SAN ANTONIO--(BUSINESS WIRE)--NuStar Energy L.P. (NYSE: NS) today reported operating income of $105 million for the third quarter of 2020, up $5 million, or 5 percent, from $100 million in the third quarter of 2019.

“The improvement in our operating income during these historically challenging times for our country and our industry demonstrate the resilience of our business and the quality of our assets,” said NuStar President and CEO Brad Barron.

“During the third quarter, when a window opened in high-yield bond markets, we were able to successfully issue $1.2 billion of new notes at attractive rates to repay the $500 million term loan we obtained in April to assure liquidity for our near-term debt maturities in the midst of pandemic-related second quarter 2020 bond market headwinds, as well as all of the outstanding borrowings under our revolving credit agreement,” said NuStar CFO Tom Shoaf.

“Our bond issuance not only allowed us to significantly reduce our interest expense, it also cleared our bond maturity runway for the next five years,” Shoaf noted.

NuStar’s repayment of the $500 million term loan required NuStar to record a $138 million non-operational charge, which resulted in a third quarter 2020 net loss of $96.6 million, or ($1.22) per unit, compared to net income from continuing operations of $52.6 million, or $0.15 per unit, in the third quarter of 2019.

“While the loan repayment resulted in the non-operational charge, the loan itself bridged us through a tough time period with mission-critical liquidity to weather the storm in the first half of 2020, and we are pleased to have put this COVID-related issue behind us,” Shoaf said.

Excluding the charge, third quarter 2020 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations were $180 million, an increase of $11 million, or 7 percent, over third quarter 2019 EBITDA from continuing operations.

“To provide an ‘apples-to-apples’ comparison with third quarter 2019 results, without the non-operational charge, NuStar’s third quarter 2020 adjusted net income was $45 million and adjusted earnings per unit (EPU) were $0.08 per unit. As mentioned previously, our adjusted EBITDA from continuing operations were $180 million for the third quarter of 2020, up $11 million or 7 percent from $169 million of EBITDA from continuing operations for the third quarter of 2019.

“Adjusted distributable cash flow (DCF) from continuing operations was $84 million for the third quarter of 2020, compared to $88 million in the third quarter of 2019, and the adjusted distribution coverage ratio to common limited partners from continuing operations was 1.92 times for the current period,” Shoaf concluded.

Barron commented, “Despite the many challenges that COVID-19 has posed for us, I continue to take tremendous pride in how well our employees have persevered in maintaining profitable and safe operations, while also ensuring that our nation has reliable access to the energy needed to overcome this pandemic and re-build our economy.

“Over the course of the third quarter and through October, we have continued to see demand rebound and return to levels at or near normal, pre-COVID levels in the markets we serve. In the third quarter alone, we moved 204 million barrels of crude oil and refined products through our pipelines and terminals, safely and responsibly. We saw refined product demand improve throughout the summer, and we have continued to see stable progress in October and thus far in November. On average, across our refined product systems, so far this quarter, we have returned to 100% of typical demand.

“Seeing sustained demand rebound on our refined products assets bodes well for our crude oil pipeline assets, as recovery in refined product demand should increase refinery utilization, which, in turn, should increase crude prices and production. We are pleased that our Permian crude volumes have remained steady. We averaged around 420,000 barrels per day in October, and our throughputs increased from an average of 401,000 barrels per day (BPD) in the second quarter to 422,000 BPD in the third quarter and November nominations are at 428,000 BPD. These numbers reflect the impact of our Permian system’s geological advantages, lower production costs and higher product quality, which distinguish our core-of-the-core assets in the Midland basin from other shale plays and also other gathering systems in the Permian.

“We are also seeing some indications of recovery in Corpus Christi exports as well, with throughputs increasing from an average of 306,000 BPD in the second quarter to 380,000 in the third quarter, which is above our minimum volume commitments of 377,000 BPD.”

Financial Strength and Resilience

Barron also noted, “While we are encouraged by the hopeful signs we see, we are also keenly aware of the uncertain environment we are facing, here in the U.S. and around the globe. But for the rest of this year and through 2021, we plan to remain focused on our strategic priorities to ensure we continue to build our financial strength and resilience by lowering our leverage and maximizing our ability to fund our spending with internally generated cash flow -- goals which have been aided by the following actions:

• On Monday, we announced we have signed an agreement to sell our Texas City terminals for $106 million, a purchase price that implies a healthy, double-digit multiple, and should allow us to improve our debt metrics and help self-fund our capital program;
• Second, we have reduced our spending significantly, and we plan to continue to do so, in order to maximize our ability to fund all of our spending, including all of our capital expenditures, from our internally generated cash flows. To that end, we have cut our strategic capital, we have reduced our operating expenses, and we have reduced our financing costs. In total, we have reduced our costs in 2020 by $340 million, or 22 percent. These cuts are part of a structural transformation that allows us to fund our operations from internally generated cash flows. As such, we expect these cuts to continue and to benefit us well past 2021;
• We have reduced our 2020 strategic capital to a range of $165 to $185 million, which, midpoint-to-midpoint, is a $150 million reduction from our pre-pandemic guidance, which translates to an approximate 45 percent reduction in our 2020 strategic capital spending and is 63 percent below our 2019 spending;
• We had identified about $40-$50 million of controllable and operating expense reductions for the full-year 2020, but, due to cost optimization across our organization, we are now expecting to reduce controllable and operating expense by an additional $7.5 million; and
• We are continuing to exercise financial discipline, control costs and look for ways to preserve cash and increase efficiency across our footprint and throughout our organization, without sacrificing safety or reliability.”

Commitment to West Coast Renewable Energy

Barron also discussed NuStar’s commitment to renewable fuels. “Our West Coast renewable fuels logistics network is a great example of the opportunities we are finding embedded in unfolding energy challenges,” Barron noted. “We have developed a series of low-multiple projects across our West Coast terminals in partnership with some of the largest renewables producers in the world to facilitate adoption of low-carbon fuel standards.”

Barron noted that NuStar’s West Coast renewable fuels projects play a significant a role in the low-carbon transition of the largest driving state in the nation. He further noted that in the first quarter of 2020, NuStar handled about 5 percent of California’s total biodiesel volumes; over 15 percent of its ethanol; and close to 30 percent of its renewable diesel volumes. “That’s an impressive share of a key market that we have achieved with a relatively modest investment,” Barron said. “And our market share, along with our associated EBITDA, will continue to ramp up through 2023.

“Our West Coast renewables initiative reflects our Business Development department’s ability to identify and find creative solutions for energy dislocations, adapting as our customers’ needs evolve. That ingenuity and innovation will continue to be the key to NuStar’s ability to thrive as we all navigate the nation’s energy future,” said Barron.

2020 and 2021 Outlook

Barron noted that given the resilience of NuStar’s business and the continued recovery in product demand, NuStar is raising its 2020 adjusted EBITDA outlook to be in the range of $690 to $730 million, which at the mid-point is six percent above its 2019 EBITDA from continuing operations.

“We expect NuStar’s 2021 EBITDA to be comparable to our 2020 results,” said Barron. “That is pretty impressive given that the pre-pandemic first quarter of 2020 was a record-breaker for NuStar on several fronts.

“We also expect our strategic and reliability capital spending for 2021 to be comparable to 2020.”

Barron closed by saying, “I am very proud that our business has continued to perform so well in this difficult year, as evidenced by our operating income and our segment operating income both being up this quarter, and not only outperforming our second quarter of 2020, but also outperforming the same period in 2019. These third quarter results once again demonstrate the diversity and resilience of our asset base even under challenging circumstances.”

NuStar Energy L.P., a publicly traded master limited partnership based in San Antonio, is one of the largest independent liquids terminal and pipeline operators in the nation. NuStar currently has approximately 10,000 miles of pipeline and 75 terminal and storage facilities that store and distribute crude oil, refined products and specialty liquids. The partnership’s combined system has approximately 75 million barrels of storage capacity, and NuStar has operations in the United States, Canada and Mexico. For more information, visit NuStar Energy L.P.'s website at www.nustarenergy.com.