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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 20, 2018
NuStar Energy L.P.
(Exact name of registrant as specified in its charter)
Delaware | 001-16417 | 74-2956831 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
19003 IH-10 West San Antonio, Texas 78257 | ||
(Address of principal executive offices) | ||
(210) 918-2000 | ||
(Registrant’s telephone number, including area code) | ||
Not applicable | ||
(Former name or former address, if changed since last report.) | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 7.01 Regulation FD Disclosure.
Senior management of NuStar Energy L.P. (the “Partnership”) is meeting with members of the investment community at J.P. Morgan’s Mid-West Energy Infrastructure/MLP 1x1 Forum in Chicago, Illinois on Thursday, September 20, 2018. The slides attached to this report were prepared in connection with, and are being used during, the conference. The slides are included in Exhibit 99.1 to this report and are incorporated herein by reference. The slides will be available in the “Investors” section of the Partnership’s website at www.nustarenergy.com at 8:30 a.m. (Central Time) on September 20, 2018.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit Number | EXHIBIT | |
Exhibit 99.1 | ||
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
NUSTAR ENERGY L.P. | ||||
By: | Riverwalk Logistics, L.P. | |||
its general partner | ||||
By: | NuStar GP, LLC | |||
its general partner | ||||
Date: September 20, 2018 | By: | /s/ Amy L. Perry | ||
Name: | Amy L. Perry | |||
Title: | Executive Vice President—Mergers & Acquisitions, Strategic Direction and Investor Relations and Corporate Secretary | |||
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Exhibit 99.1 J.P. Morgan’s M i d - W e s t E n e r g y I n f r a s t r u c t u r e / M L P 1 x 1 F o r u m September 20, 2018
Forward-Looking Statements Statements contained in this presentation other than statements of historical fact are forward-looking statements. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will likely vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance presented or suggested in this presentation. These forward-looking statements can generally be identified by the words "anticipates," "believes," "expects," "plans," "intends," "estimates," "forecasts," "budgets," "projects," "could," "should," "may" and similar expressions. These statements reflect our current views with regard to future events and are subject to various risks, uncertainties and assumptions. We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see NuStar Energy L.P.’s annual report on Form 10-K and quarterly reports on Form 10-Q, filed with the SEC and available on NuStar’s website at www.nustarenergy.com. We use financial measures in this presentation that are not calculated in accordance with generally accepted accounting principles (“non-GAAP”) and our reconciliations of non- GAAP financial measures to GAAP financial measures are located in the appendix to this presentation. These non-GAAP financial measures should not be considered an alternative to GAAP financial measures. 2
Overview
Our Newly Simplified Structure: One Public Company, No IDRs IPO Date: 4/16/2001 Common Unit Price (9/18/18): $27.78 Annualized Distribution/Common Unit: $2.40 Yield (9/18/18): 8.6% Market Capitalization: $3.0 billion Enterprise Value: $7.7 billion Credit Ratings NYSE: NS Moody's: Ba2/Negative S&P: BB/Negative Fitch: BB/Negative 4
NuStar Has a Broad, Diverse Portfolio of Assets Current Profile Total Pipeline Miles: ~9,700 Total Storage Capacity:~97MM bbls Volumes Handled(1): ➢ >1.4MM BPD pipeline volumes ➢ >330M BPD storage throughput terminal volumes Total Enterprise Value: ~$8B Total Assets: ~$7B Key Takeaways: Highly integrated U.S. crude oil pipeline & terminal system Minimal direct exposure to commodity prices Significant crude oil midstream footprint in the Midland Basin of the Permian (1) Average daily Pipeline segment and Storage segment volumes for the quarter ending 6/30/18. 5
NuStar’s Assets are Well-Balanced and Have Performed Consistently, Through Market Challenges 2017 EBITDA1, By Segment Historical Pipeline and Storage Segment EBITDA1 $719 $707 ($ in millions) $690 $671 $610 $554 Oil Price Crash 50% 49% Great Recession $498 Pipeline Storage $477 $360 $455 $355 $338 $432 $394 $323 $277 $211 $198 $199 $190 $186 Shale Boom Backwardated Market Structure $335 $333 $347 $279 $287 $277 $287 Crude $242 $256 Refined Crude Refined 33% $208 Products 53% Products 47% 67% 2008 2009 2010 2011 2012 2013* 2014 2015 2016 2017 2018 Est. Storage Segment Pipeline Segment Both Segments Combined Pipeline Throughput Volumes, Storage Revenues, * Adjusted for Goodwill Impairment Loss by Product by Product 1 - Please see Appendix for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures 6
With Our Simplification Complete, We Have Achieved the Five Characteristics Critical to MLP Success as Markets Recover Minimal Capital Needs Simplified Structure/ Lower Leverage Transparent Governance Strong, Strong Coverage Stable No IDR Burden Growth 7
We Are Well-Positioned to Build on Our Foundational Strengths … Expected 2018 Debt/EBITDA1 of about 4.7x Simplified Structure & No IDRs Lower Leverage & Strong Coverage Expected 2018 distribution + coverage1 in the range of 1.20x to 1.30x Disciplined Project Management Diverse, Balanced and Well-Maintained Asset Base Safe, Efficient Operations 1 - Please see Appendix for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures 8
Permian Crude System Growth Platform
The Permian Phenomenon A massive oil basin of epic proportions… A pool of more recoverable oil than any field in the world except for Saudi Arabia’s Ghawar 250 miles wide, 300 miles long (75,000 square miles) The Wolfcamp Formation, all by itself, is estimated to hold 20 billion barrels of oil The world’s hottest oil basin Many major U.S. E&P firms have shifted resources away from other plays to focus on the Permian ➢ Permian investments reaped double-digit returns in 2017, even with oil barely 60% of what it was in 2014 Currently accounts for 55% of nation’s active oil rigs If it were a standalone country, the Permian Basin would already rank #7 among the world’s top liquids producers The Basin’s growth projections are unprecedented Expected to rise to a record 3.5 million barrels of oil per day by year end, over 25% of nation’s output Could reach 5.0 million barrels a day by the end of 2020, more than either Iran or Iraq Expected to surge to 8.0-10.0 million barrels per day over next decade, potentially surpassing all OPEC members 10
Advances in Drilling Activity and Technology Are Driving the Basin’s Unparalleled Growth • Midland Basin Production Permian Basin rig count, now 485, 3.31 has grown from 342 or 42%, since (MMBOE/D) we acquired our system last May1 2.47 2.57 • The basin’s record-level DUCs will 2.25 2.05 baseload 2018 completion activity, 1.98 1.88 1.70 and experts predict >600mb/d 1.52 growth in 2018 1.28 1.36 Y Q1 Q2 Q3 Q4 Q1 Q2 Q3 (e) Q4 (e) Y (e) Y (e) 2016 2017 2018 2019 2020 As techniques and technology have evolved, producers have improved well performance, reflected in higher initial production rates (IP) and estimated ultimate recovery (EUR) 1. As of July 20, 2018 Source: Baker Hughes, Rystad Energy 11 1. As of August 10, 2018
Producers Remain Bullish on Permian Growth, Strength & Resiliency August 2, 2018 Second Quarter 2018 Conference Call August 9, 2018 Second Quarter 2018 Conference Call “With nearly half the drilling rigs and completion crews in the country “The second quarter was another strong quarter for Diamondback as running in the Permian Basin, the region is as busy as we've ever seen. we continued our operational excellence by growing production We estimate that more than $50 billion in capital will 10% quarter-over-quarter…” be invested to drill and complete wells in the Permian “But in general on the Midland Basin side, we complete or we drill in 2018.” roughly 22 wells per rig per year, and we drill longer and longer laterals on average each year…” August 8, 2018 Second Quarter 2018 Conference Call August 8, 2018 Second Quarter 2018 Conference Call ““On the well front, we just wanted to point out as an example that “We surged past 100,000 Boe per day during the second quarter, we continue to show impressive performance. The extending a remarkable run of production growth that is example in particular here is the Wolfcamp D…” “And numbers are unmatched in the industry.” sort of staggering. About a 75% improvement over the early life of these wells compared to the earlier style “With our rigs and crews well-seasoned and running smoothly, completions that were done say 3 and 4 years ago in the exact we're confident that we can sustain our drilling and same area.” completion performance while spreading facility cost over more wells and taking steps towards an optimized full-scale development approach.” Source: Earnings Call Transcripts 12
Our Permian Crude System Continues to Prove Itself – “Core of the Core” Our system throughput is now 330,000 BPD, up 164% since the System is located in 5 of the 6 most active counties in the acquisition prolific Midland Basin Permian overall up 49% in same period ~700 miles of pipeline with 460,000 BPD of capacity, 1MM barrels of storage capacity, over 500,000 dedicated acres, as well Based on our producer projections, we expect our 2018 exit rate as 5MM acres of Areas of Mutual Interest, or AMI to be 360,000-380,000 BPD Since last May, we have: Constructed ~200 miles of pipe Added 20,000 dedicated acres ➢ We expect 82 new wells on this additional acreage, through 2019 Increased the number of well connection sites on our system from 102 to 173 ➢ Recently approved projects to connect to another 40 sites We project the System’s expected EBITDA to more than double from 2018 to 2020 We are constructing a 10-bay truck rack with capability to load 30,000 BPD Evaluating whether to construct a second truck rack with up to 10,000 BPD of loading capacity We are evaluating additional connections, including connecting Wichita Falls Crude Pipeline to Sunrise Expansion (Colorado City to Wichita Falls) The system provides customers with excellent access to multiple downstream end markets Delivery points and flow assurance into Big Spring, Midland and Colorado City Source: EIA Drilling Productivity Report 13
Our Permian System’s Receipts and EBITDA Are Growing Rapidly $30 319 350 300 $25 266 250 $20 211 187 200 $15 159 $28 139 150 $10 $19 100 $14 $12 $12 $5 50 $7 $0 0 2Q 2017 3Q 2017 4Q 2017 1Q 2018 2Q 2018 3Q 2018 (E) EBITDA ($MM) System Receipts (MBPD) Source: EIA Drilling Productivity Report 14 1 - Please see Appendix for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures
We are Focused on Three Key Objectives to Continue to Realize Our System’s Growth Potential Providing • Working to match producers with downstream markets with “firm” space • Identifying new shippers and marketers with downstream pipeline capacity Flow • Completing truck loading projects to add new takeaway capacity Assurance • Working to connect to multiple new takeaway pipelines Developing •Anticipate building another ~60 new well connections next year •Completing connections to Enterprise’s Midland Terminal and Plains’ SunRise Our Existing Pipeline System •Developing expansion projects to increase our system’s capacity and efficiency Expanding •Continuing to bring new volumes from existing producers through interconnects and dedicated acreage On Our •Leveraging our Permian Crude System to benefit other NuStar assets, including our Reach South Texas System, Corpus Christi North Beach Terminal and Wichita Falls pipelines 15
Growth Projects Outside the Permian
Outside the Permian, We Have Developed Projects to Utilize Our Existing Assets to Enhance Unitholder Value South Texas Crude & Northern Mexico Corpus Christi-North Refined Product Beach Dock Supply Connections West Coast St. James Bio-Fuels Strategy Opportunities 17
Permian Shippers/Producers are Incentivized to Take Advantage of the Price Dislocation Between WTI-Midland and WTI-Houston The basin’s greater-than-expected production ramp-up has widened the differential as the market anticipates additional long-haul capacity will not likely be completed before late second quarter 2019 During this interim period, shippers/producers are looking to find ways to benefit from the price dislocation We are actively developing projects to facilitate movement of Permian barrels to Corpus ahead of long-haul project completion dates on our South Texas assets Our system is uniquely positioned to be an early mover for motivated shippers 18
Completions of Long-Haul Capacity Are Expected to Narrow the Price Dislocation, But Permian Production is Projected to Drive Strong Growth in Exports… According to EIA, the U.S. is now the largest crude oil producer, surpassing Russia and Saudi Arabia Some analysts now expect the U.S. to export as much as five million BPD by 2023 We believe the Permian’s production of light oil, in particular, will drive healthy growth in exports from Corpus Permian barrels are increasingly light, and regional refineries are running as much light, sweet crude as they can Because of this regional supply/demand imbalance, most analysts expect incremental Permian crude production growth will be exported out of the region to supply refineries elsewhere in the U.S. and around the globe Avg MBPD U.S. Crude Production Annual Growth 12,000 10,000 8,000 6,000 4,000 30% 20% 19% 23% 26% 18% 2,000 18% - 2012 2013 2014 2015 2016 2017 2018 Source: EIA Bakken Eagle Ford Permian Niobrara Other 19
… And NuStar’s CCNB Dock Facility is Uniquely Positioned to Benefit From That Growth With between 1.4 and 2.0 million BPD of additional Permian long-haul pipeline capacity coming into service over the next two years and headed toward Corpus, the Port of Corpus Christi should benefit from incremental Permian light barrels headed for other markets CCNB The Port of Corpus Christi offers a cost-effective alternative to Houston’s congestion and constraints NuStar’s CCNB facility: 3.3 million barrels of segregated crude storage capacity (Expandable to ~4.3 million barrels) Four docks with a combined 100,000 barrels per hour loading capacity CCNB Located at entrance to Port, which saves customers an estimated 4-6 hours, compared to inland facilities 20
We Have Also Recently Renewed T&D Commitments in South Texas We now have T&D contracts for ~116,000 BPD Renewed commitments totaling ~50,000 BPD with existing customers Maintaining throughput by offering industry-leading service options and flexibility to attract/retain committed/walkup customers 21
Our Northern Mexico Supply Projects Are Progressing On Schedule Nuevo Laredo Project - Valero Energy has recently announced their plans related to our projects to supply refined products to Nuevo Laredo via our Odem and Laredo pipeline systems Howard Energy Corpus Christi Connection – Howard Energy has announced an open season for capacity on a pipeline to supply their Corpus Christi rail terminal via a connection to our Corpus Christi pipeline infrastructure Valley Pipeline Project – We have secured a commitment from a large customer for the majority of the capacity of an expansion of our Valley Pipeline system. The customer will supply refined products to Mexico via a third party’s Brownsville terminal We will conduct an open-season to solicit commitments for additional capacity during the 3rd quarter 22
Our Northern Mexico Supply Projects Are Progressing On Schedule (continued) These long-term throughput & deficiency contracts will support a series of healthy-return capital projects to: Connect to pipelines and third-party rail facilities in Corpus Christi Supply refined products to Nuevo Laredo via our Odem and Laredo pipeline systems Upgrade our Nuevo Laredo Terminal Expand our Valley Pipeline System to supply refined products to South Texas and Mexico via NuStar’s and third party terminals in Edinburg, Harlingen and Brownsville 23
The Council Bluffs System That We Acquired in April is Performing Well as We Complete Our Integration In April, we closed on an immediately accretive $38 million acquisition of CHS’ Council Bluffs system, consisting of a 227-mile pipeline and 18 storage tanks Since April, we have worked to integrate the pipeline and terminal into our Central East system We are on schedule to complete our integration in early October, when we are scheduled to reactivate two intermediate pump stations at Abilene, Kansas and Tecumseh, Nebraska Even during our integration, we have achieved our expectations for volumes at the terminal rack and exceeded expectations for line throughput We expect to see increased volumes when the rack is opened to third-party customers Third-party throughput will continue to increase as intermediate pump stations are reactivated 24
NuStar is Executing Our West Coast Bio-Fuel Strategy With Multiple Projects Across the Region Bio- and low-carbon fuel mandates in West Coast states have created opportunities for clean products storage in our assets in the region We have developed low- cost, high-return bio-fuel capital projects at a number of our West Coast facilities The projects, in the aggregate, total ~$70 million The projects are contract- backed with strong counterparties 25
Our St. James Terminal is Also Benefiting From Price Dislocations We executed new contract for unit train off-loading due to widening differentials out of the Permian (expect 3- 10 trains per month) St. James is likely to be among the first of our facilities to benefit from a return to contango 26
Finance Update
We Project 2018 Strategic Capital Spending Needs In the Range of $360 to $390 Million $2,000 $1,789 $1,500 Majority of 2018 spending relates to: Permian ▪ Crude Permian Crude System (~$190) $1,000 System ▪ $1,462 Northern Mexico (~$50) $690 Council Bluffs Acquisition $38M $316 $500 $431 $143 $262 $360 $96 $374 $328 $327 to $302 $288 $390 $166 $0 2012 2013 2014 2015 2016 2017 2018 Forecast Internal Growth Acquisitions 28
Debt Maturity Schedule (as of June 30, 2018) We have no significant maturities until 2020 $1,750 Receivables Financing $1,524 Sub Notes $1,500 $56 GO Zone Financing $1,250 $450 Senior Unsecured Notes Revolver $1,000 $750 $500 $1,018 $250 $550 $365 $403 $300 $250 $0 2018 2019 2020 2021 2022 2027 2038-2041 2043 We repaid our $350 million 7.65% senior unsecured notes that matured in April with our revolver, but we plan to issue up to $500 million new senior unsecured notes by EOY 29
Capital Structure as of June 30, 2018 ($ in Millions) $1.75 billion Credit Facility $1,018 NuStar Logistics Notes (4.75%) 250 Series D Preferred Units – Mezzanine2 $371 NuStar Logistics Notes (4.80%) 450 NuStar Logistics Notes (5.625%) 550 Partner’s Equity NuStar Logistics Notes (6.75%) 300 Series A, B and C Preferred Units $756 NuStar Logistics Sub Notes 403 Common Equity, General Partner and AOCI 1,701 GO Zone Bonds 365 Total Partners’ Equity 2,457 Receivables Financing 56 Total Capitalization $6,271 Short-term Debt & Other 51 Total Debt $3,443 As of June 30, 2018: Credit Facility availability ~$554 million Debt to EBITDA ratio1 4.7x 1 - Please see Appendix for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures 2 – On July 13, 2018, we closed on the issuance of an additional $190 million of Series D preferred units 30
Appendix
Reconciliation of Non-GAAP Financial Information 32
Reconciliation of Non-GAAP Financial Information (continued) 33
Reconciliation of Non-GAAP Financial Information (continued) 34
Reconciliation of Non-GAAP Financial Information (continued) 35
Reconciliation of Non-GAAP Financial Information (continued) 36