Amid a strengthening economy and improved capital markets, NuStar Energy is planning to increase its 2010 growth capital by 136 percent over last year, said Curt Anastasio, CEO of NuStar Energy and NuStar GP Holdings LLC.
Anastasio, who spoke at the 2010 Credit Suisse Energy Summit Feb. 2, said the company plans to spend $310 million on its internal growth program in 2010, up from $131 million spent in 2009.
The company only had $80 million budgeted at the beginning of 2009 for growth capital as they wished to be conservative amid the recession, Anastasio said.
“As the year went by it became apparent that we’d have excellent access to capital,” he said. “As the economy became more stable we loosened the purse strings.”
Now for 2010, the purse strings have been loosened further to allow $230 million to go towards building new storage, $60 million to go towards the asphalt and fuels marketing segment and $20 million to go towards the transportation segment.
Included in the growth capital budget are plans to develop and improve logistics and key terminals, expand pipeline systems in fast-growing regions and fine-tune asphalt operations.
NuStar’s storage segment will receive the lion’s share of growth capital as that is the company’s leading growth opportunity area, Anastasio said. The company is currently the fourth largest owner of liquid storage in the world. Storage made almost $35 million more in earnings before interest, taxes, depreciation and amortization during 2009 compared to 2008.
About 76 percent of NuStar’s total storage contracts won’t go up for renewal for at least a year. The company’s storage terminals on the West Coast currently have a line of people waiting for contracts; NuStar keeps contracts there at less than one-year long in order to capitalize on renewal rates.
The current contango in the futures spreads has only a peripheral affect on NuStar’s storage segment since it is contract based and storage is leased to capacity whether oil products are in the storage terminals or not, Anastasio said.
Despite asphalt being a characteristically volatile business to go into, NuStar expects great things from its asphalt and fuel marketing segment in 2010. While asphalt EBITDA fell 53 percent from the $150 million made in 2008 to $70 million made in 2009, Anastasio said 2010 will be better. Low inventories coupled with a prediction of higher demand due to stimulus spending could translate into higher profits during the year ahead, he said.
U.S. asphalt inventories were down 14 percent in 2009 compared to 2008, and down 21 percent versus a five-year average. Production of asphalt has also dropped, down 13 percent in 2009 over 2008 and down 23 percent against the five-year average. Finally, there were no net imports of asphalt to the U.S. in 2009. Meanwhile, about $11 to $13 billion in stimulus funds have yet to be spent compared to about $8.5 billion spent in 2009. States on the eastern side of the nation had a lag on stimulus spending, so NuStar predicts that there will be more of an uptick in their market for asphalt than there will be in other parts of the country.
“We will see more spending this year,” he said. “It’s not a matter of if, but when.”
The company’s transportation segment turned $190 million of EBITDA in 2009, benefitting from a tariff increase and lower operating expenses. Anastasio said he expects the segment to remain stable throughout 2010.
“[Transportation] is a very stable business in all kinds of conditions,” he said. “It has slower growth opportunities but tremendous stability, which proved out in 2009 during the recession.”
