Alon USA Energy, Inc. said last week that it has been selected as the “stalking horse” bidder for Flying J, Inc. subsidiary Big West of California LLC’s 70,000 bpd refinery in Bakersfield, California, which filed for reorganization bankruptcy protection in December 2008.

Flying J and Big West of California, LLC entered into an Asset Purchase Agreement with Paramount Petroleum Corp., a subsidiary of Alon, to sell their interest in the refinery for $40 million plus the fair market value of inventory.

The acquisition includes most of Big West’s permitted Clean Fuels Project equipment, a product loading facility, crude truck terminal and 2.6 million bbl of tankage. Certain non-permitted Clean Fuels Project equipment and a buffer parcel of property, approximately 250 acres, were excluded from the deal. Paramount assumes environmental cleanup obligations.

The refinery, which is supplied by crude oil produced in the San Joaquin Valley, is a major provider of fuels in central Calif.

Flying J purchased the Bakersfield refinery from Shell Oil Co. in March 2005. The refinery produces a full slate of premium quality petroleum products, including low sulfur CARBOB gasoline, CARB diesel and gas oil. In addition, the facility has received all significant permits to construct a hydrocracker unit, designed to further enhance its profitability by converting the refinery’s lower-value gas oils to lighter, higher margin diesel and gasoline products.

If successfully completed, Alon anticipates using the equipment from Bakersfield at its other refineries and connecting the facility by pipeline to its refinery in Paramount, Calif., so that vacuum gas oil may be sent from the Paramount facility to Bakersfield for further processing.

Completion of the acquisition is subject to an auction process, bankruptcy court approval and customary regulatory approval.

Flying J said the sale would be an important step toward the company’s exit from Chapter 11 reorganization bankruptcy entered into by the Ogden, Utah-based company more than a year ago.

“The sale of this non-core asset will generate cash to help address obligations, and will continue the company’s strategy of focusing on its profitable core business of successfully operating full-servicing travel plazas and fuel stops across the U.S. and Canada as well as its North Salt Lake Refinery and Financial Services companies,” said Flying J.

On Dec. 22, 2008, Flying J, along with subsidiaries Big West and Longhorn Pipelines, filed for Chapter 11 bankruptcy protection.