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NuStar Energy L.P. (NYSE: NS) today announced that second quarter earnings before interest, taxes, depreciation and amortization (EBITDA) results are expected to be significantly lower than the $160 million earned in the second quarter of 2011. Lower projected results in the company’s asphalt and fuels marketing segment and anticipated non-cash charges relating primarily to the announced sale of 50% of NuStar Energy’s asphalt operations are the main causes of the expected lower second quarter results.
Continued weak demand and lower gross margins are expected to cause the EBITDA of the company’s asphalt operations to be negative, which will obviously be significantly lower than the $55 million of EBITDA generated in the second quarter of 2011. In addition, the company’s fuels marketing operations are expected to generate a loss in the quarter primarily as a result of heavy fuel oil and bunker fuel inventories not being hedged for approximately two months in a declining commodity price market. All of this inventory is now fully hedged (effective May 25) and going forward the company intends for its heavy fuel oil and bunker fuel inventory volumes to remain hedged at all times.
As a result of these anticipated second quarter projections, effective June 29, 2012, the company obtained an amendment to the debt to EBITDA covenant in its debt agreements for the second and third quarters of 2012.
Second quarter EBITDA should also be negatively impacted by a substantial amount of non-cash charges. The company plans to write down the value of its asphalt refineries, including goodwill and intangible assets, as a result of the sale of 50% of its asphalt operations. These non-cash charges will impact second quarter EBITDA, but will not impact the debt to EBITDA covenant calculation in the company’s debt agreements.
“While we’re obviously disappointed with our second quarter results, we are taking steps that we are confident will help improve our earnings going forward,” said Curt Anastasio, NuStar’s President and CEO. “The asphalt joint venture we announced today is expected to deconsolidate our asphalt operations, which will allow NuStar to significantly reduce earnings volatility, reduce debt and provide additional opportunities to invest in stable, high-return, pipeline and terminal assets, while maintaining a 50% interest in a business that has the potential to generate significant cash flows as the U.S. economy improves.”