Western Refining Inc. ( WNR) Credit Suisse Energy Summit Conference Transcript February 9, 2012 10:00 AM ET Executives Jeff Beyersdorfer – Senior Vice President, Treasurer Mark Smith – President, Refining and Marketing Analysts Edward Westlake – Credit Suisse Presentation Edward Westlake – Credit Suisse
So the first slide is a quick overview of the asset base, as I said, we are concentrate in the Southwest, for those of you that don’t know, there is two refinery, one is El Paso, Texas, one in Gallup, New Mexico, about a 150,000 barrels a day of crude.And we also have two businesses that basically serve as an outlet for the refine product. One is a wholesale business, that’s in the Southwest. And our wholesale business is a bit different than most others and that we sell all the way through to the end customer. We've got the little landscaper in Tucson as a customer all the way up to the big mining companies and railroad companies in the Southwest. Whereas most of our competition sells their product at the rack, they don't necessarily have a -- on the pulse of end markets. So our wholesale business is a little bit different. And the other outlet that we have are 210 retail stores throughout the Southwest, mostly concentrated in the Four Corners area, we’ve just added some retail sites about 60 retail sites over the last six to nine months and I’ll get into that in some of the later slides. A little hard to see up here, but if you got a presentation in front of you, this is a map of the Southwest product distribution network. So these are all product pipelines in the Southwest. And we content that size and complexity of refiners no longer matters as much as it once did, but logistics and location matter more. And if you look at the pipeline logistics, El Paso which sits right there, sits at this hub of this spoken hub system and all the product that goes west from El Paso into Tucson and Phoenix has to pass through El Paso, they comes from here, comes from here, comes from here, passes through EL Paso.
Why that’s important is there are unique gasoline specs particularly in Phoenix, they are done state by state gasoline specification. But as an example, Phoenix runs a different grade of gasoline in summer versus the winter, and for somebody that is geographically close to Phoenix can satisfy that demand more on a just in time basis than those refiners on Gulf Coast or even on the West Coast.So logistics matter and how you get product in, sorry, product out or product in to market, crude into a market matters more now than complexity or size. This is shown in a graph again pretty hard to read up here, but it’s in the presentation that shows and this is all publically available, that shows a ranking of gross margin minus direct OpEx, so operating margin by refinery or by region of the various independent refiners. This isn’t the integrated just the independent. The yellow obviously is our, the grey are others. But the common theme for those at the top are they sit on top of their crude sources. They are not complex refineries. They are simple refineries. They are small and they serve pretty unique areas. That’s what results in better gross margin we content these days versus the old paradigm of you got to be on the water, you got to be a big complex refinery in order to run a lot of different groups. Quick summary of our third quarter results. I will remind you, we are going to report on February 28th, the Tuesday, where we’ll talk about fourth quarter results and we’ll give some more detail around our capital budget and some of our insights into the market and why this Brent-TI spread is widening back out again. But it’s very fluctuating as you know. It changes day-to-day. What we say here today maybe completely different, what we are going to say on February 28th. But I will remind you that we are going to call that day where we’ll share our results in little bit more and insight into 2012. Read the rest of this transcript for free on seekingalpha.com