Q3 2023 NuStar Energy LP Earnings Call
Okay.
Good day, and thank you for standing by walking through the new store Energy L. P. Third 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 will then hear an automated message advising your hand is raised to withdraw your question. Please press star.
Wouldn't want again, please be advised today's conference being recorded I would now like to turn the conference over to 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 new start energy L. P 's, chairman and CEO, Brad Barron, our executive Vice President and CFO, Tom Shoaf 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 you 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 various risks uncertainties and assumptions described in our filings with the Securities Exchange Commission.
Actual results may differ materially from those described in the forward looking statements.
During the course of this call.
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 maybe load maybe located on the financials page of the investors section.
Our web site at Neustar energy Dot com.
That I will turn the call over to Brad.
Good morning. Thank you all for joining us today to hear about our solid quarterly results our progress on our strategic strategic initiatives and our positive outlook for the rest of 2023.
Let's get started with a few highlights of our third quarter.
We generated $180 million of total EBITDA in the third quarter up $2 million compared to the third quarter of 'twenty twos EBITDAR of $178 million.
Our pipeline segment EBITDA was up almost 10% in the third quarter compared to the same period in 2022.
Our fund product systems.
Along with our ammonia system continued to generate solid dependable revenue in the third quarter and total throughput represents 7% compared to the same period in 2022.
The strength of these assets and our strong position in the markets, we serve and the mid continent and throughout Texas.
Our Mckee system performed well with higher revenues and throughput versus the same period last year and our three rivers refined product system also saw increased revenues and throughput over <unk> 22.
In addition, almost all of our pipeline systems benefited from annual rent escalations linked either to the FERC index or the producer price index.
Moving onto our Permian crude system.
Permian crude systems volumes averaged 523000 barrels per day down compared to the same quarter last year, but up versus volumes of 508000 barrels per day in the second quarter of 2023.
As we've said on prior calls our Permian volumes, so far in 'twenty three have reflected some producer specific operational issues and delays, but some of those issues have been resolved we.
We've seen October volumes averaged 533000 barrels per day, and we now expect our fourth quarter average to be around 540000 barrels per day.
We also expect the systems full year 'twenty three revenue come in comparable to 2020 twos.
Turning to our fuels marketing segment.
After a near record breaking 22, our fuels marketing segment has turned in another strong quarter generating $8 million of EBITDA in third quarter 'twenty three comparable segment strong quarter third quarter <unk> results.
With that a few observations about 2023 before I turn it over to Tom.
Looking to the full year 2023 of our business as a whole.
Even though macroeconomic uncertainty has persisted so far this year and you start expects to generate total adjusted EBITDA of $720 to $740 million.
After spending several years, where your heart to Derisk, our business strengthen our balance sheet and reduce our leverage we have successfully completed our plan to redeem the series D preferred about two years ahead of our original schedule.
Once again in 2023, we expect to self fund all of our Opex all of our growth capital and our distributions and.
And we also continue to target, finishing the year with a healthy debt to EBITDA ratio below four times with that I'll turn the call over to Tom.
Thanks, Brad and good morning, everyone as Brad mentioned, our third quarter 2023, EBITDA of $180 million was up $2 million compared to the third quarter 'twenty to EBITDA of $178 million.
Our third quarter 2023, adjusted DCF was $93 million and our adjusted distribution coverage ratio was 184 times now.
Now turning to our segments.
Third quarter 2003, our pipeline segment generated $130 million of EBITDA up $15 million or around 10% over third quarter 2000 to EBITDA of $155 million. Thanks in large part to our refined product systems, including our Mckee system pipelines and our three rivers system pipelines as well as.
Annual rate Escalations.
Turning next to our storage segment.
Our EBITDA for third quarter, 2003 was $36 million, which is about $5 million lower than the third quarter 2002, EBITDA that decrease was mostly due to the amendment and extension of our customer contracts at our Corpus Christi, North Beach terminal and customer transitions and required tank maintenance at our St. James terminal as we've.
Asked about before.
But that was offset by yet another quarter of solid performance from our West Coast region, where due to the our west coast renewable fuel strategy, we handle a large portion of the region's renewable fuels and our renewable fuels logistics network.
In the third quarter, thanks to the renewable fuels market leadership, we have built over the years, our west coast region generated 16% higher revenues than in the third quarter of 2002.
Our fuels marketing segment, which had a near record breaking year in 2002 continued to deliver great results in the third quarter fuels marketing generated $8 million of EBITDA, which is comparable to the segment's strong showing in the third quarter of 2002 and driven by strong margins.
Over the past few years, we have utilized cash flows precedes proceeds from asset sales and monetization of our corporate real estate to continue to reduce debt balances, which enabled us to repurchase about two thirds of our series a preferred units through July of this year.
And in August we successfully issued common equity raising $222 million net of fees, which we applied towards the redemption of the remaining $8 3 million outstanding series D. Preferreds in September.
Where we deemed all the series to get over one year ahead of our previously announced target while maintaining our debt to EBITDA ratio below four times.
As our organic growth projects related to our renewable fuels and ammonia assets and further delevering.
And that strategy has already produced some fruit.
After the September redemption of the series D preferred units Fitch upgraded our credit rating by one notch to double b, while the S&P global upgraded their rating outlook from stable to positive.
Moving now to our outlook for 'twenty three as Brad mentioned for full year, we expect to generate adjusted EBITDA in the range of $720 million to $740 million, we now plan to spend $120 million to $130 million, our strategic capital in 2023.
We continue to expect spending for our Permian system to be in the range of $35 million to $45 million and we continue to expect to spend around $25 million to expand our west coast renewable fuels network as well as around $25 million on projects for our ammonia pipeline.
Turning to reliability capital, we expect to spend between $25 million to $30 million on reliability in 'twenty three.
And even with the acceleration of our series C. Redemption in 'twenty three we're still targeting to finish the year with a healthy debt to EBITDA ratio below four times with that I'll turn the call back over to Brad. Thanks, Tom.
As you've heard we had a solid third quarter and we're on track to deliver solid results for 2023.
We're also pleased with the outlook and opportunities we see on the horizon for New Star for 2024 and beyond.
Especially for the growth potential we see for low carbon ammonia on our ammonia pipeline system and for future storage and export and our St. James facility.
We told you about our connection to our ammonia system to OCI state of the art ammonia products facility in Iowa, which is on track to be in service in January we expect this healthy return low capital project begin meaningfully increasing utilization.
On our system.
In addition to that connection and early 'twenty 'twenty four we expect to announce a project for a large global ammonia producer.
And we have continued to advance a number of other promising projects to provide transportation storage and export for low carbon ammonia.
Sundar renewable fuel strategy on the West Coast, where we have built and continue to augment our renewable fuels logistics network that has made us a leader in the region. We expect these low multiple high return low carbon ammonia projects will position neustar as a premier low carbon ammonia logistics provider in the U S and provide a significant platform for strong organic.
<unk> growth over the next half decade.
Rest assured, though we are committed to our core strategic priorities maximizing our free cash flow maintaining our healthy debt metric.
Riding the safest most reliable transportation and storage of essential energy that fuels our lives.
With that I'll open up the call for Q&A.
Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone extra question has been answered or should 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 Doug <unk> with Citi. Your line is open.
Okay.
Hi, everyone. Thanks for the questions.
I just wanted to start with the balance sheet.
You mentioned the series D pay down kind of allowing for some further delevering.
Obviously, great to see the recent.
Rating agency upgrades.
Let me just talk about where you want to see leverage kind of longer term and as you have these discussions with the rating agencies.
Is there a certain leverage target that maybe comes up on those discussions as well that youre trying to hit.
Yes, that's a good question.
Certainly.
Many years.
On our Delevering efforts and very successful in all of that was having the series D redemption and mine and giving us enough headroom to do that that's behind US now, but we're not going to stop there we're going to continuing our delevering efforts, we say we will.
Put out there a target of four times or better and I think thats, where we need to be.
Certainly.
What we're targeting today so.
With that I think will continue to work on that and make sure that happens.
And.
So that's really kind of what our target is I would say.
Low four times.
Okay, Great. That's helpful. And then maybe my second question just on Permian volumes here.
Great to see the rebound versus <unk> it sounds like some of those operational issues are being resolved.
And then just as we think about the 540000 barrel a day guidance you gave for the fourth quarter can you maybe help frame the trajectory kind of enter year ends there maybe still see an exit rate approaching that $570 to 600000 barrel range you've talked about in the past kind of what are your expectations kind of end of 'twenty four.
Yes, I think we're going to be this is danny by the way, we're going to be a little short on.
On that exit rate, partly because of the we're starting from a lower point.
Some of the operational issues that we felt.
Throughout the summer.
We're like we've.
We've mentioned, we expect to average about 540, but that exit rate's going to be somewhere between $5 45, 50, most likely.
Yeah.
Yes.
Thanks.
Thank you.
Our next question comes from Jeremy Tonet with Jpmorgan. Your line is open.
Hey, this is Noah on for Jeremy just one quick one for me I wanted to touch on new stars interest rate sensitivity, how isn't starven affected by an increase in interest rates and does the business have any offsets to handle an increase in rates.
Yes, I mean, we have been impacted by increased interest rates.
Primarily the lion's share comes from our hybrid they are floating rate securities. So we have seen the rates climbed up on those and so we have seen our interest expense increased year over year.
And that is built into all the guidance that we have out there. So we have factored that in offsets. Yes. I mean, you do have obviously offsets to that in the business itself primarily.
Some of the other efforts, we have done to reduce spending and things like that in capital.
There are offsets offsets we realize that interest rates have climbed and we're doing what we can to manage all that and make sure that we.
We continue to do that.
And specifically the FERC indexing, we got a pretty good benefit from the FERC indexing on a pipeline segments and also in some of our storage assets as well so definitely offsets to that so I wouldn't say we're overly concerned we are looking at it we are monitoring it.
And we'll just see what happens with rates going forward.
Okay. It sounds good thank you.
Our next question comes from Gabriel Moreen with Mizuho. Your line is open.
Hi, Good morning, This is Chris Jeffrey on for Gabe maybe.
Maybe just looking at the storage results for the quarter.
In the release mentioned customer.
North Beach contract customer transitions in St James tank maintenance.
Just curious as you're looking into for Q.
Kind of where should we expect that level.
Given given those puts and takes should we kind of expect it to return to where it was <unk> or <unk>.
What's kind of the run rate now.
I think there might be some slight improvement some of that has to do with the reset in our MVC levels and core.
And that will continue into <unk>.
Q4, but so far in Q4, we're seeing the volumes actually pick up so are back above MVC levels. So right now I'm anticipating a better Q4, but we've still got.
Couple of months left to go.
Great. Thanks.
And then maybe just looking at G&A for the quarter as well there is kind of a modest jump and three Q, which seems to be typical maybe in <unk>, there's a bit of a lift.
Just curious if that's a timing thing or related to the prep takeout.
That we should be aware of there.
What line item was that.
Oh, Yes, <unk>, yes, we had an increase in G&A. This quarter. Some of that is salary related comp related type expenses, which are our normal annual.
Increases in things that we see each year another piece of that would be our headquarters ramp you'll recall that.
Part of the part of the proceeds or all of the proceeds that we did when we monetize our headquarter building, we turn that into an operating lease and so that kind of moves from since we were refinancing that kind of moved into the G&A category. So you would see an increase due to that as well and professional fees were up a little bit as well in G&A. So.
I think it was just really a combination of those three things.
Great I remember on the headquarters lease even though that has been reclassified we actually get a benefit of that because the rate that we're paying on that lease is actually substantially less than what we could do in the bond market today and certainly less than the series D is that were out there and we use those proceeds to redeem the series D. So even though you have that.
All income statement category changed where it kind of goes from interest expense are our distributions up to.
Up to this expense you still have a savings there it's just a reclassification thing.
Got it thanks, and then maybe just to.
Ask the Permian question in a different way just kind of how you're thinking of the capital for 24 compared to that 35 to 45 for this year and is that similarly flexible based on kind of how the volume progresses for the year.
We haven't given any guidance yet.
<unk> and <unk>.
'twenty 'twenty four but I think we'll probably have some of that for you on our next call. Yes, what I would say is that as we've said on every call.
Capital in the Permian scales up and down with volume. So you can expect it to be.
Higher volume, we'll see a little bit higher capital for connections and lower volume, you'll see an offset there which is beneficial.
Great. Thanks, everyone.
Again, ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone.
Our next question comes from Southern Nicole with Stifel. Your line is open.
Thank you good morning, just a couple quick ones for me.
Can you guys talk about fuels marketing, having a strong quarter and I guess I'm just wondering how the outlook is for the fourth quarter going on.
So I think there is.
Now our full year outlook has just below.
A near record year last year.
I think theres some room for upside in Q4.
Given our current forecast just mostly around.
How much volume.
<unk> will be able to get into the gasoline pool in the fourth quarter, but still seeing very strong margins in both our bunker marketing.
Business and also butane blending.
Got it appreciate that and then I guess in the prepared comments you guys talked about ammonia and <unk>.
You talked about.
Strong organic growth over the next.
And I had several years.
Written in my notes here, but I'm just kind of curious you talked about $25 million of investments and as you look out over the next several years should we continue to think of investments into that being sort of the smaller chewable or as you look out and you see the growth in that business is there going to be.
Real large project, that's going to require a significant amount of capital.
Yeah, No I think the former we've got a lot of operational leverage to work with them and that spend will be spread out over several years. We've got a few years we've got.
The OCI project as Brad mentioned will go into service in early 'twenty four.
And that we've already announced and then the.
The blue and Green projects that Brad was referring to.
I'll go into service in kind of a 26 27 time frame so that that spending will be spread out over two or three years. The thing that I would add to danny's color. This is Brad I'll have Dan comment is because of the infrastructure that we have in the area. We're really focused on low multiple projects.
And so I think we have several good small low multiple projects and then there is other opportunities to play further out as ammonia opportunity develops.
Great I'll leave it there. Thank you very much for the color.
Thanks, Kevin.
And I'm not showing any further questions at this time I'd like to turn the call back over to Pat for any closing remarks.
Thank you Kevin.
Once again like to thank everyone for joining us on the call today. If anyone has additional questions. Please feel free to contact Mr. 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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