Q2 2020 NuStar Energy LP Earnings Call
At this time, all participants' lines are in listen only mode.
Later, we'll conduct a question answer session.
And instructions will follow at that time.
If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone.
As a reminder, this conference call is being recorded.
I would now like to turn the conference over to your host.
Schmidt Vice President of Investor Relations.
Good morning, and welcome to today's call.
On the call today are Brad Barron, Newstar Energy LP, President and CEO, and Tom Show Executive Vice President and CFO, along with other members of our management team.
Before we get started we would like to remind you that during the course of this call you start management will make statements about our current views concerning the future performance of Newstar that are forward looking statement.
These statements are subject to the various risks uncertainties and assumptions described in our filings with the Securities and Exchange Commission.
Actual results may differ materially from those described in the forward looking statement.
Also throughout the call today, when we talk about our results we will be describing our results from continuing operations in other words. The results will refer to the results that we will refer to in this call will exclude the same station facility that we sold in July 29 team.
During the course of this call. We will also refer to certain non-GAAP financial measures.
These non-GAAP financial financial measures should not be considered as alternatives to GAAP measures.
Installations at certain of these non-GAAP financial measures to U.S. GAAP, maybe found in our earnings press release with additional reconciliations located on the financials page the Investor section of our website at new start energy Dot com.
With that I'll turn the call over to Brad.
Good morning. Thank you all taking the time to join us today.
Sure. It Newstar, we started 2020 optimistic about what's your would bring pepper, great 2019, regenerated strong results.
Strengthened our balance sheet.
Last year as you know, we lowered our leverage below four times and our project teams brought a record number of key low multiple high return project to the finish line on time and under budget.
Set the stage for us to deliver even stronger results in 2020.
And then as we all know earlier this year in March World changed abruptly and profoundly pandemic crushing economic downturn and historic collapse in crude prices.
In the face of those headwinds, we prioritize we adapted and we took action to protect our employees and our stakeholders cutting our spending and preserving cash.
And in May we hand in very strong first quarter results.
Uh huh.
As I told you on our first quarter call I've been impressed and gratified by our employees perseverance and hard work through such difficult times.
The board our employees have not missed a beat.
Most of our office employees are working remotely because they have been since March and their productivity remains very high.
And our employees, whose work of cars or physical presence onsite continue to operate our facilities to the high standards, all while practicing protective distancing utilizing P. P to do the job safely.
As a result, we've continued to operate reliably efficiently and safely deliver the energy keeps our country running throughout this crisis.
And that continuity is truly critical not only for newstar or customers, but also for the communities that are asset serve.
We've also taken.
And continue taking important steps to protect our financial stability.
In March we acted quickly and decisively to reduce our strategic capital spending for 2020 to a range of 165 million to 195 million, which midpoint to midpoint is a $145 million reduction from our previous guidance.
That translates to an approximate 45% reduction to the 2020 strategic capital spending we had forecasted earlier in the year.
Also we identified about $40 million to $50 million controllable operating expenses expense reductions for the full year 2020.
Then in April we put in place a leverage neutral term loan that reduced our distribution.
And reduced our distribution both in an effort to further sure we have the liquidity to address our near term maturities.
Since then we've focused on maintaining or capital discipline and operating as efficiently as possible and we continue to look for ways to scale back spending this year and in 2021.
At the same time, we're also focused on lowering our leverage we're evaluating noncore asset divestitures as market conditions improve.
Second quarter 2020 was one most challenging quarters in the history of the U.S. energy industry.
Thanks to our great employees are world class assets in our Blue chip quality customers, we generated solid second quarter results through some of the darkest days of the global pandemic.
During second quarter alone, we moved almost 138 million barrels of crude oil and refined products through our pipelines.
We've also sees the opportunities presented by contango during the second quarter and successfully filled 100% of our available storage capacity.
We'll continue to benefit our results through the rest of 2020 and beyond.
As a result real to generate $162 million EBITDA in the second quarter, which is higher in Q2 2019 is 161 million.
To improve quarterly EBITDA during quarter with a dubious distinction of being a low watermark not only for us refined product demand, but also use refinery utilization and you as crude oil production in an environment in which individuals and businesses across industries across the country and around the world are struggling is nothing short of impressive.
I'm proud of the strength and resilience our second quarter results demonstrate.
We are cautiously optimistic.
About preliminary positive signs of recovery.
We saw refined product demand improved as a second quarter progress we've seen additional encouraging signs of progress toward recovery in July and thus far in August.
On average across our refined products systems weird about 94% of typical demand, which has improved significantly over the low 70% or so we saw in April.
Given the continued uncertainty with economic conditions, we've maintained a projection of about 85% of typical demand through the end of the year. We're hopeful what we're seeing proves to be assessing trend.
To provide you with some more granularity what we're seeing system by system.
Our central East system in the Midwest sort of rural population with healthy agricultural demand.
We've seen system Throughputs rebound strongly.
From lows of 80%.
Our system Throughputs are now back up to around 95%.
The same time distillate market in that region is continue to hold up as it has throughout the year.
Another bright spot in the Midwest or ammonia line has continued to perform at near record levels with strong agricultural demand again this year.
On our central West system, we saw volumes declined about 65% at its low point in April as refinery utilization dropped to accommodate demand deterioration, Texas and surrounding states.
We've seen volumes improve in recent months close to 80%. Despite the uptick in cobot 19 cases in Texas as Memorial day.
We now expect this system to benefit further from increased utilization demand rebounding to 85% to 90% in August and beyond.
In South, Texas, our system Throughputs at the low point, we're about 75%.
Since that low.
Overall system Throughputs rebounded sharply to pre pandemic levels.
In addition, we're also benefiting from the completion of our North Mexico upon product supply projects, which went into full service earlier this year.
You'll recall that both of those projects are supported by a minimum volume commitments from large credit worthy customers.
We think improvement for our refined products demand pull assets bodes well for our supply push pipeline assets.
Sustained period of prime product demand recovery should increase refinery utilization, which in turn to drive a recovery ramp up in crude production.
We continue to believe in the viability and fundamental strength you a shale production, particularly in the Permian and specifically on our Permian crude system.
Prior to the pandemic during the first quarter, our Permian system was moving an average about 450000 barrels per day up about 4% over fourth quarter of 2019.
And then as we told you in May use rig counts, Phil and producers curtail production volumes declined across the us in the Permian and on our system.
We continue to believe.
Although current conditions of depressed production growth across you a shale plays in the near term our system geological advantages, including lower production costs higher.
Should drive recovery for our core of the core assets in the Midland Basin ahead of other shale plays and also other gathering systems in the Permian.
We are encouraged that our volumes rebounded in July to 434000 barrels per day, 21% above our may lows and 8% above our second quarter average.
We're also encouraged by our August nominations of 444000 barrels per day.
We're working closely with our producers given their plant as well as what we're observing we've raised our expected exit rate for 2022 about 401000 barrels per day, which is 8.5% higher than our guidance for year end Permian volumes on our call back in May.
We're also seeing some reason for optimism on exports as well.
During our Corpus Christi exports dipped below MB season May we've been pleased with ramp up we've seen in June July in the beginning of August both Debbie.
Eagle Ford volumes.
You'll recall that we have a substantial take or pay agreement Trafigura, we continue to forecast those revenues and our Eagle Ford commitments at MVC levels.
We're encouraged by these hopeful signs, but we're also keenly aware of the uncertain environment, we're facing here in the U.S. and around the globe.
Taking all these factors into account we continue projected newstar would generate full year 2020, adjusted EBITDA between 665 735 million.
Which is the same guidance, we provided in may and is midpoint to midpoint less than 6% lower than our prepared them and guidance with that I'll turn it over to Tom to give you details of our second quarter results.
Thanks, Brad and good morning, everyone.
As a reminder, when I talk about our results I will be describing our results from continuing operations for all the periods discussed.
For the second quarter of 2020 as Brad told you we generated EBITDA of 162 million up slightly over second quarter 2019, EBITDA of 161 million.
Second quarter 2020, DCF available to common limited partners was 62 million down 21 million compared to DCF available to common limited partners of 83 million for the second quarter of 2019.
And our distribution coverage ratio for the common limited partners for the second quarter of 2020 was 1.43 times.
Second quarter 2020, EBITDA in our pipeline segment was 116 million down 4 million from the second quarter of 2019 EBITDA of 120 million.
Mainly as a result of cobot 19 related refined product demand destruction and the associated reduced refinery runs from some of our customers refineries as well as shut ins and containments and some of our crude markets that we serve.
However increased throughput volumes on our Corpus Christi crude system due to the completion of our task 30 inch pipeline continued volume ramp on our Permian crude system and contributions from our Mexico expansion projects, nearly offset pandemic related pipeline declines for a net decrease and pipeline revenues.
We've only 6 million for the quarter, which was further bolstered by a decline in pipeline Opex of 2 million due to lower power cost across the segment.
Our second quarter 2020, EBITDA and our storage segment was 68 million up 6 million or 10% from the second quarter of 2019, EBITDA of 62 million as full as a full quarters contribution from the completion of our top 30 inch pipeline, which flows into our Corpus Christi North Beach terminal.
With our Corp, and within our Corpus Christi crude system more than now outweighed cobot 19 related throughput declines at certain facilities that to directly support some of our customers refineries.
In addition.
Our storage segment benefited from our Mexico in West Coast expansion projects, new storage contracts and renewals of existing contracts that together brought online about 3 million barrels of our previously idled storage capacity.
That brought us up to 100% utilization.
Second quarter 2020, EBITDA in our fuels marketing segment was $3 million, which was comparable to the second quarter 2019 EBITDA.
Our June Thirtyth debt balance was 3.4 billion and our debt to EBITDA ratio was 3.94 times, which puts newstar under four times for the fifth consecutive quarter.
As a reminder, in April we entered into an unsecured three years $750 million term loan.
To date, we have drawn down 500 million in order to address our upcoming September 2020 maturity and have the option to draw another 250 million to address our February 2021 maturity if warranted.
The bridge loan allows us the optionality to reenter the debt Mark capital markets Opportunistically, but also provides the necessary liquidity to ensure that we can address our cash needs and these uncertain times.
Turning to our full year 2020 projections, we continue to expect Nustars 2020, adjusted EBITDA to be 665 to 735 million.
With regard to 2020 capital spending estimates as we told you in May we plan to spend 165 to 195 million on strategic and other capital.
Of that total for the year about 60 million is for our Permian system and around $30 million will be for renewable fuels and related improvements for our west coast storage assets as well as finishing out our corpus and Mexico projects.
In March we reduced our planned totaled 2020 spending significantly and the midpoint of our current range is now approximately 60% below our 2019 strategic capital spending.
Our pared down 2020 capital project program is targeted at low multiple projects and our project teams continue to focus on executing on our plan as efficiently and effectively as possible.
And year to date through July 31st we have spent about 100 million on strategic capital.
In addition, we continue to expect a total of about $40 million to $50 million reliability capital spending in 2020.
Based on these projections, we still expect our common unit distribution coverage ratio for 2020 to be in the range of 1.6 to 1.8 times and with that I'll turn the call back over to Brad. Thank you Tom.
As you've heard thanks to our employees dedication, our strong assets and our quality customers long the steps, we took to build resilience and flexibility in our business in the past two months and over the past few years, we're weathering the storm generating solid results and preparing for the future.
Glad to have the first half of 2020 in the rear view mirror rest assured that we'll be working hard to predict or employees and their families. Our nation's critical energy needs builder financial strength generate value throughout the rest of the second half and into the future Hoak stay healthy and safe. Thank you that we'll open it up for acuity.
Ladies and gentlemen, you can have a question at this time lease price started the number one on your Touchtone telephone.
If your question has been the answer to you. We should we move you are still from you. Please press the pound key.
Your first responses from Jeremy Tonet Jpmorgan. Please go ahead.
Hi, This is Joe on for Jeremy.
I wanted to start off digging it with a little more granularity in the Corpus Christi export and do you mind clarifying our you above that and the fees now.
And if you're below I guess, how much higher unit.
How much higher to reach diabetes, and then just kind of.
Your expectations for the remainder of the areas such as from that time, no Trafigura add on these news or anything else base stance.
Joe This is Danny Oliver So we're running pretty pandemic, we were running about 650000 barrels a day through that system.
Roughly half Wi Fi and half Eagle Ford our current Nvcs on that system are about 462.
We dipped to a low in may of about 250, but we're back up to about 450. So we're kind of right at the NBC levels. Some some contracts are below nvcs than we have some shipping above their NBC level. So it's kind of a mixed bag, but on a macro level where.
Not at that MVC level.
And again, we Mbcs, we've forecasted just the NBC levels throughout the rest of the year.
Okay.
And then also wanted to dive a little bit deeper on the Permian crude.
Just I guess your assumptions around.
Hitting that exit rate.
For 401000 miles per day by the end of the year.
Just kind of from for 44 August is that natural decline.
Are there any other factors at play and also just kind of looking further along is that should we think.
That seems pretty far pretty sharp national clients is the would not continue until later years, where should that delta, yes, well I think we recognize the uncertainty that remains through the rest of the year I would tell you that.
If we stay where we are today in this price set about $40.
I think there's room for upside in that volume, but.
There's a lot a lot of year left and still some uncertainty out there so we're being cautious.
Okay that makes sense. Thanks for taking my question the ultimate.
Thank you next responses from Robert Moskow of Mizuho Securities.
Hi, good morning, everyone warrant.
So I appreciate the update.
In the earnings release, and kind of tying in to Joes question on piece, Yes, just hoping you can talk a little bit more about.
The outlook for rig count or DUC completions on your acreage just based on any conversations that you've had any having with producers and.
Yes, and how we should think about that production growth in any offsetting legacy declines and I guess, what the sensitivity would be if you see more.
See breaks start trade trench your acreage.
Robert This is Danny again, so we've got really the story in the Permian wherever you are right now it really doesn't have much to do with rig count it's more about ducks.
We've got over 500, Ducs on our system and to put that in perspective in years like 17, 18 19 when.
At the peak of the growth on our system, we were completing.
Our producers were completing about 500 wells per year now we don't think in this environment, they're going to finish. These 500 ducs at that same pace, but we likely have at least a year and a half of of Ducs. If you're in this price environment that you can.
Bringing those online and off in at least offset.
Natural decline curves and that's what our producers are communicating to us for the most apart is that here at about $40. They can complete those ducks and at least stave off the decline curves.
Got it that's helpful.
And just the second question you alluded to asset sales in the prepared remarks, and just wondering what you're seeing can M&A marketplace, right now and whether that bid for storage assets have returned as things begin to stabilize just any updates on that front would be helpful.
Let me we're watching the markets closely to see what's happening out there I don't know there's been a whole lot is transacted and just the last few weeks so.
Couldn't really comment on the bid ask spread on assets at this point.
Okay.
And actually just one more thing sand now looking at your 2020 gross Capex would you do you think thats reliable run rate in the near term or is there even more ability to flex that in 2021, and I guess, how much of that would depend on volume growth on PC absent any well connects that do you ultimately end up.
Carrying out.
But the good question I would say a lot of that depends on volume growth in Pcbs and so when we see good opportunities to invest low multiples will we will do it but.
Right now we are evaluating every single project.
Basically everything is coming back for a fresh analysis and we're looking looking too.
Maximize our investments there.
But just maybe have some I don't mean maximize the amount spent I mean maximum return I mean, we've already made significant cuts in 2020, there's there's probably some room to do more if necessary, but right now we think we're on target with what we can do.
As far as 2021 goes.
We've got plenty room to make cuts in 2021, if necessary, we're just going to continue to evaluate.
The progress and see how things go and demanded et cetera.
And then we'll make that determination for 21 later, probably the best way to put it with regard to permit as we have the ability to flex with our producers.
Okay, Great. That's helpful. Thank you guys for taking my questions.
Again to ask a question. Please press star one when your telephone keypad.
Your next responses from Ryan Levine of Citi. Please go ahead.
Good morning on it.
Can you comment on that you highlighted the noncore asset sales as a potential action that you take can you speak to the commercial logic or strategic logic in selling and light at the recent change and distribution policy in capital rate.
And any color you could provide around the stage in the process you may be in in that respect.
Sure as we came into the year. We've told you we said multiple times, we're focused on lowering our leverage and we continue to be focused on lowering our leverage and over the last several years. We've also talked about how we continually look through our portfolio define either on performing or non core assets station.
Great example of that.
So we will continue to do that throughout 2020, and 2021 with a focus.
On lowering leverage so.
Some of the things that you mentioned are tools that we can use lower leverage and we've implemented those tools, but we want to be cognizant.
We want to always be looking for opportunities to improve.
So that's where I would.
Explained that Hello, Hi, Thanks, and then one either in terms of recent utilization across your system can you comment around what you're seeing over the next.
This month, and what you're seeing going forward, you expecting a meaningful ramp up.
And then near term in terms of utilization across the system, particularly on the product set.
I think in breads remarks, he mentioned that we were.
Around 95%.
In total on average of typical demand for this time of the year.
I suspect you were not going to get back to 100% anytime soon so that.
90, 590% to 95%.
Demand levels, I think is probably going to stick around for a while.
Okay. Thanks.
Thank you your next responses from Theresa Chen of Barclays. Please go ahead.
Hi, there thanks for taking my question.
For.
I wanted to ask about yes, and reaffirmed guidance range. So it sounds like in general things got better during the quarter and outlook.
Very resilient, probably better than we had thought before and on the pipeline product side and so on the accrued side and exit rate now it's higher than Threeseventy previously guided so I was just wondering in keeping that guidance range. This thing.
Yes are there areas.
Elsewhere in your portfolio that are experiencing headwinds you expect lower than previous second half or is there anything else. We're missing in terms of just then moving pieces.
Hi, Theresa this is that Tim Smit.
We are having.
Certain assets that are.
Coming on little bit lower and others that are kind of performing even better I think we've kind of talked about that in our remarks.
But I would also say that we're just trying to be cautious due to all the uncertainties in the market at this period in time.
Hi.
I think we've been pretty clear about what we're seeing currently and what we expect but we also know that theres just a lot going on with the pandemic.
I would echo what Pam said I think what I Hope you took from our remarks is that we're seeing.
Signs that.
Lead us to be optimistic about things and future, but things are still very uncertain.
Okay.
And I guess, just turning to the refined products portion.
For the central West and South, Texas, It's done so for central what's your expectation at 85% to 9%.
Station in August.
Beyond can you just talk about the week to week trends given the resurgence of cases.
Areas, there or is it on deceleration in the rate of increase is pretty much unchanged reflection engaging activity regardless of the resurgence and then on the South Texas piece, Okay. So.
It seems that youre rebound to pre pandemic level is better than what the aggregate macro data would suggest and also the anecdotal.
Commentary from some of your refining customers just wondering what exactly is happening there.
Yes, So Theresa this is Dan again.
So let's start with the central West.
Our assets up their serves some big.
Pretty big urban markets like Dallas Fort worth in Denver and.
[music].
Not directly, but Phoenix grade gasoline and so as we've seen.
Pandemic impacts in some of those markets from time to time.
We've seen seen some reaction there in terms of the volumes that are being produced but I would say in general it's steadily improved since the lows in April with just a little bit of noise week to week with what's going on.
Some of those markets, but again general pretty steady improvements since the lows.
Down in South Texas.
Yes.
I don't know if the volumes were seeing or art.
Indicative of actual demand, but we are seeing volumes actually slightly above.
Where they were a year ago levels out of a combination of three rivers and our valley pipeline system.
And that does not include any Mexico volumes, that's just the local demand.
Got it.
Danny related to your comments about not expecting to get back to 100% utilization or 100% normal.
As a.
Normal demand.
Anytime soon is that related to.
Any expectations for structural demand changes or you just think that this is going to be at very low recovery to normal environment. Not just think it's going to be a slow recovery of there's there's likely people going to be working remotely for the rest of the year at least.
And that a little bit of that probably going to stick with us for a little while at least.
Okay, and lastly on your Opex target.
Of 40 to 50 million savings.
How much of that have been executed and how much of that is permanent I see if we do ramp up in a bigger way in 2021 and beyond Q1 hundred percent at normal demand for example.
Can you still keep some of those savings.
I would say that the large part of that is still to come in the second half 2020.
Definitely and I would say that for 2021, we are still going to analyze that and flex according to what happens with the market.
And with demand.
No I think those are things where it.
It calls for it we can make it a hard cat and if the economy recovers thing we'll recover.
Thank you, but some of that Opex is related to power right and so thats variable.
Depending upon where volumes fall out so as you see volumes increase you see power go up those type of related costs that are in opex. So part of that is just a nature of volumes going up or down.
Got it thank you.
Thank you next you spoke to some shoe neuberger shiny VBS. Please go ahead.
Hi, good morning, everyone. Good to hear everyone's well just maybe to follow up on on a couple of this question from Theresa.
When I sort of speak about your guidance range as it stands in sort of the fence post that you sort of put out there last quarter you know.
Earlier recovery and so forth.
Given the updates that you're seeing out there right now and let's run a scenario where theres not an absolute return to a full shows in place scenario would you expect new store to basically and you're kind of in the upper end of your guidance ranges that we would it be thinking about it.
It's a range.
So we gave you the full range. So we target typically the middle of the ranges what we expect.
There are factors that.
Could come into play that would cause us to hit the upper into that range.
Okay.
What are the signposts that you're probably most closely is it should we be focused mostly on.
Kind of the storage market for you to hit the upper end is it really going to come down to navigator.
Is it congestion data just what are the key things that you think are going to be primarily the biggest drivers.
I think about the second half, yes, Shinier I think that the two biggest drivers are just going to be demand in crude oil price.
From 40, if it goes a 30 than that's obviously negative versus what we're seeing today if it goes to 60.
Probably have a much more positive view.
Okay fair enough.
You'd mentioned in your remarks that you expect the storage benefits to roll through 2020 or the continuing through 2020.
If any of that kind of roll into 21 as well also we are we able to capitalize on the contango that was out there a couple of months ago, when sort of put in place a couple of longer term contracts that would go up to 21.
Yeah, we were most of those contracts, we signed up back in April May go out through about June or July of 21.
Okay Perfect and then one final question just a follow up on the cost side.
Well, we knew that you mentioned.
In the prior question that.
A lot of the costs or some of the costs or variable in nature, which which makes perfect sense.
Is there any level of cost reduction that you can identify to us that sort of more of a permanent nature that wouldn't be coming back and wouldn't be volumetrically sensitive.
Have there been the reduction in force of some sort of you looked at taking the opportunity to look at how you run the business and.
Sansom permanent cost reductions that that could carry through into the future.
Sure I mean, we've scrubbed the business from top to bottom. So we're looking for every cost reduction we can fund.
In terms of things that would carry through permanent where we can get back to you on a number on that second quarter or something.
We could at least give you a percentage of whats variable related to volume.
If you can chip in the percentage that'd be great.
Well get back to you on that in your way, though.
Perfect. Okay that sounds good double left will have a follow up call.
Appreciate the color today, guys and had to say.
Thank you too.
I'm showing no further questions at this time.
I'd now like to turn the conference back to Pam Schmidt.
Thank you get there we would once again like to thank everyone for joining us on the call today. If anyone has any additional questions. Please feel free to contact Newstar Investor Relations.
Thanks, again and have a great day.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
[music].