Western Refining, Inc. (WNR)

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Western Refining, Inc (WNR)

Q4 2012 Earnings Call

February 28, 2013 10:00 pm ET

Executives

Jeff Beyersdorfer – Director-Investor Relations

Jeff Stevens – President, Chief Executive Officer

Gary Dalke – Chief Financial Officer

Mark Smith – President-Refining & Marketing

Analysts

Manav Gupta – Morgan Stanley

Chi Chow – Macquarie Capital

Clay Rynd – Tudor Pickering Holt

Ann Kohler – Imperial Capital

Cory Garcia – Raymond James

Presentation

Operator

Good morning, and welcome to the Fourth Quarter and Full Year 2012 Western Refining Earnings Conference Call. After the speakers’ opening remarks, there will be a question-and-answer period. (Operator Instructions)

As a reminder, ladies and gentlemen, this conference call is being recorded, and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you.

I would now like to turn the conference over to Mr. Jeff Beyersdorfer, Treasurer and Director of Investor Relations of Western Refining. Mr. Beyersdorfer, please go ahead, sir.

Jeff Beyersdorfer

Thanks, Paula, and good morning. I’d like to thank you for taking the time to listen in today and for your continued interest in Western Refining. Again, my name’s Jeff Beyersdorfer. I’m the company’s Treasurer and Director of IR.

Joining me for today’s call are Jeff Stevens, our President and CEO; Gary Dalke, our CFO; Mark Smith, our President, Refining and Marketing; and other members of our senior management team.

We will be referencing our earnings call slides throughout the call this morning. The slide presentation, in addition to our earnings release, can be found on the Investor Relations section of our website at wnr.com.

Before we proceed, I’d like to make the following Safe Harbor statement. Today’s presentation will contain forward-looking statements, and I refer you to the Forward-Looking Statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which can be found in the press release, which is posted on the IR section of our website.

I’ll now turn the call over to Jeff.

Jeff Stevens

Thanks, Jeff. Welcome to everyone on the call. Today, we will discuss our fourth quarter and full year performance. After my opening remarks, Gary will review our earnings in more detail and provide operating guidance for Q1 2013. And then we will open up the call for your questions.

The fourth quarter wraps up an unprecedented year for Western. But before we get into specifics about the quarter, I’d like to take a step back and reflect on what we’ve been able to accomplish at Western over the last couple of years. In short period of time, we have dramatically strengthened our balance sheet and improved our financial flexibility. Since the beginning of 2011, we have generated approximately $1.9 billion in adjusted EBITDA. We have reduced total debt by $570 million and we have built cash by more than $390 million while still returning cash to shareholders.

We began 2012 by sharing our plan to improve our balance sheet, to invest in our business and to return cash to shareholders. I would like to briefly discuss some of our 2012 achievements relating to our plan. We repaid our term loan and reduced our overall debt by approximately $300 million during the year. This debt reduction will reduce pre-tax interest cost by approximately $30 million annually. We funded more than $60 million in discretionary capital, including our logistics project in the Delaware Basin. The loading racks and tanks are operational at this new facility and the pipeline component of the system is progressing well and should begin full operation in the second quarter.

In the next couple of years, our logistics projects will allow us to supply most of El Paso’s sweet crude needs with higher-yielding, cost advantage, Avalon and Bone Spring shale crude oil. At Gallup, we completed reliability projects and a modest expansion that increased our crude capacity from 23,000 barrels a day to 25,000 barrels per day.

As the Brent/WTI spread widened, we took the opportunity to add to our crack spread hedge positions, ending the year with approximately 22% of our planned production hedged for 2013, 20% for 2014 and 10% for 2015.

Finally, we returned approximately $323 million to shareholders through share repurchases and quarterly and special dividends; this made Western the highest dividend yielding equity among our peers in 2012.

We achieved EBITDA of $1.1 billion in 2012. I’m very proud of our team here at Western, and I want to thank them for helping us to deliver a record year.

As we look at the first quarter of 2013, Brent/WTI spreads have remained very strong, averaging more than $19 per barrel, quarter-to-date, resulting in a Gulf Coast 3:2:1 of approximately $26.50 per barrel.

In addition, wider WTI Midland and Cushing differentials will add more than $7 per barrel to our crude cost advantage at the El Paso refinery in the first quarter. Midland/Cushing differentials are returning to more historical levels currently, however, we expect crude oil spreads to continue to be volatile.

We have set very ambitious goals for Western for 2013. We will continue to focus on safety and reliability. We will also plan to further enhance our cost advantaged crude position, grow our logistics assets and increase our financial flexibility and continue to return cash to shareholders.

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