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» Western Refining's CEO Discusses Q4 2011 Results - Earnings Conference Call
Jeff StevensThanks, Jeff. Welcome to everyone on the call. Today we will discuss our first quarter performance. After my opening remarks, Gary will review our earnings in more detail and provide operating guidance for Q2 2012, then we will open up the call for your questions. As stated in our press release and in slide three, we reported net income, excluding special items, of $85.1 million, or $.81 per diluted share, and adjusted EBITDA of $183 million for the quarter ended March 31 st, 2012. These results were primarily due to strong refining margins, driven by the continuing wide Brent/WTI spreads and strong refined product values in our region. As has been well-documented, Shell crude production continues to show very strong growth prospects throughout the U.S., including the Permian Basin. Western is well-positioned, with two refineries located in the heart of this growing crude oil production. As I’ll detail later in my comments regarding our investment opportunities, we are capitalizing on our ability to process additional quantities of this better-yielding, lower-cost crude. In terms of product values, we believe Western is advantaged compared to most mid-con refiners, as about 35% of our product sales are influenced by the strength of west coast pricing. As shown on slide four, LA product prices relative to the Gulf Coast have performed better than Chicago and the Group in most recent quarters. We believe that our crude cost advantage, coupled with the strength of the areas where we sell our products, should result in good profitability for the next several quarters. As shown on slide five, our refineries demonstrated gross margin improvement during the quarter, with El Paso up 14% and Gallup up by 9% compared to Q1 2011. Total refining throughput was approximately 145,000 barrels per day, which was in-line with our expectations. As we stated on the last earnings call, we took some planned downtime in El Paso in mid-February to perform some work on the crude unit and FCC. At Gallup, we experienced minor operation issues which caused us to operate at lower rates. Both facilities are currently operating at full capacity.
Our Southwest wholesale business performed well in the quarter, with flow gallons up 5%, card lock volumes up 13% and lube volumes up 11% compared to Q1 2011. We also continued to grow our Mid-Atlantic wholesale business. I believe this business will become more profitable over time.In our retail business, the addition of 60 new stores in the past year drove significant fuel volume and merchandized sales growth relative to Q1 2011. Our same-store fuel volumes and merchandise sales were also improved compared to Q1 2011. We are encouraged that our retail is well-positioned to capitalize on the upcoming summer season. Turning to the second quarter, Brent/WTI spreads through April have averaged $16.40 per barrel. Additionally, we have seen the recent widening of the WTI cushing and WTI midland crude differential to around $5.00 per barrel, compared to approximately $.50 per barrel in 2011. We believe this is a result of increased crude production relative to takeaway capacity at Midland. Western buys all of El Paso’s barrels on a Midland WTI basis, which allows us to capture the crude discount. Given the market environment, we added to our crack spread hedges during the quarter, and as of March 31 st, our 2012 crack spread hedges represent approximately 36% of planned production for the remainder of the year. Crack spread hedges represent approximately 18% of our 2013, and 8% of our 2014, total planned production. A summary of our hedge position can be found on slide six. We will continue to opportunistically place crack spread hedges for 2013 and ’14. Read the rest of this transcript for free on seekingalpha.com