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NuStar GP Holdings, LLC (NYSE:NSH)

Q4 2012 Earnings Call

February 1, 2013 3:00 pm ET

Executives

Curt Anastasio – President and Chief Executive Officer

Steve Blank – Executive Vice President, Chief Financial Officer and Treasurer

Danny Oliver – Senior Vice President - Marketing and Business Development

Analysts

Brian Zarahn – Barclays Capital

Mark L. Reichman – Simmons & Company

Cory Garcia – Raymond James & Associates

James Jampel – HITE Hedge Asset Management LLC

Kevin Cashman – Assurant

Louis Shamie – Zimmer Partners

Operator

Good afternoon. My name is McKenzie, and I will be your conference operator today. At this time, I would like to welcome everyone to the NuStar Energy LP and NuStar GP Holdings LLC Fourth Quarter 2012 Earnings Conference Call.

All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Mr. Chris Russell. You may begin your conference.

Chris Russell

Thank you, McKenzie. Good afternoon, everyone, and welcome to our conference call to discuss NuStar’s fourth quarter and full-year 2012 earnings results. We apologize for happening to delay the call by one day. Our management team was out of the office yesterday attending the funeral of a long time friend and business partner to NuStar. With me today is Curt Anastasio, CEO and President of NuStar Energy L.P. and NuStar GP Holdings, LLC; Steve Blank, Executive Vice President, CFO and Treasurer; and other members of our management team.

Before we get started, we would like to remind you that during the course of this call, NuStar management will make statements about our current views concerning the future performance of NuStar that are forward-looking statements within the meaning of the federal securities laws. These statements are subject to various uncertainties and assumptions described in our filings with the Securities and Exchange Commission and will not be updated to conform to actual results or revised expectations.

During the course of this call, we will also make reference to certain non-GAAP financial measures. Our non-GAAP financial measures should not be considered as alternatives to GAAP measures. Reconciliations of these non-GAAP financial measures to U.S. GAAP may be found either in our earnings press release or on our website.

Now, let me turn the call over to Curt.

Curt Anastasio

Good afternoon, and thanks for joining us. We at NuStar have been busy the last several months completing transactions to change the strategic direction of the partnership away from the volatile margin-based portions of our business and increasing the stable fee-based pipeline in Storage segments of our business, where we have more opportunities than ever before.

On September 28, we closed on the sale of a 50% interest in our Asphalt business to Lindsay Goldberg LLC and deconsolidated the resulting joint venture from NuStar’s financial. This brought in about $425 million of cash and freed up capital to invest in Eagle Ford pipeline.

Effective January 1, we sold the San Antonio refinery and related assets to Calumet Specialty Products Partners for $100 million, plus approximately $15 million for inventory. As a result of that sale, all financial results related to the San Antonio refinery have been reported as discontinued operations and NuStar’s financial statements included in the earnings statement.

At the same time, we’ve been expanding our fee-based pipeline in Storage businesses. In July, we completed another pipeline project in the Eagle Ford. By connecting our Corpus Christi to Three Rivers refinery, 16-inch crude oil pipeline to a 12-inch line constructed by TexStar, we’re able to transport Eagle Ford Shale crude oil from Frio County in South Texas to Corpus Christi.

In October, we completed another Eagle Ford Shale project with construction of a 55 mile, 12-inch line that will transport Eagle Ford crude to the Corpus Christi area. After completing that project, NuStar can now grew about 300,000 barrels a day of Eagle Ford crude to the Corpus Christi market.

During November, we entered into a long-term pipeline in terminal services agreement with ConocoPhillips, which will add another 100,000 barrels a day of Eagle Ford throughput capacity. In conjunction with the pipeline services agreement, NuStar will build a 100,000 barrel terminal, truck offloading facilities, and a pipeline connection to our existing 12-inch Pettus, Texas pipeline.

Construction should be done by the fourth quarter of 2013. Under the terminal services agreement with ConocoPhillips, we’ll be expanding the dock capacity at our Corpus Christi North Beach terminal. The dock expansion should be done in the first quarter of 2014.

Then on December 14, 2012, we took another major step towards growing the fee-based pipeline side of the business by closing on the acquisition of crude oil pipeline, gathering in storage assets in the Eagle Ford Shale from TexStar Midstream Services. Most of these assets have already been successfully integrated with our existing pipeline systems and have begun to produce EBITDA for NuStar.

In the last few weeks, we completed a 1 million barrel expansion project at our St. Eustatius terminal in the Caribbean and a 700,000 barrel storage expansion project at our St. James, Louisiana terminal.

Those projects will increase NuStar’s total storage capacity to around 96 million barrels. The next step in our strategic redirection should occur later in this first quarter of 2013 when we close on the acquisition of a natural gas liquids pipeline and two fractionation units from TexStar Midstream Services. Those assets should start generating fee-based EBITDA early in 2014.

So you can see we’ve been very busy. We’re working quickly to change the strategic direction of NuStar. These significant transactions will generate more stable, more predictable, and increased cash flows in 2013 and beyond.

So now let me spend sometime reviewing earnings for the fourth quarter of 2012. Fourth quarter results were burdened with $42 million of expense items that were not reflected in our initial guidance. Most of them relate to the San Antonio refinery, now sold and the Asphalt business, now in a JV. About half of these expenses related to hedge losses recorded following our decision to sell the San Antonio refinery.

These hedging losses as well as the historic results of operations for the San Antonio refinery have been reported as discontinued operations in the earrings tables. Another $15 million of these expenses pertain to our Asphalt business. Canceled capital projects there and employee benefit expenses associated with the Asphalt JV accounted from most of that amount. The remaining expense items relate primarily to lease buyout expenses for the company’s previous corporate office location. Primarily as a result of these expense items, NuStar reported a fourth quarter net loss applicable to limited partners of $21.2 million, or $0.27 per unit.

Excluding these expense items, fourth quarter 2012 adjusted net income applicable to limited partners would have been a positive $19.5 million, or $0.25 per unit.

Taking a look at our fourth quarter segment results, EBITDA in our pipeline transportation increased to $62 million, $6 million higher than the fourth quarter of 2011. Higher throughputs plus higher pipeline tariffs from the 2012 FERC adjustments contributed to the improved results.

Total Pipeline segment throughputs were up 4% compared to the fourth quarter of 2011. Crude oil throughputs were 13%, or 47,000 barrels a day higher than the fourth quarter of 2011, due to the 2012 completion of the two Eagle Ford projects I mentioned earlier.

Fourth quarter throughputs on our refined products pipelines were down nearly 2%, or about 8,000 barrels a day compared to last year, due to some of our refinery customers having production issues during that quarter and our decision to take our Houston 12-inch pipeline out of service, so we can covert it to a Y-grade NGL pipeline in the Eagle Ford.

Storage segment fourth quarter EBITDA of $58 million was $18 million lower than the $76 million earned last year. Our increased earnings associated with growth projects completed in 2011 and 2012 mainly at the St. James, Louisiana terminal were more than offset by the canceled capital project costs, fewer vessel calls at certain locations and higher maintenance at some of our terminal facilities. The Fuels Marketing operations and our Asphalt and Fuels Marketing segment generated $12 million of EBITDA during the quarter, slightly lower than the $14 million earned last year.

Better results in our heavy fuel oil and butane blending operations were more than offset by lower results at bunker marketing. We had a reduction of bunker sales volumes at St. Eustatius mainly due to inclement weather during the quarter. The Asphalt and Fuels Marketing segments fourth quarter results were also impacted by the expense adjustments relating to employee benefit expenses associated with the Asphalt JV.

As a result, Asphalt and Fuels Marketing reported $6 million of EBITDA compared to a negative EBITDA of $13 million earned in last year’s fourth quarter. Due to the sale of the 50% of the asphalt operations and the January 1 sale of our San Antonio refinery, the only results included in the segment relate to our Fuels Marketing operations and the expense adjustments.

In the fourth quarter, our G&A expenses were $30 million, $4 million lower than last year. Lease buyout expenses were more than offset by lower compensation expenses and reduced G&A expenses as a result of NuStar billing the Asphalt JV for corporate support services.

Interest expenses for the quarter was $22 million, up $1 million from last year due to higher borrowing cost associated with our May 2012 credit facility and reduced savings from fixed to floating interest rate swaps. The December 2012 TexStar acquisition was initially financed with a borrowing under our $1.5 billion credit facility. After the acquisition therefore, our December 31, debt balance was $2.4 billion, about $100 million higher than December 30, 2011, and our debt-to-EBITDA ratio was 5.0.

As a result of the TexStar deal, the debt-to-EBITDA covenant requirement in our $1.5 billion credit facility increases from 5.0 to 5.5 times for the fourth quarter of 2012 and the first quarter of 2013. After using the proceeds from our January 22 issuance of $402.5 million of hybrid securities to pay down the credit facility, we expect debt-to-EBITDA to be in the 4.0 to 4.5 times range throughout 2013.

Our 50% equity interest in the Asphalt JV and in our Linden, New Jersey refined product JV generated losses in the fourth quarter. The Asphalt JV lost $21 million, due primarily to continued weak demand and weak light product margin. The Linden terminal lost about $1 million in the fourth quarter, due to damage from Hurricane Sandy. The terminal was able to fully service these customers within one week after the storm, and we expect the facility to return to profitability in the first quarter of 2013.

With regard to our fourth quarter distribution, NuStar Energy’s Board declared a distribution of $1.95 per unit. The distribution will be paid on February 14. The Board of NuStar GP Holdings declared a fourth quarter distribution of $54.5 per unit. The GP Holdings distribution will be paid on February 19.

Moving on to full-year 2012 results, our consolidated earnings were of course much lower than 2011, mainly due to the $260 million of write-offs related to asset impairments and losses facilitated with the sale of 50% of our asphalt operations. Losses realized by asphalt during the first nine months coupled with our share from the Asphalt JV’s fourth quarter loss, also contributed to 2012 results being lower than 2011.

Looking at a segment results for the full year, our Pipeline segment EBITDA increased to $211 million, $14 million higher than 2011. Higher throughputs on our crude lines plus higher pipeline tariffs from the 2012 FERC tariff increases were the main reasons for the EBITDA increase. Total pipeline throughputs were up 1% for the year.

Crude oil pipeline throughputs were 9%, or 28,000 barrels per day higher, while refined product pipeline throughputs were down about 3%, or 16,000 barrels per day. Higher crude oil throughputs from our growth in the Eagle Ford Shale more than offset the impact of a 45-day second quarter turnaround at one of our customer’s refineries.

The 45-day refinery turnaround and our decision to take our 8-inch and 12-inch pipeline out of service caused 2012 refined products pipeline throughputs to be lower than last year. Full year EBITDA in our Storage segment increased to $288 million of EBITDA, which was $7 million higher than the $281 million earned in 2011.

Close to $30 million of additional EBITDA in the segment resulted from the completion of both the St. James terminal expansion in the third quarter of 2011 and the St. James Unit Train Project in the second quarter of 2012. However, the benefits from the St. James projects were partially offset by the cancelled capital project costs reported in the fourth quarter, reduced demand at our Piney Point, Maryland terminal and fewer vessel calls at some of our Waterborne terminal facility.

Asphalt and Fuels Marketing EBITDA for 2012 was negative $286 million, compared to the $93 million earned the previous year. The 2012 results for the segment obviously include the $272 million of write-offs associated with the sale of 50% of the asphalt operations.

The 2012 Asphalt and Fuels Marketing segment results also include $26 million of negative EBITDA from asphalt prior to the sale of 50% of the asphalt operations. 2011’s results included $28 million of EBITDA from the asphalt operations. The negative impact of the wide threat to WTI crude differentials and continued weak demand were the main reasons, the asphalt operations reported lower results in 2011 and lost money in 2012.

Fuels Marketing operations 2012 EBITDA was a positive $13 million, $52 million lower than the $65 million earned last year, mainly as a result of removing hedges on our bunker and heavy fuel oil inventories for about two months during the second quarter of 2012.

In the third quarter, we decided to reduce the scope of our bunker marketing business by liquidating majority of our inventory in two markets, LA and Portland, due to weak margins. And we do expect our remaining bunker businesses to be profitable at the state fully hedged in the future as they are now.

The San Antonio refinery did not impact the Asphalt and Fuels Marketing segment since the refinery is now reported as discontinued operations. As we move into 2013, we’re looking forward to continuing to pursue promising internal growth opportunities and exploring acquisitions for our fee-based Storage and Pipeline segments.

We anticipate that first quarter EBITDA for storage will be comparable to last year, but that 2013 full-year EBITDA should be $10 million to $30 million higher than 2012, mainly as a result of the internal growth projects in St. Eustatius and St. James.

In 2013, the Transportation segment continues to integrate some of the crude oil assets purchase from TexStar. By the end of 2013, we plan to finish the construction of a crude oil terminal located along the 12-inch line acquired from TexStar and the Eagle Ford and complete the construction of two additional crude oil gathering line, our supply crude to the 12-inch line also in the Eagle Ford.

After the anticipated first quarter 2013 closing on the NGL pace of the TexStar Midstream Services transaction, we expect to spend around $330 million in 2013 and early in 2014, connecting Y-grade pipelines and constructing two fractionators.

As I mentioned earlier, we also expect to complete construction of 100,000 barrel terminal, truck offloading facilities, and a pipeline connection to our existing 12-inch Pettus, Texas line for ConocoPhillips in the fourth quarter of 2013.

So after taking these acquisitions and internal growth projects into account, first quarter 2013 EBITDA on the pipeline segment is expected to be higher than last year, while full-year EBITDA is projected to be $70 million to $90 million higher than last year.

First quarter Asphalt and Fuels Marketing segment EBITDA, which is – as I mentioned earlier is now composed solely a Fuels Marketing operation. It should be higher than the first quarter of 2012. And full-year EBITDA for the segment is projected in the $40 million to $60 million range.

We expect first quarter G&A to be in the range of $25 million to $26 million, depreciation and amortization expense around $46 million to $47 million and interest expense in the range of $30 million to $31 million. 2013 full-year reliability capital should total $35 million to $45 million. Our strategic capital spending is projected in the range of $600 million to $625 million with about $500 million of it related to projects in the Eagle Ford Shale.

At this time, let me turn it over to the operator, so we can open it up to Q&A. McKenzie.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Brian Zarahn with Barclays.

Brian Zarahn – Barclays Capital

Good afternoon.

Curt Anastasio

Good afternoon.

Brian Zarahn – Barclays Capital

You only have the asset for a little while, but can you talk about the performance maybe in terms of volumes of the Eagle Ford crude pipe?

Curt Anastasio

Yes, it’s going even better than expected, and I’ll turn it over to Danny Oliver, our Senior VP for Business Development to expand on that.

Danny Oliver

Sure. Well, as you may remember this TexStar line and the lines that we’ve contributed to that project is really the third line that we have gone into Eagle Ford service. But that one in particular running about 70,000 barrels a day on that line alone today. That’s just ahead of expectations. We expect to be near 100,000 barrels a day sometimes here in the next month or two, probably March.

Brian Zarahn – Barclays Capital

Okay. And then on the NGL assets, can you give a little more color as to where discussions are with shippers on contracts?

Danny Oliver

Yeah, we’re completing final negotiations on many of those agreements. They didn’t tell us about the supply of the Y-grade, also the off-take of the purity grades and then of course, we have to finish constructing the fractionator switch. The two fractionators exist, I think refurbished and reconstructed.

Curt Anastasio

And Brian I know you probably noticed, but just for the benefit of everybody on the call, we’re getting into this NGL transportation or fractionation solely on a fee basis. It deals back by long-term contracts. We never take ownership of the commodity. There is no price risk. We’re not exposing ourselves to any margin risk. And so, I’m sure you know that, but I just wanted to reiterate that when I had an opportunity to do so.

Brian Zarahn – Barclays Capital

Okay, fair enough. In terms of financing your $600 million or so expansion CapEx, can you talk a little bit about that – about the hybrid done for the acquisition then on the organic side can you talk about your financing plans for the year?

Steve Blank

Yeah, pretty much what we budgeted is two hybrid deals, totaling $700 million on in the first quarter and one, I think we slug into the third quarter. The deal we just closed was very successful. We went out talking about $200 million, thinking we do $300 million and we ultimately with green shoe raised $402 million at a coupon that was below what we had budgeted. We came in at 7.58s coupon against 8%, I think that we put in the budget. And the deal was announced at 7.75 to 7.78. So pricing it up sized at a lower coupon was a good outcome and the bonds have worth of – hybrids have traded well in the aftermarket.

We do have two bonds coming due, one in March and one in June. They totaled $480 million and we’re looking at doing probably a single bond deal, sometime in the second quarter to take those out. Initially, we may finance the first one under the revolver. The revolver, as Curt mentioned in his comments is a $1.5 billion. Today, we have just below $1.2 billion available to us under that revolver in terms of room to borrow.

And then we’ll see about the second hybrid. We may not need the equity content from that much depends upon how much CapEx we spend this year. The budget presumes no common stock issuance this year. So everything would be either hybrid or debt financed.

Brian Zarahn – Barclays Capital

Thanks, Steve. That’s the last one for me, can you – just on the housekeeping item for a lot of the expansion CapEx and the cash balance for the fourth quarter?

Steve Blank

The cash balance was, I think $105 million. It was $105 million and the CapEx was what for the 2012 or for…

Danny Oliver

2012 fourth quarter liability Brian was $16 million.

Brian Zarahn – Barclays Capital

And then expansion?

Danny Oliver

Expansion was $74 million.

Brian Zarahn – Barclays Capital

$74 million. Thank you.

Operator

Your next question comes from the line of Mark Reichman with Simmons.

Mark L. Reichman – Simmons & Company

Yeah, just a couple of questions; in terms of the adjusted earnings, it looks like it came in kind of at the low end of your guidance. You’ve been kind of at the $0.25 to $0.35, and it looked to me like it was really the storage segment that came in a little weak and it was primarily due to the lower lease revenues. Could you talk a little bit about that once you see over the course of the next couple of quarters in the Storage segment?

And then the second questing is, on your call where you provided your 2013 and 2014 guidance in terms of your EBITDA ranges, any changes to that or are those – you’re still comfortable with those ranges?

Curt Anastasio

The second part first, maybe I’ll take. Yes, we’re still comfortable with the ranges we provided on that call. And then I don’t think we had – we’ll talk a little more about the storage, the weakness, the relative weakness of the $0.25 to $0.35 range, but I don’t think anyway we had lowered lease revenues in the storage.

It had more to do with the – I mentioned the cancelled projects and those got charged through the storage segment. For example, we done some prep work in asphalt processing and marketing at St. James terminal that, we had suspended the Asphalt JV didn’t want to take that on. So we voted off that project. That was relocating some – it involve relocating some processing units from our Alabama terminal and St. James. That was like of course $7 million of it.

And then in St. Eustatius, we had what we were calling internally the coal defect project. It was a very large, up to 12 million barrel expansion in St. Eustatius. We’ve now moved to a more modest project, and so the balance of about maybe $3 million or so a little bit more of a write-off related to that, and those got charged to the storage segment.

Mark L. Reichman – Simmons & Company

Right. But what I’m saying is storage lease revenues were down 5% on a year-over-year basis. Operating expenses were up and then of course your throughput revenues were up pretty significantly as well. But I mean, if you add back those one-time items, you’ve said, you expected to be at a loss and then you add back some of those one-time items that kind of push you in the range of $25 million to $35 million.

So you’re saying that some of those operational moves that you’ve made impacted the quarter that really weren’t – you didn’t really throw in as kind of the one-time items?

Curt Anastasio

Yeah, I think that’s right if I follow what you are saying correctly.

Steve Blank

Part of that Mark, is the vessel calls that Curt mentioned in his remarks earlier.

Mark L. Reichman – Simmons & Company

Okay, okay.

Danny Oliver

We had a couple of hurricanes come through that impacted that.

Steve Blank

And you specifically asked about the storage lease revenues I think in the fourth quarter?

Mark L. Reichman – Simmons & Company

Yeah.

Steve Blank

Those were down about $6 million. What’s going on there is we’ve changed the treatment of our Corpus Christi North Beach facility. We used to treat that as a storage lease facility. Now, it’s a throughput based facility. So that $6 million just flipped from storage lease revenues than throughput revenues.

Mark L. Reichman – Simmons & Company

Got it, okay. Thank you very much. That’s helpful.

Curt Anastasio

Okay, good.

Operator

Your next question comes from the line of Cory Garcia with Raymond James.

Cory Garcia – Raymond James & Associates

Good afternoon, fellas.

Curt Anastasio

Good afternoon.

Cory Garcia – Raymond James & Associates

Just actually a quick question, I was hoping for an update on the Niobrara Falls project. I know it remains a pretty competitive bidding process up there in that area. I’m just hoping to get a little bit more color on how you guys see that right now?

Curt Anastasio

Yeah, go ahead Danny.

Danny Oliver

Yeah, we extended our open season out through mid-February. There’s really two composites to this project. One is the reversal or piece of pipe that runs from the Denver area down into the Panhandle of Texas. And then further reversal of a second piece of pipe that runs from Panhandle of Texas to Wichita Falls.

I would say the northern piece of that project; we’re getting a little cool on right now. I think there will be interest eventually to move Niobrara crude down by pipe to the Gulf Coast. But the production just really hasn’t caught up to what we would need just by reversing that pipe.

But we do still have some interest on the lower section, what we call our Wichita Falls line. And potentially, we’re reversing that and carrying some of the North Texas crudes like Granite Wash and even some Permian Basin crudes to Wichita Falls to get into third-party pipelines to go either to Cushing or down to the Gulf Coast.

Cory Garcia – Raymond James & Associates

Okay.

Curt Anastasio

That alluded that another in Niobrara open season is reflected in our 2013 guidance that we give. In other words at zero for that and other than that, I think just Danny said is right. I mean there is probably stronger interest to come sooner from West Texas into our system, where we can get people to the Gulf and to Cushing through our lines and third-party lines. And I think the Niobrara from Colorado will come later into our system most likely. But we didn’t assume anything for 2013.

Cory Garcia – Raymond James & Associates

Right. Right, so you guys would be willing to sort of I guess split out the project if you were to see that interest in the Texas Lake first?

Curt Anastasio

Yeah, it’s driven by the customer demand.

Cory Garcia – Raymond James & Associates

Okay, absolutely. And also an update on the St. James or your Phase II rail project. I know you guys sort of talk about annual EBITDA being in the $15 million to $20 million range. Just curious if you can talk around the addition of the Marine Vapor Destruction Unit and really how much uplift or flexibility that could build into the overall economics of the project?

Curt Anastasio

Well, a quite a bit of flexibility. We have on first unit train that one it is in service now is performing above our expectations. We’re moving about 100,000 barrels a day in by rail. Our customers have expressed a desire to move even more in by rail if they can clear more of the volumes by Ocean going vessels.

So we are pursuing and just got approved by our Board, the MVDU project to allow us to bring the larger ships into that dock at St. James, and we’re also having some success in getting more customers signed up for a potential second unit train and we’ll be seeking the Board’s approval for that here in just the next week or two.

Cory Garcia – Raymond James & Associates

Okay, so…

Curt Anastasio

It’s moving along well.

Cory Garcia – Raymond James & Associates

So if I get it right, the MVDU is really more of a throughput rather than sort of a margin opportunity?

Curt Anastasio

Yeah, we do charge independently for that, but the flow of crude is changed in St. James from coming in by pipe or vessel and then going into the pipelines into the Midwest, now it’s trying to get out. So our customers want to take some of this crude sometimes to the East Coast, sometimes to the Houston area and freight is much cheaper obviously with the larger ships, so.

Cory Garcia – Raymond James & Associates

All right, that’s great. Thanks for the color guys.

Curt Anastasio

Yeah.

Operator

Your next question comes from the line of [Steve Sherowski] with Goldman Sachs.

Unidentified Analyst

Hi, how are you? Just a quick question, I was wondering does the 100,000 barrels for Conoco is that incorporated in the 300,000 barrels of capacity that you had that you spoke about earlier…

Curt Anastasio

No, that would be an addition 100,000. The 300,000 is what we have today…

Unidentified Analyst

Gotcha.

Curt Anastasio

That’s what we done so far.

Unidentified Analyst

And so could you just comment on the contract profile of that 300,000? Is that all committed?

Danny Oliver

Mostly, we’re doing about 150,000 a day. We have commitments on acreage and production out of the region. This is in the existing 300,000. We expect to be at or above 200,000 probably here just by mid-2013. And ultimately, in another year or so we expect to fill all of those lines. In fact, we’re already contemplating some expansion projects to try to get ahead of the curve.

And then on the ConocoPhillips, they are a base load customer. They don’t quite fill up that incremental hundred. But with the level of interest we’re seeing from others in that Karnes County area, I don’t think we’ll have any problem filling up that 100, probably in 2013 – by the end of 2013.

Unidentified Analyst

And do you have any sense for how much of that production has condensate?

Steve Blank

Most of what I’m talking about is not the ConocoPhillips, is primarily condensate. But some of the other interest on that line, we can’t segregate on that line. We have the ability to segregate three different segregations. And so we’ll be able to take in crude or condensate into the system.

Unidentified Analyst

Okay. And have you considered any divestitures on core assets as a part of your deleveraging?

Curt Anastasio

We’ve done some. We’ve done some terminals, some of our southeast terminals and obviously, we just did a couple of major ones in the refinery and the Asphalt business. Now, we still have the remaining 50% in the Asphalt business, which we’re happy to stay with that, or else, we’ll look at divesting it if we can see enough interest to divest it.

But we don’t have any current intention to do that. But that could be a further deleveraging. But we don’t have any sacred cows in the company. I mean we’ve really gone through a lot of – effectively restructuring this company and coming back, steering the strategic direction back to the fee-based businesses and everybody is aligned with that. So anything that further sets strategy, we’ll look in.

Unidentified Analyst

And just on a final question. Are there any assets outside of that Niobrara pipeline that you see as underutilized, that could be repurposed?

Steve Blank

In our pipeline segment, there’s not a lot we have that’s…

Curt Anastasio

The big underutilized system we had is, a lot of these south Texas pipelines really in the Eastern line that Danny talked about, which are now getting all filled up with the Eagle Ford. So that was our main challenge the last few years was what can we do to fill up that underutilized system and we’ve hit upon an answer, part strategy, part luck, frankly, all of the great work that the upstream people have done in the Eagle Ford to fill up that system. And that was really where we had the challenge on underutilized capacity.

Unidentified Analyst

Okay. All right, thanks a lot.

Operator

Your next question comes from the line of Matt Niblack with HITE Hedge.

James Jampel – HITE Hedge Asset Management LLC

Hi, it’s actually James Jampel from HITE.

Curt Anastasio

Okay.

James Jampel – HITE Hedge Asset Management LLC

Just a couple of quick questions, if you could remind us what’s the committed contract length on the Y-grade pipeline going up for Houston?

Curt Anastasio

That will be 10 years.

James Jampel – HITE Hedge Asset Management LLC

10 years.

Curt Anastasio

Right.

James Jampel – HITE Hedge Asset Management LLC

And do you see any chance of an overbuild crude capacity to Corpus Christi?

Curt Anastasio

I don’t think so. I mean it’s got to get out close to Houston, they’re exporting a lot of that, you may have read. Flint Hills is spending a lot of money to, I think increase their ability to run Eagle Ford in the Corpus area, but to the tune of, I think a couple of hundred thousand barrels a day.

The other refiners in the area are doing the same thing. So I think there’s plenty of room in Corpus. But we also have customers that they don’t wanted in Corpus, they want to load it out to a vessel there, so…

Steve Blank

Like, for example, Valero who wants as much as they can get in South Texas, but they also took the opportunity to ship crude to all the way around to Eastern Canada to feed their Quebec refinery. So everybody wants to get to the water more and more whether it’s burned in South Texas or elsewhere in their system.

Operator

Our next question comes from the line of Kevin Cashman with Assurant.

Kevin Cashman – Assurant

Hi, guys just wondering, if with the Hess announcement of the terminals being for sale if that was anything that you guys were looking at or if you had your hands full at this point or whether maybe…

Curt Anastasio

Yeah, we’re aware of it, and we’ll take a look at it. We do have full play of really good opportunities right now. So we’re certainly not pressured to do anything like that, but we look at it.

Kevin Cashman – Assurant

Okay. All right, thanks.

Operator

Your next question comes from the line of Louis Shamie with Zimmer Partners.

Louis Shamie – Zimmer Partners

Hi, good afternoon, Curt, Steve and Chris.

Curt Anastasio

Hi, Louis.

Louis Shamie – Zimmer Partners

Hey, congratulations on getting that financing done and closing on the first half of that TexStar acquisition.

Curt Anastasio

Thank you.

Louis Shamie – Zimmer Partners

So I was going to ask Mark’s questions of just whether you still sit by the 2014 guidance that you had put out and you said that you did. At the midpoint of that guidance, I see some of my own assumptions something like 1.1 times coverage on 2014. I’m just wondering what the thought is there as to, how you get the company back to distribution growth and the outlook for 2014 and beyond?

Curt Anastasio

Making more money, what we’re on track to do, and I don’t know if you want to say anything more on it. We just showed – I guess we showed the coverage, not assuming, where the Board would go on distribution covered. But obviously, we’re restoring the coverage this year and then we’re starting to generate room to increase it as we move into – out of late 2013 into 2014. So that’s a good thing, but…

Steve Blank

I mean, Louis, it’s a much different company today than it was before we deconsolidated the Asphalt business and delevered from that. To-date, we’ve poured in about $425 million of proceeds from that transaction, a $115 million from the San Antonio refinery. So last year was all about a strategic redirection and deleveraging.

And unfortunately, we got the downgrade from the rating agencies. But in terms of the bank covenant, that total debt-to-EBITDA issue is really behind us, in large part because of the way the hybrid is treated under our bank financing, where we get a 100% equity treatment for that up to 15% of our total capital, which is about $700 million to $750 million.

And as I mentioned earlier, we’ve done $402 million. So I would say that the debt-to-EBITDA is less of the issue today as it has been unfortunately for us in the last couple of years. And now it’s all about getting the coverage ratio restored and resuming distribution growth. And for that as Curt said in a nutshell, it’s just got to make money.

And we think the best path forward to making money is to invest in the Eagle Ford where the good work of the up-streamers and the fact that we had assets here, we’re on a great position to capture that opportunity. So this year, it’s all about execution and bringing those projects on-time and on-budget and it’s the biggest capital program we have had in our history. But we’ve done a lot of pipeline work in our history, and I’m sure we’re up to the challenge.

Louis Shamie – Zimmer Lucas Partners LLC

Great. And just more minor question is regarding your maintenance capital guidance for 2013? It’s a bit lower than the pace that you were spending out in 2012. Is anything changed there? Is this a good or a better number to use going forward?

Curt Anastasio

Yeah, that’s the number, we’re giving you, and part of it’s that we shared some businesses, right. We got rid of the refineries and we have a lower pool of assets.

Louis Shamie – Zimmer Lucas Partners LLC

Got it.

Steve Blank

And it’s pretty consistent from 2012. We spend about $40 million in 2012 and we’re seeing $35 million and $45 million in 2013. So it’s kind of our new level again.

Danny Oliver

Yeah, I mean, I would also point out, our safety, our environmental record is fantastic.

Curt Anastasio

Second to none, yeah.

Danny Oliver

We’ve just had another year, we just had a report to the Board that we do annually earlier this week showing once again continued to improve in that area and we’re already top of class really.

Louis Shamie – Zimmer Lucas Partners LLC

All right, great. Thank you, guys, and best of luck executing on the Eagle Ford projects.

Curt Anastasio

Thanks, Louis. Take care.

Operator

(Operator Instructions) And there are no further questions at this time.

Chris Russell

Okay, thank you, McKenzie. Once again, I’d like to thank everybody for joining us on the call this afternoon. If anyone has any additional questions, please contact Investor Relations. Thanks again and have a great weekend.

Operator

This concludes today’s conference call. You may now disconnect.

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