NuStar to Raise Fresh Capital

San Antonio-based publicly traded partnership NuStar Energy L.P. (NS - Analyst Report) has commenced a public offering of 5,250,000 common units representing limited partner interests.

The transportation and storage master limited partnership (MLP) also intends to provide the underwriters with a 30-day option to purchase up to 787,500 additional common units to cover over-allotments, if any. NuStar plans to use the net proceeds from this offering to pay back the outstanding debt under its revolving credit facility.

NuStar Energy – which competes in the ‘Oil and Gas Production Pipeline’ industry with firms like Tesoro Logistics L.P. (TLLP - Snapshot Report), Enbridge Energy Management LLC (EEQ - Snapshot Report), etc. – has a Zacks #3 Rank (Hold rating) for the short run. We are also maintaining our long-term Neutral recommendation on the units.

NuStar engages in the transportation and storage of crude oil as well as refined products in the U.S., the Netherlands Antilles, Canada, Mexico and the U.K.

NuStar owns a high-quality, large and diverse asset portfolio with operations in eight different countries. It is the fourth largest independent liquids terminal operator in the world and second largest in the U.S., apart from being the number one asphalt producer on the East Coast and number three asphalt producer in the U.S.

Over the last few years, the partnership has consolidated its business through a combination of organic efforts and accretive acquisitions. Other positive attributes in the NuStar story are its strong balance sheet, investment grade rating and strong track record for distribution growth. 

However, we remain concerned of the slowdown in demand growth for refined products (which adversely affects pipeline and terminal throughput), as well as cost overruns on expansion projects (that leads to lower returns) and higher business risk associated with NuStar’s more volatile asphalt operations.

As a result, our long-term total return expectation for NuStar remains rather muted. We do not see any significant price upside for the units over the next few quarters and expect the partnership to grow at a somewhat more conservative and sustainable pace.

Read the full analyst report on NS

Read the full analyst report on TLLP

Read the full analyst report on EEQ