NuStar Energy LP (NS) 2022 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to the NuStar Energy Fourth Quarter 2022 Earnings Conference Call. (Operator Instructions) I would now like to hand the conference over to your speaker today, Pam Schmidt, Vice President of Investor Relations. You may begin.

Good morning, and welcome to today's call. On the call today are NuStar Energy L.P.'s Chairman and CEO, Brad Barron, our Executive Vice President and CFO, Tom Shoaf; and our Executive Vice President of Business Development and Engineering, Danny Oliver, as well as 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 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 will also refer 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, and if applicable, additional reconciliations may be located on the Financials page of the Investors section of our website at nustarenergy.com.

With that, I will turn the call over to Brad.

Good morning. Thank you all for joining us today. I'm excited to tell you about our great fourth quarter and solid performance for full year 2022 as well as our positive outlook for 2023 and beyond. Let's get started with a few highlights from our fourth quarter 2022 results. We generated $197 million of total adjusted EBITDA in the fourth quarter, 16% higher than adjusted EBITDA in the fourth quarter of '21 and the highest fourth quarter in NuStar's history. Our Pipeline segment EBITDA was up in the fourth quarter by 18% over the same period in '21, Thanks in large part to the continued strong performance of our Permian Crude System. Our Permian Systems volumes hit another high in the fourth quarter, handing in a record-breaking average of 584,000 barrels per day, that's up 13% over the same quarter last year.

Our Mid-Continent refined product systems once again delivered a solid dependable revenue contribution in the fourth quarter of '22. In South Texas, we're pleased that our Corpus Christi Crude System throughputs averaged over 368,000 barrels per day in the fourth quarter, which is above our MVCs for that system and 8% higher than our third quarter volumes. We're also encouraged by the continued improvement we saw in January on that system as our average volumes rose almost 400,000 barrels per day last month.

Our fuels marketing segment also had a great fourth quarter, generating $12 million of EBITDA, up $7 million over the fourth quarter of '21.

With that, a few observations about 2022 before I turn it over to Tom. 2022's historic inflation and volatility made for a bumpy ride around the globe and across financial markets. Given that economic context, I'm particularly proud of our 2022 results, which demonstrated once again the stability and strength of NuStar's business. Our 2022 revenue was up from growth in our Permian Crude System, growth in our West Coast renewables network, the positive impact of indexation, the outperformance of our fuels marketing segment and the steady, solid revenue contribution from our refined product systems. We generated higher adjusted full year EBITDA for 2022 through a combination of revenue improvement and expense optimization, which helped to mitigate some of the impact of 2022's historic inflation.

And by continuing to high grade our capital spending program, we were once again able to self-fund our business, including our capital spending and our growth footprint in the Permian and on the West Coast. Through optimization and careful planning over the course of 2022, we're able to meaningfully reduce our leverage, which positioned us to get a head start on kicking off our plan to simplify our capital structure. And in November, we were able to repurchase about 1/3 of our Series D preferred units while keeping debt-to-EBITDA -- our debt-to-EBITDA ratio under 4x per year-end 2022. We're now planning to redeem the remaining Series D units in 2023 and '24, which is about 2 years ahead of our original schedule.

I'm also proud that in 2022, once again, NuStar outperformed our industry in terms of safety stewardship with a total recordable injury rate, or TRIR, it was 13x better than the bulk terminal industry and twice as good as the pipeline industry as a whole. And then we published our second sustainability report, which provides more information about the culture of responsibility that has distinguished NuStar throughout our history. And with that, I'll turn the call over to Tom.

Thanks, Brad, and good morning, everyone. As Brad mentioned, our fourth quarter adjusted EBITDA was up $28 million or 16% over the fourth quarter 2021. Our fourth quarter 2022 adjusted DCF was $89 million, and our adjusted distribution coverage ratio was [2.01x].

Turning to our segments. In the fourth quarter of '22, our Pipeline segment generated $176 million of EBITDA, up $27 million or 18% over fourth quarter '21 EBITDA of $149 million, largely from a strong performance of our Permian Crude System, as Brad described earlier.

Higher contributions from our Permian Crude System were complemented by higher results from our McKee System pipeline and our refined products pipelines.

Turning next to our storage segment. Our EBITDA for fourth quarter '22 was $41 million, which is about $6 million lower than fourth quarter '21 EBITDA. That decrease was due to customer transitions and required tank maintenance at our St. James Terminal and an amendment and extension of our customer contract at our Corpus Christi North Beach Terminal.

Our West Coast region's revenues continue to grow driven in a large part by our West Coast renewable strategy up 20% over fourth quarter '21. And for our Fuels Marketing segment, EBITDA was $12 million up $7 million from fourth quarter '21, largely due to stronger margins. I'm also pleased to report on our continued progress in reducing our debt and building our financial strength and flexibility. We ended fourth quarter '22 with a debt-to-EBITDA ratio of 3.98x. At the end of the fourth quarter '22, our total debt balance was $3.3 billion and our revolver availability is over $775 million of the facility's $1 billion capacity.

Moving now to our outlook for 2023. For full year, we expect to generate EBITDA in the range of $700 million to $760 million, and we plan to spend $130 million to $150 million on strategic capital in 2023. We expect to allocate about $60 million to growing our Permian system, and we plan to spend about $25 million to expand our West Coast renewables fuels network.

Turning to reliability capital. We now expect to spend between $25 million and $35 million on reliability in 2023. And now I'll turn the call back over to Brad.

Thanks, Tom. As I mentioned, our optimization in 2022 was integral to NuStar's solid results and facilitating an important first step to improve our capital structure last year. Optimizing our business and maximizing our free cash flows in 2022 was more than a one-and-done effort.

By systematically scrutinizing every dollar of spending, we've been able to significantly increase our cash flow with systematic changes that will continue to reap benefits in 2023 but also in 2024 and beyond. And by investing that increased cash flow in our growth footprint, we're already on the path to compounding those benefits with the EBITDA growth we expect from organic capital projects on our Permian system and our West Coast renewables network as well as the projects we hope to announce later this year across our ammonia system. We plan to continue to optimize our business and build our financial strength and unitholder value while we continue to safely and reliably store and transport the essential energy that fuels our lives. As we embark on this new year, the future looks bright, and we look forward to talking to you next quarter.

With that, we'll open up the call for Q&A.

(Operator Instructions) Our first question comes from Theresa Chen with Barclays.

I wanted to ask about the puts and takes to the high versus low range of guidance for the year just given a wide range. Can you help us walk through like what aspects of your business could drive the higher versus lower end?

Yes, Theresa, this is Danny Oliver. It's kind of the same story we had last year. We've forecasted some growth in the Permian, although it's a little bit lower growth rate than we saw in '22. But if our producers are more active than what we have forecasted, we could see some growth there. Our Corpus Christi Crude System, we have forecasted at the MVC levels. And -- so there's really no downside there, but we could see some upside if we see volumes start to pick up, which we've actually seen some, at least in January. And then on our West Coast volumes on the West Coast biofuel system could be a little bit stronger than what we've anticipated.

I would also say that we conservatively forecasted our fuels marketing segment.

Yes, we reverted back to the norm for our margin-based businesses after having a record year in '22.

Got it. And given the elevated maintenance and turnarounds for your refining customers this year, it seems to be somewhat industry-wide, does that have any read-throughs on your crude system, either to the positive or negative?

We've got all that forecasted. That's in the guidance, obviously, but some -- those turnarounds are not always the same across our system. We have some refineries that when they go down, we actually see a pickup in volumes where we ship more refined products on other lines to cover the refinery outage and then other refineries, we feel the pain like at McKee. But McKee had a heavy turnaround period this year, and it's pretty light going into next year, so we're not expecting any significant impact.

Got it. And lastly, just on the Series D pay downs. So I believe that you had negotiated a premium with the holder to front-load a portion of the pay down in 2022, does that impact the premium that you're scheduled to pay for 2023, 2024? Can you just give us an update on that?

Yes, Theresa, in all likelihood, the premium we pay will be the stated premium or called Premium that's in the agreements, which in 2023, that'd be 125% of par.

Our next question comes from Gabriel Moreen with Mizuho.

This is Chris Jeffrey on for Gabe. Congrats on the quarter. Just curious about the strategic spend, kind of the balance of besides the $25 million and $60 million, any particular areas, projects that's marked for?

I suppose one mentionable is we're forecasting spending some money on our ammonia system. Brad mentioned in his comments about some deals that we hope to be able to discuss in further detail a little later in the year when we fully execute those. But we are forecasting some spend there. The rest of it is we say every year, we have a basket of what we call singles and doubles, smaller projects, good return projects, just scattered out across our various systems, and that's what makes up the balance of that number.

Right. But it's mainly focused in our growth areas, which are West Coast renewable fuels network and then the Permian.

Great. And then just curious on the blending margin backdrop, how that kind of impacted the quarter and the outlook for 2023, if you're kind of taking it to accountable?

So I mean, we just had historically high margins in that business last year. Just as a reminder, a lot of the margin that we make in that butane blending business, we lock up in the summer months. We bought butane in the summer when margins are typically at their widest and sell the fall and winter gasoline. And then we put -- we store the butane and blend it in the transition period in the fall.

We saw, again, historically high spreads last summer. It's still early to be predicting what's going to be going on this summer, but it looks like, at least currently, margins have reverted back to what we would consider normal.

Our next question comes from Michael Blum with Mizuho -- I'm sorry, Wells Fargo.

I wanted to ask about refined product or gasoline volumes on your system, at least nationwide, it looks like based on the EIA data that volumes have been a little bit weaker of late, but it looks like your pipelines are holding up better. So can you just talk through why that's the case? And do you expect that to continue into '23?

Sure. Michael, this is Danny. We saw in the fourth quarter, our volumes running right at or above pre-pandemic levels. I'll tell you that we've -- in January, we've seen volumes increase pretty significantly at least versus what you would anticipate even pre-pandemic in January.

Most of that is due to a Suncor outage at their refinery in Denver. It's created a really tight market up there and some of our refiner customers have reacted by running higher utilization rates at their refineries to help supply that market than you would normally expect in January due to seasonal demand issues that they usually experience.

Yes. I would add that we don't typically see the variability that some of the other regions of the country do just given where our pipelines are. I mean I would remind everybody, our pipelines returned to pre-pandemic levels by September of 2020. So I mean we've been running there pretty much since then.

Okay. Perfect. That helps. And then I just wanted to ask about the Permian growth expectations, so 2023. It sounds like you think the rate of growth could slow a bit versus '22, but do you have an exit rate that you're sort of pointing us to for year-end like you typically provide?

We're looking at somewhere around 600,000 barrels a day next year. We have a little lull in activity forecasted, it's just in the first few months of the year. It's just really kind of a timing thing. But for annual averages, obviously, will beat 2022, we expect to beat ['22] in '23. But from an EBITDA perspective, we expect some of that growth to be offset by PLA prices going back to the current forward curve versus what we realized in '22.

And I'm not showing any further questions. At this time, I'd like to turn the call back over to Pam Schmidt for any closing remarks.

Thank you, Kevin. We would once again like to thank everyone for joining us on the call today. If anyone has additional questions, please feel free to contact NuStar Investor Relations. Thanks again, and have a great day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.