NuStar Energy L.P.

Good morning and welcome to today's call. On the call today are NuSTAR Energy LP's president and CEO, Brad Barron, 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 risk, uncertainties, and assumptions described in our filings with the SEC. 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 with additional reconciliations located on the financials page of the investor section of our website at NewStartEnergy.com. With that, I will turn the call over to Brad.

Good morning. Thank you all for joining us today. Before we get started, I want to let you know that Tom is out of the office because he tested positive for COVID earlier this week. So I'll be providing you with both my overview and what would ordinarily be Tom's discussion of the details on New Star's results for the first quarter, as well as our positive outlook for the rest of 2022. I'm pleased to report that once again, we've delivered solid results to demonstrate the strength and resilience of our assets. In the first quarter, Newstart generated adjusted EBITDA of $173 million. That's compared to 169 million for the first quarter of 21, or about 2% higher. But when we compare our first quarter 2022 adjusted EBITDA with the EBITDA generated from those same assets in the first quarter of 21, in other words, backing out the eastern U.S. terminals, our first quarter 2022 adjusted EBITDA was up 12 million, or 7% higher than Q1 of 21. Turning to our pipeline segment, We saw strong improvement across our systems, with throughput up 16% compared to the same quarter last year, which was driven primarily by strong quarter-over-quarter improvement on our crude pipeline throughputs, which were up 19% Q1 over Q1. Our pipeline segment EBITDA was $141 million. That's up 17 million, or 13%, when compared to the 124 million that segment generated in the first quarter of 21. Moving to our Permian crude system, Volumes on our Permian crude system average around 510,000 barrels per day for the quarter, up 27% over the same quarter last year and comparable to the fourth quarter of 2021. Although we've all heard that U.S. oil production has been slow to respond to the recent run-up in crude prices due to a variety of factors, including supply chain challenges, we continue to work closely with our top tier producers and we are encouraged by what they're telling us, particularly what our privately held producers are telling us about their drilling plans for the rest of 2022. Because of those conversations, along with the strong outlook for crude prices, we continue to 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, throughput's averaged around 340,000 barrels per day. That's up about 6% over the first quarter of 2021. We continue to forecast full-year 2022 revenue from our Eagle Ford and WTI commitments slightly above our MVCs. Our refined products pipelines have also continued to deliver consistent and strong results, with throughput up 11% compared to the first quarter of 2021, reflecting the strength of our assets and our position in the markets we serve across the mid-continent and throughout Texas. Our northern Mexico refined products supply pipelines are also performing well, with volumes now above our averages for 2021, with first quarter throughputs up 27% over the same quarter last year. Turning to our storage segment, after adjusting for the impairment associated with the sale of the Point Tupper Terminal, our adjusted EBITDA was $50 million, up $4 million, or 7%, when compared to $46 million in Q4 last year. Compared to the first quarter of 2021, excluding the contribution of our divested eastern U.S. terminals, our storage segment's adjusted EBITDA was about $9 million lower due to timing of customer transitions and tank maintenance at certain terminals during the quarter, as well as insurance proceeds we recovered in Q1 of 21 for our Selby terminal. Moving on to our West Coast Renewable Fuels Network. In the first quarter, our West Coast storage assets generated about 29% of our total storage segment revenue. We expect our West Coast terminal network revenue to continue to grow in 2022 as we complete two more projects at our Stockton terminal this summer, adding renewable diesel storage capacity and expanding our ethanol transportation solutions. which will expand the significant role New Star plays in facilitating the West Coast transition to low-carbon renewable fuels. And for our fuels marketing segment, EBITDA was $7 million, up $4 million from the first quarter of 2021, largely due to stronger bunker fuel margins. Beyond our solid quarterly results, I'm also pleased to report on the progress we are making in continuing to build our financial strength and flexibility in increasing our free cash flow. Last Friday, We announced closing on the divestiture of the Point Tupper terminal facility in Canada for $60 million, which we plan to utilize to continue to reduce debt. In addition, earlier this year, we kicked off an initiative to optimize our spending across our business, finding efficiencies and scrubbing every dollar with the goal of making meaningful reductions in our expenses and capital spending to increase our free cash flow in 2022 and beyond. We're still early in our optimization initiative, but we're encouraged by the progress we're making, having already identified over 50 million in reductions across this year and next. We're focused on reducing OPEX and G&A expense, and we're also working hard to high-grade every dollar of our strategic capital spending. This means assuring that we only execute projects that meet or beat our internal hurdles, and they're lean, efficient, and effective. So far, we've been able to reduce our planned strategic capital spending for 2022, to between $115 to $145 million, the midpoint of which is $15 million, lower than our previously announced range. Of that total strategic capital spending, we expect to allocate approximately $60 million to growing our Permian system, which is, as always, scalable with our producers' throughput volume needs, and we plan to spend about $10 million to expand our West Coast renewable fuels network. In addition to the cost reductions and increased efficiency, We're realizing from our optimization initiative, we also have an improved line of sight into every dollar of spending, which is helpful as we proactively address the inflationary headwinds that we are all currently experiencing. Optimization takes focus and discipline, and our employees are demonstrating just that as we make the necessary changes to continue to enhance our financial strength and resilience and continue to build unit holder value. At the same time, though, we're keenly aware that our culture is the bedrock of NuSTAR success, so we're determined to protect nurture our core values we will remain committed to the safety of our employees and to environmental excellence that means we continue to expect to spend 35 million to 45 million on reliability capital in 2022. now i'll shift gears and give some more detail about our results for the quarter for comparability keep in mind that our first quarter results include a non-cash impairment associated with the sale of the point tupper terminal Excluding that non-cash impairment, the first quarter adjusted net income was $57 million, up $15 million, or 36%, over Q1 2021's net income of $42 million. As I mentioned a few minutes ago, our adjusted EBITDA for the quarter was up 7% when compared to the first quarter of 2021. We also generated $91 million of DCF during the quarter, which is 13% higher than our first quarter of 2021 DCF of $81 million. Our distribution coverage ratio to the common limited partners was 2.06 times. I'm happy to say we reduced our interest expense by $5 million for the quarter compared to the first quarter of last year as a result of the progress we've made in lowering our debt balances. And we've also continued to make substantial progress, as promised, in lowering our debt to EBITDA ratio. We ended the quarter with a debt to EBITDA ratio of 3.92 times, which is down substantially when compared to the 4.39 times at the end of the first quarter last year and also down from the 3.99 times at the end of the fourth quarter. At quarter end, we had $889 million available on our $1 billion unsecured revolving credit facility. For the full year 2022, we expect to generate adjusted EBITDA in the range of $700 to $750 million, the midpoint of which is 7% higher than our 2021 results when adjusted for the sale of the eastern U.S. and point to upper terminals. Before I wrap up and move into Q&A, I want to say that our hearts go out to the Ukrainian people, and we here at New Star are praying for peace. The consequences of the Russian invasion in late February of 2022 for the Ukraine have been tragic. The consequences for Western Europe and other parts of the world continue to unfold, but offer a stark reminder of the importance of not only energy itself, but also the critical importance of U.S. energy independence. The U.S. now exports more energy than we import, and that is thanks to the U.S. shale production. The world's population is growing and the demand for energy is increasing as well. The fact is the most energy dense, affordable, and reliable fuels, the fuels that we depend upon to power our homes in severe winter weather, helicopter our loved ones to the hospitals in emergencies, build our roads, keep our food supply safe and affordable are fossil fuels. Aside from nuclear energy, there is simply no other energy source that can supply anywhere near the amount of energy the world needs now much less the additional amount of energy needed to lift the citizens of underdeveloped countries up to the level of energy security we sometimes take for granted. That isn't politics, that's just physics. Balancing the different and sometimes competing aspects of sustainability, including energy poverty, environment, and energy security here in the U.S. and around the globe is and will continue to be complicated. One thing is clear, the world will continue to require fossil fuels to supply the majority of its growing energy needs now and for many decades to come. I'm proud of the part that New Star plays in our nation's energy independence and security and the important work our employees do every day in supplying the energy that powers and protects our lives. I'm proud that we do that work safely, responsibly, and sustainably. And with that, I'll open up the call to Q&A.

As a reminder, if you have a question, please press the star and then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. First question is from the line of Theresa Chan from Barclays. Your line is now open.