The fortunes of U.S. midstream companies in 2020 and beyond will be largely determined by how shrewdly they invested during the frenzied infrastructure build-out of the past few years. One of the most interesting case studies is San Antonio-based NuStar Energy, a master limited partnership born in 2001 to hold refiner Valero Energy’s midstream assets and spun off as a separate entity in 2007. In May 2017, as the industry was still recovering from the late 2014 plunge in crude oil prices, the MLP made a major play to capture growing Permian production through the ~$1.5 billion acquisition of Navigator Energy, which owned a crude oil gathering, transportation, and terminaling system in the Midland Basin. The purchase was widely panned as overpriced by analysts and investors, and NuStar’s unit price plummeted by 60%. But by 2019, the company’s Permian acquisition — and soaring exports from its Corpus Christi terminal — drove big year-on-year gains in NuStar’s fourth-quarter 2019 operating income and EBITDA. Today, we preview our new Spotlight report on NuStar.
Spotlight is a joint venture of RBN Energy and East Daley Capital Advisors. With the support of Oil & Gas Financial Analytics, Spotlight provides “deep dives” into the fundamentals that shape the outlook for midstream energy companies and is included as part of our Drill Down report series, which is available to RBN Backstage Pass members. Spotlight should not be viewed as investment advice.
We begin our look at NuStar by discussing the company’s structure; then we’ll examine how it became a good-news story. NuStar Energy L.P. is a midsize, publicly traded (NYSE: NS) master limited partnership (MLP) with a market capitalization of $3.0 billion. It derives revenues from tariffs for transporting crude oil, refined products and anhydrous ammonia through its 9,900 miles of pipelines; fees for the use of its 74 terminals and 74 MMbbl of storage capacity and related services; and sales of petroleum products. In 2019, the company generated 65% of its segment operating income, or $332 million, from its Pipeline segment; 30%, or $154 million, from its Storage segment; and 4%, or $21 million, from its Fuels Marketing segment. As shown in Figure 1, Pipeline segment EBITDA (blue bar segments) has been rising since the purchase of the Permian Crude System from Navigator Energy in 2017, and accounted for an estimated 62% of total segment EBITDA in 2019.
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