Western Refining, Inc. (WNR)

Bank of America Merrill Lynch Leveraged Finance Conference Call

November 30, 2011 14:40 ET


Jeff Beyersdorfer – Senior Vice President and Treasurer


Unidentified Analyst

Alright. I think we are ready to get started again. So, next up we have Western Refining. From Western, we have Jeff Beyersdorfer who is the Senior Vice President and Treasurer for Western. And Jeff, you can – the floor is yours.

Jeff Beyersdorfer – Senior Vice President and Treasurer

Okay, thank you. If you don't mind, I am going to walk around a little bit. So again, my name is Jeff Beyersdorfer, Treasurer and in charge of Investor Relations for the company. For about the next 20 or 25 minutes, I am going to talk about three areas. One, a little bit of overview of Western and our asset base for those of you not familiar with the company. Second of all, I'll talk about the well-documented phenomena about domestic crude, particularly WTI and what's going on, how that's affecting us or what implications that has for us as a refining company. And then third, talk a little bit about the balance sheet and the strategies around our balance sheet in the near term or what our plans are for debt reduction.

So, the first slide and hopefully everyone has a presentation. These slides are difficult to read while the broadcast appear, but the first slide is just a quick asset overview. So, primarily our operations are in the Southwest. We've got two refineries, one in El Paso, Texas; one is Gallup, New Mexico, total barrels of about 150,000 barrels a day. We also have two what we think about as outlets or distribution outlets for our refined product. One is a wholesale business where we market to the big uranium and gold mining companies, all the way down to the little landscaper in Tucson, Arizona and I will talk about that wholesale business a little bit, because it differentiates us we believe versus some of our peer group for having ratable outlet for that product via our wholesale business.

And then the other business we have is a retail business about 206 retail stores throughout the Southwest, mostly concentrated in the Four Corners region of the Southwest. Again, we view it as an outlet, a ratable outlet for our refined product everyday to sell it. We also have an asset idled now in Yorktown, Virginia, a refining asset. We idled it a little over a year ago. We've been in conversations to dispose of that asset. I'll talk about that a little bit. We still have a wholesale marketing business in the Mid-Atlantic, where we are selling about 35,000 barrels a day to our customers of refined product in the Mid-Atlantic region. So, that's our asset base. The major markets we serve, the cities we serve are El Paso and Juarez, Mexico and Northern Mexico, Flagstaff, Albuquerque, Phoenix, and Tucson. That's basically our markets. So, we are a smaller independent refining company.

Next page is an infrastructure of the product disposition in the Southwest. So, what I show on here are all the product pipelines that gives refined product, where it needs to go throughout the Southwest. And why we think this is important is because of the location of our two refineries. We think we are in pretty good location geography wise to serve the markets we are in versus our competitors, because as you can see all these product pipelines are falling from east to west all product or the majority of product passes through El Paso before it goes to Tucson and Phoenix.

And why that's important is because a number of these markets that we serve have very difficult gasoline specifications. A gallon of gasoline sold in Phoenix is not the same as a gallon of gasoline sold in Tucson or Flagstaff. And that helps us from a location advantage, because we can blend components into a gallon of gasoline and supply that gallon better and more efficiently perhaps than some of our competitors in West Texas or on the Gulf Coast. So, we like these assets, the logistics nature of these assets, the location of these assets.

Again, hard to read, you can see it better in the pages in front of you, but Macquarie Bank does a regular quarterly ranking, this is all publicly available information of all the independent refineries out there that publish by refinery operating margins. So, this is gross margin minus operating cost on a per barrel basis. And you can see that over the last two years we have ranked pretty high towards the top of the list. The interesting thing about this list though is that if you have been in this industry or following this industry for a while, the old paradigm was the refineries that were based on a coast, access to water-borne crudes, big complex refineries, those were the refineries that we are going to make money. And those smaller refineries, inland, difficult to access, those were the refineries that we are going to go out of business or struggle.

And clearly, that's not the case over the last couple of years. The refineries that make money today in good margins sit on top of their crude source are basically inland refineries, very little coastal refineries, have reasonable operating costs and have interesting little niche markets for which they service. That's the commonality that we see for the refineries that are posting good margin results today. So, that's a little bit about the company and our asset base.

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