Market Overview

NuStar Energy L.P. Announces 12% Increase in Second Quarter 2018 Net Income

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Second Quarter 2018 Distributable Cash Flow Increases 36%

Permian Crude System Throughput Volumes Exit July at Over 300,000
Barrels Per Day

$600 Million Equity Financing and Merger of General Partner Completed

For the second quarter of 2018, NuStar Energy L.P. (NYSE:NS) reported
net income applicable to common limited partners of $13.7 million, or
$0.15 per unit, up $9.3 million from $4.4 million in the second quarter
2017, while earnings before interest, taxes, depreciation and
amortization (EBITDA) were $157.1 million, up 11% from $141.1 million
for the second quarter 2017.

Distributable Cash Flow (DCF) available to common limited partners was
$82.1 million for the second quarter of 2018, up $21.8 million or 36%
compared to $60.3 million in the second quarter of 2017. The
distribution coverage ratio to the common limited partners for the
second quarter of 2018 was 1.28 times, and 1.45 times for the six months
ended June 30, 2018.

"Our Permian Crude System continues to grow and perform and was the
primary contributor to a strong second quarter for NuStar. During the
second quarter of 2018, the Permian Crude System averaged pipeline
receipts of over 266,000 barrels per day (BPD) and exited July at over
300,000 BPD. Since our acquisition of the Permian Crude System in May of
2017 volumes are up 140%, significantly higher than the overall growth
in the Permian basin of 46% during the same period. Based on our
producers' expectations, we expect our Permian Crude System to continue
to drive our partnership's growth and exit 2018 between approximately
360,000 and 380,000 BPD," said Brad Barron, President and Chief
Executive Officer of NuStar Energy L.P.

Completed Merger with General Partner

"On July 20, 2018, we completed the merger with our general partner. By
simplifying our corporate structure and eliminating the incentive
distribution rights, we immediately lowered our cost of capital, which
will allow us to build on the strength of our superior asset base with
less dependence on the capital markets," said Barron. "We also created a
more efficient and transparent structure, which was a key component of
our comprehensive plan to position NuStar for long-term financial
strength and allow us to successfully de-lever and deliver strong,
sustainable distribution coverage in the future."

Completed $600 million of Equity Financing

"In two separate closings, one in late June and the second in early
July, we closed on the private placement of $590 million of Series D
cumulative convertible preferred units. In late June, we also closed on
the issuance of $10 million of common units to Bill Greehey, our
chairman. We used the net proceeds from these transactions to pay down
borrowings under our revolver, which allowed us to significantly improve
our leverage metrics," said Barron.

Conference Call Details

A conference call with management is scheduled for 10:00 a.m. CT today,
August 7, 2018, to discuss the financial and operational results for the
second quarter of 2018. The conference call may be accessed by dialing
toll-free 844/889-7787, reservation passcode 6187415. International
callers may access the conference call by dialing 661/378-9931,
reservation passcode 6187415. The Partnership intends to have a playback
available following the conference call, which may be accessed by
dialing toll-free 855/859-2056, reservation passcode 6187415.
International callers may access the playback by dialing 404/537-3406,
reservation passcode 6187415. The playback will be available until 1:00
p.m. CT on September 6, 2018.

Investors interested in listening to the live presentation or a replay
via the internet may access the presentation directly at https://edge.media-server.com/m6/p/rtc4vkz9
or by logging on to NuStar Energy L.P.'s website at www.nustarenergy.com.

The discussion will disclose certain non-GAAP financial measures.
Reconciliations of certain of these non-GAAP financial measures to U.S.
GAAP may be found in this press release, with additional reconciliations
located on the Financials page of the Investors section of NuStar Energy
L.P.'s website at www.nustarenergy.com.

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 more than 9,700
miles of pipeline and 82 terminal and storage facilities that store and
distribute crude oil, refined products and specialty liquids. The
partnership's combined system has more than 97 million barrels of
storage capacity, and NuStar has operations in the United States,
Canada, Mexico, the Netherlands, including St. Eustatius in the
Caribbean, and the United Kingdom. For more information, visit NuStar
Energy L.P.'s website at www.nustarenergy.com.

This release serves as qualified notice to nominees under Treasury
Regulation Sections 1.1446-4(b)(4) and (d). Please note that 100% of
NuStar Energy L.P.'s distributions to foreign investors are attributable
to income that is effectively connected with a United States trade or
business. Accordingly, all of NuStar Energy L.P.'s distributions to
foreign investors are subject to federal income tax withholding at the
highest effective tax rate for individuals and corporations, as
applicable. Nominees, and not NuStar Energy L.P., are treated as the
withholding agents responsible for withholding on the distributions
received by them on behalf of foreign investors.

Cautionary Statement Regarding Forward-Looking Statements

This press release includes, and the related conference call will
include, forward-looking statements regarding future events, such as the
partnership's future performance. All forward-looking statements are
based on the partnership's beliefs as well as assumptions made by and
information currently available to the partnership. These statements
reflect the partnership's current views with respect to future events
and are subject to various risks, uncertainties and assumptions. These
risks, uncertainties and assumptions are discussed in NuStar Energy
L.P.'s 2017 annual report on Form 10-K and subsequent filings with the
Securities and Exchange Commission. Actual results may differ materially
from those described in the forward-looking statements.

   

NuStar Energy L.P. and Subsidiaries

Consolidated Financial Information

(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)

 

Three Months
Ended June 30,

Six Months Ended
June 30,

2018   2017 2018   2017
Statement of Income Data:
Revenues:
Service revenues $ 302,131 $ 283,700 $ 593,544 $ 550,162
Product sales 184,073   151,788   368,541   372,756  
Total revenues 486,204   435,488   962,085   922,918  
Costs and expenses:
Costs associated with service revenues:
Operating expenses (excluding depreciation and amortization expense) 131,672 116,400 240,556 217,426
Depreciation and amortization expense 73,613   65,402   143,510   120,073  
Total costs associated with service revenues 205,285 181,802 384,066 337,499
Cost of product sales 170,849 144,479 347,577 352,285
General and administrative expenses 27,981 33,604 47,755 58,199
Other depreciation and amortization expense 2,251   2,199   4,369   4,392  
Total costs and expenses 406,366   362,084   783,767   752,375  
Operating income 79,838 73,404 178,318 170,543
Interest expense, net (48,936 ) (45,612 ) (96,708 ) (82,026 )
Other income, net 1,412   88   81,164   228  
Income before income tax expense 32,314 27,880 162,774 88,745
Income tax expense 2,915   1,630   7,242   4,555  
Net income $ 29,399   $ 26,250   $ 155,532   $ 84,190  
 
Net income applicable to common limited partners $ 13,705 $ 4,364 $ 121,200 $ 42,816
Basic net income per common unit $ 0.15 $ 0.05 $ 1.30 $ 0.51
Basic weighted-average common units outstanding 93,192,238 90,345,469 93,187,038 84,526,506
 
Other Data (Note 1):
EBITDA $ 157,114 $ 141,093 $ 407,361 $ 295,236
DCF available to common limited partners $ 82,057 $ 60,267 $ 173,789 $ 149,209
                                                    June 30,               December 31,
2018                 2017   2017
Balance Sheet Data:
Total debt $ 3,443,366 $ 3,521,939 $ 3,648,059
Partners' equity and series D preferred units $ 2,827,188 $ 2,501,049 $ 2,480,089
   

NuStar Energy L.P. and Subsidiaries

Consolidated Financial Information - Continued

(Unaudited, Thousands of Dollars, Except Barrel Data)

 

Three Months Ended
June 30,

Six Months Ended
June 30,

2018   2017 2018   2017
Pipeline:
Refined products pipelines throughput (barrels/day) 565,740 531,529 548,910 522,820
Crude oil pipelines throughput (barrels/day): 839,574   558,182   815,568   483,909  
Total throughput (barrels/day) 1,405,314 1,089,711 1,364,478 1,006,729
Throughput and other revenues $ 150,276 $ 126,740 $ 287,066 $ 247,980
Operating expenses 48,706 40,197 91,047 73,271
Depreciation and amortization expense 38,591   33,675   75,246   56,813  
Segment operating income $ 62,979   $ 52,868   $ 120,773   $ 117,896  
Storage:
Throughput (barrels/day) 331,917 337,518 337,892 326,327
Throughput terminal revenues $ 20,141 $ 22,122 $ 40,157 $ 42,812
Storage terminal revenues 137,309   136,437   272,621   263,178  
Total revenues 157,450 158,559 312,778 305,990
Operating expenses 78,244 70,783 144,069 132,922
Depreciation and amortization expense 35,022   31,727   68,264   63,260  
Segment operating income $ 44,184   $ 56,049   $ 100,445   $ 109,808  
Fuels Marketing:
Product sales and other revenue $ 180,483 $ 153,918 $ 366,321 $ 376,620
Cost of product sales 172,724   147,013   351,401   357,612  
Gross margin 7,759 6,905 14,920 19,008
Operating expenses 4,855   6,616   5,696   13,579  
Segment operating income $ 2,904   $ 289   $ 9,224   $ 5,429  
Consolidation and Intersegment Eliminations:
Revenues $ (2,005 ) $ (3,729 ) $ (4,080 ) $ (7,672 )
Cost of product sales (1,875 ) (2,534 ) (3,824 ) (5,327 )
Operating expenses (133 ) (1,196 ) (256 ) (2,346 )
Total $ 3   $ 1   $   $ 1  
Consolidated Information:
Revenues $ 486,204 $ 435,488 $ 962,085 $ 922,918
Costs associated with service revenues:
Operating expenses 131,672 116,400 240,556 217,426
Depreciation and amortization expense 73,613   65,402   143,510   120,073  

Total costs associated with service revenues

205,285 181,802 384,066 337,499
Cost of product sales 170,849   144,479   347,577   352,285  
Segment operating income 110,070 109,207 230,442 233,134
General and administrative expenses 27,981 33,604 47,755 58,199
Other depreciation and amortization expense 2,251   2,199   4,369   4,392  
Consolidated operating income $ 79,838   $ 73,404   $ 178,318   $ 170,543  
 

NuStar Energy L.P. and Subsidiaries

Consolidated Financial Information - Continued

(Unaudited, Thousands of Dollars, Except Ratio Data)

 

Note 1: NuStar Energy L.P. utilizes financial measures, such as
earnings before interest, taxes, depreciation and amortization (EBITDA),
distributable cash flow (DCF) and distribution coverage ratio, which are
not defined in U.S. generally accepted accounting principles (GAAP).
Management believes these financial measures provide useful information
to investors and other external users of our financial information
because (i) they provide additional information about the operating
performance of the partnership's assets and the cash the business is
generating, (ii) investors and other external users of our financial
statements benefit from having access to the same financial measures
being utilized by management and our board of directors when making
financial, operational, compensation and planning decisions and (iii)
they highlight the impact of significant transactions.

Our board of directors and management use EBITDA and/or DCF when
assessing the following: (i) the performance of our assets, (ii) the
viability of potential projects, (iii) our ability to fund
distributions, (iv) our ability to fund capital expenditures and (v) our
ability to service debt. In addition, our board of directors uses a
distribution coverage ratio, which is calculated based on DCF, as one of
the factors in its compensation determinations. DCF is a widely accepted
financial indicator used by the master limited partnership (MLP)
investment community to compare partnership performance. DCF is used by
the MLP investment community, in part, because the value of a
partnership unit is partially based on its yield, and its yield is based
on the cash distributions a partnership can pay its unitholders.

None of these financial measures are presented as an alternative to net
income. They should not be considered in isolation or as substitutes for
a measure of performance prepared in accordance with GAAP. The following
is a reconciliation of EBITDA, DCF and distribution coverage ratio:

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

2018   2017 2018   2017
Net income $ 29,399 $ 26,250 $ 155,532 $ 84,190
Interest expense, net 48,936 45,612 96,708 82,026
Income tax expense 2,915 1,630 7,242 4,555
Depreciation and amortization expense 75,864   67,601   147,879   124,465  
EBITDA 157,114 141,093 407,361 295,236
Interest expense, net (48,936 ) (45,612 ) (96,708 ) (82,026 )
Reliability capital expenditures (21,913 ) (10,380 ) (41,795 ) (15,402 )
Income tax expense (2,915 ) (1,630 ) (7,242 ) (4,555 )
Mark-to-market impact of hedge transactions (a) (437 ) (563 ) (231 ) (3,149 )
Unit-based compensation (b) 1,783 1,618 3,120 3,706
Preferred unit distributions (16,245 ) (9,950 ) (32,235 ) (14,763 )
Insurance gain adjustment (c) 10,609 (55,753 )
Other items 2,997   (1,095 ) (1,587 ) (1,369 )
DCF $ 82,057 $ 73,481 $ 174,930 $ 177,678
Less DCF available to general partner   13,214   1,141   28,469  
DCF available to common limited partners $ 82,057   $ 60,267   $ 173,789   $ 149,209  
 
Distributions applicable to common limited partners $ 64,205 $ 101,869 $ 120,121 $ 203,782
Distribution coverage ratio (d) 1.28x 0.59x 1.45x 0.73x
(a) DCF excludes the impact of unrealized mark-to-market gains and
losses that arise from valuing certain derivative contracts, as well
as the associated hedged inventory. The gain or loss associated with
these contracts is realized in DCF when the contracts are settled.
(b) We intend to satisfy the vestings of equity-based awards with the
issuance of our common units. As such, the expenses related to these
awards are considered non-cash and added back to DCF. Certain awards
include distribution equivalent rights (DERs). Payments made in
connection with DERs are deducted from DCF.
(c) For the second quarter of 2018, DCF includes an adjustment for
reliability capital expenditures incurred for hurricane repairs at
our St. Eustatius terminal that were offset by insurance proceeds
received in the first quarter.
(d) Distribution coverage ratio is calculated by dividing DCF available
to common limited partners by distributions applicable to common
limited partners.

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