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Publicly traded energy master limited partnership NuStar Energy L.P. (NS - Analyst Report) entered into a deal with North American specialty hydrocarbons producer Calumet Specialty Products Partners LP (CLMT - Snapshot Report) to sell its San Antonio refinery and associated terminal in Elmendorf, Texas. Indianapolis-based Calumet will pay $100 million for the purchase along with $15 million for the inventory.

Per the deal, NuStar will sell the refinery, a terminal in Elmendorf and a 12-mile pipeline that links the refinery to the terminal. Along with these, Calumet will also acquire operating and logistics assets and inventories of NuStar Refining LLC and NuStar Logistics LP.

The San Antonio refinery was purchased by NuStar in April 2011, and has a capacity of 14,500 barrels per day of crude oil. Jet fuels, ultra-low sulfur diesel, naphtha, reformates, liquefied petroleum gas, specialty solvents are also produced at the complex.

NuStar will use the proceeds of this transaction to promote its fee-based pipeline and storage operations. The deal is expected to close on January 2, 2013.

Over the last few years, NuStar consolidated its business through a combination of organic efforts and accretive acquisitions. We believe the higher operating expenses associated with this expanded asset base may lead to reduced returns going forward.

Acquisitions have historically played a major role in the partnership’s growth profile and are expected to remain significant in the future. NuStar may find it difficult to complete accretive transactions moving forward, which could restrict its growth rate.

NuStar – which was spun off from the U.S. refiner Valero Energy Corp. (VLO - Analyst Report) in 2006 – currently retains a Zacks #5 Rank (short-term Strong Sell rating). We are also maintaining our long-term Underperform recommendation on the unit.
 

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