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NuStar Energy L.P. Reports Earnings Results for 4Q 2016/Covers Quarterly Distribution for 11th Consecutive Quarter and Third Consecutive Year

Announced Sale of Axeon’s Asphalt Marketing Business is Expected to Generate a $110 Million Cash Payment to NuStar in 2017, Eliminate $125 Million in Credit Support for Axeon’s Asphalt Marketing Business, Increase Revenue from Terminal Leases by $2 Million Annually and Generate a Non-cash Write-down of $58.7 Million in 4Q 2016

Immediately Accretive Acquisition of Martin Terminal Assets Completed in the Fourth Quarter

$226.5 Million of Series A Perpetual Preferred Units Issued in the Fourth Quarter at a Significantly Lower Cost than Issuing NuStar Common Equity

SAN ANTONIO--(BUSINESS WIRE)--Jan. 31, 2017-- NuStar Energy L.P. (NYSE: NS) today reported a net loss applicable to limited partners of $24.3 million, or $0.31 per unit, for the fourth quarter of 2016 and net income applicable to limited partners of $99.1 million, or $1.27 per unit, for the year ended December 31, 2016.

Fourth quarter 2016 earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations were $82.6 million. For the year ended December 31, 2016, the partnership reported $517.1 million of EBITDA from continuing operations.

All of these amounts include a $58.7 million non-cash charge related to the announced sale by Axeon of the asphalt marketing business (Axeon) that NuStar sold to Axeon in 2014. To facilitate this sale, NuStar agreed to reduce the value of its term loan to Axeon by $58.7 million and receive a $110 million cash payment to satisfy the remaining debt owed by Axeon under NuStar’s term loan. The sale is expected to close in the first half of the year, and once closed, NuStar expects to receive the $110 million cash term loan payment and an additional $2 million per year for storage space at its terminals in Jacksonville, FL and Baltimore, MD. The transaction will also increase NuStar’s borrowing capacity because it will eliminate NuStar’s obligation to provide up to $125 million in credit support for Axeon, which was required under the previous agreements with Axeon.

Distributable cash flow (DCF) from continuing operations available to common limited partners was not impacted by the non-cash charge. DCF from continuing operations available to common limited partners was $87.7 million for the fourth quarter of 2016, which allowed NuStar to cover its distribution to the common limited partners by 1.02 times. For the year ended December 31, 2016, DCF from continuing operations available to common limited partners was $365.2 million, which covered the distribution to the common limited partners by 1.07 times.

As previously announced on January 27, 2017, the fourth quarter 2016 Series A preferred unit distribution of $0.64930556 per unit will be paid on March 15, 2017 to holders of record as of March 1, 2017. In addition, the fourth quarter 2016 common unit distribution of $1.095 per unit will be paid on February 13, 2017 to holders of record as of February 8, 2017.

“I am very pleased with the many initiatives that we completed in 2016 that set the stage for a great year in 2017 and beyond,” said Brad Barron, President and Chief Executive Officer of NuStar Energy L.P. and NuStar GP Holdings, LLC. “We are very excited to have completed an immediately accretive acquisition in the fourth quarter and to finally eliminate all ties to our former asphalt business. From a financing perspective, we feel the non-cash impairment in the fourth quarter is a small price to pay to receive a $110 million cash payment in 2017 that when coupled with the $100 million of cash we repatriated from our international operations and the proceeds that we received from issuing $226.5 million of preferred units in 2016, will significantly reduce the amount of capital needed to be raised in the financial markets to fund our future growth capital needs. And, of course, it goes without saying that I am also very pleased to eliminate the need to provide up to $125 million in credit support to Axeon and put a close to this chapter of our history once and for all.”

Recapping 2016, Barron said, “Our base storage and pipeline operations performed very well in the face of a continued weak commodity price environment throughout the year. During 2016, our storage segment benefitted from increased storage rates at some of our facilities, while our pipeline segment experienced higher overall refined product throughputs, due in part to some completed expansion projects in our Central East System and higher utilization at some of the refineries we serve.”

Barron went on to say, “These positive developments, in combination with a decrease in operating expenses across both segments, allowed us to deliver solid results in 2016 despite significantly decreased Eagle Ford crude oil throughputs during the year. In fact, NuStar has now covered its distribution for 11 consecutive quarters and three consecutive years, which is a testament to the strength of our balanced and diversified asset base and the resilience of our employees.

“And the future looks bright as we will benefit from the additional 2.5 million barrels of storage at our Piney Point, Maryland facility, a newly renegotiated long-term storage lease at our St. Eustatius facility, expansion of our propane and distillate services on our Central East System and the synergies achieved by the acquisition of terminal assets in Corpus Christi that support our Eagle Ford operations.”

Fourth Quarter 2016 Earnings Conference Call Details

A conference call with management is scheduled for 9:00 a.m. CT today, January 31, 2017, to discuss the financial and operational results for the fourth quarter of 2016. Investors interested in listening to the discussion may dial toll-free 844/889-7787, passcode 48334486. International callers may access the discussion by dialing 661/378-9931, passcode 48334486. The partnership intends to have a playback available following the discussion, which may be accessed by dialing toll-free 855/859-2056, passcode 48334486. International callers may access the playback by dialing 404/537-3406, passcode 48334486. The playback will be available until 1:00 p.m. CT on March 2, 2017.

Investors interested in listening to the live discussion or a replay via the internet may access the discussion directly at http://edge.media-server.com/m/p/9594wmas or by logging on to NuStar Energy L.P.’s website at www.nustarenergy.com.

The discussion 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 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 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 95 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 website 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, and the related conference call will include, 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 December 31, Year Ended December 31,
2016     2015 2016     2015
Statement of Income Data:
Revenues:
Service revenues $ 268,438 $ 281,025 $ 1,083,165 $ 1,114,153
Product sales 203,319   183,894   673,517   969,887  
Total revenues 471,757   464,919   1,756,682   2,084,040  
Costs and expenses:
Cost of product sales 191,917 169,500 633,653 907,574
Operating expenses 113,052 117,612 448,367 473,031
General and administrative expenses 25,418 27,096 98,817 102,521
Depreciation and amortization expense 55,997   52,687   216,736   210,210  
Total costs and expenses 386,384   366,895   1,397,573   1,693,336  
Operating income 85,373 98,024 359,109 390,704
Interest expense, net (34,976 ) (33,559 ) (138,350 ) (131,868 )
Other (expense) income, net (58,773 ) (70 ) (58,783 ) 61,822  
(Loss) income from continuing operations before income tax expense (8,376 ) 64,395 161,976 320,658
Income tax expense 2,680   4,915   11,973   14,712  
(Loss) income from continuing operations (11,056 ) 59,480 150,003 305,946
Income from discontinued operations, net of tax       774  
Net (loss) income $ (11,056 ) $ 59,480   $ 150,003   $ 306,720  
Net (loss) income applicable to common limited partners $ (24,342 ) $ 47,485   $ 99,068   $ 257,366  
Basic and diluted net (loss) income per common unit:
Continuing operations $ (0.31 ) $ 0.61 $ 1.27 $ 3.29
Discontinued operations       0.01  
Total $ (0.31 ) $ 0.61   $ 1.27   $ 3.30  
Basic weighted-average common units outstanding 78,514,363   77,886,078   78,080,484   77,886,078  
 
Other Data (Note 1):
EBITDA from continuing operations $ 82,597 $ 150,641 $ 517,062 $ 662,736
DCF from continuing operations available to

common limited partners

$ 87,697 $ 89,627 $ 365,157 $ 377,907
 
December 31,
2016 2015
Balance Sheet Data:
Total debt $ 3,068,364 $ 3,139,612
Partners’ equity $ 1,611,617 $ 1,609,844
 
       

NuStar Energy L.P. and Subsidiaries

Consolidated Financial Information - Continued

(Unaudited, Thousands of Dollars, Except Barrel Data)

 
Three Months Ended December 31, Year Ended December 31,
2016     2015 2016     2015
Pipeline:
Refined products pipelines throughput (barrels/day) 546,878 551,246 535,946 522,146
Crude oil pipelines throughput (barrels/day) 374,170   435,007   392,181   471,632  
Total throughput (barrels/day) 921,048 986,253 928,127 993,778
Throughput revenues $ 122,721 $ 130,492 $ 485,650 $ 508,522
Operating expenses 37,364 40,081 147,858 153,222
Depreciation and amortization expense 23,858   22,058   89,554   84,951  
Segment operating income $ 61,499   $ 68,353   $ 248,238   $ 270,349  
Storage:
Throughput (barrels/day) 789,369 888,033 789,065 899,606
Throughput terminal revenues $ 29,279 $ 31,762 $ 117,586 $ 130,127
Storage terminal revenues 118,723   123,067   492,456   494,781  
Total revenues 148,002 154,829 610,042 624,908
Operating expenses 69,695 70,185 276,578 290,322
Depreciation and amortization expense 30,002   28,541   118,663   116,768  
Segment operating income $ 48,305   $ 56,103   $ 214,801   $ 217,818  
Fuels Marketing:
Product sales and other revenue $ 205,435 $ 185,497 $ 681,934 $ 976,216
Cost of product sales 194,650   172,820   645,355   922,906  
Gross margin 10,785 12,677 36,579 53,310
Operating expenses 7,661   9,926   33,173   39,803  
Segment operating income $ 3,124   $ 2,751   $ 3,406   $ 13,507  
Consolidation and Intersegment Eliminations:
Revenues $ (4,401 ) $ (5,899 ) $ (20,944 ) $ (25,606 )
Cost of product sales (2,733 ) (3,320 ) (11,702 ) (15,332 )
Operating expenses (1,668 ) (2,580 ) (9,242 ) (10,316 )
Total $   $ 1   $   $ 42  
Consolidated Information:
Revenues $ 471,757 $ 464,919 $ 1,756,682 $ 2,084,040
Cost of product sales 191,917 169,500 633,653 907,574
Operating expenses 113,052 117,612 448,367 473,031
Depreciation and amortization expense 53,860   50,599   208,217   201,719  
Segment operating income 112,928 127,208 466,445 501,716
General and administrative expenses 25,418 27,096 98,817 102,521
Other depreciation and amortization expense 2,137   2,088   8,519   8,491  
Consolidated operating income $ 85,373   $ 98,024   $ 359,109   $ 390,704  
 
 

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 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 December 31, Year Ended December 31,
2016     2015 2016     2015
(Loss) income from continuing operations $ (11,056 ) $ 59,480 $ 150,003 $ 305,946
Interest expense, net 34,976 33,559 138,350 131,868
Income tax expense 2,680 4,915 11,973 14,712
Depreciation and amortization expense 55,997   52,687   216,736   210,210  
EBITDA from continuing operations 82,597 150,641 517,062 662,736
Interest expense, net (34,976 ) (33,559 ) (138,350 ) (131,868 )
Reliability capital expenditures (12,321 ) (17,936 ) (38,155 ) (40,002 )
Income tax expense (2,680 ) (4,915 ) (11,973 ) (14,712 )
Distributions from joint venture 2,500
Mark-to-market impact of hedge transactions (a) 3,825 (1,120 ) 10,317 (5,651 )
Unit-based compensation (b) 2,120 5,619
Other items (c) 62,018   9,282   71,921   (44,032 )
DCF from continuing operations $ 100,583 $ 102,393 $ 416,441 $ 428,971
Less DCF from continuing operations available to

general partner

12,886   12,766   51,284   51,064  

DCF from continuing operations available to

common limited partners

$ 87,697   $ 89,627   $ 365,157   $ 377,907  
 
Distributions applicable to common limited partners $ 86,085 $ 85,285 $ 342,598 $ 341,140
Distribution coverage ratio (d)

1.02x

1.05x 1.07x 1.11x
 

(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 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.

(c)

Other items primarily consist of (i) adjustments for throughput deficiency payments and construction reimbursements for all periods presented, (ii) a $58.7 million non-cash impairment charge on the Axeon term loan in the fourth quarter of 2016 and (iii) a ($56.3) million non-cash gain and insurance proceeds of $7.8 million associated with the Linden terminal acquisition in 2015.

(d)

Distribution coverage ratio is calculated by dividing DCF from continuing operations available to common limited partners by distributions applicable to common 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
website: http://www.nustarenergy.com

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