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| NS > SEC Filings for NS > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-2009
Quarterly Report
FORWARD-LOOKING STATEMENTS
This Form 10-Q 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 our Annual Report on Form 10-K for the year ended December 31, 2008, Part I, Item 1A "Risk Factors," as well as our subsequent quarterly reports on Form 10-Q, for a discussion of certain of those risks, uncertainties and assumptions.
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-Q. 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 Energy L.P. (NuStar Energy) is a publicly held Delaware limited partnership engaged in the terminalling and storage of petroleum products, the transportation of petroleum products, and anhydrous ammonia and asphalt and fuels marketing. Unless otherwise indicated, the terms "NuStar Energy," "the Partnership," "we," "our" and "us" are used in this report to refer to NuStar Energy L.P., to one or more of our consolidated subsidiaries or to all of them taken as a whole. NuStar GP Holdings, LLC (NuStar GP Holdings) (NYSE: NSH) wholly owns our general partner, Riverwalk Logistics, L.P., and owns a 20.4% total interest in us. Our Management's Discussion and Analysis of Financial Condition and Results of Operations is presented in five sections:
• Overview
• Results of Operations
• Outlook
• Liquidity and Capital Resources
• Critical Accounting Policies
We conduct our operations through our wholly owned subsidiaries, primarily NuStar Logistics, L.P. (NuStar Logistics) and NuStar Pipeline Operating Partnership L.P. (NuPOP). We have three business segments: storage, transportation and asphalt and fuels marketing.
Storage
We own terminals in the United States, the Netherland Antilles, Canada, Mexico, the Netherlands and the United Kingdom providing approximately 66.0 million barrels of storage capacity. Our terminals provide storage and handling services on a fee basis for petroleum products, specialty chemicals and other liquids, including crude oil and other feedstocks. We also own 60 crude oil and intermediate feedstock storage tanks and related assets that provide an aggregate 12.5 million barrels of storage capacity to refineries in California and Texas.
Transportation
We own common carrier refined product pipelines in Texas, Oklahoma, Colorado, New Mexico, Kansas, Nebraska, Iowa, South Dakota, North Dakota and Minnesota covering approximately 5,595 miles, consisting of the Central West
System, the East Pipeline and the North Pipeline. The East and North Pipelines also include 21 terminals providing storage capacity of 4.6 million barrels, and the East Pipeline includes two tank farms providing storage capacity of 1.2 million barrels. In addition, we own a 2,000 mile anhydrous ammonia pipeline located in Louisiana, Arkansas, Missouri, Illinois, Indiana, Iowa and Nebraska. We also own 812 miles of crude oil pipelines in Texas, Oklahoma, Kansas, Colorado and Illinois, as well as associated crude oil storage facilities providing storage capacity of 1.9 million barrels in Texas and Oklahoma that are located along the crude oil pipelines. We charge tariffs on a per barrel basis for transporting refined products, crude oil and other feedstocks in our refined product and crude oil pipelines and on a per ton basis for transporting anhydrous ammonia in our ammonia pipeline.
Asphalt and Fuels Marketing
Our asphalt and fuels marketing segment includes our asphalt refining operations and our fuels marketing operations. We refine crude oil to produce asphalt and certain other refined products from our asphalt operations. Our asphalt operations include two asphalt refineries with a combined throughput capacity of 104,000 barrels per day and related terminal facilities providing storage capacity of 4.7 million barrels. Additionally, as part of our fuels marketing operations, we purchase gasoline and other refined petroleum products for resale. The activities of the asphalt and fuels marketing segment expose us to the risk of fluctuations in commodity prices, which directly impact the results of operations for the asphalt and fuels marketing segment. We enter into derivative contracts to mitigate the effect of commodity price fluctuations.
Factors Affecting Results of Operations
The following are what we consider the most important factors affecting the results of our operations:
• company-specific factors, such as integrity issues and maintenance requirements that impact the throughput rates of our assets;
• seasonal factors that affect the demand for products transported by and/or stored in our assets and the demand for products we sell, particularly asphalt;
• industry factors, such as changes in the prices of petroleum products, that affect demand and operations of our competitors;
• factors such as commodity price volatility and market structure that impact our asphalt and fuels marketing segment; and
• other factors, such as refinery utilization rates and maintenance turnaround schedules, that impact the operations of refineries served by our assets.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
Financial Highlights
(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)
Three Months Ended June 30,
2009 2008 Change
Statement of Income Data:
Revenues:
Services revenues $ 176,042 $ 180,555 $ (4,513 )
Product sales 811,800 1,197,025 (385,225 )
Total revenues 987,842 1,377,580 (389,738 )
Costs and expenses:
Cost of product sales 731,861 1,175,916 (444,055 )
Operating expenses 110,505 106,928 3,577
General and administrative expenses 25,852 19,544 6,308
Depreciation and amortization expense 35,548 34,830 718
Total costs and expenses 903,766 1,337,218 (433,452 )
Operating income 84,076 40,362 43,714
Equity earnings from joint ventures 3,011 1,749 1,262
Interest expense, net (20,265 ) (24,934 ) 4,669
Other income, net 19,240 631 18,609
Income before income tax expense 86,062 17,808 68,254
Income tax expense 2,327 3,718 (1,391 )
Net income $ 83,735 $ 14,090 $ 69,645
Net income per unit applicable to limited
partners $ 1.38 $ 0.15 $ 1.23
Weighted average limited partner units
outstanding 54,460,549 54,372,035 88,514
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Highlights
Net income increased $69.6 million for the three months ended June 30, 2009, compared to the three months ended June 30, 2008, primarily due to increases in segment operating income and other income. Segment operating income increased $50.3 million during the three months ended June 30, 2009, compared to the three months ended June 30, 2008, primarily due to a $48.5 million increase in operating income for the asphalt and fuels marketing segment, mainly resulting from a hedging loss in the second quarter of 2008 of approximately $61.0 million related to certain inventory purchased with the acquisition of the East Coast Asphalt Operations. Other income increased $18.6 million during the three months ended June 30, 2009, compared to the three months ended June 30, 2008, primarily due to the June 2009 sale of the Ardmore-Wynnewood and Trans-Texas pipelines.
Segment Operating Highlights
(Thousands of Dollars, Except Barrels/Day Information)
Three Months Ended June 30,
2009 2008 Change
Storage:
Throughput (barrels/day) 695,558 760,856 (65,298 )
Throughput revenues $ 19,728 $ 23,029 $ (3,301 )
Storage lease revenues 97,585 88,631 8,954
Total revenues 117,313 111,660 5,653
Operating expenses 59,470 61,121 (1,651 )
Depreciation and amortization expense 17,446 16,697 749
Segment operating income $ 40,397 $ 33,842 $ 6,555
Transportation:
Refined products pipelines throughput (barrels/day) 564,762 700,024 (135,262 )
Crude oil pipelines throughput (barrels/day) 346,291 411,600 (65,309 )
Total throughput (barrels/day) 911,053 1,111,624 (200,571 )
Throughput revenues $ 68,744 $ 77,028 $ (8,284 )
Operating expenses 27,690 30,473 (2,783 )
Depreciation and amortization expense 12,614 12,797 (183 )
Segment operating income $ 28,440 $ 33,758 $ (5,318 )
Asphalt and Fuels Marketing:
Product sales $ 811,800 $ 1,197,054 $ (385,254 )
Cost of product sales 736,009 1,179,489 (443,480 )
Operating expenses 29,709 19,860 9,849
Depreciation and amortization expense 4,406 4,520 (114 )
Segment operating (loss) income $ 41,676 $ (6,815 ) $ 48,491
Consolidation and Intersegment Eliminations:
Revenues $ (10,015 ) $ (8,162 ) $ (1,853 )
Cost of product sales (4,148 ) (3,573 ) (575 )
Operating expenses (6,364 ) (4,526 ) (1,838 )
Total $ 497 $ (63 ) $ 560
Consolidated Information:
Revenues $ 987,842 $ 1,377,580 $ (389,738 )
Cost of product sales 731,861 1,175,916 (444,055 )
Operating expenses 110,505 106,928 3,577
Depreciation and amortization expense 34,466 34,014 452
Segment operating income 111,010 60,722 50,288
General and administrative expenses 25,852 19,544 6,308
Other depreciation and amortization expense 1,082 816 266
Consolidated operating income $ 84,076 $ 40,362 $ 43,714
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Storage
Throughputs decreased 65,298 barrels per day for the three months ended June 30, 2009, compared to the three months ended June 30, 2008, mainly due to the conversion of some throughput-based contracts to lease-based contracts in January 2009. Throughputs for these terminals are no longer reported and revenues associated with these terminals are reported as storage lease revenues. In addition, throughputs decreased at terminals serving the McKee refinery, which experienced a turnaround in May 2009.
Total revenues increased $5.7 million for the three months ended June 30, 2009, compared to the three months ended June 30, 2008, primarily due to higher storage revenues associated with:
• an increase of $5.6 million due to completed tank expansion projects at our Amsterdam, St. James and Jacksonville terminals;
• an increase of $2.1 million at our St. Eustatius and Amsterdam terminals mainly due to rate escalations and increases in other revenue;
• an increase of $1.2 million resulting from an increase in product throughput at our Tacoma terminal and rate escalations at our Los Angeles terminal; and
• an increase of $1.0 million at our Texas City terminal mainly due to tank conversions, excess customer throughput, and higher reimbursable revenues and handling charges.
These increases were partially offset by a decrease of $2.5 million at our UK operations mainly due to the effect of foreign exchange rates and a decrease of $1.0 million at our Pittsburgh terminal due to the cancellation of a customer contract in March 2009.
Operating expenses decreased $1.7 million for the three months ended June 30, 2009, compared to the three months ended June 30, 2008, primarily due to a decrease in power costs driven by lower natural gas and marine gas oil prices.
Transportation
Throughputs decreased 200,571 barrels per day and revenues decreased $8.3 million for the three months ended June 30, 2009, compared to the three months ended June 30, 2008, primarily due to:
• lower throughputs of 110,809 barrels per day and a decrease in revenues of $6.5 million on our pipelines serving the McKee refinery primarily due to a turnaround in May 2009 and lower overall demand from the economic downturn, as well as decreased throughputs and revenues on the El Paso-Santa Fe Pipeline as a shipper acquired our joint venture partner's interest and is now shipping product on its purchased space rather than our space;
• a decrease in throughputs of 6,209 barrels per day and a decrease in revenues of $1.1 million on the Ammonia Pipeline due to high inventory levels of ammonia in the Midwest that carried over from the fall of 2008 and unseasonably wet and cold weather in the second quarter of 2009; and
• a decrease in throughputs of 8,123 barrels per day and a decrease in revenues of $0.8 million on the North Pipeline due to operational issues at the Mandan refinery during the second quarter of 2009.
Throughputs also decreased 55,866 barrels per day on our pipelines serving the Ardmore and Three Rivers refineries due to operational issues during the second quarter of 2009 and reduced crude run rates as a result of the economic downturn. The decline in revenue due to these lower throughputs was offset by the tariff indexation in July 2008, resulting in a minimal impact to revenue.
Operating expenses decreased $2.8 million for the three months ended June 30, 2009, compared to the three months ended June 30, 2008, primarily due to a decrease in power costs resulting from lower throughputs and lower natural gas prices.
Asphalt and Fuels Marketing
Sales and cost of product sales decreased $385.3 million and $443.5 million, respectively, resulting in an increase in product margin of $58.2 million during the three months ended June 30, 2009, compared to the three months ended June 30, 2008. Product margin associated with our asphalt operations increased $52.9 million due to the $61.0 million hedging loss in the second quarter of 2008. Product margin related to our other marketing operations increased $4.4 million primarily due to more favorable hedging results. These increases were partially offset by
decreased product margin of $1.6 million from our bunkering activities mainly due to a decrease in volumes and a significant decrease in the market price per metric ton of bunker fuel at our St. Eustatius facility.
Operating expenses increased $9.8 million for the three months ended June 30, 2009, compared to the three months ended June 30, 2008, primarily due to:
• an increase of $5.2 million due to increased tug and barge rental costs as new vessels were received at our St. Eustatius facility throughout 2008 and higher costs related to an asphalt barge rental;
• an increase of $2.5 million resulting from the amortization of deferred maintenance costs and higher idle capacity costs; and
• an increase of $1.7 million due to the leasing of additional terminals.
General
General and administrative expenses increased by $6.3 million for the three months ended June 30, 2009, compared to the three months ended June 30, 2008, primarily due to an increase in compensation expense associated with grants to our employees from long-term incentive plans. This increase in compensation resulted from an increase in our unit price in the second quarter of 2009. In addition, salaries and wages increased due to higher headcount resulting from the Partnership's growth and merit increases.
Interest expense, net decreased by $4.7 million for the three months ended June 30, 2009, compared to the three months ended June 30, 2008, primarily due to lower debt balances and a decrease in interest rates, including a decrease in the variable interest rate paid on our interest rate swaps. These decreases in interest expense were partially offset by lower capitalized interest as a result of the completion of various tank expansion projects.
Other income, net increased by $18.6 million for the three months ended June 30, 2009, compared to the three months ended June 30, 2008, primarily due to the June 2009 sale of the Ardmore-Wynnewood pipeline in Oklahoma and the Trans-Texas pipeline resulting in a gain of $21.4 million. This gain was partially offset by foreign exchange losses primarily relating to our Canadian subsidiary.
Income tax expense decreased $1.4 million for the three months ended June 30, 2009, compared to the three months ended June 30, 2008, as a result of lower taxable income in our taxable entities.
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
Financial Highlights
(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)
Six Months Ended June 30,
2009 2008 Change
Statement of Income Data:
Revenues:
Services revenues $ 358,694 $ 360,671 $ (1,977 )
Product sales 1,263,152 1,609,683 (346,531 )
Total revenues 1,621,846 1,970,354 (348,508 )
Costs and expenses:
Cost of product sales 1,148,656 1,568,925 (420,269 )
Operating expenses 213,827 195,378 18,449
General and administrative expenses 48,316 35,627 12,689
Depreciation and amortization expense 71,537 64,876 6,661
Total costs and expenses 1,482,336 1,864,806 (382,470 )
Operating income 139,510 105,548 33,962
Equity earnings from joint ventures 5,324 3,950 1,374
Interest expense, net (40,735 ) (41,799 ) 1,064
Other income, net 27,844 10,540 17,304
Income before income tax expense 131,943 78,239 53,704
Income tax expense 8,853 8,280 573
Net income $ 123,090 $ 69,959 $ 53,131
Net income per unit applicable to limited
partners $ 1.96 $ 1.11 $ 0.85
Weighted average limited partner units
outstanding 54,460,549 51,890,892 2,569,657
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Highlights
Net income increased $53.1 million for the six months ended June 30, 2009, compared to the six months ended June 30, 2008, primarily due to increases in segment operating income and other income, partially offset by an increase in general and administrative expenses. Segment operating income increased $47.2 million during the six months ended June 30, 2009, compared to the six months ended June 30, 2008, primarily due to a $34.4 million increase in operating income for the asphalt and fuels marketing segment due to the $61.0 hedging loss in the second quarter of 2008. In addition, operating income for the storage segment increased $14.0 million mainly due to completed tank expansion projects. Other income increased $17.3 million during the six months ended June 30, 2009, compared to the six months ended June 30, 2008, primarily due to the June 2009 sale of the Ardmore-Wynnewood and Trans-Texas pipelines.
Segment Operating Highlights
(Thousands of Dollars, Except Barrels/Day Information)
Six Months Ended June 30,
2009 2008 Change
Storage:
Throughput (barrels/day) 646,025 778,054 (132,029 )
Throughput revenues $ 39,756 $ 46,150 $ (6,394 )
Storage lease revenues 195,359 174,623 20,736
Total revenues 235,115 220,773 14,342
Operating expenses 113,628 115,119 (1,491 )
Depreciation and amortization expense 34,438 32,648 1,790
Segment operating income $ 87,049 $ 73,006 $ 14,043
Transportation:
Refined products pipelines throughput (barrels/day) 592,341 697,397 (105,056 )
Crude oil pipelines throughput (barrels/day) 366,027 408,782 (42,755 )
Total throughput (barrels/day) 958,368 1,106,179 (147,811 )
Revenues $ 143,136 $ 152,807 $ (9,671 )
Operating expenses 52,890 60,330 (7,440 )
Depreciation and amortization expense 25,277 25,402 (125 )
Segment operating income $ 64,969 $ 67,075 $ (2,106 )
Asphalt and Fuels Marketing:
Product sales $ 1,263,152 $ 1,609,712 $ (346,560 )
Cost of product sales 1,156,802 1,575,671 (418,869 )
Operating expenses 59,548 26,078 33,470
Depreciation and amortization expense 9,614 5,208 4,406
Segment operating income $ 37,188 $ 2,755 $ 34,433
Consolidation and Intersegment Eliminations:
Revenues $ (19,557 ) $ (12,938 ) $ (6,619 )
Cost of product sales (8,146 ) (6,746 ) (1,400 )
Operating expenses (12,239 ) (6,149 ) (6,090 )
Total $ 828 $ (43 ) $ 871
Consolidated Information:
Revenues $ 1,621,846 $ 1,970,354 $ (348,508 )
Cost of product sales 1,148,656 1,568,925 (420,269 )
Operating expenses 213,827 195,378 18,449
Depreciation and amortization expense 69,329 63,258 6,071
Segment operating income 190,034 142,793 47,241
General and administrative expenses 48,316 35,627 12,689
Other depreciation and amortization expense 2,208 1,618 590
Consolidated operating income $ 139,510 $ 105,548 $ 33,962
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Storage
Throughputs decreased 132,029 barrels per day for the six months ended June 30, . . .
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