NuStar Energy CEO Discusses Q4 2010 Results - Earnings Call Transcript

Jan.31.11 | About: NuStar Energy (NS)

NuStar Energy LP (NYSE:NS)

Q4 2010 Earnings Call

January 31, 2011 03:00 pm ET

Executives

Chris Russell - VP of IR

Curt Anastasio - CEO and President

Steve Blank - CFO

Paul Brattlof - SVP Marketing

Mike Hoeltzel - SVP Corp. Development

Danny Oliver - SVP, Marketing and Business Development

Analysts

Brian Zarahn - Barclays Capital

Xin Liu - JPMorgan

Darren Horowitz - Raymond James

Joseph Siano - Credit Suisse

Michael Blum - Wells Fargo

Michael Cerasoli - Goldman Sachs

[Fez Eagle] - Credit Suisse

Operator

Good afternoon. My name is [Ashley], and I will be your conference operator today. At this time, I would like to welcome everyone to the NuStar Energy L.P. and NuStar GP Holdings LLC fourth quarter 2010 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. Russell, you may begin your conference.

Chris Russell

Good afternoon and welcome to our conference call to discuss NuStar Energy L.P. and NuStar GP Holdings LLC fourth quarter 2010 earnings results. If you have not received the earnings releases or would like copies of each, you may obtain them from our website at nustarenergy.com and nustargpholdings.com.

Attached to the earnings releases we have provided additional financial information for both companies, including information on NuStar Energy L.P.'s business segments. In addition, we have posted operating highlights and fundamental data for our asphalt operations under the Investors portion of the NuStar Energy L.P. website.

If after reviewing the attached tables and operating highlights you have questions on the information that's presented, please feel free to contact us after the call.

With me today is Curt Anastasio, CEO and President of NuStar Energy L.P. and NuStar GP Holdings LLC; Steve Blank, our CFO; 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 certain statements concerning the future performance of NuStar and other statements that will be forward-looking statements as defined by the Securities laws.

These statements reflect our current views with regard to future events and are subject to various risks, uncertainties and assumptions described in NuStar Energy L.P. and NuStar GP Holdings and our reports on Form 10-K for the year ended December 31, 2009 and subsequent filings with the Securities and Exchange Commission.

Actual results may materially differ from those discussed in these forward-looking statements and we undertake no duty to update any forward-looking statements to conform the statements to actual results or changes in our expectations.

During the course of this call, we will also make reference to certain non-GAAP financial measures. We have provided an additional schedule under the Investors and Financial Reports and SEC Filings portion of the NuStar Energy L.P. website reconciling these non-GAAP financial measures to the most directly comparable financial measure calculated [and] presented in accordance with the US generally accepted accounting principles, or GAAP.

Our non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income, operating income, net cash flows provided by operating activities or any other GAAP measure of liquidity or financial performance.

Now let me turn the call over to Curt.

Curt Anastasio

Good afternoon and thanks for joining us today. NuStar Energy just completed a very successful 2010.

During the year, we grew our asset base through internal growth projects and in acquisition, increased our EBITDA over the 2009 levels in all three of our business segments, pre-funded some of our future capital growth, improved the condition of our balance sheet and continued to realize outstanding safety and environmental results and were once again named one of the 100 best companies to work for in America by Fortune Magazine.

During the year, we completed 10 internal growth projects with a total project cost of approximately $135 million. These projects should contribute a full year of EBITDA to all three of our segments during 2011.

The St. Eustatius terminal reconfiguration project and the Texas City terminal redevelopment project were the major internal growth projects completed during the year.

In addition, in October, we entered into a pipeline connection and capacity lease agreement with Koch Pipeline Company. Under that agreement, NuStar will reactivate a previously idle pipeline with South Texas that will now be utilized to transport Eagle Ford shale crude oil production to Corpus Christi, Texas refineries and terminals. We expect this project to be completed and in service in the second quarter of 2011.

As we have mentioned before, NuStar has several other transportation and storage assets located in areas within South Texas that could serve as effective means to transport or store Eagle Ford production.

We, therefore, expect to identify additional internal growth projects in the Eagle Ford in 2011. These projects and other transportation initiatives underway during 2011 should improve our outlook for that business.

On the acquisition front, in May, we acquired three storage terminals in Mobile County, Alabama with a storage capacity of around 1.8 million barrels for approximately $44 million. These facilities have added to our fee-based business, and we have identified several new growth opportunities for the terminals since they were acquired.

In August, we announced we had entered into an agreement to acquire a 75% controlling interest in a joint venture in Mersin, Turkey. We had hoped to close this acquisition by December, but the closing process is taking longer than anticipated. We now expect to close the deal in the first quarter.

Purchase price for our joint venture interest is expected to be around $55 million. We expect the transaction to be immediately accretive to our distributable cash flow.

In regard to our EBITDA performance, NuStar Energy's 2010 EBITDA of $483 million was higher than the $461 million earned in 2009. In addition, all three business segments generated more EBITDA in 2010 than in 2009.

Our 2010 storage segment EBITDA of $256 million was not only higher than the $242 million earned in 2009, it was also the highest ever for the segment. Increased storage rates on existing storage contracts increased customer demand for storage services.

Incremental EBITDA generated by the Mobile acquisition and the completion of our ST. Eustatius terminal reconfiguration project contributed to this segment's increased EBITDA.

Transportation segment EBITDA of $199 million was also a record high and $9 million higher than last year. After excluding the impact of the pipeline asset sales completed in the second quarter of '09, total pipeline throughputs increased approximately 1% in 2010.

The increased throughputs, coupled with higher per-barrel pipeline tariffs as a result of increased throughput volumes on higher tariff long haul pipelines, contributed to the increased EBITDA in the transportation segment.

Our asphalt and fuels marketing segment EBITDA was $111 million, or $31 million higher than 2009. 2010 EBITDA in our asphalt refining and marketing operations -- in other words, the asphalt portion of the asphalt and fuels marketing segment -- was $74 million, or $4 million higher than last year.

Reduced asphalt supply in the Northeast for part of the third quarter and our asphalt marketing grew [separates] to increase higher margin rack set asphalt sales helped our 2010 asphalt results. Our rack set asphalt sales volumes increased 6.5% in 2010 compared to 2009.

Fuels marketing operations 2010 EBITDA increased to $37 million, $27 million higher than last year. These operations primarily benefitted from improved bunker margins and increased sales from some of our bunker and fuel oil markets during 2010.

A significant amount of our increased bunker and fuel oil sales was a result of the internal growth capital we spent at Texas City, Texas terminal redevelopment project.

Increased 2010 corporate G&A expenses, primarily due to increases in personnel cost and increased stock-based compensation expense and lower other income, mainly due to no significant asset sales in 2010, partially offset the year-over-year increases in segment EBITDA.

During 2010, we entered into several financing transactions to improve the condition of our balance sheet and to secure financing for future growth opportunities.

In May, we received $240 million in proceeds by issuing around $4.4 million common units of NuStar Energy. In August, NuStar issued $450 million of 4.8% senior notes.

The proceeds from both of these transactions were initially used to reduce outstanding borrowings under our revolving credit facility and to pay for our May terminal acquisition. However, longer term, these proceeds will be used to fund future acquisitions and our internal growth capital spending program.

During the last six months of 2010, NuStar received $235 million of low-interest-rate, tax-exempt Gulf opportunities, or GO Zone, financing proceeds from the St. James Parish in the state of Louisiana. These debt proceeds pre-fund a portion of the estimated construction costs associated with two large storage tank projects at our St. James, Louisiana terminal facility.

As of December 31, approximately $205 million of these debt proceeds had not yet been spent on the projects and were being held in escrow with a trustee. Estimated completion dates for these two projects are third quarter 2011 and third quarter 2012. Based on these estimated completion dates, a large amount of the funds could remain in escrow during 2011.

Consistent with previous years, NuStar once again had an outstanding safety and environmental performance in 2010. Our total recordable injury rate, or TRIR performance, was once again better than our peers' in the pipeline, terminal and refining industries.

Also consistent with previous years, we learned that Fortune Magazine ranked us 30th in their listing of the 100 best companies to work for in America, the third consecutive year we've been so recognized by Fortune Magazine.

We also received recognition in the state of Texas, being ranked third among large companies on the best companies to work for in Texas list, which will be published in the February issue of Texas Monthly Magazine. Our company's reputation was further enhanced by record amounts of community service by our employees.

Now turning to our fourth quarter 2010 results, I'm happy to report that NuStar Energy's fourth quarter 2010 EBITDA of $114 million and distributable cash flow available to the limited partners of $67 million were both record results for the fourth quarter.

Fourth quarter 2010 EBITDA of $114 million was $22 million higher than Q4 '09. All three business segments generated more EBITDA in the fourth quarter of 2010 than they did in the fourth quarter of '09.

Transportation segment fourth quarter 2010 EBITDA increased $3 million. Higher per-barrel pipeline tariffs, as a result of increased volumes on higher tariff long haul pipelines, more than offset the impact of the negative 1.3% July 1, 2010 [for] tariff adjustment and reduced throughput volumes.

Throughput volumes were down 5% during the quarter due to lower throughputs on our refined product and crude oil lines. Market economics incentivized some of our customers to sell refined products into the marine export market instead of transporting volumes via our refined product pipeline system where that option was available. Crude oil pipeline throughputs were negatively impacted by competing supply economics.

Fourth quarter 2010 storage segment EBITDA increased $9 million when compared to Q4 '09. Increased storage rates on existing storage contracts continued increased customer demand for storage services and incremental EBITDA generated by the completion of our St. Eustatius terminal reconfiguration project contributed to the segment's increased EBITDA.

Lower maintenance expenses also contributed to the storage segment's increased fourth 2010 EBITDA. Fourth quarter '09 tank maintenance and jetty maintenance activity at some of our terminals was much higher than in the fourth quarter of 2010.

Asphalt and fuels marketing segment fourth quarter 2010 EBITDA was $20 million higher than Q4 '09. Improved results in our asphalt refining and marketing, fuel oil and bunker fuels operations contributed to this segment's increased EBITDA.

Asphalt refining and marketing operation's EBITDA was $5 million higher than last year, mainly due to an increase in gross margins. Per-barrel gross margins increased to $6.70 in the fourth quarter of 2010 compared to the fourth quarter '09 gross margin per barrel of $5.34.

Our asphalt marketing group's efforts to increase higher margin Iraq asphalt sales volumes and favorable weather conditions in October and November contributed to these increased margins. Iraq asphalt sales volumes increased 4.5% this quarter compared to the fourth quarter of '09.

EBITDA in our fuels marketing operations increased by $15 million in the fourth quarter of 2010 when compared to Q4 '09.

Improved bunker margins and increased sales in some of our bunker and fuel oil markets contributed to the improved fuels market in fourth quarter 2010 results.

NuStar Energy's distributable cash flow available to the [limiteds] of $66.7 million for the fourth quarter of 2010 was $10 million, or 17%, higher than the fourth quarter of '09. The increase in fourth quarter distributable cash flow available to the limited partners was a result of a $22 million increase in EBITDA, partially offset by increased reliability capital spending and higher income tax expense.

Fourth quarter 2010 earnings of $0.65 per unit were $0.15, or 30%, higher than the fourth quarter 2009 earnings of $0.50 per unit and within our guidance range of $0.60 to $0.80 per unit.

In regard to our distributions, NuStar Energy's board declared a fourth quarter distribution of $1.075 per unit, which is $0.01 per unit, or around 1%, higher than the fourth quarter '09 distribution of $1.065 per unit. The distribution will be paid on February 14, 2011.

Distributable cash flow available to limited partners cover the distribution to the limited by 0.96 times for the fourth quarter of 2010 and 1.04 times for the year ended December 31.

The Board of Directors of NuStar GP Holdings declared a fourth quarter distribution of $0.48 per unit, which is $0.045 per unit, or 10.3% higher than the fourth quarter 2009 [distributes]. The NuStar GP Holdings distribution will be paid on February 16, 2011.

Taking a look at our fourth quarter 2010 corporate expenses, G&A expenses were $33.9 million, $6.7 million higher than last year and higher than the fourth quarter guidance of $27 million to $28 million. The increase is due primarily to higher stock-based compensation expense.

NuStar Energy's unit price increased $7.75 per unit, or close to 13%, in the fourth quarter of 2010. Interest expense for the fourth quarter was $20.2 million, up $1.4 million from last year, primarily as a result of our [issuance] of $450 million of 4.8% senior notes in August.

As we move into 2011, we expect our first quarter 2011 EBITDA to be in the range of $80 million to $100 million. Our storage segment EBITDA should be $5 million to $10 million higher than last year's first quarter due mainly to incremental EBITDA from the Mobile, Alabama acquisition and the 2010 completion of St. Eustatius terminal internal growth project. EBITDA in our transportation and asphalt and fuels marketing segments should be comparable to the first quarter of 2010.

Earnings per unit applicable to limited partners for the first quarter are expected to be in the range of $0.15 to $0.35. First quarter 2011 operating expenses are expected to be around $125 million to $130 million, G&A expense in the range of $26 million to $27 million, depreciation and amortization around $39 million to $40 million and interest expense $20 million to $21 million.

For the full year 2011, we expect EBITDA to be higher than 2010, driven primarily by incremental EBITDA generated from the internal growth projects in our storage segment.

Our transportation segment should benefit from the recent FERC decision to increase the pipeline tariff rate index escalator from 1.3% to 2.65%. The estimated second quarter 2011 completion of the Eagle Ford shale project for Koch Pipeline Company should also provide additional EBITDA to the segment.

However, those projected benefits should be more than offset by lower pipeline throughputs in 2011. Increased customer refinery turnaround activity and change in market conditions should cause transportation segment's throughput to be down approximately 4% in 2011. As a result, our transportation segment EBITDA is projected to be $5 million to $10 million lower in 2011.

Storage segment EBITDA should increase by $30 million to $40 million. The segment should realize a full year of EBITDA from the Mobile, Alabama terminal acquisition and the St. Eustatius terminal internal growth project.

In addition, EBITDA benefits from the completion of a $3.2 million-barrel tank expansion project at our St. James, Louisiana terminal should begin in the third quarter of 2011. The storage segment should also benefit from incremental EBITDA generated by our Turkey terminal acquisition.

2011 EBITDA in our asphalt and fuels marketing segment should be slightly higher than the $111 million earned in 2010. We expect asphalt margins to improve over 2010 as demand begins to improve in 2011.

Small increases in both public highway demand and private residential demand, driven by an improving US economy, should contribute to improved margins. Tighter asphalt supply due to a coking unit coming online in the Midwest in late 2011 should also contribute to improved margins.

Our fuels marketing operation should benefit from a full year's worth of EBITDA from the new US heavy fuels and bunker fuels markets we entered during 2010.

Reliability capital spending for 2011 should total $50 million to $55 million, comparable to the $54 million we spent in 2010. 2011 strategic capital spending should fall in the range of $330 million to $350 million, higher than the $219 million that was spent last year. We feel that additional strategic capital projects could be identified during 2011, which would cause our strategic capital spending to increase above this range.

It should be noted that a substantial amount of the 2011 strategic growth capital will be spent on projects at our St. James and St. Eustatius terminals and will not begin generating EBITDA until 2012.

As usual, we are not providing specific guidance related to NuStar Energy's 2011 distribution growth. However, based on our current projections, we feel that 2011 distribution should exceed a 1% distribution growth rate of 2010.

As more internal growth projects come online in 2012, we should generate additional distributable cash flow allowing us to increase distributions further.

In closing, I'm pleased with our 2010 accomplishments and the fact that we were able to end the year with a record fourth quarter EBITDA performance. Based on our current internal growth plans, we expect 2011 results to be higher than 2010's. As we move through 2011, we hope to identify even more growth projects and acquisition opportunities to further enhance our future results.

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

Question-and-Answer Session

Operator

(Operator Instructions). We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Brian Zarahn - Barclays Capital.

Brian Zarahn - Barclays Capital

Can you give a little color about what's behind the delay in the Turkey JV closing?

Curt Anastasio

It's been different answers at different points along the way. First, we had some delays in the permitting process, which have now been resolved. There were some, what I call, corporate reorganization to be done by our JV partner to get the JV in a proper form for the new JV. That took a little longer.

Then we ran into some Turkish holidays and a little bit of -- because this time has gone by, we ended up tweaking negotiation of some issues here and there. But fundamentally, we end up in the same place we always expected to be with a very good deal and what I am hoping at this point is that we close by next week.

If this go well this week with the final stages of talks we need to do this week, we should close this by next week.

Brian Zarahn - Barclays Capital

Then I'm assuming the capacity expansion plans are on track for the JV.

Curt Anastasio

Yes, the ones that we reviewed previously are all on track, yes.

Brian Zarahn - Barclays Capital

I guess a little higher level -- given the turmoil in Egypt, are your emerging market expansion plans, not the Turkey JV, but continuing to expand in emerging markets, has that changed at all?

Curt Anastasio

No, it really doesn't. I think there's more we can do in the Mediterranean region. Obviously, we're cautiously watching the situation like the rest of the world but really at this point it doesn’t change our development plans at all.

Brian Zarahn - Barclays Capital

Final question, at your analyst day you talked about a potential 6 million to 8 million barrel expansions of St. Eustatius down the road. Does the expected expansion [at Boreco] have an impact on your expansion plans at St. Eustatius?

Curt Anastasio

No, not at all. In fact, we've warmed up to the idea even more in the months since then and we're more optimistic than ever that an expansion of that order of magnitude will be done at St. Eustatius. So that's our plan right now. We're still scoping our engineering, firming up deals with customers and that's -- more than ever, that's on track, so I'm more confident than ever that we'll do that expansion.

That's -- roughly, we're anticipating something like maybe a seven times EBITDA expansion, which is pretty attractive when you consider the multiple that was paid in the recent [Boreco] deal. So we're pretty happy with the expansion plans that are shaping up right now.

Operator

Your next question comes from the line of Xin Liu - JPMorgan.

Xin Liu - JPMorgan

Just wondering if you can give more color on your throughput for your transportation segment down 4% year over year, what drove that, more detail?

Curt Anastasio

Yes, we had some -- I’m going to turn this over to Danny Oliver who is in charge of the business development group. He covers pipelines as well but I'll just give you my high-level reaction to it.

We did, as I mentioned in my notes, which you might have caught, we had some customers who had some marine export options that were more attractive than moving by pipeline to some Gulf Coast locations that we had.

Then, as crude patterns turned around, what you may have noticed recently, there has been a very unusual dislocation of WTI, West Texas Intermediate price versus crudes in the rest of the world and that incentivized some of our crude pipeline shippers to change some of the things they would do under more normal market conditions, take advantage of that fact and get more cushing barrels to the extent they could into their plants. So that very unusual situation where you have $10 plus difference between Brent and WTI is certainly one.

One of the things that's nice about that is it helps our St. James story of getting crude like bock and crude down to St. James because when you look at the differential of LOS to TI, that's really widened out the cost of that WTI problem sort of cushing centered logistics problem. So those are some things that come to mind and I probably stole Danny's story there but sorry, Danny. Go ahead.

Danny Oliver

No, I'm with you. I think the first thing you hit on some of our refiners in Corpus going to export markets, really, that effect coming off our pipeline to Houston more than accounted for the entire chain in the fourth quarter. So the others are some pluses and minuses that also occurred, but that equated to the entire -- .

Unidentified Company Participant

To add a little more color to it, as you all know if you've followed us for a while, our pipeline segment has been stable and steadily growing from all kinds of conditions since we IPO'd 10 years ago. It's really been our most stable, I would say, asset with more of the growth being in storage but great stability being in the pipeline.

Last year we went through this thing of guiding down slightly on the pipeline business and we ended up far overshooting our target, far exceeding what we thought we were going to do. This year, these are the issues. We presented the issues to you that we see right now. Whether they endure over all of 2010, I don't think it's certain as we sit here at the end of January.

So I think there's probably more upside than downside to the pipeline segment story just like there was last year. There turned out to be more upside than downside when we gave you an early -- our best judgement early in the year.

As we say, we're teeing up these Eagle Ford projects to improve the outlook for that business a little bit in 2011 but that really comes through in 2012. So I'm not overly concerned about short-term hiccups in pipeline throughputs given the longer-term outlook we have for that business segment and how it's performed historically.

Danny Oliver

I might add that this one pipeline to Houston, this one that is slated to be moved into Eagle Ford's service, so as it's affecting us negatively now we anticipate filling and probably expanding this line in the very near future.

Xin Liu - JPMorgan

Also, you mentioned that there is a major coker project that is coming online late this year. I remember in your analyst day, actually, there were a couple major projects coming on second -- first half of this year. Are those projects -- got delayed?

Curt Anastasio

Mike Hoeltzel is here to answer that and go ahead, Mike.

Mike Hoeltzel

Yes, we still see that ConocoPhillips Wood River project in the fourth quarter of 2011 and then we see the projects in the midwest including the BP Whiting in Marathon, Detroit coker projects coming on in 2012.

Xin Liu - JPMorgan

The [Port other one], what's the status of that?

Mike Hoeltzel

In Motiva, Port Arthur is coming on in 2012 also -- .

Xin Liu - JPMorgan

Atofina -- the Atofina Port Arthur project?

Mike Hoeltzel

Yes, Atofina, is coming on first quarter this year is what we have.

Operator

Your next question comes from the line of Darren Horowitz - Raymond James.

Darren Horowitz - Raymond James

Curt, I'm curious as to your thoughts regarding pricing around a lot of the different heavy rates of crude. I believe there was an announcement out this week with Mexico potentially cutting back on Maya blend crude shipments into the Gulf Coast by about 100,000 barrels a day once that Pemex expansion of the Michelin refinery is completed.

I would imagine that would pressure coking economics and I'm just curious as to your thoughts as you get ready for paving season.

Curt Anastasio

I'm going to let Paul comment for our heavy crude price. But the coking economics are pretty healthy right now in terms of the margin. Those with the ability to do that are really incentivized to run those cokers as much as they possibly can. But you quite properly raise the issue of the availability of the heavy crude supply. Paul, do you want to comment on that?

Paul Brattlof

Yes, mainly PADD two is what we track quite a bit and the wide margins up there for the Canadian crude to come down are there but it's very similar to production of asphalt when it's created. It's very similar than it was last year. So it's not going to make that big of an impact on us mainly in the mid continent. We're allowed the competition from them.

Darren Horowitz - Raymond James

Then, Curt, just looking at the DC Contango trade that benefitted fuels marketing, you mentioned the slight improvement in asphalt margins for 2011 and I'm just curious how much visibility you guys have into higher margins specifically for the Palmer Modified, some of the specialty asphalt products this year. I'm trying to get a sense for what you think byproduct demand is going to be.

Curt Anastasio

Yes, we started on the Palmer Modified in the specialities. We have really ramped up our [buying] on PMA. I think, Mike, it was close to -- what -- half your [inaudible]. I'm not sure how to -- I don't have it right in front -- it's increased quite a lot compared to what it was.

Then we had this war make products, which is still small buyouts but percentage wise I think it doubled this year.

Mike Hoeltzel

It's up to about 20% in total.

Curt Anastasio

But in terms of visibility on the margin, I think the question is on the margin for those projects as we go into 2011, what the margin outlook looks like for those.

Mike Hoeltzel

Well, I think the outlook is positive for us. We're one of the few refiners and producers of asphalt that do produce the special grade products. We're not the only ones -- we're also isolated on the east coast. We're buying over to ship specialities into that area. It's a little bit difficult, so we do have some protection from that.

Right, we've got the [roadsides] [inaudible] kicking in, too. We expect that to really start up this year. I think a [bind] that we're looking at in that arena is about 0.25 million barrels to start off with. So we expect that to grow as they're more successful in getting the state to specify the special [inaudible].

Darren Horowitz - Raymond James

Then final question for me, Curt, and maybe either for Curt or for Danny, a little bit more color if you could on any sort of additional transportation storage assets in South Texas that you consider linking into this existing coke initiative.

If I recall correctly, I think you have five or six lines that went through the Eagle Ford and the Niobrara field, so you could get some synergistic uplift there. I'm just wondering when you stack all those together, what is the associated total cost and then the expected return because I'd imagine it would be a pretty nice return?

Danny Oliver

It is. We have -- you're right. There's about five or six lines that we have going through all of those fields, not just in Texas. So we have long-term [inaudible] in Niobrara that touches that field, one that touches the Barnett field. We're working projects on both of those.

Then down in South Texas we've mentioned the coke project. We've got that project under construction now and, as Curt mentioned, should go into service in 2Q of this year. But there's also an expansion case on that pipeline. We're already working on that. That would expand it from 30,000 to 20,000 barrels a day.

We've got what we call the Houston 12 inch. It's right now a products line that goes from Corpus to Houston. That's about a 100,000 barrel a day line that's doing 10,000 barrels a day maybe now. We expect that line to be full and we'll probably have to look at an expansion case on that line as we put that project together.

Then we've got a couple other lines moving around from basically Three Rivers area to Corpus that we're working projects on filling those lines as well and maybe changing the direction of service. So there's a lot to work on in Texas, but we've got a couple in Colorado and North Texas as well.

Operator

Your next question comes from the line of Joseph Siano - Credit Suisse.

Joseph Siano - Credit Suisse

So I guess just first to follow up on Darren's question on the transportation side, maybe to ask it again in a different way. I think at the analyst day you mentioned total pipeline capacity touching the oil shales of over 200,000 barrels per day with current volumes of around 50,000. I was just wondering if that's still around the same volumes or are you filling those -- or how are you looking at filling those pipes?

Steve Blank

It's at least the same. I think that 200,000 -- if I had to guess right now we probably will be looking at expansion cases that would increase the 200,000 side of that equation.

Joseph Siano - Credit Suisse

Because you have the demand for it.

Steve Blank

Because we have the demand for it. But, yes, it's the same pipelines until we got busy on these projects. We're doing about 50,000 a day but [that'll] still see 200,000 plus being where we end up.

Joseph Siano - Credit Suisse

Is any of the expansion capital around there included in the budget and how much volume increase around the shales is included in the 2011 budget?

Steve Blank

There's not a lot in 2011. Some of the projects we're working on but they're still not really defined will be the ones that take more capital. A lot of these pipelines, they exist. So it's just a matter of maybe reversing or adding a pump here or there or a small connection. The capital is not that high on these early projects. So the returns are very high on these projects.

Joseph Siano - Credit Suisse

Then one quick -- .

Steve Blank

I think Curt alluded to we may have more projects than what we have in our budget coming online in 2011 and these shale plays are certainly -- will be part of that.

Joseph Siano - Credit Suisse

So I guess as you look to potentially expand the budget, are you still assuming no equity financing in 2011 or how much CapEx would lean you toward -- .

Steve Blank

Our budget assumes no equity issuance for 2011.

Joseph Siano - Credit Suisse

How much CapEx -- do you feel any incremental CapEx to your budget you feel you can take on without -- or are you comfortable with without -- ?

Curt Anastasio

No, I think it wouldn't take a lot of extra capital before we would want to raise some equity [inaudible] our debt to EBITDA, so it wouldn't take a lot, maybe $50 million, $75 million more of capital we might look at doing a small equity raise.

Joseph Siano - Credit Suisse

Just to circle back quickly to follow up on the Turkey -- what is your current guidance assuming in terms of when that acquisition starts contributing -- when it closes and contributes?

Steve Blank

It contributes right away. There's no -- even if we close it.

Joseph Siano - Credit Suisse

So in guidance you baked in some of the potential delay.

Steve Blank

I don't think we put it in our guidance.

Curt Anastasio

It's not in our storage segment guidance right now we've given you.

Steve Blank

$30 million to $40 million does not have Turkey in it but as soon as we close it we can probably give you some guidance.

Joseph Siano - Credit Suisse

Then finally, on the -- .

Steve Blank

By the way, the capital associated with Turkey doesn't lead us to raise equity, so that's not the $50 million or $75 million I was alluding to.

Joseph Siano - Credit Suisse

Finally, can you just comment broadly on any acquisition opportunities you may be seeing and where?

Curt Anastasio

Yes, there's a lot. I'm sure you all have noticed that the majors have started to divest logistics assets here and there. There's been some BP packages, ConocoPhillips packages, really all the majors you can think of have started to, I would say, dribbling out packages of logistics assets for consideration.

There's really a lot of maybe more under-the-radar deals like we have found in Turkey that are out there if you do the leg work necessary to root them out, which we are doing. So, again, I think there's ample acquisition opportunities.

We've just got to find the right ones that fit our strategy and that we're comfortable financing and meet our financial criteria, so I think this is a year where you'll see us do acquisitions. I'm pretty confident of that. But we're not going to rush into a bad deal, of course. But I think it's one where I can say I'm confident that you'll see us add some acquisitions this year. It's a favorable environment. There's a lot of stuff on offer for us to consider.

Operator

Your next question comes from the line of Michael Blum - Wells Fargo.

Michael Blum - Wells Fargo

Just a couple of questions -- one, maybe just a clarification on your guidance for the transportation segment, what are your expectations on the refined products side of the pipeline business? I think you covered the crude oil side pretty well but what do you see going on in the refined products side?

Curt Anastasio

Well, just to clarify, in my portion, when I said $5 million to $10 million of EBITDA down, that was crude and refined products both, so let me just clarify that. But, Danny, do you want to focus -- ?

Danny Oliver

Well, I think this Houston 12 inch that we've talked about already this morning, that's a big part of it. We don't see that really coming back in any significant way throughout the course of 2011 as we continue to work a project to put that in a different service.

So that's going to be part of it. Now, I would say it's at least half of our guidance in 2011 and the other half is crude.

Unidentified Company Participant

There's also some turnarounds in the first quarter and [inaudible] that's baked into the guidance we gave you. But that's also [a following exchange] year over year. I guess the [amonia] lines had a great year but remember we [inaudible].

Danny Oliver

We show just a slight reduction from 2010 because 2010 was a record year. We're still showing a very strong year, just not another record.

Michael Blum - Wells Fargo

So from a demand -- just from a pure market demand perspective, would you say you think we've seen the bottom and we're trending upward, from a demand perspective?

Danny Oliver

There was about a 1% increase in 2010 and we're expecting that same kind of result, 1% to 2% into 2011.

Michael Blum - Wells Fargo

Then the second question is just if you had any update on your perspective for federal spending, for paving projects and the like, I guess both federal and at the municipal state level, how you think that's going to look in 2010, '11 and '12.

Curt Anastasio

Well, there's still more stimulus money or ARRA money to be spent, particularly in our markets. I think we have -- what -- $5 billion we're estimating to be spent in 2011. They've spent about $6.3 billion of the $11.3 billion and our markets have lagged a little.

So, in other words, unfortunately, the markets that we're in, we'll see more of that and then, of course, with the new congress we have to look at what's going to happen with the highway trust fund. I think they'll continue on until they get to the point where they have to make a decision about expansion of it. But we've assumed similar amounts of funding going forward on that.

What we think is going to happen for asphalt is a slight increase in demand in 2011. Even in the absolute worst case where the government funding really drops a lot, the worst case is pretty close to flat with 2010. That's the worst case that we don't think is going to happen.

The probable case, when we've looked at all the federal, state and local situations, the probable case is a slight uptick in spending and in demand and you get some economic recovery in the private sector side. We think there's going to be more private construction, commercial, residential in parts of the country like here in Texas you've seen residential rental pick up quite a lot with apartment complexes being built and that helps demand.

So that gives you some color on it. I think, maybe Paul, you might want to -- .

Paul Brattlof

No, I'll just say as long as congress -- even if they do not pass a highway trust fund bill, a continuous resolution will continue at 2010 levels throughout the years. The 1% growth I think you're talking about is the recovery of the economy and [inaudible].

Operator

(Operator Instructions). Your next question comes from the line of Michael Cerasoli - Goldman Sachs.

Michael Cerasoli - Goldman Sachs

Can you remind us what oil price is embedded in your asphalt guidance?

Curt Anastasio

I think -- are you talking about TI?

Michael Cerasoli - Goldman Sachs

Yes, TI is fine.

Unidentified Company Participant

I think we're saying 85 to 90.

Curt Anastasio

That's average, yearly average.

Unidentified Company Participant

Yearly average, but we even guide -- we can see it's obviously trending up here. We're expecting potentially in the second half of the year it can maybe go up as high as 100, 105.

Michael Cerasoli - Goldman Sachs

Then just going back to the asset acquisitions, I’m just curious to know if the delayed closing in Turkey -- has that impacted your views on international asset acquisitions if at all?

Curt Anastasio

No, it hasn't. It really hasn't. We had some issues that were very specific to that deal but so the answer is no.

Michael Cerasoli - Goldman Sachs

Then my final question would be on the [Boreco] assets that were sold recently. Were you a participant? Did you try to get those assets or is that -- [can any of you] just shed some light on -- ?

Curt Anastasio

Well, we took a look at it like we look at a lot of -- we did take a look at it and we came to an internal value that we were comfortable with, which was I would say significantly lower than what it actually traded for. But we had -- part of what drives our answer is we have, we think, a much better option on expanding [Statia] out to 8 million barrels a day on much more accretive terms than paying up for something else in the Caribbean like that. So we just -- we got comfortable and we just have a much better option than that.

Operator

Your next question comes from the line of [Fez Eagle] - Credit Suisse.

[Fez Eagle] - Credit Suisse

Curt, can you just expand on the acquisition question just a little bit more just in terms of -- I sort of recognized that there's a bigger supply out there in terms of potential candidates for acquisitions. But it also seems, as you just described, that the multiples being paid for some of these assets are pretty high.

So as you think about the opportunity set in front of you, are you looking more internationally or do you also think that there may very well be domestic opportunities in light of your comment that you were pretty optimistic that you would be able to consummate some stuff in 2011?

Curt Anastasio

Well, we're looking in both the US and internationally. But you see what's happened to us. We just are in the final mile of doing an international one but we also did a US acquisition last year in Mobile. But I know what you're saying.

Acquisition prices can get very frothy and there's a lot more MOP than there used to be and all of them show up at auctions and all of them tend to bid up the price to the absolute last penny that you'd want to pay for it. So you won't see us there.

You won't see us at those frothy acquisitions and so we'll I guess happily miss some of those deals. But we'll find others. I'm confident we will. As I said, I do think there's a high probability you'll see us doing acquisitions this year but not ones in that category.

Operator

There are no further questions in the queue at this time.

Curt Anastasio

Thank you, Operator. I would like to thank everyone for joining us today. If you have any additional questions, please call NuStar's investor relations. Thanks and have a great day.

Operator

This does conclude today's conference call. You may now disconnect.

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