NuStar Energy LP (NS) 2011 Q3 法說會逐字稿

Good morning. My name is Ally, and I will be your conference operator today. At this timeI would like to welcome everyone to the NuStar Energy LP and NuStar GP Holdings LLC 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 your host, Mr. Chris Russell. Sir, you may begin your conference.

Good morning, everyone, andwelcome to our conference call to discuss NuStar LP and NuStar GP Holdings LLC third quarter 2011 earnings results. 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 the call NuStar management will make statements about our current views concerning the future performance of NuStar that are forward-looking statements within the meaning of the federal securities laws. These statements are subject to the various uncertainties and assumptions described in our filings with the Securities and Exchange Commission and will not be updated to conform to actual results or revised expectations.

During the course of this call, we will also make reference to certain non-GAAP financial measures. Our non-GAAP financial measures should not be considered as alternatives to GAAP measures. Reconciliations of the non-GAAP financial measures to US GAAP may be found either in the earnings press release or on our website.

Now, let me turn the call over to Curt.

Good morning, and thanks for joining us.

NuStar's third quarter results were significantly higher than the guidance we provided late in July. Higher than expected long haul volumes on some of our refined product pipelines, reduced maintenance expense in our transportation and storage segments, and lower stock compensation expense all contributed to our stronger than anticipated quarter.

In addition, our asphalt and fuels marketing segment benefited from a $6 million crude oil pricing adjustment under our crude supply agreement with PDVSA, the Venezuelan national oil company. This contract adjustment serves to keep our actual crude acquisition costs in line with a market reference price. The cost of our crude purchases from PDVSA exceeded this market reference price, so we reduced our third quarter cost of sales by the amount of that excess.

During the quarter NuStar Energy generated $139 million of EBITDA, which was higher than the $131 million earned in the third quarter of 2010. EBITDA results in our storage and transportation segments were higher than last year, while results in the asphalt and fuels marketing segment lagged last year's quarterly results.

Our storage segment earned $71 million of EBITDA, $6 million higher than the third quarter of 2010. The fourth quarter 2010 completion of the St. Eustatius terminal reconfiguration project, the third quarter 2011 completion of the phase one storage expansion project at our St. James, Louisiana terminal, higher storage rates on existing storage contracts, as well as increased demand for storage services by new and existing customers, all had positive impacts on the segment's EBITDA.

The recently completed St. James expansion project increased the storage capacity of that facility by 3.2 million barrels. Total storage capacity at Saint James is now around 8 million barrels, making Saint James NuStar's largest domestic storage facility. Transportation segment EBITDA of $51 million was slightly higher than the $50 million earned in the third quarter of 2010. Higher pipeline revenues as a result of the 6.9% July 1 tariff adjustment and additional revenue generated by the Eagle Ford shale projects completed for Coke Pipeline and for Valero Energy in the second and third quarters of 2011 more than offset the impact of reduced throughput volumes.

Refined products pipeline through puts were down by less than 1% compared to the third quarter of last year. Turnaround activity and unplanned down time at some of our customers' refineries were the main causes of the lower throughputs. However, these lower throughputs were almost entirely offset by increased throughputs as a result of higher refinery utilization rates at other customer refineries due to strong Midwest refining margins.

Crude oil pipeline throughputs were down 17% this quarter versus third quarter last year. Operating issues at one of our customer's refineries and the impact of competitive supply economics negatively impacted throughputs on the crude pipeline system. But even though crude oil throughputs were down from the third quarter of 2010, they were more than 35,000 barrels per day or 13% higher than the second quarter of this year. Incremental throughputs from the completion of the Eagle Ford shale pipeline project with Coke, placed in service in late June, and then with Valero, placed in service in late September, contributed to the increased throughputs.

The asphalt and fuels marketing segment generated $32 million of EBITDA during the quarter, $9 million less than the $41 million of EBITDA earned in the third quarter of last year. The asphalt operations portion of that segment earned $9 million in EBITDA during the quarter, compared to $34 million last year. Weak demand for asphalt put downward pressure on gross margins in the asphalt operations. In addition, asphalt produced primarily by Midwest refiners from lower cost WTI price-based crude oils making its way to the East Coast, putting additional downward pressure on our margin.

Our San Antonio refinery, purchased in May of this year, contributed $4 million of EBITDA during the quarter. Fuels marketing operations EBITDA increased to $19 million, higher than the $7 million generated from the same quarter last year. Increased margins in sales volumes in our crude oil trading, bunkering and heavy fuels businesses contributed to these higher results.

Taking a look at our third quarter 2011 corporate expenses, G&A expenses $18 million, $9 million lower than last year, and the expense reduction was mainly due to lower stock-based compensation expense. Interest expense for the quarter was $22 million, up $1 million from last year, mainly due to the issuance of $450 million of 4.8% senior notes in August 2010.

NuStar Energy's distributable cash flow available to the limited partners of $80 million for the third quarter was $4 million less than last year's third quarter. This was because our increased EBITDA in the quarter was more than offset by mark to market adjustments relating to derivatives activity.

In regard to our third quarter distribution, NuStar Energy's Board declared a distribution of $1.095per unit. The distribution will be paid on November 14. Distributable cash flow available to limited partners covered the distribution to the limited partners by 1.13 times for the third quarter.

The Board of Directors of NuStar GP Holdings declared a third quarter distribution of $0.495 a unit. The GP Holdings distribution will be paid on November 16.

As we move into the fourth quarter, we continue to work on our previously announced Eagle Ford shale projects, plus several new potential projects in the Eagle Ford and other shale areas. We expect to formally announce that couple of these new projects prior to the end of the year.

In addition, work has begun on the crude oil offloading facility being constructed for EOG Resources at our is the St. James Louisiana facility. The 70,000 barrel per day offloading facility should be in operation late in the second quarter or early in the third in 2012. We have previously announced that starting in 2012 our asphalt operations plan to begin processing 10,000 barrels per day of lower cost Peregrino crude produced offshore of Brazil. Discussions are also being held with Canadian crude oil producers regarding NuStar purchasing lower cost Canadian crude oil supplies for the 2012 asphalt season. We feel confident we will be able to process some Canadian barrels at our Paulsboro refinery in 2012.

With regard to earnings in the fourth quarter, EBITDA should be in the range of $90 million to $100 million, while our earnings per unit applicable to limited partners should be in the range of $0.20 to $0.30 per unit.

The storage segment fourth quarter results should be higher than last year, mainly due to the recent completion of the St. James phase one storage expansion project. Our transportation segment results are expected to be lower than last year's fourth quarter. The earnings benefit from some recently completed pipeline projects and higher tariffs should be more than offset by lower pipeline throughputs due to turnarounds at several customer refineries.

We expect the asphalt and fuels marketing segment fourth quarter results to also be lower than the same quarter last year. Even though our San Antonio refinery should continue to generate EBITDA, and our fuels marketing operations results should be improved, projected losses in our asphalt operations could cause the total segment results to be close to break even or even negative in the fourth quarter of 2011. Continued weak demand and lower gross margins for asphalt compared to fourth quarter of last year are putting pressure on our asphalt operation results.

Fourth quarter G&A is expected to be in the range of $30 million to $31 million. Depreciation and amortization around $43 million to $44 million. And interest expense $20 million to $21 million.

For the full year 2011, we expect NuStar's EBITDA to be comparable to 2010. However, recall that 2010 included a $13.5 million insurance settlement payment relating to Hurricane Ike damage at our Texas City facility. Storage segment 2011 EBITDA should increase by $20 million to $30 million, while EBITDA in our transportation segment is still projected to be $5 million to $15 million lower than 2010. EBITDA in our asphalt and fuels marketing segment is projected to be comparable to the $111 million earned in that segmenting last year.

Reliability capital spending for 2011 should total $55 million to $60 million, while strategic capital spending should fall in the range of $305 million to $315 million. Spending on a couple of our strategic capital projects previously projected in 2011 will actually be spent in 2012, causing 2011 spending guidance to be slightly lower than previously communicated.

After concluding two acquisitions from earlier this year, total 2011 capital spending related to strategic capital and acquisitions should be around $410 million. We are currently in the process of finalizing our 2012 through 2016 strategic plan as well as our 2012 budget. The strategic plan and the budget will be presented to the NuStar Energy and NuStar GP Holdings Boards of Directors in the next couple of weeks.

More detailed segment guidance will be provided after our strategic plan and budget have been approved. However, based on current drafts, 2012 EBITDA results are projected to be $40 million to $60 million higher than 2011. 2012 and 2013 EBITDA should benefit from the over $300 million of strategic capital we expect to spend in 2011, plus an additional $350 million to $400 million of strategic capital we expect to spend in 2012.

The major projects expected to be brought online in 2012 and 2013 as a result of these expenditures include construction of a new pipeline and reactivation of existing pipelines in the Eagle Ford shale,construction of a crude oil rail car offloading facility and new storage at our St. James, Louisiana terminal, and new distillate storage at our St. Eustatius facility in the Caribbean. These major 2012 and 2013 projects, plus the projects we completed in 2011, should contribute significantly to our future EBITDA growth.

So at this time let me turn it over to the operator so we can open up the call for questions and answers. Operator?

(Operator Instructions). And your first question comes from [Paul Jacobs] with Raymond James.

The first question is related to those feedstock changes. What type of marginal improvement with you expect from those if you did switch to Brazilian and Canadian-based crude?

You get a little bit lower cost, but also the part of the value is a better yield. You get better yield value. And Paul Brattlof is here from the crude supply and asphalt side. Paul, do you want to address it further?

It is a couple dollars a barrel lower than some of our current stuff we have now. But it does change around on a formula base.

Thank you for that color. And in addition to that, at the St. Eustatius terminal, I believe you guys were looking at about 10 million barrels of incremental capacity addition there? If that were to happen, what would the likely timing on that be, and how would that play out?

We are still evaluating that project, so it is still very much a live option. It was not reflected in the strategic capital numbers, except in the distillate expansion that I mentioned. It is not reflected in the numbers that I gave you, because we are not done with that at this point. But that would be starting 2014. But Danny Oliver is here who runs the marketing business and development side. Danny, do you want to comment?

Yes, that's right. The project as we are currently seeing it would phase in over the course of the year in 2014, so we would start to see EBITDA but not a full rate until the end of that year.

Okay. Great. And then related to transportation segment. On that new 12- inch line, the 55 mile line to Three Rivers, do you guys have a throughput number on that?

Well, not really. We have got a T&D agreement on that line, but it is with one customer, so we can't really get into too much of the details there.

But we've -- the Eagle Ford pipeline projects, in other words, the South Texas oil shale play that we are working on right now, I think we have given overall capital investment, order of magnitude, incremental EBITDA and that -- have we, Chris -- in the past?

Yes.

So maybe we can remind people of that here. Because this new 55 inch -- 55 mile pipeline is part of the overall guidance we have given.

The guidance so far on the Eagle Ford play is we've guided to about $120 million worth of capital. That is three different projects. And we've also said that when we get all the projects completed we think we will be throughputting that 250,000 barrels a day of crude out of the Eagle Ford shale area.

Great. Thanks, guys, and I will drop back into the queue.

Thank you.

The next question from Yves Siegel with Credit Suisse.

Good morning, everybody. Could you discuss how you are thinking about financing going forward and leverage metrics?

The leverage -- the debt to EBITDA at it the end of the third quarter, Yves, was 4.45. That will likely come down by a little bit. The final quarter of the year as we come out of the asphalt business and lower our inventories and therefore our debt. We have got a preliminary budget CapEx for next year that Curt mentioned, I think $350 million to $400 million total range.

So at some point in the next 12 months we will probably do some equity to help finance the overall CapEx. The last time we issued equity was in May of 2010. Between the spend this year and the draft budget that we are going to present and finalize with the Board in about two weeks' time, would suggest the need for equity over the next 12 months.

Steve, when the credit agencies analyze the balance sheet, how you do they take into account working capital? Do they adjust for that at all or?

I'm sorry. I didn't hear the first part. Did the credit agencies -- (inaudible -- multiple speakers) --

Do they adjust for that? For the working capital?

Yes, they do. They don't have a specific formula, but I think they look at a portion of our debt as self-liquidating. We have about $600 million of inventory on the balance sheet at the end of the quarter. So I think, yes, they do take into account the seasonal aspect of the business, which principally is on that asphalt side. So I don't think they count -- I can't speak for them, but I he don't think they count dollar for dollar that $600 million through the whole year. So there is a little wiggle room there.

And then just to wrap up on our end, whenyou think about -- Two-fold. How do you think about the acquisition opportunities out there? And any way to handicap the organic growth opportunities if there is a backlog type of analogy in terms of the projects that you are looking at?

Yes, I mean, the acquisition market looks to us like it has gotten more and more pricey. We want to stay opportunistic and stay in that game, and we will continue to look at acquisitions, but we have really got a full plate of internal growth on -- at very attractive return is. More attractive than we see people doing acquisitions at. So I really think -- and that is what I talked if my remarks, some of what our strategic capital is going to be, and there is probably going to be more to come.

I mean, there will be more to come, whether it is St. Eustatius or other projects, because we have a big backlog on very good ideas on internal growth, and that is really our emphasis for 20212. We want to stay strong enough and nimble to do acquisitions that are attractive as they come along, but weare focused on optimizing what we have and growing what we have.

Is it fair to say that $300 million on a growth CapEx run rate might be sustainable for the next five years?

Yes, I mean, if not more so. And that is what I'm saying. The potential there is to the upside on that.

I think we have got we have projects underway right now for Eagle Ford and St. James expansion, which Curt suggested $350 million, $400 million next year, and some of that -- those projects will slip into the following year. But if we pursueSt. Eustatius, that is pretty big dollars, so easily we could be at the $300 million level for the next three years.

Great. Good luck , guys. Thank

Thanks.

Your next question from Brian Zarahn with Barclays Capital.

Good morning.

Good morning.

On your asphalt business you mentioned a $6 million benefit in the quarter. Can you remind us how often those price adjustments take place touring the during the year?

That particular one has happened a couple of times under a clause that we call the LMA clause. It's kind of an adjustment to market for heavy crude proxy. When the Venezuelan cost exceeds that proxy, we get an adjustment down on the crude oil price contracts. Mike is here, who works on the system optimization. Mike, do you have any further comment?

I believe it was the second time it has happened during the (inaudible -- multiple speakers).

Second, yes.

It happened in the fourth quarter last year, I think to the tune of about $1 million --

And then also in the third quarter last year to the tune of about $0.5 million.

It's never loomed as large as it did in this quarter, and we really mostly mention it because, hey, $6 million decent chunk, but also it changed our guidance number, and I think that is why we wanted to highlight it.

Yes. It is a contract clause, so it is an ongoing factor of our business in that sense, because it is part of the contract we negotiated. But as Steve said, it is more than it ever was, so that is why we highlighted it.

And then just another question on your feedstock slate. How much Canadian crude do you think you could add to your asphalt refineries next year?

Well, we are in the course of projects to ramp it up right now. We want to start at something like 5,000 barrels a day, and maybe do as much as what, Paul, over the next years?

Up to 10,000 is what we are looking at.

10,000 and maybe more if that works out well.

And then can you tell me what the total CapEx was in the quarter?

Yes, hold on there.

For the quarter.

Just give me a second. It was -- in the third quarter we had a reliability of $15 million and strategic of about $75 million. Fourth quarter --

Final question for me -- excuse me?

Fourth quarter will be he off a little bit from that. So a total of $91 million in this quarter, and the fourth quarter should be around $120 million, most of that strategic.

Okay. I do appreciate the preliminary EBITDA and CapEx guidance. I mean given the nice EBITDA improvement, is it reasonable to assume higher distribution growth in 2012 relative to 2011?

Yes, I think so. I mean we were budgeting a distribution increase, and we will take that to the Board in a couple of weeks. I think with respect to distribution policy, our focus is to get back up to closer to where it once was, and but that will largely take transition year next year, and then in 2013 when we get the benefit from the Eagle Ford and St. James stuff we should have very good coverage and really good distribution prospects for an increase.

Thank you.

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

Good morning.

Good morning.

Curt, have you had any discussions around possibly idling the Savannah refinery if the asphalt remains difficult? And how does the announcement of the possible sale or closure of some of the Sunoco East Coast refineries affect your outlook on that business?

First, on the idling, we look at everything to optimize that business. So we have run every case conceivable, including the scenario you mentioned. And that is actually not in the cards right now, because that would be sub-optimal to idle Savannah. So we plan to continue to run -- we are better off running it at the planned rate that we have in our plan going forward than we are idling it from a financial point of view.

But it has really been cut way back. I mean, production has been cut way back.

With hard to Sunoco closing, that is not a major factor on our -- you are talking about the East Coast asphalt business and impact of the Sunoco closure? It is not really an impact us for us on that business. Did I answer that question right on Sunoco?

Yes. No, I was curious if that impacted your business , maybe not on the asphalt side, but maybe on the more purity products or intermediate

Yes, yes. Otherwise it is really not a major impact. Danny, you want to comment further?

Sunoco is really no impact on the storage segment or asphalt.

Okay. And lastly, when you look at your possibly bringing in some additional Canadian supplies and diversifying I think away from some of the Venezuelan supplies, does that have any impact on your minimum agreements with PDVSA?. How has that been working out?

We had a cooperative relationship with them. They have been very cooperative with us along. They have been flexible in terms of nominations required under the contract, and supply. Obviously a crude supplier looks at it from their point of view and says, okay, if you want to nominate less, what are my alternatives for this crude. And so they've explored their alternatives, whether it be crude oil to China or are what have you. They've -- when we've asked for lower nominations they have been able to execute in accordance with their system. Paul, you want to comment further?

It has been a good relationship, and we have worked well, together.

Good to hear. Thanks, guys.

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

Good morning, guys. Great quarter.

Hi, Louis. Thanks.

Just had a few questions. First off on the asphalt side, do you have a breakout of how much EBITDA was earned just from the asphalt business aside from the rest of that segment?

In the third quarter?

Yes.

Was it $9 million?

$9 million.

$9 million, Louis.

Great. The other thing is on the G&A expense, that was lower than you have been trending recently, what helped out this quarter?

I think mainly wasn't it stock related --

Stock related.

Compensation expense.

The stock prices declined quite a bit this year compared to last year, and that just factors into the G&A line. So that was about a $9 million of the year-to-date. 2011 versus 2010 it was about $9 million. And for the quarter it was also just a little bit less than $9 million. So it was really the stock price movement in the quarter,I think probably associated with us lowering guidance for the quarter and pointing to the asphalt business was one of the things that hit the stock price during the quarter.

Thanks, guys. And last thing I just wanted to check up on was I think you had -- among our Eagle Ford projects there is talk about a project with TexStar and Velocity from Gardendale. What is the status of that project?

They're moving along very well. The TexStar definitive agreement is imminent. I mean, that's really any day. Danny, do you want to talk --

No, that is right on TexStar. And then we expect to have a couple of new definitive agreements that we have not announced anything on prior to close this year.

The whole Eagle Ford thing is going very well. And it is really a boom in South Texas. Living here in San Antonio, it is a huge topic of conversation in the communities and the surrounding communities, and especially south of town. And it has really become the real deal. I personally, a lot of skepticism a couple of years ago about how big a thing this could be, and it is the real deal.

Great. Okay. Best of luck. Thanks a lot.

Thanks you, Louis.

Your next question comes from Andrew Gundlach with Arnhold Bleichroeder.

Good morning. Couple quick questions. Just following up on John's earlier question on the Sunoco closures. What about the effect of the Conoco closure in Pennsylvania? And what do you see happening with the East Coast refineries that more directly compete with our asphalt businesses, like Ergon down in West Virginia and Warren United in Pennsylvania, which are going through the same issues you are having in Paulsboro and Savannah?

Okay, we will take it in two parts. First on the Conoco refinery that has been idled.

Conoco is a customer of ours in our storage segment on the East Coast. We've had minute until negative throughput effects on the storage business, but nothing real significant. But we continue to evaluate other alternatives in case current customers needs change.

We have a contract with them for three years.

Yes.

Right, right.

That closure won't affect anything for three -- Steve is talking about Point Tupper now. Nothing will change as a result of that for the three years. It is really valuation of what is going to happen beyond that, that [would work[.

Okay. And what about -- and then on the asphalt side how do you see the smaller refineries dealing with the current situation? And hopefully closing down to and helping your business?

I can address I think Ergon, [a small specialty] refinery in West Virginia. They are running specially local crudes. It's primarily a lube operation.

They don't [like to make] asphalt. Most of Ergon's is in the Vicksburg refinery, which does benefit from the WTI but is not in our market.

And what about United?

United gets their crude through the Enbridge system.

They are doing the same thing we are doing, and that's going after some Canadian --

Their production is about flat year-over-year, so its --

And as you know, the East Coast refiners like Sunoco, kind of the nail in the coffin was this -- Brent related crude being so relatively expensive. They are already struggling anyway, but that was kind of the last straw.

Exactly. How about Turkey? How is turkey going?

Off to a very slow start. We have got good prospects for improving that business, but --Danny, do you want to address it further?

Well, it's -- I think you said it right. We've got a lot of good ideas, some interest in that facility. It's just been slow to -- there has been a lot of changes in the market structure, especially in that kind of the world, and it has just kind of slowed some of our plans down a little bit.

But all of that is reflected in the guidance I gave in my remarks today.

What was the consideration of turkey for the quarter?

A little less than $2 million EBITDA.

Okay. And then last question for Steve. When do you see yourselves dealing with the maturities in the first half of next year? First quarter and first half?

Yes, well, I mean we have already got approval from the Board to do a new bond deal, and we are evaluating when to hit the market with either a bond deal. We have enough liquidity under the revolver to take it out that way, too. And just thinking through all of those issues. We are also looking at doing possibly a redo of the revolver in the second quarter. So we have been talking to banks about that.

We may put an account receivable securitization in place even before that, so if we were to do that, that would give us even more liquidity. It is not that problematic. Obviously the oil [end] coupons are pretty attractive, so it is not a bad time to issue debt. So anyway, we've got lots of choices. We're thinking through all of them right now.

I think one of the ideas maybe going back 12 months or so was to combine the new POP and K&M structure and get a better cost of borrowing all in. Is that still part of the plan?

Well, yes, it is. basically when we bought Kaneb, they had an entity that they used to issue their bonds, okay? We use NuStar Logistics to issue our bonds, and that is where our revolver is as well. So ordinarily we wouldn't want to have two entities being the issuers underneath the MLP. So the structure that we have is that [NuPOP], which is NuStar Logisitics and KPOP, which is the old Kaneb entity, cross guarantee each other's bonds, and then there is a downstream guarantee coming from the MLP.

Once the Kaneb bonds mature, and some mature in 2012 and then I think the last one is 2013, we will no longer have bonds issued by Kaneb Pipeline Operating Partnership, which is the KPOP. Everything we do it to refinance will be at NuStar Logistics. At that point we will have on issuer of all our debt in the United States, and the downstream guarantee from MLP. I don't think honestly it will result in a lower cost of borrowing. You will still have an entity underneath the MLP being the issuer. Right now all in costs of us for ten year money is probably a little south of 5%, and that's for [80 for 90] (inaudible -- faded) for ten year money.

Great. Thanks so much.

Okay.

Your next question comes from the line of Selman Akyol with Stifel Nicolaus.

Thank you. Good morning.

Good morning.

A couple of quick questions. On the San Antonio refinery I appreciate the EBITDA, but can you talk a little bit about volumes there? I know last quarter you had minor operational issues. Did they get resolved and did you see volumes come back?

You are talking about throughput?

Throughput? Right now we are averaging about 13.5 a day.

Thank you. Also, last question here. As it is a relates to 2012, and I appreciate the color in the initial guidance, but as you think about it, is there anyway to put any more color around transportation volumes and what you might expecting for them for 2012?

The pipeline, [go ahead].

As the Eagle Ford projects come into service, the volumes should increase pretty dramatically. Now most of these Eagle Ford projects coming into service, let's say anywhere from mid to end of 2012, so we won't have a full year benefit, but it will be significant in the portion of the year that we do have.

Remember, we said earlier, just on the Eagle Ford we hope to capture like 250,000 barrels a day more or less by 2013. Like mid-2013.

Yes, or maybe mid to late 2013. But we even have -- asWe are nearing definitive agreements on a couple of projects out of the Eagle Ford that we have not announced yet that will just add to those numbers.

I'm just looking at our draft budget, which we are going to take to the Board. We are showing transportation pipelines up about 10% next year compared to this year.

On throughput.

Throughput, yes. Again, that is a partial year effect.

All right. Thankyou very much.

Your next question is a follow-up from John Tysseland with Citi.

Hi, guys. Just a quick follow-up on terminals. Does WTI slipping into backwardation recently impact your outlook on terminals for your fuels marketing segment for next year?I know Brent has been in backwardation for sometime now, but I didn't know if the recent changes in the WTI [forward] curve would have an effect?

Well, on the storage we have been there for a while now. But so much of our storage -- I mean, I think it is over 90%, Danny, is really backed by contract, not throughput dependent. Then you have -- because I wasn'tsure what you were asking about the fuel marketing segment, but there are really relatively few locations that are impacted by that. Backwardation.

We have nothing in the budget on the fuels marketing for carry trades based on the structure.

Right.

Great. Thanks, guys.

Your next question comes from Michael Cerasoli with Goldman Sachs.

Thanks. Good morning. A quick follow-up on our acquisition strategy. Is there any interest in acquiring further asphalt logistics assets at this point?

I think it is not so much acquiring as improving the asphalt logistics that we have. One of the things when I talked earlier about, we want to run more Canadian crude. We also want to do more of what we did this year, and one of the system optimizations is to be flexible to buy more finished asphalt. So if it's cheaper in the Midcontinent, as it is right now, you can buy it and rail it into terminal. So you will see us doing -- having rail ready terminals, in other words rail receipt terminals to have that flexibility.

And doing some other things in logistics, like being more flexible about blending asphalt -- or really bottoms into asphalt or fuel oil. We do that already. We want to have more flexibility to do more of it. So on the logistics side I think you will see more of that, investing in assets we have to increase that flexibility and be able to optimize the system's profitability by going in one direction or another than going out and buying more logistics to do that.

Okay. And then, separately, just how are your generic costs on organic growth tracking? Basically some insights on cost inflation. Are you starting to see some creep, or is it still relatively benign?

[Still] pricing has actually been soft. We have seen a little bit of strengthen of the labor costs. Outside of the Gulf Coast area labor costs have been relatively flat.

That is a good point. Depends on where you are. Because of where you are because of this Eagle Ford in South Texas and the Gulf Coast, you have people being hired, they can't even fill the jobs that they have. You can send some of those protesters down here, and we have got jobs for them. They got to pass a drug test, though. But anyway, as Rick said, it is kind of interesting on steel after an increase year-over-year now you see some softening, just like Rick said, and I think China backing off some has influenced that.

Absolutely.

So, steel is kind of flattish, softer, lower right now.

Great. We'll go post your offer on the protesters job board. Good to go, thanks.

Just don't send them to my office.

Your next question is from Michael Blum with Wells Fargo Securities.

Hi, good morning. Just two quick ones for are me. First just the growth CapEx that you laid out for 2012, are those all signed, sealed and delivered projects, or is some of that still in the works?

It's pretty much signed, sealed.

Okay. And then I think, Steve, you think you can spend around $300 million for the next few years on average. Is that basically just being driven by what you see in the Eagle Ford around crude oil development, or other areas that you are thinking about as well?

It's mostly storage.

But there will be other oil shales. It's not just Eagle Ford. There will be another shale oil plays that we are going be developing, but as Steve said, it's mostly storage.

That's right. They're are oil shales in the US, and then of course the big oil finds down in South America, specifically as it relates to us, in Brazil, and our positioning at St. Eustatius just kind of right in the middle of the fairway of the new you production. That is driving a lot of it.

Okay. Great. Thank you.

(Operator Instructions). And, sir, your final question comes from the line of Jeremy Tonet with JPMorgan.

Good morning.

Good morning.

Just a quick question as far as -- it seems like the transportation storage results were good for the third quarter, but the full year guidance remains unchanged versus where it was on the analysts day. I was just curious, is this a function of earnings moving to the third quarter from the fourth quarter, or are there other moving parts in the fourth quarter? Just any color on that, I guess?

I think it's mainly customer -- refinery turnaround that are happening in the fourth quarter and are impacting that. Danny, is that --

That's correct.

So it's just something that pops up every now and then in our pipeline businesses. We are tied to refineries, and if the customer calls for a turnaround, that impacts that quarters if throughput.

Okay, great. Thank you.

Sir, you have no further questions at this time.

Thank you, operator. I would also like to thank everybody for joining us on the call today. If you have any questions, call NuStar's Investor Relations. Thanks.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. You may now disconnect.