Jefferies Crown Central Petroleum Refining Research Report Oct 2004 Greg Imbruce

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ENERGY REFINING & MARKETING

HIGH YIELD RESEARCH

Greg Imbruce (203) 708-5804 [email protected]

October 6, 2004

Crown Central Petroleum Corp. (ROSEMO, Private) High-Octane Strong Buy

Amt. O/S Cpn. Freq. - JefcoSeniority Cpn. Mty. $MM Rating Date Price Price CY YTW STW Yrs. Nxt. Cpn. Dt. Rec.Sr. Notes 10.875% 2/1/05 $125.0 Caa3 / NR 11/3/04 100.00 90.0 12.08% 46.15% 4,435 0.3 2 - 2/1/05 Strong Buy

Next Call Yield to Worst

COMPANY OVERVIEW Crown Central Petroleum Corporation (Crown), based in Baltimore, Maryland, is an independent refiner and marketer of petroleum products in the U.S., privately owned by the Rosenberg family through its parent company, Rosemore, Inc. (Rosemore). The Company has been in liquidation mode since early 2003 and through 2Q04 sold substantially all of its retail sites (gasconvenience stations) and most of its product terminals, with the balance expected to close in 3Q04. We understand the Company is currently in negotiations on its remaining assets - the Pasadena and Tyler refineries. These two medium complexity Gulf Coast refineries have a combined capacity of 152,000 barrels of crude oil per day (BPD): Pasadena (Pasadena, TX) is a 100,000 BPD facility (8.4 Nelson Complexity), and Tyler (Tyler, TX), a 52,000 BPD facility (9.0 Nelson Complexity). During 2003, Pasadena and Tyler averaged production output of 76,075 BPD (76% Utilization) and 52,534 BPD (100%+ Utilization), respectively. Both refineries are operated to generate a product mix of approximately 88% higher margin fuels (gasoline, highway diesel and jet fuel, and home heating oil). When operating to maximize the production of light products, the product mix at both refineries is approximately 55% gasoline, 33% distillates (diesel, home heating oil, jet fuel, and kerosene), 6% petrochemical feedstocks, and 6% slurry oil and petroleum coke.

Rosemore Crown is a wholly owned subsidiary of Rosemore Holdings, Inc., which is a wholly owned subsidiary of Rosemore, a privately held Maryland corporation. Rosemore itself is owned by the Rosenberg family and was formed by the restructuring of American Trading and Production Corporation. The Rosenberg’s own 1 share or 100% of Rosemore Holdings, Inc. In 2001, the Rosenberg family acquired the 50% of Crown they didn’t already own for $10.50 per share or approximately $53 mm after beating out a competing bid for control from rival Apex Oil. Crown’s common stock traded on the AMEX under the ticker symbols “CNP A” and “CNP B” until the Company was taken private in March 2001. INDEX Recommendation 2 APPENDICES: Good Times 2 A: Refinery Valuation Assumptions 16 Capital Structure 3 B: Refinery DCF Sensitivity Tables 17 Liquidity 4 C: Refining & Marketing Comparables 18 Enterprise Valuation 5 D: Refinery Full Descriptions 19 Asset Coverage 6 Assets 7 Liabilities 9 Financial Results 11 Credit Statistics 12 Crack Spreads 13 CapEx 14

Please see Important Disclosure Information on the last pages of this Report [ page 1 of 22 ]

JEFFERIES HIGH YIELD RESEARCH Energy – Ref in ing & Market ing

RECOMMENDATION We recommend Crown Central Petroleum Corp.’s (Crown) 10.875% Sr. Notes ‘05 (Sr. Notes) as a Strong Buy at 90 due to the tremendous upside (46+% IRR) in the case Crown meets the February 2005 par maturity, which we view as a likely scenario. We envision that if the refineries are not sold by year-end, the Company would attempt to issue $60-$85 mm in New Sr. Secured Notes (New Notes) that we expect would be well received noting current market strength, credit statistics that would be in-line with comparables, and a 1st lien position supported by 2x asset coverage. We, therefore, currently value the Sr. Notes at 97 utilizing a 20% IRR target. In our view, the downside is not so much asset value as it is timing – the Sr. Notes provide more than a 20% IRR even if the sales of the refineries are delayed until year-end 2005 and Noteholders agree to extend the maturity absent New Notes. We believe the Rosenberg’s, the sole shareholder, will continue to take the necessary actions to avoid default and fund maturity of the Sr. Notes in order to preserve their equity value, which we value at $35 mm (excluding any value for the Company’s NOLs). Additionally, we anticipate the Noteholder Group, apparently headed by the Quadrangle Group, will provide the necessary flexibility to avoid a “fire sale” of the refineries. We expect the Noteholder Group will support a secured refinancing by exchanging their $50 mm in Sr. Notes (40% of the amount outstanding) for a similar amount of New Notes. We antiicipate the New Notes would be secured by the unencumbered refining assets (the Bank Facility is currently secured only by working capital). In positioning the Company for such a transaction, Crown first needs to settle with the Pension Benefit Guaranty Corporation (PBGC) and use $50-$66 mm of its $130 mm in cash at year-end to restore the underfunded pension.

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IRR SENSITIVITYSr. Notes Px 90% 91% 92% 93% 94% 95% 96% 97% 98% 99% 100%Maturity 43.4% 39.4% 35.5% 31.8% 28.2% 24.7% 21.4% 18.7% 15.7% 12.1% 9.2%

/31/05 20.1% 19.0% 18.0% 17.0% 16.0% 15.1% 14.1% 13.4% 12.5% 11.4% 10.5%

The following supports our recommendation:

�� Multiple Near-Term Catalysts – (i) Settlement with the Pension Benefit Guaranty Corporation (PBGC); (ii) Sale of the Company’s remaining refining assets, which we understand from industry sources are underway and that Lyondell Chemical Company (NYSE: LYO) may be the buyer of both; and (iii) the Sr. Notes’ maturity.

�� Noteholder Group Limits Default Risk - The Noteholder Group, represented by Petrie Parkman as their financial advisor, recently entered into a Confidentiality Agreement and an agreement with the Company regarding the reimbursement of fees and expenses, to formulate a transaction that we believe limits default risk.

�� Adequate Asset Coverage – We estimate the Sr. Notes’ asset coverage is 1.3x to 1.5x after incorporating $93 mm of Sr. Obligations (Pension, Environmental, and Severance) with upside in response to the improving refining market;

�� Cash Rich - The $156 mm in completed asset sales exceeded our $126 mm expectation and assisted the Company in eliminating bank debt and building a $105 mm cash balance at the end of 2Q04.

�� Improved Credit Statistics - Crown Central reported excellent 2Q04 results in response to record Crack Spreads for the period as 2Q04 EBITDA (LIFO) jumped to $21.2 mm from $9.8 mm in the prior quarter and $6.4 mm last year. Crown’s LTM EBITDA improved to $37.4 mm vs. $22.7 mm in the prior quarter, resulting in dramatically improved credit statistics of 2.8x Net Debt Leverage and 2.4x Cash Interest Coverage.

�� Attractive Valuation - Buying the Sr. Notes at 90 creates the Company at 2.1x 04E EBITDA (59% discount to comparables), and on a per unit basis, at $33 per Complexity Barrel (Bbl) and $285 per Capacity Bbl, both a 90% discount to historical transaction values of $250-$400 and $1,000-$6,000, respectively.

GOOD TIMES Times are good in the US refining industry - higher nationwide crack spreads are being driven by stronger fundamentals as a result of reduced capacity in response to costs associated with new stringent sulfur content reductions under the Clean Air Act. The NYMEX 3-2-1 Gulf Coast Crack Spread (Crack Spread) averaged $6.25/Bbl in 3Q04, 17% above last year’s $5.32/Bbl. Additionally, the $7.23/Bbl YTD (through 9/30/04) average is 49% and 62% above the same period for 2003 ($4.86/Bbl) and the 4-Yr. Average ($4.45/Bbl), respectively. The industry’s health is evidenced by talk of a new refinery - that’s right, there are plans to build a 145,000 BPD refinery in Yuma County, Arizona – the first new refinery since 1976. If all permits are approved for the proposed refinery, construction of the $2.5 B facility (includes $0.5 B for a crude oil pipeline from Mexico) is expected to begin in 2005 with commercial operation in 2009. The $2.0 B price tag for the new refinery is over $13,700 per capacity barrel and approximately $1,000 per complexity barrel. In comparison, buying Crown’s Sr. Notes at the current level creates the Company’s two refineries at 2%-3% of this replacement cost.


JEFFERIES HIGH YIELD RESEARCH Energy – Ref in ing & Market ing A Seller’s Market Crown confirmed its most recent 10Q that it is in negotiations to sell the Pasadena refinery. Subsequent to the recent 10Q filing, we also understand from industry sources that the Company has also entered negotiations to sell the Tyler refinery. Crown couldn’t ask for better timing - improved balance sheets, strong crack spreads, a relatively low cost of capital, and open access to the capital markets are attracting buyers of refining assets. Based on our DCF analysis (PV20, 10-Yr.), we value the Company’s two refineries in our Expected Case at $91 mm ($48 mm for Pasadena and $43 mm for Tyler), which utilizes a $4.70/Bbl Crack Spread. We also point out that as our High Case indicates, the Company’s refineries could be worth as much as $119 mm. The “Seller’s Market” is evidenced by Shell’s recent announcement that 70 parties inquired or actively solicited bids for the Bakersfield Refinery (California) – a refinery that Shell originally planned to be shut down in October 2004 because it was uneconomic when the announcement was made in November 2003. . The Possible Buyer… Rumors are that Lyondell Chemical Company (NYSE: LYO) may be the buyer of the Tyler refinery and possibly also the Pasadena refinery, which, if acquired, is thought to be best utilized as a converted Petrochemical Feedstock Refinery. LYO is a leading chemical producer, headquartered in Houston. Such an acquisition(s) seems logical noting Lyondell’s 58.75% interest in LYONDELL-CITGO Refining LP, which owns a 268,000 BPD refinery in Houston, in addition to its 70.5% interest in Equistar Chemicals, LP, one of the largest producers of ethylene, propylene and polyethylene in North America. Lyondell’s $4.3 B MarketCap and B1/B+ Unsecured credit rating would allow LYO to efficiently access today’s capital markets to finance the $200-$300 mm transaction (including inventory). We also expect that a company such as LYO would be able to enhance throughput at the Pasadena refinery due to elimination of working capital constraints and a relatively low cost of capital (Sr. Notes generally trade at 400 bps over treasuries), thereby further improving that refinery’s economics. Asset Sales In January 2003, Park Avenue Equity Management, LLC (Park Avenue) was hired to assist in the marketing for sale the Company and all of its assets. The Company recently sold a substantial portion of its retail (gas stations and convenience stores) and wholesale (product terminals) assets for approximately $141 mm in a divestment program that began in early 2003. Additional asset sales closed in July 2004 and are expected to close late 3Q04, raising an additional $8.5 mm that will bring total net proceeds from asset sales to $150 mm and $156 mm including the $6 mm note receivable provided as consideration for a transaction. CAPITAL STRUCTURE At 6/30/04, Crown’s total debt was $125 mm, which consisted solely of the 10.875% Sr. Notes ‘05 as detailed below. Applying the $105 mm cash ($70.7 Unrestricted and $34.4 mm restricted) and $66 mm working capital balances, results in net debt of $20 mm and $59 mm, respectively. The Company’s capital structure is greatly improved from the year-end 2003 balance that included an additional $34 mm of secured debt, which consisted of the Bank Facility ($30.4) and Purchase Money Liens ($3.7 mm), repaid during 1H04 using the net proceeds from asset sales completed. Bank O Tot Sr. Sr

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Sharehol

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CAPITALIZATION TABLEDescription Maturity 6/30/04

Revolver ($50 mm Cash Borrow, $75 mm Facility) 12/1/04 -- ther Secured Debt NA --

al Secured Debt -- Notes 10.875% 2/1/05 $125.0. Sub. Notes --

l Debt $125.0red Stock --

ders' Equity ($32.4)l Capitalization $92.6

ash $105.1orkCap $65.7et Debt (Cash) $19.9et Debt (WorkCap) $59.3


JEFFERIES HIGH YIELD RESEARCH Energy – Ref in ing & Market ing Bank Facility Extended Working Capital secures the Bank Facility and not the hard assets, i.e. the refineries (Pasadena & Tyler). During 2Q04, the Secured Credit Facility (“Credit Facility”), as amended, was further amended to extend its maturity date to 12/1/04 from 6/30/04. The Credit Facility does not have any financial covenant requirements. The amendment reduced the Bank Facility’s total commitments to $75 mm ($25 mm provided by a bank participant and $50 mm from an affiliate of Rosemore) from $103 mm, primarily in response to asset sales. Cash borrowings under the Credit Facility are limited to $50 mm per the Sr. Notes’ Indenture, however, there is no sub-limit for the issuance of LC’s. The commitments are supported by two blocked accounts, which are collectively reported as “Restricted Cash” ($34.4 mm at 6/30/04) on the Company’s Consolidated Balance Sheet. The two blocked accounts include: (i) a $25 mm investment account; and (ii) a blocked cash receipt account ($9.4 mm at 6/30/04). Rosemore Guarantees The Company has utilized additional financial support from Rosemore that is not committed and is subject to Rosemore’s discretion. This support is in the form of performance guarantees related to the Company’s third-party purchases of crude oil, feedstocks and other petroleum products, unsecured cash borrowings and the supply of a portion of the Company’s requirements for crude oil and feedstocks. As of 6/30/04, Rosemore provided $15 mm of guarantees. Rosemore, therefore, effectively guarantees $65 mm on behalf of Crown, which includes the $50 mm provided by Rosemore under the Credit Facility as mentioned above. LIQUIDITY Crown Central’s liquidity was boosted by 1H04 asset sales, which consisted primarily of retail gas/convenience stations and terminals utilized in its wholesale business, in addition to the Crude Oil Processing Agreement. At the end of 6/30/04, the Company had issued $72 mm in LC’s (primarily for crude oil purchases) against its $75 mm borrowing base (cash borrowings limited to $50 mm), and, therefore, $3 mm was available under the Bank Facility at quarter-end. Proforma for the asset sales closed and expected to close during 3Q04, 2Q04P’s total liquidity was $116 mm. By year-end, we estimate total liquidity will exceed $130 mm after including almost $17 mm in estimated 2H04 free cash flow prior to changes in working capital. We note that any changes in working capital would theoretically have no impact on our asset coverage analysis since the working capital changes would be offset by the change in market value of crude oil inventories, the primary source of working capital changes. Ban -B - Ban Unres

Un

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(1) Cas

LIQUIDITY2H04

6/30/04 Adj. 6/30/04P Adj. 12/31/04k Borrow Base (1) $75.0 -- $75.0 -- $75.

ank Debt O/S -- -- -- -- -- Letters of Credit O/S ($72.0) -- ($72.0) -- ($72.0)

k Revolver Available $3.0 -- $3.0 -- $3.tricted Cash $70.7 $8.2 $78.9 $16.7 $95.5

restricted Total $73.7 $8.2 $81.9 $16.7 $98.5 estricted Cash $34.4 -- $34.4 -- $34.4 tal $108.1 $8.2 $116.2 $16.7 $132.9

h borrowings limited to $50 mm.

0

0



ENTERPRISE VALUE We valued the two refineries based on DCF analyses (10-year, PV20) in which we determined that the refineries’ market value is at least $91 mm (nearly $48 mm for Pasadena and almost $43 mm for Tyler) - detailed assumptions for each of the refineries are noted in Appendix A. We ascertained that applying the industry’s minimum valuation metrics of $250 per Complexity Barrel and $1,000 per Capacity Barrel produce unrealistic asset values of $327 mm and $152 mm, respectively. The Pasadena and Tyler values are at a significant discount to the industry metrics due to material Regulatory Upgrade CapEx required to meet low sulfur content requirements at both refineries and, in our opinion, the refineries’ poor condition due to Crown’s capital constraints. There is, however, an opportunity to create the refineries through the Sr. Notes at a steep discount to our market valuation. In fact, we calculate that buying the Sr. Notes at the current level creates the refineries at $43 mm or a 53% discount to our $91 mm market value. On an EBITDA basis, the Sr. Notes create the Company at 2.1x and 2.2x 2004E EBITDA based on market and Par, respectively. In either pricing scenario, the Sr. Notes appears attractively priced based on public comparables that trade at 5.2x 2004E EBITDA. Returning to the industry metrics, buying the Sr. Notes at 90 creates the refineries at $33 per Complexity Barrel $285 per Capacity Barrel, which compares favorably to historical transaction values of $200-$450 $1,000-$6,000, respectively.

DEBT MARKET VALUATIONLow Base High Expected Comps Discount

Probability 10% 80% 10% 100% Sr. Obligations @ Par $119.1 $93.4 $66.9 $93.3 Sr. Notes Face Value $125.0 $125.0 $125.0 $125.0 Price 90% 90% 90% 90% Sr. Notes Mkt. Value $112.5 $112.5 $112.5 $112.5 Debt Market Value $231.6 $205.9 $179.4 $205.8 Less: Inventory & Other Assets Value $77.0 $80.2 $83.3 $80.2 Less: Total WorkCap Surplus / (Deficit) $65.7 $65.7 $65.7 $65.7 Less: 2H04E Free Cash Flow $16.7 $16.7 $16.7 $16.7 Theoretical Refinery Value thru Debt $72.3 $43.4 $13.8 $43.3 per Complexity Bbl $55 $33 $11 $33 $325 -90%per Daily Capacity Bbl $475 $285 $91 $285 $3,500 -92%

ENTERPRISE VALUE (EV)Debt Market Value $231.6 $205.9 $179.4 $205.8 Less: Total WorkCap Surplus / (Deficit) $65.7 $65.7 $65.7 $65.7 Less: 2H04E Free Cash Flow $16.7 $16.7 $16.7 $16.7 EV $149.3 $123.5 $97.1 $123.5 EBITDA2Q04A $21.2 $21.2 $21.2 $21.2 LQA $84.7 $84.7 $84.7 $84.7 LTM $37.4 $37.4 $37.4 $37.4 04E $58.3 $58.3 $58.3 $58.3 05E $61.0 $61.0 $61.0 $61.0

MULTIPLESEV/LQA EBITDA 1.8x 1.5x 1.1x 1.5x 3.2x -54%EV/LTM EBITDA 4.0x 3.3x 2.6x 3.3x 5.6x -41%EV/04E EBITDA 2.6x 2.1x 1.7x 2.1x 5.2x -59%EV/05E EBITDA 2.4x 2.0x 1.6x 2.0x 6.4x -68%Average Multiple 2.2x 5.1x -56%

*Balance Sheet items are as of 6/30/04



ASSET COVERAGE Based on the Expected Case (assigns a 10%, 80%, and 10% probability to the Low, Base, and High Cases, respectively), we estimate Crown’s Total Asset Value is $249 mm, which provides 1.28x asset coverage to the Sr. Notes and 1.47x including value for the Company’s NOLs. Importantly, this implies that the Rosenberg’s equity is worth $35 mm-$59 mm. The Low Case, which we don’t believe is relevant in today’s refining environment, is a scenario that could be avoided by operating the assets long-term and according to our estimates, achieve the Base Case results. Additionally, even though not shown below, utilizing the $60 mm estimated Net PP&E book value for the two refineries reveals 1.28x – 1.53x asset coverage and a par recovery on the Sr. Notes. Pr

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RECOVERY ANALYSISLow Base High Expected

obability 10% 80% 10% 100%otal Asset Value $221.9 $253.2 $284.5 $253.2 otal Senior Liabilities $119.1 $93.4 $66.9 $93.3

t Value Available to Sr. Unsec. Noteholders $102.8 $159.8 $217.5 $159.9 r. Notes 10.875% 2/1/05 $125.0 $125.0 $125.0 $125.0 quity Value ($22.2) $34.8 $92.5 $34.9

set Coverage 0.82x 1.28x 1.74x 1.28uture Recovery 82% 100% 100% 100%V20 thru 2/1/05 (Maturity) 80% 97% 97% 97% V20 thru 12/31/05 76% 90% 90% 90%

x

NOLs At year-end 2003, Crown’s NOLs were $210 mm, which expire in the years 2009 through 2023. During 1H04, the Company utilized approximately $83 mm of these NOLs to offset income from operations and the gains on asset disposals of discontinued operations. The NOL was valued at 25% of the resulting $127 mm NOL balance at 6/30/04, adjusted for the theoretical gain/(loss) from the sale of the refineries, utilizing a $60 mm book value. T N T T N Sr Eq A F PV20 t PV20 t

RECOVERY ANALYSIS INCLUDING NOLsotal Asset Value $221.9 $253.2 $284.5 $253.2 OLs (@ 25% of $127 mm Est. NOL Less Gain on Refineries) $31.0 $24.0 $17.0 $24.0 otal Asset Value Incl. NOLs $253.0 $277.2 $301.4 $277.2 otal Senior Liabilities $119.1 $93.4 $66.9 $93.3et Value Available to Sr. Unsec. Noteholders $133.8 $183.8 $234.5 $183.9 . Notes 10.875% 2/1/05 $125.0 $125.0 $125.0 $125.0 uity Value $8.8 $58.8 $109.5 $58.9

sset Coverage 1.07x 1.47x 1.88x 1.47xuture Recovery 100% 100% 100% 100%

hru 2/1/05 (Maturity) 97% 97% 97% 97% hru 12/31/05 90% 90% 90% 90%



ASSETS As of 6/30/04, the Company’s assets consisted of two refineries (Pasadena and Tyler), Crude Oil & Product Inventories, 10 operating retail properties (sales of these facilities to be completed early in 3Q04), and several non-operating retail properties, for which negotiations are ongoing. We believe the market doesn’t fully value Crown’s Crude Oil Inventory due to its book value being stated on a LIFO basis. In the table below, we value inventory at nearly $70 mm using $40 NYMEX oil price, which seems conservative as oil tops $51/Bbl and inflates the inventory value by $13 mm to over $83 mm, representing over 10 points in terms of the Sr. Notes. TOTAL ASSET VALUE

Low Base High ExpectedProbability 10% 80% 10% 100%RefineriesPasadena $31.1 $47.9 $64.8 $47.9Tyler $31.5 $42.7 $54.0 $42.7Total Refinery Value $62.6 $90.7 $118.8 $90.7 Crude Oil & Product InventoryNYMEX Crude Oil Price ($/Bbl) $38.00 $40.00 $42.00 $40.00 Est. Crude Oil & Product Inventory (MM Bbls) 1.6 1.6 1.6 1.6Crude Oil & Product Inventory $59.6 $62.7 $65.9 $62.7Other Inventory (Book Value) $3.3 $3.3 $3.3 $3.3 Total Inventory $62.9 $66.0 $69.1 $66.0Other AssetsEst. Remaining Retail, Net Proceeds $6.7 $6.7 $6.7 $6.7 Est. Terminals, Net Proceeds $1.5 $1.5 $1.5 $1.5 Note Receivable from Retail Asset Sale $6.0 $6.0 $6.0 $6.0 Total Other Assets $14.2 $14.2 $14.2 $14.2Asset Value $139.6 $170.8 $202.1 $170.8

Working CapitalWorking Capital of Discontinued Operations (1,2,3) $24.7 $24.7 $24.7 $24.7

Working Capital - Continuing OperationsTotal Cash $105.1 $105.1 $105.1 $105.1+Accounts Receivable $106.4 $106.4 $106.4 $106.4-Accounts Payable $125.3 $125.3 $125.3 $125.3-Accrued Liabilities $45.2 $45.2 $45.2 $45.2Working Capital - Continuing Operations $41.0 $41.0 $41.0 $41.0 Total Working Capital $65.7 $65.7 $65.7 $65.7 2H04E Free Cash Flow $16.7 $16.7 $16.7 $16.7 Total WorkCap @ 12/31/04E $82.3 $82.3 $82.3 $82.3 Total Asset Value $221.9 $253.2 $284.5 $253.2


JEFFERIES HIGH YIELD RESEARCH Energy – Ref in ing & Market ing Refineries Our refinery asset values are based on DCF analyses (PV20, 10-Yr.) for which detailed assumptions are outlined in Appendix A. The valuations exclude residual values and include nearly $49 mm in estimated regulatory CapEx ($35 mm at Pasadena and almost $14 mm at Tyler), which is required to upgrade processing facilities in order to comply with the latest low sulfur gasoline/diesel requirements and an amount we straight-line over a two-year period in our valuation models. The timing of these CapEx regulatory items is driven by each deadline as more fully explained in the “CapEx” section. Each Case utilizes a $4.70/Bbl Crack Spread, which is 35% below the $7.23/Bbl YTD average. Additionally, each Case differs primarily in terms of the Utilization Rate – Pasadena’s throughput ranges from 78,000 BPD (78%) to 82,000 BPD (82%) and Tyler from 46,000 BPD (88%) to 48,000 BPD (92%). In comparison, during 2003, Pasadena and Tyler operated at 76,075 BPD (76%) and 52,534 BPD (100%+), respectively. Our Tyler utilization assumption, therefore, is conservative noting last year’s full utilization in addition to 1H04’s 49,200 BPD throughput average (95%). Although not immediately apparent, we were also low in terms of Pasadena’s utilization noting that capital constraints negatively impacted Pasadena’s operating performance due to its limited crude oil purchases. In fact, we expect a well capitalized company as acquirer would increase throughput above the 82,000 BPD used in our High Case and most likely exceed 90,000 BPD with certain capital improvements. REFINERIES

Low Base High ExpectedProbability 10% 80% 10% 100% Pasadena RefineryAssumed Throughput 75,500 77,000 78,500 77,000 Capacity BPD 100,000 100,000 100,000 100,000 Nelson Complexity 8.4 8.4 8.4 8.4 Complexity Bbls. 0.840 0.840 0.840 0.840 Value per Complexity Bbl $37 $57 $77 $57 Pasadena DCF Value $31.1 $47.9 $64.8 $47.9 Tyler RefineryAssumed Throughput 44,000 45,000 46,000 45,000 Capacity BPD 52,000 52,000 52,000 52,000 Nelson Complexity 9.0 9.0 9.0 9.0 Complexity MM Bbls. 0.468 0.468 0.468 0.468 Value per Complexity Bbl $67 $91 $115 $91Tyler DCF Value $31.5 $42.7 $54.0 $42.7 Total Refinery Value $62.6 $90.7 $118.8 $90.7 Capacity BPD 152,000 152,000 152,000 152,000 Nelson Complexity 8.6 8.6 8.6 8.6 Total Complexity MM BPD 1.308 1.308 1.308 1.308 Value per Complexity Bbl $48 $69 $91 $69 Value per Capacity Bbl $412 $597 $782 $597

Inventory The Company’s crude oil and product inventory is a key component to recognizing Crown Central’s value and was $58.1 mm on a FIFO basis at 6/30/04. In attempting to value the Company’s inventory, we estimated crude oil and product in inventory totaled 3.6 mm Bbls at year-end 2003 and then applied our 1H04 estimate of sales volumes and production at the Company’s two refineries. In doing so, we expect that the Company ended 2Q04 with approximately 2.9 Bbls in inventory as indicated in the below table. We then accounted for the Crude Processing Agreement executed in June 2004 and deducted an estimated 1.3 mm Bbls sold under this agreement to arrive at the 1.6 mm Bbls in inventory. The market value for inventory used in our asset valuation is based on NYMEX oil prices ranging from $38-$42/Bbl, well below the $44/Bbl 2-year swap and the $51+/Bbl current spot price. Est Es

Es

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Est

CRUDE OIL & PRODUCT INVENTORIES (MM Bbls)3/31/04 6/30/04

. Begin Balance 3.6 3.6t. (Sales) -9.3 -10.6t. Purchases 9.3 9.9. End Balance 3.6 2.9

rude Processing (Sale) 0.0 -1.3. End Balance 3.6 1.6


JEFFERIES HIGH YIELD RESEARCH Energy – Ref in ing & Market ing Working Capital The working capital figure excludes the following items at 6/30/04 and instead, accounts for these items separately in our valuation analysis:

�� $6.0 mm Note Receivable �� Retail Assets Held for Sale in the amount of $3.7 mm (net of $5.0 mm D&A) �� Environmental Liabilities of Discontinued Operations in the amount of $8.5 mm �� Crude Oil Processing Liability due 9/30/04, with book value of $55.0 mm (see “Liabilities” section)

Cu Ca R T A

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WORKING CAPITAL AT 6/30/04Existing Discont'd

Operations Operations Totalrrent Assetssh & Equiv. $70.7 -- $70.7

estricted Cash $34.4 -- $34.4otal Cash $105.1 -- $105.1

ccounts Receivable $106.4 -- $106.4rrent Assets of Discontinued Operations (1,2) -- $32.1 $32.1

otal Current Assets $211.5 $32.1 $243.7

rrent Liabilitiesccts. Payable - Crude Oil & Refined Products $159.6 -- $159.6ess: Crude Processing Obligation (Book) ($55.0) -- ($55.0)et Accts. Payable - Crude Oil & Refined Products $104.6 -- $104.6ccts. Payable - Other $20.7 -- $20.7ccrued liabilities $45.2 -- $45.2

rrent Liabilities of discontinued operation (3) -- $7.5 $7.5

otal Current Liabilities $170.5 $7.5 $178.0rking Capital $41.0 $24.7 $65.7

Other Assets The Company sold an additional 6 gasconvenience stations that closed in July 2004 and resulted in $1.5 mm in net proceeds. Crown also expects to sell the Company’s remaining stations and two closed terminals (one in Newington, VA and the other in Birmingham, AL) for $7.0 mm – we assume this value represents gross proceeds and, therefore, have applied a 5% deduction for fees and other items to arrive at the $6.7 mm in net proceeds to account for this series of asset sales. We have accounted for the collective $8.2 mm in net proceeds from the remaining stations and terminals in our asset valuation under “Other Assets.” LIABILITIES

LIABILITIESLow Base High Expected

Probability 10% 80% 10% 100%Pension ObligationsUnderfunded Pension Obligation @ 6/30/04 $50.4 $50.4 $50.4 $50.4 Add'l Est. Funding Required $33.2 $15.5 -- $15.7 Expected Return 7.0% 8.0% 9.0% 8.0%Est. Pension Funding Required by PBGC $83.6 $65.9 $50.4 $66.1

Other Sr. LiabilitiesSeverance Obligations $7.0 $5.0 $3.0 $5.Environmental Liabilities - Discontinued Operations (Book) $8.5 $8.5 $8.5 $8.5 Environmental Liabilities - Continued Operations (Est.) $20.0 $14.0 $5.0 $13.7 Other Sr. Liabilities $35.5 $27.5 $16.5 $27.2 Total Senior Liabilities $119.1 $93.4 $66.9 $93.3

0


JEFFERIES HIGH YIELD RESEARCH Energy – Ref in ing & Market ing Pension Liabilities The primary reason that the Sr. Notes are not trading at par is due to the uncertainty surrounding the Company’s underfunded pension. In order to remain conservative, however, we assumed the Company contributes $66 mm to the Pension, which is based on an 8% expected return in place of the 9% expected return assumed by the Company. In August 2003, the Pension Benefit Guaranty Corporation (PBGC), a federal corporation which operates the federal insurance program for defined benefit plans, launched an inquiry into the Company’s Pension Plan in response to the Company’s announced intention to sell all or substantially all of its assets. In January 2004, the PBGC calculated the Company’s underfunded portion of the Retirement Plan was $121 mm on a terminated basis and on an ongoing basis, the Company’s external actuaries estimated the unfunded status of the Retirement Plan was $51.3 mm at YE 2003. The agency stated that the PBGC is a contingent unsecured creditor of the Company that should have priority over any repayment to Crown’s unsecured lenders, including the holders of the Sr. Notes. The Company states that it is unable to determine whether PBGC will seek to exercise its statutory authority to terminate the Retirement Plan or whether additional provisions for funding the Retirement Plan will be needed to avoid an involuntary termination of the Retirement Plan. The Company also stated that it has no present intention of pursuing a voluntary termination since.

�� Contributions: During 1H04, the Company made contributions to its defined benefit pension plan of $2.7 mm ($0.3 mm and $2.4 mm in 1Q04 and 2Q04, respectively), which we accounted for in the below calculation of the Pension Obligation. Total contributions to the Company’s pension plan in 2004 are expected to approximate $8.7 mm or an estimated $6.0 mm in 2H04.

PENSION PLAN OBLIGATIONUnderfunded portion @ 12/31/03 $51.31H04 Amt. Funded ($2.7)Underfunded portion @ 6/30/04 Prior to Items $48.6

1H04 Items:Benefits Earned $0.7Interest cost on projected benefit obligations $5.4Expected return on plan assets ($5.3)Est. Add'l Expected (Gain)/Loss on plan assets $1.0Additional (Assets)/Obligations $1.8

Underfunded portion @ 6/30/04E $50.4Est. Funding Gap - EXPECTED CASE $15.5Total Requirement $65.9

�� The Problem…The underfunded Pension calculation is based on a 9.0% weighted average expected long-term rate of return on assets, which we believe is aggressive. We, therefore, assume an 8% expected return in our Expected Case. As a result, there is a $16 mm incremental liability on top of the estimated $51 mm in underfunded pension obligations estimated at 6/30/04. We assume, therefore, that the Company contributes $66 mm to fulfill its obligation and satisfy the PBGC.

�� Pension Asset Allocation: At year-end 2003, the Company’s Pension assets were 58% in Large Cap. Equity, 36% in Bonds,

5% in International Equity, and 1% in cash. Pasadena Crude Oil Processing Agreement In June 2004, Crown Central entered into a 3-month 100% crude oil processing agreement at its Pasadena refinery and in doing so, sold its entire inventory in the facility. This sale created a significant decline in the Company’s LIFO inventory level at the close of 2Q04. Additionally, the $55.0 mm estimated cost to replace the inventory was recorded in “Accounts Payable - Crude Oil and Refined Products” on the Company’s 6/30/04 balance sheet. We estimate the Company sold approximately 1.3 mm Bbls based on the $55 mm sale and the $42.33/Bbl NYMEX Crude Oil price on 6/1/04. The Company’s 10Q explains that the processing agreement obligates the Company to repurchase the inventory in the facility on 9/30/04, the expiration date. We do not, however, view this item as an obligation for two reasons: (i) any crude oil purchase to fulfill this obligation would result in a cash deduction offset by an increase in crude oil inventory as a result of the purchase; and (ii) in the 3Q04, we expect Pasadena’s throughput totaled 5.2 mm Bbls (58,000 BPD). This represents over $200 mm in crude oil purchases and well above the estimated 1.3 MM Bbls the Company committed to repurchase, thereby, in our view, fulfilling any obligation that existed under the agreement.


JEFFERIES HIGH YIELD RESEARCH Energy – Ref in ing & Market ing Severance Plan The Company’s employees and officers participate in several severance and retention incentive plans in connection with Crown’s asset divestment plan. Amounts earned under these plans for 1H04 totaled $1.8 mm ($1.0 mm in 1Q04 and $0.8 mm in 2Q04). The Company estimates that future amounts to be paid under all of the severance and incentive plans could be approximately $7.0 mm. Turning to our asset coverage calculation, we assume that this Severance Plan obligation is $3 mm to $7 mm and utilize $5 mm in our Expected Case as a guesstimate since there is no further information relating to the bonuses that would trigger under the various asset sales values assumed. Environmental Liabilities We estimate the Company’s environmental liabilities total $22 mm. This estimated liability consists of $8.5 in booked environmental liabilities for the retail stations sold plus an estimated $14 mm in refinery related liabilities. In addition, our DCF analyses used to determine asset values for the refineries include $2 mm in annual environmental costs on an ongoing basis ($1 mm for Pasadena and $1 mm for Tyler). Remaining Leases The Company remains secondarily liable for the leases that were assumed by the buyers in connection with the sale of the gasconvenience stations. The future minimum lease payments under these leases are estimated to be approximately $30 mm with minimum lease payments in the next year estimated to be $7 mm. The average remaining lease term for the gasconvenience stations is approximately 9-years and is excluded from our recovery analysis as we believe it is highly unlikely that the Company will have to perform under this secondary guarantee. Even in the case where there did exist a lease for which the Company was liable, Crown would most likely be positioned to assume the lease, operate the station(s), and, thereby eliminate the associated lease liability from operations of that station or collection of stations. As such, we have not accounted for any related lease obligation in our Asset Coverage Calculation. FINANCIAL RESULTS Second Quarter 2004 and Outlook Like all Refining & Marketing Companies, Crown reported excellent 2Q04 results in response to record Crack Spreads for the period - EBITDA (LIFO) jumped to $21.2 mm from $9.8 mm in the prior quarter and $6.4 mm last year. Crown’s LTM improved in-line with the excellent 2Q04 results to $37.4 mm vs. $22.7 mm in the prior quarter. Additionally, today’s crack spread remains strong and, as such, we estimate the Company’s 3Q04 and 4Q04 EBITDA will be $11.4 mm and $15.9 mm, respectively, or $27.3 mm for 2H04 - over a four-fold increase over last year. Our 2005 EBITDA estimate is $61 mm a slight increase (+7%) from 2004. Of note, our 2005 cash flow estimates assume the Company issues $85 of 14.0% Sr. Secured Notes in order to, in part, refinance the Sr. Notes - the New Note financing amount declines to $60 mm in the event the Company’s Pension contribution declines to $50 mm from the $66 mm used in our model. FINANCIAL SNAPSHOT

1Q04A 2Q04A 3Q04E 4Q04E 2004E 1Q05E 2Q05E 3Q05E 4Q05E 2005ECrude Oil ThroughputPasadena 52,800 67,800 58,000 65,000 60,903 58,000 65,000 55,000 65,000 60,753Tyler 49,900 48,500 47,000 49,000 48,597 49,000 49,000 47,000 49,000 48,496Total 102,700 116,300 105,000 114,000 109,500 107,000 114,000 102,000 114,000 109,249Utilization 68% 77% 69% 75% 72% 70% 75% 67% 75% 72%

NYMEX 3-2-1 Crack Spread ($/Bbl) $6.34 $9.04 $6.25 $6.34 $6.99 $5.99 $7.66 $6.87 $5.85 $6.59

CASH FLOW ANALYSISAdj. EBITDA $9.8 $21.2 $11.4 $15.9 $58.3 $9.4 $25.0 $15.8 $10.7 $61.0LTM EBITDA $22.7 $37.4 $27.3 $58.3 $58.3 $57.8 $61.7 $66.1 $61.0 $61.0

-Cash Interest Exp. $4.1 $3.9 $3.4 $3.4 $14.8 $4.2 $3.0 $3.0 $3.0 $13.1Funds from Operations (FFO) $5.7 $17.2 $8.0 $12.5 $43.4 $5.2 $22.1 $12.8 $7.7 $47.9-CapEx & Deferred Turnaround Costs $3.5 $0.4 $1.9 $1.9 $7.8 $1.3 $5.2 $4.3 $4.3 $15.1Free Cash Flow (FCF) $2.2 $16.8 $6.1 $10.6 $35.7 $4.0 $16.8 $8.5 $3.4 $32.8

BALANCE SHEET:Total Debt $153.4 $125.0 $125.0 $125.0 $125.0 $85.0 $85.0 $85.0 $85.0 $85.0Net Debt (WorkCap) $190.8 $103.2 $140.7 $196.2 $196.2 $194.8 $178.0 $169.4 $166.0 $166.0Preferred Stock (Liq.) -- -- -- -- -- -- -- -- -- -- Cash (Incl. Restricted) $6.4 $105.1 $100.3 $50.6 $50.6 $5.3 $20.6 $26.9 $36.6 $36.6Working Capital Excl. Inventory ($37.4) $21.8 ($15.7) ($71.2) ($71.2) ($109.8) ($93.0) ($84.4) ($81.0) ($81.0)


JEFFERIES HIGH YIELD RESEARCH Energy – Ref in ing & Market ing Discontinued Operations Crown began reporting its refining operations on a stand-alone basis by breaking out discontinued operations (retail and wholesale) beginning with the Company’s 2003 10K. Although the Company’s most recent 10K does provide continuing operations’ main line items, non-cash items are not detailed and as such, the reported 3Q03 and 4Q03 EBITDA are not applicable. We do, however, know 1H03 and 2003 EBITDA from continuing operations were negative $3.6 mm and $2.8 mm, respectively, implying $6.4 mm in 2H03 EBITDA - LTM EBITDA, therefore, is $37.4 mm together with the $31.0 mm in 1H04 EBITDA. While we guesstimate that 3Q04 LTM EBITDA will increase to approximately $40-$45 mm, it is important to note that this figure may decline according to the 4Q03 results, which as stated, we are not able to determine at this time. Throughput Operationally, the Pasadena refinery’s 2Q04 throughput was 67,800 BPD (68% utilization), which was 18% below last year’s 83,051 BPD (83% utilization) throughput rate – the quarter was negatively impacted as a result of less than optimal crude oil processing levels due to the Company’s working capital constraints. In 2Q04, the Tyler refinery operated at 48,500 BPD (93% utilization), down 8% from last year’s 52,778 BPD (101% utilization) throughput rate. Free Cash Flow In 2Q04, the Company’s FCF (excluding working capital changes) was $16.8 mm and, therefore, $19.0 mm for 1H04 after including $2.2 mm in 1Q04 FCF. We estimate 2H04 FCF will total $16.7 mm based our $27.3 mm 2H04E EBITDA after deducting an estimated $6.8 mm in cash interest expense and $3.8 mm in CapEx (including deferred turnaround costs) for the period. Our CapEx is higher than the Company’s implied $1.4 mm in 2H04 CapEx, which is based on the Company’s $5.4 mm t2004 CapEx and deferred turnaround budget net of the $4.0 mm in 1H04 CapEx ($1.5 mm for refining and $2.5 mm in deferred turnaround costs). Credit Statistics 2Q04 LTM EBITDA covered Cash Interest Expense 2.4x (5.4x LQA), while Total Debt Leverage was 3.3x (1.5x LQA). As a result of the Company’s $105 mm total cash balance ($34 mm Restricted) at quarter end, net debt leverage was 0.5x LTM (0.2x LQA). We prefer to calculate net debt utilizing working capital in place of cash and based on this measure, calculate Net Debt Leverage was 2.8x LTM (1.2x LQA). Please note that we define Working Capital as [Cash + Accounts Receivable - Accounts Payable] and account for Inventory separately. The Company’s credit statistics are greatly improved compared to 2003’s 0.2x Cash Interest Coverage and 56x Total Debt Leverage due to improved financial results combined with asset sales that allowed the Company to repay its secured debt. We estimate 2004’s credit statistics will improve further to 3.9x Cash Interest Coverage, 2.1x Total Debt leverage, and 3.4x Net Debt Leverage (utilizing Working Capital) primarily as a result of the Company’s improved liquidity and continued Gulf Coast Crack Spread strength. The Company’s improved credit statistics also make it obvious that the Sr. Notes are an excellent relative value at a 46%+ YTW based on comparable unsecured issues (Frontier Oil, Giant, Premcor, and Tesoro) that trade at +200 to +550 STW and have similar LTM credit statistics of 2.7x-5.5x Interest Coverage and 1.8x-2.7x Total Debt Leverage. CREDI A To Ne F To T *

CREDIT STATISTICS1Q04A 2Q04A 3Q04E 4Q04E 2004E 1Q05E 2Q05E 3Q05E 4Q05E 2005E

T STATISTICSdj. EBITDA(X)/Cash Interest Exp. Qtr. 2.4x 5.4x 3.3x 4.7x 3.9x 2.2x 8.4x 5.3x 3.6x 4.7x

LTM 1.4x 2.4x 2.0x 4.3x 3.9x 3.5x 5.2x 5.6x 5.1x 4.7xtal Debt/Adj. EBITDA(X) Qtr. 3.9x 1.5x 2.7x 2.0x 2.1x 2.3x 0.8x 1.3x 2.0x 1.4x

LTM 6.8x 3.3x 4.6x 2.1x 2.1x 1.5x 1.4x 1.3x 1.4x 1.4xt Debt*/Adj. EBITDA(X) Qtr. 4.9x 1.2x 3.1x 3.1x 3.4x 5.2x 1.8x 2.7x 3.9x 2.7x

LTM 8.4x 2.8x 5.2x 3.4x 3.4x 3.4x 2.9x 2.6x 2.7x 2.7xFO/Total Debt Qtr. 10% 27% 26% 40% 26% 25% 104% 60% 36% 56%

LTM 10% 25% 17% 26% 26% 40% 56% 62% 56% 56%tal Debt/BookCap NM NM NM NM NM NM 100% 90% 86% 86%

otal Debt/MarketCap NA NA NA NA NA NA NA NA NA

Net Debt is based on Total Debt less Working Capital

NA



CRACK SPREADS The spot NYMEX 3-2-1 Gulf Coast Crack Spread (Crack Spread) closed the quarter at $6.10/Bbl on 9/30/04, averaging $6.25 in 3Q04 [Bloomberg Symbol: “CRKS321C CMDTY”] or 17% above the prior year’s $5.32/Bbl and 53% ahead of the $4.08/Bbl 4-year average. The 3-2-1 Crack Spread represents the margin a light-sweet-crude oil refinery would earn assuming it purchased 3 barrels of WTI crude oil, and produced and sold the benchmark production of 2 barrels of conventional gasoline and 1 barrel of heating oil. For modeling purposes, we use a $6.34/Bbl 4Q04E Crack Spread [90% of the $7.05/Bbl forward curve. For 2005E, our average Crack Spread estimate is $6.59/Bbl, which is based on 83% of next year’s average $7.94/Bbl forward curve. The below chart highlights the dramatic Crack Spread improvement during 2004, which we expect to average almost $7.00/Bbl in 2004 and project 2005 to be 6% lower in 2005 at almost $6.60/Bbl, but still well above the $4.15/Bbl 4-year average. NYMEX Crack Spread (Gulf Coast 1-2-3)

$4.04

$5.85

$4.52$4.63

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

1Q 2Q 3Q 4Q

$/Bb

l

2004

2003

2001

2002

Forward Curve

'00-'03 Avg.

Model Estimate

2000

Model Estimate

Crack Spread Projections To calculate the Company’s realized Crack Spread we apply a $1.35 transportation cost to the NYMEX price and, as discussed above, have discounted the forward NYMEX curve by 17% to account for low margins on the Company’s non-transportation fuels, unfavorable crude oil purchases, and the impact of processing arrangements with third parties. The lower curve in the below chart highlights our quarterly estimates for the next 12-months.

12-Month Forward NYMEX 3-2-1 Crack Spread

$7.05 4Q04

$7.221Q05

$9.23 2Q05

$8.283Q05

$7.94 Avg.

$5.99 1Q05E

$7.662Q05E

$6.873Q05E

$6.344Q04E

$5

$6

$7

$8

$9

$10

$11

Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05

$/Bb

l

12 Mth Fwd Curve

Qtr Fwd Curve

Avg 12 Mth Fwd Curve

Estimates



CAPEX In 2003, the Company’s CapEx totaled $8.3 mm, which included $2.6 mm in deferred turnaround costs primarily related to the Tyler refinery. The Company estimates its total 2004 CapEx and deferred turnaround (Total CapEx) will total $5.4 mm for planned improvements to the Company’s refineries and environmental requirements - 1H04 CapEx totaled $4.0 mm ($1.5 mm for refining and $2.5 mm in deferred turnaround costs), implying 2H04’s CapEx and deferred turnarounds costs will total $1.4 mm and well below our $3.8 mm Total CapEx estimate for the same period.

CAPEX SUMMARY3Q04E 4Q04E 2H04E 1Q05E 2Q05E 3Q05E 4Q05E 2005E

Refining Maintenance CapExPasadena $0.8 $0.8 $1.5 $0.8 $0.8 $0.8 $0.8 $3.0Tyler $0.5 $0.5 $1.0 $0.5 $0.5 $0.5 $0.5 $2.0Total Maintenance $1.3 $1.3 $2.5 $1.3 $1.3 $1.3 $1.3 $5.0

Refining Regulatory UpgradesPasadena -- -- -- -- -- -- -- -- Tyler -- -- -- -- $2.2 $2.2 $2.2 $6.5Total Upgrades -- -- -- -- $2.2 $2.2 $2.2 $6.5Deferred Turnaround Costs $0.4 $0.4 $0.8 -- $0.8 $0.4 $0.4 $1.6Reg. & Turnaround CapEx $0.4 $0.4 $0.8 -- $3.0 $2.6 $2.6 $8.1

OtherEnvironmental $0.3 $0.3 $0.5 -- $1.0 $0.5 $0.5 $2.0Other -- -- -- -- -- -- -- -- Total Other $0.3 $0.3 $0.5 -- $1.0 $0.5 $0.5 $2.0TOTAL CAPEX $1.9 $1.9 $3.8 $1.3 $5.2 $4.3 $4.3 $15.1Excl. Regulatory Items $1.9 $1.9 $3.8 $1.3 $3.1 $2.2 $2.2 $8.6

Regulatory CapEx Items The EPA, and in some cases the related state environmental agencies, have passed legislation that will require refiners to reduce the sulfur content of motor fuels. For most refiners, the ultra low sulfur gasoline regulations will be phased in by 2006 (over a 2-year period that began in 2004). In November 2003, the EPA granted gasoline sulfur hardship relief to both refineries owned by the Company, allowing the Company to delay ultra low sulfur gasoline regulations. These low sulfur gasoline waivers are valid until December 2007 for the Pasadena refinery and December 2009 for the Tyler refinery. Ultra low sulfur diesel fuel is subject to additional regulation by the EPA. The Company estimates the low sulfur content requirements for both gasoline and diesel will total almost $49 mm through 2009 as detailed in the nearby Regulatory CapEx table.

REGULATORY CAPEXPasadena Tyler Total

Gasoline $35.0 $7.0 $42.0Yr. Req'd 2007 2009

Diesel -- $6.5 $6.5Yr. Req'd NA 2005Total $35.0 $13.5 $48.5

�� Pasadena: At the Pasadena refinery, the Company estimated that it would cost $35 mm to upgrade processing facilities to

comply with the latest low sulfur gasoline requirements by 2009. The Company has no plans to begin refining ultra low diesel fuel at this refinery, however, and anticipates that it can continue to sell distillates (diesel, home heating oil, jet fuel, and kerosene). Our Pasadena asset valuation, therefore, assumes the Company meets the low sulfur gasoline requirements and incurs the $35 mm upgrade over a 2-year period beginning in 2006 in order to meet the year-end 2007 deadline.

�� Tyler: The Company indicates Tyler will cost almost $14 mm to meet the low sulfur requirements for both gasoline and

diesel. The estimated cost to comply with the low sulfur gasoline regulation at the Tyler refinery is approximately $7 mm, and we assume this work begins the start of 2008 and is completed in time to meet the December 2009 deadline. The Company also appears to have plans for the Tyler refinery to meet the requirements for producing ultra low sulfur diesel by 2005 - Crown determined that it can meet this low sulfur diesel requirement utilizing the existing distillate hydrotreating process unit by using proven catalysts and making modifications to the unit at a cost of $6.5 mm, which we assume begins in 2Q05 and completed by the December 2005 deadline.


JEFFERIES HIGH YIELD RESEARCH Energy – Ref in ing & Market ing Historical CapEx The Company’s CapEx has been limited by its capital constraints in recent years due primarily to low Crack Spreads. As the historical table below indicates, Refining CapEx has averaged $3.0 mm annually. Excluding the one-time deferred turnaround costs in 2001, Deferred Turnaround Costs averaged $2.4 mm annually and, therefore, $5.4 mm including Refining CapEx and in-line with the Company’s 2004 budget. Our $7.7 mm 2004E Total CapEx figure for modeling purposes is $2.3 mm higher than the Company’s budget simply to remain conservative in every aspect. CAPEX SUMMARY

2001 2002 2003 Avg.RefiningRefining CapEx $6.2 $10.6 $1.5 $6.1Insurance Reimbursements -- ($9.4) -- ($3.1)Net Refining CapEx $6.2 $1.2 $1.5 $3.0Deferred Turnaround Costs $30.8 $2.1 $2.6 $11.8Total Refining $37.0 $3.3 $4.1 $14.8

OtherRetail $6.8 $9.8 $2.3 $6.3Corp. & Other $0.8 $1.0 $1.9 $1.2Total CapEx $44.6 $14.1 $8.3 $22.3



APPENDIX A: REFINERY VALUATION ASSUMPTIONS REFINERY ASSET VALUE ASSUMPTIONS - BASE CASE

Pasadena Tyler TotalNYMEX Crack Spread $4.70 $4.70 $4.70 Transportation & Differential -$1.35 -$1.35 -$1.35Realized Crack Spread $3.35 $3.35 $3.35 Realized/NYMEX % 71% 71% 71%

Operating ItemsAnnual G&A $4.0 $3.0 $7.0 OpEx per Bbl Capacity $0.11 $0.16 $0.13

Annual OpEx $76.7 $42.7 $119.4 OpEx per Bbl Capacity $2.10 $2.25 $2.15

Annual Mtnc. CapEx $2.0 $1.5 $0.8

Turnaround ItemsTotal Turnaround Costs (over 2-Yrs) $2.0 $2.0 $4.0 Annual Turnaround Costs $0.8 $0.8 $1.6 Turnaround Term (Yrs) 2.5 2.5 2.5

Regulatory ItemsAnnual Environmental Costs $2.0 $1.0 $3.0 Total Reg. Upgrade Costs (over 2-yrs) $35.0 $13.5 $48.5

UtilizationThroughput (BPD) 77,000 45,000 122,000 Capacity (BPD) 100,000 52,000 152,000 Utilization 77% 87% 80%

PV20 (10-Year) $47.9 $42.7 $90.7 Complexity 8.4 9.0 8.$ per Complexity Bbl $57 $91 $69

6



APPENDIX B: REFINERY DCF SENSITIVITY TABLES

PASADENA ENSITIVITY PV20 $MMUtil. Thruput% BPD $3.50 $4.00 $4.50 $4.70 $5.00 $5.50 $6.00 $6.50 $7.00 $7.5074% 74,000 ($284) ($160) ($36) $14 $89 $213 $337 $462 $586 $71076% 75,500 ($273) ($146) ($20) $31 $107 $234 $361 $488 $614 $74177% 77,000 ($262) ($133) ($4) $48 $126 $255 $384 $514 $643 $77279% 78,500 ($252) ($120) $12 $65 $144 $276 $408 $539 $671 $80380% 80,000 ($241) ($106) $28 $82 $162 $297 $431 $565 $700 $83482% 81,500 ($230) ($93) $44 $99 $181 $318 $454 $591 $728 $86583% 83,000 ($219) ($80) $60 $115 $199 $339 $478 $617 $757 $89685% 84,500 ($208) ($66) $76 $132 $217 $359 $501 $643 $785 $927

NYMEX Crack Spread ($/Bbl)

TYLER ENSITIVITY PV20 $MMUtil. Thruput% BPD $3.50 $4.00 $4.50 $4.70 $5.00 $5.50 $6.00 $6.50 $7.00 $7.5083% 43,000 ($153) ($81) ($9) $20 $64 $136 $208 $280 $352 $42585% 44,000 ($146) ($72) $2 $31 $76 $150 $224 $298 $371 $44587% 45,000 ($139) ($63) $13 $43 $88 $164 $239 $315 $390 $46688% 46,000 ($131) ($54) $23 $54 $100 $178 $255 $332 $409 $48790% 47,000 ($124) ($45) $34 $65 $113 $192 $270 $349 $428 $50792% 48,000 ($117) ($36) $44 $76 $125 $205 $286 $367 $447 $52894% 49,000 ($110) ($27) $55 $88 $137 $219 $302 $384 $466 $54996% 50,000 ($103) ($19) $65 $99 $149 $233 $317 $401 $485 $569

NYMEX Crack Spread ($/Bbl)



APPENDIX C: REFINING & MARKETING COMPARABLES

6/30/04 Enter-Recent Stock Shares Pref. Work prise

Equity 52 Week Qtr. Price O/S Market Total Stock Cap./ Value Net BookSymbol Hi/Lo End 9/21/04 (MM) Cap. Debt (Liq.) (Deficit) (EV) PP&E Equity

Frontier Oil Corp FTO $22.22/$13.91 6/04 $22.41 27 $603 $276 ... $70 $810 $330 $217Giant Industries Inc GI $27.25/$6.70 6/04 $23.00 12 $280 $367 ... $102 $545 $391 $208Holly Corp HOC $23.10/$12.09 6/04 $23.13 32 $735 $71 ... ($5) $812 $309 $347Marathon Oil Corp MRO $39.44/$27.75 6/04 $40.13 346 $13,887 $7,265 ... $1,691 $19,461 $11,061 $9,881Premcor Inc PCO $40.83/$21.85 6/04 $37.75 89 $3,367 $2,146 ... $440 $5,073 $2,598 $1,831Sunoco Inc SUN $70.09/$39.17 6/04 $70.44 75 $5,307 $3,155 ... $367 $8,095 $4,680 $2,349Tesoro Petroleum Corp TSO $31.70/$8.10 6/04 $29.85 66 $1,973 $2,122 ... $392 $3,703 $2,240 $1,242Valero Energy Corp VLO $78.84/$36.67 6/04 $76.32 128 $9,757 $7,535 $204 $472 $17,024 $9,663 $6,737

Total $35,910 $22,938 $204 $3,530 $55,522 $31,272 $22,812

Price/ Asset Div. Yld.

Company LQA LTM 04E 05E LQA LTM 04E 05E Book Cov. (5) %Frontier Oil Corp $381 $176 $189 $132 2.1x 4.6x 4.3x 6.1x 2.8x 1.4x 1.1%Giant Industries Inc $172 $127 NA NA 3.2x 4.3x NA NA 1.4x 1.3x NA Holly Corp $365 NA $200 $119 2.2x NA 4.1x 6.8x 2.1x 4.3x 1.4%Marathon Oil Corp $4,236 $3,222 $3,210 $3,313 4.6x 6.0x 6.1x 5.9x 1.4x 1.8x 2.5%Premcor Inc $1,202 $685 $837 $822 4.2x 7.4x 6.1x 6.2x 1.8x 1.4x NA Sunoco Inc $1,976 $1,226 $1,256 $1,095 4.1x 6.6x 6.4x 7.4x 2.3x 1.6x 1.7%Tesoro Petroleum Corp $1,748 $880 $832 $588 2.1x 4.2x 4.4x 6.3x 1.6x 1.2x NA Valero Energy Corp $4,772 $2,634 $3,012 $2,631 3.6x 6.5x 5.7x 6.5x 1.4x 1.3x 0.8%

Total / Wtd. Avg. $14,852 $8,950 $9,536 $8,699 3.7x 6.2x 5.8x 6.4x 1.6x 1.5x 1.5%Simple Avg. 3.3x 5.7x 5.3x 6.5x 1.8x 1.8x 1%Median 3.4x 6.0x 5.7x 6.3x 1.7x 1.4x 1%

Company LQA LTM 04E 05E LQA LTM 04E 05E Book Mkt.Frontier Oil Corp B2 POS/BB- STABLE 0.7x 1.6x 1.5x 2.1x 14.4x 7.4x 8.0x 5.5x 56% 31%Giant Industries Inc B2 STABLE/B+ POS 2.1x 2.9x NA NA 4.7x 3.7x NA NA 64% 57%Holly Corp -- --/-- -- 0.2x NA 0.4x 0.6x 147.2x NA 66.6x 39.6x 17% 9%Marathon Oil Corp -- STABLE/BBB+ STABLE 1.7x 2.3x 2.3x 2.2x 20.9x 13.9x 13.8x 14.3x 42% 34%Premcor Inc B1 POS/-- -- 1.8x 3.1x 2.6x 2.6x 8.2x 4.2x 5.2x 5.1x 54% 39%Sunoco Inc Baa2 STABLE/BBB STABLE 1.6x 2.6x 2.5x 2.9x 17.3x 10.9x 11.2x 9.8x 57% 37%Tesoro Petroleum Corp B2 POS/BB+ STABLE 1.2x 2.4x 2.5x 3.6x 10.3x 5.5x 5.2x 3.7x 63% 52%Valero Energy Corp -- STABLE/BBB NEG 1.6x 2.9x 2.5x 2.9x 16.4x 8.5x 9.7x 8.5x 52% 43%

Total / Wtd. Avg. 1.5x 2.6x 2.4x 2.6x 15.0x 8.6x 9.2x 8.4x 50% 39%Simple Avg. 1.4x 2.5x 2.0x 2.4x 29.9x 7.7x 17.1x 12.3x 51% 38%Median 1.6x 2.6x 2.5x 2.6x 15.4x 7.4x 9.7x 8.5x 55% 38%All dollars are in millions.

COMPANY INFORMATION MARKET CAPITALIZATION BALANCE SHEET

EBITDA / CASH INTEREST EXPENSE Debt/Capitalization

Company

EBITDA EV/EBITDA

Notes

Outlook

Corp. Rating/ TOTAL DEBT / EBITDA



APPENDIX D: REFINERY FULL DESCRIPTIONS Pasadena Refinery The Pasadena refinery is located on approximately 174 acres in Pasadena, Texas and was the first refinery built on the Houston Ship Channel. The refinery has a rated crude capacity of 100,000 BPD. During the past five years, the Company has invested approximately $14 mm on capital projects at Pasadena of a non-environmental nature. Liquidity and capital constraints experienced by the Company over the past several years has necessitated that the Company limit capital projects at the Pasadena Refinery to only those necessary to continue operations and comply with existing environmental regulations.

The Pasadena refinery has anefficient us of personnel and oprovides increased informationtechniques for optimizing unit op The Pasadena refinery has a cunits consist of a 56,000 BPD flof 14,000 BPD of alkylate proddepropanizers that can producapproximately 700 BPD of liquidto 14 million standard cubic feet Crude oils processed at the Paoperated at an average charproduction, approximately 26% propylene, propane, slurry oil, Company’s working capital contwelve months at full capacity. The Company owns and operaton the refinery site, provide the oil and 3.0 million barrels for The Pasadena refinery’s petrolegasoline and distillate productioColonial and Plantation pipeline

Plea

Pasaden

extensive plant-wide distributed control system that is designed to improve product yields, make more ptimize process operations. The distributed control system uses technology that is fast, accurate and to both operators and supervisors. This equipment also allows the use of modern advanced control erations.

rude unit with a 100,000 BPD atmospheric column and a 42,000 BPD vacuum tower. Major downstream uid catalytic cracking unit, a 12,000 BPD delayed coking unit, two alkylation units with a combined capacity uction, and a continuous regeneration reformer with a capacity of 26,000 BPD. Other units include two e 5,500 BPD of refinery grade propylene, a liquefied petroleum gas recovery unit (LPG) that removes s from the refinery fuel system, a reformate splitter, and a compression facility capable of transporting up

per day of process gas to a neighboring petrochemical plant.

sadena refinery in 2003 were comparable to those processed in 2002. In 2003, the Pasadena refinery ge of 76,075 BPD, yielding approximately 60% gasoline and 27% distillates. Of the total gasoline was premium octane grades. The 13% of other products the Pasadena refinery produced and sold include petroleum coke and sulfur. Due to the current high cost of crude oil and other feedstocks and the

straints, it is not anticipated that the Company will be able to operate the Pasadena refinery over the next

es storage facilities located on approximately 130 acres near its Pasadena refinery that, together with tanks Company with a storage capacity of approximately 5.8 million barrels (2.8 million barrels for crude

refined petroleum products and intermediate stocks). um products are delivered to both wholesale and retail markets. In 2003, approximately one-half of the

n was sold at wholesale into the Gulf Coast spot market and one-half was shipped by the Company on the s for sale in East Coast wholesale and retail markets.

se see Important Disclosure Information on the last pages of this Report [ page 19 of 22 ]


Tyler Refinery The Tyler refinery is located on approximately 100 of the 529 acres owned by the Company in Tyler, Texas and has a rated crude capacity of 52,000 BPD. The Tyler refinery’s location provides access to nearby high quality East Texas crude oil that accounts for approximately 70% of its crude supply. This crude oil is transported to the refinery via the McMurrey Pipeline and another pipeline system owned and operated by Plains Marketing, LP. The Company also has the ability to ship crude oil to the Tyler refinery by pipeline from the Gulf Coast and does so when market conditions are favorable. Storage capacity at the Tyler refinery exceeds 2.7 millions barrels (1.2 million barrels for crude oil and 1.5 million barrels for refined petroleum products and intermediate stocks), including tankage along the Company’s pipeline system. During the past five years, the Company has invested approximately $13 mm in capital projects of a non-environmental nature at the Tyler refinery. Liquidity and capital constraints experienced by the Company over the past several years has necessitated that the Company limit capital projects at the Tyler Refinery to only those necessary to continue operation and comply with existing environmental regulations.

r

The Tyler refinery has a crude unit with aunits at the Tyler refinery include a 20,0hydro treating unit, a 12,000 BPD distillatisomerization unit, and an alkylation unit w In 2003, the Tyler refinery operated at 57% gasoline and approximately 34%gasoline production, approximately 1including propylene, propane, slurry oil, products in the East Texas market withproduction is shipped via pipeline for saleterm exchange agreements account for a

Please see Im

Tyle

52,000 BPD atmospheric column and a 15,000 BPD vacuum tower. The other major process 00 BPD Fluid catalytic cracking unit, a 6,000 BPD delayed coking unit, a 20,000 BPD naphtha e hydro treating unit, two reforming units with a combined capacity of 21,500 BPD, a 5,000 BPD ith a capacity of 4,700 BPD.

approximately 100% of rated crude unit capacity, with production yielding approximately distillates, which includes the production of 5,400 BPD of aviation fuels. Of the total 0% was premium octane grades. In addition, the refinery produced and sold by-products petroleum coke and sulfur. The Tyler refinery is the principal supplier of refined petroleum approximately 70% of production distributed at the refinery's tuck terminal. The remaining either from the Company'’ terminals or from other terminal along the pipeline. Deliveries under significant portion of the refinery’s truck terminal activity.

portant Disclosure Information on the last pages of this Report [ page 20 of 22 ]


� 2004 Jefferies & Company, Inc. All rights reserved. TartisJaoiat

I, Greg Imbruce, certify that all of the views expressed in this research report accurately reflect my personal views about thesubject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly orindirectly, related to the specific recommendations or views expressed in this research report.

his material has been prepared by Jefferies & Company, Inc. ("Jefferies") a U.S.-registered broker-dealer, employing appropriate expertise, nd in the belief that it is fair and not misleading. It is approved for distribution in the United Kingdom by Jefferies International Limited ("JIL") egulated by the Financial Services Authority ("FSA"). The information upon which this material is based was obtained from sources believed o be reliable, but has not been independently verified. Therefore except for any obligations under the rules of the FSA, we do not guarantee ts accuracy. Additional and supporting information is available upon request. This is not an offer or solicitation of an offer to buy or sell any ecurity or investment. Any opinion or estimates constitute our best judgment as of this date, and are subject to change without notice. efferies and JIL and their affiliates and their respective directors, officers and employees may buy or sell securities mentioned herein as gent or principal for their own account. This material is intended for use only by professional or institutional investors falling within articles 19 r 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001and not the general investing public. None of the

nvestments or investment services mentioned or described herein are available to other persons in the U.K. and in particular are not vailable to "private customers" as defined by the rules of the FSA or to anyone in Canada who is not a "Designated Institution" as defined by he Securities Act (Ontario)."


HIGH YIELD RESEARCH

HIGH YIELD AND SPECIAL SITUATIONS GROUP

RESEARCH

Brett M. Levy, Co-Director [email protected] (203) 708-5806 Bob Welch, Co-Director [email protected] (203) 708-5800

Restaurant, food and Consumer Products Kenneth Bann [email protected] (973) 912-2790 Michael Schwartz [email protected] (973) 912-2790

Aerospace & Defense, Packaging, Paper and Forest Products

Bradley K. Bryan [email protected] (310) 575-5113

Gaming, Lodging and Leisure

Raymond S. Cheesman [email protected] (970) 926-5309

Maritime, Financial Services and Movie Theatres

Oliver Corlett [email protected] (310) 575-5100

Energy, Power and Utilities

Greg Imbruce [email protected] (203) 708-5804

Metals and Mining

Brett M. Levy [email protected] (203) 708-5806 Raymond Wu [email protected] (203) 708-5807

Communications and Media

Romeo A. Reyes [email protected] (203) 708-5800 Chak K. Gude [email protected] (203) 708-5803 Steve Sweeney, CFA [email protected] (203) 708-5805

Healthcare

Kyle Smith [email protected] (973) 912-2790

Industrials, Automotive Supply, Chemicals and Special Situations

Joseph P. Von Meister, CFA [email protected] (973) 912-9706

TRADING

David W. Schwartz, Executive Vice President (203) 708-5800

John Budish (973) 912-2790 Michael Satzberg (310) 575-5100

SALES

Steve Baker (203) 708-5800 Harrison Bubrosky (203) 708-5800 Laury Carr (203) 708-5800 Don Dizon (203) 708-5800 Howard Fife (203) 708-5800 Drew Hall (203) 708-5800 Mark Neuner (310) 575-5128 Steve Sander (203) 708-5800 Michael Shapiro (203) 708-5800 Tony Ulehla (203) 708-5800 Paul Voigt (203) 708-5800

CAPITAL MARKETS

Eric Macy, Executive Vice President (973) 912-2888

Travis Black (973) 912-2888 Timothy Lepore (973) 912-2888

PRIVATE PLACEMENTS

Andrew Woolford (203) 708-5878 Neil Wessan (203) 708-5874 Frederick Buffone (203) 708-5877 Daniel Polner (203) 708-5875 Tom Tuchscher (203) 708-5810

Jefferies Crown Central Petroleum Refining Research Report Oct 2004 Greg Imbruce

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Transcript of Jefferies Crown Central Petroleum Refining Research Report Oct 2004 Greg Imbruce