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NuStar Energy L.P. Reports Higher than Expected Net Income for the Second Quarter of 2016

Net Income of $0.52 per Limited Partner Unit Exceeds Guidance Range and Consensus Estimates

Quarterly Distribution Previously Announced at $1.095 per Unit

SAN ANTONIO--(BUSINESS WIRE)--Aug. 2, 2016-- NuStar Energy L.P. (NYSE: NS) today announced that its second quarter 2016 quarterly earnings exceeded consensus estimates and surpassed the partnership’s guidance expectations. The partnership reported net income applicable to limited partners of $40.0 million, or $0.52 per unit, for the second quarter of 2016 and $84.8 million, or $1.09 per unit, for the six months ended June 30, 2016.

Distributable cash flow (DCF) from continuing operations available to limited partners was $92.8 million for the second quarter of 2016, which allowed NuStar to cover its distribution to the limited partners by 1.09 times. For the six months ended June 30, 2016, DCF from continuing operations available to limited partners was $189.8 million, which covered the distribution to the limited partners by 1.11 times.

Second quarter 2016 earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations were $144.7 million. For the six months ended June 30, 2016, the partnership reported $292.2 million of EBITDA from continuing operations.

As previously announced on July 29, 2016, the second quarter 2016 distribution of $1.095 per unit will be paid on August 12, 2016 to holders of record as of August 9, 2016.

“Strong refined product pipeline throughput volumes, the benefit from 1.1 million barrels of storage leased at our Piney Point, Maryland facility, along with lower than expected operating expenses, contributed to our better than expected second quarter results,” said Brad Barron, President and Chief Executive Officer of NuStar Energy L.P. and NuStar GP Holdings, LLC. “What’s more significant is that we were able to report these solid results despite throughput revenues only slightly above contract minimums on our South Texas Crude Oil Pipeline System.”

Barron went on to say, “As you can see, we have the right assets to withstand this current downturn in the crude markets and we remain on track to cover the distribution for the full-year due to the continued strength of our core, diversified fee-based operations.”

Second Quarter 2016 Earnings Conference Call Details

A conference call with management is scheduled for 9:00 a.m. CT today, August 2, 2016, to discuss the financial and operational results for the second quarter of 2016. Investors interested in listening to the presentation may call 877/702-5019, passcode 44145456. International callers may access the presentation by dialing 443/863-7314, passcode 44145456. The partnership intends to have a playback available following the presentation, which may be accessed by calling 800/585-8367, passcode 44145456. International callers may access the playback by calling 404/537-3406, passcode 44145456. The playback will be available until 10:59 p.m. CT on September 2, 2016.

Investors interested in listening to the live presentation or a replay via the internet may access the presentation directly at http://edge.media-server.com/m/p/4iibfou3 or by logging on to NuStar Energy L.P.’s Web site at www.nustarenergy.com.

The presentation will disclose certain non-GAAP financial measures. Reconciliations of certain of these non-GAAP financial measures to U.S. GAAP may be found in this press release, with additional reconciliations located on the Financials page of the Investors section of NuStar Energy L.P.’s Web site 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 8,700 miles of pipeline and 79 terminal and storage facilities that store and distribute crude oil, refined products and specialty liquids. The partnership’s combined system has approximately 94 million barrels of storage capacity, and NuStar has operations in the United States, Canada, Mexico, the Netherlands, including St. Eustatius in the Caribbean, and the United Kingdom. For more information, visit NuStar Energy L.P.'s Web site at www.nustarenergy.com.

This release serves as qualified notice to nominees under Treasury Regulation Sections 1.1446-4(b)(4) and (d). Please note that 100% of NuStar Energy L.P.’s distributions to foreign investors are attributable to income that is effectively connected with a United States trade or business. Accordingly, all of NuStar Energy L.P.’s distributions to foreign investors are subject to federal income tax withholding at the highest effective tax rate for individuals and corporations, as applicable. Nominees, and not NuStar Energy L.P., are treated as the withholding agents responsible for withholding on the distributions received by them on behalf of foreign investors.

Cautionary Statement Regarding Forward-Looking Statements

This press release includes forward-looking statements regarding future events, such as the partnership’s future performance. 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 and NuStar GP Holdings, LLC’s 2015 annual reports 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.

   
NuStar Energy L.P. and Subsidiaries
Consolidated Financial Information
(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)
 
Three Months Ended June 30, Six Months Ended June 30,
2016   2015 2016   2015
Statement of Income Data:
Revenues:
Service revenues $ 270,403 $ 274,581 $ 536,969 $ 544,554
Product sales 167,401   296,030   306,538   581,001  
Total revenues 437,804   570,611   843,507   1,125,555  
Costs and expenses:
Cost of product sales 157,617 281,610 286,607 544,116
Operating expenses 112,662 117,138 217,883 232,785
General and administrative expenses 22,657 26,693 46,442 51,746
Depreciation and amortization expense 53,651   52,765   106,793   105,222  
Total costs and expenses 346,587   478,206   657,725   933,869  
Operating income 91,217 92,405 185,782 191,686
Interest expense, net (34,229 ) (32,824 ) (68,352 ) (64,861 )
Other (expense) income, net (201 ) (2,152 ) (372 ) 60,116  
Income from continuing operations before income tax expense 56,787 57,429 117,058 186,941
Income tax expense 4,270   3,104   7,140   5,491  
Income from continuing operations 52,517 54,325 109,918 181,450

Income from discontinued operations, net of tax

      774  
Net income $ 52,517   $ 54,325   $ 109,918   $ 182,224  
Net income applicable to limited partners $ 40,018   $ 42,434   $ 84,818   $ 156,970  

Basic and diluted net income per unit applicable to limited partners:

Continuing operations $ 0.52 $ 0.54 $ 1.09 $ 2.00
Discontinued operations       0.01  
Total $ 0.52   $ 0.54   $ 1.09   $ 2.01  
Basic weighted-average limited partner units outstanding 77,886,219   77,886,078   77,886,148   77,886,078  
 
Other Data (Note 1):
EBITDA from continuing operations $ 144,667 $ 143,018 $ 292,203 $ 357,024
DCF from continuing operations available to

limited partners

$ 92,820 $ 92,166 $ 189,847 $ 198,920
 
June 30,

December 31,

2016 2015 2015
Balance Sheet Data:
Total debt $ 3,205,693 $ 3,120,616 $ 3,139,612
Partners’ equity $ 1,489,895 $ 1,713,073 $ 1,609,844
 
   
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,
2016   2015 2016   2015
Pipeline:
Refined products pipelines throughput (barrels/day) 538,996 499,333 530,134 502,838
Crude oil pipelines throughput (barrels/day) 399,372   468,431   405,241   487,246  
Total throughput (barrels/day) 938,368 967,764 935,375 990,084
Throughput revenues $ 121,575 $ 122,210 $ 240,448 $ 246,635
Operating expenses 36,159 36,634 69,163 71,942
Depreciation and amortization expense 21,864   20,756   43,468   41,233  

Segment operating income

$ 63,552   $ 64,820   $ 127,817   $ 133,460  
Storage:
Throughput (barrels/day) 727,857 957,452 778,092 919,075
Throughput terminal revenues $ 28,668 $ 34,623 $ 58,068 $ 66,314
Storage terminal revenues 123,206   123,019   246,205   241,662  
Total revenues 151,874 157,642 304,273 307,976
Operating expenses 71,158 74,004 137,161 146,632
Depreciation and amortization expense 29,653   29,887   59,036   59,615  
Segment operating income $ 51,063   $ 53,751   $ 108,076   $ 101,729  
Fuels Marketing:
Product sales and other revenue $ 169,862 $ 297,589 $ 310,308 $ 584,023
Cost of product sales 160,557   285,862   293,138   552,080  
Gross margin 9,305 11,727 17,170 31,943
Operating expenses 7,913   9,077   16,551   19,368  
Segment operating income $ 1,392   $ 2,650   $ 619   $ 12,575  
Consolidation and Intersegment Eliminations:
Revenues $ (5,507 ) $ (6,830 ) $ (11,522 ) $ (13,079 )
Cost of product sales (2,940 ) (4,252 ) (6,531 ) (7,964 )
Operating expenses (2,568 ) (2,577 ) (4,992 ) (5,157 )
Total $ 1   $ (1 ) $ 1   $ 42  
Consolidated Information:
Revenues $ 437,804 $ 570,611 $ 843,507 $ 1,125,555
Cost of product sales 157,617 281,610 286,607 544,116
Operating expenses 112,662 117,138 217,883 232,785
Depreciation and amortization expense 51,517   50,643   102,504   100,848  
Segment operating income 116,008 121,220 236,513 247,806
General and administrative expenses 22,657 26,693 46,442 51,746
Other depreciation and amortization expense 2,134   2,122   4,289   4,374  
Consolidated operating income $ 91,217   $ 92,405   $ 185,782   $ 191,686  
 
 

NuStar Energy L.P. and Subsidiaries

Consolidated Financial Information - Continued

(Unaudited, Thousands of Dollars, Except Ratio Data)

Notes:

 
 

(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 and (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.

 
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 a distribution coverage ratio, which is calculated based on DCF, as the metric for determining the company-wide bonus and the vesting of performance units awarded to management as our board of directors believes DCF appropriately aligns management’s interest with our unitholders’ interest in increasing distributions in a prudent manner. 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 period 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 our non-GAAP financial measures:
 
   
Three Months Ended June 30, Six Months Ended June 30,
2016   2015 2016   2015
Income from continuing operations $ 52,517 $ 54,325 $ 109,918 $ 181,450
Interest expense, net 34,229 32,824 68,352 64,861
Income tax expense 4,270 3,104 7,140 5,491
Depreciation and amortization expense 53,651   52,765   106,793   105,222  
EBITDA from continuing operations 144,667 143,018 292,203 357,024
Interest expense, net (34,229 ) (32,824 ) (68,352 ) (64,861 )
Reliability capital expenditures (11,305 ) (6,029 ) (17,322 ) (12,827 )
Income tax expense (4,270 ) (3,104 ) (7,140 ) (5,491 )
Distributions from joint venture 2,500
Mark-to-market impact of hedge transactions (a) 5,762 1,440 10,446 321
Unit-based compensation (b) 1,122 2,208
Other items (c) 3,839   2,431   3,336   (52,214 )
DCF from continuing operations $ 105,586 $ 104,932 $ 215,379 $ 224,452

Less DCF from continuing operations available to general partner

12,766   12,766   25,532   25,532  

DCF from continuing operations available to limited partners

$ 92,820   $ 92,166   $ 189,847   $ 198,920  
 

Distributions applicable to limited partners

$ 85,285 $ 85,285 $ 170,570 $ 170,570
Distribution coverage ratio (d) 1.09x 1.08x 1.11x 1.16x
 
 
(a) DCF from continuing operations excludes the impact of unrealized mark-to-market gains and losses that arise from valuing certain derivative contracts, as well as the associated hedged inventory. The gain or loss associated with these contracts is realized in DCF from continuing operations when the contracts are settled.
 
(b) In connection with the employee transfer from NuStar GP, LLC on March 1, 2016, we assumed obligations related to awards issued under a long-term incentive plan, and we intend to satisfy the vestings of equity-based awards with the issuance of our 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.
 
(c) Other items consist of (i) adjustments for throughput deficiency payments and construction reimbursements for all periods presented and (ii) in 2015, a $56.3 million non-cash gain associated with the Linden terminal acquisition on January 2, 2015.
 
(d) Distribution coverage ratio is calculated by dividing DCF from continuing operations available to limited partners by distributions applicable to limited partners.
 

Source: NuStar Energy L.P.

NuStar Energy, L.P., San Antonio
Investors, Chris Russell, Treasurer and Vice President Investor Relations
Investor Relations: 210-918-3507
or
Media, Mary Rose Brown, Executive Vice President,
Corporate Communications: 210-918-2314
Web site: http://www.nustarenergy.com

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