NuStar Energy L.P. Reports Strong Second Quarter of 2021 Earnings Results
August 05, 2021 at 06:45 AM EDT
NuStar Energy L.P. (NYSE: NS) today reported net income of $63 million for the second quarter of 2021, or $0.25 per unit, compared to net income of $30 million, or a $0.06 net loss per unit for the second quarter of 2020. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $189 million for the second quarter of 2021, up $27 million or 17 percent from $162 million for the second quarter of 2020.
Distributable cash flow (DCF) available to common limited partners was $97 million for the second quarter of 2021, up $35 million or 56 percent compared to $62 million in the second quarter of 2020. The distribution coverage ratio to common limited partners was 2.22 times for the second quarter of 2021 and 2.03 times for the six months ended June 30, 2021.
“Strong improvement in our EBITDA was driven by outperformance across our core strategic asset footprint: our refined products systems, our crude assets and our West Coast Renewable Fuels Network,” said NuStar president and CEO Brad Barron.
Refined Product Systems Back to 100 Percent of Pre-Pandemic Run Rate
“Refined product demand has continued to improve as more and more Americans have returned to normal day-to-day activities,” said Barron. “After dipping to an average of 95 percent in the first quarter due to Winter Storm Uri, our second quarter average rebounded back up to 105 percent of pre-pandemic demand, and we are now forecasting 100 percent for the full year.
“Our second quarter refined product throughputs are up 34 percent over the second quarter of 2020, and also up 19 percent over first quarter 2021. And as vaccination efforts progress, we expect to continue to see sustained recovery in refined product demand in the U.S. and in Mexico, and we continue to expect our refined products systems to perform at around 100 percent of our pre-pandemic run-rate for the remainder of 2021.”
Crude Asset Demand Continues to Strengthen
Barron continued, “The strengthening refined product demand we have seen has also increased U.S. refiners’ demand for crude, contributing to higher throughputs for our crude pipelines in the second quarter, which are up 17 percent over the second quarter of 2020 and 13 percent over the first quarter of 2021.
“Rebounding crude demand, along with tempered global supply, has contributed to higher crude prices and improved expectations for U.S. shale production, particularly in the Permian Basin. And thanks to our Permian Crude System’s ‘core of the core’ premier location, lowest producer costs and highest product quality, we saw our Permian system’s volumes grow in the second quarter to an average 450,000 barrels per day, up 12 percent over the second quarter of 2020, up 12 percent over the first quarter of 2021 and comparable to our record-breaking first quarter 2020 pre-COVID quarterly average.
“In July, we saw our Permian volumes increase to an average of 481,000 barrels per day and we are on track to exit 2021 at around 500,000 barrels per day,” said Barron.
West Coast Renewable Fuels Network Handles Impressive Share of California’s Market
Barron also said NuStar’s West Coast Renewable Fuels Network is already playing an integral role in significant reductions in carbon emissions and offering a great growth platform across that region.
“NuStar already handles an impressive share of California’s renewable fuels. According to the latest available data from the state of California, for the first quarter of 2021 NuStar handled about 5 percent of California’s total biodiesel volumes; close to 20 percent of the state’s ethanol; and close to 30 percent of its renewable diesel volumes.
“We expect NuStar’s presence to continue to grow as we complete our planned tank conversion projects, and we will continue to transition existing tankage over to renewables service as our customer demand increases,” said Barron.
Additional Renewable Opportunities
Barron then discussed additional opportunities for renewable fuels service in the company’s mid-continent operations.
“We are also looking at some exciting renewables opportunities for our Ammonia System as it has always been a steady and important EBITDA contributor for NuStar.
“Currently, the ammonia we transport is used primarily for fertilizing crops by farmers in our nation’s ‘breadbasket.’ However, this critical chemical is now experiencing a renaissance as an energy source capable of powering zero-carbon, heavy-duty engines and marine vessels, as well as for ammonia’s ability to offer the safest and most efficient transportation and storage medium for hydrogen.
“We believe the steps our customers and other ammonia producers are taking toward ‘green’ ammonia production, as well as increasing demand for renewable alternatives and carbon emission reductions, will drive concurrent demand growth for our Ammonia System, with little or no additional strategic spending. We are developing a number of near and long-term actionable low-multiple, modest-spend, high-return organic projects for connections and other enhancements to our system to maximize its role in a renewable fuels future.”
Announces Sale of Nine Terminals to Sunoco LP
Barron reviewed the announcement from earlier this week that NuStar has signed an agreement to sell nine terminal facilities in eight locations in the Northeast, Illinois and Florida to Sunoco LP for $250 million, noting that NuStar expects to close on that sale early in the fourth quarter.
“While these terminals are solid assets with great operations and employees, these facilities are no longer synergistic with NuStar’s core assets, which, in the current competitive climate is critical to their long-term success.
“We plan to deploy the proceeds from this sale to further improve our debt metrics. In fact, by year-end we expect our debt-to-EBITDA ratio to be comparable to the lower level we achieved in the second quarter of 2020. While selling assets is never easy, this transaction is a ‘win-win’ for all parties as we are exiting non-core assets at an attractive valuation, which allows us to lower leverage, and Sunoco is adding high-quality, synergistic assets and great employees to its portfolio.
“With this sale, we are positioned to strengthen our balance sheet further and focus 100 percent on our core strategic asset footprint,” Barron added.
Sustainability Presentation Released
Barron closed by discussing NuStar’s newly issued sustainability presentation, which can be found on the company’s website.
“In our recently published sustainability presentation, you will learn more about NuStar’s culture of responsibility, which has distinguished us throughout our 20-year history as we have always been committed to protecting and caring for our employees, our communities and the environment.
“You will see our track record of excellence in health, safety and giving back to our communities, as well as our commitment to sustainability, now and in the future,” said Barron.
Conference Call Details
A conference call with management is scheduled for 9:00 a.m. CT today, August 5, 2021. The partnership plans to discuss the second quarter 2021 earnings results, which will be released earlier that day. Investors interested in listening to the discussion may dial toll-free 844/889-7787, passcode 5176327. International callers may access the discussion by dialing 661/378-9931, passcode 5176327. The partnership intends to have a playback available following the discussion, which may be accessed by dialing toll-free 855/859-2056, passcode 5176327. International callers may access the playback by dialing 404/537-3406, passcode 5176327. The playback will be available until 12:00 p.m. CT on September 4, 2021.
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/8d35675z 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, Texas, is one of the largest independent liquids terminal and pipeline operators in the nation. NuStar currently has approximately 10,000 miles of pipeline and 73 terminal and storage facilities that store and distribute crude oil, refined products, renewable fuels and specialty liquids. The partnership’s combined system has approximately 72 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 and its Sustainability page at www.nustarenergy.com/Sustainability.
Cautionary Statement Regarding Forward-Looking Statements
This press release includes, and the related conference call will include, forward-looking statements regarding future events and expectations, such as NuStar’s future performance, plans and expenditures and the timing of, expected use of proceeds from and the other anticipated benefits from the announced asset sale. All forward-looking statements are based on NuStar’s beliefs as well as assumptions made by and information currently available to NuStar. These statements reflect NuStar’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 2020 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, NuStar does not intend, or undertake any obligation, 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
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 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 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. 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 net income (loss) to EBITDA, DCF and distribution coverage ratio.