NuStar Energy L.P.

Good day, and thank you for standing by, and welcome to the Q4 2021 New Star Energy LP earnings conference call. At this time, our participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that this call is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your host today, Sam Schmidt, Vice President of Investor Relations. You may begin.

Good morning, and welcome to today's call. On the call today are New Star Energy LP's President and CEO, Brad Barron, and other members of our management team. Before we get started, we would like to remind you that during the course of this call, New Star Management will make statements about our current views concerning the future performance of New Star 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 US GAAP may be found in our earnings press release with additional reconciliations located on the financials page of the investors section of the website at NewStarEnergy.com. With that, I will turn the call over to Brad.

Good morning. Thank you all for joining us. Before we get started, I want to let you know that Tom's out of the office today for a medical procedure, so I'll be providing you with both my overview and what would typically be Tom's discussion of the details on NewStar's results. for the full year of 2021 and 4Q, as well as our positive outlook for 2022. Looking back over 2021, I'm very proud of the progress we've made toward achieving our strategic priorities, as well as the resilience and strength that our business once again demonstrated this past year. At the beginning of 2021, we told you that we plan to take steps to lower our leverage, fund all our spending from internally generated cash flows, and promote NuSTAR's commitment to ESG excellence. Over the course of the year, We divested non-core assets and we controlled our spending and, as promised, we lowered our leverage significantly. We closed out 2021 with a debt to EBITDA at 3.99 times, a strong improvement from the 4.24 times at the end of 2020. We also delivered on our commitment to fund our spending from our cash flows. In 2021, we generated solid results and funded 112% of our strategic capital from excess adjusted DCF, which is up 11% over 2020. And, as we promised you, we reached significant milestones in reporting on our ESG performance in 2021 with the issuance of our inaugural sustainability report and the launch of our sustainability webpage. Our sustainability report provides a great overview of our culture of responsibility, which has distinguished NuSTAR throughout our 20-plus year history, as our employees have always been committed to protecting and caring for each other, our communities, and the environment. I'm also proud that in 2021, once again, NuSTAR outperformed our industry in terms of safety stewardship with a total recordable injury rate that was 14 times better than the bulk terminal industry and over seven times better than the pipeline industry as a whole. While last year brought its share of challenges, NuSTAR delivered strong, stable performance and solid results. Even with the detrimental impact of February 2021's winter storm URI, after adjusting for divestitures and other items, we generated 2021 EBITDA comparable to 2020. Turning to our pipeline segment, our throughput grew 6% in 2021 compared to 2020, with 4Q21 up 22% over the fourth quarter of 2020. Our refined products pipeline delivered consistent and strong results during both the Delta and Omicron waves, reflecting the strength of our assets and our position in the markets we serve across the mid-continent and throughout Texas. Our refined product pipeline throughput was up 11% for the full year 21 and up 16% quarter over quarter. We also saw higher throughputs on our crude pipelines, up 25% for 4Q21 over 4Q2020, and up 4% for full year 21 over 20. Our Permian system continued to rebound and grow. Our system's volumes averaged around 516,000 barrels per day for the fourth quarter of 21, a new record, up 3% over third quarter of 21, and up 23% over the fourth quarter of 2020. Our system's average barrels per day in 2021 was over 10% higher than 2020's average, and we exited 2021 more than 100,000 barrels per day over our 2020 exit, which is impressive. But even more impressive is how much our system outpaced the Permian Basin as a whole. In 2021, our core of the core Permian system's average barrels per day grew by more than three times the basin's average 3% growth over the same period. And I'm pleased that the rig count on our system is running close to 30, which represents over 10% of the total number of rigs running across the entire Permian Basin as of the end of January. Looking ahead, we're encouraged by what we're hearing and seeing from our producers, as well as the crude price outlook, and we expect to exit 2022 between 560,000 to 570,000 barrels per day, or about 10% above our 2021 exit. Moving on from the Permian to our Corpus Christi crude system, we continue to see volumes close to our MVCs, with throughputs averaging around 380,000 barrels per day in 4Q21, and we're forecasting 2022 revenue from our Eagle Forward and WTI commitments at slightly above our MVCs. Improving global demand combined with sustained healthy U.S. shale production growth should increase U.S. crude exports over time, which should also improve volumes across our Corpus Christi crude system. Improving demand should also drive increased activity at our St. James Terminal, where we're happy to report in January, we began receiving inbound barrels from the reversal of Kaplan. Turning next to our ammonia pipeline system, throughput on our ammonia system was up about 20% compared to 4Q of 20, and up 42% over 3Q 21. As we've mentioned on prior calls, we're working to increase our systems utilization even more through low spend, high return projects to connect and extend our system to new and current customers. These projects would supply ammonia for traditional uses, like the fertilizer that augments U.S. food production, as well as for corn for ethanol production across the Midwest. We're also partnering with customers and potential customers to expand our utilization with green ammonia projects for existing applications and for visionary future opportunities like renewable electricity generation and safe, efficient transportation of hydrogen to power fuel cell vehicles. We look forward to providing more details later this year as we develop these projects to increase our ammonia systems utilization and profitability in the short and longer term by supporting traditional ammonia needs today and participating in ammonia's renewable future. Moving over to our West Coast Renewable Fuels Network, New Star is already playing an integral role in facilitating the West Coast's low-carbon renewable fuels, which are continuing to significantly reduce emissions from transportation. In 2021, Our West Coast storage assets generated over 27% of our total storage segment revenue as adjusted to reflect asset divestitures, over one-third of which was derived exclusively from our renewable fuel-related services. We expect New Star's leadership in the low-carbon fuel transition in California and across the West Coast to continue to grow as we continue to complete our capital projects there. We plan to continue to develop projects to expand our renewable fuels business as customer demand continues to grow. In addition to the growing financial contribution of our West Coast Renewables Network, we believe the network also demonstrates New Star's ability to anticipate and find profitable, innovative ways to evolve our nation's changing energy priorities. With that overview of our 2021 performance, I want to shift gears for a few minutes and provide some more detail on our quarterly results. For comparability, keep in mind that our 4Q21 results include a $5 million gain from insurance proceeds we received to rebuild tanks at our Selby Terminal. Backing that gain out, our adjusted 4Q21 net income was $52 million, which is up $2 million over 4Q2020 adjusted net income of $50 million. NewSTAR's 4Q2021 DCF available to common limited partners was $63 million, comparable to 4Q2020, and our distribution coverage ratio to the common limited partners was 1.43 times. Adjusted 4Q21 EBITDA was $169 million, down 7%, compared to 4Q2020 EBITDA of $181 million, with that delta largely due to our successful divestitures. Our pipeline segments 4Q21 EBITDA was $149 million, up $19 million, or 15%, compared to $130 million in 4Q2020. Thanks in large part to our Permian system and our ammonia system, we had solid increases in our pipeline segments 4Q2021 throughput volumes compared to both 4Q2020 and 3Q21. Our fourth quarter 2021 storage segment EBITDA was $46 million, which was down $27 million compared to 4Q2020 due to several factors, including the sale of the eastern U.S. terminals in October of 21 and the Texas City terminal in December of 2020, timing of customer transitions and tank maintenance at certain terminals, and residual global economic recovery challenges. Our fourth quarter of 2021 fuels marketing segment EBITDA was $5 million, up $3 million from the fourth quarter of 2020 due to stronger butane blending margins. At the end of 2021, our debt balance was $3.2 billion. That's an 11% reduction from year-end 2020. Thanks to the progress we made in lowering our debt balance over the course of the year, we were also able to reduce our interest expense in the fourth quarter by $6 million compared to the fourth quarter of the prior year. As I noted in my introduction, we made substantial progress, as promised, in lowering our debt to EBITDA ratio on 21, finishing 2021 with a debt to EBITDA ratio of 3.99 times, and with $885 million available on our $1 billion unsecured revolving credit facility. On a related note, on Monday, we filed an 8K announcing that we had renewed our revolver. We were very pleased that our renewal was oversubscribed. allowing us to maintain our $1 billion unsecured revolver and extend the maturity of the facility an additional 18 months to April of 2025. Moving from what we accomplished in 2021 to what we see on the horizon for 2022, we're encouraged by signs of continuing economic rebound. We're working hard to continue to advance our strategic priorities this year. We currently expect to generate full-year 2022 EBITDA in the range of $700 to $750 million, the midpoint of which represents a 6% growth over 2021 when adjusted for the sale of the eastern U.S. terminals and other items. Moving to our 2022 strategic capital spending, we plan to spend $135 to $165 million this year. Of that total spending, we're allocating approximately $55 million to growing our Permian system, which is scalable with our producers' throughput volume needs, and about $25 million to expand our West Coast Renewable Fuels Network. In addition, We expect to spend $35 to $45 million on reliability in 2022. Once again, this year, we expect to self-fund all of our 2022 spending from internally generated cash flows, just as we did in 2021. And we remain committed to continuing to improve our debt to EBITDA ratio in 2022. We plan to continue to optimize and innovate across our footprint to enhance New Star's financial resilience and strength and build sustainable value for our unit holders. And we are focused each and every day on operating safely, reliably, and responsibly, and on protecting our employees, our communities, and our planet. 2021 was a strong year for New Star, and we're already working hard across our footprint to make sure that 2022 is even better. With that, I'll open up the call for Q&A.