Q1 2022 NuStar Energy LP Earnings Call

May 5, 2022

Yeah.

Good morning, and welcome to today's call.

On the call today are you start energy L. P 's, president and CEO , Brad Barron as well as other members of our management team.

Before we get started we would like to remind you that during the course of this call 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 Ed.

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 reckitt.

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 of the investors section of our website at Neustar energy Dot com.

With that I will turn the call over to Brad.

Good morning, and thank you all for joining us today.

Before we get started I want to let you know that Tom is out of the office because he tested positive for Covid earlier. This week, so I'll be providing you with both my overview and what would ordinarily be Tom's discussion.

Of the details on <unk> results for the first quarter as well as our positive outlook for the rest of 2022.

I'm pleased to report that once again, we delivered solid results demonstrate the strength and resilience of our assets.

In the first quarter, you start generated adjusted EBITDA of $173 million as compared to $169 million for the first quarter of 'twenty, one or about 2% higher.

But when we compare our first quarter 2022, adjusted EBITDA with EBITDA generated from those same assets in the first quarter of 'twenty. One in other words backing out the eastern U S terminals, our first quarter 2022, adjusted EBITDA was up $12 million or 7% higher than Q1 of 'twenty one.

Turning to our pipeline segment.

We saw strong improvement across our systems with throughput up 16% compared to the same quarter last year, which was driven primarily by strong quarter over quarter improvement on our crude pipeline throughput switch were up 19% Q1 over Q1.

Our pipeline segment, EBITDA was $141 million, thats up $17 million or 13% when compared to the $124 million segment generated in the first quarter of 'twenty one.

Moving to our Permian crude system.

Volumes on our Permian crude system averaged around 510000 barrels per day for the quarter of 27% over the same quarter last year and comparable to the fourth quarter of 2021.

Although we've all heard that U S. Oil production has been slow to respond to the recent run up in crude prices due to a variety of factors, including supply chain challenges. We continue to work closely with our top tier producers and we're encouraged by what they are telling us, particularly what are privately held producer you're telling us about their drilling plans for the rest of 2022.

Because of those conversations along with a strong outlook for crude prices. We continue to expect to exit 2022 between 560 to 570000 barrels per day or about 10% above our 2021 exit.

Moving on from the Permian to our Corpus Christi crude system throughput has averaged around 340000 barrels per day, that's up about 6% over the first quarter of 2021.

We continue to forecast full year 2022 revenue from our Eagle Ford and WTO commitment is slightly above our nbc's.

Our fund products pipelines are also continued to deliver consistent and strong results with throughput up 11% compared to the first quarter of 2021, reflecting the strength of our assets and our position in the markets, we serve across the mid continent and throughout Texas.

Our northern Mexico refined products supply pipelines are also performing well.

Volumes now above our averages for 2021 with first quarter throughput is up 27% over the same quarter last year.

Turning to our storage segment.

After adjusting for the impairment associated with the sale of a point Tupper terminal, our adjusted EBITDA was $50 million.

Up $4 million or 7% when compared to $46 million in Q4 last year.

Compared to the first quarter of 2021, excluding contribution of our divested eastern U S terminals or storage segment's adjusted EBITDA was about $9 million lower due to timing of customer transitions and tank maintenance at certain terminals during the quarter as well as insurance proceeds we recovered in Q1 of 'twenty one for our Shelby terminal.

Moving on to our West coast renewable fuels network.

In the first quarter, our west coast storage assets generated about 29% of our total storage segment revenue.

We expect our West Coast Terminal network revenue to continue to grow in 2022, as we complete two more projects at our Stockton terminal this summer, adding renewable diesel storage capacity and expanding our ethanol transportation solutions, which will expand the significant role of Neustar plays in facilitating the west coast transition to low carbon renewable fuels.

And for our fuels marketing segment, EBITDA was $7 million up $4 million from the first quarter of 2021, largely due to stronger bunker fuel margins.

Beyond our solid quarterly results I'm also pleased to report on the progress, we're making and continuing to build our financial strength and flexibility and increasing our free cash flow.

Last Friday, we announced closing on the divestiture of the point Tupper terminal facility in Canada for $60 million, which we plan to utilize to continue to reduce debt.

In addition.

Earlier this year.

We kicked off an initiative to optimize our spending across our business finding efficiencies and scrubbing every dollar with the goal of making meaningful reductions in our expenses and capital spending to increase our free cash flow in 2022 and beyond.

We're still early in our optimization initiative, but we are encouraged by the progress, we're making having already identified over $50 million in reductions across this year and next.

We're focused on reducing Opex and G&A expense and we're also working hard to high grade every dollar of our strategic capital spending which means assuring that we only execute projects that meet or beat our internal hurdles and their lean efficient and effective.

Far we've been able to reduce our planned strategic capital spending for 2022 to between $115 million to $145 million.

The midpoint of which is $15 million lower than our previously announced range.

Of that total strategic capital spending we expect to allocate approximately $60 million to growing our Permian system, which is as always scalable with our producers throughput volume needs.

We plan to spend about $10 million to expand our west coast renewable fuels network.

In addition to the cost reductions and increased efficiency. We are realizing from our optimization initiatives. We also have an improved line of sight into every dollar spending which is helpful.

As we proactively address the inflationary headwinds that we're all currently experiencing.

Optimization takes focus and discipline and our employees are demonstrating just that because we make the necessary changes to continue to enhance our financial strength and resilience and continue to build unitholder value.

At the same time, though we are keenly aware that our culture is the bedrock of Neustar success. So we are determined to protect and nurture our core values. We will remain committed to the safety of our employees and to environmental excellence that means we continue to expect to spend $35 million to $45 million on reliability capital in 2022.

Now I'll shift gears and give some more detail about our results for the quarter.

For comparability keep in mind that our first quarter results include a noncash impairment associated with the sale of the point Tupper terminal.

Excluding the noncash impairment in the first quarter adjusted net income was $57 million up $15 million or <unk>, 36%.

Over Q1, 2021 net income of $42 million.

As I mentioned, a few minutes ago, our adjusted EBITDA for the quarter was up 7% when compared to the first quarter of 2021.

Also generated $91 million of DCF during the quarter, which is 13% higher than our first quarter of 2021 Bcf of $81 million.

Our distribution coverage ratio to the common limited partners was 2.06 times I'm.

I'm happy to say, we have reduced our interest expense by $5 million for the quarter compared to the first quarter of last year as a result of the progress we've made in lowering our debt balances.

And we've also continued to make substantial progress as promised and lowering our debt to EBITDA ratio. We ended the quarter with a debt to EBITDA ratio of 392 times, which is down substantially when compared to the $4 three nine times at the end of the first quarter last year and also down from the $3 99 times at the end of the fourth quarter.

At quarter end, we had 889 million available on our $1 billion unsecured revolving credit facility.

For the full year 2022.

We expect to generate adjusted EBITDA in the range of $700 million to $750 million, the midpoint of which is 7% higher than our 2021 results when adjusted for the sale of the Eastern U S in point Tupper terminals.

Before I wrap up we'll move into Q&A I want to say that our hearts go out to the Ukrainian people and we here at Neustar are praying for peace.

The consequences of the Russian invasion in late February of 2022 for the Ukrainian been tragic consequence.

The consequence for Western Europe , and other parts of the World continue to unfold, but offer a stark reminder of the importance of not only energy itself, but also the critical importance of U S energy independence.

Now exports more energy than we import and that is thanks to the U S shale production.

The world's population is growing and the demand for energy is increasing as well.

The fact is the most energy dense affordable and reliable fuels the fuels that we depend upon to power our homes and severe winter weather helicopter our loved ones of the hospitals in emergencies build our roads keep our foods plus safe and affordable for fossil fuels.

Syed from nuclear energy there is simply no other energy source that can supply anywhere near the amount of energy the world needs now much less the additional amount of energy needed to lift the citizens of underdeveloped countries up to the level of energy security, we sometimes take for granted that isn't politics, that's just physics.

Balancing the different sometimes competing aspects of sustainability, including energy poverty environment and energy security here in the U S and around the globe is we will continue to be complicated.

One thing is clear the world will continue to require fossil fuels to supply the majority of its growing energy needs now and for many decades to come.

I'm proud of the part that Neustar plays in our nation's energy independence and security and the important work our employees do every day and supplying the energy the powers and protects our lives.

I'm proud that we do that work safely responsibly and sustainably.

And with that I'll open up the call to Q&A.

As a reminder, if you have a question.

At this time and then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

First question is from the line of Theresa Chen from Barclays. Your line is now open.

Good morning, Thank you for taking my questions.

Brian I wanted to go back to your comments about energy security and bringing to focus on its arms since question questions invasion of Ukraine.

On the heels of your conversations with the private producers across your acreage in the Permian and their drilling plans for this year and beyond I imagine.

Is there upside to your Permian exit rate for 2022, how should we think about that.

So the way I would think about 2022 as you've seen.

Flat to slightly increase production in the Permian in 2022, and that's mostly due to supply chain issues and that's what we're hearing from all of our producers I think thats been pretty consistent on everybody's calls.

What I would tell you is those supply chain issues I think will get sorted out, but it's probably a longer term thing than the end of 2022, and so I think you could see an effect maybe in the fourth quarter, but most of the effects.

It would be in 2023, and what I'm talking about is affects above and beyond the 10% that were predicting so.

Some kind of a move on our system from $565 70, and are well into the six hundreds would be in 2023.

Got it thank you.

Yes.

And turning to the West Coast biofuel.

Owing both marathon and Philips getting the green light for their land use permits.

There seems to be.

Huge amount of renewable diesel.

Soon to be hitting the California market I understand that you have been long in partnership with next day.

Given their pending.

Finalization JV with MPC is there ability for your system to handle some of that.

Volumes that can come out of Martinez and also.

Comment on handling some of the product coming out of a potential eight since you had that feedstock agreement.

Logistics agreement with Philips already.

Sure. So this is Danny.

Yes, we definitely have room to grow with.

The lower carbon fuel standard as its implemented in.

I would say two ways as well.

One we are already handling the finished renewable diesel renewable jet.

But also in relation to <unk> 66 <unk>.

Projected rodeo.

We are also handling the feedstocks.

For that facility, which now they have one train already up and running but eventually they will have the entire refinery converted so we will be able to grow with that as well, we're bringing in all the feedstocks by rail.

And that will continue to grow as they finish those projects.

Got it.

And then Tony.

The financing side can you talk about your plans to address the series D that I believe are callable next year and how you plan to refinance that issue.

Sure.

So as you recall the series D were issued in 2018.

And they have a rate that goes up over time. So this is Ben.

Priority and as you've seen over the last couple of years, we've been positioning ourselves to take out the series D. So.

So the next rate increase I think is in July of 2013, that's also when they become redeemable by us and the important part is that these are redeemable in whole or in part.

So we intend to begin redeeming. These as soon as we can which is July of 2023.

So.

Question is how do we go how do we do that so like I say, we've been positioning ourselves.

For the last couple of years, selling noncore assets paying down debt.

Primarily increasing our free cash flow.

Maximizing our free cash flow and minimizing our debt, we should be able to take these out incrementally again, starting 2023 and through probably the 2025 timeframe.

230, 526, so one of the thing I would mention is in my comments I talked about optimization. So we kicked off an optimization initiative here about a month and a half ago and the goal of that is too.

Maximize our free cash flow and.

Really make that cash available to pay down the series DS.

<unk> been very encouraged by what we've seen so far as I said in my comments we've identified.

Just starting $50 million worth of savings this year and next.

In a lot of those savings are sustainable and we're looking for sustainable savings over the next few years.

Got it and brought it.

Clearly cost savings, increasing free cash flow the balance sheet.

Variety of options. The common distribution is one of them should you choose to reduce that is that on the table too.

The series D issue.

No, it's not and so as I mentioned, our plans to redeem the series D with a combination of free cash flow.

Maximized through optimization.

We plan to maximize our free cash flow to minimize our debt and as I've said many times, we don't need to cut their distributions and we don't plan to.

Thank you.

We have a next question from the line of Christopher Jeffrey from Mizuho Securities. Your line is now open.

Hi, good morning, everyone.

Just wanted to touch on the optimization initiatives I'm. Just wondering is this more in like optimizing on the physical system.

Maybe putting some capex into that to optimize or.

Or is it more cutting costs and passing some projects that don't meet our hurdle rate.

I'd say, it's all of that but it's really it's mostly the second it's really gone back examining projects in light of.

New needs and really looking at all of our cost top to bottom capital Opex G&A everything.

Got it.

Yes.

And then I guess.

Looking at the West Coast renewable fuels Capex guidance went down from 25% to 10 would that kind of fall into that bucket.

Or is that or is that separate kind of idiosyncratic to stockton and visibility there.

Yes, Chris this is Danny again.

It's a couple of things going on there about half of that reduction in 'twenty two was timing.

Some project cost split out into 2023 and the other half was exactly what Brad was talking about we've high graded.

Some are projects and harvest rates that we're looking at.

We had some projects in development that are.

Not clearing that hurdle so.

Has been removed.

Got it thanks, and then maybe just last one it looks like fuel marketing margins have looked good for the past two quarters.

Any any kind of visibility into how long that margin sticks around but at a higher level is it something structural or just the way it is.

Always tough to predict those things but.

At most of our.

Outperformance in that segment has been on the bunker fuel marketing group and we've seen really strong margins.

Right around the end of last year, we continued to see him so far beyond the first quarter as well and but really it's hard to predict how long Nevertheless.

It is still very strong market for us.

Great. Thank you that's it for me.

Thank you.

Next is from the line of Jan Wald from Jpmorgan. Your line is now open.

Hi, everyone. Good morning.

Quick one from me.

What are you seeing with <unk>.

Our pipeline reversal on service.

In terms of I guess Canadian imports given.

<unk> extremely strong.

Profiling.

Mark.

The class wide crack spreads at the Gulf Coast.

Kind of just lights versus that England on total volumes.

Yes, so volumes through those kind of new channels of reversal of cap line.

They've been really small they started up doing about 100000 barrels a day I think they are doing a little less than that now.

Receive some of those barrels through our system and we collect some additional ancillary fees for handling those increased volumes, but it's not a material impact to earnings. We are starting to see now also some increased throughput from the SPR releases, but.

Again, that's we're collecting some ancillary fees based on those throughput, but not making a material impact to earnings.

Okay got it.

Thanks for that that's incremental.

Keith.

Once again, if you would like to ask a question. Please press star one.

Next question is from the line of Selman <unk> from Stifel. Your line is now open.

Thank you good morning.

Two quick ones for me first of all you talked about inflation and I'm just kind of wondering where are you seeing that the most is it employer.

Employee costs as the Capex is it.

It's kind of across the board.

What you read in the Wall Street Journal means affecting us pretty much in the same way it's affecting everyone.

We're watching it watching it carefully and trying to manage it carefully.

That's been a big part of the optimization initiative also is getting better line of sight into actually what these costs are.

I would say, it's pretty ratable across.

All of our.

Capex and G&A.

And Selman.

What goes hand in hand, with inflation or some of the supply chain.

The industry is seeing and where we've been able to help ourselves we have we've gone out and late in the Permian for example, some of the materials that we commonly use and we're starting to see delivery times.

Move out we've set up a.

Warehouse of.

Some of the more important materials that we need to finish connections and.

We keep on hand, some of those items. So that we don't Miss first flows on a project and just kind of replace them as we use them. So we're doing everything we can.

To help ourselves and one important thing to keep in mind is that most of our contracts are indexed to the CPI or PPI.

So the inflationary inflation is built into those numbers and we'll be seeing that.

Through the balance of the year and into next year.

Okay I appreciate the color. Thank you and then.

The other thing is.

Are you seeing evidence of demand destruction.

Particularly I'm thinking about the refined products.

We're not seeing any of that settlement were still run at about 100% of pre pandemic levels, we've really seen no.

No change at all in and.

Overall demand.

Okay. Thank you very much.

Thank you.

No further question I will turn the call back over to MS. Pam Schmidt.

Thank you Mei, we would once again like to thank everyone for joining us on the call today. If anyone has any additional questions. Please feel free to contact our investor relations.

Thanks, again and have a great day.

This concludes today's conference you may now disconnect.

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Good morning, and welcome to today's call.

On the call today are new Star Energy, Lp's, President and CEO , Brad Barron as well as other members of our management team.

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.

Conciliation of certain of these non-GAAP financial measures to U S. GAAP may be found in our earnings press release with additional reconciliations located on the financials page of the investors section of our website at least our energy Dot com.

With that I will turn the call over to Brad.

Good morning, and thank you all for joining us today.

But the details on <unk> results for the first quarter as well as our positive outlook for the rest of 2022.

I am pleased to report that once again, we delivered solid results demonstrate the strength and resilience of our assets.

In the first quarter, you start generated adjusted EBITDA of $173 million as compared to $169 million for the first quarter of 'twenty, one or about 2% higher.

Turning to our pipeline segment, we saw strong improvement across our systems with throughput up 16% compared to the same quarter last year, which was driven primarily by strong quarter over quarter improvement on a crude pipeline throughput switch were up 19% Q1 over Q1.

Our pipeline segment, EBITDA was $141 million, thats up $17 million or 13% when compared to the $124 million segment generated in the first quarter of 'twenty one.

Moving to our Permian crude system.

Volumes on our Permian crude system averaged around 510000 barrels per day for the quarter up 27% over the same quarter last year and comparable to the fourth quarter of 2021.

Although we've all heard that U S. Oil production has been slow to respond to the recent run up in crude prices due to a variety of factors, including supply chain challenges. We continue to work closely with our top tier producers and we are encouraged by what they're telling us, particularly what are privately held producer you're telling us about their drilling plans for the rest of 2022.

Because of those conversations along with a strong outlook for crude prices. We continue to expect to exit 2022 between 560 to 570000 barrels per day or about 10% above our 2021 exit.

Moving on from the Permian to our Corpus Christi crude system throughput has averaged around 340000 barrels per day, that's up about 6% over the first quarter of 2021.

We continue to forecast full year 2022 revenue from our Eagle Ford and WTO commitment is slightly above our nbc's.

Our refined products pipelines have also continued to deliver consistent and strong results with throughput up 11% compared to the first quarter of 2021, reflecting the strength of our assets and our position in the markets, we serve across the mid continent and throughout Texas.

Our northern Mexico refined product supply pipelines are also performing well with volumes now above our averages for 2021 with first quarter throughput is up 27% over the same quarter last year.

Turning to our storage segment after adjusting for the impairment associated with the sale of the point Tupper terminal, our adjusted EBITDA was $50 million up $4 million or 7% when compared to $46 million in Q4 last year.

To the first quarter of 2021, excluding the contribution of our divested eastern U S terminals or storage segment. Adjusted EBITDA was about $9 million lower due to timing of customer transitions and tank maintenance at certain terminals during the quarter as well as insurance proceeds.

Recovered in Q1 of 'twenty, one for ourselves terminal.

Moving onto our west coast renewable fuels network.

In the first quarter, our west coast storage assets generated about 29% of our total storage segment revenue.

And for our fuels marketing segment, EBITDA was $7 million up $4 million from the first quarter 2021, largely due to stronger bunker fuel margins.

Beyond our solid quarterly results I'm also pleased to report on the progress, we're making and continuing to build our financial strength and flexibility and increasing our free cash flow.

Last Friday.

Since closing on the divestiture of the point Tupper terminal facility in Canada for $60 million, which we plan to utilize to continue to reduce debt.

In addition earlier.

Earlier this year.

We're still early in our optimization initiative, but we are encouraged by the progress, we're making having already identified over $50 million in reductions across this year and next.

We're focused on reducing Opex and G&A expense and we're also working hard to high grade every dollar of our strategic capital spending which means ensuring that we only execute projects that meet or beat our internal hurdles and their lean efficient and effective.

So far we've been able to reduce our planned strategic capital spending for 2022 to between $115 million to $145 million, the midpoint of which is $15 million lower than our previously announced range.

Of that total strategic capital spending we expect to allocate approximately $60 million to growing our Permian system, which is as always scalable with our producers throughput volume needs and we plan to spend about $10 million to expand our west coast renewable fuels network.

In addition to the cost reductions and increased efficiency. We are realizing from our optimization initiatives. We also have an improved line of sight into every dollar spending which is helpful.

As we proactively address the inflationary headwinds that we're all currently experiencing.

Optimization takes focus and discipline and our employees are demonstrating just that as we make the necessary changes to continue to enhance our financial strength and resilience and continue to build unitholder value.

Now I'll shift gears and give some more detail about our results for the quarter.

For comparability keep in mind that our first quarter results include a noncash impairment associated with the sale of the point Tupper terminal.

Excluding the noncash impairment first quarter adjusted net income was $57 million up $15 million or <unk>, 36%.

Over Q1, 2021 net income of $42 million.

As I mentioned, a few minutes ago, our adjusted EBITDA for the quarter was up 7% when compared to the first quarter of 2021.

Also generated $91 million of DCF during the quarter, which is 13% higher than our first quarter of 2021 DCF of $81 million.

Our distribution coverage ratio to the common limited partners was 2.06 times I'm.

Im happy to say, we reduced our interest expense by $5 million for the quarter compared to the first quarter of last year as a result of the progress we've made in lowering our debt balances.

And we are also continuing to make substantial progress as promised and lowering our debt to EBITDA ratio. We ended the quarter with a debt to EBITDA ratio of 392 times, which is down substantially when compared to the $4 three nine times at the end of the first quarter of last year and also down from the $3 99 times at the end of the fourth quarter.

At quarter end, we had $889 million available on our $1 billion unsecured revolving credit facility.

For the full year 2022.

Before I wrap up we'll move into Q&A I want to say that our hearts go out to the Ukrainian people and we here at Neustar are praying for peace.

The consequences of the Russian invasion in late February of 2022 for the Ukrainian been tragic consequence.

Now exports more energy than we import and that is thanks to the U S shale production.

The world's population is growing and the demand for energy is increasing as well.

The fact is the most energy dense affordable and reliable fuels the fuels that we depend upon to power our homes and severe winter weather helicopter, our loved ones to the hospitals and emergencies build our roads keep our food supply safe and affordable for fossil fuels.

Aside from nuclear energy there is simply no other energy source that can supply anywhere near the amount of energy the world needs now much less the additional amount of energy needed to lift the citizens of underdeveloped countries up to the level of energy security, we sometimes take for granted that isn't politics, that's just physics.

Balancing the different sometimes competing aspects of sustainability, including energy poverty environment and energy security here in the U S and around the globe is and will continue to be complicated.

One thing is clear the world will continue to require fossil fuels to supply the majority of its growing energy needs now and for many decades to come.

I'm proud of the part that Neustar plays in our nations energy independence, and security and the important work our employees do every day and supplying the energy the powers and protects our lives.

I'm proud that we do that work safely responsibly and sustainably and with that I will open up the call to Q&A.

As a reminder, if you have a question.

At this time and then the number one key on your Touchtone telephone.

<unk> has been answered or you wish to remove yourself from the queue. Please press the pound key.

First question is from the line of Theresa Chen from Barclays. Your line is now open.

Good morning, Thank you for taking my questions.

Brian I wanted to go back to your comments about energy security and the premium can focus on that arm since question questions invasion of Ukraine.

On the heels of your conversations with the private producers across your acreage in the Permian and their drilling plans for this year and beyond I imagine.

Is there upside to your Permian exit rate for 2022, how should we think about that.

So the way I would think about 2022 as you've seen.

Flat to slightly increased production in the Permian in 2022, and that's mostly due to supply chain issues and that's what we're hearing from all of our producers think thats been pretty consistent on everybody's calls.

Would be in 2023, and what I am talking about is effects above and beyond the 10% that were predicting so.

Some kind of a.

Move on our system from $5 $60 70, and are well into the six hundreds would be in 2023.

Got it thank you.

Yes.

And turning to the West Coast biofuel, following both marathon and Philips getting the green light for their land use permits there.

There seems to be.

Huge amount of renewable diesel.

Hitting the California market I understand that you have been.

<unk> in partnership with next day, and given their pending Finalization JV with MPC is there ability for your system to handle some of the volumes that can come out of Martinez.

And also can you comment on handling some of the product coming out of rodeo potentially since you've had the feedstock agreement.

Logistics agreement with Philips already.

Sure. So this is Danny.

Yes, we definitely have room to grow with.

The lower carbon fuel standard as its implemented in.

I would say two ways. One we are already handling the finished renewable diesel renewable jet.

But also in <unk>.

<unk> to <unk> 66.

<unk> rodeo.

We are also handling the feedstocks.

For that facility, which now they have one train already up and running that eventually they will have the entire refinery converted so we will be able to grow with that as well, we're bringing in all the feedstocks by rail.

And that will continue to grow as they.

They finish those projects.

Got it.

And then Tony.

The financing side can you talk about your plans to address the series D that I believe are callable next year.

And how you plan to refinance that issue.

Sure.

So as you recall the series D were issued in 2018.

And they have a rate that goes up over time.

This is Ben.

Priority and as you've seen over the last couple of years, we've been positioning ourselves to take out the series D. So the next rate increase I think is in July of 2013. That's also when they become redeemable by us and the important part is that these are redeemable in whole or in part and so we intend to begin redeeming. These as soon as we can which is July of 2023.

So question is how do we go how do we do that so like I say, we've been positioning ourselves.

For the last couple of years, selling noncore assets paying down debt.

Primarily increasing our free cash flow.

Maximizing our free cash flow and minimizing our debt, we should be able to take these out incrementally again, starting 2023 and through probably the 2025 timeframe.

300, 586, so one of the thing I would mention is in my comments I talked about optimization. So we kicked off an optimization initiative here about a month and a half ago and the goal of that is too.

Maximize our free cash flow and.

Really make that cash available to pay down the series DS.

<unk> been very encouraged by what we've seen so far as I said in my comments we've identified.

Just starting $50 million worth of savings this year next.

In a lot of those savings are sustainable and we're looking for sustainable savings over the next few years.

Got it.

Clearly cost savings increasing free cash flow the balance sheet, you have a variety of options. The common distribution is one of them should you choose to reduce that is that on the table too.

I felt the series D issue.

No, it's not and so as I mentioned in our plans to redeem the series D with a combination of free cash flow.

Maximized through optimization.

We plan to maximize our free cash flow to minimize our debt and as I've said many times, we don't need to cut the distribution and we don't plan to.

Thank you.

We have a next question from the line of Christopher Jeffrey from Mizuho Securities. Your line is now open.

Hi, good morning, everyone.

I just wanted to touch on the optimization initiatives and just wondering is this more like optimizing on the physical system.

Maybe putting some capex into that.

Optimize.

Is it more cutting costs and pass it on projects that don't meet our hurdle rate.

I'd say, it's all of that but it's really it's mostly the second it's really gone back examining projects in light of.

New needs and really looking at all of our cost top to bottom capital Opex G&A everything.

Got it.

And then I guess looking at the West coast renewable fuels Capex guidance went down from 25% to 10 would that kind of fall into that bucket.

Or is that or is that separate kind of idiosyncratic to Stockton and disability. There yes, Chris This is Danny again.

It's a couple of things going on there about half of that reduction in 'twenty two was timing.

Some project cost split out into 2023 and the other half was exactly what Brad was talking about we've high graded.

Some are projects and hurdle rates that we're looking at and does it does.

We had some projects in development that are not clearing that hurdle. So.

Has been removed.

Got it thanks, and then maybe just last one it looks like fuel marketing margins have looked good from the past two quarters.

Any any kind of visibility into how long that margin sticks around but at a higher level is it.

Structural or just the way it is.

Always tough to predict those things but.

At most of our.

Outperformance in that segment have been on the bunker fuel marketing group and we've seen really strong margins since right around the end of last year, we continue to see him so far beyond the first quarter as well and but really it's hard to predict how long Nevertheless.

It's still a very strong market for us.

Okay. Thank you that's it from me.

Thank you.

Next is from the line of Dan Walk from Jpmorgan. Your line is now open.

Hi, everyone. Good morning.

Just a quick one for me.

What are you seeing a closed loan.

Our pipeline reversal on service.

In terms of I guess Canadian imports given.

Extremely strong.

Profiling.

Mark.

Wildcats spreads at the Gulf Coast.

Kind of just lights versus that England on total volumes.

Yes, so volumes through those kind of new channels of reversal of cap line.

<unk> been really small they started up doing about 100000 barrels a day I think they are down a little less than that now we've.

<unk> received some of those barrels through our system and we collect some additional ancillary fees for handling those increased volumes, but it's not a material impact to earnings. We are starting to see now also some increased throughput from the SPR releases, but.

Again, that's we're collecting some ancillary fees based on those throughput, but not making a material impact to earnings.

Okay got it.

Thanks for that.

Keith.

Once again, if you would like to ask a question. Please press star one.

Next question is from the line of Sarah Monocular from Stifel. Your line is now open.

Thank you good morning.

<unk>.

Two quick ones for me first of all you talked about inflation and I'm just kind of wondering where are you seeing that the most is it.

<unk> cost as a capex is it.

Kind of across the board.

It's what you read in the Wall Street Journal means affecting us pretty much in the same way it's affecting everyone.

We're watching it watching it carefully and trying to manage it carefully.

That's been a big part of the optimization initiative also is getting better line of sight into actually what these costs are but I would say, it's pretty ratable across.

All of our.

Capex and G&A.

And Selman.

What goes hand in hand, I think with inflation or some of the supply chain.

Move out we've set up a.

Warehouse of.

Some of the more important materials that we need to finish connections and.

We keep on hand, some of those items. So that we don't Miss first flows on a project and just kind of replace them as we use them. So we're doing everything we can.

To help ourselves and one important thing to keep in mind is that most of our contracts are indexed to the CPI or PPI.

The inflationary inflation built into those numbers and we'll be seeing that.

Through the balance of the year and into next year.

Okay I appreciate the color. Thank you and then.

The other thing is it.

Are you seeing evidence of demand destruction.

I'm thinking about the refined products.

We're not seeing any of that settlement were still run at about 100% of pre pandemic levels, we've really seen no.

No change at all in and.

Overall demand.

Okay. Thank you very much.

Thank you.

No further question I will turn the clock call back over to MS. Pam Schmidt.

Thank you Mei, we would once again like to thank everyone for joining us on the call today. If anyone has any additional questions. Please feel free to contact <unk> Investor Relations.

Again and have a great day.

This concludes today's conference you may now disconnect.

Q1 2022 NuStar Energy LP Earnings Call

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