NuStar Energy LP (NS) 2009 Q3 法說會逐字稿

Good morning, my name is Heather and I will be your conference operator today. At this time, I would like to welcome everyone to the NuStar Energy L.P. and NuStar GP Holdings, LLC Third Quarter 2009 Earnings Conference Call. (Operator Instructions) At this time, I would like to turn the call over to Mr. Mark Meador. Sir, you may begin.

Thank you, Operator. Good morning, and welcome to our conference call to discuss NuStar Energy L.P. and NuStar GP Holdings, LLC's Third Quarter 2009 earnings results. If you have not received the earnings releases and would like copies of each, you may obtain them from our websites at NuStarEnergy.com and NuStarGP.com. Attached to the earnings releases, we have provided additional financial information for both companies, including information on NuStar Energy L.P.'s business segments. In addition, we have posted operating highlights and fundamental data for our asphalt operations under the Investors portion of the NuStar Energy L.P. website.

If after reviewing the attached tables and operating highlights you have questions on the information that is presented there, please feel free to contact us after the call.

With me today is Curt Anastasio, CEO and President of NuStar Energy L.P. and NuStar GP Holdings, LLC, Steve Blank, our CFO, and other members of our management team. Before we get started, we would like to remind you that during the course of this call, NuStar Management will make certain statements concerning the future performance of NuStar, and other statements that will be forward-looking statements as defined by Securities laws. These statements reflect our current views with regard to future events, and are subject to various risks, uncertainties, and assumptions described in NuStar Energy L.P. and NuStar GP Holdings' annual reports on Form 10-K for the year end December 31, 2008, and subsequent filings with the Securities and Exchange Commission.

Actual results may materially differ from those discussed in these forward-looking statements, and we undertake no duty to update any forward-looking statements to conform the statement to actual results or changes in our expectations. During the course of the call, we will also make reference to certain non-GAAP financial measures. We have provided an additional schedule under the Investors and Financial Reports and SEC filings portion of the NuStar Energy L.P. website, reconciling these non-GAAP financial measures to their most directly comparable financial measure calculated and presented in accordance with US Generally Accepted Accounting Principles, or GAAP.

Our non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income, operating income, net cash flows provided by operating activities, or any other GAAP measure of liquidity or financial performance. I will now turn the call over to Curt.

Good morning, and thanks for joining us. For the third quarter of '09, NuStar Energy reported distributable cash flow of $61.5 million, or $1.13 per unit, EBITDA of $124.4 million, and earnings to the limited partners of $56.1 million, or $1.03 per unit. GP reported distributable cash flow available to unit holders for the third quarter, of $18.9 million, or $0.44 per unit, and earnings of $17.7 million, or $0.42 per unit.

While these results were much lower than last year's all-time record third quarter results, I am pleased to say they were still the third best results in NuStar's history and in line with our guidance.

The majority of the decline quarter-over-quarter was mainly due to lower earnings from asphalt operations, which were impacted by a weaker product margin per barrel or $5.03 per barrel, compared to last year's record of $16.44 per barrel.

While the full year per-barrel margin is expected to be lower than last year's, it is still much better than historical averages. The margin for the nearly two-year period that we've owned the former CITGO Asphalt Refineries, is expected to be around $7.50, significantly higher than the $3.78 per barrel average for the seven years prior to when we owned the refineries.

As we said at the time of the acquisition, asphalt is seasonal, it's more volatile than our other business, but that margins in the future years would trend higher than historical markers, especially 2011 and later.

In a period of weak demand, asphalt pricing did not keep pace with the nearly 60% run-up in crude prices through the end of the third quarter of '09. Our view earlier in the year that asphalt supply would be lower due to lower production and minimal imports was correct, as production and imports are currently 5% and 13% lower than 2008, respectively.

However, demand was weaker than even our conservative estimates, down about 15% compared to last year. The very low level of Federal stimulus funding of road projects, particularly in the markets we serve in the Eastern part of the country, was not enough to offset a weak economy and the late start to the asphalt season on the East Coast due to weather.

Since weak demand did not allow us to raise our asphalt prices sufficiently in a period when crude oil prices kept going up, this squeezed the product margin in the third quarter. Keep in mind going into this year, we were less confident about Federal stimulus spending than industry experts. However, even our conservative view of government stimulus spending in '09 proved to be optimistic.

For the Fiscal Year ended September 30th of '09, industry data indicates that approximately $2.4 billion of the approximately $27.5 billion available for highway projects had been spent. Some industry experts estimated that $5.5 billion or more would in fact be spent by this time, and the current amount spent per project is not much higher than it was at quarter (technical difficulty) at around $3 billion.

The good news is that it's not a matter of if, but a matter of when, this money will be spent. And, it's now evident that most of it will be spent in 2010 and 2011. With nearly $13 billion of projects under construction currently, and since asphalt is typically used at the end of the project, this gives us further confidence we will see the benefit from stimulus spending next year and in 2011.

We are assuming only a very modest economic recovery next year in the US, which should be supportive of private sector asphalt demand, particularly later in the year. With respect to asphalt supply, we continue to see reduced production in the market as weak refining margins, primarily due to high refined product inventories and narrow light-heavy crude oil spreads, should cause refiners either to cut back or even shut down.

This will benefit on-purpose asphalt refiners like NuStar. In addition, our view on coker projects further tightening asphalt supply and having a major impact in late 2011 and beyond remains intact.

Our other two business segments, transportation and storage, generated strong earnings in the third quarter. Those two segments generated nearly $80 million of operating income for the third quarter, significantly higher than the $59 million in the third quarter of last year, and the nearly $69 million generated second quarter of '09.

I continue to be pleased with the results from these two business segments, which have generated relatively stable cash flows during the worst recession since the 1930s following the near collapse of the financial system in 2008. I am excited to say we also announced today a distribution increase at both the L.P. and the GP. The L.P. Board declared a $1.065 distribution, an increase from the $1.0575 distribution paid last quarter, and the third quarter of last year. Including today's increase, the cumulative distribution per unit for the first three quarters of '09 is more than 5% higher than the same period in 2008.

I'd also like to mention that all of the distribution at NuStar Energy has been covered by the cash flows from the non-asphalt operations for the entire period that we've owned the asphalt refineries, or since March of last year. And even in a weaker asphalt environment such as this year's, distributable cash flow from the non-asphalt operations has still covered our distribution for the nine months ended September 30th by 1.25 times.

This effectively provides NuStar's investors with optionality on the performance of our asphalt operations, since our other operations are expected to cover all of the distribution for the period that we've owned the asphalt refineries.

Even if we had a shortfall in the cash flows from the non-asphalt operations, the cumulative holdback from the asphalt cash flows that we do under our 2-to-1 holdback practice is expected to cover the distribution.

The GP Board declared a $0.435 per unit distribution, which is $0.005 higher than the distribution for the last quarter, and third quarter last year. That represents a nearly 13% increase for the first three quarters of '09, compared to the same period of 2008. The distribution coverage ratio at the L.P. for the third quarter of '09 was 1.06 times, and was a strong 1.47 times for the nine months ended September 30. And, we continue to expect to have a strong ratio for the year ended 2009.

Now, I'd like to review in more detail third quarter results for each business segment. We saw outstanding results in the storage segment as operating income increased by 46% compared to third quarter of last year. Higher storage lease revenues from projects completed under our previous $400 million construction program combined with renewals of lease contracts and higher rates, provided a significant boost to earnings.

Lower operating expenses, mainly due to a decline in power costs, and an environmental accrual in last year's third quarter that was settled in 2009, also helped earnings in the storage segment.

In addition, last year's third quarter operating expenses were higher due to recovery costs we incurred related to several hurricanes that impacted our Gulf Coast terminals.

For the remainder of 2009, our storage segment will continue to perform well, as I expect slightly higher results in the fourth quarter. For the full year of 2009, I'm projecting EBITDA will still be in the range of $35 million to $40 million higher than in 2008.

While we will not see as much incremental benefit in 2010 in the storage segment as we did in 2009, since we conservatively cut our growth capital earlier this year in response to the stressed capital markets, most of our new internal growth opportunities that we've now identified will continue to be primarily in the storage segment.

Our transportation segment also did exceptionally well in the quarter, as operating income was more than 22% higher compared to the third quarter of last year, despite throughputs being nearly 18% lower. Throughputs in the third quarter of '09 were mainly impacted by previously completed asset sales, which had generated a moderate amount of throughput but only a very small portion of earnings.

Had we not sold those assets, our pipeline throughputs would have been significantly higher, and comparable to second quarter of '09. A planned turnaround at Valero's Three Rivers, Texas refinery and unplanned outages at CITGO's Corpus Christi refinery, Tesoro's Mandan, North Dakota, refinery, and Valero's Ardmore, Oklahoma refinery, also impacted throughputs in the third quarter.

Regardless, third quarter 2009 operating income was still higher than last year's third quarter, despite the impact from these outages and the asset sales.

Revenue per barrel for the third quarter of 2009 at $0.98 per barrel was $0.14 higher than the $0.84 per barrel for the third quarter of last year. This was primarily due to the 7.6% tariff increase that became effective at the beginning of the third quarter on a majority of our pipelines.

The previously-completed asset sales I mentioned also provided a boost to our revenue per barrel, since they had moderate throughput volumes but relatively low revenue per barrel.

Significantly lower operating expense, primarily due to a lower product imbalance liability on the pipelines and lower power costs also boosted the bottom line in this segment during the third quarter.

Natural gas averaged $3.44 per MMBTU for the third quarter, significantly less than the almost $9.00 on the third quarter last year. Looking ahead to the fourth quarter, we expect to see an up-tick in throughputs in our transportation segment compared to the third quarter, mainly due to a lighter refinery maintenance schedule.

This should help us achieve our goal, which we have expressed publicly for many months now, of comparable to slightly better results for a full year of '09 compared to '08.

I would like to take this opportunity to address several questions we have received lately about refinery closures as a result of weak refining margins, and the impact it might have on our transportation segment and refinery crude storage tanks.

None of the closures announced at this time by Valero Energy are expected to impact our results. Valero has announced, for example, that it's looking at strategic alternatives for its Paulsboro, New Jersey refinery. Even if they were to idle that refinery, which they have not talked about, it would be immaterial to our results as we have only a small truck rack operation at the refinery, which could in any event be supplied by alternative means.

On the other hand, since Valero's Paulsboro refinery produces asphalt, a cutback or closure could have a positive impact on our asphalt operations, by way of reduced asphalt supply on the East Coast.

While we do not foresee closures at any of the other refineries we serve, we constantly monitor the situation and determine the best strategic alternatives for all of our pipelines and refinery and crude techs. Demand will ultimately drive how refined products get to market, and should there be any such closures, we expect the flexibility of our systems will allow us to recoup throughput buy, just as we did in 2007 when Valero Energy's McKee refinery in the Texas panhandle shut down for an extended period after a large fire.

Next year, we expect transportation volumes to be slightly higher than 2009 volumes, excluding the impact from the sale of pipelines this year. In addition, while we are currently budgeting the tariff adjustment to be around 2% lower starting July 1, 2010, compared to the July 2009 adjustment, we still expect to benefit from the higher 7.6% tariff increase during the first six months of 2010. And that should translate into a slightly higher tariff rate for calendar year 2010 versus calendar year 2009.

While that should bode well for our transportation segment revenues, we will still need to watch the impact of natural gas prices in 2010 on our operating expenses.

Turning finally to our asphalt and fuels marketing segment, operating income from asphalt operations was $19.8 million, and EBITDA was $24.7 million. While total sales volumes were almost 30% higher than second quarter of '09, including an almost 30% increase in rack asphalt sales volumes, a lower product margin per barrel of $5.03 significantly undercut the benefit of the higher volumes.

Our fuel marketing operations generated operating income of $8.4 million, of which $3.5 million was generated from product supply and trading operations, $2.9 million from fuel oil trading operations, and most of the rest or $1.6 million from bunkering operations.

Bunkering continued to be impacted by a weak economy as the average selling price per ton and volumes were weaker compared to third quarter of '08. Also, last year's third quarter included a $7.7 million hedge gain which we did not have in the third quarter of this year. For the fourth quarter of '09, we expect earnings from asphalt operations to follow the typical seasonal pattern of decline as sales volumes and margins taper off, and we start winter-filling for next year's asphalt season.

Currently, we are projecting a margin per barrel in the range of $3.75 to $4.25 per barrel for the fourth quarter, higher than last year's fourth quarter margin per barrel of a negative $1.66.

The fourth quarter 2009 margin should be better, since we don't anticipate the rapid collapse of the entire energy market that occurred in the fourth quarter of last year when crude dropped from around $100.00 per barrel to $45.00 per barrel by year end.

If you recall, the continuing and significant decline in crude oil, asphalt and product prices for the fourth quarter of 2008 outpaced the slower decline in our weighted average cost of goods sold, which caused the negative margin last year.

Higher crude oil prices in the fourth quarter of '09 should benefit the margin we receive from our intermediate products. As a result, earnings from our asphalt operations should only be slightly negative in the fourth quarter of '09, versus the nearly $33 million of EBITDA lost in the fourth quarter of last year.

For the full year of 2009, EBITDA for the entire asphalt and fuels marketing segment is expected to be in the range of $80 million to $90 million. Since we have earned nearly $80 million of EBITDA for the first three quarters of 2009, this would suggest slightly positive earnings in the fourth quarter for the segment as a whole at the midpoint of that range.

In 2010, we're budgeting for earnings improvement in this segment. For our asphalt operations, we expect a higher margin per barrel as demand is expected to increase slightly, aided by the stimulus package, and supply will continue to be tight.

Turning to the third quarter expenses, operating expenses came in at $118 million, around $12 million to $17 million lower than our previous guidance of $130 million to $135 million, and nearly $9 million lower than third quarter of last year. The reason for the variance versus our guidance was mainly lower than expected power and maintenance costs.

The variance versus last year's third quarter was also primarily due to lower power costs. G&A expenses of $19.2 million were also lower than our previous guidance of $24 million to $25 million as a result of lower all-employee bonus accrual reflecting our reduced earnings and lower unit option expense. Compared to the third quarter of last year, G&A expense was only slightly lower.

Depreciation and amortization expense of $36.8 million was in line with our guidance and slightly higher than third quarter of last year, mainly due to additional projects coming on line since that time.

We continue to benefit from very low interest rates on our revolver, currently around 75 basis points, which has resulted in significantly lower interest expense. Third quarter 2009 interest expense of $19.8 million was $5.4 million, or 22%, lower than the third quarter of last year. We also benefited from a lower revolver balance because of reduced working capital requirements as crude oil prices for third quarter of '09 were nearly $50 per barrel less than last year's third quarter.

As I mentioned earlier, we met with our Board a couple of weeks ago for the strategic planning process and we laid out some very exciting plans for future growth.

Now that the capital markets have improved, we have refilled our pipeline of internal growth opportunities with our next phase totaling more than $500 million for the next two to three years with a focus on both fee-based and margin-based internal growth projects.

Most of the projects are fee-based opportunities, to build new storage for large, credit-worthy customers under long term contracts at strategic domestic and international terminals. All of the contracts are anywhere from five to eight years in duration.

Other fee-based projects include developing and including logistics at key terminals, expanding our pipeline system in fast growing regions like South Texas, and putting in place the necessary infrastructure to allow us to capture incremental ethanol and biofuel volumes at certain of our terminals.

The majority of these projects have expected internal rates of return well over 20%. Margin based projects include opportunities to optimize our asphalt operations, expand our fuel oil blending and bunkering operations, and develop new crude supply logistics to capitalize on heavy oil imbalances.

As we continue to see a shortfall in heavy crude supply, we plan to build the necessary crude oil and heavy fuel oil blending infrastructure at certain key terminals to meet a need in the marketplace. Returns are also very attractive with expected IRRs well north of 20%.

Since we expect to push forward quickly on this more than $500 million internal growth program, our internal growth capital is budgeted to be significantly higher next year at over $300 million, of which approximately $220 million will go towards storage facilities, $30 million to transportation and $60 million to asphalt and fuels marketing.

Looking at our balance sheet, we've been fortunate and in good position compared to most of our peers to successfully execute our financially conservative plan. We said going into 2009 that we would be able to run the business, fund our growth capital, raise the distribution and maintain a strong financial condition and investment-grade rating without having to go to the markets to raise any capital. And this is even with lower asphalt guidance than we had originally budgeted or anticipated, a higher capital growth program, and higher working capital [requirements].

You will recall that earlier this year we were cautious on our capital spending, given the challenging economic and capital market conditions. As a result, we lightened our internal growth program to around $80 million. However, with greater visibility to improved markets, our 2009 internal growth program has increased as the year has progressed and currently stands at around $127 million.

We continue to have good liquidity available under our revolving credit facility, which should continue to increase by year-end as our working capital requirements decline, assuming the price of crude oil doesn't increase significantly. While our debt-to-EBITDA ratio of 4.6 at the end of the third quarter is higher than we anticipated because of lower earnings from asphalt, we see this improving to closer to 4 times by the end of the year.

I was especially pleased to learn yesterday that the last of the three rating agencies upgraded their outlook on NuStar's debt rating from negative, to stable. So now, all three rating agencies have lifted their outlooks to stable on our investment-grade rating, which we expect will benefit us on our debt cost to capital going forward.

Looking ahead to the fourth quarter of 2009, based on our current forecast, we expect the partnership's EBITDA to be in the range of $80 million to $100 million. Keep in mind that we've made nearly $70 million from asphalt alone for the first nine months of 2009.

As mentioned previously, while our fee-based transportation and storage segments should do well, our asphalt results should follow the typical seasonal pattern of decline resulting in lower earnings in the fourth quarter compared to the third. Looking at some expense estimates for the fourth quarter of '09, operating expenses are expected to be around $135 million, G&A expense in the range of $24 million to $25 million, appreciation and amortization expense around $37 million to $38 million, interest expense of $18 million to $19 million, and income tax expense in the range of $4 million to $5 million.

Our guidance for 2009 reliability CapEx has decreased to around $65 million, versus our previous target of around $74 million. As we close out the last quarter of 2009, I'm proud of what we've achieved in an unprecedented year, a year in which we saw the most serious financial crisis since the Great Depression, which contributed to business and bank failures, and a steep decline in economic activity, consumer wealth and confidence in our markets and in our financial system.

Yet, we continue to benefit from the strong performance of our fee-based transportation and storage businesses, which are expected to generate a combined EBITDA of more than $35 million higher than they did in 2008. Those two segments, along with our fuels marketing operations alone, will cover the full amount of our distribution providing investors optionality on the asphalt operations performance.

And while the asphalt contribution will be lower in 2009, the nearly two-year EBITDA contribution on the CITGO Asphalt acquisition excluding the crude oil inventory hedging loss in '08, is expected to be in the range of $200 million to $230 million, a payback far superior to the typical MLP acquisition.

So, the early returns on the acquisition while volatile, are very good. And, this is still well before the bullish supply-demand fundamentals we projected for 2011 and beyond.

Additionally, we have identified and commenced investing in new high return projects in 2009. We've continued to excel in safety and environmental performance, we've made NuStar one of the top places to work for in the United States, we saw all of the rating agencies remove their negative outlook on NuStar, we've increased the distribution, and we maintained very good distribution coverage for the year. In addition, we've laid out plans now for the next phase of our growth, a program totaling more than $500 million over the next two to three years, that will continue to help NuStar grow. And that figure does not reflect any potential acquisitions that we are currently evaluating.

And, that's why I'm very excited about the future of NuStar, and the opportunities we have in front of us to continue to grow our business. So, at this time I'll open it up for Q&A, operator.

(Operator Instructions) Your first question comes from the line of Stephen Maresca from Morgan Stanley.

I have two questions on asphalt, one on supply and one on demand. You talked about your view on coker projects coming online and that beginning to have an impact in late 2011 and beyond. I thought I read that Valero is idling, or taking down, a few cokers. Can you talk about how that impacts asphalt supply, and what are the chances that some of these coker units may not come on?

Well first of all, on people idling back cokers like Valero, the reason they've done that has actually helped reduce asphalt supply this year. The light-heavy spreads came in, all these refiners try to lighten up their spread as much as possible so they've been getting less asphalt yield. And that's why we're able to say, as we did in my remarks, that asphalt supply was quite a bit lower, production quite a bit lower this year, than it was in 2008, notwithstanding the idling of some coker capacity as you mentioned.

And then beyond that, the story beyond that has really changed, hardly not at all. We've had a couple of delays, we've actually had an increase from our [in coker] capacity. I think it comes to 40,000-some barrels a day increase, that's now planned for 2011 or later. Not a reduction but an increase in coker capacity coming on. So that thesis is still very much intact, despite the couple of delays we've had and maybe one or two cancellations, we have more coker capacity coming on than we thought.

Okay. On, on the demand side, you talked about obviously the stimulus money, you were less confident last year about government stimulus spending having impact. What, what is giving you potentially greater confidence in 2010, what are you seeing, you know, real time data points, that things are you know, starting to move forward on some of these projects?

Right. On the, on the stimulus spending, the way the process worked after the government sort of released its program in March, or early last year, states then had a period of time until June to identify projects that they were going to do. Pretty much all of them did that. They identified the projects that they were going to do, in order to get this stimulus money. And then after that, you know, you start the process of you know, projects being led, and contractor bid projects, and all the rest of it.

Most of these projects get done within two or three years time, because states don't want to forfeit the money. There was a high priority under the Federal program for projects that can be done within three years. So, in order for a project to get done within three years from early '08, that project's going to get done by 2011, the spending on that project is going to be mainly in 2010 and 2011 to meet that three year deadline on these projects. And you know, that spending obviously wasn't much in '09. I think I quoted $2.4 billion out of a $27.5 billion program through the third quarter of '09, and of course you don't see too much more in the fourth.

So, it's obvious that a very large proportion of the $27.5 billion is going to be spent next year in 2011, yet the project's done. Beyond that, Mike Hoeltzel's here, if you want to comment further, Mike, on the spending?

On the spending, there's a combination of positives and negatives. As Curt mentioned, the positive is the stimulus spending heading, and we also see up-ticks in the residential, housing starts. What's probably lagging a little is the county-municipal spending but we expect to see that by the end of next year.

So that, but that won't, that'll actually still be a dragging negative in 2010. The county and the municipal. So, when you net all these things together, the pluses and minuses, we expect to see a slight uptick in demand in 2010.

Okay. Thank you very much.

Okay.

Your next question comes from the line of Gabe Moreen with Banc of America.

Good morning, everyone. Following up on Stephen's questions on I guess supply destruction, is it fair to say I guess that Eagle Point, since it was processing lighter-end crudes, really didn't have much asphalt supply coming into [PAD 1]?

Correct, you are correct.

Okay, and then is it possible I guess to quantify just I guess how many, let's say, thousands of barrels per day that maybe Paulsboro produces on the asphalt side?

Yes, we do have that, we're just trying to make sure we give you the right answer.

About 7,000 barrels a day, as we understand.

Okay great, that's helpful. And then another question on asphalt, just in terms of thinking about how you're going to be running the plants in the fourth quarter, for yields relative to last year, I guess how should we be thinking about directionally how much you're going to be producing versus last year's fourth quarter?

Just actually should be you know, we re-ramped the refinery down quite a lot in the fourth quarter. It should be substantially similar to last year. I don't see a major change on that. You guys, Paul, you have any, any revision to that?

We're planning our turnaround schedule, and December-January timeframe, just as we did last year. So we should see about the same level of [crude go down] there.

Maybe slightly lower.

Slightly lower, but we're going through our typical ramp-down right now.

Yes. It won't be higher, it should be slightly lower, if anything.

Great, thanks, that's helpful.

Um-hmm.

Your next question comes from the line of Brian Zarahn with Barclays Capital.

Morning.

Morning.

With as you mentioned, S&P, you're moving as negative outlook and all the reading agencies giving a stable outlook, are you a little more aggressive now, or have the flexibility to look at M&A opportunities, and what are you seeing in the marketplace?

Well, of course, it is anything that helps to lower our cost of capital going forward is a positive thing, so we're very pleased to have the positive or upgrade assessment of the all three rating agencies assessment of our financial conditions. So of course, that is a positive going forward. We do have some interesting acquisition opportunities that we're looking at both in the US and around the world. And they're of all types, but I would say just like our internal growth program they are principally in storage. And they're not necessarily US, they could be international as well. We're not limited geographically by what we look at. But we take everything into account, obviously, if we're putting a new stake in the ground and a new geography, whether that makes sense for us. But we don't limit ourselves geographically per se, and so there's a lot that -- for us to look at right now. And hopefully we'll pull the trigger on one of them.

Is there a concern, if it's a sizeable acquisition, that they would, that the agencies would respond negatively, or -

Not if it's a good deal and we finance it appropriately, no.

Okay.

I mean, you know, one thing that's good about NuStar is, we have one of the lowest costs of capital of any MLP. So, practically every MLP will have more difficulty making an acquisition accretive compared to NuStar. So, we really have a wide band of acquisition opportunities, and that band is much wider than it would be for the vast majority of the MLPs out there.

On the equity side, that's of course because our top split is capped at 25% where most others are at 50%. And with a negative getting removed from S&P, that can only help our cost of debt. Our cost of debt never really got terribly out of line with the others, it was a little bit higher because of the negative outlook. But it wasn't a major factor. Much more importantly for any company looking at doing M&A deals is the general health today of the capital markets, compared to a year ago. Rates, rates are down terrifically from where they were just six months ago, and a lot from a year ago for any investment grade company.

Thanks. Turning to growth CapEx, can you review the third quarter number as well as your 2010 guidance?

Third quarter growth CapEx?

Yes.

Yes, third quarter we spent about $32 million on strategic growth, about $16 million on reliability for a total now that we had some other CapEx in there, for a total of about $50 million. That's just for the third quarter. Next year, we said a little over $300 million for strategic capital. And reliability I think is just north of $70 million. So, for roughly $400 million.

And finally, what's the availability on your revolver?

At the end of the third quarter, it was sold for 550 at the end of the third quarter, at $12 million in cash on the balance sheet.

Okay, thank you.

Your next question comes from the line of Michael Blum with Wells Fargo.

Thanks, good morning, everyone.

Good morning.

A couple of, just a couple -- I guess first a conceptual question. Given that your non-asphalt businesses are essentially supporting the distribution and the growth in the distribution, are you thinking differently at all about the asphalt business? I know before you talked about holding back half the cash flow. What - is that now going to - should we now think of that as the asphalt cash flow will be used I guess in lieu of third party funding for growth, or are you still thinking that it'll partially contribute to future growth in the distribution?

I think the latter, that it will partially contribute to further growth in the distribution. You know, we were fortunate enough since we bought the business in part because it did so well the first year, you know, we really have, we have not - money's fungible, but if you just look at the cash flow coming out of storage and transportation, it's more than adequately financed the distribution growth. Last year, we did about a 7.5% increase in the distribution. This year it's about 5%, year over year. So, the base business, the old business, storage and transportation's just done very, very well. So we haven't needed to take 50% of the cash flows from asphalt and use that to pay the distribution. The idea there was that we would, because of the greater volatility, one or two times cover on that business or another way of saying that, only pay out half, half the money. I think next year you know, there's a chance the storage and the transportation business could finance all of the distribution and the increase. It really is going to depend upon what asphalt does next year.

We've budgeted this certain amount, which as Curt said is up quite a bit from what we expect to do this year. But we've got a long way to go before we know what that business will produce.

Okay. Second question is just on maintenance CapEx. I guess you took your estimate down for 2009. Can you talk about what's driving that and are you just deferring certain projects to 2010?

A lot of the expense reductions that we're seeing as part of our reliability programs, as you cycled some - your tanks and your pipelines through the program, we're seeing reductions and repeat. So a lot of that is just real savings that we've seen from our programs that have been in effect.

And to follow up on what Rick just said, Mark Meador, our IR guy, took a review at what we were spending in reliability versus EBITDA and versus asset base, us versus our peer group. And we spend much more on a percentage basis than others on reliability. Now, some of that may be classification reliability, it's not a GAAP term. But I think what we're seeing is perhaps the benefit of having spent, to Rick's point, a lot on reliability in past years, particularly on the Kaneb assets, which we acquired in 2005.

Okay, thank you very much.

Your next question comes from the line of Noah Lerner with Hartz Capital.

Morning, everyone.

Morning.

Quick question, when you're looking at long term in setting the distribution policy, with the material revolver balance that's basically almost interest-free, but that does mature in three years, A, you'd want to give that up in today's environment, but down the road, you know you're going to be refinancing that out at a much higher rate. Either through terming out the debt, rolling the revolver, you know, down the road. Or if there's a recap with the equity.

So I'm just wondering, how that all factors in when you're setting the distribution policy, knowing that down the road you have a significant call on cash flow?

It makes you much more conservative. I mean, the bottom line is, you're not going to -- you're not going to be borrowing at 75 basis points all in, in three years' time. If the economy recovers, interest rates are going to go up. And so, what we need to do is be cognizant of a couple of things. Power costs may go up in time, which was a big benefit for us this year, and interest expense being low this year was a big benefit. So, you just don't count on those things repeating in the future, and we haven't.

When we looked at our budget next year, you know, we just looked at the forward curve for LIBOR and then when we look at the business out for the next five years, we certainly think interest expense and power are going to go up.

So the bottom line is, while we've budgeted a distribution increase for next year, it's - you know, it's nothing that we are committing to.

But you know, on the other hand, part of our job is to come up with revenue opportunities, right, and profit opportunities like we did with we think the CITGO Asphalt acquisition, which has done well and we think's going to even do better over the long term for us. And that's part of our job, too. Right now, you're focused on interest expense as well, it's going to go higher later. That's today's concern. Tomorrow, it'll be something else. I mean, you know, we've had periods of high inflation. It's been lower, lately. A lot of people on this call probably don't remember high inflation, I'm old enough to.

So am I.

But my -- my only point is really, it's always something. And so you have to in the long term, planning for a company, certain line items may go up or down over a certain three to give year period. Our job is to keep improving the bottom line performance of the Company, so it's not just you get, it's good for our CFO to be conservative about interest expenses going up and we have to be cautious, and of course he's right, and I agree with that. But on the other hand, we're optimistic on the revenue side that we'll continue to find good profit opportunities, and that's why, that's really the excitement around this $500 million of high returning internal growth programs over the next two or three years, is part of what's going to do that for us.

And also on the acquisition front we're very likely to pull the trigger on something within that same period, that's a nice, accretive acquisition, too. So, you know. I'm not telling you anything you don't know, but sometimes you get very focused on one line item and how it might change over the next few years. But it's a total picture in managing a company that we're trying to manage.

Oh, absolutely, and I guess a quick follow-up on that is I guess when you're talking about this $300 million of growth opportunities, 20% return, obviously there's an interest rate cost and other cost factors into that. I take it you don't come up with a 20% opportunity based on the 75 basis point carrying charge, it's what you think the long term carrying charge would be, is that correct?

That's exactly right, and that's what you've said what I was just going to add to Curt's comment, which is, when we run numbers, we no matter how small the CapEx is, or how big it is, we presume 50/50 debt equity financing. And the debt rate we use is, our current cost of borrowing 10-year money. Not at 75 basis points, under a revolver.

Okay, so, it seems like right now, the organization has a nice opportunity to run it with a fairly fat coverage ratio, and spend that extra cushion developing other projects over the next two to three years to add to the bottom line without really impacting any long term opportunity or distribution growth for the partnership. Fairly -- a fair statement?

Yes.

Okay great, thanks for your time, appreciate it.

Thank you.

Your next question comes from the line of Michael Cerasoli with Goldman Sachs.

When you say a slight up-tick in asphalt demand in 2010, is it, is it safe for us to assume that a higher portion of the stimulus spend will occur in 2011?

I think probably, it might end up about evenly split between 2010 and 2011 in terms of just the Federal stimulus money. So the - and what's happened on the East Coast, interestingly, when you look at where the Federal Stimulus dollars have actually been spent on road projects, the East Coast where our major markets are for asphalt have really been under-represented, in other words, under-spent. Even the $3 billion or so number that we're at right now is disproportionately elsewhere outside of the east coast. So, while the overall program might be evenly split as I just estimated for you between 2010 and 2011, we'll actually see a disproportionate increase in 2010 East Coast markets, just because they've been under-represented on projects to this point.

I hope I didn't confuse you with that, but that's -

No.

There's an overall number going on, under the $27.5 billion, and then there's kind of an East Coast oriented number that -- or trend, that we have in mind, that we follow, and we think we're going to pick up. We're going to accelerate a little more in the Eastern half of the country than even in the overall program will in 2010.

Okay. In regard to the winter filling, can you give us some insight into how full your asphalt storage tanks are right now? Or currently?

We don't have a problem there, but Paul, you want to, you want to address it?

Yes, we're very close to our target end of year inventories, and have not built very much at all. I think maybe 100,000 barrels, so we're slightly above but we're just starting to look at some opportunities, as some cheap barrels showed up.

But you're not running into a storage limitation?

We're not anywhere close at this point.

Okay, thank you.

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

How you doing, guys?

Hi, Ross.

Hi, Ross.

First question, can you just comment generally? I know that a lot of the paving projects are funded from Federal dollars, and state dollars, shared. Can you speak to what the attitude of the states has been? Do they have enough money to come up with their share of it? Given what's going on with budgets right now, just kind of speak to that dynamic, and if it's having any impact in terms of demand from the government side?

Well first of all, I think you know, the Federal stimulus program is not a match program. So that's like manna from heaven, from the states. They do the projects and they get the money, and they don't have to match the amount that the Feds have committed for them to spend on these projects.

Once you get outside of that $27.5 billion program, like under the normal highway safety [loop] authorization program, you know, yes, it's been a very tough year for the states. It's been really, they're -- fiscally, they're in a shambles. A large majority of them run deficits. There's maybe, it makes it three or four states that Texas is one of them, that are running a surplus. So, everybody's under extreme financial stress. They're laying off teachers, they're cutting firemen, they're cutting salaries, laying off government workers, so it's been a terrible year in that regard. And so, that portion of not just roads but all government spending, really is dependent on some economic recovery in 2010. And if you believe there will be some economic recovery in 2010 and we're saying we see a very modest recovery in 2010 in the economy, you'll see some up-tick in tax revenues, and the funding sources for state programs. Mike, do you want to expand on that?

Yes, we've individually polled a lot of the states that we market in, and most of them are not cutting their budgets from 2010 versus 2009. So we think it will at least be level.

And kind of back to my earlier point, I mean, my understanding is the states would match a lot of the Federal dollars for just general maintenance. And are they, are they just, this year they simply weren't coming up with the match portion, is that fair to say? To some extent, anyway?

I don't think so, I think -- and, if sort of I get two federal programs going on that we're talking about. One in which there is a match, and the old sort of, let's call it the Obama Stimulus Program, whatever they call it, the Economic Recovery Act thing, that's not a match program.

Yes, I'm speaking of the, of the non-stimulus spending for maintenance of roads.

Yes, full spending of the Highway Trust fund, half of this year. I mean, it was fully implemented.

I believe the states only have to match 20%.

About 20%, yes.

Yes, it's 20%.

Okay. So that portion did flow through to demand? Okay. Next question, I guess, is on the inflation adjuster for 2010, did you say it was going to be 2% below what we experienced in '09?

On that, for tariff adjustment? Yes, right now it's tracking about 2%. Even a little less than 2% lower, I think the last number I saw was 1.7% or 1.8% down. And that's for the of course, the second half of the year. That's been, we still benefit from the July '09 tariff increase for the first half of 2010, which is why you end up sort of total year-over-year with a slight increase, actually, in tariff 2010 versus 2009, because you have that kind of blended mid-year effect going on.

Okay, all right. Also your power costs were down, is that primarily tied to natural gas? Do you have, I mean, is it -- I know a lot of natural gas, electrical generation, in Texas and other places is natural gas, but do you have natural gas fired pumps, or what's driving the notable?

It's really the electricity rate we have to pay is based on a substantial natural gas component. So it's not that we're burning so much, we do burn natural gas, but.

We do have our refineries.

Refineries.

But it is predicated on electric pumps.

Yes, you know, we have power saving initiatives, I mean, Rick and his guys, do everything they can on power reduction, and using power efficiently in our operation, so we do get benefit from that, that we can track through. But, we were helped a lot. When you have natural gas going from $9.00 to $3.00, year over year, that was a major impact on our electricity cost reduction.

And one final question, there was a fire at Valero's Corpus Christi refinery from what I recall. Any impact from that, and any of the other outages or shut-downs, in Texas that you think may have an impact, as you go forward into this next quarter, and/or your thoughts on 2010 on any kind of (inaudible) being down?

Right. No, nothing, nothing at the moment that would be really noticeable or material in any way. You know, I detailed the ones that did impact us, quarter over quarter. But right now, there's nothing like that going on. We actually have a light refinery maintenance schedule going on right now, so I don't see, Danny Oliver, do you have anything to add to that?

Through the fourth quarter, nothing planned that's going to affect us, and out into 2010 we have everything forecasted that we're aware of.

Great, that's it for me, guys. Thanks.

Thank you.

Your next question comes from the line of Jim Murchie with Energy Income Partners.

Hey, guys. The tariff in the third quarter for the transportation segment kind of ends up being a big number, because the gross margin's up a little bit, and the volume's down a lot. Is there a mix change going on there?

That's not a major factor. You're talking about a mix of product throughput by grade? No.

Well, or just -- or just miles, right, because you know, this isn't barrel miles, it's just barrels. And I was just wondering, because I have the tariff up like you know, double digits, when I saw for the math.

And what period are you comparing?

The third quarter, versus the second quarter. I mean, obviously that's when the, that's when the tariff increase went in, but it was only 7% change plus, right?

Some of that's due to asset sales, which we've had moderate throughputs but a lower revenue per barrel, so when we got rid of them, it increased our revenue per barrel higher.

Okay.

And part of it was related to the tariff increase, as well.

Yeah, okay.

A great deal of that's due to the tariff increase, obviously.

That's a good point Mark made though, and the asset sales actually help your - the number you're looking at.

Yes, because if I'm getting like a 17% increase. Sequentially.

That's why we sold them. We didn't sell them because we didn't like the throughput, they just weren't making any money.

Okay, thanks.

Yep.

Your next question comes from the line of [Dan Horowitz] with Raymond James.

Hey guys. Curt, just a few questions for you, on the base business. When you look at the $220 million that you've earmarked for organic storage growth, and you are looking at the highest rate of return on new capacity and the timing of dollars spent, you've obviously got a growing, long-term industrial need in the Gulf Coast area. But can you give us some color as to how you balance spending additional money on expanding your heavy oil capacity to areas like Texas City and St. James, versus other domestic opportunities say in the Northeast or Southeast, or even in the Caribbean for that matter?

The investment opportunity that you mentioned right now in the -- is mainly in Gulf Coast storage, but it's not exclusively. We've got some renewable fuel projects going on, like in Northern California, we have some things related to the pipelines in Texas that we're going to spend money on. But, the storage investments that we've been talking about, they're also in St. Eustatius. We're going to invest more money because we've got an opportunity to do more in Statia down there. But those investments are very heavily in crude and heavy oil, but not exclusively. You know, we also have light products investments being made at those [terminals].

No, but it is, from our -- the geographics of like, St. James and Texas City, with the heavy crude and the needs in those particular areas, that is one of our areas we're going to be concentrating on.

Okay. Shifting over to the transportation side of the business, with the $30 million that you mention there, when you're looking at the mid-continent market you've said before that you wanted to add some incremental capacity on the East pipeline system. How, how do you balance spending capital there, again, versus allocating more dollars towards say the Central and South Texas markets?

We don't really try to spread the capital by region to make sure there's a balance among region. I mean, our approach really is all of our business managers are competing for capital, and really the best ideas win, and the best projects win. We had an opportunity, a good one, on Central East this past year, we expanded the Southern end of the line to capture some incremental volume, and that's gone very well. We are capturing, you know, that volume and I think particularly you see it during the spike in the harvest season on that system. But you know, it's really not, we're not making capital allocation systems based on trying to have some sort of a spread among regions. Everybody's competing for scarce capital, and they have to come with the best ideas.

I appreciate the color, thanks.

Sure.

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

Hi, guys. Good morning. The --

Good morning.

I think you previously stated that you have anywhere from 25% to 30% of your terminal storage that rolls over in one, in less, in a year to less than a year. And I was just curious like, given the fact that contango has now gone I guess negative, are you seeing less demand for any of your terminal storage that's rolling over? Or is that still getting rollover pretty successfully at this point?

John, on the contrary, we've been renewing, Danny's people have been renewing contracts at significantly higher rates. That was a you know, part of our story about why the storage segment has done better in '09 versus '08, and it's - this contango thing is kind of interesting. For particular customers, and particular places, particularly on the short term as you properly identified, it's a factor. But among our customer base, this is really not a major factor driving our storage. I mean, we have strategic customers who want to be at certain locations for the long term, and just volatility helps storage, too. But - Dan, do you want to comment further on it?

Well, the carry that we've seen in the market, you know, it increases the value of tankage even if that tankage is being used by a customer as more of a part of their system. But, we do still see some carry in these markets on the products side, and market structure is continuing to support demand for a portion of our storage. I think the contracts that you were referring to at the beginning of the year, we started off as you may recall with about 29% of our contracts up for renewal inside a year. That's down to about 24% now, and we'll be lower than that after the end of the fourth quarter, because we've got some large contracts that are basically negotiated, just not executed, that will be rolled out further. But the rate increases have been significant, annualized through the third quarter, about $12.6 million incremental revenue versus last year, and then forecasted for this year about $7.2 million as we just see in partial increases.

That's helpful. Then on the, I guess when you look at your tankage, both domestically and international, and adding to -- or your growth CapEx for above 220 in 2010, how do you risk adjust investing overseas, and internationally, versus here domestically, is it -- are you seeking a higher return? Or are you, do you think about it just pretty much the same in terms of allocating that capital?

Well you know, we invest in places with pretty low political risk. In fact, a lot of people would say nowadays that the United States is pretty politically risky compared to some of the other places that we invest in. But leaving that aside, we take into account all the factors relating to investment in that jurisdiction. If we - we have some tax leakage, because we have local taxes that we have to incur there, we take that into account in calculating the overall return on the project. And if the project survives, it looks attractive versus our alternatives, then we do it.

So, it's really not, it's the investing internationally from that standpoint, is really not terribly different from investing in Kansas versus California.

Yes, I think a lot of your questions have been around sort of like, how do you allocate. And as Curt said, you kind of take the best projects, but you're mindful of the risk. And at the end of the day, we do make an assessment, when it all comes together, in a budget, about where the capital is going and what is the overall risk profile of the Company. What is the mix of margin to fee-based business, how good do we feel about our ability to plan the business, and importantly, the distribution.

It's more, it's more of those things than international versus domestic.

Or stories versus transactions.

Holland versus England, or - it's really more what Steve just said. Like, the fee-based, margin-based, and is it a long term contract, is it a major oil company or a national, a national oil company versus a small product trader? All of those things come into a risk adjusted rate of return that we want to set as the threshold for the project. So. From that standpoint, you know, we do consider all that.

We do have a formal process, which we call the [PETA] process, and which we run projects through, and also in a ranking of projects, we take into account the volatility of the project, is it margin-based, is it fee-based? Are we outlaying a lot of money over a long period of time, before cash flow shows up, like a pipeline project might be? And so, we, we weight all of those factors, and then come up with a number which suggests it's either a better or a worse project than the others on the list. So there, I just want to assure you, there is a process.

Yes.

Despite our saying that we kind of look at projects on a piece-meal basis.

And needless to say, you don't just look at one factor, like IRR, or whatever. The higher IRR project may not necessarily win. Maybe the lower one is longer term, or with a major oil company, or you know, fits better strategically, or it has more of a future up-side. So it's not any, it's not a simple ranking. By rate of return.

Fair enough, good, good explanation, good detail. One other, one other thing that's been asked, but I think I just had, I'll ask it a little bit different way, is that you know, how with all the rating agencies at stable investment-grade credit outlooks, the -- you have a revolver, there, you have some CapEx on the books, that you have plenty of liquidity for next year. But the credit markets are you know, seemingly pretty open at this point in time. Are you thinking about terming out any of your revolver at this point, or are you pretty much comfortable with the revolver balance that you have right now?

I think we've given it a lot of thought, but we're comfortable at the moment because we are of the belief that the economy is recovering, and the capital markets are going to continue to be available. And the bottom line is, even though you know, ten-year money for us today is probably 6.25, it's a lot lower than 10% or 11% that an investment-grade company might have been paying six months ago. It's still a lot more expensive than 75 basis points under the revolver. So, I think we have the luxury of having good liquidity, but are mindful of the fact that in 2012, not only does our revolver renew but we do have $350 million of public bonds coming due. So, we will continue to look at opportunities in the capital markets to issue bonds and get further liquidity under the revolver. But it's an expensive choice to do that.

Fair enough, thanks Steve. Take care, guys.

Thank you.

Your next question comes from the line of Joseph Siano with Credit Suisse.

Joseph, you there? Operator?

One moment, sir, I believe his line is disconnected. We have a question from John Tysseland with Citi.

I've already asked my questions.

And your next question is from Louis Shamie with Zimmer Lucas.

Everyone, my question is regarding asphalt, well just general production out of your asphalt refineries this quarter. It seems that you produced less in this quarter than you did in the year ago quarter, so something like 72,000, 73,000 barrels a day versus about 92,000 last year. Given that your crude purchase agreement I believe is kind of a fixed volume, what's going on there? Are you building up crude inventory, or how do you manage kind of the crude coming in, and the rate at which you process --?

You know, sometimes looking at this within a quarter, Louis, there's just timing of crude cargos, too. One or two might slip to a different period, or go into next year, or -- so there is some tolerance under the contract for that sort of thing, and there's even a tolerance up to I think it's over 300,000 barrels per year of crude one way or the other. So, you know, that's one factor in looking at one quarter, a specific quarter, versus another specific quarter, is we may not have actually gotten even the volume that the contract indicates, would indicate that we get. Because it's not 100% completely rateable, quarter-over-quarter, or month-over-month. So, that's one thing that's noise, if you just took our contract and said, "Okay, rateably, that equals X-thousand-barrels a day in this quarter." It'll almost never be exactly that, so that's one thing going on. Another thing, let's see, you had an early -- one of the units shut down, was it them that earlier, you know, that might have, that might have impacted the quarter as well.

That was --

To last year.

I believe we did buy a spot cargo in the early part of the third quarter last year because of the spike in asphalt demand.

Um-hmm.

We also had supplemental feed stocks in addition to our crude, contracted crude, last year.

So I guess to boil it down, if you look at it on a full year basis, you expect to basically process the amount of crude that you're committed to, under the contract?

Which -- as I said, there is a tolerance for I'd say, let's call it one cargo, either way. Plus, sometimes in negotiation with the producer, with the Venezuelans, they'll allow that cargo to slip to a different period. That happens from time to time, as well. Just through negotiations between the parties, you know? A contract is one thing, but then when you get down to the realities of people living with it, you know. You have negotiations from time to time on exactly how it's going to go. So, we honor the contract, and they do too, 100% through the first two years we've been involved with them. But, by mutual consent, we make modifications from time to time where we can, and where they want to, as well.

Great. And then my final question is just regarding the $60 million of growth CapEx for the asphalt segment next year, could you give a little bit of color as to what types of projects that's going to and how you expect that to contribute to earnings?

Yes, in the like, for -- and we're looking at Savannah, at a dock expansion, which would improve our crude trade economics there at Savannah, for crude delivery to the Savannah refinery. We still continue to have early part in the year finishing up some energy efficiency projects at both refineries that we mentioned early on. And then, we're looking at some things that maybe we can do to help ourselves, even at St. James, in our asphalt [referring system].

Most of the capital that we, we've pursued, was in the low hanging fruit that we saw from the cargo acquisition.

Right.

Okay great, thanks a lot.

Um-hmm.

Your next question is from the line of Mark Easterbrook with RBC Capital Markets.

Hey, good morning, guys. A bunch of my questions have already been answered, but just wondering, the mark to market gain of $15 million for the quarter, was that just running through the fuel segment again?

Yes, that's just a fuel segment.

And can you guys give us any kind of outlook of how that, how much more hedged, hedging you have going forward, or how might that impact your cash flow, or your additional cash flow going forward, especially looking at the fourth quarter?

Well, what that adjustment represents is all, it represents our unrealized gains and losses on our hedging program. So basically, you've got to look at that as, it's a snapshot, and it's all the unrealized. So, there's all open positions. So, and in terms of how that will impact us in the future, that mark to markets, change every day. So, once those things close out you're either going to be -- most of that should come back. We do have positive coming back in the inventory values at the end of the third quarter.

And sorry, do you guys disclose all those contracts of the hedges that you have in place, in your 10-Q?

We don't disclose them individually, but the amounts are in there, they are disclosed.

Okay. That's all I have, thanks.

Your next question comes from the line of Andrew Gundlach with ASB.

Good morning, thanks for taking the question. The -- Steve, did I hear you correctly say that you're on target, or targeting, a 5% year-over-year increase in the NS dividend per share?

No, just, just what I was referring to was the fact that the distribution increase that we just gave led to a 5% year-over-year increase from the comparable period a year ago. That's all.

For NS. For NS. For NSH, I think it comes to I think 13.

And then last year, I had mentioned we had done a 7.5% increase, and all of that was financed, if you will, from non-asphalt cash flow.

Do you see yourselves increasing the dividend for the fourth quarter as well?

Well, we'll take a look at it, when we close the books for the fourth quarter with the Board.

What would prevent you from increasing it? See, because I think, I think --?

(inaudible).

A meltdown.

The Board.

No, we're not, we're not forecasting, and we never have, when, which quarter we might, we're going to increase the distribution and by how much.

Okay. And how come NSH was not increased a little bit more consistent with the kind of multiple of growth? How come it wasn't more like $0.445 or something like that?

You know, the multiplier I think was just slightly below [one seven times], so it was -- I mean, even with that, it was still just slightly below the multiplier that we typically have targeted or talked about, at least.

I see. And the other thing, if I heard you correctly, you expected the balance sheet to be four times debt to EBITDA by the end of the year, is that right, would that suggest that --?

We say close to that. Close to that.

So that suggests another 150 or so of debt to pay down between now and the end of the year, is that right?

Approximately.

You're basically coming out of asphalt season, so you're freeing up working capital, you're collecting on your receivables from that business, you're running lower working capital, much depends upon what the price of that working capital is. But we're pretty much finished up on buying. So. It's less an issue with price, it's more an issue on the volume side. I mean, that's not unusual, and then all things being equal you'd expect the debt to EBITDA to go up a little bit when you got into peak asphalt season in the Spring.

Thanks very much.

Okay.

Thank you.

And there are no further questions at this time.

Thank you for joining us for the NuStar call, if you have any further questions please call us at NuStar, thank you.

This does conclude today's conference call. You may now disconnect.