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Northern Tier Energy LP (NYSE:NTI)

Q4 2013 Earnings Call

February 27, 2014 10:00 am ET

Executives

Jeffrey S. Beyersdorfer - Senior Vice President, Director of Investor Relations and Treasurer

Jeff A. Stevens - Chief Executive Officer, President and Director

Gary R. Dalke - Chief Financial Officer

Chester J. Kuchta - Chief Operating Officer of Northern Tier Energy GP LLC and Vice President of Northern Tier Energy GP LLC

David Bonczek - Chief Financial Officer of Northern Tier Energy GP LLC, Principal Accounting Officer of Northern Tier Energy GP LLC and Vice President of Northern Tier Energy GP LLC

Analysts

Edward Westlake - Crédit Suisse AG, Research Division

Robert A. Kessler - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Chi Chow - Macquarie Research

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Mohit Bhardwaj - Citigroup Inc, Research Division

Operator

Good morning, and welcome to the Fourth Quarter and Full Year 2013 Earnings Conference Call for both Western Refining and Northern Tier Energy. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded. And your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank You.

I would now like to turn the call over to Mr. Jeff Beyersdorfer, Treasurer and Director of Investor Relations of Western Refining. Mr.Beyersdorfer, Please go ahead, sir.

Jeffrey S. Beyersdorfer

Thanks Jackie, and good morning. I would like to thank you for taking the time to listen in today. My name is Jeff Beyersdorfer, I am Western's Treasure and Director of IR.

With our recent acquisition of the general partnership interest of Northern Tier Energy, we are conducting a joint call with Executives from both companies to discuss our fourth quarter and full year 2013 earnings.

Joining me for today's call from Western is Jeff Stevens, our President and CEO; Gary Dalke, our CFO; Mark Smith, our President, Refining and Marketing; and other members of our senior management team. From Northern Tier, Chet Kuchta, COO, and Dave Bonczek, Vice President and CFO. We will start with comments on Western's results, then we will hear remarks of NTI's results, and finally question and answers.

I'll remind you that beginning with this quarter, Western consolidates financial results for all 3 entities, Western, WNRL and NTI. We will be referencing both WNR and NTI earnings call slides, which in addition to each earnings release can be found in the Investor Relations section of our respective websites at wnr.com and ntenergy.com.

Before we proceed, I would like to make the following Safe Harbor statement. Today's presentation will contain forward-looking statements and I refer you to the forward-looking statement section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with Generally Accepted Accounting Principles, or GAAP, both WNR and NTI report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which can be found in both companies' respective press releases.

I will now turn the call over to Jeff.

Jeff A. Stevens

Thanks, Jeff. Welcome to everyone on the call. I'd like to begin today by thanking Hank Kuchta for his service as President and CEO of Northern Tier Energy. Hank has led the Northern Tier team through a number of changes and was very supportive of bringing these 2 companies together. We appreciate his leadership and wish him the best going forward.

We're excited about the announcement that Dave Lamp will be joining NTI as President and CEO in March. Dave brings a wealth of industry knowledge and experience to Northern Tier and will be a valuable addition to the leadership team.

Last year at this time, I outlined our goals for 2013, which were to improve performance in safety and reliability, increase our investment in the business, particularly logistics, and continue to return cash to shareholders.

I would like to briefly discuss some of Western Refining's achievements related to these goals. We had a good year from a safety and reliability standpoint. Operationally, our refineries ran well with the El Paso refinery having a particularly strong second half of the year. We successfully completed the IPO of Western Refining Logistics. As part of the offering, we secured a $300 million revolver. This revolver, along with the $75 million in IPO proceeds, which we retained at WNRL, will be available to fund both organic and acquisition growth.

In April, we began operations of our Delaware basin logistic system, a 100,000 barrel per day pipeline and a 38,000 barrel per day truck offloading station. As we've discussed previously, this logistics system will allow El Paso to process up to a 100,000 barrels per day of higher yielding cost advantage crude oil from the Delaware basin. We also added 40 crude oil transports in 2013 and are currently gathering about 13,000 barrels per day in the Permian basin.

In November, we purchased the general partner and 38.7% of the limited partnership interest in NTI. We're very excited about the addition of St. Paul Park refinery, which shares key characteristics of our El Paso and Gallup refineries. Specifically, direct pipeline access to cost advantage crude oil from growing basins and attractive product regions. In 2013, we repurchased approximately 8.1 million shares for $253 million at an average cost of $31.27. During the year, we increased the dividend 3 times and paid out total dividends of approximately $52 million. Including both share repurchases and dividend payments, Western Refinery returned approximately $305 million to shareholders in 2013. I'm very proud of our team here at Western and I'd like to thank them for helping us achieve our goals in delivering a very successful year.

Turning to the fourth quarter, we reported net income, excluding special items, of $57 million. The Brent WTI spread widened in the fourth quarter from the second and third quarters. Southwest frac [ph] pricing strengthened relative to Q3, particularly Phoenix gas cracks, and West Coast margins also increased in the third quarter.

Our wholesale business performed well in the quarter with volumes up by 10% compared to Q4 2012. This was largely due to expanding our geographical footprint in the Southwest. We continued to opportunistically grow our retail business. During the fourth quarter, we added 7 new locations in Yuma, Arizona. As you know, the retail business is important to us, as it provides a secure outlet for our refinery production and helps with our RIN compliance.

As we look forward at the first quarter of 2014, the Brent WTI spread remained volatile and we are seeing a stronger Gulf Coast 3-2-1 of approximately $17 per barrel. In addition, the WTI Midland Cushing differentials have continued to widen during the quarter. Operationally, we are wrapping up our planned turnaround on the south side of the El Paso refinery this week. Western does not have any additional turnarounds planned for the remainder of 2014.

For 2014, we have established the following corporate goals. First, we will continue to focus on safety and reliability. Second, Western's board has approved the 2014 capital budget of $230 million of which $145 million is for discretionary projects. The 2 biggest projects are the completion of the TexNew Mex pipeline reversal and the construction of 70-mile extension pipeline connecting the TexNew Mex pipeline to the Delaware basin. Third, we will continue to realize synergies related to Western's investment in NTI. And finally, we'll continue to return cash to shareholders through dividends and share repurchases. In January, Western's board approved a first quarter 2014 dividend of $0.26 per share. The board also authorized an additional $200 million in share repurchases. These actions are consistent with our goal of returning cash to shareholders.

Now I will turn the call over to Gary, who will go through our fourth quarter financials in more detail.

Gary R. Dalke

Thank you, Jeff. Before I begin, I would like to remind everyone that beginning with the fourth quarter, we are required to consolidate all 3 entities Western, WNRL and NTI. NTI and WNRL will continue to report on a standalone basis. However, in the WNR press releases, we provide consolidating information.

Refining gross margins in the fourth quarter of 2013 are not entirely comparable to prior periods as a result of fees paid by our refining segment to WNRL starting October 16, 2013. Similarly, refining direct operating expenses were reduced in the fourth quarter due to certain expenses now being recorded by WNRL that were previously included in refining. We have provided pro forma information on these statistics for comparison purposes. For the fourth quarter, gross margins per barrel for El Paso and Gallup were $13.85 and $14.43, respectively. Margins as compared to the prior year quarter were impacted primarily by both the margin environment and by fees paid to WNRL.

Direct operating expenses for the quarter were $164.6 million, as compared to $122.8 million for the prior year quarter. The main driver behind the increase was the inclusion of NTI with Q4 operating expenses of $35.1 million. On a per-barrel basis, El Paso and Gallup operating expenses for the quarter were $3.97 and $11.24, respectively.

Gallup's operating costs were elevated due to a $1.5 million environmental reserve adjustment and lower throughput for the quarter, primarily as a result of a power failure in October. Pro forma, excluding WNRL gross margins and operating expenses per barrel, are included in our supporting slides.

Total company SG&A for the quarter was $52.2 million. Depreciation and amortization expense was $38.6 million for the quarter. Interest expense was $21.9 million for Q4 2013.

A bridge showing changes in cash position for the quarter can be found on Page 6 of our slide deck. There were a number of onetime items associated with both the NTI and WNRL transactions. Consolidated year-end cash ended up at $468.1 million, of which $298.3 million was attributable to Western's standalone. Total capital expenditures for the quarter were $57.9 million.

As of December 31, total consolidated debt stood at $1.4 billion. Excluding debt attributable to NTI, Western's total debt was $1.1 billion. A summary of our consolidated capital structure and Western's standalone capital structure is available on Page 5 of our slides.

Total liquidity, which we define as cash and availability under our revolver, was approximately $745 million at the end of the year. Liquidity has averaged approximately $830 million thus far in 2014.

Wrapping up, you can find our first quarter operating guidance on Page 7 of our slides. Our Q1 guidance includes the impact of the El Paso turnaround.

That concludes our remarks for Western Refining. I will now turn the call over to Chet Kuchta, COO for NTI.

Chester J. Kuchta

Thanks, Gary. This morning, we reported our fourth quarter and full year 2013 results, and earlier this month we declared our quarterly distribution of $0.41 per unit. This distribution was effected by our planned turnaround on our catalytic cracking unit and some unplanned downtime, both of which I will go into further.

We have declared distributions totaling $2.63 per unit for 2013 and $5.38 per unit since our initial public offering.

As you can see on Slide 2 of the NTI slide presentation, our fourth quarter 2013 operating income was $32 million, compared to $144 million for the fourth quarter of 2012. This decrease in operating income was primarily the result of a significant decrease in the Group 3 6-3-2-1 benchmark. And a decrease in the throughput resulting from our planned cat unit turnaround during the month of October and some unplanned downtime at the St. Paul Park refinery.

The unplanned downtime was primarily as a result of a fire in our larger crude tower, which caused us to run at reduced rates for approximately 3 weeks during the third and fourth quarters. The cost of the repairs and clean up of this fire amounted to less than $3 million.

For the full year of 2013, we reported operating income of $239 million compared to $571 million in 2012. Again, this decrease was affected by a reduced throughput and due to a 38% decrease in the 6-3-2-1 crack spread in 2013.

As you can see on Slide 3, our gross product margin per barrel throughput averaged $15.34 per barrel in the fourth quarter of 2013 compared to $24.49 in the 2012 fourth quarter. This decrease was driven primarily by a more modest market crack as the Group 3 6-3-2-1 crack spread averaged $4.91 per barrel in the fourth quarter of 2013, as compared to $21.36 per barrel in the 2012 quarter. The St. Paul Park refinery was able to recognize a considerably higher gross margin into wider crude differentials.

During the fourth quarter of 2013, NTI's total throughput averaged approximately 80,000 barrels per day compared to 90,000 barrels per day for the fourth quarter of 2012. The decrease in throughput was primarily due to our planned and unplanned downtime at the St. Paul Park refinery, which I mentioned earlier.

Full year throughput was 75,000 barrels per day in 2013 compared to 84,000 barrels per day in 2012. Operating expenses per barrel of throughput, excluding turnaround expenses, were $5 in the fourth quarter of 2013 compared to $4.43 in the fourth quarter of 2012. The increase in operating expenses per barrel of throughput is primarily due to the lower throughput levels I just mentioned.

The commercial environment in 2013 was not as favorable as it was in 2012. Given that, we planned for our major turnaround work in 2013, we also took advantage of downtime in order to make certain strategic investments at the refinery. These projects, which are referred to on Slide 4, resulted in an expansion of over 10% of our capacity and also resulted in providing enhanced distillate yields.

Lastly, NTI's retail segment achieved a record year and we continue to opportunistically grow that business.

With that, I'll turn it over to Dave Bonczek for further discussions of our quarterly financial results.

David Bonczek

Thanks, Chet. On a GAAP basis, we reported net income of $20.6 million for the fourth quarter of 2013 compared to $84.5 million in the fourth quarter of 2012. On a non-GAAP basis, adjusted EBITDA for the fourth quarter of 2013 was approximately $69 million, compared to fourth quarter 2012 adjusted EBITDA of approximately $162 million. As we previously noted these decreases are primarily due to lower throughput rates caused by our planned and unplanned downtime, in addition to a weaker benchmark crack. As of now, we're operating at economically justifiable rates unaffected by any downtime. Our throughput for the month of January was approximately 88,000 barrels per day.

As you can see on Slide 2, we continue to maintain ample liquidity and minimum leverage in the company. We had approximately $86 million in cash on hand and total liquidity of $220 million, as of December 31, 2013. Our leverage ratio, measured by total debt to last 12 months adjusted EBITDA, is at 0.8x.

Cash flow from operations was $7.2 million in the fourth quarter of 2013. Cash flow from operations was impacted this quarter as a result of our planned and unplanned downtime and increases in working capital as we return to normal operations. We expect to see improvements in both our cash flow from operations and our liquidity position, as we continue to operate the refinery at economically justifiable rates and capture improving margins and healthy crude differentials.

Cash available for distribution amounted to approximately $38 million for this quarter, which equates to a $0.41 distribution per unit. Slide 5 shows the detailed calculation of cash available for distribution. As we have said in the past, we are a variable rate MLP, and quarterly distribution will vary as a direct result of variations in certain factors, including fluctuations in throughput, the prices of crude oil and other feedstocks, refined product prices, capital expenditures and other cash reserves deemed necessary and appropriate by the Board of Directors of our General Partner. Unlike most publicly traded partnerships, we do not have a minimum quarterly distribution. Finally, you can find our updated key metric guidance for the first quarter of 2014 on Slide 6.

I will now turn it back to Jeff Stevens for closing remarks.

Jeff A. Stevens

Thanks, Dave. Over the past few years, Western's strong financial performance has allowed us to improve our balance sheet and provide us the platform to transform the company. In 2013, we grew our business substantially by adding Western Refining Logistics, and Northern Tier Energy, while continuing to return cash to shareholders. With this expanded asset base and the unique geographic location of our refineries, we believe Western is well positioned to continue this performance in 2014.

Jackie, we will now open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Ed Westlake from Crédit Suisse.

Edward Westlake - Crédit Suisse AG, Research Division

Let's start with logistics. I mean obviously you've talked about the new TexMex pipe reversal, but maybe give us a sort of a color on the run rate of where you are. It would be helpful if you included the EBITDA on NTI logistics as well. And where you expect to be able to get to over the next couple of years?

Jeff A. Stevens

Sure, Ed. As far as growing the logistics, like we said in the script, we really set a platform for both organic growth and the potential of drop-downs. From an organic standpoint, as we highlighted, the Delaware basin has quite a bit of capacity to increase and we believe as the new wells comes on that we believe the throughput will increase quite a bit through that system. In the first -- in the fourth quarter, and we are seeing a little bit of this in January because of the glut of oil that we've seen in just the overall Permian Basin, along with some weather issues and our turnaround. Our throughputs have kind of leveled off, but we believe that as we come back up on run rate, we'll see a significant increase in the Delaware business. So that's just pure organic growth that we'll see utilizing existing assets within the MLP. As far as the TexNew Mex and the 70-mile extension, we believe those -- the TexNew Mex will be ready to operate in the fourth quarter of 2014 and then the additional 70 miles to bring crude all the way to the El Paso refinery out of the 4 corners will be available, probably, in early first quarter of 2015. So those are, obviously, 2 projects that we're very excited about that are well on their way to being developed, and be in a position for drop-downs into WNRL. Now, with regards to Northern Tier's logistic assets, obviously they have some very attractive assets to an MLP. They have interest in a crude pipeline. They have other tankage and traditional storage type assets. And right now, we're evaluating the EBITDA, but we think it's in a range of probably $50 million to $60 million for those NTI potential drop-down assets. And as we get further down in the process and as we look at the right opportunity, the right time to potentially have those in WNRL, we'll continue to evaluate it. And we're just excited about those assets and their potential in WNRL someday.

Edward Westlake - Crédit Suisse AG, Research Division

Yes, I think investors are excited also. But maybe just on the sort of WNR EBITDA run rate for logistics as a current run rate or 2014 run rate would be helpful, not WNRL but including everything that you have at the parent as well if you have that number?

Jeff A. Stevens

Well, yes. We have not established a tariff yet for the TexNew Mex system, so until we do that, we really can't give any guidance relative to what that exactly will be. But we've guided people relative to the growth at WNRL, somewhere between 10% and 12%, just based on the organic and the existing drop-downs at WNR.

Operator

Our next question comes from the line of Robert Kessler with Tudor, Pickering, Holt.

Robert A. Kessler - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

I had a few questions about Western's intended use of the NTI variable MLP structure and kind of the tax implications of that. I suppose the first and perhaps, most obvious, is will you and when will you drop another refinery down into NTI? And then assuming you do, how would you -- would you take back units in NTI to get installment sale gain treatment for tax purposes? And then would you then take those NTI units and distribute those to WNR shareholders? And would that in turn, be a taxable event?

Jeff A. Stevens

Sure. Robert, our thoughts right now around, obviously, we're excited about the NTI investment. Obviously, the profile of that refinery and its direct pipeline access to both the Bakken and Canadian crudes is very attractive to us. As far as the potential of dropping down WNR assets or refineries into the variable rate. Obviously, by making this investment, it gives us the optionality to look at that. Right now, the multiples on variable MLPs and C-Corps have narrowed in and it's something that we're watching and looking at. But ultimately, the decisions that we'll make relative to the potential drop-downs of WNR refineries into NTI will -- we're going to look at what's in the best interest of the shareholders and the unitholders of NTI. And as we get down the road, we'll be able to get more guidance relative to what our thought processes is around that.

Robert A. Kessler - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Any early look at the tax scenarios? I mean, you've undoubtedly taken some consideration of that even if you haven't made a decision. Any kind of early read on how that will be structured?

Jeff A. Stevens

No. Robert, we're still evaluating that and looking at all our options.

Robert A. Kessler - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Can I ask on the NTI midstream side, in particular, the 17% interest in the Minnesota pipeline, how that would work for a presumed sale to WNRL? I'm assuming that NTI is the primary customer for 100% of that line and yet, only having a minority interest in the pipeline, it seems to me like that can be a little bit different than what we typically see for a refinery pipeline interest transferred to the MLP on the midstream side, in that you don't get the markup and the EBITDA. Or if you do, it would be kind of dilutive because you're giving away 100% of the EBITDA on the refining side only to get back 17% at the premium multiple. That's one kind of question I had and the other is, you're taking this from one tax-advantaged entity and putting into another tax-advantaged entity, do you lose some of the mark-up advantage on that side that you would typically have on a refinery to MLP drop-down?

Jeff A. Stevens

Sure. In relationship to the Minnesota pipeline, we're not the only customer. In fact, there is another substantial customer that makes up a large portion of that volume. That pipeline's capacity is around 400,000 barrels a day. And it runs full most of the time and we're only running about 90,000 to 95,000 barrels of that capacity. So there are other parties that have, obviously, ownership and ship on that line. With regards to -- obviously, that interest can be dropped down from NTI into WNRL and what we would look at is, it would only make sense, Robert, if we got a pickup, a multiple pickup and it made sense. But right now, where the variable MLP is trading at, versus where traditional MLPs are trading at, that probably looks pretty attractive to us right now.

Operator

Our next question comes from the line of Evan Calio with Morgan Stanley.

Unknown Analyst

This is Monha Suri [ph] Quick question. You mentioned the Midland spread is widening as you go in the quarter but it's volatile also. Any reasons you see out there? Is it turnarounds? Are you actually seeing a very strong rebound in Permian production? What is causing this spread to be so volatile and wider?

Jeff A. Stevens

Yes. I think it's all of the above. Clearly, our turnaround has an impact. There is another refinery in the region that's getting ready for turnaround. And then there's a couple more turnarounds that we'll see later here in March and into April. And obviously, as we've talked about on calls before, the takeaway capacity is such that any reduction in takeaway from the local refineries is going to create volatility in that Midland spread. But I would not discount the fact that there clearly is more crude being produced and it's growing at a pretty rapid rate. And I think when you see spreads, we saw spreads the other day as wide as $10. That takes a combination of all those factors to see that spread that wide. So I think, looking forward, we obviously don't plan our business around a $10 Midland Cushing crack spread. But I do think the volatility and anytime there is either a planned or an unplanned outage by one or more of the refineries in the region, we're going to continue to see the Mid Cushing be volatile. And obviously, when El Paso is running full, that makes a big impact on their overall margin.

Unknown Analyst

One quick question follow-up was, is there any kind of -- are there any specifications on the pipeline in terms of light crude, which the pipelines are not willing to carry out of the region because of which, there is also volatility over there?

Jeff A. Stevens

Well, clearly, some of the new crude coming on is high in gravity and we're starting to see pipelines address that either through deducts or just not taking that crude at all. That's something that we believe will continue to be a challenge for the producers and for the pipeline companies, is to figure out how to get a lighter crude out of the market. There will be some obviously -- for us that have assets and access to different grades of crude, there will be blending economics there for us but longer-term, there is going to have to be something, either a dedicated pipeline or some way to get the lighter ends out of the market. But that continues to be an issue.

Operator

[Operator Instructions] Our next question comes from the line of Chi Chow with Macquarie.

Chi Chow - Macquarie Research

On the Western side, you've got some moving pieces on the company's debt position this year with the new term loan facility from the in-trial [ph] transaction, the convert coming due. Can you give us a roadmap on what we can expect on how you positioned -- your debt position going to change as you go through this year?

Jeff A. Stevens

Yes, Chi. The way we look at it obviously, the converted, the first piece that needs to be addressed it's a June settlement that we'll need to make. And right now, as you know, we have basically, 3 options out there to settle that. We can do it either through stock only or cash only or a combination. And we're still evaluating what the best scenario is and we'll address that obviously, in June. When we look at the term piece, that's obviously a pretty attractive piece of paper. But as we get further in the year and we start looking for uses of free cash flow, we're going to continue to focus on potential share repurchases and dividends. But we might look at taking down some debt towards the end of the year based on how the year is going relative to crack spreads.

Chi Chow - Macquarie Research

What's the interest rate on the term loan?

Jeff A. Stevens

It's about 4.25%.

Chi Chow - Macquarie Research

Okay, great. And then, on the new financial reporting. I guess, are the retailers also being consolidated in 4Q? It just doesn't seem like the store count really rose at all. And are the Northern Tier retail financials in that number?

Gary R. Dalke

Yes, Chi, this is Gary. What's included in our NTI are basically 6 weeks of results starting November 12 through the end of the year. So for that time period, it does include the results of retail from NTI as well as the refinery results for NTI. So our store count is 229, and NTI's is 200-plus with their franchise stores. So the 6 weeks results from NTI are definitely included in our results.

Chi Chow - Macquarie Research

Okay. And then I guess on the turnaround expense, you're showing $4 million consolidated, Northern Tier is showing $24 million, is that just a timing issue at Northern Tier?

Gary R. Dalke

Yes, Northern Tier basically spent that prior to November 12. So the $4 million that you see that came through in the fourth quarter really relates to the El Paso turnaround, some spending going into that turnaround.

Chi Chow - Macquarie Research

Okay, great. And then on the Northern Tier side, Chet, maybe you can talk about -- can you talk about your Canadian crude purchases? How much you are buying that right now and are those purchases on a 2 months lag on a trade-month basis? That's my understanding, but I just wanted to get that confirmed.

Chester J. Kuchta

Yes, sure, Chi. The Canadian crude for us is roughly a 2-month lag. We're buying our typical volumes of Canadian versus synthetic, which were in the range of 20 to 23 a day heavy and somewhere between 12 and 15 of synthetic. Was there anything else?

Chi Chow - Macquarie Research

Do those volumes change at all in the winter months versus the summer on the heavy?

Chester J. Kuchta

On the heavy, they do. It's all around the economics, we -- heavy crude has been economic for us, pretty much the whole -- for the past several years, with a few instances where it kind of fell out of favor. And when it does, when the economics go south on that, when asphalt gets too cheap and the differential doesn't support it, then we'll trim back on the heavies and go to a lighter slate. But for the majority of the time in the recent past, it has been justified around full on heavy.

Operator

Our next question comes from the line of Roger Read with Wells Fargo.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Sorry, because I did miss part of the first answer from Ed's question. I just wanted to come back on the MLP thing that everyone else is obviously interested in. Timing wise, if you decide to start moving things in between the various MLPs for the obvious favorable directions, what should we think about there? I mean, is this a -- could happen by midyear, happens later in the year, sooner than that? I'm just trying to understand sort of the when, not so much the if or the magnitude at this particular point.

Jeff A. Stevens

I think, Roger, when you're looking at WNRL and you look at, like I said, they've got 2 paths they're going down right now. They've got the organic growth with the existing assets and some smaller projects that we'll be funding this year that will be growing it. We have existing drop downs within WNR that would be ready to drop down. And I would expect something to be looked at here as we get further into the year. With regards to the NTI assets, they're in a similar position that WNR was last year, where they have never kept those assets on a standalone basis. So there's some work that has to be done from the financial side of getting those in a position to be dropped down. So I wouldn't expect any of that, probably till early next year as we prepared the -- potentially prepare the books financially to be in a position to do that. But I think what we're looking at is we obviously have quite a bit of organic growth and we have these drop downs. And I think you'll see the drop downs come in. The growth will be somewhat lumpy, where the timing between some of the growth may lag and you'll see us opportunistically drop down during those times.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

And then to a true operational question here. So El Paso, you're building out a lot of the pipelines into the various shale play areas there in West Texas. Could you give us an idea of maybe how many barrels now are sort of your captured system versus the legacy pipeline system in there? And then maybe how the unit's been running on those barrels? Not necessarily something we can see with the actual results, given all the other moving parts, but just how the unit is performing?

Jeff A. Stevens

Yes. I think when we talk about the shale crude that we're acquiring for El Paso, we're upwards around 30,000 to 35,000 barrels per day with a target of about 100,000. So we're just about 1/3 there of where we want to be. But obviously with the turnaround and having the South side down for the last 30 days, we haven't really been able to measure, exactly, the results. But clearly, we believe that we'll see a higher yield pattern of gas and diesel out of the shale crude and less of the lower value products like asphalt and residual. So we're still very confident in the direction we're going and like I said, we're coming out of that turnaround as we speak right now. And in March, we'll be running 100% full at the facility and we believe as crude kind of makes its way out of Midland and the whole system in the Permian basin becomes less backed up, we have producers that have the crude that we want ready to come into our system. And we'll be able to start really ramping it up as we get in here to the second quarter.

Operator

Our next question comes from the line of Mohit Bhardwaj with Citigroup.

Mohit Bhardwaj - Citigroup Inc, Research Division

I just had a question on the convertible, the value in access at the end of September was $496 million. Do you guys have an updated value at the end of the year?

Jeff A. Stevens

On the convert?

Jeffrey S. Beyersdorfer

The total convert value at the end of the year, the price was -- or currently, it's about $400 per bond. So the total market value probably starts with our $900 million [ph] handle, about $900 million. Again, of which, we've repurchased shares equivalent to about half of that value of the $900 million.

Mohit Bhardwaj - Citigroup Inc, Research Division

And Jeff, as you outlined too many things during this call today, including NTI's logistics and you're potentially looking at say Gallup or probably the El Paso in the available MLP structure. Just looking forward this year, you guys have your organic growth projects and also potentially, the drop-down of your wholesale assets into WNRL. If that, if this timing for that drop-down would be around the time you settled for your convertible to use the cash that's generated or is that how you guys are thinking about it?

Jeff A. Stevens

Obviously, that would be an option that we would look at. I would say that the timing, it doesn't have to be the same. But it's probably fair to say that the timing of that would be in the same time frame.

Mohit Bhardwaj - Citigroup Inc, Research Division

And if I could, just one more. On the acquisition side, you guys have stated before that you're also looking at acquisition opportunities both on the refining and logistics side, any update on that?

Jeff A. Stevens

I think that right now, I wouldn't anticipate any major acquisition right now. We obviously have a full plate and we have a lot of just great organic and internal options here over the next couple of years. I think that from a standpoint of adding small logistic assets to complement what we already have, whether they're in the Permian Basin, San Juan or now in the Bakken, I think we're looking at those type of acquisitions but those are small in nature.

Operator

Our final question comes from the line of Ed Westlake with Crédit Suisse.

Edward Westlake - Crédit Suisse AG, Research Division

While we're all looking at the MLP cookie jar, I thought I'd just ask one around the retail, following on one of Chi's question. Do you think there's a point or what's the point where you think your combined retail business would have critical mass to sort of stand on its own? Have you given any thought to that?

Jeff A. Stevens

Well, I mean certainly, since the acquisition of the combined -- potentially combining the NTI and the WNR, it certainly changes our thought process relative to size. And if there was an opportunity out there that made sense as the standalone, that's certainly something that we'll look at. But it's approaching that number now, Ed, based just by combining the 2 together.

Edward Westlake - Crédit Suisse AG, Research Division

Okay, that's helpful. I'm going to guess the logistics and capturing crude probably more profitable in the short term but...

Jeff A. Stevens

No question about it, Ed. We were very fortunate to be in the locations we are and it's going to be our job to make sure that we capitalize on this because there is plenty to do and plenty of opportunity out there. So we're going to stay focused and really concentrate on that.

Operator

I would now like to return the call to Mr. Jeff Stevens.

Jeff A. Stevens

Thanks, Jackie. I'd like to close by thanking the employees of Western Refining and Northern Tier for their hard work and continued focus on safety, reliability and cost-containment. Thank you for your participation in the call today.

Operator

Thank you. That concludes today's fourth quarter and full year 2013 earnings conference call for Western Refining and Northern Tier Energy. You may now disconnect your lines at this time and have a wonderful day.

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