NuStar Energy LP (NS) 2010 Q4 法說會逐字稿

Good afternoon. My name is Ashley and I will be your conference Operator today. At this time I would like to welcome everyone to the NuStar Energy LP and NuStar GP Holdings, LLC fourth 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. Mr. Russell, you may begin your conference.

Good afternoon. Welcome to our conference call to discuss NuStar Energy LP and NuStar GP Holdings, LLC fourth quarter 2010 earnings results. If you have not received the earnings releases and would like copies of each, you may obtain them from our website at NuStarEnergy.com and NuStarGPHoldings.com. Attached to the earnings releases, we have provided additional financial information for both companies including information on NuStar Energy LP's business segment. In addition, we have posted operating highlights and fundamental data for our asphalt operations under the investors portion of the NuStar Energy LP website. If after reviewing the attached table and it is operating highlights you have question 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 as described in NuStar Energy LP and NuStarGP Holdings interim reports on Form 10-K for the year ended December 31, 2009, and subsequent filings with the Securities & 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 statements to actual results or changes in our expectations.

During the course of this 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 LP website reconciling these non-GAAP financial measures to the 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.

Now let me turn the call over to

Good afternoon, and thanks for joining us today. NuStar Energy just completed a very successful 2010. During the year we grew our asset base through internal growth projects and in acquisitions, increased our EBITDA over the 2009 levels in all three of our business segments, pre-funded some of our future capital growth, improved the condition of our balance sheet, and continued to realize outstanding safety and environmental results. And we were once again named one of the 100 best companies to work for in America by Fortune Magazine.

During the year we completed 10 internal growth projects with a total project cost of approximately $135 million. These projects should contribute a full year of EBITDA to all three of our segments during 2011. The St. Eustatius terminal reconfiguration project and the Texas City terminal redevelopment project were the major internal growth projects completed during the year. In addition, in October we entered into a pipeline connection and capacity lease agreement with Coke Pipeline Company. Under that agreement NuStar will reactivate a previously idle pipeline in South Texas that will now be utilized to transport Eagle Ford shale crude oil production to Corpus Christi, Texas, refineries and terminals. We expect this project to be completed and in service in the second quarter of 2011.

As we have mentioned before, NuStar has several other transportation and storage assets located in areas within south Texas that could serve as effective means to transport our stored of Eagle Ford production. We therefore expect to identify additional internal growth projects in the Eagle Ford in 2011. These projects and other transportation initiatives underway during 2011, should improve our outlook for that business.

On the acquisition front, in May we acquired three storage terminals in Mobile county, Alabama, with a storage capacity of around 1.8 million barrels for approximately $44 million. These facilities have added to our fee-based business and we have identified several new growth opportunities for the terminals since they were acquired. In August we announced we had entered into an agreement to acquire a 75% controlling interest in a joint venture in Mersin, Turkey. We had hoped to close this acquisition by December, but the closing process is taking longer than anticipated, and we now expect to close the deal in the first quarter. The purchase price for our joint venture interest is expected to be around $55 million, and we expect the transaction to be immediately accretive to our distributable cash flow.

In regard to our EBITDA performance, NuStar Energy's 2010 EBITDA of $483 million was higher than the $461 million earned in 2009. In addition, all three business segments generated more EBITDA in 2010, than in 2009. Our 2010 storage segment EBITDA of $256 million was not only higher than the $242 million earned in 2009, but was also the highest ever for the segment. Increased storage rates on existing storage contracts, increased customer demand for storage services, incremental EBITDA generated by the Mobile acquisition, and the completion of our St. Eustatius terminal reconfiguration project contributed to this segment's increased EBITDA. Transportation segment EBITDA of $199 million was also a record high and $9 million higher than last year. After excluding the impact of the pipeline asset sales completed in the second quarter of '09, total pipeline throughputs increased approximately 1% in 2010. The increased throughput, coupled with higher per barrel pipeline tariffs as a result of increased throughput volumes on higher tariff long haul pipelines, contributed to the increased EBITDA in the transportation segment.

Our asphalt and fuels marketing segment EBITDA was $111 million, or $31 million higher than 2009. 2010 EBITDA in our asphalt, refining and marketing operations, in other words, the asphalt portion of the Asphalt and Fuels Marketing segment, was $74 million, or $4 million higher than last year. Reduced asphalt supply in the Northeast for part of the third quarter, and our Asphalt Marketing group's efforts to increase higher margin rack asphalt sales helped our 2010 asphalt results. Our rack asphalt sales volumes increased 6.5% in 2010 compared to 2009. Fuels marketing operations 2010 EBITDA increased to $37 million, $27 million higher than last year. These operations primarily benefited from improved bunker margins and increased sales to some of our bunker and fuel oil markets during 2010. A significant amount of our increased bunker and fuel oil sales was a result of the internal growth capital we spent in the Texas City, Texas terminal redevelopment project.

Increased 2010 corporate G&A expenses, primarily due to increases in personnel costs and increased stock-based compensation expense and lower other income, mainly due to no significant asset sales in 2010, partially offset the year-over-year increases in segment EBITDA. During 2010 we entered into several financing transactions to improve the condition of our balance sheet and to secure financing for future growth opportunities. In May, we received $240 million in proceeds by issuing around 4.4 million common units of NuStar Energy. In August, NuStar issued $450 million of 4.8% senior notes. The proceeds from both of these transactions were initially used to reduce outstanding borrowings under our revolving credit facility and to pay for our May terminal acquisition. However, longer term these proceeds will be used to fund future acquisitions and our internal growth capital spending program.

During the last six months of 2010, NuStar received $235 million of low interest rate tax-exempt Gulf Opportunity Zone, or GO Zone, financing proceeds from the St. James Parish in the state of Louisiana. These debt proceeds prefund a portion of the estimated construction costs associated with two large storage tank projects at our St. James, Louisiana terminal facility. As of December 31, approximately $205 million of these debt proceeds had not yet been spent on the projects, and were being held in escrow with a trustee. Estimated completion dates for these two projects are third quarter 2011 and third quarter 2012. Based on these estimated completion dates, a large amount of the funds could remain in escrow during 2011.

Consistent with previous years, NuStar once again had an outstanding safety and environmental performance in 2010. Our total recordable injury rate, or TRIR, performance was once again better than our peers in the pipeline, terminal and refining industries. Also consistent with previous years, we learned that Fortune Magazine ranked us 30th in their listing of the 100 best companies to work for in America, the third consecutive year we have been so recognized by Fortune Magazine. We also receive recognition in the state of Texas, being ranked third among large companies on the best companies to work for in Texas list which will be published in the February issue of Texas Monthly Magazine. Our Company's reputation was further enhanced by record amounts of community service by our employees.

Now, turning to our fourth quarter 2010 results, I am happy to report that NuStar Energy's fourth quarter 2010 EBITDA of $114 million, and distributable cash flow available to the limited partners of $67 million, were both record results for the fourth quarter. Fourth quarter 2010 EBITDA of $114 million was $22 million higher than Q4 '09. All three business segments generated more EBITDA in the fourth quarter of 2010 than they did in the fourth quarter of '09. Transportation segment's fourth quarter 2010 EBITDA increased $3 million. Higher per barrel pipeline tariffs, as a result of increased volumes on higher tariff long haul pipelines, more than offset the impact of the negative 1.3% July 1, 2010, FERC tariff adjustment and reduced throughput volumes. Throughput volumes were down 5% during the quarter due to lower throughputs on our refined product and crude oil lines. Market economics incentivized some of our customers to sell refined products into the marine export market instead of transporting volumes via our refined product pipeline system, where that option was available. Crude oil pipeline throughputs were negatively impacted by competing supply economics.

Fourth quarter 2010 Storage segment EBITDA increased $9 million when compared to Q4 '09. Increased storage rates on existing storage contracts, continued increased customer demand for storage services, and incremental EBITDA generated by the completion of our St. Eustatius terminal reconfiguration project, contributed to the segment's increased EBITDA. Lower maintenance expenses also contributed to the Storage segment's increased fourth quarter 2010 EBITDA. Fourth quarter '09 tank maintenance and jetty maintenance activity at some of our terminals was much higher than in the fourth quarter of 2010.

Asphalt and Fuels Marketing segment fourth quarter 2010 EBITDA was $20 million higher than Q4 '09. Improved results in our asphalt refining and marketing, fuel oil, and bunker fuels operations contributed to the segment's increased EBITDA. Asphalt, refining and marketing operations EBITDA was $5 million higher than last year mainly due to an increase in gross margins. Per barrel gross margins increased to $6.70 in the fourth quarter of 2010, compared to the fourth quarter '09 gross margin per barrel of $5.34. Our Asphalt Marketing group's efforts to increase higher margin rack asphalt sales volumes, and favorable weather conditions in October and November, contributed to these increased margins. Rack asphalt sales volumes increased 4.5% this quarter compared to the fourth quarter of '09. EBITDA in our fuels marketing operations increased by $15 million in the fourth quarter of 2010, when compared to Q4 '09. Improved bunker margins and increased sales in some of our bunker and fuel oil markets contributed to the improved fuels marketing fourth quarter 2010 results.

NuStar Energy's distributable cash flow available to the limit of $66.7 million for the fourth quarter of 2010 was $10 million or 17% higher than the fourth quarter of '09. The increase in fourth quarter distributable cash flow available to the limited partners was a result of a $22 million increase in EBITDA, partially offset by increased reliability capital spending and higher income tax expense. Fourth quarter 2010 earnings of $0.65 per unit were $0.15 per unit, or 30%, higher than the fourth quarter 2009 earnings of $0.50 per unit, and within our guidance range of $0.60 to $0.80 per unit.

In regard to our distributions, NuStar Energy's board declared a fourth quarter distribution of $1.075 per unit, which is $0.01 per unit or around 1% higher than the fourth quarter '09 distribution of $1.065 per unit. The distribution will be paid on February 14, 2011. Distributable cash flow available to limited partners covered the distribution to the limiteds by 0.96 times for the fourth quarter of 2010 and 1.04 times for the year ended December 31. The Board of Directors of NuStar GP Holdings declared a fourth quarter distribution of $0.48 per unit, which is $0.045 per unit or 10.3% higher than the fourth quarter 2009 distribution. The NuStar GP Holdings distribution will be paid on February 16, 2011.

Taking a look at our fourth quarter 2010 corporate expenses, G&A expenses were $33.9 million, $6.7 million higher than last year and higher than the fourth quarter guidance of $27 million to $28 million. The increase is due primarily to higher stock-based compensation expense. NuStar Energy's unit price increased $7.75 per unit, or close to 13% in the fourth quarter of 2010. Interest expense for the fourth quarter was $20.2 million, up $1.4 million from last year, primarily as a result of our issuance of $450 million of 4.8% senior notes in August.

As we move into 2011 we expect our first quarter 2011 EBITDA to be in the range of $80 million to $100 million. Our Storage segment EBITDA should be $5 million to $10 million higher than last year's first quarter due mainly to incremental EBITDA from the Mobile, Alabama, acquisition, and the 2010 completion of St. Eustatius terminal internal growth project. EBITDA in our Transportation and Asphalt and Fuels Marketing segments should be comparable to the first quarter of 2010.

Earnings per unit applicable to limited partners for the first quarter are expected to be in the range of $0.15 to $0.35. First quarter 2011 operating expenses are expected to be around $125 million to $130 million.G&A expense in the range of $26 million to $27 million. Depreciation and amortization around $39 million to $40 million. And interest expense $20 million to $21 million. For the full year 2011 we expect EBITDA to be higher than 2010, driven primarily by incremental EBITDA generated from the internal growth projects in our Storage segment. Our Transportation segment should benefit from the recent FERC decision to increase the pipeline tariff rate index escalator from 1.3% to 2.65%. The estimated second quarter 2011 completion of the Eagle Ford shale project for Coke Pipeline Company should also provide additional EBITDA to the segment. However, those projected benefits should be more than offset by lower pipeline throughputs in 2011. Increased customer refinery turnaround activity, and changing market conditions should cause Transportation segment's throughput to be down approximately 4% in 2011. As a result our Transportation segment EBITDA is projected to be $5 million to $10 million lower in 2011.

Storage Segment EBITDA should increase by $30 million to $40 million. This segment should realize a full year of EBITDA from the Mobile, Alabama, terminal acquisition and the St. Eustatius terminal internal growth project. In addition, EBITDA benefits from the completion of a 3.2 million-barrel tank expansion project at our St. James, Louisiana, terminal should begin in the third quarter of 2011. Storage segment should also benefit from incremental EBITDA generated by our Turkey terminal acquisition.

2011 EBITDA in our Asphalt and Fuels Marketing segment should be slightly higher than the $111 million earned in 2010. We expect asphalt margins to improve over 2010 as demand begins to improve in 2011. Small increases in both public highway demand and private residential demand, driven by an improving US economy, should contribute to improved margins. Tighter asphalt supply, due to a coking unit coming online in the Midwest in late 2011, should also contribute to improved margins. Our fuels marketing operations should benefit from a full year's worth of EBITDA from the new US heavy fuels and bunker fuels markets we entered during 2010. Reliability capital spending for 2011 should total $50 million to $55 million, comparable to the $54 million we spent in 2010. 2011 strategic capital spending should fall in the range of $330 million to $350 million, higher than the $219 million that was spent last year. We feel that additional strategic capital projects could be identified during 2011 which would cause our strategic capital spending to increase above this range. It should be noted that a substantial amount of the 2011 strategic growth capital will be spent on projects at our St. James and St. Eustatius terminals, and will not begin generating EBITDA until 2012.

As usual, we're not providing specific guidance relating to NuStar Energy's 2011 distribution growth. However, based on our current projections, we feel that 2011 distributions should exceed the 1% distribution growth rate of 2010. As more internal growth projects come online in 2012, we should generate additional distributable cash flow, allowing us to increase distributions further.

In closing, am pleased with our 2010 accomplishments and the fact that we were able to end the year with a record fourth quarter EBITDA performance. Based on our current internal growth plans we expect 2011 results to be higher than 2010's. As we move through 2011, we hope to identify even more growth projects and acquisition opportunities to further enhance our future results.

At this time let me turn it over to the Operator so we can open up the call to Q&A. Operator?

(Operator Instructions)Our first question comes from the line of Brian Zarahn with Barclays Capital.

Good afternoon.

Good Afternoon.

Can you give a little color about what's behind the delay in the Turkey JV closing?

It's different answers at different points along the way. First we had some delays in the permitting process which have now been resolved. There was some, what I'd call corporate reorganization to be done by our JV partner to get the JV in a proper form for the new JV. That took a little longer, and then we ran into some Turkish holidays. And a little bit of -- because since time had gone by, we ended up tweaking some negotiation of some issues here and there. But fundamentally, we end up in the same place we always expected to be, with a very good deal. And what I am hoping at this point is that we close by next week. If things go well next week, with the final stages of talks we need to do this week, we should close this by next week.

Okay. And then I am assuming the capacity expansion plans are on track for the JV?

Yes, the ones that we reviewed previously are all on track, yes.

Okay. At a little higher level, given the turmoil in Egypt, are your emerging market expansion plans, not the Turkey JV but continuing to expand in emerging markets, has that changed at all?

It really doesn't. I think there is more we can do in the Mediterranean region. Obviously, we're cautiously watching the situation like the rest of the world, but really at this point it doesn't change our development plans at all.

Okay. Final question. At your analyst day you talked about a potential 6 million to 8 million barrel expansion of St. Eustatius down the road. Does the expected expansion of BORCO have an impact on your expansion plans at St. Eustatius?

No, none at all. In fact, we've gotten -- we've warmed up to the idea even more in the months since then, and we're more optimistic than ever that an expansion of that order of magnitude will be done at St. Eustatius. . Because that's our plan right now. We're still scoping out engineering, firming up deal with customers, and more than ever that's on track to be done. So I am more confident than ever that we will do that expansion. That's roughly we're anticipating something like maybe a seven times EBITDA expansion, which is pretty attractive when you consider the multiple that was paid in the recent BORCO deal. So we're pretty happy with the expansion plans that are shaping up right

Thanks, Curt.

Thank you.

Our next question comes from the line of Xin Liu with JPMorgan.

Xin Liu from JPMorgan.Good afternoon. Just wondering if you can give more color on your throughput for your Transportation segment, down 4% year-over-year. What drove that? More detail?

Yes, we had some -- I'm going to turn this over to Danny Oliver who is in charge of the development -- business development group that covers pipelines, as well. In fact, I will just give you my high level reaction to it. We did, as I mentioned in my notes, which you might have caught, we had some customers who had some marine export options that were more attractive than moving by pipeline to some Gulf Coast locations that we had. And then as crude patterns turned around, what you may have noticed recently there has been a very unusual dislocation of WTI, West Texas Intermediate price versus crudes in the rest of the world. And that incentivized some of our crude pipeline shippers to change some of the things they would do under more normal market conditions, take advantage of that fact and get more Cushing barrels, to the extent they could, into their plant. So that very unusual situation where you have $10 plus difference between Brent and TI is certainly one. Now, one of the things that's nice about that is it helps our St. James story of getting crude, like Bakken crude, down to St. James, because when you look at the differential of LOS to TI, that's really widened out because of that WTI problem, Cushing centered logistics problem. So those are some things that come to mind, and I probably stole Danny's story there. Sorry, go ahead.

I think the first thing you hit on, some of our refiners in Corpus going to export markets, really that effect coming off our pipeline to Houston more than accounted for the entire change in the quarter-to-quarter. So the others are some pluses and minuses that also occurred but that really -- that equated to the entire.

To add a little more color to it, as you all know if you've followed us for a while, our pipeline segment has been stable and steadily growing through all kinds of conditions since we IPO-ed ten years ago. It has really been our most stable, I would say, asset with more of growth being in storage, but great stability being in the pipelines. And last year we went through this thing of guiding down slightly on the pipeline business, and we ended up far overshooting our target, far exceeding what we thought we were going to do. This year -- these are the issues, we've presented the issues to you that we see right now. Whether they endure all of 2010, I don't think is certain as we sit here at the end of January. So I think there is probably more upside than downside to the pipeline segment story, just like there was last year, that it turned out to be more upside than downside when we gave you an early -- our best judgment early in the year. And as we say, we're teeing up these Eagle Ford projects to improve the outlook for that business a little bit in 2011 but that really comes through in 2012. So I am not overly concerned about the short-term hiccups in pipeline throughputs given the longer term outlook we have for that business segment and how it has performed historically.

I might add that this one pipeline to Houston is one that is slated to be moved into Eagle Ford service. So, as it is affecting us negatively now, we anticipate filling and probably expanding this line in the very near future.

Got you. That's helpful. And also you mentioned that there is a major coker project that's coming online late this year. I remember your analyst day actually there was a couple projects -- major projects coming on first half of this year. Are those projects got delayed?

Mike Hoeltzel is here to answer that. Go ahead, Mike.

We still see the ConocoPhillips Wood River project in the fourth quarter of 2011. And then we see projects -- other projects in the Midwest including the BP Whiting in Marathon, Detroit, coker projects coming on in 2012.

Okay. The Port Arthur one, what's the status for that?

Motiva Port Arthur is coming on in 2012 also.

The Atofina Port Arthur project?

Atofina is coming on first quarter this year is what we have.

Okay. Got you.Thanks.

Thank you.

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

Good afternoon, guys. Curt, I am curious as to your thoughts regarding pricing around a lot of the different heavy grades of crude. I believe there was an announcement out this week with Mexico potentially cutting back on Maya blend crude shipments into the Gulf Coast by about 100,000 barrels a day once that Pemex expansion of the Michelin refinery is completed. I would imagine that would pressures coking economics and I am just curious as to your thoughts as you get ready for paving season.

I'm going to let Paul comment on crude price -- heavy crude price, but the coking economics are pretty healthy right now in terms of the margin. Those with the ability to do that are really incentivized to run those cokers as much as they possibly can. But you quite properly raise the issue of the availability of the heavy crude supply. Paul, do you want to comment on that?

Mainly (inaudible) is what we track quite a bit, and the wide margins up there for the Canadian crude to come down are there, but it is very similar to production of asphalt that it's created. It was very similar to than it was last year. So it is not going to make that big of an impact on us, mainly in the midcontinent where a lot of the competition comes from.

Okay. And then, Curt, just looking at the decent Contango trade that benefited Fuels Marketing, you mentioned the slight improvement in asphalt margins for 2011.And I'm just curious how much visibility you guys have into higher margins specifically for the polymer modified and some of the specialty asphalt products this year? I'm trying to get a sense what you think light product demand is going to be?

We started on the polymer modified in the specialties. We have really ramped up our volume on PMA. I think Mike was close to half your rate volume. I am not sure. I don't have it in front of me. It has increased quite a lot compared to what it was. We have this warm mix product which is still small volumes but percentage wise I think it doubled this year.

It's up to about 20% total.

But in terms of visibility on the margin, I think the question is on the margin for those projects, as we go into 2011, what the margin outlook looks like for those.

I think the outlook is positive for us. We're one of the few refiners and producers of asphalt that do produce specialty grade products. We're not the only one, but we're also isolated on the East Coast whereby in order to ship specialties into that area is a little difficult. We do have some protection from that.

We've got (inaudible) we're kicking into. We expect that to really start up this year. I think a volume that we're looking at in that arena is about a quarter of a million barrels to start off with, so we expect that to grow as they're more successful in getting the state to specify specialty grades.

And final question for me, Curt, and maybe either for Curt or for Danny, a little bit more color, if you could, on any additional transportation storage assets in south Texas that you'd consider linking into this existing coke initiative.If I recall correctly, I think you had five or six lines that went through the Eagle Ford and the Niobrara field. So you could get some synergistic uplift there. And I am just wondering, when you stack all of those together, what is the associated total costs and then the expected return because I would imagine it would be a pretty nice return?

It is. You're right. There is about five or six lines that we have going through all of those fields, not just in Texas.So we have one coming down from Niobrara that touches that field, one that touches the Barnett field. We're working projects on both of those. Then, down in south Texas, we mentioned the coke project. We've got that project under construction now, and as Curt mentioned, should go into service in 2Q of this year. But there is also an expansion case on that pipeline. We're already working on that. That would expand it from 30 to 20,000-barrels a day. We have this Houston -- what we call the Houston 12-inch. It is right now a products line that goes from Corpus to Houston . That's about a 100,000 barrel a day line that's doing 2,000 barrels a day, maybe, now. We expect that line to be full and we'll probably have to look at an expansion case on that line as we put that project together.And then we've got a couple other lines moving around from basically Three Rivers area to Corpus that we're working projects on, filling those lines as well, and maybe changing direction of service. So there is a lot to work on in Texas, but we've got a couple up in Colorado and north Texas, as

Thanks for the color, guys. I appreciate it.

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

Good afternoon. First, to follow up on Darren's question on the Transportation side, maybe to ask it again in a different way.I think at the analyst day you mentioned total pipeline capacity touching the oil shales of over 200,000-barrels per day but current volumes of around 50.I was just wondering if that's still around the same volumes or are you filling those, or how are you looking at filling those pipes?

It's at least the same. I think that 200,000, if I had to guess right now, we probably will be looking at expansion cases that would increase the 200,000 side of that equation. Because we have the demand for it. Yes, the same pipelines that until we got busy on these projects were doing about 50 a day, but I still see 200,000-plus being where we end up.

And is any of the expansion capital around there included in the budget? How much volume increase around the shales is included in the 2011 budget?

There is not a lot in 2011. Some of the projects we're working on but are still not really defined will be the ones that take more capital. A lot of these pipelines they exist, so it is just a matter of maybe reversing or adding a pump here or there or a small connection. The capital is not that high on these early projects, so the returns are very high on these projects.

Right. Okay. And then one quick follow-up--

I think Curt alluded to we may have more projects than what we have in our budget coming online in 2011, and these shale plays certainly will be part of that.

Right. Okay. So as you look to potentially expand the budget, are you still assuming no equity financing in 2011? Or how much CapEx would lean you toward -- ?

Our budget assumes no equity issuance for 2011.

Okay, and how much CapEx -- incremental CapEx in your budget do you feel you can take on without -- or are you comfortable with?

It wouldn't take a lot of extra capital before we would want to raise some equity. Line up our debt to EBITDA. So it wouldn't take a lot, maybe $50 million, $75 million more of capital and we might look at doing a small equity raise.

And just to circle back quickly to follow up on the Turkey, what is your current guidance, assuming in terms of when that acquisition starts contributing, when it closes and contributes?

It contributes right away.

Okay. So in guidance you baked in some of the potential delay?

I don't think we put it in there. We didn't put it in our guidance.

It is not in our Storage segment guidance right now we've given you.

$30 million to $40 million up does not have Turkey in it.As soon as we close it, we can probably give you some guidance. By the way, the capital associated with Turkey doesn't lead us to raise equity, so that's not the $50 million or $75 million I was alluding to.

Okay. Thanks for the color there. And then, finally, can you just comment broadly on any acquisition opportunities you may be seeing and where?

Yes, there is a lot. I am sure you all have noticed that the majors have started to divest logistics assets here and there. There have been some BP packages, ConocoPhillips packages, really all of the majors you can think of have started, I would say, dribbling out packages of logistics assets for consideration. There is really a lot of more under the radar deals like we have found in Turkey that are out there, if you do the leg work necessary to root them out, which we are doing. Again, I think there is ample acquisition opportunities. We just have to find the right ones that fit our strategy and that we're comfortable financing and that meet our financial criteria. So I think this is a year where you will see us do acquisitions. I am pretty confident of that, but we're not going to rush into a bad deal, of course. But I think it is one where I can say I am confident that you will see us add some acquisitions this year. It's a favorable environment. There is a lot of stuff on offer for us to consider.

All right. Thanks, guys.

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

Thanks. Good afternoon, everybody. Just a couple of questions. One, maybe just a clarification. On your guidance for the Transportation segment, what are your expectations on the refined products side of the pipeline business? I think you covered the crude oil side pretty well, but what do you see going on in the refined products side?

Just to clarify, in my portion when I said $5 million to $10 million of EBITDA down, that was crude and refined products both, so let me just clarify that. Danny, do you want to focus --

I think this Houston 12-inch that we've talked about already this morning, that's a big part of it. We don't see that really coming back in any significant way throughout the course of 2011, as we continue to work a project to put that in a different service. So that's going to be part of it. Now, I would say it is at least half of our guidance in 2011, and the other half crude.

There is also some turnarounds in the first quarter that impact us and that's baked into the guidance we gave you. But that's also all change year-over-year. The ammonia lines had a great year but (inaudible).

We showed just a slight reduction from 2010 because 2010 was a record year. We're still showing a very strong year, just not another record.

Okay. So just from a pure market demand perspective, would you say you think we have seen the bottom and we're trending upward from a demand perspective?

I think about a 1% increase in 2010 and we're expecting that same kind of result, 1% to 2%, in 2011.

Okay. And then the second question is just if you had any update on your perspective for federal spending for paving projects and the like, both federal and at the municipal state level, how you think that's going to look in 2011 and 2012?

There is still more stimulus money, or ARRA money, to be spent, particularly in our markets. I think we have $5 billion, we're estimating, to be spent in 2011. They've spent about $6.3 billion of the $11.3 billion, and our markets have lagged a little. In other words, proportionally the markets that we're in, we'll see more of that. And then, of course, with the new Congress, we have to look at what's going to happen with the highway trust fund. I think they will continue on until they get to the point where they have to make a decision about extension of it. But we've assumed similar amounts of funding going forward on that. What we think is going to happen for asphalt is a slight increase in demand in 2011. And even in the absolute worst case where the government funding really drops a lot, the worst case is pretty close to flat with 2010. And that's the worst case that we don't think is going to happen. The probable case -- when we looked at all the federal, state and local situations, the probable case is a slight uptick in spending and in demand. And you get some economic recovery in the private sector side. We think there is going to be more private construction, commercial, residential. In parts of the country, like here in Texas, you have seen in residential rental pick up quite a lot with apartment complexes being built, and that helps demand. So, that gives you some color on it. I think, Paul, you might want to add anything?

Just as long as Congress, even if they do not pass a college trust fund bill, as a continuous resolution, will continue at 2010 levels throughout the year and the 1% growth I think you're talking about, the recovery of the economy, and things.

Great. Thank you very much.

(Operator Instructions)Our next question comes from the line of Michael Cerasoli with Goldman Sachs.

Thanks. Good afternoon. I just have a couple quick questions. The first one is pretty generic. Can you remind us what oil price is embedded in your asphalt guidance?

Yes. I think -- are you talking about TI, or -- ?

Yes, TI is fine.

I think we're saying $85 to $90.

Yearly average.

Yearly average. But we've even got -- we can see it's obviously trending up here and we're expecting potentially in the second half of the year it could maybe go up as high as $100, $105.

And then just going back to the asset acquisitions, I am just curious to know if the delayed closing in Turkey, has that impacted your views on international asset acquisitions, if at all?

No.It really hasn't. We have some issues that were very specific to that deal, but, so the answer is no.

Okay.And then, just my final question would be on the BORCO assets that were sold recently, were you a participant? Did you try and get those assets? If you could just shed some light?

We took at look at it like we look at a lot of things. We did take a look at it and we came to a internal value that we were comfortable with, which was, I would say, significantly lower than what it actually traded for. But, we have -- part of what drives our answer is we have, we think, a much better option on expanding Eustatius out to 8 million-barrels a day on much more accretive terms than paying up for something else in the Caribbean like that. So we just got comfortable that we just have a much better option than that.

Okay. Thank you.

Our next question comes from the line of [Biff Eagle] with Credit Suisse.

Good afternoon. Curt, can you expand on the acquisition question just a little bit more? Just in terms of I recognize that there is a bigger supply out there in terms of potential candidates for acquisitions. But it also seems, as you just described, that multiples being paid for some of these assets are pretty high. So, as you think about the opportunity set in front of you, are you looking more internationally or do you also think that there may very well be domestic opportunities in light of your comment that you are pretty optimistic that you will be able to consummate some stuff in 2011?

We're looking both US and internationally, but you see what's happened to us. We are in the final mile of doing an international one but we also did a US acquisition last year in Mobile. But I know what you're saying. Acquisition prices can get very frothy, and there is a lot more MLPs than there used to be, and all of them show up at auctions and all of them tend to bid up the price to the absolute last penny that you'd want to pay for it. So you won't see us there. You won't see us at those frothy acquisitions, so we'll happily miss some of those deals. But we'll find others. I am confident we will. As I said, I do think there is a high probability you will see us do acquisitions this year but not ones in that category.

Okay. So the old cliche, stay tuned.

Stay tuned, that's right.

Thank you.

And there are no further questions in the queue at this time.

Thank you, Operator. I would like to thank everyone for joining us today. If you have any additional questions, please call NuStar's Investor Relations. Thanks and have a great day.

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