Q3 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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Ladies and gentlemen, thank you for standing by and walk through the Q3 2022 new store energy earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star one on your telephone.

I would now like to turn the call over to your host Pam Schmidt Vice President of Investor Relations you may begin.

Good morning, and welcome to today's call.

On the call today are new store energy L. P 's, chairman and CEO Brad Barron.

Executive Vice President and CFO , Tom Shoaf, as well as other members of our management team.

Yes.

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 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 in our earnings press release, and if applicable additional reconciliations may be located on the financials page.

Her 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 today.

I'm pleased to report that we once again delivered a quarter of solid results after taking into account the impact of our sale of the eastern U S terminal facilities in late 2021.

And our sale of point Tupper in April we generated 6% higher EBITDA in third quarter 'twenty to <unk>.

<unk> EBITDA in third quarter 'twenty one.

Our pipeline segment EBITDA was up in the third quarter. Thanks in large part to the continued strong performance of our Permian crude system.

Happy to report that our Permian systems volumes hit another high in the third quarter ending.

And again, a record breaking average of 580000 barrels per day, that's up 15% over the same quarter last year and up 11% over second quarter 2022.

Steady strong volume growth we've seen in 2022 is a testament to our producers and of the quality and strength of our acreage.

We now expect to exit 2020 to around 600000 barrels per day.

About 15% above our 2021 exit.

Moving on from the Permian to a refined products pipeline systems, even though a planned turnaround at the customer refinery reduced our third quarter volumes compared to third quarter of 'twenty one.

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 in the third quarter throughput up 26% over the same quarter last year.

And our value refined products pipeline throughput were also up for third quarter 2020 throughput, 14% above third quarter of 'twenty one.

Moving on to our West Coast renewable fuels network, our West Coast region contribution to revenue continues to grow in 2022 from two more renewable fuels projects, we brought into service at the end of last quarter.

These projects increased our renewable diesel storage capacity and augmented our ethanol transportation logistics capabilities at our Stockton, California facility.

Those projects should further solidify the significant role that neustar plays in facilitating California's transition to low carbon renewable fuels, we already handle 5% of the state's biodiesel nine.

9% of the ethanol, 19% of the renewable diesel and 77% of all the sustainable aviation fuel sold in the state.

Moving on to our Corpus Christi crude system, our throughput averaged over 341000 barrels per day in the third quarter.

Our MVC for that system and we are encouraged by the continued growth in October and our average volumes rose to almost 390000 barrels per day for the months 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 third quarter 'twenty to EBITDA with the adjusted EBITDA generated from those same assets in the third quarter at 21 in other words, excluding the assets we sold in 'twenty, one and earlier this year, our third quarter EBITDA was up $9 million.

Our third quarter 2022.

DCF available to common limited partners was $93 million and our distribution coverage ratio to the common limited partners was $2 one two times.

Turning to our segments in the third quarter 'twenty to our pipeline segment generated $155 million of EBITDA up $10 million or 7% over <unk> 21, adjusted EBITDA of $145 million largely from the strong performance of our Permian crude system as Brian described earlier.

Higher contributions from our Permian crude system were partially offset by a turnaround at one of our customer's refineries in our central West system and lower volumes on our ammonia system due to a planned maintenance program.

Turning next to our storage segment, our EBITDA for <unk> 22 was $41 million, which is about $10 million lower than the <unk> 21, adjusted EBITDA, excluding divested assets.

Decrease was due to customer transitions and required tank maintenance at our St. James Terminal and an amendment and extension of our customer contracted Corpus Christi, North Beach terminal or.

Our west coast regions revenue continued to grow up 20% over <unk> 'twenty one.

And for the fuels marketing segment, EBITDA was $9 million up $8 million from <unk> 'twenty, one largely due to strong 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 third quarter 'twenty two our total debt balance was $3 1 billion and by continuing to pay down our revolving credit facility balance last quarter, we increased our facility availability to 993 million.

The facility is $1 billion capacity.

Thanks to the progress we have made in reducing our debt balance our interest expense and <unk> 22 was $1 million lower in <unk> 'twenty, one despite higher interest rates on our variable rate debt.

We ended the third quarter 'twenty, two with a debt to EBITDA ratio of 379 times.

It's substantially improved compared to <unk> 21 on a metric was just above four times and also improved from last quarter's $3 93 times.

For the full year 2022, we expect to generate adjusted EBITDA in the range of $700 million to $730 million moving.

Moving to strategic capital, we now plan to spend $105 million to $125 million in 2022.

We expect to allocate almost $60 million to growing our Permian system and plan to spend about $10 million to expand our west coast renewable fuels network.

Turning to reliability capital, we now expect to spend between 30% and $40 million on reliability in 2022, now I'll turn the call back over to Brad. Thanks, Tom.

This time last year as the World economy was rebounding strongly from 2020 lows, we're expecting 2022 to bring some inflation.

Some price volatility and some continued supply chain challenges.

Directionally, we're right on each of those points.

But instead of some inflation and some volatility.

We've seen all hit.

Both hit record levels in 2022.

I will see interest rates increase sharply as the fed has attempted to put the brakes on rising prices.

While the global economy, and financial markets had a bumpy ride. This year 2020 twos outsized volatility has served to highlight the stability and strength of Neustar as a business.

This year, we've continued to safely and reliably store and transport essential energy.

That fuels, our travel moves our food supermarkets increased crop yields in our nation's bread basket.

And has transformed in a ubiquitous refined will be beckwitt is plastic that makes modern life possible.

So we've continued to generate stable solid results.

We've also been executing on the optimization initiative. We told you about earlier this year focusing on paying down debt high grading our capital spending and scrubbing every dollar of Capex and expense.

In August we told you we had identified almost $60 million in reductions across 22, and 2023 and I'm happy to report that total is now up to almost $100 million.

We have successfully reduced our full year 2022 capital spending and expenses by over $40 million and our total 2023 spending expenses by over $50 million.

Thank you our optimization initiative, we have been able to mitigate the impact of 2020 twos historic inflation and to maximize our free cash flows.

And we've also significantly improved our debt ratio over the course of the year as Tom mentioned.

Because of the meaningful progress we've made we're now positioned to accelerate our timeframe for addressing the series D preferred as.

As we talked about earlier this year, we had originally intended on starting on the series D. In July of 2023, when those became redeemable and then wrapping that up in the 2025 2026 timeframe.

We're now in discussions with holders to repurchase as much as one third of the series D. By the end of this year and we plan to redeem another third in 2023 and complete the redemption in 2020 for several years ahead of schedule.

This redemption is another important step in our ongoing optimization, which will meaningfully increase our free cash flow over the next few years.

While we now plan to move up our schedule, we're targeting holding our debt metric down around four four times.

Before we turn to questions I can't close that mentioning Bill reheat.

As we announced last week after a long and incredibly distinguished career Bill has stepped down as <unk> chairman of the board.

I really do not have the worst adequately convey the profound gratitude and affection that we all have for him.

But it was truly a pioneer in a legend in the energy industry as wellness as well as in the San Antonio community and the communities all across the globe for Valero and Neustar have operated under his leadership.

I've had the privilege of working for Bill for over 20 years, and I'm deeply grateful for the opportunity to learn from him and bear witness to his vision values and leadership. He is truly a great man.

Here at Neustar, we're thankful to be able to carry forward the strong corporate culture Bill established.

Bill we have an ethical culture that prioritizes safety environmental responsibility fiscal stewardship, and giving back to our communities.

We're committed to working hard to demonstrate our gratitude to bill on nursing the corporate culture, he built and by generating long term stable value for all of our unit holders.

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

Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone, we will pause for a moment, while we compile the Q&A roster.

Yes.

Our first question comes from Theresa Chen with Barclays. Your line is open.

Good morning, Thank you for taking my questions and congratulations Brian on stepping into the chairman role.

I wanted to first touch on your AD growth in the Permian.

Really strong result, this quarter, our strong book to the exit rate for the year I'm curious to hear what you are seeing across your footprint given the.

Public comments about moderation in growth from certain producers in the area.

Have to hear what you're hearing on the ground from your customers.

Yes, Theresa this is Danny Oliver we continue to see really what we've seen for the last couple of years still very active privates.

The publics being.

Holding back a little bit more on being a little bit more disciplined.

A lot of this growth we have seen still coming from the private sector.

Got it.

And then turning to your refined products assets, clearly theres been a lot of volatility and good macro data as far as domestic demand <unk>.

And within your own results there is some apples to oranges comparisons given the divestiture of assets as well as.

Customer turnaround activity.

I'd be curious to hear the latest on what you're seeing as far as demand by region.

Yeah, we continue to see across our system refined product demand.

At or above pre pandemic levels.

And I've spoken with some of our large refiner marketer customers, who see the same thing across their footprint, which is.

Wider than ours, so it looks it looks to us like demand is very healthy.

Right.

Lastly on the series D preferred retirement great.

Great to see that Youre accelerating the timeline and just as a matter of modeling housekeeping.

When we think about the face value and the prepayment penalty schedule for the first three years are we looking at about a cash outflow of roughly $246 million.

In the fourth quarter this year.

Hub.

Yes.

We're still in negotiations with with the holders of that in the discussions on on <unk>.

Premiums and whatnot. So we will have more detail I think as we kill a bit closer to that here in the fourth quarter.

Thank you very much.

One moment for our next question.

Yes.

Our next question comes from Gabriel Moreen Mizuho Group Your line is open.

Hey, good morning, guys.

Quick question for me, just maybe a two parter on the storage outlook can you just talk maybe a little bit in terms of the stores results. This quarter, how much was that.

The new rates that Tom a new contract to corpus versus I guess base business effects versus it sounds like you had some onetime turnarounds I'm just kind of curious what your expectations are kind of for <unk> and going forward in this segment relative to what's reported in <unk>.

Yes, Gabe this is.

Danny Oliver again so.

I think what we're seeing is continued growth on the west coast being offset a bit when you look at it.

The same quarter last year, one on the reset on the traffic or a contract in corpus lower nbc's, there slightly lower prices and then.

We also had the the volumes that you mentioned that were often.

On the ammonia line due to some planned maintenance.

Storage, Okay Im sorry, So then at St. James we're seeing 7%.

Headwinds St James due to the market structure of the volatility.

But luckily since we sold so many terminal assets in the last couple of years, that's really the only storage facility, we have less susceptible to the market structure influences.

Thanks, Danny and then maybe if I could pivot to some of the cost and capital savings that you're spending the same amount as you were last quarter West Coast Permian. So maybe you could just give a deeper sense of where some of these cost savings are coming from.

And also the outlook for Permian spend next year is that because that can be similar potentially this year.

Yes, so with regard to Permian spend it will be similar to slightly less probably than we have this year. So the way the Permian has developed as well.

We now have kind of tentacles all out through our.

Our acreage and where the producers are coming in behind those so that reduces some of the capital cost there, but you were still expecting the volumes to go up.

In terms of other focuses for our spending youll see us spend some out on the west coast.

<unk>.

Yes.

So in terms of other savings from our capital savings essentially what we've done one thing I want to emphasize is that we are not cutting back on maintenance capex.

Very important that we maintain our assets.

There remains safe and reliable, but what we are doing is high grading our portfolio of projects.

So things that.

We might have considered in the past have gone to the cutting room floor.

We've got plenty of high quality projects to do.

Thanks, Brian .

Again, ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone phone one moment for our next question.

Our next question comes from Michael Blum with Wells Fargo. Your line is open.

Thanks, Good morning, everybody.

Good morning, I wanted to just ask you another question on the on the perhaps.

Your intention to your goal is to keep your leverage at four times and obviously you are below that right now so.

When we look at.

Your ability to fund.

The preps.

Should we just assume that some of that is going to be debt funded and so therefore your.

Leverage will tick up a tiny bit higher next year.

Yes, that's right we've worked real hard to get our leverage down.

Point that we have enough headroom to.

To be able to take out the <unk> that's been the plan all along and I think to reiterate I think Thats a testament.

What we've been able to achieve over the years in terms of Delevering and optimization in all of those things that played in to.

Increasing our free cash flow and getting us to a point, where we can accelerate that by a couple of years because before we were thinking we had more of a timeframe of 2026 out there.

And we even thought at one point that wouldn't even aggressive so to be able to move that up by a couple of years I think thats. The outcome of all of the work that we've put in over the years Delevering.

Okay now that makes sense.

Just wanted to ask kind of a high level question it seems at least.

Possible or likely that we're going to be entering recession here in the U S and abroad.

How should we just think about the puts and takes for the business in that in that environment.

So that's one of the things that I like most about our business is everybody is going to have some see some effects, but I think that we're relatively insulated from some of those things and given that the <unk>.

Nine states is simply anyway, you look at it is structurally short of the products that we need we're structurally short of crude globally, even in a recessionary environment and we're particularly <unk>.

<unk> tier of refined products, you can look at recon products inventories pretty.

Pretty much in any pad and even if demand were to come off you would have.

And would be more in the five year range and then where it is now so right now you see demand above the five year range you see supply below the five year range. So.

I won't say that there's no impact to us at all but.

I would say that our assets are particularly well positioned to handle something like that.

Yes, the other thing that I would mention is we're expecting hefty FERC adjustments next year.

Okay, Great and just.

I think I know the answer to this but just to the.

To confirm it.

We intend to pass through whatever that PPI adjuster ends up.

Coming out of that you will apply that full rate in 'twenty three.

Yes.

Great. Thank you so much.

Thank you.

I'm not showing any further question at this time I will turn the call back over to Pam Schmidt.

Thank you Kevin 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.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

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As Johan during Q&A, you can dial star one one.

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