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NuStar Holds Binding Open Season to Boost Permian Capacity


NuStar Energy L.P. NS recently announced that it has started the Binding Open Season for the second capacity expansion of its Permian Crude System, operated by its unit NuStar Permian Transportation and Storage LLC.

Presently, the Permian Crude System has 625 miles of crude transmission and gathering lines. The need for a second extension arose as the present shipping volume is close to reaching the capacity of the system. The expansion will provide additional shipping capacity to oil producers.

The system will use the interconnects located in Colorado City, TX and help producers to access multiple downstream markets out of the Permian Basin. The overall expansion project is divided into three parts namely, Big Spring South Inlet, Colorado City Mainline Expansion and County Line Loop.

The completion of the project will increase the pipeline's capacity by 70,000 barrels per day. The open season offers 90% of the extended capacity for volume commitments through Transportation Services Agreement ("TSA"). The open season that began on Jan 9, 2018 will span a month.

The majority of NuStar’s business is derived from an attractive set of fee-based storage and transportation assets that support U.S. and international energy infrastructure. Hence, steps like the recent expansion are expected to boost the company's profitability which could lower the partnership’s debt burden. As of Sep 30, 2017, the partnership had total debt of $3.2 billion, representing a debt-to-capitalization ratio of 57.2%.

About NuStar

San Antonio, TX-based NuStar is a master limited partnership (“MLP”) that primarily engages in the transportation and storage of crude oil as well as refined products in the United States, the Netherlands Antilles, Canada, Mexico, and the United Kingdom. The partnership is one of the biggest independent liquids terminal operators in the country. NuStar’s current asset base includes 9,300 miles of pipeline and 81 terminal and crude oil storage tank facilities. The partnership's combined system has approximately 96 million barrels of storage capacity.

Through its agreement to purchase Dallas-based private pipeline company, Navigator Energy Services, NuStar has set foot in the lucrative Permian Basin. The region’s extensive pipeline network and abundant labor supplies will enable the partnership to gain greater margins at the current crude prices.

However, NuStar's distribution coverage ratio dipped to a dismal 0.66x in the third quarter of 2017, down from 1.02x a year ago. This indicates that the partnership does not have enough cash to cover its distribution. Worryingly, the sub-1.0x coverage is expected to continue through at least late 2018.

In addition, NuStar has lost 37.2% of its value in the last year compared with 13.7% fall of its industry.

Zacks Rank and Stocks to Consider

NuStar carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector include Cabot Oil & Gas Corporation COG, Royal Dutch Shell plc RDS.A and Denbury Resources Inc. DNR. All these companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX -based Cabot is an independent energy company. Its sales for the fourth quarter of 2017 are expected to grow 39% year over year. Earnings for the year 2017 are expected to be up 357.14%.

Shell, based in The Hague, the Netherlands, is an integrated energy company. Its earnings for 2017 are expected to increase 99.5% year over year. The company delivered a positive earnings surprise of 18.1% in the third quarter of 2017.

Plano, TX -based Denbury Resources is an integrated energy company. Its sales for the fourth quarter of 2017 are expected to increase 11.2% year over year. The company delivered a positive average earnings surprise of 125% in the last four quarters.

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