NuStar Energy LP (NS) 2007 Q1 法說會逐字稿

Good afternoon. I am Nicole, and I will be your conference operator today. I would like to welcome everyone to the NuStar Energy first quarter earnings conference call. All lines are placed on mute to prevent noise. After the speaker's remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) I would like to introduce Mr. Mark Meador, Senior Manager of Investor Relations. Sir, you may begin your conference.

Thank you, operator. Welcome to the NuStar Energy LP and NuStar GP Holdings LLC first quarter 2007 earnings conference call. With me today is Curt Anastasio, CEO and President of NuStar Energy LP and NuStar GP Holdings LLC, Steven Blank, our CFO nd other members of the management team. If you have not received the earnings release and if you would like copies of each, you may obtain them from our website at NuStar Energy.com and NuStar GP Holdings.com. Attached to the new earnings release we have provided additional information for both companies including information on NuStar Energy's LPs business segment. If after reviewing this, you have questions on the information that is presented there, please feel free to contact us after the call.

Before we get started, I would like to direct your attention to the forward-looking statements including the press releases. In summary says forward-looking statements contained in the press releases and conference call are intended to be covered by the provisions of the security Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Factors that could cause the actual results to be materially different include those we described in bonds we made with the FCC. Curt?

Thank you for joining us four the first quarter 2007 earnings conference call. I am happy to say that as of April 2, Valero LP and Valero GP Holdings LLC are now officially NuStar Energy LP and NuStar GP Holdings LLC. An exiting time for our company and our employees as the separation from Valero Energy Corporation marks a new direction in the growth of our company. With our new name the move to our new office and our new independence resulting from Valero Energy sale of NuStar GP Holdings, NuStar is now in a better position to continue to grow. With our separate identity, we've also recently had the chance to attract some very talented personnel from Valero Energy including several individuals that will lead our new supply and trading group.

We expect this group to add value to our organization by capitalizing on opportunities to optimize the use and profitability of the worldwide portfolio of assets. Manage our risks as we diversify our business and enhance our competitive position when pursuing acquisitions. Now turning to NuStar Energy LPs results for the first quarter we reported earnings applicable to limited partners of $26.7 million or $0.57 per unit which compares to $35.3 million or $0.75 per unit reported last year. Distributable cash flow available to limited partners from continuing operations was $47.4 million or $1.01 per unit for the first quarter. Compared to $53.4 million or $1.14 for the first quarter last year.

With respect to NuStar Energy LP's distribution the board declared a quarterly distribution of $0.91per unit payable May 14 to unit holders of record on May 7. This distribution represents an increase of $0.03 per unit or around 3%. Over the distribution for the first quarter of 2006. Distributable cash flow available to limited partners from continuing operation covers the distribution to the limited partners be 1.11 times for the first quarter. As expected, consolidated earnings and puts on three business segments specifically refined product terminal, refined product pipeline and crude oil pipeline were lower in the first quarter of 2007 compared to 2006 primarily due to the impact of plant turn arounds at several of the refinery served by NuStar Energy LP. Complications from a fire that started at Valero Energy McKee refinery in the Texas panhandle resulting in an unplanned shut down also caused earnings and through puts to be lower in the first quarter compared to last year. Total impact to us from the McKee refinery being down from February 16th to the end of the quarter was a negative impact of around $6 million of EBITDA. Going forward, we expect the negative impact from the Valero Energy McKee refinery incident to be off set by our business interruption insurance until the refinery resumes its full operations. Included in the first quarter 2007 results is a $5.2 million benefit or around $0.11 per unit related to a payment to reimburse us for damage to the docket at the West Weago Terminal that occurred in 2005.

We also benefited from an $1.3 million gain or $0.03 per unit on the sale of an idle asset at the Amsterdam terminal. These items are included in other income on the income statement and we received a $800,000 payment or around $0.02 per unit for a contractual short fall in asphalt through put. Excluding the impact of the items just mentioned and the McKee refinery fire and shut down. Earnings applicable to limited partners would have been around $25.4 million or $0.5 per unit for the first quarter of '07. Which is at the top of the guidance range of $0.45 to $0.55 we previously communicated.

Looking at some of NuStar Energy's LP financial statement results for the first quarter. Operating expenses were 81.2 million or 10.1 million higher than first quarter of '06. These expenses were higher in the quarter primarily due to increased salaries and wages reflecting increased head count and higher reimbursable expenses that were incurred on behalf of our customers. General and administrative expense increased 6.3 million to 14.9 million over the first quarter of last year. Primarily due to additional stock option and restricted unit expense resulting from a higher unit price compared to last year.

In addition, increase head count for services previously performed by Valero Energy that have now been transitioned to NuStar Energy as part of our separation from Valero has also resulted in the higher G&A compared to last year. Depreciation and amortization expense increased $3.2 million to $27.3 million primarily due to the acquisition of the St. James crude oil terminal on December 1st. The Burgos pipeline project coming on line in the third quarter of 2006 and other capital projects completed in 2006. Interest expense increased 3.2 million to 18.9 million primarily due to higher debt balance on our $600 million revolver which has been used to finance our expansion- several of our expansion projects.

Last, reliability capital expenditures were 4.6 million in the first quarter. We continue to expect reliability capital to be around 45 million for the full year of 2007. I would now like to discuss briefly the first quarter of 2007 results for NuStar GP Holdings. For the first quarter of 2007 GP Holdings reported net income of $8.8 million or $0.21 a unit. Total cash distribution expected from NuStar Energy LP based on the $0.91per unit distribution from the LP, and the ownership of the 2% general partner interest, center of distribution rights and 21.4% limited partner interest are $14.2 million.

After deducting expenses at NuStar GP Holdings for G&A and a small amount for interest and income tax net distributable cash flow is expected to be $13.5 million or $0.32 per unit. The NuStar GP Holdings board declared a quarterly distribution of $0.32 per unit payable May 16th to holders of record as of May 7th. With respect to NuStar Energy LP's capital expenditure program I am pleased to announce we've completed phase I of the St. Eustatius terminal expansion and return to service tankage at our terminal in Savannah.

Phase I of the St. Eustatius expansion will provide an incremental 500,000 barrels of storage capacity and around $2 million of EBITDA annually. This quarter we had record bunkering sales at St. Eustatius bunkering sales increased $21 million compared to last year to $138 million primarily due to increased vessel calls on ships headed to the far east. At our terminal in Savannah we returned to service around 400,000 barrels of storage capacity which will contribute about $1.2 million to EBITDA annually. We continue to make good progress on other expansion projects already started at our terminals in Amsterdam, St. Eustatius, St. James, Louisiana, Linden and New York Harbor, Texas City, Vancouver, Portland, and Stockton,California.

We continue to see the projects as being completed on time and on budget. We are also close to signing up the first of our pipeline lateral projects up on our ammonia pipeline system. I am please to say that during the quarter we had record through puts on the ammonia pipeline moving an incremental 9,000 tons of ammonia compared to last year's record quarter. This is mainly due to additional farming of corn which is supporting renewable fuels like ethanol. This would not have been possible without the addition of our new pump station we installed last year on the southern end of the line.

For the full year of 2007, we are now forecasting total CapEx of 287 million which includes about 230 million for strategic CapEx and 45 million for reliability and nearly 12 million for certain capital costs related to our separation from Valero Energy. And now turn to earnings guidance for NuStar Energy LP, we continue to expect the next several quarters will be impacted by the outage at Valero Energy's McKee refinery until Valero Energy has the refinery running at full operation. While we have $50 million of business interruption insurance which will be more than adequate to compensate us for the loss after the 30 days self-insurance period. We believe the timing and contingency of any insurance payments may impact our earning per unit in any particular quarter over the next few quarters. Ultimately, however, we will be made whole for our losses outside of our self insurance portion.

For the full year of 2007, we expect earnings before interest, taxes, depreciation and amortization to be higher in 2007 compared to 2006. And driven primarily by the Burgos pipeline project completed in July of '06. The acquisition of the St. James crude oil terminal in December '06 and the ramp up of the terminal expansion projects. Updated 2007 quarterly run rate for NuStar Energy LP are as follows: Operating expense is expected to be in the low 90s in the second quarter and then trailing down to the low 80s by the end of the year. Primarily due to increased maintenance and particularly in the second quarter.

Depreciation expense is expected to be in the range of $27 I am sorry $27 million to $28.5 million per quarter. And interest expense should be in the range of $19 to $20.5 million. Income tax expense is expected in the range of $2 to $3.5 million. Assuming NuStar Energy LP earns in the range of pardon me. In closing let me just revise the remarks by saying that in closing this is a very exciting time in the history of our company.

We have finalized the separation from Valero Energy and changed the name of our company, moved into new headquarter, all of which position us well for the next level of growth. While we have a strong portfolio of internal growth projects currently underway and position us well going forward, we continue to look at acquisitions to aggressively grow our asset base and increase unit holder value. I will now open it up to Q&A.

(OPERATOR INSTRUCTIONS) We will pause for a moment to compile the Q&A roster. Our first question comes from the line of Sam Arnold with Credit Fleece.

If you could comment, now that your separate, about the opportunities you have seeing for acquisitions out there. Would you be willing to purchase another MLP wholesale and your overall thoughts on how it is looking.

Okay. The number of potential acquisition targets really, I have never seen it more numerous than it is right now and of course, there are other MLPs included in that bunch that are for sale or could be for sale in short order. The whole issue though is pricing.

We want to do a good deal of course, like everybody else does and for us, you know, it has got to be accretive and synergistic and its got to really fit with the strategies and resources. On that front, we have strategic thrust including asphalt and commented about one acquisition and we are in the process now and due to confidentiality restrictions, I can't comment further on that and so, we are very aggressively pursuing a number of things. It is not a number of opportunities, it is really doing the best deal for us and you know, I would say it looks very promising. We have several things in the pipeline that we are looking at that could be quite attractive for us.

Now, do you think that because MLP has had such a strong run your capital is low and the pricing is going up, and I guess with that, and that's opening up new opportunities for people to say I have held the assets, I can sell them to so much to a MLP right now and worth my time to do so where previously I hadn't?

Yes, I do think that. People who are on the sale side of the equation look at the current valuations and say, this is pretty attractive and it might be a good time to sell. Thats of course a caution sign for buyers.

Right.

You have to make sure you are doing the right deal. We have got things we are looking at that are very attractive for us if we are able to pull it off on the terms we think we could pull it off. There are a lot of deals that don't work for us, frankly. There are a lot of MLP to MLP or GP to GP deals that the seller is interested in doing but we as a buyer really are not interested in pursuing. They are not attractive because of the lofty expectations that they have and putting those aside, there are plenty of other targets to shoot at.

Okay. Thank you so much.

Yes.

Your next question comes from the line of Ross Payne with Wachovia.

How are you doing, guys. One quick question, I might have missed it. Can you go over the 6.6 million on other income for the quarter again.

Yes, okay. It is basically two things. It is the sale of an idle refining plant located at a terminal in Amsterdam for $1.5 million and the balance was the insurance payment on the West Weago dock which have been damaged back in 2005 on collecting the insurance proceeds.

That is 5.2 or so?

Yes.

Okay.

The lack of that has hurt us for awhile.

That is a bit one time in nature obviously.

Yes.

All right. Also, kind of looking at the leverage metrics using the EBITDA numbers, you are in the low fours. Is that a low comfort zone for you.

Yes, what we have, the bank covenant allows us to count pro forma construction projects underway to the debt we assume as we are building those. So we are right in the low fours and that's fine. We shared all of that with the agencies when we talked through the budget with them.

Okay. How much debt, Steve, and this maybe a question that you don't know off the top of your head. How much debt is associated with projects that are not yet starting to generate any cash flow for you? Any rough idea there? Maybe you can rough it for us?

Roughly speaking, debts up to 30 million in the quarter so that is probably about it. Because everything else in '06, we are on stream. And so maybe 30, 35 million.

Okay.

And of course, Curtis, how much do you think that would be up this year. And up to 250.

200 million before any inventory associated with the trading business that we are just entering in and again, you know, much of that gets pro forma for the EBITDA that is going to come with us. If you look at the snapshot. of year end its probably about 4.5 times and when you pro forma it, it drops down closer to four.

Okay. Can you speak more about the trading business that you are getting into.

Yes. Sure. You know, because of the separation from Valero, you know, among the assets being split up was an opportunity to split up some people too. And we were really able to hire some of the top supply trading people and asphalt marketing group which fit our strategic thrust there that we had identified and for the board in the fall as an area of interest to us. I think we are not transforming ourselves into a trading company, but on the other hand, this is a group that really can add value to us. Because they will be able to help us optimize the use of our assets where we have spare capacity they can help fill it up, they can, you know, risk manage and hedge some of the price exposure we are going to have if you get deeper, diversify deeper into areas like asphalt marketing or wholesale marking of any product. Now-a-days it relate to say the acquisition front and when they look at acquisitions they look at the total value chain in figuring out the fair value of a pipeline or a terminal and if you are only looking at it in terms of what might some third party be able to rent it for, you are very often not capturing the full value of the asset and may not be competitive on the acquisition of that asset.

So having you know, the additional supply and trading and marketing perspective will help us there as well. So, you know, I think it is going to be a significant add, it will ramp up over time and don't expect much out of the group in '07 and starting '08 and forward, I think you will start seeing a meaningful contribution. We also got really some excellent administrative people as well, including nearly the entire Public Relations, Communications department, people in HR and the rest of it, it really positions us for, getting through the transition year and good '07 and we are going to have a much better '08 and really to do that, you have to have the right people and right seats and we do right now.

okay. great. Thanks guys, that's it for me.

Okay.

Your next question comes from the line of Mark Easterbrook with RBC.

Have you seen any project delays, a lot of the MLPs have gone through some construction delays or labor issues that have caused delays on the project.

Yes. No, we have been really fortunate in that regard. Our engineering group and operations folks have really been on top of the projects. Good planning, good execution. You know, things cost more than they did, two, five years ago but, we factored that in to the economics when we evaluated the project. I think it is always a challenge. But really, we have been on top of the game there.

And then going to the second quarter in terms of refinery turn arounds. How many are planned for the second quarter and tied into the system.

Right, we have got that pulled out. I think it is the schedule we had for a while. Give us a moment to pull it up. We are looking at, well, obviously the big thing we have out there is not a turnpike around. They are not up to full capacity, McKee, they are at 70,000 to 80,000 barrel per day and the total capacity is 160 or so. So it will take a long time before they are back. Restorative full capacity. It is looking like it is going to be for 15 days in April. Three is looking like it is going to be for 15 days in April. Three rivers, and we don't do a lot off of Pauls Borrow and Three Rivers. And they have a unit and dice sell hydro in down and we have got pipeline going in there and then Venesia has got hydro cracker in April and we have the crude tanks there and it is not a heavy turn around period.

As Steve said, it is not the impact of those, it is the ongoing McKee situation. Valero has said they plan to ramp up from the 80,000 barrel as day to about 115 and keep that there until they repair and restore the PDA unit, the unit that exploded and had the major fire. We are in a situation, we are in a timing situation. We have a very clear insurance profile and you know, it is just a matter of timing. Because you know, how insurance claims work. There is documentation that present. Review period by the ensurer and there is an analysis and back and forth and then they pay you. We have a very clear claim here and we expect full reimbursement so at the end of the day we have no financial impact to us. In any particular quarter, we may have the impact and may not have been fully reimbursed. I think we are saying.

Last time we looked at it, if we were fully reimbursed for and during the second quarter for the business interruption losses incurred to that point, we would have earnings in the range of $0.60 to $0.70 per unit. But, you know, that really depends on all of the contingencies around the timing of the payment and we are confident we will be fully made whole.

You know, we are just, we are going to put in probably a claim in May. To cover us at least through April.

Potentially we will be able to get payment through May and then it is a month by month process. And you know, until the thing is settled. It is not settled until they come fully back on line at the McKee refinery and we are restored. We will be putting in paper work every month and processing that and collecting until they are back up and running. So, it is making it difficult for us to forecast. The point that we are trying to get to you. In any particular month, because it depends on.

We are in an extraordinary situation with this. We really are. Remember when we IPOed, this MLP in 2001, The Mckee system was two thirds of our EBITDA in cash flow it is now roughly 16% and so, it is way, way down from what it was. But now, previously we tried to think of the worse thing that could happen to us would be McKee blows up the way it did and it would have been quite significant in the old days and still important and still significant and nowhere near what it used to be. And these expansion projects it dilutes even further McKee to the overall results. Even at 16%. You know, we do feel when we are not getting full reimbursement for the full interruption loss on an immediate basis. So thats were we are right now.

McKee refinery supposed to go up to an 115,000 per day. When does it get up to capacity. Do you have any inclination when that would be.

Actually they have to rebuild a destroyed unit. Called a PDA unit which helps with their, enhances the gasoline production and I don't know. I mean, especially not sure, I am looking what Valero last said on it and I wouldn't expect that to be done before a year. We can't speak for Valero, we are just guessing. I think, 115 is what they put out in the short term and they are targeting the run rate.

The last question. Maintenance CapEx came in light this quarter. Can you give us any kind of timing on how that might felter out for the rest of '07. Second quarter going to be a heavy CapEx quarter.

Go ahead.

Yes, currently, we are looking at it being pretty heavy and second and third and pretty light in the fourth. And it moves around a lot, Mark awe've got a lot of projects going on and we might not spend as much money as we currently think in the second. There is not one particularly big project. There is lots of little. And we think it is going to be. We thought the first quarter was going to be heavy. We deferred some stuff that is flipping in the second and second and third will be a lot heavier than the first and the fourth. And these are our current guests.

One more question. The $12 million of CapEx for separation. Is that this year. Ongoing CapEx.

That's right and that's why we called it separation. Classically we have two buckets which has a return. Reliability which doesn't. And in the unusual divorce year. We create a third month separation and basically to put in IT equipment here in the building and control room and it is not a return. But it is not. We didn't want you to think it is ongoing reliability.

Okay. Thanks, guys.

Okay.

Your next question comes from the line of Mark Reichman with A.G. Edwards.

Thank you, I wanted to clarify one thing. As I calculate it, you reported $0.57 Just for this quarter. And through include the one time items that Ross mentioned and also mentioned that absent the impact of the fire at McKee, that your earnings is about, would be about $0.54 for the quarter. Is that excluding the refinery, the ongoing refinery turn arounds and the impact for the fire on McKee or just the fire impact on the McKee refinery.

It is just the fire at McKee. There were a lot of little refinery problems during the first quarter, turn arounds and for instance,.

That's one reason margins were so.

Right. The refining business, there was in January, the Citgo refinery down for three weeks. Three Rivers, Texas city. McKee all had problems and turn arounds and in February, you had Ardmore, Venesia, Corpus Christi and minor turn arounds and then the fire at McKee. It was a choppy quarter. Facing a pretty heavy turn around schedule and that's why we guided $0.45 to $0.55.

It is really $0.54 and were you saying that $0.60 to $0.70 for the second through the fourth quarter subject to timing on any insurance recover.

No, no, I didn't say $0.60 to $0.70 through the fourth. I said $0.60 to $0.70 for the second.

Okay.

Depending on timing of insurance.

Right. And then looking.

The back. We see steady improvement. In other words, internally what we see, the year should be as good as, at least as good as it always was and going through some extraordinary event and it is obviously in the first and second quarter. We were out in the road show December.

We expected EBITDA to be up 30 million this year and compared to last. We still think that's good.

Right.

It is just going to. How it plays out because of the insurance. And you know, you will get your money ultimately and there is going to be a lag. Because you have to put in the paper work every month and look at it for a month, then they are going to pay it. Not like my car is hit and you owe me money. Our car is getting hit every day.

Remind me, what was the cycle time to get recovery on the West Weago insurance claim.

that's really not comparable. Because that was really a contested, you know, and claim and got totally wiped out and property casualty type claim.

Right. Business interruption.

This is really a clear, you know, we had profit from McKee and now there is no McKee and you buy business interruption insurance.

Right. Lastly, are on those planned terminal expansions for '07 it looked like, you know, there might be partially year-end impacts from the expansion at Linden and Savannah. Are all those '07 projects slated to be put in service on the dates anticipated.

Yes. Pretty much. I think there may be one or two that is a few weeks off and basically yes. And we have the incremental EBITDA and we mentioned that in '08 and '07 we said it is 11 million incremental EBITDA over '06 from the expansion project coming in '07 if that's clear.

Right.

You have a small amount about 11 in '07 and incremental and then number of, it looks good for '08 if we do nothing else.

Okay, great. Thanks for the clarification.

Okay. Great question.

Next question comes from Michael Blum with Wachovia.

Hi. I was wondering if we could drill down more on this marketing and trading business. I guess for '08, how should I think about that. Is that going to be additive to earnings and if yes, and how much so. And how sustainable is that business? What is a good run rate?

The answer is yes. It will be added through our earnings and I tell you, we could have a board meeting tomorrow and where for the very first time we are going to make a presentation to the board on the potential for the business and they have to consider limits of authority. Hedging policies and all that. And so, you know, it is really premature for us to tell you here is what we are going to do because we want our board to take the first crack at what they'll allow us to do. But absolutely it will.

We wouldn't have brought the extra head count on if we didn't firmly believe it was going to be additive to earnings and cash flow. Particularly in '08. But I also told you we are not transforming ourselves into a trading company. And this is going to be significant but it is not going to overtake what we are doing on the pipeline and terminal side. It adopt totally answer what you have but it will be a plus over what we have already sort of indicated to you about incremental EBITDA from expansion projects. It will be additive to that. That's the most I could say at this point. Without having, going further with our board.

Okay. Well, thank you very much.

Okay.

Your next question comes from the line of John Tysseland with Citigroup.

Quick question, much like you see on the natural gas side of things on the terminal side, you see a pretty big build out or demand for crude and services and materials and are you seeing similar time cost escalation and tight crew kind of market out there and do you think that is going to impact your projected cost at all.

Yes, we have seen higher costs and you know, tighter crew availabilities and all our cost account for the higher cost that we forecasted and the ability to get the projects done. So the projects, the 4 million or so of internal growth that we have put out there as what we are targeting over the next couple of years really accounts for the fact that costs are higher now and will be over the next 12, 24 months than they were several years ago. That is not a major factor for us in terms of what we see as the benefit of the projects. One of the things, I should also say on the sun my and trading group is that one of the things this will enable us to do really. It is very inner gist particular with what we are doing with the pipeline and terminal side. Because what we would like to do is get a business model going with the best deal for the company. If there is asset available and spare capacity in an asset that we could better use than what our other customers see. We will use it. our own group will us it. That gives us an option here. How we make our money in this business.

That was going to be my second question and looking at the organic growth and the money you are using to expand your capacity. Now, that you have this marketing and trading and potentially this marketing and trading business, you know, neck year when some of this comes on line. You know, how competitive does that help you. I guess negotiate with your customers and what kind of amount on a percentage basis would you be looking to utilize yourself potentially to your other customers.

It is another reality check on what the asset is worth. You will now have an internal view on what the utilization of what that is worth versus what outside parties are telling you it is worth to them. Our job is to do the best deal for the company. This is another level of analysis of the value of our assets that we didn't really have previously in house. And we are going to do the best deal for the company and not favor anybody's in house book and not trying to disadvantage any customer and the way I look at our internal trading group when it come to say the use of our as assets.

It is another customer and out there competing with the customers dealing with every day and if they are not offer you us the best deal. They won't get it. That's how I see it. And they know and it is really for us. Just further assurance that we are doing what is best for the investors.

Any idea or forward-looking idea of what kind of on a percentage basis of what you might look at excess capacity that you see o coming on line. Whether you might sell, to customers or maybe, you know maintain a bit of it and like a 75/25 deal or something like that.

No, I don't have that level of detail yet. We are still going through what all the options are and you know, our internal trading group won't be limited to our system either. They are free to go out and cut deals with third parties in the world if that brings us more money. We have more spare capacity in our system and pipeline systems that they could look at. Supplying into and we have not a lot in our existing terminals.

Here and there we do because you know, our current marketing group led by Mary Morgan has done a great job of filling up the assets on the new deals and they are backed by long term deals with good customers. We are very happy to do those and continue to do those in the future. But what, the new dimension that we are bringing here is to compare what our in-house group is saying they can do with the asset versus other people in the world and again, they are not restricted to using only our assets. They can deal with anybody else if they have a good business opportunity.

So, I think you know, they will look at our spare castity as contracts come up for renewal and Mary Morgan's group will have another customer that could make offers to or deal with or negotiate with and called the NuStar supply trading group and they are, they are just another customer. So, I think it will help the competitive bidding and theoretically the value of the assets we have.

That's helpful, thank you, guys.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Paul Sankey with Deutsch Bank.

The other end of the pipeline, I was wondering about your perspective on your demand and how strong that is and product specifications and shifting, the nature of the products that are being used, just generally the whole subject of oil demand that looks so strong right now and if you can have that.

Most people in the industry would tell you it is surprising how strong product demand is and they will say good but it is even better than expected. Even with relatively high prices that you see in the market place. It is an indication of demand and destruction or erosion of demand quite the contrary, so that's one of the reasons that you know, our logistics assets have been so valuable. It is exactly that. And Mary, do you want to add something? It gets market specific and tee manned is very--

No, I think continuing high demand of the far east and particularly China, the latest figure I saw was 8.8% increase in demand in China. So again, that has an impact around the world in general. And I agree with Curt's comments and continues to be strong and our assets are well positioned to manage it.

Does that mean, the fact that you reference China, is that something to do with export or export product or the general global observation?

One of the things you might recall that I mentioned in my remarks, we had a record number of bunker vessel calls and St. Eustatius bunker calls and a lot of it was transferred to the far east. And the draw of the far east on the particular case. Heavy fuel oil and bunker, you know, it is putting increased demand on our Carribean supply source. It is just another slice of the world pie. Just another little instance of the importance of you know, far east demand. Sucking product out of the western hemisphere.

Interesting. On the sub products, is it, this is gasoline and diesel type thing. Anything to add, I know the general theme is surprised at the strength, any particular sub themes there in the various products?

I think you know, in our company, you know, the renewable fueless is a bullish factor for our company and several different ways. We are able to do. Ethanol and biodiesel projects at our terminals which earn returns. We can invest in segregation and storage and so on and get a return on those investments the ammonia pipeline is doing so well because of record corn plantings. It is unbelievable.

I don't know if you have seen some of the articles lately about how many millions and millions of acres are being planted in corn and it as bullish factor for a fertilizer which depends in part on the ammonia pipeline system. That is a bullish factor for us as well and you know, the whole dynamic. Gasoline versus diesel and with assets on booth sides of the Atlantic. We benefit and we can benefit even further with the new supply and trading group with gasoline import into the U.S. we see that continuing at times and speaks the large numbers and compared to other times we see that as a regular event, where we are in the world right now.

In the supply and demand picture. Very strong diesel demand in Europe and increasing diesel demand here and the rate of diesel demand growth as you know is higher than the rate of gasoline demand growth generally speaking in the United States. So, you know, this promotes a Trans-Atlantic arbitrash that our terminals are well positioned to capitalize on. All the fundmental pieces are there right now and on top of the fundamentals of course, you have all the speculators in the market right now.

God knows what that does to absolute prices week to week, that is a layer on top of a very strong fundamentals right now and you have that wild card and that volatility creates trading opportunities and that's why you know, some of the traders have been in hunt for storage as well. Because you know, it is not just the tank go or the forward curve being favorable but the volatility day to day that gets people in the trading business gets interested in the physical positions if you you are in the right market.

Is interest a story there that people are buying physical and then just holding it you think.

Yes.

You do.

They are, and they are doing that. And they are doing ar bit . And between the kind of marks I just mentioned and you know, there is, sort of a consensus, right or wrong, that for the long haul, you want to have control over physical storage and it is going to be valuable for a very long time. Notwithstanding what the market does in the long

Yes, that's is interesting. Thanks so much.

Yes.

Your next question comes from the lean of Leo Lark in with Standard Poor's Research.

I am just checking here on my notes. I want to make certain I had this correct. Guidance for expenses 19 to 20 million per quarter?

Was it 19 to 20 and a half. Trying to remember what I said.

Interest?

Yes. 20.5 million.

Thank you. The other thing, with respect to the ethanol, is that, I am not that familiar with that, with your company. I am only beginning coverage, I am wondering does that have potential to become very significant. How significant is it now if you add in the ammonia.

So see the way, it helps us on several fronts and you have to look at the different pieces, the ammonia volumes tend to go up because of all the, we serve almost the entire corn belt. And so there tends to be more demand for ammonia as fertilizer in the agricultural region. They need to grow more corn for the ethanol plants especially as the mandates go up and helps us on projects at our existing terminals and make investments to handle ethanol for distribution to end users and a return on the projects.

Then we are looking at some other things too. In the petroleum world where you talk about big volumes millions of barrels a day and so forth, the ethanol numbers look relatively small. It is, a small proportion of the fuel pool, if you will. And the growth rate is very, very fast and being mandated by government and you have the assurance that there is going to and minimum rate of growth over the next couple of years which is quite high. So, you know, that's what we like about it. And the volumes are small and the oil world and the growth rate is very high and we can do some, you know, earn some nice returns from being exposed to it.

Now we haven't gotten into the production at all. And you know, and we haven't really found a project suitable for us on that end and there is plenty for us to do on the transportation and the storage and the distribution of ethanol.

Thanks, that's helpful.

There are no further questions at this time, Mr. Meador

If you have any questions please call Investor Relations. Thank you for calling us today.

Thank you for participating in today's conference call. You may now disconnect.