We are maintaining our Neutral recommendation on Western Refining
shares. We like the company for its shareholder friendly financial
policy and the initiatives to improve reliability/reduce operating
costs. In an effort to tighten fuel emission norms, the EPA has
proposed new gasoline standards, asking refiners to significantly
curb sulfur content in gasoline starting from 2017. These new
standards are expected to hit the company hard. Compliance with the
new rules is expected to raise capital expenditures for downstream
operators like Western Refining. The company is also faced with
volatile industry fundamentals and limited geographic
diversification, which may further limit its ability to generate
positive earnings surprises.
Incorporated in 2005, El Paso, Texas-headquartered Western
Refining Inc. (WNR) is an independent refiner and marketer of
refined petroleum products in the Southwestern and Mid-Atlantic
regions of the U.S. The company operates in three segments:
Refining (accounted for 93% of the company's total 2013 operating
income), Wholesale (5%), and Retail (2%). Additionally, Western
Refining owns the general partner and approximately 65% of the
limited partnership interest of Western Refining Logistics L.P.
(WNRL), and the general partner and approximately 39% of the
limited partnership interest in Northern Tier Energy L.P.
Refining: The Refining segment manufactures and sells various
grades of gasoline, diesel fuel, jet fuel and other refined
products to customers through its own service stations and
wholesale group, independent wholesalers and retailers, commercial
accounts, and sales and exchanges with major oil companies. Western
Refining owns and operates two refineries a 128,000 barrels per day
(Bbl/d) facility in El Paso, Texas and a 25,000 Bbl/d refinery in
Gallup, New Mexico. This segment also operates a crude oil
transportation and gathering pipeline system in the Four Corners
region of New Mexico, an asphalt plant in El Paso, three
stand-alone refined product distribution terminals, and four
asphalt distribution terminals.
Until 2009, Western also operated a 17,000 Bbl/d refinery near
Bloomfield, New Mexico and a 70,000 Bbl/d facility in Yorktown,
Virginia. However, in response to the weak refining margin
environment, Western Refining decided to consolidate the operations
of its Four Corners refineries (Bloomfield and Gallup) into one at
the Gallup refinery and shutdown its Yorktown refining operations.
Despite shuttering the Bloomfield and the Yorktown facilities,
Western continues to operate the refinery's products terminal.
Wholesale: Western Refining also owns and operates a Wholesale
division that includes several lubricant and bulk petroleum
distribution plants, unmanned fleet fueling operations, a bulk
lubricant terminal facility, and a fleet of finished product and
lubricant delivery trucks. Through this group, the company
purchases commercial wholesale petroleum products from the refining
group, and from third-party suppliers and then distributes them to
customers primarily in Arizona, California, Colorado, Nevada, New
Mexico, Texas and Utah.
Retail: The Retail segment distributes motor fuels (gasoline,
diesel fuel) to the general public through a network of
approximately 229 convenience stores and gas stations located in
New Mexico, Arizona, and Colorado, primarily under the Giant',
Mustang , Howdy's', and Sundial' names.
Western Refining, Inc. (WNR): Read the Full
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