August, 2021 [ExpressNews] – San Antonio-based pipeline and terminal operator NuStar Energy L.P. on Thursday said it more than doubled its profit in the second quarter, with demand for refined oil products soaring.
NuStar posted earnings of $63 million in the quarter ended June 30, a 110 percent increase from the same period last year — during the worst of the pandemic-driven drop-off in oil demand. The company generated revenue of $427 million in the latest quarter, a 25 percent increase from a year ago.
“Refined product demand has continued to improve as more and more Americans have returned to normal day-to-day activities,” NuStar President and CEO Brad Barron said. “After dipping to an average of 95 percent in the first quarter due to Winter Storm Uri, our second-quarter average rebounded back up to 105 percent of pre-pandemic demand, and we are now forecasting 100 percent for the full year.”
NuStar moved 1.9 million barrels per day of crude oil and refined products through its 10,000-mile long pipeline network, 22 percent more per day than in the same time last year. The pipeline segment of NuStar’s business earned $96.5 million in the second quarter.
“The strengthening refined product demand we have seen has also increased U.S. refiners’ demand for crude, contributing to higher throughputs for our crude pipelines in the second quarter,” Barron said.
The company’s fuel storage business grew since last year, too. NuStar said its 73 storage facilities averaged a throughput of nearly 386,000 barrels per day in the quarter, a 10 percent bump from a year earlier. The storage segment made a profit of $46.2 million.
NuStar said it carries $3.48 billion in debt, which it’s looking to reduce. NuStar earlier this week announced the sale of eight terminal locations on the East Coast to Sunoco LP for $250 million, leaving the company with 64 storage terminals.
When the sale closes later this year, NuStar will use the proceeds to “improve our debt metrics,” Barron said.
“While selling assets is never easy, this transaction is a ‘win-win’ for all parties as we are exiting non-core assets at an attractive valuation, which allows us to lower leverage,” he said.
NuStar is also increasingly capitalizing on California’s mandate for gasoline-powered vehicles to shift to zero-emission fuel sources by 2035. NuStar’s West Coast pipeline network delivered nearly 20 percent of California’s ethanol and 30 percent of the state’s renewable diesel volumes.
NuStar “comprises a meaningful amount of California’s renewable fuels,” said Stewart Glickman, an energy analyst at CFRA Research. He called NuStar’s renewable fuels segment “a niche business that we think has secular growth tailwinds.”
NuStar also could soon experience greater demand for its ammonia pipeline network, which runs from Louisiana through the Midwest.
Hydrogen could potentially replace gasoline as a fuel for vehicles, especially for big-rig, long-haul transports. In theory, hydrogen would be stored in a vehicle’s fuel tank and then run through a fuel cell where it would be converted to electricity to power the motor.
But hydrogen isn’t very dense, so storing enough of it in a vehicle is a challenge. Ammonia, which is more dense, could potentially act as a carrier for hydrogen fuel.
The ammonia NuStar transports through its network is currently used mostly for fertilizing crops on farms in the Midwest. But the potential for ammonia to deliver zero-emission fuel could drive demand for NuStar’s ammonia network “with little or no additional strategic spending,” the company said.
Glickman said NuStar is “generating ample cash flow” that is sufficient to fund its own capital expenditures and distribution payments to shareholders without incurring debt.
The biggest threat to NuStar for now is the surging delta variant of COVID-19, which could impact demand for oil if the spread accelerates, Glickman said.
Still, Glickman maintained a 12-month price target of $21 per unit for NuStar.
NuStar units closed at $15.22 on Thursday, a one percent increase from Wednesday’s close.
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