Q1 2021 NuStar Energy LP Earnings Call
Good day, Thank you for standing by and welcome to the New Star of Energy first quarter 2021 earnings conference call. At this time, all participants lines are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
And what's your take part of assistance during the conference. Please press Star Zero and you touched on the telephone.
How does the reminder, because this conference is being recorded.
And I like to hand, the conference over to Pam Schmidt Vice President of Investor Relations you may begin.
Good morning, good morning, and welcome to today's call.
On the call today are Brad Barron Nustar energy L P, President and CEO, and Tom Shoaf, 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 and you start 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 security and Exchange Commission.
Actual results may differ materially from those described and the forward looking statements.
During the course of this call. We will also refer to certain non-GAAP financial measures. These non.
Non-GAAP financial measures should not be considered as alternatives to GAAP measures.
Conciliations 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 of the investors section of our website at Neustar energy Dot com.
With that I will turn the call over to Brad.
Good morning, Thank you all of taking the time to join us.
As of America recovered from the impact of COVID-19, and returned to normal activity and growth I'm pleased to report and you start turned in another solid quarter.
Before I talk about the green shoots we see from market fundamentals and for improving activity across our system for the rest of the year I want to touch briefly on the impact of mid February of severe weather events went from Yuri.
And just made national headlines of the broad extreme temperatures and snow and ice to Texas and nearby States and.
The millions of Texans without heat the water per days.
And you sort of employees worked tirelessly to keep our assets up and running.
The frigid weather to help our customers and the region getting wells going again, and installing pumps and generators type of dress outages and ensure that the energy we all need continued the flow.
And as I noted above despite the lingering effects of the pandemic.
On the global economy.
The unprecedented winter weather event, the trimmed our results by a total of about $11 million I'm pleased to report the Neustar turned in another solid quarter.
And without the storm's impact earnings were comparable to the fourth quarter of 2020.
As America begins to recover from the impact of COVID-19, and begins returning to normal activity and growth, we're seeing signs of stabilization and improvement across the U S and and new starts footprint.
U S refined product demand is improved as COVID-19 vaccinations have continued to allow more and more Americans to return to normal day to day activities and demand on the new starts refined product systems had been remarkably resilient.
After returning to nearly 100 per cent of pre pandemic levels. Our volumes dropped temporarily during February storm. However, they recovered quickly and average 95 per cent of pre pandemic demand for the first quarter and that improvement has continued as we averaged slightly over 100 per cent for the month of April.
We continue to expect our refined product systems performed at around 100 per cent of our pre pandemic run rate for the remainder of this year.
As you would expect stronger refined product demand is contributing to higher higher crude prices, which are improving expectations for U S shale production, particularly in the Permian Basin, which continues to outshine all other U S shale plays.
Thanks to our Permian systems core of the core premier location lowest producer cost and highest product quality of <unk>.
Rig count has continued to grow steadily after dipping the nine rigs in August of 2020. Our systems rig count has continued to see strong steady growth in 2020, one going from 20 rigs in January to around 25 rigs in April.
Those 25 rigs represent more than 10 per cent of the total number of rigs running across the entire Permian basin as at the end of April.
As long as the rig count.
Systems volumes rose to an average of 427000 barrels per day for the months of January and after dipping during February of severe weather.
I've gotten back on track rebounding to an average of over 440000 barrels per day in March and April.
We reached 450000 barrels per day as of April ended which is back up to the record breaking quarterly average, we saw pre pandemic and first quarter 2020.
Looking out to the rest of the year, we now expect the exit 2021 and around 500000 barrels per day.
Obviously sustained U S shale production growth combined with improving global demand.
We'll drive U S export growth and the future, which will be positive for volumes of our corpus Christi crude system.
We expect to the volumes for Eagle Ford and WTO commitments and our MVC levels through the end of 2021 and.
And we've discussed on prior calls we're also excited about our trajectory for growth from our renewable fuels distribution system on the West coast.
Currently handle and impressive share of California's renewable fuels. According to the latest data available from the state of California, and the first three quarters of 2020, Neustar handled about 6% of California's total biodiesel volumes.
18% of California's ethanol and close to 30 per cent of the state's renewable diesel volumes.
Expect the new stars market share and renewable fuels network to continue to grow over time, along with the revenue is California replaces conventional fuels of renewable diesel and other renewable fuels and other states and the northwest and beyond adopt similar low carbon fuel standards and prioritize the renewable fuels our assets are positioned the facility.
Our west Coast renewable fuels network is a key component of new stores planned to thrive as our nations energy needs of all.
We're proud that and you start generated strong stable results in 2020 through a global pandemic and market headwinds and that we were able to do so again and the first quarter, even with the added challenge of severe weather events and with that I'll turn it over to Tom to give you more details from the new stores quarterly results.
Thanks, Brad and good morning, everyone.
To put the quarter over quarter comparison into perspective, it's important to remember that the first quarter 2020 was qualitatively and quantitatively very different from first quarter 2021 for the world and from Neustar.
First quarter 2020 was pre mass pre lockdowns and for New Star first quarter 2020 was also a record breaker with all time high crude oil pipeline volumes on our Permian crude system and on our Corpus Christi crude system.
On top of that as Brad mentioned winter storm, Yuri and its aftermath drove customer outages and resulted in some short term disruptions.
And even with the $11 million impact to our earnings due to the storm, we were still able to generate first quarter 2021, EBITDA of 169 million. These.
These results demonstrate the solid performance of our assets, even while facing not only the continuing impact of the pandemic, but also of severe weather events and its aftermath.
Turning now to our segment.
A discussion for the first quarter of 2021.
EBITDA and our pipeline segment was $124 million, which is down $21 million compared to the first quarter 2000, Twenty's adjusted EBITDA of $145 million.
We saw strong quarter over quarter improvement on our Permian crude system throughput volumes.
And that growth was offset by a $10 million segment impact of winter storm Uri and decline in volumes on our prepay and then make first quarter 2020 record levels and our Corpus Christi crude system.
Our first quarter 2021, EBITDA and our storage segment was $66 million down 7 million from the first quarter, 2020 EBITDA of $73 million.
The strong contributions from our West Coast region renewable fuels network were more than offset again by 1 million dollar impact of the winter storm here and throughput declines on our Corpus Christi crude system.
First quarter 2021, EBITDA and our fuels marketing segment was $3 million down from the first quarter of 2022 to weaker bunker and butane blending margins.
First quarter 2021, DCF available to common limited partners was $81 million and our distribution coverage ratio to the common limited partners was 184 times.
At the end of the first quarter 2021, our debt balance was $3 5 billion and we had $838 million of revolver availability. We ended the first quarter with the debt to EBITDA ratio of 439 times, which we expect to improve through the end of the year. We also continue to expect new starts.
And in 'twenty, one EBITDA to be comparable to our 2020 results after taking into account our sale of the Texas City terminal in December of last year.
And we continue to plan to spend $140 million to $170 million on strategic capital.
Of the total strategic capital spend in 2021 about $50 million is for our Permian system, which is scalable with our producers' needs and with throughput volumes and around 50 million on our west coast renewable fuels logistics network.
In addition, we also continue to expect to spend $40 million to $50 million of reliability capital spending and 2021 and with that I'll turn the call back over to Brad.
Thanks, Tom.
Last year, our assets, our business and our employees demonstrated strength and resilience faced with the challenges of a global pandemic, we still move more barrels and generated more adjusted EBITDA in 'twenty, and 'twenty, and we get and 2019 and.
And so far and 2021, even after the layering in the impact of the historically unprecedented winter storm Neustar remains solidly positioned to fund, 100% of our 2020, one spending from our internally generated cash flows and.
As Tom mentioned, we remain on track to generate EBITDA of 2021 comparable to 2020 strong results.
Expectations for demand utilization and price for 2021 and have all improved and we see signs of recovery on the horizon.
We're positioned to benefit from improving fundamentals and the green shoots we see across our footprint. We will continue to focus on our strategic priorities operating safely and reliably lowering our leverage and funding all of our 2021 spending from our internally generated cash flows.
So ESG seems to be top of mind for everyone. These days. So let me take a minute just.
Talk about that.
And so long before ESG, you become a buzzword neustar always prioritize taking care of our employees our communities and the environment.
As a result, we are best in class when it comes to safety and environmental stewardship, and that's not just lip service and 2020 or 1400 employees worked more than $3 2 million hours with the only for lost time injuries.
Our incident rate was more in the seven times better than the bulk terminal terminal industry average of more than twice as good of the pipeline industry average.
Similarly, our environmental performance is just as strong with the releases of accounting for less than 210, thousands of 1% of our total annual throughput of 817 million barrels.
And I should also note that when it comes to protecting the environment, There's no safer way to transport petroleum products and through pipelines.
We also support the communities, where we live and work with more than 88000 volunteer hours last year and our.
Our per capita and United way pledge is the highest in the nation.
When it comes to investing and our employees Neustar is proud to be recognized for the 12th time as one of Fortune 100 best companies to work for that just came out recently one thing I would note about that is Neustar was the only energy company, where the traditional or transitional energy company on that list.
We were also ranked among the 25 best companies for Latinos to work by Latino liter magazine and was also ranked as one of the best.
Workplaces for working parents, so I'm happy to say that we're very committed to the principles of ESG and always have been and look forward to publishing our first sustainability report later this year.
So with that we'll open up the call for Q&A.
Thank you ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one and you touched on the telephone.
And that is part of wants to ask the question.
The other question that's been answered or you wish to remove yourself from the queue. Please press the pound key.
Your first question comes from the lineup the reset Chen from Barclays. Your line is now open.
Good morning, everyone, great to see the progress.
On the West Coast biofuel side, and I, just wanted to delve into this a little bit more and.
And so it's so far it seems that most of the work and the incremental cash flows have come on the Terminalling side and I was just wondering if other states within the mid Con for example, open up for L. CFS, and where you have more pipeline assets and how.
The easily would it be to transport these types of and renewable products within your pipeline. In addition to the Terminalling with net.
And it would be easy to do and.
And I don't know if that would be coming in at origin points to the pipelines or if it will be coming and directly to the terminals, but we can handle it either way.
Thank you and can you talk about the feedstock side and what kind of logistical services can you offer there and specifically what kind of feedstocks will you be handling at Selby and is there incremental capital cost of the handling vegetable oils versus true waste.
<unk> talked for example, right.
Right and it's not waste feedstocks, but.
We'll be handling and we'll be bringing and these feedstocks by by rail.
And then delivering directly to our customer.
But no rational no special handling needs.
Got it and just lastly outside of on the road transportation fuels can you talk about your SaaS partnership with next day and how that came about and why you expect that to evolve.
Yes, So we began talking to the nurse day back in 2000 and about 2017 I believe when you may recall there was the time when everybody, including New Star had the crude by rail project into the West Coast and we made the decision very early on that.
Debt that just wasn't going to be executable.
So we pivoted pretty quickly and started looking for some alternatives and.
We met with next day and of course. This was long before anybody was talking about ESG and we werent really checking of green box and or it just slipped lack of good business plan.
And we basically worked out.
The system with them or we could set up of distribution system from Southern California, Northern California up and the Pacific Northwest and all across our footprint to handle their production coming in.
From Singapore.
And distribute all along the West coast, and then that that springboard it into some other conversations with.
Another producer and the U S and this is the largest producer and the U S and some key west coast Refiner.
The customers that are heavily involved and the renewables and bio market. So.
We're really proud of the system, we set up and it's really starting to.
To pay you know good benefits.
I think our EBIT on the West coast.
2017, when we first started signing some of these early contracts is up about 78% and thats, mostly on the back of these renewable projects.
Yeah.
Teresa.
Still there Teresa <unk> has disconnected.
Question comes from the line of Joe of Marc <unk> from J P. Morgan.
Hi, Thanks for taking my question.
Wanted to ask about the the winter storm urea and pack and the $11 million for the quarter.
Was any of that shipments of blow and D fees were a benefit will be recognized.
Later in the year.
No.
And the Permian for example, I can break it out a little bit for you. So about $3 $5 million was the freeze off and the Permian.
But our our volume average for the month was still well above the M. B CS.
So that was just some lost revenue during that day.
Another one point to roughly $1 2 million related to our ammonia system, because one of the ammonia plants of feeds that system.
<unk> taken out of service for a week or two because of the storms and the the remaining six or so million dollars was all of us.
Slump and refined product demand, mostly and the state of Texas is the state was pretty much shut down for.
Four of five days.
Yeah.
Okay. That's helpful.
And then also.
On the Permian crude system and with the updated exit rate guidance.
Is there any risks that capital spend will be higher there than originally anticipated or can you kind of do the increase volumes without kind of additional capital and.
Or are there offsets somewhere else.
Yes. There is there is it moves around a little bit, but our current capital guidance.
And it has everything and it to get to that 500 exit rate.
Okay great.
And then if I can just squeeze in one more kind of interested to hear if you're having any conversations to sell.
And sell assets, whether that still remains something you're interested in.
And just kind of how you're thinking about that generally.
Yeah, you know, reducing our leverage has been top of mind for us for the past year and so we're continuing to review our portfolio to see if there.
The assets it would be appropriate.
For that but it's always something that we're looking to do is lower our leverage further.
Okay got it thanks for taking my questions.
Thank you if you have a question at this time. Please press star one against the ask a question. Please press star one.
Your next question comes from the line of Ryan Levine from Citi. Your line is now open.
Good morning.
I was hoping I was wondering if you're able to comment on the opportunities you see to expand the Linden terminal around and any biofuels related projects or any commercial opportunities that you see with that asset.
We very certainly could.
You know do what we've done on the West Coast and London.
And what's missing in London, and most places in the United States other than the West Coast is the mandate.
And so as the states start coming out with some of their version of L. CFS like the Havent, California, then we can certainly move operations like that into those areas as well.
Is there any way to put numbers around the commercial around and what opportunities that you see there around the potential volume as their EBITDA or any type.
And that the.
And investment opportunity, you mean, and London, specifically, yes.
Not really it's too early for that and.
Again, we don't have a mandate to do that so nobody's really moving that way yet, but when they do not share you will be involved.
Okay, Great and then in terms of the quarter, specifically what was the impact of higher electricity costs to your business during the quarter and.
And how does that.
Line items and your income statement is that hitting.
It was really immaterial across the board. So we had some puts and takes but they sort of washed out to an immaterial impact.
Okay was there any day.
Business interruption as a result of power outages.
Not really.
Not that would not that would result in a business interruption claim.
They were very limited very short term in nature, we had as Brad mentioned in his comments, we had employees out in the middle of that storm getting generator set up and.
Really.
Kept run and most most of the time I wish we had more time and I would tell you the extraordinary the stories about the extraordinary efforts that our employees went to not only to reconnect the Permian and all.
All of the producers and the Permian we've got.
Our employees went above and beyond the help them and then things like the city of San Antonio We had crews that worked throughout the night to.
And to make sure of it there werent gasoline and diesel shortages.
And some of the big markets, we serve and particularly here in San Antonio.
Okay, Great. That's all from me. Thank you. Thank you.
Your next question comes from the line of Schneeberger and Theyre Shunyi from UBS. Your line is now open.
Hey, everyone.
Maybe to start off you gave a lot of color today, a range of the your guidance drivers.
For example, the rig count.
And that's around the navigator of assets you also told us about the utilization of expectations on the refined product system was wondering if you can give us your assumptions around corpus.
And kind of when you expect to get back to <unk> 19 type of levels, just given that the port seems to have already come back in terms of the volumetric Lee of whats going in.
Wondering any color that you can give around that sure. So in my comments, we mentioned and we expect that system to be around and vcs for the remainder of this year.
And then I think the important thing to note is that the export driven.
And as we see the emerging economies, making progress on the coronavirus.
We expect Corpus Christi exports of rebound and so.
And if you look at it and you look at what's happened in the United States with our economy.
I don't think of as much of a stretch to think of it. The same thing is going to happen on the global level. Once you see India and some of the larger.
The economies returning the activity, so and we think of it.
Ron It MVC levels through the end of the year and then it'll start picking up along with global demand.
Just to clarify before asking my second question.
It's my understanding that the corpus exports of themselves out of the maybe the.
The cordis and entirety is already kind of back to close to those levels.
And just kind of curious about.
And.
And you start sits within the stack on that in terms of getting back to your normal levels well wait. There's also a piece of our business and corpus debt.
No you don't see I know I know a lot of people track exports out of there, but we have a pretty healthy business, where we did.
To deliver crude to the local area refiners and.
And that part of the business has returned to normal.
Don't see that anywhere.
I think some of our larger customers there that are involved and the export markets are.
<unk>.
Waiting to see some improvement and these emerging markets.
And to get to be shipping the volumes and they were but they were also when we were at the peak and.
First quarter of 2020.
About half of our volumes that were coming in and exports coming.
Coming out of the Eagle Ford as well so.
Both of those markets need to see some improvement before we get back to those Q1 and 2020.
Volumes.
Okay. So it's not based on other builds in the and the.
The corpus area that that's taking some share no.
And we knew that we would have capacity available and corpus, but pre pandemic, we would have assumed today the Permian would be.
Producing somewhere close to 6 million barrels a day and and we would see that capacity kind of filling up faster than it has with the pandemic.
But I think it will it will come back I mean, we will get two 6 million barrels a day out of the Permian eventually.
And then I think at that point.
The glass spills more half full and half empty.
And I think of another thing to keep in mind as we have commitments on our loans through 2020 three.
And beyond and beyond.
Okay perfect sorry for all of the clarifications on just one question and my follow up question is just the.
Theres been some renegotiation requests from some of the pipelines coming into corpus.
There were some reports out there have there been any.
Attempts to renegotiate any minimum volume commitments on any of the ports debt, you've seen or of any of the export capacity or.
Everything is kind of the status quo.
Yes, we are having those conversations now.
Have some significant customers that have extended agreements like you brought up and so we know that theyre going to be there beyond the.
The term of our cream.
Agreement. So those conversations are taking place now.
And do those conversations.
All of a shifting of of.
The minimum volume commitments or is it kind of a blend and extend kind of what's the framework that we can.
A little bit of everything.
Looking to extend and.
And what volumes and other terms are still being negotiated.
Perfect. Thank you very much really appreciate the color today. Thank you shneur.
I'm showing no further questions at this time I would like to turn the conference back to Pam Schmidt.
Thank you Brian.
We would once again like to thank everyone for joining us on the call today. If anyone has additional questions. Please feel free to contact <unk> Investor Relations.
Thanks, again and have a great day.
This concludes today's conference call. Thank you for participating and have a wonderful wonderful day you may all disconnect.
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