Western Refining (WNR)

 

We are an independent crude oil refiner and marketer of refined products and also operate service stations and convenience stores. We own and operate four refineries with a total crude oil throughput capacity of approximately 238,000 barrels per day, or bpd. In addition to our 128,000 bpd refinery in El Paso, Texas, we also own and operate a 70,000 bpd refinery on the East Coast of the United States near Yorktown, Virginia and two refineries in the Four Corners region of Northern New Mexico with a combined throughput capacity of 40,000 bpd. Our primary operating areas encompass West Texas, Arizona, New Mexico, Utah, Colorado, and the Mid-Atlantic region. In addition to the refineries, we also own and operate stand-alone refined products terminals in Flagstaff, Arizona and Albuquerque, New Mexico, as well as asphalt terminals in Phoenix and Tucson, Arizona, Albuquerque and El Paso. As of February 27, 2009, we also own and operate 153 retail service stations and convenience stores in Arizona, Colorado and New Mexico, a fleet of crude oil and finished product truck transports, and a wholesale petroleum products distributor that operates in Arizona, California, Colorado, Nevada, New Mexico, Texas, and Utah.

 

We were incorporated in September 2005 under Delaware law. In January 2006, we completed an initial public offering and our stock began trading on the New York Stock Exchange, or NYSE, under the symbol “WNR.” Also in connection with our initial public offering, pursuant to a contribution agreement, a reorganization of entities under common control was consummated whereby Western Refining, Inc. became the indirect owner of the historical operating subsidiary, Western Refining LP and all of its refinery assets.

 

On May 31, 2007, we completed the acquisition of Giant. Under the terms of the merger agreement, we acquired 100% of Giant’s 14,639,312 outstanding shares for $77.00 per share in cash. The purchase price of $1,149.2 million was funded through a combination of cash on hand, proceeds from an escrow deposit, and a $1,125.0 million secured term loan. In connection with the acquisition, we borrowed an additional $275.0 million in July 2007, when we paid off and retired Giant’s 8% and 11% Senior Subordinated Notes. Prior to the acquisition of Giant, we generated substantially all of our revenues from our refining operations in El Paso.

 

Following the acquisition of Giant, we began reporting our operating results in three business segments: the refining group, the retail group, and the wholesale group. Our refining group operates the four refineries and related refined products terminals and asphalt terminals. At the refineries, we refine crude oil and other feedstocks into finished products such as gasoline, diesel fuel, jet fuel, and asphalt. Our refineries market finished products to a diverse customer base including wholesale distributors and retail chains. Our retail group operates service stations and convenience stores and sells gasoline, diesel fuel, and merchandise. Our wholesale group distributes gasoline, diesel fuel, and lubricant products. See Note 4, “Segment Information” in the Notes to Consolidated Financial Statements included in this annual report for detailed information on our operating results by segment.

 

 

We are an independent crude oil refiner and marketer of refined
products and also operate service stations and convenience
stores. We own and operate four refineries with a total crude
oil throughput capacity of approximately 238,000 barrels
per day, or bpd. In addition to our 128,000 bpd refinery in
El Paso, Texas, we also own and operate a 70,000 bpd
refinery on the East Coast of the United States near Yorktown,
Virginia and two refineries in the Four Corners region of
Northern New Mexico with a combined throughput capacity of
40,000 bpd. Our primary operating areas encompass West
Texas, Arizona, New Mexico, Utah, Colorado, and the Mid-Atlantic
region. In addition to the refineries, we also own and operate
stand-alone refined products terminals in Flagstaff, Arizona and
Albuquerque, New Mexico, as well as asphalt terminals in Phoenix
and Tucson, Arizona, Albuquerque and El Paso. As of
February 27, 2009, we also own and operate 153 retail
service stations and convenience stores in Arizona, Colorado and
New Mexico, a fleet of crude oil and finished product truck
transports, and a wholesale petroleum products distributor that
operates in Arizona, California, Colorado, Nevada, New Mexico,
Texas, and Utah.

 

We were incorporated in September 2005 under Delaware law. In
January 2006, we completed an initial public offering and our
stock began trading on the New York Stock Exchange, or NYSE,
under the symbol “WNR.” Also in connection with our
initial public offering, pursuant to a contribution agreement, a
reorganization of entities under common control was consummated
whereby Western Refining, Inc. became the indirect owner of the
historical operating subsidiary, Western Refining LP and all of
its refinery assets.

 

On May 31, 2007, we completed the acquisition of Giant.
Under the terms of the merger agreement, we acquired 100% of
Giant’s 14,639,312 outstanding shares for $77.00 per share
in cash. The purchase price of $1,149.2 million was funded
through a combination of cash on hand, proceeds from an escrow
deposit, and a $1,125.0 million secured term loan. In
connection with the acquisition, we borrowed an additional
$275.0 million in July 2007, when we paid off and retired
Giant’s 8% and 11% Senior Subordinated Notes. Prior to
the acquisition of Giant, we generated substantially all of our
revenues from our refining operations in El Paso.

 

Following the acquisition of Giant, we began reporting our
operating results in three business segments: the refining
group, the retail group, and the wholesale group. Our refining
group operates the four refineries and related refined products
terminals and asphalt terminals. At the refineries, we refine
crude oil and other feedstocks into finished products such as
gasoline, diesel fuel, jet fuel, and asphalt. Our refineries
market finished products to a diverse customer base including
wholesale distributors and retail chains. Our retail group
operates service stations and convenience stores and sells
gasoline, diesel fuel, and merchandise. Our wholesale group
distributes gasoline, diesel fuel, and lubricant products. See
Note 4, “Segment Information” in the Notes to
Consolidated Financial Statements included in this annual report
for detailed information on our operating results by segment.

 

 

We are an independent crude oil refiner and marketer of refined products and also operate service stations and convenience stores. We own and operate four refineries with a total crude oil throughput capacity of approximately 238,000 barrels per day, or bpd. In addition to our 128,000 bpd refinery in El Paso, Texas, we own and operate a 70,000 bpd refinery on the East Coast of the United States near Yorktown, Virginia and two refineries in the Four Corners region of Northern New Mexico with a combined throughput capacity of 40,000 bpd. Our primary operating areas encompass West Texas, Arizona, New Mexico, Utah, Colorado, and the Mid-Atlantic region. In addition to the refineries, we also own and operate stand-alone refined products terminals in Flagstaff, Arizona and Albuquerque, as well as asphalt terminals in Phoenix, Arizona; Tucson, Arizona; Albuquerque; and El Paso. As of December 31, 2008, we also own and operate 155 retail service stations and convenience stores in Arizona, Colorado and New Mexico, a fleet of crude oil and finished product truck transports, and a wholesale petroleum products distributor, that operates in Arizona, California, Colorado, Nevada, New Mexico, Texas, and Utah.

 

On May 31, 2007, we completed the acquisition of Giant. Under the terms of the merger agreement, we acquired 100% of Giant’s 14,639,312 outstanding shares for $77.00 per share in cash. The purchase price of $1,149.2 million was funded through a combination of cash on hand, proceeds from an escrow deposit, and a $1,125.0 million secured term loan. In connection with the acquisition, we borrowed an additional $275.0 million in July 2007, when we paid off and retired Giant’s 8% and 11% Senior Subordinated Notes.

 

Following the acquisition of Giant, we began reporting our operating results in three business segments: the refining group, the retail group, and the wholesale group. Our refining group operates the four refineries and related refined products terminals and asphalt terminals. At the refineries, we refine crude oil and other feedstocks into finished products such as gasoline, diesel fuel, jet fuel, and asphalt. Our refineries market finished products to a diverse customer base including wholesale distributors and retail chains. Our retail group operates service stations and convenience stores and sells gasoline, diesel fuel, and merchandise. Our wholesale group distributes gasoline, diesel fuel, and lubricant products. See Note 4, “Segment Information” in the Notes to Consolidated Financial Statements included elsewhere in this annual report for detailed information on our operating results by segment.

 

Prior to the acquisition of Giant, we generated substantially all of our revenues from our refining operations in El Paso. By expanding our refining operations from one to four facilities, we diversified our operations. In addition, we increased our sour and heavy crude oil processing capacity as a percent of our total crude oil capacity from 12% prior to the acquisition to approximately 38% as of December 31, 2008. Sour and heavy crude oil is generally less expensive to acquire. We expect our combined sour and heavy crude oil processing capability to reach up to 50% by the end of 2009, following the completion of our previously announced gasoline desulfurization project at our El Paso refinery. The Yorktown refinery also has the flexibility for future growth initiatives given its ability to process cost-advantaged feedstocks. With the acquisition, we also gained a diverse mix of complementary retail and wholesale businesses.

 

In 2005, Giant purchased an inactive pipeline running from Southeast New Mexico to Northwest New Mexico. The pipeline has been reversed and upgraded to transport crude oil from Southeast New Mexico to the Four Corners

 

We are an independent crude oil refiner and marketer of refined products and also operate service stations and convenience stores. We own and operate four refineries with a total crude oil throughput capacity of approximately 234,000 barrels per day, or bpd. In addition to our 124,000 bpd refinery in El Paso, Texas, as a result of the Giant acquisition, we now also own and operate a 70,000 bpd refinery on the East Coast of the United States near Yorktown, Virginia and two refineries in the Four Corners region of Northern New Mexico with a combined throughput capacity of 40,000 bpd. Our primary operating areas encompass West Texas, Arizona, New Mexico, Utah, Colorado, and the Mid-Atlantic region. In addition to the refineries, we also own and operate stand-alone refined products terminals in Flagstaff, Arizona and Albuquerque, as well as asphalt terminals in Phoenix, Tucson, Albuquerque and El Paso. As of December 31, 2007, we also own and operate 154 retail service stations and convenience stores in Arizona, Colorado and New Mexico, a fleet of crude oil and finished product truck transports, and a wholesale petroleum products distributor — Western Refining Wholesale, Inc., which operates in Arizona, California, Colorado, Nevada, New Mexico, Texas, and Utah.

 

Following the acquisition of Giant, on May 31, 2007, we began reporting our operating results in three business segments: the refining group, the wholesale group and the retail group. Our refining group operates the four refineries and related refined products terminals and asphalt terminals. At the refineries, we refine crude oil and other feedstocks into finished products such as gasoline, diesel fuel, jet fuel, and asphalt. Our refineries market finished products to a diverse customer base including wholesale distributors and retail chains. Our retail group operates service stations and convenience stores and sells gasoline, diesel fuel, and merchandise. Our wholesale group distributes gasoline, diesel fuel, and lubricant products. See Note 4, “Segment Information” in the Notes to Consolidated Financial Statements included in this Annual Report for detailed information on our operating results by segment.

 

Prior to the acquisition of Giant, we generated substantially all of our revenues from our refining operations in El Paso. By expanding our refining operations from one to four facilities, we diversified our operations. In addition, we increased our sour and heavy crude oil processing capacity as a percent of our total capacity from 12% to almost 25%. Sour and heavy crude oil is generally less expensive to acquire. We expect our combined sour and heavy crude oil processing capability to reach approximately 45% by the end of 2009, following the completion of our previously announced acid and sulfur gas facilities and our gasoline desulfurization projects at our El Paso refinery. The Yorktown refinery also has the flexibility for future growth initiatives given its ability to process cost-advantaged feedstocks. With the acquisition, we also gained a diverse mix of complementary retail and wholesale businesses.

 

In 2005, Giant purchased an inactive pipeline running from Southeast New Mexico to Northwest New Mexico. The pipeline has been reversed and upgraded to transport crude oil from Southeast New Mexico to the Four Corners region. Crude oil began pumping into this pipeline in July 2007 and reached the Four Corners refineries in August 2007. This incremental supply of crude oil in the Four Corners region provides enough feedstock for our two Four Corners refineries to run at increased capacity rates. See Item 1A. “Risk Factors — We may not be able to run our Four Corners refineries at increased rates.”

 

 

We are an independent crude oil refiner and marketer of refined
products and also operate service stations and convenience
stores. We own and operate four refineries with a total crude
oil throughput capacity of approximately 234,000 barrels
per day, or bpd. In addition to our 124,000 bpd refinery in
El Paso, Texas, as a result of the Giant acquisition, we
now also own and operate a 70,000 bpd refinery on the East
Coast of the United States near Yorktown, Virginia and two
refineries in the Four Corners region of Northern New Mexico
with a combined throughput capacity of 40,000 bpd. Our
primary operating areas encompass West Texas, Arizona, New
Mexico, Utah, Colorado, and the Mid-Atlantic region. In addition
to the refineries, we also own and operate stand-alone refined
products terminals in Flagstaff, Arizona and Albuquerque, as
well as asphalt terminals in Phoenix, Tucson, Albuquerque and
El Paso. As of December 31, 2007, we also own and
operate 154 retail service stations and convenience stores in
Arizona, Colorado and New Mexico, a fleet of crude oil and
finished product truck transports, and a wholesale petroleum
products distributor — Western Refining Wholesale,
Inc., which operates in Arizona, California, Colorado, Nevada,
New Mexico, Texas, and Utah.

 

Following the acquisition of Giant, on May 31, 2007, we
began reporting our operating results in three business
segments: the refining group, the wholesale group and the retail
group. Our refining group operates the four refineries and
related refined products terminals and asphalt terminals. At the
refineries, we refine crude oil and other feedstocks into
finished products such as gasoline, diesel fuel, jet fuel, and
asphalt. Our refineries market finished products to a diverse
customer base including wholesale distributors and retail
chains. Our retail group operates service stations and
convenience stores and sells gasoline, diesel fuel, and
merchandise. Our wholesale group distributes gasoline, diesel
fuel, and lubricant products. See Note 4, “Segment
Information” in the Notes to Consolidated Financial
Statements included in this Annual Report for detailed
information on our operating results by segment.

 

Prior to the acquisition of Giant, we generated substantially
all of our revenues from our refining operations in
El Paso. By expanding our refining operations from one to
four facilities, we diversified our operations. In addition, we
increased our sour and heavy crude oil processing capacity as a
percent of our total capacity from 12% to almost 25%. Sour and
heavy crude oil is generally less expensive to acquire. We
expect our combined sour and heavy crude oil processing
capability to reach approximately 45% by the end of 2009,
following the completion of our previously announced acid and
sulfur gas facilities and our gasoline desulfurization projects
at our El Paso refinery. The Yorktown refinery also has the
flexibility for future growth initiatives given its ability to
process cost-advantaged feedstocks. With the acquisition, we
also gained a diverse mix of complementary retail and wholesale
businesses.

 

In 2005, Giant purchased an inactive pipeline running from
Southeast New Mexico to Northwest New Mexico. The pipeline has
been reversed and upgraded to transport crude oil from Southeast
New Mexico to the Four Corners region. Crude oil began pumping
into this pipeline in July 2007 and reached the Four Corners
refineries in August 2007. This incremental supply of crude oil
in the Four Corners region provides enough feedstock for our two
Four Corners refineries to run at increased capacity rates. See
Item 1A. “Risk Factors — We may not be able
to run our Four Corners refineries at increased rates.”

 

 

We are an independent crude oil refiner and marketer of refined products based in El Paso, Texas, and operate primarily in the Southwest region of the United States, including Arizona, New Mexico, and West Texas. Our refinery complex, or refinery, is located in El Paso and has a crude oil refining capacity currently of 124,000 barrels per day, or bpd, which was expanded during 2006 from 108,000 bpd. Over 90% of all products produced at our refinery consist of light transportation fuels, including gasoline, diesel and jet fuel. Our refinery also has approximately 4.3 million barrels of storage capacity and a 45,000 bpd product marketing terminal, where our refined products are loaded into tanker trucks for local deliveries. In addition, we own an asphalt plant and terminal located adjacent to our refinery which is used to process a portion of its residuum production into finished asphalt products. We also own asphalt terminals in Phoenix and Tucson, Arizona, and Albuquerque, New Mexico, which distribute finished asphalt to the market areas in which they are located.

 

We are currently investing significant capital in refinery initiatives that will allow us to improve our crude oil processing flexibility, increase production of higher-value refined products and satisfy certain regulatory requirements. Among these initiatives are the completion of the sulfuric acid regeneration and sulfur gas processing facilities, which will provide us with the capacity to increase our sour crude oil processing from approximately 10% to 50% of our crude oil throughput capacity. The actual percentage of sour crude oil processed will be determined by many factors including sour crude economics and product quality limitations prior to completion of planned gasoline desulfurization projects. We will determine our optimal crude oil slate by first calculating the price difference between WTI crude oil and WTS crude oil. We refer to this differential as the sweet/sour spread. While WTS crude oil is less expensive than WTI crude oil, we must also consider the fact that processing WTS crude oil results in greater volumes of lower-margin residuum products and may also require additional blendstocks such as alkylate. We will weigh the financial impact of these factors and adjust our crude oil inputs in an attempt to maximize profitability. We also plan to maximize the financial benefits derived from the additional pipeline capacity available to us once the Kinder Morgan East Line expansion is completed. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Spending” for a discussion of our capital expenditures budget.