NuStar Completes Unit Offering

San Antonio-based pipeline operator and asphalt refiner NuStar Energy L.P. (NS - Analyst Report) announced the closure of its previously announced public offering.

The transportation and storage master limited partnership (MLP) priced the public offering of 6,037,500 common units at $53.45 apiece, including a fully exercised over-allotment option for 787,500 units. NuStar plans to use the proceeds – approximately $311.5 million before expenses – to pay back the outstanding debt under its revolving credit facility.

The partnership – which was spun off from U.S. refiner Valero Energy Corp. (VLO - Analyst Report) in 2006 – 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.