NuStar Energy L.P. has said that it expects a new bunker fuel supply agreement in the Caribbean to have a positive effect on its fuels marketing results during the fourth quarter.
The prediction came during yesterday's release of the company's financial results for the third quarter, where NuStar confirmed that weak demand for bunkers and increased competition in the Caribbean had continued to negatively impact its fuels marketing segment.
The company pointed out, however, that the new bunker fuel supply agreement had reduced its working capital requirements by approximately $50 million, adding that it was continuing to reduce the segment's operating costs.
NuStar announced in August that it had signed a fuel oil supply agreement with an unnamed "major fuel oil trading company", which would enable the business to create a back-to-back trading model in which NuStar purchases bunker fuel supply from this company to fulfil the needs of its customers in St. Eustatius and the Caribbean.
In a statement released in August, the company said: "This trading model will allow NuStar to reduce working capital tied to inventory, reduce exposure to price volatility and hedge ineffectiveness, and better manage operating expenses. In fact, the agreement will help NuStar lower its working capital expenses by $40 to $50 million, and save the company related attendant interest and hedging costs.
"This agreement allows us to remain in a competitive position as a bunker fuel marketer, while reducing our exposure to price risks and dramatically reducing our working capital expenses related to our bunker marketing operations. We also believe that it creates opportunities to grow our fuel oil business in the Caribbean."
Third Quarter Results
NuStar Energy L.P. has announced third quarter earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations was $109.5 million compared to third quarter 2012 EBITDA of $76.5 million.
Third quarter distributable cash flow from continuing operations available to limited partners was $67.2 million, or $0.86 per unit, compared to 2012 third quarter distributable cash flow from continuing operations of $63.0 million, or $0.87 per unit.
NuStar Energy reported third quarter net income applicable to limited partners of $21.9 million, or $0.28 per unit, compared to a net loss applicable to limited partners of $6.5 million, or $0.09 per unit, reported in the third quarter of 2012.
The third quarter 2012 results included $21.6 million, or $0.29 per unit, of non-cash losses associated with the September 28, 2012 sale of a 50% voting interest in the company's asphalt operations to an affiliate of
Lindsay Goldberg LLC. Excluding these items and other adjustments, third quarter 2012 adjusted net income applicable to limited partners would have been $14.1 million, or $0.19 per unit.
"Our results show we're on track with our strategic re-direction of the company focusing on our more stable pipeline and storage segments," said
Curt Anastasio, President and Chief Executive Officer of NuStar Energy L.P. and NuStar GP Holdings, LLC. "We continue to focus on internal growth investments in the Eagle Ford Shale, having completed another project in the region during the third quarter, which we expect will add about $15 million in incremental annual EBITDA.
Commenting on the storage segment, Anastasio said: "EBITDA in our storage segment nearly doubled between 2006 and 2012 growing from $162 million to $288 million of annual EBITDA. And while our storage segment is and will continue to be very profitable for us, the driver of NuStar's growth over the last year or so has shifted from the storage segment to the pipeline segment. As a result, quarterly results for the pipeline segment are improved over last year and the storage segment's third quarter results are lower than last year. Volumes at our throughput storage facilities were up by seven percent, with corresponding revenues up 20 percent or almost $5 million. However, these increases were more than offset by the $13 million impact of reduced revenues from lower lease renewal rates due to the backwardated market and the reduced benefit from our profit sharing agreement with EOG at our St. James terminal as the LLS-to-WTI spread narrowed."
Anticipated Exit from Asphalt Joint Venture
NuStar is currently in advanced discussions with its asphalt joint venture partner, Lindsay Goldberg, to finalize an agreement that allows NuStar to exit the asphalt joint venture. The agreement should also allow NuStar to materially reduce the $250 million credit facility and the $150 million of credit support, for guarantees and letters of credit, currently provided to the joint venture by NuStar Energy.
Success of Open Season Leads to Eagle Ford Expansion
Early in October, NuStar announced it had received enough binding commitments from shippers to move forward with the first phase of the partnership's South Texas Crude Oil Pipeline System Project. The first phase will add incremental throughput capacity of approximately 35,000 barrels per day to NuStar's South Texas Crude Oil Pipeline System. The additional capacity is expected to be available for service to committed shippers by the third quarter of 2014 and is expected to generate incremental EBITDA of approximately $20 million per year.
In addition, NuStar has decided to proceed with the second phase of this project, which will add approximately 65,000 barrels per day of incremental throughput capacity to the South Texas Crude Oil Pipeline System as early as the first quarter of 2015. It is expected to generate incremental annual EBITDA of up to $40 million, depending on the number of barrels committed to the second phase. Both phases, when completed, would add a total aggregate incremental capacity of 100,000 barrels per day.
In the 2nd quarter of 2014, prior to the completion of Phase 1, NuStar plans to complete the construction of a new private dock at its Corpus Christi North Beach terminal. This new dock will more than double the current loading capacity of around 125,000 barrels per day and will allow NuStar to handle all the new volume associated with Phase 1 and Phase 2 of the South Texas Crude Oil Pipeline expansion, as well as additional volumes shipped to Corpus Christi.
Reactivation of Idled 12" Pipeline
NuStar has begun work on a project for its 12-inch pipeline between Mont Belvieu and Corpus Christi that will reactivate the line, reverse its flow, and convert the line to NGL service. The project, which is scheduled to be in service in the second quarter of 2015, will be supported by a long-term anchor shipper that plans to utilize the majority of the pipeline capacity.
"We are very excited to place this idled pipeline back into service," said Anastasio. "This line has the capacity to move approximately 110,000 barrels per day so we expect to ship additional NGL volumes over and above the long-term anchor shipment commitment we are announcing today."
Internal Growth Project Update
In August, NuStar completed a pipeline project for ConocoPhillips in the Eagle Ford and built some crude oil gathering lines that will supply additional crude oil volumes to the company's Eagle Ford crude oil pipeline systems. By the end of November, the company expects to complete the construction of a second rail-car offloading facility at the St. James terminal in Louisiana. These projects are expected to add $5 to $10 million of EBITDA to NuStar's pipeline and storage segment results in the fourth quarter of 2013.
Earnings Guidance
"Fourth quarter 2013 EBITDA results for all three of our segments should be higher than last year's fourth quarter," said Anastasio. "The internal growth projects and the new
bunker fuel supply agreement mentioned above should improve the segment's fourth quarter results."
Commenting on guidance for full year 2013, Anastasio said, "Our pipeline segment EBITDA should be $60 to $70 million higher than last year and our storage segment EBITDA is now expected to be $5 to $15 million lower than 2012. We expect our fuels marketing segment to generate EBITDA of up to $10 million in 2013."
Looking ahead to 2014, Anastasio commented, "Increased crude oil throughputs in the Eagle Ford Shale region should increase our pipeline segment's EBITDA by an additional $40 to $60 million next year. We expect our storage segment to be comparable to 2013's results. We project our fuels marketing segment results to improve in 2014 with EBITDA expected to be in the range of $10 to $30 million."
"Based on our projections, we expect to fully cover our distribution in 2014. As previously announced on October 31, 2013, the third quarter 2013 distribution of $1.095 per unit will be paid on November 14, 2013 to holders of record as of November 11, 2013."
With regard to capital spending projections Anastasio went on to say: "We plan to spend $300 to $325 million on internal growth projects in total during 2013 and we plan to spend $350 to $375 million in 2014. Our reliability capital spending should be in the range of $35 to $45 million in 2013 and in 2014."
