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NuStar Energy L.P. Reports Second Quarter 2020 Earnings Results

Solid Results Reported Despite Challenges of Global Pandemic, Including Some Improvements Over Second Quarter 2019 Results

Second Quarter Storage Segment Performance Shines

Promising Recovery for Refined Product and Crude Pipeline Volumes

Provides Encouraging 2020 Outlook

SAN ANTONIO--(BUSINESS WIRE)--Aug. 4, 2020-- NuStar Energy L.P. (NYSE: NS) today announced results for the three months ended June 30, 2020. “Despite the challenges of a global pandemic, a crushing economic downturn, and a historic collapse in crude oil prices, we are very pleased to have generated solid second quarter 2020 results, some of which exceeded our second quarter 2019 results, thanks to our great employees, our world-class assets and our blue-chip, quality customers,” said NuStar President and CEO Brad Barron.

While NuStar reported second quarter 2020 income from continuing operations of $30 million, compared to $47 million for the second quarter of 2019, NuStar also reported earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations of $162 million for the second quarter of 2020, up from $161 million from the same period in 2019.

Distributable cash flow (DCF) from continuing operations was $62 million for the second quarter of 2020, compared to $83 million in the second quarter of 2019, primarily as a result of increased interest expense. And the distribution coverage ratio to common limited partners from continuing operations was 1.43 times for the current period.

“To improve EBITDA during a quarter that was a low-water mark for not only U.S. refined product demand, but also U.S. refinery utilization and U.S. crude oil production, in an environment in which individuals and businesses around the world were struggling, is a true testament to the self-help actions we took over the past months and the resilience and flexibility we have built into our business over the past few years,” Barron said.

“In 2019, we lowered our leverage below four times, and we brought in a number of key low-multiple/high-return projects on time and under budget. In March, when faced with the global pandemic and dramatic economic downturn, we prioritized, adapted and took action to protect our employees and our stakeholders by cutting our spending to preserve cash, and we are proud to have delivered solid second quarter results during one of the most challenging quarters in the history of the U.S. energy industry.

“In addition to these self-help measures, we also seized the opportunities presented by contango in the storage market during the second quarter and successfully filled 100 percent of our available storage capacity. Also, our storage segment benefitted from a full quarter’s contribution from the completion of our Taft 30” pipeline, which flows into our North Beach Terminal within our Corpus Christi Crude System, which more than outweighed Covid-19-related throughput declines at certain facilities that directly support some of our customers’ refineries. Our storage segment also benefited from our Mexico and West Coast expansion projects, and new storage contracts and renewals of existing contracts that all together brought online about 3 million barrels of previously idled storage capacity,” Barron noted.

“And, as the second quarter progressed, we saw refined product demand improve. In fact, during the second quarter alone, we moved almost 138 million barrels of crude oil and refined products through our pipelines. And we have seen additional encouraging signs of progress toward recovery in July and thus far in August as well. On average, so far this quarter, we are at about 94 percent of typical demand across our refined products system, which has improved significantly over the low of approximately 70 percent we saw in April,” said Barron.

“Taking all these factors into account, we continue to project that NuStar will generate full-year 2020 adjusted EBITDA of between $665 and $735 million, which is the same guidance we provided in May and is, midpoint to midpoint, less than 6% lower than our pre-pandemic guidance,” Barron said.

Self-help Measures to Preserve Cash and Strengthen Balance Sheet

“As noted above, during the months of March through May, we acted quickly and decisively to reduce spending and preserve cash,” Barron said, noting the following actions:

  • “We improved our near-term liquidity through a significant reduction in our 2020 spending and lowered our strategic capital by over $145 million, or approximately 45 percent below levels we forecasted in early 2020;
  • “We identified $40-$50 million of controllable and operating expense reductions for the full-year of 2020;
  • “We also obtained a leverage-neutral term loan and reduced our distribution, both in an effort to further assure we have the liquidity to address our near-term debt maturities.”

Encouraging Demand Trends

“As the second quarter progressed we saw refined product demand improve, which was evidenced by the following:

  • “Our Central East system in the Midwest, which serves a rural population with healthy agricultural demand, has seen system throughputs rebound strongly from lows of 80 percent back up to about 95 percent. At the same time, the distillate market in that region has continued to hold up, as it has throughout the year;
  • “Our ammonia pipeline, another bright spot in the Midwest, has continued to perform at near-record levels with strong agricultural demand again this year;
  • “On our Central West system, we saw system throughputs decline to about 65 percent at its low point in April, as refinery utilization dropped to accommodate demand deterioration in Texas and surrounding states. We have seen numbers improve in recent months to close to 80 percent despite the uptick in COVID-19 cases in Texas since Memorial Day; and
  • “In South Texas, our system throughputs, at the low point, were about 75 percent. Since that low, we have seen overall system throughputs rebound sharply to pre-pandemic levels.”

Barron then provided an update on NuStar’s crude pipeline business.

“On the crude pipeline side of our business, we continue to believe in the viability and fundamental strength of U.S. shale production, particularly in the Permian and specifically on our Permian Crude System. Prior to the pandemic, during the first quarter, our Permian system was moving an average of about 450,000 barrels per day, up about 4 percent over fourth quarter 2019. Then in May, U.S. rig counts fell, and so did production, across the U.S., in the Permian and on our system. We are encouraged that our volumes rebounded in July to 434,000 barrels per day, 21 percent above our May lows and 8 percent above our second quarter 2020 average. We are also encouraged by our August nominations of 444,000 barrels per day. In light of the quicker-than-expected recovery and our customers’ drilling plans, we have raised our expected 2020 exit rate to about 401,000 barrels per day, about 8.5% higher than our projection that we provided in May.

“With regard to our Corpus Christi Crude System, we are seeing some reason for optimism on exports. After seeing exports dip below minimum volume commitments in May, we have been pleased with the ramp-up we have seen in June, July and in the beginning of August in both WTI and Eagle Ford volumes.”

Conference Call Details

A conference call with management is scheduled for 9:00 a.m. CT today, August 4, 2020. The partnership plans to discuss the second quarter 2020 earnings results, which will be released earlier that day. Investors interested in listening to the discussion may dial toll-free 844/889-7787, passcode 8774744. International callers may access the discussion by dialing 661/378-9931, passcode 8774744. The partnership intends to have a playback available following the discussion, which may be accessed by dialing toll-free 855/859-2056, passcode 8774744. International callers may access the playback by dialing 404/537-3406, passcode 8774744. The playback will be available until 12:00 p.m. CT on September 3, 2020.

Investors interested in listening to the live discussion or a replay via the internet may access the discussion directly at https://edge.media-server.com/mmc/p/bqyuuamr or by logging on to NuStar Energy L.P.’s website at www.nustarenergy.com.

NuStar Energy L.P., a publicly traded master limited partnership based in San Antonio, is one of the largest independent liquids terminal and pipeline operators in the nation. NuStar currently has approximately 10,000 miles of pipeline and 75 terminal and storage facilities that store and distribute crude oil, refined products and specialty liquids. The partnership’s combined system has approximately 75 million barrels of storage capacity, and NuStar has operations in the United States, Canada and Mexico. For more information, visit NuStar Energy L.P.'s website at www.nustarenergy.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release includes, and the related conference call will include, forward-looking statements regarding future events, such as the partnership’s future performance, plans, capital expenditures and expense reductions. All forward-looking statements are based on the partnership’s beliefs as well as assumptions made by and information currently available to the partnership. These statements reflect the partnership’s current views with respect to future events and are subject to various risks, uncertainties and assumptions. These risks, uncertainties and assumptions are discussed in NuStar Energy L.P.’s 2019 annual report on Form 10-K and subsequent filings with the Securities and Exchange Commission. Actual results may differ materially from those described in the forward-looking statements. Except as required by law, the partnership does not intend to update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

 

NuStar Energy L.P. and Subsidiaries

Consolidated Financial Information

(Unaudited, Thousands of Dollars, Except Unit, Per Unit and Ratio Data)

 

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2020

2019

2020

2019

Statement of Income Data:

 

 

 

 

Revenues:

 

 

 

 

Service revenues

$

284,151

 

$

282,472

 

$

600,897

 

$

541,499

 

Product sales

55,389

 

89,973

 

131,434

 

178,772

 

Total revenues

339,540

 

372,445

 

732,331

 

720,271

 

Costs and expenses:

 

 

 

 

Costs associated with service revenues:

 

 

 

 

Operating expenses

101,078

 

101,095

 

201,260

 

196,506

 

Depreciation and amortization expense

69,214

 

64,991

 

137,275

 

129,809

 

Total costs associated with service revenues

170,292

 

166,086

 

338,535

 

326,315

 

Cost of product sales

50,676

 

86,389

 

118,126

 

172,571

 

Goodwill impairment loss

 

 

225,000

 

 

General and administrative expenses

23,700

 

24,868

 

46,671

 

50,559

 

Other depreciation and amortization expense

2,171

 

1,819

 

4,357

 

3,938

 

Total costs and expenses

246,839

 

279,162

 

732,689

 

553,383

 

Operating income (loss)

92,701

 

93,283

 

(358

)

166,888

 

Interest expense, net

(59,499

)

(45,693

)

(106,993

)

(89,984

)

Other (expense) income, net

(1,626

)

621

 

(8,115

)

1,412

 

Income (loss) from continuing operations before income tax expense

31,576

 

48,211

 

(115,466

)

78,316

 

Income tax expense

1,810

 

1,296

 

2,409

 

2,478

 

Income (loss) from continuing operations

29,766

 

46,915

 

(117,875

)

75,838

 

Loss from discontinued operations, net of tax

 

(964

)

 

(307,750

)

Net income (loss)

$

29,766

 

$

45,951

 

$

(117,875

)

$

(231,912

)

 

 

 

 

 

Basic net (loss) income per common unit:

 

 

 

 

Continuing operations

$

(0.06

)

$

0.11

 

$

(1.74

)

$

0.05

 

Discontinued operations

 

(0.01

)

 

(2.86

)

Total net (loss) income per common unit

$

(0.06

)

$

0.10

 

$

(1.74

)

$

(2.81

)

 

 

 

 

 

Basic weighted-average common units outstanding

109,194,722

 

107,763,016

 

109,046,061

 

107,647,957

 

 

 

 

 

 

Other Data (Note 1):

 

 

 

 

EBITDA from continuing operations

$

162,460

 

$

160,714

 

$

133,159

 

$

302,047

 

DCF from continuing operations

$

62,491

 

$

82,892

 

$

184,810

 

$

150,317

 

Distribution coverage ratio from continuing operations

1.43x

1.28x

2.11x

1.16x

 

 

For the Four Quarters Ended June 30,

 

2020

 

2019

Consolidated Debt Coverage Ratio (Note 1)

3.94x

 

3.95x

NuStar Energy L.P. and Subsidiaries

Consolidated Financial Information - Continued

(Unaudited, Thousands of Dollars, Except Barrel Data)

 

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2020

2019

2020

2019

Pipeline:

 

 

 

 

Crude oil pipelines throughput (barrels/day)

1,063,739

1,089,848

1,297,892

 

1,054,425

 

Refined products and ammonia pipelines throughput (barrels/day)

452,678

569,820

523,555

 

536,836

 

Total throughput (barrels/day)

1,516,417

1,659,668

1,821,447

 

1,591,261

 

Throughput and other revenues

$

166,108

$

172,493

$

361,789

 

$

328,744

 

Operating expenses

50,099

52,930

100,345

 

101,028

 

Depreciation and amortization expense

44,028

40,851

87,387

 

81,700

 

Goodwill impairment loss

225,000

 

 

Segment operating income (loss)

$

71,981

$

78,712

$

(50,943

)

$

146,016

 

Storage:

 

 

 

 

Throughput (barrels/day)

348,189

395,512

513,510

 

380,267

 

Throughput terminal revenues

$

32,199

$

23,170

$

70,922

 

$

44,856

 

Storage terminal revenues

87,208

87,233

171,702

 

169,047

 

Total revenues

119,407

110,403

242,624

 

213,903

 

Operating expenses

50,979

48,165

100,915

 

95,478

 

Depreciation and amortization expense

25,186

24,140

49,888

 

48,109

 

Segment operating income

$

43,242

$

38,098

$

91,821

 

$

70,316

 

Fuels Marketing:

 

 

 

 

Product sales

$

54,025

$

89,549

$

127,927

 

$

177,628

 

Cost of goods

50,115

85,802

117,069

 

171,303

 

Gross margin

3,910

3,747

10,858

 

6,325

 

Operating expenses

561

587

1,066

 

1,240

 

Segment operating income

$

3,349

$

3,160

$

9,792

 

$

5,085

 

Consolidation and Intersegment Eliminations:

 

 

 

 

Revenues

$

$

$

(9

)

$

(4

)

Cost of goods

(9

)

28

 

Total

$

$

$

 

$

(32

)

Consolidated Information:

 

 

 

 

Revenues

$

339,540

$

372,445

$

732,331

 

$

720,271

 

Costs associated with service revenues:

 

 

 

 

Operating expenses

101,078

101,095

201,260

 

196,506

 

Depreciation and amortization expense

69,214

64,991

137,275

 

129,809

 

Total costs associated with service revenues

170,292

166,086

338,535

 

326,315

 

Cost of product sales

50,676

86,389

118,126

 

172,571

 

Goodwill impairment loss

225,000

 

 

Segment operating income

118,572

119,970

50,670

 

221,385

 

General and administrative expenses

23,700

24,868

46,671

 

50,559

 

Other depreciation and amortization expense

2,171

1,819

4,357

 

3,938

 

Consolidated operating income (loss)

$

92,701

$

93,283

$

(358

)

$

166,888

 

NuStar Energy L.P. and Subsidiaries
Consolidated Financial Information - Continued
(Unaudited, Thousands of Dollars, Except Ratio Data)

Note 1: NuStar Energy L.P. utilizes financial measures, such as earnings before interest, taxes, depreciation and amortization (EBITDA), distributable cash flow (DCF) and distribution coverage ratio, which are not defined in U.S. generally accepted accounting principles (GAAP). Management believes these financial measures provide useful information to investors and other external users of our financial information because (i) they provide additional information about the operating performance of the partnership’s assets and the cash the business is generating, (ii) investors and other external users of our financial statements benefit from having access to the same financial measures being utilized by management and our board of directors when making financial, operational, compensation and planning decisions and (iii) they highlight the impact of significant transactions. We may also adjust these measures or calculate them based on continuing operations, to enhance the comparability of our performance across periods.

Our board of directors and management use EBITDA and/or DCF when assessing the following: (i) the performance of our assets, (ii) the viability of potential projects, (iii) our ability to fund distributions, (iv) our ability to fund capital expenditures and (v) our ability to service debt. In addition, our board of directors uses EBITDA, DCF and a distribution coverage ratio, which is calculated based on DCF, as some of the factors in its compensation determinations. DCF is a widely accepted financial indicator used by the master limited partnership (MLP) investment community to compare partnership performance. DCF is used by the MLP investment community, in part, because the value of a partnership unit is partially based on its yield, and its yield is based on the cash distributions a partnership can pay its unitholders.

None of these financial measures are presented as an alternative to net income, or for any periods presented reflecting discontinued operations, income from continuing operations. They should not be considered in isolation or as substitutes for a measure of performance prepared in accordance with GAAP.

The following is a reconciliation of income (loss) from continuing operations to EBITDA from continuing operations, DCF from continuing operations and distribution coverage ratio from continuing operations.

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2020

2019

2020

2019

Income (loss) from continuing operations

$

29,766

 

$

46,915

 

$

(117,875

)

$

75,838

 

Interest expense, net

59,499

 

45,693

 

106,993

 

89,984

 

Income tax expense

1,810

 

1,296

 

2,409

 

2,478

 

Depreciation and amortization expense

71,385

 

66,810

 

141,632

 

133,747

 

EBITDA from continuing operations

162,460

 

160,714

 

133,159

 

302,047

 

Interest expense, net

(59,499

)

(45,693

)

(106,993

)

(89,984

)

Reliability capital expenditures

(7,422

)

(5,625

)

(11,051

)

(8,547

)

Income tax expense

(1,810

)

(1,296

)

(2,409

)

(2,478

)

Long-term incentive equity awards (a)

2,052

 

2,168

 

3,986

 

4,535

 

Preferred unit distributions

(30,684

)

(30,423

)

(61,107

)

(60,846

)

Goodwill impairment loss (b)

 

 

225,000

 

 

Other items

(2,606

)

3,047

 

4,225

 

5,590

 

DCF from continuing operations

$

62,491

 

$

82,892

 

$

184,810

 

$

150,317

 

 

 

 

 

 

Distributions applicable to common limited partners

$

43,678

 

64,658

 

$

87,408

 

$

129,348

 

Distribution coverage ratio from continuing operations (c)

1.43x

1.28x

2.11x

1.16x

(a)

We intend to satisfy the vestings of these equity-based awards with the issuance of our common units. As such, the expenses related to these awards are considered non-cash and added back to DCF. Certain awards include distribution equivalent rights (DERs). Payments made in connection with DERs are deducted from DCF.

(b)

Represents a non-cash goodwill impairment charge related to our crude oil pipelines reporting unit.

(c)

Distribution coverage ratio is calculated by dividing DCF by distributions applicable to common limited partners.

NuStar Energy L.P. and Subsidiaries
Consolidated Financial Information - Continued
(Unaudited, Thousands of Dollars, Except Ratio Data)

The following is the reconciliation for the calculation of our Consolidated Debt Coverage Ratio, as defined in our revolving credit agreement (the Revolving Credit Agreement). The reconciliation of net income (loss) to EBITDA includes reconciling items from continuing and discontinued operations on a combined basis.

 

For the Four Quarters Ended June 30,

 

2020

2019

Net income (loss)

$

8,344

 

$

(181,650

)

Interest expense, net

200,079

 

179,481

 

Income tax expense

4,685

 

6,745

 

Depreciation and amortization expense

280,809

 

292,278

 

EBITDA

493,917

 

296,854

 

Impairment losses (a)

225,000

 

336,838

 

Other expense (b)

5,785

 

38,709

 

Equity awards (c)

13,175

 

12,140

 

Pro forma effect of dispositions (d)

4,777

 

(7,638

)

Material project adjustments and other items (e)

26,148

 

79,901

 

Consolidated EBITDA, as defined in the Revolving Credit Agreement

$

768,802

 

$

756,804

 

 

 

 

Total consolidated debt

$

3,434,124

 

$

3,429,740

 

NuStar Logistics' floating rate subordinated notes

(402,500

)

(402,500

)

Proceeds held in escrow associated with the Gulf Opportunity Zone Revenue Bonds

 

(41,476

)

Consolidated Debt, as defined in the Revolving Credit Agreement

$

3,031,624

 

$

2,985,764

 

 

 

 

Consolidated Debt Coverage Ratio (Consolidated Debt to Consolidated EBITDA)

3.94x

3.95x

(a)

For the four quarters ended June 30, 2020, this adjustment represents a non-cash goodwill impairment charge related to our crude oil pipelines reporting unit. For the four quarters ended June 30, 2019, this adjustment represents non-cash impairment losses associated with long-lived assets and goodwill at the St. Eustatius terminal.

(b)

Other expense is excluded for purposes of calculating Consolidated EBITDA, as defined in the Revolving Credit Agreement.

(c)

This adjustment represents the non-cash expense related to the vestings of equity-based awards with the issuance of our common units.

(d)

For the four quarters ended June 30, 2020, this adjustment represents the pro forma effects of the sale of our St. Eustatius operations as if we had completed the sale on July 1, 2019. For the four quarters ended June 30, 2019, this adjustment represents the pro forma effects of the sale of our European operations as if we had completed the sale on July 1, 2018.

(e)

This adjustment represents a percentage of the projected Consolidated EBITDA attributable to any Material Project and other noncash items, as defined in the Revolving Credit Agreement.

The following is a reconciliation of net loss to EBITDA to adjusted EBITDA.

 

 

Projected for the Year Ended
December 31, 2020

Net loss

 

$ (75,000 - 35,000)

Interest expense, net

 

225,000 - 240,000

Income tax expense

 

5,000 - 10,000

Depreciation and amortization expense

 

285,000 - 295,000

EBITDA

 

440,000 - 510,000

Goodwill impairment loss (a)

 

225,000

Adjusted EBITDA

 

$ 665,000 - 735,000

(a)

Represents a non-cash goodwill impairment charge related to our crude oil pipelines reporting unit.

 

NuStar Energy, L.P., San Antonio
Investors, Tim Delagarza, Manager, Investor Relations
Investor Relations: 210-918-INVR (4687)
or
Media, Mary Rose Brown, Executive Vice President and Chief Administrative Officer,
Corporate Communications: 210-918-2314
website: http://www.nustarenergy.com

Source: NuStar Energy L.P.

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