NuStar Energy's CEO Discusses Q4 2011 Results - Earnings Call Transcript

NuStar Energy L.P. (NS)

Q4 2011 Earnings Conference Call

January 27, 2012 10:00 ET

Executives

Chris Russell – Investor Relations

Curt Anastasio – President and Chief Executive Officer

Steve Blank – Chief Financial Officer

Analysts

Brian Zarahn – Barclays Capital

Paul Jacobs – Raymond James

Kathleen King – Bank of America/Merrill Lynch

Michael Blum – Wells Fargo

Selman Akyol – Stifel Nicolaus

Presentation

Operator

Good morning. My name is (David) 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 Fourth Quarter 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to turn the call over to Mr. Chris Russell. Sir, you may begin your conference.

Chris Russell – Investor Relations

Thank you, David. Good morning, everyone and welcome to our conference call to discuss NuStar Energy L.P. and NuStar GP Holdings LLC’s fourth quarter 2011 earnings results. With me today is Curt Anastasio, President and CEO 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. These statements are subject to the various uncertainties and assumptions described in our filings with the Securities and Exchange Commission and will not be updated to confirm the actual results or revised expectations.

During the course of this call, we will also make reference to certain non-GAAP financial measures. Our non-GAAP financial measures should not be considered as alternatives to GAAP measures. Reconciliations of these non-GAAP financial measures to U.S. GAAP maybe found either in our earnings press release or on our website under the Investor Relations tab.

Now, let me turn the call over to Curt.

Curt Anastasio – President and Chief Executive Officer

Good morning, and thanks for joining us today. Although the U.S. and global economic conditions continue to be very challenging this past year and oil and gas volatility remained high. NuStar was able to generate more distributable cash flow, more EBITDA, and operating income in 2011 compared to 2010.

In addition, we continue to grow our asset base to internal growth capital projects and acquisitions, improve the condition of our balance sheet, continued to realize outstanding safety results, and we are named the 15th best company in America to work for by Fortune Magazine.

During the year, NuStar completed 16 internal growth projects with a total project cost of about $200 million. We expect these projects to generate EBITDA at a 5 to 6 times multiple and contribute to the results of all three of our business segments during 2012. The St. James, Louisiana Phase I terminal expansion and the reactivation of two pipelines in the Eagle Ford Shale with major internal growth projects completed during the past year. The St. James terminal expansion project increased the storage capacity of the terminal by 3.2 million barrels to 8.2 million barrels making that facility NuStar’s second largest storage terminal asset, second only to our St. Eustatius terminal located in the Caribbean.

Our two reactivated pipeline projects are currently transporting about 60,000 barrels a day of Eagle Ford Shale crude. Both of those projects should contribute to increased pipeline transportation segment EBITDA in 2012. We spent about $100 million for two acquisitions, which combined generated EBITDA at close to a six times multiple during 2011. We are implementing profit improvement initiatives at both acquisition locations that should allow us to improve the performance of those assets in 2012 and in future years.

Taking a look at NuStar’s 2011 financial performance, EBITDA of $490 million was higher than the $483 million earned in 2010 driven primarily by the record performance of our storage segment. Storage EBITDA of $281 million was $25 million higher than the $256 million earned in 2010. Increased storage rates on existing contracts, increased customer demand for storage services, a full year of EBITDA from the fourth quarter 2010 completion of our St. Eustatius terminal reconfiguration project as well as the completion of the St. James terminal expansion in the third quarter of this year, all contributed to the segment’s increased EBITDA.

Pipeline transportation segment EBITDA $197 million nearly matched the $199 million earned in 2010. Higher pipeline tariffs and additional revenue generated by the Eagle Ford Shale projects substantially offset a 9% reduction in pipeline throughputs.

Refined products pipeline throughputs were down about 3% for the year when compared to 2010. Turnaround activity at some of our customers’ refineries as well as market conditions that made it more favorable for some of our customers to export refined products, especially diesel then to transport them to Houston on our Corpus Christi to Houston pipeline adversely affected throughput. However, toward the end of the year volume on some of our refined product pipelines increased as we were able to obtain new volume throughput commitments.

Crude oil pipeline throughputs were down almost 18% in 2011. Turnarounds and operating issues at some customers’ refineries and the impact of competitive supply economics negatively impacted throughput on the crude system. But while crude throughputs were down compared to last year, they are on the upswing.

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