NuStar GP Holdings' CEO Discusses Q2 2012 Results - Earnings Call Transcript

NuStar GP Holdings, LLC (NSH)

Q2 2012 Earnings Call

July 27, 2012 10:00 AM ET

Executives

Chris Russell – VP, IR

Curt Anastasio – President and CEO

Steve Blank – EVP, CFO and Treasurer

Danny Oliver – SVP, Marketing and Business Development

Analysts

Brian Zarahn – Barclays

Cory Garcia – Raymond James

Ross Payne – Wells Fargo

James Jampel – HITE

Michael Blum – Wells Fargo

Kevin Cashman – Assurant

Brett Reilly – Credit Suisse

Jeremy Tonet – JP Morgan

Louis Shamie – Zimmer Lucas

Selman Akyol – Stifel Nicolaus

Dennis Coleman – Bank of America

Presentation

Operator

Good morning. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to the NuStar Energy LP and the NuStar GP Holdings LLC Second Quarter 2012 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 will now turn the conference over to Mr. Chris Russell, Vice President of Investor Relation. Please go ahead, sir.

Chris Russell

Thank you, Christy. Good morning, everyone, and welcome to our conference call to discuss NuStar Energy LP and NuStar GP Holdings LLC second quarter 2012 earnings results. With me today is Curt Anastasio, CEO and President of NuStar Energy LP and NuStar GP Holdings LLC; Steve Blank, our CFO; and 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 within the meaning of the Federal Securities Laws. 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 conform to actual results or revised expectations.

During the course of this call, we’ll 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 may be found either in our earnings call press release or on our website.

Now let me turn the call over to Curt.

Curt Anastasio

Good morning, and thanks for joining us. The recently completed second quarter and the few weeks that followed were very active period for NuStar.

In April we completed a unit train offloading facility at our St. James, Louisiana, terminal. That facility constructed jointly with EOG Resources can offload at least one 70,000 barrel unit train per day. To date, the facility is operating better than we had anticipated and should provide EBITDA to our storage segment in 2012 and for years to come.

In early May, NuStar closed on a new five-year $1.5 billion credit facility that replaced our previous $1.25 billion facility. The larger revolver gives us access to additional capital to fund our increasing internal growth capital program. Late in May, we put hedges back on in our heavy fuel oil and bunker fuel inventory that had been on hedge for about two months during the quarter. We estimated that second quarter results would have been about $32 million or $0.44 per unit higher if these hedges had remained in place.

Shortly after the inventory hedges were put back in place, we unwound the remaining $470 million of fixed-to-floating rate interest rate swaps that were in place on a portion of our 2020 and 2022 senior note maturities. With 10-year treasury rates falling to near record low levels, we decided to unwind the swaps. $22 million in cash proceeds were received as a result of unwinding the swap.

In the first week of July, we connected our Corpus Christi to Three Rivers, Texas, 16-inch crude oil pipeline to a pipeline constructed by Texstar Midstream Services. These two interconnected lines are moving Eagle Ford shale crude oil from Frio County, South Texas to Corpus Christi. This is the third pipeline project we have completed in the Eagle Ford shale in the last year, giving us the ability to move up to 250,000 barrels per day of Eagle Ford crude to the Corpus Christi market.

On July 6, we announced plans to sell 50% of our asphalt business to Lindsay Goldberg and create a joint venture. This transaction is moving ahead as planned and is expected to close no later than September 30. After closing, we expect to deconsolidate the asphalt operation.

These July transactions are part of our plans to change the strategic direction of NuStar by reducing our exposure in the margin-based portion of our business and becoming more focused on optimizing and growing the fee-based storage and pipeline transportation segments of the company. I’ll talk more about future plans for the fee-based side of the business later in this call.

Taking a look at NuStar’s second quarter earnings, total EBITDA for the company was negative $161 million. Obviously, that’s significantly below last year’s second quarter. And it’s primarily the result of $272 million of non-cash charges related to asset impairment, mainly related to the write-down of the company’s asphalt refineries as a result of the expected sale of 50% of this asphalt business to an affiliate of Lindsay Goldberg. Those impairment charges were partially offset by a $29 million pre-tax non-cash gain on a legal settlement. Excluding this and other items, second quarter 2012 adjusted EBITDA would have been $88 million.

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