV) 3-2-1 (WTI) 21.28 41.69 41.45 38.65 29.40 37.83 27.25 24.25 20.64 34.15 35.77 29.68 25.81 23.94 23.31

US West Coast (PADD V) 5-3-1-1 (ANS)17.55 16.82 20.12 17.53 20.52 17.99 17.00 17.00 15.82 13.04 18.00 18.13 16.00 16.00 16.00

US Gulf Coast (PADD III) 3-2-1 (LLS) 9.03 14.19 15.99 7.43 10.48 12.84 10.00 8.00 11.79 7.67 11.66 10.33 10.38 11.25 11.25

CS NWE Indicator margin 5.10 8.06 9.66 7.17 6.21 5.23 6.03 4.95 5.15 4.74 7.50 5.61 5.25 5.09 5.25

Asia-Pacific (Singapore) 6-2-3-1 (Dubai)13.29 12.97 15.39 12.45 15.20 13.25 13.75 13.25 9.22 13.58 13.53 13.86 14.50 14.50 14.50

Crude Oil Price Discounts $/bbl

Brent - WTI 15.69 15.52 17.75 22.31 18.52 8.83 8.00 8.00 3.47 16.98 17.82 10.84 10.00 10.00 9.00

US Sour (WTI-WTS) 3.62 5.32 3.33 9.82 6.11 0.05 1.00 2.00 2.72 1.26 5.52 2.29 2.00 2.00 2.00

LLS - WTI 16.55 15.09 17.45 21.34 19.65 10.66 10.00 9.00 (0.44) 17.11 17.61 12.33 10.75 8.00 7.00

LLS - Brent 0.86 (0.42) (0.30) (0.97) 1.13 1.83 2.00 1.00 (3.90) 0.13 (0.21) 1.49 0.75 (2.00) (2.00)

LLS vs MAYA 10.59 9.38 12.11 16.52 11.05 6.92 10.00 12.00 7.66 10.04 12.15 9.99 11.75 11.00 11.00

LLS vs MARS 4.17 4.18 5.32 5.77 4.76 5.38 4.50 4.50 (1.66) 3.35 4.86 4.79 4.50 4.50 4.50

WTI-WCS 26.97 19.87 15.50 27.20 27.03 16.59 19.00 22.00 17.80 14.27 22.38 21.15 20.00 16.50 13.00

Brent - MARS 3.32 4.61 5.62 6.74 3.63 3.55 2.50 3.50 2.24 3.22 5.07 3.30 3.75 6.50 6.50

Brent - MAYA 9.74 9.80 12.41 17.48 9.92 5.09 8.00 11.00 11.56 9.91 12.36 8.50 11.00 13.00 13.00

EU Sour (Brent-Urals) 1.53 2.35 1.20 1.60 2.16 0.88 2.00 2.50 1.78 1.12 1.67 1.89 2.56 2.06 2.06 Source: Company data, Credit Suisse estimates

10 July 2013


Valuation Sensitivities

Exhibit 36: Bear Case Sum of the Parts (WTI-Brent $5/bbl) MPC PSX DK WNR HFC TSO VLO PBF ALJ


Free Cashflow 2Q13-2016 (6,385) (11,922) (356) (1,169) (1,440) (500) (4,168) (14) (62)

Current Debt Less Free cash Through 2015 (7,518) (9,704) (670) (1,085) (3,493) (940) (646) 293 162

Shares Bought Back as % of Outstanding -26% -21% -31% -29% -33% -10% -3% 10% 14%


"See Through" EBITDA (Chemicals + Refining) 3,096 4,368 126 330 1,569 1,150 4,021 241 (36)

EV (Refining and Chemicals) 15,479 24,029 629 1,734 8,236 4,655 16,842 936 (94)

EV/ 2015 Share Count 63 48 15 22 60 37 31 9 (1)

(+) EV/Sh - Logistics 37 31 33 17 17 34 6 8 6

(+) EV/Sh - Retail 19 22 10 2 0 12 1 0 5

(-) Minority Stake (3) 0 (8) 0 0 (15) 0 0 7





(+) Ethanol 2.3


% of Total 43% 49% 70% 46% 9% 41% 21% 43% 107%

Total Value/2016 Sh 110 94 51 41 65 63 39 15 17

Implied EV/EBITDA 5.8 6.3 6.2 6.4 4.9 4.3 4.8 5.0 21.3

Equity 110 94 51 41 65 63 39 15 17

Discounted to 2013 @10% 82 71 38 31 49 47 29 12 13


Potential Upside 17% 21% 34% 12% 17% -11% -14% -51% -4%


10 July 2013


Exhibit 37: Bull Case Sum of the Parts (WTI-Brent $10/bbl, Refining Margin Spike) MPC PSX DK WNR HFC TSO VLO PBF ALJ


Free Cashflow 2Q13-2016 (14,365) (17,999) (916) (2,056) (3,166) (3,041) (11,702) (1,025) (62)

Current Debt Less Free cash Through 2015 (15,498) (15,781) (1,230) (1,972) (5,219) (3,481) (8,180) (718) 162

Shares Bought Back as % of Outstanding -53% -34% -57% -52% -49% -38% -34% -25% 14%


"See Through" EBITDA (Chemicals + Refining) 6,781 6,983 351 783 2,355 2,310 7,266 731 126

EV (Refining and Chemicals) 33,904 34,987 1,755 4,109 12,361 9,351 30,429 2,974 432

EV/ 2015 Share Count 217 84 67 79 118 107 83 41 6

(+) EV/Sh - Logistics 58 38 54 25 22 49 9 15 6

(+) EV/Sh - Retail 30 26 16 3 0 17 1 0 5

(-) Minority Stake (5) 0 (12) 0 0 (21) 0 0 17





(+) Ethanol 3.4


% of Total 25% 40% 46% 26% 6% 25% 13% 25% 83%

Total Value/2016 Sh 291 140 124 107 125 144 95 54 33

Implied EV/EBITDA 5.4 5.8 5.7 5.8 5.0 4.2 4.6 4.6 11.5

Equity 291 140 124 107 125 144 95 54 33

Discounted to 2013 @10% 219 105 93 81 94 108 72 41 25


Potential Upside 212% 79% 228% 191% 124% 104% 109% 75% 88%


10 July 2013


Material Changes Table

Price Price Rating* Target Price Year EPS EPS FY1E EPS FY2E EPS FY3E

Company ccy 09 Jul 13 Prev. Cur. Prev. Cur. End Ccy Prev. Cur. Prev. Cur. Prev. Cur.

Alon USA Energy (ALJ) US$ 13.29 — U 20.00 19.00 Dec 12 US$ 1.88 1.38 0.82 1.18 2.25 2.36

Alon USA Partners LP (ALDW)

US$ 20.70 — O 30.00 28.00 Dec 12 US$ 4.27 3.66 2.29 2.37 2.89 2.85

Delek US Holdings (DK) US$ 28.46 — O — 52.00 Dec 12 US$ 4.71 3.73 3.20 3.78 4.08 3.85

Holly Frontier Corp. (HFC) US$ 41.97 — N — 64.00 Dec 12 US$ 5.92 5.62 5.23 5.37 6.13 5.68

Marathon (MPC) US$ 70.12 — O — 110.00 Dec 12 US$ 9.77 9.42 10.21 10.58 11.80 12.18

PBF ENERGY INC (PBF) US$ 23.35 — N 33.00 28.00 Dec 12 US$ 2.71 2.27 3.38 2.97 4.64 4.17

Phillips 66 (PSX) US$ 58.51 — O — 73.00 Dec 12 US$ 7.85 7.34 7.96 8.27 8.46 8.19

Tesoro Corp. (TSO) US$ 52.98 — O — 74.00 Dec 12 US$ 5.10 5.28 6.17 7.50 6.40 8.18

Valero Energy Corporation (VLO)

US$ 34.28 — N — 45.00 Dec 12 US$ 4.86 4.44 4.97 4.86 5.82 5.49

Western Refining Inc. (WNR) US$ 27.65 — O — 43.00 Dec 12 US$ 4.51 4.03 3.81 3.89 3.82 3.87

*O – Outperform, N – Neutral, U – Underperform, R – Restricted [V] = Stock considered volatile (see Disclosure Appendix).

Source: Company data, Credit Suisse estimates.

10 July 2013


Companies Mentioned (Price as of 09-Jul-2013)

Alon USA Energy, Inc. (ALJ.N, $13.29, UNDERPERFORM[V], TP $19.0) Alon USA Partners LP (ALDW.N, $20.7, OUTPERFORM[V], TP $28.0) Delek US Holdings, Inc. (DK.N, $28.46, OUTPERFORM, TP $52.0) Enbridge Inc. (ENB.TO, C$45.38) Holly Frontier Corp. (HFC.N, $41.97, NEUTRAL[V], TP $64.0) Marathon (MPC.N, $70.12, OUTPERFORM, TP $110.0) PBF ENERGY INC (PBF.N, $23.35, NEUTRAL[V], TP $28.0) Phillips 66 (PSX.N, $58.51, OUTPERFORM, TP $73.0) Tesoro Corp. (TSO.N, $52.98, OUTPERFORM[V], TP $74.0) Valero Energy Corporation (VLO.N, $34.28) Western Refining Inc. (WNR.N, $27.65)

Disclosure Appendix

Important Global Disclosures

I, Edward Westlake, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Alon USA Energy, Inc. (ALJ.N)

ALJ.N Closing Price Target Price

Date (US$) (US$) Rating

02-Jan-13 17.44 17.00 N *

17-Jan-13 18.22 19.00

03-May-13 16.63 19.00 U

10-May-13 17.70 20.00

* Asterisk signifies initiation or assumption of coverage.

N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for Alon USA Partners LP (ALDW.N)

ALDW.N Closing Price Target Price


02-Jan-13 24.79 24.00 N *

17-Jan-13 22.55 28.00 O

03-May-13 25.95 30.00

10-May-13 23.78 R

11-Jun-13 25.16 30.00 O


N EU T RA L

O U T PERFO RM

REST RICT ED

10 July 2013


3-Year Price and Rating History for Delek US Holdings, Inc. (DK.N)

DK.N Closing Price Target Price


06-Aug-10 7.50 8.25 U

02-Feb-11 9.03 9.50

11-Feb-11 9.73 10.50

11-Mar-11 12.27 11.50

06-May-11 13.59 15.00 N

01-Jul-11 15.76 17.00

03-Nov-11 15.35 19.00

17-Nov-11 12.15 15.00

15-Dec-11 10.49 16.00

09-Mar-12 14.12 18.50

28-Mar-12 14.90 20.50 O

10-Jul-12 19.14 24.00

09-Aug-12 26.05 29.00

18-Sep-12 24.60 32.00 N

26-Oct-12 25.15 35.00 O

17-Jan-13 30.89 36.00

01-Feb-13 34.22 43.00

12-Mar-13 39.98 R

15-Mar-13 39.23 43.00 O

03-May-13 36.60 52.00


U N D ERPERFO RM

N EU T RA L

O U T PERFO RM

REST RICT ED

3-Year Price and Rating History for Holly Frontier Corp. (HFC.N)

HFC.N Closing Price Target Price


13-Jul-11 35.71 47.50 O *

08-Aug-11 30.38 50.00

09-Nov-11 30.47 47.00

17-Nov-11 23.93 40.00

28-Feb-12 31.86 41.00

28-Mar-12 32.21 40.00 N

10-Jul-12 35.68 45.00

26-Oct-12 38.89 48.00

08-Nov-12 40.44 53.00

17-Jan-13 45.47 54.00

03-May-13 50.46 64.00


O U T PERFO RM

N EU T RA L

10 July 2013


3-Year Price and Rating History for Marathon (MPC.N)

MPC.N Closing Price Target Price


01-Jul-11 42.20 55.00 O *

08-Aug-11 32.33 60.00

19-Aug-11 34.99 65.00

17-Nov-11 31.62 63.00

02-Feb-12 42.56 60.00

01-Aug-12 46.80 63.00

18-Sep-12 52.07 65.00 N

08-Oct-12 57.92 70.00

26-Oct-12 55.61 75.00 O

17-Jan-13 65.38 85.00

06-Mar-13 88.54 100.00

03-May-13 78.10 110.00


O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for PBF ENERGY INC (PBF.N)

PBF.N Closing Price Target Price


22-Jan-13 29.05 35.00 O *

12-Feb-13 37.78 40.00

22-Feb-13 40.17 42.00

03-Apr-13 33.31 37.00 N

03-May-13 28.49 33.00

28-May-13 28.59 R


O U T PERFO RM

N EU T RA L

REST RICT ED

3-Year Price and Rating History for Phillips 66 (PSX.N)

PSX.N Closing Price Target Price


09-May-12 32.49 42.00 O *

02-Aug-12 38.30 46.00

18-Sep-12 45.52 53.00 N

26-Oct-12 47.50 60.00 O

14-Dec-12 53.47 70.00

17-Jan-13 55.15 73.00

04-Jun-13 65.18 R

05-Jun-13 63.61 73.00 O

* Asterisk signifies initiation or assumption of coverage. O U T PERFO RM

N EU T RA L

REST RICT ED

10 July 2013


3-Year Price and Rating History for Tesoro Corp. (TSO.N)

TSO.N Closing Price Target Price


06-Aug-10 12.77 18.50 N

13-Dec-10 17.12 21.00

02-Feb-11 19.65 30.00

03-Feb-11 20.13 30.00 O

07-Feb-11 21.25 R

25-Apr-11 27.64 40.00 O

01-Jul-11 23.06 36.00

03-Nov-11 27.72 38.00

17-Nov-11 23.80 34.00

06-Dec-11 23.31 35.00 N

03-Feb-12 25.41 33.00

28-Feb-12 26.91 35.00

10-Jul-12 25.69 36.00

03-Aug-12 31.79 44.00

13-Aug-12 38.87 50.00

18-Sep-12 40.74 53.00

13-Dec-12 41.36 60.00 O

12-Feb-13 53.49 63.00

03-May-13 55.47 70.00

13-May-13 55.28 74.00


N EU T RA L

O U T PERFO RM

REST RICT ED

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

10 July 2013


Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 43% (53% banking clients)

Neutral/Hold* 40% (49% banking clients)

Underperform/Sell* 15% (38% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neut ral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for Alon USA Partners LP (ALDW.N)

Method: Our target price of $28 is derived using a mix of Target Yield method and our 3-stage Dividend Discount Method (DDM). Our $28 target price implies a target yield of ~9.0% (turnaround impacts 1Q14 results) over the next twelve months based on our distribution payout forecast of $2.60/unit.

Risk: Risks to our $28 TP include: 1) Single asset refinery operations, 2) environmental liabilities, 3) macro refining and fuels factors, acquisition risk, conflicts with general partner, change in MLP tax treatment and access to capital.

Price Target: (12 months) for Alon USA Energy, Inc. (ALJ.N)

Method: We base our valuation and relative ratings for refiners primarily on EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation and amortization) multiples. Our target price for ALJ is $19. ALJ is trading on a 2014 EV/EBITDA multiple of 3.3x as compared to the group at 3.6x.

Risk: Risks to our $19 target price for ALJ include: Short-term: commodities volatility, integration of acquisitions. Long-term: refining margins, growth opportunities (international refining or other diversified energy).

Price Target: (12 months) for Delek US Holdings, Inc. (DK.N)

Method: DK currently trades on a 2014E EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortization) multiple of 2.9x compared to the average of the independent refiners at 3.6x. Our target price is $52.00.

Risk: The risks to our DK target price of $52.00 are: CRUDE SOURCES: If the company loses its crude sources or competition increases, this could change DK's profitability. In addition, the refinery is less complex than the publicly traded peer group, which could limit crude flexibility. MACRO: a change in our long-term refining margin of $11.25/bbl for the Gulf Coast (LLS) could change the company's financial condition.

Price Target: (12 months) for Holly Frontier Corp. (HFC.N)

Method: We established our $64 target price for HFC using EV/EBITDA (enterprise value/earnings before interest, taxes, deprecation and amortization) multiples and sum-of-the parts and discounted cash flow analyses. We assume long-term Mid-Con (WTI) refining margins of $18.25/bbl, the primary drivers at HFC. We expect HFC's capital projects will yield good returns. HFC is trading on a 2014 EV/EBITDA multiple of 3.6x relative to the peer group of 3.6x.

Risk: Risks to our $64 target price for HFC are based on size and lack of diversity: exposure to Mid-Con and Gulf Coast (WTI based) refining margins. In addition, it relies on lower grade crudes such as Western Canadian Select (WCS); if supplies of these crudes tightens, this could put pressure on margins and on volumes.

Price Target: (12 months) for Marathon (MPC.N)

Method: We use the cash flow (EV/EBITDA) multiples method to reach our $110 target price for MPC. Our oil price expectation is $90/bbl long term (Brent) and long-term refining Gulf Coast LLS refining margin expectation is $11.25/bbl. Our $110 target price is based on a 2014 EV/EBITDA target multiple of 5.0x (theoretical value), discounted back to present. We use a historical average multiple.

10 July 2013


Risk: Risks to MPC's achievement of our $110 target price are: (1) regional operating risk: refining & marketing business primarily in US Midwest; (2)long-term: returns, oil & natural gas prices, refining margins; and (4) storm and other weather related damages. If US refining margins differ significantly from our assumptions, this could have the largest impact on our valuation of MPC.

Price Target: (12 months) for Phillips 66 (PSX.N)

Method: Given the available peer comparables, much of the valuation work uses EV/EBITDA multiple comparisons to value the different segments of PSX. Please note though that we have cross checked these multiples with our own subsegment DCF's also. On a divisional basis, we see PSX R&M division as "VLO Plus" given the slightly higher share of mid-continent capacity, the marketing and logistics contribution. Our target R&M EV/EBITDA multiple is slightly higher than VLO but lower than mid-con peers. The EV of DCP should be relatively well understood as evidenced in the Spectra corporate valuation. The EV of chemicals could be higher than expected. Our target price is $73/sh.

Risk: Risks to our $73 target price for PSX include: Short-term: commodities volatility, integration of acquisitions. Long-term: refining margins, growth opportunities (international refining or other diversified energy).

Price Target: (12 months) for Tesoro Corp. (TSO.N)

Method: Our rating and target price are based on TSO's valuation and our views that West Coast margins will continue to fetch a premium to the Gulf Coast due the geographically isolated nature of the market. Additionally, Tesoro's strong retail exposure strengthens TSO's story. We base our valuation and relative ratings for refiners primarily on EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation and amortization) multiples. Our target price for TSO is $74. TSO is trading on a 2014 EV/EBITDA multiple of 2.9x as compared to the group at 3.6x.

Risk: Risks: Our $74.00 target price for TSO faces regional risk: TSO is very levered to West Coast refining margins and other niche areas which are more difficult to track. The market has traditionally given TSO a discount based on the depressed nature of the California economy. We believe there are signs of a potential economic rebound on the West Coast, which will further enhance the stock price.

Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (ALDW.N, ALJ.N, PBF.N, PSX.N, TSO.N, VLO.N, WNR.N, ENB.TO) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (ALDW.N, ALJ.N, PBF.N, PSX.N, TSO.N, VLO.N, WNR.N, ENB.TO) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (ALJ.N, VLO.N) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (ALJ.N, PSX.N, TSO.N, WNR.N) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (ALDW.N, ALJ.N, PBF.N, PSX.N, TSO.N, VLO.N, WNR.N, ENB.TO) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ALDW.N, ALJ.N, MPC.N, PBF.N, PSX.N, TSO.N, VLO.N, WNR.N, ENB.TO) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (ALJ.N, VLO.N) within the past 12 months

As of the date of this report, Credit Suisse makes a market in the following subject companies (ALDW.N, ALJ.N, DK.N, HFC.N, MPC.N, PBF.N, PSX.N, TSO.N, VLO.N, WNR.N).

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (PBF.N).

Credit Suisse has a material conflict of interest with the subject company (VLO.N) . Credit Suisse Securities (USA) LLC is acting as financial advisor to Valero Energy Corp. on their announced decision to pursue separation of their retail business.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (ALDW.N, ALJ.N, DK.N, HFC.N, MPC.N, PBF.N, PSX.N, TSO.N, VLO.N, WNR.N) within the past 12 months

An analyst involved in the preparation of this report has visited certain material operations of the subject company (ENB.TO) within the past 12 months

10 July 2013


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10 July 2013


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