Western Refining, Inc. (WNR)
Bank of America Merrill Lynch Refining Conference Call
March 7, 2013 11:20 am ET
Jeff A. Stevens – President and Chief Executive Officer
Jeff A. Stevens
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Along with the two refineries, we have two other businesses: we have a wholesale business that distributes products to end-users throughout the Southwest and we also have a retail business with approximately 200 plus stores that are located throughout the Southwest and support both of the refineries. Along with this, we have other assets, pipelines, crude pipelines, crude gathering systems, asphalt product terminals that all support the two refineries.
When you’re looking at Western Refining today and who we are, really it’s a story about location, and location where our two refineries are and where they get their crude from. And we’ll talk about that advantage along with our logistics assets, our wholesale, retail and really the dynamics of the improved balance sheet that we’ve seen in the last two years and some of our growth opportunities.
When you talk about the crude advantage, there is really two plays that affect our two refineries; our El Paso refinery is 100% Midland based WTI crude and it's all – we run about 70% WTI and about 30% WTS, it's all gathered in the Permian basin delivered to El Paso. The crude that we run at Gallup is the San Juan Basin, it's a local crude, we have gathering across to gather that pipelines that distribute that crude to the refinery and that pricing on that crude is tied WTI NYMEX and we receive a fairly significant discount that help to support the overall profit of that refinery.
It is a map that really just kind of outline the crude oil and whereas for El Paso and if you look at it, we really are focused these days on this Permian, Delaware Basin, the Delaware Basin is west of Midland, it's where a lot of the new shale crude is coming. The primary crude is Avalon/Bone Spring; this crude is important to El Paso because of the light sweet crude and it has a high refining value to it and the crude that we bring in is from a location is closer to our gathering system, so we're able to get the little bit of a location differential and like I said up in the four corners, we have a pipeline system that supports that crude up there that we gather all of that for the Gallup refinery.
When you're talking about products, then this an important differential between us and some of our competitors, is a lot of analysts tend to know that this is MidCon refiner, because we like crudes that are tied to WTI pricing. But it’s important to understand the products we serve.
If you look at the El Paso refinery, it’s really two different areas. The Phoenix market is our largest market and it’s probably typically our highest netback. the gasoline is sold there in that blue shaded area. It’s similar to CBG gas, which is similar to the LA Corp. standard gas, it’s a hard spec, a spec to make, and there’s certain dynamics of barrier to entry in that market, because of the difficulty of the spec.
So when you’re looking at the El Paso refinery about 30% to 40% of our product is sold in the Arizona market, the price is more in line with the LA market. the rest, the balance of the market is Albuquerque, El Paso and we do supply some into Mexico and that’s all tied on a Gulf Coast price differential. The Gallup refinery is more of a 50-50; it can go either into the Arizona market or that northwestern part of the four quarters there.
When you’re talking about our two other businesses; the wholesale business moves about 75,000 barrels a day, that’s one of the largest wholesale businesses in the United States and it primarily moves product out of El Paso. so it’s the significant customer to El Paso’s product production, and then the retail supports our Gallup refinery about 75% of our gasoline out of Gallup goes through our own retail network.
So it’s an important part of our distribution and these two business units really help us stay right above, which is important in our business, because it allows us to run full and always kind of have that built-in customer, which really helps as far as ratable lifting.
I’ll talk a little bit about the capital structure and you can just see here from 2010 to 2012, the change in the company, in its balance sheet over those two years, we paid off nearly $600 million in debt and we’ve been able to raise our cash on the balance sheet and really change the dynamics and allows us to focus on our business and really start spending money on discretionary capital project, which is an important part of the growth that we see going forward. I would just mention the senior secured notes, are at a high coupon today at 11.25, they become callable in June this year. So I think you’ll see addressing those converts – as they become callable in June of 2014.