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Western Refining Inc. (WNR)

UBS Global Oil and Gas Conference Call

May 23, 2012 01:30 pm ET


Jeff Beyersdorfer - SVP & Treasurer



Unidentified Analyst

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We will move on to our next presentation. Coming up next we have Jeff Beyersdorfer, Senior Vice President and Treasurer of Western Refining. Jeff, I will turn it over to you.

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Jeff Beyersdorfer

Alright thanks Craig. So I am going to walk around and interact with the crowd since we've got such a small crowd here. We just lost one. So sorry a [clicker] or will you? Thank you. Okay, three things I want to do today, just quickly describe the asset base and within embedded in those comments is going to be some comments around the Midland/Cushing differential because it is a new phenomena and I've got a couple of maps in here, I will describe that phenomena and talk about how it affects our operations. Secondly talk about some of the projects that we are doing this year, some of the initiatives we have going on and particularly the uses of cash and then finally I want to talk about the balance sheet because there have been some lingering issues with respect to the balance sheet over time and we work pretty hard on rectifying those and want to share with you some of those things we’ve done and some additional initiatives we have around the balance sheet.

Alright this is very hard to read. So, within your packets, if you could look at the map there and what I want to describe are the assets that we have and the phenomena going on in the Permian Basin. So we have two refineries in El Paso, Texas and Gallup New Mexico and they sit on the part of the Permian Basin, El Paso does. This outline, the white line is the Permian. The blue line is the Delaware Basin within the Permian, and then Gallup, it’s up here in the Four Corners area.

We also have some wholesale business and retail business that I will get into in a second, but did want to talk about the thing that we think makes us pretty unique in our neck of the woods and that we have an ability to buy this discounted crude and you’ve all been told and you’ve all been aware of the WTI-Brent discount. But buy this discounted crude and sell it into markets some of which has some West Coast pricing influence, which has typically been higher than other margin environments. So buying discounted crude and selling products into some premium markets because of the location of our facilities.

But what's going on here in the Permian is that you read about this new crude coming onboard and having a logistically tough time getting out of the market. There are a couple of pipeline solutions that will come on board over the next couple of months. There is the Basin pipeline which runs up from Midland to Cushing.

So here is Midland to Cushing, that’s a 450,000 barrel a day line. It's four today, but there are two new lines, one being expanded and one being reversed that will also solve this problem longer term between Midland and Cushing. There is a West Texas Gulf Line that runs from Colorado City to the Houston Ship Channel, it's 240,000 barrels a day expandable by a 120,000 barrels up to 360,000 and that will be done by the end of this year. And there is the reversal of the Longhorn Pipeline, that’s a product line today that will be reserved into a crude line and run from Crane back down to the Gulf Coast and deliver initially about a 100,000 barrels of crude out of that market.

But still nonetheless if you look at the production estimates anywhere from a million barrels to some analysts have it close to 2 million barrels a day coming up in the Permian, there still isn’t enough takeaway capacity out there to takeaway all that crude, so we think these discounts will still be sustainable for some period of time. So that’s on the crude market that’s what's going on here. I’ll talk about a project we have going on to take advantage of this crude market to make sure we get some of this crude to El Paso, the refinery in El Paso.

But longer term the whole world is going to look different in terms of domestic crude production and we're right in the heart of it with El Paso and Gallup been located where they are. On the product side, it’s the same situation with El Paso and Gallup kind of being the gateway to the west for product distribution. So, if you look at all these product lines, again I apologize it's hard to see up on the screen but in your presentation you can look and see they are all these product lines that flow from the east to the west and most of them pass through El Paso.

And you look at our biggest markets, some of our growth markets El Paso, Mexico mainly what is the Mexico Phoenix and Tucson are pretty good markets and you heard me say earlier some of these markets particularly Phoenix and Tucson have a west coast pricing influence. So we are getting some perhaps product premium pricing for some of the markets that we do serve. We also serve the Four Corners area, Albuquerque Flagstaff are some of the major markets that we serve.

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