Q4 2020 NuStar Energy LP Earnings Call
Yeah.
Okay.
Good morning at this time I would like to welcome everyone to the New Star Energy L. P. 's fourth quarter and full year 2000, and 'twenty earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If he would like to withdraw your question press the pound key.
Thank you I would now like to turn the conference over to Pam Schmidt Vice President of Investor Relations you May begin your conference.
Good morning, and welcome to today's call on the call today are Fred Barron, Neustar energy, Lp's, President and CEO, and Tom Shoaf, Executive Vice President and CFO, along with other members of our management team.
Before we get started I 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 various risks uncertainties and assumptions described in our filings with the security and Exchange Commission.
Actual results may differ materially from those described and the forward looking statements.
Also throughout the call today and when we talk about our results we will be describing our results from continuing operations and other words and the results we refer to and this call will exclude the St. Eustatius facility, we sold in July of 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 GAAP measures reconciliations of 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 and the inverse.
True section of our website at and you 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's no two ways about it it's good to have 'twenty and 'twenty behind us.
Perhaps because of the unparalleled changes challenges last year presented for all of us on Prem.
Outer today than at any time in the past seven years since I started this job to report to you on how well New Star has performed.
Faced with historically difficult conditions are employee stepped up and through hard work and prudent planning and clean.
And our capital program and significantly reducing our costs, we generated solid results and 2020.
Last year, even though the pandemic depressed activity for much of the globe, we actually increased the number of barrels per day throughput and both our pipeline and our storage segments over 2019.
In fact, and 2020 and you start moving more than 817 million barrels of crude oil and refined products through our pipelines and terminals that 6 million more and 2019.
I'm proud of the fact that we handle those barrels safely and responsibly and once again in 2020, Neustar outperformed our industry in terms of safety and environmental stewardship.
Our days away restricted or transferred our Dart rate for 2020 was eight times better than the terminal industry average and two times better than the pipeline and industry average and our total recordable incident rate or T. R. R was seven times better than the terminal industry average and more than two times better and the pipeline industry average.
I'm also proud that during 2020 and you start generated adjusted EBITDA of $723 million, which is more than 8% above our 2019 EBITDA of $668 million.
Growing our EBITDA by 8% would've been an impressive and a normal year, but new store accomplished all of this and a year that was anything but normal ear.
And which the country and the world experienced some of the most difficult conditions and history.
Our performance is a testament to our employees' perseverance as well as the remarkable resilience and quality of our assets and the markets. They serve.
And our pipeline segment and have you seen refined product demand improve steadily through the summer. We continued to see stable positive results all the way through December.
On average across our refined product systems for the month of December we were at about 90% of typical demand. This was largely due to unplanned downtime and one of our customer's refineries, but we were back up to almost 100% and January and in line with pre pandemic volumes. It is quite remarkable compared to other systems and different markets.
And we're also very pleased that our Permian crude volumes.
And have continued to improve our systems volumes average around 418000 barrels per day for the fourth quarter and Roche on average of 427000 barrels per day during January.
And steady upward trend has continued and we exited January at around 439000 barrels per day.
We believe that the volume we moved on and Permian system and January it can be maintained and 2021 with about 16 active rigs and that's without any ducks and so.
And we've been encouraged that our rig count has risen above that number to around 20 rigs.
Brings our systems count to more than 10% of the total number of rigs running across the entire Permian basin as of the end of January.
We believe our systems strong performance, even through the 2000 twenty's unprecedented challenges.
Is a continued reflection of its clear advantages premier location lowest producer cost and highest product quality.
It's also worth noting that none of our dedicated acreage is on federal land.
Our system average barrels per day.
Was up more than 9% over 2019, which is more than twice the 4% growth rate average for the Permian basin as a whole over the same period.
Looking out to 2021.
And we're encouraged by the outsized share on the Permian as ducks that reside on our Permian crude system acreage and our system typically transports about 10% of base and production, which is impressive but we have about two times that are about 20% on Permian basin DUC inventory on our footprint.
We believe that the volume from completions, a little over half of those ducks, along with volume from rigs running on our system today should support and modest growth and our volumes and 2021.
And we expect to exit 2021 between 470 and 480000 barrels per day.
Moving on from the Permian to our Corpus Christi crude system, we're seeing some indications of recovery and exports as well after seeing our corpus Christi exports dipped below MVC last may we've been pleased with the ramp up we saw on the second half of 2020 throughput is increasing from an average of 306000 barrels per day, and the second quarter to 369000 barrels per day and.
January.
2021, we continue to forecast revenues for Eagle Ford and WTO commitments slightly above the NBC levels, but I'm cautiously optimistic about some initial indications of recovery during January.
Shifting over to our storage segment, we benefited.
And last year from contango conditions, and the spring and many of those contracts continue into or through March of 'twenty and 'twenty one.
Starting in November our St. James Terminal has also benefited from the resumption of unit train activity or we received Canadian heavy crude.
And our west coast renewable fuels distribution system continued to grow as we executed on our projects there and further increased our market share.
And the first half of 2020.
And you start handle about 5% of California's total biodiesel volumes or 15% of California's ethanol and close to 30% on the state's 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 along their revenue is expected to keep ramping up through 2023, because we continue to execute on our planned projects there.
And 2020, our west coast storage assets generated about 20% of our total storage segment revenue one third of which was derived exclusively from renewable fuel related services.
As we continue to complete our 'twenty and 'twenty, one west coast projects, we expect renewable fuels related services to grow and contribute about 35% of total west coast revenue by year end 2021, and approached 40% by year end 2022.
Our West Coast Renewables network is growing and will continue to be the key to new stores ability to thrive as we all navigate through the nation's evolving energy priorities.
I'll turn it over to Tom give more details on the new stores fourth quarter and 2020 results.
Thanks, Brad and good morning, everyone. Just a reminder, that the results discussed will be and from continuing operations for all periods.
To put the quarter over quarter comparisons and perspective fourth quarter 2019, EBITDA was the highest fourth quarter and the company's history compared to the pandemic strapped fourth quarter and 2020.
In addition for the fourth quarter of 2020. Our results include a $35 million noncash charge related to the sale of our Texas City terminals.
As such fourth quarter 2020, adjusted EBITDA of $181 million excludes this charge and is down $15 million from the fourth quarter 2019, EBITDA of $196 million.
However for full year 2020, and despite the pandemic impacts we generated adjusted EBITDA of $723 million, which is an 8% improvement over 2019 EBITDA of $668 million and at the high end of our previous guidance for the year.
As a reminder, our full year adjusted EBITDA results are adjusted for the charge related to the Texas City sale noted above.
And the pandemic related noncash goodwill impairment charge that we reported and the first quarter of 2020.
And the charge, resulting from the repayment of our term loan and the third quarter of 2020.
Fourth quarter 2020, DCF available to common limited partners was $63 million compared to $107 million for the fourth quarter of 2019, and our distribution coverage to the common limited partners for the fourth quarter of 2020 was 144 times.
For full year 2020, adjusted DCF available to common limited partners was $336 million down two 6% compared to $345 million for 2019, and our adjusted district distribution coverage ratio for the common limited partners for 2020 was 192 times.
Yes.
Fourth quarter, 2020, EBITDA and our pipeline segment was $130 million down $12 million compared to the fourth quarter 2019, EBITDA of $142 million, mainly due to COVID-19 related throughput declines across our crude oil pipeline network.
However, full year 2020 pipeline adjusted EBITDA was $521 million up $21 million compared to full year 2019 segment EBITDA of $500 million.
Our fourth quarter 2020, EBITDA and our storage segment was $73 million up 2 million from the fourth quarter of 2019 EBITDA of $71 million as strong contributions from our west coast renewable strategy, new storage contracts across our system and renewals of existing contracts that we executed early in 2020.
<unk> brought our storage facilities to a 100% utilization these increases more than offset COVID-19 related throughput declines at several locations that support our corpus Christi crude system and some of our customers' refineries and.
Full year 2020 storage segment, EBITDA was $289 million up $37 million compared to full year 2019 segment EBITDA of $252 million.
Fourth quarter, 2020, EBITDA and our fuels marketing segment was $2 million, which was down from last year due to weaker bunker and butane blending margins.
Our December 31 debt balance was $3 6 billion, we had no borrowings outstanding under our revolving credit facility and our debt to EBITDA ratio was four two times.
As a reminder, and September 2020, we issued $1 2 billion of new notes at attractive rates to provide us the liquidity to ultimately clear out our bond maturity runway for the next five years. The proceeds were used to repay our term loan as well as all borrowings outstanding under our revolving credit agreement and.
On February one we use the revolver availability to pay off for February 2021 bond maturity.
Turning to the full year 2021 projections, we expect new starts 2021 EBITDA to be comparable to our 2020 results after taking into account the EBITDA associated with the Texas City terminal that we sold in December.
With regard to 2021 capital spending estimates, we expect to spend $140 million to $170 million on strategic capital.
Of that total for the year about $50 million as our Permian system, which is scalable with throughput volume performance and around $50 million will be invested and our renewable fuel related improvements on our west coast storage assets and.
In addition, we expect to spend $40 million to $50 million on reliability capital and 2021 and with that I'll turn the call back over to Brad. Thanks.
Thanks, Tom.
And you start solid results and 2020 are a testament to our employees' hard work and to the resilient business.
We're starting this year and encouraged by the rebound we've seen and continue to see across our footprint.
January was promising and we hope to see that steady stable improvement continue.
Given all that we accomplished in 2020 I'm confident that new store is positioned to build steady stable value in 'twenty and 'twenty, one and beyond to do that we will continue to focus on our strategic priorities operating safely reliably and efficiently lowering our leverage to further strengthen our balance sheet and funding all of our 2021 spending from our internally generated cash flows.
Closing, we here at Neustar, one and wish you and your families a very happy healthy and safe 2021.
That will turn and turn it up and turn it back to the operator for Q&A.
As a reminder, if you have questions. Please press star one of your telephone keypads and once again Thats star one.
Your first question comes from Theresa Chen from Barclays.
Good morning, it's great to hear the upbeat commentary heading into 2021 and.
I wanted to first touch on refined product demand and to your comments about being back to almost 100% and January and language pre pandemic of volumes and can you give us any context and the country.
<unk>.
And what you're seeing by region is that pretty uniform and do you.
Correct any softening and entered the year.
And as a result of the uncertainty on related to that.
The new virus variants and if that's baked into guidance at all.
Yeah Theresa this is Danny.
We continue to see.
A lot of resilience and the markets that we serve again.
Many of our markets are tend to be more rural and agriculture base.
Certainly we've seen.
Covid cases, spiking and last couple of months all across the nation and but we continue to.
Performed pretty close to pre pandemic levels. Despite the aside from the maintenance issues that Brad talked about but I would say, we have seen especially strong demand.
Demand down in South Texas.
And which has offset some small declines that we've seen lockup and the central lease.
But.
But they are pretty small percentage is both ways.
Okay and on.
In terms of the 2021 on EBITDA.
Guidance on.
So if I remove the partial quarter contribution from the Texas City assets from fourth quarter results and annualize that and layering in the Permian growth layering and that you have returned to almost pre pandemic volumes of refined products.
It seems that 'twenty, one should be net net higher than 2000, Twenty's and so I'm. Just wondering are there other areas of the business that are potentially declining in 2021 versus fourth quarter levels and we should be aware of.
And I think Theres two things important to remember one and 2020, we had.
Near record quarter, and Q1, which we're not having this year and then also.
And when you saw volumes dramatically dropped off.
And the second and third quarter because of the pandemic.
Our revenue wasn't impacted.
That much because we were protected by nbc's across several of our system, so that kind of muted it.
And even though the volumes are coming back like and Corpus Christi. For example, we are operating near NBC levels, so year on year and not a lot of not a lot of change yet.
Okay, and lastly related to the Permian exit guidance can you just tell us how many rigs under and like that underlie that $4 70 to $4 80 expectation.
Yes, well so we've got right now we've got a little over 20 rigs on the system and that may be a fluid number with rigs coming on and off for the system, but.
I think that number of rigs given the ducks that we have on the system as is enough to get there.
Thank you.
Hmm.
Okay. Your next question comes from the line and Joel materially off with J P. Morgan.
Hi, Thank you for taking my question.
First I wanted to start and it looked like terminal throughput went down a little on core.
Over quarter a.
Do you mind talking about what was the driver there and where you expect terminal throughput going longer term.
Yeah, the big you're talking quarter over COVID-19 versus 'twenty, the big changes and.
And the Corpus Christi crude system, we were doing pre pandemic, we were doing and the neighborhood of 650000 barrels a day through that system for export or to the local refineries and today, we're doing $3 $63 70 down around our kind of MVC levels, and that's both WT eye and ear.
Forward.
And I'm also looking and it looks down and I guess.
<unk> 20 to <unk> 20 is similar driver there.
I didn't notice a big difference and the volume there.
Let's see and crude.
The Corp is still corpus Christi crude system.
A little bit lower I didn't realize there was much of a difference between <unk> and <unk>, but it is a little bit lower and the corpus Christi crude system.
Okay.
And.
And maybe for a year ago, I think going forward to see that the.
Export volumes, and our throughput and Corpus Christi increase from where we are back towards the highs that we were seeing pre pandemic. It's a global refined product demand story. So that's why we're encouraged as we see these vaccines rolling out around the world, especially in the second half of this year.
We would expect that demand to pick up and that would drive increases in exports.
Okay. That's helpful. On thank you and then also I wanted to kind of.
Pick your brain and about how youre thinking about the renewable fuels projects and and I guess, what's the typical multiple.
Return you get on those projects and and do you guys think about the required returns any differently for those projects than more traditional oil and gas projects, just because that can be considered a bit cleaner or maybe even more ESG from me yes.
Yeah, we don't we consider them just like other projects and just as a reminder, we started this strategy about three years ago before.
ESG was a known term and so we started pursuing these projects just like we would any other.
We've got about a dozen different projects most of which all but about four five have already been placed into service.
On average all of those projects were sub five multiple around a four and a half multiple.
And the way I look at that going forward is we're spending some capital here upfront that basically increased our capability to receive these renewables.
The water for foreign production or by rail for domestic production and then to be able to segregate that product to a truck rack going forward as the renewable demand grows.
We will simply be just reallocating fossil fuel tanks into the renewable.
System, which will require very little capital going forward.
Okay, great. Thank you for taking my questions. Thank you Jim and <unk>.
Your next question comes from you all brought on.
From Bank of America.
Good morning, everyone. Thanks for taking my question just wanted to follow on the.
Corpus Christi.
And free.
Would you be able to expand on your cautious optimism.
Around the throughput and operating over MVC levels, there and maybe if you could talk to the pricing received at corpus versus Houston recently, and how that influences what volume is getting there.
Yes, corpus and Houston are not that far apart and I think less and less and have a set maybe a quarter.
25 up something.
Something like that but.
I'm not really up to date on that differential, but that's maybe a month or so old, but I think to expand on what we believe and in terms of growth is it's just simply we're already.
Exporting the incremental barrel out of the U S. The refineries and the U S are full.
To encourage more production, yes, it's partly due to price, but eventually that barrel has to go somewhere and so.
Like we were seeing pre pandemic those incremental barrels were being exported and as the refined product demand increases around the world as we get start to get this pandemic behind us It will drive the exports to feed those markets.
Got it thanks for that and my second question is to Tom.
Would you be able to discuss your latest thoughts and.
<unk> balance sheet and.
How do you see leverage trending over the course of the year.
The balance sheet trending well, yes.
And we've already said and our main goal is to continue to Delever, we've done a really good job of that and the past.
Going into this 2020 halfway through 2020, we had five consecutive quarters, where our debt to EBITDA was below four times and.
Due to the pandemic, we have seen that creep up as we said we finished this quarter at about four two times, but we think we can get that that debt to EBITDA back down again.
Using various levers so.
We're still focused on de levering in terms of debt and how that goes.
In terms of maturities like we said before we've cleared the runway for about five years. So we don't anticipate any more.
Meeting anymore.
Bond issuances.
And the near term and.
And as far as the press go where we're happy with keeping those out there for now we continue to look at those but I'll remind everybody we do get equity treatment on the press.
From the from the banks on our Covenant and we do get some equity treatment from the agencies as well.
Those currently have a blended.
Coupon of about 8%.
Starting at the end of 2021, those press will convert to a floating rate and when we do that youll see that blended rate based on current rates, you'll see that blended rate go from around 8% backed down to about six 5%. So.
Not planning on doing anything with the accs anytime soon so pretty happy with the cap structure right now.
Got it thanks, and maybe one question.
Generally that you had received on the topic of hydrogen.
With your ammonia.
Betty you operate.
And the recent.
Our conversations and the market around moving hydrogen and the form of ammonia as well.
Have you.
So that that closely since sales.
Your last public comments or maybe.
And look to.
Maybe put a pilot project together with any partners or anything along those lines any commentary would be helpful. Thank you.
Sure. This is Danny again, we are having some conversations with customers.
Customers or potential customers about hydrogen on that line and it may or may not be neat hydrogen that may be ammonia.
I'm going to have.
Facility that can process the ammonia into hydrogen.
But yes, we are having very early conversations about that and I think thats, probably pretty far out on the timeline and it's not likely to be and near term project.
Thanks, Danny and good day. Thank you.
Okay. Your next question comes from Robert Moskow from Mizuho Securities.
Hi, good morning, everyone.
So I think you touched on this earlier, but with the 30th Capex going to the West coast renewable assets. We were just wondering whether all the earnings uplift from that spend is captured in that 5% increase and revenue share and your west Coast terminal and 2022 or if you're also creating some operating leverage for 'twenty and 'twenty three and beyond.
Well it is captured in what we're forecasting but.
There is some operating leverage there because as I mentioned there are.
Some capital spend upfront, but going forward to grow with that renewable demand will require very little capital.
Okay that makes sense and switching over to your St James position.
And I'm wondering in the event and the Dakota access closure, how wide the basis differentials would have to get to move those Bakken barrels and be a rail and if there were some opportunity there when you expect it to come in the form of contracted arrangements or something a little less ratable.
So it could be spot or contract arrangements, but the way I look at it as if dapple shut down.
It's a little bit different math, so we estimate that it probably cost about $9 a barrel to get to take a unit train from the Bakken to St. James.
But I think a producer would not necessarily be looking at for $9 or they would simply be looking at their cost of production versus what they can get for it minus those costs and Louisiana.
If that makes sense.
Okay. That's that's helpful and and that's all I had thank you. Thank you.
Your next question comes from Sharon Art Garcia Q&A from UBS.
Hi, good morning, everyone.
Before I jump into my questions I just wanted to go back to response, you made I think it was petroleum.
Just a question about revenue recognition there you would you would said that.
Does some of your shippers were shipping below MVC.
Just wanted to clarify that you record the revenue.
At the time that you received the cash for the MVC and non.
When the volumes actually ship later on or when the option expires. So just wanted to clarify your revenue recognition policy there.
Yes, that's true on both counts.
Okay got it and so so we could see volumes come back, but they could be shipping on their on there.
Options and.
And therefore, we won't see any revenue or EBITDA impact on the income statement.
Well, we have we have true up periods.
And certainly within the current year often quarter by quarter. So.
They true up any deficiencies they have and then the next quarter or the next six months or the next year.
They don't have a bank that they can go back to.
So what's the so we could see some of those true ups in the first or second quarter of this year, but now that most of your systems are above and beyond.
And you should not be an issue or not.
Any deficiencies and 2020 were cleared up and 2020. So go Okay got word into 'twenty one.
Fresh slate and.
We have a different mixed bag, but I'd say most of them true up each quarter. Some go a little bit beyond that but.
It's all going to be.
Within 2020 or in 2021.
Okay great.
And so just on it.
A few questions that I had here.
And you highlighted.
The strength of your <unk> 19.
<unk>.
What does it take from as you look at your business today to return to those levels is.
Is it really just navigator volume is coming all the way back is it the Eagle Ford system I'm, just wondering like what are what are the things that we should be looking at and what would have the most impact to get you back to those levels.
A nation of things its navigator volumes this corpus Christi export volumes.
Eagle Ford volumes, so combination of all three of those.
Increased unit activity at St. James.
These are probably your biggest movers and yes, that's true the biggest of which is going to be corpus Christi volume, because we're we're pretty close to where volumes were and navigator and <unk> of 19.
I don't remember exactly what that number was but it was 400 something.
Okay. So this is the thing that is the Delta we should probably watch the most are the big and smooth the biggest but the other ones Brad mentioned on for Rod.
Yes, So we were forecasting 35000 barrels a day and navigator and Q4 of 19.
And it really clicked, just under that but pretty close.
Okay, and just two quick ones here as well too.
And the rigs are up to 20 now.
You haven't changed your guidance is that more because the rigs are kind of consistent with the volume expectations that your producer customers basically.
Illustrated two you said thats kind of in line or is this actually running ahead of expectations based on what they presented to you late last year right. It's running a little ahead of our expectations. So we're encouraged by that but we also recognize.
Things like OPEC is meeting every month now and so things can change and Covid still.
Something to be concerned about but.
Generally speaking I think especially with our public producers they are still being very cautious about bringing either new capital into 'twenty, one or moving it up the timeline and.
And they want to make sure. These prices are here to stay.
So we're just we're just waiting on some feedback.
Some producers that say that they really want to start, bringing some more capital and and they are slow to do that right now.
Okay.
It looks like it's matching their capital plans to begin with okay.
Final question.
Costs were down in 2020 about if I did my math correctly about 5% versus 2019.
And how sustainable is this improvement I assume there's going to be some variable costs that come back with volumes.
But kind of on Hudson stable sustainable assuming that there are any opportunities that youre looking forward to try and continue that trend and bring it down further and 21.
And we're going to continue to look for cost savings throughout but our 2021 budgets based on the cuts that we made in 2020. So we carried those.
And those cost cuts forward.
And so theres no real big like optimization effort.
Under way, where youre reviewing everything again to see if there's like another step down or.
I mean, we're constantly reviewing our cost to see if we can and where we can save.
Got it alright. Thank you very much really appreciate the color today and have a safe day.
You too.
As a reminder, and have a question. Please press star one on your telephone keypad once again Thats star one.
And your next question comes from the line of Michael.
Hello from Wells Fargo.
Thanks, Good morning, everyone.
Just had one quick question.
I'm wondering if we're going to see wink to Webster.
Ramp up this year.
How you see that if at all impacting flows.
To core price and then so that's more of a macro question I guess and industry question. But then also just specific to you.
Do you see that impacting.
And your assets at all and Corpus.
You bet Michael This is Danny again.
Our customers and corpus have their own commit.
Commitments, not just to us, but crude oil purchase commitments to <unk>.
Supply their needs and corpus and they're committed to bringing those barrels into corpus to deliver either to those local refiners or for export. So I really don't see it impacting our business.
Great. Thank you very much thank you.
And there are no further questions at this time.
And for that.
Alright. Thank you very much John we would once again like to thank everyone for joining us on the call today and then.
Anyone has any additional questions. Please feel free to contact and you start investor relations. Thanks.
And thanks, again and have a great day.
This concludes today's conference you may now disconnect.
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