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spk07: Good day and thank you for standing by. Welcome to the New Star Energy LP first quarter 2023 earnings conference call. At this time, all participants are on a 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Pam Schmidt, Vice President of Investor Relations. Please go ahead.
spk02: Good morning, and welcome to today's call. On the call today are New Star Energy LP's Chairman and CEO, Brad Barron, and our Executive Vice President and CFO, Tom Schoaf, 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, 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 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 investor section of our website at newstartenergy.com. With that, I will turn the call over to Brad.
spk06: Good morning. Thank you all for joining us today. I'm excited to tell you about our great first quarter as well as our positive outlook for the rest of 2023. Let's get started with a few highlights from our strong first quarter 23 results. We generated 187 million total adjusted EBITDA in the first quarter of 23. which is 8% higher than adjusted EBITDA in the first quarter of 2022. Our pipeline segment EBITDA was up in the first quarter of 23 by 16% over the same period in 2022. Our refined product systems and our ammonia system continue to deliver solid, dependable revenue contributions in the first quarter of 23, with throughput up 6% over the first quarter of 22, reflecting the strength of these assets and our position in the markets we serve in the mid-continent and throughout Texas. Our Central West Pipeline systems, particularly our McKee system, performed well last quarter with higher revenues and throughputs versus the same period last year. Additionally, our Permian crude systems volumes averaged 543,000 barrels per day, which is up 6% over the same quarter last year. In South Texas, we're pleased that our Corpus Christi crude system throughputs averaged 369,000 barrels per day in the first quarter, which is above our MVCs for that system, and 8% higher than our first quarter 2022 volumes. After a near record-breaking 2022, our fuels marketing segment kicked off 2023 with a strong first quarter, generating $7 million of EBITDA, comparable to the segment's strong first quarter 2022 results. With that, a few observations about the rest of 2023 before I turn it over to Tom. First, looking at the Permian, as we mentioned on our previous call, we've seen some lumpiness in some of our producer schedules so far this year. We expect volumes to pick up as those producers ramp up activity, but depending on how quickly they're able to do so, we could see our 2023 exit rate slightly lower than we forecasted. We're in a range of 570 up to our original forecast of just under 600,000 barrels per day. There's still a lot of the year left, but fortunately, as we frequently emphasize, given the fact our systems capex scales up and down with our producers' needs, we would expect that if our exit rate varies, we would also see a commensurate change in our capex. which should counterbalance any potential reduction in volumes. Looking at the full year of 23 for our business as a whole, even though the high inflation and volatility that distinguished 22 have persisted so far this year, Neustar continues to expect to generate total adjusted EBITDA of $700 to $760 million. As we had mentioned in prior calls, we proactively mitigated some of the impact of inflation in 23 through the expense optimization initiative we kicked off in early 2022. New Star's results will also benefit from provisions of our pipeline tariffs and contracts that provide for annual rate escalations linked to the preceding year's PPI or the FERCS index. This year, we expect to once again self-fund all of our cash requirements, including all of our growth capital spending and our distributions, and we also expect to finish the year with a healthy debt to EBITDA metric well below four times. And with that, I'll turn the call over to Tom.
spk05: Thanks, Brad, and good morning, everyone. As Brad mentioned, our first quarter adjusted EBITDA was up 14 million, or 8% over the first quarter of 22. Our first quarter 23 adjusted DCF was 101 million, up 11% over first quarter 2022, and our adjusted distribution coverage ratio was 2.27 times. Now turning to our segments, in the first quarter 23, our pipeline segment generated 163 million of EBITDA, of $23 million, or 16% over first quarter 22 EBITDA, of $141 million, thanks in a large part to our McKee system pipelines and Permian crude system, but also from robust increases in EBITDA and throughputs across most of our pipeline systems. Turning next to our storage segment, our EBITDA for first quarter 23 was $41 million, which is about $8 million lower than the first quarter of 22 adjusted EBITDA. That decrease was mostly due to customer transitions and required tank maintenance at our St. James Terminal that we mentioned last quarter, as well as an amendment and extension of a customer contract at our Corpus Christi North Beach Terminal. Our West Coast region delivered another strong quarter, driven in large part by our West Coast Renewable Strategy, with revenues up about 33% over first quarter 22. And for our fuels marketing segment, EBITDA was $7 million, comparable to the first quarter, 22, driven by strong butane blending and bunker margins in both periods. I'm also pleased to report on our continued progress in reducing our debt and building our financial strength and flexibility. In March, we entered into a structured finance arrangement to monetize a portion of our real estate at our corporate headquarters, which provided approximately $100 million of lower-priced financing. By doing so, we were able to deploy the proceeds to reduce debt, which facilitates our redemption of another portion of the Series D units later this year. Thanks to that transaction, along with a strong first quarter EBITDA, we ended first quarter 23 with a debt-to-EBITDA ratio of 3.46 times. That's the lowest it's been since 2005. And as we have mentioned in prior calls, we are planning to redeem all of the remaining Series D by the end of 2024, or about two years ahead of the original schedule. At the end of the first quarter of 23, our total debt balance was $3.1 billion and our revolving facility availability was $940 million of the facility's $1 billion capacity. Moving now to our outlook for 2023, as Brad mentioned, For the first year, we continue to expect to generate adjusted EBITDA in the range of $700 to $760 million. We continue to plan to spend $130 to $150 million in strategic capital in 2023. Depending upon the activity of our Permian producers the rest of the year, as Brad discussed, we expect to allocate between $45 and $60 million to growing our Permian system. And we continue to expect to spend around $25 million to expand our West Coast renewable fuels network. Turning to reliability capital, we still expect to spend between $25 and $35 million on reliability in 2023. And even with our planned Series D redemption later this year, we're still on track to finish 2023 with a healthy debt to EBITDA ratio below four times. And now I'll turn the call back over to Brett.
spk06: Thanks, Owen. As you've heard, we had a strong first quarter. EBITDA was up, DCF was up, our pipeline segment was up, and our fuels marketing segment kept pace with its near record-breaking 2022 results. We're on track to deliver another solid year, and we're also excited about what the future holds. Yesterday, we announced a project to connect our ammonia system to OCI's state-of-the-art ammonia product facility in Iowa, supported by a long-term revenue commitment, which we expect to have in service in early 2024. OCIF's facility uses ammonia to make fertilizer and also to produce DEF, which is a product that dramatically reduces emissions from diesel engines in cars, as well as light and heavy-duty trucks, farming equipment, and other heavy machinery. We expect this healthy return, low-capital project will meaningfully increase utilization of our system starting in 2024. And we expect this project to be just the first of several, as we are actively working with several potential customers interested in connection to our ammonia system across our footprint for a variety of different opportunities. As you may know, about 90% of ammonia is used to support agricultural production, and more than half the world's food production is dependent on this key product. Because ammonia is such an important product, there is increasing focus on decarbonizing the process used to make it, either by capturing emissions or by utilizing electrolysis fueled by solar or wind to lower emissions referred to respectively as blue and green ammonia. We're seeing growing interest in lower carbon ammonia from the companies developing production facilities seeking market access, from the companies interested in supply of lower carbon ammonia to make fertilizer, DES, and other important products, and from potential customers who are looking at new uses for lower carbon ammonia, including as a low-cost, safe way to transport hydrogen for fuel. In addition to the greening of ammonia expanding the market domestically, international demand is also driving interest in ammonia export. Our system currently supplies the US's breadbasket in the Midwest primarily with domestically produced ammonia, but growing interest in export capabilities could drive additional utilization of not only our ammonia system, but also potentially our St. James facility, which has dock capacity that could also support ammonia export. This growing interest in ammonia To reduce emissions and supply the globe is generating opportunities for attractive return, low-spend projects that we are confident will increase our system utilization significantly across our footprint over the next several years. I look forward to talking more about these opportunities as we progress, and we look forward to talking to you next quarter. And with that, we'll open it up for Q&A.
spk07: Ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered or you wish to move yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster.
spk00: Our first question comes from Gabriel Maureen with Mizuho. Your line is open.
spk03: Hi, everyone. This is Chris on for Gabe. Just wondering if we could talk about the West Coast market and You know, as we're seeing more participants enter that market, are you starting to see some competition as far as customers looking around for different rates, different contracts, kind of just the outlook in the near term for that?
spk04: Yeah, well, this is Danny Oliver. The outlook there is, you know, the storage is short, I would say, in California. So we have a lot of interest in storage there. We have long-term contracts. Rates are very healthy, but it's been very positive for storage.
spk03: Great. Thanks, Danny. And then maybe switching to the volumes, Corpus Christi seems like those were solid for the second quarter in a row. I'm just kind of wondering, you know, drivers behind what's bringing those volumes back to the system and kind of how they're trending for the year.
spk04: Yeah, it's just continued general growth in the oil field, and those barrels need to be exported, and Corpus continues to be the preferred export area, and so we see those volumes come in through our customers.
spk03: Great. And then maybe just one quick more. Were there any weather impacts, either in refined product usage for the quarter or in the Permian or anything?
spk04: We had a little weather impact in January in the Permian. Nothing on the refined product side. In fact, since the beginning of the year, we've been outpacing, you know, pre-pandemic and every year since the pandemic volumes on our refined product demand.
spk03: Okay, great. Thanks, everyone.
spk04: Thanks, Chris.
spk07: Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your telephone.
spk00: One moment for our next question. Our next question comes from Michael Blum with Wells Fargo. Your line is open.
spk08: Thanks. Good morning, everyone. I wanted to talk about the Permian. So I think volumes are down sequentially about 7%. So I just wanted to, if you could just talk about what's going on there, and then are you still comfortable with the 23 volume target of 600 a day?
spk04: Yeah, so this is Danny again. So I think Brad used the term lumpy. The Permian activity and volumes have always been lumpy. It's been a little more lumpy than usual so far early this year. But it's still the core acreage, and I don't read anything any more than that into it. And I think Brad also mentioned that our exit rates are somewhere between 570 and 600. I think last time we said slightly below 600, so it hadn't changed materially.
spk06: What you may have heard is some of the big producers talked about the lumpiness in production. So as we expect that to work itself out over the course of the year, we expect our volume to ramp up toward the back half of the year.
spk04: Yeah, I was going to mention, we mentioned that last quarter. And again, I think in Brad's comments, we do expect to see activity ramp up in the second half.
spk06: Probably the most important thing to emphasize, and we say this on every call, is that our CAPEX ramps up and down with volumes. And so, however our volumes vary, so does our CAPEX, which is a good offset.
spk08: Okay, thanks for that. And then I just want to ask a little bit about this ammonia pipeline project, which seems pretty interesting and promising. I guess what's the capital spend for that, and how do we think about returns, and is this capital going to be – when is it going to be spent? Thanks.
spk04: Yeah, we haven't given any specifics on capital. It's contract-specific. However, I will tell you that OCI is contributing some of the capital required to make these connections, so our out-of-pocket is less than it would have been.
spk06: Yeah. Any capital for this is already in what we've disclosed as our capex budget.
spk04: Oh, yes.
spk03: Yes, definitely.
spk00: All right. Thank you. Thank you. One moment for our next question.
spk07: Our next question comes from Selma Nicole with Stiefel. Your line is open.
spk01: Thank you. Good morning. Real quick, just a couple follow-ups. As it relates to California, you mentioned storage is short out there, good rates. I'm curious, do you see additional opportunities to deploy capital and build more storage out there?
spk04: We've still got a couple of projects we're completing. We've had a dozen projects that we've completed since 2017 around our biofuel strategies. A lot of that has been done now. I think going forward, what you'll see us be doing in terms of projects are very, very low-cost CapEx. It's just transitioning some carb diesel storage into the renewable diesel storage as the demand dictates.
spk01: Got it. And then just kind of going back over to St. James and ammonia. I presume a lot of that would just be repurposing of assets, or is there anything we should be thinking about ammonia as having to be special handled and requiring any capex for that?
spk04: Yes. Well, on the pipeline side, we're contemplating some – I think Brad mentioned we've got several more projects, I think, that we'll be talking to you about over the next several years, one of which probably we'll announce later this year. The pipeline won't require much work. If it does involve storage at St. James, it would be different storage. It requires a different storage than our crude oil tanks there.
spk01: All right. Thank you very much.
spk07: And I'm not showing any further questions at this time. I'd like to turn the call back over to Pam Schmidt.
spk02: 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 New Star Investor Relations. Thanks again and have a great day.
spk07: Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.
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