NuStar Energy L.P. (

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

Presentation

Operator

Compare to:
Previous Statements by NS
» NuStar Energy Analyst Day Conference Call Transcript
» NuStar Energy CEO Discusses Q2 2011 Results - Earnings Call Transcript
» NuStar Energy's CEO Discusses Q1 2011 Results - Earnings Call Transcript
» NuStar Energy CEO Discusses Q4 2010 Results - Earnings Call Transcript

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.

Read the rest of this transcript for free on seekingalpha.com