NuStar Energy LP (NS) 2010 Q1 法說會逐字稿

Good morning. My name is Michael and I will be your conference operator today.

At this time, I would like to welcome everyone to the NuStar Energy LP and the NuStar GP Holdings, LLC first quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (Operator Instructions). Thank you.

I would now like to turn the conference over to Mr. Curt Anastasio, CEO and President of NuStar. Sir, you may begin your conference.

Good morning, and welcome to our conference call to discuss NuStar Energy LP and NuStar GP Holdings LLC's first quarter 2010 earnings results. I'd like to introduce our new Vice President of Investor Relations, Chris Russell. Chris has been with NuStar for five years and has held the title of Assistant Treasurer, overseeing our Budgeting and Forecasting, Credit and Cash Management departments during that time. Previously, Chris was with Citco for about 20 years, and was involved in various accounting and finance roles. He's done an excellent job at NuStar, having gained a thorough understanding of the company and its businesses, and will be a great fit running the Investor Relations department.

I'd like to thank Mark Meador, our outgoing Vice President of Investor Relations, who has been instrumental in getting our program to where it is today. Mark will be transitioning to a new role in the company in Operations. This transition will allow both Chris and Mark to broaden their experience and knowledge of the company by taking on new roles. Now I'll turn it over to Chris Russell.

Thank you, Curt, and good morning everyone. 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 LP's business segments. In addition, we have posted operating highlights and fundamental data for our Asphalt Operations under the investor's asphalt highlights portion of the NuStar Energy LP website. If after reviewing the additional financial information and operating highlights you have questions on the information that's presented, please feel free to contact us after the call.

With me today is Curt Anastasio, CEO and President of NuStar Energy LP 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 LP and NuStar GP Holdings annual reports on form 10-K for the year ended December 31, 2009, 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 this call, we'll also make reference to certain non-GAAP financial measures. We've provided an additional schedule under the investors and financial reports and SEC filings portion of the NuStar Energy LP website, reconciling these non-GAAP financial measures to their most directly comparable financial measure calculated and presented in accordance with the 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.

Now let me turn the call back over to Curt.

Thanks, Chris.

The first quarter of 2010 earnings were in line with the $80 million to $100 million EBITDA guidance we had provided in late January during the fourth quarter earnings conference call. EBITDA came in at $81 million at the lower end of the range, but reflective of the seasonal weakness that occurs during this time of year when sales and throughput volumes are relatively low, but then ramp up during the second and third quarters as the asphalt, the summer driving, and the agricultural seasons start up. In fact we are seeing sales and throughput volumes increase as we start the second quarter.

Lower than expected earnings in the first quarter were also due to several timing issues. Some of our asphalt and fuel sales that we had expected to occur in the first quarter will actually take place in the second instead. In addition, we recorded some mark-to-market paper losses in the first quarter that will be recovered when the physical sales occur later. Compared to the first quarter of last year, first quarter 2010 EBITDA was lower. However, the first quarter of 2009 benefitted from certain special items, especially a gain related to insurance proceeds received in the first quarter of 2009 for the damage incurred by Hurricane Ike at our Texas City, Texas facility. That gain, net of tax, on the insurance proceeds amounted to $4.7 million, or $0.08 per unit.

We generated higher top-line results on all three of our business segments in the first quarter. Higher tariffs as a result of last year's 7.6% increase on July 1, 2009 benefitted our pipeline transportation segment revenues in the first quarter of 2010, even though throughput volumes were negatively impacted mainly by the sale of the pipeline assets that we completed in the second quarter of 2009. Throughputs were also negatively impacted by a plant turnaround at Bolero Energy's McKee refinery in the Texas panhandle, which was originally scheduled by Bolero for the fourth quarter of 2010 but was moved up to the first quarter of this year.

Storage segment revenues were up nicely compared to last year, higher by $8.8 million, or around 7.5%, as we continue to benefit from the completion of growth projects and higher renewal rates in certain of our markets. And last, the gross margins in our asphalt and fuels marketing segment were higher by $1.6 million compared to last year, and that was driven by a $4.3 million increase in our asphalt operations as we sold significantly more asphalt and like-product volumes compared to last year, though our margin per barrel in the first quarter was slightly lower at $5.54, compared to $5.90 for last year's first quarter.

Total sales volumes were 957,000 barrels higher in this first quarter, of which around 575,000 were related to asphalt sales volume. That was mainly due to additional wholesale volumes we sold in the first quarter of 2010, and our wholesale market was actually better than our retail market in the first quarter. The cost to asphalt supply was tighter than usual in the first quarter of 2010, and we don't normally sell rack sales volumes during that time of year. We took advantage of the strong pricing in the wholesale market by selling more wholesale volumes.

A lower gross margin of $2.7 million in our fuels marketing operations partially offset the increase in the gross margin from asphalt. While we did experience top-line growth this quarter compared to last year, our earnings-per-year and distributable cash flow per unit were negatively impacted by higher operating and G&A expenses and the dilutive impact of the LP's equity offering completed in November of 2009.

A principal reason for the higher operating expense was our decision last year and early this year to lease additional asphalt terminals to capture incremental asphalt sales volumes during the 2010 asphalt season. Because we didn't have those facilities in the first quarter of 2009, we carried their cost during this year's first quarter in anticipation of making money with them later this year. First quarter 2010 OpEx included $5.5 million of additional lease and tower costs associated with those new terminals. We expect the new lease terminals to generate an additional $15 million to $20 million of operating income this year by capturing more high-margin rack sales. So clearly, we believe the additional first quarter expense is the right decision for the company.

The increase in operating expenses this quarter also had a lot to do with our decision last year to defer hiring in maintenance and repairs at some of our facilities, in light of the distressed financial and capital markets situation that prevailed really throughout 2009. You may recall that in 2009, we also significantly cut back our targeted strategic capital to $80 million in 2009, due to the uncertainty about when and to what extent the capital markets which were effectively closed in the first quarter of '09 would reopen. Now that market conditions have improved, we've restarted some of the maintenance projects that were deferred last year.

We expect operating expenses to increase slightly in the second quarter of 2010, however costs should trend lower by the end of the year. Going forward, we expect a typical run rate for OpEx to be in the range of $115 million to $130 million. Higher G&A expenses compared to the first quarter of '09 were mainly related to higher unit compensation expense, higher pension and OPEB expenses resulting from a lower discount rate assumption, and a 3% annual salary adjustment for our employees that was effective at the beginning of the third quarter of '09.

With regard to Nustar Energy's quarterly distribution for the first quarter of 2010, the LP Board declared a $1.065 per unit distribution, payable May 14th 2010. While distribution coverage was weaker in the first quarter as expected, I am confident that with our improved outlook, we will see a coverage ratio at the end of the year in the range of 1.10 times to 1.20 times, even with the distribution increase expected this year. I'm glad to announce that the GP Board increased the quarterly distribution to $0.45 per unit, payable May 19th.

This distribution represents a 3.4% increase over the $0.435 per unit for the fourth quarter of '09, and 4.7% increase over the $0.43 per unit for the first quarter of 2009. This increase is driven by the higher general partner distributions and higher incentive distribution rights paid to the GP as a result of the LP equity offering completed in November of 2009. Had we not increased the distribution, the coverage ratio would have been 1.04 times instead of our planned 1 times cover.

Looking ahead for the remainder of 2010, we continue to project higher EBITDA than in 2009. That's mainly due to higher contributions from our storage and asphalt and fuels marketing segments, consistent with our previous statements about expectations for 2010. Asphalt fundamentals looks favorable right now, and bodes well for the year. Asphalt demand should be comparable to last year, as higher stimulus spending and an improving economy will be contributing factors during this year's asphalt season.

Stimulus fund outlays will continue to ramp up this year. Through April 19th, the Federal Highway Administration reported that only about $7.3 billion of the $27.5 billion available for highway projects has been spent. That $7.3 billion continues to represent a small fraction of the total, or around 27%. But with the highway construction season underway, those outlays should increase significantly. We're projecting that around $10 billion to $11 billion will be spent in 2010, a significant increase over the approximately $5.6 billion spent last year. The Federal Highway Administration is also reporting that there are around $21 billion of projects under construction, and they expect most outlays to represent payments to contractors for work performed on highway and bridge improvement projects financed under the American Recover and Reinvestment Act, or ARRA.

The US Department of Transportation says that all states met the March 2nd deadline for obligating all ARRA highway funds, and as a result, no funds were returned to the Federal Highway Administration for redistribution to other states. In addition, we continue to see stimulus funds being put to work at the state and local level. 2010 year-to-date state and local highway awards exceed 2009 year-to-date highway awards by 32% for the entire United States, and by 70% for states within NuStar's markets. This indicates that the stimulus funds are more than offsetting any state decreases in highway funds. State highway funding is also being supported by Build America Bonds for public works, which have been very popular over the last year and are used by states and municipalities to fund infrastructure projects.

According to the US Treasury Department, buy-ins for these bonds have soared to $90 billion, with at least 20% for highways and transit. With regard to federal highway funding, last month Congress passed and President Obama signed into law a new jobs bill which provides full Highway Trust Fund reauthorization through 2010, and transferred $19.5 billion into the Highway Trust Fund to ensure the fund's solvency.

Refinery utilization rates for 2010 are still projected to be at low levels, even though they have increased recently with improving margins, the end of the turnaround season, and the start of the driving season. However, refined product inventories continue to be high, which means refineries will have to be disciplined when it comes to production. Coker margins have also improved significantly, incentivizing refiners to run their cokers at higher utilization rates, which has helped limit asphalt supplies. We believe the resulting loss of asphalt production from coking refiners will more than offset any additional asphalt produced at the non-coking refiners, as a result of seasonally higher refinery utilization rates.

We are projecting NuStar's 2010 asphalt sales volumes and margins to be higher than last year. As a result, adjusted EBITDA generated from our asphalt operations in 2010 should be better than the $70 million earned last year, but not as good as the $150 million generated in 2008, excluding the hedge loss we incurred that year.

Longer term, the coker thesis remains intact, as all of the coker projects we have previously communicated appear to be on track and are expected to further tighten the supply of asphalt, mainly in 2011 and 2012. Our fuels marketing operation should also post better results, somewhat higher than the $10 million of adjusted EBITDA generated last year. An improving economy helps our bunkering business, as shipping demand and vessel calls are expected to increase. And our heavy fuels marketing business at our Texas City, Texas terminal should benefit from increased third-party refinery runs, which will allow us to increase fuel oil volumes that we market to fuel oil and bunkering customers.

We're also excited about our recent announcement to upgrade our St. James, Louisiana facility, to bring new sources of crude oil to this area and position the facility to become one of the nation's leading crude trading hubs. This will provide Gulf Coast refiners new access to domestic crudes, for example the Bakken crude from North Dakota. This crude oil is of critical importance to the United States oil and gas industry, and one of the hottest new oil production prospects in the US.

We're evaluating a longer-term strategy to develop a Unit Train facility to ship inland domestic crude oil as well as Canadian crude oil, and we're working to secure commitments for this starting in 2011. This could provide refiners easier access to heavy crudes at a time when some crudes are scarce or in decline. Our St. James facility is an ideal location for this strategy, since it's a large facility strategically located, given its proximity to several large refining facilities, and has great access to logistics, since it's connected to several major crude delivery systems including the Louisiana Offshore Oil Port, or LOOP, and Capline. Those delivery systems provide access to almost 50% of the United States refining capacity and transport 10% of all US imports.

So these are exciting times for us, and we expect rates of returns on these projects in the range of 15% to 20%. We continue to see improving results from our fee-based storage segment, and relatively stable results from our fee-based pipeline transportation segment. Currently, we're projecting that adjusted EBITDA in our storage segment will be $12 million to $16 million higher than the $242 million generated in 2009, and that's mainly due to higher renewal rates in some of our markets and the contribution from internal growth projects completed in late 2009 and 2010. In our transportation segment, we continue to expect 2010 throughput volumes to be about 1% to 2% higher than they were in 2009, excluding the impact of pipeline sales we had in the second quarter of last year. We see mounting evidence that refined product demand is recovering as the economy improves, and that will certainly benefit our transportation segment. In fact, we're already seeing evidence that refined product demand is recovering. The latest data from the Department of Energy shows the four-week average for gasoline is higher compared to last year, and diesel demand should improve with the economy, which is encouraging as we start the summer driving season.

We're already seeing good throughput numbers during the month of April for a number of our pipeline systems, including our East pipeline, our Ammonia pipeline, and our pipeline serving several of the Bolero Energy refineries. Our revenue per barrel rate should also be better in 2010 compared to '09, even though tariff rates on interstate pipelines are expected to decline an estimated 1.2% starting July 1 of 2010, as part of the pipeline index established by the Federal Energy Regulatory Commission. That's because we will benefit from last year's 7.6% tariff increase for the first six months of 2010. So both of these bode well for top-line growth on our transportation segment; however, as we said previously, increased operating expense due to higher power, maintenance, and other operating costs in 2010 compared to 2009, will be an offset.

Overall, we continue to expect full-year 2010 adjusted EBITDA in our transportation segment to be comparable to slightly lower than last year. As previously announced, we have initiated a $500 million internal growth program, of which we expect to spend around $275 million this year, mostly related to our storage segment. Some of the major projects include reconfiguring our St. Eustatius facility in the Caribbean in anticipation of a new major customer, who will be leasing a large portion of our storage tanks. We're also expanding our fuel oil blending and bunkering, and upgrading at our Texas City, Texas facility into a world-class facility after it was heavily damaged by Hurricane Ike in late 2008; expanding our pipeline systems in fast-growing regions like South Texas, and also putting in the infrastructure at some of our terminals to capture incremental fees from ethanol and biofuels blending.

We also have a number of major projects planned for our St. James, Louisiana crude oil storage facility this year, including building additional crude oil storage for third parties under long-term contracts, expanding our recently announced crude oil handling strategy by developing a new Unit Train that will allow us to accept additional shipments of heavy crude oil. These are all attractive projects with internal rates of return expected to exceed 15%.

For the second quarter of 2010, we're projecting EBITDA will be significantly higher than the first quarter, or in the range of $130 million to $150 million. Earnings applicable to limited partners for the second quarter of 2010 are expected to be in the range of $1.05 to $1.25 per unit. And this range is higher compared to last year's $1.04 per unit, which excludes the $18.8 million or $0.34 per unit net gain, resulting primarily from the sale of the Ardmore Woody Wood pipeline in Oklahoma and the Trans-Texas pipeline.

Looking at some expense estimates for the second quarter, operating expense are expected to be around $125 million to $130 million, G&A expense in the range of $27 million to $28 million, depreciation and amortization around $38 million to $39 million, and interest expense $18 million to $19 million. Reliability capital is expected to be in the range of $50 million to $60 million for full-year 2010. This is higher than the $45 million we spent last year, mostly due to the spending reductions we instituted last year in view of the financial crisis.

In closing, while we close the books on what we always expected to be a seasonally weaker first quarter, I fully expect our results to pick up substantially for the remainder of the year. We project higher EBITDA this year compared to 2009, and a much improved distribution coverage ratio by the end of 2010. And I still expect to be in a position to recommend to the Board an increase in the distribution for NuStar Energy this year. We've got a lot of exciting and attractive projects in the works right now that will be accretive to distributable cash flow, and allow us to continue to provide distribution growth going forward.

So at this time, I'd like to open it up for questions and answers. Operator?

(Operator Instructions). We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Joseph Siano with Credit Suisse.

Hi, good morning guys.

Good morning.

Just first question on the storage, I think last quarter you had suggested you're targeting $18 million to $22 million in incremental EBITDA, and now that's down a bit. Is that just, you're seeing a little bit lower contract renewal rates, or can you expand on that?

Yes, it's mainly a timing thing. It is a little lower than the $18 million plus we said, but it's mainly because of some of these storage benefits that we thought we'd get in 2010, is actually going to come in in 2011, and that's the principal reason. And then, yes, we've covered what we said on OpEx so you see what's happened there. But it's mainly the timing of a project that we initially anticipated we'd see calendar year 2009, it's actually going to come in in 2011.

Okay. So you're still seeing pretty good renewal rates, relative to --?

Yes, oh absolutely. That's been very, very strong, a good story there continues.

Okay, great. And then turning to asphalt, you mentioned the economic recovery, the higher stimulus spending. I guess we were just wondering why you'd see comparable demand to last year and not higher demand.

Right. We certainly will see significantly more federal stimulus spending. I think at the state level, it's probably going to be comparable to last year because a lot of states are experiencing fiscal weakness. However, with these Buy America Bonds they've really been able to fill the gap. And we actually expect the state spending, spending at that level on roads and highways, to be relatively stable. But we're still in a pretty weak economy, albeit recovering. And if you look at numbers, say, for non-residential private construction, we're assuming that's going to be down.

Now we might be too conservative, it might be stable compared to last year. So if the private sector particularly on the non-residential side -- you're starting to see some motion on residential -- but on the non-residential side, if that's as weak as we're assuming in our forecast, you'll end up with demand not too dissimilar to last year. Maybe it'll be slightly up if we're too conservative. We do expect higher margins, though, higher profit margin. So the bottom line number will be higher as I indicated.

Okay, thanks. And I guess just to expand on that a little bit further, when we're thinking about the demand from spending at municipalities versus the spending spurred by federal stimulus funds, how much of the demand do you see coming from the federal stimulus versus municipalities, just looking at the state and local spending side?

The total for federal that we're seeing this year is what, what is it, about 27% or so? You guys have that number? I'm just looking at the guys across the table for me, to see if they have the number handy, but --.

All amounts to about $42 billion.

The total dollar amount is about $42 billion, but he's asking percentage-wise of total. Give us a minute to get that for you, we'll --.

I'll go with that Curt, it's in that range.

It's in the range. I said $27 million, I was asking them to confirm it. It's in that range.

Okay, great. Thanks guys.

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

Good morning.

Morning.

Can you give a little more color on the pipeline volumes? About how much of the decline was due to the asset sale, looking on the raw numbers, and then also refinery maintenance?

Yes, I've got Danny Oliver here who runs that business. Danny?

Sure. Of the decline, the vast majority of it was due to the (technical difficulty) of the --, it was 11.5% decline. 6% of that decline was due to those asset sales. Really, the only mentionables on the balance was the key refinery turnaround in the first quarter, we lost some volumes on, and our central East Pipeline System volumes were off a little bit, about 1.5%.

Yes, remember we're saying full year is going to be up 1% to 2% in total. But we had the things happen in the first quarter that Danny mentioned, the accelerated turnaround in McKee, some weather and other things that happened in the first quarter probably affected your [East] line. So, but we're already seeing that come back pretty strong.

Turning to your growth projects, can you talk a little bit about your pipeline expansion in South Texas and also the storage expansion in St. James, about how much capacity you're adding to St. James?

We've got a --, well in South Texas, in addition to expansion, we've been doing the ethanol projects at the terminals that are associated with the pipeline. And Danny, do you want to comment further on the pipeline project?

Sure. South Texas I think we've talked about a little bit before, it was one of those areas in the US that we really never saw any demand construction throughout the end of 2008 and 2009 as the economy faltered. So our pipelines down there in South Texas have been running right at or near capacity. So we're just in the process of putting together the interests to back the project to expand those lines down there. And in addition, we've been putting in ethanol blending capabilities in all of our South Texas facilities. So we're expecting some incremental EBITDA and volumes on those as well.

And then on the St. James storage, we are adding a lot of capacity.

Yes, we're looking at about an additional 3.2 million barrels of third-party storage for St. James.

And what's the timeline for that 3.2 million?

Yes, those will be coming on in 2011.

Yes, this is a year where we're spending a lot more money than last year. $275 million is our forecasted internal growth spending for projects that cash flow in 2012 and beyond. I'm sorry, 2011 and beyond, I apologize. So in that sense, it's a little bit of a transition year for us on internal growth. We cut it way back last year, we ramped it way up this year, but most of the benefit you don't see until 2011 on those projects, or later.

Okay. Finally, can you give the availability on your revolver?

About $400 million at the moment.

Yes, thank you.

Thank you.

Your next question comes from the line of Stephen Maresca with Morgan Stanley.

Good morning, gentlemen.

Good morning.

A couple of questions -- first on asphalt, Curt, you talked about $10 billion to $11 billion being spent in 2010. Timing-wise, how do you see that playing out in relation to second quarter, third quarter, or later for that amount?

Yes, the season is just ramping up now and we really think we're going to have a very strong second and third quarter, and pretty much evenly spread between the two. Maybe a little stronger in the third, depending on how things play out in the market. So I've got Mike Stone here who runs the asphalt market. And do you want to comment further on that, Mike?

You're exactly right, it's typically, season starts, peak season, around May and it'll go through August to September, sometimes until October. But we feel that a lot of the asphalt participants in the market this year have been very conservative in their winter fill which means that there could be a slightly stronger third quarter than second quarter when it's time to replenish.

Okay. And you had mentioned sales volumes and margins being up. What are your expectations on a percent basis for volumes to be up for this year versus last year?

For total sales, yes --.

Total sales volumes, we lease additional terminals, so that's going to add to our incremental volumes. So we're looking for a pretty good clip on volumes now. Now, flat to flatter, the same sales is probably comparable, consistent with what we said about total US asphalt demand.

We released what, six new terminals so you're going to get more rack sales out of that. And part of what's driving our margin this year is channels in trade that we're selling out of. So you're going to see more rack sale. Our total sales won't vary much, but here you'll have the additional sales of those terminals.

About 2.2 million barrels.

So about 2.2 million --.

Barrels.

Of additional rack.

Additional rack, yes.

And that's going to be the main difference.

Okay. And final question, on storage, volumes were up 8% but you also talked about renewal rates. Also on a percent basis, what are we talking in terms of renewal rates going higher and what are the average contract terms in your storage business right now?

I'm going to turn it over to Danny, but it is market specific. I mean some markets are much hotter than others. For example on the west coast, we're seeing very high increases on the renewal rates. So Danny, you want to comment further.

Sure. Well, as we've talked about before, the paying to market structure persists and continues to add value to storage rates. And as we renew, we're consistently seeing higher rates across our system. Now keep in mind, when we talk about throughputs, that the vast majority of our storage segment revenues come from lease access. So the throughput revenues are a very small portion of that segment. But as far as length of term, we've got about 24% of our storage segment revenues, are contracted up in one year or less.

So the other 76% is long-term.

The other 76% is longer-term.

Longer than a year.

Most out in the three years or longer.

Okay. Thanks a lot, guys.

Thank you.

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

Hi guys, morning.

Good morning.

You guys gave a margin, or I guess a EBITDA margin as 70 to 150, just kind of the bookends of the range versus the last couple years of performance in the asphalt space. But can you give us any feel for how much you expect asphalt margins to improve this year as a result of crude prices improving throughout your winter-fill season from October to March? I guess it seems like the market was much more favorable for you guys this year versus last year, where average prices were likely a lot higher when you were filling storage last year, versus where the crude price was in the summer paving season.

So it just seems like the bottom end of the range is very, very low, and if you could just kind of give us some guidance as to narrow that guidance down a little bit more.

No, you're right about our inventory. Our carrying cost, we do have a beneficial situation there compared to a sort of similar time period last year. But we're not prepared on this call to put out a margin on this call, but as I said, we do expect it to be better than last year, although not as high sort of the $150 million EBITDA adjusted in 2008. So it's going to be in between those two. That's our outlook for it right now, and I think we have to leave it at that on this call. Unless, anybody have anything to add? Paul is here.

Curt, I just want to say real quick, one thing that we saw different this year in the wholesale market -- typically you have the winter-fill or the wintertime prices fall off relative to crude. This year that did not happen. There was a real strong wholesale market during the winter season, which just shows that the market is tight on --. We have our inventories, nationwide inventories are down to almost 10-year lows right now. So through the winter we did not see those big discounts, which just shows that the market is tight and as we head into the summer season, we think that'll just continue on in. But we did not see the big discount into the big winter-fills inventory.

What about on a margin-per-barrel basis, I guess as a result of where your inventories are this year versus where they were last year? Any kind of feel for the range in margins per barrel on the asphalt side that you'd be comfortable giving?

Not right now. But again, our outlook is, on that basis, better than last year.

Okay.

But I can't get more specific right now.

Alright. Thanks, guys.

Your next question comes from the line of Darren Horowitz with Raymond James.

Hey, good morning guys. Curt, just a couple quick questions for you around asphalt supply. In trying to get a sense for how tight the market could be into the second and third quarter due to a lower relative refinery utilization versus lower asphalt imports, can you kind of break that down for us and give us a sense for where the imports are trending year over year?

Yes, imports continue to be really very low and almost non-existent. The imports from Latin America have pretty much dried up to nothing. You get occasional opportunistic cargoes from Canada, that during the season come into sort of the northern tier of the Northeast. Other than that, we don't see anything from Europe or anywhere else. So that continues to plod along at or near zero on the import side.

Okay.

With regard to refinery utilization, again it is trending, by storage standards, at low levels even though you do have a little bit of a seasonal ramp-up at this time of year in North American refining as you would expect. And the margins are a little better too for those refiners, so you see some of that going on. And then we made a comment about coker margins, how coker margins have significantly improved. So anybody looking at that who runs a refinery is incentivized to run their cokers harder as we go into this asphalt season, which also is supportive of what we say about short supply.

But if you look at, I'm looking at graph right here which is titled "US Asphalt Import/Export Trends," and what you see in terms of thousands of barrels a day. And you see we've gotten actually into negative territory, meaning we're in an export mode rather than an import mode. So it's very, very bullish on the supply side.

Okay. Follow up question to that -- if you kind of extrapolate those current trends, and I recognize that this is relatively early on in forecasting, but when you look out to next year when a lot of that coking capacity comes online, do you have a sense for how much that variance between supply and demand can widen?

Yes, we do. We talked about that the other day. Mike or Steve, go ahead, you guys can comment on that.

It's probably a little less in 2010. There's about 60,000 barrels that have coker capacity coming onto 2010. In 2011, there's about 116,000 barrels coming on, and then in 2012 about 215,000 to 220,000 barrels coming on the stream.

So you've got a growing supply-demand gap, which I think was part of your question.

That's right, yes. I appreciate the color, thanks guys.

Yes, thank you.

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

Yes, good morning. My questions were asked and answered, thanks.

Okay, thank you.

Your next question comes from the line of Mark Reichman with Madison Williams.

Good morning. Well I guess what I would ask about was the global growth strategy. I think in a previous presentation, you'd mentioned looking at other markets in the Middle East and the Far East for investments, and I just wanted to ask you a little bit about that, in terms of what you're seeing and in terms of your capital allocation process, how you think about that.

Right. Well, capital allocation is best idea wins, whether it's international or domestic. But we are seeing good ideas internationally. What we said previously is still true, and I expect, I think we're getting close this year to announcing the next international storage acquisition. So what we said previously still holds true, and I think increasingly likely, you'll hear from us this year on an overseas acquisition, and probably in the storage arena.

Okay, thank you.

Thank you.

Your next question comes from the line of Louis Shamie with Zimmer Lucas.

Hi, good morning everyone. I had two questions -- first off, if we're looking at the change in storage EBITDA year on year, so 10 versus 9, how much of that would you attribute to new projects that came online in 2009 and 2010?

The vast majority of that is coming from renewal rates, higher renewal rates.

Because we're pretty much done with that. Remember we previously had a $400 million program we announced in mid-'06, and we said we're going to do that over the next two to three years. That's history, basically. We might have a little bit of carry-over from projects that were completed in '09, but now we're embarked on this $500 million internal growth program. And there's more, as I said earlier, it's a year of spending $275 million for future benefits. So I think Danny answered it, it's --.

So you're saying that most of it's not coming from capital, it's mostly coming from storage renewals. Okay. And then my other question was regarding your CapEx guidance. What's your full CapEx guidance for this year, and how does it break out into the different buckets?

Well, you've got $275 million(inaudible) alluded to and we gave guidance on reliability.

50 to 60.

Okay. And then there's, and that's pretty much it. That's pretty much it.

Yes, that's it.

Okay. Wasn't there some third category that you guys created, or --?

Yes, there's a third category that was kind of other spend, which doesn't have a return. Traditionally that would be a head off, we purchased the land and we would be constructing during the course of this year. And so we'll just talk about that as strategic, but that's not in the $275 million, simply because there's not a return associated with that. And we're looking at possibly doing a sale lease back on that as (technical difficulty).

Okay. Was there a dollar amount associated with that, or is that looking like not this year --?

About 40, of which I think we spent 13, 14, and purchased [it back] in the first quarter.

Great. Alright, well thanks a lot, guys.

Thank you.

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

Thanks. Just a quick question on the new leases in the asphalt terminals and storage that you guys put on -- are the volumes that are going to flow through terminals, are they contracted out or are they going to be kept open?

(Technical difficulty) just trying to grow our market share. Is that what you're asking?

Yes, we don't have contract of sales through this facility. They're just in markets that do have the demand that we will capture by virtue of having the terminal.

Okay, thanks.

(Operator instructions). Your next question comes from the line of Mark Easterbrook with RBC Capital Markets.

Yes, good morning, guys. Just on those leases again, the asphalt leases, how long do those go out for and what type of chance do you have to renew those leases?

Basically two to three years, with I'd say a good chance to renew them if they're successful, we want to carry on in those markets.

And they were signed last summer, is that correct?

Some last summer, some earlier this year.

Okay.

So it's kind of over that six month period or so.

And then in terms of refinery maintenance, you saw the McKee down in the first quarter. Any planned maintenance turnarounds for the second quarter or forthcoming?

Yes, there's just some of those manned end refineries supposed to be down the second quarter, and then Bolero's Ardmore refinery in the third quarter. That's pretty much the --.

All of that's factored into the outlook numbers that we gave you.

Right, right. Okay, thanks.

Your next question comes from the line Yves Siegel with Credit Suisse.

Good morning, everybody.

Good morning, Yves.

I know I probably just missed it, but when you look at the storage year over year, the operating income was down and operating expenses were up. Could you just elaborate again on the year-over-year delta?

On the storage side, a lot of that was in operating expenses that we deferred on tank maintenance between '09 and first quarter of '10. So basically, you'll see a run rate going forward.

We said total OpEx of $115 million to $130 million on a yearly basis. But we did have some deferred, and everything, when the world collapsed as Rick said, in late '08 early '09, I mean, we said we're going to be cautious until we get some visibility into how this is all going to get resolved. Some of those things really never got done. There's lead time involved and planning involved in those projects. Some of them didn't get done in '09. So as Rick said, we've got some catch-up work that we did in the first quarter of 2010. And OpEx should trail off the second half of the year as that catch-up gets done.

Okay. So is it fair to say that the economics and the returns that you're looking for from that business pretty much hasn't changed?

Yes, that's fair to say. I did point out just a timing thing. We said incrementally with dock to storage, $12 million to $16 million, we previously said $18 million or more. And that was really mainly due to a storage project that slipped on us a little in 2011.

And then lastly, when you talk about the CapEx for this year, does that include the potential storage acquisition that you're talking about internationally?

No.

How big a number could that be?

Not huge.

Yes, it's not a mega-deal.

Okay. Great, thanks guys.

And we have no further questions in queue.

Thank you, Operator.

Thank you, ladies and gentlemen. This will conclude today's conference call. You may now disconnect.