NuSTAR Energy LP (NS) is a limited partnership based in San Antonio, Texas. According to Curt Anastasio, NuStar Energy L.P. President and CEO, “The L.P.’s growth strategy is based upon our mission statement, which is to solve the logistical needs of our customers by moving products where and when they want them better than anyone else. To do that requires us to offer a safe, reliable operation that meets or exceeds customer expectations.”
The partnership made its successful initial public offering (IPO) in April, 2001. On its first day, the partnership, then known as Shamrock Logistics L.P. and part of the former Ultramar Diamond Shamrock Corp., sold 5.175 million partnership units at $24.50, nearly twice the expected price range for this IPO. The partnership was soon renamed Valero L.P. after Valero Energy Corp. acquired UDS later in 2001. In April, 2007, the name was changed to NuStar Energy L.P. name and it began trading with the NYSE ticker symbol, “NS.” The company sees itself as the “new star,” the “rising star” of the energy industry.
In its first year, the L.P.’s network included 2,800 miles of refined product pipelines, 11 refined product terminals, 800 miles of crude oil pipelines and crude oil storage facilities with a capacity of 3.3 million barrels. In early 2002, the partnership purchased the Wichita Falls, Texas crude oil storage facility and a 272-mile crude oil pipeline that extends from Wichita Falls to the Texas Panhandle. Throughput volumes at the partnership’s refined product terminals increased 23,000 barrels per day (BPD) and throughput volumes transported through the L.P.’s crude oil pipelines increased by 9,000 BPD.
In 2003, the L.P. made several significant purchases:
- an asphalt terminal and storage facility in Pittsburg, California;
- pipeline connections to move propane from Texas to Nuevo Laredo, Mexico;
- 58 storage tanks, plus a 468-mile South Texas pipeline system, and six terminals (one of which was an asphalt terminal); and
- 3.8 million common units of the L.P. from Valero Energy, reducing Valero’s stake in the partnership from 74% to about 49%.
In 2005, the L.P. acquired Kaneb Pipe Line Partners for $2.8 billion. After this purchase, the L.P. had pipelines, terminals and bulk storage facilities in most of the U.S., as well as Canada, Mexico, the Netherlands Antilles, the United Kingdom and the Netherlands.
In 2006, through two public offerings, the remaining Valero Energy stake in the partnership was purchased. The partnership made significant investments in the asphalt business, eventually becoming the third largest producer of asphalt in the U.S.
In 2011, the company acquired key refining and terminal assets from AGE Refining, including a 14,500 BPD refinery in San Antonio and a 200,000-barrel terminal in Elmendorf, Texas. In 2012, NuStar decided to downsize its exposure to the asphalt and refining businesses and to focus on the pipeline industry. In September, 2012, NS announced that it had sold 50% of its asphalt operations to Lindsay Goldberg LLC and created a joint venture with Lindsay Goldberg that owns and operates NuStar’s asphalt refining assets. December, 2012, NuStar announced an agreement to sell the San Antonio refinery and the Elmendorf terminal (and a pipeline connecting the two) to Calumet Special Products Partners, LP. In December, 2012, NS announced the purchase of crude oil pipeline, gathering and storage assets in the Eagle Ford Shale region from TexStar Midstream Services LP for approximately $325 million.
NuSTAR has grown from 160 employees at the time of its IPO in 2001 to over 1,900 today; from $387 million in assets to $5.2 billion; and from $99 million in revenues to$4.4 billion.
Distributable cash flow available to limited partners for the third quarter of 2012 was $54.6 million, or $0.75 per unit, compared to 2011 third quarter distributable cash flow of $80.3 million, or $1.24 per unit. For the nine months ended September 30, 2012, distributable cash flow available to limited partners was $114.2 million, or $1.59 per unit, compared to $244.8 million, or $3.79 per unit for the nine months ended September 30, 2011.
Earnings before interest, taxes, depreciation and amortization (EBITDA) was $69.5 million for the third quarter of 2012 compared to $138.8 million for the third quarter of 2011. For the nine months ended September 30, 2012, EBITDA was $5.1 million, compared to $391.7 million for the nine months ended September 30, 2011.
NS reported a third quarter net loss applicable to limited partners of $6.5 million, or $0.09 per unit, compared to net income applicable to limited partners of $59.8 million, or $0.92 per unit, earned in the third quarter of 2011. For the nine months ended September 30, 2012, the company reported a net loss applicable to limited partners of $242.1 million, or $3.40 per unit, compared to net income applicable to limited partners of $160.9 million, or $2.49 per unit, for the nine months ended September 30, 2011.
Third quarter results reflect the restructuring the company, as outlined above.
NuSTAR’s debt, as of September 30, 2012, was $2,036,406,000. NuStar partners’ equity, as of September 30, 2012, was $2,672,099,000. The debt-to-capitalization ratio was 43.2%.
He is the history of the partnership’s distributions, rounded to the nearest cent:
2001 $1.10
2002 $2.65
2003 $2.90
2004 $3.15
2005 $3.31
2006 $3.54
2007 $3.76
2008 $4.08
2009 $4.24
2010 $4.27
2011 $4.34
2012 $4.38
The current quarterly distribution is $1.095, for an annual rate of $4.38. At the December 27, 2012 closing price of $42.88, the yield is 10.2%.
There is a lively debate in the investment community about NuSTAR’s prospects. Is it a bargain at these prices or is it a “value trap?” Time will tell. Much needed and much anticipated investments in the nation’s infrastructure have been postponed because of the Great Recession. NuSTARr’s venture into the asphalt business has not, as of yet, been the great success management had hoped for. The company has redirected its efforts and has set forth a plan to expand its pipeline operations.
I own units of NuSTAR in a retirement income portfolio. I do not currently plan to add to this position and I am not inclined to sell NS at these depressed levels, far below the price at which I would consider selling some units ($67.38). So, for me NS is a “hold.” This is not a recommendation to buy NS, but rather a suggestion for a stock to study for possible inclusion in a dividend portfolio. Do your own study and due diligence. Use your judgment.
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