Western Refining, Inc. (WNR)

WNR 
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The Western Refining (WNR)

Western Refining at Bank of America Merrill Lynch Energy and Power Leveraged Finance Conference

May 14, 2013 8:30 AM ET

Executives

Jeffrey Beyersdorfer - SVP, Treasurer

Analyst

Presentation

Unidentified Analyst

I’m Jimmy Leon [ph] and on behalf of Bank of America Merrill Lynch, I’d like to thank you all for joining us today. To start the morning, I would like to introduce Jeff Beyersdorfer with Western Refining and Matt Gilder, Senior Vice President, Retail.

Jeffrey Beyersdorfer

Okay, good morning. Again, my name is Jeff Beyersdorfer, Senior Vice President, Treasurer of Western. What I want to do this morning for about 20 minutes is take you through a brief description of Western overall and then I’ve got five different investment considerations for Western and in those considerations, we’ll talk about our business where we’ve evolved from over the last couple of years and where we’re going over the next couple of years. So here is a quick snapshot on page three of the business.

For those of you not familiar with the business, we’re primarily Southwestern focused. Two refineries, one is El Paso, Texas, one in Gallup, New Mexico. Total capacity is about 150,000 barrels a day. And then we’ve got these two distribution networks to distribute production throughout the Southwest. One is a wholesale distribution network that we think sets us apart from the other refiners and that we’ve got a customer base of about 3,300 customers all the way from the gig railroad and mining companies, all the way down to the total landscaper in Tucson where we’re delivering fuel to those customers and then we also have a retail network of about 222 retail stores that’s primarily served all of our Gallup refinery, that services retail customers so again, primary focus on the Southwest.

So these five points that I mentioned a couple minutes ago, two of the ones I’ll talk about. First, the cost advantage crude which has been the primary driver of our story over the last couple years and what are dynamics going on there. But just as important are the markets of the areas we serve from a geography standpoint. We’ve got some pretty attractive markets, particularly Phoenix that we serve and I want to make sure that you understand the benefit of those markets.

The third is that distribution network, I talked about the wholesale and retail.

Fourth, some growth opportunities. We’re trying to build out infrastructure, logistics from rail to make sure we continue to have an advantage of buying this discounted crude and supplying our two refineries.

And then finally, I’ll talk about the balance sheet and may be a little bit of a change in our management over the last couple of quarters and that is a focus on reinvestment in the business combined with a balanced approach of returning some cash to shareholders through dividends or share repurchases.

So the first page and this is hard to see up here you’ve got these slides in front of you but this is the Southwest, the Permian Basin, is this basin here and this is a San Juan Basin. And our two refineries are fortunate enough to sit adjacent to these crude basins and this is what primarily has been driving the story over the last couple of years. And that discounted crude in the Permian Basin, we’re trying to substitute it at El Paso and back out some of what we call common stream crude that we’ve been buying historically. So common stream crude would be crude that aggregators buy different grades of crude and deliver it to us, or as a crude we’re buying today is primarily in the Delaware Basin and that’s what we’re trying to substitute. It’s a higher specific gravity, a higher API, it’s a better quality crude and it’s more consistent for our refinery versus the existing crude that we have been buying.

It’s hard to see on here but we’re also building infrastructure, that see, that yellow line going up into our Tex New Mex line to allow for the further delivery of that crude into El Paso. So we announced a couple weeks ago a four-phase project, two phases of which we’ve completed. Delaware Basin logistics projects; it’s this T, about 50 miles of pipeline, that’s gathering line that goes into the Delaware Basin and brings crude into this area called Mason Station on to El Paso.

But we’re also looking at building about a 70 mile pipeline that goes North and South and hooks into our Tex New Mex line that’s idle today. It’s a 16-inch line, about 100,000 barrel a day potential capacity. It’s idle today but once we have this line built here and start up Tex New Mex, we believe we’ll have the opportunity to make this buy directional and have gathering all along this line, we’ll be able to deliver crude into El Paso from areas up in here, or delivery crude back up to Gallup because Tex New Mex will be buy directional and be able to move up to the Gallup area.

Speaking of Gallup, there is a newer basin here called the San Juan Basin, Conoco, EnCana have been some of the producers announcing some modest declines today, but we see some potential up there in the San Juan Basin, also for some of this discounted shale crude to be able to enjoy to run a Gallup or as I said, as Tex New Mex restarts, we might bring some of this crude down through Tex New Mex and into El Paso. So again, the flexibility that will be a word, you’ll hear a lot going forward. The flexibility of our logistics assets allows us to buy crude and deliver crude where we need it, when we need it and again the crude is discounted and we’re fortunate enough to have our locations next to these fields where this crude is discounted.

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