The following review of our results of operations and financial condition should be read in conjunction with Items 1., 1A. and 2. "Business, Risk Factors and Properties," and Item 8. "Financial Statements and Supplementary Data," included in this report.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Form 10-K contains certain estimates, predictions, projections, assumptions and other forward-looking statements that involve various risks and uncertainties. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report. These forward-looking statements can generally be identified by the words "anticipates," "believes," "expects," "plans," "intends," "estimates," "forecasts," "budgets," "projects," "will," "could," "should," "may" and similar expressions. These statements reflect our current views with regard to future events and are subject to various risks, uncertainties and assumptions. Please read Item 1A. "Risk Factors" for a discussion of certain of those risks.

If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those described in any forward-looking statement. Other unknown or unpredictable factors could also have material adverse effects on our future results. Readers are cautioned not to place undue reliance on this forward-looking information, which is as of the date of the Form 10-K. We do not intend to update these statements unless it is required by the securities laws to do so, and we undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

Overview

NuStar GP Holdings, LLC (NuStar GP Holdings) is a Delaware limited liability company. Our units are traded on the New York Stock Exchange (NYSE) under the symbol "NSH." Unless otherwise indicated, the terms "NuStar GP Holdings, LLC," "NuStar GP Holdings," "we," "our" and "us" are used in this report to refer to NuStar GP Holdings, LLC, to one or more of our consolidated subsidiaries or to all of them taken as a whole.

Our only cash generating assets are our ownership interests in NuStar Energy L.P. (NuStar Energy), a publicly traded Delaware limited partnership (NYSE: NS). As of December 31, 2008, our aggregate ownership interests in NuStar Energy consisted of the following:

• the 2% general partner interest;

• 100% of the incentive distribution rights (IDR) issued by NuStar Energy, which entitle us to receive increasing percentages of the cash distributed by NuStar Energy, currently at the maximum percentage of 23%; and

• 10,250,054 common units of NuStar Energy representing an 18.5% limited partner interest.

We account for our ownership interest in NuStar Energy using the equity method. Therefore, our financial results reflect a portion of NuStar Energy's net income based on our ownership interest. We have no separate operating activities apart from those conducted by NuStar Energy and therefore generate no revenues from operations.

NuStar Energy is engaged in the terminalling and storage of petroleum products, the transportation of petroleum products and anhydrous ammonia and asphalt and fuels marketing. NuStar Energy has terminal facilities in the United States, the Netherlands Antilles, Canada, Mexico, the Netherlands and the United Kingdom.

NuStar Energy is required by its partnership agreement to distribute all of its available cash at the end of each quarter, less reserves established by its general partner, in its sole discretion, to provide for the proper conduct of NuStar Energy's business or to provide funds for future distributions. Similarly, we are required by our limited liability company agreement to distribute all of our available cash at the end of each quarter, less reserves established by our board of directors.

In two separate public offerings in 2006, Valero Energy sold their ownership interest in NuStar GP Holdings, LLC. We did not receive any proceeds from either public offering, and Valero Energy's ownership interest in NuStar GP Holdings, LLC was reduced to zero.

Recent Developments

On March 20, 2008, NuStar Energy acquired CITGO Asphalt Refining Company's asphalt operations and assets (the East Coast Asphalt Operations) for approximately $838.5 million. The East Coast Asphalt Operations include a 74,000 barrels-per-day (BPD) asphalt refinery in Paulsboro, New Jersey, a 30,000 BPD asphalt refinery in Savannah, Georgia and three asphalt terminals. The facilities located in Paulsboro, New Jersey, Savannah, Georgia and Wilmington, North Carolina have storage capacities of 3.5 million barrels, 1.2 million barrels and 0.2 million barrels, respectively.

In April 2008, NuStar Energy issued 5,050,800 common units representing limited partner interests at a price of $48.75 per unit. NuStar Energy received proceeds of $236.2 million, net of issuance cost. In April 2008, we borrowed $5.0 million under our credit facility to fund our $5.0 million contribution to NuStar Energy in order to maintain our 2% general partner interest. Following NuStar Energy's issuance of common units, our ownership in NuStar Energy was reduced from 22.3% at December 31, 2007 to 20.4%. Our ownership in NuStar Energy at December 31, 2008 was 20.5%.

Results of Operations

As discussed above, we account for our investment in NuStar Energy using the equity method. As a result, our equity in earnings of NuStar Energy, our only source of income, directly fluctuates with the amount of NuStar Energy's distributions, which determines the amount of our incentive distribution earnings, and NuStar Energy's results of operations, which determine the amounts of earnings attributable to our general partner and limited partner interests.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

                              Financial Highlights

             (Thousands of Dollars, Except Unit and Per Unit Data)



                                                     Year Ended December 31,
                                                2008             2007          Change

   Equity in earnings of NuStar Energy      $     69,622     $     46,176     $ 23,446

   General and administrative expenses            (2,831 )         (2,897 )         66
   Other (expense) income, net                      (379 )             16         (395 )
   Interest (expense) income, net                   (214 )             23         (237 )


   Income before income tax benefit               66,198           43,318       22,880
   Income tax benefit                                 98               22           76

   Net income                               $     66,296     $     43,340     $ 22,956


   Basic net income per unit                $       1.56     $       1.02     $   0.54


   Weighted average number of basic units
   outstanding                                42,501,586       42,500,355        1,231

The following table summarizes NuStar Energy's results of operations for the years ended December 31, 2008 and 2007:

                                                                    Year Ended December 31,
                                                            2008                2007            Change
                                                         (Thousands of Dollars, Except Per Unit Data)
NuStar Energy Statement of
Income Data:
Revenues                                              $      4,828,770    $      1,475,014    $ 3,353,756
Cost of product sales                                        3,864,310             742,972      3,121,338
Operating expenses                                             442,248             357,235         85,013
Depreciation and amortization expense                          135,709             114,293         21,416

Segment operating income                                       386,503             260,514        125,989
General and administrative expenses                             76,430              67,915          8,515

Operating income                                      $        310,073    $        192,599    $   117,474


Net income                                            $        254,018    $        150,298    $   103,720
Net income per unit applicable to limited partners    $           4.22    $           2.74    $      1.48
Cash distributions per unit applicable to
limited partners                                      $          4.085    $          3.835    $     0.250

NuStar Energy's net income increased $103.7 million for the year ended December 31, 2008, compared to the year ended December 31, 2007, primarily due to an increase in segment operating income, partially offset by increases in interest expense, net and general and administrative expenses. NuStar Energy's segment operating income increased $126.0 million for the year ended December 31, 2008, compared to the year ended December 31, 2007, primarily due to a $91.4 million increase in operating income for the asphalt and fuels marketing segment, a $26.4 million increase in operating income for the storage segment and an $8.6 million increase in operating income for the transportation segment.

NuStar Energy's segment operating income increased during the year ended December 31, 2008 primarily due to the acquisition of the East Coast Asphalt Operations. In addition, NuStar Energy's throughputs and earnings increased in 2008 due to a fire at the Valero Energy McKee refinery in February 2007, which shut down the refinery until mid-April 2007 and negatively impacted its transportation and storage segments during the year ended December 31, 2007. Finally, NuStar Energy's 2008 earnings improved due to the leasing of additional storage capacity to customers from completed tank expansion projects.

The earnings of NuStar Energy's asphalt and fuels marketing segment were negatively impacted by a hedging loss of $61.0 million in the second quarter of 2008 associated with certain crude oil futures contracts entered into concurrently with the acquisition of the East Coast Asphalt Operations.

The following table summarizes our equity in earnings of NuStar Energy for the years ended December 31, 2008 and 2007:

                                                            Year Ended December 31,
                                                         2008         2007        Change
                                                             (Thousands of Dollars)
  NuStar GP Holdings' Equity in
  Earnings of NuStar Energy:
  General partner interest                             $  4,586     $  2,637     $  1,949
  General partner incentive distribution (a)             24,764       18,426        6,338

  General partner's interest in earnings and
  incentive distributions of NuStar Energy               29,350       21,063        8,287
  NuStar GP Holdings' limited partner interest in
  earnings of NuStar Energy                              43,156       27,997       15,159
  Amortization of step-up in basis related to NuStar
  Energy's assets and liabilities                        (2,884 )     (2,884 )          -

  NuStar GP Holdings' equity in earnings of
  NuStar Energy                                        $ 69,622     $ 46,176     $ 23,446

(a) For the first quarter of 2008, NuStar Energy's net income allocation to general and limited partners reflected a total cash distribution based on the partnership interests outstanding as of March 31, 2008. NuStar Energy issued approximately 5.1 million common units in April 2008. Actual distribution payments are made within 45 days after the end of each quarter as of a record date that is set after the end of each quarter. As such, our portion of the actual distribution made with respect to the first quarter of 2008, including the IDR, was greater than the net income allocation to us.

Higher earnings at NuStar Energy for the year ended December 31, 2008 increased our equity earnings related to our general and limited partner interests in NuStar Energy for the year ended December 31, 2008, compared to the year ended December 31, 2007.

NuStar Energy's per unit quarterly distributions for the year ended December 31, 2008 also increased compared to the year ended December 31, 2007, to $4.085 from $3.835. That increase, coupled with an increase in the number of NuStar Energy units outstanding resulting from the issuance of units in the fourth quarter of 2007 and the second quarter of 2008, resulted in NuStar Energy increasing its total cash distributions. Because our IDR in NuStar Energy entitle us to an increasing amount of NuStar Energy's cash distributions, our equity in earnings of NuStar Energy related to our IDR also increased for the period.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

                              Financial Highlights

             (Thousands of Dollars, Except Unit and Per Unit Data)



                                                       Year Ended December 31,
                                                  2007             2006          Change
 Equity in earnings of NuStar Energy L.P.     $     46,176     $     42,983     $  3,193

 General and administrative expenses                (2,897 )         (1,562 )     (1,335 )
 Other income (expense), net                            16              (82 )         98
 Interest expense, net - affiliated                      -          (10,315 )     10,315
 Interest income (expense), net                         23              (16 )         39


 Income before income tax benefit (expense)         43,318           31,008       12,310
 Income tax benefit (expense)                           22             (290 )        312

 Net income                                   $     43,340     $     30,718     $ 12,622


 Basic net income per unit                    $       1.02     $       0.72     $   0.30


 Weighted average number of basic units
 outstanding                                    42,500,355       42,500,000          355

The following table summarizes NuStar Energy's results of operations for the years ended December 31, 2007 and 2006:

                                                                      Year Ended December 31,
                                                             2007                  2006             Change
                                                           (Thousands of Dollars, Except Per Unit Data)
NuStar Energy Statement of
Income Data:
Revenues                                               $       1,475,014     $       1,137,261     $ 337,753
Cost of product sales                                            742,972               466,276       276,696
Operating expenses                                               357,235               312,604        44,631
Depreciation and amortization expense                            114,293               100,266        14,027

Segment operating income                                         260,514               258,115         2,399
General and administrative expenses                               67,915                45,216        22,699

Operating income                                       $         192,599     $         212,899     $ (20,300 )


Net income                                             $         150,298     $         149,530     $     768
Net income per unit applicable to limited partners     $            2.74     $            2.83     $   (0.09 )
Cash distributions per unit applicable to
limited partners                                       $           3.835     $           3.600     $   0.235

NuStar Energy's net income for the year ended December 31, 2007 increased $0.8 million compared to the year ended December 31, 2006 primarily due to a significant increase in other income and slightly higher segment operating income, partially offset by increased general and administrative expense, interest expense and income tax expense.

The following table summarizes our equity in earnings of NuStar Energy for the years ended December 31, 2007 and 2006:

                                                            Year Ended December 31,
                                                         2007         2006       Change
                                                            (Thousands of Dollars)
  NuStar GP Holdings' Equity in
  Earnings of NuStar Energy:
  General partner interest                             $  2,637     $  2,707     $   (70 )
  General partner incentive distribution                 18,426       14,778       3,648
  Direct charges to NuStar GP Holdings, LLC                   -         (575 )       575

  General partner's interest in earnings and
  incentive distributions of NuStar Energy               21,063       16,910       4,153
  NuStar GP Holdings' limited partner interest in
  earnings of NuStar Energy                              27,997       28,957        (960 )
  Amortization of step-up in basis related to NuStar
  Energy's assets and liabilities                        (2,884 )     (2,884 )         -

  NuStar GP Holdings' equity in earnings of
  NuStar Energy                                        $ 46,176     $ 42,983     $ 3,193

Despite slightly higher earnings at NuStar Energy for the year ended December 31, 2007, compared to the year ended December 31, 2006, our equity earnings related to our general partner interest decreased due to increased incentive distributions. NuStar Energy's partnership agreement requires that earnings be allocated to the general partner and limited partner interests after allocation of the incentive distributions. Due to our incentive distributions increasing by more than the increase in NuStar Energy's net income, the amount of earnings allocated to our general partner interest was lower in 2007 compared to 2006.

NuStar Energy's per unit distributions for the year ended December 31, 2007 increased compared to the same period of 2006 to $3.835 from $3.600. That increase coupled with an increase in the number of NuStar Energy units outstanding resulting from the issuance of units in the fourth quarter of 2007 resulted in NuStar Energy increasing its total cash distributions. Because our IDR entitle us to an increasing amount of NuStar Energy's cash distributions, our equity in earnings of NuStar Energy related to our IDR also increased for that period.

Our equity in earnings of NuStar Energy related to our limited partner units decreased for the year ended December 31, 2007 compared to the year ended December 31, 2006 due to a decrease in NuStar Energy's net income per unit during that period.

General and administrative expenses increased $1.3 million, for the year ended December 31, 2007, compared to the same period in 2006, due to the costs we incurred as a separate publicly traded company for a full year in 2007 compared to six months in 2006. For the period prior to our initial public offering on July 19, 2006, no corporate costs were allocated to us by Valero Energy as management determined that no such corporate costs were incurred specifically on our behalf.

Affiliated interest expense decreased $10.3 million, for the year ended December 31, 2007, compared to the same period in 2006, due to Valero Energy's capital contribution to us of the outstanding balance of the notes payable to Valero Energy affiliates effective July 19, 2006.

Outlook

NuStar Energy's Transportation Segment

For the first quarter of 2009, NuStar Energy expects a heavy planned refinery maintenance schedule, primarily at the Valero Energy refineries it serves, to negatively affect its pipeline throughputs. Revenues generated from NuStar Energy's pipelines depend upon the amount of throughputs. When refineries undergo maintenance, generally they also curtail production, which lowers throughputs for crude oil and refined products causing NuStar Energy's throughputs and revenues to decline. For the full year of 2009, NuStar Energy expects a lighter refinery maintenance schedule, additional shippers and the completion of a pipeline expansion project that will offset the effects of the recession and the weak first quarter. Thus, barring any major unplanned turnaround activity, NuStar Energy expects overall pipeline throughputs in 2009 to be comparable to 2008. Additionally, NuStar Energy expects to increase the tariffs on its pipelines effective July 1, 2009, which should have a positive effect on its revenues and results of operations.

NuStar Energy's Storage Segment

For the first quarter of 2009, NuStar Energy expects its terminal throughputs to decline due to heavy planned refinery maintenance primarily at the Valero Energy refineries it serves. Several of the assets included in the storage segment store crude oil and refined products for refineries owned by Valero Energy. Revenues for these assets depend upon throughputs rather than fixed rental fees, so when the refineries undergo maintenance, NuStar Energy's throughputs and related revenues decline. However, NuStar Energy does not expect these lower throughputs to significantly impact its revenues or results of operations for the full year of 2009 because most of its revenues result from long-term storage lease contracts, which are not throughput dependent. Of NuStar Energy's storage lease contracts, approximately 70% have remaining terms between one and ten years. For the 30% of NuStar Energy's storage contracts expiring within the next year, NuStar Energy believes it can renew these contracts at similar or better terms provided the present contango markets continue to drive demand for storage. Additionally, NuStar Energy expects its revenues and results of operations for 2009 to benefit from annual index increases to storage fee rates on most of its multi-year contracts and a full year's contribution of key terminal expansion projects completed in 2008 and 2009.

NuStar Energy's Asphalt and Fuels Marketing Segment

The earnings of NuStar Energy's asphalt and fuels marketing segment largely depend upon the margin earned by the East Coast Asphalt Operations. NuStar Energy's margin results from the difference between the sales prices of its products and the purchase prices of its raw materials, principally crude oil. The prices of crude oil and the products produced by the East Coast Asphalt Operations fluctuate in response to many factors, such as changes in supply, demand, seasonality, market uncertainties and other factors.

In the first quarter of 2009, NuStar Energy expects its asphalt sales and margins to remain low due to typical seasonal factors including decreased road construction during colder months. For the full year of 2009, NuStar Energy expects its results to be higher than 2008. Last year asphalt demand remained below 2007 levels; however, lower supply resulting from fewer imports and reduced domestic production more than offset the effects of lower demand and resulted in higher prices and higher margins. NuStar Energy expects many of the same factors present in 2008 that contributed positively to its results of operations to continue in 2009. Additionally, on February 17, 2009, The American Recovery and Reinvestment Act of 2009 was signed into law, which includes funding for transportation infrastructure that could increase asphalt demand in 2009 and beyond. Longer term, NuStar Energy believes additional refinery coker expansions will continue to tighten asphalt markets resulting in better-than-historic margins.

In recent months, the Organization of the Petroleum Exporting Countries announced its intention to reduce crude oil production in response to dramatically lower demand for refined products. As a result, NuStar Energy received notice in January 2009 that its scheduled deliveries of Boscan crude oil would be reduced by 600,000 barrels in February and March from the amounts specified in its crude supply agreement with an affiliate of Petroleos de Venezuela S.A (PDVSA). To date, NuStar Energy has replaced the volumes lost from PDVSA with alternative grades of crude oil purchased on the spot market. NuStar Energy has not received notification of any further supply reductions from PDVSA. If the supply reductions extend beyond March at their current levels, NuStar Energy believes it can continue to replace that supply with other asphaltic crudes without a material impact to its results of operations. However, in the event PDVSA further reduces the deliveries of Boscan crude oil, NuStar Energy may experience reduced refinery run rates and reduced production that could negatively impact its results of operations and its cash flows.

Overall, NuStar Energy expects its results for the full year of 2009 to improve compared to 2008. However, depending on the severity and duration of this recession, or other adverse economic conditions, its operations could be negatively impacted.