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Western Refining, Inc. (WNR)
Q2 2013 Earnings Conference Call
August 1, 2013 11:00 AM ET
Jeffrey S. Beyersdorfer – Senior Vice President-Treasurer, Director of Investor Relations
Jeff A. Stevens – President and Chief Executive Officer
Gary R. Dalke – Chief Financial Officer
Manav Gupta – Morgan Stanley & Co. LLC
Jeff A. Dietert – Simmons & Co.
Roger D. Read – Wells Fargo Securities LLC
Chi Chow – Macquarie Capital, Inc.
Clay Rynd – Tudor Pickering Holt & Co. Securities, Inc.
Rakesh V. Advani – Credit Suisse Securities LLC
Previous Statements by WNR
» Western Refining Inc. (WNR) Management Discusses Q2 2013 Results (Webcast)
» Western Refining Management Hosts Western Refining at Bank of America Merrill Lynch Energy and Power Leveraged Finance (Transcript)
» Western Refining's CEO Discusses Q1 2013 Results - Earnings Call Transcript
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.
Jeffrey S. Beyersdorfer
Thanks, Laurie, and good morning. I like to thank you for taking the time to listen in today and for your interest in Western Refining. Again, my name is Jeff Beyersdorfer. I am 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.
Also in July, we announced the filing of the Form S1 registration statement with the SEC relating to the formation of a Western sponsored traditional master limited partnership. We will not be taking questions regarding the MLP today. For more information, we refer you to the S1 registration statement.
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 A. Stevens
Thanks, Jeff. Welcome to Western’s second quarter earnings call. After my opening remarks, Gary will review our earnings in more detail and provide operating guidance for Q3 2013. Then we will open up the call for your questions.
Western had another strong quarter and through the first half of the year, we are pleased with our progress on our 2013 goals. As you may remember, our goals for the year were to continue to focus on safety and reliability, to further enhance our cost advantage crude position, to grow our logistic assets and to increase our financial flexibility and return cash to shareholders. We have completed plant maintenance and turnaround work at both of our refineries and we believe we are positioned to continue to operate at full rates and in a safe and reliable manner.
We have completed the first two phases of our Delaware Basin Logistics system, which includes truck offloading, storage and pipeline assets. The addition of this system, substantially expands our logistics capabilities, and will help us to secure additional barrels of high quality, cost advantage crude oil for our El Paso refinery. We have also established our crude truck gathering operation in the Delaware Basin and plan to have approximately 40 crude oil transports operating in this area by the end of the year. We are investing in the four corners based on the growing crude oil production that we see in the area.
Earlier this year, we completed the expansion of the Gallup refinery. We’ve invested in rail loading capacity at Gallup, which allows us to expand shipments of crude oil by rail to coastal refineries. We began work to restart the ideal portion of our 16-inch Tex-New Mex crude oil pipeline, and as we previously announced, we are in the early stages of development of a new 70 mile crude oil pipeline that we’ll tie in the Tex-New Mex line with our Delaware Basin pipeline system.
Earlier this year, we refinanced a significant portion of our debt by amending our revolver and replacing the 11.25 secured notes with 6.25 unsecured notes. Since the beginning of 2011, we’ve reduced our total debt by approximately 50%. We’ve increased covenant flexibility, lowered interest rates, and as a result, we’ve reduced our cash interest expense by approximately 70%, a reduction of more than $90 million annually. Now that we fixed our balance sheet, we believe we have the financial flexibility to be successful in any margin environment.
In the first six months of 2013, we returned approximately $220 million in cash to shareholders through share repurchases and quarterly dividends. We closed Q2 with more than $370 million in cash. In the second quarter, Western generated adjusted EBITDA of $240 million. While we had strong refining gross margins in Q2, crack spreads were lower than recent quarters. As you are aware, Brent/WTI spreads contracted significantly during the quarter.