SECTOR: Energy SectorSECTOR: Energy SectorCOMPANY: Western Refining Inc.COMPANY: Western Refining Inc.

SR. ANALYSTS: JORGE PIOJR. ANALYSTS: Edison Vo, Knut Kirchoff, nicholas Canova, Chris Sondej, Alex Mitrani, Raditya Purwahjo

Investment RecommendationInvestment Recommendation

2

Company Western Refining Inc

Recommendation

Buy

Current Price 17.53

1yr Target Price 26.36

% Upside 50.4% Key investment drivers

1. Rising price of Gas 2. Rising Consumption of Oil 3. Unrest in the Middle East

Industry SnapshotIndustry Snapshot

Industry Definition: The oil refining industry consists of companies that specialize in the refining of crude oil into gasoline, diesel Fuel and other oil products. The refining industry also includes the sale refined products at wholesale and retail locations.

Industry Size: $437 Billion

3

Key Financials:

Company SnapshotCompany Snapshot

4

Revenue $8 Billion

P/S .22X

TEV $2.37 Billion

TEV/EBITDA 9.7x

Market Cap $1.55

Beta .56

Company SnapshotCompany Snapshot

5

• The crude is refined into a combination of Gasoline, Diesel Fuel, and Jet Fuel

• End product is transported by pipeline and truck

• Sale of gas at retail and wholesale locations

• Crude oil is delivered to refineries via pipeline

MAPMAP

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• El Paso, Texas - 128,000 bpd • Gallup, New Mexico - 31,000

bpd

• Yorktown, Virginia - 70,000 bpd (Temporarily Suspended Sept 2010)

• Bloomfield, New Mexico - 17,000 bpd (Temporarily suspended Nov 2009)

Primarily operates in:•West Texas•New Mexico•Arizona•Utah•Colorado•Mid-Atlantic Region

Trends: Crude OilTrends: Crude Oil• Unrest in the Middle East has lead to the highest crude oil

prices since 2008 and has increased the forecast of future 2011 price per barrel to $105

• World Crude oil and liquid fuel consumption grew by an estimated 2.4 million bbl/d.

• Expected consumption will grow 1.5 million bbl/d in 2011• In 2014 the global oil and gas refining and marketing sector

is forecasted to have an 11.4% increase from 2009 (CAGR 2.2%) Data-monitor industry profile

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Source:EIA.gov

Price of WTIPrice of WTI

• Increased production in Canada is creating a downward pressure on the WTI

• WTI(West Texas Light)• Supply buildup at

Cushing

Gasoline price and demand increaseGasoline price and demand increase

• EIA estimates a 28% increase in gasoline prices

• API estimates a 4% demand increase for gasoline

Company AnalysisCompany Analysis• The company has announced a cost reduction

effort of $50 million in order to improve margins in anticipation of higher crude oil prices

• Has expanded its refining capacity through acquisitions of other independent refiners – 2007: Giant Inc. doubled their refinery capacity– Giant’s New Mexico and Virginia refineries with

a $1.5 billion loan.

Company AnalysisCompany Analysis• Longhorn pipeline-connects Gulf Coast refineries to

the El Paso pipeline, which delivers oil to Phoenix and Albuquerque– Increased profit margins in those cities

• El Paso-Phoenix pipeline expansion– Western refinery won exclusive rights to use this

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ValuationValuation

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Year 2010(e) 2011(e) 2012(e) 2013(e) 2014(e)

FCF $(67.50) $121.72 $ 137.72 $ 145.91 $ 135.45

DCF

WACC 7.36%

Growth Rate

3.00%

DCF Value $3,644 B

1yr Price $29.80

Comparables

P/S (%w) 30%

1yr Price 22.24

TEV/EBITDA(%w)

30%

1yr Price 25.8940%

Weight60%

Weight

1yr Target Price

% Upside 50.4%

RecommendationRecommendation

Rising Gas Prices Rising Consumption of Oil Unrest in the Middle East

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Company Western Refining Inc

Recommendation

Buy

Current Price 17.53

1yr Target Price 26.36

% Upside 50.4%