Acquisition: Prostar Capital acquiring Caribbean terminal from NuStar for $250m

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[Context: On May 10, Prostar Capital announced an agreement to acquire the St. Eustatius Terminal in the Caribbean for $250m from NuStar Energy (NYSE: NS). Further details and related links are below.]


PROSTAR CAPITAL

NuStar Energy L.P. Announces Agreement to Sell St. Eustatius Terminal for $250 Million and Reports First Quarter 2019 Earnings Results; Permian Crude System Volume Receipts Exit April at Over 380,000 BPD; Up 194% Since System Acquisition in May 2017; South Texas Crude Oil Pipeline System Volume Increases to Quarterly Average of 168,000 BPD

SAN ANTONIO–May 10, 2019 –(BUSINESS WIRE)–NuStar Energy L.P. (NYSE: NS) today announced plans to sell its St. Eustatius Terminal, reported the company’s first quarter 2019 earnings results and reviewed NuStar’s growth and growth projects, in the Permian and across its system.

“Today, we are pleased to announce that we have signed a definitive stock purchase agreement to sell our storage terminal facility located at St. Eustatius in the Caribbean to Prostar Capital for approximately $250 million, subject to adjustment,” said Brad Barron, president and chief executive officer of NuStar Energy L.P.

“It has become increasingly clear in recent months that the facility requires a new business model to ensure its long-term success and that NuStar’s best path forward is to sell the terminal to a buyer that is well-positioned to take advantage of the changing global crude oil trade flow patterns,” said Barron.

“We are pleased that this sale allows us to re-deploy the sales proceeds to improve our financial metrics and fund our growth projects for our core business in North America. And we are very gratified to hand over the reins to purchasers with a business model that ensures a bright future for the facility and our employees there.

“We expect to close this transaction by the end of the second quarter, and we look forward to focusing all of our resources on strengthening our financial metrics to generate stable, consistent growth for our unitholders,” said Barron.

Corporate Restructuring Successfully Completed in 2018; 2019 Goals Focus on Continued Improvement

Barron outlined NuStar’s plans to continue growing its operations in 2019 following the successful completion in 2018 of its comprehensive plan to reposition the company for continued strength.

“Last year, we simplified our structure and eliminated the incentive distribution rights (IDRs), minimized our need to access the equity capital markets, strengthened our coverage and improved our debt metrics. We also divested our non-core European assets at an attractive multiple, which allowed us to meet our three-year debt metric goal in a single year,” Barron said.

“In 2019, we are focused on continuing to improve our debt metrics, maintaining our strong coverage and executing on the great projects we have for our Permian Crude System and our Permian-driven opportunities like our Corpus Christi export facility projects, as well as our many other projects across our diverse asset base, including our bio-fuel infrastructure projects all along the West Coast,” said Barron.

First Quarter 2019 Results, Impact of Non-Cash Impairment and Full-Year Projections

NuStar executive vice president and chief financial officer, Tom Shoaf, then outlined NuStar’s financial results for the first quarter 2019.

“In connection with the agreement to sell our St. Eustatius business to Prostar, our first quarter results include $328 million of non-cash impairment charges, related to our St. Eustatius operations, which resulted in a net loss of $278 million for the first quarter of 2019,” Shoaf noted. “This also resulted in earnings per unit, or EPU, of ($2.91) for the first quarter, and earnings before interest, taxes, depreciation and amortization, or EBITDA, of ($158 million) for the first quarter.

“It is also important to note that our first quarter 2018 EBITDA, net income and EPU included a gain of $79 million from the receipt of hurricane-related insurance proceeds related to damage sustained at the St. Eustatius terminal.

“We believe that excluding these items affecting comparability from the calculation of net income, EBITDA and EPU allows for an ‘apples-to-apples,’ quarter-over-quarter comparison of our results,” said Shoaf.

Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
Unadjusted Adjusted Unadjusted Adjusted
(thousands of dollars, except per unit data)
Net (loss) income $ (277,863 ) $ 50,577 $ 126,133 $ 47,377
EPU $ (2.91 ) $ 0.14 $ 1.15 $ 0.33
EBITDA $ (157,906 ) $ 170,534 $ 250,247 $ 171,491
Distributable cash flow available to common limited partners $ 95,051 $ 95,051 $ 91,732 $ 91,732

Without those items, NuStar’s adjusted net income was $51 million for the first quarter of 2019, compared to $47 million for the same period last year.

Adjusted EPU for the first quarter of 2019 and 2018 were $0.14 and $0.33 per unit, respectively. This quarter-over-quarter decrease is mainly attributable to additional outstanding units, including 13.4 million units issued in connection with the simplification transaction that merged NuStar GP Holdings and NuStar Energy in the third quarter of 2018, as well as increased preferred unit distributions.

Adjusted EBITDA for the first quarter of 2019 was $171 million, consistent with first quarter 2018 adjusted EBITDA.

“We benefited in the first quarter of 2019 from increased crude oil throughput volumes and accelerated revenues at our St. Eustatius Terminal, but the combined impact of the sale of our European assets, decreased storage rates at certain locations, and some operational issues at one of our customer’s refineries combined to keep EBITDA comparable to last year’s first quarter,” Shoaf said.

First quarter 2019 distributable cash flow (DCF) available to common limited partners was $95 million, up $3 million from first quarter 2018 DCF available to common limited partners of $92 million. The distribution coverage ratio to the common limited partners was 1.47 times for the first quarter of 2019.

“We are maintaining our guidance for adjusted EBITDA for the full year at $665 to $715 million,” said Shoaf.

Strong Growth Continues on Permian Crude System, and South Texas Crude Oil Pipeline System Benefitting Once Again From Permian Ripple Effects

“We exited April with throughput volumes over 380,000 BPD on our Permian Crude System, up approximately 194% since we acquired the system in May 2017,” said Barron. “By comparison, the volumes for the Permian Basin as a whole have increased by only 78% during the same period. As throughput has grown, we have also increased the capacity of our system to keep pace with that growth, from 412,000 BPD at the time of the acquisition to 560,000 BPD today, which is a 36% increase in capacity since we acquired the system.

“We also completed the expansion of our Wichita Falls crude oil pipeline, about 300 miles to the northeast of Midland, to transport Permian barrels to local refiners from the Sunrise Pipeline expansion,” Barron added. “In addition, we have completed a related expansion project on the same system into Hewitt, and we will begin delivering barrels to Plains to move into the Longview market, which we expect to produce a healthy return for a relatively small capital outlay.

“The ripple effects from the Permian Basin production are once again benefitting our South Texas Crude System in the Eagle Ford where we are again seeing WTI volumes arriving by truck. We saw an average of 168,000 BPD in the first quarter and are currently seeing throughput volume receipts around 160,000 BPD on the system, significantly above our minimum volume throughput commitments of approximately 116,000 BPD.

Corpus Christi Export Project is On-Schedule to Begin Service This Summer

“We believe that the biggest impact from the growth in the Permian Basin on the horizon is the growth in Gulf Coast crude exports, particularly from the Port of Corpus Christi,” said Barron.

“By early 2020, approximately 2.1 million additional barrels of long-haul crude pipeline capacity from the Permian to Corpus Christi will be placed into service, which should bring the total capacity of Permian crude pointed at the Port of Corpus Christi up to about 2.6 million barrels and make the Port the No. 1 crude export outlet in the U.S.

“And I’m happy to report that our Corpus Christi export project to transport Permian barrels to our Corpus Christi export terminal for Trafigura is underway and on schedule, and we expect to be in-service as soon as this summer, which will mean that NuStar will be the first dock facility in the Port of Corpus Christi to export WTI volumes transported to South Texas on one of the three new major Permian-to-Corpus Christi long-haul projects,” said Barron.

St. James Terminal is Capitalizing on a Changing Landscape

“The ripple effects from increased production of Permian barrels, as well as from demand for volumes from other shale plays, has given us the opportunity to restart our unit train off-loading facilities at our St. James, Louisiana terminal for customer commitments of at least 10 trains per month bringing WTI, Bakken and WCS barrels to the Gulf Coast,” said Barron.

“Beyond unit train opportunities we are seeing in the near-term, our St. James facility is positioned to benefit in the longer-term from the impact of large-scale shifts in crude flows from North American shale play production.

“As the U.S. is shifting from a net importer to a net exporter of crude, so too is St. James’ role shifting,” said Barron. “We have been maintaining the optionality and connectivity of our St. James facility so we can participate in the region’s evolution, and we have the facilities and the expansion capacity to capitalize on that opportunity.

“The completion of Bayou Bridge, which is bringing volumes of both Bakken and Permian crude to St. James, marks an important first stage of that shift, and in March, we began receiving volumes from Bayou Bridge into our facility through our recently completed connection to that line,” said Barron.

Executing on Opportunities for NuStar’s Existing Asset Base Outside of the Permian

“Outside of the Permian’s extended reach, we are also executing on projects to optimize and increase utilization of our existing assets across our footprint, including our projects to help supply Northern Mexico,” said Barron. “We plan to bring the Nuevo Laredo project for Valero into early service this summer, with our Valley pipeline expansion project coming in-service later in the year.

“In addition, we continue to develop multiple projects across our West Coast storage assets that are creating a bio-fuel-specific storage network platform for our customers, which include the largest bio-fuel distributors in the world, to meet the region’s strict low-carbon fuel standard requirements,” said Barron.

NuStar Energy L.P., a publicly traded master limited partnership based in San Antonio, is one of the largest independent liquids terminal and pipeline operators in the nation. NuStar currently has approximately 9,800 miles of pipeline and 75 terminal and storage facilities that store and distribute crude oil, refined products and specialty liquids. The partnership’s combined system has more than 88 million barrels of storage capacity, and NuStar has operations in the United States, Canada, Mexico and St. Eustatius in the Caribbean.

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