NuStar Energy's CEO Presents at the National Association of Publicly Traded Partnerships MLP Investor Conference (Transcript)

| About: NuStar Energy (NS)
This article is now exclusive for PRO subscribers.

NuStar Energy L.P. (NYSE:NS) National Association of Publicly Traded Partnerships MLP Investor Conference May 22, 2013 10:15 AM ET


Curt Anastasio - President and CEO


Mark Reichman - Simmons & Company

Mark Reichman - Simmons & Company

My name is Mark Reichman and I am with Simmons & Company. It’s my pleasure to introduce Curt Anastasio, the President and Chief Executive Officer and Director of NuStar Energy Partners which trades under the ticker NS as well as NuStar GP Holdings which is the publically traded general partner which trades under the ticker NSH.

NuStar Energy Partners is a refined products and crude oil oriented MLP. They have recently been emphasizing more of a fee-based asset strategy, particularly emphasizing their activities in the Eagle Ford shale.

Curt Anastasio has been the CEO since the partnership's inception when it went public in 2001 and he is also very involved in San Antonio specifically. He is serving on the board of the Greater San Antonio Chamber of Commerce as well professionally serving under the board of the National Association of Publicly Traded Partnerships. Curt Anastasio.

Curt Anastasio

Okay, thank you for the introduction. So a little bit overview on NuStar, you heard a little bit about a moment ago. We have got two public companies, the MLP is NuStar Energy or NS, market cap about $4 billion, enterprise value of $6.2 billion and then we have a public holding company, NuStar GP Holdings, NSH with a market cap currently of about $1.3 billion and as it was mentioned we have been public since April of 2001.

The slides tries on one page to kind of summarize what our assets are. We have three business segments, the pipeline business, the storage terminal business and a division we now called fuels marketing, used to be referred as Asphalt and Fuels Marketing. But we are predominantly a liquids business, crude oil, refined petroleum products.

The pipelines are really concentrated in the middle of the country from northern Mexico where we do have assets in the Mexico, up mainly through the middle of the country, crude oil and refined petroleum products, up to the near the Canadian border and also the pipeline segments includes the Country’s largest ammonia pipeline system and the only one that goes from the U.S. Louisiana Gulf Coast and then through the whole corn belt and that’s a really been a good asset for us with the ethanol mandate, with all the corn being grown in the corn belt. So that’s the pipeline.

The storage terminal business, we are mostly in the United States and eight countries. So it’s an international business as well as being a U.S. business. We are on the east and west coast. There are terminals are also associated with the pipelines and some of our bigger assets though are in the U.S. Gulf Coast and the storage side and also in New York Harbor and as I say some of our key west coast locations.

And then internationally we have a large terminal, about 14 million barrels in the Caribbean at St. Eustatius and also in Point Tupper in Eastern Canada, England, Ireland, Scotland, the UK in other words and Amsterdam, in Holland and also in Turkey in the Mediterranean.

This pie graph gives you a distribution of the operations from three segments that I just mentioned. About 53%, little more than a half of last year’s segment operating income which comes from the storage business pipeline is about 43%. That’s been growing and in the fuels marketing which we have been shrinking down, because of really our strategic redirection is to get refocused back on the pipeline and the terminal fee based business which is what we were for the first eight, nine years of our existence.

So about 96% of our segment operating income, after we exclude the Asphalt JV and the San Antonio refinery last year, that came from the fee based storage and pipeline business and it will account for at least 90% of 2013's operating income.

We went public in 2001 at $2.40 distribution for NS and $1.28 and our distribution payments have gone up you know every year since we IPOed the company about 12 years ago in the case of NS and about 7 years or 6 years ago in the case of NSH.

We mentioned the strategic redirection. What we've been doing is moving out of the margin based operations that we had in our company. It was always a minority of our company, but it had, we gotten into asphalt refining and marketing in 2008. We had a fuels refinery as well, we moved our asphalt refining and marketing business into a joint venture with Lindsay Goldberg, a New York private equity firm. So it's kind of out of our numbers except for this equity interest in the joint venture and we sold our fuels refinery to Calumet. That closed on January 1 and we redeployed capital into our fee based pipeline and storage businesses. We closed on an Eagle Ford shale crude oil pipeline system in December. Most of our growth capital right now is going into the Eagleford. I'll talk about that more in a moment, and also we're continuing to develop our strategic storage terminals, particularly, St. James the St. Eustatius and a few other projects going to on the west and east coast.

Let's talk about the fuels marketing segment for a moment. That segment's volatility obviously has already been sharply reduced due to the changes we’ve made to reduce our exposure to the refining business, so effective September 28th we sold 50% of the Asphalt business. We deconsolidated those results from NuStar's financials and that provided us with about $450 million of capital. We took that capital, we de-levered and we effectively reinvested it in the Eagle Ford pipeline business.

After January 1, we sold the San Antonio refinery and so our results are changed from that since January 1 and our fuels marketing operations, this year which now consist of butane blending and transmix, some crude oil trading at St. James at our heavy fuel oil and bunker marketing operation now generating a range of $20 million to $40 million of EBITDA in 2013 and 14.

There has been pressure lately in the bunker business which was a very good business for us in the last few years, but anybody involved in bunker marketing will tell you that margins are down, there's reduced worldwide demand, tanker business is kind of in the tank if you will and there's increased supply pressure and more competition.

More competition was drawn into the Gulf Coast and the Caribbean regions in that business. The cost of margins were pretty good the last few years, but the recent entrants are losing their shirts right now. So I expect that competition to subside.

Let me move on to talk more about the storage segment. We expect our EBITDA in the storage segment to continue to grow. If you look at these bar graphs for the last years, let's say the one on the upper left that goes from 2006 at a $162 million of EBITDA and nowadays $288 million in 2012, you can see that that's been a big driver of our growth, especially the last 4 or 5 year. If you look at our EBITDA in storage today it's about double what it was six years ago. That growth trajectory is now being replaced by the pipelines which I will show you in a moment. Storage, although we still have good storage growth opportunities, that's leveling off relatively speaking and now our growth driver is being taken over by the pipeline business.

We talk about our renewals here. Most of our contracts are long term. Our storage segment EBITDA in 2013 should be about $10 million to $30 million higher than it was last year. We're going to have a full year benefit of a rail car off-loading project that we completed last April at our St. James, Louisiana terminal and also we'll benefit from expansions we did St. Eustatius and St. James as well.

That will be partially offset by some reduced profit sharing proceeds. One of the deals we had in our partnership with EOG when we built the first unit train involved sharing with them some of the profits, basically the WTI brand or the WTI/LLS spread and as that’s come in, obviously we get less from that component of the deal than we got when the spread was very, very wide the last couple of years but still EBITDA going up this year over last year in our storage segment.

Expansion continues at St. James. This continues to be one of our premium locations. We are now up to 9 million barrels of storage capacity at St. James. When we brought this in 2007, we had 3 million. We are in the middle of a 1.4 million barrel expansion project there. We're about half way through it. We have built another 700,000 barrels there and completed in January. We got another 700 expected to come on in the first quarter of 2014.

The project costs at $45 million and the EBITDA projection at about $8 million a year. So a good 5 to 6 multiple organic growth project and we still got a lot of space there. We got a lot of land; logistics keep getting better at that terminal as we invest to make the terminal more flexible and so we're talking to major oil companies about more expansion at St. James.

We signed up a long term deal to build a second unit train at St. James. We had a committee from the third party that supports that construction. It's very similar to the first rail facility that we built in partnership with EOG. It will cost about $45 million, go into service this year; fourth quarter of this year with annual EBITDA in the range of $15 million to $20 million for that project and we've been making other investments in the terminal as well to improve it. So this has really become focused for our storage segment for the next year or two.

Turning to the pipelines, which is as I have said, storage was a big growth driver for us, those previous few years and up to that point the pipeline had been very stable with slow growth and now we're having a lot of growth in the pipelines and that's mainly because of the Eagle Ford Shale. The growth in Eagle Ford Shale is what's driving the growth in our pipeline segment more than anything else.

You could see that the proportion of pipeline receipts by commodity is increasingly crude oil for us. In the past crude oil was a smaller percentage of that pie graph than you would see here today. So in 2013 our segment EBITDA is expected to be $60 million to $80 million higher than it was in 2012 and you could see here, we put our 2012 pipeline EBITDA on the bar graph to the right of the upper left segment. That's $211 million. So its $60 million to $80 million on top of that, again, you are rapidly approaching doubling, like we did in the storage segment previously, you end up doubling your EBITDA in the pipeline segment compared to 5, 6 years ago/

Our Eagle Ford expansion projects completed in the last half of 2012 and late 2013, plus the benefits from the TexStar crude oil gathering and pipeline system that we bought in December, that’s what's is contributing to the higher earnings in the pipeline segment.

So far we have done four projects in the Eagle Ford shale. We were one of the first to transport Eagle Ford shale crude oil because we had assets on the ground in place. So we were able to sign up commitments early. We had underutilized or even idle assets that for the most part used to be in refined product service.

We changed them to crude oil. We reversed the flows. We made some really minimal capital investments to get going in that business fast. So we have done four projects. We reactivated a line in South Texas that goes to Corpus Christi. That was actually an idle pipeline, now filled up with crude oil. We reversed an 8 inch Corpus, the Three Rivers pipeline, all of this is in South Texas.

And then we had a 16 inch line that used to bring offshore crude oil from around the world into the Gulf Coast and up to the South Texas refinery. We've reversed that line so it goes the other way. So now it’s integrated now with the TexStar crew system we bought. So we can bring that crude oil down to the Gulf for our customers, who can either sell it to Corpus refineries or load it on to ships and move it elsewhere to other buyers.

Total capital spent to date has been about a $150 million to generate EBITDA of about $30 million. So these have been five times multiple projects to this point. And what we have is projects that will increase our throughput capacity in the Eagle Ford to about 335,000, close to 350,000 barrels a day. We should be running at about 225,000 barrels a day by the end of this year and then we will get up to 300,000 and above next year.

In mid-November we signed an agreement with ConocoPhillips to help them move their Eagle Ford production. So what we have been doing is building a 100,000 barrel terminal facility for them with truck offloading and a pipeline connection to our existing Eagle Ford system. So that 12-inch Pettus line will connect to our Three Rivers to Corpus line and so now Conoco will have the ability to move their Eagle Ford production in Karnes County to Corpus. The capacity of that Pettus line is a100,000 barrels a day.

The agreement provides Conoco with 30,000 to 60,000 barrels of shipping capacity but we expect them really to fill up that deal. They signed a 10 year take-or-pay deal to support the project and the completion of that project will be in the fourth quarter of this year.

One of the key elements to getting us up from our more or less 100,000 barrels a day of Eagle Ford to 300,000 and beyond is to de-bottleneck the dock at Corpus and we have that project underway already. The dock extension at Corpus Christi is going to give Conoco and the other customers we have more options to move their Eagle Ford crude and that dock expansion will be done in the first quarter of 2014.

So total spending on that will be about a $120 million to $140 million, generate another $15 million or so annual EBITDA. Not much from it in 2013, but most of that benefit kicks into our 2014 and beyond projections.

During this last December we bought the crude oil pipeline system from TexStar. That allowed us to become one of the largest players in the Eagle Ford. In December, almost at the same time, with the connection of the 16 inch to Three Rivers we connected to the TexStar pipeline system, we ended up buying 140 miles of crude oil transmission and gathering lines and also five terminals in the Eagle Ford for $325 million and that further integrates us with the producers and marketers of Eagle Ford and provides us with access to dedicated production acreage.

There is sort of production acreage that gets dedicated so that it has to go into NuStar System from the sort of north and west portion of the Eagle Ford play, and it provides the producers the ability to move more productions to the water to the U.S. Gulf and have access also to our storage and dock space for shipment to other markets.

We are currently shipping close to 100,000 barrels a day and those throughputs as I say are going up to the numbers that I had mentioned earlier. The TexStar acquisition, just looking at that gives us about $10 million to $30 million of EBITDA in 2013 but that goes up to $50 million to $70 million by the time we get through 2014 to 2015.

This is a map of the Eagle Fort in our current position in it and you could see, I’m not going to go through all these different pipelines and terminals but you can see that we traversed really all sectors of it, the northern crude oil section, the condensate (ph) section down to the gas and then the system that connects down at Corpus Christi the lower part of this side which gets our customers to the U.S. Gulf.

And then we also have running from Corpus Christi up to Houston, it kind of goes toward upper right portion of that side, a pipeline that is available in South Texas and we’ve got a lot of interest in it. I was hoping maybe announce that next deal at this conference but it’s not signed yet so I’m not going to but that pipeline which used to run refined products in the Corpus refineries up to Houston, now it really doesn’t because the Corpus refineries are exporting those refined products offshore. That line is going to get filled up by either NGLs or crude or LPGs, lot of interest from the lot of different types of shippers. So that will be a big add to us once we able to announce that deal.

And this line graph just shows what I’ve said about how these throughputs are expected to increase. Our capacity goes up from the current 236,000 barrels or so to 476,000 and we expect to get from 150,000 well above 300,000 barrels a day of throughput on our system by the fourth quarter of 2014.

Little bit on the financial overview. This is just our capital structure as of March 31. We have a $1.2 billion revolver in place with $280 million drawn under it. You see our various notes GO Zone bonds and our other debt, total debt of 2.4 billion and so you can study that at your leisure.

I did want to comment a little further though on our next refinancing that’s coming up. These are debt maturities as of March 31 we have a $250 million senior note outstanding that we’re going to be refinancing that comes due in June. Probably we’re going to be doing a bond deal in the second quarter or the third quarter of this year, something like $300 million to refinance that debt and then there are no other maturities that are looming for us after we do that deal this quarter or next quarter until we get to 2017.

In terms of project spending, obviously it keeps going up as we came out of the great recession 2008. We started ramping up our capital spending and this year our internal growth spending is in the range of $400 million to $450 million, so higher than it has been in the previous four years.

On the second quarter guidance, we have been telling people EBITDA in the pipeline and the Fuels Marketing segment will be higher than it was in the first quarter, and though the pipelines are still impacted some by turnarounds which is temporary impacts, we had some Valero refinery turnarounds and some in the Mid Continent.

There were some refineries that took turnarounds. Some of those kind of slid over into the second quarter. So that affects the pipeline results but basically the bottom-line is it will be higher than it was in the first quarter. However the storage is going to be somewhat lower compared to the first quarter although still higher from the full year, year-over-year.

The second bullet point I wanted to talk about, we created this Asphalt JV and we have an equity interest in the JV and that JV is currently producing losses. So although it doesn’t impact our distributable cash flow at all, it does hit our headline kind of earnings per unit because the accounting for this is if you have a loss in the JV we take our share through EPU.

So those continuing weak results are going to have an impact on the second quarter EPU but it doesn’t affect our distributable cash flow at all. We have been guiding people to, we restore our distribution coverage by the fourth quarter of this year and that’s still the case, it’s not impacted by the losses that are being incurred by the Asphalt JV.

So EPU we expect in the range of $0.00 to $0.20 per unit. We are anticipating about a $0.20 hit just from this equity losses and the JV from Asphalt. So it is a big headline number but again does not affect the number I care the most about, which is distributable cash flow.

Distributable cash flow for unit will be in the range of $0.40 to $0.60 and it will have $15 million to $20 million of reliability capital projected for the quarter, versus a very low 6 million in the first quarter of 2013 as to whether it improves and they get more of this reliability and maintenance work done.

So again we are really back on the right track here. We have been reducing and divesting further our margin based businesses, redeploying capital in the pipelines which for us is a big growth driver now particularly in Eagle Ford as I have mentioned and our storage fee-based businesses which are excellent businesses, very valuable they are very solid they have performed throughout all kinds of conditions and we are continuing to invest to grow those.

We greatly improved our balance sheet and our leverage position by doing the Lindsay Goldberg deal, raised $460 million and de-levered. It allowed us to grow in the businesses which are our strength, the fee-based businesses. And so we have got a bright future.

And that’s all I intended to cover in my presentation. We maybe have a minute or so for questions and I think I will be available afterwards but if not I know we are going to have a breakout session. So if there are no questions I thank you for your attention.

Question-and-Answer Session

[No Q&A session for this event]

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!