NuStar Energy L.P. Reports Solid Third Quarter of 2021 Results
Completes Sale of Eastern U.S. Terminals; Proceeds Improve Leverage with Year-end Debt-to-EBITDA Ratio Target Below 4.0 Times
Expects to Self-fund all Spending from Internally Generated Cash Flows for 2021, 2022 and Beyond
Reports Comparable Quarter-Over-Quarter Results
Refined Product Systems Maintain 105 Percent of Pre-Pandemic Run Rate
Permian Crude System Volumes Hit Record-Breaking Average of 502,000 Barrels Per Day/On Track to Exit 2021 at Around 514,000 Barrels Per Day
2021 Full-Year Outlook Higher Than Previous Expectations
Sustainability Report Released
SAN ANTONIO, November 4, 2021 - NuStar Energy L.P. (NYSE: NS) today announced solid third quarter of 2021 results fueled by strong throughputs on its refined products and crude oil pipelines.
“In the third quarter, we completed the $250 million sale of our Eastern U.S. terminal facilities to Sunoco LP, which made it possible for us to execute on our plan to optimize our business and strengthen our balance sheet by deploying the sales proceeds to lower our leverage and focus 100 percent of our resources on our core asset footprint. As a result, we are now targeting a year-end debt metric below 4.0 times. We also continue to expect to self-fund all of our spending from our internally generated cash flows in 2021, 2022 and beyond,” said NuStar President and CEO Brad Barron.
“We are pleased to see the pieces of our plan coming into place and our ongoing core business performing solidly with a comparable, and in some cases, better quarter-over-quarter performance, despite the lingering effects of the pandemic on the global economy and the non-cash charges associated with the asset sale.”
Barron noted the quarter’s results include a $130 million non-cash charge related to the sale of its Eastern U.S. terminal assets and a $59 million non-cash impairment charge on a portion of NuStar’s Houston 12-inch pipeline, as well as a $9 million cash gain from insurance proceeds to rebuild tanks at its Selby terminal. As a result of the non-cash charges, NuStar reported a net loss of $125 million for the third quarter of 2021, or $1.48 net loss per unit, compared to a net loss of $97 million, or a $1.22 net loss per unit, for the third quarter of 2020, which was negatively impacted by a pandemic-related non-operational charge.
Excluding the effects of the non-cash charges, adjusted net income was $55 million for the third quarter of 2021, or $0.16 per unit, compared to adjusted net income of $45 million, or $0.08 per unit, for the third quarter of 2020.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $177 million for the third quarter of 2021, comparable to the third quarter of 2020 adjusted EBITDA of $180 million and up five percent over the pre-pandemic third quarter of 2019.
Distributable cash flow (DCF) available to common limited partners was $92 million for the third quarter of 2021, up $8 million, or 10 percent, compared to $84 million of adjusted DCF in the third quarter of
2020. The distribution coverage ratio to common limited partners was 2.10 times for the third quarter of 2021 and 2.05 times for the nine months ended September 30, 2021.
“We are pleased with the strong, stable results our business generated in the third quarter, as the world has continued to bounce back from the pandemic. And we are expecting our full-year 2021 results to demonstrate, once again, the strength and resilience of our assets, our employees and our business,” said Barron.
Refined Product Demand Maintains Resilience with 105 Percent of Pre-Pandemic Run Rate
“In the third quarter, we continued to see solid, steady refined product demand in the markets we serve, maintaining a strong 105 percent of pre-pandemic demand, which is on pace with the second quarter of this year,” said Barron. “Our third quarter refined product throughputs were up 16 percent over the third quarter of 2020 and up eight percent over the pre-pandemic third quarter of 2019.
“We continue to expect our refined products systems to perform at or above 100 percent of our pre-pandemic run-rate for the remainder of 2021.”
Permian Crude System Hits Record-Breaking Volumes
Barron continued, “Steady recovery in refined product demand has also continued to stoke a rebound in U.S. refiners’ demand for crude, which has contributed to higher throughputs for our crude pipelines in the third quarter, which are up 11 percent over the second quarter of 2021 and the third quarter of 2020.
“Thanks once again to our Permian Crude System’s premier ‘core of the core’ location, lowest producer costs and highest product quality, we have seen strong volume improvement. In the third quarter, our Permian system’s volumes grew to a record-breaking average of 502,000 barrels per day, up 12 percent over the second quarter of 2021; up 19 percent over the third quarter of 2020; and up 11 percent over the peak first quarter 2020 pre-COVID quarterly average.
“We are now forecasting we will exit 2021 at around 514,000 barrels per day, which is up from the 500,000 barrels per day we forecasted in the second quarter. Looking back to the beginning of 2021, we are even more encouraged by the fact that our Permian system is up an impressive nine percent from the 470,000 barrels per day we expected back in February.”
West Coast Renewable Fuels Network Continues to Handle Impressive Share of California’s Market
Barron also reiterated the importance of NuStar’s West Coast Renewable Fuels Network, which plays an integral role in facilitating the low-carbon renewable fuels that significantly reduce emissions from transportation.
“NuStar currently handles an impressive share of California’s renewable fuels. According to the latest available data from the state of California, for the second quarter of 2021 NuStar handled about seven percent of California’s total biodiesel volumes; over 20 percent of the state’s ethanol; and close to 30 percent of its renewable diesel volumes, which does not yet include the growing proportion of renewable jet fuel volumes that we handle in the region.
“We expect NuStar’s leadership in the low-carbon fuel transition, in California and across the West Coast, to continue to grow as we complete our planned tank conversion projects, and we plan to continue to develop projects to expand our renewable fuel logistics services as low-carbon fuel legislative mandates proliferate and customer demand increases,” said Barron.
Exciting Opportunities for Utilization of Ammonia System
Barron mentioned that throughput on NuStar’s Ammonia System was up 39 percent over the third quarter of 2020. Barron said NuStar is working to increase its Ammonia System’s utilization even more through low-spend, high-return projects to connect and extend the system to new and current customers.
“These projects would supply ammonia for current applications, like the fertilizer that augments U.S. food production, as well as corn for ethanol production, across the Midwest, as well as provide safe, efficient transportation for hydrogen to power fuel-cell vehicles.
“We look forward to providing more details on these projects to increase our Ammonia System’s utilization and profitability at multiple locations on our 2,000-mile system,” Barron added.
2021 Full-Year Outlook
NuStar CFO Tom Shoaf said after taking into account the Eastern U.S. terminals sale, NuStar expects its 2021 adjusted EBITDA to be in the range of $685 to $715 million, which is slightly higher than previous expectations.
“We also expect to spend $140 to $160 million on strategic capital and $35 to $45 million on reliability capital in 2021.
“Based on these projections, we continue to target our year-end debt-to-EBITDA ratio to be below 4.0 times. And we will be achieving these solid results while generating internal cash flows to meet all of our spending needs,” said Shoaf.
Sustainability Report Released
Barron closed by discussing NuStar’s newly posted sustainability report, which can be found on the company’s website.
“You will see in our recently posted sustainability report that our record demonstrates our commitment to sustainability.
“While traditional sources of energy, like the petroleum products we transport and store, will continue to be an important part of our energy supply, both in the U.S. and across the globe, for many decades to come, we are working to assure NuStar is instrumental in emerging energy opportunities that lower emissions and generate solid returns,” said Barron.
Conference Call Details
A conference call with management is scheduled for 10:00 a.m. CT today, November 4, 2021. The partnership plans to discuss the third 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 9989773. International callers may access the discussion by dialing 661/378-9931, passcode 9989773. The partnership intends to have a playback available following the discussion, which may be accessed by dialing toll-free 855/859-2056, passcode 9989773. International callers may access the playback by dialing 404/537-3406, passcode 9989773. The playback will be available until 12:00 p.m. CT on December 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/qiscvwwz 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 64 terminal and storage facilities that store and distribute crude oil, refined products, renewable fuels, ammonia and specialty liquids. The partnership’s combined system has approximately 57 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.
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. 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
Consolidated Financial Information
(Unaudited, Thousands of Dollars, Except Unit, Per Unit and Ratio Data)
Three Months Ended September 30,
Nine Months Ended September 30,
2021
2020
2021
2020
Statement of Income Data:
Revenues:
Service revenues
$
296,473
$
295,621
$
869,144
$
896,518
Product sales
115,872
66,970
331,940
198,404
Total revenues
412,345
362,591
1,201,084
1,094,922
Costs and expenses:
Costs associated with service revenues:
Operating expenses
100,143
95,528
287,923
296,788
Depreciation and amortization expense
66,126
70,480
203,508
207,755
Total costs associated with service revenues
166,269
166,008
491,431
504,543
Costs associated with product sales
107,047
63,977
300,801
182,103
Asset impairment losses
154,908
—
154,908
—
Goodwill impairment losses
34,060
—
34,060
225,000
General and administrative expenses
27,365
25,457
79,334
72,128
Other depreciation and amortization expense
1,881
2,105
5,841
6,462
Total costs and expenses
491,530
257,547
1,066,375
990,236
Operating (loss) income
(79,185)
105,044
134,709
104,686
Interest expense, net
(53,513)
(64,165)
(162,211)
(171,158)
Loss on extinguishment of debt
—
(137,904)
—
(141,746)
Other income (expense), net
8,450
(1,398)
11,744
(5,671)
Loss before income tax expense (benefit)
(124,248)
(98,423)
(15,758)
(213,889)
Income tax expense (benefit)
685
(1,783)
3,535
626
Net loss
$
(124,933)
$
(96,640)
$
(19,293)
$
(214,515)
Basic and diluted net loss per common unit
$
(1.48)
$
(1.22)
$
(1.18)
$
(2.96)
Basic and diluted weighted-average common units outstanding
109,532,381
109,195,358
109,522,849
109,096,190
Other Data (Note 1):
Adjusted net income
$
54,663
$
45,227
$
160,303
$
156,194
Adjusted net income per common unit
$
0.16
$
0.08
$
0.46
$
0.44
EBITDA
$
(2,728)
$
38,327
$
355,802
$
171,486
Adjusted EBITDA
$
176,868
$
180,194
$
535,398
$
542,195
DCF
$
92,067
$
(53,950)
$
269,987
$
130,860
Adjusted DCF
$
92,067
$
83,954
$
269,987
$
272,606
Distribution coverage ratio
2.10x
n/a
2.05x
1.00x
Adjusted distribution coverage ratio
2.10x
1.92x
2.05x
2.08x
For the Four Quarters Ended September 30,
2021
2020
Consolidated Debt Coverage Ratio
4.10x
4.13x
NuStar Energy L.P. and Subsidiaries
Consolidated Financial Information - Continued
(Unaudited, Thousands of Dollars, Except Barrel Data)
Three Months Ended September 30,
Nine Months Ended September 30,
2021
2020
2021
2020
Pipeline:
Crude oil pipelines throughput (barrels/day)
1,374,909
1,235,176
1,241,152
1,276,834
Refined products and ammonia pipelines throughput (barrels/day)
599,423
516,295
572,040
521,118
Total throughput (barrels/day)
1,974,332
1,751,471
1,813,192
1,797,952
Throughput and other revenues
$
196,207
$
176,210
$
558,341
$
537,999
Operating expenses
51,303
47,121
147,762
147,466
Depreciation and amortization expense
45,506
45,268
135,290
132,655
Asset impairment loss
59,197
—
59,197
—
Goodwill impairment loss
—
—
—
225,000
Segment operating income
$
40,201
$
83,821
$
216,092
$
32,878
Storage:
Throughput (barrels/day)
462,094
466,229
416,288
497,634
Throughput terminal revenues
$
30,771
$
29,260
$
90,708
$
100,182
Storage terminal revenues
77,371
93,175
245,256
264,877
Total revenues
108,142
122,435
335,964
365,059
Operating expenses
48,840
48,407
140,161
149,322
Depreciation and amortization expense
20,620
25,212
68,218
75,100
Asset impairment loss
95,711
—
95,711
—
Goodwill impairment loss
34,060
—
34,060
—
Segment operating (loss) income
$
(91,089)
$
48,816
$
(2,186)
$
140,637
Fuels Marketing:
Product sales
$
107,996
$
63,946
$
306,790
$
191,873
Cost of goods
106,478
63,161
300,944
180,230
Gross margin
1,518
785
5,846
11,643
Operating expenses
569
816
(132)
1,882
Segment operating income (loss)
$
949
$
(31)
$
5,978
$
9,761
Consolidation and Intersegment Eliminations:
Revenues
$
—
$
—
$
(11)
$
(9)
Cost of goods
—
—
(11)
(9)
Total
$
—
$
—
$
—
$
—
Consolidated Information:
Revenues
$
412,345
$
362,591
$
1,201,084
$
1,094,922
Costs associated with service revenues:
Operating expenses
100,143
95,528
287,923
296,788
Depreciation and amortization expense
66,126
70,480
203,508
207,755
Total costs associated with service revenues
166,269
166,008
491,431
504,543
Cost of product sales
107,047
63,977
300,801
182,103
Asset impairment losses
154,908
—
154,908
—
Goodwill impairment losses
34,060
—
34,060
225,000
Segment operating (loss) income
(49,939)
132,606
219,884
183,276
General and administrative expenses
27,365
25,457
79,334
72,128
Other depreciation and amortization expense
1,881
2,105
5,841
6,462
Consolidated operating (loss) income
$
(79,185)
$
105,044
$
134,709
$
104,686
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 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 (loss). They should not be considered in isolation or as substitutes for a measure of performance prepared in accordance with GAAP.
Included in the tables below are the following items: In the the third quarter of 2021, we recorded a non-cash asset impairment loss of $95.7 million and a non-cash goodwill impairment loss of $34.1 million associated with our Eastern U.S. Terminal Operations, which were sold in October 2021 and classified as held for sale as of September 30, 2021, a non-cash asset impairment loss of $59.2 million related to our Houston pipeline and a gain from insurance recoveries of $9.4 million related to damage caused by a fire in 2019 at our Selby terminal. In the second and third quarters of 2020, we recognized losses on extinguishment of debt of $3.8 million and $137.9 million, respectively, mainly related to the repayment of our $750.0 million unsecured term loan credit agreement on September 16, 2020. In the first quarter of 2020, we recorded a non-cash goodwill impairment loss of $225.0 million related to our crude oil pipelines reporting unit.
The following is a reconciliation of net loss to EBITDA, DCF and distribution coverage ratio.
Three Months Ended September 30,
Nine Months Ended September 30,
2021
2020
2021
2020
Net loss
$
(124,933)
$
(96,640)
$
(19,293)
$
(214,515)
Interest expense, net
53,513
64,165
162,211
171,158
Income tax expense (benefit)
685
(1,783)
3,535
626
Depreciation and amortization expense
68,007
72,585
209,349
214,217
EBITDA
(2,728)
38,327
355,802
171,486
Interest expense, net
(53,513)
(64,165)
(162,211)
(171,158)
Reliability capital expenditures
(10,806)
(7,279)
(28,238)
(18,330)
Income tax (expense) benefit
(685)
1,783
(3,535)
(626)
Long-term incentive equity awards (a)
2,730
2,416
8,737
6,402
Preferred unit distributions
(31,889)
(31,888)
(95,663)
(92,995)
Asset impairment losses
154,908
—
154,908
—
Goodwill impairment losses
34,060
—
34,060
225,000
Other items
(10)
6,856
6,127
11,081
DCF
$
92,067
$
(53,950)
$
269,987
$
130,860
Distributions applicable to common limited partners
$
43,814
$
43,678
$
131,462
$
131,086
Distribution coverage ratio (b)
2.10x
n/a
2.05x
1.00x
(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)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).
For the Four Quarters Ended September 30,
Projected for the Year Ended December 31, 2021
2021
2020
Operating income
$
239,125
$
228,742
$ 225,000 - 245,000
Depreciation and amortization expense
280,233
284,846
270,000 - 278,000
Asset impairment losses
154,908
—
155,000
Goodwill impairment losses
34,060
225,000
34,000
Equity awards (a)
13,842
12,424
12,000 - 15,000
Other
5,814
12,727
(13,000) - (3,000)
Consolidated EBITDA, as defined in the Revolving Credit Agreement
