Q2 2021 NuStar Energy LP Earnings Call
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Good day, and thank you for standing by welcome to the Neustar Energy L. P second quarter 2021 conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today.
Pam Schmidt Vice President of Investor Relations. Thank you. Please go ahead.
Good morning, and welcome to today's call on.
On the call today are Brad Barron Nustar energy L. P 's, 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 New store 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 in the forward looking statements.
During the course of this call. We will also refer to certain non-GAAP financial measures.
These non-GAAP financial measures should not be considered as alternatives to GAAP measures reconciliations of certain of these non-GAAP financial measures to U S. GAAP, maybe found on our earnings press release with additional reconciliations located on the financials page on the <unk>.
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 for joining us.
On a positive things to talk about today.
Noncore assets on our strong second quarter as well as our.
Outlook for the rest of the year and beyond.
First starting with the sale on Monday, we announced that we signed an agreement to sell non terminal facilities in 8 locations in the northeast, Illinois and Florida.
<unk> LP for $250 million and we expect to close on net sales early in the fourth quarter.
As we previously discussed.
We plan to deploy the proceeds from this sale to further improve our debt metrics.
On selling assets is never easy this transaction is a win win for all parties.
As we are exiting non core assets at an attractive valuation, which allows new store to lower leverage and Sunoco is adding high quality infrastructure assets and great employees to its portfolio.
With the sale, we are positioned to strengthen our balance sheet further focus 100% on our core strategic asset footprint.
On product systems across the mid continent, Texas and in Northern Mexico.
Our crude assets, including our Corpus Christi crude system with our North Beach export facility or flagship St. James crude oil terminal and our core of the core Permian gathering system.
Our renewable fuels business current and future currently the focus is on the West coast renewable fuels network, where we're already the leading logistics service provider and in the future plan to focus on our ammonia system spans more than 2000 miles from Louisiana north across much of the Midwest.
Now to turn for a few minutes to our strong second quarter results.
This quarter, we generated $189 million EBITDA, which is 17% higher than <unk> 2000, Twenty's results and also a 12% improvement over first quarter of 2021.
That strong improvement in EBITDA was driven by outperformance across our core strategic asset footprint on product systems, our crude assets on our west coast renewable fuels network.
Starting on our refined product systems from product demand has continued to improve as more and more Americans have returned to normal day to day activities. After dipping to an average of 95% in the first quarter due to the winter storm, our second quarter average rebounded back to 105 per cent of pre pandemic demand and we're now forecasting 100% for the full year.
Our second quarter volume products throughput through up 34% over <unk> 2020, and also up 19% over first quarter of 'twenty 1.
As vaccination efforts progress, we expect to continue to see sustained recovery in refined product demand in the U S and in Mexico. We continue to expect our refined product systems perform at around 100% of our pre pandemic run rate for the remainder of 2021.
Strengthening refined product demand has also increased U S refiners demand for crude which has contributed to higher throughput for our crude pipelines in the second quarter up 17% over <unk> 2020, and up 13% over <unk> 'twenty 1.
Rebound in crude demand along with tempered global supply has contributed to higher crude prices and improved expectations for U S shale production, particularly in the Permian Basin.
Thanks to our Permian.
Core of the core Premier location, most producer costs and highest product quality, we saw our Permian systems volumes grow in the second quarter to an average of 450000 barrels per day up 12% over <unk> 2020 also up 12% over first quarter of 2021 and comparable to the record breaking peak, we saw on that system in the first quarter of <unk>.
<unk>, which as you know was pre COVID-19.
In July we saw our Permian volumes increased on average of 481000 barrels per day and we're on track to exit 2021 at around 500000 barrels a day again.
Our pre COVID-19 volumes.
We continue to expect to see Eagle Ford <unk> volumes on our Corpus Christi crude system at our MVC levels for the rest of the year. We've seen an increase in recent weeks and a number of WTO long haul barrels we're receiving from the Permian.
And we're hopeful that we'll see that trend continue as vaccinations continue to proliferate and global demand improves.
Sustained healthy U S shale production growth combined with improving global demand will drive U S export growth over time, which we expect to be positive for crude volumes on our corpus Christi crude system as well as for our St. James Terminal, where we expect to benefit from our connection to cap line is that reversal is completed in 2022.
Now turning to our renewable fuels business, our west coast renewable fuels network is already playing an integral role in significant reductions in carbon emissions and offers us a great platform for growth across that region.
New store already handled and impressive share of California's renewable fuels. According to the latest available data from the state of California for the first quarter of 2021, Neustar handled about 5% of California's total biodiesel close to 20% of California's ethanol from close to 30% of the state's renewable diesel volumes.
We expect new stars presence to continue to grow as we complete our planned tank conversion projects and we will continue to transition existing tankage over to renewable service as customer demand increases.
We're also looking at some exciting renewables opportunities for our ammonia system.
Our ammonia system has always been a steady important EBITDA contributor from new star, but we haven't talked about it much in the past so for a little context is the longest ammonia pipeline in the country spanning more than 2000 miles from Louisiana.
Up to the mid continent, along the Mississippi and beyond where the ammonia. We transport is primarily used for fertilizing crops by farmers in the nation's bread basket.
This critical chemical is now experiencing a renaissance as energy as an energy source capable of powering zero carbon heavy duty engines and marine vessels as well as for ammonia <unk> ability to offer the safest and most efficient transportation and storage medium for hydrogen.
While we all hear about the future of hydrogen.
<unk> has emerged as a promising low emissions energy source. We're excited that they are actionable opportunities for hydrogen for use now including utilization of hydrogen to generate sustainable electricity from grid stabilization not dimension is a zero emission transportation fuel for heavy vehicle fleets.
We believe the steps our customers and other ammonia producers are taking towards green ammonia production as well as increasing demand for renewable alternatives carbon emission reductions will drive concurrent demand for growth on our ammonia system with little or no additional strategic spending.
And we're developing a number of near and long term actionable low multiple modest spend high return organic projects for connections and other enhancements to our system to maximize its role in our renewable fuels future.
On that note before I turn the call over to Tom to discuss our second quarter results from full year outlook in more detail on a point you to our newly issued sustainability presentation.
You can find on our website.
In that presentation, you'll learn more about new starts culture of responsibility, which has distinguished us throughout our 20 year history.
<unk> always been committed to protecting and caring for our employees our communities and the environment.
You will see our track record of excellence in health safety, and giving back as well as our commitment to sustainability now and in the future with that I'll turn it over to Tom to give you more details on <unk> quarterly results.
Thanks, Brad and good morning, everyone as Brian mentioned during the second quarter 2021, our results reflect the continued global recovery and demand rebounding from 2000 Twenty's pandemic lows.
During the second quarter of 2021, we generated EBITDA of $189 million up $27 million or 17% over the second quarter 2020, EBITDA of $162 million.
Second quarter 2021, DCF available to common limited partners was $97 million up $35 million or 56% compared to DCF available to common limited partners of $62 million for the second quarter of 2020.
And our distribution coverage ratio for the common limited partners was 2.2 times.
Turning now to our segment.
EBITDA in our pipeline segment was $142 million, which is up $26 million or 22% compared to the second quarter of 2000, Twenty's EBITDA of $116 million.
During the second quarter of 2021, we continue to see strong quarter over quarter improvement in our Permian crude system throughput volumes. In addition, we experienced a rebound in our throughput volumes on our central West East and North pipeline systems from increased demand.
Our second quarter 2021, EBITDA on our storage segment was $70 million up $2 million from the second quarter of 2020 EBITDA of $68 million continued solid contributions from our west coast renewable fuels network and improved volume at some of our central West throughput terminals from the pandemic recovery.
These were partially offset by the sale of the Texas City terminal, which was completed in December of last year.
Second quarter 2021, EBITDA in our fuels marketing segment was $2 million.
Slightly down from the second quarter of 2020, due to weaker butane blending and Bunkering margins.
At the end of the second quarter of 2021, our debt balance was $3.5 billion and we had $810 million of revolver availability.
We ended the second quarter with a debt to EBITDA ratio of 4 to 7 times, which we expect to improve through the end of the year.
Turning to our full year 2021 projections, taking to account both the December 2020, Texas City terminal sale and the recently announced terminal sale. We expect new starts 2021, adjusted EBITDA to be in the range of $680 million to $710 million in line with our previous expectations.
<unk> and we continue to expect to self fund from all of our 2021 spending from internally generated cash flows.
Moving to strategic capital, we continue to plan to spend $140 million to $170 million in 2021.
Of our total 2021 strategic spending approximately $45 million for our Permian system and around $50 million is for our west coast renewable fuels network.
In addition, we also continue to expect to spend $40 million to $50 million on reliability capital spending in 2021.
Based on these projections, we expect our debt to EBITDA ratio at the end of 2000.2021 to be around 4 times and our common unit distribution coverage ratio to be at around 2 times with that I'll turn the call back over to Brad.
Thanks, Tom.
Thank you Tom and good progress on the strategy, we've talked to you about over the past several quarters with the asset sale, we announced we are delivering on our commitment to reduce our debt.
On forward, we plan to continue to focus on low multiple organic growth projects for our core strategic asset portfolio fully funded with our internally generated cash flows.
Our strong second quarter significantly improved over <unk> 2020, and over <unk> 21 demonstrated solidly rebounding demand and growth across our business.
We're positioned to fund all of our spending from our internally generated cash flows.
And generate strong results in 2021 and beyond.
Our results as you will see in our sustainability presentation come from our strategic plan, which includes our commitment to responsibility and resilience.
We believe that responsibility.
<unk> been committed to doing the right thing taking care of our employees our communities our unit holders and our planet.
We're also building resilience into our business to assured neustar success now and in the future.
The traditional sources of energy like to petroleum products, we transport and store will continue to be an important part of our energy supply both in the U S and across the globe for many decades to come.
Plan to continue to build.
On our growth opportunities across our traditional energy services assets.
At the same time, we are continuing to pursue emerging energy opportunities as we've done in building our west coast renewable fuels network and as we are now doing on our ammonia system to expand our participation on renewable fuel services from.
Building, a financially flexible business to participate in all of the above we are assuring new store's ability to grow unitholder value as our industry evolves.
We will open it up to Q&A.
Yes.
As a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
And your first question comes from Theresa Chen with Barclays.
Good morning, Thank you for taking my questions and great to see the strong results.
I guess first maybe if we can revisit this.
The terminal sale.
Just wondering what kind of EBITDA did that contribute to your system previously and I imagine that's accounted for on.
Terms of the annual guidance on a portion of that would be missing from or at least fourth quarter onwards, yes.
We don't typically break that out on asset sales, but it is accounted for in the guidance going forward.
Okay.
Maybe just on the crude side than what it was.
As far as producer activity goes on into 2020 Q on.
And just the outlook for volumes on your system at that point.
So in terms of activity and Theresa This is Danny.
We continue to see the the publics being very disciplined in their capital spend and so far what they've communicated to us we expect to see that in 2022.
We continue to see the private being much more aggressive and acting like you would expect in this price environment, but it'll be interesting to see if that if we get up into the eighty's. If that continues on improves I think there would be some upside if the public start to release more.
Capital, but.
We haven't seen that yet.
Thank you.
Thank you.
And your next question comes from the line of Jeremy Tonet with Morgan.
Hi, This is Joe on for Jeremy.
First wanted to ask on the ammonia system.
On renewable opportunities do you mind, just kind of talking more about what's involved there is it.
Just connecting your system to 2 different facilities.
And.
Kind of like what could be the rough range of where capital.
Acquirements for that would be sure. This is this is Danny again. So we're looking at is first of all we have existing customers or potential new customers that either already are producing green ammonia or blue ammonia or will be in the near future and that we are looking at.
Serving on our near term opportunity, which is still a couple of years out serving a niche market up in the Midwest, where we will be moving that green or blue ammonia up the line.
And they will be using the hydrogen out of that ammonia to fuel fleet vehicles.
So thats our nearest term opportunity very some connections to be made we haven't we're not giving any guidance on exact it's too early to talk about capex, but it's going to be very low.
Yes, there is existing capacity on that line. So it's really more about filling that line line optimization that it is heavy capital spend right.
Okay. That's helpful.
And then also wanted to ask kind of on on storage do you mind just kind of.
Going through what you were seeing in the quarter were kind of like corpus exports are they still around <unk>.
Anything on kind of upcoming contract roles.
Alright.
It's kind of like where <unk> a good run rate for the rest of the year or kind of anything to keep in mind there.
In our forecast we have <unk>.
<unk>, which is about Q2 levels forecasted for the rest of the year. We did see in July we started to see some volumes pick up and so we're hoping.
As global demand improves around the globe.
Going forward that we'll see those volumes continue to increase but that's not what we're forecasting in terms of contract turnover, we don't have anything in the near term.
Okay. That's helpful. Thank you that's all from me.
And once again to ask a question press star 1 on your telephone keypad.
Next question comes from Robert Moskow with Mizuho SEC.
Hi, everyone just wanted to touch on the asset sales have to no go and I understand that it makes sense. So it seems to make sense from.
Company specific standpoint from.
For both you and to no growth, but just wondering if theres anything we should read.
If we shouldn't read anything more into the transaction considering that refined product terminals on the east coast and changed hands here just curious to hear your general commentary there.
I don't think Theres, a whole lot more to read into it I mean, we've talked for.
Quite a while about lowering our leverage and we've talked about focusing on our core assets, which broke surround our Permian crude system and our renewable fuels network and big crude storage terminals.
Our pipelines in the central East so.
It's something that we've signaled for quite a while that we're looking at and.
Really not much more to read into it they have they have some synergies with those assets are getting a great set of infrastructure assets on a great set of employees. So like I said at the very beginning of the win win for everyone.
No that's fair and maybe just to jump off debt.
Are there any remaining assets in your portfolio debt you would view as less core it seems like the remainder of the portfolio fits nicely just wanted to hear your thoughts on that.
Yeah, we feel really comfortable with what we have going forward and we.
We see opportunities at all of our asset flow.
We'll continue to pursue those.
Okay, Great and then just 1 final 1 from me it seems like the near term capex opportunities.
Centered mostly around the west coast that said, possibly be ammonia pipeline and I imagine.
Any growth on PC, yes, just wondering if youre seeing any more traditional opportunities for the remainder of your hydrocarbon asset base or if it really is kind of a focus on.
<unk> has more of an ESG texture with with MPC is well connects.
Robert This is Danny again, so we we always have we have a pretty diverse system, both pipelines and storage assets both on crude.
And refined products and we always seem to be able to put together pretty good sized basket, what we call singles, we don't talk about them individually much but we have we will have a basket of capex.
Capex projects across our systems.
In every.
<unk>.
Okay got it thanks for taking my questions everyone. Thank you.
And we have no further questions I will now turn the call back to Paul Schmidt.
Thank you Teresa I 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 <unk> Investor relations. Thanks, again and have a great day.
This concludes today's conference call. Thank you for participating day, you may now disconnect.
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