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| NS > SEC Filings for NS > Form 10-Q on 5-Nov-2009 | All Recent SEC Filings |
5-Nov-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 65.9 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 5,605 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. We own 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 our refineries as well as the operations of refineries served by our assets.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2009 Compared to Three Months Ended
September 30, 2008
Financial Highlights
(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)
Three Months Ended September 30,
2009 2008 Change
Statement of Income Data:
Revenues:
Services revenues $ 190,439 $ 187,104 $ 3,335
Product sales 1,060,808 1,638,122 (577,314 )
Total revenues 1,251,247 1,825,226 (573,979 )
Costs and expenses:
Cost of product sales 989,868 1,467,152 (477,284 )
Operating expenses 118,190 127,095 (8,905 )
General and administrative expenses 19,213 20,358 (1,145 )
Depreciation and amortization expense 36,786 35,143 1,643
Total costs and expenses 1,164,057 1,649,748 (485,691 )
Operating income 87,190 175,478 (88,288 )
Equity earnings from joint ventures 2,374 2,122 252
Interest expense, net (19,791 ) (25,228 ) 5,437
Other (expense) income, net (1,961 ) 1,696 (3,657 )
Income before income tax expense 67,812 154,068 (86,256 )
Income tax expense 3,372 2,791 581
Net income $ 64,440 $ 151,277 $ (86,837 )
Net income per unit applicable to
limited partners $ 1.03 $ 2.60 $ (1.57 )
Weighted average limited partner units
outstanding 54,460,549 54,460,549 -
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Highlights
Net income decreased $86.8 million for the three months ended September 30, 2009, compared to the three months ended September 30, 2008, primarily due to a decrease in segment operating income. Segment operating income decreased $89.1 million during the three months ended September 30, 2009, compared to the three months ended September 30, 2008, primarily due to a decreased product margin associated with our asphalt operations in our asphalt and fuels marketing segment. The decrease in operating income from our asphalt and fuels marketing segment was partially offset by increased operating income from our storage and transportation segments.
Segment Operating Highlights
(Thousands of Dollars, Except Barrels/Day Information)
Three Months Ended September 30,
2009 2008 Change
Storage:
Throughput (barrels/day) 708,281 713,323 (5,042 )
Throughput revenues $ 19,892 $ 22,640 $ (2,748 )
Storage lease revenues 105,341 93,141 12,200
Total revenues 125,233 115,781 9,452
Operating expenses 63,166 68,699 (5,533 )
Depreciation and amortization expense 18,034 16,900 1,134
Segment operating income $ 44,033 $ 30,182 $ 13,851
Transportation:
Refined products pipelines throughput
(barrels/day) 544,345 652,174 (107,829 )
Crude oil pipelines throughput (barrels/day) 318,567 398,341 (79,774 )
Total throughput (barrels/day) 862,912 1,050,515 (187,603 )
Throughput revenues $ 78,015 $ 81,163 $ (3,148 )
Operating expenses 29,966 39,543 (9,577 )
Depreciation and amortization expense 12,624 12,659 (35 )
Segment operating income $ 35,425 $ 28,961 $ 6,464
Asphalt and Fuels Marketing:
Product sales $ 1,060,808 $ 1,638,122 $ (577,314 )
Cost of product sales 993,648 1,471,084 (477,436 )
Operating expenses 34,128 24,770 9,358
Depreciation and amortization expense 4,922 4,664 258
Segment operating income $ 28,110 $ 137,604 $ (109,494 )
Consolidation and Intersegment Eliminations:
Revenues $ (12,809 ) $ (9,840 ) $ (2,969 )
Cost of product sales (3,780 ) (3,932 ) 152
Operating expenses (9,070 ) (5,917 ) (3,153 )
Total $ 41 $ 9 $ 32
Consolidated Information:
Revenues $ 1,251,247 $ 1,825,226 $ (573,979 )
Cost of product sales 989,868 1,467,152 (477,284 )
Operating expenses 118,190 127,095 (8,905 )
Depreciation and amortization expense 35,580 34,223 1,357
Segment operating income 107,609 196,756 (89,147 )
General and administrative expenses 19,213 20,358 (1,145 )
Other depreciation and amortization expense 1,206 920 286
Consolidated operating income $ 87,190 $ 175,478 $ (88,288 )
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Storage
Throughputs decreased 5,042 barrels per day for the three months ended September 30, 2009, compared to the three months ended September 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 the Southlake terminal for the three months ended September 30, 2009 as the shipper diverted throughput. Partially offsetting these decreases were increased throughputs at our Texas City and Corpus Christi crude oil storage tank facilities during the third quarter of 2009 due to the impacts of Hurricanes Dolly, Gustav and Ike in the third quarter of 2008.
Total revenues increased $9.5 million for the three months ended September 30, 2009, compared to the three months ended September 30, 2008, primarily due to higher storage revenues associated with:
• an increase of $4.6 million due to completed tank expansion projects at our Amsterdam, St. James, Jacksonville and Texas City terminals;
• an increase of $2.6 million mainly due to rate escalations, new contracts and increased customer utilization at certain of our domestic terminals;
• an increase of $1.7 million primarily due to the negative impact of Hurricane Ike in the third quarter of 2008 at our Texas City terminal and Texas City and Corpus Christi crude oil storage tank facilities; and
• an increase of $0.7 million at our Point Tupper and St. Eustatius facilities mainly due to product movement and handling fees.
These increases were partially offset by a decrease of $0.9 million due to the sales of our Westwego, Reno and Milwaukee terminals in December 2008.
Operating expenses decreased $5.5 million for the three months ended September 30, 2009, compared to the three months ended September 30, 2008, primarily due to:
• a decrease of $2.0 million related to an environmental accrual in the third quarter of 2008 that was settled in 2009;
• a decrease of $1.8 million in power costs driven by lower natural gas and marine gas oil prices;
• a decrease of $1.6 million due to higher costs in 2008 related to the impact of Hurricane Ike in the third quarter of 2008; and
• a decrease of $1.0 million in reimbursable expenses mainly due to fewer tank cleaning and blending projects and lower fuel and natural gas costs during the third quarter of 2009.
These decreases were partially offset by a $1.4 million increase in taxes other than income taxes mainly due to an ad valorem tax settlement in 2008 at one of our refined product terminals.
Transportation
Throughputs decreased 187,603 barrels per day and revenues decreased $3.1 million for the three months ended September 30, 2009, compared to the three months ended September 30, 2008, primarily due to:
• lower throughputs of 54,707 barrels per day and a decrease in revenues of $1.9 million due to the sale of the Ardmore-Wynnewood pipeline in June 2009;
• lower throughputs of 56,619 barrels per day and a decrease in revenues of $1.4 million on our pipelines serving the Ardmore refinery as the refinery was shut down in the third quarter of 2009 following a lightning strike;
• lower throughputs of 26,825 barrels per day and a decrease in revenues of $0.5 million on our pipelines serving the Three Rivers refinery due to a scheduled turnaround during the third quarter of 2009 and reduced crude run rates as a result of the economic downturn;
• lower throughputs of 15,169 barrels per day and a decrease in revenues of $0.4 million on our refined product pipelines serving the McKee refinery mainly due to lower overall demand from the economic downturn and the sale of the Trans Texas pipeline in June 2009; and
• lower throughputs of 13,153 barrels per day due to the sale of the Skelly-Belvieu pipeline in December 2008.
The tariff increase that became effective July 1, 2009 partially offset these declines in revenues. These declines were also partially offset by an increase in revenues of $1.2 million on the East Pipeline primarily a result of the
tariff increase, increased long-haul throughputs and higher throughputs in 2009 due to the negative impact of Hurricane Ike in the third quarter of 2008.
Operating expenses decreased $9.6 million for the three months ended September 30, 2009, compared to the three months ended September 30, 2008, primarily due to a $4.3 million decrease resulting from a reduction in our product imbalance liability due to the effect of lower prices and decreased volumes of product imbalances on the East Pipeline. In addition, power costs decreased $3.7 million from lower throughputs and natural gas prices and internal overhead costs decreased $1.5 million from lower salaries and wages, which further contributed to the decrease in operating expenses.
Asphalt and Fuels Marketing
Sales and cost of product sales decreased $577.3 million and $477.4 million, respectively, resulting in a decrease in product margin of $99.9 million during the three months ended September 30, 2009, compared to the three months ended September 30, 2008. Product margin associated with our asphalt operations decreased $100.7 million due to less demand, which prevented asphalt prices from increasing consistently with the increase in crude oil prices. The decrease in demand was mainly due to weak private sector activity due to adverse weather conditions on the East Coast and the economic downturn.
Operating expenses increased $9.4 million for the three months ended September 30, 2009, compared to the three months ended September 30, 2008, primarily due to:
• an increase of $5.6 million due to the leasing of additional terminals;
• an increase of $1.6 million associated with our asphalt operations resulting from the amortization of deferred maintenance costs and higher idle capacity costs;
• an increase of $1.0 million associated with the addition of bunkering activities at our Jacksonville and Texas City terminals; and
• an increase of $0.9 million due to increased tug and barge costs related to new vessels being received at our St. Eustatius facility throughout 2008 and 2009.
These increases were partially offset by lower environmental taxes of $0.9 million and lower power costs of $1.4 million at our leased asphalt terminals due to lower natural gas prices.
General
General and administrative expenses decreased by $1.1 million for the three months ended September 30, 2009, compared to the three months ended September 30, 2008, primarily due to a decrease in salaries and wages resulting from a lower all-employee bonus accrual. This was partially offset by higher external legal costs and other professional fees. In addition, compensation expense associated with our long-term incentive plans increased, which resulted from an increase in our unit price in the third quarter of 2009.
Interest expense, net decreased by $5.4 million for the three months ended September 30, 2009, compared to the three months ended September 30, 2008, primarily due to decreases in interest rates, including the variable interest rate paid on our interest rate swaps, and lower debt balances. 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 decreased by $3.7 million for the three months ended September 30, 2009, compared to the three months ended September 30, 2008, primarily due to foreign exchange losses related to our Canadian subsidiary.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Financial Highlights
(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)
Nine Months Ended September 30,
2009 2008 Change
Statement of Income Data:
Revenues:
Services revenues $ 549,133 $ 547,775 $ 1,358
Product sales 2,323,960 3,247,805 (923,845 )
Total revenues 2,873,093 3,795,580 (922,487 )
Costs and expenses:
Cost of product sales 2,138,524 3,036,077 (897,553 )
Operating expenses 332,017 322,473 9,544
General and administrative expenses 67,529 55,985 11,544
Depreciation and amortization expense 108,323 100,019 8,304
Total costs and expenses 2,646,393 3,514,554 (868,161 )
Operating income 226,700 281,026 (54,326 )
Equity earnings from joint ventures 7,698 6,072 1,626
Interest expense, net (60,526 ) (67,027 ) 6,501
Other income, net 25,883 12,236 13,647
Income before income tax expense 199,755 232,307 (32,552 )
Income tax expense 12,225 11,071 1,154
Net income $ 187,530 $ 221,236 $ (33,706 )
Net income per unit applicable to
limited partners $ 2.99 $ 3.77 $ (0.78 )
Weighted average limited partner units
outstanding 54,460,549 52,753,696 1,706,853
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Highlights
Net income decreased $33.7 million for the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, primarily due to a decrease in segment operating income and an increase in general and administrative expenses. This was partially offset by an increase in other income and a decrease in interest expense.
Segment operating income decreased $41.9 million during the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, primarily due to a $75.1 million decrease in operating income for the asphalt and fuels marketing segment, which was mainly due to a decreased product margin associated with our asphalt operations. This was partially offset by an increase in gross margin due to the $61.0 million hedging loss in the second quarter of 2008. The decrease in operating income from our asphalt and fuels marketing segment was partially offset by increased operating income from our storage and transportation segments.
Segment Operating Highlights
(Thousands of Dollars, Except Barrels/Day Information)
Nine Months Ended September 30,
2009 2008 Change
Storage:
Throughput (barrels/day) 667,005 756,319 (89,314 )
Throughput revenues $ 59,648 $ 68,790 $ (9,142 )
Storage lease revenues 300,700 267,764 32,936
Total revenues 360,348 336,554 23,794
Operating expenses 176,794 183,818 (7,024 )
Depreciation and amortization expense 52,472 49,548 2,924
Segment operating income $ 131,082 $ 103,188 $ 27,894
Transportation:
Refined products pipelines throughput
(barrels/day) 576,165 682,214 (106,049 )
Crude oil pipelines throughput (barrels/day) 350,034 405,276 (55,242 )
Total throughput (barrels/day) 926,199 1,087,490 (161,291 )
Revenues $ 221,151 $ 233,970 $ (12,819 )
Operating expenses 82,856 99,873 (17,017 )
Depreciation and amortization expense 37,901 38,061 (160 )
Segment operating income $ 100,394 $ 96,036 $ 4,358
Asphalt and Fuels Marketing:
Product sales $ 2,323,960 $ 3,247,834 $ (923,874 )
Cost of product sales 2,150,450 3,046,755 (896,305 )
Operating expenses 93,676 50,848 42,828
Depreciation and amortization expense 14,536 9,872 4,664
Segment operating income $ 65,298 $ 140,359 $ (75,061 )
Consolidation and Intersegment Eliminations:
Revenues $ (32,366 ) $ (22,778 ) $ (9,588 )
Cost of product sales (11,926 ) (10,678 ) (1,248 )
Operating expenses (21,309 ) (12,066 ) (9,243 )
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