Q3 2019 Earnings Call
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No one likes and the conference over to your Speaker today, and Schmidt Vice President of Investor Relations. Thank you. Please go ahead Madame.
Good morning, and welcome to today's call.
On the call today, or Brad Barron start energy, LPV, President and CEO , and Tom Shoaf Executive Vice President CFO , along with other amendment members of our management team.
Before we get started we would like to remind you that during the course of this call Newstar management will make statements about our current views concerning the future performance of Newstar that are forward looking statements.
These statements are subject to the various risks uncertainties and assumptions described in our filings with the security and Exchange Commission.
Actual results may differ materially from those described in the forward looking statements.
During the course of this call. We will also refer to certain non-GAAP financial measures.
These non-GAAP financial measures should not be considered as alternatives to GAAP measures.
Reconciliations of certain of these non-GAAP financial measures to U.S. GAAP, maybe found in our earnings press release with additional reconciliation located on the financials page at the Investor section of our website at new start energy Dot com.
With that I will turn the call over to Brad.
Good morning, Thank you all for joining us today.
For turned over to Tom for the details would give you some highlights of Nustars results and our expectations for 2019 and 2020.
These are produced strong results in third quarter once again, demonstrating the strength of our assets and our business plan.
Our last call I told you that Newstar was in a word.
Oh over second quarter 2018, I'm happy to report that's true again this quarter.
He starts up over third quarter last year across the board.
Our total pipeline and storage segment revenues were up 7%.
Our income from continuing operations up 20% or EBITDA from continuing ops up 10%.
DCF available to common limited partner from continuing ops a 14%.
If you from getting operations up 67% adjusting for that you'd be you charge, resulting from our simplification 2018.
Due in part or sale of our same station facility in July or third quarter debt to EBITDA ratio was 3.96 times, which is significantly lower than Q3, 20, eighteens 4.52 times.
This past quarter.
We also continued executing on our 2019 capital program. We're now projecting 2019 total capital spending over between 45 and 515 million, we're already starting to see the benefits of that spending in our results.
This year, we folks are spending on three primary areas deploying existing assets to supply refined products to northern Mexico.
Spanning in connecting our Permian crude system and completing the first phase were Corpus Christi expert project.
We made substantial progress on all of these fronts during third quarter.
We completed our project and double the capacity verbally pipeline to expand the supply of refined products Corpus Christi to Rio Grande Valley, Northern Mexico in September .
He also concluded a successful open season earlier this year, so that expansion is fully subscribed.
Additionally, we completed the first phase where do I read a project in September which allows us to transport diesel.
From the Corpus Christi refining complex turned away able to rail terminal in Mexico.
On schedule to complete the second phase that project, which includes installation of additional tankage and truck loading bays and they will randow in February .
The Permian Basin continues to be an area of focus for us as you know the Permian is the largest driver of North American midstream logistics opportunities in and outside the basin.
As proved itself the fastest growing most resilient shale play in North America.
Nustars Permian crude system has consistently outperformed the basin since we acquired in 2017.
Over the past several months, we've heard commentary expressing concerns basins rate of production growth is decreasing we've not seen any evidence of that on our system.
We acquired or system.
'cause it sits atop some the highest quality rock in the Midland Basin.
That quality, we believed we didn't turn attractive best most efficient producers and our hypothesis is proved correct.
We have diverse creditworthy customers from majors private companies public MPS sitting United in their commitment to the near and long term strength of the Midland Basin.
Since we acquired our system in May of 2017, our system throughput has now grown about amazing, 233% far outpacing overall Permian basin throughput, which has grown by respectable 98%.
This year.
We've expanded our systems area capacity from 460000 barrels per day, the 560000 barrels per day to accommodate our shippers plans.
And we've added a total of 34 additional well connections this year and well connections were up 36% over our last quarterly call in August .
We've also completed connections to third party pipelines facilities.
To provide the flexibility our shippers require.
Including a connection to the epic pipeline Midland that we put into service in August .
Our volumes have continued to grow impressively too.
Tober, we lose an average of 416000 barrels per day with some days as high as 430000 barrels.
And our November nominations for 36, there's quite a bit higher than average for last quarter of 370000 barrels per day.
We continue to work closely with our customers keep pace with their needs based on their forecast for the remainder 2019, we still expect to reach volumes around 450000 barrels per day by year end.
Shifting to Corpus Christi.
August brought our new eight mile 30 inch pipeline, which extends from cactus two and tasks are Corpus Christi, North Beach terminal brought that into service to Siltech transportation and export of MTR barrels.
During the month of October or Corpus Christi crude system, which consists of our legacy South Texas assets and our new task to Corpus Christi export asset. So aggregate volumes increased to 591000 barrels per day, that's double receipts in July before tap projects were in service.
No has increased pipeline volumes have also dramatically increase utilization the dock in storage facilities are corpus Christi crude system.
October moved 169000 barrels a day into the Corpus Christi refinery market. We also moved over 422000 barrels per day over our Corpus Christi dogs.
Which is more than doubled the amount mood or the docs in July .
As you can see.
We delivered strong results again this quarter, we expect to hand is strong results for full year 2019, even stronger results in 2020.
Looking at the midpoint of our guidance for this year.
Second our full year 2019 results to increase by more than 50 million over 2018, as a 9% increase between 19.
We're also expecting full year 2019, DCF coverage of 1.3 to 1.4 times, a strong growth and strong covering 2019.
2020.
We positioned to reap the first full year rewards the projects we've executed this year.
Back looking at the midpoint or 2020 guidance, we expect our 2020 results increased by 14% over 2019.
We now expect full year 2020, DCF coverage to be in the range of 1.4 times to 1.6 times, that's even stronger growth and even stronger cover.
Additionally, we plan to ramp down or capital spending next year significantly into 300 million to 350 million, that's about 35% less than this year.
Our capital spending ramp down.
Bouncer financial priorities building solid stable growth in unitholder value through funding low multiple projects also increasing proportion of our spending we fund with internally generated cash flow.
Our 2020 spending program.
It's focused on expansions to accommodate production growth in the Permian both inside the basin on our Permian crude system and beyond the basin on our Corpus Christi crude system.
Projects handle biofuels demand on the West coast.
Opportunities to increase our optionality and flexibility in St James to accommodate future export growth there.
So now I'll turn the call to Tom for details on our results and our outlook.
Thanks, Brad and good morning, everyone.
Before I get started just a general reminder, that because of the sale of St. Eustatius operations. This July and the sale of the UK European operations in 2018 results of those operations for all periods presented are now reported as discontinued operations in our earnings tables.
The third quarter of 2019, we generated EBITDA from continuing operations of 169 million up 15 million or 10% over the third quarter 2018, EBITDA from continuing operations of 154 million.
Third quarter 2019, DCF from continuing operations available to common limited partners was 88 million up 11 million or 14% compared to DCF from continuing operations available to common limited partners of 77 million for the third quarter of 2018.
And our distribution coverage ratio from continuing operations to the common limited partners was 1.36 times.
Third quarter, 2019, EBITDA and our pipeline segment was 130 million up $14 million or 12% from the third quarter 2018, due to continued throughput volume ramp on our Permian crude system and increased crude volumes on our part Mort system, resulting from our connection to the Sunrise pipeline at Wichita Falls.
And a turnaround at one of our customers refineries in the third quarter of last year.
Additionally, we saw positive contributions from a recently activated reactivated portion of our Houston LPG pipeline and are completed Mexico expansion project on our valley system.
Our third quarter 2019, EBITDA in our storage segment was 62 million comparable to the third quarter 2018, EBITDA of 63 million.
We experienced continued strength from our west coast operations as a result of incremental project EBITDA from the bio fuel strategy as well as healthy storage and dock fee revenues on our Corpus Christi crude system.
Made possible by robust quarterly volume receipts on our legacy system and new business from our recently completed tap export project would trafigura.
These increases were offset by continued soft storage markets at some of our east coast locations as well as some of our Gulf coast facilities.
Third quarter 2019, EBITDA in our fuels marketing segment was 4 million 3 million higher than the third quarter 2018, EBITDA of 1 million due to stronger Gulf coast Bunkering margins experienced during the quarter.
For September Thirtyth debt balance was 3.4 billion and our debt to EBITDA ratio was 3.96 times significantly below our debt to EBITDA ratio of 4.52 times for the third quarter 2018.
And in September we extended our revolver maturity date by one year to October 2021.
Now turning to our projections for full year 2019 as noted in the table included in our press release.
Our 2019 range for adjusted EBITDA remains unchanged at $65 million to $715 million, which includes results from St. Eustatius, which includes results from second stage its operations, but excludes noncash impairment charges related to the several of those operations.
Additionally, we also providing projections for 29 to EBITDA from continuing operations for a clear view of our ongoing business and for improved comparability, which we expect to be in the range of 625 to 675 million.
This is unexpected increase.
Okay over I'm, sorry, it's an expected increase of over 50 million or 9% at the midpoint when compared to 2018 EBITDA from continuing operations of 597 million, which excludes EBITDA for both the St Eustatius and European operations.
With regard to 2019 capital spending we've lowered our range to 485 to 515 million for strategic another capital in 2019, which is primarily made up of approximately $160 million on the Permian crude system 145 million for the northern Mexico refined product supply projects.
And about 105 million.
For our Corpus Christi, North Beach terminal export project.
This reduction is strategic spending targets was the result of a combination of permanent reductions as well as deferring some spend into 2020.
Regarding our reliability capital spending for 2019, we've narrowed the range to 65 to 75 million, which is unchanged at the midpoint.
Of our previous guidance.
Based on these projections, we continue to expect our common unit distribution coverage ratio for 2019 to be in the range of 1.3 to 1.4 times and our year end.
Got to EBITDA ratio to be around four times.
Looking further out to 2020 full year guidance, we expect Nustars 2020, EBITDA to be 715 to 765 million an increase of about 14% at the midpoint over 2019 and about 24% at the midpoint since 2018.
With regard to 2020 capital spending estimates we plan to spend 300 to 350 million on strategic and other capital that's a 35% reduction year over year.
In addition, we plan to spend 40 to 50 million on reliability capital.
Based on these projections, we expect our common unit distribution coverage ratio for 2020 to be in the range of 1.4 to 1.6 times and we plan to continue to work to de lever in 2020.
And with that I'll now turn the call back over to Brad for his closing remarks. Thanks Tom.
Great quarter between 19 has been a productive year.
We continue to simplify and de risk our business with sales and Eustatius significantly improved our debt to EBITDA ratio. We're now completing the most ambitious capital spending program, our history safely and efficiently.
Expanding and building optionality across our existing asset footprint low multiple healthy return projects, which newstar will benefit in 2020 for many years to come.
We're excited about Newsource future.
Quarter reporting more good news on our next call that I'll open it up for Tonight.
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George Your question first the penalty.
Standby what compiled acuity rosner.
Sure first question comes from Shneur Gershuni from GBS. Please go ahead.
Hi, good morning, everyone.
Maybe I just wanted to start off.
First of all with the storage segment.
I noticed that your volumes were up.
Pretty significantly.
EBITDA contribution didnt seem to match that it's almost if there were some margin compression of sorts can you give us a little bit of color of what was going on in that segment quarter.
Yes, Shinier this Danny Oliver we they're still in some select markets some softness in storage we're still in.
Backwardation very little actually know contango Alpha markets, we had.
One contract.
On the.
One of our international contracts that is up for renewal, we havent renewed that yet.
But we're anticipating that coming in at lower rates.
And weve factored that into our Q3 in Q4 guidance.
Okay fair enough.
The.
I guess two follow ups.
You have capex coming down pretty significantly less next year.
Along with an EBITDA uplift I was just wondering what your order of priorities on debt reduction wise.
In terms of what's your cash available to to show.
Do you sort of targets on some of the high coupon preferred or do you.
Look at the debt in particular, just kind of want to understand the order priorities and how you would retire some leverage.
Yes, well I mean as far as a press going we've said this time and time again, you know that we can't really do anything with the press until you're about five years out from the date of issuance.
So there won't be anything done obviously in 2020 based on that.
With the press in terms of just how we prioritize things we've been very pleased with our progress on Delevering in 2019, and we'll continue to make that a priority focus for ourselves.
We're going to show a lot of capital discipline, you can see that into capital guidance, we put out there for 2020 that is coming down significantly.
So combination of those things and EBITDA ramp.
We're still looking to improve our debt leverage and lower our our ratio. So we'll continue to work on that Thats definitely a priority, but in terms of redeeming debt no. I mean, we've got some refinancings coming up in the next couple of years.
We think we can take care of but the press are going to be out there for a couple of years at least.
It's not something you can just by the open Mark.
No.
I don't think Thats, our best use of capital I mean, the press summing, albeit some people say, they're a little expensive they are pretty cheap equity when you're looking at it from an equity perspective, they are pretty cheap equity.
So we find those very favorable out there. So we don't have any intentions of bringing those in.
Okay, and then one last follow up question.
Chesapeake talked about re contracting some crude rates in the Eagle Ford.
Wondering if you had exposure or be if that would be something that would be encapsulated with the step down in the nbcs that you've already.
Experiencing just wondering if you can sort of talk to that since that news is out there today.
Yeah, we've renewed.
Really most pretty much all of our contracts, sometimes with different people, but our nbcs. As you are aware now one of six they were 133, but.
We're shipping a lot more product out of the Eagle Ford we were on our South Texas crude system. When we had Nbcs 133, we were shipping more like 110 now we've got Nbcs of 160, and where shipment of 161 70, yes.
Alright, perfect. Thank you very much really appreciate the color today.
Thank you.
Thank you Hi next question comes from Gabe Moreen from Mizuho. Please go ahead.
Hey, good morning, everyone couple of questions for me can you just discuss what level of volume growth is embedded in your 2020 outlook and related to that is volume ramp or lack thereof kind of the biggest variable and that in that EBITDA range for 2020.
Yes, so gave Danny again.
Our forecast in the Eagle Ford our.
Below the volumes that we're seeing today.
Slightly above our nbcs, but well below what we've done this year and then we have a continued ramp up in the Permian Permian.
Roughly.
The rate of growth that we've seen in the last two years.
Okay, So really no no slowdown relative to.
2019, birthrates, though not in the Permian as Brad mentioned, we've we're in a unique place in the Midland Basin, then kind of the the heart of the heart of the growth and we are we have seen even though generally people report 2018 was the biggest year and it came off in 2019, a little bit.
We've seen the same write a growth in 2018 and 2019.
And we've got again, some some from plans that were working.
With our producers on that they are giving us their specific plans throughout 2020 and these these are a lot of this volume in the Permian is coming from the.
The majors and the.
Public MPS and.
And.
The credit worthy customers that we have on the system.
Okay. Thanks, Stan and then related to that over the 300 to 315 growth you're going to be spending next year, how much of that as Permian and sort of where does that get to get you to capacity wise on pump Tcf.
What I can tell you we're not really we're not really disclosing the breakdown of the Permian yet I mean, we're still talking to customers and trying to get.
That that nailed down, but what I can tell you is so far what we've heard and what we know we will be spending less on the Permian than we did in 2019.
So in terms of Seattle splitting up that 350. Some of those are just finishing up the projects that we already we currently have the big projects. We talked about it also includes about three projects that we haven't announced yet that were that we're working on as well so.
That was probably about as much breakdowns that give you at this point, we get the we get the total capacity of the system next year.
It's somewhere around mid six hundreds I cant remember the exact number but we've got.
Specific projects identified to get that system up to 700.
Centrally that's as far as we've gone on that planning and we'll we'll execute those projects as the volumes dictate.
Okay.
Last one for me is just the lower maintenance Capex guide is strictly a function of smaller asset base or is there any other gives and takes puts and takes there, yes, thats, mostly a lower asset base.
Thank you stations Snow Europe .
Got it okay. Thanks, everyone.
Thank you.
Next question comes from Jeremy Tonet from JP Morgan. Please go ahead.
Hi, Good morning, just wanted to fall into 2020.
EBITDA guidance here I was wondering if you might be able to share with us some of the assumptions as far as what could drive the upper end versus the lower end of guidance there.
One thing on the upper end as I mentioned to gave we've we're forecasting lower volumes out of the Eagle Ford than what we what we are experiencing this year and today.
I think that could be some upside, but we're being.
We're being cautious.
Yes, I think other things that could drive you on the upper end have to do with the global economy.
Right now this is our best look into global economy, but if that gets into overdrive that you could see some.
Upward movement.
Within that range.
So no on the lower end, we always want to build and flexibility in case or something unforeseen that happens you have a refining customer that has an unexpected downtime something like that.
A lot of our assumptions on our new projects that we've just completed a lot of those we tend to just run committed.
What committed volumes there are from customers so to the extent that they were to ship more than that.
There.
Their minimum commitment as than we would see upside there as well just across the system on various projects we've completed.
That makes sense and then as far as volumes across the DOCSIS that at the Nbcs or is that something higher any color you could share there.
Right at the Nbcs.
Got it.
And then a housekeeping item for the Permian system for the quarter, you able to share with EBITDA generation was there.
Yes, we generated about 35 million of EBITDA in the third quarter.
That's helpful. Thanks.
The last one does.
Some media reports.
Revolving around I guess, an incident with I think maybe some of your California assets was wondering if you could share any color as far as what's happening there.
Sure. So back in October 15th we had a fired or Sobi, California terminal.
Fire was isolated to ethanol thinks they're selby.
I'm very pleased believe that no one was injured no employees know contractors were injured during.
During the incident I am also when they want to say I'm very proud where employees responded to the incident and we're also grateful to the first responders.
During the local first responders and the mutual aid association as far under control.
In very short order.
So the terminal came up for service yesterday for everything but ethanol so we're able to move.
Renewable diesel renewable jet and jet.
From the terminal now so we don't expect it to have a material impact on our financials.
That's helpful. That's it for me thanks.
Thank you.
Our next question comes from Ryan Levine from Citi. Please go ahead.
Good morning.
What's your how do your optimal capital structure today, and what are your priorities one sets achieved.
This reduced capex spending outlook per se.
Well I mean as far as our optimal capital structure I think we're pretty much there our cap structure I don't as we said before we don't plan on doing any more prefs.
So that is what it is and.
We're just going to continue to de lever.
And work on that and that like I said, that's a primary focus for us.
No there's no as I said before there's no plans to bring in any perhaps.
Anytime soon or refinance those.
So we're just going to continue to pay down debt and de lever and.
That's pretty much yet.
Once you achieve the leverage that you're targeting is there a preference for unit repurchases various distribution increase the.
I think that would be way out the curve for us.
Based on our free cash flow and what we're expecting this year next year and the year after that.
Our spending rate, albeit we have come down tremendously in 2020, and we would expect to do that in years subsequent to that as well.
No I mean, I don't I don't think so.
I think we're I think were.
Our targets out there that's that's well continue to try to achieve that and it was kind of work from there.
Okay.
What was the impact of the favorable for re indexation rate in July and the quarter.
Yep.
We can we can get that 40 I don't have the dollar amount I know is up about 4.3% was increase and we don't have the dollar amount right in front of us, but we can get that to you offline maybe.
I would call, we'll get back to you on that Ryan.
Okay, and then do you see any counterparty credit concerns for in your customers across the that the Permian or other systems and there you have you taken any steps to improve here you're positioning on those contracts on the gathering side. That's one of the best things about our system is our our.
Customers or some of the best Blue Chip names that you can imagine.
Okay.
That's all from I think.
Thank you.
Next question comes from Sunil Sibal from Seaport Global Securities. Please go ahead.
Hey, good morning, guys and thanks for all the cold the Paul just wanted to.
Because number one clarity on the 2020 guidance I was wondering if you could talk about you know.
The EBITDA range that you guided to how much of that is kind of covered through your nbcs of contractual requirement.
Good on the transportation side on the started side.
Yes, most of that about.
Maybe half of that comes out of the Permian, a little less than half and.
Everything else is covered by Nbcs some of the Permian is covered by Nvcs, but not all.
Okay.
And.
Could you remind us you know where is your level to shot a good deal seems like you know you've already close to full right. So you said.
Is desired and then on trying to half what are you looking to go even.
They are down.
Well, we've got a lot of priorities right.
Continued growth a de levering.
All of that so I.
I think for as far as that goes we'd like to be a half a turn better than where we are we're going to continue to focus on that and and de lever and.
Find ways to do that and we have a we have a short list of things that we can do but.
We're not really putting a I'd say a concrete target out there but.
We would like to be better than where we end, where we are currently and we think we can do that wed like to think of it as we want to lower leverage, but we want to do it in a balanced way so we'll be trying to balance.
A lot of competing priorities, but it is a focus for us going forward.
Okay that color had guys. Thanks.
Thank you.
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Our next question comes from Michael Blum from Wells Fargo. Please go ahead.
Hey, Good morning, guys. Yes, my questions are actually address thank you.
Thank you. Thank you I show no further questions in the queue at this time I like to turn the call over to Pam Schmidt Vice President of Investor Relations for closing remarks.
Thank you Dylan led once again like to thank everyone for joining us on the call today. If anyone has any additional questions. Please feel free to contact meets our investor relations. Thank.
Thank you again.
Okay.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.