Western Refining Logistics, LP - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - Western Refining Logistics, LP	Financial_Report.xls
EX-31.2 - EXHIBIT - Western Refining Logistics, LP	wnrl63014ex312.htm
EX-32.1 - EXHIBIT - Western Refining Logistics, LP	wnrl63014ex321.htm
EX-31.1 - EXHIBIT - Western Refining Logistics, LP	wnrl63014ex311.htm
EX-32.2 - EXHIBIT - Western Refining Logistics, LP	wnrl63014ex322.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, 2014



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from _____ to _____

Commission File Number: 001-36114

WESTERN REFINING LOGISTICS, LP

(Exact name of registrant as specified in its charter)



Delaware		46-3205923
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

123 W. Mills Avenue., Suite 200		79901
El Paso, Texas		(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (915) 534-1400

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of August 1, 2014, there were 22,811,000 common units and 22,811,000 subordinated units outstanding.

WESTERN REFINING LOGISTICS, LP

TABLE OF CONTENTS



Part I. Financial Information	1

Item 1. Financial Statements (Unaudited)	1

Condensed Consolidated Balance Sheets as of June 30, 2014, and December 31, 2013	1

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013	2

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013	3

Notes to Condensed Consolidated Financial Statements	4

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3. Quantitative and Qualitative Disclosure About Market Risk	23

Item 4. Controls and Procedures	23

Part II. Other Information	23

Item 1. Legal Proceedings	23

Item 1A. Risk Factors	23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 6. Exhibits	24

Signatures	25

EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101

EXPLANATORY NOTE

On October 16, 2013, Western Refining Logistics, LP ("WNRL") completed its initial public offering (the "Offering") of 15,812,500 common units to the public at a price of $22.00 per unit. Unless the context otherwise requires, references in this report to Western Refining Logistics, LP, Predecessor, the "Predecessor," and "we," "our," "us" or like terms, when used in context of periods prior to October 16, 2013, refer to Western Refining Logistics, LP, Predecessor, WNRL's predecessor for accounting purposes, which consists of the assets, liabilities and results of operations of certain pipeline and gathering assets and terminalling, transportation and storage assets of Western Refining, Inc. ("Western"). Western and certain of its subsidiaries operated and held these assets and contributed the majority of these assets to WNRL in conjunction with the Offering. References in this report to "Western Refining Logistics, LP," "WNRL," the "Partnership," the "Successor" and "we," "our," "us" or like terms used in context of periods on or after October 16, 2013, refer to Western Refining Logistics, LP and its subsidiaries. See Note 3, Initial Public Offering, to our condensed consolidated financial statements for information regarding the closing of the Offering.

FORWARD-LOOKING STATEMENTS

As provided by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, certain statements included throughout this Quarterly Report on Form 10-Q and in particular under the section entitled Part I — Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations relating to matters that are not historical fact are forward-looking statements that represent beliefs and assumptions based on currently available information. Forward-looking statements give our current expectations; contain projections of results of operations or of financial condition or forecasts of future events. These forward-looking statements relate to matters such as our industry, business strategy, organic growth opportunities and strategic asset acquisitions, our rights of first offer for certain logistics assets owned by Western, future operations, revenues, cash flows generated under fee-based agreements with Western, taxes, capital expenditures, operating and maintenance expenses, liquidity (including sources of liquidity) and capital resources and other financial and operating information, distributions, volumes of crude oil and refined and other products handled on our pipeline and gathering operations and our terminalling, transportation and storage assets, and compliance with environmental laws and regulations. We have used the words "may," "will," "assume," "future," "forecast," "position," "potential," "predict," "strategy," "expect," "intend," "plan," "estimate," "anticipate," "believe," "project," "budget," "potential," "continue," "could" and similar terms and expressions to identify forward-looking statements in this report.

Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many that are beyond our control that could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows. When considering these forward-looking statements, you should consider the risk factors and other cautionary statements in this report and in the other reports we reference. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties.

Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identify all of these factors, they include, among others, the following:


•	changes in the business strategy or activity levels of Western, which may be impacted by a variety of factors, including changes in crack spreads, changes in the spread between West Texas Intermediate Cushing ("WTI") crude oil and West Texas Sour crude oil and changes in the spread between WTI crude oil and Brent crude oil and between WTI crude oil and WTI Midland crude oil;


•	our ability to identify and successfully complete strategic asset acquisitions on economically acceptable terms;


•	changes in general economic and political conditions;


•	competitive conditions in our industry;


•	actions taken by third-party operators, processors and transporters;


•	the demand for crude oil, refined and other products and transportation and storage services;


•	the supply of crude oil in the regions in which we and Western operate;


•	interest rates;


•	labor relations including those affecting our seconded employees and shared Western employees;


•	changes in the availability and cost of capital;


•	changes in tax status;


•	operating hazards, natural disasters, weather-related delays, casualty losses and other matters, including those that may result in a force majeure event under our commercial agreements with Western, that may be beyond our control;


•	the effects of existing and future laws and governmental regulations and the manner in which they are interpreted and implemented;


•	changes in insurance markets impacting costs and the level and types of coverage available;


•	disruptions due to equipment interruption or failure at our facilities, Western’s facilities or third-party facilities on which our business is dependent;


•	our ability to successfully implement our business plan;


•	the effects of future litigation; and


•	other factors discussed in more detail under Part I. — Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2013, that are incorporated herein by this reference.

Any one of these factors or a combination of these factors could materially affect our financial condition, results of operations or cash flows and could influence whether any forward-looking statements ultimately prove to be accurate. You are urged to consider these factors carefully in evaluating any forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements.

Although we believe the forward-looking statements we make in this report related to our plans, intentions and expectations are reasonable, we can provide no assurance that such plans, intentions or expectations will be achieved. These statements are based on assumptions made by us based on our experience and perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate in the circumstances. Such statements are subject to a number of risks and uncertainties, many that are beyond our control. The forward-looking statements included herein are made only as of the date of this report and we do not undertake any obligation to (and expressly disclaim any obligation to) update any forward looking statements to reflect events or circumstances after the date such statements were made, or to reflect the occurrence of unanticipated events.

Table of Contents

Part I. Financial Information


Item 1.	Financial Statements

WESTERN REFINING LOGISTICS, LP

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)



	June 30, 2014			December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	79,395		$	84,000
Accounts receivable:
Affiliate	12,476			11,431
Third-party	288			16
Prepaid expenses	1,513			869
Other current assets	951			1,048
Total current assets	94,623			97,364
Property, plant and equipment, net	147,808			145,618
Other assets, net	2,298			2,557
Total assets	$	244,729		$	245,539
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable:
Affiliate	$	3,591		$	7,680
Third-party	3,244			1,303
Accrued liabilities, including deferred revenue from affiliate of $5,163 and $2,589, respectively	6,532			3,199
Total current liabilities	13,367			12,182
Long-term liabilities:
Other liabilities	10			5
Commitments and contingencies
Equity (Deficit):
Common unitholders - Public (15,812,500 units issued and outstanding)	325,879			326,151
Common unitholders - Western (6,998,500 units issued and outstanding)	(33,579		)	(33,174		)
Subordinated unitholders - Western (22,811,000 units issued and outstanding)	(60,948		)	(59,625		)
Total equity	231,352			233,352
Total liabilities and equity	$	244,729		$	245,539

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WESTERN REFINING LOGISTICS, LP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per unit amounts)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
	Successor			Predecessor			Successor			Predecessor
Revenues:
Affiliate	$	34,324		$	1,007		$	66,380		$	1,919
Third-party	657			292			1,358			519
Total revenues	34,981			1,299			67,738			2,438
Operating costs and expenses:
Operating and maintenance expenses	17,954			18,505			34,089			34,072
General and administrative expenses	2,143			1,149			4,118			2,190
Depreciation and amortization	3,467			2,886			6,711			5,816
Total operating costs and expenses	23,564			22,540			44,918			42,078
Operating income (loss)	11,417			(21,241		)	22,820			(39,640		)
Other income (expense):
Interest expense and other financing costs	(227		)	—			(452		)	—
Amortization of loan fees	(130		)	—			(259		)	—
Other income, net	—			4			3			6
Income (loss) before income taxes	11,060			(21,237		)	22,112			(39,634		)
Provision for income taxes	(85		)	—			(204		)	—
Net income (loss)	$	10,975		$	(21,237	)	$	21,908		$	(39,634	)

Net income per limited partner unit:
Common - basic	$	0.24					$	0.48
Common - diluted	0.24						0.48
Subordinated - basic and diluted	0.24						0.48

Weighted average limited partner units outstanding:
Common - basic	22,811						22,811
Common - diluted	22,861						22,838
Subordinated - basic and diluted	22,811						22,811

Cash distributions declared per common unit	$	0.2975					$	0.5382

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WESTERN REFINING LOGISTICS, LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



	Six Months Ended
	June 30,
	2014			2013
	Successor			Predecessor
Cash flows from operating activities:
Net income (loss)	$	21,908		$	(39,634	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	6,711			5,816
Amortization of loan fees	259			—
Unit-based compensation expense	581			—
Changes in operating assets and liabilities:
Accounts receivable - third-party	(272		)	—
Accounts receivable - affiliate	(1,045		)	(41		)
Prepaid expenses	(644		)	305
Other assets	(2		)	—
Accounts payable and accrued liabilities	1,124			(2,529		)
Other long-term liabilities	5			—
Net cash provided by (used in) operating activities	28,625			(36,083		)
Cash flows from investing activities:
Capital expenditures	(8,677		)	(36,069		)
Net cash used in investing activities	(8,677		)	(36,069		)
Cash flows from financing activities:
Distribution to affiliate	(16,043		)	—
Distribution to non-controlling interest holders	(8,510		)	—
Contributions from affiliate	—			72,152
Net cash provided by (used in) financing activities	(24,553		)	72,152
Net change in cash and cash equivalents	(4,605		)	—
Cash and cash equivalents at beginning of period	84,000			—
Cash and cash equivalents at end of period	$	79,395		$	—
Supplemental disclosure of cash flow information:
Interest paid	$	453		$	—
Supplemental disclosure of non-cash investing activities:
Accrued capital expenditures	$	223		$	997

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization

Western Refining Logistics, LP ("WNRL," "we," "us" or the "Partnership") is a Delaware limited partnership formed in July 2013 by Western Refining Logistics GP, LLC ("WRGP"), our general partner. WRGP is owned 100% by Western Refining, Inc. ("Western") and holds all of the non-economic general partner interests in WNRL. On October 16, 2013, we completed our initial public offering (the "Offering") of 15,812,500 common units representing limited partner interests. Upon completion of the Offering, Western Refining Company, L.P. and Western Refining Southwest, Inc., each wholly-owned subsidiaries of Western, collectively held a 65.3% limited partner interest in WNRL, with the remaining 34.7% limited partner interest being held by public unitholders. See Note 3, Initial Public Offering, for further discussion.

We engage in the gathering, transportation, storage and terminalling of crude oil and refined products and the storage, processing and terminalling of asphalt. Most of our assets are integral to the operations of Western’s refineries located in El Paso, Texas and near Gallup, New Mexico. Primarily, we operate in Arizona, New Mexico and West Texas. We generate substantially all of our revenues from transactions with Western.

2. Basis of Presentation, Significant Accounting Policies and Recent Accounting Pronouncements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or for any other period.

The Condensed Consolidated Balance Sheet at December 31, 2013, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. We have not reported comprehensive income due to the absence of items of other comprehensive income or loss during the periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013.

The accompanying condensed consolidated financial statements and related notes present, for periods prior to October 16, 2013, the combined financial position, results of operations and cash flows of Western Refining Logistics, LP, Predecessor, our predecessor for accounting purposes (the "Predecessor").

Segment Reporting

Due to the similarity of the assets we operate and how we manage our business, we have aggregated the divisions of the Partnership into one reportable operating segment for disclosure purposes. Our operating divisions reflect the way in which we internally report the financial information used to make decisions and allocate resources in connection with our operations.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

The accounting provisions covering the recognition and reporting of revenues were amended to remove inconsistencies in revenue requirements and to provide a more complete framework for addressing revenue issues across a broad range of industries and transaction types. The revised standard’s core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. These provisions are effective for the first interim or annual period beginning after December 15, 2015, and are to be applied retrospectively, with early adoption not permitted. We do not expect the adoption of this guidance to materially affect our financial position, results of operations or cash flows.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

From time to time, new accounting pronouncements are issued by various standard setting bodies that may have an impact on our accounting and reporting. We believe that other recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future will either have no impact on our accounting or reporting, or that such impact, when implemented, will not be material to our financial position, results of operations or cash flows.

3. Initial Public Offering

Initial Public Offering and Contribution of Assets

On October 10, 2013, our common units began trading on the New York Stock Exchange under the symbol "WNRL". On October 16, 2013, we closed the Offering of 15,812,500 common units at a price of $22.00 per common unit, resulting in gross proceeds of $347.9 million.

On October 16, 2013, Western conveyed various pipeline, gathering, terminalling, transportation and storage assets at historical cost (the "Contributed Assets") to WNRL. Western retained certain assets that are related to the Predecessor’s operations.

In exchange for the Contributed Assets, Western received:


•	6,998,500 common units and 22,811,000 subordinated units, representing an aggregate 65.3% limited partner interest in WNRL;


•	all of WNRL's incentive distribution rights; and


•	an aggregate cash distribution of $244.9 million to certain of Western's wholly-owned subsidiaries.

In connection with the Offering, we entered into a credit agreement that provides for a $300.0 million senior secured revolving credit facility that is available to fund working capital, acquisitions, distributions, capital expenditures and for other general partnership purposes. See Note 7, Debt, for further detail.

We received net proceeds of $325.3 million from the sale of common units to the public, after deducting underwriting discounts and commissions and structuring fees of $22.6 million. We retained $75.7 million of the proceeds for general partnership purposes after payment of a cash distribution of $244.9 million to Western, offering expenses of $2.1 million and fees related to our Revolving Credit Facility of $2.6 million.

4. Earnings Per Unit

Net income per unit is calculated for the Partnership only for periods after the Offering as no units were outstanding prior to October 16, 2013. Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income (loss) allocations used in the calculation of net income (loss) per unit.

Diluted net income per unit includes the effects of potentially dilutive units of our common units that consist of unvested phantom units. These units are non-participating securities due to forfeitable nature of their associated distribution equivalent rights, prior to vesting, and we do not consider the units in the two-class method when calculating the net income per unit. Basic and diluted net income (loss) per unit applicable to subordinated limited partners are the same because there are no potentially dilutive subordinated units outstanding.

In addition to the common and subordinated units, we have also identified the general partner interest and incentive distribution rights as participating securities and use the two-class method when calculating the net income per unit applicable to limited partners that is based on the weighted-average number of common units outstanding during the period. There have been no additional changes to the outstanding units after the closing of the Offering. As of June 30, 2014, there were no incentive distribution right payments to our general partner.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The calculation of net income per unit for the three and six months ended June 30, 2014, is as follows:



	Three Months Ended			Six Months Ended
	June 30,
	2014
	(In thousands, except per unit data)
Net income attributable to partners	$	10,975		$	21,908
Limited partners' distributions on common units	(6,786		)	(12,277		)
Limited partners' distributions on subordinated units	(6,786		)	(12,277		)
Distributions greater than earnings	$	(2,597	)	$	(2,646	)

Limited partners' earnings on common units:
Distributions	$	6,786		$	12,277
Allocation of distributions greater than earnings	(1,298		)	(1,323		)
Total limited partners' earnings on common units	$	5,488		$	10,954

Limited partners' earnings on subordinated units:
Distributions	$	6,786		$	12,277
Allocation of distributions greater than earnings	(1,299		)	(1,323		)
Total limited partners' earnings on subordinated units	$	5,487		$	10,954

Weighted average limited partner units outstanding:
Common units - basic	22,811			22,811
Common units - diluted	22,861			22,838
Subordinated units - basic and diluted	22,811			22,811

Net income per limited partner unit:
Common - basic	$	0.24		$	0.48
Common - diluted	0.24			0.48
Subordinated - basic and diluted	0.24			0.48

5. Property, Plant and Equipment, Net

Property, plant and equipment, net was as follows:



	June 30, 2014			December 31, 2013
	(In thousands)
Buildings and improvements	$	5,428		$	5,428
Pipelines and related assets	75,580			71,103
Terminals and related assets	104,334			103,361
Asphalt plant, terminals and related assets	22,714			22,714
	208,056			202,606
Accumulated depreciation	(73,000		)	(66,289		)
	135,056			136,317
Construction in progress	12,752			9,301
Property, plant and equipment, net	$	147,808		$	145,618

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Depreciation expense was $3.5 million, $6.7 million, $2.9 million and $5.8 million for the three and six months ended June 30, 2014 and 2013, respectively.

6. Accrued Liabilities

Accrued liabilities were as follows:



	June 30, 2014		December 31, 2013
	(In thousands)
Deferred revenue - Western	$	5,163	$	2,589
Property taxes	843		295
Other	526		315
Accrued liabilities	$	6,532	$	3,199

7. Debt

Revolving Credit Facility

We have a $300.0 million senior secured revolving credit agreement ("Credit Agreement") that matures on October 16, 2018. We have the ability to increase the total commitment of the revolving credit facility by up to $200.0 million for a total facility size of up to $500.0 million, subject to certain conditions. The Credit Agreement includes a $25.0 million sub-limit for standby letters of credit and a $10.0 million sub-limit for swing line loans. Obligations under the Credit Agreement and certain cash management and hedging obligations are guaranteed by all of our subsidiaries. Obligations under the Credit Agreement are secured by a first priority lien on substantially all of our and our subsidiaries' significant assets. Our creditors under the Credit Agreement have no recourse to Western's assets, except to the extent of the assets of WRGP that Western wholly owns. Borrowings under the revolving credit facility bear interest at either a base rate plus an applicable margin ranging from 0.75% to 1.75%, or at LIBOR plus an applicable margin ranging from 1.75% to 2.75%. The applicable margin will vary based on our Consolidated Total Leverage Ratio, as defined in the Credit Agreement. We had no direct or swing line borrowings and no letters of credit outstanding under our Credit Agreement as of June 30, 2014.

The Credit Agreement contains covenants that limit or restrict our ability to make cash distributions. We are required to maintain certain financial ratios, each tested on a quarterly basis for the immediately preceding four quarter period.

8. Equity

We had 15,812,500 common units held by the public outstanding as of June 30, 2014. Western owns 6,998,500 of our common units and 22,811,000 of our subordinated units constituting an aggregate limited partner interest of 65.3%. The Offering transactions were allocated in accordance with agreements signed concurrently with the Offering and the pro-rata ownership of the units held by Western. There have been no changes to the number of outstanding units since the completion of the Offering. In accordance with our partnership agreement, Western's subordinated units will convert to common units once we have met specified distribution targets and successfully completed other tests set forth in our partnership agreement.

Issuance of Additional Interests

Our partnership agreement authorizes us to issue additional partnership interests for the consideration and on the terms and conditions determined by our general partner without the approval of the unitholders. It is possible that we will fund acquisitions through the issuance of additional common units, subordinated units or other partnership interests. Holders of any additional common units we issue will be entitled to share proportionally in accordance with their respective percentage interests with the then-existing common unitholders in our distributions of available cash.

Allocations of Net Income

Our partnership agreement contains provisions for the allocation of net income and loss to the unitholders and the general partner. For purposes of maintaining partner capital accounts, the partnership agreement specifies that items of income and loss shall be allocated among the partners in accordance with their respective percentage interest. Normal allocations according to percentage interests are made after giving effect, if any, to priority income allocations in an amount equal to incentive distribution right payments allocated 100% to the general partner.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Percentage Allocations of Available Cash from Operating Surplus

The following table illustrates the percentage allocations of available cash from operating surplus between the unitholders and our general partner (as the holder of our incentive distribution rights) based on the specified target distribution levels. The amounts set forth under the column heading "Marginal Percentage Interest in Distributions" are the percentage interests of our general partner and the unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column "Total Quarterly Distribution per Unit Target Amount". The percentage interests shown for our unitholders and our general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests set forth below assume our general partner has not transferred its incentive distribution rights and there are no arrearages on common units.



	Total Quarterly Distribution per Unit Target Amount	Marginal Percentage Interest in Distributions
	Total Quarterly Distribution per Unit Target Amount	Unitholders		General Partner
Minimum Quarterly Distribution	$0.2875	100.0	%	—
First Target Distribution	above $0.2875 up to $0.3306	100.0	%	—
Second Target Distribution	above $0.3306 up to $0.3594	85.0	%	15.0	%
Third Target Distribution	above $0.3594 up to $0.4313	75.0	%	25.0	%
Thereafter	above $0.4313	50.0	%	50.0	%

Our partnership agreement sets forth the calculation we will use to determine the amount and priority of cash distributions that the common and subordinated unitholders and general partner will receive. We declare distributions subsequent to quarter end. In accordance with our partnership agreement, on January 31, 2014, our general partner's board of directors declared a quarterly cash distribution of $0.2407 per unit for the prorated period of October 16, 2013, through December 31, 2013, and corresponds to the prorated minimum quarterly distribution of $0.2875 per unit. We paid the distribution on February 24, 2014, to all unitholders of record on February 14, 2014. We made no distributions prior to this date.

The table below summarizes our 2014 quarterly distribution declarations, payments and scheduled payments through August 25, 2014:



	2014
	Declaration Date	Record Date	Payment Date	Distribution per Common and Subordinated Unit
First quarter	May 2	May 16	May 26	$	0.2975
Second quarter	August 1	August 15	August 25	0.3075
Total				$	0.6050

9. Equity-Based Compensation

Our general partner's board of directors adopted the Western Refining Logistics, LP 2013 Long-Term Incentive Plan (the "LTIP") in connection with the completion of the Offering. The LTIP is for the benefit of employees, consultants and non‑employee directors of our general partner and its affiliates. Awards granted under the LTIP vest over a scheduled vesting period and their market value at the date of the grant is amortized over the restricted period on a straight-line basis.

As of June 30, 2014, there were 4,251,947 common units reserved for future grants under the LTIP. We incurred unit‑based compensation expense of $0.4 million and $0.6 million for the three and six months ended June 30, 2014, respectively.

The fair value at grant date of nonvested phantom units outstanding as of June 30, 2014, was $7.0 million. Total unrecognized compensation cost related to our nonvested phantom units totaled $6.3 million as of June 30, 2014, that we expect to recognize over a weighted-average period of approximately 4.70 years.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A summary of our unit award activity for the three and six months ended June 30, 2014, is set forth below:



	Number of Phantom Units	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2013	10,908	$	22.00
Awards granted	200,975	27.60
Awards vested	—	—
Awards forfeited	—	—
Nonvested at March 31, 2014	211,883	27.31
Awards granted	36,170	32.30
Awards vested	—	—
Awards forfeited	—	—
Nonvested at June 30, 2014	248,053	28.04

10. Major Customers

We are part of the consolidated operations of Western, and we derive substantially all of our revenue from transactions with Western and its affiliates. Western accounted for approximately 98.1%, 98.0%, 77.5% and 78.7%, respectively, of our consolidated revenues for the three and six months ended June 30, 2014 and 2013. These percentages are not comparable as Western did not charge for the Predecessor's services in prior years. Prior to the completion of the Offering, our Predecessor did not record all revenues for intercompany gathering, pipeline transportation, terminalling and storage services. See Note 14, Related Party Transactions, for detailed information on our agreements with Western that became effective concurrent with the closing of the Offering.

11. Income Taxes

We are not a taxable entity for United States federal income tax purposes or for the majority of states that impose an income tax. Taxes on our net income generally are borne by our partners through the allocation of taxable income. Our income tax expense results from state laws that apply to entities organized as partnerships, primarily in the state of Texas. Prior to the Offering, our operations in Texas were not taxable. For the three and six months ended June 30, 2014, our income tax expense was $0.1 million and $0.2 million, respectively. Our effective tax rate for the three and six months ended June 30, 2014 was 0.8% and 0.9%, respectively.

As of June 30, 2014 and December 31, 2013, we had no unrecognized tax benefit liability. No interest or penalties were recognized related to income taxes during the three and six months ended June 30, 2014 and 2013.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12. Commitments

We have commitments under various operating leases with initial terms greater than one year for machinery and facilities. These leases have terms that will expire on various dates through 2025. We expect that in the normal course of business, these leases will be renewed or replaced by other leases. Certain of our lease agreements provide for the fair value purchase of the leased asset at the end of the lease. Rent expense for operating leases that provide for periodic rent escalations or rent holidays over the term of the lease is recognized on a straight-line basis.

The following table presents our annual minimum rental payments under non-cancelable operating leases that have lease terms of one year or more (in thousands) as of June 30, 2014:



Remaining 2014	$	21
2015	5
2016	5
2017	5
2018	5
2019 and thereafter	37
	$	78

Total rental expense was $0.1 million, $0.3 million, $0.01 million and $0.03 million for the three and six months ended June 30, 2014 and 2013, respectively.

13. Contingencies

Like other operators of petroleum-related storage and transportation facilities, our operations are subject to extensive and periodically changing federal and state environmental regulations governing air emissions, wastewater discharges and solid and hazardous waste management activities. Many of these regulations are becoming increasingly stringent, and we can expect the cost of compliance to increase over time. Our policy is to accrue environmental and clean-up related costs of a non-capital nature when it is probable that a liability exists and when we can reasonably estimate the amount. We may revise such estimates in the future as regulations and other conditions change. We may receive communications from various federal, state and local governmental authorities asserting violations of environmental laws and/or regulations. These governmental entities may also propose or assess fines or require corrective action for such asserted violations. We intend to respond in a timely manner to all such communications and to take appropriate corrective action.

We are not currently aware of any environmental or other asserted or unasserted claims against us that would be expected to have a material adverse effect on our financial condition, results of operations or cash flows.

14. Related Party Transactions

Currently, all of our employees are shared employees with Western. At the closing of the Offering, we entered into a services agreement with Western under which Western agreed to share certain employees with us. These employees are responsible for operation, maintenance and other services related to the assets we own and operate. Western employees provide these services under our direction, supervision and control pursuant to this services agreement. Western also provides us with support for accounting, legal, human resources and various other administrative functions. We reimburse Western for these services under the services and omnibus agreements.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We have incurred indirect charges for executive oversight, accounting, treasury, tax, legal, procurement, engineering, logistics, maintenance and information technology and similar items. We have classified these indirect charges between general and administrative expenses and operating and maintenance expenses based on the functional nature of the services being performed for our operations. Indirect charges were as follows:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
	(in thousands)
Indirect charges:
General and administrative expenses	$	2,143	$	1,148	$	4,118	$	2,189
Operating and maintenance expenses	9,047		4,620		16,061		8,149
Total indirect charges	$	11,190	$	5,768	$	20,179	$	10,338

Our management believes the indirect charges allocated to us are a reasonable reflection of the utilization of services provided. However, these allocations may not fully reflect the expenses that we would have incurred had we been a stand-alone company during the periods presented.

Agreements with Western

We derive substantially all of our revenues through various pipeline transportation, terminal distribution and storage services under long-term, fee-based commercial agreements with Western that expire in 2023. These agreements contain minimum volume commitments. Each agreement has fees that are indexed for inflation and provides us with options to renew for two additional five-year terms.

In addition to the commercial agreements, we are also party to a services agreement and an omnibus agreement with Western, as described above, that, among other things, provides for reimbursement to Western for various general and administrative services provided to us. We are also party to an operational services agreement with Western under which we reimburse for personnel services provided by Western in support of the operations of our pipelines, terminals and storage facilities.

We entered into three separate ground lease and access agreements with Western. All three agreements are for 10-year terms with provision for automatic renewal of up to four consecutive 10-year periods. Under each separate agreement, WNRL pays nominal annual rents. Rents due under these three agreements in the aggregate are less than $0.1 million over the initial terms of the agreements.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

WNRL is a fee-based growth-oriented, Delaware master limited partnership formed by Western Refining Logistics GP, LLC ("WRGP"), our general partner which holds all of the non‑economic general partner interests in WNRL and is owned 100% by Western Refining, Inc. ("Western"). WNRL was formed to own, operate, develop and acquire terminals, storage tanks, pipelines and other related businesses. WNRL filed a registration statement on Form S-1 related to our initial public offering (the "Offering") with the SEC that was declared effective on October 9, 2013. On October 10, 2013, WNRL’s common units began trading on the New York Stock Exchange under the symbol "WNRL". On October 16, 2013, WNRL completed the Offering of 15,812,500 common units representing limited partner interests.

We generate substantially all of our revenues under fee-based agreements with Western. These contracts should generate stable and predictable cash flows and limit our direct exposure to commodity price fluctuations to the loss allowance provisions in such commercial agreements. As a result of our fee-based arrangements with Western, we generally do not have exposure to variability in the prices of the hydrocarbons and other products we handle, although these risks indirectly influence our activities and results of operations over the long term.

The financial results presented and related discussion and analysis include, for periods prior to October 16, 2013, the consolidated financial position, results of operations and cash flow information of Western Refining Logistics, LP Predecessor, our predecessor for accounting purposes. The Predecessor did not historically operate its assets for the purpose of generating revenues independent of other Western businesses that it supports. Effective October 16, 2013, concurrent with the closing of the Offering, we entered into fee-based commercial and service agreements with Western under which we operate pipeline, terminal, storage and transportation assets for the purpose of generating fee-based revenues.

Major Influences on Results of Operations

Supply and Demand for Crude Oil and Refined Products. Our terminal throughput volumes depend primarily on the volume of refined and other products produced at Western’s refineries that, in turn, are ultimately dependent on Western’s ability to operate their refineries at planned rates. Our throughput volumes could be impacted by Western’s operational performance and also by the refining margin environment.

Organic Growth. We expect our revenues and distributable cash flow to grow as a result of increased volumes through our existing assets and through the expansion of our existing assets. In connection with the Offering, we have retained cash on the balance sheet to fund projects in order to achieve this desired growth. This growth is somewhat dependent on the expected crude oil production growth in the areas in which we operate. Our results will be impacted by our ability to develop organic growth projects as well as actual crude oil production growth in the future.

Acquisition Opportunities. We may acquire additional logistics assets and other related businesses from Western, its affiliates or third parties. Under our omnibus agreement with Western, subject to certain exceptions, we have rights of first offer on certain logistics assets owned by Western to the extent Western decides to sell, transfer or otherwise dispose of any of those assets. We also have rights of first offer to acquire additional logistics assets in the Permian Basin or the Four Corners area that Western may construct or acquire in the future.

Identifying and executing acquisitions is a key part of our strategy, and we plan to pursue strategic asset acquisitions from third parties to the extent such acquisitions complement our or Western’s existing asset base or provide attractive potential returns in new areas within our geographic footprint. We believe that we are well-positioned to acquire logistics assets from Western and third parties as opportunities arise. If we are unable to identify economically acceptable acquisitions, our future growth may be limited. Additionally, assets that we acquire may potentially reduce, rather than increase, our cash available for distribution. These acquisitions could also affect the comparability of our results from period to period. We expect to fund future growth capital expenditures primarily from a combination of cash-on-hand, borrowings under our revolving credit facility and the issuance of additional equity or debt securities. To the extent we issue additional partnership units to fund future acquisitions or discretionary capital expenditures, the payments of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level.

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Factors Affecting the Comparability of Our Financial Results

Our results of operations may not be comparable to our historical results of operations for the reasons described below:

Revenues. There are differences in the way our Predecessor recorded revenues and the way we record revenues. Prior to the Offering, our assets were part of the integrated operations of Western and the Predecessor generally recognized only the costs and did not record revenue associated with the transportation, terminalling or storage services provided to Western on an intercompany basis. Accordingly, the revenues in our Predecessor's historical consolidated financial statements (which are our financial statements for periods prior to October 16, 2013) relate only to amounts received from third parties for these services and minimum amounts required to be recorded for Western. We generate revenues through the commercial agreements we entered into with Western at the closing of the Offering and through existing third-party contracts. Under these commercial agreements, Western pays us fees for gathering, transporting and storing crude oil on our pipeline systems and storing and terminalling refined and other products at our terminals. These contracts contain minimum volume commitments and fees that are indexed for inflation in accordance with either the Federal Energy Regulatory Commission ("FERC") indexing methodology for pipelines or the U.S. Producer Price Index for all other fees.

Maintenance Costs. Our terminal facilities are subject to routine maintenance for normal wear and related maintenance costs are generally consistent from period to period. When a change in service of a storage tank occurs, maintenance costs will generally be greater due to increased costs of tank cleaning and hazardous material disposal. Our routine service cycle for tank inspections and maintenance at our storage facilities is generally every 10 years. Our pipelines are also subject to routine periodic inspections and maintenance. The cost of our maintenance is dependent upon the level of repairs deemed necessary as a result of the inspection of the specific asset.

General and Administrative Expenses. Our general and administrative expenses included direct and indirect charges for the management and operation of our logistics assets and certain expenses allocated by Western for general corporate services, such as treasury, accounting and legal services. Prior to the Offering, Western charged or allocated costs and expenses to the Predecessor based on the nature of the services and our proportionate share of employee time and headcount. Following the closing of the Offering, under our omnibus and services agreements, Western charges us a combination of direct and allocated charges for administrative and operational services that is comparable to those charged to the Predecessor prior to the Offering.

Financing. There are differences in the way we finance our operations as compared to the way our Predecessor financed its operations. Historically, Western financed our Predecessor's operations as part of its integrated operations and our Predecessor did not record any separate costs associated with this financing. Additionally, we largely relied on internally generated cash flows and capital contributions from Western to satisfy the Predecessor's capital expenditure requirements. Based on the terms of our cash distribution policy, we will distribute most of the cash generated by our operations to our unitholders, including Western. As a result, we expect to fund future growth capital expenditures primarily from a combination of the cash retained from the Offering, borrowings under our revolving credit facility and the issuance of additional equity or debt securities.

Delaware Basin System. The Predecessor's historical results of operations do not include the Delaware Basin system that includes approximately 38 miles of 10-inch and 12-inch mainlines. These mainlines are located in Southeast New Mexico and West Texas and handle crude oil produced in the Delaware Basin area of the Permian Basin. The Main 12-inch and the East 10-inch pipelines were placed into service in July 2013. The West 10-inch pipeline was placed into service in August 2013. The Delaware Basin system is designed to handle up to 138,000 barrels per day ("bpd"), comprised of a mainline capacity of 100,000 bpd and truck unloading capacity of 38,000 bpd.

Assets Retained by Western. The Predecessor’s historical results of operations include revenues, expenses and other items related to certain assets that were retained by Western and not contributed to us in connection with the Offering. These assets include Western’s Jal NGL terminal and certain inactive portions of the TexNew Mex 16" pipeline.

Critical Accounting Policies and Estimates

We prepare our financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"). In order to apply these principles, we must make judgments, assumptions and estimates based on the best available information at the time. Actual results may differ based on the continuing development of the information utilized and subsequent events, some of which we may have little or no control over. Our critical accounting policies could materially affect the amounts recorded in our financial statements. Our critical accounting policies, estimates and recent accounting pronouncements that potentially impact us are discussed in detail under Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2013 Form 10-K.

Recent Accounting Pronouncements. From time to time, new accounting pronouncements are issued by various standard setting bodies that may have an impact on our accounting and reporting. We believe that recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have a significant

impact on our accounting or reporting or that such impact will not be material to our financial position, results of operations and cash flows when implemented.

The accounting provisions covering the recognition and reporting of revenues were amended to remove inconsistencies in revenue requirements and to provide a more complete framework for addressing revenue issues across a broad range of industries and transaction types. The revised standard’s core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. These provisions are effective for the first interim or annual period beginning after December 15, 2016, and are to be applied retrospectively, with early adoption not permitted. We do not expect the adoption of this guidance to materially affect our financial position, results of operations or cash flows.

How We Evaluate Our Operations

Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include but are not limited to pipeline throughput and terminal volumes, revenues, operating and maintenance expenses, EBITDA and distributable cash flow.

Volumes. The amount of revenue we generate depends on the volumes of crude oil and refined and other products that we handle with our pipeline and gathering operations and our terminalling, transportation and storage assets. Primary factors impacting these volumes include supply and demand for crude oil, refined products and asphalt in the regions that we serve. Although Western has committed to minimum volumes under our commercial agreements, we expect over time that Western will ship volumes in excess of its minimum volume commitment on our pipeline and gathering systems and will terminal volumes in excess of its minimum volume commitments at our terminals. Our results of operations will be impacted by whether Western ships and stores such incremental volumes and by the amount of volumes we handle for third parties.

Revenues. We generate revenues from the commercial agreements that we entered into with Western and other third‑party contracts. Under the commercial agreements with Western, Western pays us fees for gathering, transporting and storing crude oil on our pipeline systems and storing and terminalling refined and other products at our terminals. These contracts contain minimum volume commitments and fees that are indexed for inflation in accordance with either the FERC indexing methodology for pipelines or the U.S. Producer Price Index for all other fees. The incremental volumes that Western and other third-parties ship and store with us will directly impact our revenues and our results of operations.

Operating and Maintenance Expenses. Our management seeks to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses primarily consist of labor expenses, lease costs, utility costs, insurance premiums, repairs and maintenance expenses and related property taxes. These expenses generally remain relatively stable across broad ranges of throughput volumes but can fluctuate from period to period depending on the mix of activities performed during that period and the timing of such expenses. We intend to manage maintenance expenditures on our pipelines and terminals by scheduling maintenance over time to avoid significant variability and minimize impact on our cash flows.

Results of Operations

A discussion and analysis of the factors contributing to our results of operations is presented below. The accompanying condensed consolidated financial information for the three and six months ended June 30, 2013, represent our Predecessor's results of operations, while the condensed consolidated financial information for the three and six months ended June 30, 2014, represent the results of operations for WNRL. The financial information, together with the accompanying analysis, are intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting our future performance.

We define EBITDA as earnings before interest expense and other financing costs, provision for income taxes and depreciation and amortization. We define Distributable Cash Flow as EBITDA plus the change in deferred revenues, less net cash interest paid, income taxes paid and maintenance capital expenditures.

EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:


•	EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;


•	EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;


•	EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and

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•	EBITDA, as we calculate it, may differ from the EBITDA calculations of our affiliates or other companies in our industry, thereby limiting its usefulness as a comparative measure.

EBITDA and Distributable Cash Flow are used as supplemental financial measures by management and by external users of our financial statements, such as investors and commercial banks, to assess:


•	our operating performance as compared to those of other companies in the midstream energy industry, without regard to financial methods, historical cost basis or capital structure;


•	the ability of our assets to generate sufficient cash to make distributions to our unitholders;


•	our ability to incur and service debt and fund capital expenditures; and


•	the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

Distributable Cash Flow is also a quantitative standard used by the investment community with respect to publicly traded partnerships because the value of a partnership unit is, in part, measured by its yield. Yield is based on the amount of cash distributions a partnership can pay to a unitholder.

We believe that the presentation of these non-GAAP measures provides useful information to investors in assessing our financial condition and results of operations. The GAAP measure most directly comparable to EBITDA and Distributable Cash Flow is net income (loss). These non-GAAP measures should not be considered as alternatives to net income (loss) or any other measure of financial performance presented in accordance with GAAP. EBITDA excludes some, but not all, items that affect net income (loss). These non-GAAP measures may vary from those of other companies. As a result, EBITDA and Distributable Cash Flow as presented herein may not be comparable to similarly titled measures of other companies.

The following tables summarize our financial data and key operating statistics for the three and six months ended June 30, 2014 and 2013, respectively. The following data should be read in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this quarterly report.

Three Months Ended June 30, 2014, Compared to the Three Months Ended June 30, 2013



	Three Months Ended
	June 30,
	2014			2013
	Successor			Predecessor			Change
	(In thousands)
Revenues:
Affiliate	$	34,324		$	1,007		$	33,317
Third-party	657			292			365
Total revenues	34,981			1,299			33,682
Operating costs and expenses:
Operating and maintenance expenses	17,954			18,505			(551		)
General and administrative expenses	2,143			1,149			994
Depreciation and amortization	3,467			2,886			581
Total operating costs and expenses	23,564			22,540			1,024
Operating income (loss)	11,417			(21,241		)	32,658
Other income (expense):
Interest expense and other financing costs	(227		)	—			(227		)
Amortization of loan fees	(130		)	—			(130		)
Other, net	—			4			(4		)
Income (loss) before income taxes	11,060			(21,237		)	32,297
Provision for income taxes	(85		)	—			(85		)
Net income (loss)	$	10,975		$	(21,237	)	$	32,212

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	Three Months Ended
	June 30,
	2014			2013
	Successor			Predecessor			Change
	(In thousands, except total barrels and barrels per day)
Key Operating Statistics
Pipeline and gathering (bpd):
Mainline movements:
Permian/Delaware Basin system	24,196			—			24,196
Four Corners system (1)	35,837			38,790			(2,953		)
Gathering (truck offloading):
Permian/Delaware Basin system	26,178			6,589			19,589
Four Corners system	11,188			8,240			2,948
Pipeline Storage (barrels or bbls) (2)	578,167			566,449			11,718
Terminalling, transportation and storage (bpd):
Shipments into and out of storage (includes asphalt)	406,881			377,968			28,913
Terminal storage (bbls) (2)	7,355,432			7,037,084			318,348

Cash Flow Data
Net cash provided by (used in):
Operating activities	$	12,789		$	(19,068	)	$	31,857
Investing activities	(2,773		)	(13,680		)	10,907
Financing activities	(13,572		)	32,748			(46,320		)

Other Data
EBITDA (3)	$	14,884		$	(18,351	)	$	33,235
Distributable cash flow (3)	14,361			—			14,361
Capital expenditures	2,773			13,680			(10,907		)

——————


(1)	Some barrels of crude oil in route to Western’s Gallup Refinery are transported on more than one of our mainlines. Mainline movements for the Four Corners system include each barrel transported on each mainline.


(2)	Pipeline and terminal storage shell capacities represent weighted-average capacities for the periods presented.

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(3)	The following table reconciles net income (loss) to EBITDA for the periods presented and Distributable Cash Flow for the three months ended June 30, 2014:



	Three Months Ended
	June 30,
	2014			2013
	Successor			Predecessor			Change
	(In thousands)
Net income (loss)	$	10,975		$	(21,237	)	$	32,212
Interest expense and other financing costs	227			—			227
Amortization of loan fees	130			—			130
Provision for income taxes	85			—			85
Depreciation and amortization	3,467			2,886			581
EBITDA	14,884			$	(18,351	)	$	33,235

Change in deferred revenues	637
Cash interest paid	(228		)
Income taxes paid	—
Maintenance capital expenditures	(932		)
Distributable cash flow	$	14,361

Minimum quarterly distribution	$	13,116

Revenues. Prior to the Offering, our assets were a part of the integrated operations of Western. The Predecessor generally recognized only the costs and did not record revenues associated with the transportation, terminalling or storage services provided to Western on an intercompany basis. Accordingly, the revenues in the Predecessor’s historical consolidated financial statements relate only to amounts received from third parties for these services and minimum amounts required to be recorded for Western for regulatory purposes. Following the closing of the Offering, our revenues were generated by existing third-party contracts and from commercial agreements with Western. The commercial agreements with Western coupled with increased operations generated from our Permian Basin assets resulted in significantly higher revenues following the Offering.

Operating and Maintenance Expenses. The decrease in operating and maintenance expenses resulted from a decrease in maintenance expenses ($1.7 million) that was primarily the result of the timing of the performance of the maintenance during the second quarter of 2014 versus the second quarter of 2013. Maintenance expense for the three months ended June 30, 2014, was $8.6 million compared to $10.2 million for the same period in 2013. The decrease was partially offset by increases in energy and chemical costs ($1.1 million) and employee expenses ($0.4 million) related to increased headcount and wage rates for Western employee services compared to 2013 primarily due to operating our Permian Basin assets.

General and Administrative Expenses. General and administrative expenses increased quarter over quarter due to an increase in professional and legal services ($0.5 million) and public company costs ($0.3 million).

Depreciation and Amortization. Depreciation increased quarter over quarter due to the ongoing expansion of our Delaware Basin logistics system.

Operating Income (Loss). Operating income increased quarter over quarter primarily due to increased revenue, partially offset by higher general and administrative expenses and depreciation and amortization.

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Six Months Ended June 30, 2014, Compared to the Six Months Ended June 30, 2013



	Six Months Ended
	June 30,
	2014			2013
	Successor			Predecessor			Change
	(In thousands)
Revenues:
Affiliate	$	66,380		$	1,919		$	64,461
Third-party	1,358			519			839
Total revenues	67,738			2,438			65,300
Operating costs and expenses:
Operating and maintenance expenses	34,089			34,072			17
General and administrative expenses	4,118			2,190			1,928
Depreciation and amortization	6,711			5,816			895
Total operating costs and expenses	44,918			42,078			2,840
Operating income (loss)	22,820			(39,640		)	62,460
Other income (expense):
Interest expense and other financing costs	(452		)	—			(452		)
Amortization of loan fees	(259		)	—			(259		)
Other, net	3			6			(3		)
Income (loss) before income taxes	22,112			(39,634		)	61,746
Provision for income taxes	(204		)	—			(204		)
Net income (loss)	$	21,908		$	(39,634	)	$	61,542

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	Six Months Ended
	June 30,
	2014			2013
	Successor			Predecessor			Change
	(In thousands, except total barrels and barrels per day)
Key Operating Statistics
Pipeline and gathering (bpd):
Mainline movements:
Permian/Delaware Basin system	19,794			—			19,794
Four Corners system (1)	38,412			37,411			1,001
Gathering (truck offloading):
Permian/Delaware Basin system	24,182			4,569			19,613
Four Corners system	11,293			7,211			4,082
Pipeline Storage (bbls) (2)	578,167			566,449			11,718
Terminalling, transportation and storage (bpd):
Shipments into and out of storage (includes asphalt)	373,918			338,155			35,763
Terminal storage (bbls) (2)	7,355,432			7,037,084			318,348

Cash Flow Data
Net cash provided by (used in):
Operating activities	$	28,625		$	(36,083	)	$	64,708
Investing activities	(8,677		)	(36,069		)	27,392
Financing activities	(24,553		)	72,152			(96,705		)

Other Data
EBITDA (3)	$	29,534		$	(33,818	)	$	63,352
Distributable cash flow (3)	29,464			—			29,464
Capital expenditures	8,677			36,069			(27,392		)

——————


(1)	Some barrels of crude oil in route to Western’s Gallup Refinery are transported on more than one of our mainlines. Mainline movements for the Four Corners system include each barrel transported on each mainline.


(2)	Pipeline and terminal storage shell capacities represent weighted-average capacities for the periods indicated.

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(3)	The following table reconciles net income (loss) to EBITDA for the periods presented and Distributable Cash Flow for the six months ended June 30, 2014:



	Six Months Ended
	June 30,
	2014			2013
	Successor			Predecessor			Change
	(In thousands)
Net income (loss)	$	21,908		$	(39,634	)	$	61,542
Interest expense and other financing costs	452			—			452
Amortization of loan fees	259			—			259
Provision for income taxes	204			—			204
Depreciation and amortization	6,711			5,816			895
EBITDA	29,534			$	(33,818	)	$	63,352

Change in deferred revenues	2,574
Cash interest paid	(453		)
Income taxes paid	—
Maintenance capital expenditures	(2,191		)
Distributable cash flow	$	29,464

First and second quarter minimum distributions	$	26,233

Operating and Maintenance Expenses. The increase in operating and maintenance expenses resulted from increases in energy and chemical costs ($1.2 million) and employee expenses ($1.1 million) related to increased headcount and wage rates for Western employee services compared to 2013 primarily due to operating our Permian Basin assets. These increases were partially offset by a decrease in maintenance expenses ($2.2 million) that was primarily the result of the timing of the performance of the maintenance during the first six months of 2014 versus the first six months of 2013. Maintenance expense for the six months ended June 30, 2014 was $16.0 million compared to $18.1 million for the same period in 2013.

General and Administrative Expenses. General and administrative expenses increased quarter over quarter due to an increase in professional and legal services ($1.1 million) and public company costs ($0.6 million).

Depreciation and Amortization. Depreciation increased quarter over quarter due to the ongoing expansion of our Delaware Basin logistics system.

Operating Income (Loss). Operating income increased quarter over quarter primarily due to increased revenue, partially offset by higher operating and maintenance expenses and general and administrative expenses.

Liquidity and Capital Resources

Historically, our sources of liquidity included funding from Western. Our cash receipts were deposited in Western’s bank accounts and all cash disbursements were made from these accounts. Thus, historically our financial statements have reflected no cash balances. Following the Offering, we have separate bank accounts with Western having retained the working capital of the Predecessor, as these balances represented assets and liabilities related to the Predecessor’s assets prior to the closing of the Offering.

Our sources of liquidity include $75.7 million retained from the net proceeds generated from the Offering, cash generated from operations, availability under our revolving credit facility and our ability to issue additional equity or debt

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securities subject to market conditions. We expect that these sources of funds will be adequate to provide for our short-term and long-term liquidity requirements.

We intend to pay a minimum quarterly distribution of $0.2875 per unit per quarter, or $1.15 per unit on an annualized basis that aggregates to $13.1 million per quarter and $52.5 million per year based on the current number of common and subordinated units outstanding. We do not have a legal obligation to pay this distribution. Any distributions are also subject to compliance with restrictions in our revolving credit facility.

Our partnership agreement sets forth the calculation to be used to determine the amount and priority of cash distributions that the common and subordinated unitholders and general partner will receive. Our distributions are declared subsequent to quarter end. In accordance with our partnership agreement, on January 31, 2014, our general partner's board of directors declared a quarterly cash distribution of $0.2407 per unit for the prorated period of October 16, 2013, through December 31, 2013. We paid the distribution on February 24, 2014, to all unitholders of record on February 14, 2014. We did not make distributions prior to this date.

The table below summarizes our 2014 quarterly distribution declarations, payments and scheduled payments through August 25, 2014:



	2014
	Declaration Date	Record Date	Payment Date	Distribution per Common and Subordinated Unit
First quarter	May 2	May 16	May 26	$	0.2975
Second quarter	August 1	August 15	August 25	0.3075
Total				$	0.6050

Revolving Credit Facility

On October 16, 2013, we entered into a $300.0 million senior secured revolving credit agreement ("Credit Agreement"). We have the ability to increase the total commitment of the revolving credit facility by up to $200.0 million for a total facility size of up to $500.0 million, subject to certain conditions. The Credit Agreement includes a $25.0 million sub-limit for standby letters of credit and a $10.0 million sub-limit for swing line loans. Obligations under the Credit Agreement and certain cash management and hedging obligations are guaranteed by all of our subsidiaries. Obligations under the Credit Agreement are secured by a first priority lien on substantially all of our and our subsidiaries' significant assets. Our creditors under the Credit Agreement have no recourse to Western's assets, except to the extent of the assets of WRGP that Western wholly owns. The revolving credit facility matures on October 16, 2018. Borrowings under the revolving credit facility bear interest at either a base rate plus an applicable margin ranging from 0.75% to 1.75%, or at LIBOR plus an applicable margin ranging from 1.75% to 2.75%. The applicable margin will vary based upon our Consolidated Total Leverage Ratio, as defined in the Credit Agreement. We had no borrowings and no outstanding letters of credit under the Credit Agreement as of June 30, 2014.

Cash Flows

The following table sets forth our cash flows for the periods indicated:



	Six Months Ended
	June 30,
	2014			2013
	Successor			Predecessor			Change
	(In thousands)
Net cash provided by (used in) operating activities	$	28,625		$	(36,083	)	$	64,708
Net cash used in investing activities	(8,677		)	(36,069		)	27,392
Net cash provided by (used in) financing activities	(24,553		)	72,152			(96,705		)
Net change in cash and cash equivalents	$	(4,605	)	$	—		$	(4,605	)

The increase in net cash from operating activities was primarily the result of the following net changes between periods of the respective years:

•Net income (loss) ($61.5 million increase);

•Accounts payable and accrued liabilities ($3.7 million increase); and

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•Depreciation and amortization ($0.9 million increase).

The changes in components making up net income (loss) and depreciation and amortization occurred for reasons discussed above. The change in accounts payable and accrued liabilities was primarily due to an increase in payables associated with accrued property taxes and accrued payroll expenses related to Western employee services.

Cash flows used in investing and financing activities for the six months ended June 30, 2014 were primarily used to fund capital expenditures of $8.7 million and cash distributions to Western and to non-controlling interest holders of $16.0 million and $8.5 million, respectively. For the same period in 2013, the respective investing and financing activities relate to our Predecessor's capital expenditures of $36.1 million primarily for construction of the Permian Basin assets and Western's contribution of $72.2 million to fund our Predecessors capital needs and operations.

Capital Expenditures

Our capital requirements have consisted of and are expected to continue to consist of maintenance capital expenditures and discretionary capital expenditures. We retained $75.7 million in cash proceeds from the Offering for general partnership purposes including planned growth projects. Maintenance capital expenditures include expenditures required to maintain equipment reliability, tankage and pipeline integrity and safety and to address environmental regulations. Discretionary capital expenditures include expenditures to acquire assets and expand existing facilities that increase throughput capacity of our pipelines and in our terminals or increase storage capacity at our storage facilities. For 2014, we budgeted $7.2 million for maintenance capital projects and up to $25.0 million in discretionary growth projects. For the six months ended June 30, 2014, we capitalized $2.2 million in maintenance and regulatory expenditures and $6.5 million in discretionary expenditures primarily for the expansion of our crude oil storage and truck offloading capabilities in both the Four Corners and the Delaware Basin.

We intend to rely primarily upon external financing sources, including borrowings under our revolving credit facility and the issuance of debt and equity securities, to fund any significant future discretionary capital expenditures.

Contractual Obligations

We include a complete summary of our future contractual obligations and commercial commitments as of December 31, 2013 in our 2013 Form 10-K under Part I, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Contractual Obligations.

Off-Balance Sheet Arrangements

We have not entered into any transactions, agreements or other contractual arrangements that would result in off-balance sheet liabilities.

Environmental and Other Matters

Environmental Regulation. Our operations are subject to extensive and frequently changing federal, state and local laws, regulations and ordinances relating to the protection of the environment. Among other things, these laws and regulations govern the emission or discharge of pollutants into or onto the land, air and water, the handling and disposal of solid and hazardous wastes and the remediation of contamination. As with the industry generally, compliance with existing and anticipated environmental laws and regulations increases our overall cost of business, including our capital costs to develop, maintain, operate and upgrade equipment and facilities. While these laws and regulations affect our maintenance capital expenditures and net income, we believe they do not affect our competitive position, as the operations of our competitors are similarly affected. We believe our facilities are in substantial compliance with applicable environmental laws and regulations. However, these laws and regulations are subject to changes, or to changes in the interpretation of such laws and regulations, by regulatory authorities, and continued and future compliance with such laws and regulations may require us to incur significant expenditures. Additionally, violation of environmental laws, regulations and permits can result in the imposition of significant administrative, civil and criminal penalties, injunctions limiting our operations, investigatory or remedial liabilities or construction bans or delays in the development of additional facilities or equipment. Additionally, these impacts could directly and indirectly affect our business and have an adverse impact on our financial position, results of operations and liquidity. We cannot currently determine the amounts of such future impacts.

Environmental Liabilities. Western has been party to various litigation and contingent loss matters, including environmental matters, arising in the ordinary course of business. We cannot accurately predict the outcome of these matters. Historically, costs incurred by the Predecessor have not been material. We are not currently aware of any environmental or other asserted or unasserted claims against the Predecessor or that involve our operating assets that would be expected to have a material effect on our financial condition, results of operations or cash flows. As part of the omnibus agreement, Western will indemnify us for certain environmental cleanup expenses.

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If a release of hydrocarbons or hazardous substances into the environment occurs in the future, to the extent the event is not insured, it could subject us to substantial expenses, including costs to comply with applicable laws and regulations and to resolve claims by third parties for personal injury or property damage, or by the U.S. federal government or state governments for natural resources damages.

Seasonality

The crude oil, refined product and asphalt throughput in our pipelines and terminals is directly affected by the level of supply and demand for crude oil, refined products and asphalt in the regions served directly or indirectly by our assets. However, many effects of seasonality on our revenues will be substantially mitigated through our fee-based commercial agreements with Western that include minimum monthly volume commitments.

Item 3. Qualitative and Quantitative Disclosures about Market Risk

Refer to Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2013 for quantitative and qualitative disclosures about market risk. There have been no material changes in our exposures to market risk since December 31, 2013.


Item 4.	Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of June 30, 2014. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2014.

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2014 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims, including environmental claims and employee related matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe that any currently pending legal proceedings or proceedings to which we are a party will have a material adverse effect on our business, financial condition, results of operations or cash flows.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the section entitled "Risk Factors" in our 2013 annual report on Form 10-K under Part I, Item 1A. Risk Factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On October 9, 2013 our registration statement on Form S-1 (SEC Registration No. 333-190135), as amended through the time of its effectiveness, that we filed with the SEC relating to the Offering was declared effective. On October 16, 2013 we closed the Offering of 15,812,500 common units (including 2,062,500 common units acquired under an over-allotment option that was fully exercised by the underwriters) at a price of $22.00 per common unit, resulting in gross proceeds of approximately $347.9 million.

The following is a summary of the proceeds received and the use of proceeds as of June 30, 2014 (in thousands):



Proceeds received from sale of common units	$	347,875

Use of proceeds:
Underwriting discounts and commissions	$	20,873
Structuring fees	1,739
Offering expenses	2,117
Revolving credit agreement fees	2,579
Retained for general partnership purposes	69,197
Expansion capital expenditures	6,486
Distributed to Western Refining, Inc.	244,884
Total	$	347,875

Our ability to pay cash distributions is limited under the terms of our Revolving Credit Facility and in part depends on our ability to satisfy certain financial covenants.

ITEM 6. EXHIBITS.

Exhibit Index***



Exhibit Number		Description
10.1†		Form of Indemnification Agreement (incorporated by reference to Exhibit 10.10 to WNRL’s Registration Statement on Form S-1 (File No. 333-190135), filed with the SEC on September 27, 2013).
31.1*		Certification Statement of Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification Statement of Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**		Certification Statement of Chief Executive Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**		Certification Statement of Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*		Interactive Data Files

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* Filed herewith

** Furnished herewith

*** Reports filed under the Securities Exchange Act of 1934, as amended (Form 10-K, Form 10-Q and Form 8-K) are under File No. 001-36114.

† Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WESTERN REFINING LOGISTICS, LP

BY: WESTERN REFINING LOGISTICS GP, LLC




Signature	Title	Date

/s/ Gary R. Dalke	Chief Financial Officer	August 6, 2014
Gary R. Dalke	(Principal Financial Officer)

Attached files

Western Refining Logistics, LP Reports

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