Western Refining, Inc. (WNR)

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Western Refining, Inc. (WNR)

Q1 2013 Earnings Call

May, 02, 2013, 11:00 am ET

Executives

Jeff Beyersdorfer - SVP, Treasurer & Director, Investor Relations

Jeff Stevens - President & CEO

Gary Dalke - CFO

Analysts

Chi Chow - Macquarie Capital

Edward Westlake - Credit Suisse

Robert Kessler - Tudor Pickering

Roger Read - Wells Fargo

Paul Cheng - Barclays

Paul Sankey - Deutsche Bank

Presentation

Operator

Good morning, and welcome to the First Quarter 2013 Western Refining’s 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 call over to Mr. Jeff Beyersdorfer, Treasurer and Director of Investor Relations of Western Refining. Mr. Beyersdorfer, please go ahead, sir.

Jeff Beyersdorfer

Thanks, Laurie, and good morning. I would like to thank you for taking time to listen in today and for your continued interest in Western Refining. Again, my name is Jeff Beyersdorfer. I am the company’s Treasurer and Director of Investor Relations. 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 would 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.

Finally, in March, our Board directed management to explore the potential formation of a traditional MLP. We will not be taking any questions regarding an MLP today and we refer you to our press release from early March.

I’ll now turn the call over to Jeff.

Jeff Stevens

Thanks, Jeff. Welcome to Western’s first quarter’s earning call. After my opening remarks, Gary will review our earnings in more detail and provide operating guidance for Q2 2013. Then we will open up the call for your questions.

Western is off to a great start in 2013. Q1 adjusted EBITDA of $243 million was a record first quarter for the company. We had significant accomplishments during the quarter in addition to delivering outstanding financial results. In March, we took the opportunity to eliminate high cost debt by issuing $350 million of 6.25% senior unsecured notes. We used proceeds from this issue to pay off 11.25% senior secured notes which reduces our annual interest expense by $15 million and increases our financial flexibility. The refinancing of our long term debt reflects our improved balance sheet and the positive outlook the market has for Western.

During the quarter, we returned $83 million in cash to shareholders through share repurchases and through our quarterly dividend. Overall, I am encouraged that we were able to generate strong financial results during a historically low margin time of the year and also in the quarter in which we had a turnaround at the El Paso refinery. Our 2013 turnaround work is behind us, El Paso and Gallup are running at planned rates and operationally we are well positioned for the remainder of the year.

An emerging story in our industry is the growing challenge created by renewable fuels standard mandate and the volatility of RIN values. As you know refiners are required to sell mandated volume of renewable fuels based on their refining production. If renewable sales do not meet volume requirements, refiners must purchase RINs to cover shortfalls.

Our wholesale and retail businesses sell significant volumes of biodiesel and ethanol blended gasoline covering approximately 75% of our renewable requirements. In addition, our East Coast marketing business generates RINs which may be sold or used to satisfy our renewable obligations. We feel that our volume of blended sales puts Western in a unique position to mitigate the impact of RIN price volatility.

Turning to the second quarter, we began operations of the truck off loading and storage components of our Delaware Basin crude gathering system in early April. We expect the second phase about 50 miles of new pipeline to be operational by the end of the second quarter. We anticipate shipping a total of 50,000 to 60,000 barrels per day on this system by the end of the year.

We are evaluating the expansion of this new pipeline system and additional investments that would give us the ability to tie in our 16 inch Tex-New Mex pipeline. We are also adding crude oil gathering trucks in the Delaware Basin over the remainder of 2013. These investments enhance our logistic assets and help us to secure the crude cost advantage at our refineries.

Also in the second quarter, we amended and extended our revolver. This new agreement improves our financial flexibility and further lowers our interest cost. In April, we announced that we will be paying a May dividend of $0.12 per share and that our Board has approved $200 million in additional share repurchases. Our plan is to use share repurchases to offset the potential share dilution associated with the convertible notes which mature in June of next year. Since the beginning of our initial repurchase program through April 26th, we have repurchased approximately 8.1 million shares at an average cost of $29.56 per share. We believe these actions further demonstrate our confidence in the fundamentals of our business and our commitment to return cash to shareholders.

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