Unless otherwise indicated, the terms "NuStar Energy," "NS," "the Partnership,"
"we," "our" and "us" are used in this report to refer to NuStar Energy L.P., to
one or more of our consolidated subsidiaries or to all of them taken as a whole.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
In this Form 10-Q, we make certain forward-looking statements, such as
statements regarding our plans, strategies, objectives, expectations, estimates,
predictions, projections, assumptions, intentions, resources and the future
impact of the coronavirus, or COVID-19, the responses thereto, economic activity
and the actions by oil producing nations on our business. While these
forward-looking statements, and any assumptions upon which they are based, are
made in good faith and reflect our current judgment regarding the direction of
our business, actual results will almost always vary, sometimes materially, from
any estimates, predictions, projections, assumptions or other future performance
suggested in this report. These forward-looking statements can generally be
identified by the words "anticipates," "believes," "expects," "plans,"
"intends," "estimates," "forecasts," "budgets," "projects," "will," "could,"
"should," "may" and similar expressions. These statements reflect our current
views with regard to future events and are subject to various risks,
uncertainties and assumptions, which may cause actual results to differ
materially. Please read Item 1A. "Risk Factors" contained in our Annual Report
on Form 10-K for the year ended December 31, 2020, our Quarterly Reports on Form
10-Q for the quarters ended March 31, 2021 and June 30, 2021 and this Quarterly
Report on Form 10-Q, as well as additional information provided from time to
time in our subsequent filings with the Securities and Exchange Commission, for
a discussion of certain of those risks, uncertainties and assumptions.
If one or more of these risks or uncertainties materialize, or if the underlying
assumptions prove incorrect, our actual results may vary materially from those
described in any forward-looking statement. Other unknown or unpredictable
factors could also have material adverse effects on our future results. Readers
are cautioned not to place undue reliance on this forward-looking information,
which is as of the date of this Form 10-Q. We do not intend to update these
statements unless we are required by the securities laws to do so, and we
undertake no obligation to publicly release the result of any revisions to any
such forward-looking statements that may be made to reflect events or
circumstances after the date of this report or to reflect the occurrence of
unanticipated events.
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations is presented in five sections:
•Overview, including Trends and Outlook
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Policies
•New Accounting Pronouncements
OVERVIEW
NuStar Energy L.P. (NYSE: NS) is primarily engaged in the transportation,
terminalling and storage of petroleum products and renewable fuels and the
transportation of anhydrous ammonia. Our business is managed under the direction
of the board of directors of NuStar GP, LLC, the general partner of our general
partner, Riverwalk Logistics, L.P., both of which are indirectly wholly owned
subsidiaries of ours.
Our operations consist of three reportable business segments: pipeline, storage
and fuels marketing. As of September 30, 2021, our assets included 9,930 miles
of pipeline and 73 terminal and storage facilities, which provided approximately
72 million barrels of storage capacity. As described below, on October 8, 2021
we completed the sale of nine terminal and storage facilities with an aggregate
storage capacity of 14.8 million barrels. We conduct our operations through our
subsidiaries, primarily NuStar Logistics, L.P. (NuStar Logistics) and NuStar
Pipeline Operating Partnership L.P. (NuPOP). We generate revenue primarily from:
•tariffs for transportation through our pipelines;
•fees for the use of our terminal and storage facilities and related ancillary
services; and
•sales of petroleum products.
The following factors affect the results of our operations:
•economic factors and price volatility;
•industry factors, such as changes in the prices of petroleum products that
affect demand, or regulatory changes that could increase costs or impose
restrictions on operations;
•factors that affect our customers and the markets they serve, such as
utilization rates and maintenance turnaround schedules of our refining company
customers and drilling activity by our crude oil production customers;
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•company-specific factors, such as facility integrity issues, maintenance
requirements and outages that impact the throughput rates of our assets; and
•seasonal factors that affect the demand for products transported by and/or
stored in our assets and the demand for products we sell.
Recent Developments
Eastern U.S. Terminals Disposition. On October 8, 2021, we completed the sale of
nine U.S. terminal and storage facilities, including all our North East
Terminals and one terminal in Florida (the Eastern U.S. Terminal Operations) to
Sunoco LP for $250.0 million in cash (the Eastern U.S. Terminals Disposition).
The terminals have an aggregate storage capacity of 14.8 million barrels and are
included in the storage segment. We recorded a non-cash asset impairment loss of
$95.7 million and a non-cash goodwill impairment loss of $34.1 million in the
third quarter of 2021, which are reported in "Asset impairment losses" and
"Goodwill impairment losses," respectively, on the condensed consolidated
statements of comprehensive loss for the three and nine months ended September
30, 2021. Please refer to Note 3 of the Condensed Notes to Consolidated
Financial Statements in Item 1. "Financial Statements" for additional
information.
Houston Pipeline Impairment. In the third quarter of 2021, we recorded a
non-cash asset impairment charge of $59.2 million within our pipeline segment
related to our refined product pipeline extending from Mt. Belvieu, Texas to
Corpus Christi, Texas (the Houston Pipeline). During the third quarter of 2021,
we determined that the southern section of the Houston Pipeline requires
significant repairs in order to pursue commercial opportunities. Please refer to
Note 3 of the Condensed Notes to Consolidated Financial Statements in Item 1.
"Financial Statements" for additional information.
COVID-19. The coronavirus, or COVID-19, had a severe negative impact on global
economic activity during 2020, which significantly reduced demand for petroleum
products and increased the volatility of crude oil prices, beginning in March
2020. While a number of countries, including the United States, have made
significant progress in 2021 in deploying COVID-19 vaccines, which has improved
economic conditions and outlook in those nations, many more continue to struggle
to obtain and/or disseminate vaccinations to their populace, which is
frustrating widespread global economic recovery. Even in the United States, if a
sufficient proportion of people are not vaccinated to reach herd immunity, or as
variants emerge, we may face additional resurgence in COVID-19 case count in
some regions, as we experienced in late summer, which could slow the pace of
domestic economic improvement and undermine rebounding demand in the markets our
assets serve. We continue to closely monitor each of our locations across North
America to ensure the safety of our employees as well as the operational
functionality of each location.
Senior Notes. On November 1, 2021, we used proceeds from the Eastern U.S.
Terminals Disposition to repay our $250.0 million of 4.75% senior notes due
February 1, 2022. On February 1, 2021, we repaid our $300.0 million of 6.75%
senior notes at maturity with borrowings under our revolving credit agreement.
Term Loan Credit Agreement. On February 16, 2021, we terminated an unsecured
term loan credit agreement with certain lenders and Oaktree Fund Administration,
LLC, as administrative agent for the lenders (the Term Loan). Please refer to
Note 5 of the Condensed Notes to Consolidated Financial Statements in Item 1.
"Financial Statements" for further discussion.
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Trends and Outlook
As America continues to recover from the impact of COVID-19 and returns to
normal activity and growth, we continue to see signs of stabilization and
improvement, across the U.S. and in NuStar's footprint. U.S. refined product
demand outlook has improved as COVID-19 vaccinations have continued to allow
more and more Americans to return to normal day-to-day activities and to begin
traveling. However, the "Delta" variant increased, and other variants may
increase, COVID-19 case counts significantly, which may further impact the
overall demand recovery in 2021.
Refined product demand on NuStar's pipeline systems averaged 105% of
pre-pandemic demand for the second and third quarters of 2021. We continue to
expect our refined products pipeline systems to perform at or above 100% of our
pre-pandemic levels for the remainder of this year. Steady recovery in refined
product demand has increased U.S. refiners' demand for crude oil, which has
contributed to increased throughputs on certain of our crude oil pipelines.
Rebounding crude demand in the U. S. and abroad, has, in turn, contributed to
higher global crude prices, which has in turn improved demand for U.S. shale
production, particularly in the Permian Basin. We believe the Permian Basin, and
our system in particular, has geological advantages over other shale plays,
including lower production costs and higher product quality, that have benefited
and will continue to benefit our assets in 2021 as crude demand, price and
production continue to recover. Sustained healthy U.S. shale production growth,
combined with improving global demand, should drive U.S. export growth over
time, which should be positive for crude volumes on our Corpus Christi Crude
System, as well as for our St. James terminal. In addition, we continue to
expect to benefit from the growth of our renewable fuels distribution system on
the West Coast. We expect to provide an increasing share of California's
renewable fuels as we complete our planned tank conversion projects.
The COVID-19 pandemic continues to have lingering impacts, that when combined
with other factors, can ripple through the U.S. economy, including rising
inflation rates thus far in 2021 and supply chain issues affecting certain
industries and geographic areas to varying degrees. However, we plan to continue
to manage our operations with fiscal discipline in this turbulent environment.
Upon closing of the Eastern U.S. Terminal Disposition, we used the proceeds to
further lower our leverage. For the full-year 2021, we expect reliability and
strategic capital expenditures to be comparable to 2020. We expect to fund all
of our expenses, distribution requirements and capital expenditures for the
full-year 2021 using internally generated cash flows.
Our outlook for the partnership, both overall and for any of our segments, may
change, as we base our expectations on our continuing evaluation of several
factors, many of which are outside our control. These factors include, but are
not limited to, uncertainty surrounding the COVID-19 pandemic, including its
duration and lingering impacts to the economy; uncertainty surrounding future
production decisions by the Organization of Petroleum Exporting Countries and
other oil-producing nations (OPEC+); the state of the economy and the capital
markets; changes to our customers' refinery maintenance schedules and unplanned
refinery downtime; crude oil prices; the supply of and demand for petroleum
products, renewable fuels and anhydrous ammonia; demand for our transportation
and storage services; the availability of personnel, equipment and services
essential to our operations; the ability to obtain timely permitting approvals;
and changes in laws and regulations affecting our operations. Please read Item
1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December
31, 2020 and our Quarterly Reports on Form 10-Q for additional discussion on how
these factors could affect our operations.
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