Q3 2020 NuStar Energy LP Earnings Call
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Ladies and gentlemen, and welcome to the Q3 2020, New Star Energy earnings Conference call.
At this time all participants are in a listen only mode. Later will will conduct a question and 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, just conference call is being recorded.
I would now like to turn the conference over to your House Pam Schmidt.
Vice President of Investor Relations you may begin.
Good morning, we're sorry for the short delay due to some technical difficulties, but we'd like to welcome you to today's call on.
On the call today are for out there and you start energy L. PS President and CEO and Tom Shove Executive Vice President 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 Neustar management will make statements about our current views concerning the future performance of Neustar that are forward looking statements.
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 statements.
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 were we <unk>, we will refer to in this call exclude thank you stations facility, we sold in July 2019.
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 gap measures reconciliations of certainty non-GAAP financial measures T. U S gap may be found in our earnings press release with additional reconciliations located on the financial pay.
<unk> at the investors 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 taking the time to join US there are a lot of positive news report today.
Put a positive news on demand recovery on another quarter saw results in on the progress, we're making a new store strategic priorities.
Despite the challenges this year is posed for the country in the world like music Pride and how well our employees have persevered.
We're going to ensure that our customers have reliable access to the energy needed a fuel to fight overcome this pandemic and rebuild our economy.
During the third quarter alone, we move 204 million barrels of crude oil and farm products through a pipe lines and terminals safely in response.
Over the course of the third quarter through October we've contingency demand rebound and returned levels at or near normal pre covid levels and the markets are assets or.
And are popular segment, we saw refined product demand improved throughout the summer. We've continued to see stable progress October and on end of November.
On average across our farm products system. So far this quarter, we returned to 100% of typical demand.
We're also pleased that are Permian crude volume to remain steady since our last call.
And we averaged around 420000 barrels per day in October or throughput has increased from an average of 401000 barrels put it in the second quarter to 422000 and the third quarter. We're also pleased with our November nominations of 428000 barrels per day.
We believe these numbers reflect our permeant systems geological advantages lower production costs, and higher product quality, which distinguish our core or the core assets and the Midland Basin from other show. Please and also other gathering systems and the premium.
We're seeing some indications of recovery and exports as well after.
After a corpus Christi exports dipped below Nbc's may we've been pleased with the ramp up we saw in the third quarter throughput is increasing from an average of 306000 barrels per day in the second quarter to 380000 barrels per day in the third quarter, which is above R. M. B C 377000 barrels per day.
We continue to forecast revenues for our Eagle forward and diabetes commitments at the MVC levels.
We are encouraged by the hopeful signs we see but we're also keenly aware of the uncertain environment, we're facing here in the United States and around the globe.
Become rain or shine for the rest of this year and 21.
In addition, we previously identified about $40 million to $50 million of controllable and operating expense reductions for the full year 2020, but we didn't stop there. We continued looking for savings across our organization and we're now expecting to reduce controllable and operating expenses by another $7.5 million.
The most tangible indication to progress with rebound and recovery our of course, our third quarter results.
And our businesses performed well again this quarter as you've seen and as Tom will discuss in more detail in a few minutes.
This quarter, our operating income in our segment operating income were both up not only outperforming our second quarter of 2020, but also better than the same period in 2019.
On an adjusted basis, our EBITDA was $180 million in the third quarter, which is 7% higher than third quarter 2019 $169 million.
2020 has been a rough year for many people many industries, but our results for the third quarter. Once again demonstrate the diversity and resilience of our asset base, even under challenging conditions with that I will turn it over to Tom to give you the details of our third quarter results.
Thanks, Brad and good morning, everyone. Just a reminder, that all results discussed will be from continuing operations for all periods.
In addition for the third quarter of 2020. Our results include a $138 million charge related to the early repayment of the $500 million balance on the oak tree term loan, which is separately reported on loss on extinguishment of debt as such <unk> third quarter 2020 adjusted EBITDA.
Of $180 million excludes this loss.
And is up $11 million or 7% over third quarter 2019, EBITDA of $169 million.
Third quarter 2020, EBITDA in our pipeline segment was $129 million comparable to the third quarter 2019, EBITDA of $130 million, which is quite remarkable in this environment as we not only returned to pre co with throughputs by the end of the quarter and our refined products business as Brad mentioned earlier.
But we were also able to recognize over $2 million of Opex savings within the pipeline segment due to lower power and rent costs.
Our third quarter 2020, EBITDA in our storage segment was 74 million up $12 million or 19% from the third quarter 2019, EBITDA of $62 million as a full quarters contribution from the completion of our top 30 inch pipeline, which flows into the North Beach terminal within our corpus.
Christi crude system more than offset any lingering COVID-19 related throughput declines at certain facilities that directly support some of our customers refineries.
In addition, our storage segment continued to benefit from our Mexico refined product.
Projects as well as our west coast bio fuels projects and also new storage contracts and renewals of existing contracts that we executed earlier this year that brought our storage facilities to 100% utilization.
We were also able to recognize $3 million of Opex savings in our storage segment due to efficiencies gained throughout the segment, while increasing our throughputs.
Third quarter 2020, EBITDA in our fuels marketing segment decreased by $4 million compared to the same period last year due to lower bunker and butane blending margins.
Our September Thirtyth debt balance was $3.6 billion and we had no borrowings outstanding under our revolving credit facility and our debt to EBITDA ratio was 4.1 times.
As a reminder, in September we seized the opportunity to issue $1.2 billion of new notes at attractive rates to provide us the liquidity to ultimately clear our bond maturity runway for the next five years wish you to $600 million tranches of five and 10 year senior unsecured notes maturing in 2025 and.
2030.
The proceeds were used to repay the term loan as well as all the borrowings outstanding under our revolving credit agreement and.
In addition, we plan to utilize our revolver availability to pay off our February 2021 in February 2022 bond maturities all of which will reduce our interest expense over the next couple of years.
Turning to our full year 2020 projection projections, given the resilience of our business and continued recovery in product demand. We saw in 2020, we are raising newstar as 2020, adjusted EBITDA midpoint by $10 million.
And narrowing the range to 690 $730 million.
And we are lowering our 2020 projected strategic capital spending to now be in the range of $165 million to $185 million, which is approximately 63% below our 2019 strategic capital spending.
Of that total for the year about 60 million is for the Permian system and around $20 million will be for renewable fuels and related improvements for our west coast storage assets.
In addition, we have lowered 2020 projected reliability capital spending to be in the range of $35 million to $45 million.
Looking further out to 2021, we expect Nustars result to be comparable to our 2020 results that's pretty impressive given the pre pandemic first quarter of 2020 was a record breaker for newstar on several fronts.
We also expect our strategic and reliability capital to be comparable to 2020.
And as Brad mentioned earlier, we just we will still be achieving these great results, while generating internal cash flows to meet all of our spending needs and with that I will turn the call back over to Brad. Thanks.
Thanks, Tom.
With 10 months of 2020 now in the Rearview mirror as Tom mentioned, we now project that Newstar will generate full year 2020, adjusted EBITDA in the range of $690 million to $730 million, which at the midpoint is 6% above our 2019 EBITDA results.
We're proud of the resilience and strength that our business has demonstrated in 2020 and we're encouraged by the recovery, we see across our footprint.
While uncertainty remains as to what the future has in store. We also expect 2021 EBITDA to be in a range comparable to the range we provided for 2020.
Thanks to the decisive actions we've taken this year, we expect to fund our 2021 spending from our internally generated cash flows which is a notable accomplishment for an MLP in any environment.
2021, Walsall, Mark Newstar Twentyth year, as a public company and while a lot has changed over the years I assure you. The one thing has not each and everyday all of US here at Newstar working to protect our unit holders our employees the environment and the communities in which we operate.
Doing the right thing right way so much part of our culture here of Newstar, we may sometimes take it for granted.
We've done this for two decades now we've never mentioned it because we believe that doing the right things is what you're supposed to do.
But we recognize that in world increasingly critical of the oil and gas industry, we need to tap our points of pride and we plan to do just that in our for sustainability report in 2021.
In that report, we will take the opportunity to demonstrate new stores, environmental and social responsibility industry, leading safety record intangible contributions to our communities as well as how we plan to continuously improve our day to day operations and take advantage of evolving opportunities presented by energy transition across our footprint.
Our west Coast renewable fuels network is a great example of the opportunities were finding embedded in unfolding energy challenges several years ago Cross our west Coast terminals, we began developing a series of low multiple projects in partnership with some of the largest renewables producers in the world to facilitate adoption of low carbon fuel standards across that region.
While we've mentioned these renewable fuels projects on prior calls we Havent told you just how significant a role Newstar is now playing in a low carbon transition of the largest driving state in the union.
For example in the first quarter of 2020, new store handled about 5% of California total biodiesel volumes over 15% of its ethanol and close to 30% of its renewable diesel volumes. That's an impressive share of a key market that we've achieved with a relatively modest spend and our market share longer associated EBITDA continues to.
The ramp through 2023.
Our West Coast Renewables initiative reflects our business development departments ability to identify and find creative solutions for energy dislocations adapting as our customers needs evolve that ingenuity and innovation will continue to be the key to nustars ability to thrive as we all navigate toward the nation's energy future.
None of us could have predicted the obstacles to 2020 as presented in we like many of you listening we'll be happy to bring this year to a close.
But even though 2000 twenty's been challenging we're proud of the resilience and strength that our business has demonstrated the progress we're making on our financial priorities.
And our continued health safety and environmental excellence across our footprint.
Given what weve sustained and built over the course of this year I'm confident that in 2021 and beyond Newstar will not only weather challenges bolt on opportunities as the recovery continues.
From all of US here at Newstar wish junior families, a healthy and safe holiday season, we look forward to talking to you next year.
Thank you very much with that I'll open the call up Kuni.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue.
Thank you.
The first question comes from the line of generic Gershuni with you'd be at your line is open.
Hi, good morning, everyone.
Maybe to start off I was wondering if we can sort of chat about the puts and takes with respect to your guidance. Our initial guidance for next year. I was wondering if you can share with us your assumptions around navigator volumes incorporates exports just given the fact that the refined products in fact, 100% I assume that's where the.
The puts and takes would be or there are some other things that we can be thinking about as well.
Yes sure. This is Danny Oliver basically in the.
Basin, where assuming some muted growth in 21, we expect to exit this year.
Somewhere in the 14 to Fourq 20 range and we expect to exit 2021 around 470.
Basically that's that's from a lot of conversation with our producers what they're planning for is a price set in the first half kind of in the low fortys or around 40, and then in the back half of the year mid to upper Fortys, which would generate.
A little bit more activity, but I want to remind you and we've mentioned on previous calls when the pandemic first hit we had over 500.
Next on our system up there and our producers are relying on those ducs to maintain production in this in this current pricing environment. We expect by the end of this year to be down around 430, Ducs and by the end of 21 to be just under 200 docs.
With probably some slight improved rig activity in the back half of the year.
Okay. So you don't even need much of rig activity just given the docks okay.
Perfect sense.
And maybe to pivot a little bit here.
Yes, I think Tom you sort of highlighted the need.
Efforts that have been made with respect to cost reductions and that you you see incremental cost reductions.
You've already identified.
Can you talk about continuous improvement process.
Is there a scenario, where we could see another $30 million to $40 million of cost come out or or kind of what you've laid out is probably the max that we're going to be a little of C.
I Wouldnt say its the Max I mean, we're always continuing to look for more cost reductions in our throughout our system, whether its opex gionee.
Across the board is brad's comments. He made the you made the point that we've done we've made some pretty significant cuts across the board and we look at our cuts Holistically. We've cut expenses, we've cut capital up in a big way, we've reduced our financing costs. We've made a lot of efforts to reduce all of our costs going out in our cash outflows.
To Begum do closer to getting to the point, where we are.
Paying for all of our cost with internally generated cash flows that is absolutely. The goal. The other goal is continue to de lever and so all of those are kind of intertwined together. So yes is there room for more there might be we will continue to look at that but I think what we've done so far has been very prudent and.
And follow up on Tom's point, we expect to be too.
Cover all of our costs in 2021 with internally generated cash flows.
Great and maybe one final question you you want to sell an asset this week at a health multiple.
Have you identified any other assets that you have been noncore that you may be looking at sell as well also.
You know, we're continuing to look at our portfolio to see whats with core non core what we might do to help improve our leverage leverage metrics.
Lauren perfect.
Thank you very much for the color today stay safe and low I guess, we'll talk to you next year.
Thanks generic here.
Your next question comes from the line of Michael Blum with Wells Fargo. Your line is open.
Thanks, Good morning, everybody.
Morning.
Just wanted to go back to a comment you made about your refined products volumes being back to basically 100% normalized levels I guess you'd say can you. Just can you just talk more to that because clearly in our refineries are not running at their normal utilization going if we look at you know.
National trend or not back to 100%. So is that just something specific to your markets. I was wondering if you could spend on that a little bit yeah. Michael This is Danny again.
I think it is specific to some of the markets that we serve I think we talked about in the middle of the Lockdowns we were spared.
Some of the deeper cuts in demand because of the rural nature of a lot of our assets up in the mid continent.
Those those markets still continue to perform very well we have a few.
Assets that serve some larger urban areas like Dallas, and Denver and Phoenix that.
Continued to lag just a little bit, but our volumes down in the Rio Grande Valley have more than offset those so as a whole we're doing as Brad mentioned, where we are right at 100% a year ago levels.
Right.
Just wanted to us than the other.
A high level of capital allocation question, so I recognize the per share to reduce leverage and it makes sense to me.
Just wondering.
I understand with your current distribution.
You can certainly support it with your cash flows and where your balance sheets that but just.
Just with your yield where it continues to trade just wanted to get your latest thoughts on you know at some point do you think about redirecting some of that cash to a better use if you're not getting proper value in the equity market.
No we've looked at that and you know we when we made the cut earlier. This year. We thought we absolutely believe we rightsized our distribution based on what our projections are going forward so right.
Right now we think we're in pretty good shape on the distribution, we don't have any plans to to cut that any further.
We as we've said over and over we we've built in a point, where we are going to be.
Paying all of our cost with internally generated cash flow so.
We think we're in pretty good shape, there and we don't think Theres a need to do any more distribution cuts.
Now I understand it's necessarily to to change our distribution policy just based solely on stock price. So if you look across what our metrics. Our distribution coverage is strong you mentioned are going to fund all of our costs next year with internally generated cash flows so.
I don't think it would be rash to cut the distribution just to where our stock happens to be trading at the moment.
Great I appreciate that last just one housekeeping item just wanted to confirm the 138 million non operational charge was that all cash or is there some non cash component to that.
There was a noncash as well as all cash eventually at the 137, yes.
Okay. Thank you.
We have our next question comes from the line of ago Kraton with Bank of America. Your line is open.
Good morning, Congrats on this as well.
Thanks for taking my question.
Hi, first I wanted to begin with your west coast by fuel business.
I appreciate the commentary on the press release and in your prepared remarks, just wanted to see if you could speak to the size of the addressable market here for you and how much of that.
Is accessible to you in terms of meeting your return thresholds.
Well, we certainly expect our business there related to the Biofuels and the renewable distillates to grow over time, we're just really in the very beginning of kind of a 10 year phase out of.
Fossil fuel diesel in California, So we expect those volumes to grow in our projects have been size to grow with those needs.
And we're not finished yet we have.
Another big project that we're working on we're not quite ready to announce but we hope to be talking to you about that probably early in 2021.
Got it.
And to follow up on that certainly few refiners have moved to convert more of their refineries to handle boxes in the west coast.
Do you see more of those trends outside of West goes in other parts of the country and do you see.
Opportunities for you too.
Two a push those off.
Revenue from the new Star side.
Yes, I think we're been benefiting from some of those conversions directly on the west coast as we handle some of these renewable.
Distillate some biofuels, but we've also had some indirect benefit from.
Refineries that are converting to renewable distillate in new Mexico, and also up in Cheyenne, where we have assets in our central East and central West system that will benefit on throughputs of regular fossil fuels as those refineries convert.
Got it.
And so.
Second one is there a quick clarification on your 2021 is strategic Capex comment.
Yes, certainly you're saying, it's likely going to be comparable to 2020 levels.
Would you be able to talk to the different components of that budget next year.
Talk to the confidence component company called when in fact that budget and have it off.
No I mean, you know certainly.
Much of that will be related to the Permian, but.
I don't know that we're really talking about components of that yet as.
As well as Webcasted at Wesco Biofuels is going to be a component of it are going to be a component of it so.
I would say roughly along the lines what we've seen this year.
I'm sure there will be added color to that in 21, yeah right.
Got it Thats helpful and if I may just.
I wanted to get a quick update on.
Overall de leveraging plan at the high level, so going forward or should we just expect you to de lever.
As your EBITDA grows.
Overtime.
With some help from.
Potential asset sales is that the overall framework that we should expect you to follow I think thats a good way to put it.
Got it thanks, Thanks, Brad.
Thank you this off.
We have our next question coming from the line of Joe Battaglia JP Morgan Your line is open.
Hi, Thanks for taking my question I just wanted to first build off Sharon's question around maybe 2021 guidance and if I heard right. It sounds like Permian crude should be up a good bit.
And then also kind of you know I think general competitive for refined product outlook to be.
Bit better next year compared to two some of this year.
Just wanted to understand I guess, what's kind of the some of the offsets there and I apologize if I missed it that that Keith.
EBITDA flat and also are there any kind of price assumptions baked into that guidance.
One one big.
Offset on year to year as you know in 2020, we had our first quarter was at near record quarter pre pandemic.
Which we won't have 21, it will be a full year of of paying.
Pandemic tough environment.
Yes, that's probably your biggest also.
Okay sure that makes sense.
And then also kind of on.
On the 2021 Capex guidance, you guys have kind of done a good job of reducing capex throughout.
2020 will you do you think there could be similar opportunities in 2021 or is it still a king.
Like.
It will be flat with 2020 nanometer wide and also.
Why did what kind of assumptions do you have baked in for the Capex guidance.
Well, Yeah, we think we have to.
2021, well as we said will be comparable to 2020.
Maybe a little bit better, but but certainly comparable.
He also think thats sustainable for as long as we need to do that and so that's kind of where we're at with that guidance and so we are quite comparable one example of something that could potentially impact Capex next year is if we see crude oil prices improve quicker and higher than.
What we are assuming then we could see the Permian.
Scale up and but those are good low multiple projects and we'd be happy to see him.
Okay that makes sense and then one more more quick one I guess the 184, three Q is that kind of a.
Good number to think of a run rate kind of for fourq and beyond or anything out.
You should keep in mind.
Hub for EBITDA.
I'm, not giving quarterly EBITDA guidance, but.
I think we said what we think the guidance is for the year.
Okay. Thank you.
Well for me.
Thank you.
We have our next question coming from the line of Robert Moskow witnessed the whole Securities. Your line is open.
Hi, good morning, everyone.
Thanks for taking my question I had.
A question with respect to your your West Coast position and just wondering if you've learned anything from operating those assets that you could apply elsewhere.
The expected energy transition progresses, or do you view them more is operating in a silo from the rest of your portfolio.
Now we can definitely apply what we've done on the west coast to other areas that are introducing renewable distillate. This was just the first and the biggest opportunity.
I think we're also building some great relationships with that some certain leaders and in that area. So I think that is also something that we can carry with us to other areas for for sure I think Brad mentioned, we started our strategy on the west coast several years ago.
Kind of before anybody was really talking about these renewables and so we feel like we got a good foot in the door early.
For sure and I guess following up on that would there be it seems like you guys have a pretty decent market share in the California market would there be any drive to perhaps expand on that in the next few years and make it a bigger piece of the pie in your portfolio.
Certainly, yes, yes, I would say better than diesel I'd say, we have a really large part of the market share.
For a company of our size and we see opportunities to expand that as matter of fact, we think this will expand continues band at least through 2023.
We have a number of capital projects are currently working on that will help achieve that and like Danny said, we're working on on projects right now that we're just not quite ready to announce but yes. It is going to be a focus strategic focus for us going forward.
Okay. That's that's very helpful. And then and then a final one for me just sounds like the.
Operating stats on your front products pipelines are pretty strong does that imply that the refineries that they serve are also operating at higher utilization rates and probably unlikely to experience any short term shutdowns just want to know if that's the right way to interpret it.
Thats the way it looks right now.
These are mostly refineries kind of up in the Midwest or.
Panhandle or down in South, Texas, and kind of the more rural or less urban areas.
So thats, what we are seeing currently.
Okay, great. Thanks for taking my questions.
Okay, and if you have a question at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the can you. Please press the pound.
Yes, our next question coming from the line of Ryan Levine with Citi. Your line is open.
Good morning.
Just one question, what's the current outlook for expansion on the ammonia system and are you pursuing any opportunities related to that.
You know there is a.
Ammonia system has served some pretty mature markets, we do some small projects here and there, but we have nothing on the drawing board that's material.
Material, but thats, a very steady performing asset in our in our mix of pipeline assets.
What's the current utilization on that system today is there excess capacity.
I'd have to get you to that exact number we do hit capacity in some peak periods during the year, but typically.
I must say, we're somewhere around 75%.
And like that normally but we can we can get you a better number.
Okay, all right great.
Appreciate it thank you.
<unk>.
There are no further questions at this time I will now turn the call back over to Pam Smith.
Thank you filling the Atlantic 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.
This concludes today's conference call you may now disconnect.
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