Q2 2022 NuStar Energy LP Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Yeah.
Good day everyone.
And thank you for standing by and welcome to the Neustar Energy's second quarter 2022 earnings call.
At this time all participants are in 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 one one on your telephone you will then hear an automated message advised that your hand is raised please be advised that today's conference call is being recorded.
I would now like to hand, the conference call over to Dave Speaker.
Pam Schmidt Vice President of Investor Relations.
Yeah.
Good morning, and welcome to today's call.
On the call today are new store energy L. P 's, President and CEO , Brad Barron Executive Vice President and CFO , Tom Shoaf 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 Neustar management will make statements about our current views concerning the future performance of Neustar that are forward looking statements. These statements are subject to the various risks uncertainties and assumptions described in our filings with the Securities and Exchange Commission.
Actual results may differ materially from those described in the forward looking statements.
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 of the investors section of our web.
Site at Neustar energy Dot com.
With that I will turn the call over to Brad.
Morning, Thank you all for joining us today.
I'm pleased to report that once again, we delivered solid results in the second quarter.
After taking into account the impact of the sale of our eastern U S terminal facilities in late 2021 into point Tupper in April .
Second quarter EBITDA was comparable to <unk> 'twenty, one EBITDA, despite some timing and transition issues as Tom will talk about in a few minutes.
Our pipeline segment EBITDA was up in the second quarter. Thanks in large part to a strong performance for our Permian crude system.
We're happy to report that our Permian systems volumes grew to a record breaking average of 522000 barrels per day in <unk>.
That's up 16% over the same quarter last year and up 2% over the first quarter of 'twenty two.
I want to note that June's monthly average is up to nearly 535000 barrels per day and in July our Permian volumes continued to grow rising to an average of 555000 barrels per day.
While overall U S oil production has faced supply chain and other challenges this year, our top tier Permian producers have continued to successfully execute on their drilling plans.
The steady strong volume growth we saw in the first half of 2022 and continued ramp up this quarter is a testament to our producers and the quality and strength of our acreage.
Because of the growth we've seen so far this year, what we expect for the rest of the year based on our producers drilling plans. 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 refined products pipeline systems.
Even though some short term operational issues or customer refineries reduced our Q2 volumes compared to Q2 'twenty. One are refined product volumes. This past quarter were up compared to the first quarter of 2022.
And our volumes continue to track at pre pandemic levels, reflecting the strength of our assets and the stability of demand in the markets, we serve across the mid continent and throughout Texas.
Our northern Mexico refined product system also continued to perform well with volumes above our average for 2021 with throughput this quarter up 20% over the same quarter last year.
Moving on to our West Coast renewable fuels network, we expect our west coast regions contributions to continue to grow in the second half of 'twenty two.
That's mainly from two more renewable fuels projects. We've recently brought into service, which increase our renewable diesel storage capacity and augment our ethanol transportation logistics capabilities at our Stockton, California facility.
Those two projects will further solidify the significant role that neustar plays in facilitating California's transition to low carbon renewable fuels, where.
Are we already handled 5% of the state's biodiesel, 13% of its ethanol, 21% of its renewable diesel and almost 90% of the sustainable aviation fuel sold in the state.
Moving on to our Corpus Christi crude system.
Our throughput averaged around 290000 barrels per day in the second quarter slightly below our MVC for that system, but we've been encouraged by the rebound in July as our average volumes rose to almost 340000 barrels per day. Furthermore.
We're also pleased to announce that we reached an agreement with Trafigura to extend the term of our contracts with transportation storage and export services on our Corpus Christi crude system for mid 2023 through the end of 2024 with two one year extensions.
As you will recall 2019.
We completed projects that make new start one of the early movers transporting Permian basin debit Ti from Cactus II Gray oak through our systems in South Texas for Trafigura.
For regional supply and for export from Corpus Christi.
By extending this contract we're building on established relationship to facilitate production of refined products on the Gulf Coast and provides export of U S crude or crude oil to supply locations around the globe and with that I'll turn the call over to Tom for some more details on our results.
Thanks, Brad and good morning, everyone as Brad mentioned on an apples to apples basis, comparing the second quarter of 2022 EBITDA with the EBITDA generated from those same assets and <unk> 21 in other words backing out the assets, we sold in 2021 and earlier this year.
Our second quarter EBITDA was comparable to the second quarter of 2021.
Our second quarter 2022, DCF available to common limited partners was $83 million and our distribution coverage ratio for the common limited partners was one eight times.
Turning now to our segments in the second quarter of 2002, our pipeline segment generated $145 million of EBITDA up $4 million or 3% over the second quarter of 2021 EBITDA of $142 million largely from strong performance from our Permian crude system as Brad.
Scribed earlier.
Turning next to our storage segment, our EBITDA for the second quarter 2022 was $49 million, which is about 11 million lower compared to <unk> of 2021.
When our when our adjustment for our asset sales.
That decrease was due to customer transitions and required tank maintenance at our St. James terminal and the timing of LDC settlements on our Corpus Christi, North Beach terminal and.
For our fuels marketing segment, EBITDA was $7 million up $4 million from second quarter 2021, largely due to stronger bundle bunker fuel margins.
I'm also pleased to report on our continued progress in reducing our debt and building our financial strength and flexibility.
At the end of the second quarter 2022, our debt balance was $3 1 billion and we had over $900 million available on our $1 billion revolving credit facility.
Thanks to the progress we made in lowering our debt balance our interest expense and <unk> 2022 was $3 million lower than in <unk> 2021, Despite the increase in interest rates on our variable rate debt.
We ended <unk> 2022, with a debt to EBITDA ratio of 393 times, which is substantially improved compared to $4. Two seven times at the end of <unk> 'twenty, one and we expect to continue that improvement in that ratio through the end of the year.
For full year 2022, we continue to expect to generate adjusted EBITDA in the range of $700 million to $750 million.
Moving to strategic capital, we continue to plan to spend $115 million to $145 million in 2022.
We still expect to allocate about $60 million to growing our Permian system, and we plan to spend about $10 million to expand our west coast renewable fuels network.
Turning to reliability capital, we continue to expect to spend between 35 and $45 million on reliability in 2022, now I'll turn the call back over to Brad.
Thanks, Tom.
One last thing I want to mention.
On our calls in February and May we talked about our initiatives to optimize our spending across our business to ensure that we execute on projects and operator assets as efficiently and effectively as possible.
To increase our free cash flow in 2022 and beyond.
In May we told you that we had identified over $50 million in reductions across 2022, and 2023 and I'm happy to report that total is now up to $60 million.
We have successfully reduced our full year 2022 capital spending and expenses by almost $20 million and our 2023 spending by over $40 million.
That's real progress and we're not done yet.
True optimization, which we believe means taking making our company is financially efficient as possible, while maintaining the strong culture of safety environmental excellence and reliability that is distinguished neustar for over two decades, it doesn't happen overnight.
We will continue to advance our optimization initiative through the rest of 2022 and.
And each and every one of US here at Neustar is committed to continuing to scrubbed every penny of our spending to make sure that as necessary efficient and strategic.
By focusing on our spending we are mitigating the impact of inflation and increasing our free cash flows. So that neustar is solidly positioned for the challenges and opportunities we see in 2023 and beyond.
With that I will open up the call for Q&A.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Please standby, while we compile the Q&A roster.
Okay.
Our first question comes from the line of Theresa Chen with Barclays.
Your line is now open.
Thank you for taking my question.
First I wanted to ask you about your outlook for demand across your products.
And since there seems to be an over well mainly.
Overwhelming amount of concern related to your recession risk and.
How the consumer is.
Potentially resisting these higher prices and that's good.
Wait to see that your volumes are still Brazilians.
Back to pre pandemic levels are remaining at pre pandemic levels I'd love to get your take on the outlook from here.
Yes, Theresa this is Danny.
We continue to see our volume set pre pandemic levels I think in <unk>, we were about 99% pre pandemic and that was with <unk>.
Refinery maintenance going on on our system, which was not it would have been higher without the refinery maintenance so.
We're not seeing that.
Our system, it's kind of I think it's like the Bakken that days of the pandemic. It seems like the middle of the country just.
Isn't seeing the same impacts that they may be seeing on the coast I can tell you our big customers are not seeing it either and they reported that in their earnings calls and then just anecdotally several of US have made long driving trips across the state of Texas and I can promise you. There is no there's no cut back in traffic.
On our Interstate.
Got it thank you.
And then shifting towards the euro.
Our crude assets. Thank you.
Giving us a little bit more detail and color relate to your extension for the Nbc's with trophy to year end 2024 did you have to trade off some rate per term related to that.
We did as we I think we talked about this a little bit on the last call.
It was a blend and extend deal so we expect it to.
Give a little bit on volume and rate.
We did that through the end of the 24 and then we.
Have a couple of options option periods beyond that where where the volumes and rates pick back up.
Yes.
Got it and in order of magnitude would you be able to share relative to the baseline.
Existing or previous contract how much of an EBITDA impact.
It would be.
I can't really get into specifics of that.
Specific customer's contract.
But it's in our guidance, which as you know was just heard Tom say is unchanged.
Understood very positive we see as a very positive development for our business.
And particularly the way that we.
We've been able to work with Trafigura.
The rates are competitive for what we see in Corpus Christi right now and it also gives us the opportunity to well, what we expect to see as improving market conditions towards the end of that contract. So we're.
And we're positioned well thank you got it.
Understood.
On the topic of Corpus Christi.
This earnings season, there seems to be.
It seems to have been a lot of commentary and discussion from some of your pipeline peers.
About volumes directed are shifted towards corpus from Houston and utilization.
<unk>.
Heading to corpus.
You'll be able to share your view on that.
Puts and takes there at the dynamics evolving and what your outlook is for corpus going forward.
Yes.
<unk> always said and continue to believe and see that the incremental production out of the Permian is going for export and the export barrels go prefer corpus.
We see no change in that.
Thank you.
Thank you. Thank you.
All right our next question.
Comes from the line of Michael Blum with Wells Fargo.
Welcome Michael Bluhm. Your line is now open.
Hi can you hear me, yes, we can okay great.
First question I had was on your FERC index pipelines I'm wondering if you're expecting them to pass through the full rate increase at the PPI adjuster would allow for both 2022 and 2023.
Yes, absolutely.
Well indexes full indexation, where we can there's a few in the oilfield theres a few contracts that have some.
Some limits, but by and large.
All of our FERC assets are getting the full.
All indexation and by the way our pipelines our pipeline revenues, 95% of them are FERC.
<unk>.
Great got it.
And then obviously youre, making a lot of progress here on leverage.
Can you talk about where you think youre going to end up at the end of the year.
I apologize if I missed that and then just kind of where where do you think you'd like to take leverage overall as a target.
Yes.
As we said we finished this.
This quarter out at below four times, and we haven't really given guidance on.
On leverage in terms of year end, but what I can tell you is as we plan to stay on that course of Delevering and we think our leverage is going to be below even where it is in the second quarter. So we're going to continue that lowering the leverage.
And so.
That's that's kind of where we are.
Alright, Thank you very much I appreciate it.
Hmm.
Thank you our next question comes from.
James Carreker at U S capital advisors.
Promoting you know.
Okay.
Okay.
James Carreker I guess reiterate.
Hi can you guys hear me.
Yes.
Okay. Thank you.
Following up on that FERC impact question.
I guess is it reasonable to assume from a baseline level.
If the roughly 9% increase went into effect July one.
Nothing else changes, we'll see pipeline EBITDA go up in Q3 by.
Something similar to that amount.
Excluding changes in volumes.
Yes, similar to that amount with the exception of the oil field. So the Eagle Ford and Permian volumes. Some some contracts have some limits which is.
Market base deal, but other than that yes, you've also got to take into consideration Opex goes up with inflation as well.
So it won't be it won't be a dollar for dollar increase in EBITDA revenues, though right.
Alright.
It is.
Gotcha.
And then I guess.
Would you be willing to disclose the Permian EBITDA for this quarter, you generally put it out and presentations after the fact.
It's always nice to haves when filling out the model.
Yes, we will have that out there in our deck.
And a couple of weeks.
Okay. Thank you.
If I can say one more in I guess, just any initial thoughts.
Anything in this inflation reduction act as it applies to kind of your your Biofuels business.
On the West Coast.
We have not.
Not seen anything specific.
In general regulatory trends are positive for our Biofuels.
Business on the West coast, and so Theres a lot of tailwind for.
That business really no matter.
What the legislation is.
Okay. Thank you.
Thank you for that question. Our next question comes from the line of Jeffrey Christopher with <unk> Group.
Securities USA promoting you know.
Hi, My question. Your line is now just one left.
Okay.
Alright.
Thanks, everyone for taking my question I think just one left for me if you could kind of talk about in the Permian and maybe some of the July exit rates that you were seeing on PCF and.
If you kind of see second half some of the constraints that were happening in the first half clearing up in may.
The cadence of how that will play out in Q4.
Yes, so as Brad mentioned, we averaged $5 55, but we exited July is running at about $5 60, So that's where we're starting.
Here in the month of August .
We talked about.
I think we see kind of similar activity.
Yes.
I'm sorry.
Okay.
I think we will see about the same type of activity in the second half, we actually see we reconfirmed our exit guidance of $5 $65 70, we actually see in our forecast.
What's that are above that level, but we continue to forecast we've seen for five years, we've seen it kind of a December January lull in activity for whatever reason, whether it's holidays are.
Companies hitting their capex budgets early and so we.
We kind of forecast that lull in even though it doesn't quite match.
The production data, we're getting from our our our producer customers.
Great. Thank you.
You bet. Thank you.
Thank you for that question.
Yes.
If there are no further questions I'd like to turn it back to.
Pam Smith for closing remarks.
Thank you Gerald 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 me start Investor Relations.
Thank you again and have a great day.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Yes.
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