Western Refining, Inc. (WNR)

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Western Refining, Inc. (WNR)

Q3 2012 Earnings Call

November 01, 2012, 11:00 am ET

Executives

Jeff Beyersdorfer - SVP, Treasurer, Director of Investor Relations

Jeff Stevens - President & CEO

Gary Dalke - CFO

Mark Smith - President, Refining and Marketing

Analysts

Jeff Dietert - Simmons

Roger Read - Wells Fargo

Chi Chow - Macquarie Capital

Cory Garcia - Raymond James

Rakesh Advani - Credit Suisse

Presentation

Operator

Good morning. And welcome to the Third Quarter 2012 Western Refining 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.

Jeff Beyersdorfer

Thank you Jackie and good morning. I would like to thank you for taking the 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 IR.

Joining me for today’s call are Jeff Stevens, President and CEO; Gary Dalke, our CFO; Mark Smith, 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 in 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.

I’ll now turn the call over to Jeff.

Jeff Stevens

Thanks, Jeff. And welcome to everyone on the call. Today, we will discuss our third quarter performance. After my opening remarks, Gary will review our earnings in more detail and provide operating guidance for Q4 2012. Then we will open up the call for your questions.

As we have said in the past, our 2012 plan was to continue to focus on safe and reliable operations, improve the balance sheet and reinvest in the business. In the third quarter, the fundamentals for our business remained strong and Western has continued to benefit from this favorable environment.

During the quarter, we made the decision to perform some very important plan work at both our refineries to ensure continued safe, reliable and efficient operations. At Gallup, we began a full turnaround of the facility and made other investments that will allow us to expand throughput and improve reliability. At El Paso, we took some planned downtime to perform a regeneration of our reformer. This work was initially planned for the winter’s turnaround however the performance of the reformer continued to degrade throughout the summer and we made the decision to complete the work in September.

In addition, while completing the reformer work, we took an opportunistic shutdown of this Southside crude unit. The decision to do this work at El Paso will improve operating efficiency and will give us the flexibility to potentially extend the cycle of this unit.

We also expanded the scope of our Gallup turnaround and therefore incurred additional cost during the quarter. And at El Paso, the plant maintenance work created higher feedstock and other cost which impacted gross margin. We estimate, the negative impact of these additional costs was approximately $25 million in the third quarter. Both refineries are currently running well and at planned rates. And I am proud of our employees and their efforts during this plant maintenance. We are pleased with the outcome of these investments and feel that we are well positioned to continue to capture this favorable margin environment.

During the quarter, the Brent WTI spread widened, creating very strong forward margins. As a result, we added to our 2013, 2014 and 2015 crack spread hedges during the quarter, which is consistent with our stated plan to opportunistically add to our positions. A summary of our hedge positions, as of September 30th, can be found on slide five.

Over the last year, we have used our strong cash flow to significantly improve the balance sheet. During the quarter, cash increased by $164 million, and as of September 30th our cash balance of $510 million exceeded our total debt of $496 million. I would also like to highlight that cash balances during October averaged approximately $670 million. We are comfortable with the overall level of debt and we will continue to look for opportunities to improve our balance sheet in the future.

Western continues to focus on investments that will enhance our core business; one example is our Delaware Basin logistics project which is progressing very well. We expect the first phase of this project which includes the truck off loading stations and tankage to be operational by the end of the fourth quarter.

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