NuStar Beats, Raises Distribution

NuStar Energy L.P. (NS - Snapshot Report), a master limited partnership (MLP), announced better-than-expected third quarter results on the strength of its fee-based storage and transportation segments. The partnership reported earnings per unit (EPU) of $1.03, 5 cents above the Zacks Consensus Estimate.

However, on a year-over-year basis, NuStar’s earnings per unit plunged more than 60%, while revenue was down 31.5% to $1.3 billion. The negative comparison from the year-ago quarter was due to lower earnings from asphalt operations, hurt by a weaker product margin per barrel.

Distribution Raised

Importantly, NuStar declared a quarterly distribution of $1.065 per unit ($4.26 per unit annualized), representing an approximately 1% increase over the second quarter of 2009 and the third quarter of 2008. The distribution will be paid on November 12, 2009 to unitholders of record on November 5, 2009. Distributable cash flow (DCF) available to limited partners for the third quarter was $61.5 million or $1.13 per unit, compared to $156.4 million or $2.87 per unit in the year-earlier quarter.

Transportation Segment

Quarterly throughput volumes in the Transportation segment were down roughly 17.9% year-over-year to 862,912 barrels per day. The decline can be primarily attributed to the sale of low-performance pipeline assets as well as planned turnarounds and unplanned operational outages at several of its customers’ refineries.

Segmental revenue was down 3.9% to $78.0 million. Despite the lower volumes and revenue, NuStar had higher operating income in this segment, which increased 22.3% to $35.4 million, reflecting tariff rise (7.6% increase effective July 1, 2009) and lower operating expenses for the quarter.

Storage Segment

Throughput volumes in the Storage segment remained almost flat year-over-year at 708,281 barrels per day. However, revenue increased approximately 8.2% to $125.2 million, driven by a 13.1% increase in the storage lease revenue. Quarterly operating income reached $44.0 million (45.9% year-over-year increase) due to the completion of expansion projects and lease contract renewals at higher rates, more than offsetting the lower throughput volumes.

Asphalt and Fuels Marketing

As a result of soft demand (the derivative of a sluggish economy) and significantly lower asphalt margins (down 69.4% year-over-year), the Asphalt and Fuels Marketing division operating income dropped to $28.1 million (from $137.6 million in the year-earlier quarter).

Fourth Quarter Guidance

Looking ahead to the fourth quarter, NuStar guided towards strong results for its fee-based storage and transportation segments. The Transportation segment is likely to benefit from higher throughputs on the back of lighter refinery maintenance schedule, while higher renewal rates and previously completed projects should bode well for the Storage segment.

In its asphalt operations, NuStar expects fourth quarter earnings to follow the typical seasonal pattern of decline, as sales and margins peter out. According to the partnership, EBITDA during the December quarter is likely to be in the range of $80 to $100 million.

Operating expenses are expected to be around $135 million, G&A expenses in the range of $24 to $25 million, DD&A expenses in the $37 to $38 million range, interest expense of $18 to $19 million and income tax expense in the range of $4 to $5 million.