QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 1-16417
_________________________________________
NuStar Energy L.P.
(Exact name of registrant as specified in its charter)
_________________________________________
Delaware
74-2956831
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
19003 IH-10 West
San Antonio, Texas
(Address of principal executive offices)
78257
(Zip Code)
Registrant’s telephone number, including area code (210) 918-2000
_______________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Units
NS
New York Stock Exchange
8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units
NSprA
New York Stock Exchange
7.625% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units
NSprB
New York Stock Exchange
9.00% Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units
NSprC
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesþ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
þ
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
The number of common units outstanding as of October 31, 2023 was 125,895,543.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization and Operations
NuStar Energy L.P. (NYSE: NS) is aDelaware limited partnership primarily engaged in the transportation, terminalling and storage of petroleum products and renewable fuels and the transportation of anhydrous ammonia. 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. 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.
We conduct our operations through our subsidiaries, primarily NuStar Logistics, L.P. (NuStar Logistics) and NuStar Pipeline Operating Partnership L.P. (NuPOP). We have three business segments: pipeline, storage and fuels marketing.
Recent Developments
Redemptions of Series D Preferred Units. In the second and third quarters of 2023, we redeemed the remaining 16,346,650 Series D Preferred Units, as defined in Note 6, for an aggregate net redemption price of $518.7 million. See Note 6 for additional information on these redemptions.
Issuance of Common Units. On August 11, 2023, we issued 14,950,000 common units representing limited partner interests at a price of $15.35 per unit for net proceeds of approximately $222.0 million. We used these proceeds to repay outstanding borrowings under our Revolving Credit Agreement, as defined in Note 4.
Debt Amendments. On June 30, 2023, we amended our Revolving Credit Agreement, primarily to extend the maturity date from April 27, 2025 to January 27, 2027. On June 29, 2023, we amended our Receivables Financing Agreement, as defined in Note 4, to extend the scheduled termination date from January 31, 2025 to July 1, 2026. See Note 4 for more information.
Basis of Presentation
These unaudited condensed consolidated financial statements include the accounts of the Partnership and subsidiaries in which the Partnership has a controlling interest. Inter-partnership balances and transactions have been eliminated in consolidation.
These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included, and all disclosures are adequate. All such adjustments are of a normal recurring nature unless disclosed otherwise. Operating results for the nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.
2. DISPOSITIONS
Sale-Leaseback Transaction
On March 21, 2023, we sold our corporate headquarters facility and approximately 24 acres of underlying land located in San Antonio, Texas (the Corporate Headquarters) for an aggregate cash sales price of $103.0 million and immediately entered into an operating lease agreement (the Lease Agreement) to lease back the Corporate Headquarters for an initial term of 20 years, with two renewal options of ten years each (the Sale-Leaseback Transaction). Upon closing of the sale in the first quarter of 2023, the Sale-Leaseback Transaction qualified as a completed sale, and we recognized a gain of $41.1 million, which is presented in “Gain on sale of assets” on the condensed consolidated statements of comprehensive income. We entered into the Sale-Leaseback Transaction in order to monetize the Corporate Headquarters and used the proceeds to repay outstanding borrowings on our Revolving Credit Agreement.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Pursuant to the Lease Agreement, rent for the initial term starts at $6.4 million per year and increases annually by 2.5%. At inception of the lease, right-of-use assets and lease liabilities associated with the Sale-Leaseback Transaction assumed a reasonably certain term of 20 years and were included in our consolidated balance sheet as follows (thousands of dollars):
Operating lease right-of-use assets:
Other long-term assets, net
$
82,230
Operating lease liabilities:
Accrued liabilities
$
710
Other long-term liabilities
81,498
Total operating lease liabilities
$
82,208
Following our entrance into the Sale-Leaseback Transaction, the weighted-average discount rate for our operating leases was 6.1%.
Point Tupper Terminal Disposition
On April 29, 2022, we sold the equity interests in our wholly owned subsidiaries that owned our Point Tupper terminal facility in Nova Scotia, Canada (the Point Tupper Terminal Operations) to EverWind Fuels for $60.0 million. The terminal facility had a storage capacity of 7.8 million barrels and was included in the storage segment. We used the sales proceeds to reduce debt and improve our debt metrics.
During the first quarter of 2022, we determined that the Point Tupper Terminal Operations met the criteria to be classified as held for sale. We compared the carrying value of the Point Tupper Terminal Operations, which included $42.2 million in cumulative foreign currency translation losses accumulated since our acquisition of the Point Tupper terminal facility in 2005, to its fair value less costs to sell, and we recognized a pre-tax impairment loss of $46.1 million in the first quarter of 2022, which is presented in “Impairment loss” on the condensed consolidated statements of comprehensive income. We believe that the sales price of $60.0 million provided a reasonable indication of the fair value of the Point Tupper Terminal Operations as it represented an exit price in an orderly transaction between market participants. The sales price was a quoted price for identical assets and liabilities in a market that was not active and, thus, our fair value estimate fell within Level 2 of the fair value hierarchy. Upon closing in the second quarter of 2022, we released $39.6 million of foreign currency translation losses from accumulated other comprehensive loss and finalized our sales price, resulting in a gain of $1.6 million, which was presented in “Other income, net” on the condensed consolidated statement of comprehensive income for the period.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Contract Assets and Contract Liabilities
The following table provides information about contract assets and contract liabilities from contracts with customers:
2023
2022
Contract Assets
Contract Liabilities
Contract Assets
Contract Liabilities
(Thousands of Dollars)
Balances as of January 1:
Current portion
$
2,612
$
(17,647)
$
2,336
$
(15,443)
Noncurrent portion
304
(41,405)
504
(46,027)
Total
2,916
(59,052)
2,840
(61,470)
Activity:
Additions
3,878
(51,196)
3,806
(32,895)
Transfer to accounts receivable
(5,556)
—
(4,224)
—
Transfer to revenues
—
36,564
(83)
38,158
Total
(1,678)
(14,632)
(501)
5,263
Balances as of September 30:
Current portion
466
(29,887)
1,977
(14,327)
Noncurrent portion
772
(43,797)
362
(41,880)
Total
$
1,238
$
(73,684)
$
2,339
$
(56,207)
Current contract assets are included in “Prepaid and other current assets” and noncurrent contract assets are included in “Other long-term assets, net” on the consolidated balance sheets. The current portion of contract liabilities is included in “Accrued liabilities” and the noncurrent portion of contract liabilities is included in “Other long-term liabilities” on the consolidated balance sheets.
Remaining Performance Obligations
The following table presents our estimated revenue from contracts with customers for remaining performance obligations that has not yet been recognized, representing our contractually committed revenue as of September 30, 2023:
Remaining Performance Obligations
(Thousands of Dollars)
2023 (remaining)
$
107,616
2024
360,981
2025
236,718
2026
169,712
2027
81,920
Thereafter
125,903
Total
$
1,082,850
Our contractually committed revenue, for purposes of the tabular presentation above, is generally limited to customer contracts that have fixed pricing and fixed volume terms and conditions, including contracts with payment obligations for minimum volume commitments.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Disaggregation of Revenues
The following table disaggregates our revenues:
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
(Thousands of Dollars)
Pipeline segment:
Crude oil pipelines
$
100,525
$
101,865
$
290,314
$
281,999
Refined products and ammonia pipelines
124,839
107,143
354,934
316,257
Total pipeline segment revenues from contracts with customers
225,364
209,008
645,248
598,256
Storage segment:
Throughput terminals
21,868
26,933
73,022
84,303
Storage terminals (excluding lessor revenues)
42,013
40,694
127,078
138,502
Total storage segment revenues from contracts with customers
63,881
67,627
200,100
222,805
Lessor revenues
11,323
10,765
33,970
32,291
Total storage segment revenues
75,204
78,392
234,070
255,096
Fuels marketing segment:
Revenues from contracts with customers
109,732
125,843
303,185
399,912
Consolidation and intersegment eliminations
—
—
(2)
(1)
Total revenues
$
410,300
$
413,243
$
1,182,501
$
1,253,263
4. DEBT
Revolving Credit Agreement
On June 30, 2023, we amended our $1.0 billion unsecured revolving credit agreement (as amended, the Revolving Credit Agreement), primarily to extend the maturity date from April 27, 2025 to January 27, 2027. The amendment also includes a requirement that we certify that the sum of our Revolving Credit Agreement availability and unrestricted cash balance is no less than $150.0 million on a pro forma basis prior to using any borrowings under the Revolving Credit Agreement to redeem certain unsecured indebtedness or our Series D Preferred Units.
As of September 30, 2023, the Revolving Credit Agreement had $665.4 million available for borrowing and $330.0 million of borrowings outstanding. Letters of credit issued under the Revolving Credit Agreement totaled $4.6 million as of September 30, 2023, and limit the amount we can borrow under the Revolving Credit Agreement. Obligations under the Revolving Credit Agreement are guaranteed by NuStar Energy and NuPOP. The Revolving Credit Agreement provides for U.S. dollar borrowings, which bear interest, at our option, based on an alternative base rate or a SOFR-based rate. The Revolving Credit Agreement and certain fees under the Receivables Financing Agreement are the only debt arrangements with interest rates that are subject to adjustment if our debt rating is downgraded (or upgraded) by certain credit rating agencies. As of September 30, 2023, our weighted-average interest rate related to borrowings under the Revolving Credit Agreement was 7.9%.
The Revolving Credit Agreement is subject to maximum consolidated debt coverage ratio and minimum consolidated interest coverage ratio requirements, which may limit the amount we can borrow to an amount that is less than the total amount available for borrowing. For a rolling period of four quarters, the Consolidated Debt Coverage Ratio (as defined in the Revolving Credit Agreement) may not exceed 5.00-to-1.00, and the Consolidated Interest Coverage Ratio (as defined in the Revolving Credit Agreement) must not be less than 1.75-to-1.00. As of September 30, 2023, we believe that we are in compliance with these financial covenants.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Receivables Financing Agreement
NuStar Energy and NuStar Finance LLC (NuStar Finance), a special purpose entity and wholly owned subsidiary of NuStar Energy, are parties to a $100.0 million receivables financing agreement with a third-party lender (as amended, the Receivables Financing Agreement) and agreements with certain of NuStar Energy’s wholly owned subsidiaries (collectively with the Receivables Financing Agreement, the Securitization Program). Under the Securitization Program, certain of NuStar Energy’s wholly owned subsidiaries sell their accounts receivable to NuStar Finance on an ongoing basis, and NuStar Finance provides the newly acquired accounts receivable as collateral for its revolving borrowings under the Receivables Financing Agreement. On June 29, 2023, we amended the Receivables Financing Agreement to extend the scheduled termination date from January 31, 2025 to July 1, 2026. As of September 30, 2023, the amount of borrowings outstanding under the Receivables Financing Agreement totaled $72.6 million, the interest rate related to outstanding borrowings was 7.0% and $137.5 million of our accounts receivable was included in the Securitization Program.
Fair Value of Long-Term Debt
The estimated fair values and carrying amounts of long-term debt, excluding finance leases, were as follows:
September 30, 2023
December 31, 2022
(Thousands of Dollars)
Fair value
$
3,320,299
$
3,169,664
Carrying amount
$
3,348,006
$
3,242,289
We have estimated the fair value of our publicly traded notes based upon quoted prices in active markets; therefore, we determined that the fair value of our publicly traded notes falls in Level 1 of the fair value hierarchy. With regard to our other debt, for which a quoted market price is not available, we have estimated the fair value using a discounted cash flow analysis using current incremental borrowing rates for similar types of borrowing arrangements and determined that the fair value falls in Level 2 of the fair value hierarchy. The carrying amount includes unamortized debt issuance costs.
5. COMMITMENTS AND CONTINGENCIES
We have contingent liabilities resulting from various litigation, claims and commitments. We record accruals for loss contingencies when losses are considered probable and can be reasonably estimated. Legal fees associated with defending the Partnership in legal matters are expensed as incurred. We accrued $1.2 million and $0.3 million for contingent losses as of September 30, 2023 and December 31, 2022, respectively. The amount that will ultimately be paid related to such matters may differ from the recorded accruals, and the timing of such payments is uncertain. We evaluate each contingent loss at least quarterly, and more frequently as each matter progresses and develops over time, and we do not believe that the resolution of any particular claim or proceeding, or all matters in the aggregate, would have a material adverse effect on our results of operations, financial position or liquidity.
6. SERIES D CUMULATIVE CONVERTIBLE PREFERRED UNITS
Redemptions
In the second and third quarters of 2023, we redeemed all of our outstanding Series D Cumulative Convertible Preferred Units (the Series D Preferred Units), primarily with borrowings under our Revolving Credit Agreement, which had been partially paid down with proceeds from the Sale-Leaseback Transaction in the first quarter of 2023 and with proceeds from the issuance of common units in the third quarter of 2023. On the notification dates for each redemption, those Series D Preferred Units became mandatorily redeemable; therefore, we reclassified those Series D Preferred Units from mezzanine equity to liability-classified mandatorily redeemable Series D Preferred Units valued at the redemption price, excluding accrued distributions (Net Redemption Price). We recorded the difference between the carrying value of those Series D Preferred Units prior to reclassification and the Net Redemption Price as a deemed distribution, which reduced our common equity and was subtracted from net income to arrive at net (loss) income attributable to common units in the calculation of basic and diluted net (loss) income per common unit. At each closing, we accounted for the redemptions as extinguishments of debt.
Distributions accrued for redeemed units from the notification dates to the redemption dates for the three and nine months ended September 30, 2023 totaled $3.1 million and $4.8 million, respectively, and are reported in “Interest expense, net” on the condensed consolidated statements of comprehensive income.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Information related to the Series D Preferred Unit redemptions is shown below (thousands of dollars, except unit and per unit data):
September 12, 2023 Redemption
July 31, 2023 Redemption
June 30, 2023 Redemption
Notification date
August 14, 2023
June 29, 2023
May 25, 2023
Units redeemed
8,286,650
2,560,000
5,500,000
Redemption price per unit, including accrued distributions
$
32.59
$
32.18
$
31.88
Redemption price, including accrued distributions
$
270,062
$
82,381
$
175,340
Accrued distributions
7,126
1,152
825
Net Redemption Price
$
262,936
$
81,229
$
174,515
Carrying value of units at notification date
$
230,461
$
71,210
$
152,467
Net Redemption Price
262,936
81,229
174,515
Loss to common limited partners attributable to redemption
$
(32,475)
$
(10,019)
$
(22,048)
For the three and nine months ended September 30, 2023, we recorded losses of $0.27 and $0.57 per common unit, respectively, attributable to the Series D Preferred Unit redemptions.
Units Outstanding
The following is a summary of our Series D Preferred Units outstanding:
Transaction Date
Price per Unit
Number of Units
Units outstanding as of January 1, 2022
23,246,650
Repurchase
November 22, 2022
$
32.73
(6,900,000)
Units outstanding as of December 31, 2022
16,346,650
Redemption
June 30, 2023
$
31.88
(5,500,000)
Redemption
July 31, 2023
$
32.18
(2,560,000)
Redemption
September 12, 2023
$
32.59
(8,286,650)
Units outstanding as of September 30, 2023
—
Distributions
Prior to their redemption and/or repurchase, we allocated net income to our Series D Preferred Units equal to the amount of distributions earned during the period. Distributions on the Series D Preferred Units were payable out of any legally available funds, accrued and were cumulative from the original issuance dates and were payable on the 15th day (or next business day) of each of March, June, September and December, beginning September 17, 2018, to holders of record on the first business day of each payment month. The distribution rates on the Series D Preferred Units were as follows: (i) 9.75% per annum ($0.619 per unit per distribution period) for the first two years; (ii) 10.75% per annum ($0.682 per unit per distribution period) for years three through five; and (iii) the greater of 13.75% per annum ($0.872 per unit per distribution period) or the distribution per common unit thereafter.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The distribution rate on our Series D Preferred Units increased on June 15, 2023, to the greater of 13.75% per annum ($0.872 per unit per distribution period) or the distribution per common unit. The total distribution for the applicable periods in the table below excludes amounts reported in “Interest expense, net” as described above under “Redemptions.” Distribution information on our Series D Preferred Units was as follows:
Distribution Period
Distribution Rate per Unit
Total Distribution
(Thousands of Dollars)
June 15, 2023 - September 12, 2023
$
0.872
$
5,134
March 15, 2023 - June 14, 2023
$
0.682
$
10,315
December 15, 2022 - March 14, 2023
$
0.682
$
11,148
September 15, 2022 - December 14, 2022
$
0.682
$
14,337
June 15, 2022 - September 14, 2022
$
0.682
$
15,854
March 15, 2022 - June 14, 2022
$
0.682
$
15,854
December 15, 2021 - March 14, 2022
$
0.682
$
15,854
7. PARTNERS’ EQUITY
Series A, B and C Preferred Units
We allocate net income to our 8.50% Series A, 7.625% Series B and 9.00% Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (collectively, the Series A, B and C Preferred Units) equal to the amount of distributions earned during the period. Distributions on our Series A, B and C Preferred Units are payable out of any legally available funds, accrue and are cumulative from the original issuance dates, and are payable on the 15th day (or next business day) of each of March, June, September and December of each year to holders of record on the first business day of each payment month.
Information on our Series A, B and C Preferred Units is shown below:
Units
Units Issued and Outstanding as of September 30, 2023
Optional Redemption Date/Date When Distribution Rate Became Floating
Floating Annual Rate (as a Percentage of the $25.00 Liquidation Preference per Unit)
Series A Preferred Units
9,060,000
December 15, 2021
Three-month LIBOR(a) plus 6.766%
Series B Preferred Units
15,400,000
June 15, 2022
Three-month LIBOR(a) plus 5.643%
Series C Preferred Units
6,900,000
December 15, 2022
Three-month LIBOR(a) plus 6.88%
(a)Beginning with the distribution period starting on September 15, 2023, LIBOR was replaced with the corresponding CME Term SOFR plus the applicable tenor spread adjustment of 0.26161%.
Distribution information on our Series A, B and C Preferred Units is as follows (thousands of dollars, except per unit data):
Series A Preferred Units
Series B Preferred Units
Series C Preferred Units
Distribution Period
Distribution Rate per Unit
Total Distribution
Distribution Rate per Unit
Total Distribution
Distribution Rate per Unit
Total Distribution
September 15, 2023 - December 14, 2023
$
0.77736
$
7,043
$
0.70717
$
10,890
$
0.78448
$
5,413
June 15, 2023 - September 14, 2023
$
0.76715
$
6,950
$
0.69696
$
10,733
$
0.77428
$
5,343
March 15, 2023 - June 14, 2023
$
0.73169
$
6,629
$
0.66150
$
10,187
$
0.73881
$
5,098
December 15, 2022 - March 14, 2023
$
0.71889
$
6,513
$
0.64871
$
9,990
$
0.72602
$
5,010
September 15, 2022 - December 14, 2022
$
0.64059
$
5,804
$
0.57040
$
8,784
$
0.56250
$
3,881
June 15, 2022 - September 14, 2022
$
0.54808
$
4,966
$
0.47789
$
7,360
$
0.56250
$
3,881
March 15, 2022 - June 14, 2022
$
0.47817
$
4,332
$
0.47657
$
7,339
$
0.56250
$
3,881
December 15, 2021 - March 14, 2022
$
0.43606
$
3,951
$
0.47657
$
7,339
$
0.56250
$
3,881
On October 25, 2023, our Board of Directors declared distributions with respect to the Series A, B and C Preferred Units to be paid on December 15, 2023.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Common Limited Partners
Issuance of Common Units. On August 11, 2023, we issued 14,950,000 common units representing limited partner interests at a price of $15.35 per unit for proceeds of approximately $222.0 million, net of approximately $7.5 million of issuance costs. We used these proceeds to repay outstanding borrowings under our Revolving Credit Agreement.
Distributions. We make quarterly distributions to common unitholders of 100% of our “Available Cash,” generally defined as cash receipts less cash disbursements, including distributions to our preferred units, and cash reserves established by the general partner, in its sole discretion. These quarterly distributions are declared and paid within 45 days subsequent to each quarter-end. The common unitholders receive a distribution each quarter as determined by the Board of Directors, subject to limitation by the distributions in arrears, if any, on our preferred units. On October 25, 2023, our Board of Directors declared distributions with respect to our common units for the quarter ended September 30, 2023.
The following table summarizes information about cash distributions to our common limited partners applicable to the period in which the distributions were earned:
Quarter Ended
Cash Distributions Per Unit
Total Cash Distributions
Record Date
Payment Date
(Thousands of Dollars)
September 30, 2023
$
0.40
$
50,358
November 7, 2023
November 14, 2023
June 30, 2023
$
0.40
$
44,363
August 8, 2023
August 14, 2023
March 31, 2023
$
0.40
$
44,396
May 8, 2023
May 12, 2023
December 31, 2022
$
0.40
$
44,328
February 8, 2023
February 14, 2023
Accumulated Other Comprehensive Income (Loss) (AOCI)
The balance of and changes in the components included in AOCI were as follows:
Three Months Ended September 30,
2023
2022
Foreign Currency Translation
Cash Flow Hedges
Pension and Other Postretirement Benefits
Total
Foreign Currency Translation
Cash Flow Hedges
Pension and Other Postretirement Benefits
Total
(Thousands of Dollars)
Balance as of July 1
$
746
$
(33,360)
$
1,221
$
(31,393)
$
(153)
$
(35,436)
$
3,417
$
(32,172)
Other comprehensive (loss) income before reclassification adjustments
(42)
—
—
(42)
15
—
—
15
Net gain on pension costs reclassified into other income, net
—
—
(737)
(737)
—
—
(422)
(422)
Net loss on cash flow hedges reclassified into interest expense, net
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Nine Months Ended September 30,
2023
2022
Foreign Currency Translation
Cash Flow Hedges
Pension and Other Postretirement Benefits
Total
Foreign Currency Translation
Cash Flow Hedges
Pension and Other Postretirement Benefits
Total
(Thousands of Dollars)
Balance as of January 1
$
62
$
(34,380)
$
2,713
$
(31,605)
$
(41,761)
$
(36,486)
$
4,269
$
(73,978)
Other comprehensive income before reclassification adjustments
642
—
—
642
1,977
—
—
1,977
Sale of Point Tupper Terminal Operations reclassified into net income (Note 2)
—
—
—
—
39,646
—
—
39,646
Net gain on pension costs reclassified into other income, net
—
—
(2,210)
(2,210)
—
—
(1,262)
(1,262)
Net loss on cash flow hedges reclassified into interest expense, net
—
1,745
—
1,745
—
1,575
—
1,575
Other
—
—
(28)
(28)
—
—
(17)
(17)
Other comprehensive income (loss)
642
1,745
(2,238)
149
41,623
1,575
(1,279)
41,919
Balance as of September 30
$
704
$
(32,635)
$
475
$
(31,456)
$
(138)
$
(34,911)
$
2,990
$
(32,059)
As of September 30, 2023, we expect to reclassify a loss of $3.5 million to “Interest expense, net” within the next 12 months associated with unwound forward-starting interest rate swaps.
8. NET INCOME (LOSS) PER COMMON UNIT
Basic and diluted net income (loss) per common unit is determined pursuant to the two-class method. Under this method, all earnings are allocated to our limited partners and participating securities based on their respective rights to receive distributions earned during the period. Participating securities include restricted units awarded under our long-term incentive plans and, from June 15, 2023 to their redemption on September 12, 2023, the Series D Preferred Units. We compute basic net income (loss) per common unit by dividing net income (loss) attributable to common units by the weighted-average number of common units outstanding during the period. We compute diluted net income (loss) per common unit by dividing net income (loss) attributable to common units by the sum of (i) the weighted average number of common units outstanding during the period and (ii) the effect of dilutive potential common units outstanding during the period.
The Series D Preferred Units contained certain unitholder conversion and redemption features, and we used the if-converted method to calculate the dilutive effect of the conversion or redemption feature that would have been most advantageous to the Series D preferred unitholders. The effect of the assumed conversion or redemption of the Series D Preferred Units outstanding, prior to their redemption and/or repurchase, was antidilutive for all periods presented; therefore, we did not include such conversion in the computation of diluted net (loss) income per common unit.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table details the calculation of basic and diluted net (loss) income per common unit:
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
(Thousands of Dollars, Except Unit and Per Unit Data)
Net income
$
51,195
$
59,633
$
203,272
$
131,144
Distributions to preferred limited partners
(26,535)
(32,463)
(91,394)
(95,078)
Distributions to common limited partners
(50,358)
(44,125)
(139,117)
(132,418)
Distribution equivalent rights to restricted units
(651)
(614)
(1,990)
(1,864)
Distributions in excess of income
$
(26,349)
$
(17,569)
$
(29,229)
$
(98,216)
Distributions to common limited partners
$
50,358
$
44,125
$
139,117
$
132,418
Allocation of distributions in excess of income to common limited partners
(26,349)
(17,569)
(29,229)
(98,216)
Series D Preferred Unit accretion
(197)
(4,890)
(7,171)
(14,205)
Series D Preferred Unit redemptions
(32,475)
—
(64,542)
—
Net (loss) income attributable to common units
$
(8,663)
$
21,666
$
38,175
$
19,997
Basic and diluted weighted-average common units outstanding
119,218,622
110,310,921
113,698,898
110,265,359
Basic and diluted net (loss) income per common unit
$
(0.07)
$
0.20
$
0.34
$
0.18
9. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in current assets and current liabilities were as follows:
Nine Months Ended September 30,
2023
2022
(Thousands of Dollars)
Decrease (increase) in current assets:
Accounts receivable
$
(18,953)
$
(8,093)
Inventories
(1,939)
984
Other current assets
2,853
(3,055)
Increase (decrease) in current liabilities:
Accounts payable
4,354
8,336
Accrued interest payable
40,705
40,271
Accrued liabilities
9,940
(7,610)
Taxes other than income tax
4,602
2,006
Changes in current assets and current liabilities
$
41,562
$
32,839
The above changes in current assets and current liabilities may differ from changes between amounts reflected in the applicable consolidated balance sheets due to:
•the change in the amount accrued for capital expenditures;
•the effect of accrued compensation expense paid with fully vested common unit awards; and
•current assets and current liabilities disposed of during the period.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Other supplemental cash flow information is as follows:
Nine Months Ended September 30,
2023
2022
(Thousands of Dollars)
Cash paid for interest, net of amount capitalized
$
131,112
$
105,238
Cash paid for income taxes, net of tax refunds received
$
2,980
$
4,063
Right-of-use assets obtained in exchange for operating lease liabilities
$
82,372
$
10,050
Right-of-use assets obtained in exchange for finance lease liabilities
$
2,806
$
2,254
Restricted cash, representing legally restricted funds that are unavailable for general use, is included in “Other long-term assets, net” on the consolidated balance sheets.“Cash, cash equivalents and restricted cash” on the consolidated statements of cash flows is included in the consolidated balance sheets as follows:
September 30, 2023
December 31, 2022
(Thousands of Dollars)
Cash and cash equivalents
$
4,371
$
14,489
Other long-term assets, net
9,152
8,888
Cash, cash equivalents and restricted cash
$
13,523
$
23,377
10. SEGMENT INFORMATION
Our reportable business segments consist of the pipeline, storage and fuels marketing segments. Our segments represent strategic business units that offer different services and products. We evaluate the performance of each segment based on its respective operating income, before general and administrative expenses and certain non-segmental depreciation and amortization expense. General and administrative expenses are not allocated to the operating segments since those expenses relate primarily to the overall management at the entity level.
Results of operations for the reportable segments were as follows:
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 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. See Item 1A. “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2022, 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 the following sections:
•Overview, including Trends and Outlook
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Estimates
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. We also market petroleum products. Our business is managed under the direction of the board of directors of NuStar GP, LLC (Board of Directors), the general partner of our general partner, Riverwalk Logistics, L.P., both of which are wholly owned subsidiaries of ours.
Our operations consist of three reportable business segments: pipeline, storage and fuels marketing. As of September 30, 2023, our assets included 9,480 miles of pipeline and 63 terminal and storage facilities, which provided approximately 49 million barrels of storage capacity. We conduct our operations through our wholly owned subsidiaries, primarily NuStar Logistics, L.P. (NuStar Logistics) and NuStar Pipeline Operating Partnership L.P. (NuPOP). The term “throughput” as used in this document generally refers to barrels of crude oil, refined product or renewable fuels or tons of ammonia, as applicable, that pass through our pipelines, terminals or storage tanks. 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 production, 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;
•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
Redemptions of Series D Preferred Units. In the second and third quarters of 2023, we redeemed the remaining 16,346,650 of our Series D Cumulative Convertible Preferred Units (the Series D Preferred Units) for an aggregate net redemption price of $518.7 million. These redemptions were primarily funded with borrowings under our $1.0 billion unsecured revolving credit agreement. For the three and nine months ended September 30, 2023, we recorded losses of $0.27 and $0.57, per common unit, respectively, attributable to the redemptions. See Note 6 of the Condensed Notes to the Consolidated Financial Statements in Item 1. “Financial Statements” for additional information on these redemptions.
Issuance of Common Units. On August 11, 2023, we issued 14,950,000 common units representing limited partner interests at a price of $15.35 per unit for net proceeds of approximately $222.0 million. We used these proceeds to repay outstanding borrowings under the Revolving Credit Agreement, as defined below.
Debt Amendments. On June 30, 2023, we amended our $1.0 billion unsecured revolving credit agreement (as amended, the Revolving Credit Agreement), primarily to extend the maturity date from April 27, 2025 to January 27, 2027. On June 29, 2023, we amended our $100.0 million receivables financing agreement (as amended, the Receivables Financing Agreement) to extend the scheduled termination date from January 31, 2025 to July 1, 2026. See Note 4 of the Condensed Notes to the Consolidated Financial Statements in Item 1. “Financial Statements” for more information.
Sale-Leaseback Transaction. On March 21, 2023, we consummated a sale-leaseback transaction (the Sale-Leaseback Transaction) with respect to our corporate headquarters facility and approximately 24 acres of underlying land located in San Antonio, Texas (the Corporate Headquarters) for $103.0 million and recognized a gain of $41.1 million. We entered into the Sale-Leaseback Transaction in order to monetize the Corporate Headquarters and used the proceeds to repay outstanding borrowings on our Revolving Credit Agreement. See Note 2 of the Condensed Notes to the Consolidated Financial Statements in Item 1. “Financial Statements” for additional information.
Other Event
Point Tupper Terminal Disposition. On April 29, 2022, we sold the equity interests in our wholly owned subsidiaries that owned our Point Tupper terminal facility in Nova Scotia, Canada (the Point Tupper Terminal Operations) to EverWind Fuels for $60.0 million (the Point Tupper Terminal Disposition). The terminal facility had a storage capacity of 7.8 million barrels and was included in the storage segment. We recognized a non-cash, pre-tax impairment loss of $46.1 million in the first quarter of 2022 and a non-cash gain on the sale of $1.6 million in the second quarter of 2022. See Note 2 of the Condensed Notes to the Consolidated Financial Statements in Item 1. “Financial Statements” for additional information.
Trends and Outlook
In 2023, we are continuing to execute our plan to strengthen our balance sheet. In the first quarter of 2023, we completed the Sale-Leaseback Transaction for about $103.0 million of cash, and in the third quarter of 2023, we issued 14,950,000 common units for net proceeds of approximately $222.0 million, as described above. We deployed the proceeds from these transactions to reduce our debt balance, which facilitated our redemption of the outstanding Series D Preferred Units in the second and third quarters of 2023, as described above, which was several years ahead of the holders’ redemption option in 2028. For the full-year 2023, we expect to fund all of our expenses, distribution requirements and capital expenditures using internally generated cash flows, as we did in 2022 and 2021. We plan to continue to manage our operations with fiscal discipline in order to best maximize unitholder value.
For the remainder of 2023, we expect to continue to benefit from the positive revenue impact of the July 2022 and July 2023 tariff indexation increases for most of our pipeline systems, which serve as an important counterbalance to the impact of inflation on our business.
While many terminals in our storage segment are somewhat insulated from demand volatility by contracted rates for storage, index rate adjustments and minimum volume commitments, revenues at our St. James and Corpus Christi North Beach facilities continue to be negatively impacted by ongoing global economic uncertainty and continued crude oil price backwardation. Conversely, we expect our West Coast region to continue to benefit in 2023 from the completion of renewable fuels projects, which continue to expand the capacity of our renewable fuels distribution system.
Economic metrics thus far in 2023 have indicated a slowing in inflationary pressures that were prevalent in 2021 and 2022. However, the current mix of uncertain market conditions, rising interest rates and tight labor markets could increase the cost of operating our assets and executing on our capital projects in 2023 and beyond. In an attempt to curb inflation, the U.S. Federal Reserve (the Fed) raised interest rates in 2022 and continued to do so in 2023. The Fed may implement additional increases in 2023, which will increase the cost of our variable-rate debt, as well as the cost of our 8.50% Series A, 7.625% Series B and 9.00% Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (collectively, the Series A, B and C Preferred Units), which have distribution rates that increase or decrease along with interest rates. On the other hand, our ability to pass along rate increases reflecting changes in producer and/or consumer price indices to our customers, under our tariffs and contracts, should help to counterbalance the impact of inflation on our costs. Additionally, we expect to further mitigate the impact of inflation in 2023 through our expense optimization initiative we began in early 2022.
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, the state of the economy and the capital markets; the impact of health crises; war and other armed conflicts; changes to our customers’ refinery maintenance schedules and unplanned refinery downtime; actions of oil-producing nations; 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 and costs of personnel, equipment, supplies and services essential to our operations; the ability to obtain timely permitting approvals; and changes in laws and regulations affecting our operations.
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
Three Months Ended September 30,
Change
2023
2022
(Unaudited, Thousands of Dollars, Except Per Unit Data)
Statement of Income Data:
Revenues:
Service revenues
$
289,945
$
277,380
$
12,565
Product sales
120,355
135,863
(15,508)
Total revenues
410,300
413,243
(2,943)
Costs and expenses:
Costs associated with service revenues
157,267
154,426
2,841
Costs associated with product sales
101,572
117,324
(15,752)
General and administrative expenses
35,083
27,676
7,407
Other depreciation and amortization expense
1,080
1,935
(855)
Total costs and expenses
295,002
301,361
(6,359)
Operating income
115,298
111,882
3,416
Interest expense, net
(63,125)
(52,294)
(10,831)
Other income, net
156
1,475
(1,319)
Income before income tax expense
52,329
61,063
(8,734)
Income tax expense
1,134
1,430
(296)
Net income
$
51,195
$
59,633
$
(8,438)
Basic and diluted net (loss) income per common unit
$
(0.07)
$
0.20
$
(0.27)
Consolidated Overview
Net income decreased $8.4 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, mainly due to higher interest expense of $10.8 million, partially offset by higher operating income of $3.4 million. Operating income increased primarily due to higher operating income from our pipeline segment, partially offset by lower operating income from our storage segment and higher general and administrative expenses.
Consolidated revenues decreased $2.9 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, mainly due to lower product sales in our fuels marketing segment resulting from lower fuel prices. Service revenues increased on our pipeline segment, mainly due to higher average tariff rates.
Total costs and expenses decreased $6.4 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, mainly due to a decrease in costs associated with product sales in our fuels marketing segment, resulting from lower fuel prices, partially offset by an increase in general and administrative expenses.
General and administrative expenses increased $7.4 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, mainly due to higher compensation expenses and an increase in rent expense of $2.0 million related to the Corporate Headquarters following the Sale-Leaseback Transaction in the first quarter of 2023.
Interest expense, net, increased $10.8 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, mainly due to higher interest rates on our variable rate debt and higher balances on our Revolving Credit Agreement, which was used to fund a portion of the Series D Preferred Unit redemptions. In addition, $3.1 million of Series D Preferred Unit distributions was classified in interest expense due to the redemptions.
Basic and diluted net loss per common unit was $0.07 for the three months ended September 30, 2023, compared to basic and diluted net income per common unit of $0.20 for the three months ended September 30, 2022. This decrease was mainly due to a loss of $0.27 per common unit related to the Series D Preferred Unit redemption in the third quarter of 2023. See Notes 6 and 8 of the Condensed Notes to the Consolidated Financial Statements in Item 1. “Financial Statements” for additional information.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
Nine Months Ended September 30,
Change
2023
2022
(Unaudited, Thousands of Dollars, Except Per Unit Data)
Statement of Income Data:
Revenues:
Service revenues
$
850,578
$
820,752
$
29,826
Product sales
331,923
432,511
(100,588)
Total revenues
1,182,501
1,253,263
(70,762)
Costs and expenses:
Costs associated with service revenues
464,376
461,319
3,057
Cost associated with product sales
281,947
378,217
(96,270)
Impairment loss
—
46,122
(46,122)
General and administrative expenses
95,428
82,656
12,772
Other depreciation and amortization expense
3,672
5,582
(1,910)
Total costs and expenses
845,423
973,896
(128,473)
Gain on sale of assets
41,075
—
41,075
Operating income
378,153
279,367
98,786
Interest expense, net
(178,666)
(153,053)
(25,613)
Other income, net
7,298
7,158
140
Income before income tax expense
206,785
133,472
73,313
Income tax expense
3,513
2,328
1,185
Net income
$
203,272
$
131,144
$
72,128
Basic and diluted net income per common unit
$
0.34
$
0.18
$
0.16
Consolidated Overview
Net income increased $72.1 millionfor the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, mainly due to higher operating income of $98.8 million, partially offset by an increase in interest expense, net of $25.6 million. Operating income increased primarily due to a gain of $41.1 million related to the Sale-Leaseback Transaction in the first quarter of 2023, a non-cash, pre-tax impairment loss of $46.1 million in the first quarter of 2022 and higher operating income from our pipeline segment for the nine months ended September 30, 2023. These increases were partially offset by lower revenues from our storage segment and higher general and administrative expenses for the nine months ended September 30, 2023.
Consolidated revenues decreased $70.8 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, mainly due to lower product sales in our fuels marketing segment resulting from lower fuel prices. Service revenues increased in 2023 due to higher revenues from our pipeline segment mainly due to higher average tariff rates, partially offset by lower revenues from our storage segment primarily due to current unfavorable market conditions affecting certain of our terminals.
Total costs and expenses decreased $128.5 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, mainly due to a decrease in costs associated with product sales in our fuels marketing segment,
resulting from lower fuel prices, and a non-cash, pre-tax impairment loss of $46.1 million in the first quarter of 2022, partially offset by an increase in general and administrative expenses.
General and administrative expenses increased $12.8 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, mainly due to higher compensation expenses and an increase in rent expense of $4.3 million related to the Corporate Headquarters following the Sale-Leaseback Transaction in the first quarter of 2023.
Interest expense, net increased $25.6 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to higher interest rates on our variable rate debt and higher balances on the Revolving Credit Agreement, which was used to fund a portion of the Series D Preferred Unit redemptions. In addition, $4.8 million of Series D Preferred Unit distributions was classified in interest expense due to the redemptions.
Basic and diluted net income per common unit increased $0.16 per common unit for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, due to higher net income, partially offset by a loss of $0.57 per common unit related to the Series D Preferred Unit redemptions. See Notes 6 and 8 of the Condensed Notes to the Consolidated Financial Statements in Item 1. “Financial Statements” for additional information.
Pipeline Segment
As of September 30, 2023, our pipeline assets consist of 9,480 miles of pipeline with 33 terminals and 13.0 million barrels of storage capacity. Our Central West System includes 2,915 miles of refined product pipelines and 2,070 miles of crude oil pipelines. In addition, our Central East System includes 2,495 miles of refined product pipelines, consisting of the East and North Pipelines, and an approximately 2,000-mile ammonia pipeline (the Ammonia Pipeline). We charge tariffs on a per barrel basis for transportation in our refined product and crude oil pipelines and on a per ton basis for transportation in the Ammonia Pipeline. Throughputs on the Ammonia Pipeline are converted from tons to barrels for reporting purposes only. Other revenues include product sales of surplus pipeline loss allowance (PLA) volumes.
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
Three Months Ended September 30,
Change
2023
2022
(Thousands of Dollars, Except Barrels/Day Information)
Pipeline Segment:
Crude oil pipelines throughput (barrels/day)
1,200,582
1,335,336
(134,754)
Refined products and ammonia pipelines throughput (barrels/day)
600,740
560,202
40,538
Total throughput (barrels/day)
1,801,322
1,895,538
(94,216)
Throughput and other revenues
$
225,364
$
209,008
$
16,356
Operating expenses
55,180
53,837
1,343
Depreciation and amortization expense
44,231
44,806
(575)
Segment operating income
$
125,953
$
110,365
$
15,588
Tariff indexations effective July 2023 increased the average tariff rates on most of our pipeline systems and resulted in higher revenues for the three months ended September 30, 2023, compared to the three months ended September 30, 2022.
Pipeline segment revenues increased $16.4 million, despite a decrease in throughputs of 94,216 barrels per day for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to:
•an increase in revenues of $13.5 million and an increase in throughputs of 88,233 barrels per day on our McKee System pipelines, primarily due to a planned turnaround at a customer’s refinery in 2022; additionally, revenues increased due to higher average tariff rates;
•an increase in revenues of $4.6 million, despite a decrease in throughputs of 10,787 barrels per day on our East and North pipelines combined; revenues increased due to higher average tariff rates, while throughputs decreased due to planned turnarounds and operational issues at customers’ refineries in the third quarter of 2023;
•an increase in revenues of $1.9 million and an increase in throughputs of 8,879 barrels per day on our Three Rivers System; revenues and throughputs increased mainly due to higher demand on certain of our pipelines within this system and pipeline expansions that were placed in service in July 2022; revenues also increased due to higher average tariff rates;
•a decrease in revenues of $2.9 million and a decrease in throughputs of 57,629 barrels per day on our Permian Crude System, mainly due to decreased customer production supplying this system; and
•a decrease in revenues of $3.0 million and a decrease in throughputs of 118,147 barrels per day on our Corpus Christi Crude Pipeline System, mainly due to unfavorable market conditions and changes to a customer contract.
Operating expenses increased $1.3 million, mainly due to an increase in maintenance and regulatory expenses of $1.1 million across various pipelines.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
Nine Months Ended September 30,
Change
2023
2022
(Thousands of Dollars, Except Barrels/Day Information)
Pipeline Segment:
Crude oil pipelines throughput (barrels/day)
1,211,871
1,288,489
(76,618)
Refined products and ammonia pipelines throughput (barrels/day)
597,860
568,533
29,327
Total throughput (barrels/day)
1,809,731
1,857,022
(47,291)
Throughput and other revenues
$
645,248
$
598,256
$
46,992
Operating expenses
159,997
157,110
2,887
Depreciation and amortization expense
131,636
134,076
(2,440)
Segment operating income
$
353,615
$
307,070
$
46,545
Tariff indexations effective July 2022 and July 2023 increased the average tariff rates on most of our pipeline systems and resulted in higher revenues for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.
Pipeline segment revenues increased $47.0 million, despite a decrease in throughputs of 47,291 barrels per day for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to:
•an increase in revenues of $27.2 million and an increase in throughputs of 58,679 barrels per day on our McKee System pipelines, primarily due to operational issues and a planned turnaround at a customer’s refinery in 2022, as well as higher demand on our pipeline serving the Denver, Colorado market in 2023; revenues also increased due to higher average tariff rates;
•an increase in revenues of $8.5 million, despite a decrease in throughputs of 4,042 barrels per day on our East and North pipelines combined; revenues increased mainly due to higher average tariff rates, while throughputs decreased primarily due to unfavorable market conditions;
•an increase in revenues of $4.3 million, despite comparable throughputs on our Valley Pipeline, primarily due to higher average tariff rates and the timing of recognizing minimum volume commitment settlements with customers;
•an increase in revenues of $4.1 million, despite comparable throughputs on our Ammonia Pipeline, mainly due to higher average tariff rates;
•an increase in revenues of $4.1 million, despite a decrease in throughputs of 18,558 barrels per day on our Permian Crude System; revenue increases from higher average tariff rates were partially offset by a decrease of $3.0 million due to lower commodity prices on PLA volumes sold, while throughputs decreased due to decreased customer production supplying this system;
•an increase in revenues of $4.0 million and an increase in throughputs of 3,862 barrels per day on our Three Rivers System due to higher demand on certain of our pipelines within this system and pipeline expansions that were placed in service in July 2022;
•a decrease in revenues of $3.2 million and a decrease in throughputs of 70,276 barrels per day on our Corpus Christi Crude Pipeline System, mainly due to unfavorable market conditions and changes to a customer contract; however, higher throughputs and revenues due to higher demand on certain of our pipelines in this system in 2023 partially offset the overall decreases; and
•a decrease in revenues of $3.3 million and a decrease in throughputs of 14,769 barrels per day on our Ardmore System due to a turnaround at a customer’s refinery in the second quarter of 2023 and lower demand in 2023.
Operating expenses increased $2.9 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, mainly due to an increase of $1.5 million in maintenance and regulatory expenses.
Depreciation and amortization expense decreased $2.4 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, mainly due to fully amortized definite-lived intangible assets.
Storage Segment
Our storage segment is composed of our facilities that provide storage, handling and other services for refined products, crude oil, specialty chemicals, renewable fuels and other liquids. As of September 30, 2023, we owned and operated 29 terminal and storage facilities in the U.S. and one terminal in Nuevo Laredo, Mexico, with an aggregate storage capacity of 36.4 million barrels. Revenues for the storage segment include fees for tank storage agreements, under which a customer agrees to pay for a certain amount of storage in a tank over a period of time (storage terminal revenues), and throughput agreements, under which a customer pays a fee per barrel for volumes moved through our terminals (throughput terminal revenues).
Point Tupper Terminal Disposition. In the first quarter of 2022, we recorded a non-cash, pre-tax impairment loss of $46.1 million related to our Point Tupper Terminal Operations, which were sold on April 29, 2022.
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
Three Months Ended September 30,
Change
2023
2022
(Thousands of Dollars, Except Barrels/Day Information)
Storage Segment:
Throughput (barrels/day)(a)
410,472
479,110
(68,638)
Throughput terminal revenues
$
21,868
$
26,933
$
(5,065)
Storage terminal revenues
53,336
51,459
1,877
Total revenues
75,204
78,392
(3,188)
Operating expenses
38,872
37,449
1,423
Depreciation and amortization expense
18,984
18,334
650
Segment operating income
$
17,348
$
22,609
$
(5,261)
(a)Prior period throughputs for our Corpus Christi North Beach terminal were restated consistent with current period presentation.
Throughput terminal revenues decreased $5.1 million and throughputs decreased 68,638 barrels per day for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, mainly due to a decrease in revenues of $7.3 million and a decrease in throughputs of 94,977 barrels per day at our Corpus Christi North Beach terminal, mainly due to unfavorable market conditions and changes to a customer contract. The overall decrease was partially offset by an increase in revenues of $2.2 million and an increase in throughputs of 26,339 barrels per day on our Central West Terminals due to higher demand in the third quarter of 2023.
Storage terminal revenues increased $1.9 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to an increase in revenues of $4.9 million at our West Coast Terminals, primarily due to new contracts, rate escalations and higher throughput and handling fees. This increase was partially offset by a decrease in revenues of $4.2 million at our St. James terminal due to customers not renewing expiring contracts in the current backwardated market.
Operating expenses increased $1.4 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to an increase of $2.3 million in ad valorem taxes, partially offset by a decrease of $1.3 million in maintenance and regulatory expense, primarily at our St. James terminal.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
Nine Months Ended September 30,
Change
2023
2022
(Thousands of Dollars, Except Barrels/Day Information)
Storage Segment:
Throughput (barrels/day)(a)
434,557
469,219
(34,662)
Throughput terminal revenues
$
73,022
$
84,303
$
(11,281)
Storage terminal revenues
161,048
170,793
(9,745)
Total revenues
234,070
255,096
(21,026)
Operating expenses
116,580
115,526
1,054
Depreciation and amortization expense
56,163
54,607
1,556
Impairment loss
—
46,122
(46,122)
Segment operating income
$
61,327
$
38,841
$
22,486
(a)Prior period throughputs for our Corpus Christi North Beach terminal were restated consistent with current period presentation.
Throughput terminal revenues decreased $11.3 million and throughputs decreased 34,662 barrels per day for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to a decrease in revenues of $16.9 million and a decrease in throughputs of 53,912 barrels per day at our Corpus Christi North Beach terminal, mainly due to unfavorable market conditions and changes to a customer contract. These decreases were partially offset by an increase in revenues of $5.6 million and an increase in throughputs of 19,250 barrels per day at our Central West Terminals, primarily due to higher demand.
Storage terminal revenues decreased $9.7 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to the following:
•a decrease in revenues of $24.2 million at our St. James terminal due to customers not renewing expiring contracts in the current backwardated market; and
•a decrease in revenues of $9.6 million due to the Point Tupper Terminal Disposition in April 2022.
These decreases were partially offset by the following:
•an increase in revenues of $20.7 million at our West Coast Terminals, primarily due to new contracts, rate escalations and higher throughput and handling fees;
•an increase in revenues of $1.7 million due to rate escalations on our refinery storage tanks; and
•an increase in revenues of $1.3 million at our Central West Terminals, primarily due to rate escalations and higher throughput and handling fees.
Operating expenses increased $1.1 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to increases in reimbursable and other expenses of $5.3 million that have corresponding increases in revenue, mainly at our West Coast Terminals, an increase of $2.3 million in ad valorem taxes due to higher property valuations, and an increase in maintenance and regulatory expenses of $2.1 million, across various terminals. These increases were partially offset by a decrease in operating expenses of $7.9 million due to the sale of our Point Tupper Terminal Operations during the second quarter of 2022 and a decrease in power costs of $1.1 million, mainly at our St. James and Corpus Christi North Beach terminals.
Depreciation and amortization expense increased $1.6 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to expansion projects at our West Coast Terminals.
Fuels Marketing Segment
The fuels marketing segment mainly includes our bunkering operations in the Gulf Coast, as well as certain of our blending operations associated with our Central East System. The results of operations for the fuels marketing segment depend largely on the margin between our costs and the sales prices of the products we market. Therefore, the results of operations for this segment are more sensitive to changes in commodity prices compared to the operations of the pipeline and storage segments. We enter into derivative contracts to attempt to mitigate the effects of commodity price fluctuations. The financial impacts of the derivative financial instruments associated with commodity price risk were not material for any periods presented.
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
Three Months Ended September 30,
Change
2023
2022
(Thousands of Dollars)
Fuels Marketing Segment:
Product sales
$
109,732
$
125,843
$
(16,111)
Cost of goods
101,056
116,763
(15,707)
Gross margin
8,676
9,080
(404)
Operating expenses
516
561
(45)
Segment operating income
$
8,160
$
8,519
$
(359)
Segment operating income was comparable for the three months ended September 30, 2023 and the three months ended September 30, 2022, as a decrease in product sales of $16.1 million was mostly offset by a decrease in cost of goods of $15.7 million, both mainly driven by lower commodity prices. Gross margins for both our bunkering operations and our blending operations were comparable to the prior period.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
Nine Months Ended September 30,
Change
2023
2022
(Thousands of Dollars)
Fuels Marketing Segment:
Product sales
$
303,185
$
399,912
$
(96,727)
Cost of goods
280,591
376,627
(96,036)
Gross margin
22,594
23,285
(691)
Operating expenses
1,358
1,591
(233)
Segment operating income
$
21,236
$
21,694
$
(458)
Product sales decreased $96.7 million, and cost of goods decreased $96.0 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, mainly for our bunkering operations due to lower commodity prices. Segment operating income and gross margin were comparable for the nine months ended September 30, 2023 and the nine months ended September 30, 2022 as higher blending gross margins of $3.3 million due to lower fuel costs were more than offset by a decrease of $2.4 million in gross margins from our bunkering operations and a decrease of $1.5 million in gross margins from other product sales.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Our primary cash requirements are for distributions to our partners, debt service, capital expenditures and operating expenses. Our partnership agreement requires that we distribute all “Available Cash” to our common limited partners each quarter. “Available Cash” is defined in the partnership agreement generally as cash on hand at the end of the quarter, plus certain permitted borrowings made subsequent to the end of the quarter, less cash reserves determined by our Board of Directors, subject to requirements for distributions for our preferred units. We may maintain our distribution level with other sources of Available Cash, as provided in our partnership agreement, including borrowings under our Revolving Credit Agreement and proceeds from the sale of assets.
In 2022 and 2021, we were able to fund all of our expenses, distribution requirements and capital expenditures using internally generated cash flows. We reduced our leverage to position ourselves to repurchase 6,900,000 of our Series D Preferred Units in November 2022, representing approximately one-third of the outstanding units at that time, using borrowings under our Revolving Credit Agreement.
For the full-year 2023, we expect to fund all of our expenses, distribution requirements and capital expenditures using internally generated cash flows. In the first quarter of 2023, we completed the Sale-Leaseback Transaction for $103.0 million, and in the third quarter of 2023, we issued 14,950,000 common units for net proceeds of approximately $222.0 million. We used the proceeds from these transactions to repay outstanding borrowings on our Revolving Credit Agreement, which facilitated our
redemptions in the second and third quarters of 2023 of an aggregate 16,346,650 of our Series D Preferred Units, representing all outstanding Series D Preferred Units. Additionally, in the second quarter of 2023, we extended the maturity date on our Revolving Credit Agreement to January 27, 2027, and extended the scheduled termination date on our Receivables Financing Agreement to July 1, 2026.
For the remainder of 2023 and the full-year 2024, we plan to focus on continuing to improve our leverage. We have no long-term debt maturities until 2025, and we expect to be able to access debt capital markets to refinance those maturities.
CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
The following table summarizes our cash flows from operating, investing and financing activities (see also our Consolidated Statements of Cash Flows in Item 1. “Financial Statements”):
Nine Months Ended September 30,
2023
2022
(Thousands of Dollars)
Net cash provided by (used in):
Operating activities
$
406,401
$
413,778
Investing activities
19,717
(55,705)
Financing activities
(436,002)
(356,888)
Effect of foreign exchange rate changes on cash
30
750
Net (decrease) increase in cash, cash equivalents and restricted cash
$
(9,854)
$
1,935
Net cash provided by operating activities decreased $7.4 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. The increase in net income of $72.1 million was more than offset by noncash adjustments to reconcile to net cash provided by operating activities. In addition, our working capital decreased $41.6 million for the nine months ended September 30, 2023, compared to a decrease of $32.8 million for the nine months ended September 30, 2022. Generally, working capital requirements are affected by our accounts receivable, accounts payable and accrued liabilities balances, which vary depending on the timing of payments.
For the nine months ended September 30, 2023, we recorded net cash provided by investing activities of $19.7 million, compared to net cash used in investing activities of $55.7 million for the nine months ended September 30, 2022, primarily due to proceeds of approximately $103.0 million from the Sale-Leaseback Transaction in the first quarter of 2023, compared to proceeds from asset sales of $59.6 million for the nine months ended September 30, 2022. Additionally, for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, cash outflows related to capital expenditures decreased an aggregate $25.7 million.
Net cash used in financing activities increased $79.1 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, mainly due to the redemption of the outstanding Series D Preferred Units for $518.7 million in 2023, partially offset by the issuance of common units in September 2023 for $221.9 million and net debt borrowings of $101.7 million for the nine months ended September 30, 2023, compared to net debt repayments of $117.9 million for the nine months ended September 30, 2022.
SOURCES OF LIQUIDITY
Revolving Credit Agreement
On June 30, 2023, we amended the Revolving Credit Agreement, primarily to extend the maturity date from April 27, 2025 to January 27, 2027. The amendment also includes a requirement that we certify that the sum of our Revolving Credit Agreement availability and unrestricted cash balance is no less than $150.0 million on a pro forma basis prior to using any borrowings under the Revolving Credit Agreement to redeem certain unsecured indebtedness or our Series D Preferred Units.
The Revolving Credit Agreement is subject to maximum consolidated debt coverage ratio and minimum consolidated interest coverage ratio requirements, which may limit the amount we can borrow to an amount that is less than the total amount available for borrowing. For a rolling period of four quarters, the Consolidated Debt Coverage Ratio (as defined in the Revolving Credit Agreement) may not exceed 5.00-to-1.00, and the Consolidated Interest Coverage Ratio (as defined in the Revolving Credit Agreement) must not be less than 1.75-to-1.00. As of September 30, 2023, our Consolidated Debt Coverage Ratio was 3.83x and our Consolidated Interest Coverage Ratio was 2.17x. As of September 30, 2023, we had $665.4 million available for borrowing. Letters of credit issued under the Revolving Credit Agreement totaled $4.6 million as of September 30, 2023 and limit the amount we can borrow under the Revolving Credit Agreement. Borrowings under the Revolving Credit
Agreement bear interest, at our option, at an alternate base rate or a SOFR rate, each as defined in the Revolving Credit Agreement.
Receivables Financing Agreement
NuStar Energy and NuStar Finance LLC (NuStar Finance), a special purpose entity and wholly owned subsidiary of NuStar Energy, are parties to the Receivables Financing Agreement with a third-party lender and agreements with certain of NuStar Energy’s wholly owned subsidiaries (collectively with the Receivables Financing Agreement, the Securitization Program). On June 29, 2023, we amended the Receivables Financing Agreement to extend the scheduled termination date from January 31, 2025 to July 1, 2026. As of September 30, 2023, $137.5 million of our accounts receivable was included in the Securitization Program and the amount of borrowings outstanding under the Receivables Financing Agreement totaled $72.6 million. The amount available for borrowing under the Receivables Financing Agreement is based on the availability of eligible receivables and other customary factors and conditions. Borrowings under the Receivables Financing Agreement bear interest, at NuStar Finance’s option, at a base rate or a SOFR rate, each as defined in the Receivables Financing Agreement.
The interest rate on the Revolving Credit Agreement and certain fees under the Receivables Financing Agreement are the only debt arrangements that are subject to adjustment if our debt rating is downgraded (or upgraded) by certain credit rating agencies. See Note 4 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for further discussion of certain of our debt agreements.
Issuance of Common Units
We used the net proceeds of approximately $222.0 million from the issuance of common units on August 11, 2023 to repay outstanding borrowings under our Revolving Credit Agreement. See Note 7 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for additional information.
Asset Sales
We used the proceeds of approximately $103.0 million from the sale of our Corporate Headquarters on March 21, 2023 and approximately $60.0 million from the Point Tupper Terminal Disposition on April 29, 2022 to repay outstanding borrowings under our Revolving Credit Agreement. See Note 2 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for further discussion of these asset sales.
MATERIAL CASH REQUIREMENTS
Capital Expenditures
Our operations require significant investments to maintain, upgrade or enhance the operating capacity of our existing assets. Our capital expenditures consist of:
•strategic capital expenditures, such as those to expand or upgrade the operating capacity, increase efficiency or increase the earnings potential of existing assets, whether through construction or acquisition, as well as certain capital expenditures related to support functions; and
•reliability capital expenditures, such as those required to maintain the current operating capacity of existing assets or extend their useful lives, as well as those required to maintain equipment reliability and safety.
The following table summarizes our capital expenditures:
Strategic Capital Expenditures
Reliability Capital Expenditures
Total
(Thousands of Dollars)
For the nine months ended September 30:
2023
$
80,603
$
20,491
$
101,094
2022
$
86,780
$
24,657
$
111,437
Expected for the year ended December 31, 2023
$120,000 - 130,000
$25,000 - 30,000
Strategic capital expenditures for the nine months ended September 30, 2023 and 2022 primarily consisted of expansion projects on our Permian Crude System and Central West Refined Products Pipelines, and biofuel and other projects at our West Coast Terminals, as well as connection projects on our Ammonia Pipeline in 2023. Reliability capital expenditures primarily related to maintenance upgrade projects at our terminals.
We expect our strategic capital expenditures for the year ended December 31, 2023 to include spending of approximately $35.0 to $45.0 million on expansion projects to accommodate production growth in the Permian Basin and approximately $25.0
million on projects to expand our renewable fuels network on the West Coast. We expect a portion of the remaining strategic capital expenditures to also include about $25.0 million for connection projects on our Ammonia Pipeline. We continue to evaluate our capital budget and internal growth projects can be accelerated or scaled back depending on market conditions or customer demand.
Pension Plan Contribution
In September 2023, we contributed $10.7 million to our pension plan.
Series D Preferred Units Redemption and Repurchase Information
We redeemed or repurchased all of our Series D Preferred Units, as shown below:
Transaction
Number of Units
Price per Unit, including Accrued Distributions
Total Price, including Accrued Distributions
(Thousands of Dollars)
September 12, 2023 redemption
8,286,650
$
32.59
$
270,062
July 31, 2023 redemption
2,560,000
$
32.18
$
82,381
June 30, 2023 redemption
5,500,000
$
31.88
$
175,340
November 22, 2022 repurchase
6,900,000
$
32.73
$
225,837
See Note 6 of the Condensed Notes to the Consolidated Financial Statements in Item 1. “Financial Statements” for additional information on these redemptions.
Distributions
Preferred Units. Distributions on our preferred units are payable out of any legally available funds, accrue and are cumulative from the original issuance dates, and are payable on the 15th day (or next business day) of each of March, June, September and December of each year to holders of record on the first business day of each payment month.
Series D Preferred Units. Prior to their redemption and/or repurchase, the distribution rates on the outstanding Series D Preferred Units were as follows: (i) 9.75% per annum ($0.619 per unit per distribution period) for the first two years (beginning with the September 17, 2018 distribution); (ii) 10.75% per annum ($0.682 per unit per distribution period) for years three through five; and (iii) the greater of 13.75% per annum ($0.872 per unit per distribution period) or the distribution per common unit thereafter. The number of Series D Preferred Units outstanding as of September 30, 2023 and December 31, 2022 totaled 0 and 16,346,650, respectively. While the Series D Preferred Units were outstanding, the Partnership was prohibited from paying distributions on any junior securities, including the common units, unless full cumulative distributions on the Series D Preferred Units (and any parity securities) had been, or contemporaneously were being, paid or set aside for payment through the most recent Series D Preferred Unit distribution payment date.
The distribution rate on our Series D Preferred Units increased on June 15, 2023, to the greater of 13.75% per annum ($0.872 per unit per distribution period) or the distribution per common unit. Distributions accrued for redeemed Series D Preferred Units from the notification dates to the redemption dates are reported in “Interest expense, net” on the condensed consolidated statements of comprehensive income and are excluded from total distributions below for the applicable periods. Distribution information on our Series D Preferred Units was as follows:
Series A, B and C Preferred Units. Information on our Series A, B and C Preferred Units is shown below:
Units
Units Issued and Outstanding as of September 30, 2023
Optional Redemption Date/Date When Distribution Rate Became Floating
Floating Annual Rate (as a Percentage of the $25.00 Liquidation Preference per Unit)
Series A Preferred Units
9,060,000
December 15, 2021
Three-month LIBOR(a) plus 6.766%
Series B Preferred Units
15,400,000
June 15, 2022
Three-month LIBOR(a) plus 5.643%
Series C Preferred Units
6,900,000
December 15, 2022
Three-month LIBOR(a)plus 6.88%
(a)Beginning with the distribution period starting on September 15, 2023, LIBOR was replaced with the corresponding CME Term SOFR plus the applicable tenor spread adjustment of 0.26161%.
Distribution information on our Series A, B and C Preferred Units is as follows (thousands of dollars, except per unit data):
Series A Preferred Units
Series B Preferred Units
Series C Preferred Units
Distribution Period
Distribution Rate per Unit
Total Distribution
Distribution Rate per Unit
Total Distribution
Distribution Rate per Unit
Total Distribution
September 15, 2023 - December 14, 2023
$
0.77736
$
7,043
$
0.70717
$
10,890
$
0.78448
$
5,413
June 15, 2023 - September 14, 2023
$
0.76715
$
6,950
$
0.69696
$
10,733
$
0.77428
$
5,343
March 15, 2023 - June 14, 2023
$
0.73169
$
6,629
$
0.66150
$
10,187
$
0.73881
$
5,098
December 15, 2022 - March 14, 2023
$
0.71889
$
6,513
$
0.64871
$
9,990
$
0.72602
$
5,010
On October 25, 2023, our Board of Directors declared distributions with respect to the Series A, B and C Preferred Units to be paid on December 15, 2023.
Common Units. Distribution payments are made to our common limited partners within 45 days after the end of each quarter as of a record date that is set after the end of each quarter. On October 25, 2023, our Board of Directors declared distributions with respect to our common units for the quarter ended September 30, 2023. The following table summarizes information about quarterly cash distributions to our common limited partners applicable to the period in which the distributions were earned:
Quarter Ended
Cash Distributions Per Unit
Total Cash Distributions
Record Date
Payment Date
(Thousands of Dollars)
September 30, 2023
$
0.40
$
50,358
November 7, 2023
November 14, 2023
June 30, 2023
$
0.40
$
44,363
August 8, 2023
August 14, 2023
March 31, 2023
$
0.40
$
44,396
May 8, 2023
May 12, 2023
December 31, 2022
$
0.40
$
44,328
February 8, 2023
February 14, 2023
Debt Obligations
The following table summarizes our debt obligations:
Maturity
Outstanding Obligations
as of September 30, 2023
(Thousands of Dollars)
5.75% senior notes
October 1, 2025
$
600,000
6.00% senior notes
June 1, 2026
$
500,000
Receivables Financing Agreement, 7.0% as of September 30, 2023
July 1, 2026
$
72,600
Revolving Credit Agreement, 7.9% as of September 30, 2023
January 27, 2027
$
330,000
5.625% senior notes
April 28, 2027
$
550,000
6.375% senior notes
October 1, 2030
$
600,000
GoZone Bonds 5.85% - 6.35%
2038
thru
2041
$
322,140
Subordinated notes, 12.3% as of September 30, 2023
January 15, 2043
$
402,500
We believe that, as of September 30, 2023, we are in compliance with the financial covenants applicable to our debt obligations. A default under certain of our debt obligations would be considered an event of default under other of our debt obligations. See Note 4 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for a discussion of certain of our debt obligations.
Guarantor Summarized Financial Information. NuStar Energy has no operations, and its assets consist primarily of its 100% ownership interest in its indirectly owned subsidiaries, NuStar Logistics and NuPOP. The senior and subordinated notes issued by NuStar Logistics are fully and unconditionally guaranteed by NuStar Energy and NuPOP. Each guarantee of the senior notes by NuStar Energy and NuPOP (i) ranks equally in right of payment with all other existing and future unsecured senior indebtedness of that guarantor, (ii) is structurally subordinated to all existing and any future indebtedness and obligations of any subsidiaries of that guarantor that do not guarantee the notes and (iii) ranks senior to its guarantee of our subordinated indebtedness. Each guarantee of the subordinated notes by NuStar Energy and NuPOP ranks equal in right of payment with all other existing and future subordinated indebtedness of that guarantor and is subordinated in right of payment and upon liquidation to the prior payment in full of all other existing and future senior indebtedness of that guarantor. NuPOP will be released from its guarantee when it no longer guarantees any obligations of NuStar Energy or any of its subsidiaries, including NuStar Logistics, under any bank credit facility or public debt instrument. The rights of holders of our senior and subordinated notes may be limited under the U.S. Bankruptcy Code or state fraudulent transfer or conveyance law. See Note 4 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for a discussion of certain of our debt obligations.
The following tables present summarized combined balance sheet and income statement information for NuStar Energy, NuStar Logistics and NuPOP (collectively, the Guarantor Issuer Group). Intercompany items among the Guarantor Issuer Group have been eliminated in the summarized combined financial information below, as well as intercompany balances and activity for the Guarantor Issuer Group with non-guarantor subsidiaries, including the Guarantor Issuer Group’s investment balances in non-guarantor subsidiaries.
Summarized Combined Balance Sheet Information:
September 30, 2023
December 31, 2022
(Thousands of Dollars)
Current assets
$
32,777
$
44,328
Long-term assets
$
3,167,304
$
3,210,483
Current liabilities(a)
$
184,911
$
120,633
Long-term liabilities, including long-term debt
$
3,475,543
$
3,279,200
Series D preferred limited partners interests
$
—
$
446,970
(a)Excludes $1,809.5 million and $1,694.4 million of net intercompany payables as of September 30, 2023 and December 31, 2022, respectively, due to the non-guarantor subsidiaries from the Guarantor Issuer Group.
Long-term assets for the non-guarantor subsidiaries totaled $1,545.4 million and $1,559.3 million as of September 30, 2023 and December 31, 2022, respectively.
Summarized Combined Income Statement Information:
Nine Months Ended September 30, 2023
(Thousands of Dollars)
Revenues
$
599,960
Operating income
$
242,630
Interest expense, net
$
(176,836)
Net income
$
66,584
Revenues and net income for the non-guarantor subsidiaries totaled $582.5 million and $136.7 million, respectively, for the nine months ended September 30, 2023.
On March 21, 2023, we entered into an operating lease agreement (the Lease Agreement) for our Corporate Headquarters with an initial term of 20 years, with two renewal options of ten years each. During the initial term, rent under the Lease Agreement starts at $6.4 million per year and increases annually by 2.5%. See Note 2 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for further discussion.
Environmental, Health and Safety
Our operations in the U.S. and Mexico are subject to extensive international, federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the environment, waste management, remediation, the characteristics and composition of fuels, climate change and greenhouse gases. Our operations are also subject to extensive health, safety and security laws and regulations, including those relating to worker and pipeline safety, pipeline and storage tank integrity and operations security. Because more stringent environmental and safety laws and regulations are continuously being enacted or proposed, the level of expenditures required for environmental, health and safety matters is expected to increase in the future.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions related thereto that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
INTEREST RATE RISK
Debt
We manage our exposure to changing interest rates principally through the use of a combination of fixed-rate debt and variable-rate debt. Borrowings under our variable-rate debt expose us to increases in interest rates.
On June 30, 2023, we amended our Revolving Credit Agreement, primarily to extend the maturity date from April 27, 2025 to January 27, 2027. On June 29, 2023, we amended our Receivables Financing Agreement to extend the scheduled termination date from January 31, 2025 to July 1, 2026. See Note 4 of the Condensed Notes to the Consolidated Financial Statements in Item 1. “Financial Statements” for more information.
The following tables present principal cash flows and related weighted-average interest rates by expected maturity dates for our long-term debt, excluding finance leases:
September 30, 2023
Expected Maturity Dates
2023
2024
2025
2026
2027
Thereafter
Total
Fair Value
(Thousands of Dollars, Except Interest Rates)
Fixed-rate debt
$
—
$
—
$
600,000
$
500,000
$
550,000
$
922,140
$
2,572,140
$
2,502,662
Weighted-average rate
—
—
5.8
%
6.0
%
5.6
%
6.3
%
6.0
%
—
Variable-rate debt
$
—
$
—
$
—
$
72,600
$
330,000
$
402,500
$
805,100
$
817,637
Weighted-average rate
—
—
—
7.0
%
7.9
%
12.3
%
10.0
%
—
December 31, 2022
Expected Maturity Dates
2023
2024
2025
2026
2027
Thereafter
Total
Fair Value
(Thousands of Dollars, Except Interest Rates)
Fixed-rate debt
$
—
$
—
$
600,000
$
500,000
$
550,000
$
922,140
$
2,572,140
$
2,478,720
Weighted-average rate
—
—
5.8
%
6.0
%
5.6
%
6.3
%
6.0
%
—
Variable-rate debt
$
—
$
—
$
300,900
$
—
$
—
$
402,500
$
703,400
$
690,944
Weighted-average rate
—
—
6.7
%
—
—
10.8
%
9.0
%
—
Series A, B and C Preferred Units
Distributions on our Series A, B and C Preferred Units are payable out of any legally available funds, accrue and are cumulative from the original issuance dates, and are payable on the 15th day (or the next business day) of each of March, June, September and December of each year to holders of record on the first business day of each payment month. The Series A, B and C Preferred Units expose us to changes in interest rates as the distribution rates on these units converted to a floating rate on December 15, 2021, June 15, 2022 and December 15, 2022, respectively. Based upon the 9,060,000 Series A Preferred Units, 15,400,000 Series B Preferred Units and 6,900,000 Series C Preferred Units outstanding as of September 30, 2023 and the $25.00 liquidation preference per unit, a change of 1.0% in interest rates would increase or decrease the annual distributions on our Series A, B and C Preferred Units by an aggregate amount of $7.8 million. See Note 7 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for additional information on our Series A, B and C Preferred Units.
COMMODITY PRICE RISK
Since the operations of our fuels marketing segment expose us to commodity price risk, we also use derivative instruments to attempt to mitigate the effects of commodity price fluctuations. Derivative financial instruments associated with commodity price risk were not material for any periods presented.
(a)Evaluation of disclosure controls and procedures.
Our management has evaluated, with the participation of the principal executive officer and principal financial officer of NuStar GP, LLC, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report, and has concluded that our disclosure controls and procedures were effective as of September 30, 2023.
(b)Changes in internal control over financial reporting.
There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 5. Other Information
Rule 10b5-1 under the Securities Exchange Act of 1934 provides an affirmative defense that enables prearranged transactions in securities in a manner that avoids concerns about initiating transactions at a future date while possibly in possession of material nonpublic information. Our Insider Trading Policy permits our directors and executive officers to enter into trading plans designed to comply with Rule 10b5-1. During the three-month period ending September 30, 2023, we did not adopt or terminate and none of our executive officers or directors adopted or terminated a Rule 10b5-1 trading plan or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K).
Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NUSTAR ENERGY L.P.
(Registrant)
By: Riverwalk Logistics, L.P., its general partner
By: NuStar GP, LLC, its general partner
By:
/s/ Bradley C. Barron
Bradley C. Barron
Chairman of the Board, President and Chief Executive Officer
November 3, 2023
By:
/s/ Thomas R. Shoaf
Thomas R. Shoaf
Executive Vice President and Chief Financial Officer
November 3, 2023
By:
/s/ Jorge A. del Alamo
Jorge A. del Alamo
Senior Vice President - Chief Information Officer and Controller
