NuStar Energy's (NS) CEO Brad Barron on Q1 2016 Results - Earnings Call Transcript

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NuStar Energy L.P. (NYSE:NS)

Q1 2016 Results Earnings Conference Call

April 27, 2016, 9:30 AM ET

Executives

Chris Russell - Treasurer and Vice President Investor Relations

Brad Barron - President and Chief Executive Officer

Tom Shoaf - Executive Vice President and Chief Financial Officer

Danny Oliver - Senior Vice President, Marketing and Business Development

Analysts

Jeremey Tonet - JPMorgan

Brian Gamble - Simmons & Company

Selman Akyol - Stifel Nicolaus & Company

Steve Sherowski - Goldman Sachs

Shneur Gershuni - UBS

Gabe Moreen - Bank of America Merrill Lynch

John Edwards - Credit Suisse

Operator

Good day, ladies and gentlemen, and welcome to the NuStar Energy L.P. and NuStar Energy GP Holdings First Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference, Mr. Chris Russell, Treasurer and VP of Investor Relations. Sir, you may begin.

Chris Russell

Thank you, Eric. Good morning, everyone, and welcome to today’s call. On the call today are Brad Barron, NuStar Energy LP and NuStar GP Holdings LLC’s President and CEO; and Tom Shoaf, Executive Vice President and CFO, along with other members of our management team.

Before we get started, we’d 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. These statements are subject to the various risks, uncertainties and assumptions described in our filings with the Securities and Exchange Commission. Actual results may differ materially from those described in the forward-looking statements.

During the course of this call, we will also make reference to certain non-GAAP financial measures. These non-GAAP financial measures should not be considered as alternatives to GAAP measures. Reconciliations of certain of these non-GAAP financial measures to US GAAP may be found in our earnings press release, with additional reconciliations located on the financials page of the investors section of our website.

Now, I’m going to turn the call over to Brad.

Brad Barron

Good morning and thanks for joining us so early today, as it is early for some of our West Coast investors and analysts that we had to move our call up to accommodate GP Holdings’ annual meeting a little bit later this morning. So we do appreciate you being here.

This morning, I’m happy to report that this quarter once again we’ve exceeded 1-to-1 distribution coverage. Our strong first quarter 2016 distribution coverage of 1.14 times demonstrates the strength of our diverse asset base, which continues to deliver robust steady results even in the midst of a very challenging time in our industry. We’re also proud that NuStar’s strong stable business has allowed us to deliver uninterrupted distributions to our unit holders for the 60th consecutive quarter.

As you recall, in January, I mentioned MLP valuations had disconnected from business fundamentals and we’re simply tracking crude prices. NuStar’s strong results particularly during a quarter in which crude prices hovered around $35 demonstrates the resiliency and strength of our base business, which has performed and we believe will continue to perform steadily and well, no matter the price of a barrel of crude oil.

While valuations of some midstream MLPs seem to have decoupled from crude prices to some extent including NuStar, which has generated a total unit holder return of 81% since our recent low on January 20, we believe that our valuations still does not yet reflect our solid financial results, stable cash flow and the overall stability and strength of our business.

Our assets are located in strategic locations across the country and around the world. We’re well balanced between storage and pipelines and our business operations are insulated from the impact of crude price volatility as all of our crude pipelines are either demand pull pipelines or supported by minimum volume commitments.

Robust utilization and higher renewal rates in the storage segment as well as strong throughput volumes from our refined products pipelines were the main drivers of our solid first quarter earnings. Despite the volatility of the commodity and stock markets during the first quarter, we exceeded our earnings guidance expectation and earned $0.57 per limited partner unit, which equates to 1.14 times distribution coverage.

As you can see, we remain on track to cover our distribution once again in 2016 and we believe our strategy and execution will continue to deliver positive, stable results. NuStar is particularly well positioned to continue to deliver through the market challenges because we have a diversified business, a healthy balance sheet, no debt maturities until 2018, and very manageable capital requirements.

We remain focused on disciplined capital spending. While our 2016 strategic capital spending has been reduced by approximately 50% to $180 million to $200 million, we’re moving forward with our best projects with the highest rates of return. These projects are key to our long-term growth and success and are being financed with excess cash on our balance sheet and borrowings under our $1.5 billion credit facility.

Our 2016 strategic capital spending program includes spending to complete construction on approximately 1 million barrels of storage, which is scheduled to be brought online during the year. These projects comprise about $35 million of our planned strategic capital spend for this year and will benefit both our east pipeline systems and our St. James, Louisiana storage facility. In addition, we plan to expand our ammonia pipeline system in a couple of our West Coast terminals.

In last quarter’s call, I mentioned we plan to spend $125 million in 2016 on a project to develop new pipeline infrastructure to transport LPG and refined products into northern Mexico. Since January, as has been reported widely in the US press, PEMEX has undergone a large number of changes, including the appointment of a new Director General, José Antonio González.

As we all understand, organizational change particularly in a company as large and critical to its nation’s economy as PEMEX takes time. And due to that recognition, we now expect we should see this project in service in late 2017.

Across our assets around the world, we are focused on developing smaller to mid-size high return projects that provide synergistic solutions for our customers’ logistical needs. As we optimize our asset base to satisfy our customers’ needs and meet local market demand, our central focus will continue to be managing our business prudently to ensure consistent and solid distribution coverage.

Before I hand off to Tom, I’ll emphasize what should be evident. NuStar’s continued strong distribution coverage demonstrates our sound strategic direction and our commitment to fiscal responsibility and it’s clear we are addressing market conditions effectively. We will stay on course and we remain committed to efficient project execution, operational excellence and disciplined financial management.

I’m encouraged that the market seems to have begun de-linking the price of crude from MLP valuations. As we’ve proven through the volatile market conditions last year and particularly this last quarter, our base business performs consistently even though market turbulence has been at historic proportions. We delivered strong predictable earnings and cash flow despite the price of crude. Our valuation should no more move in lockstep with crude prices than should any other commodity, whether it’s cotton, copper or corn.

With that, I’m going to turn the call over to Tom Shoaf, NuStar’s Executive Vice President and CFO, to provide you with some additional detail on our first quarter results and 2016 projections.

Tom Shoaf

Thanks, Brad, and good morning, everyone. As Brad said, we had another excellent quarter that reflects the strength and diversity of our stable asset base, especially given the current industry headwinds.

EBITDA from continuing operations was $148 million, while DCF from continuing operations available to limited partners was $1.25 per unit, which covered the distribution to limited partners by 1.14 times. For the first quarter of 2016, we reported that EPU came in at $0.57 per unit, which was above the first quarter earnings guidance.

Turning to our segment performance, first quarter 2016 EBITDA in our storage segment was $86 million, $9 million higher than the first quarter of 2015. A combination of increased storage rates, increased throughput and handling fees, and lower operating expenses at several of our terminals more than offset the impact of lower Eagle Ford crude oil throughput volumes at our Corpus Christi North Beach terminal facility.

First quarter 2016 EBITDA on our pipeline segment was $86 million, down $3 million from the first quarter of 2015. Throughputs on our refined product pipelines increased 3% to 521,000 barrels per day, mainly due to increased volumes in several lines that serve our refinery customers in the central west and central east regions, as well as higher throughputs on our Burgos Valley pipeline system and a result of expanding naphtha service for PMI at our Edinburg, Texas terminal.

While Eagle Ford’s shale production has continued to fall, the crude oil throughput volumes on the South Texas crude oil pipeline system are insulated by long-term T&D agreements with large creditworthy customers that are contractually committed to an aggregate minimum throughput.

During the quarter, our total South Texas crude oil pipeline systems’ physical volumes averaged slightly below contract minimums of 133,500 barrels per day. However, due to the fact that some of our customers shipped above their respective contract minimums, we recorded revenue equivalent to approximately 143,000 barrels per day, down from 190,000 barrels per day a year ago in the first quarter of 2015.

Now, I’d like to take a moment to talk about our customers and how we mitigate credit risk. The majority of our pipeline customers and all of our Eagle Ford pipeline customers are financially sound, investment grade companies.

On the storage side of the business, we have [leans] on the products that we store for our customers and we have credit insurance in place for our bunkering and heavy fuels trading operations in our fuels marketing segment. In addition to these various forms of protection, we continue to monitor the financial condition of our counterparties to further mitigate our credit risk.

Now, I’ll return to the results of the first quarter. Our fuels marketing segment lost approximately $1 million of EBITDA during the first quarter of 2016, mainly due to bunkering margins. Our March 31 debt balance was $3.2 billion, while our debt to EBITDA ratio was 4.6 times.

On April 26, the NuStar Energy Board of Directors declared a first quarter distribution of $1.095 per unit, which will be paid on May 13. NuStar GP Holdings’ Board also declared a first quarter distribution of $0.545 per unit which will be paid on May 17.

Our first quarter results and our current guidance do not reflect any revenue on our Mont Belvieu propane pipeline. You’ll recall that we have placed our Mont Belvieu pipeline into service in 2015 and that the pipeline experienced a pressure loss last June. We shut down the pipeline, completed repairs and assessments and the pipeline was again ready for service in December 2015.

Despite this, our primary committed shipper has not nominated volumes for shipment and reported to terminate throughput and deficiency agreement. We believe their failure to ship is a breach of the throughput and deficiency agreement and related agreements and we are currently in litigation to collect damages arising out of the breach.

Because this matter is an active litigation, we’re not able to provide further details regarding the dispute. However, we are talking to several other companies regarding potential shipping opportunities for the pipeline. And once again, our first quarter results and our current guidance do not reflect any revenues in the Mont Belvieu pipeline.

Now, let me spend a few minutes talking about our projections for the second quarter and full year 2016. Second quarter 2016 EBITDA results for our storage segment should be lower than the second quarter 2015 EBITDA results. We’re happy to report that we recently signed a one-year 850,000 barrel storage contract at our formerly moth-balled Piney Point, Maryland facility. This should help mitigate the segment’s heavy seasonal maintenance in both the second and the third quarter as well as continued impact of lower crude throughputs at our Corpus Christi North Beach facility.

We also expect second quarter EBITDA results on our pipeline segment to be lower than the second quarter of 2015 due to decrease in the Eagle Ford throughputs on our South Texas crude oil pipeline system as well as increased spending on heavy seasonal maintenance. As such, we expect second quarter 2016 EBITDA results for our pipeline segment to be lower than the second quarter 2015 EBITDA results.

Second quarter 2016 EBITDA results for the fuels marketing segment should be higher than the second quarter of 2015 results due to expected margin improvements across this segment.

Based on these projections, second quarter 2016 earnings per unit should be $0.35 to $0.45 per unit, while distributable cash flow from continuing operations per limited partner unit should be in the range of $1 to $1.10 per unit. Again, these projections are impacted by the expected increase in spending for heavy seasonal maintenance and reliability capital.

Now turning to the full year 2016 EBITDA guidance, even after reducing expected crude oil throughputs on our South Texas crude oil pipeline system to contractual minimums and projecting no volumes on our Mont Belvieu pipeline, lower than expected operating expenses in the first quarter allowed our 2016 pipeline segment EBITDA guidance to remain unchanged at $335 million to $355 million. Since we have forecasted T&D minimums for the remainder of 2016 on our South Texas crude oil pipeline system, any barrels in excess of that floor would serve to improve our actual results.

Our 2016 storage segment EBITDA guidance also remains unchanged and is projected to stay in the range of $310 million to $330 million as we continue to expect that the benefit from higher renewal rates and increased utilization across the segment should be more than enough to offset lower expected South Texas crude oil volumes moving into the Corpus Christi North Beach terminal.

2016 segment EBITDA guidance for our fuels marketing segment also remains unchanged and is expected to remain in the range of $15 million to $35 million. As Brad said earlier, we continuously evaluate and prioritize our spending and in the first quarter we have rightsized the 2016 strategic planned spending program and reduced it by about half to about $180 million to $200 million. Our estimated reliability capital spending guidance remains at $35 million to $45 million.

Based on our expectations, we are confident we will cover our distribution this year for the third consecutive year.

Now, I’ll turn it back over the Brad.

Brad Barron

Thank you, Tom. NuStar had a great first quarter. We exceeded our own earnings expectations and covered our distribution by 1.14 times, which marks her 8th consecutive quarter of covering in excess of 1 time.

To summarize our view on the rest of 2016, Q2 will be weaker than Q1 due to higher expected seasonal maintenance and we expect to ramp back up through the second half of the year and to cover our distribution for the full year. Our strategy has been successful and we plan to stay the course.

We understand that this environment requires diligent focus and precise execution. I believe that our dependable business model, the diverse asset base, blue-chip customers, proven strategic direction and fiscal discipline uniquely position NuStar to continue to achieve strong earnings despite the challenging market conditions.

I know that I speak for every single one of us here at NuStar and I say that we are all one 100% committed to covering our distribution and delivering long-term stable value for our unit holders.

At this time, I’ll turn it over to the operator who can open up the call for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Jeremey Tonet from JPMorgan.

Jeremey Tonet

I was just wondering for the O&M coming in a bit lower, I was just wondering if you could talk a little bit more on some of the drivers there and how sustainable that can be.

Tom Shoaf

What do you mean by O&M, Jeremey?

Jeremey Tonet

I think the operations and maintenance for the different segments came in a little bit lower than expected.

Tom Shoaf

Yeah, it did. It was a little bit lower. I mean, we tend to have a little bit more seasonal maintenance, usually in the first and fourth quarters we see less maintenance and reliability capital than we do in the second the third. So that theme will continue on through 2016. And as we said in our notes first quarter was light and then the second and third quarters should be heavier as far as maintenance goes.

Jeremey Tonet

And then I’m wondering on the CapEx side, if you could flush that out a little bit more as far as what’s still in and what was taken out, I think you identified $35 million of terminal spend there, I’m just wondering if there’s any other chunky items still in there and what was taken out and is there any PEMEX spend in there at this point or is that kind of on hold for right now?

Tom Shoaf

Primarily what we have in there is we have the CHS projects we had going on in the central east. We also have the St. James [tanks], you recall we expanded a couple of tanks and added some tanks there in St. James. We still have about approximately $14 million of spend for PEMEX in the 2016 capital budget. There is also various pipeline expansions and also storage expansions also in that $188 million.

And then as far as what we took out, we took out a lot of the PEMEX capital spend and pushed it out into 2017. It’s still there, but it’s just been delayed and it’s been pushed out into 2017. There was also a few other projects that we had and we’re still evaluating returns on those. As we said, we went through this whole process of evaluating the capital spend and we prioritized based on returns and other things like that. And so we pushed out some things.

We really haven’t stopped anything, most of it is really, I would really say, it’s more of a delay than it is anything else and we continue to turn those projects. They could come in later in 2017, if the capital markets improve, other things improve and the returns on these projects improve. So we’re still working on them.

Jeremey Tonet

And then for Piney Point, I was just wondering if you could provide any detail to the size of that, what type of revenue you might be able to see from that facility. And it was a strong 1Q, is there any thoughts to raising guidance on that or kind of you want to take a cautious look given some of the headwinds that you outlined?

Danny Oliver

We just leased, as I mentioned, 850,000 barrels, that’s about 2.5 million barrels of product storage that’s available there. We have that of course in the forecast, but we haven’t forecasted any other contracts, although we are working several customers for some contango storage in that facility. We will put them in the forecast as we get those deals done.

Operator

And our next question comes from the line of Brian Gamble with Simmons & Company.

Brian Gamble

The projects that you pushed out, just wanted to get a sense of how you were evaluating those? You’ve talked about the hurdle rates and talked about just mitigating towards getting a better rate on those as you go forward. But over the short term, did you set a hurdle rate that you were looking for or were you balancing that against your projected, I guess, cash availability this year to eliminate the need to go to the preferred equity market for any funding for this year? Which one kind of took precedence as you’re walking through those plans?

Brad Barron

Well, I don’t think we had like a concrete hurdle rate. We had a range in mind that would work. And a lot of this – some of these projects were just – they’re delayed because of natural causes, we’ll call it, with negotiating with customers and things like that. So there was several of them that followed just [indiscernible] it takes a while to negotiate these things and we pushed them out.

Other than that, a lot of it was just the capital markets, the fact that capital has been much, much more expensive for us and other MLPs than it has been in the past. So it does increase your hurdle rate somewhat when you evaluate these projects. So I’d say it’s kind of a combination, just kind of natural delays in the process and also the fact that the capital markets are more expensive.

Brian Gamble

Does the shifting of the capital forward eliminate any need to go back to the preferred market? You talked about that back in Q4, you eliminated that from your commentary and the press release this time, is that [indiscernible] of 2016 CapEx, does that eliminate that need?

Brad Barron

It does. If you look at what we have forecasted for the remainder of the year for capital, we don’t have any real need to go into the markets right now for equity or equity-like securities. So right now we’re in pretty good shape in terms of our financing needs and whatnot. So we think all of our internal capital can be funded just on our bank revolver and that’s how we plan to do it right now.

Brian Gamble

And then on that Piney Point contract, you mentioned you’ve got some additional capacity there and that the signing of the current contract was a contango based deal. There’s some opportunities you saw by a customer and they’re taking advantage of it. How much contango is needed over the course of the year to make that type of contract work?

Brad Barron

Of course it depends on your customers’ cost of capital and things like that. But Piney Point is fairly expensive location to get in and out of. So you’re looking at somewhere just south of $1 a barrel of contango, probably something you need to have to pay all of those and make some money.

Brian Gamble

And that’s over, what sort of time period is that over, are we talking six to nine months or just the life of that annual contract, is that…

Brad Barron

Six months to a year.

Brian Gamble

And then you talked about obviously there’s seasonality in the fuels marketing business and you talked about it being up year-over-year in Q2, I know that we had expected most of that to be back half related, but that should roll back to kind of a positive EBITDA level in Q2 and then that trend should continue as we go through the year as far as the current opportunities that you guys are seeing?

Tom Shoaf

Yeah, I think so. I mean, like we said, we had some stronger margins this year versus last year in the bunkering area. So we’ll see how that plays out the rest of the year. We still have a [lot of year] left and right now we’re just kind of leaving the guidance where it is and we’re not really raising or lowering expectations for that segment right now.

Brian Gamble

And then last one for me, kind of back to the contango side of things, how does contango in general affect the shifting of the curve as we potentially get some more uplift on the front end of it, any expectations that would flow through the overall storage segment in terms of what other customers might have to do based on changes to that curve? I know, you’ve taken volumes down essentially to minimum levels, but is there any risk as the curve starts to move around or are we pretty locked in for the rest of the year?

Brad Barron

No, we have – this includes what we renewed in the first quarter, but we have about 15% of our storage revenues that are up for renewal throughout 2016 that are in, generally, marine terminals that are affected by the contango market structure. We have other renewals going on in the storage system, more in call them truck rack type terminals that aren’t as affected by the market structure. So you can think of in terms of this year about 15% of our storage revenues that will benefit from that market structure will renew and we’ve seen those so far renew at higher rates and just generally higher utilization of the entire system.

Operator

And our next question comes from the line of Selman Akyol from Stifel.

Selman Akyol

Couple of quick ones just for me, just going back to I guess the storages still up for renewal on the truck rack side, can you just talk about how the pricing was going for that environment or for those barrels?

Tom Shoaf

So unlike the marine terminals where the market structure generates more interest and prices are affected, most of our truck rack terminals, think of them as commingled storage where you have multiple customers in a facility that have literally maybe days, a few days of storage, not any kind of long term contango structure. They’re just moving barrels from the supply source to a truck rack. So those typically are not affected by market structure either way, good or bad.

Selman Akyol

You guys have [an ATM] in place, have you used it all or you anticipate using it all this quarter?

Brad Barron

No, we’ve used hardly any of it really. It’s still out there for us and we don’t really plan on using any of it this year, especially where unit prices are and all of that. So we don’t need it. We absolutely, like I said, we can fund our capital needs using the revolver. So we don’t have any immediate plans to go out there and issue any equity.

Selman Akyol

And then previously you guys had talked about bringing some cash back onshore, are you still looking to do that as well?

Brad Barron

Yes, we are. We’ve already started that process. And you may recall I said we had probably $90 million to $100 million cash in overseas entities that we can repatriate in and we’ve already done about $25 million of that and we’ll do the remainder of it before the end of the year. As we need the capital, we bring it down.

Operator

And our next question comes from a line of Steve Sherowski from Goldman Sachs.

Steve Sherowski

I guess a first question, where there any costs associated with bringing Piney Point back into service?

Tom Shoaf

There were some, cleaning some tanks and they were minimal.

Steve Sherowski

And for the truck rack storage, what type of rate uplift can we expect there? I mean, is it still low single digits sort of renewal rate?

Brad Barron

On the truck rack side of things, I don’t think we’re expecting a lot of change in rates. It’s more the marine terminals that are affected by the contango market structure, but we’ve seen anywhere from five and maybe one or two contracts that are double digit.

Steve Sherowski

And I guess then on the marine side, has customer interest in changing at all with flattening of the forward curve?

Brad Barron

A little bit. We still have the interest, the conversations are going on, but it’s less compelling. The math is a little less compelling than it was before crude started to run – prices in general started to run at.

Steve Sherowski

And then a final question, marketing was a little bit lower on a year-over-year basis, but you maintained full-year guidance, can you just outline maybe a couple of your assumptions behind your full-year outlook?

Tom Shoaf

I mean we obviously think that margins are going to hold pretty steady the rest of the year. And yes, we said it was down $1 million year-over-year, but that’s why we gave you guys a range and we’re still within that range.

Steve Sherowski

Is there any way you can relate that to commodity prices, what sort of commodity price you’re breaking into your full-year assumption?

Tom Shoaf

I don’t think it’s as much to do with the commodity price level as it just is the margins mostly in the fuel and bunkering side of the business. It was pretty competitive in the first quarter and margins reflected that.

Operator

And the next question comes from the line of Shneur Gershuni from UBS.

Shneur Gershuni

Most of my questions have been asked and answered, but I just wanted to come back to a couple of them, if you don’t mind. Starting with the CapEx, you basically mentioned that PEMEX was taking down a few other projects evaluating returns and so forth, but it sort of sounded like nothing actually changed if I look at it on a two-year basis, you’re just shifting CapEx from this year to next year or was there an actual reduction in some of the capital?

Tom Shoaf

Both. I mean, as we said, there was a shift in some of these projects, for example PEMEX, it’s still out there. We’ve shifted most of the cost into 2017 at this point and there was some other capital projects that followed that same suite where we’re still negotiating or whatnot and there’s reasons for delays and things like that. So some of that has shifted to 2017. There’s also some projects that we’ve just kind of put on hold because of return perspective and so it’s really just a combination of those two things.

Shneur Gershuni

In any instances, are you seeing the projected capital spend for a discrete project to be down, just given the fact that steel prices are down, EMCs are all under pressure as well too, are you seeing anything happening on that end that would allow returns to go higher as CapEx assumed per project comes down or is that not the case yet?

Brad Barron

Are you talking about savings that you would get from construction companies as we go forward?

Shneur Gershuni

Yes, exactly.

Brad Barron

We are seeing some savings on steel and some other things like that. Those are being baked in to our returns.

Shneur Gershuni

So in other words, in theory, the project that you’ve been talking about could technically have a higher return just due to the CapEx savings?

Brad Barron

Certainly.

Shneur Gershuni

There was a question about your OpEx before, but when I think about your OpEx and your SG&A, not maintenance CapEx, but specifically the OpEx and SG&A, that’s trended a little bit better. Is that a function of some steps that you’ve taken to try and trim costs out of the business, is this something that we should see continuing for a few quarters as it cycles through? Just sort of wondering if you can talk about your cost trends in general.

Tom Shoaf

Well, SG&A, yes, I think it’s a combination of things. One, yes, we are trending better on SG&A than we have in the past. We also had some compensation unit price help there when the stock price drove down a little bit in the first quarter. So that helped us out a little bit on our unit compensation expense as well. So that end trending has helped us out.

Shneur Gershuni

In terms of the effectively flat guidance, you added Piney Point with the contract that’s been added to it, is there a sense of the EBITDA that that contract is worth for this year and what would have been the offset to basically maintain flat guidance assuming that that would have been incremental from a revenue and EBITDA perspective?

Tom Shoaf

For the time being, right now, it’s one customer, so we can’t get very specific about EBITDA there. So as we get more in maybe we can kind of split that out and talk about it more specifically. But the way I think about it is that was a good positive and the downside on the storage segment was just some lower volume from our Eagle Ford system that some of that runs through our storage segment as well.

Shneur Gershuni

So basically you’ve got more of the asset there. Speaking of which, with your Eagle Ford system, are volumes running below the MVCs and you’re receiving deficiency payments or are they kind of running at your MVCs?

Brad Barron

It’s kind of right on the line right now. We have some customers above and some just slightly below. Net-net, we’ve been billing as Tom mentioned higher than our actual volume shipped because of that reason.

Shneur Gershuni

And so from an accounting perspective, you would just continue to flow that as EBITDA through, it’s not something that you would show kind of separately, right?

Brad Barron

Yes, it’s EBITDA.

Shneur Gershuni

And they can’t make up those volumes later on, if they miss the volume commitment, they can’t then come back to you later in the year and say we’ll deliver, we missed about 20,000, add 20,000, not pay for that, correct?

Brad Barron

That’s correct.

Operator

And our next question comes from the line of Gabe Moreen from Bank of America.

Gabe Moreen

Just a question on the propane line, if you can answer it, can you just talk about what you had expected that contract to contribute from an EBITDA and bottom line standpoint? And then also in terms of trying to replace that with another shipper as well, you’re in this dispute, is that something where you can sign a long-term contract? Will you be looking more at spot shipments?

Brad Barron

Both. We’re working on some long-term contracts right now. It’s part of our PEMEX deal and several other customers that we’re talking to over there. I wouldn’t speak specifically about EBITDA, but the volume commitment on that line initially was 55,000 barrels a day and that’s roughly the volumes that we’re having conversations with customers about right now.

Gabe Moreen

And then just can you remind us in terms of when the first commercial MVCs come up for renegotiation on the Eagle Ford assets?

Brad Barron

In April of 2018.

Operator

And our next question comes from the line of John Edwards from Credit Suisse.

John Edwards

Just to come back on the CapEx spend, so I think you indicated you’re deferring some, some projects are on hold, just any way just to give us an idea splitting that out and are there actually any cancellations?

Brad Barron

You want some details on what stayed in on the $188 million?

John Edwards

Yes, out of the $180 million you’re taking out, just approximately, I mean, is it 50-50 between project deferrals and or projects on hold?

Tom Shoaf

This has been pushed out, most of this has been pushed out into 2017.

Brad Barron

That’s right. Most of it is deferrals and not, absolutely.

John Edwards

So you don’t really have any cancellations?

Brad Barron

No.

John Edwards

And then just – maybe you said this, I missed it, can you remind us where you are on liquidity?

Tom Shoaf

Liquidity, we’re at about $550 million available on our revolver right now.

John Edwards

And just coming back to the volumes or say you’re sort of skating right around MVCs at the moment, I mean, are you seeing those – do you think those volumes are going to continue to – I guess, hang in there right about what you’re seeing or you think they will kind of grind a little bit lower, what are you seeing there?

Brad Barron

That’s a big question, but it appears to have bottomed out just in the last month or so. I don’t know if that will continue, but we’ve actually in the last two or three weeks, we’ve seen volumes actually rebound and start to move up a little bit which is the first time we’ve seen that in six months or more.

Danny Oliver

But the important thing is we have the MVCs and we have MVCs with creditworthy customers and that’s why we have them.

John Edwards

And I think you addressed this, but you’re not – you’re really not seeing any counterparty risk or anything here?

Brad Barron

No.

Operator

And our next question comes from the line of [Ryan Naveen] from Citigroup.

Unidentified Analyst

Most of my questions have been asked and answered, two quick follow up. Regarding the PMI contracts, what’s the cause of the delay? Is it mostly different people at PEMEX that you’re restarting the process or is there another dynamic?

Brad Barron

I wouldn’t say we’re restarting the process, but there has been a change in management at PEMEX and last January I’d mentioned that I traveled to Mexico City, Danny and I went down there and met with the Director General, shook hands, and we were working and we’re very close to finalizing the deal in about a week before [he would resign]. He ended up resigning from that position and a new Director General has been appointed. And so we are now working with the new Director General and his team to finalize the deal.

Unidentified Analyst

So how far into that process have you been, is it just a few months and it could be a year long process to go through all those details?

Brad Barron

I don’t expect it to be a year long process. I mean, any time there is a change in an organization as big as PEMEX and one that is structurally important to the economy of Mexico is that things are going to move slowly at the beginning, so we wanted to be respectful of the change and give them time to settle in their new positions. Although we did meet with them last week, we had a very positive meeting, and so I don’t think it will take a year to finalize this.

Unidentified Analyst

And then I guess a follow up, in terms of scope of the PEMEX opportunity, given the need for products and propane and LPG into Mexico, are there material expansion opportunities to what was originally slated?

Brad Barron

Yes. That whole system had upside both on the Texas side as well as the Mexican side.

Unidentified Analyst

And then related to Piney Point, is that primarily fuel storage or are there other components to the need for the 850,000 a day?

Brad Barron

It’s about – when I referred to 2.5 million barrels of storage available, that’s on the product side. So we can bring gasoline or distillate in there. The other half is fuel, but that was a part of the facility that was utilized when a neighboring power plant was utilizing fuel as a source of supply and they’ve switched to gas since then. So we’re really focusing on clean products, diesel, mostly diesel, but some possibly gasoline into that facility.

Unidentified Analyst

So just shy of the dollar contango average monthly for a year, that’s referred to – from a diesel standpoint?

Brad Barron

Right.

Operator

Our next question comes from the line of [Lynn Chen from HITD].

Unidentified Analyst

A couple of days ago, Bayou Bridge announced starting to operate from Nederland to Lake Charles and also in the press release they said that when they connected St. James, maybe will connect to your terminal there. I’m just wondering do you see more upside for your St. James terminal after Bayou Bridge start next year or already [indiscernible] pretty much just your existing storage?

Brad Barron

Right now, we’re just talking to them about existing storage, but we began talking to them when the Bayou Bridge project was in early stages of development because our facility is so well connected to all the local refiners in the area. So we have a connection agreement with them and doubling product. And right now, we’re just talking about utilizing existing storage, but that’s always an opportunity for new build.

Unidentified Analyst

Over your facility there, do you have room to expand?

Brad Barron

Yes, we have a lot of room to expand and we just built about 750,000 barrels of storage that’s going into service here in just a couple of months.

Operator

I’m showing no further questions at this time. I’d like to turn the call back over to Chris Russell for any closing remarks.

Chris Russell

Okay, thank you so much, Eric. We appreciate everybody for joining us on the call today. If anybody has any additional questions, please feel free to call NuStar’s Investor Relations group. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone have a great day.

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