Energy

Refining & Marketing

High Yield Research

January 22, 2004
Greg Imbruce 800/937-5333 gimbruce@jefco.com
Seniority Sr. Notes (1) Coupon Maturity 10.750% 6/15/2007

United Refining Company

(Private)

Strong Fiscal First Quarter 2004 Results

Amount O/S $MM Rating $180.1 Caa1/B-

Price 90.0%

CY 11.94%

YTW 14.59%

STW 1,230

Yrs. to Mty. 3.4

Coupon Pmts. 12/15,6/15

Recommendation BUY

(1) Original $200 mm issue. During FYE 8/01, the Company purchased $19.9 mm of the Sr. Notes for $14.2 mm (71.4% purchase price) in cash.

Company Description
United Refining Company, a private company, is an integrated refiner and marketer of petroleum products in western New York and northwestern Pennsylvania. United owns and operates a medium complexity 65,000 barrel per day (bpd) petroleum refinery in Warren, Pennsylvania (PADD I) where it produces various grades of gasoline, diesel fuel, kerosene, jet fuel, No. 2 heating oil, and asphalt. Operations are organized into two business segments: wholesale (refinery) and retail (stations and convenience stores). The retail segment sells petroleum products under the Kwik Fill, Citgo and Keystone brand names at a network of Company-operated retail units and convenience and grocery items though Company-owned gasoline stations/convenience stores under Red Apple Food Mart and Country Fair. At 8/31/03 (FYE), the Company operated 372 units, of which, 184 units are owned, 128 units are leased and 60 operated under a management agreement. United also owns and operates the Kiantone Pipeline, a 78-mile long crude oil pipeline which connects the refinery to Canadian, US and world crude oil sources through the Enbridge Pipeline system.

Recommendation: Buy
We recommend United Refining Company's (Private) 10.75% Sr. Notes '07 as a BUY at 90 (14.6% YTW, +1,230 bps) due to: (i) the most attractive relative yield in our power and energy high yield universe, (ii) improving credit statistics, (iii) ample liquidity, (iv) adequate asset coverage, and (v) the possibility that the 10.75s are refinanced (callable in June-04 at 101.792). United, a refining and marketing company, based in Warren, Pennsylvania, reported strong fiscal 1Q04 (August FYE) EBITDA of $16.3 mm vs. $8.2 mm in the prior quarter and $1.7 mm last year; LTM EBITDA increased to $40.0 mm from $25.3 mm last quarter. In addition to stronger crack spreads, the Company has benefited from increased retail gasoline/convenience station margins. We are also impressed by the Companys ability to reduce total debt to $213 mm in the most recent quarter from $230 mm in May-03. Our price target for Uniteds 10.75s is 98 based on a 11.5% YTW and the following highlights:

Highlights:
Improving credit statistics, which, on an LTM basis, include 1.9x interest coverage, and leverage ratios of 5.3x total debt and 4.0x net debt. Ample liquidity ($31 mm at 11/03) consisting of $12 mm of cash and $19 mm available under the Revolver ($50 mm current borrow base), which provides United with ability to fund coupon payments through June-06 simultaneous with $12 mm in Sulfur upgrade requirements over that time period. Liquidity proforma for the Dec-03 10.75s coupon payment in the amount of $9.7 mm is $21 mm we estimate, however, that based on our $12 mm F2Q04 EBITDA estimate, liquidity will be $30 mm before changes in working capital, representing only a marginal decline. In addition, we believe the Company will be successful in signing a new bank deal (the 11/03Q notes that the Company seeks to increase the Facility to $75 mm from $50 mm currently), which would improve liquidity to $55 mm by QE Feb-04. Buying the 10.75s at 90 creates the company at 3.6x LTM EBITDA and 2.2x LQA EBITDA this is a deep discount to its comparables which trade at 6.8x-7.1x LTM EBITDA and 5.2x-5.6x LQA EBITDA, based on the median and average multiples, respectively. (1) United Refining Company

Energy: Refining & Marketing

High Yield Research

Healthy working capital balances which were $82.9 mm including retail merchandise and supplies as well as crude oil and petroleum products inventories; excluding retail inventories, we estimate Uniteds working capital as $52.5 at 11/30/03 and utilize this figure in our net debt calculation. Adequate asset coverage of 1.1x (Base Case) to 1.4x (Upside Case). We believe there is additional upside in terms of asset coverage based on: (i) our conservative retail station valuation compared to the recent Circle K transaction, in which CococoPhillips sold 1,663 convenience store outlets in 16 states (most of which were in Arizona) to a Canadian company Alimentation Couche-Tard for $830 mm the transaction equates to $500k per station, well below our $225k to $275k valuation for Uniteds stations; and (ii) cash flow and asset enhancement if the Company is successful in financing and installing a delayed coker unit, which will increase refinery capacity to 70,000 bpd from 65,000 bpd currently. United intends to fund the $300 mm construction through project debt with construction expected to begin in the Summer '04/Spring '05 and be completed within 2-years (Summer '06/Spring '07). The Coker installation would improve the percent of heavy crude capacity to nearly 100% from current 50% and enhance the refinery's Nelson complexity rating to 11.0. The Company's financial performance is somewhat insulated from volatile crack spreads through its retail gasoline/convenience stations based on the QE 11/03, the retail business represented 42% ($6.8 mm) and 45% ($18.1 mm) of total EBITDA on an LQA and LTM basis, respectively. The Companys $7 mm annual maintenance CapEx is minimal and implies a $27.3 mm annual EBITDA requirement ($6.8 mm quarterly), before having to utilize availability under the Revolver. This maintenance CapEx figure includes: $4.0 mm for the Refining business, $1.5 mm for the retail business, and an estimated $1.6 mm in annual turnaround costs. In addition to these CapEx items, United plans to allocate up to an additional $12 mm for related sulfur reduction items over the next 30-months to meet the June-06 EPA requirements. We estimate, however, that even after including these costs, EBITDA could average $29.5 annually ($7.4 mm quarterly) before requiring any additional funds be drawn under its Revolver, well within our $32 mm EBITDA estimate for FY04. And even in the case where the Company requires full availability under its Revolver, EBITDA required could decline to $22.2 mm annually ($5.6 quarterly) in order to fund all cash requirements. In the case the Facility is increased to $75 mm, minimum EBITDA could decline to $13.1 mm annually ($3.3 quarterly), providing the Company with a high level of flexibility in meeting its Sulfur and other CapEx requirements.

(1) Comparables include: Frontier Oil Corp (FTO), Giant Industries Inc. (GI), Holly Corp.(HOC), Marathon Oil Corp. (MRO), Premcor Inc. (PCO), Sunoco Inc. (SUN), Tesoro Petroleum Corp. (TSO), and Valero Energy Corp. (VLO).

January 22, 2004

United Refining Company

[Page 2 of 5]

Energy: Refining & Marketing

High Yield Research

UNITED REFINING COMPANY (PRIVATE) United Refining Company (Private) is an integrated refiner and marketer of petroleum products in western New York and northwestern Pennsylvania. United owns and operates a medium complexity 65,000 barrel per day (bpd) petroleum refinery in Warren, Pennsylvania (PADD I) where it produces various grades of gasoline, diesel fuel, kerosene, jet fuel, No. 2 heating oil, and asphalt. Operations are organized into two business segments: wholesale (Refinery) and retail (stations and convenience stores). The retail segment sells petroleum products under the Kwik Fill, Citgo and Keystone brand names at a network of Company-operated retail units and convenience and grocery items though Company-owned gasoline stations/convenience stores under Red Apple Food Mart and Country Fair. At 8/31/03 (FYE), the Company operated 372 units, of which, 184 units are owned, 128 units are leased and 60 operated under a management agreement. United also owns and operates the Kiantone Pipeline, a 78-mile long crude oil pipeline which connects the refinery to Canadian, US and world crude oil sources through the Enbridge Pipeline system. BOND SUMMARY:
Description: Sr. Nts. 10.750% '07 Jefco Rec. BUY Maturity 6/15/2007 Am t O/S Ratings $MM Moody's S&P $180.1 Caa1 BNext Call Date Price 6/15/04 101.792 Price 90.0 Yield CY YTW 11.94% 14.59% STW 1,231 Coupon Pm t Dates 12/15,6/15

COMPANY DATA:
Com pany Sym bols (Equity/Debt) Headquarters Phone Website Currency Fiscal Year End Most Recent Quarter Number of Employees Auditor Company Type Current Stock Price Shares Outstanding (MM) MarketCap / Enterprise Value Shareholders' Equity/Net PP&E Net Asset Value (NAV) Stock Price / NAV Debt Amt. O/S Par: Market Value: Debt/Complex Bbl. Par: Market Value: Total Refinery Capacity (Bbls per Day) Wtd. Avg. Complexity (Nelson) Retail Stations: Ow ned/Leased/Total Stations: United Refining Com pany 24069Z / UNITED Warren, PA 16365 1-814-726-4674 urc.com USD (1.000 per USD) August 11/30/03 4,637 BDO SEIDMAN LLP Private $464,320.00 0.0 $46 / $207 $46 / $186 $196,674 to $686,174/shr or $20 to $69 MM 236% to 68% $213 Total Debt / $161 Net Debt* $195 Total Debt / $143 Net Debt* $285 Total Debt / $191 Net Debt* $253 Total Debt / $159 Net Debt* 65,000 8.6 184 / 128 / 372 177 Western New York, 182 Northw est Pennsylvania, and 13 in Ohio Sr. Sub. NA NA NA NA NA NA NA NA NA NA NA NA

ASSETS:
Refineries: Warren, PA Capacity Nelson Com plx Bbls per Com plx Bbls Day Rating (000's) 65,000 8.6 559 $/Com plx Bbl Base Upside $225 $275 Asset Values $MM Base Upside $126 $154

Val.-Refinery Retail: Ow ned Leased Managed Val.-Retail Other: Crude Oil Pipeline

65,000

$225 $275 $126 $154 $/Station Asset Values $MM Stations Base Upside Base Upside $46 $55 184 $0.250 $0.300 128 $0.050 $0.100 $6 $13 60 $0.025 $0.050 $2 $3 372 $0.145 $0.191 $54 $71 $/Unit Asset Values $MM Unit Measure Units Base Upside Base Upside Miles 78 -- $0.050 -$4

8.6

559

Val.-Other Assets Total Asset Val.

-$180

$4 $229

ASSET COVERAGE & RECOVERY ANALYSIS:

BASE CASE: Refinery Energy Assets Total Assets Assets+WorkCap UPSIDE CASE: Refinery $154 $225 Energy Assets $229 Total Assets $281 Assets+WorkCap Recovery-PV15 Base Upside Recovery-PV20 Base Upside Values $MM $126 $180 $180 $232

Sr. Sr. Sec. Unsec. 3.78x 0.51x 5.40x 0.81x 5.40x 0.81x 6.98x 1.10x 4.62x 6.75x 6.87x 8.45x 100% 100% 100% 100% 0.67x 1.06x 1.08x 1.38x 88% 100% 82% 100%

ASSET VALUATION METRICS:

Other NA NA NA NA NA NA NA NA NA NA NA NA Other ---Total 0.59x Refinery 0.84x Retail 0.84x Other 1.09x Total EBITDA LTM/LQA $22/$38 $18/$27 / $40/$65

Values $MM Val./LTM EBITDA Base Upside Base Upside $126 $154 5.7x 7.0x $54 $71 3.0x 3.9x -$4 NA NA $180 $229 4.5x 5.7x Total Debt Par Mkt. 5.3x 4.9x 3.3x 3.0x 5.2x 4.7x 3.2x 2.9x 119% 109% 2/03Q 5/03Q 8/03Q $311.4 $331.1 $354.5 $41.5 $27.7 $34.6 13% 8% 10% $14.5 $1.0 $8.2 $19.0 $11.6 $25.3 5% 0% 2% ($5.4) ($5.4) ($5.3) $9.3 ($4.5) $2.8 ($1.6) ($2.8) ($1.6) $7.7 ($6.1) ($0.0) $228.0 $229.8 $214.4 $10.0 $9.0 $13.8 0.9x 0.5x 1.2x 12.0x 19.9x 8.5x 9.0x 15.1x 5.5x

Val./LQA EBITDA Base Upside 3.3x 4.0x 2.0x 2.6x NA NA 2.8x 3.5x Net Debt* Par Mkt. 4.0x 3.6x 2.5x 2.2x 5.2x 4.7x 3.2x 2.9x 90% 80% 11/03Q LTM $330.8 $1,327.9 $43.8 $147.6 13% 11% $16.3 $40.0 $40.0 $40.0 5% 3% ($5.2) ($21.3) $11.1 $18.7 ($2.2) ($8.2) $8.9 $10.5 $213.4 $213.4 $11.8 $11.8 1.9x 1.9x 5.3x 5.3x 4.0x 4.0x

0.72x 1.05x 1.07x Debt / EBITDA: LTM 1.32x LQA 87% EV / EBITDA: LTM 100% LQA 81% Debt / Total Asset Value 98% Total $31 $3 $180

VALUATION:

DEBT SENIORITY:

Description Bank Revolver '07 (L+1.75%) Other Debt (Mtgs.) Sr. Nts. 10.750% '07

Sr. Sec. Sr. Unsec. Sr. Sub $31 --$3 --$180 ---

QUARTERLY SNAPSHOT:
Revenue Gross Profit Gross Margin % EBITDA LTM EBITDA EBITDA Margin % (Cash Interest Exp.) Funds from Operations (CapEx) (2) Free Cash Flow Total Debt Cash LTM EBITDA / Cash Int. Exp. Total Debt / LTM EBITDA Net Debt* / LTM EBITDA

###### 2/28/03 5/31/03 8/31/03 11/30/03

Total Debt

$33 $12 $19 -$31

$180

--

--

$213 $12 $113 $72 $52

LIQUIDITY:

Cash & Equivalents Revolver Avail. Other Liquidity

Cash & Equivalents +A/R + Inventories (1) -Accounts Payable Working Capital (Deficit)

WORKING CAPITAL:

RECENT EVENTS: >>The Company is negotiating with PNC Bank to increase the facility to $75mm. >>In March '03, the facility was amended, revising covenants, including the fixed charge coverage ratio. >>United was granted until Jan-08 to reduce sulfur content of gasoline through a 3-phase approach. United successfully produced low sulfur gasoline in Oct-03 and met the 1st phase that went effective Jan-04. The Company estimates up to $12 mm add'l CapEx required to comply with phase-2 by June-06 >>Company plans to install a delayed coker unit which will increase refinery capacity to 70,000 bpd from 65,000 bpd currently and allow it to meet new low sulfur fuel requirements. United intends to fund the $300 mm construction through project debt with construction expected to begin in the Summer '04/Spring '05 and be completed within 2-years (Summer '06/Spring '07). Coker installation would improve % heavy crude capacity to nearly 100% from current 50% and enhance refinery's Nelson complexity rating to 11.0.

January 22, 2004

United Refining Company

[Page 3 of 5]

Energy: Refining & Marketing

High Yield Research

CAPITALIZATION:
Total Debt Preferred Stock (Liq. Value) +Shareholders' Equity Total Capital

Book $213 -$46 $260 LQA 3.2x 2.7x 3.3x 2.5x 82% 88% 3% 4%

Mkt. $195 -$46 $242 LTM 1.9x 1.5x 5.3x 4.0x 82% 88% 4% 6%

ISSUER RATINGS
Moody's S&P Rating Caa2 B-

Issuer Date Outlook Watch 7/03 NEG NA 5/01 NEG NA Revolver NR / NR 3/24/2003 $50.0 $30.5 $0.6 $18.9 Tranche #: Provider: Maturity:

Sr. Sec. NA NA

Sr. Unsec. Caa1 NA LN100259 PNC Bank 5/9/2007 Qtrly LIBOR+ $15 1.75%

Sr. Sub. NA NA

CREDIT STATISTICS:
Adj. EBITDA / Cash Interest Expense [Adj. EBITDA - CapEx] / Cash Interest Exp. Total Debt / Adj. EBITDA Net Debt* / Adj. EBITDA Total Debt / Book Capitalization Total Debt / Market Capitalization FFO / Total Debt FFO / Net Debt*

Type: Ratings: Amendment Date:

BANK FACILITY:

Bank Facility Borrow Base Amount Funded L/C's Outstanding Am ount Avail.

Interest Freq. Rate: L/C Subfacility L/C Fee:

1.75%

ENTERPRISE VALUE:
Stock Price Shares Outstanding Market Capitalization +LT Debt +Preferred Stock (Liq.) -Working Capital/(Deficit) Enterprise Value (EV)

Debt @ Par Mkt. $464,320 $464,320 0.0 0.0 $46 $46 $213 $195 --$52 $52 $207 $189

NET ASSET VALUE:

Refinery Retail Stations Energy Assets Other Assets Total Assets Working Capital (Deficit) Assets & WorkCap Less: LT Debt & Preferred Stock Net Asset Value Shares O/S NAV per Share

Base(1) Upside(2) $126 $154 $54 $71 $180 $225 -$4 $180 $229 $52 $52 $232 $281 $213 $213 $20 $69 0.0 0.0 $196,674 $686,174

COUPON PAYMENTS:

Description Bank Revolver '07 (L+1.75%) Other Debt (Mtgs.) Sr. Nts. 10.750% '07

Pm t/Per. $0.3 Quarterly -Monthly $9.7 12/15

Paym ent Dates 6/15

Description Coupon Maturity Rating Bank Revolver 2.858% 05/07 NR/NR Other Debt NA NA NR/NR Sr. Nts. 10.750% 06/07 Caa1/B-

DEBT MARKET VALUE

Face $30.5 $2.8 $180.1

Price 100.0 100.0 90.0

Mkt $30.5 $2.8 $162.1

Total Debt Net Debt*

9.482% Debt Leases Total $0.3 $9.8 $10.1 $0.3 $8.8 $9.1 $0.3 $8.1 $8.4 $210.9 $7.8 $218.7 $0.3 $7.1 $7.4 $0.3 $7.1 $7.4 $1.1 $62.5 $63.6 $213.4 $111.2 $324.6

$213.4 $160.9

$195.4 $142.9

LARGEST SHAREHOLDERS:
JOHN CATSIMATIDIS

100.0%

% O/S

Total

100.0%

Year 2004 2005 2006 2007 2008 2009 Thereafter Total

MATURITY SCHEDULE:

NOTES:
(1) Inventory excludes merchandise/supplies and is est. of crude oil and petroleum products inventory, w hich is based on 66% of total inventory as reported in FY03. (2) Excludes turnaround costs. OTHER NOTES:>>Company may incur additional debt if the Consolidated Fixed Charge Coverage Ratio on the date thereof w ould be at least 2.0x on an LTM basis. >>Bank Revolver is secured by cash accounts, accounts receivable, and inventory. >>Annual Refinery maintenance CapEx is $4.0 mm and approx. $4.0 mm for turnaround costs every 2-2.5 yrs; total refinery maintenance CapEx is, therefore, $6 mm per year. >>Debt balance excludes deferred retirement benefits, w hich w ere $28.7 mm at 11/30/03.

JOHN CATSIMATIDIS, CHAIRMAN & CEO MYRON TURFITT, PRESIDENT JAMES MURPHY, CFO ASHTON DITKA, SR. VP. MARKETING THOMAS SKARADA, VP REFINING FREDERICK MARTIN JR., VP SUPPLY & TRANSPORT JOHN WAGNER, VP GENERAL COUNSEL DENNIS BEE JR, TREASURER

MANAGEMENT

All dollar figures are in millions unless noted otherwise. *Net debt applies working capital to total debt.

January 22, 2004

United Refining Company

[Page 4 of 5]

Energy: Refining & Marketing

High Yield Research

2001 Jefferies & Company, Inc. All rights reserved I, Greg Imbruce, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report.

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

January 22, 2004

United Refining Company

[Page 5 of 5]