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–(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.

Conference Call Details

A conference call with management is scheduled for 9:00 a.m. CT today,
May 10, 2019. The conference call may be accessed by dialing toll-free
844/889-7787, reservation passcode 8288856. International callers may
access the conference call by dialing 661/378-9931, reservation passcode
8288856. The Partnership intends to have a playback available following
the conference call, which may be accessed by dialing toll-free
855/859-2056, reservation passcode 8288856. International callers may
access the playback by dialing 404/537-3406, reservation passcode
8288856. The playback will be available until 10:59 p.m. CT on June 10,
2019.

Investors interested in listening to the live discussion or a replay via
the internet may access the discussion directly at https://edge.media-server.com/m6/p/t43p2xxs
or by logging on to NuStar Energy L.P.’s website at www.nustarenergy.com.

The discussion will disclose certain non-GAAP financial measures.
Reconciliations of certain of these non-GAAP financial measures to U.S.
GAAP may be found in this press release, with additional reconciliations
located on the Financials page of the Investors section of NuStar Energy
L.P.’s website at www.nustarenergy.com.

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. For more information,
visit NuStar Energy L.P.’s website at www.nustarenergy.com.

Cautionary Statement Regarding
Forward-Looking Statements

This press release includes, and the related conference call will
include, forward-looking statements regarding future events, such as the
partnership’s future performance. All forward-looking statements are
based on the partnership’s beliefs as well as assumptions made by and
information currently available to the partnership. These statements
reflect the partnership’s current views with respect to future events
and are subject to various risks, uncertainties and assumptions. These
risks, uncertainties and assumptions are discussed in NuStar Energy
L.P.’s 2018 annual report on Form 10-K and subsequent filings with the
Securities and Exchange Commission. Actual results may differ materially
from those described in the forward-looking statements.

 

NuStar Energy L.P. and Subsidiaries

Consolidated Financial Information

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

 
Three Months Ended March 31,
2019   2018
Statement of Income Data:
Revenues:
Service revenues $ 298,405 $ 291,413
Product sales 188,064   184,468  
Total revenues 486,469   475,881  
Costs and expenses:
Costs associated with service revenues:
Operating expenses 113,937 108,884
Depreciation and amortization expense 72,287   69,897  
Total costs associated with service revenues 186,224 178,781
Cost of product sales 176,789 176,728
Asset impairment loss 297,317
Goodwill impairment loss 31,123
General and administrative expenses 25,996 19,774
Other depreciation and amortization expense 2,119   2,118  
Total costs and expenses 719,568   377,401  
Operating (loss) income (233,099 ) 98,480
Interest expense, net (44,268 ) (47,772 )
Other income, net 787   79,752  
(Loss) income before income tax expense (276,580 ) 130,460
Income tax expense 1,283   4,327  
Net (loss) income $ (277,863 ) $ 126,133  
 
Basic net (loss) income per common unit $ (2.91 ) $ 1.15
Basic weighted-average common units outstanding 107,531,619 93,181,781
 
Other Data:
EBITDA (Note 1) $ (157,906 ) $ 250,247
DCF available to common limited partners (Note 1) $ 95,051 $ 91,732
Adjusted EBITDA (Note 2) $ 170,534 $ 171,491
Adjusted net income (Note 3) $ 50,577 $ 47,377
Adjusted EPU (Note 3) $ 0.14 $ 0.33
 
   
March 31, December 31,
2019   2018 2018
Balance Sheet Data:
Total debt $ 3,342,555 $ 3,726,066 $ 3,130,496
Partners’ equity and series D preferred units $ 2,456,970 $ 2,492,057 $ 2,821,723
 
 

NuStar Energy L.P. and Subsidiaries

Consolidated Financial Information – Continued

(Unaudited, Thousands of Dollars, Except Barrel Data)

 
Three Months Ended March 31,
2019   2018
Pipeline:
Crude oil pipelines throughput (barrels/day) 1,018,608 791,294
Refined products and ammonia pipelines throughput (barrels/day) 503,485   531,894  
Total throughput (barrels/day) 1,522,093   1,323,188  
Throughput and other revenues $ 156,251 $ 136,790
Operating expenses 48,098 42,341
Depreciation and amortization expense 40,849   36,655  
Segment operating income $ 67,304   $ 57,794  
Storage:
Throughput (barrels/day) 364,854 343,933
Throughput terminal revenues $ 21,686 $ 20,016
Storage terminal revenues 121,325   135,312  
Total revenues 143,011 155,328
Operating expenses 61,496 65,825
Depreciation and amortization expense 31,438 33,242
Asset impairment loss 297,317    
Segment operating (loss) income $ (247,240 ) $ 56,261  
Fuels Marketing:
Product sales and other revenue $ 189,068 $ 185,838
Cost of product sales 178,498   178,677  
Gross margin 10,570 7,161
Operating expenses 4,463 841
Goodwill impairment loss 31,123    
Segment operating (loss) income $ (25,016 ) $ 6,320  
Consolidation and Intersegment Eliminations:
Revenues $ (1,861 ) $ (2,075 )
Cost of product sales (1,709 ) (1,949 )
Operating expenses (120 ) (123 )
Total $ (32 ) $ (3 )
Consolidated Information:
Revenues $ 486,469 $ 475,881
Costs associated with service revenues:
Operating expenses 113,937 108,884
Depreciation and amortization expense 72,287   69,897  
Total costs associated with service revenues 186,224 178,781
Cost of product sales 176,789 176,728
Impairment losses 328,440    
Segment operating (loss) income (204,984 ) 120,372
General and administrative expenses 25,996 19,774
Other depreciation and amortization expense 2,119   2,118  
Consolidated operating (loss) income $ (233,099 ) $ 98,480  
 
 

NuStar Energy L.P. and Subsidiaries

Consolidated Financial Information – Continued

(Unaudited, Thousands of Dollars, Except Ratio Data)

 

Note 1: NuStar Energy L.P. utilizes financial measures, such as
earnings before interest, taxes, depreciation and amortization (EBITDA),
distributable cash flow (DCF) and distribution coverage ratio, which are
not defined in U.S. generally accepted accounting principles (GAAP).
Management believes these financial measures provide useful information
to investors and other external users of our financial information
because (i) they provide additional information about the operating
performance of the partnership’s assets and the cash the business is
generating, (ii) investors and other external users of our financial
statements benefit from having access to the same financial measures
being utilized by management and our board of directors when making
financial, operational, compensation and planning decisions and (iii)
they highlight the impact of significant transactions. We also use
adjusted measures of net income, net income per common unit and EBITDA,
which are not defined in GAAP, to enhance the comparability of
performance across periods.

Our board of directors and management use EBITDA and/or DCF when
assessing the following: (i) the performance of our assets, (ii) the
viability of potential projects, (iii) our ability to fund
distributions, (iv) our ability to fund capital expenditures and (v) our
ability to service debt. In addition, our board of directors uses a
distribution coverage ratio, which is calculated based on DCF, as one of
the factors in its compensation determinations. DCF is a widely accepted
financial indicator used by the master limited partnership (MLP)
investment community to compare partnership performance. DCF is used by
the MLP investment community, in part, because the value of a
partnership unit is partially based on its yield, and its yield is based
on the cash distributions a partnership can pay its unitholders.

None of these financial measures are presented as an alternative to net
income. They should not be considered in isolation or as substitutes for
a measure of performance prepared in accordance with GAAP. The following
is a reconciliation of EBITDA, DCF and distribution coverage ratio:

  Three Months Ended March 31,
2019   2018
Net (loss) income $ (277,863 ) $ 126,133
Interest expense, net 44,268 47,772
Income tax expense 1,283 4,327
Depreciation and amortization expense 74,406   72,015  
EBITDA (157,906 ) 250,247
Interest expense, net (44,268 ) (47,772 )
Reliability capital expenditures (9,544 ) (19,882 )
Income tax expense (1,283 ) (4,327 )
Long-term incentive equity awards (a) 2,367 1,337
Preferred unit distributions (30,423 ) (15,990 )
Insurance gain adjustment (b) 5,133 (66,362 )
Impairment losses (c) 328,440
Other items 2,535   (4,378 )
DCF $ 95,051 $ 92,873
Less DCF available to general partner   1,141  
DCF available to common limited partners $ 95,051   $ 91,732  
 
Distributions applicable to common limited partners $ 64,690 $ 55,916
Distribution coverage ratio (d) 1.47x 1.64x
 
(a) We intend to satisfy the vestings of these equity-based awards with
the issuance of our common units. As such, the expenses related to
these awards are considered non-cash and added back to DCF. Certain
awards include distribution equivalent rights (DERs). Payments made
in connection with DERs are deducted from DCF.
(b) For the three months ended March 31, 2018, DCF includes an
adjustment for insurance proceeds received related to hurricane
damage at our St. Eustatius terminal. Each quarter we add an amount
to DCF to offset the amount of reliability capital expenditures
incurred related to hurricane damage.
(c) Represents non-cash impairment losses associated with long-lived
assets and goodwill at our St. Eustatius terminal.
(d) Distribution coverage ratio is calculated by dividing DCF available
to common limited partners by distributions applicable to common
limited partners.
 
 

NuStar Energy L.P. and Subsidiaries

Consolidated Financial Information – Continued

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

 

Note 2: The following is a reconciliation of EBITDA to adjusted
EBITDA:

  Three Months Ended March 31,
2019   2018
EBITDA $ (157,906 ) $ 250,247
Impairment losses 328,440
Gain from hurricane insurance proceeds   (78,756 )
Adjusted EBITDA $ 170,534   $ 171,491  
 

Note 3: The following is a reconciliation of net (loss) income
and net (loss) income per common unit to adjusted net income applicable
to common limited partners and adjusted net income per common unit:

  Three Months Ended March 31,
2019   2018
Net (loss) income / net (loss) income per common unit $ (277,863 )   $ (2.91 ) $ 126,133   $ 1.15
Impairment losses 328,440 3.05
Gain from hurricane insurance proceeds     (78,756 ) (0.82 )
Adjusted net income 50,577 47,377

Net income applicable to preferred limited partners and general
partner

(34,725 ) (18,624 )
Other (643 )   (445 )  

Adjusted net income applicable to common limited partners /
adjusted net income per common unit

$ 15,209   $ 0.14   $ 28,308   $ 0.33  
 

Note 4: The following is a reconciliation of projected net loss
to projected adjusted EBITDA:

  Projected for the

Year Ended December 31, 2019

Net loss $ (143,000) – (118,000)
Interest expense, net 195,000 – 205,000
Income tax expense 5,000 – 10,000
Depreciation and amortization expense 280,000 – 290,000
EBITDA 337,000 – 387,000
Impairment losses 328,000
Adjusted EBITDA $ 665,000 – 715,000

Contacts

NuStar Energy, L.P., San Antonio
Investors, Tim Delagarza, Manager,
Investor Relations
Investor Relations: 210-918-INVR (4687)
or
Media,
Mary Rose Brown, Executive Vice President and Chief Administrative
Officer,
Corporate Communications: 210-918-2314
website: http://www.nustarenergy.com

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