Western Refining, Inc. (WNR)

Barclays Capital 2012 High Yield Bond and Syndicated Loan Conference

March 12, 2012 2:30 PM EST


Mark Smith – President, Refining & Marketing

Matt Yoder – Senior Vice President of Retail Operations and Administration


Unknown Analysts


Mark Smith – President, Refining & Marketing

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Okay. I’m Mark Smith. I am the President of Refining and Marketing for Western Refining. With me today is Matt Yoder. Matt is our Senior VP of Retail and Administration, Western. And I’d like to thank you for your interest in Western Refining.

I want to talk about our Assets first in El Paso. We have a refinery, 120,000 barrels a day capacity. It runs a crude play of about 80% WTI crude, 20% West Texas out. We enjoy the inland pricing of WTI crude and up again in North West of Mexico, the Gallup refinery, we run 23,000 barrels a day. That refinery four corners sweet crude which is again WTI based. We have a complimentary set of logistics assets, including crude pipeline, our terminal – asphalt terminal. We have a retail business with 210 towers in the South West and a wholesale division that operates in both the South West and in the East Coast. About 70,000 barrels a day of products is sold in the South West. About half of our product production goes to our wholesale division. And then about 30,000 barrels a day get marketed in the East coast and that is kind of the customer base that we service when we had a refinery on the East coast, the Yorktown facility.

On the next slide is a map showing kind of the Permian and its location relative to our El Paso refinery. There’s an awful lot of drilling activity that is going on in the Permian basin and a lot of it is right on the main line that feeds our El Paso plant. So we see some good advantage there in terms of the quality of crude that are being produced and also logistics advantage in those crude. So we like in particular the Bone Springs and Avalon crudes that are being produced in that region. We see a good yield quality in our refinery. So we see significant economics in bringing those crudes to our refinery.

Next slide please. El Paso is a hub of a number of pipelines eating the South West and in particular from El Paso, we can push products north up into the Albuquerque market, South in New Orleans, Mexico and West in Tucson and to the Phoenix markets. And one of the things that we think Western has as an advantage relative to others refiners and I think something that separates us from mid-con refiners is the markets that we sell into. We see a significant West Coast influence on our pricing. We sell a premium product at premium prices relative to the Gulf Coast and we do like that West Coast influence. So that we think our markets are a strategic advantage for us and something that separates us from a mid-con refinery.

Looking at our operating margins and kind of the ranking. If you look at this chart up here, where we ranked in 2007 on operating margin, which is close margin less direct OpEx and how we ranked out kind of in 2007 was kind of a middle of the pack among independent refineries. If you look at where we are today, in fact for the last two years we ranked number two and three in this ranking that Macquarie does. So we’ve done a lot of improvements. It’s not just crude, it’s not just the product. We think we are good, reliable operators, refinery. I think it shows up in the numbers. So we are very proud of where we are at and our positioning relative to the competition in the independent states.

Next slide. Our wholesale operation, as I had mentioned we do about 70,000 barrels a day of product in the South West, about 80% of what we put in our own product and deliver for our customers. We do have Cardlock stations, a total of about 67 Cardlock stations in the South West that help to reach out to a diverse customer base with our wholesale business. We operate in Arizona, California, Colorado, Maryland, Nevada, New Mexico, Texas and Virginia. We market about 30,000 barrels a day of products on the East Coast and the midland region and most of the customers we have when we operated the Yorktown refinery and again that’s a business that we are looking to grow and optimize over time.

Our retail operation. We have 210 retail operations retail stores in Arizona, Colorado, New Mexico and Texas. We’ve drawn our footprint there substantially in the last year from about 150 outlets at the beginning of the year to 210. And we like our retail operations in a marketplace where you hear a lot of concerns about demand there is a ready home for our product and so we do like the retail presence. Our Gallup refinery, our majority of the gasoline produced in our Gallup refinery ends up in one of our own retail stations. So we certainly we’d like to have like that feature, we’d like the ability to move that refined product in those zones.

Looking in 2010 and kind of some of our accomplishments in 2010. We initiated crack spread hedging. We extensively hedged to 2011 and then in 2012 we were about 32% hedged on the product that we produced, 16% in 2013 and about 5% to 6% in 2014. So we’ve been fairly aggressive with what we target, more crack spread hedging. Our target is about one-third of our product that we’d like to be hedged with and we’ll continue on the path we can see a good opportunity and good value in the crack that we’re in place. So we are going to continue to march down that path.

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