NuStar Energy L.P. (NS) Q2 2012 Results Earnings Call July 27, 2012 10:00 AM ET Executives Chris Russell – VP, IR Curt Anastasio – President and CEO Steve Blank – Chief Financial Officer Analysts Brian Zarahn – Barclays Cory Garcia – Raymond James Ross Payne – Wells Fargo James Jampel – HITE Michael Blum – Wells Fargo Brett Reilly – Credit Suisse Jeremy Tonet – JPMorgan Louis Shamie – Zimmer Lucas Selman Ekyol – Stifel Nicolaus Dennis Coleman – Bank of America Presentation Operator
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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 alternative to GAAP measures. Reconciliations of these non-GAAP financial measures to U.S. GAAP maybe 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 periods 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 inventories, that had been unhedged 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 swaps.
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 in 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. At the closing we expect to deconsolidate the asphalt operations. 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 will 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 impairments, mainly related to the write down of the company's asphalt refineries, as a result of the expected sale of 50% of its asphalt business to an affiliate of Lindsay Goldberg. Gross impairment charges were partially offset by $29 million pre-tax non-cash gain on a legal settlement. Excluding these and other items, second quarter 2012 adjusted EBITDA would have been $88 million. Our storage and transportation segments continue to benefit primarily from additional EBITDA being generated, as a result of the capital we have invested in internal growth projects over the last couple of years. Read the rest of this transcript for free on seekingalpha.com