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Western Refining, Inc. (NYSE:WNR)

Q2 2010 Earnings Conference Call

August 5, 2010 10:00 AM ET

Executives

Jeff Beyersdorfer – SVP, Treasurer, and Director, IR

Jeff Stevens – President and CEO

Gary Dalke – CFO

Analysts

Jeff Dietert – Simmons

Edward Westlake – Credit Suisse

Evan Calio – Morgan Stanley

Paul Sankey – Deutsche Bank

Jacques Rousseau – RBC Capital Markets

Chi Chow – Macquarie Capital Markets

Sandy Liang – Cobalt Capital

Steven Karpel – Credit Suisse

Kelly Krenger – Bank of America

Operator

Good morning and welcome to the second quarter 2010 Western Refining Earnings Conference Call. After the speakers’ opening remarks, there will a question-and-answer period.

(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.

Jeff Beyersdorfer

Good morning. I would like to thank you for taking the time to listen in today and for your continued interest in Western Refining. My name is Jeff Beyersdorfer. I’m the company’s Treasurer and Director of Investor Relations.

Joining me for today’s call are 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. If you need a copy of the earnings release, you may obtain one from the IR section of our website at wnr.com.

Before we proceed, I need to make the following Safe Harbor statement. Today’s presentation will contain forward-looking statements and I incorporate and refer you to the forward-looking statements 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, we 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 the press release, which is posted on the IR section of our website.

I’ll now turn the call over to Jeff.

Jeff Stevens

Thanks Jeff. Welcome to everyone on the call. Today we will discuss our Q2 performance, the success we are seeing as a result of our strategic initiatives and how Western continues to proactively address the current market environment.

After my opening remarks about the quarter, Gary will review our earnings in more detail and provide operating guidance for Q3 2010. After Gary’s comments we will open the call for your questions.

As stated in our press release, we reported Q2 2010 net earnings of $14.4 million or $0.16 per diluted share. This compares to a Q2 2009 net loss excluding special items of $28.5 million or $0.39 per diluted share. The year-over-year improvement reflects higher refining margins and the continued gains we have generated from our cost saving initiatives.

We also announced today that we have made the decision to suspend refining operations at Yorktown due to the financial performance of the facility and the poor outlook for East Coast refining and coking margins.

We will begin the safe and orderly shutdown immediately; expect the process to be completed during the third quarter. We will continue to operate Yorktown’s products terminal and supply the local market with fuel.

We are evaluating all strategic alternatives for the facility including restarting the refinery operations if the market conditions improve. Gary will discuss the financial impact in detail later in the call.

Decisions that impact employees are very difficult. We appreciate the dedication of our Yorktown employees and we are committed to treating the affected employees fairly and with respect as we work through this transition.

Turning to the details about the second quarter, industry refinery margins continued to improve. The Gulf Coast 321 benchmark crack in Q2 was up by more than $1.70 or 19% relative to Q2 2009.

Our southwest refineries showed significant margin improvement during the quarter, with El Paso improving by 27% and Gallup by 12% relative to Q2 2009. Also both El Paso and Gallup had good quarters operationally with both refineries running at full capacity.

The strong operational performance combined with our cost containment efforts enabled us to lower per barrel cost at our southwest refineries, with Gallup’s operating cost coming in at $6.20 per barrel for the quarter compared to $8.21 per barrel for the combined Gallup and Bloomfield Refineries prior to the consolidation. El Paso’s cost for the quarter was $3.44 per barrel down from the $3.71 per barrel for Q2 2009.

Moving to our other businesses; our wholesale group posted better results compared to the same quarter last year as the demand for transportation fields continued to improve in the southwest. Excluding last year’s non-cash goodwill impairment, operating income during Q2 was up by more than $3 million or 160% compared to Q2 2009.

The higher income was primarily due to continued fuel volume growth and a reduction of more than 12% in operating SG&A cost compared to Q2 2009.

Our retail business had a very strong quarter with operating income up by $1.2 million or 32% relative to Q2 2009 excluding the goodwill impairment in 2009.

Improvement in fuel volumes and margins combined with strength in merchandise sales are the primary drivers in the year-over-year performance. We are encouraged by the results of the wholesale and retail group and we expect these positive trends to continue.

As you can see by our results, we continue to benefit from cost reduction initiatives that we have been implementing over the last few quarters. Year-to-date we have realized approximately $13 million in cost savings associated with the Four Corners consolidation and we believe we are on track to achieve the target of $25 million in annualized cost savings.

In addition to the Four Corners consolidation, we shared details of additional cost saving initiatives on our Q3 2009 call. Our 2010 annualized savings target for these initiatives is $25 million and through the second quarter we have generated approximately $14 million in savings. We continue to find additional opportunities for sustained improvements in our cost structure and we expect annualized cost reductions to exceed our 2010 target.

Turning to the third quarter, benchmark refining margins and crude differentials have come up the highs that we saw in the middle of Q2. However, for our southwest operations, we are seeing continued margin strength driven by improving demand and the influence of strong west coast margins.

Overall, we are encouraged by how the third quarter is shaping up.

Now Gary will go through our Q2 financials and provide Q3 operating guidance, Gary?

Gary Dalke

Thank you, Jeff. During the quarter gross margin at our refineries was $9.74 per throughput barrel, which compares to $8.89 per throughput barrel in Q2 2009. The southwest refineries had a very strong quarter with gross margins of $11.57 at El Paso and $18.16 at Gallup.

Direct operating expenses at our refineries were $4.37 per barrel for the quarter, which compares to $4.96 per throughput barrel in Q2 of 2009. This equates to a total refining operating expense reduction for the quarter of approximately $9 million compared to Q2 2009.

Total company SG&A costs were $21.1 million for the quarter compared to $27.2 million in Q2 2009. This quarter’s results are reflective of our successful cost savings initiatives in areas such as employee benefits, executive compensation and other employee costs.

Adjusted EBITDA for Q2 2010 was $107.7 million, which compares to adjusted EBITDA of $29.5 million for Q2 2009. Depreciation and amortization expense for Q2 was $34.8 million. Interest expense was $37.3 million, a $9.3 million increase compared to Q2 2009 primarily a result of increased interest rate and modestly higher debt levels.

Our effective tax rate for Q2 was 56.8%, which is unusually high due to our year-to-date pretax laws coupled with the federal income tax credit available to small business refiners related to the production of ultra-low sulfur diesel fuel.

If you apply our blended statutory rate of approximately 37.2%, our net earnings for the second quarter would have been approximately $20.9 million or $0.24 per diluted share.

We generated cash flow from operations of $1.4 million in Q2. During the quarter we made the decision to temporarily build crude oil inventory in order to take advantage of the positive sloping price structure or contango in the crude oil futures market. This investment averaged approximately $65 million during the quarter. Excluding this temporary inventory build, cash flow from operations would have been about $65 million during Q2, which compares to $23.7 million in Q2 2009.

Total capital expenditures for the quarter were $18.2 million. As of June 30th, total debt stood at $1.25 billion including $185 million outstanding under our revolving credit facility.

Total liquidity including cash and availability under our revolver was $215 million. Although we temporarily added to our inventories during Q2, liquidity averaged approximately $285 million during the second quarter and continues to improve.

Starting this quarter, we will provide throughput and operating cost guidance by refinery.

Our third quarter guidance is as follows. We expect crude oil throughput at El Paso to be approximately 120,000 to 125,000 per day and total throughput to be approximately 130,000 to 135,000 barrels per day. We expect crude oil throughput at Gallup to be approximately 22,000 to 24,000 barrels per day and total throughput to be approximately 23,000 to 25,000 barrels per day.

In the third quarter we expect operating costs to be approximately $3.50 per barrel at the El Paso Refinery and approximately $6.25 per barrel at the Gallup Refinery.

We expect total SG&A in the third quarter to be approximately $21.5 million. Interest expense will be about $37.5 million and depreciation and amortization will be approximately $35 million for the quarter.

Capital expenditures for the full year of 2010 will be about $100 million. Approximately 80% of the spending will be for regulatory projects and the remaining for ongoing maintenance expenditures.

The following Yorktown operating guidance is for the months of July and August only as we anticipate a mid-September shutdown. We expect crude oil throughput at Yorktown to be approximately 50,000 to 55,000 barrels per day and total throughput to be approximately 65,000 to 70,000 barrels a day. We expect operating costs to be approximately $4.75 per barrel at the Yorktown Refinery.

Lastly, with respect to the decision to suspend refining operations at Yorktown, the company will incur a onetime cash shutdown cost of approximately $13 million during the last six months of 2010.

We also expect to realize a onetime cash generation of approximately $50 million in Q3 as a result of partially liquidating working capital. We anticipate that by the end of 2010 the terminal operations will generate approximately $20,000 to $25,000 million in annualized EBITDA.

Over the past four quarters, the Yorktown refinery has produced a negative EBITDA of approximately $60 million. Therefore if recent market conditions persist, by suspending refining operations we will achieve significant EBITDA improvement going forward.

In total, when we combine the change in EBITDA, reduced CapEx, and turnaround cost deferral, the cash flow improvement in 2011 could be approximately $100 million to $120 million.

Thank you. I’ll now turn the call back over to Jeff Stevens.

Jeff Stevens

Thanks Gary. To wrap up, we are pleased with the financial results in the quarter but we recognize that we cannot rely on margin improvement alone. As I’ve shared, we are proactively addressing our businesses challenges and with the strength of our southwest business, Western is well positioned for the future.

We’ll now open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is coming from the line of Jeff Dietert of Simmons.

Jeff Dietert – Simmons

Could you talk about your approach at Yorktown in sustaining operations and how you’re managing flexibility to restart in the event that margins improve? And give us an indication as to what your criteria would be in order to consider a restart.

Jeff Stevens

We are going through a process right now of going through a safe shutdown. Our first goal, obviously is to maximize the inventories there and turn as much of the product into high value product as we can. Once we complete that, we’ll go through a complete inspection of the whole facility and all the equipment. We will then go through a process of lining up the equipment, laying down nitrogen and other things to preserve the ability to restart the equipment.

So, this whole process will probably take the next 60 to 90 days to go through. We’ll probably be done running the products sometime in that first or second week of September and then we’ll through a complete shutdown, tank cleaning and an inspection of all the facility.

As far as looking at restarting the facility, obviously we’re going to need to feel that the margin environment is such that starting out the plant makes sense. Also, not only the margin, but obviously that plant is dependent on the heavy/light spread, and as you know it’s narrowed in again and remains narrow and we believe it’s going to stay narrow for a while. But once we believe that we return more to a historical light/heavy deferential, that will be a key factor in the decision making and restarting the plant.

Jeff Dietert – Simmons

One other question, it looked as though the tax rate was particularly punitive this quarter. Could you talk about the influence and the impact there and how you expect that rolling through the rest of the year?

Jeff Stevens

Yes I’ll let Gary answer that, Jeff.

Gary Dalke

Yes, a lot of that was driven by the pretax loss that we’ve sustained through the first six months of the year coupled with the tax credit on top of that. The tax credit alone amounted to about 9% or 10% of that tax rate, which is really a tax benefit. As we return to profitable earnings, the tax rate would probably migrate more toward the statutory rate or in the 40% to 41% range but it’s difficult to say without knowing what’s going to happen between now and the end of the year. We can still be at this high rate but over time we shall migrate back to the 40% level.

Operator

Your next question is coming from Edward Westlake of Credit Suisse.

Edward Westlake – Credit Suisse

I guess just coming back to the $1.25 billion in total debt. There are things that you can do, sale and leaseback of inventories, MLPs, perhaps divesting some retail assets. Can you talk a little bit to your latest thinking in terms of that debt reduction potential in the second half?

Jeff Stevens

Ed, obviously, we stated that that’s a priority to get that debt down and we continue to look at our whole asset portfolio and decide what the best uses for those are. So we’re going to continue down that path of evaluating the assets, doing what makes sense, what’s in the best interest of to the shareholder and focus on getting that debt paid down on the balance sheet.

Edward Westlake – Credit Suisse

But nothing concrete that you can report to date?

Jeff Stevens

There’s nothing I can comment on today.

Edward Westlake – Credit Suisse

Obviously you built $65 million in inventory. I guess just in terms of some perhaps numbers on what you’re aiming to to earn on that contango trade and when that inventory might be unwound to the other side.

Jeff Stevens

Yes, as you’re aware we’ve lost a lot of the contango. So we started unwinding that in August and we’ll be pretty much out of it by the end of September.

Edward Westlake – Credit Suisse

So we should assume all of that through Q3?

Jeff Stevens

Most of it, yes.

Operator

Your next question is coming from Evan Calio of Morgan Stanley.

Evan Calio – Morgan Stanley

Yes, I have a question. Can you guys quantify the amount of the value of the inventory at Yorktown and are you planning to liquidate those inventories or hold those as you assess the market here?

Gary Dalke

Yes, as of June 30th we have the inventories at Yorktown on a LIFO basis of around $149 million put on a FIFO basis, it was $163 million and FIFO is more approximate (ph) to what market value would be on that inventory. We would expect to liquidate most of the crude oil raw material, blending materials and the intermediates and those kinds of inventories by the end of the third quarter and that’s about $112 million. I guess since we’re going to continue to market and supply product in that area, we’ll retain the gasoline and distillate inventories but we would plan to liquidate about $112 million, $113 million worth in Q3.

Evan Calio – Morgan Stanley

Can you guys update on the process of other strategic alternatives including potential storage or terminal asset sales at Yorktown? Is there a process there and can you walk me through what that process might look like?

Jeff Stevens

Well, obviously the process right now is go through a safe shutdown and then we will continue to operate the products terminal there at that facility. I might just comment that Yorktown does make an excellent terminal. It has the ability to bring product and other feedstocks, crude oil in by water. There is also a connection there with the colonial pipeline and there’s approximately 5 million barrels of storage there for products.

So I think what our plan is is to get the refinery shutdown, continue to market product in those local areas and look for opportunities to either bring in third party people to store products for them and continue the operation of the terminal while we kind of watch the market and see which way we go as far as the ability to restart the plant.

Obviously, we’ve run a process before on this facility and we continue to look at all of our options relative to what’s the best use and long term plan for the facility is.

Evan Calio – Morgan Stanley

So then back to the inventory liquidation, is it your thought now to use those proceeds to repay the term loan or pay down a portion of that?

Jeff Stevens

Those proceeds will go to pay down the revolver.

Evan Calio – Morgan Stanley

I mean are you permitted, if you went through a series of strategic alternatives, to pay down the term debt, which has the more restrictive covenants or are there restrictive payment baskets within the revolver or other piece of debt?

Jeff Stevens

No, we would be able to pay down the term if and when we execute on strategic alternatives.

Operator

Your next question is coming from the line of Paul Sankey of Deutsche Bank.

Paul Sankey – Deutsche Bank

Just going back to Yorktown one more time, can you just talk a little bit more about the timing here? I’m assuming it’s because you’ve seen margins across the U.S. bounce and haven’t had much of an uplift based on your financials that generally speaking, it’s not that long ago that I think you were already talking about continuing to operate the refinery. I just wondered why you’ve chosen this particular moment.

As a follow-on to that, once you’ve got it up and running at the terminal, would you view at those (ph) as likely to dispose off the asset?

Jeff Stevens

When you look at the timing and why we made this announcement today, going into the second quarter we saw margins improving and we saw the light/heavy widening from where we saw it in Q3, Q4. But clearly now looking out particularly into the fourth quarter and first quarter of 2009, clearly margins are contracting and aren’t very good. And we’ve also seen a narrowing back towards the low end on the heavy/light. So looking forward we don’t see much opportunity out there and so that’s why we’re executing right now on the suspension of the operations.

Paul Sankey – Deutsche Bank

As to whether it would then be – rationalization on non-core type asset?

Jeff Stevens

We’re going to go through a series of reviewing. If we were to restart the facility obviously, we would want access to a terminal. So we would need to pick a particular partner that made sense that would give us access to the products terminal and obviously we’re going to actively keep a substantial amount of our customer base there. So, if we make the decision to restart the refinery that the core pieces are still in place. But we’ll go through review and we’re going to do what makes sense, what’s in the best interest of our stockholders.

Paul Sankey – Deutsche Bank

I’m sorry, I kind of missed the EBITDA guidance. So I think you said $20 million to $25 million, I’m assuming per year and then what I missed was the minus $60 million was over what timeframe at Yorktown?

Jeff Stevens

Yes, the $20 million to $25 million is what we expect on an annual basis on operating it as a terminal. The minus $60 million is what Yorktown’s performance has been the previous 12 months. So, if the market environment stayed similar to what it did the previously 12 months, that’s what we would expect at the facility.

Paul Sankey – Deutsche Bank

Yes. El Paso looks good in Q2. You’ve talked a little bit about how things haven’t improved much for Yorktown. Could you just talk a little bit about Q3 to date for El Paso and Four Corners? You’ve given us very useful operating cost guidance. So I was just wondering how margins are looking in that region as of now and the outlook.

Jeff Stevens

Well, as we said in our statement, the west coast, the last 60 days has been very strong and we’re obviously getting that benefit in our Arizona market. In the southwest, I would just say that the RACs have remained very strong compared to when you’re looking at a Gulf Coast spot. We’ve had two refinery outages in our region and so it’s helped the southwest stay relatively strong compared to the rest of the markets.

Paul Sankey – Deutsche Bank

I mean if you can clear out the Yorktown situation, which you clearly are, what would you say the biggest risk to you guys is now? I think you have met (ph) your covenants and everything else. What would be your concern that you would highlight that we should worry about?

Jeff Stevens

I think that we’re going to continue to focus in on the southwest and continue to look for improvements. And I feel really good about our position out here in the southwest with all of our assets and they’re all performing well and I don’t have any reason to believe they won’t continue to.

Operator

Your next question is coming from the line of Jacques Rousseau of RBC.

Jacques Rousseau – RBC Capital Markets

Just quickly on the debt covenants, it looks from my calculation that everything seems to be in line. Is that what you’re seeing too?

Jeff Stevens

Yes, we believe that we’re on track to where we need to be.

Jacques Rousseau – RBC Capital Markets

In terms of the upcoming maintenance schedule, I know you had a turnaround that was planned at Yorktown in the first quarter, so obviously that’s not going to happen. But what else do you have lined up for the next year and a half with your other two refineries?

Jeff Stevens

We do not have any turnarounds planned in 2011. So we’re going forward in the southwest, look really good as far as that goes. Our next turnarounds won’t happen until 2012 and we won’t even start planning those until we’re into 2011.

Operator

Your next question comes from the line of Chi Chow of Macquarie Capital.

Chi Chow – Macquarie Capital Markets

I guess this is maybe a follow-on on Paul’s question but you mentioned that, you gave us guidance on $100 million to $120 million of incremental cash flow for 2011. Can you reconcile that for us how you get to that number or that range?

Gary Dalke

Yes, kind of walking through what I talked about, the terminal what we would expect on an annualized basis for terminal operations we would expect that to generate EBITDA of $20 million to $25 million a year. As Jeff mentioned also, we have for the trailing 12 months, the refining operations at Yorktown were a negative $60 million trailing 12 months through June 30th. And then we also have CapEx and the deferral of the turnaround that Jeff just mentioned which is in the combined $30 million to $35 million range, so that’s where we come up with the $100 million to $120 million, is those three primary components.

Chi Chow – Macquarie Capital Markets

The $60 million loss at Yorktown the past 12 months, does that include upside at the terminal though?

Gary Dalke

No, that’s just (inaudible) refining operations.

Chi Chow – Macquarie Capital Markets

I guess a couple of questions back on Yorktown. In the second quarter I guess I want to try and understand why the margins were so poor. It seemed like we had an okay margin environment on the East Coast and light/heavy did widen out. I’m just surprised that you’re at $2.40 a barrel.

Jeff Stevens

Yes, clearly the margins did improve and we did get some relief on the heavy/light spread, but we had two or three operational. During the quarter we had an unplanned outage on our gas hydrotreater that affected things, we had a situation with our cap that we had a loss liquid situation that hurt our bottom line and we also had a outage on our distillate hydrotreater to change catalyst that affected things.

Chi Chow – Macquarie Capital Markets

Do you have kind of opportunity cost on all those items for the quarter?

Jeff Stevens

No we don’t have those.

Chi Chow – Macquarie Capital Markets

Do you anticipate any pressure from the local Virginia Government to keep the plant operating?

Jeff Stevens

We have had many discussions with many parties related to Yorktown and feel like that we’ve expressed the concerns we’ve had relative to that plant and its ability to be profitable in this environment. And so we’ve done everything we can.

Operator

Your next question comes from the line of Sandy Liang with Cobalt Capital.

Sandy Liang – Cobalt Capital

Just on the debt, can you just tell us what was the term loan and the revolver balance at the end of the quarter? Based on normalized working capital after you monetize your inventory, it just seems that you have a lot of positive working capital. I’m just wondering, is there multi-hundred million dollar potential to do non-recourse asset based debt to get rid of some of the term loan or revolver?

Jeff Stevens

I’m going to let Jeff answer that one.

Jeff Beyersdorfer

The total debt was about $1.25 billion. The term piece ended the quarter at $348 million. Your other question I think was in terms of the revolver. The revolver matures in May of 2012 and our expectation is that we’ll begin conversations with our bank group relatively soon and be able to successfully renew that facility and we expect it to look like a traditional asset based facility, formula based with inventory and receivables making up the bulk of the formula calculation, similar to what we have today.

Sandy Liang – Cobalt Capital

What was the revolver balance at the end of the quarter?

Jeff Beyersdorfer

$185 million.

Sandy Liang – Cobalt Capital

Do you think there is potential for excess proceeds where you could pay down some of the term loan just from asset-based lending or asset-based borrowing?

Jeff Beyersdorfer

No, probably not from that source. Jeff mentioned some of the other sources we’re contemplating and working on proactively that we would use to first pay down the revolver and then second, address the term loan.

Sandy Liang – Cobalt Capital

I mean I understand there’s nothing concrete but in terms of the biggest impact to your balance sheet, where would you rank them in terms of asset sales or retail asset sales or the things that you’re working on?

Jeff Beyersdorfer

We are looking at all potential opportunities to monetize assets and do what makes sense.

Operator

Your next question is coming from the line of Steven Karpel of Credit Suisse.

Steven Karpel – Credit Suisse

You kind of alluded to it on the covenants. Is there any impact or how do you recognize any gains on inventory sales in terms of covenant calculations?

Jeff Stevens

To the extent that the sales are profitable, that goes straight to EBITDA.

Steven Karpel – Credit Suisse

You cited on inventory valuation. What would be the gain/loss today?

Jeff Stevens

In today’s environment, it would in that $10 million to $12 million range.

Operator

Our last question comes from the line of Kelly Krenger of Bank of America.

Kelly Krenger – Bank of America

Good morning. Just a couple of kind of follow-ups. I think Gary said you anticipated ultimately liquidating $115 million of kind of crude inventory from Yorktown and I think he noted the number in the third quarter was going to be $50 million. So I was wondering if there is going to be more in the fourth quarter or how we should – if I got those numbers right I guess it’s bottom line.

Jeff Stevens

The inventory liquidation is around, as I said $112 million, 113 million but that working capital liquidation number of $50 million improvement takes that into consideration but also we have some reduction of AR but also a reduction of accounts payable related to those various inventories. So it’s really a net of inventory of AR and AP that gets to the $50 million, but the inventory is definitely a large component of it as I said, a $112 million to $113 million.

Kelly Krenger – Bank of America

So the net amount that you’re expecting in the third quarter in terms of working capital improvement is $50 million. Will that all be taken care of by the end of the third quarter or is there more that you –

Jeff Stevens

We would expect that to be taken care of in the third quarter.

Kelly Krenger – Bank of America

CapEx this year is $100 million. Do you have any kind of preliminary number for next year that you can –

Jeff Stevens

No, we’re in the middle of that process, getting that ready for our board to look at. We budgeted $100 million this year, we’re still very comfortable where we are with that but we believe that with the shutting of the Yorktown refinery we believe that it will be lower than we expect it.

Kelly Krenger – Bank of America

What’s kind of a run rate maintenance level there do you think on CapEx?

Jeff Stevens

Going forward, running Gallup and El Paso, we believe it’s in the $25 million to 30 million range.

Kelly Krenger – Bank of America

And then presuming there’ll be some regulatory and environmental on top of that.

Jeff Stevens

There’ll be some but nothing that I think is significant. We’re winding up our most significant piece here in El Paso on our MSAT for benzene.

Kelly Krenger – Bank of America

Again, you haven’t put out a number, but it could be several or a few tens of that millions of dollars less than it is this year?

Jeff Stevens

We’ll provide guidance as we get further down into the year.

Operator

This concludes the Q&A portion of today’s call. Gentlemen, are there any closing remarks?

Jeff Stevens

We thank all of you for your participation today and your continued interest in Western. Before I close I’d like to thank our employees for their hard work and dedication as they helped us deliver on our cost reduction commitments while running our facilities safe and a reliable manner.

We thank everybody for their interest in Western and look forward to talking to you on our next call.

Operator

Thank you. That concludes today’s second quarter 2010 Western Refining earnings conference call. You may now disconnect your lines at this time and have a wonderful day.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

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