Q4 2022 NuStar Energy LP Earnings Call

The conference.

Vince will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

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Good day, and thank you for standing by and welcome to the Neustar Energy fourth quarter 2022 earnings Conference 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 special need to press Star one on your telephone you will then hear an automated message advising your hand is raised.

Draw. Your question. Please press star wouldn't want again, I would now like to hand, the conference over to your speaker today, Pam Schmidt Vice President Investor Relations you may begin.

Good morning, and welcome to today's call on the call. Today are you start energy L. P 's, chairman and CEO , Brad Barron, our executive Vice President and CFO , Tom Shoaf, and our executive Vice President of business development and engineering, Danny Oliver 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 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 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 and if applicable.

Reconciliations may be 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.

Morning, Thank you all for joining us today.

Added to tell you about our great fourth quarter and solid performance for full year 2022, as well as our positive outlook for 2023 and beyond.

Let's get started with a few highlights from our fourth quarter 'twenty two results.

<unk> $197 million of total adjusted EBITDA in the fourth quarter, 16% higher than adjusted EBITDA in the fourth quarter of 'twenty, one and the highest fourth quarter in new starts history.

Our pipeline segment EBITDA was up in the fourth quarter by 18% over the same period in 'twenty one.

Thanks in large part to the continued strong performance of our Permian crude system.

Our Permian systems volumes had another high in the fourth quarter ending in a record breaking average of 584000 barrels per day, that's up 13% over the same quarter last year.

Our mid continent from product systems. Once again delivered a solid dependable revenue contribution in the fourth quarter of 'twenty two.

Texas, we're pleased that our corpus Christi crude system throughput.

Averaged over 368000 barrels per day in the fourth quarter, which is above our MVC for that system and 8% higher than our third quarter volumes.

We're also encouraged by the continued improvement we saw in January on that system.

Average volumes rose to almost 400000 barrels per day last month.

Our fuels marketing segment also had a great fourth quarter generating $12 million of EBITDA up $7 million or the fourth quarter of 'twenty one.

With that a few observations about 2022 before I turn it over to Tom <unk>.

2020, twos historic inflation and volatility made for a bumpy ride around the globe and across financial markets.

Given that economic context, I'm, particularly proud of our 2020 results, which demonstrate once again, the stability and strength of <unk> business.

Our 2022 revenue was up from growth in our Permian crude system growth in our West Coast Renewables network the positive impact of indexation, the outperformance of our fuels marketing segment and the steady solid revenue contribution from our refined product systems.

We generated higher adjusted full year EBITDA for 2022 through a combination of revenue improvement and expense optimization, which helped to mitigate some of the impact of 2020 twos historic inflation.

And by continuing to high grade our capital spending program. We were once again able to self fund our business, including our capital spending in our growth footprint in the Permian and on the West Coast.

Through optimization and careful planning over the course of 2022.

Well to meaningfully reduce our leverage which positioned us to get a head start on kicking off our plan to simplify our capital structure and.

And in November we were able to repurchase about one third of our series D preferred units, while keeping debt to EBITDA or debt to EBITDA ratio under four times per year in 2022.

We're now planning to redeem the remaining series D units in 2023, and 24, which is about two years ahead of our original schedule.

I'm also proud that in 2022.

Once again <unk> outperformed our industry in terms of safety stewardship.

The total recordable injury rate or <unk> was 13 times better than the bulk terminal industry.

And twice as good as the pipeline industry as a whole.

And then we published our second sustainability report, which provides more information about the culture of responsibility that has distinguished neustar throughout our history and with that I'll turn the call over to Tom.

Thanks, Brad and good morning, everyone as Brad mentioned, our fourth quarter, adjusted EBITDA was up $28 million or 16% over the fourth quarter 2021.

Our fourth quarter 2022, adjusted DCF was $89 million and our adjusted distribution coverage ratio was 2.01 times.

Turning to our segments in the fourth quarter 2002, our pipeline segment generated $176 million of EBITDA up $27 million or 18% over fourth quarter 'twenty, one EBITDA of $149 million largely from our strong performance of our Permian crude system as Brad described earlier.

Higher contributions from our Permian crude system were complemented by higher results from our Mckee system pipelines.

Our refined products pipelines.

Turning next to our storage segment EBITDA for fourth quarter, 2002 was $41 million, which is about $6 million lower than fourth quarter 'twenty one EBITDA.

That decrease was due to customer transitions and required tank maintenance at our St. James Terminal and an amendment and extension of our customer contracts at our Corpus Christi North Beach terminal.

Our west Coast regions revenues continued to grow driven in large part by our west coast renewable strategy up 20% over fourth quarter 'twenty one.

If our fuels marketing segment, EBITDA was $12 million up $7 million for fourth quarter, 'twenty, one largely due to stronger margins.

I'm also pleased to report on our continued progress in reducing our debt and building our financial strength and flexibility. We ended fourth quarter 'twenty two with a debt to EBITDA ratio of 398 times at the end of the fourth quarter 22, our total debt balance was $3 3 billion and our revolver availability is over 700.

Third $75 million of the facilities 1 billion capacity.

Moving now to our outlook for 2023.

For full year, we expect to generate EBITDA in the range of $700 million to $760 million.

And we plan to spend $130 million to $150 million, our strategic capital in 2023.

We expect to allocate about $60 million to growing our Permian system, and we plan to spend about $25 million to expand our west coast renewables fuels network.

Turning to reliability capital, we now expect to spend between 25% and $35 million on reliability in 2023.

Now I'll turn the call back over to Brad Thanks, Tom.

As I mentioned, our optimization in 2022 integral neustar solid results and facilitated an important first step to improve our capital structure last year.

<unk>, our business and maximizing our free cash flows in 2022 was more than a one and done effort.

By systematically scrutinizing every dollar spending we've been able to significantly increase our cash flow with systematic changes that will continue to reap benefits in 2023, but also in 2024 and beyond and.

And by investing that increased cash flow and our growth footprint.

Already on the path to compounding those benefits with the EBITDA growth, we expect from organic capital projects on our Permian system, and our West Coast Renewables network as.

As well as the projects, we hope to announce later this year across our ammonia system.

We plan to continue to optimize our business and build our financial strength and unitholder value, while we continue to safely and ryobi store and transport the essential energy that fuels our lives.

As we embark on this new year, the future looks bright and we look forward to talking to you next quarter with that we'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 phone. If your question has been answered which can be yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.

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

Good morning, Thank you for taking my question.

I wanted to ask about.

Puts and takes to the high versus low range of guidance for the year, just given a wide range.

Can you help us walk through like what aspects of your business could drive the higher versus lower end.

Yes, Theresa this is Danny Oliver.

Kind of the same story, we had last year.

We forecasted some growth in the Permian.

Although it.

A little bit lower growth rate than we saw in 'twenty, two but if our producers are more active than what we have forecast and we could see some growth there our corpus Christi crude system we.

Have forecasted that the MVC levels, and so theres really no downside there, but we could we could see some upside if we see volumes start to pick up which we've actually seen some at least in January .

And then on our West coast volumes on the West Coast Biofuel system.

Could be a little bit stronger than what we've anticipated I would also say that we conservatively forecasted our fuels marketing segment.

Yes, we reverted back to the norm for our margin base businesses after having a record year in 'twenty two.

Got it and given the elevated maintenance turnarounds for your refining customers.

This year, it seems to be somewhat industry wide.

Has that had any read throughs on your crude system either to the positive or negative.

We've got all that forecasted that's in the guidance obviously, but.

Some of those turnarounds are not always the same across our system. We have some refineries that when they go down we actually see a pick.

Pickup in volumes, where we ship more refined products on other lines to cover the refinery outage and then other other refineries, we feel the pain market Mckee.

He had a heavy turnaround period this year and it's pretty light going into next year. So.

<unk>.

We're not expecting any significant impact.

Got it and lastly, just on the series D.

Pay downs, so I believe that negotiated at a premium.

With the Holter front.

Frontloading a portion of the pay down in 2022 does.

Does that impact the premium that you're scheduled to pay for 2023 2024 can you just give us an update on that.

Yes in all likelihood the premium we pay will be the stated premium.

Our call premium thats in the agreements, which in 2023 that would be 125% par.

Thank you.

One of them were following next one.

One member for our next question.

Our next question comes from Gabe Moreen with Mizuho. Your line is open.

Hey, Brian This is Chris Directory onshore Gabe congrats on the quarter, just curious about the strategic spend kind of the balance.

Besides the 25% and $60 million any particular areas product et cetera, that's mark for.

I suppose one mentioned are all as we're forecasting spending some money on our ammonia system Brad mentioned in his comments about some.

Deals that we hope to be able to discuss in further detail a little later in the year when we when we fully execute those but we are forecasting some spend there the rest of it as we say every year, we have a basket of what we call singles and doubles smaller.

Smaller projects good return projects, just scattered out across our various systems and that's what makes up the balance of that number but it is mainly focused in our growth areas, which are the west coast renewable fuels network and then the Permian.

Great. Thanks, and then just curious on.

On the blending margin backdrop, how that kind of impacted the quarter and the outlook for 2023.

Okay.

So I mean, we just had historically high margins in that business last year, just as a reminder, a lot of the margin that we make in that butane blending business. We lockup in the summer months, we bought butane in the summer when margins are.

Typically at their widest and sell the fall and winter gasoline and then we put a store that butane and blend it.

And the transition period in the fall and we saw again historically high spreads last summer.

Still early to be predicting what's going to be going on this summer, but it looks like at least currently.

Margins have reverted back to what we would consider normal.

Great.

Thanks for that.

Thank you.

One moment for our next question.

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

I'm, sorry Wells Fargo.

Hi, Good morning Wells Fargo.

Yes, good morning, everyone.

Wanted to ask about refined product gasoline volumes on your system.

At least nationwide it looks like based on EIA data that volumes have been a little bit weaker.

Of late but it looks like your pipelines are holding up better. So can you just talk through why that's the case and do you expect that to continue into 'twenty three.

Sure Michael This is Danny.

We saw in the fourth quarter.

Our volumes running right at or above pre pandemic levels.

I will tell you that we've in January we've seen volumes increase.

Pretty significantly at least versus what you would anticipate even pre pandemic in January most of that is due to.

Suncor outage at their refinery in Denver.

Created.

Created a really tight market up there and some of our refiner customers have reacted by running higher utilization rates at their refineries to to help supply that market than you would normally expect in January due to seasonal demand issues that they usually experience.

Yes, I would add that we don't typically see the variability.

Some of the other regions of the country do just given where our pipelines are I mean, I would remind everybody.

Our pipeline has returned to pre pandemic levels by September of 2020.

So I mean, we've been and we've been running there pretty much since then.

Okay perfect that helps and then I just wanted to ask about the Permian growth expectations for 2023. It sounds like you think the rate of growth could slow a bit for 'twenty two but.

Do you have an exit rate that you're you're sort of youre sort of pointing us to for year end like you typically provide.

We're looking at somewhere around 600000 barrels a day next year, we have a little lull in activity forecast is just in the first few months of the year.

It's just really kind of a timing thing but.

For annual averages, obviously will beat 2022, we expect to be 'twenty two 'twenty.

'twenty three but from an EBITDA perspective, we expect some of that growth.

To be offset by TLA excuse me TLA prices.

Going back to the current forward curve versus what we realized in 'twenty two.

Okay, great. Thank you very much.

Thank you.

And I'm not showing any further questions at this time I'd like to turn the call back over to Pam Schmidt for any closing remarks.

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 you start 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.

The conference will begin shortly.

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

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