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Western Refining, Inc. (NYSE:WNR)

Q2 2011 Earnings Call

August 4, 2011, 10:00 am ET

Executives

Jeff Beyersdorfer - Treasurer and Director, IR

Jeff Stevens - President & CEO

Gary Dalke - CFO

Mark Smith - President - Refining and Marketing

Analysts

Evan Calio - Morgan Stanley

Chi Chow - Macquarie Capital

Jacques Rousseau - RBC

Rakesh Advani - Credit Suisse

Paul Sankey - Deutsche Bank

Jeff Dietert - Simmons

Ann Kohler - CRT Capital Group

Operator

Good morning and welcome to the second quarter 2011 Western Refining Earnings Conference Call. After the speakers’ opening remarks, there will be a question and answer period. (Operator Instructions)

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

Thanks, Melissa and good morning. I would like to thank you for taking the time to listen in today and for your continued interest in Western Refining. Again my name is Jeff Beyersdorfer, I am 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.

Starting with this quarter and going forward, we are revising our earnings call format by adding material in the form of a quarterly earnings slide presentation to accompany our earnings press release.

We will be referencing various slides throughout the call this morning. The slide presentation, in addition to our earnings release can be found in the Investor Relations section of our website at wnr.com.

Before we proceed, I would like 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 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, 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 will now turn the call over to Jeff.

Jeff Stevens

Thanks Jeff. Welcome to everyone on the call. Today we will discuss our second quarter results, some of the actions that Western is taking to capitalize on the strong market conditions and some preliminary insights on the third quarter.

After my opening remarks, Gary will review our earnings in more detail and then we will open up the call for your questions.

As stated in our press release, in our page 3 of the slide presentation, we reported net income of a $100.1 million or $1.10 per basic share and $0.94 per diluted share for the quarter ended June 30, 2011. This compares to Q2, 2010 net income of $14.4 million or $0.16 per basic and diluted share. We mentioned both basic and diluted earnings per share due to Western’s convertible notes which are a potentially dilutive security.

Gary will have more details on this in his remarks. We reported Q2 2011 adjusted EBITDA of $228.5 million which is one of the strongest quarter in the company's history. Adjusted EBITDA for the quarter included a negative impact of $30.9 million in realized and unrealized losses on economic hedges. The strong EBITDA performance was primarily a result of strong refining margin environment.

The Gulf Coast 3-2-1 benchmark crack spread averaged more than $26 per barrel in the second quarter as compared to $10.83 in Q2 2010 and $18.13 in Q1 2011. As shown on page 4 of our slides our Southwest Refineries generated similar gross margin improvement. El Paso and Gallup gross margins were improved by more than 113% and 61% respectively compared to Q2 2010.

The continued widened discount of WTI-Brent during the quarter was a significant contributor to the refining margin improvement. Forward curve suggests that the Gulf Coast 3-2-1 crack spread driven by the wide WTI-Brent spread will stay elevated over the next couple of years.

As a reminder, 100% of Western’s crude requirements for our Southwest refineries are purchased based on WTI pricing. Operationally we had a solid quarter with El Paso running at near capacity. Dallas throughput rates were slightly reduced from normal level due to a planned reformer regeneration that was completed in May as well as an unplanned outage in our SEC units. Overall we are pleased with the total throughput of approximately 150,000 barrels per day during the quarter, which allowed us to capitalize on the very strong margin environment.

In our retail business, fuel and merchandize volumes and margins were relatively flat to Q2, 2010. Several factors impacted the quarter including the fires in Northern Arizona, road construction and retail prices that have remained higher than last year.

During the quarter, we added 19 retail sites in the Tucson area. Two of these locations were purchased and 17 were added through a lease structure. These outlets will be a good addition to our retailed network and also compliment our existing Southwest refining and logistic assets.

Our wholesale business in the Southwest continued to see slight in lubricant business with margin improving to approximately 13% and the sales increase of 12% compared to Q2 2010. Fuel volumes continues to grow and fuel margin held at similar levels to previous quarters in the Southwest.

On the East Coast, our wholesale volumes were strong at approximately 29,000 barrels per day. However, fuel margins on the East Coast were impacted in the quarter by fluctuations and product inventory values.

We continue to make progress in upgrading Yorktown’s capabilities as a terminal asset. The Colonial Pipeline connection has been completed and we are now receiving shipments of finished products from the Gulf Coast.

In addition we are currently evaluating indications of interest with respect to the sale Yorktown terminal assets. We will keep you updated as things develop. Given the robust margin environment that we are receiving we have increased our Gulf Coast gasoline and distillate hedges since our last earnings call.

A summary of our hedge positions as of August 1st would be bound on page 5 of our slides. We have seen unprecedented strength in the future’s growth for both distillate and gasoline Gulf Coast crack. We still think it is prudent to add to our crack hedges, essentially locking in the historic high margins on a portion of our future refining production. Our goal is to hedge up to 35% of our 2002 production and 20% of our 2013 production.

With respect to the balance sheet, Western ended the quarter with approximately $1.06 billion in debt. We had a significant cash build during the quarter and ended Q2 with approximately $173 million in cash resulting in a net debt of approximately $884 million.

Debt reduction continues to be one of the management’s primary objectives. We will continue to build cash from operations and some of the monetization initiatives we previously discussed, we expect to be in a position to pay down most or all of the floating rate notes when they become callable in mid December.

Turning to the third quarter, we continue to see strong benchmark crack spreads with Gulf Coast 321 of $31.57 per barrel in July and a forward curve for the rest of the quarter for approximately$32 per barrel. This is a $23 per barrel improvement in compare to Q3-2010 crack of $8.57 per barrel, primarily due to the Brent/WTI spreads.

In summary, we remain encouraged about the way 2011 is stating up. The location of our refining assets combined with our focus on reliability and safety will allow Western to continue to benefit from this very strong crack spread environment.

Now, I will turn the call over to Gary who will through our second quarter financials in more details.

Gary Dalke

Thank you, Jeff. For the second quarter we reported net income of $100.1 million or $1.10 per basic share and $0.96 per diluted share. These results compared to Q2 2010 net income of $14.4 million or $0.16 per basic and diluted share. In the recent prior reporting period there has been minimal difference between basic and diluted EPS.

However, as Jeff mention the convertible senior notes are a potentially dilutive security and each quarter we are required to calculate EPS assuming the conversion of the notes into our common stock occurs at the beginning of the reporting period. If the assumed conversion to equity is dilutive to our earnings per share, which it was at June 30, 2011 than the convertible notes are reflected as equity in our diluted EPS calculation. We will continue to perform this calculation each quarter and report EPS accordingly.

Gross margin of at our Southwest refineries was $23.31 per barrel during the second quarter compared to $12.63 per barrel in Q2 2010. Direct operating expenses at our Southwest refineries were $5.48 per barrel for the quarter compared to $4.23 per barrel in Q2 2010. El Paso’s costs were $4.12 per barrel for the quarter compared to $3.44 per barrel for Q2 2010. El Paso’s costs in Q2 were elevated by $4 million in unusual items including approximately $2.8 million in expenses related to the February freeze amount.

Gallup’s operating cost were $10.65 per barrel for the quarter compared to $6.20 per barrel in Q2 2010. The increased costs at Gallup were primarily driven by the planned reformer regeneration work we completed during the quarter and also the unplanned downtime associated with the FCC outage.

On the East Coast one-time cash costs related to the temporary suspension of refining operations at Yorktown were approximately $700,000 in Q2. We anticipate an additional $12 million to $14 million in one-time cash cost over the next few quarters with the largest expenditures being tank cleaning and pension plan termination costs.

Total company SG&A expenses were $24.8 million for the quarter. This compares to $21 million in Q2 2010. The increase was primarily due to the bonus accruals during the quarter. Adjusted EBITDA for the quarter was $228.5 million; EBITDA was negatively impacted by $30.9 million in realized and unrealized hedging losses.

As we shared last quarter, gains or losses as a result of the product hedges will flow-through to the income statement and may create some earnings volatility going forward.

Depreciation and amortization expense for the quarter was $34.3 million; interest expense was $33.5 million, a $3.8 million decrease compared to Q2 2010, primarily result of both lower average debt level and interest rates. Our effective tax rate for the second quarter was 36.5%.

During the quarter, cash and cash equivalents increased by $161.3 million, a bridge from our Q1 to Q2 earning cash position can be found on page six of our slides. Strong refining margins and resulting EBITDA drove this improvement in the quarter.

Total capital expenditures for the quarter were $15.2 million; as of June 30th, total debt stood at approximately $1.06 billion, a summary of our capital structure is available on page seven of our slides and you will note that total liquidity which we defined as cash and availability under our revolver was approximately $500 million at the end of Q2.

Our daily average liquidity continues to show improvement with the daily average for July being $515 million, an increase of approximately $150 million compared to the Q1 daily average.

Wrapping up, you can find our third quarter operating guidance on page eight of our slides.

I will now turn the call back over to Jeff Stevens.

Gary Dalke

Thanks Gary. Overall, we are pleased with the quarter. With the outstanding margin environment that we are experiencing, Western is positioned to have a very strong year.

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

Question-And-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Evan Calio of Morgan Stanley.

Evan Calio - Morgan Stanley

I appreciate the slides. I was wondering if you could just walk me through your margin hedge strategy, as you are heavily hedged in distillate 2Q, 3Q target 35% for 2012 that you discussed earlier; I mean tactically are you now locking in more than fixed and interest costs you know particularly post pay down and I have a couple of follow-ups?

Jeff Stevens

Well, as we said in our script Evan our goal now as we said at about 35% which is just about a third of our total production that’s what our Board has authorized to this point. And what our strategy has been is to take advantage of the environment and also look at where typically from a strength standpoint, typically Q1-Q4 gap is weak in our area, so we put on a little bit heavier hedges on the gasoline and then Q2 and Q3 of 2012 a little lighter, because historically those have been our best margins on gasoline.

Same thing on distillate you know we looked at the two weaker quarters which are Q2 and Q3, just the opposite and we were a little heavier distillate on and in the first and in the fourth quarter which is historically our heating oil quarters and we typically see a stronger distillate margin, we put a little less hedges on it.

So that's been the strategy in 2012. In 2013, we feel like the distillate hedges are really the strongest in the market. The gasoline is not as appealing in 2013, so at this point we've just chosen to put on the distillate margins going forward in ’13.

Evan Calio - Morgan Stanley

That’s great. Is there I mean the levels moved up and you mentioned Board authorization at 35% but since you've moved up since the last call, I mean should we assume that this is the most of the hedge or if you saw the margins, even lock down increment amounts?

Jeff Stevens

I would say that you would not see any additional significant hedging in 2012. We will look at 2013 particularly if we see a strength in the gasoline market and we feel like if there is an opportunity to lock in some good margins in 2013 on the gasoline side, but I would say at this point, the total of the 35% of the production is what you’ll see in 2012, I think that’s what we’re comfortable with.

Evan Calio - Morgan Stanley

Okay, and then somewhat related, on debt pay down you mentioned some of the debt pay down in December, there’s different restrictions on payment, but cash yield significantly under interest expense, particularly with this your growing cash balance 173 a year, current margin environment and your forward hedges where the margin you’ve secured five forward hedges, so should we expect any debt pay down sooner as you will likely accumulate more cash than at least that one piece of paper?

Jeff Stevens

I think you should look at really I think just based on the prepayment penalty in some of our debt that I really think you look at the December floaters which is about $285 million of debt and that becomes callable in December, mid-December. I think that we’d be in a strong position to take out most if not all of that debt by the end of the year and that’s our first time goals. Obviously if this margin environment holds up we’ll be in a position to start taking out more debt in 2012 and that would probably next be our term debt that has a callable in 2012 that we can start taking that out and then working our way towards the fixed as we get as we get through 2012.

Evan Calio - Morgan Stanley

So you will discontinue to build the cash until December, is that the current thought?

Jeff Stevens

Yeah. It just makes sense. We would like to pay it sooner but you just run the map and it just makes sense to wait till December 15 to start paying that down.

Operator

Your next question comes from Chi Chow of Macquarie Capital.

Chi Chow - Macquarie Capital

Back on the hedging loss in the quarter, do you have a breakout between the realized and unrealized piece?

Jeff Stevens

Yeah. It was just under $31 million and about $25 million was realized and about $4.5 to $5 million was unrealized Chi.

Chi Chow - Macquarie Capital

I was under the impression that you didn't really have many hedge positions on the second quarter. So I'm a little bit confused on the high level of the realized losses. Did you add positions since the first quarter call or did you close of any future hedges that resulted in realized?

Jeff Stevens

In the second quarter, we had some hedges on early in April and May, but we really didn’t have much on at June. So I think may be on the call, there was a little bit, you know because I thought the question was in June, do you have any real hedges on and we really didn’t. It was mostly a first half event in the quarter Chi .

Chi Chow - Macquarie Capital

Then out at Yorktown, it sounds like you are bringing product volumes in at this point. Do you have any third party revenues flowing through yet?

Jeff Stevens

We don’t, our wholesale business is using about a third of the storage and right now we are really focused in on the parties that have an interest of buying because they have, they may have different interest and we do as far as third party. So I think we are going to see this through and make sure that we don’t do anything that may affect the value of the potential sale to these interested parties .

Chi Chow - Macquarie Capital

Can you say that you have multiple parties interested in that facility?

Jeff Stevens

Yeah

Chi Chow - Macquarie Capital

And are you still expecting that $25 million to $30 million in annual EBITDA that still would be an estimated good number to tag off?

Jeff Stevens

No really, out of that $20 million to $25 million that we are realizing as the wholesale part which is about you know, we will probably be in the $7 million to $10 million on a annual run basis. So we are giving up some third-party revenue to go through this process that we are doing right now.

Chi Chow - Macquarie Capital

Okay so the $7 million to $10 million is just what your wholesale group would expect out of using the facilities?

Jeff Stevens

Yes.

Chi Chow - Macquarie Capital

Then maybe a final question just on Gallup. Do you have any opportunity cost on the FCC unplanned outage? And how long was that unit down for?

Mark Smith

Chi, it was down for some regenerator repairs and it was down for about six days and I think the opportunity cost would have been about probably 5000 to 10000 barrels total on crude run.

Chi Chow - Macquarie Capital

That’s related to the unplanned FCC outage that your mentioned?

Mark Smith

Yeah

Operator

Your next question comes from Jacques Rousseau of RBC.

Jacques Rousseau - RBC

In terms of Yorktown, if you had to take a look at, I know some of the assets are now in the wholesale segment, in terms of the total cost that are still involved with Yorktown, do you have an estimate of that for the quarter?

Gary Dalke

In terms of our operating costs and spreading costs there?

Jacques Rousseau - RBC

Yes.

Gary Dalke

Okay during the quarter we had related to the terminal operations about $6.3 million of operating expenses and related to the idle plant facility about $3.3 million. It’s for a total of $9.7 million of expenses, like your range for the quarter and out of that 3.3, portion of that was the one time cost that we talked about, about $700,000.

Jacques Rousseau - RBC

And this is outside of what’s including in the wholesale segment now?

Gary Dalke

This is outside of what’s including in the wholesale segment.

Jacques Rousseau - RBC

Okay. And you said going forward there is going to be another $12 million to $14 million, that will be…?

Gary Dalke

One time cost. that’s correct. And that will be spread over the next several quarter and that’s comprised of completing the tank cleaning and give it rather for full terminal services and also we are in the process of terminating the pension plan there. We haven’t completed that. So once that’s completed we will have an expense related to that.

Jacques Rousseau - RBC

Okay. So on an ongoing basis it looks as though there was about, you said in the second quarter, about $9 million that was not on this one-time nature?

Gary Dalke

Right. There was these 9 million and over time we would expect that number to ramp down.

Jacques Rousseau - RBC

Okay. So $9 million plus the $12 million to $14 million over a period of quarters?

Gary Dalke

Correct.

Jacques Rousseau - RBC

Great. Then just lastly on the convertible notes, so you said the trigger is to follow the share price at the beginning of the quarter, which I guess, at the beginning of the year you were at about $11, and the beginning of the second quarter you were at about $17. So somewhere in that realm was the point that triggered the conversion factor?

Gary Dalke

Actually, the calculation for diluted earnings per share as done more on an earnings threshold basis. So, there is concerted dilutives at a certain earnings level, just starting in the second quarter earnings were high enough to make this instruments potentially dilutive. They haven’t changed there but it’s just an accounting calculation and when we do that, because they are potentially dilutive, for the calculation, we add back the tax affected interest related to the convertible debt. That’s how the calculation is run but it’s more on the earnings threshold as opposed to the conversion price.

Jacques Rousseau - RBC

Okay. And what would that earnings threshold be?

Gary Dalke

I’d say, on average, it’s going to be around the $20 million to $22 million net income per quarter range, as when these instruments become potentially dilutive to earnings.

Jacques Rousseau - RBC

Okay. And they are payable in 2014, is that correct?

Gary Dalke

Yes. They mature in 2014.

Operator

Your next question comes from Ed Westlake of Credit Suisse.

Rakesh Advani - Credit Suisse

This is actually Rakesh Advani. I had just a few questions. Any comments on I guess, the progress of your NLP, the potential over there, is that still coming along?

Jeff Stevens

Well, currently, as we said in the script. We are focused right now on a potential sale of the Yorktown assets. And so, that’s really where our focus is. If that doesn’t happen, obviously we still have the option of grouping the rest of our logistics assets together with Yorktown and doing our own NLP, but I would say that won’t really start until we see where we end up with Yorktown as a terminal asset.

Rakesh Advani - Credit Suisse

Okay. I guess, because I was just mentioning that you guys were talking about getting the financials, etcetera, ready. Is that still going on in the background?

Jeff Stevens

Yeah. We are still working on that and developing that for the logistic assets.

Rakesh Advani - Credit Suisse

Okay, thank you. And just wondering on the asset sales, are you still targeting anything on the retail side or just continuing to build?

Jeff Stevens

Right now the retail group is performing very well and based on our ability to pay down debt over the next six to twelve months, I would say that there's no process going on relative to retail at this time.

Rakesh Advani - Credit Suisse

Okay. And I guess this is just a final one, just a simple, what kind of demand trends are you guys seeing in your markets?

Jeff Stevens

In the Southwest I would say that, I would call the diesel kind of mix, some of the mining companies that we supply here in the Southwest volumes are actually up year-over-year. I would say the railroad volumes are kind of flat and probably the trucking and other distillate items are down year-over-year a little bit and I’d call gasoline kind of flat to slightly down in what we are seeing.

Operator

Your next question comes from Paul Sankey of Deutsche Bank.

Paul Sankey - Deutsche Bank

Just on the hedging I was wondering what sort of basis risk there is and I guess, physical delivery risk there may be if, for example, your refineries were down. Could you just talk a little bit about those two technicalities of having quite high hedge commitments going forward? Thanks.

Jeff Stevens

Yeah. Paul, on a basis risk there really isn't any basis risk because we've locked in a true Gulf Coast distillate and gas crack that's tied to the Gulf Coast and we have a number of customers that are tied to directly to that Gulf Coast average with a differential associated with them. So there really isn’t any basis risk as far as matching them up, they match up very, very well.

Relative to an outage, any extended outage that would not allow us to perform, we have BI Insurance. We’ve recently as part of this hedging strategy increased that insurance to adjust at $900 million. So we’ve raised up our BI insurance in order to make sure that if there was a issue that we would have the proper insurance to cover it. So I feel like we’ve done a good job of really mitigating any potential problem there.

Paul Sankey - Deutsche Bank

Yeah, understood thanks. Rail has been one of the themes that's coming out of the growth in unconventional supply in the US rail transport. How will that affect you? Because I know you're suppliers to rail, which I guess that would be, fuel suppliers, more traffic would be positive for you. Is there any other observations you'd make about that? For example on the supply side of crude to you guys?

Jeff Stevens

Yeah, I mean from our standpoint, obviously higher rail demand because we supply significant amount of our distillate to rail is a positive things for us, Paul. Relative to crude, well, we’re looking on, what we’re focusing on is we’re very fortunate where the logistic assets that we supply our refineries from a crude standpoint are. We’re seeing a lot of new fuel production coming on really around this logistic assets and I think what we will do from a strategic standpoint is we’ll look at adding gathering systems in order to capture some of these new crude, it’s a pretty exciting thing for Western and particularly the El Paso Refinery. We are in the processes of doing essays on these new crudes and they seem to be higher quality crude than we’ve historically run at the refinery which would obviously help our yield pattern. And we believe we can secure these crudes at a discount to where we are purchasing today.

So we really don’t have to in order to take advantage of these types of crudes, I think we can do it by truck and pipe very efficiently. And I think we can obviously accomplish it faster than trying to secure bunch of railcars and bring them into El Paso.

Paul Sankey - Deutsche Bank

Yeah understood, that is opposed to – how long will it take you to make that, begin to make that change, were you talking weeks, months, years?

Jeff Stevens

I think that over the next six months we will start by truck bringing in barrels into our crude gathering system and bring them in. But I see the gathering system for us in the next 12 to 14 months I think we could significantly change the balance of crude that we are currently running today.

Paul Sankey - Deutsche Bank

Okay. And then finally just going, you talked about distillate at the moment being strong through the rail side of things. Can you just make any observations about the local market in terms of what look like quite weak BOE numbers, perhaps not so much for distillate, but any observations you have particularly for gasoline? Thanks.

Jeff Stevens

Yeah, on the distillate, you know really like I said I think that the mining side is strong, but the rest – over the road truck is weaker year-over-year and just the local demand, I would say is off slightly on the distillate, so its somewhat of a mix story. The gas is flat to down may be 1% or 2% what we are seeing in the marketplace right now year-over-year.

Operator

(Operator Instructions) Your next question comes from Jeff Dietert of Simmons.

Jeff Dietert - Simmons

I appreciate the slides and the strong detailed discussions this morning. One remaining question on WTI at El Paso you are using typically 80% WTI, 20% WTS and the WTS discounts have really narrowed. What’s driving that weakness in West Texas Sour and is it influencing how much WTI and WTS you are using?

Jeff Stevens

Yeah Jeff I think that what we saw in the quarter is I think some of the WTS is leaving the market to be blended off with water-borne crudes is affecting that spread and so what we have done is you know we have a lot of flexibility there. I mean when the spreads early in the second quarter was as high as $4 or $4.50 we were able to ramp up the refinery and run about 32,000 to 33,000 barrels a day at WTS; with the margin coming in like it has we are probably closer to 14,000 barrels a day looking forward in August. So we’ll obviously ramp it down with that margin comes in. And I think that right now WTI and WTS is so disconnected from the rest of the crude slates around the world it’s hard to explain much right now.

Jeff Dietert - Simmons

Thanks for that. And pardon me if I missed it on the Yorktown but where are you in the process and when do you expect the divestiture process to be completed to where you can make a decision on divest versus other options?

Jeff Stevens

Well, as we said in the script we do have letters of indications and we are working with a couple of parties on the potential sale and I am not going to get in the business of predicting, but I have done a very good job at that. But I think that if we are moving forward and you know we’re cautiously optimistic that we can get something done soon.

Jeff Dietert - Simmons

You are pretty far down that process, right?

Jeff Stevens

We have been working this process for a while.

Operator

Your next question comes from Ann Kohler of CRT Capital Group.

Ann Kohler - CRT Capital Group

Right, good morning gentlemen, a couple of questions. First, did you see that your store count went up in the retail division? Could you just provide a little color as to that where those are in the timing event?

Jeff Stevens

Yeah. In Tucson we had two opportunities and there were two stores that were part of the bankruptcy that we were able to buy a very favorable price or two very good units that we’ve added to our stations. And the other thing is we added 17 other stores through a lease structure, so we you know we’ve gone at Tucson from 12 to 13 stores up about 32 stores and obviously that’s important from the standpoint of El Paso has the ability to supply that market and we just felt like that these were very opportunistic stores for us and we felt it just added value to the overall store chain is the reason we did it.

Ann Kohler - CRT Capital Group

Great. And what was the timing of that; when was that completed during the quarter?

Jeff Stevens

Yeah, it was really a June event.

Ann Kohler - CRT Capital Group

Okay, great. And then can you just provide a little bit of color on how we should think about the wholesale margin with Yorktown there and then how did in the wholesale division with Yorktown terminal included in that so it’s quite a big swing; could you provide a little additional color on what occurred there during the quarter?

Jeff Stevens

Well, we have a couple of things one you know obviously for the quarter we didn’t have the ability to supply Yorktown with Gulf Coast barrels and we saw a situation where the New York harbor disconnected from the Gulf Coast that was significant, I think it was as much as on some of the gas links back with as much as $0.15 or $0.16 higher than the Gulf Coast was and so we have to supply Yorktown with water-borne barrels. And that really impacted our margin and ability to you know be competitive.

But now with the Colonial connection, we can work those markets against each other and I think that you’ll see the profits increase because of that flexibility and really put us in a good position, you know being able to play both the Gulf Coast and New York off of each other and Yorktown.

Ann Kohler - CRT Capital Group

Great, and then just one final, just a clarification. So basically as regards to this potential sale of the Yorktown terminal, you are now looking at EBITDA off of that just related to your own wholesale operations in $7 million to $10 million range on an annual basis?

Jeff Stevens

Yes, that is correct.

Operator

At this time, there are no further questions. I would now like to turn the call to Mr. Jeff Stevens for closing remarks.

Jeff Stevens

Thanks Melissa and thank all of you for participation in today’s call and your continued interest in Western Refining. Thank you.

Operator

Thank you. That does conclude today’s second quarter 2011 Western Refining earnings conference call. You may now disconnect your lines at this time and have a wonderful day.

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