NuStar’s Pipeline segment implements new projects to drive growth

Market Realist

NuStar Energy's 1Q14 earnings release: Key takeaways (Part 4 of 9)

(Continued from Part 3)

NuStar’s operations

The operations of the refined product terminals of NuStar depend, in large part, on the level of demand for products stored in the terminals, that is, the refined petroleum products. Demand for terminalling services typically change (increase or decrease) with demand for refined petroleum products, while demand for refined petroleum products tends to change with the relative strength of the economy. NuStar’s crude oil throughputs for St. James terminal and Corpus Christi North Beach terminal generally increase or decrease with crude oil production rates in the Bakken and Eagle Ford shale plays, respectively. NuStar’s Central West pipeline system originate at refineries owned by Valero Energy (VLO) and supplies refined products like gasoline and diesel fuel delivered through the pipelines. NuStar has long-term throughput agreements with VLO. VLO accounted for approximately 37% of NuStar’s Pipeline segment revenues for 2013.

The North pipeline is dependent heavily on Tesoro Corporation’s’ (TSO) North Dakota refinery facility. Demand for these products fluctuates as prices for these products fluctuate. Its North Pipeline delivers refined petroleum to the Minneapolis, Minnesota metropolitan area. The residual undelivered products of these pipelines are ultimately used as fuel for railroads, ethanol denaturant, or in agricultural operations, including fuel for farm equipment, irrigation systems, trucks used for transporting crops, and crop-drying facilities.

In 2013, throughputs increased 73,741 barrels per day at NuStar’s Corpus Christi crude storage tank facility due to increased volumes of Eagle Ford Shale crude oil being shipped to Corpus Christi through its pipelines in South Texas. The drivers of the increased volume were: the TexStar Asset Acquisition in December 2012; the completion of several pipeline capital projects in 2012 and 2013; and changing the Corpus Christi crude storage tank facility from a lease-based to a throughput-based facility in the third quarter of 2012. In the first quarter of 2014, throughputs on the Eagle Ford crude oil pipeline system increased by 16% to around 180,000 barrels per day from the year-ago quarter. Higher volume coupled with higher tariff (that is, higher revenues per unit of oil supplied) resulted in higher revenues on the Eagle Ford pipelines.

Overall, the company sounded bullish on the Pipeline segment. Tom Shoaf also said in the conference call, “At the segment level, second quarter EBITDA results in the pipeline segment are projected to be higher than last year’s second quarter, as well as the first quarter of 2014. Continued increases and throughputs in the Eagle Ford shale particularly as a result of the projected mid May completion of Phase 1 of the South Texas crude oil pipeline expansion and reduced turnaround activity at our customers’ refineries should contribute to higher EBITDA.”

NuStar Energy (NS) is a master limited partnerships operating in the midstream energy space. Other major companies operating in the same sector as NS include Boardwalk Energy Partners (BWP), Plains All American Pipeline (PAA), and Energy Products Partners (EPD). Most of these companies are components of the Alerian MLP ETF (AMLP) and MLP ETF (MLPA). NS is part of the Multi Asset Income ETF (CVY).

Continue to Part 5

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