Q1 2023 NuStar Energy L.P. Earnings Call
Good day and thank you for standing by welcome to the Neustar Energy L. P. First quarter 2023 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 wouldn't hear an automated message the bias in your hand as race to withdraw it.
Your question. Please press star one again.
Please be about today's conference is being recorded I would now like to hand, the conference over your speaker today, Pam Schmidt Vice President of Investor Relations. Please go ahead.
Good morning, and welcome to today's call on the call. Today are you sort of energy L. P. 's, chairman and CEO , Brad Barron Executive Vice President and CFO , Tom Shoaf <unk>.
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 Neustar management will make statements about our current views concerning the future performance.
Forward looking statements. These statements are subject to 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 in applicable additional reconciliations may be located on the financials page of the investors section of our website at Neustar energy.
With that I will turn the call over to Brett.
Good morning. Thank you all for joining us today I'm excited to tell you about our great first quarter as well as our positive outlook for the rest of 2023.
Let's get started with a few highlights from our strong first quarter 'twenty three results.
We generated $187 million total adjusted EBITDA in the first quarter of 'twenty, three which is 8% higher than adjusted EBITDA in the first quarter of 2022.
Pipeline segment EBITDA was up in the first quarter of 'twenty three by 16% over the same period in 2022.
Our refined product systems, and our ammonia system continues to deliver solid dependable revenue contributions in the first quarter 'twenty three with.
With throughput up 6% over the first quarter 'twenty, two reflecting the strength of these assets and our position in the markets, we serve and the mid continent and throughout Texas.
Our central West pipeline systems, particularly our Mckee system performed well last quarter with higher revenues and throughput versus the same period last year.
Additionally, our Permian crude system as volumes averaged 543000 barrels per day, which is up 6% over the same quarter last year.
In South, Texas, we're pleased that our corpus Christi crude system throughput averaged 369000 barrels per day in the first quarter.
Which is above our MVC for that system, and 8% higher than our first quarter 2022 volumes.
After a near record breaking 2022, our fuels marketing segment kicked off 2023 with a strong first quarter generating 7 million of EBITDA comparable segment strong first quarter 'twenty two results.
With that a few observations about the rest of 'twenty three before I turn it over to Tom.
First looking at the Permian as we mentioned on our previous call. We've seen some lumpiness in some of our producer schedule. So far this year.
In fact volumes to pick up as those producers ramp up activity, but depending on how quickly. They are able to do so we could see our 2023 exit rates slightly lower than we forecasted in a range of 570 <unk>.
Our original forecast of just under 600000 barrels per day.
There's still a lot of year left but fortunately as we frequently emphasize given the fact, our system cap systems capex scales up and down with our producers' needs. We would expect that if our exit rate berries. We would also see a commensurate change in our capex, which should counterbalance any potential reduction in volumes.
Looking at the full year of <unk> 23 for our business as a whole, even though the high inflation and volatility that distinguished we too have persisted. So far this year. The star continues to expect to generate total adjusted EBITDA of $700 million to $760 million.
As we've mentioned in prior calls we proactively mitigated some of the impact of inflation and 23 through the expense optimization initiative, we kicked off in early 2022.
And you start results will also benefit.
Some provisions of our pipeline tariffs and contracts that provide for annual rate escalations linked to the preceding year's PPI for the FERC index.
This year, we expect to once again self fund all of our cash requirements, including all of our growth capital spending and our distributions and we also expect to finish the year with a healthy debt to EBITDA metric well below four times.
And with that I'll turn the call over to Tom.
Thanks, Brad and good morning, everyone as Brad mentioned, our first quarter, adjusted EBITDA was up $14 million or 8% over the first quarter of 2002 or.
Our first quarter 'twenty three adjusted DCF was $101 million up 11% over first quarter 2022, and our adjusted distribution coverage ratio was 227 times.
Now turning to our segments in the first quarter 'twenty three our pipeline segment generated 163 million of EBITDA up $23 million or 16% over first quarter 2000 to EBITDA of $141 million. Thanks in large part to our Mckee system pipelines and Permian crude system, but also for.
Robust increases in EBITDA and throughput across most of our pipeline systems.
Turning next to our storage segment, our EBITDA for first quarter 'twenty, three was $41 million, which is about $8 million lower than the first quarter of 'twenty to adjusted EBITDA that.
That decrease was mostly due to customer transitions and required tank maintenance at our St. James Terminal that we mentioned last quarter as well as an amendment and extension of a customer contract at our Corpus Christi North Beach terminal.
Our West Coast region delivered another strong quarter driven in large part by our West coast renewable strategy with revenues up about 33% over first quarter 2000 tapes and.
And for our fuels marketing segment, EBITDA was $7 million comparable to the first quarter 'twenty, two driven by strong butane blending and bunker margins in both periods.
I'm also pleased to report on our continued progress in reducing our debt and building our financial strength and flexibility.
In March we entered into a structured finance arrangements to monetize a portion of our real estate at our corporate headquarters, which provided approximately $100 million of lower priced financing by.
By doing so we were able to deploy the proceeds to reduce debt.
Which facilitates our redemption of another portion of the series D units later this year.
Thanks to that transaction along with the FERC strong first quarter EBITDA. We ended first quarter 'twenty three with a debt to EBITDA ratio of 346 times, that's the lowest it's been since 2005.
And as we have mentioned in prior calls we are planning to redeem all of the remaining series date by the end of 2024 or about two years ahead of the original schedule.
At the end of the first quarter 'twenty three our total debt balance was $3 1 billion and our revolving facility availability was $940 million of the facilities 1 billion capacity.
Moving now to our outlook for 2023 as Brad mentioned for the first year, we continue to expect to generate.
Adjusted EBITDA in the range of $700 million to $760 million, we continue to plan to spend $130 million to $150 million of strategic capital in 'twenty three depending upon the activity of our Permian producers the rest of the year as Brad discussed, we expect to allocate between $45 $60 million to grow.
Our Permian system.
And we continue to expect to spend around $25 billion to expand our west coast renewable fuels network.
Turning to reliability capital, we still expect to spend between 25 and $35 million on reliability in 'twenty three.
And even with our planned series C. Redemption later this year, we're still on track to finish 2023 with a healthy debt to EBITDA ratio below four times and now I will turn the call back over to Brad. Thanks, Tom.
As you've heard we had a strong first quarter EBITDA was up DCF was up our pipeline segment was up in our fuels marketing segment kept pace with its near record breaking 2022 results.
We are on track to deliver another solid year.
And we're also excited about what the future holds.
Yesterday, we announced the project connect our ammonia system to.
To OCI state of the art ammonia products facility in Iowa supported by long term revenue commitment, which we expect to have in service in early 2024.
Ocs facility uses ammonia to make fertilizer and also to produce del's.
Which is a product that dramatically reduces emissions from diesel engines in cars as well as light and heavy duty trucks.
Farming equipment and other heavy machinery.
We expect this healthy return low capital project will meaningfully increase utilization of our system starting in 2024.
And we expect this project to be just the first of several and we are actively working with several potential customers interested in connections to our ammonia system across our footprint for a variety of different opportunities.
As you May know about 90% of ammonia is used to support agricultural production and more than half the world's food production is dependent on this key product.
Because ammonia is such an important product there is increasing focus on decarbonising. The process you use to make it either by capturing emissions or by utilizing electrolysis fueled by solar and wind to lower emissions referred to respectively as blue and Green ammonia.
We're seeing growing interest in lower carbon ammonia from the companies developing production facilities seeking market access from the companies interested in supply of lower carbon ammonia to make fertilizer.
And other important projects products.
And from potential customers, who are looking at new uses for lower carbon pneumonia, including as a low cost Safeway transport hydrogen for fuel.
In addition to the greening of ammonia expanding the market domestically International demand is also driving interest in ammonia exports.
Our system currently supplies the U S as bread basket in the Midwest, primarily with domestically produced ammonia, but growing interest in export capabilities could drive additional utilization of not only our ammonia system, but also potentially at our St. James facility, which has dock capacity that could also support ammonia exports.
This growing interest in ammonia to reduce emissions and supply the globe is generating opportunities for attractive return low spend projects that we're confident will increase our system utilization significantly across our footprint over the next several years.
We look forward to talking more about these opportunities as we progress and we look forward to talking to you next quarter and with that we'll open it up for Q&A.
Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered or you wish to move yourself from the queue. Please press star one again, we will pause for a moment, while we compile our Q&A roster.
Our first question comes from Gabriel Moreen with Mizuho. Your line is open.
Hi, everyone. This is Chris on for Gabe.
Just wondering if you could talk about the west coast.
Market.
We're seeing more.
Participants enter that market.
You're starting to see some competition as far as customers looking around for different rates for different contracts that kind of.
Just the outlook in the near term for that.
Yes, well this is Danny Oliver the outlook there is.
The short storage is short I would say in California. So we have a lot of interest in storage. There we have long current long term contracts.
Rates are very healthy.
But it's been very.
Very positive for storage.
Great. Thanks, Denny and then maybe switching to the volumes that Corpus Christi. It seems like those were solid for the second quarter in a row.
Wondering drivers behind what's bringing those.
Volume is back to the system and kind of how they are currently for the year.
Yes, just continued.
General growth in the oilfield and those barrels need to be exported in corpus continues to be the preferred.
Export.
<unk> area and so we see those volumes come in through our customers.
Great and then maybe just one quick more.
Were there any weather impacts either in refined product usage for the quarter or.
In the Permian or anything.
A little weather impact in January and the Permian nothing on the refined product side in fact.
Since the beginning of the year, we've been outpacing pre pandemic and every year since the pandemic volumes on our refined product demand.
Okay, great. Thanks, everyone.
Thanks, Chris.
Again, ladies and gentlemen, this we have a question or a comment at this time. Please press star one on your telephone one moment for our next question.
Our next question comes from Michael Blum with Wells Fargo. Your line is open.
Hi, Thanks, good morning, everyone.
Want to talk about the Permian. So I think volumes were down sequentially about 7%. So I just wanted if you could just talk about what's going on there and then are you still comfortable with.
23 volume target of 600 a day.
Yes. So this is Danny again, so I think Brad use the term lumpy.
The Permian activity and volumes have always been lumpy.
It's been a little more lumpy than usual.
So far early this year, but it is still core of the core acreage and I don't read anything anymore.
That into it and I think Brad also mentioned that our our exit rates somewhere between $5 70, and 600 and I think last time, we said.
<unk> below 600, so it hasnt changed materially.
What you may have heard of some of the big producers talked about the Lumpiness in production. So as we expect that to work itself out over the course of the year, we expect our volumes to ramp up towards the back half of the year I was kind of mentioned, we mentioned that last quarter.
And again I think in Brad's comments, we do expect to see activity ramp up in the second half probably the most important thing to emphasize and we say this on every call is that our capex ramps up and down with volumes and so.
Whatever however, our volumes vary so does our capex, which is a good offset.
Okay. Thanks for that and then just wanted to.
Ask a little bit about this ammonia pipeline project, which was pretty interesting and promising.
I guess whats the capital spend for that and how do we think about returns and was this capital can be when is it going to be spent.
Yes.
Haven't given any specifics on capital it's contract specific however, I will tell you that.
OCI is contributing some of the capital required to make these connections so our out of pocket.
Is less than it.
Would have been yes.
Any capital for this is already in what we've disclosed is our Capex budget, yes, yes definitely.
Yes.
Alright, thank you.
Thank you.
One moment for our next question.
Our next question comes from Selman <unk> with Stifel. Your line is open.
Thank you.
Real quick just a couple of follow ups.
As it relates to.
California.
You mentioned storage short out there.
Good rates I'm curious do you see additional opportunities to deploy capital and build more storage out there.
We still got a couple of projects. We're completing we've had a dozen projects that we've completed since 2017 around our biofuel strategy.
A lot of that has been done now I think going forward, what what youll see us be doing in terms of projects are very very low.
Cost Capex is just transitioning some carb diesel storage into the renewable diesel storage as the demand dictates.
Got it and then just kind of going back over to St James and ammonia.
I presume a lot of that would just be repurposing of assets or is there anything we should be thinking about ammonia is have any of the special handling requiring.
Any capex for that.
So well on the pipeline side.
We are contemplating some I think Brad mentioned, we've got several more projects I think that will.
Be talking to you about and over the next.
Several years, one of which probably will we will announce later this year, but.
The pipeline won't require much work.
It does involve storage at St. James It would be different storage it requires.
The different storage in our crude oil tanks there.
Alright, Thank you very much.
And I'm not showing any further questions at this time I would like to turn the call back over to Pam Schmidt.
Okay.
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.
Okay.
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