Western Refining, Inc. (WNR)
Deutsche Bank 2012 Leveraged Finance Conference Transcript
October 10, 2012 6:00 PM ET
Jeff Beyersdorfer - SVP and Treasurer
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Thank you, (inaudible). All right. Good afternoon. I’m Jeff Beyersdorfer, again SVP and Treasurer of the company. 20 minutes, I want to go through little bit about the company. What it is we do but mostly talk about the Permian and the opportunities we have there, and what it means for us as a refining company.
So for those that don't know the company, these slides are kind of hard to see you’ve got them in front of you. Very briefly we’ve got our asset base in the Southwest. Two refineries, 150,000 barrel a day capacity, total one in El Paso, one in Gallup.
We also have two distribution networks, one a retail service chain, convenience stores chain, about 222 stores throughout Southwest. And then secondly, these little black dots up here are sales offices for our wholesale business. So we have a wholesale business.
We think unlike anybody else’s and that we sell all the way through to the end customer. So the big mining companies here in Arizona, our customers are those small little fleet provider, fleet service providers or the guy preparing air conditioners here in Phoenix that’s our customer also.
We don’t think there many others of our peer group have a wholesale network and infrastructure to support 3,000 customers the way we do and it help us just to keep a pulse on the end market for demand and things alike.
What I want to talk about are five things. Two have to do with our geography, the Southwest that we enjoy. Through shared unlock its access to this Permian Basin phenomenon that we’ve got going on. And also we’ve got pretty good product market that I’ll talk you about specifically Phoenix is a very good product market for us for gasoline.
The wholesale retail integration I want to quickly touch on. We are in a transition period for the company. We are no longer paying down debt. We think this fix the balance sheet. We are growing through capital expenditure I’ll talk about that. And then talk a little about the capital structure from the things we are thinking about in terms of the capital structure.
But first of all, the crude dynamic, we buy a 100% of our crude on a WTI basis. So it’s either Cushing or Gallup or Midland or El Paso and then we also buy from West Texas seller, it’s about 15% of El Paso crude diet. But for the most part we are 100% leverage for this WTI Brent phenomena that I’m sure everybody knows about.
And what we are doing now is that, because this new shale crude play is happening, we are trying to go in and discuss with some of the producers about coming directly to our refinery with their crude rather then sending it to Cushing or sending it to the Gulf Coast. And we’ve got a couple of projects we are doing and I’ll show you those projects graphically and what they might mean for the company.
Here's West Texas, here is the Permian Basin. Looks if this work. Okay. Here is the Permian Basin, this white outline here. This is Texas. This is New Mexico. And what we’ve tried to show here is the supply/demand scenario for El Paso and less importantly for Gallup.
Here is El Paso. These are all crude line here that are existing or the dotted lines are to be built crude line that take crude from the Permian either to Cushing, here is Cushing, Oklahoma or to the Gulf Coast.
For El Paso we are benefiting from three-differential for crude. The first differential that you know about is this TI Brent spread placing between Cushing and the Gulf Coast. The TI Brent spread, this morning it was $22, it has run around $15 to $17 over the last several months.
As [few] announcement last year made it go back to 8 bucks. We’ll talk about what is going to do longer term, but right now it’s benefiting us on a couple of other that can process this WTI crude. So that’s one differential.
The second differential is the cost between Cushing and Midland. Recall what I said for El Paso. We are buying our Midland-based WTI. And the differential there between Cushing and Midland is about $1.70 today per barrel. Historically, it went about $0.50 per barrel.
During the second quarter of this year it blew out to around $3 or $4 a barrel. And the reason is because there is only one line, this Basin line it’s about 450,000 barrels a day that goes between Midland and Cushing.
So what happened is they spend more production of crude that could be supported on this line, therefore crude got backed up at Midland and led to that wider differential between Midland and Cushing therefore benefiting us, since we are buying on a Midland Basin.