NuStar Energy LP (NS) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NuStar Energy L.P. and NuStar GP Holdings, LLC Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Chris Russell, Treasurer and Vice President of Investor Relations. Sir, you may begin.

Thank you, Grace. Good morning, everyone, and welcome to today's call. On the call today are Brad Barron, NuStar Energy L.P. and NuStar GP Holdings, LLC's President and CEO; and Tom Shoaf, Executive Vice President and CFO; along with other members of our management team.

Before we get started, I would like to remind you that during the course of this call, NuStar management will make statements about our current views concerning the future performance of NuStar that are forward-looking statements. These statements are subject to the various risks, uncertainties and assumptions described in our filings with the Securities and Exchange Commission. Actual results may differ materially from those described in the forward-looking statements. During the course of this call, we'll also make reference to certain non-GAAP financial measures. These non-GAAP financial measures should not be considered as alternatives to GAAP measures. Reconciliations of certain of these non-GAAP financial measures to U.S. GAAP may be found in our earnings press release with additional reconciliations located on the Financials page of the Investors sections of our websites at nustarenergy.com and nustargpholdings.com.

Now I would like to turn the call over to Brad Barron.

Good morning. Thank you for joining us today. Earlier this morning, we announced our plan to simplify our structure, eliminate the incentive distribution rights or IDRs and reset [the NS] distribution.

Before I get into details on our plans for the future, I want to say a few things about the rationale for our decisions. As you all know well -- as you all well know, the years since 2014's crude oil price crash has taken their toll on the energy industry as a whole, and on the MLP sector in particular. I am proud of the fact that through a downturn of the historic proportions and up until the last half of 2017, NuStar outperformed most of our peers. That didn't happen by accident, we returned to [one time's cover] in 2014 and remained there throughout 2015 and 2016 by developing and executing on our strategic plan. We optimized our base business assets, carefully managed our capital and our expenses and substantially derisked our business.

In 2017, our plans, along with our employees' hard work, had positioned NuStar to execute on another prong of our strategy. To establish a significant platform for growth in the strongest, most resilient U.S. shale play, the Permian Basin. When we purchased our Permian Crude System this past spring, we projected that the acquisition would be dilutive to our coverage for a little over a year. But we moved forward because we believed and continue to believe that the system's long-term growth far outweighs that short-term impact. And that's exactly what we've seen. As Tom will take you through in a few minutes, the Permian Basin and our Permian Crude System are meeting and in some cases exceeding our initial forecast. Given how well our unit price performed after the acquisition and into the summer, we, along with many MLPs and investors, were taken by surprise when in late July MLP unit prices plunged even as crude prices were recovering modestly. At the outset, the entire sector took a hit, but it soon became clear that market sentiment had changed as MLPs with higher coverage, lower leverage and lower projected equity financing needs saw their prices eventually rebound. In contrast, the unit prices of MLPs with lower coverage and high leverage, including NuStar, remained low. Even though in the preceding months, it appeared that NuStar's unit price had reflected the market's confidence that our metrics were the anticipated and logical consequence of our successful Permian acquisition.

At the same time, analysts and other sector experts noted that a fundamental shift had occurred in the makeup of the investor base for MLPs. Through 2015, the MLP investor base was made up primarily of retail investors. But in 2016, many retail investors either declined to increase their positions or left the space entirely, and institutional investors now hold large (inaudible) of the sector's equity. As retail investors exited the sector, there hasn't been any significant influx of new money, which has tightened MLP equity markets. So much so in fact that MLPs with low coverage and high leverage have been effectively shut out of the MLP equity markets, and even MLPs perceived as healthy have found it increasingly difficult to issue common equity. The combination of these factors, the market shift and fundamental valuation away from growth and back to low leverage/high coverage, the exodus of MLP retail investors, and the nearly frozen equity markets have called the long-term viability of the MLP model into question. As most of you know, the MLP model was designed to incentivize construction of critical energy infrastructure by creating a structure that can raise capital in the equity markets and then pass along the returns from those projects to MLP unit holders in the form of tax-shielded distributions.

In the past, when capital was readily available to MLPs, the model functioned well. MLPs were serial issuers of common equity, which allowed them to finance projects to grow and increase unitholder distributions. As this audience knows well, times have changed. The appetite for new MLP common equity has nearly dried up, but MLPs' funding needs have not. Without viable sources to finance capital investments, many MLPs have been faced with a conundrum. Without accessible equity financing, their best alternative is the cash they generate from operations. There is no wonder given the circumstances that since December 2014, 54 MLPs have come to the conclusion that they had to reset their distribution. Sector experts, large investors and others now advocate for resets as the economically rational response to the MLP sector's financing [demand].

On top of all of the noise and difficulty in MLP sector last year, we reported in November that our projections for our base business had deteriorated slightly over the course of the third quarter, from a combination of the impact of a series of destructive hurricanes, several unplanned turnarounds at our customers' refineries and a large unanticipated reliability project on our ammonia line.

Recently, with the widely reported economic strife in Venezuela and the mounting financial and operational challenges facing our St. Eustatius anchor tenant, PDVSA, in an abundance of caution, we've adjusted our view of their utilization of the terminal this year, which Tom will speak to in a few minutes. So faced with these headwinds as well as the changed market sentiment, we buckled down and put together an actionable plan just as we did in 2014, when the dramatic plunge in crude prices reverberated throughout the energy industry. We undertook a thorough, systematic analysis of our best path forward, taking into account the new MLP market priorities and limitations, and our current strengths and challenges. In our analysis, we considered the headwinds in our base business that would have precluded a return to one-to-one coverage until 2020, and concluded that it would not be fiscally prudent to continue to borrow to cover the distribution for such a prolonged period of time.

We recognized that we must position ourselves to restore our coverage, lower our leverage and minimize our need to access the equity capital markets while continuing to power up our engine for future growth, our Permian Crude System. This analysis, combined with a changed market sentiment toward distribution resets as a logical way to reduce dependence on the equity markets formed the basis of our distribution -- our decision to recommend a comprehensive staged approach to best position NuStar for long-term financial strength and sustainable growth.

After much discussion and deliberation, the NS and NSH Boards reached an agreement to simplify in a way that we believe will allow us to capitalize on attractive growth opportunities and to best manage our business over the long term. Without getting into too much detail on the mechanics, NS will issue 0.55 of an NS unit for each outstanding NSH unit. NSH's economic rights and a 2% general partner interest, the incentive distribution rights in NS, and common units held by NSH will be canceled, and NS will pay off and cancel NSH's obligations under its revolving credit agreement, currently approximately $43 million. We expect the simplification to be approved by a vote of the NSH unitholders by the end of the second quarter 2018. The Directors of the Unified Board will consist of 9 members, 7 of whom are independent board members, and I'm happy to report our current Chairman of both Boards, Bill Greehey, will continue to lead the NS Board after the simplification. In fact, as we announced earlier, Mr. Greehey has demonstrated how strongly he supports our plan through his agreement to vote his NSH units, over 21% of the total outstanding, in favor of the transaction.

We believe simplifying our corporate structure and eliminating the incentive distribution rights will lower our cost of capital, and create a more efficient and transparent structure. As you also saw on the announcement, the NS Board of Directors intends to reset NuStar Energy's quarterly distribution from a (inaudible) per unit to $0.60 per unit, effective with first quarter 2018 distribution to be paid in May. Resetting NuStar Energy distributions will improve our coverage ratio immediately, and in the longer term, the reset will also serve to reduce both our leverage and our future need to access the capital markets. With this reset, we expect to cover our distribution range of 1.1x to 1.2x in 2018. And we are targeting our coverage ratio to be in the range of 1.3x to 1.4x in 2019 and thereafter.

Also by resetting our distribution, we'll be able to utilize the cash we generate to meaningfully reduce debt and return our debt-to-EBITDA leverage metric to be in the range of 4.0x to 4.3x by the end of 2019, with a goal of staying at or below 4x in the longer term.

With strong distribution coverage and improving debt metrics, we'll be able to fund an increasing proportion of our capital projects with the cash generated by our assets, and over time substantially minimize our need to access capital markets to finance future growth opportunities in the Permian and South Texas, at our export facilities on the West Coast and some of our other regions. While [via Board decision], we expect to grow our distribution starting as early as 2019 at a rate in the mid- to high single digits while maintaining a coverage ratio well over 1x and at the same time delevering.

Before I turn it over to Tom, I want to say a few words about the distribution reset. We carefully considered our alternatives, and in every scenario we analyzed, we concluded that a distribution reset was a necessary part of the overall prescription to position us for the future. Even so, we did not come to this decision lightly because throughout our analysis, we never once lost sight of the fact that any reset has a very real impact on our unitholders. I want you to know that we would not have recommended a reset if we did not believe that taking these actions will significantly improve the company's long-term health and growth, and increase long-term unitholder value. We understand the impact of a reset firsthand as our management, employees and board members are also unitholders. And I speak for all of us here at NuStar when I say that while we, along with the rest of our unitholders, will feel the near-term impact of this reset, the fact that we are unified in our endorsement of the plan we've announced reflects our very real and vested long-term interest in the future of this company. We believe, along with our board, that the plans we have announced reflect our commitment to do what best positions us to build long-term unitholder value through stable, consistent growth. With that, I'll turn the call over to Tom Shoaf, NuStar's Executive Vice President and CFO, to discuss our results and projections.

Thanks, Brad, and good morning, everyone. First, before turning to our fourth quarter results, I'd like to provide a quick update of our Permian Crude System. Our Permian Crude System has performed solidly through a turbulent 2017, and the acquisition continues to meet and in some cases exceed our initial forecast. Overall, the basin continues to grow with the Midland rig counts up 26% since the acquisition. The total number of rigs on our dedicated and interconnected acreage ended the year 45% above what we had forecasted for year-end [2017] at the time of the acquisition.

Receipts on our Permian system are up 79% from 115,000 barrels per day last April to over 200,000 barrels per day. Additionally, last month, we announced an open season for an expansion that would increase capacity by approximately 70,000 barrels per day. Early indications shows strong interest for this additional capacity, which increases our confidence that the Permian Crude System will grow as forecasted in 2018 and beyond.

Next, I want to update you on our progress with hurricane recovery. On our third quarter earnings call, we reported that Hurricanes Irma and Harvey had inflicted damage to 7 of our facilities, including severe damage to our St. Eustatius facility, and that we were implementing a comprehensive repair program to address the damage while minimizing disruptions to our commercial operation. Importantly, we also said we expected our insurance to fully cover the cost of repairing the property damage as well as most of the lost revenue over our $5 million insurance deductible. I'm happy to report that we received $12.5 million of insurance proceeds in the fourth quarter of 2017, and an additional $87.5 million in January of 2018 for a total of $100 million. The $12.5 million of proceeds received in the fourth quarter were used to offset the lost revenue and to pay for repairs and cleanup cost incurred in the third and fourth quarters of 2017. The remaining $87 million will be used to repair our St. Eustatius facility over the next several years, and I will talk more about the impact of the payment in a few minutes.

Turning to our results for the fourth quarter of 2017, we've reported net income of $25 million and EBITDA of $144 million, up $3 million compared to 2016 adjusted EBITDA. Our DCF available to common limited partners was $42 million and our distribution coverage ratio to the common limited partners for the fourth quarter was 0.41x. For the full year 2017, our distribution coverage ratio to the common limited partners was 6. -- I'm sorry, 0.63x.

Fourth quarter 2017 EBITDA in our pipeline segment was $89 million, up $4 million from the fourth quarter of 2016, mainly due to higher contributions from our Permian and South Texas Crude Systems, which were largely offset by a major turnaround at one of our customers' refineries. Fourth quarter 2017 EBITDA in our storage segment was $82 million, $4 million higher than the fourth quarter of 2016, mainly due to increased storage rates at our St. Eustatius Terminal as a result of the terminal enhancements we made to the facility during the year, increased storage and dock fees associated with our South Texas Crude Oil Pipeline System as our realized volumes exceeded our minimum commitment levels to the system during that quarter, and full year quarters contribution from our December 2016 acquisition of Martin's Corpus Christi terminal. In the fourth quarter, NuStar Energy issued $6.9 million, 9.0%, Series C, perpetual preferred units for net proceeds of $167 million. Our December 31 step balance was $3.6 billion, while our debt-to-EBITDA ratio was 4.9x, below our credit agreement covenant threshold of 5.5x.

On January 29, NuStar Energy announced the fourth quarter Series A preferred distribution of $0.53125 per unit, the fourth quarter Series B preferred unit distribution of $0.47657 per unit, and the initial fourth quarter Series C preferred unit distribution of $0.65625 per unit, all three of which will be paid on March 15.

In addition, NuStar energy announced a fourth quarter common unit distribution of $1.095 per unit, which will be paid on February 13.

NuStar GP Holdings also announced a fourth quarter distribution of $0.545 per unit, which will be paid on February 15.

Next, I want to turn our thoughts to 2018 and beyond, which will provide you with some additional context for understanding why we're taking the steps that Brad has described. Since we received hurricane insurance proceeds of $87.5 million in January 2018, we expect to recognize a gain of approximately $85 million in our first quarter 2018 EBITDA. However, it is important to note that this gain will not be recognized in DCF until those proceeds are actually spent to repair damage caused from the hurricanes. These repairs will begin in 2018 and are expected to be completed in 2020. Because the gain is included in EBITDA in the first quarter of 2018, and repairs are made through 2020, the accounting treatment will create a disconnect between DCF and EBITDA results for the duration of this period.

Next, as Brad mentioned, I want to update you on PDVSA. As he said, PDVSA's financial condition has deteriorated dramatically over the past month as difficulties in Venezuela have increased. Concurrently with the deterioration, we have seen PDVSA's activity at the terminal decreasing to levels way below our expectations and their plans. Despite the evident difficulties and fall off of activity, we continue to have a good relationship with PDVSA, and remain committed to working with them to find ways to ensure they can continue as a valued customer.

That being said, based on the current conditions in Venezuela, we feel it is only prudent to be conservative when forecasting 2018 results. We will continue to monitor this situation as it develops, and if PDVSA's activity at the terminal increases, we would have upside to our 2018 forecast. We now expect NuStar's 2018 EBITDA to be in the range of $685 million to $735 million, which includes the $85 million insurance gain, offset primarily by lower EBITDA from our St. Eustatius facility. However, if you exclude the gain associated with the hurricane proceeds that I mentioned, we expect our 2018 adjusted EBITDA to be in the range of $600 million to $650 million. With regard to 2018 capital spending, we plan to spend $360 million to $390 million on strategic and other capital with approximately $245 million related to the Permian Crude System. And we do have some flexibility to reduce our spending if needed to help us delever in 2018.

Readout regarding our reliability capital spending for 2018, we now plan to spend $80 million to $100 million. Our guidance now includes approximately $40 million of 2018 spending to repair damage caused by the hurricanes. However, as previously mentioned, the $40 million will be offset by insurance proceeds, resulting in no impact to DCF. In addition, we reduced reliability spending related primarily to the scheduling changes associated with our ammonia system replacement project. As Brad mentioned earlier, based on these projections, together with actions to be taken as part of our strategic review, we expect our coverage ratio in 2018 to be in the range of 1.1x to 1.2x, and we're targeting coverage ratio in the range of 1.3x to 1.4x thereafter. We also expect our debt-to-EBITDA ratio to be around 4.7x at the end of 2018 and 4.0x to 4.3x range by the end of 2019. And with that, I'll turn the call back over to Brad for his closing remarks.

Thanks, Tom. Our track record for 2014 through 2016, along with our acquisition and integration of our Permian Crude System in 2017, reflects our ability to adjust and improve in less-than-optimal conditions through hard work and careful planning. We believe the comprehensive plan we prescribed will strategically position us for sustainable future growth, strength, flexibility and unitholder value. I can say without a doubt these are not easy decisions to make. We truly believe that the combination of the reset and simplification is the best path forward for the company and our unitholders in the long-term.

I want to close my remarks by giving you some numbers to keep in mind. Even though 2017 was a challenging year, we still generated approximately $600 million in EBITDA, demonstrating the strength of our diverse assets. To put that into some perspective though, NS also paid out almost $450 million in common unit distributions. In fact, over the past 5 years in total, NS has generated almost $2.5 billion of EBITDA and over that same time, has paid out over $2 billion in the form of distributions in IDRs.

Taken together, we believe these numbers demonstrate how productive our assets are, and the tremendous value that [the NS] and NSH have delivered. We believe that simplification and reset are needed to allow NuStar to compete with the growing number of peers who've already made such structural adjustments. Without the reset, we would not expect to return to distribution coverage until 2020, and given the priority that the new MLP market paradigm places on strong distribution coverage and low leverage, it would not be fiscally prudent to continue to borrow and fund the distribution. By retaining a greater proportion of the cash we generate with our operations, we believe we will have the financial strength and flexibility to compete for good projects and grow. We're confident that even given the headwinds we've described and market challenges in the MLP sector, through executing on our plan to simplify our structure and reset our distribution for healthy coverage, NS will be well-positioned to produce steady growth and value for our unitholders as we have in the past and for many, many years to come. With that, we'll open up the call for Q&A.

(Operator Instructions) And our first question comes from Theresa Chen with Barclays Capital.

My first question is related to the reduction in guidance, the $75 million. Is that all of your exposure to PDVSA? And does that include the monetization of the product that's currently in your terminals?

Yes, I mean, that does -- that guidance does include complete reduction of PDVSA. But it also includes the ramping up and bringing in other customers during the year to replace them. So yes, that would be -- if that were to happen and that were to come true, then that would be a complete replacement type scenario.

Okay. And can you tell us what would be the downside if you can't collect the money from PDVSA, and it takes longer or the ramping up of other customers doesn't happen in 2018?

Yes, one of the things I want to say about that is we monitor the inventory levels in the terminal very carefully to make sure that we have enough inventory to secure what they owe us. And I will say we have seen increased activity in the first couple of months of this year. So we've taken a very conservative approach with what we've put out there. If activity levels continue like they are, I think we could see some upside to what we put out here today.

Yes. I want to say that we're currently -- they're bringing ships in, there's activity coming into the terminal from PDVSA. We've got a lot of inventory in the tanks that belongs to them. So, so far, we would tell you that everything is intact with them. However, during the last several months, we have seen a significant decline in vessel traffic from them, which may -- kind of gave us pause to kind of rethink our forecast and things going forward. We're trying really to just take a more conservative approach to our forecast when it comes to them. I mean, there's been other companies in the news you've probably read about that have taken pretty significant write-downs with PDVSA. And so just with everything going on and the turbulence happening in the country and with PDVSA themselves, we thought it was prudent to be conservative and lower the forecast. But again, we want to stress that our relationships are good with PDVSA, where they're continuing to bring ships into the terminal and that's the current situation.

Yes. And be clear, Tom mentioned some write-downs that have happened in the energy sector, some of the service companies in Venezuela and things, we have never had a write-down with PDVSA, and we don't anticipate that now. So you asked about further downside -- What I would tell you is I think this is a very conservative case that we've laid out.

Got it. And of the 14.5-or-so million barrels for that facility, how many of them are currently leased to PDVSA?

About 9.5.

Great, thank you. Moving on to Navigator, Tom, I think in your prepared comments you'd said that it's running or was running in fourth quarter about 200,000. Do you know what the exit rate was?

That was the exit rate. At 200, right at 200, just a hair above.

Got it. And can you tell us what the EBITDA contribution was for the quarter?

$14 million.

Great. And lastly, in terms of your funding needs that you laid out in the slides, when I look at the reconciliation in the appendix and the moving components between flattish, slightly lower debt, virtually no common equity issuance, it looks like you're going to press out a lot of that funding need. Can you talk to us about what you're seeing in terms of pricing and appetite in the market for the press? And -- on the both, on the public and private side.

Yes, we have -- we did put up some preferred, as I mentioned in the fourth quarter, and we've been hearing and seeing that the pref market has improved somewhat since then. So -- I mean the market is looking better than it did in the fourth quarter. If you recall, there was just a lot of activity in the fourth quarter, there was over $3 billion worth of supply coming into the market that week that we launched our deal. Got a little crowded, but we would expect, and we're seeing signs that the market is improving in 2018. So we do have that. We don't have to put a lot out at once or anything, so that is just one item we do have in our toolbox. So we'll continue to look at those markets and evaluate them and like I said, we're seeing signs of improvement there.

Our next question comes from Ryan Levine with Citigroup.

In deciding on the new distribution policy, how did you determine that the new amount was appropriate? And then it looks like you'd highlighted $300 million to $500 million of capital needs for '18. Are you anticipating that to be entirely funded by preferred? Or what portion of that are you looking to satisfy throughout the sales? Or other types of -- other forms of capital raise?

I will address the first part of the question and let Tom address the second part. So in landing on the size of the reset, we had 3 goals in mind always, which was restore our distribution coverage, set ourselves up to allow us to reduce our leverage long-term and then minimize our need to access the equity market. And in trying to balance all three of those, we felt like this was the most appropriate number, particularly in the near term, as we want to maintain both one and as we go out, and we said on the call, we plan to run a very healthy coverage, well above one and at the same time, allowing us to consider a distribution increases and continued delever. So all of those play a big role in our thought process.

And another question on fundings. Could you repeat?

Yes. So in your slide presentation, you have like $300 million to $500 million of funding needs for '18. In terms of what you're assuming, is that entirely expected to be preferred? Or is -- there is also mention of some asset sales and other forms of capital raise, can you speak to what you are [growing]?

Yes, yes. Ryan, we're obviously -- it -- we're assuming it's preferred or assets sales and that's basically what we're looking at. We don't want to sell assets, that's not our first priority because we -- you don't want to lose the EBITDA. So with the distribution reduction that certainly helps your coverage right away, immediately. But delevering, you need some preferred, some asset sales to help you there in the short terms. So it does include both of those scenarios.

Is there any way to frame the [opportunity set] in terms of asset sales?

Not really, not at this time. We have things we're looking at and we're currently evaluating, but I don't think we have that really quantified yet. We also have the ability to cut our CapEx going forward a little bit. We have some flexibility in 2018 and we certainly have more in 2019 as well. So we do have that lever as well.

Okay. And then in terms of your Oxy legal dispute, I think you've previously -- I think this has gone through the courts and it seems like the judge is ready to make a decision. Is there any update around the timing of when resolution can come from that proceeding?

So the trial ended in December and we do not have a final decision at this point. We've received some indications from the judge and based on those, we're not hopeful that we're going to prevail in that lawsuit, but the final judgment is not out at this point.

Okay. And then last question, just around Navigator outlook. You provided the contribution for the last quarter. [Would you be able] to provide any color as to what you're betting in your '18 and '19 EBITDA assumptions for NuStar related to those assets?

No. Ryan, this is Chris Russell. All we've said going forward is that by the time we get to 2020, we expect those assets to generate EBITDA multiple in the high single digits. So for modeling purposes, I would calculate what that number is and then just straight-line it from 2017 to 2020.

And our next question comes from Jeremy Tonet with JP Morgan.

Wanted to start off with 2019 guide and was hoping that you could help me kind of bridge the delta between why the pre-simplification and post-simplification EBITDA numbers are a bit different there and the reconciliation is a bit different. Just trying to see some of the drivers there. And I guess, if you could just walk through -- what gives you the step up of '18 into '19. Is it Navigator mostly? Or are the other things there and just your kind of confidence level in hitting those numbers.

Yes, I would think by ramp up you're talking about the cover, right?

The EBITDA. EBITDA per se because EBITDA looks like 2019 is a different number, pre-simplification and post-simplification per the last slide in your deck there.

We haven't given any 2019 guidance. That's going to be driven by ramp up in the Permian primarily. And we do have a few small projects that [we've got coming] online in the out years, too. But that's mostly the Permian, the Permian ramp up.

Okay. And I guess why are the EBITDA numbers different for 2019 pre- and post-simplification?

Pre- and post-simplification.

On Slide 10 you say 710 to 800 projected EBITDA for 2019 pre and then post says 690 to 745.

Trying to think. Yes. (inaudible) we'll have to get back to you on that, Jeremy. Off the top of my head, I don't know.

Okay. And was just wondering for the pro forma entity, will this move to kind of like a regular company? Will there be a board that's elected and things like that? Just wondering how the corporate governance looks going forward?

Yes. So there will be a 9-member Board. 7, it will combine the two boards of the company. So there is 4 independent directors presently at NS, and there is 3 independent directors at NSH. The 3 independents from NSH will join the board of the combined entity and then there will be -- the Board will be elected annually at its annual meeting.

Great. It just seems like corporate governance is a big topic for investors in the MLP space, I'm just wondering kind of management compensation, how that might evolve if it goes from -- I think it's coverage right now more towards total shareholder return or return on invested capital. Didn't know if you had any preliminary thoughts, just given all the changes in MLP market.

Yes, I mean, what I can tell is, you talk about the change in MLP markets, one of things we wanted to accomplish with this was to streamline governance and we've always been very transparent about our governance. We've been very transparent about our compensation. And our comp committee feels very strongly that management's incentive should be aligned with those of the unitholders. So I think there'll be more to come on that after the simplification is complete, but I wouldn't expect to see significant changes in management's compensation.

Okay, great. And then just the last one, I guess, how long do you think -- you hit the leverage target that you guys were talking about? You kind of talked about thereafter towards 4, just wondering what you could share there?

Yes, that's 2019 and beyond, right? The latter part of 2019 and beyond. I think we are targeting that. That's something we want to do. We want to delever over time and that's what we think we would be around that time frame.

And our next question comes from Brian Zarahn with Mizuho.

Just wanted to state that I think the simplification and distribution [resets] and other difficult decisions, but I do think they were -- to echo your comments, prudent actions to help distribution coverage and leverage. I guess, on St. Eustatius, can you give a little more color on how we should think about that asset's contribution to your storage segment? Is it comparable as a percentage of your total capacity? Is that comparable to its percentage of EBITDA in storage business?

Well, comparable. As far as the contribution to EBITDA going forward, as we indicated, what we've done is we've taken a conservative case and approach to this, and in a replacement case, you would ramp up over time. So you would expect to see more EBITDA coming out of St. Eustatius in 2019 and thereafter than what we have in 2018.

As Brad said though, we are continuing to work with Venezuela. We've been encouraged by a pickup in some activity in the last couple of months. If we continue to see that going forward, then we think that will be a significant contributor to the storage segment as it has been in the last few years. And like I said, we're encouraged with what we see currently at the terminal. We make sure, as Brad mentioned, we watch those inventories very closely in St. Eustatius and we currently have -- there is enough product in the facility to keep us whole on what is owed us on the storage fees and we are very diligent about making sure that remains that way.

Then shifting gears to the Permian. Given 2 new long haul pipes are coming into Corpus in 2019. How do you see the export opportunities at your docks? You've got significant dock capacity in Corpus. How are you dealing -- maybe second half of 2019 or looking farther out in 2020, the opportunities for exports?

Yes. We're involved in several conversations with various projects that are directed towards Corpus. We're absolutely committed to marrying up our assets in the Eagle Ford and those dock assets to at least one, maybe several of those projects to facilitate those movements and we're continuing in those negotiations and conversations. There is just nothing concrete yet to report.

And our next question comes with Shneur Gershuni with UBS.

Definitely the simplification, I think, is obviously the right approach to take on a go-forward basis, certainly from how things are shaping out in this industry. It seems today, the disappointment in your stock price seems to be related towards the guidance or the expectations going forward. I was wondering if you can sort of talk about the St. Eustatius, and not to belabor this, as there's been a bunch of questions on this, but what are your options to get out of the contract? We've seen some others that've had contracts with PDVSA get out of the contract and then repurpose their assets and be able to collect going forward. Is that an option that you can pursue? I was wondering if you can sort of talk to us towards the other side. I understand that you've been saying that you've been working with them, but what if happens if you get to a point where you think you can't?

Well, what we put out today reflects us diversifying the customer base at that facility. And so there is some unused tankage, tankage that PDVSA has under contract that is not currently being used. And if we can find another customer for that tankage, I think they would probably welcome that. And so that's what you're seeing in this here. You can't lease significant amounts of storage just overnight. I mean, let's say if you had 2 million barrels of storage, you've got to have somebody rolling off the 2 million barrels of storage. So what this reflects is a layering-in of different customers throughout the year. Now that being said, PDVSA has been a long-term great customer, and I think sooner or later, they will be back on their feet and they will continue to be the largest demand for storage in the Caribbean. And so we want to maintain the good relationship with them and as Danny said, we've seen increased vessel traffic in the first couple of months this year, which would imply upside to what we put out here today. So hopefully that answers your question.

No, that does. And PDVSA seems to have had its own legal disputes and so forth. Does that impact you guys at all, if any of their inventory needs to be secured by some courts and so forth? Would that impact your ability to run your facility?

Wouldn't impact our ability to run our facility at all. Like we said before, we want to carefully monitor the inventory in our tanks to make sure that we're secured for what they owe was.

And would you be able to liquidate that inventory at your decision to make sure that they cover what they owe you? Or would that have to go through a legal process?

Well, I mean it's a contractual right that we have. But in any kind of execution like that, yes, you do have to follow the terms of the contract and assert your lien.

Okay, got it. Just sort of moving on from that. Jeremy had just mentioned about your guidance on Page 10. I just wanted to understand something. Should we look at the pre-simplification of reset columns versus the post-simplification of reset columns that, that was your projected EBITDA as of 3Q for both 2018 and 2019 in terms of your expectations, and that the change for 2018 and 2019 really just reflects kind of the changes that you've brought up today?

Yes, that could be -- we need to look at that a little bit closer and give you more definitive answer on that. 2018 is definitely -- 2018 pre was our third call -- was the guidance on our third quarter call. 2018 post was the guidance we've given you today before you back out the gains from the hurricanes. But we need to check on the '19 numbers.

Okay. And then -- one of the things that's interesting there is your preferred unit distributions expectations come down. Is that your expectation to issue less press than you were originally expecting towards the end of 2017?

Yes, it was.

Okay, perfect. And then with respect to your funding needs. I think in your slide deck, you talk $300 million to $500 million. In your prepared remarks, I believe you sort of talked about a CapEx number kind of in the mid-3s and so forth. Can you talk to us to how we get to the $500 million? Is it the open season goes well and you need to scale up to that? And if you can talk to it in context of your credit facility. Do you have enough room before needing to hit a waiver or anything? I was just wondering if -- what are the gating items this year and the things that we need to be thinking about.

Yes, the things to be thinking about -- so some of it is EBITDA ramp up, some of it is this PDVSA situation that we've talked about, whether or not how successful we are -- them paying and staying current and all that. So that's part of it. Also any ability to sell assets also plays into that number as well. If we get -- if we do end up selling some assets, that would reduce the number. If we don't then it wouldn't, but -- so it's a combination really of EBITDA ramp up, what ends up happening with PDVSA and asset sales.

Okay. And one final question, with respect to your guidance. Let's sidebar both Navigator as well as the St. Eustatius side. Within the base business or I guess the legacy business, if we sort of think 2016 and backwards, can you talk to how your conversations are going with respect to contract resets in Eagle Ford? And what is sort of baked in if it's possible to give us some sense on that for 2018 and 2019?

Sure. Our first wave of contracts start to expire in August of this year. Really just after the first of the year, is the first time some of these customers have started to engage in those discussions, it was just too far out before. We've assumed that we will continue to move similar type volumes that we're moving for our customers today, but we understand that it's a different market and more competitive and our tariff expectations reflect that, although we have not settled on what those new tariffs will be yet going forward.

And our next question comes from Selman Akyol with Stifel.

Just a couple of follow-ups. So going back to the guidance on the strategic capital spend of $360 million to $390 million, and I heard you say there may be opportunities to reduce that number, you could pull back on deploying capital. Presuming Navigator is sacrosanct, I guess, how much of your capital budget you have dedicated to Navigator?

About $240 million right now.

And then just flipping over to PDVSA and St. Eustatius. Have you started to have other conversations with other customers?

We are. We are, and we're not -- and we're talking to PDVSA about it too, about -- it may not be completely removing them from the terminal, but rightsizing their tanks to a new level of activity that they may -- that we may be seeing going forward. So we are having those conversations, but as Brad said, when you're moving someone into a large chunk of tankage like that, it just takes some time.

Got you. And then just the last one, in terms of when you're sort of thinking of 2019 and beyond and looking at the distribution, I mean, what's the, I guess, the coverage goal you would have?

I think what we put out there, it is guidance for coverage in 2019 and beyond is the 1.3x to 1.4x range worth of coverage.

And our next question comes from Sunil Sibal with Seaport Global.

Just a couple of questions for me. It seems like for '18, you're going to rely primarily on the preferred markets to fund the CapEx. I was kind of curious, have you reviewed that with the agencies and how do they look at that in the context of your overall capital structure?

Yes, I mean, we have -- we constantly talk to the rating agency [via the] capital structure of our plans for financing and all that. And we do get equity credit with 2 of the 3 agencies on that, and so we wouldn't anticipate that changing in the near terms. So -- but yes, they -- we get full 100% equity credit in our covenant. So we do talk to them, we've talked to them about our plans around this strategy that we've outlined today, we've talked to them about our EBITDA projections, other projections and so they're in tune with all that.

Got it. Any guesses on the rating action at this stage or just wait for that?

No. No, we don't.

Okay, got it. And then on your debt maturity. It seems like you have one issue coming up in the near term, and then you have a couple of other issues out there not too far away. I was wondering how you kind of think about debt maturities?

Yes, we have the 2018s coming due in April, and then we have some 2020s also out there. I think that's out for a couple of years though, obviously. The 2018s, we're looking at that, we'll more likely than not refinance those with new bonds. That's the plan currently. The bond market is very robust, the rates are attractive. We have seen rates going up a little bit recently, but that's the current plan.

Okay. So you [pick up] the '18 and then leave '20s to a later date business?

Yes, we don't have any plans to bring in the 2020s anytime soon.

(Operator Instructions) And our next question comes from Jeremy Tonet with JP Morgan.

Just a couple of cleanup questions here. With regards to turnarounds, would you be able to let us know what was the impact for 2017? What do you expect that to be for '18? Or how do you budget that in your guidance? And kind of how do you think about what a normal -- like the annual impact is?

We're thinking, trying to remember what turnaround impact is...

As far as turnaround activity goes, I mean, the activity was a little bit higher than normal, I would say, probably in 2017. And the schedule for '18 looks significantly lower -- significantly less than 2017.

Typically, these refineries will have a turnaround every 2 or 3 years. So it gets spotty like this, but what surprised us in '17 was that 2 of these turnarounds, and they were significant turnarounds, were unplanned. So that was the big thing that caught us by surprise in 2017. But given that those -- 2 of those big refineries have just completed the turnaround, we don't expect to see that coming back for another couple of years, at least.

And just cleaning up on the pref share. Could you just remind us as far as where you are within your cap structure, or how large it is? Kind of, is the 15%, is that a limit I should think about as what you might target? Or kind of how much could that be in the -- in your cap structure going forward like that?

Well, we're currently at around 20%, I think, at our cap structure. And so whatever we would end up doing going forward would be addition to that. And it just depends on how much we end up doing.

Okay. So what would be the treatment from agencies then on the prefs at this point?

Well, S&P is currently not giving us any equity credit for the prefers, because we're exceeding their 15% threshold. Fitch gives us 50% equity credit and Moody's is, [sort of] not giving us any equity credit at all.

And I'm showing no further questions at this time. I would like to turn the call back over to Chris Russell for further remarks.

Thank you, Grace.

I just want to say couple of things in closing. So throughout this call, we've emphasized the reason that we've chosen this path that we're on is we recognize it's important to restore our distribution coverage, reduce our leverage and minimize our need to access the equity capital markets, and what we've laid out for you today does exactly that. There has been a whole lot of discussion about PDVSA and St. Eustatius, what I want to tell you is most of you who know us know that we're a prudent and conservative management team, and so we are addressing that situation, and I will tell you that this is a conservative case that we've laid out here today. So with that, I thank you for your time.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.