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Western Refining, Inc. (



Q4 2011 Earnings Call

February 28, 2012 10:00 am ET


Jeff A. Stevens – President and Chief Executive Officer

Gary R. Dalke – Chief Financial Officer

Mark J. Smith – President - Refining and Marketing

Jeffrey S. Beyersdorfer – Treasurer, Director of Investor Relations


Edward Westlake – Credit Suisse

Chi Chow – Macquarie Research

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Good morning and welcome to the fourth quarter of 2011 Western Refining earnings conference call. After the speakers’ opening remarks, there will be a question and answer period. (Operator instructions)

I will 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 and good morning. I’d 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’m 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 in the Investor Relations section of our website at

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 statement 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. Welcome to everyone on the call. Today we will discuss our fourth quarter and full year performance. After my opening remarks, Gary will review our earnings in more detail and provide operating guidance for Q1 2012, and then we will open up the call for questions.

The fourth quarter wraps up an extraordinary year for Western. The actions we took during the year allowed us to capitalize on positive market dynamics for our business. As a result, we generated significant free cash flow during the year and reduced our net debt from $1 billion at the beginning of the year to a little more than $400 million by year’s end.

As stated in our press release on page three of the slide presentation, we reported a net income, excluding special items, of $48.6 million, or $0.48 per diluted share, for the quarter ended December 31


, 2011. For the full year, we reported net income, excluding special items, of $318.2 million, or $3.03 per diluted share. The two primary special items for the quarter and the year are a loss on a disposition of assets and non-cash unrealized gains from crack spread hedging activity.

Adjusted EBITDA in Q4 2011 was $42.9 million, which included a $298.2 million in unrealized hedge gains for the year 2011. Adjusted EBITDA was a company record of $965.9 million and included $182.1 million in unrealized hedging gains.

These strong results for the quarter and for the full year were primarily results of improved refinery margins driven by the Brent-TI spread. The Gulf Coast 3:2:1 benchmark crack spread averaged $20 per barrel in the fourth quarter and more than $24 per barrel for the full year. These are up more than $11 and $15 per barrel, respectively, compared to Q4 2010 and for the full year 2010. As shown on page four of our slides, our Southwest refineries demonstrated similar margin improvement.

At the beginning of 2011, we established goals to continue to improve the balance sheet to reinvest in our business. The market conditions during 2011 allowed us to achieve these goals and also opportunistically undertake other initiatives.

Let me briefly discuss five of these initiatives during the year. We sold the Yorktown refinery and an 82-mile segment of underutilized crude pipeline in New Mexico for $220 million. We retired our floating note rates, which reduced our annual pre-tax costs by approximately $30 million.

We refinanced our revolver and term loan, resulting in lower interest rates, extended maturities, and most importantly, removal of financial maintenance covenants. We strategically added to our crack spread hedging positions, ending the year with 32% planned production hedge for 2012, 16% for 2013, and 5% for 2014. A summary of our crack spread hedge positions and realized and unrealized gains can be found on page five of our slides.

Lastly, we added 59 sites to our retail network and 10 sites to our cardlock network, providing additional ratable demand for our refined products. These achievements set Western up to execute our plan for 2012, which we will discuss later in the call.

Turning to the fourth quarter, our refining segment throughput was 145,000 barrels per day, which is lower than our typical rate, but was consistent with the updated guidance that we provided on January 10



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