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NuStar Energy L.P. (NYSE:NS)

Q3 2011 Earnings Call

October 28, 2011 11:00 am ET

Executives

Chris Russell - VP, IR

Curt Anastasio - CEO, President and Director

Paul Brattlof - SVP, Trading and Supply

Danny Oliver - SVP, Marketing and Business Development

Steve Blank - SVP, CFO & Treasurer

Mike Hoeltzel - SVP, Corporate Development

Analysts

Paul Jacobs - Raymond James

Yves Siegel - Credit Suisse

Brian Zarahn - Barclays Capital

John Tysseland - Citi

Louis Shamie - Zimmer Lucas

Andrew Gundlach - Arnhold & S. Bleichroeder Advisors

Selman Akyol - Stifel Nicolaus

Michael Cerasoli - Goldman Sachs

Michael Blum - Wells Fargo Securities

Jeremy Tonet - JPMorgan

Operator

Good morning. My name is Alley 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 conference call. All lines have been placed on mute to prevent any background noise. (Operator Instructions). I would now like to turn the conference over to your host Mr. Chris Russell. Sir you may begin your conference.

Chris Russell

Good morning everyone and welcome to our conference call to discuss NuStar Energy L.P. and NuStar GP Holdings LLC’s third quarter 2011 earnings results. 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 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 subjecting to the 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. Non-GAAP financial measures should not be considered as alternative to GAAP measures. Reconciliation of these non-GAAP financial measures to US GAAP maybe found either in our earnings press release or on our website.

Now, let me turn the call over to Curt.

Curt Anastasio

Good morning and thanks for joining us. NuStar’s third quarter results were significantly higher than the guidance we provided late in July. Higher than expected long haul volumes on some of our refined product pipeline, reduced maintenance expense in our transportation and storage segments and lower stock compensation expense, all contributed to our stronger than anticipated quarter.

In addition our asphalt and fuels marketing segment benefited from a $6 million crude oil pricing adjustment under our crude supply agreement with PDVSA, the Venezuelan national oil company. This contract adjustment serves to keep our actual crude acquisition costs in line with a market reference price. The cost of our crude purchases from PDVSA exceeded this market reference price, so we reduced our third quarter cost to sales by the amount of net access.

During the quarter NuStar Energy generated $139 million of EBITDA which was higher than the $131 million earned in the third quarter of 2010. EBITDA results in our storage and transportation segments were higher than last year while results in the asphalt and fuels marketing segment lagged last year’s quarterly results.

Our storage segment earned $71 million of EBITDA, $6 million higher than the third quarter of 2010. The fourth quarter 2010 completion of the St. Eustatius terminal reconfiguration project, the third quarter 2011 completion of the Phase I storage expansion project at our St. James, Louisiana terminal, higher storage rates on existing storage contract as well as increase demand for storage services by new and existing customers all had positive impact on the segment’s EBITDA.

The recently completed St. James expansion project increased the storage capacity of that facility by 3.2 million barrels. Total storage capacity at St. James is now around 8 million barrels making St. James NuStar’s largest domestic storage facility.

Transportation segment EBITDA of $51 million was slightly higher than the $50 million earned in the third quarter of 2010. Higher pipeline revenues as a result of the 6.9% July 1 tariff adjustment and additional revenue generated by the Eagle Ford shale projects completed for Koch pipeline and for Valero Energy in the second and third quarters of 2011 more than offset the impact of reduced throughput volumes.

Refined products pipeline throughputs were down by less than 1% compared to the third quarter of last year. Turnaround activity and unplanned downtime at some of our customer’s refineries were the main causes of the lower throughputs. However, these lower throughputs were almost entirely offset by increased throughputs as a result of higher refinery utilization rates than other customer refineries due to strong Midwest refining margins.

Crude oil pipeline throughputs were down 17% this quarter versus third quarter last year. Operating issues at one of the customer’s refineries and the impact of competitive supply economics negatively impacted throughputs on the crude pipeline system.

But even though crude oil throughputs were down from the third quarter of 2010 they were more than 35,000 barrels per day or 13% higher than the second quarter of this year. Incremental throughputs from the completion of our Eagle Ford Shale pipeline project with Koch placed in service in late June and then with Valero placed in service in late September contributed to the increased throughput.

The asphalt and fuels marketing segment generated $32 million of EBITDA during the quarter, $9 million less than the $41 million of EBITDA earned in the third quarter of last year. The asphalt operations portion of that segment earned $9 million in EBITDA during the quarter compared to $34 million last year. Weak demand for asphalt put downward pressure on gross margins in the asphalt operation.

In addition, asphalt produced primarily by Midwest refiners from lower cost WTI price-based crude oil has been making its way to the East Coast putting additional downward pressure on our margins.

Our San Antonio refinery purchased in May of this year contributed $4 million of EBITDA during the quarter. Fuels marketing operations EBITDA increased to $19 million higher than the $7 million generated in the same quarter last year. Increased margins and sales volumes in our crude oil trading, bunkering and heavy fuels businesses contributed to these higher results.

Taking a look at our third quarter 2011 corporate expenses, G&A expenses were $18 million, $9 million lower than last year and the expense reduction was mainly due to lower stock-based compensation expense.

Interest expense for the quarter was $22 million, up $1 million from last year, mainly due to the issuance of $450 million or 4.8% senior notes in August 2010. NuStar Energy’s distributable cash flow available to the Limited Partners of $80 million for the third quarter was $4 million less than last year's third quarter. This was because our increased EBITDA in the quarter was more than offset by mark-to-market adjustments relating to derivatives activity.

In regard to our third quarter distribution, NuStar Energy’s Board declared a distribution of $1.095 per unit. The distribution will be paid on November 14th. Distributable cash flow available to Limited Partners covers the distribution to the Limited Partners by 1.13 times for the third quarter. The Board of Directors of NuStar GP Holdings declared third quarter distribution of $0.495 a unit, the GP Holdings distribution will be paid on November 16th.

As we move into the fourth quarter, we continue to work on our previously announced Eagle Ford Shale project plus several new potential projects in the Eagle Ford and other Shale areas. We expect to formally announce a couple of these projects prior to the end of the year.

In addition, work has begun on the crude oil offloading facility being constructed for EOG Resources at our St. James, Louisiana terminal. The 70,000 barrel per day offloading facility should be in operation late in the second quarter or early in the third of 2012.

We previously announced that starting in 2012 our asphalt operations plant will begin processing 10,000 barrels per day of lower cost Peregrino Crude produced offshore Brazil. Discussions are also being held with Canadian crude oil producers regarding NuStar purchasing lower cost Canadian crude oil supplies for the 2012 asphalt season. We feel confident we will be able to process some Canadian barrels at our Paulsboro refinery into 2012.

With regard to earnings in the fourth quarter, EBITDA should be in the range of $90 to $100 million, while our earnings per unit applicable to Limited Partners should in the range of $0.20 to $0.30 per unit.

The storage segment’s fourth quarter results should be higher than last year, mainly due to the recent completion of the St. James Phase I storage expansion project. Our transportation segment results are expected to be lower than last year’s fourth quarter. The earnings benefit from some recently completed pipeline projects and higher tariffs should be more than offset by lower pipeline throughput due to turnarounds at several customer refineries.

We expect the asphalt and fuels marketing segment fourth quarter results to also be lower than the same quarter last year. Even though our San Antonio refinery should continue to generate EBITDA and our fuels marketing operations results should be improved. Projected losses in our asphalt operations could cause this total segment results to be closed to breakeven or even negative in the fourth quarter of 2011. Continued weak demand and lower gross margins for asphalt compared to fourth quarter of last year are putting pressure on our asphalt operation results.

Fourth quarter G&A is expected to be in the range of $30 million to $31 million, depreciation and amortization around $43 million to $44 million and interest expense $20 million to $21 million.

For the full year 2011, we expect NuStar’s EBITDA to be comparable to 2010. However, recall that 2010 included a $13.5 million insurance settlement payment relating to Hurricane Ike damage at our Texas City facility.

Storage segment 2011 EBITDA should increase by $20 million to $30 million while EBITDA in our transportation segment is still projected to be $5 million to $50 million lower in 2010. EBITDA on our asphalt and fuels marketing segment is projected to be comparable to the $111 million earned in that segment last year.

Reliability capital spending for 2011 should total $55 million to $60 million while strategic capital spending should fall in the range of $305 million to $315 million. Spending on a couple of our strategic capital projects, previously projected in 2011 well actually would be spent in 2012, causing 2011 spending guidance to be slightly lower than previously communicated.

After concluding two acquisitions from earlier this year, total 2011 capital spending related to strategic capital and acquisitions should be around $410 million.

We are currently in the process of finalizing our 2012 through 2016 strategic plan as well as our 2012 budget. The strategic plan and the budget will be presented to the NuStar Energy and NuStar GP Holdings’ Board of Directors in the next couple of weeks.

More detailed segment guidance will be provided after our strategic plan and budget have been approved. However, based on current draft 2012 EBITDA results are projected to be $40 million to $60 million higher than 2011. 2012 and 2013 EBITDA should benefit from the over $300 million of strategic capital we expect to spent in 2011 plus an additional $350 to $400 million of strategic capital we expect to spend in 2012.

The major project expected to be brought online in 2012 and 2013 as a result of this expenditures include construction of a new pipeline and re-activation of existing pipelines in Eagle Ford Shale, construction of a crude oil railcar offloading facility and new storage at our St. James, Louisiana terminal and new additional storage at our St. Eustatius terminal facility in the Caribbean.

These major 2012 and ‘13 projects, plus the projects we completed in 2011 should contribute significantly to our future EBITDA growth.

So at this time let me turn it over to the operator so we can open up the call for questions and answers. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from Paul Jacobs with Raymond James.

Paul Jacobs - Raymond James

Yes. The first question is related to the stock changes, what type of marginal improvement would you expect from those if you did switch to Italian and Canadian base crude?

Curt Anastasio

Yeah, you get, you know a little bit lower cost but also the part of the value to better yield -- better yield value and Paul Brattlof was here from the crude supply on that (inaudible) side, Paul, do you want it address it further?

Paul Brattlof

It’s a couple of dollars a barrel lower than some of our stuff we have now. But it does change around on a formula base.

Paul Jacobs - Raymond James

Okay. Thank you for that color. And then, in addition to that the St. Eustatius terminal, I believe you guys were looking at about 10 million barrels of incremental capacity addition there. If that were to happen what would the likely timing on that be and how would that play out?

Curt Anastasio

We are still evaluating that project, so it’s still a very much a live option and was not reflected in the strategic capital numbers except for the additional expense that I mentioned. It’s not reflected in the numbers I gave you, but we are not done with that at this point, you know, but that would be starting 2014. But Danny Oliver is here who runs the marketing business, development side. Danny, do you want to comment on that?

Danny Oliver

Yeah, that's right. It’s -- the project is what we are currently seeing is that would phase in over the course of the year in 2014, so we would start to see EBITDA, but not a full rate until the end of that year.

Paul Jacobs - Raymond James

Okay. Great. And then related to transportation segment on that new 12-inch line, the 55 mile line to Three Rivers, do you guys have a throughput number on that?

Curt Anastasio

Well, not really it’s -- we've got a T&D agreement on that line, but it’s with one customer. So we can't probably get into too much of the details there, but we will give you so, you know this Eagle Ford pipeline project, in other words the South Texas Oil Shale play that we are working on right now, I think we have given sort of overall capital investment, order of magnitude incrementally would time that. Have we, Chris?

Chris Russell

Yeah.

Curt Anastasio

So, maybe we can remind people of that here because this new 55-mile pipeline is part of that overall guidance we’ve given.

Steve Blank

Yeah the guidance we’ve given so on Eagle Ford plays, the guidance is about a $120 million for the capital, that’s three different projects, we’ve also said that you know when we get all these projects completed, we think we will be through putting about 250,000 barrels a day of crude out of the Eagle Ford Shale area.

Operator

And your next question comes from Yves Siegel with Credit Suisse.

Yves Siegel - Credit Suisse

Could you discuss how you are thinking about financing going forward and sort of leverage metrics?

Steve Blank

Yeah the leverage, the debt-to-EBITDA at the end of the third quarter, it was 4.45. That will likely come down by a little bit in the final quarter of the year as we come out of the asphalt business and lower our inventories and therefore our debt. We’ve got a preliminary budget CapEx for next year that Curt mentioned that increased 350 to 400 total range. So at some point in the next 12 months we’ll probably do some equity to help finance the overall CapEx and the last time we issued equity was in May of 2010. So between the spend this year and the draft budget that we’re going to present and finalize with the board in about two weeks time, we’ll suggest the need for equity over the next 12 months.

Yves Siegel - Credit Suisse

Steve, when the credit agencies analyzed the balance sheet, how do they take into account working capital, do they adjust for that at all?

Steve Blank

Yes, they do, I mean they don’t have a specific formula but I think they look at a portion of our debt as self-liquidating. We have about $600 million of inventory on the balance sheet at the end of the quarter. So I think yes, they do take into account the seasonal aspect of the business which principally is on that asphalt side. So I don’t think they count, I can't speak for them, but I don’t think they count dollar for dollar of that $600 million through the whole year.

Curt Anastasio

So there’s a little waive over in there.

Yves Siegel - Credit Suisse

And then just to wrap up on our end, two fold, how do you think about the acquisition opportunities out there and so anywhere to sort of handicap the organic growth opportunities if there’s a backlog type of analogy in terms of the project set that you’re looking at?

Curt Anastasio

The acquisition market looks to us like it’s gotten more and more pricy. Now we want to stay opportunistic and stay in that game and we will continue to look at acquisitions but we’ve really got a full plate of internal growth and very attractive returns, more attractive than we see people doing acquisitions there.

So I really think and that’s what I talked about in my remarks, some of what our strategic capital is going to be and there’s probably more to come, I mean there will be more to come, whether at St. Eustatius or other projects because we’ve got a big backlog of very good ideas on internal growth and that’s really our emphasis for 2012, but we want to stay strong enough and nimble enough to do acquisitions that are attractive as they come along, but we are really focusing on optimizing what we have and growing what we have.

Yves Siegel - Credit Suisse

Is it fair to say that $300 million sort of growth CapEx run rate might be sustainable for the next several years.

Curt Anastasio

Yeah I mean if not more so, and that’s what I am saying I mean the potential there is to the upside on that.

Steve Blank

Yeah I mean I think we have got projects underway right now for Eagle Ford and St. James for their expansion which as Curt suggested 350 to 400 next year and some of those projects will slip into the following year, but if we pursue St. Eustatius, that’s pretty big dollar So I think easily we could be at the 300 level for the next three years.

Operator

Your next question comes from the line of Brian Zarahn of Barclays Capital.

Brian Zarahn - Barclays Capital

On your asphalt business, you mentioned the $6 million benefit in the quarter, can you remind us how often those price adjustments take place during the year?

Curt Anastasio

Well and that particular one has happened a couple of times under a clause that we call the LMA clause, it is kind of like an adjustment to market for a heavy crew proxy and one you know the Venezuela cost exceeds that proxy we get an adjustment down on our crude oil price contract. So it’s happened a few times and Mike Hoeltzel who works on the system optimization so, Mike do you have any further comments.

Mike Hoeltzel

I believe this it is the second time it’s happened during the quarter.

Steve Blank

It happened in the fourth quarter of last year I think to the tune of about $1 million and also in the first quarter of last year to the tune of about $0.5 million. It’s never loomed as large as it did in this quarter and we really mostly mention it because hey $6 million is a decent chunk but also it changed our guidance number and I think that's why we wanted to highlight it.

Curt Anastasio

Yeah and it is, it’s a contract clause, so it’s an ongoing factor of our business in that sense because it’s part of the contract that we negotiated but as Steve said it was more than it ever was, so that's why we highlighted it.

Brian Zarahn - Barclays Capital

Then this other question on your feedstock slate, how much Canadian crude do you think you could add to your asphalt refineries next year?

Curt Anastasio

We are in the course of projects to ramp it up right now. We want to start at something like 5000 barrels a day and maybe we can do as much as, what Paul, over the next couple of years?

Paul Brattlof

Maybe upto 10 is what we are looking at.

Curt Anastasio

10 and maybe more if that works out well.

Brian Zarahn - Barclays Capital

And then could you tell me what the total CapEx was in the quarter.

Steve Blank

It was in the third quarter we had a reliability of 15 and strategic of about 75. Fourth quarter will be up a little bit from that, so a total of 91 in this quarter and fourth quarter should be around 120, most of that strategic.

Brian Zarahn - Barclays Capital

I do appreciate the preliminary EBITDA on CapEx guidance, I mean given the nice EBITDA improvement is it reasonable to assume higher distribution growth in 2012 relative to 2011.

Curt Anastasio

We're budgeting distribution increase and we'll take that to the Board in a couple of weeks. I think with respect to distribution policy, our focus is to get back up to closer to where it once was. But that will largely transition here next year and then in 2013 when we really get the benefit from all the Eagle Ford and St. James stuff, we should have very good coverage and really good distribution prospects for increase.

Operator

Your next question comes from the line of John Tysseland with Citi.

John Tysseland - Citi

Curt, have you had any further discussions around possibly idling the Savannah refinery if the asphalt market remains difficult and how does the announcement of the possible sale or closure of some of the Sunoco east coast refineries kind of affect your outlook on that business?

Curt Anastasio

First on the idling, we look at everything to optimize that business and so we've run every case conceivable including a scenario you mentioned and that's actually not in the cards right now because that would be suboptimal to idle Savannah, so we plan to continue to run it. We're better off running it at the planned rates that we have in our plan going forward and that we are idling it for a financial point of view.

Steve Blank

But it’s really being cut like that, I mean the production has been cut way back.

Curt Anastasio

Yeah, with regard to Sunoco closing, that's really not a major factor, you're talking about east coast asphalt business and the impact of Sunoco closure, it's really not an impact for us on that business. Did I answer that question right on Sunoco?

John Tysseland - Citi

I was just curious if that impacted your business. It may be not on the asphalt side, but may be on some of your more pure products or intermediate?

Curt Anastasio

Yeah, yeah, otherwise it's really not a major impact. And Danny you want to comment further?

Danny Oliver

Yeah, Sunoco is really no real impact on the storage segment or asphalt.

John Tysseland - Citi

Okay. And then lastly, when you look at your possibly bringing in some additional Canadian supplies and diversifying I think away from some of the Venezuelan’s supplies. Does that have any impact on your minimum agreements with PDVSA, how’s that been working out as you have been….

Curt Anastasio

We have an excellent relationship with them. They’ve been very cooperative with us as we go along. They’ve been flexible in terms of nominations required under the contract and supply. Obviously, a crude supplier looks at it from their point of view, it says, okay, if you want to nominate less what are my alternatives for this crude and so they’ve explored their alternatives, whether it’d be fuel oil to China or what have you; we’ve asked for lower nominations, they’ve been able to execute in accordance with their system. So I would say Paul any more comment further?

Paul Brattlof

I think it’s been a very good relationship with the world again.

Operator

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

Louis Shamie - Zimmer Lucas

Hi good morning guys, great quarter. Just had a few questions. First of all, on the asphalt side, do you have breakdown of how much EBITDA was earned just from the asphalt business aside from the rest of that segment?

Curt Anastasio

In the third quarter?

Louis Shamie - Zimmer Lucas

Yeah.

Curt Anastasio

$9 million.

Louis Shamie - Zimmer Lucas

Great. The other thing is on the G&A expense that was lower than you’ve been trending recently; what helped out this quarter?

Curt Anastasio

I think it was stock related.

Steve Blank

Stock-related compensation expenses. The stock prices declined quite a bit this year compared to last year and that just factors into the G&A line. So that was about a $9 million of the year-to-date, you know for like 2011 versus 2010 was about $9 million and for the quarter it was also just a little bit less than $9 million. So it was really a stock price movement in the quarter. I think probably associated with you know that’s lowering guidance for the quarter and pointing to the asphalt business was one of the things that hit the stock price during the quarter.

Louis Shamie - Zimmer Lucas

Thanks. And lastly, I want to check-up on, I think you had among your Eagle Ford project, there is also about a project with TechStar Energy and Velocity and Gardendale. So what’s the status of that project?

Curt Anastasio

It is moving very well, the TechStar definitive agreement is eminent I mean that’s really any day. I think Danny if you want to talk further?

Danny Oliver

No that’s right on TechStar and then we have – we expect to have a couple of new definitive agreements that we have not announced any time to close this year.

Curt Anastasio

The whole Eagle Ford thing is going very, very well and it’s really a boom in South Texas. I mean, living here in San Antonio it’s a huge topic of conversation in the community and in the surrounding communities, especially south of town and it’s really become the real deal. I briefly have a lot of skepticism a couple of years ago about how big a think it could be and it’s the real deal.

Operator

Your next question comes from Andrew Gundlach with Arnhold Bleichroeder.

Andrew Gundlach - Arnhold & S. Bleichroeder Advisors

A couple of quick questions. Just following up on John’s earlier question on the Sunoco closures. What about the effect of the Conoco closure in Pennsylvania? And what do you see happening with the East Coast refineries that more directly compete with your asphalt business like Ergon, down in West Virginia and Warren, United in Pennsylvania which are going through the same sort of issues that you are having in Paulsboro and Savannah?

Curt Anastasio

Okay. We'll take it in two parts. First, on the Conoco refinery that’s been idle. Danny, do you want to address that?

Danny Oliver

Well, Conoco is a customer of ours in our storage segment on the East Coast. We’ve had some minimal negative throughput effects on the storage business, but nothing real significant. But we continue to evaluate other alternatives in case current customers’ needs change.

Steve Blank

We have a contract with them for three years.

Curt Anastasio

Yeah. That closure won't affect anything for three years and Steve is talking about Point Tupper now. So nothing will change as a result of that for the three years. It's really evaluation of what's going to happen beyond that that we’re worried.

Andrew Gundlach - Arnhold & S. Bleichroeder Advisors

Okay. And then on the asphalt side, how do you see the smaller refineries dealing with the current situation, and hopefully closing that down too and helping your business?

Danny Oliver

I can address, I think Ergon, small refinery in West Virginia, they're running specialty local crudes. It's primary lube.

Paul Brattlof

They don't -- asphalt. Most of Ergon's is in the Pittsburg refinery, which does benefit from the WTI, but is not in our market.

Andrew Gundlach - Arnhold & S. Bleichroeder Advisors

What about United?

Curt Anastasio

United gets their crude through the Enbridge system.

Paul Brattlof

They're doing the same thing that we're doing and that's going after some Canadian…

Danny Oliver

Their production is about flat year-over-year. So it’s flat.

Curt Anastasio

And as you know, like these closed refineries like Sonoco are kind of the nail in the coffin was this Brent related crude being so relatively expensive. They were already struggling anyway but that was kind of the last straw.

Andrew Gundlach - Arnhold & S. Bleichroeder Advisors

Exactly. And how about Turkey? How is Turkey going?

Curt Anastasio

Off to a very slow start. We’ve got good prospects for improving that business, Danny do you want to address it further?

Danny Oliver

Well, I think you've said it right, just disclosed we've got a lot of good ideas and interest in that facility. It’s just been slowed. There has been a lot of changes in the market structure especially in that part of the world and it’s just kind of slowed some of our plants down a little more.

Curt Anastasio

But all of that is reflected in the guidance I gave in my remarks today.

Andrew Gundlach - Arnhold & S. Bleichroeder Advisors

What was the contribution of Turkey for the quarter?

Paul Brattlof

Yeah, it’s a little less than $2 million EBITDA.

Andrew Gundlach - Arnhold & S. Bleichroeder Advisors

Okay. And then last question for Steve, when do you see yourselves dealing with the maturities in the first half of next year, first quarter and first half?

Steve Blank

Well, we've already got approval from the Board to do a new bond deal, and we're evaluating when to hit the market with either a bond deal. We have enough liquidity under the revolver to take it out that way too. And just thinking through all these issues, we’re also looking at doing possibly a redo of the revolver in the second quarter.

So we've been talking to banks about that. We may put an accounts receivable securitization in place even before that. So if we were to do that, that would give us even more liquidity. So it’s not that problematic, obviously the all-in coupons are pretty attractive. So it's not a bad time to issue debt. So anyway that’s a lot’s of choices; we're thinking through all of them now.

Andrew Gundlach - Arnhold & S. Bleichroeder Advisors

And what are the ideas may be going back 12 months or so was to combine the NuPOP and the Kaneb structure and get a better cost of borrowing all in. Is that still part of the plan?

Steve Blank

Well, yes it is. Basically, when we bought Kaneb they had an entity that they used to issue their bonds, okay. We used NuStar Logistics to issue our bonds and that’s where our revolver is as well. So ordinarily, we wouldn't want to have two entities being the issuers underneath the MLP.

So the structure that we have is that NuPOP which is NuStar Logistics and KPOP, which is the old Kaneb entity, cross guarantee each other’s bonds and then there is a downstream guarantee coming from the MLP.

Once those Kaneb bonds mature and some mature in 2012 and then I think the last one is 2013, we will no longer have bonds issued by in a pipeline operating partnership, which is that KPOP. Everything we do to refinance will be a NuStar Logistics. So at that point we'll have one issuer of all our debt in the United States and a downstream guarantee from MLP.

I don't think honestly it will result in a lower cost of borrowing. You’ll still have an entity underneath the MLP being the issuers. Right now, all-in cost for us is for 10-year money is probably a little south of 5% in that 480, 490 range for 10-year money.

Operator

Your next question comes from the line of Selman Akyol with Stifel Nicolaus

Selman Akyol - Stifel Nicolaus

Couple of quick questions. On the San Antonio refinery I appreciate the EBITDA, but can you talk a little bit about volumes there? I know last quarter you had some minor operational issues, did they get resolved and did you see volumes come back?

Curt Anastasio

You are talking about throughput?

Selman Akyol - Stifel Nicolaus

Yep.

Steve Blank

Well. Right now we are averaging about 13.5 a day.

Selman Akyol - Stifel Nicolaus

Okay. Great. Thank you. And then also last question here, as it relates to 2012 and I appreciate the color in the initial guidance, but as you think about it, is there any way you can put any more color around transportation volumes and what you might be expecting for them in 2012?

Curt Anastasio

(inaudible) pipeline throughput?

Danny Oliver

The transparency with these Eagle Ford projects come in to service, the volume should increase pretty dramatically now. Most of these Eagle Ford projects are coming into service, let’s say in, you know, anywhere from mid to the end of 2012. So, we’ll have a full year benefit, but it will be significant in the portion of the year that we do have.

Curt Anastasio

You know, as we said earlier, just on the Eagle Ford, we hope to capture like 250,000 barrels a day, more or less full time by 2013, like mid 2013 --.

Danny Oliver

Yeah, (inaudible) maybe mid to late 2013, ultimate, but then we even have, as I mentioned before, we are nearing some definitive agreements on a couple of other projects out of the Eagle Ford that we have not announced yet, that will, you know, just add to those numbers.

Steve Blank

Yeah. I am just looking at our draft budget, which we are going to take to the board and we are showing transportation pipelines up about 10% next year compared to this year.

Curt Anastasio

Throughput?

Steve Blank

Throughput, yeah. Throughput, yes.

Danny Oliver

Again, that’s, you know, a partial year effect.

Selman Akyol - Stifel Nicolaus

All right. Thank you very much.

Operator

Your next question is a follow-up from John Tysseland with Citi.

John Tysseland - Citi

Hi, guys. Just a quick follow-up on terminals. Does WTI slipping into backwardation recently impact your outlook on terminals for your fuels marketing segment for next year? I mean, I know Brent has been in backwardation for some time now, but I didn’t know of the recent changes in the WTI forward curve would have an impact?

Curt Anastasio

Well, on the storage we have been there for a while now, you know, but so much of our storage, in that, it’s over 90%, Danny, is really [con] traded backed by long-term -- backed by contracts and not throughput dependent. And then you have -- because I wasn’t sure you were asking about fuel marketing segment, but there is really a relatively few locations that are impacted by that backwardation.

Danny Oliver

We have nothing in the budget on fuels marketing for carry trades based on the structure.

Operator

Your next question comes from Michael Cerasoli with Goldman Sachs.

Michael Cerasoli - Goldman Sachs

Thanks. Good morning. I just have a quick follow-up on your acquisition strategy. Is there any interest in acquiring further asphalt logistics assets at this point?

Curt Anastasio

I think it’s not so much acquiring as improving the asphalt logistics that we have. One of things that I talked to earlier about, you know, we want to run more Canadian crude. We also want to do more of what we did this year, and one of the system optimizations is to be flexible to buy more finished asphalt. So if it’s cheaper in the mid continent as it is right now, you can buy and rail it into terminals.

So you’ll see us doing -- having more rail-ready terminals, in other words rail receipt terminals to have that flexibility. And doing some other things in logistics like being more flexible about, you know, blending asphalt -- or really bottomed into asphalt or fuel oil. We do that already. We want to have more flexibility to do more of it.

So, on the logistics side, I think you’ll see more of that, investing in assets we have to increase that flexibility and to be able to optimize the systems profitability by going in one direction or another, than going out and buying more logistics to do that.

Michael Cerasoli - Goldman Sachs

Okay. And then separately, just how are your generic costs on organic growth tracking? You know, basically some insights on cost inflation? Are you starting to see some creep was still relatively benign?

Steve Blank

The steel pricing has actually been soft. We’ve seen a little bit of strength in then with labor costs. Outside of the Gulf Coast area, labor cost has been relatively flat.

Curt Anastasio

That’s a good point. Depends where you are, you know, closer to this Eagle Ford, South Texas and the Gulf Coast, I mean you have got people being hired. They can’t even fill the jobs that they have. You could send some of those protestors down here and we’ve got jobs for them.

But, you know, if they have to pass the drug test though. But anyway the -- as Rick said, it’s kind of interesting on steel after an increase year-over-year, now you see some softening just like Rick said. And I think China is backing off some has influenced that. So, you know it’s kind of flattish strategist, soft right -- lower right now.

Michael Cerasoli - Goldman Sachs

Great. We’ll go post your offer on the protesters job – good to go. Thanks.

Curt Anastasio

Just go, send him to my office.

Operator

Your next question is from Michael Blum with Wells Fargo Securities.

Michael Blum - Wells Fargo Securities

Hi, good morning. Just two quick ones from me. First just the growth CapEx that you’ve laid out for 2012, is that, are those are those, you know signed, sealed and delivered projects or are some of that still in the works?

Curt Anastasio

It’s pretty much signed and sealed.

Michael Blum - Wells Fargo Securities

Okay. And then the -- I think, Steve, you said, you know you think you can spend around $300 million for the next few years on average. Is that basically just being driven by what you see in the Eagle Ford around crude oil development or are there other areas that you are thinking on as well?

Steve Blank

It’s mostly storage.

Paul Brattlof

But there will be other oil shales -- not just Eagle Ford, there is going to be other oil shale plays that we are going to be developing too; but as Steve said, mostly storage.

Steve Blank

That’s right. There is oil shale in the US and then of course the big oil finds down in South America specifically as it relates to us in Brazil, and our positioning at St. Eustatius is just kind of right in the middle of the fairway of all that new production, that’s driving a lot of it.

Michael Blum - Wells Fargo Securities

Hey, great. Thank you.

Operator

(Operator Instructions) And sir, your final question comes from the line of Jeremy Tonet with JPMorgan.

Jeremy Tonet - JPMorgan

Just a quick question as far as -- it seems like the transportation storage results were good for the third quarter, but the full-year guidance remains unchanged versus where it was on the Analyst Day. And I was just curious, is this a function of earnings moving to the third quarter from the fourth quarter or there are other moving parts in the fourth quarter, just any color on that, I guess?

Curt Anastasio

I think it’s mainly customer -- refinery turnarounds, you know, that are happening in the fourth quarter and are impacting that. (inaudible) So, you know, it’s just something that pops up every now and then in our pipeline business and we tie to refineries, and if a customer calls for a turnaround, that impacts that quarter’s throughput.

Operator

And sir, you have no further questions at this time.

Chris Russell

Thank you, operator. I would like to thank everybody for joining us on the call today. If you have any questions, call NuStar’s Investor Relations. Thanks.

Operator

Ladies and gentlemen, this does conclude today’s conference call. Thank you for your participation. You may now disconnect.

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