Western Refining, Inc. (WNR)

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Western Refining Inc (WNR)

Bank of America Merrill Lynch Leveraged Financial Conference

December 5, 2012, 8:50 am ET


Jeff Beyersdorfer – SVP, Treasurer, Director of IR



Unidentified Corporate Participant

-- Western Refining. And from Western we have Jeff Beyersdorfer. So Jeff, go ahead and take it away.

Jeff Beyersdorfer

Thanks, (Kelly). Good morning. So for about the next 20 minutes I want to – for those of you not familiar with the company – take you through a little bit of the asset base for Western and, more specifically, describe the current phenomena. Hopefully you're all familiar with the WTI (brand) phenomena and talk about what's going on with that and also address the balance sheet opportunities we have.

Also, we're in the process of constructing our balance sheet. I want to talk a little bit about that. So I'll primarily focus on those two areas over the next 20 minutes or so.

A quick overview of the asset base for those of you not familiar with the asset base, primarily in the southwest of the US, two refineries, one in El Paso, Texas, one in Gallup, New Mexico; total capacity of about 150,000 barrels a day.

We also have two distribution networks. One is a wholesale distribution network where we distribute about 70,000 barrels a day all the way through to end customers, including the big mining companies: (Freeport), (Macmaran), the railroad companies all the way down to the little landscaper in Tucson who owns fleet vehicles that he needs to fill up at our (Carlock) locations. That's one distribution area.

And the second is retail distribution. We own a series of convenience stores throughout the southwest, about 200 convenience stores under various brand names where we distribute gas and diesel on a retail basis to customers.

We do have the legacy of the Virginia refining assets. We did own a refinery in Virginia; closed it, sold the assets to (Plains), did a transaction with (Glencore) earlier this year to free up the working capital we have there.

So all we have left in Virginia is a marketing base business. We market about 25,000 or 30,000 barrels a day to our customers in the Virginia reason and we and (Glencore) are trying to grow that business.

So I mentioned a couple areas I want to talk about are primarily the crude dynamics and we'll spend a little bit of time on that on the next page, also touch on the products, talk about some of the opportunities that we have for growth and then the capital structure.

So primarily this page, on Page 6, the map, is where I'll spend a little bit of time and orient you, if you're not familiar with it, with what's going on in the Permian Basin.

So here's the Permian in the white outline. The blue is a Delaware Basin portion. Here's El Paso refinery. Here's our Gallup refinery. El Paso buys all of its crude on a Midland basis, meaning on a Midland pricing basis. Midland's there. We buy all of our crude based on that basis.

And for El Paso, we enjoy three differentials on crude to people that buy (brett)-based crudes, meaning all the coasts and the Gulf Coast, East Coast, West Coast. Those three differentials are the following.

One is the (brett) TI differential. So (brett) is down here in the Gulf Coast and Cushing is TI. TI is short for WTI. Cushing, (Nimex), WTI, that differential this morning was at about $22 or $23 a barrel.

The second differential that we enjoy at El Paso is this Cushing midland differential and that's been getting a lot of news lately because the crude production is more in the Permian Basin that can ship through this pipeline, these two pipelines, this basin pipeline, the centurion pipeline, to get to Cushing.

Because of that, crude is being backed up in Midland. Midland is selling at a significant discount to Cushing, about $8 or $9 a barrel on average in November. It has historically run about $0.50 to $1 differential. So again, not only are we enjoying this (brett) TI differential here, we're enjoying another $8 or $9 for the month of November as an example Cushing-Midland.

And then the final differential is what I'll call a discount differential, which I'll show you a page on in a couple of slides where we're building assets, logistics assets, pipeline in the Bone springs and Avalon area. To capture the location discount it costs producers call it $2 a barrel to get their crude from here to Midland. We think we can capture that differential also and incent those producers to bring their barrels to El Paso versus shipping them to Midland or Cushing or the Gulf Coast, wherever those barrels are going to produce.

So three differentials that we enjoy at El Paso today and we think that (brett) TI differential, the widest differential, ultimately is going to contract at some point in time once all these new pipelines get built out that I show here, that we show here, the dotted lines. That'll happen over '13 and '14.

Once all those get built out plus there's talk about rail coming into the area to solve the disposition logistics of that crude. Once all that happens, we think that (brett) WTI differential probably lands somewhere between transportation economics, the pipeline, which is $4 or $5 a barrel, and rail, which is somewhere between $8 and $10 a barrel. Somewhere in between there is where that (brett) WTI differential lands longer term.

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