Western Refining Logistics, LP - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - Western Refining Logistics, LP	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - Western Refining Logistics, LP	exhibit312-wnrlx33115.htm
EX-32.2 - EXHIBIT 32.2 - Western Refining Logistics, LP	exhibit322-wnrlx33115.htm
EX-32.1 - EXHIBIT 32.1 - Western Refining Logistics, LP	exhibit321-wnrlx33115.htm
EX-31.1 - EXHIBIT 31.1 - Western Refining Logistics, LP	exhibit311-wnrlx33115.htm
EX-10.2 - EXHIBIT 10.2 - Western Refining Logistics, LP	exhibit102-wnrlxsharedserv.htm
EX-10.1 - EXHIBIT 10.1 - Western Refining Logistics, LP	exhibit101-wnrlxjoinderagr.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 March 31, 2015



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 þ	Non-accelerated filer o	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 May 1, 2015, there were 24,016,748 common units and 22,811,000 subordinated units outstanding.

WESTERN REFINING LOGISTICS, LP

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Part I. Financial Information	1

Item 1. Financial Statements (Unaudited)	1

Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014	1

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2015 and 2014	2

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014	3

Notes to Condensed Consolidated Financial Statements	4

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3. Quantitative and Qualitative Disclosure About Market Risk	29

Item 4. Controls and Procedures	29

Part II. Other Information	30

Item 1. Legal Proceedings	30

Item 1A. Risk Factors	30

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3. Defaults Upon Senior Securities	30

Item 4. Mine Safety Disclosures	30

Item 5. Other Information	30

Item 6. Exhibits	31

Signatures	32

EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101

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EXPLANATORY NOTE

Western Refining Logistics, LP ("WNRL" or "the Partnership") is a publicly-traded Delaware limited partnership that completed its initial public offering (the "Offering") of 15,812,500 common units on October 16, 2013. In conjunction with the Offering, Western Refining, Inc. ("Western") and certain of its subsidiaries contributed to us the majority of the logistics assets that we currently operate. Unless the context otherwise requires, references in this report to “Western Refining Logistics, LP,” “WNRL,” the “Partnership,” “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.

On October 15, 2014, WNRL purchased from Western all of the outstanding limited liability company interests of Western Refining Wholesale, LLC ("WRW") for $320 million in cash and 1,160,092 common units (the "Wholesale Acquisition"). This purchase transferred substantially all of WRW's wholesale assets and operations from Western to WNRL, constituting the purchase of a business between entities under common control. The information contained herein for WNRL has been retrospectively adjusted, to include the historical results of the WRW assets that we acquired, for periods prior to the effective date of the transaction.

See Note 1, Organization and Note 3, Acquisitions, to our condensed consolidated financial statements for information regarding the closing of the Offering and the purchase of WRW, respectively.

FORWARD-LOOKING STATEMENTS

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 should be deemed forward-looking statements that represent beliefs and assumptions based on currently available information. These forward-looking statements relate to matters such as our industry including the regulation of our industry, the expected outcomes of legal proceedings involving us or Western, business strategy, future operations, acquisition opportunities, volatility of crude oil prices, taxes, capital expenditures, liquidity and capital resources and other financial and operating information. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. We have used the words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “position,” “potential,” “predict,” “project,” “strategy,” “will,” “future” and similar terms and phrases 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 or that are affected by unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. 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 keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q. Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to predict or identify all of these factors, they include, among others, the following:

•

changes in the business strategy or activity levels of Western that may be impacted by a variety of factors, including changes in crack spreads, changes in the spread between West Texas Intermediate ("WTI") crude oil and West Texas Sour ("WTS") crude oil, also known as the sweet/sour spread and changes in the spread between WTI crude oil and Dated Brent crude oil and between WTI Cushing crude oil and WTI Midland crude oil;


•	changes in general economic conditions, including the price volatility of crude oil;


•	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;


•	changes in the availability and cost of capital;


•	changes in tax status;

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•	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 and costs relating to compliance with existing and future local, state and federal 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 herein and under Part I. — Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2014, 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 are not required to (and will not) update any information to reflect events or circumstances that may occur after the date of this report, except as required by applicable law.

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Part I. Financial Information


Item 1.	Financial Statements

WESTERN REFINING LOGISTICS, LP

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except unit data)



	March 31, 2015			December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	88,172		$	54,298
Accounts receivable:
Affiliate	55,614			52,056
Third-party, net of a reserve for doubtful accounts of $137 and $107, respectively	62,824			54,785
Inventories	15,034			14,483
Prepaid expenses	6,871			8,276
Other current assets	4,473			2,550
Total current assets	232,988			186,448
Property, plant and equipment, net	185,191			182,545
Intangible assets, net	4,046			4,185
Other assets, net	11,785			5,095
Total assets	$	434,010		$	378,273
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable:
Affiliate	$	128,163		$	105,715
Third-party	10,840			11,455
Accrued liabilities, including deferred revenue from affiliate of $8,011 and $6,779, respectively	22,445			19,197
Total current liabilities	161,448			136,367
Long-term liabilities:
Long-term debt, less current portion	300,000			269,000
Total long-term liabilities	300,000			269,000
Commitments and contingencies
Equity (Deficit):
General partner	(16		)	—
Common unitholders - Public (15,858,156 and 15,823,408 units issued and outstanding, respectively)	327,422			327,592
Common unitholders - Western (8,158,592 units issued and outstanding)	(94,625		)	(94,583		)
Subordinated unitholders - Western (22,811,000 units issued and outstanding)	(260,219		)	(260,103		)
Total equity	(27,438		)	(27,094		)
Total liabilities and equity	$	434,010		$	378,273

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 data)



	Three Months Ended
	March 31,
	2015			2014
Revenues:
Fee based:
Affiliate	$	45,478		$	39,571
Third-party	623			701
Sales based:
Affiliate	132,771			197,013
Third-party	428,524			627,325
Total revenues	607,396			864,610
Operating costs and expenses:
Cost of products sold:
Affiliate	130,508			197,013
Third-party	411,193			607,804
Operating and maintenance expenses	35,637			33,683
General and administrative expenses	5,931			5,197
Gain on disposal of assets, net	(84		)	—
Depreciation and amortization	4,738			4,152
Total operating costs and expenses	587,923			847,849
Operating income	19,473			16,761
Other income (expense):
Interest expense and other financing costs	(3,964		)	(361		)
Other income, net	17			43
Net income before income taxes	15,526			16,443
Provision for income taxes	(203		)	(119		)
Net income	15,323			16,324
Net income attributable to General Partner	—			5,391
Net income attributable to limited partners	$	15,323		$	10,933

Net income per limited partner unit:
Common - basic	$	0.33		$	0.24
Common - diluted	0.33			0.24
Subordinated - basic and diluted	0.33			0.24

Weighted average limited partner units outstanding:
Common - basic	23,985			22,811
Common - diluted	23,996			22,815
Subordinated - basic and diluted	22,811			22,811

Cash distributions declared per common unit	$	0.3325		$	0.2407

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)



	Three Months Ended
	March 31,
	2015			2014
Cash flows from operating activities:
Net income	$	15,323		$	16,324
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,738			4,152
Reserve for doubtful accounts	27			—
Amortization of loan fees	235			129
Unit-based compensation expense	415			221
Gain on disposal of assets, net	(84		)	—
Changes in operating assets and liabilities:
Accounts receivable - Third-party	(8,066		)	54
Accounts receivable - Affiliate	(3,558		)	(362		)
Inventories	(551		)	713
Prepaid expenses	1,405			237
Other assets	(2,179		)	(84		)
Accounts payable and accrued liabilities	25,740			3,092
Other long-term liabilities	—			5
Net cash provided by operating activities	33,445			24,481
Cash flows from investing activities:
Capital expenditures	(8,562		)	(8,379		)
Distribution to Predecessor affiliate	—			(6,170		)
Proceeds from sale of assets	117			—
Net cash used in investing activities	(8,445		)	(14,549		)
Cash flows from financing activities:
Additions to long-term debt	300,000			—
Payments on revolving credit facility	(269,000		)	—
Deferred financing costs	(6,551		)	—
Quarterly distributions to Western	(10,314		)	(7,175		)
Quarterly distributions to non-controlling interest holders	(5,261		)	(3,806		)
Net cash provided by (used in) financing activities	8,874			(10,981		)
Net change in cash and cash equivalents	33,874			(1,049		)
Cash and cash equivalents at beginning of period	54,298			84,004
Cash and cash equivalents at end of period	$	88,172		$	82,955
Supplemental disclosure of cash flow information:
Interest paid	$	725		$	225
Income taxes paid	1			—
Supplemental disclosure of non-cash investing activities:
Accrued capital expenditures	$	616		$	195

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" or the "Partnership") is a Delaware limited partnership formed in July 2013 by Western Refining Logistics GP, LLC ("WRGP" or the "General Partner"), our general partner. WRGP is owned 100% by Western Refining, Inc. ("Western") and holds all of the non-economic general partner interests in WNRL.

WNRL is a growth-oriented partnership that was formed to own, operate, develop and acquire logistics and related assets and businesses including terminals, storage tanks, pipelines and other logistics assets related to the terminalling, transportation, storage and distribution of crude oil and refined products. WNRL's assets include approximately 300 miles of pipelines, approximately 8.1 million barrels of active storage capacity, terminal facilities and a fleet of transport units that distribute wholesale petroleum products and transport crude oil. Prior to the Wholesale Acquisition, WNRL generated its revenues principally based on fees charged for logistics services. Following the Wholesale Acquisition, a significant portion of our revenues result from product sales to third-party and affiliate customers.

On October 15, 2014, we acquired all of the outstanding limited liability company interests of Western Refining Wholesale, LLC (“WRW”), which owned substantially all of Western’s wholesale assets in the Southwest U.S. We acquired these interests pursuant to a Contribution, Conveyance and Assumption Agreement, dated September 25, 2014, as amended (the “Contribution Agreement”), by and among us, Western, Western Refining Southwest, Inc., a wholly-owned indirect subsidiary of Western ("WRSW"), and our general partner, in exchange for consideration of $320 million in cash and the issuance of 1,160,092 additional common units. We refer to this transaction as the "Wholesale Acquisition." We funded the cash payment for the Wholesale Acquisition through $269 million in new borrowings under our $300.0 million Senior Secured Revolving Credit Facility ("Revolving Credit Facility") and $51 million from cash on hand. The issuance of these additional units to Western increased Western's limited partner interest in WNRL to 66.2% at the acquisition date. During the first quarter of 2015, WNRL issued additional units to common unitholders through our equity based compensation program, reducing Western's limited partner interest in WNRL to 66.1%. Public unitholders own the remaining 33.9% limited partner interest. See Note 10, Equity for additional information regarding limited partner interests.

Our operations include two business segments: the logistics segment and the wholesale segment. See Note 4, Segment Information, for further discussion of our business segments.

The financial statements presented in this Quarterly Report on Form 10-Q have been retrospectively adjusted to include the consolidated financial results of the WRW assets prior to October 15, 2014. The balance sheets as of March 31, 2015 and December 31, 2014, presents solely the consolidated financial position of WNRL. We recorded the purchase of WRW's assets at Western's historical book value, which was required for accounting purposes to treat the purchase as a reorganization of entities under common control.

2. Basis of Presentation and Significant Accounting Policies

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 months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015, or for any other period.

The Condensed Consolidated Balance Sheet at December 31, 2014, 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, 2014.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Financial Instruments and Fair Value

Financial instruments that potentially subject us to concentrations of credit risk primarily consist of accounts receivable. We believe that our credit risk is minimized as a result of the credit quality of our customer base. The carrying amounts of cash and cash equivalents, which we consider Level 1 assets, approximated their fair values at March 31, 2015 and December 31, 2014, due to their short-term maturities.

Use of Estimates

The preparation of financial statements in conformity with 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

Effective January 1, 2015, we adopted the accounting and reporting requirements included in the Accounting Standards Codification ("ASC") for disposals when such disposal represents a strategic shift that will have a significant impact on the entity’s operations and financial results. These requirements have been applied prospectively. Our adoption of these changes effective January 1, 2015 had no impact on our financial position, results of operations or cash flows.

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 are currently evaluating the effect that certain of these new accounting requirements may have on our accounting and related reporting and disclosures in our consolidated financial statements.

•

Recognition and reporting of revenues - the requirements 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 January 1, 2017, and are to be applied retrospectively, with early adoption not permitted.


•	Consolidation considerations - reporting entities are required to evaluate whether certain legal entities should be consolidated effective for interim and annual periods beginning after December 15, 2015.

•

Evaluation of going concern - management of an entity is required to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and to provide related footnote disclosures. The new requirements will become effective for annual periods beginning after December 15, 2016, and interim periods thereafter with early application permitted. The changed requirements are intended to reduce diversity in the timing and content of footnote disclosures.


•	Presentation of debt issuance costs - debt issuance costs are presented as an offset to the related debt and will become effective for interim and annual periods beginning after December 15, 2015.

3. Acquisitions

On October 15, 2014 (the "Closing Date"), under the terms of the Contribution Agreement, WNRL purchased all of the outstanding limited liability company interests of WRW from WRSW, in exchange for $320 million of cash and 1,160,092 common units representing limited partner interests in WNRL. The issuance of these units to Western increased Western's limited partner interest in WNRL to 66.2%. We funded the cash consideration through $269 million in new borrowings under the Revolving Credit Facility and $51 million from cash on hand.

At the Closing Date, WNRL purchased substantially all of Western’s southwest wholesale assets including assets and related inventories of WRW's lubricant distribution, southwest bulk petroleum fuels distribution and products transportation. The purchased assets were recorded at Western's historical book value as the purchase of WRW's assets was treated as a reorganization of entities under common control as required for accounting purposes.

We entered into wholesale commercial agreements with Western that have initial ten year terms in connection with the Contribution Agreement. See Note 18, Related Party Transactions, to our condensed consolidated financial statements for additional information regarding the commercial agreements.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4. Segment Information

Our operations are organized into two operating segments based on marketing criteria and the nature of our products and services and our types of customers. These segments are logistics and wholesale.

Logistics. Our pipeline and gathering assets are strategically positioned to support crude oil supply options for Western’s El Paso and Gallup Refineries as well as third parties and consist of crude oil pipelines and gathering assets located primarily in the Delaware Basin and in the Four Corners area of Northwestern New Mexico. These systems gather and transport crude oil by pipeline from various production locations to Western’s refineries utilizing approximately 300 miles of pipeline; 33 crude oil storage tanks with a total combined active shell storage capacity of approximately 620,000 barrels; eight truck loading and unloading locations; and 14 pump stations.

Our terminalling, transportation and storage assets support crude oil supply and refined product distribution for Western’s El Paso and Gallup Refineries as well as third parties and primarily consist of storage tanks, terminals, transportation and other assets located in El Paso, Texas, Gallup, Bloomfield and Albuquerque, New Mexico and Phoenix and Tucson, Arizona. These assets include crude oil, feedstock, blendstock, refined product and asphalt storage tanks with a total combined shell storage capacity of approximately 7.4 million barrels; truck loading racks; railcar loading racks; pump stations and pipeline and related logistics assets to service Western’s operations.

Wholesale. Our wholesale segment includes the operations of several lubricant and bulk petroleum distribution plants, and a fleet of crude oil and refined product and lubricant delivery trucks. Our wholesale segment distributes commercial wholesale petroleum products primarily in Arizona, California, Colorado, Nevada, New Mexico and Texas. The wholesale segment purchases petroleum fuels and lubricants from Western's refining segment and from third-party suppliers.

Segment Accounting Principles. Operating income for each segment consists of net revenues less cost of products sold; direct operating expenses; selling, general and administrative expenses; net impact of the disposal of assets; maintenance turnaround expense and depreciation and amortization.

Activities of our business that are not included in the two segments mentioned above are included in the "Other" category. These activities consist primarily of corporate staff operations and other items that are not specific to the normal business of any one of our two operating segments.

The total assets of each segment consist primarily of cash and cash equivalents; inventories; net accounts receivable; net property, plant and equipment; net intangible assets and net other assets directly associated with the individual segment’s operations. Included in the total assets of the corporate operations are cash and cash equivalents; various net accounts receivable; prepaid expenses and other long-term assets.

We recorded the acquisition of WRW's assets at Western's historical book value as the purchase was considered a reorganization of entities under common control. The information contained herein for WNRL has been retrospectively adjusted to include the historical results of the WRW assets acquired for periods prior to the effective date of the transaction. Our financial information includes the historical results of WNRL, retrospectively adjusted due to the Wholesale Acquisition.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Disclosures regarding our reportable segments with reconciliations to consolidated totals for the three months ended March 31, 2015 and 2014, are presented below:



	Three Months Ended March 31, 2015
	Logistics		Wholesale		Other			Consolidated
	(In thousands)
Revenues: Third-party	$	623	$	428,524	$	—		$	429,147
Revenues: Affiliate	34,775		143,474		—			178,249
Operating income (loss)	$	13,240	$	8,989	$	(2,756	)	19,473
Other income (expense), net								(3,947		)
Income before income taxes								$	15,526

Depreciation and amortization	$	3,661	$	1,077	$	—		$	4,738
Capital expenditures	5,515		3,047		—			8,562
Total assets at March 31, 2015	158,931		180,085		94,994			434,010



	Three Months Ended March 31, 2014
	Logistics		Wholesale		Other			Consolidated
	(In thousands)
Revenues: Third-party	$	701	$	627,325	$	—		$	628,026
Revenues: Affiliate	32,056		204,528		—			236,584
Operating income (loss)	$	12,851	$	6,119	$	(2,209	)	16,761
Other income (expense), net								(318		)
Income before income taxes								$	16,443

Depreciation and amortization	$	3,244	$	908	$	—		$	4,152
Capital expenditures	5,904		2,475		—			8,379
Total assets at March 31, 2014	149,522		61,627		97,858			309,007

5. Earnings Per Unit

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 allocations used in the calculation of net income 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 the 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 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 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. We make incentive distribution payments to our general partner when our per unit distribution amount exceeds the target distribution. During the three months ended March 31, 2015, we made incentive distribution right payments of $0.02 million to our general partner. We made no incentive distribution right payments to our general partner prior to this payment. Refer to Note 12, Equity, for further information regarding incentive distribution rights.

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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 months ended March 31, 2015 and 2014, respectively, is as follows:



	Three Months Ended
	March 31,
	2015			2014
	(In thousands, except per unit data)
Net income	$	15,323		$	16,324
Net income attributable to general partner (1)	—			5,391
Net income attributable to limited partners	15,323			10,933
General partner distributions	(16		)	—
Limited partners' distributions on common units	(7,974		)	(5,491		)
Limited partners' distributions on subordinated units	(7,585		)	(5,491		)
Distributions less than (greater than) earnings	$	(252	)	$	(49	)

General partners' earnings:
Distributions	$	16		$	—
Allocation of distributions less than (greater than) earnings	—			5,391
Total general partners' earnings	$	16		$	5,391

Limited partners' earnings on common units:
Distributions	$	7,974		$	5,491
Allocation of distributions less than (greater than) earnings	(129		)	(25		)
Total limited partners' earnings on common units	$	7,845		$	5,466

Limited partners' earnings on subordinated units:
Distributions	$	7,585		$	5,491
Allocation of distributions less than (greater than) earnings	(123		)	(24		)
Total limited partners' earnings on subordinated units	$	7,462		$	5,467

Weighted average limited partner units outstanding:
Common units - basic	23,985			22,811
Common units - diluted	23,996			22,815
Subordinated units - basic and diluted	22,811			22,811

Net income per limited partner unit:
Common - basic	$	0.33		$	0.24
Common - diluted	0.33			0.24
Subordinated - basic and diluted	0.33			0.24


(1)	For historical periods prior to the Wholesale Acquisition, we have applied the two-class method to calculate earnings per unit. The net income of WRW prior to the Wholesale Acquisition was allocated entirely to the general partner.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6. Inventories

Inventories were as follows:



	March 31, 2015		December 31, 2014
	(In thousands)
Lubricants	$	14,819	$	14,241
Refined products	215		242
Inventories	$	15,034	$	14,483

7. Property, Plant and Equipment, Net

Property, plant and equipment, net was as follows:



	March 31, 2015			December 31, 2014
	(In thousands)
Buildings and improvements	$	30,247		$	31,444
Pipelines and related assets	78,653			77,445
Terminals and related assets	110,465			109,286
Asphalt plant, terminals and related assets	25,095			23,007
Wholesale and related assets	30,181			30,065
	274,641			271,247
Accumulated depreciation	(104,050		)	(99,651		)
	170,591			171,596
Construction in progress	14,600			10,949
Property, plant and equipment, net	$	185,191		$	182,545

Depreciation expense was $4.6 million and $4.0 million for the three months ended March 31, 2015 and 2014, respectively.

8. Intangible Assets, Net

Our intangible assets consist of customer lists. A summary of our intangible assets, net is presented in the table below:



	March 31, 2015			December 31, 2014
	(In thousands)
Gross carrying value	$	7,551		$	7,551
Accumulated amortization	(3,505		)	(3,366		)
Intangible assets, net	$	4,046		$	4,185

Intangible asset amortization expense was $0.1 million for the three months ended March 31, 2015 and 2014, respectively, based upon estimates of useful lives ranging from 7 to 15 years. The weighted average amortization period as of March 31, 2015 and December 31, 2014 was 7.3 and 7.5 years, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Estimated amortization expense for the indicated periods is as follows (in thousands):



Remainder of 2015	$	417
2016	556
2017	556
2018	556
2019	556
2020	545

9. Other Assets

Other assets, net of amortization, were as follows:



	March 31, 2015		December 31, 2014
	(In thousands)
Unamortized loan fees	$	8,497	$	1,984
Notes receivable	1,791		1,493
Other	1,497		1,618
Other assets, net of amortization	$	11,785	$	5,095

The majority of the increase in other assets was due to the financing costs incurred in connection with our issuance of debt during the first quarter of 2015. See Note 11, Debt, for further discussion of the issuance and related fees.

10. Accrued Liabilities

Accrued liabilities were as follows:



	March 31, 2015		December 31, 2014
	(In thousands)
Deferred revenue - affiliate	$	8,011	$	6,779
Excise and other taxes	7,723		7,203
Interest	3,014		14
Payroll and related costs	1,627		2,497
Branding	569		602
Property taxes	544		1,360
Other	957		742
Accrued liabilities	$	22,445	$	19,197

11. Debt

Revolving Credit Facility

Our $300.0 million senior secured Revolving Credit Facility matures on October 16, 2018. We have the ability to increase the total commitment of our Revolving Credit Facility by up to $200.0 million for a total facility size of up to $500.0 million, subject to receiving increased commitments from lenders and to the satisfaction of certain conditions. The Revolving Credit Facility 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 Revolving Credit Facility and certain cash management and hedging obligations are guaranteed by all of our subsidiaries and are secured by a first priority lien on substantially all of our and our subsidiaries' significant assets. Our creditors under the Revolving Credit Facility have no recourse to Western's assets. Borrowings under our 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 Revolving Credit Facility. As of March 31, 2015, the availability under the Revolving Credit Facility

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

was $299.3 million. This availability is net of $0.7 million in outstanding letters of credit. We had no direct or swing line borrowings outstanding under our Revolving Credit Facility as of March 31, 2015.

The Revolving Credit Facility 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.

7.5% Senior Notes

On February 11, 2015, we entered into an Indenture (the “Indenture”) among the Partnership, WNRL Finance Corp., a Delaware corporation and 100% owned subsidiary of the Partnership (“Finance Corp.” and together with the Partnership, the “Issuers”), the Guarantors named therein and U.S. Bank National Association, as trustee (the “Trustee”) under which the Issuers issued $300.0 million in aggregate principal amount of 7.5% Senior Notes due 2023 (the "WNRL 2023 Senior Notes"). The Partnership will pay interest on the WNRL 2023 Senior Notes semi-annually in cash in arrears on February 15 and August 15 of each year, beginning on August 15, 2015. The WNRL 2023 Senior Notes will mature on February 15, 2023. Proceeds from the WNRL 2023 Senior Notes were used to repay $269.0 million of then outstanding borrowings under our Revolving Credit Facility. The estimated fair value of the WNRL 2023 Senior Notes was $309.0 million as of March 31, 2015. We incurred financing costs associated with the issuance of the WNRL 2023 Senior Notes of $6.7 million that is included in other assets in the Condensed Consolidated Balance Sheet as of March 31, 2015.

The WNRL 2023 Senior Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by all of WNRL's current 100% owned subsidiaries, with the exception of Finance Corp. Finance Corp is a minor subsidiary of WNRL and is a co-issuer of the WNRL 2023 Senior Notes. The co-issuance between WNRL and the Finance Corp. is on a joint and several basis. WNRL has no independent assets or operations. There are no significant restrictions on the ability of WNRL or its subsidiary guarantors and Finance Corp. to obtain or transfer funds from its subsidiary guarantors by dividend or loan. None of the subsidiary guarantors’ and Finance Corp.'s assets represent restricted assets.

The subsidiary guarantees of the WNRL 2023 Senior Notes are subject to certain automatic customary releases, including upon the sale, disposition or transfer of capital stock or substantially all of the assets (including by way of merger) of a subsidiary guarantor to a Person other than the Partnership or one of its restricted subsidiaries, designation of a subsidiary guarantor as an unrestricted subsidiary in accordance with the indenture, a legal defeasance or covenant defeasance, liquidation or dissolution of the subsidiary guarantor, and a subsidiary guarantor ceasing to guarantee debt of the Partnership, Finance Corp or any other guarantor under a credit facility, as defined in the indenture governing the WNRL 2023 Senior Notes. The Partnership’s subsidiaries may not sell or otherwise dispose of all or substantially all of their properties or assets to, or consolidate with or merge into, another company if such a sale would cause a default under the indenture governing the WNRL 2023 Senior Notes.

The Indenture contains covenants that limit WNRL’s and its restricted subsidiaries’ ability to, among other things: (i) incur, assume or guarantee additional indebtedness or issue preferred units, (ii) create liens to secure indebtedness, (iii) pay distributions on equity securities, repurchase equity securities or redeem subordinated indebtedness, (iv) make investments, (v) effect distributions, loans or other asset transfers from the Partnership’s restricted subsidiaries, (vi) consolidate with or merge with or into, or sell substantially all of the Partnership’s properties to, another person, (vii) sell or otherwise dispose of assets, including equity interests in subsidiaries and (viii) enter into transactions with affiliates. These covenants are subject to a number of important limitations and exceptions. The Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, and interest on all the then outstanding Notes to be due and payable immediately.

12. Equity

We had 15,858,156 outstanding common units held by the public as of March 31, 2015, including the net settlement and issuance of 34,748 of common units upon the vesting of phantom units from our Western Refining Logistics, LP 2013 Long-Term Incentive Plan (the "LTIP") on March 26, 2015. Western owned 8,158,592 of our common units and 22,811,000 of our subordinated units constituting an aggregate limited partner interest of 66.1% as of March 31, 2015. 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.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Changes to equity during the three months ended March 31, 2015, were as follows:



	General			Common -			Common -			Subordinated -
	Partner			Public			Western			Western			Total
	(In thousands)
Balance at December 31, 2014	$	—		$	327,592		$	(94,583	)	$	(260,103	)	$	(27,094	)
Unit-based compensation	—			(92		)	—			—			(92		)
Distributions to partners declared	(16		)	(5,261		)	(2,713		)	(7,585		)	(15,575		)
Net income attributable to limited partners	—			5,183			2,671			7,469			15,323
Balance at March 31, 2015	$	(16	)	$	327,422		$	(94,625	)	$	(260,219	)	$	(27,438	)

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. We may fund future 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. See Note 13, Equity-Based Compensation, for further information.

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.

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. On January 30, 2015, WNRL's general partner's board of directors declared a quarterly cash distribution of $0.3325 per unit for the period October 1, 2014 through December 31, 2014. WNRL paid the distribution on February 23, 2015 to all unitholders of record on February 13, 2015. The per unit distribution amount exceeded the target distribution amount of $0.3306 set forth in our partnership agreement; therefore, we made a nominal distribution to our general partner as the holder of our incentive distribution rights.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The table below summarizes our 2015 quarterly distribution declarations, payments and scheduled payments through May 1, 2015:



	2015
	Declaration Date	Record Date	Payment Date	Distribution per Common and Subordinated Unit
First quarter	May 1	May 15	May 26	$	0.3475
Total				$	0.3475

The total quarterly cash distributions made to general and limited partners for the three months ended March 31, 2015 and 2014, respectively, is as follows:



	Three Months Ended
	March 31,
	2015		2014
	(In thousands, except per unit data)
General partners' distributions:
General partner's distributions	$	—	$	—
General partner's incentive distribution rights	16		—
Total general partner's distributions	$	16	$	—

Limited partners' earnings on common units:
Common	$	7,974	$	5,491
Subordinated	7,585		5,491
Total limited partners' distributions	15,559		10,982
Total cash distributions	$	15,575	$	10,982

Cash distributions per limited partner unit	$	0.3325	$	0.2407

13. Equity-Based Compensation

Our general partner's board of directors adopted the LTIP 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 March 31, 2015, there were 4,181,472 common units reserved for future grants under the LTIP.

The fair value of the phantom units is determined based on the closing price of WNRL common units on the grant date. The estimated fair value of the phantom units is amortized on a straight-line basis over the scheduled vesting periods of individual awards. We incurred unit-based compensation expense of $0.4 million and $0.2 million for the three months ended March 31, 2015 and 2014, respectively.

The aggregate grant date fair value of nonvested phantom units outstanding as of March 31, 2015, was $7.8 million. The aggregate intrinsic value of such phantom units was $7.9 million. Total unrecognized compensation cost related to our nonvested phantom units totaled $7.4 million as of March 31, 2015, that we expect to recognize over a weighted-average period of approximately 4.15 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 months ended March 31, 2015, is set forth below:



	Number of Phantom Units		Weighted Average Grant Date Fair Value
Unvested at December 31, 2014	280,251		$	28.30
Awards granted	56,485		29.48
Awards vested	(51,951	)	27.97
Awards forfeited	(11,913	)	30.78
Unvested at March 31, 2015	272,872		28.50

14. Concentration Risk

We are part of the consolidated operations of Western, and we derive a significant portion of our revenue from transactions with Western and its affiliates. Western accounted for approximately 29.3% and 25.5%, respectively, of our consolidated revenues for the three months ended March 31, 2015 and 2014.

We sell a variety of refined products to a diverse customer base. Sales to Kroger Company accounted for 24.3% and 23.3% of consolidated net sales for the three months ended March 31, 2015 and 2014, respectively. Sales to Western’s retail group accounted for 22.5% and 21.1% of consolidated net sales for the three months ended March 31, 2015 and 2014, respectively.

See Note 18, Related Party Transactions, for detailed information on our agreements with Western.

15. Income Taxes

WNRL is treated as a publicly-traded partnership for federal and state income tax purposes, however, Western Refining Product Transport, LLC (a wholly-owned subsidiary) is taxed as a corporation for federal and state tax purposes. Taxes on our net income for WNRL and its subsidiaries generally are borne by our partners through the allocation of taxable income. The aggregate difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined as we do not have access to information about each partner's tax attributes in us. Our income tax expense results from our taxable subsidiary and state laws that apply to entities organized as partnerships, primarily in the state of Texas and from federal and state laws for corporations. For the three months ended March 31, 2015 and 2014, our income tax expense was $0.2 million and $0.1 million, respectively. Our effective tax rate for the three months ended March 31, 2015 and 2014 was 1.3% and 0.7%, respectively.

As of March 31, 2015 and December 31, 2014, we had no unrecognized tax benefit liability. No interest or penalties were recognized related to income taxes during the three months ended March 31, 2015 and 2014.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

16. 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. 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. We also have commitments to purchase minimum volumes of refined product from Western under our Commercial Agreements with Western.

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 March 31, 2015:



Remaining 2015	$	6,280
2016	6,969
2017	4,769
2018	2,030
2019	680
2020 and thereafter	325
	$	21,053

Total rental expense was $2.3 million and $2.1 million for the three months ended March 31, 2015 and 2014, respectively. Contingent rentals and subleases were not significant in any year.

17. 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 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 effect on our financial condition, results of operations or cash flows.

18. Related Party Transactions

Certain 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.

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WESTERN REFINING LOGISTICS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We have incurred indirect charges from Western for allocation of services including executive oversight, accounting, treasury, tax, legal, procurement, engineering, logistics, maintenance and information technology and similar items. We classify these indirect charges between general and administrative expenses and operating and maintenance expenses based on the functional nature of the employee and other services that Western provides for our operations. Indirect charges from Western that we include within our general and administrative and operating and maintenance expenses were as follows:



	Three Months Ended
	March 31,
	2015		2014
	(In thousands)
Indirect charges:
General and administrative expenses	$	1,983	$	1,825
Operating and maintenance expenses	9,007		8,658
Total indirect charges	$	10,990	$	10,483

Our management believes the indirect charges allocated to us from Western are a reasonable reflection of the utilization of Western's service to our operations. We also incur direct charges to our operations and administration, and the indirect allocations noted above may not fully reflect the additional expenses that we would have incurred had we been a stand-alone company during the periods presented.

Commercial Agreements with Western

Logistics Segment Agreements

We derive substantially all of our logistics revenues from two ten-year, fee-based agreements with Western supported by minimum volume commitments and annual adjustments to fees that we and Western may renew for two additional five-year periods upon mutual agreement. Western has committed to provide us with minimum fees based on minimum monthly throughput volumes of crude oil and refined and other products and reserved storage capacity.

Pipeline and Gathering Services Agreement

We entered into a pipeline and gathering services agreement with Western under which we agreed to transport crude oil on our Permian Basin system primarily for use at Western’s El Paso Refinery and on our Four Corners system to Western’s Gallup Refinery. We charge Western fees for pipeline movements, truck offloading and product storage.

Terminalling, Transportation and Storage Services Agreement

We entered into a terminalling, transportation and storage services agreement with Western under which we have agreed to, among other things, distribute products produced at Western’s refineries, connect Western’s refineries to third-party pipelines and systems and provide fee-based asphalt terminalling and processing services. At our network of crude oil and refined products terminals and related assets and storage facilities, we charge Western fees for crude oil, blendstock and refined product storage, shipments into and out of storage and additive and blending services. At our asphalt plant and terminal in El Paso and our three stand-alone asphalt terminals, we charge Western fees for asphalt storage, shipments into and out of asphalt storage and asphalt processing and blending.

Western’s obligations under these commercial agreements will not terminate if Western no longer controls our general partner. Our commercial agreements include provisions that permit Western to suspend, reduce or terminate its obligations under the applicable agreement if certain events occur. These events include Western deciding to permanently or indefinitely suspend refining operations at one or both of its refineries, as well as our being subject to certain force majeure events that would prevent us from performing required services under the applicable agreement.

Wholesale Segment Agreements

In connection with the Wholesale Acquisition, we entered into the following ten-year agreements with Western. These agreements include certain minimum volume commitments by Western.

Product Supply Agreement

Western will supply, and we will purchase, approximately 79,000 barrels per day of refined products. The price per barrel will be based upon OPIS or Platts indices on the day of delivery. We will review the pricing with Western annually. The

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

agreement provides for make-up payments to us in any month that our average margin on non-delivered rack sales is less than a certain amount.

Fuel Distribution and Supply Agreement

Western agreed to purchase all of its retail requirements for branded and unbranded motor fuels for its retail and unmanned fleet fueling sites at a price per gallon that is $0.03 above our cost. Western has agreed to purchase a minimum of 645,000 barrels per month of branded and unbranded motor fuels for its retail and unmanned fleet fueling sites. In any month that Western doesn’t purchase the minimum volume, Western will pay us $0.03 per gallon shortfall. In any month in which Western purchases volumes in excess of the minimum, we will pay Western $0.03 per gallon over the minimum until the balance of the trailing twelve month shortfall payments is reduced to $0.

Crude Oil Trucking Transportation Services Agreement

Western has agreed to pay a flat rate per mile per barrel plus monthly fuel adjustments and customary applicable surcharges. We will review the rates with Western annually. Western has agreed to contract a minimum of 1.525 million barrels of crude oil to us for hauling each month.

Other Agreements with Western

Omnibus Agreement

We entered into an omnibus agreement with Western, certain of its subsidiaries and our general partner. The omnibus agreement addresses the following items:


•	our obligation to reimburse Western for the provision by Western of certain general and administrative services (this reimbursement is in addition to certain expenses of our general partner and its affiliates that are reimbursed under our partnership agreement and services agreement), as well as certain other direct or allocated costs and expenses incurred by Western on our behalf;


•	our rights of first offer to acquire certain logistics assets from Western;


•	an indemnity by Western for certain environmental and other liabilities, and our obligation to indemnify Western for events and conditions associated with the operation of our assets that occur after closing of the Offering and for environmental liabilities related to our assets to the extent Western is not required to indemnify us;


•	Western’s transfer of certain environmental permits related to our assets to us and our use of such permits prior to the transfer thereof; and


•	the granting of a license from Western to us with respect to use of certain Western trademarks and our granting of a license to Western with respect to use of certain of our trademarks.

The omnibus agreement generally terminates in the event of a change of control of us or our general partner.

Contribution, Conveyance and Assumption Agreement

We entered into the Contribution Agreement with Western under which we acquired all of the outstanding limited liability company interests of WRW, which owned substantially all of Western’s southwest wholesale assets. Among other things, Western agreed to indemnify us with respect to liabilities related to certain assets and operations historically owned by WRW that were not contributed to us in the Wholesale Acquisition. In addition, Western made certain representations and warranties regarding the assets of WRW, including with respect to environmental matters, and agreed to indemnify us for breaches of those representations and warranties, subject to specified deductibles, caps and other limitations.

Services Agreements

We entered into a services agreement with Western under which we reimburse Western for its provision to us of certain personnel to provide operational services to us and under our supervision in support of our pipelines and gathering assets and terminalling and storage facilities, including routine and emergency maintenance and repair services, routine operational activities, routine administrative services, construction and related services and such other services as we and Western may mutually agree upon from time to time. Western will prepare a maintenance, operating and capital budget on an annual basis subject to our approval. Western submits actual expenditures for reimbursement on a monthly basis, and we reimburse Western for providing these services.

We may terminate any of the services provided by the personnel provided by Western upon 30 days prior written notice. Either party may terminate this agreement upon prior written notice if the other party is in material default under the agreement

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

and such party fails to cure the material default within 20 business days. The services agreement has an initial term of ten years and may be renewed by two additional five-year terms upon our agreement with Western evidenced in writing prior to the end of the initial term of ten years or the first renewal term of five years. If a force majeure event prevents a party from carrying out its obligations (other than to make payments due) under the agreement, such obligations, to the extent affected by force majeure, will be suspended during the continuation of the force majeure event. These force majeure events include acts of God, strikes, lockouts or other industrial disturbances, wars, riots, fires, floods, storms, orders of courts or governmental authorities, explosions, terrorist acts, accidental disruption of service, breakage, breakdown of machinery, storage tanks or lines of pipe and inability to obtain or unavoidable delays in obtaining material or equipment and any other circumstances not reasonably within the control of the party claiming suspension and that by the exercise of due diligence such party is unable to prevent or overcome.

Subsequent to March 31, 2015, we entered into a Joinder Agreement with Western and NTI that joined WNRL as a party to the Shared Services Agreement, dated October 30, 2014, between Western and NTI and under which Western and NTI provide services to each other in support of their operations. Under the Joinder Agreement, WNRL will initially provide certain scheduling and other services in support of NTI’s operations, and NTI will reimburse WNRL for the costs associated with providing such services.

Leasing Agreements

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 term of the agreements.

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

You should read the following discussion together with the financial statements and the notes thereto included elsewhere in this report. This discussion contains forward-looking statements that are based on current expectations, estimates and projections about our business and operations. The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under Part I, Item 1A. "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2014 ("2014 Form 10-K") and elsewhere in this report. You should read "Risk Factors" and "Forward-Looking Statements" in this report. In this Item 2, all references to "WNRL," "the Partnership," "we," "us," and "our" refer to Western Refining Logistics, LP and its consolidated subsidiaries, unless the context otherwise requires or where otherwise indicated.

Overview

Western Refining Logistics, LP ("WNRL", the "Partnership", "we" or "us") is a Delaware master limited partnership formed in July 2013 by Western Refining Logistics GP, LLC ("WRGP"), our general partner that holds all of the non-economic general partner interests in WNRL and is indirectly owned 100% by Western Refining, Inc. ("Western"). On October 16, 2013, WNRL completed its initial public offering (the "Offering") of 15,812,500 common units, after which Western's limited partner interest in WNRL was 65.3%. Our units trade on the New York Stock Exchange (“NYSE”) under the symbol “WNRL.” Unless the context otherwise requires, references in this report to “Western Refining Logistics, LP,” “WNRL,” the “Partnership,” “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.

On October 15, 2014, we acquired all of the outstanding limited liability company interests of Western Refining Wholesale ("WRW"), which owned substantially all of Western’s wholesale assets in the Southwest U.S. We acquired these interests pursuant to a Contribution, Conveyance and Assumption Agreement, dated September 25, 2014, as amended (the “Contribution Agreement”), by and among us, Western, Western Refining Southwest, Inc., a wholly-owned indirect subsidiary of Western ("WRSW"), and our general partner, in exchange for $320 million in cash and 1,160,092 of our common units. The issuance of these additional units to Western increased Western's limited partner interest in WNRL to 66.2% at the acquisition date. We funded the cash payment through $269 million in new borrowings under our $300.0 million Senior Secured Revolving Credit Facility ("Revolving Credit Facility") and $51 million from cash on hand. We refer to this transaction as the “Wholesale Acquisition.”

WNRL is a growth-oriented partnership that was formed to own, operate, develop and acquire logistics and related assets and businesses, including terminals, storage tanks, pipelines and other logistics assets related to the terminalling, transportation, storage and distribution of crude oil and refined products. WNRL's assets include approximately 300 miles of pipelines, approximately 8.1 million barrels ("bbls") of active storage capacity, terminal facilities and a fleet of transport units that distribute wholesale petroleum products and transport crude oil. Prior to the Wholesale Acquisition, WNRL generated its revenues principally based on fees charged for logistics services. Following the Wholesale Acquisition, a significant portion of our revenues result from product sales to third-party and affiliate customers.

We recorded the purchase of WRW's assets at Western's historical book value. Generally accepted accounting principles require that we treat this purchase as a reorganization of entities under common control. We have retrospectively adjusted the financial information for WNRL, to include the historical results of the WRW assets acquired, for periods prior to the effective date of the transaction.

Major Influences on Results of Operations

Supply and Demand for Crude Oil and Refined Products. We generate a significant portion of our revenues under fee-based agreements with Western. These contracts generally provide for stable and predictable cash flows and limit our direct exposure to commodity price fluctuations related to the loss allowance provisions in our commercial agreements. We typically do not have exposure to variability in the prices of the hydrocarbons and other products we handle on Western's behalf, although these risks indirectly influence our activities and results of operations over the long term because of their impact on Western's operations. Our terminal throughput volumes depend primarily on the volume of refined and other products produced at Western’s refineries that, in turn, is ultimately dependent on Western’s refining margins.

Refining margins depend on both the price of crude oil or other feedstock and the price of refined products. Factors affecting the prices of petroleum based commodities include supply and demand in crude oil, gasoline and other refined products. Supply and demand for these products depend on changes in domestic and foreign economies, weather conditions, domestic and foreign political affairs, production levels, logistics constraints, availability of imports, marketing of competitive fuels, crude oil price differentials and government regulation.

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A significant portion of our wholesale fuel sales and all of our lubricants sales are to third-party customers. The margins we earn on these sales are dependent on a number of factors that are outside of our control, including the overall supply of refined products and lubricants as well as the demand for these products by our customers. Among other circumstances, the margins we earn through these activities would likely be adversely impacted in the event of excess supply of refined products or lubricants and corresponding customer demand that is below historical norms. These supply and demand dynamics are subject to day-to-day variability and may result in volatility in the margins that our wholesale business achieves. Extended periods of market conditions that result in our earning margins that are lower than anticipated could adversely affect our financial condition, results of operations and cash flows.

Acquisition Opportunities. We may acquire additional logistics assets from Western or third parties. Under our omnibus agreement, 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. 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 should such opportunities arise. Identifying and executing acquisitions is a key part of our strategy. If we do not make acquisitions on economically acceptable terms, our future growth will be limited and the acquisitions we do make may 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 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.

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. Our reported logistics assets revenues are fee-based and subject to contractual minimum volume commitments. These fees are indexed for inflation in accordance with either the Federal Energy Regulatory Commission (the "FERC") indexing methodology or the U.S. Producer Price Index.

Revenues reported by WRW prior to the Wholesale Acquisition related to its wholesale operations were for sales primarily to third parties and included zero margin sales to Western’s retail business. Revenues and related margins from third party sales reflected sensitivity to market price fluctuations and demand for related commodities. Our wholesale operations continue to include sales to third parties and also provide for a contractual margin on our sales to Western’s retail business.

Financing. There are differences in the way we finance our operations as compared to our operations prior to the Wholesale acquisition. Historically, WNRL financed its operations through proceeds generated by the Offering and internally generated cash flows, availability under our Revolving Credit Facility and capital contributions from Western to satisfy capital expenditure requirements. On February 11, 2015, we issued $300.0 million in aggregate principal amount of 7.5% Senior Notes due 2023 ("WNRL 2023 Senior Notes"), resulting in a significant increase to our historically recognized interest expense and amortization of loan fees.

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 maintenance and growth capital expenditures primarily from a combination of cash-on-hand, borrowings under our revolving credit facility and potential issuance of additional equity or debt securities.

Delaware Basin System. The approximately 38 miles of the Main 12-inch and the East 10-inch pipelines included in the Delaware Basin System 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.

Wholesale Acquisition. Because the Wholesale Acquisition, which was completed on October 15, 2014, is considered a reorganization of entities under common control, we have retrospectively adjusted the financial information for WNRL to include the historical results of the WRW assets acquired, for periods prior to the effective date of the transaction. Accordingly, except for the items described under "Revenues" above, the Wholesale Acquisition should not impact the comparability of the financial results presented herein.

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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 2014 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. For further discussion on recent accounting pronouncements, see Note 2, Basis of Presentation and Significant Accounting Policies, in the Notes to Condensed Consolidated Financial Statements included in this quarterly report.

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, wholesale volumes and margins, operating and maintenance expenses, EBITDA and distributable cash flow.

Logistics 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. These volumes are primarily affected by the supply of and demand for crude oil, refined products and asphalt in the markets served directly or indirectly by our assets. 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 or not Western ships and terminals such incremental volumes and by the amount of volumes we handle for third parties.

Wholesale Volumes and Margins. Revenues, earnings and cash flows from our wholesale business are primarily affected by sales volumes of gasoline, diesel fuel and lubricants sold and crude oil trucking volumes. Sales volumes of gasoline, diesel fuel and lubricants are affected primarily by demand and competition. Crude oil trucking volumes can fluctuate based on local production, competition and demand. Refined product margins are equal to the sales price, net of discounts, less total cost of sales and are measured on a cents per gallon basis. Factors that influence margins include local supply, demand and competition, and the impact to margin of our commercial agreements with Western. Refined product margins have a tendency to remain somewhat stable from period to period as both the sales price and the related cost of product are both affected by the related commodity markets and are reasonably well correlated.

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 and employee expenses, lease costs, utility costs, cost of insurance, maintenance materials, supplies, repairs and related expenses and property taxes. These expenses generally remain relatively stable across broad ranges of throughput volumes but can fluctuate from period to period depending on the level of maintenance related activities performed during that period and the timing of such expenses.

Our maintenance costs are generally cyclical in nature. Our terminal facilities are subject to recurring maintenance for normal wear and related maintenance costs are generally consistent from period to period. 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. When a storage tank change in service occurs, maintenance costs will generally be greater due to increased costs of tank cleaning and hazardous material disposal. The cost of our maintenance is dependent upon the level of repairs deemed necessary as a result of the inspection of the specific asset. We manage our maintenance expenditures on our pipelines, terminals, truck fleet and other distribution assets by scheduling maintenance over time to avoid significant variability and minimize impact on our cash flows.

Results of Operations

The following tables summarize our consolidated and operating segment financial data and key operating statistics for the three months ended March 31, 2015 and 2014, 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.

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The assets acquired in the Wholesale Acquisition are reflected at Western's historical book value as the purchase was a reorganization of entities under common control. We have retrospectively adjusted the financial information for WNRL to include the historical results of the WRW assets acquired, for periods prior to the effective date of the acquisition.

Consolidated

Three Months Ended March 31, 2015, Compared to the Three Months Ended March 31, 2014



	Three Months Ended
	March 31,
	2015			2014			Change
	(In thousands, except per unit data)
Revenues:
Fee based:
Affiliate	$	45,478		$	39,571		$	5,907
Third-party	623			701			(78		)
Sales based:
Affiliate	132,771			197,013			(64,242		)
Third-party	428,524			627,325			(198,801		)
Total revenues	607,396			864,610			(257,214		)
Operating costs and expenses:
Cost of products sold:
Affiliate	130,508			197,013			(66,505		)
Third-party	411,193			607,804			(196,611		)
Operating and maintenance expenses	35,637			33,683			1,954
General and administrative expenses	5,931			5,197			734
Gain on disposal of assets, net	(84		)	—			(84		)
Depreciation and amortization	4,738			4,152			586
Total operating costs and expenses	587,923			847,849			(259,926		)
Operating income	19,473			16,761			2,712
Other income (expense):
Interest expense and other financing costs	(3,964		)	(361		)	(3,603		)
Other, net	17			43			(26		)
Net income before income taxes	15,526			16,443			(917		)
Provision for income taxes	(203		)	(119		)	(84		)
Net income	15,323			16,324			(1,001		)
Net income attributable to General Partner	—			5,391			(5,391		)
Net income attributable to limited partners	$	15,323		$	10,933		$	4,390

Net income per limited partner unit:
Common - basic	$	0.33		$	0.24		$	0.09
Common - diluted	0.33			0.24			0.09
Subordinated - basic and diluted	0.33			0.24			0.09

Weighted average limited partner units outstanding:
Common - basic	23,985			22,811			1,174
Common - diluted	23,996			22,815			1,181
Subordinated - basic and diluted	22,811			22,811			—

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	Three Months Ended
	March 31,
	2015			2014			Change
	(In thousands)
Cash Flow Data
Net cash provided by (used in):
Operating activities	$	33,445		$	24,481		$	8,964
Investing activities	(8,445		)	(14,549		)	6,104
Financing activities	8,874			(10,981		)	19,855
Capital expenditures	8,562			8,379			183
Other Data
EBITDA	$	24,228		$	14,650		$	9,578
Distributable cash flow	21,769			15,103			6,666

Fee Based Revenues and Gross Margin. Our revenues were generated by existing third-party contracts and from commercial agreements with Western. Increased operations generated from our Permian Basin assets resulted in higher fee based revenues quarter over quarter. Wholesale gross margin increased quarter over quarter primarily due to higher fuel sales volume and truck freight revenue from crude oil gathering activity in the Permian Basin area.

Operating and Maintenance Expenses. The increase in operating and maintenance expenses resulted from an increase in employee expenses ($1.7 million), increased energy expense specifically due to chemical additives used in the pipeline transportation process ($0.4 million) and maintenance expenses ($0.4 million) that were primarily due to differences in the timing of the scheduled maintenance during the first quarter of 2015 versus the first quarter of 2014, partially offset by decreased materials and supplies expense due to the decrease in fuel expense for our transportation department ($0.8 million). Maintenance expense for the three months ended March 31, 2015, was $8.9 million compared to $8.5 million for the same period in 2014.

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

Depreciation and Amortization. Depreciation and amortization increased due to the ongoing expansion of WNRL's Delaware Basin logistics system and current period depreciation related to the addition of crude oil tanker trailers during 2014.

Interest Expense and Other Financing Costs. The increase in interest expense from prior periods was attributable to the issuance of the $300.0 million WNRL 2023 Senior Notes during the first quarter of 2015.

EBITDA and Distributable Cash Flows

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


•	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;

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•	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 attributable to limited partners. These non-GAAP measures should not be considered as alternatives to net income or any other measure of financial performance presented in accordance with GAAP. EBITDA excludes some, but not all, items that affect net income attributable to limited partners. 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 calculation of EBITDA and Distributable Cash Flow includes the results of operations for the wholesale segment for the period subsequent to the Wholesale Acquisition through March 31, 2015.

The following table reconciles net income attributable to limited partners to EBITDA for the periods presented and Distributable Cash Flow for the three months ended March 31, 2015 and 2014, respectively:



	Three Months Ended
	March 31,
	2015			2014			Change
	(In thousands)
Net income attributable to limited partners	$	15,323		$	10,933		$	4,390
Interest expense and other financing costs	3,964			354			3,610
Provision for income taxes	203			119			84
Depreciation and amortization	4,738			3,244			1,494
EBITDA	24,228			14,650			9,578

Change in deferred revenues	1,232			1,937			(705		)
Cash interest paid	(725		)	(225		)	(500		)
Income taxes paid	(1		)	—			(1		)
Maintenance capital expenditures	(2,965		)	(1,259		)	(1,706		)
Distributable cash flow	$	21,769		$	15,103		$	6,666

Minimum quarterly distribution	$	13,463		$	13,116		$	347

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Logistics Segment

Three Months Ended March 31, 2015, Compared to the Three Months Ended March 31, 2014



	Three Months Ended
	March 31,
	2015		2014		Change
	(In thousands, except key operating statistics)
Statement of Operations Data:
Fee based revenues:
Affiliate	$	34,775	$	32,056	$	2,719
Third-party	623		701		(78		)
Total revenues	35,398		32,757		2,641
Operating costs and expenses:
Operating and maintenance expenses	17,518		16,135		1,383
General and administrative expenses	979		527		452
Depreciation and amortization	3,661		3,244		417
Total operating costs and expenses	22,158		19,906		2,252
Operating income	$	13,240	$	12,851	$	389
Key Operating Statistics:
Pipeline and gathering:
Mainline movements (bpd):
Permian/Delaware Basin system	36,512		15,343		21,169
Four Corners system (1)	45,841		41,015		4,826
Gathering (truck offloading) (bpd):
Permian/Delaware Basin system	22,605		22,164		441
Four Corners system	10,662		11,400		(738		)
Pipeline Gathering and Injection system (bpd):
Permian/Delaware Basin system	1,615		1,559		56
Four Corners system	20,565		22,752		(2,187		)
Tank storage capacity (bbls) (2)	620,506		568,850		51,656
Terminalling, transportation and storage:
Shipments into and out of storage (bpd) (includes asphalt)	391,318		340,588		50,730
Terminal storage capacity (bbls) (2)	7,490,569		7,355,432		135,137


(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)	Storage shell capacities represent weighted-average capacities for the periods indicated.

Fee Based Revenues. Our revenues were generated by existing third-party contracts and from commercial agreements with Western. Increased operations generated from our Permian Basin assets resulted in higher revenues quarter over quarter.

Operating and Maintenance Expenses. Operating and maintenance expenses increased quarter over quarter primarily due to increased employee expense ($0.6 million), increased energy expense specifically due to chemical additives used in the pipeline transportation process ($0.4 million) and maintenance expense ($0.4 million) that was primarily due to differences in the timing of the scheduled maintenance during the first quarter of 2015 versus the first quarter of 2014.

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

Wholesale Segment

Three Months Ended March 31, 2015, Compared to the Three Months Ended March 31, 2014



	Three Months Ended
	March 31,
	2015			2014		Change
	(In thousands, except key operating stats)
Statement of Operations Data:
Fee based (1):
Affiliate	$	10,703		$	7,515	$	3,188
Sales based (1):
Affiliate	132,771			197,013		(64,242		)
Third-party	428,524			627,325		(198,801		)
Total revenues	571,998			831,853		(259,855		)
Operating costs and expenses:
Cost of products sold:
Affiliate	130,508			197,013		(66,505		)
Third-party	411,193			607,804		(196,611		)
Operating and maintenance expenses	18,119			17,548		571
General and administrative expenses	2,196			2,461		(265		)
Gain on disposal of assets, net	(84		)	—		(84		)
Depreciation and amortization	1,077			908		169
Total operating costs and expenses	563,009			825,734		(262,725		)
Operating income	$	8,989		$	6,119	$	2,870
Key Operating Statistics:
Fuel gallons sold (in thousands)	303,431			267,814		35,617
Fuel gallons sold to retail (included in fuel gallons sold above) (in thousands)	75,263			61,594		13,669
Fuel margin per gallon (2)	$	0.027		$	0.023	$	0.004
Lubricant gallons sold (in thousands)	2,957			3,024		(67		)
Lubricant margin per gallon (3)	$	0.66		$	0.75	$	(0.09	)
Crude oil trucking volume (bpd)	43,050			26,969		16,081
Average crude oil revenue per barrel	$	2.76		$	3.10	$	(0.34	)


(1)	All wholesale fee based revenues are generated through fees charged to Western's refining segment for truck transportation and delivery of crude oil. Affiliate and third-party sales based revenues result from sales of refined products to Western and third-party customers at a delivered price that includes charges for product transportation.


(2)	Fuel margin per gallon is a measurement calculated by dividing the difference between fuel sales, net of transportation charges, and cost of fuel sales for our wholesale segment by the number of gallons sold. Fuel margin per gallon is a measure frequently used in the petroleum products wholesale industry to measure operating results related to fuel sales.


(3)	Lubricant margin per gallon is a measurement calculated by dividing the difference between lubricant sales, net of transportation charges, and lubricant cost of products sold by number of gallons sold. Lubricant margin is a measure frequently used in the petroleum products wholesale industry to measure operating results related to lubricant sales.

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Gross Margin. Wholesale gross margin increased quarter over quarter primarily due to higher fuel sales volume, decreased product costs and higher truck freight revenue from crude oil gathering activity.

Operating and Maintenance Expenses. The increase in operating and maintenance expenses was the result of increased employee expense ($1.1 million) from increased headcount primarily for staffing the additions to our truck fleet offset by decreased fuel expense for our truck fleet ($0.8 million).

Depreciation and Amortization. The increase in depreciation and amortization was primarily due to the addition of crude oil tanker trailers during the latter half of 2014.

Liquidity and Capital Resources

As of March 31, 2015, we had cash and cash equivalents of $88.2 million. Our sources for liquidity include cash generated from operations, borrowings under our Revolving Credit Facility and the issuance of equity or debt securities. We funded the purchase of WRW from WRSW using $320 million in cash, including borrowings of $269 million under our Revolving Credit Facility and $51 million from cash on hand, and the issuance of 1,160,092 common units. Cash on hand used to fund the purchase of WRW was primarily from the $75.7 million retained from the net proceeds of the Offering.

We have made no additional borrowings under our Revolving Credit Facility. On February 11, 2015, we issued the WNRL 2023 Senior Notes and used the proceeds to repay the borrowings under our Revolving Credit Facility. At March 31, 2015, the Revolving Credit Facility had availability of $299.3 million, net of $0.7 million in outstanding letters of credit. Our Revolving Credit Facility and indenture contain covenants that limit or restrict our ability to make cash distributions. Under the Revolving Credit Facility, we are also required to maintain certain financial ratios, each tested on a quarterly basis for the immediately preceding four quarter period. See Note 11, Debt, in the Notes to the Condensed Consolidated Financial Statements included in this quarterly report.

Our minimum quarterly distribution of $0.2875 per unit per quarter, or $1.15 per unit on an annualized basis, aggregates to $13.5 million per quarter and $53.9 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 subject to compliance with the restrictions of 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, as the holder of incentive distribution rights, will receive. Our distributions are declared subsequent to quarter end. On January 30, 2015, our general partner's board of directors declared a quarterly cash distribution of $0.3325 per unit for the period October 1, 2014 through December 31, 2014. WNRL paid the distribution on February 23, 2015 to all unitholders of record on February 13, 2015. The per unit distribution amount exceeded the target distribution amount of $0.3306 set forth in our partnership agreement; therefore, we made a nominal distribution to our general partner as the holder of our incentive distribution rights.

The table below summarizes our 2015 quarterly distribution declarations, payments and scheduled payments through May 1, 2015:



	2015
	Declaration Date	Record Date	Payment Date	Distribution per Common and Subordinated Unit
First quarter	May 1	May 15	May 26	$	0.3475
Total				$	0.3475

Cash Flows

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



	Three Months Ended
	March 31,
	2015			2014			Change
	(In thousands)
Net cash provided by operating activities	$	33,445		$	24,481		$	8,964
Net cash used in investing activities	(8,445		)	(14,549		)	6,104
Net cash provided by (used in) financing activities	8,874			(10,981		)	19,855
Net change in cash and cash equivalents	$	33,874		$	(1,049	)	$	34,923

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The increase in net cash from operating activities period over period was primarily the result of changes in our working capital as disclosed in our Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014. The change in accounts payable and accrued liabilities was primarily due to an increase in payables associated with accrued interest and accrued payroll expenses related to Western employee services.

Cash flows provided by operating activities for the three months ended March 31, 2015, combined with $300.0 million from the issuance of our WNRL 2023 Senior Notes were primarily used to repay the borrowings under our Revolving Credit Facility of $269.0 million, fund cash distributions to Western and non-controlling interest holders of $10.3 million and $5.3 million, respectively, fund capital expenditures of $8.6 million and pay deferred financing costs of $6.6 million.

For the same period in 2014, cash flows provided by operating activities were primarily used to fund capital expenditures of $8.4 million and cash distributions to Western and to non-controlling interest holders of $7.2 million and $3.8 million, respectively.

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. We used $51.0 million of the retained cash to fund a portion of the WRW asset purchase. 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 2015, we budgeted $12.4 million for maintenance capital projects and up to $31.8 million in discretionary growth projects. For the three months ended March 31, 2015, we capitalized $3.0 million in sustaining and regulatory expenditures and $4.9 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

During the first quarter of 2015, we issued the WNRL 2023 Senior Notes. Our annual interest obligation on the notes is $22.5 million that we will pay semi-annually through August of 2023. Also during the first quarter of 2015, our wholesale segment entered into an operating lease of 15 transport units. The total annual commitment related to this lease is $0.4 million, per year, that we will pay in monthly installments over a four year term. We include a complete summary of our future contractual obligations and commercial commitments as of December 31, 2014, in our 2014 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.

Regulatory Matters

Our interstate common carrier crude oil pipeline operations are subject to rate regulation by the FERC under the Interstate Commerce Act and the Energy Policy Act of 1992. Our pipelines, gathering systems and terminal operations are also subject to safety regulations adopted by the U.S. DOT.

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Environmental and Other Matters

Environmental Regulation. Our operations are subject to extensive and periodically 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, the remediation of contamination and protection of endangered and threatened species. 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. 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, a release of hydrocarbons or hazardous substances into the environment could, to the extent the event is not insured, 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. These impacts could directly and indirectly affect our business and may 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 us and our Predecessor have not been material. We are not currently aware of any environmental or other asserted or unasserted claims against us or that involve our 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.

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 markets 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, 2014, for quantitative and qualitative disclosures about market risk. There have been no material changes in our exposures to market risk since December 31, 2014.


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 March 31, 2015. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2015.

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2015, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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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 2014 Form 10-K under Part I, Item 1A. Risk Factors.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

On May 4, 2015, WNRL entered into a Joinder Agreement with Western and Northern Tier Energy LP (“NTI”), an affiliate of Western, that joined WNRL as a party to the Shared Services Agreement, dated October 30, 2014, between Western and NTI and pursuant to which Western and NTI provide services to each other in support of their operations. Pursuant to the Joinder Agreement, WNRL will initially provide certain scheduling and other services in support of NTI’s operations, and NTI will reimburse WNRL for the costs associated with providing such services. Western owns the general partner of WNRL and the general partner of NTI. The Joinder Agreement and Shared Services Agreement are attached hereto as Exhibits 10.1 and 10.2, respectively.

The descriptions of the Joinder Agreement and Shared Services Agreement are qualified in their entirety by reference to the full text of the agreements which are filed as Exhibits 10.1 and 10.2, respectively, to this Quarterly Report on Form 10-Q and each of which is incorporated herein by reference.

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ITEM 6. EXHIBITS.

Exhibit Index***



Exhibit Number		Description
4.1		Indenture, dated February 11, 2015, by and among Western Refining Logistics, LP, WNRL Finance Corp., the Guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of WNRL's Current Report on Form 8-K, filed with the SEC on February 11, 2015).
4.2		Form of 7.50% Senior Note (included in Exhibit 4.1).
4.3		Registration Rights Agreement, dated February 11, 2015, by and among Western Refining Logistics, LP, WNRL Finance Corp. and the Guarantors named therein and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo Securities, LLC, Credit Agricole Securities (USA) Inc., RBS Securities Inc., SunTrust Robinson Humphrey, Inc., Barclays Capital Inc., Comerica Securities Inc., Deutsche Bank Securities Inc., PNC Capital Markets LLC, RB International Markets (USA) LLC, Regions Securities LLC and UBS Securities LLC as the Initial Purchasers (incorporated by reference to Exhibit 4.3 of WNRL's Current Report on Form 8-K, filed with the SEC on February 11, 2015).
10.1*		Joinder Agreement (Shared Services), dated May 4, 2015, by and among Western Refining Logistics, LP, Western Refining Southwest, Inc., Western Refining Company, L.P. and Northern Tier Energy LLC.
10.2*		Shared Services Agreement, dated October 30, 2014, by and among Western Refining Southwest, Inc., Western Refining Company, L.P. and Northern Tier Energy LLC.
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

——————

* 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.

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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	Interim Chief Financial Officer	May 6, 2015
Gary R. Dalke	(Principal Financial Officer)

Western Refining Logistics, LP - FORM 10-Q - May 6, 2015

Attached files

Western Refining Logistics, LP Reports