Item 1.Financial Statements
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Thousands of Dollars, Except Unit Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
17,278
|
|
|
$
|
16,192
|
|
|
Accounts receivable, net
|
122,623
|
|
|
152,530
|
|
|
|
|
|
|
|
Inventories
|
8,202
|
|
|
12,393
|
|
|
|
|
|
|
|
Prepaid and other current assets
|
30,606
|
|
|
21,933
|
|
|
|
|
|
|
|
Total current assets
|
178,709
|
|
|
203,048
|
|
|
Property, plant and equipment, at cost
|
6,269,183
|
|
|
6,187,144
|
|
|
Accumulated depreciation and amortization
|
(2,178,531)
|
|
|
(2,068,165)
|
|
|
Property, plant and equipment, net
|
4,090,652
|
|
|
4,118,979
|
|
|
Intangible assets, net
|
655,920
|
|
|
681,632
|
|
|
Goodwill
|
780,853
|
|
|
1,005,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term assets, net
|
130,064
|
|
|
176,480
|
|
|
Total assets
|
$
|
5,836,198
|
|
|
$
|
6,185,992
|
|
|
Liabilities, Mezzanine Equity and Partners’ Equity
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$
|
77,457
|
|
|
$
|
109,834
|
|
|
|
|
|
|
|
Short-term debt and current portion of finance leases
|
4,613
|
|
|
10,046
|
|
|
Current portion of long-term debt
|
—
|
|
|
452,367
|
|
|
Accrued interest payable
|
37,748
|
|
|
37,925
|
|
|
Accrued liabilities
|
52,647
|
|
|
104,285
|
|
|
|
|
|
|
|
Taxes other than income tax
|
13,830
|
|
|
12,781
|
|
|
Income tax payable
|
2,075
|
|
|
4,325
|
|
|
|
|
|
|
|
Total current liabilities
|
188,370
|
|
|
731,563
|
|
|
Long-term debt, less current portion
|
3,429,160
|
|
|
2,934,918
|
|
|
|
|
|
|
|
Deferred income tax liability
|
11,268
|
|
|
12,427
|
|
|
Other long-term liabilities
|
152,541
|
|
|
148,939
|
|
|
Total liabilities
|
3,781,339
|
|
|
3,827,847
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
Series D preferred limited partners (23,246,650 preferred units outstanding as of
June 30, 2020 and December 31, 2019) (Note 8)
|
591,895
|
|
|
581,935
|
|
|
|
|
|
|
|
Partners’ equity (Note 9):
|
|
|
|
|
Preferred limited partners
|
|
|
|
|
Series A (9,060,000 units outstanding as of June 30, 2020 and December 31, 2019)
|
218,307
|
|
|
218,307
|
|
|
Series B (15,400,000 units outstanding as of June 30, 2020 and December 31, 2019)
|
371,476
|
|
|
371,476
|
|
|
Series C (6,900,000 units outstanding as of June 30, 2020 and December 31, 2019)
|
166,518
|
|
|
166,518
|
|
|
Common limited partners (109,195,278 and 108,527,806 common units outstanding
as of June 30, 2020 and December 31, 2019, respectively)
|
808,118
|
|
|
1,087,805
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
(101,455)
|
|
|
(67,896)
|
|
|
Total partners’ equity
|
1,462,964
|
|
|
1,776,210
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, mezzanine equity and partners’ equity
|
$
|
5,836,198
|
|
|
$
|
6,185,992
|
|
See Condensed Notes to Consolidated Financial Statements.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Service revenues
|
$
|
284,151
|
|
|
$
|
282,472
|
|
|
$
|
600,897
|
|
|
$
|
541,499
|
|
|
Product sales
|
55,389
|
|
|
89,973
|
|
|
131,434
|
|
|
178,772
|
|
|
Total revenues
|
339,540
|
|
|
372,445
|
|
|
732,331
|
|
|
720,271
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Costs associated with service revenues:
|
|
|
|
|
|
|
|
|
Operating expenses (excluding depreciation and amortization expense)
|
101,078
|
|
|
101,095
|
|
|
201,260
|
|
|
196,506
|
|
|
Depreciation and amortization expense
|
69,214
|
|
|
64,991
|
|
|
137,275
|
|
|
129,809
|
|
|
Total costs associated with service revenues
|
170,292
|
|
|
166,086
|
|
|
338,535
|
|
|
326,315
|
|
|
Cost of product sales
|
50,676
|
|
|
86,389
|
|
|
118,126
|
|
|
172,571
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment loss
|
—
|
|
|
—
|
|
|
225,000
|
|
|
—
|
|
|
General and administrative expenses (excluding depreciation and amortization expense)
|
23,700
|
|
|
24,868
|
|
|
46,671
|
|
|
50,559
|
|
|
Other depreciation and amortization expense
|
2,171
|
|
|
1,819
|
|
|
4,357
|
|
|
3,938
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
246,839
|
|
|
279,162
|
|
|
732,689
|
|
|
553,383
|
|
|
Operating income (loss)
|
92,701
|
|
|
93,283
|
|
|
(358)
|
|
|
166,888
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
(59,499)
|
|
|
(45,693)
|
|
|
(106,993)
|
|
|
(89,984)
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income, net
|
(1,626)
|
|
|
621
|
|
|
(8,115)
|
|
|
1,412
|
|
|
Income (loss) from continuing operations
before income tax expense
|
31,576
|
|
|
48,211
|
|
|
(115,466)
|
|
|
78,316
|
|
|
Income tax expense
|
1,810
|
|
|
1,296
|
|
|
2,409
|
|
|
2,478
|
|
|
Income (loss) from continuing operations
|
29,766
|
|
|
46,915
|
|
|
(117,875)
|
|
|
75,838
|
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(964)
|
|
|
—
|
|
|
(307,750)
|
|
|
Net income (loss)
|
$
|
29,766
|
|
|
$
|
45,951
|
|
|
$
|
(117,875)
|
|
|
$
|
(231,912)
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common unit:
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
(0.06)
|
|
|
$
|
0.11
|
|
|
$
|
(1.74)
|
|
|
$
|
0.05
|
|
|
Discontinued operations
|
—
|
|
|
(0.01)
|
|
|
—
|
|
|
(2.86)
|
|
|
Total (Note 10)
|
$
|
(0.06)
|
|
|
$
|
0.10
|
|
|
$
|
(1.74)
|
|
|
$
|
(2.81)
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common units outstanding
|
109,194,722
|
|
|
107,763,016
|
|
|
109,046,061
|
|
|
107,647,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
32,520
|
|
|
$
|
37,992
|
|
|
$
|
(151,434)
|
|
|
$
|
(244,697)
|
|
See Condensed Notes to Consolidated Financial Statements.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
Net loss
|
$
|
(117,875)
|
|
|
$
|
(231,912)
|
|
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
Depreciation and amortization expense
|
141,632
|
|
|
142,283
|
|
|
Amortization of unit-based compensation
|
5,193
|
|
|
5,774
|
|
|
Amortization of debt related items
|
3,976
|
|
|
2,643
|
|
|
Gain from sale or disposition of assets
|
(800)
|
|
|
(1,300)
|
|
|
Asset and goodwill impairment losses
|
225,000
|
|
|
336,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in current assets and current liabilities (Note 11)
|
(6,174)
|
|
|
(36,229)
|
|
|
Decrease in other long-term assets
|
5,980
|
|
|
15,190
|
|
|
Increase in other long-term liabilities
|
3,601
|
|
|
9,157
|
|
|
Other, net
|
9,908
|
|
|
(1,550)
|
|
|
Net cash provided by operating activities
|
270,441
|
|
|
240,894
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
Capital expenditures
|
(96,358)
|
|
|
(319,961)
|
|
|
Change in accounts payable related to capital expenditures
|
(15,509)
|
|
|
16,144
|
|
|
Proceeds from sale or disposition of assets
|
5,787
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
(106,080)
|
|
|
(303,674)
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
Proceeds from Term Loan, net of discount and issuance costs
|
463,051
|
|
|
—
|
|
|
Proceeds from note offering, net of issuance costs
|
—
|
|
|
491,665
|
|
|
Proceeds from other long-term debt borrowings
|
326,984
|
|
|
415,800
|
|
|
Proceeds from short-term debt borrowings
|
52,000
|
|
|
178,500
|
|
|
Long-term debt repayments
|
(704,715)
|
|
|
(616,800)
|
|
|
Short-term debt repayments
|
(57,500)
|
|
|
(191,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to preferred unitholders
|
(60,846)
|
|
|
(60,846)
|
|
|
Distributions to common unitholders
|
(108,846)
|
|
|
(129,025)
|
|
|
|
|
|
|
|
Payments for termination of interest rate swaps
|
(49,225)
|
|
|
—
|
|
|
Payment of tax withholding for unit-based compensation
|
(8,820)
|
|
|
(6,368)
|
|
|
Decrease in cash book overdrafts
|
(1,359)
|
|
|
(4,718)
|
|
|
Other, net
|
(13,043)
|
|
|
(3,451)
|
|
|
Net cash (used in) provided by financing activities
|
(162,319)
|
|
|
73,757
|
|
|
Effect of foreign exchange rate changes on cash
|
(945)
|
|
|
261
|
|
|
Net increase in cash, cash equivalents and restricted cash
|
1,097
|
|
|
11,238
|
|
|
Cash, cash equivalents and restricted cash as of the beginning of the period
|
24,980
|
|
|
13,644
|
|
|
Cash, cash equivalents and restricted cash as of the end of the period
|
$
|
26,077
|
|
|
$
|
24,882
|
|
See Condensed Notes to Consolidated Financial Statements.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY AND MEZZANINE EQUITY
Three Months Ended June 30, 2020 and 2019
(Unaudited, Thousands of Dollars, Except Per Unit Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners
|
|
|
|
|
|
|
|
Mezzanine Equity
|
|
|
|
|
Preferred
|
|
Common
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total Partners’ Equity
(Note 9)
|
|
Series D Preferred Limited Partners (Note 8)
|
|
Total
|
|
Balance as of March 31, 2020
|
$
|
756,301
|
|
|
$
|
855,722
|
|
|
$
|
(104,209)
|
|
|
$
|
1,507,814
|
|
|
$
|
586,837
|
|
|
$
|
2,094,651
|
|
|
Net income (loss)
|
16,033
|
|
|
(918)
|
|
|
—
|
|
|
15,115
|
|
|
14,651
|
|
|
29,766
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
2,754
|
|
|
2,754
|
|
|
—
|
|
|
2,754
|
|
|
Distributions to partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A, B and C preferred
|
(16,033)
|
|
|
—
|
|
|
—
|
|
|
(16,033)
|
|
|
—
|
|
|
(16,033)
|
|
|
Common ($0.40 per unit)
|
—
|
|
|
(43,677)
|
|
|
—
|
|
|
(43,677)
|
|
|
—
|
|
|
(43,677)
|
|
|
Series D preferred
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,651)
|
|
|
(14,651)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit-based compensation
|
—
|
|
|
2,056
|
|
|
—
|
|
|
2,056
|
|
|
—
|
|
|
2,056
|
|
|
Series D preferred unit accretion
|
—
|
|
|
(5,064)
|
|
|
—
|
|
|
(5,064)
|
|
|
5,064
|
|
|
—
|
|
|
Other
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
(6)
|
|
|
(7)
|
|
|
Balance as of June 30, 2020
|
$
|
756,301
|
|
|
$
|
808,118
|
|
|
$
|
(101,455)
|
|
|
$
|
1,462,964
|
|
|
$
|
591,895
|
|
|
$
|
2,054,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2019
|
$
|
756,301
|
|
|
$
|
1,192,080
|
|
|
$
|
(59,704)
|
|
|
$
|
1,888,677
|
|
|
$
|
568,293
|
|
|
$
|
2,456,970
|
|
|
Net income
|
16,033
|
|
|
15,528
|
|
|
—
|
|
|
31,561
|
|
|
14,390
|
|
|
45,951
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
(7,959)
|
|
|
(7,959)
|
|
|
—
|
|
|
(7,959)
|
|
|
Distributions to partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A, B and C preferred
|
(16,033)
|
|
|
—
|
|
|
—
|
|
|
(16,033)
|
|
|
—
|
|
|
(16,033)
|
|
|
Common ($0.60 per unit)
|
—
|
|
|
(64,658)
|
|
|
—
|
|
|
(64,658)
|
|
|
—
|
|
|
(64,658)
|
|
|
Series D preferred
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,390)
|
|
|
(14,390)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit-based compensation
|
—
|
|
|
2,146
|
|
|
—
|
|
|
2,146
|
|
|
—
|
|
|
2,146
|
|
|
Series D Preferred Unit accretion
|
—
|
|
|
(4,446)
|
|
|
—
|
|
|
(4,446)
|
|
|
4,446
|
|
|
—
|
|
|
Other
|
—
|
|
|
15
|
|
|
—
|
|
|
15
|
|
|
(142)
|
|
|
(127)
|
|
|
Balance as of June 30, 2019
|
$
|
756,301
|
|
|
$
|
1,140,665
|
|
|
$
|
(67,663)
|
|
|
$
|
1,829,303
|
|
|
$
|
572,597
|
|
|
$
|
2,401,900
|
|
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY AND MEZZANINE EQUITY
Six Months Ended June 30, 2020 and 2019
(Unaudited, Thousands of Dollars, Except Per Unit Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners
|
|
|
|
|
|
|
|
Mezzanine Equity
|
|
|
|
|
Preferred
|
|
Common
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total Partners’ Equity
(Note 9)
|
|
Series D Preferred Limited Partners (Note 8)
|
|
Total
|
|
Balance as of January 1, 2020
|
$
|
756,301
|
|
|
$
|
1,087,805
|
|
|
$
|
(67,896)
|
|
|
$
|
1,776,210
|
|
|
$
|
581,935
|
|
|
$
|
2,358,145
|
|
|
Net income (loss)
|
32,066
|
|
|
(178,982)
|
|
|
—
|
|
|
(146,916)
|
|
|
29,041
|
|
|
(117,875)
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
(33,559)
|
|
|
(33,559)
|
|
|
—
|
|
|
(33,559)
|
|
|
Distributions to partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A, B and C preferred
|
(32,066)
|
|
|
—
|
|
|
—
|
|
|
(32,066)
|
|
|
—
|
|
|
(32,066)
|
|
|
Common ($1.00 per unit)
|
—
|
|
|
(108,846)
|
|
|
—
|
|
|
(108,846)
|
|
|
—
|
|
|
(108,846)
|
|
|
Series D preferred
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29,041)
|
|
|
(29,041)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit-based compensation
|
—
|
|
|
18,107
|
|
|
—
|
|
|
18,107
|
|
|
—
|
|
|
18,107
|
|
|
Series D preferred unit accretion
|
—
|
|
|
(9,966)
|
|
|
—
|
|
|
(9,966)
|
|
|
9,966
|
|
|
—
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6)
|
|
|
(6)
|
|
|
Balance as of June 30, 2020
|
$
|
756,301
|
|
|
$
|
808,118
|
|
|
$
|
(101,455)
|
|
|
$
|
1,462,964
|
|
|
$
|
591,895
|
|
|
$
|
2,054,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2019
|
$
|
756,301
|
|
|
$
|
1,556,308
|
|
|
$
|
(54,878)
|
|
|
$
|
2,257,731
|
|
|
$
|
563,992
|
|
|
$
|
2,821,723
|
|
|
Net income (loss)
|
32,066
|
|
|
(292,758)
|
|
|
—
|
|
|
(260,692)
|
|
|
28,780
|
|
|
(231,912)
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
(12,785)
|
|
|
(12,785)
|
|
|
—
|
|
|
(12,785)
|
|
|
Distributions to partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A, B and C preferred
|
(32,066)
|
|
|
—
|
|
|
—
|
|
|
(32,066)
|
|
|
—
|
|
|
(32,066)
|
|
|
Common ($1.20 per unit)
|
—
|
|
|
(129,025)
|
|
|
—
|
|
|
(129,025)
|
|
|
—
|
|
|
(129,025)
|
|
|
Series D preferred
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(28,780)
|
|
|
(28,780)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit-based compensation
|
—
|
|
|
15,686
|
|
|
—
|
|
|
15,686
|
|
|
—
|
|
|
15,686
|
|
|
Series D Preferred Unit accretion
|
—
|
|
|
(8,748)
|
|
|
—
|
|
|
(8,748)
|
|
|
8,748
|
|
|
—
|
|
|
Other
|
—
|
|
|
(798)
|
|
|
—
|
|
|
(798)
|
|
|
(143)
|
|
|
(941)
|
|
|
Balance as of June 30, 2019
|
$
|
756,301
|
|
|
$
|
1,140,665
|
|
|
$
|
(67,663)
|
|
|
$
|
1,829,303
|
|
|
$
|
572,597
|
|
|
$
|
2,401,900
|
|
See Condensed Notes to Consolidated Financial Statements.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization and Operations
NuStar Energy L.P. (NYSE: NS) is a publicly held Delaware limited partnership engaged in the transportation of petroleum products and anhydrous ammonia, and the terminalling, storage and marketing of petroleum products. 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
Term Loan Credit Agreement. On April 19, 2020, NuStar Energy and NuStar Logistics entered into an unsecured term loan credit agreement with certain lenders and Oaktree Fund Administration, LLC, as administrative agent for the lenders (the Term Loan). The Term Loan provides for an aggregate commitment of up to $750.0 million pursuant to a three-year unsecured term loan credit facility. NuStar Logistics drew $500.0 million on April 21, 2020, leaving an additional aggregate principal amount of $250.0 million, which NuStar Logistics may elect to draw, on or prior to April 19, 2021, in one or more draws, subject to certain conditions. Please refer to Note 5 for further discussion.
COVID-19 and OPEC+ Actions. The coronavirus, or COVID-19, which was first identified in North America during the first quarter of 2020, has had a severe negative impact on economic activity, as government authorities have instituted stay-home orders, business closures and other measures to reduce the spread of the virus, and people around the world ceased or altered their usual day-to-day activities. The scale of this decrease in economic activity has significantly reduced demand for petroleum products. In March, the negative economic impact of the COVID-19 pandemic and demand deterioration was exacerbated by disputes among the Organization of Petroleum Exporting Countries and other oil producing nations (OPEC+) regarding their agreed production rates that contributed to a significant over-supply in crude, resulting in a sharp decline in, and increase in the volatility of, crude oil prices. In the second quarter, crude oil prices stabilized somewhat but remained low compared to recent years.
The effects of the COVID-19 pandemic, combined with actions by OPEC+, led to a decline in our unit price and market capitalization in March 2020, and we recorded a goodwill impairment charge of $225.0 million associated with our crude oil pipelines in the first quarter of 2020. Please refer to Note 3 for additional information.
In the second quarter of 2020, the COVID-19 pandemic and actions by OPEC+ had a negative impact on our results of operations. Uncertainty regarding the duration, severity and lingering impact on economic activity from the COVID-19 pandemic and future production decisions by OPEC+ will continue to affect demand for services provided by our operations.
Selby Terminal Fire. On October 15, 2019, our terminal facility in Selby, California experienced a fire that destroyed two storage tanks and temporarily shut down the terminal. The property damage was isolated, and in the fourth quarter of 2019, we incurred losses of $5.4 million, which represent the aggregate amount of our deductibles under various insurance policies. For the six months ended June 30, 2020, we received insurance proceeds of $25.0 million. Gains from business interruption insurance of $3.1 million are included in “Operating expenses” in the condensed consolidated statement of comprehensive loss for the six months ended June 30, 2020. Insurance proceeds relate to cleanup costs and business interruption and are therefore included in “Cash flows from operating activities” in the consolidated statement of cash flows. We believe we have adequate insurance to offset additional costs in excess of the insurance deductibles.
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
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
adjustments are of a normal recurring nature unless disclosed otherwise. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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, 2019.
In the second quarter of 2019, we determined the St. Eustatius terminal and bunkering operations sold on July 29, 2019 met the requirements to be reported as discontinued operations, and as a result, we reclassified certain revenues and expenses to discontinued operations for all applicable periods presented, as further discussed in Note 3.
2. NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
In August 2020, the Financial Accounting Standards Board (FASB) issued guidance intended to simplify the accounting for convertible instruments by eliminating certain accounting models for convertible debt instruments and convertible preferred stock. In addition, the guidance amends the derivatives scope exception for contracts in an entity’s own equity, the disclosure requirements for convertible instruments, and certain earnings-per-unit guidance. The guidance is effective for annual periods beginning after December 15, 2021, and early adoption is permitted for annual periods beginning after December 31, 2020. Amendments may be applied using either a modified retrospective approach or a fully retrospective approach. We are currently assessing the impact of this amended guidance on our financial position, results of operations and disclosures and are also evaluating whether we will adopt these provisions early. We plan to provide additional information about the expected impact at a future date.
Reference Rate Reform
In March 2020, the FASB issued guidance intended to provide relief to companies impacted by reference rate reform. The amended guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The guidance is effective as of March 12, 2020 through December 31, 2022. We adopted the guidance on the effective date on a prospective basis. The guidance did not have an impact on our financial position, results of operations or disclosures at transition, but we will continue to evaluate its impact on contracts and hedging relationships entered into or modified on or before December 31, 2022.
Financial Disclosures about Guarantors and Issuers of Guaranteed Securities
In March 2020, the Securities and Exchange Commission (SEC) issued final rules regarding presentation of financial information for guarantor subsidiaries. The final rules reduce the number of periods for which guarantor financial information is required and allow presentation of summarized financial information in lieu of separate financial statements. The guidance is effective for fiscal periods ending after January 4, 2021, with early adoption permitted. We continue to evaluate these requirements, including whether we will adopt these provisions early, but expect the guidance will reduce our disclosures related to guarantor financial information.
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued amended guidance that simplifies the accounting for income taxes, including enacted changes in tax laws in interim periods. The guidance is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. These provisions should be applied retrospectively, prospectively, or on a modified retrospective basis depending on the area affected by the amended guidance. We plan on adopting the amended guidance on January 1, 2021 and do not expect this amended guidance to have a material impact on our financial position, results of operations or disclosures.
Cloud Computing Arrangements
In August 2018, the FASB issued guidance addressing a customer’s accounting for implementation costs incurred in a cloud computing arrangement (CCA) that is considered a service contract. The new guidance specifies that an entity would apply the capitalization criteria for implementation costs related to internal-use software to determine which implementation costs related to a CCA that is a service contract should be capitalized and which should be expensed. The amendments also require that capitalized implementation costs be classified in the same balance sheet line item as prepayments related to the CCA and, generally, amortized on a straight-line basis over the term of the CCA. Amortization of capitalized implementation costs should be presented in the same income statement line item as CCA service fees, and cash flows for capitalized implementation costs should be presented consistently with those related to the CCA service. The guidance is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. Prospective adoption for eligible costs incurred on or after
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
the date of adoption or retrospective adoption is permitted. We adopted the guidance on January 1, 2020 on a prospective basis, and the guidance did not have a material impact on our financial position, results of operations or disclosures.
Disclosures for Defined Benefit Plans
In August 2018, the FASB issued amended guidance that makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. The guidance is effective for annual periods beginning after December 15, 2020, with early adoption permitted, using a retrospective approach. We continue to evaluate these provisions, including whether we will adopt these provisions early, but we do not expect the guidance to have a material impact on our disclosures.
Credit Losses
In June 2016, the FASB issued amended guidance that replaces the incurred loss model for the measurement of financial assets with the current expected credit losses (CECL) model. Under the CECL model, entities are required to consider a broader range of information to estimate expected credit losses, including historical experience, current conditions, and reasonable and supportable forecasts, which may result in earlier recognition of credit losses. The changes are effective for annual and interim periods beginning after December 15, 2019, and amendments should be applied using a modified retrospective approach. We adopted the amended guidance on January 1, 2020, and the amended guidance did not have a material impact on our financial position, results of operations or disclosures at the transition date.
3. IMPAIRMENTS AND DISCONTINUED OPERATIONS
2020 Impairment
In March 2020, the COVID-19 pandemic and actions taken by OPEC+ resulted in severe disruptions in the capital and commodities markets, which led to significant decline in our unit price. As a result, our equity market capitalization fell significantly. The decline in crude oil prices and demand for petroleum products also led to a decline in expected earnings from some of our goodwill reporting units. These factors and others related to COVID-19 and OPEC+ caused us to conclude there were triggering events that occurred in March that required us to perform a goodwill impairment test as of March 31, 2020.
The decline in our equity market capitalization resulted in a decline in the estimated fair value of the crude oil pipelines reporting unit. Therefore, we recognized a goodwill impairment charge of $225.0 million in the first quarter of 2020, which is reported in the pipeline segment. Our assessment did not identify any other reporting units at risk of a goodwill impairment.
We calculated the estimated fair value of each of our reporting units using a weighted-average of values determined from an income approach and a market approach. The income approach involves estimating the fair value of each reporting unit by discounting its estimated future cash flows using a discount rate that would be consistent with a market participant’s assumption. The market approach bases the fair value measurement on information obtained from observed stock prices of public companies and recent merger and acquisition transaction data of comparable entities.
In order to estimate the fair value of goodwill, management must make certain estimates and assumptions that affect the total fair value of the reporting unit including, among other things, an assessment of market conditions, projected cash flows, discount rates and growth rates. Management’s estimates of projected cash flows related to the reporting unit include, but are not limited to, future earnings of the reporting unit, assumptions about the use or disposition of the asset, estimated remaining life of the asset, and future expenditures necessary to maintain the asset’s existing service potential. The assumptions in the fair value measurement reflect the current market environment, industry-specific factors and company-specific factors.
The decline in expected earnings from certain of our long-lived assets was also an indicator that the carrying values of these long-lived assets may not be recoverable. Prior to performing the goodwill impairment test, we tested these long-lived assets for recoverability and determined they were fully recoverable as of March 31, 2020.
Management’s estimates are based on numerous assumptions about future operations and market conditions, which we believe to be reasonable but are inherently uncertain. The uncertainties underlying our assumptions and estimates could differ significantly from actual results, including with respect to the duration and severity of the COVID-19 pandemic.
Through the filing date of this report, we did not identify any factors to warrant an evaluation of the recoverability of the carrying value of our long-lived assets or goodwill as of June 30, 2020. However, in the current volatile economic environment and to the extent conditions further deteriorate, we may identify additional triggering events that may require future evaluations of the recoverability of the carrying value of our long-lived assets and goodwill, which could result in further impairment charges that could be material to our results of operations.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2019 Impairments and Discontinued Operations
On July 29, 2019, we sold our St. Eustatius terminal and bunkering operations (the St. Eustatius Operations) for net proceeds of approximately $230.0 million (the St. Eustatius Disposition). During the second quarter of 2019, we determined the assets and liabilities associated with the St. Eustatius Operations met the criteria to be classified as held for sale, and as a result, we reclassified certain revenues and expenses to discontinued operations for all applicable periods presented. We determined the St. Eustatius Operations and the European operations, which we sold on November 30, 2018, met the requirements to be reported as discontinued operations since the St. Eustatius Disposition and the sale of the European operations together represented a strategic shift that would have a major impact on our operations and financial results. These sales were part of our plan to improve our debt metrics and partially fund capital projects to grow our core business in North America. We previously reported the terminal operations in our storage segment and the bunkering operations in our fuels marketing segment.
On January 28, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control added Petroleos de Venezuela, S.A. (PDVSA), at the time a customer at the St. Eustatius facility, to its List of Specially Designated Nationals and Blocked Persons (the SDN List). The inclusion of PDVSA on the SDN List required us to wind down our contracts with PDVSA. Prior to winding down such contracts, PDVSA was the St. Eustatius terminal’s largest customer. The effect of the sanctions issued against PDVSA, combined with the progression in the sale negotiations that occurred during March 2019, resulted in triggering events that caused us to evaluate the long-lived assets and goodwill associated with the St. Eustatius terminal and bunkering operations for potential impairment.
With respect to the terminal operations long-lived assets, our estimates of future expected cash flows included the possibility of a near-term sale, as well as continuing to operate the terminal. The carrying value of the terminal’s long-lived assets exceeded our estimate of the total expected cash flows, indicating the long-lived assets were potentially impaired. To determine an impairment amount, we estimated the fair value of the long-lived assets for comparison to the carrying amount of those assets. Our estimate of the fair value considered the expected sales price as well as estimates generated from income and market approaches using a market participant’s assumptions. The estimated fair values resulting from the market and income approaches were consistent with the expected sales price. Therefore, we concluded that the estimated sales price, which was less than the carrying amount of the long-lived assets, represented the best estimate of fair value at March 31, 2019, and we recorded a long-lived asset impairment charge of $297.3 million in the first quarter of 2019 to reduce the carrying value of the assets to their estimated fair value. We recorded an additional impairment charge of $8.4 million in the second quarter of 2019, mainly due to additional capital expenditures incurred in the second quarter.
With respect to the goodwill in the Statia Bunkering reporting unit, which consisted of our bunkering operations at the St. Eustatius terminal facility, we estimated the fair value based on the expected sales price discussed above, which is inclusive of the bunkering operations. As a result, we concluded the goodwill was impaired. Consistent with FASB’s amended goodwill impairment guidance, which we adopted in the first quarter of 2019, we measured the goodwill impairment as the difference between the reporting unit’s carrying value and its fair value. Therefore, we recognized a goodwill impairment charge of $31.1 million in the first quarter of 2019 to reduce the goodwill to $0 for the Statia Bunkering reporting unit.
The impairment charges are included in “Loss from discontinued operations, net of tax” on the condensed consolidated statements of comprehensive income (loss).
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Discontinued Operations
The following is a reconciliation of the major classes of line items included in “Loss from discontinued operations, net of tax” on the condensed consolidated statements of comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
Six Months Ended
June 30, 2019
|
|
|
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
92,837
|
|
|
$
|
231,480
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
86,278
|
|
|
202,880
|
|
|
Impairment losses
|
8,398
|
|
|
336,838
|
|
|
General and administrative expenses (excluding depreciation and amortization expense)
|
305
|
|
|
610
|
|
|
|
|
|
|
|
Total costs and expenses
|
94,981
|
|
|
540,328
|
|
|
Operating loss
|
(2,144)
|
|
|
(308,848)
|
|
|
Interest income, net
|
9
|
|
|
32
|
|
|
Other income, net
|
1,171
|
|
|
1,167
|
|
|
Loss from discontinued operations before income tax expense
|
(964)
|
|
|
(307,649)
|
|
|
Income tax expense
|
—
|
|
|
101
|
|
|
Loss from discontinued operations, net of tax
|
$
|
(964)
|
|
|
$
|
(307,750)
|
|
The consolidated statement of cash flows has not been adjusted to separately disclose cash flows related to discontinued operations. The following table presents selected cash flow information associated with our discontinued operations:
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
(Thousands of Dollars)
|
|
Capital expenditures
|
$
|
(23,635)
|
|
|
|
|
|
Significant noncash operating activities:
|
|
|
Depreciation and amortization expense
|
$
|
8,536
|
|
|
Asset impairment losses
|
$
|
305,715
|
|
|
Goodwill impairment loss
|
$
|
31,123
|
|
|
|
|
|
|
|
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
4. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
Contract Assets
|
|
Contract Liabilities
|
|
Contract Assets
|
|
Contract Liabilities
|
|
|
(Thousands of Dollars)
|
|
|
|
|
|
|
|
Balance as of January 1:
|
|
|
|
|
|
|
|
|
Current portion
|
$
|
2,140
|
|
|
$
|
(21,083)
|
|
|
$
|
2,066
|
|
|
$
|
(21,579)
|
|
|
Noncurrent portion
|
1,003
|
|
|
(40,289)
|
|
|
539
|
|
|
(38,945)
|
|
|
Held for sale
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,357)
|
|
|
Total
|
3,143
|
|
|
(61,372)
|
|
|
2,605
|
|
|
(85,881)
|
|
|
|
|
|
|
|
|
|
|
|
Activity:
|
|
|
|
|
|
|
|
|
Additions
|
2,670
|
|
|
(34,156)
|
|
|
2,674
|
|
|
(24,537)
|
|
|
Transfer to accounts receivable
|
(2,258)
|
|
|
—
|
|
|
(2,638)
|
|
|
—
|
|
|
Transfer to revenues, including amounts
reported in discontinued operations
|
(125)
|
|
|
29,848
|
|
|
—
|
|
|
46,757
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
287
|
|
|
(4,308)
|
|
|
36
|
|
|
22,220
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30:
|
|
|
|
|
|
|
|
|
Current portion
|
2,218
|
|
|
(20,235)
|
|
|
1,483
|
|
|
(23,688)
|
|
|
Noncurrent portion
|
1,212
|
|
|
(45,445)
|
|
|
1,158
|
|
|
(39,973)
|
|
|
Total
|
$
|
3,430
|
|
|
$
|
(65,680)
|
|
|
$
|
2,641
|
|
|
$
|
(63,661)
|
|
As previously discussed in Note 3, the inclusion of PDVSA on the SDN List prevented us from providing services to PDVSA unless the sanctions were lifted or otherwise modified. As a result, in the first quarter of 2019 we accelerated the recognition of revenue totaling $16.3 million, representing the amount remaining from a third quarter 2018 settlement we entered into with PDVSA.
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 June 30, 2020 (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
2020 (remaining)
|
|
$
|
303,381
|
|
|
2021
|
|
447,265
|
|
|
2022
|
|
350,120
|
|
|
2023
|
|
259,775
|
|
|
2024
|
|
189,709
|
|
|
Thereafter
|
|
279,738
|
|
|
Total
|
|
$
|
1,829,988
|
|
Our contractually committed revenue, for purposes of the tabular presentation above, is generally limited to customer service contracts that have fixed pricing and fixed volume terms and conditions, generally including contracts with payment obligations for take-or-pay minimum volume commitments.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Disaggregation of Revenues
The following table disaggregates our revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(Thousands of Dollars)
|
|
|
|
|
|
|
|
Pipeline segment:
|
|
|
|
|
|
|
|
|
Crude oil pipelines
|
$
|
79,110
|
|
|
$
|
77,293
|
|
|
$
|
170,832
|
|
|
$
|
145,771
|
|
|
Refined products and ammonia pipelines
(excluding lessor revenues)
|
86,173
|
|
|
92,534
|
|
|
189,307
|
|
|
177,640
|
|
|
Total pipeline segment revenues from contracts with customers
|
165,283
|
|
|
169,827
|
|
|
360,139
|
|
|
323,411
|
|
|
Lessor revenues
|
825
|
|
|
2,666
|
|
|
1,650
|
|
|
5,333
|
|
|
Total pipeline segment revenues
|
166,108
|
|
|
172,493
|
|
|
361,789
|
|
|
328,744
|
|
|
|
|
|
|
|
|
|
|
|
Storage segment:
|
|
|
|
|
|
|
|
|
Throughput terminals
|
32,199
|
|
|
23,170
|
|
|
70,922
|
|
|
44,856
|
|
|
Storage terminals (excluding lessor revenues)
|
76,880
|
|
|
77,039
|
|
|
151,046
|
|
|
148,660
|
|
|
Total storage segment revenues from contracts with customers
|
109,079
|
|
|
100,209
|
|
|
221,968
|
|
|
193,516
|
|
|
Lessor revenues
|
10,328
|
|
|
10,194
|
|
|
20,656
|
|
|
20,387
|
|
|
Total storage segment revenues
|
119,407
|
|
|
110,403
|
|
|
242,624
|
|
|
213,903
|
|
|
|
|
|
|
|
|
|
|
|
Fuels marketing segment:
|
|
|
|
|
|
|
|
|
Revenues from contracts with customers
|
54,025
|
|
|
89,549
|
|
|
127,927
|
|
|
177,628
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation and intersegment eliminations
|
—
|
|
|
—
|
|
|
(9)
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
339,540
|
|
|
$
|
372,445
|
|
|
$
|
732,331
|
|
|
$
|
720,271
|
|
5. DEBT
Term Loan Credit Agreement
On April 19, 2020, NuStar Energy and NuStar Logistics entered into an unsecured term loan credit agreement with certain lenders and Oaktree Fund Administration, LLC, as administrative agent for the lenders. The Term Loan provides for an aggregate commitment of up to $750.0 million pursuant to a three-year unsecured term loan credit facility. NuStar Logistics drew $500.0 million (the Initial Loan) on April 21, 2020 (the Initial Loan Funding Date), leaving an additional aggregate principal amount of $250.0 million, which NuStar Logistics may elect to draw, on or prior to April 19, 2021, in one or more draws, subject to certain conditions. We utilized the proceeds from the Initial Loan, net of the original issue discount of $22.5 million (3.0% of the total commitment) and issuance costs of $14.4 million, to repay outstanding borrowings under our Revolving Credit Agreement, as defined below. The Term Loan also bolsters our liquidity to address our senior note maturities in 2020 and early 2021.
Outstanding borrowings bear interest at an aggregate rate of 12.0% per annum. Additionally, NuStar Logistics will pay a commitment fee in the amount of 5.0% per annum on the average daily undrawn amount. The obligations under the Term Loan are guaranteed by NuStar Energy and NuPOP.
NuStar Logistics is required to make mandatory prepayment in an amount equal to 100.0% of the proceeds received as a result of certain events, subject to certain exclusions and adjustments, such as the incurrence of additional indebtedness (excluding additional borrowings under the Revolving Credit Agreement) and the issuance of equity securities, and is required to offer to make such a prepayment with respect to the sale of property or assets. Depending on the amount of time that has passed since the Initial Loan Funding Date, if there is a payment or prepayment (subject to certain exceptions), NuStar Logistics is required to pay, as liquidated damages and compensation for the costs of making funds available, a make-whole premium or similar
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
amount. From the Initial Loan Funding Date through the 18-month anniversary of the Initial Loan Funding Date, such premium will be the sum of (i) the make-whole amount and (ii) 6.25% of the aggregate principal amount of borrowings then paid, prepaid or accelerated. After the 18-month anniversary of the Initial Loan Funding Date through the 30-month anniversary of the Initial Loan Funding Date, such premium will be 6.25% of the aggregate principal amount of borrowings then paid, prepaid or accelerated. Prepayments accepted in connection with one or more asset sales of up to an aggregate amount of $250.0 million will be subject to a lower prepayment premium. For such asset sale prepayments from the Initial Loan Funding Date through the 18-month anniversary of the Initial Loan Funding Date, such premium will be 5.0% of the aggregate principal amount of borrowings then paid, prepaid or accelerated. After the 18-month anniversary of the Initial Loan Funding Date through the 30-month anniversary of the Initial Loan Funding Date, such premium will be 3.0% of the aggregate principal amount of borrowings then paid, prepaid or accelerated. There will be no premium for any prepayments of borrowings after the 30-month anniversary of the Initial Loan Funding Date.
The Term Loan contains customary covenants (including ratio requirements) regarding NuStar Energy and its subsidiaries that are generally based upon and are comparable to those contained in the Revolving Credit Agreement and also contains customary events of default.
Gulf Opportunity Zone Revenue Bonds
In 2008, 2010 and 2011, the Parish of St. James, Louisiana issued Revenue Bonds Series 2008, Series 2010, Series 2010A, Series 2010B and Series 2011 associated with our St. James terminal expansions pursuant to the Gulf Opportunity Zone Act of 2005 (collectively, GoZone Bonds) for an aggregate $365.4 million. Following the issuances, the proceeds were deposited with a trustee and were disbursed to us upon our request for reimbursement of expenditures related to our St. James terminal expansions. On March 4, 2020, NuStar Logistics repaid $43.3 million of GoZone Bonds with unused funds, which had been held in trust. NuStar Logistics is obligated to make payments in amounts sufficient to pay the principal of, premium, if any, interest and certain other payments on, the GoZone Bonds.
On June 3, 2020, NuStar Logistics completed the reoffering and conversion of the GoZone Bonds through supplements to the original indentures governing the GoZone Bonds and supplements to the original agreements between NuStar Logistics and the Parish of St. James, which, among other things, converted the interest rate from a weekly rate to a long-term rate. In connection with the reoffering and conversion, we terminated the letters of credit previously issued by various individual banks on our behalf to support the payments required in connection with the GoZone Bonds, and NuStar Energy and NuPOP guaranteed NuStar Logistics’ obligations with respect to the GoZone Bonds. We did not receive any proceeds from the reoffering, and the reoffering did not increase our outstanding debt.
The following table summarizes the GoZone Bonds outstanding as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
|
|
Date Issued
|
|
Amount
Outstanding
|
|
Interest Rate
|
|
Mandatory
Purchase Date
|
|
Maturity Date
|
|
|
|
|
|
(Thousands of
Dollars)
|
|
|
|
|
|
|
|
Series 2008
|
|
June 26, 2008
|
|
$
|
55,440
|
|
|
6.10
|
%
|
|
June 1, 2030
|
|
June 1, 2038
|
|
Series 2010
|
|
July 15, 2010
|
|
100,000
|
|
|
6.35
|
%
|
|
n/a
|
|
July 1, 2040
|
|
Series 2010A
|
|
October 7, 2010
|
|
43,300
|
|
|
6.35
|
%
|
|
n/a
|
|
October 1, 2040
|
|
Series 2010B
|
|
December 29, 2010
|
|
48,400
|
|
|
6.10
|
%
|
|
June 1, 2030
|
|
December 1, 2040
|
|
Series 2011
|
|
August 9, 2011
|
|
75,000
|
|
|
5.85
|
%
|
|
June 1, 2025
|
|
August 1, 2041
|
|
|
|
Total
|
|
$
|
322,140
|
|
|
|
|
|
|
|
Interest on the GoZone Bonds accrues from June 3, 2020 and is payable semi-annually on June 1 and December 1 of each year, beginning December 1, 2020. The holders of the Series 2008, Series 2010B and Series 2011 GoZone Bonds are required to tender their bonds at the applicable mandatory purchase date in exchange for 100% of the principal plus accrued and unpaid interest, after which these bonds will potentially be remarketed with a new interest rate established. Each of the Series 2010 and Series 2010A GoZone Bonds is subject to redemption on or after June 1, 2030 by the Parish of St. James, at our option, in whole or in part, at a redemption price of 100% of the principal amount to be redeemed plus accrued interest. The Series 2008, Series 2010B and Series 2011 GoZone Bonds are not subject to optional redemption.
NuStar Logistics’ agreements with the Parish of St. James related to the GoZone Bonds contain (i) customary restrictive covenants that limit the ability of NuStar Logistics and its subsidiaries, to, among other things, create liens or enter into sale-leaseback transactions, consolidations, mergers or asset sales and (ii) a change of control provision that provides each holder the
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
right to require the trustee, with funds provided by NuStar Logistics, to repurchase all or a portion of that holder’s GoZone Bonds upon a change of control at a price equal to 101% of the aggregate principal amount repurchased, plus any accrued and unpaid interest.
Revolving Credit Agreement
On March 6, 2020, NuStar Logistics amended its revolving credit agreement (the Revolving Credit Agreement) to, among other things, extend the maturity date from October 29, 2021 to October 27, 2023, reduce the total amount available for borrowing from $1.2 billion to $1.0 billion and increase the rates included in the definition of Applicable Rate contained in the Revolving Credit Agreement. On April 6, 2020, NuStar Logistics amended the Revolving Credit Agreement to allow for certain transactions related to the GoZone Bonds.
As of June 30, 2020, we had $110.9 million outstanding 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 LIBOR-based rate. The interest rate on the Revolving Credit Agreement is subject to adjustment if our debt rating is downgraded (or upgraded) by certain credit rating agencies. In March 2020, S&P Global Ratings changed our rating outlook from stable to negative, and back to stable in April 2020. In April 2020, Fitch, Inc. downgraded our credit rating from BB to BB- and placed our rating on Rating Watch Negative and Moody’s Investor Service Inc. placed our rating under review for downgrade. These actions did not impact the interest rate on our Revolving Credit Agreement, which is the only debt arrangement with an interest rate that is subject to adjustment if our debt rating is downgraded (or upgraded) by certain credit rating agencies. As of June 30, 2020, our weighted-average interest rate related to borrowings under the Revolving Credit Agreement was 2.5%.
For the rolling period of four quarters ending June 30, 2020, the consolidated debt coverage ratio (as defined in the Revolving Credit Agreement) could 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. The maximum consolidated debt coverage ratio and minimum consolidated interest coverage ratio requirements may limit the amount we can borrow under the Revolving Credit Agreement to an amount less than the total amount available for borrowing. As of June 30, 2020, we had $885.0 million available for borrowing, and we believe that we are in compliance with the covenants 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 a $125.0 million receivables financing agreement with third-party lenders (the Receivables Financing Agreement) and agreements with certain of NuStar Energy’s wholly owned subsidiaries (collectively with the Receivables Financing Agreement, the Securitization Program). NuStar Finance’s sole activity consists of purchasing receivables from NuStar Energy’s wholly owned subsidiaries that participate in the Securitization Program and providing these receivables as collateral for NuStar Finance’s revolving borrowings under the Securitization Program. NuStar Energy provides a performance guarantee in connection with the Securitization Program. NuStar Finance is a separate legal entity and the assets of NuStar Finance, including these accounts receivable, are not available to satisfy the claims of creditors of NuStar Energy, its subsidiaries selling receivables under the Securitization Program or their affiliates. The amount available for borrowing is based on the availability of eligible receivables and other customary factors and conditions.
Borrowings by NuStar Finance under the Receivables Financing Agreement bear interest at the applicable bank rate, as defined under the Receivables Financing Agreement. The weighted average interest rate related to outstanding borrowings under the Securitization Program as of June 30, 2020 was 1.1%. As of June 30, 2020, $94.7 million of our accounts receivable is included in the Securitization Program. The amount of borrowings outstanding under the Receivables Financing Agreement totaled $48.6 million as of June 30, 2020, which is included in “Long-term debt, less current portion” on the consolidated balance sheet.
Current Maturities
We expect to fund senior note maturities in 2020 and 2021 by utilizing senior note issuances in the capital markets, borrowings under our Revolving Credit Agreement or the Term Loan. Therefore, the senior note maturities in 2020 and 2021 are classified as long-term debt. Although the Term Loan provides us the financial flexibility to fund these maturities in the near term, we plan to continue to monitor the debt capital markets for opportunities to raise additional capital at favorable terms.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
6. 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 $3.6 million and $3.7 million for contingent losses as of June 30, 2020 and December 31, 2019, 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.
7. DERIVATIVES AND FAIR VALUE MEASUREMENTS
Derivative Instruments
We utilize various derivative instruments to manage our exposure to interest rate risk and commodity price risk. Our risk management policies and procedures are designed to monitor interest rates, futures and swap positions and over-the-counter positions, as well as physical commodity volumes, grades, locations and delivery schedules, to help ensure that our hedging activities address our market risks. Derivative financial instruments associated with commodity price risk with respect to our petroleum product inventories and related firm commitments to purchase and/or sell such inventories were not material for any periods presented.
Interest Rate Risk. We were a party to certain interest rate swap agreements to manage our exposure to changes in interest rates, which consisted of forward-starting interest rate swap agreements related to a forecasted debt issuance in 2020. We entered into these swaps in order to hedge the risk of fluctuations in the required interest payments attributable to changes in the benchmark interest rate during the period from the effective date of the swap to the issuance of the forecasted debt. Under the terms of the swaps, we paid a weighted-average fixed rate of 2.8% and received a rate based on the three-month USD LIBOR. These swaps qualified as cash flow hedges, and we designated them as such. We recorded mark-to-market adjustments as a component of “Accumulated other comprehensive loss” (AOCI), and the amount in AOCI is recognized in “Interest expense, net” as the forecasted interest payments occur or if the interest payments are probable not to occur. In June 2020, in connection with the reoffering and conversion of the GoZone Bonds, we terminated forward-starting interest rate swaps with an aggregate notional amount of $250.0 million and paid $49.2 million, which will be amortized into “Interest expense, net” as the related forecasted interest payments occur. The termination payments are included in cash flows from financing activities on the consolidated statement of cash flows.
Our forward-starting interest rate swaps had the following impact on earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(Thousands of Dollars)
|
|
|
|
|
|
|
|
Loss recognized in other comprehensive income (loss) on derivative
|
$
|
(461)
|
|
|
$
|
(9,784)
|
|
|
$
|
(30,291)
|
|
|
$
|
(16,592)
|
|
|
Loss reclassified from AOCI into interest expense, net
|
$
|
(878)
|
|
|
$
|
(1,005)
|
|
|
$
|
(1,525)
|
|
|
$
|
(2,083)
|
|
As of June 30, 2020, we expect to reclassify a loss of $5.4 million to “Interest expense, net” within the next twelve months associated with unwound forward-starting interest rate swaps.
Fair Value Measurements
We segregate the inputs used in measuring fair value into three levels: Level 1, defined as observable inputs, such as quoted prices for identical assets or liabilities in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets that are not active; and Level 3, defined as unobservable inputs for which little or no market data exists. We consider counterparty credit risk and our own credit risk in the determination of all estimated fair values.
Recurring Fair Value Measurements. Prior to the termination of our forward-starting interest rate swaps in the second quarter of 2020, we estimated the fair value using discounted cash flows, which used observable inputs such as time to maturity and market interest rates and, therefore, we included the interest rate swaps in Level 2 of the fair value hierarchy. As of
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2019, the fair value of our forward-starting interest rate swap agreements included in “Accrued liabilities” on our consolidated balance sheet was $19.2 million, with an aggregate notional amount of $250.0 million.
Fair Value of Financial Instruments
We recognize cash equivalents, receivables, payables and debt in our consolidated balance sheets at their carrying amounts. The fair values of these financial instruments, except for long-term debt other than finance leases, approximate their carrying amounts. The estimated fair values and carrying amounts of long-term debt, including the current portion and excluding finance leases, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
(Thousands of Dollars)
|
|
|
|
Fair value
|
$
|
3,372,527
|
|
|
$
|
3,442,001
|
|
|
Carrying amount
|
$
|
3,374,056
|
|
|
$
|
3,331,839
|
|
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. For the Term Loan, we estimated the fair value using a discounted cash flow analysis that reflects management’s assumptions about the inputs that market participants would use and determined that the fair value falls in Level 3 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 net fair value adjustments, unamortized discounts and unamortized debt issuance costs.
8. SERIES D CUMULATIVE CONVERTIBLE PREFERRED UNITS
Distributions on the Series D Cumulative Convertible Preferred Units (Series D 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, to holders of record on the first business day of each payment month. The distribution rates on the Series D Preferred Units are as follows: (i) 9.75% per annum (or $0.619 per unit per distribution period) for the first two years (beginning with the September 17, 2018 distribution); (ii) 10.75% per annum (or $0.682 per unit per distribution period) for years three through five; and (iii) the greater of 13.75% per annum (or $0.872 per unit per distribution period) or the distribution per common unit thereafter. While the Series D Preferred Units are outstanding, the Partnership will be 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) have been, or contemporaneously are being, paid or set aside for payment through the most recent Series D Preferred Unit distribution payment date. Any Series D Preferred Unit distributions in excess of $0.635 per unit may be paid, in the Partnership’s sole discretion, in additional Series D Preferred Units, with the remainder paid in cash.
In July 2020, our board of directors declared distributions of $0.682 per Series D Preferred Unit to be paid on September 15, 2020.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
9. 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 as follows (until the distribution rate changes to a floating rate):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
|
|
|
|
|
|
|
Fixed Distribution Rate Per Unit Per Quarter
|
|
Fixed Distribution
Per Quarter
|
|
Date at Which Distribution
Rate Becomes Floating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
Series A Preferred Units
|
|
|
|
|
|
|
|
|
|
$
|
0.53125
|
|
|
$
|
4,813
|
|
|
December 15, 2021
|
|
Series B Preferred Units
|
|
|
|
|
|
|
|
|
|
$
|
0.47657
|
|
|
$
|
7,339
|
|
|
June 15, 2022
|
|
Series C Preferred Units
|
|
|
|
|
|
|
|
|
|
$
|
0.56250
|
|
|
$
|
3,881
|
|
|
December 15, 2022
|
In July 2020, our board of directors declared distributions with respect to the Series A, B and C Preferred Units to be paid on September 15, 2020.
Common Limited Partners
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.
The following table summarizes information about quarterly cash distributions declared for our common limited partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Cash
Distributions
Per Unit
|
|
Total Cash
Distributions
|
|
Record Date
|
|
Payment Date
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
|
June 30, 2020
|
|
$
|
0.40
|
|
|
$
|
43,678
|
|
|
August 7, 2020
|
|
August 13, 2020
|
|
March 31, 2020
|
|
$
|
0.40
|
|
|
$
|
43,730
|
|
|
May 11, 2020
|
|
May 15, 2020
|
|
December 31, 2019
|
|
$
|
0.60
|
|
|
$
|
65,128
|
|
|
February 10, 2020
|
|
February 14, 2020
|
|
|
|
|
|
|
|
|
|
|
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Accumulated Other Comprehensive Income (Loss)
The balance of and changes in the components included in AOCI were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
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 March 31
|
$
|
(50,600)
|
|
|
$
|
(45,307)
|
|
|
$
|
(8,302)
|
|
|
$
|
(104,209)
|
|
|
$
|
(45,823)
|
|
|
$
|
(6,623)
|
|
|
$
|
(7,258)
|
|
|
$
|
(59,704)
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassification adjustments
|
2,638
|
|
|
(461)
|
|
|
—
|
|
|
2,177
|
|
|
1,392
|
|
|
(9,784)
|
|
|
—
|
|
|
(8,392)
|
|
|
Net gain on pension costs reclassified into other income, net
|
—
|
|
|
—
|
|
|
(305)
|
|
|
(305)
|
|
|
—
|
|
|
—
|
|
|
(578)
|
|
|
(578)
|
|
|
Net loss on cash flow hedges reclassified into interest expense, net
|
—
|
|
|
878
|
|
|
—
|
|
|
878
|
|
|
—
|
|
|
1,005
|
|
|
—
|
|
|
1,005
|
|
|
Other
|
—
|
|
|
—
|
|
|
4
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
6
|
|
|
Other comprehensive income (loss)
|
2,638
|
|
|
417
|
|
|
(301)
|
|
|
2,754
|
|
|
1,392
|
|
|
(8,779)
|
|
|
(572)
|
|
|
(7,959)
|
|
|
Balance as of June 30
|
$
|
(47,962)
|
|
|
$
|
(44,890)
|
|
|
$
|
(8,603)
|
|
|
$
|
(101,455)
|
|
|
$
|
(44,431)
|
|
|
$
|
(15,402)
|
|
|
$
|
(7,830)
|
|
|
$
|
(67,663)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
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
|
$
|
(43,772)
|
|
|
$
|
(16,124)
|
|
|
$
|
(8,000)
|
|
|
$
|
(67,896)
|
|
|
$
|
(47,299)
|
|
|
$
|
(893)
|
|
|
$
|
(6,686)
|
|
|
$
|
(54,878)
|
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income before reclassification adjustments
|
(4,190)
|
|
|
(30,291)
|
|
|
—
|
|
|
(34,481)
|
|
|
2,868
|
|
|
(16,592)
|
|
|
—
|
|
|
(13,724)
|
|
|
Net gain on pension costs reclassified into other income, net
|
—
|
|
|
—
|
|
|
(610)
|
|
|
(610)
|
|
|
—
|
|
|
—
|
|
|
(1,157)
|
|
|
(1,157)
|
|
|
Net loss on cash flow hedges reclassified into interest expense, net
|
—
|
|
|
1,525
|
|
|
—
|
|
|
1,525
|
|
|
—
|
|
|
2,083
|
|
|
—
|
|
|
2,083
|
|
|
Other
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
13
|
|
|
Other comprehensive (loss) income
|
(4,190)
|
|
|
(28,766)
|
|
|
(603)
|
|
|
(33,559)
|
|
|
2,868
|
|
|
(14,509)
|
|
|
(1,144)
|
|
|
(12,785)
|
|
|
Balance as of June 30
|
$
|
(47,962)
|
|
|
$
|
(44,890)
|
|
|
$
|
(8,603)
|
|
|
$
|
(101,455)
|
|
|
$
|
(44,431)
|
|
|
$
|
(15,402)
|
|
|
$
|
(7,830)
|
|
|
$
|
(67,663)
|
|
10. NET INCOME (LOSS) PER COMMON UNIT
Basic 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. 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.
Diluted net income (loss) per common unit is computed 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. Dilutive potential common units may include contingently issuable performance unit awards and the Series D Preferred Units.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Series D Preferred Units are convertible into common units at the option of the holder at any time on or after June 29, 2020. As such, we calculated the dilutive effect of the Series D Preferred Units using the if-converted method. The effect of the assumed conversion of the Series D Preferred Units outstanding as of the end of each period presented was antidilutive; therefore, we did not include such conversion in the computation of diluted net income (loss) per common unit. The following table details the calculation of net income (loss) per common unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(Thousands of Dollars, Except Unit and Per Unit Data)
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
29,766
|
|
|
$
|
45,951
|
|
|
$
|
(117,875)
|
|
|
$
|
(231,912)
|
|
|
Distributions to preferred limited partners
|
(30,684)
|
|
|
(30,423)
|
|
|
(61,107)
|
|
|
(60,846)
|
|
|
Distributions to common limited partners
|
(43,678)
|
|
|
(64,658)
|
|
|
(87,408)
|
|
|
(129,348)
|
|
|
Distribution equivalent rights to restricted units
|
(502)
|
|
|
(642)
|
|
|
(1,008)
|
|
|
(1,285)
|
|
|
Distributions in excess of income (loss)
|
$
|
(45,098)
|
|
|
$
|
(49,772)
|
|
|
$
|
(267,398)
|
|
|
$
|
(423,391)
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to common limited partners
|
$
|
43,678
|
|
|
$
|
64,658
|
|
|
$
|
87,408
|
|
|
$
|
129,348
|
|
|
Allocation of distributions in excess of income (loss)
|
(45,098)
|
|
|
(49,772)
|
|
|
(267,398)
|
|
|
(423,391)
|
|
|
Series D Preferred Unit accretion
|
(5,064)
|
|
|
(4,446)
|
|
|
(9,966)
|
|
|
(8,748)
|
|
|
Net (loss) income attributable to common units
|
$
|
(6,484)
|
|
|
$
|
10,440
|
|
|
$
|
(189,956)
|
|
|
$
|
(302,791)
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common units outstanding
|
109,194,722
|
|
|
107,763,016
|
|
|
109,046,061
|
|
|
107,647,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common unit
|
$
|
(0.06)
|
|
|
$
|
0.10
|
|
|
$
|
(1.74)
|
|
|
$
|
(2.81)
|
|
11. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in current assets and current liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
|
(Thousands of Dollars)
|
|
|
|
Decrease (increase) in current assets:
|
|
|
|
|
Accounts receivable
|
$
|
25,386
|
|
|
$
|
(3,146)
|
|
|
|
|
|
|
|
Inventories
|
4,176
|
|
|
1,551
|
|
|
|
|
|
|
|
Other current assets
|
(8,781)
|
|
|
(4,075)
|
|
|
Increase (decrease) in current liabilities:
|
|
|
|
|
Accounts payable
|
(15,197)
|
|
|
7,704
|
|
|
|
|
|
|
|
Accrued interest payable
|
(177)
|
|
|
2,636
|
|
|
Accrued liabilities
|
(9,375)
|
|
|
(34,814)
|
|
|
Taxes other than income tax
|
44
|
|
|
(3,556)
|
|
|
Income tax payable
|
(2,250)
|
|
|
(2,529)
|
|
|
Changes in current assets and current liabilities
|
$
|
(6,174)
|
|
|
$
|
(36,229)
|
|
The above changes in current assets and current liabilities 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 foreign currency translation;
•changes in the fair values of our interest rate swap agreements; and
•the recognition of lease liabilities upon the adoption of ASC Topic 842.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Cash flows related to interest and income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
|
(Thousands of Dollars)
|
|
|
|
Cash paid for interest, net of amount capitalized
|
$
|
103,034
|
|
|
$
|
84,677
|
|
|
Cash paid for income taxes, net of tax refunds received
|
$
|
4,661
|
|
|
$
|
6,557
|
|
As of June 30, 2020 and December 31, 2019, 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 was included in the consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
(Thousands of Dollars)
|
|
|
|
Cash and cash equivalents
|
$
|
17,278
|
|
|
$
|
16,192
|
|
|
Other long-term assets, net
|
8,799
|
|
|
8,788
|
|
|
Cash, cash equivalents and restricted cash
|
$
|
26,077
|
|
|
$
|
24,980
|
|
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
12. 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 (loss), 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. Our principal operations include the transportation of petroleum products and anhydrous ammonia, and the terminalling, storage and marketing of petroleum products.
Results of operations for the reportable segments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(Thousands of Dollars)
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipeline
|
$
|
166,108
|
|
|
$
|
172,493
|
|
|
$
|
361,789
|
|
|
$
|
328,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Storage
|
119,407
|
|
|
110,403
|
|
|
242,624
|
|
|
213,903
|
|
|
|
|
|
|
|
|
|
|
|
Fuels marketing
|
54,025
|
|
|
89,549
|
|
|
127,927
|
|
|
177,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation and intersegment eliminations
|
—
|
|
|
—
|
|
|
(9)
|
|
|
(4)
|
|
|
Total revenues
|
$
|
339,540
|
|
|
$
|
372,445
|
|
|
$
|
732,331
|
|
|
$
|
720,271
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
Pipeline
|
$
|
71,981
|
|
|
$
|
78,712
|
|
|
$
|
(50,943)
|
|
|
$
|
146,016
|
|
|
Storage
|
43,242
|
|
|
38,098
|
|
|
91,821
|
|
|
70,316
|
|
|
Fuels marketing
|
3,349
|
|
|
3,160
|
|
|
9,792
|
|
|
5,085
|
|
|
Consolidation and intersegment eliminations
|
—
|
|
|
—
|
|
|
—
|
|
|
(32)
|
|
|
Total segment operating income
|
118,572
|
|
|
119,970
|
|
|
50,670
|
|
|
221,385
|
|
|
General and administrative expenses
|
23,700
|
|
|
24,868
|
|
|
46,671
|
|
|
50,559
|
|
|
Other depreciation and amortization expense
|
2,171
|
|
|
1,819
|
|
|
4,357
|
|
|
3,938
|
|
|
Total operating income (loss)
|
$
|
92,701
|
|
|
$
|
93,283
|
|
|
$
|
(358)
|
|
|
$
|
166,888
|
|
Total assets by reportable segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
(Thousands of Dollars)
|
|
|
|
Pipeline
|
$
|
3,635,467
|
|
|
$
|
3,884,819
|
|
|
Storage
|
2,032,327
|
|
|
2,082,832
|
|
|
Fuels marketing
|
23,357
|
|
|
31,064
|
|
|
Total segment assets
|
5,691,151
|
|
|
5,998,715
|
|
|
|
|
|
|
|
Other partnership assets
|
145,047
|
|
|
187,277
|
|
|
Total consolidated assets
|
$
|
5,836,198
|
|
|
$
|
6,185,992
|
|
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
13. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
NuStar Energy has no operations, and its assets consist mainly of its investments in 100% 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. As a result, the following condensed consolidating financial statements are presented as an alternative to providing separate financial statements for NuStar Logistics and NuPOP.
Condensed Consolidating Balance Sheets
June 30, 2020
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NuStar
Energy
|
|
NuStar
Logistics
|
|
NuPOP
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
264
|
|
|
$
|
705
|
|
|
$
|
—
|
|
|
$
|
16,309
|
|
|
$
|
—
|
|
|
$
|
17,278
|
|
|
Receivables, net
|
—
|
|
|
80
|
|
|
—
|
|
|
127,195
|
|
|
(4,652)
|
|
|
122,623
|
|
|
Inventories
|
—
|
|
|
1,906
|
|
|
2,357
|
|
|
3,939
|
|
|
—
|
|
|
8,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid and other current assets
|
105
|
|
|
25,864
|
|
|
1,411
|
|
|
3,226
|
|
|
—
|
|
|
30,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
—
|
|
|
1,253,361
|
|
|
—
|
|
|
412,063
|
|
|
(1,665,424)
|
|
|
—
|
|
|
Total current assets
|
369
|
|
|
1,281,916
|
|
|
3,768
|
|
|
562,732
|
|
|
(1,670,076)
|
|
|
178,709
|
|
|
Property, plant and equipment, net
|
—
|
|
|
2,027,712
|
|
|
600,471
|
|
|
1,462,469
|
|
|
—
|
|
|
4,090,652
|
|
|
Intangible assets, net
|
—
|
|
|
34,971
|
|
|
—
|
|
|
620,949
|
|
|
—
|
|
|
655,920
|
|
|
Goodwill
|
—
|
|
|
50,453
|
|
|
170,652
|
|
|
559,748
|
|
|
—
|
|
|
780,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in wholly owned
subsidiaries
|
2,585,212
|
|
|
1,636,363
|
|
|
952,846
|
|
|
479,649
|
|
|
(5,654,070)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term assets, net
|
101
|
|
|
68,365
|
|
|
31,960
|
|
|
29,638
|
|
|
—
|
|
|
130,064
|
|
|
Total assets
|
$
|
2,585,682
|
|
|
$
|
5,099,780
|
|
|
$
|
1,759,697
|
|
|
$
|
3,715,185
|
|
|
$
|
(7,324,146)
|
|
|
$
|
5,836,198
|
|
|
Liabilities, Mezzanine Equity and Partners’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
5,717
|
|
|
$
|
20,220
|
|
|
$
|
8,638
|
|
|
$
|
42,882
|
|
|
$
|
—
|
|
|
$
|
77,457
|
|
|
Short-term debt and current portion of finance leases
|
—
|
|
|
4,049
|
|
|
473
|
|
|
91
|
|
|
—
|
|
|
4,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
—
|
|
|
37,728
|
|
|
6
|
|
|
14
|
|
|
—
|
|
|
37,748
|
|
|
Accrued liabilities
|
868
|
|
|
20,668
|
|
|
8,223
|
|
|
22,888
|
|
|
—
|
|
|
52,647
|
|
|
Taxes other than income tax
|
2
|
|
|
6,419
|
|
|
5,715
|
|
|
6,346
|
|
|
(4,652)
|
|
|
13,830
|
|
|
Income tax payable
|
—
|
|
|
361
|
|
|
1
|
|
|
1,713
|
|
|
—
|
|
|
2,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable
|
422,781
|
|
|
—
|
|
|
1,242,643
|
|
|
—
|
|
|
(1,665,424)
|
|
|
—
|
|
|
Total current liabilities
|
429,368
|
|
|
89,445
|
|
|
1,265,699
|
|
|
73,934
|
|
|
(1,670,076)
|
|
|
188,370
|
|
|
Long-term debt, less current portion
|
—
|
|
|
3,378,740
|
|
|
1,773
|
|
|
48,647
|
|
|
—
|
|
|
3,429,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liability
|
—
|
|
|
1,499
|
|
|
10
|
|
|
9,759
|
|
|
—
|
|
|
11,268
|
|
|
Other long-term liabilities
|
—
|
|
|
65,417
|
|
|
12,680
|
|
|
74,444
|
|
|
—
|
|
|
152,541
|
|
|
Series D preferred units
|
591,895
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
591,895
|
|
|
Total partners’ equity
|
1,564,419
|
|
|
1,564,679
|
|
|
479,535
|
|
|
3,508,401
|
|
|
(5,654,070)
|
|
|
1,462,964
|
|
|
Total liabilities, mezzanine equity and partners’ equity
|
$
|
2,585,682
|
|
|
$
|
5,099,780
|
|
|
$
|
1,759,697
|
|
|
$
|
3,715,185
|
|
|
$
|
(7,324,146)
|
|
|
$
|
5,836,198
|
|
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Condensed Consolidating Balance Sheets
December 31, 2019
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NuStar
Energy
|
|
NuStar
Logistics
|
|
NuPOP
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
176
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
15,992
|
|
|
$
|
—
|
|
|
$
|
16,192
|
|
|
Receivables, net
|
—
|
|
|
317
|
|
|
4
|
|
|
152,209
|
|
|
—
|
|
|
152,530
|
|
|
Inventories
|
—
|
|
|
1,953
|
|
|
4,821
|
|
|
5,619
|
|
|
—
|
|
|
12,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid and other current assets
|
61
|
|
|
16,325
|
|
|
600
|
|
|
4,947
|
|
|
—
|
|
|
21,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
—
|
|
|
1,276,839
|
|
|
—
|
|
|
610,298
|
|
|
(1,887,137)
|
|
|
—
|
|
|
Total current assets
|
237
|
|
|
1,295,458
|
|
|
5,425
|
|
|
789,065
|
|
|
(1,887,137)
|
|
|
203,048
|
|
|
Property, plant and equipment, net
|
—
|
|
|
2,058,530
|
|
|
612,128
|
|
|
1,448,321
|
|
|
—
|
|
|
4,118,979
|
|
|
Intangible assets, net
|
—
|
|
|
39,683
|
|
|
—
|
|
|
641,949
|
|
|
—
|
|
|
681,632
|
|
|
Goodwill
|
—
|
|
|
149,453
|
|
|
170,652
|
|
|
685,748
|
|
|
—
|
|
|
1,005,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in wholly owned
subsidiaries
|
2,871,540
|
|
|
1,743,066
|
|
|
1,155,855
|
|
|
490,826
|
|
|
(6,261,287)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term assets, net
|
98
|
|
|
111,362
|
|
|
32,121
|
|
|
32,899
|
|
|
—
|
|
|
176,480
|
|
|
Total assets
|
$
|
2,871,875
|
|
|
$
|
5,397,552
|
|
|
$
|
1,976,181
|
|
|
$
|
4,088,808
|
|
|
$
|
(8,148,424)
|
|
|
$
|
6,185,992
|
|
|
Liabilities, Mezzanine Equity and Partners’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
5,427
|
|
|
$
|
42,064
|
|
|
$
|
8,379
|
|
|
$
|
53,964
|
|
|
$
|
—
|
|
|
$
|
109,834
|
|
|
Short-term debt and current portion of finance leases
|
—
|
|
|
9,722
|
|
|
299
|
|
|
25
|
|
|
—
|
|
|
10,046
|
|
|
Current portion of long-term debt
|
—
|
|
|
452,367
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
452,367
|
|
|
Accrued interest payable
|
—
|
|
|
37,888
|
|
|
4
|
|
|
33
|
|
|
—
|
|
|
37,925
|
|
|
Accrued liabilities
|
1,425
|
|
|
40,514
|
|
|
8,461
|
|
|
53,885
|
|
|
—
|
|
|
104,285
|
|
|
Taxes other than income tax
|
125
|
|
|
7,311
|
|
|
5,160
|
|
|
185
|
|
|
—
|
|
|
12,781
|
|
|
Income tax payable
|
—
|
|
|
492
|
|
|
2
|
|
|
3,831
|
|
|
—
|
|
|
4,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable
|
438,857
|
|
|
—
|
|
|
1,448,280
|
|
|
—
|
|
|
(1,887,137)
|
|
|
—
|
|
|
Total current liabilities
|
445,834
|
|
|
590,358
|
|
|
1,470,585
|
|
|
111,923
|
|
|
(1,887,137)
|
|
|
731,563
|
|
|
Long-term debt, less current portion
|
—
|
|
|
2,871,786
|
|
|
1,127
|
|
|
62,005
|
|
|
—
|
|
|
2,934,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liability
|
—
|
|
|
1,499
|
|
|
10
|
|
|
10,918
|
|
|
—
|
|
|
12,427
|
|
|
Other long-term liabilities
|
—
|
|
|
65,577
|
|
|
13,774
|
|
|
69,588
|
|
|
—
|
|
|
148,939
|
|
|
Series D preferred units
|
581,935
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
581,935
|
|
|
Total partners’ equity
|
1,844,106
|
|
|
1,868,332
|
|
|
490,685
|
|
|
3,834,374
|
|
|
(6,261,287)
|
|
|
1,776,210
|
|
|
Total liabilities, mezzanine equity and partners’ equity
|
$
|
2,871,875
|
|
|
$
|
5,397,552
|
|
|
$
|
1,976,181
|
|
|
$
|
4,088,808
|
|
|
$
|
(8,148,424)
|
|
|
$
|
6,185,992
|
|
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Three Months Ended June 30, 2020
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NuStar
Energy
|
|
NuStar
Logistics
|
|
NuPOP
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Revenues
|
$
|
—
|
|
|
$
|
129,893
|
|
|
$
|
61,563
|
|
|
$
|
148,194
|
|
|
$
|
(110)
|
|
|
$
|
339,540
|
|
|
Costs and expenses
|
599
|
|
|
79,536
|
|
|
40,392
|
|
|
126,422
|
|
|
(110)
|
|
|
246,839
|
|
|
Operating (loss) income
|
(599)
|
|
|
50,357
|
|
|
21,171
|
|
|
21,772
|
|
|
—
|
|
|
92,701
|
|
|
Equity in earnings of subsidiaries
|
30,353
|
|
|
11,512
|
|
|
10,290
|
|
|
32,099
|
|
|
(84,254)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
12
|
|
|
(60,239)
|
|
|
445
|
|
|
283
|
|
|
—
|
|
|
(59,499)
|
|
|
Other (expense) income, net
|
—
|
|
|
(3,015)
|
|
|
193
|
|
|
1,196
|
|
|
—
|
|
|
(1,626)
|
|
|
Income (loss) before income
tax expense
|
29,766
|
|
|
(1,385)
|
|
|
32,099
|
|
|
55,350
|
|
|
(84,254)
|
|
|
31,576
|
|
|
Income tax expense
|
—
|
|
|
232
|
|
|
1
|
|
|
1,577
|
|
|
—
|
|
|
1,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
29,766
|
|
|
$
|
(1,617)
|
|
|
$
|
32,098
|
|
|
$
|
53,773
|
|
|
$
|
(84,254)
|
|
|
$
|
29,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
29,766
|
|
|
$
|
(1,200)
|
|
|
$
|
32,098
|
|
|
$
|
56,110
|
|
|
$
|
(84,254)
|
|
|
$
|
32,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Comprehensive Income
For the Three Months Ended June 30, 2019
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NuStar
Energy
|
|
NuStar
Logistics
|
|
NuPOP
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Revenues
|
$
|
—
|
|
|
$
|
130,136
|
|
|
$
|
64,452
|
|
|
$
|
178,042
|
|
|
$
|
(185)
|
|
|
$
|
372,445
|
|
|
Costs and expenses
|
699
|
|
|
83,029
|
|
|
41,235
|
|
|
154,384
|
|
|
(185)
|
|
|
279,162
|
|
|
Operating (loss) income
|
(699)
|
|
|
47,107
|
|
|
23,217
|
|
|
23,658
|
|
|
—
|
|
|
93,283
|
|
|
Equity in earnings of subsidiaries
|
47,499
|
|
|
10,990
|
|
|
13,785
|
|
|
35,339
|
|
|
(107,613)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
117
|
|
|
(47,016)
|
|
|
(1,840)
|
|
|
3,046
|
|
|
—
|
|
|
(45,693)
|
|
|
Other income (expense), net
|
—
|
|
|
743
|
|
|
178
|
|
|
(300)
|
|
|
—
|
|
|
621
|
|
|
Income from continuing
operations before income
tax expense (benefit)
|
46,917
|
|
|
11,824
|
|
|
35,340
|
|
|
61,743
|
|
|
(107,613)
|
|
|
48,211
|
|
|
Income tax expense (benefit)
|
2
|
|
|
(469)
|
|
|
1
|
|
|
1,762
|
|
|
—
|
|
|
1,296
|
|
|
Income from continuing operations
|
46,915
|
|
|
12,293
|
|
|
35,339
|
|
|
59,981
|
|
|
(107,613)
|
|
|
46,915
|
|
|
(Loss) income from discontinued
operations, net of tax (a)
|
(964)
|
|
|
7,912
|
|
|
(8,877)
|
|
|
(17,752)
|
|
|
18,717
|
|
|
(964)
|
|
|
Net income
|
$
|
45,951
|
|
|
$
|
20,205
|
|
|
$
|
26,462
|
|
|
$
|
42,229
|
|
|
$
|
(88,896)
|
|
|
$
|
45,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
$
|
45,951
|
|
|
$
|
11,426
|
|
|
$
|
26,462
|
|
|
$
|
43,049
|
|
|
$
|
(88,896)
|
|
|
$
|
37,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Includes equity in earnings (loss) of subsidiaries related to discontinued operations.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Condensed Consolidating Statements of Comprehensive (Loss) Income
For the Six Months Ended June 30, 2020
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NuStar
Energy
|
|
NuStar
Logistics
|
|
NuPOP
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Revenues
|
$
|
—
|
|
|
$
|
291,195
|
|
|
$
|
124,227
|
|
|
$
|
317,155
|
|
|
$
|
(246)
|
|
|
$
|
732,331
|
|
|
Costs and expenses
|
1,327
|
|
|
263,707
|
|
|
78,171
|
|
|
389,730
|
|
|
(246)
|
|
|
732,689
|
|
|
Operating (loss) income
|
(1,327)
|
|
|
27,488
|
|
|
46,056
|
|
|
(72,575)
|
|
|
—
|
|
|
(358)
|
|
|
Equity in (loss) earnings of subsidiaries
|
(116,635)
|
|
|
(106,703)
|
|
|
27,077
|
|
|
73,678
|
|
|
122,583
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
87
|
|
|
(108,309)
|
|
|
126
|
|
|
1,103
|
|
|
—
|
|
|
(106,993)
|
|
|
Other (expense) income, net
|
—
|
|
|
(2,156)
|
|
|
440
|
|
|
(6,399)
|
|
|
—
|
|
|
(8,115)
|
|
|
(Loss) income before income tax expense
|
(117,875)
|
|
|
(189,680)
|
|
|
73,699
|
|
|
(4,193)
|
|
|
122,583
|
|
|
(115,466)
|
|
|
Income tax expense
|
—
|
|
|
361
|
|
|
1
|
|
|
2,047
|
|
|
—
|
|
|
2,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
(117,875)
|
|
|
(190,041)
|
|
|
73,698
|
|
|
(6,240)
|
|
|
122,583
|
|
|
(117,875)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
$
|
(117,875)
|
|
|
$
|
(218,807)
|
|
|
$
|
73,698
|
|
|
$
|
(11,033)
|
|
|
$
|
122,583
|
|
|
$
|
(151,434)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Comprehensive (Loss) Income
For the Six Months Ended June 30, 2019
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NuStar
Energy
|
|
NuStar
Logistics
|
|
NuPOP
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Revenues
|
$
|
—
|
|
|
$
|
247,691
|
|
|
$
|
122,805
|
|
|
$
|
350,147
|
|
|
$
|
(372)
|
|
|
$
|
720,271
|
|
|
Costs and expenses
|
1,375
|
|
|
160,440
|
|
|
77,285
|
|
|
314,655
|
|
|
(372)
|
|
|
553,383
|
|
|
Operating (loss) income
|
(1,375)
|
|
|
87,251
|
|
|
45,520
|
|
|
35,492
|
|
|
—
|
|
|
166,888
|
|
|
Equity in earnings of subsidiaries
|
76,990
|
|
|
12,329
|
|
|
26,523
|
|
|
68,624
|
|
|
(184,466)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
225
|
|
|
(92,472)
|
|
|
(3,773)
|
|
|
6,036
|
|
|
—
|
|
|
(89,984)
|
|
|
Other income (expense), net
|
—
|
|
|
1,497
|
|
|
355
|
|
|
(440)
|
|
|
—
|
|
|
1,412
|
|
|
Income from continuing operations before income tax expense (benefit)
|
75,840
|
|
|
8,605
|
|
|
68,625
|
|
|
109,712
|
|
|
(184,466)
|
|
|
78,316
|
|
|
Income tax expense (benefit)
|
2
|
|
|
(352)
|
|
|
1
|
|
|
2,827
|
|
|
—
|
|
|
2,478
|
|
|
Income from continuing operations
|
75,838
|
|
|
8,957
|
|
|
68,624
|
|
|
106,885
|
|
|
(184,466)
|
|
|
75,838
|
|
|
(Loss) income from discontinued
operations, net of tax (a)
|
(307,750)
|
|
|
7,912
|
|
|
(315,663)
|
|
|
(631,324)
|
|
|
939,075
|
|
|
(307,750)
|
|
|
Net (loss) income
|
$
|
(231,912)
|
|
|
$
|
16,869
|
|
|
$
|
(247,039)
|
|
|
$
|
(524,439)
|
|
|
$
|
754,609
|
|
|
$
|
(231,912)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
$
|
(231,912)
|
|
|
$
|
2,360
|
|
|
$
|
(247,039)
|
|
|
$
|
(522,715)
|
|
|
$
|
754,609
|
|
|
$
|
(244,697)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Includes equity in earnings (loss) of subsidiaries related to discontinued operations.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2020
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NuStar
Energy
|
|
NuStar
Logistics
|
|
NuPOP
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net cash provided by operating
activities
|
$
|
167,758
|
|
|
$
|
73,526
|
|
|
$
|
297,417
|
|
|
$
|
216,375
|
|
|
$
|
(484,635)
|
|
|
$
|
270,441
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(25,787)
|
|
|
(5,596)
|
|
|
(64,975)
|
|
|
—
|
|
|
(96,358)
|
|
|
Change in accounts payable related to capital expenditures
|
—
|
|
|
(12,492)
|
|
|
(1,325)
|
|
|
(1,692)
|
|
|
—
|
|
|
(15,509)
|
|
|
Proceeds from sale or disposition
of assets
|
—
|
|
|
335
|
|
|
117
|
|
|
5,335
|
|
|
—
|
|
|
5,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
—
|
|
|
(37,944)
|
|
|
(6,804)
|
|
|
(61,332)
|
|
|
—
|
|
|
(106,080)
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt borrowings
|
—
|
|
|
827,435
|
|
|
—
|
|
|
14,600
|
|
|
—
|
|
|
842,035
|
|
|
Debt repayments
|
—
|
|
|
(734,015)
|
|
|
—
|
|
|
(28,200)
|
|
|
—
|
|
|
(762,215)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to preferred unitholders
|
(60,846)
|
|
|
(30,424)
|
|
|
(30,424)
|
|
|
(30,424)
|
|
|
91,272
|
|
|
(60,846)
|
|
|
Distributions to common unitholders
|
(108,846)
|
|
|
(54,423)
|
|
|
(54,423)
|
|
|
(54,431)
|
|
|
163,277
|
|
|
(108,846)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for termination of
interest rate swaps
|
—
|
|
|
(49,225)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(49,225)
|
|
|
Distributions to affiliates
|
—
|
|
|
—
|
|
|
—
|
|
|
(230,086)
|
|
|
230,086
|
|
|
—
|
|
|
Net intercompany activity
|
12,059
|
|
|
18,680
|
|
|
(205,545)
|
|
|
174,806
|
|
|
—
|
|
|
—
|
|
|
Payment of tax withholding for unit-based compensation
|
(8,820)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,820)
|
|
|
Other, net
|
(1,217)
|
|
|
(12,918)
|
|
|
(221)
|
|
|
(46)
|
|
|
—
|
|
|
(14,402)
|
|
|
Net cash used in financing activities
|
(167,670)
|
|
|
(34,890)
|
|
|
(290,613)
|
|
|
(153,781)
|
|
|
484,635
|
|
|
(162,319)
|
|
|
Effect of foreign exchange rate changes on cash
|
—
|
|
|
—
|
|
|
—
|
|
|
(945)
|
|
|
—
|
|
|
(945)
|
|
|
Net increase in cash, cash equivalents and restricted cash
|
88
|
|
|
692
|
|
|
—
|
|
|
317
|
|
|
—
|
|
|
1,097
|
|
|
Cash, cash equivalents, and restricted cash as of the beginning of the period
|
176
|
|
|
8,812
|
|
|
—
|
|
|
15,992
|
|
|
—
|
|
|
24,980
|
|
|
Cash, cash equivalents and restricted cash as of the end of the period
|
$
|
264
|
|
|
$
|
9,504
|
|
|
$
|
—
|
|
|
$
|
16,309
|
|
|
$
|
—
|
|
|
$
|
26,077
|
|
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2019
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NuStar
Energy
|
|
NuStar
Logistics
|
|
NuPOP
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net cash provided by operating
activities
|
$
|
187,265
|
|
|
$
|
77,144
|
|
|
$
|
60,539
|
|
|
$
|
200,762
|
|
|
$
|
(284,816)
|
|
|
$
|
240,894
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(167,647)
|
|
|
(9,131)
|
|
|
(143,183)
|
|
|
—
|
|
|
(319,961)
|
|
|
Change in accounts payable related to capital expenditures
|
—
|
|
|
11,708
|
|
|
522
|
|
|
3,914
|
|
|
—
|
|
|
16,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale or disposition
of assets
|
—
|
|
|
71
|
|
|
26
|
|
|
46
|
|
|
—
|
|
|
143
|
|
|
Investment in subsidiaries
|
—
|
|
|
(11,999)
|
|
|
—
|
|
|
—
|
|
|
11,999
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
—
|
|
|
(167,867)
|
|
|
(8,583)
|
|
|
(139,223)
|
|
|
11,999
|
|
|
(303,674)
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt borrowings
|
—
|
|
|
570,500
|
|
|
—
|
|
|
23,800
|
|
|
—
|
|
|
594,300
|
|
|
Note offering, net of issuance costs
|
—
|
|
|
491,665
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
491,665
|
|
|
Debt repayments
|
—
|
|
|
(785,000)
|
|
|
—
|
|
|
(22,800)
|
|
|
—
|
|
|
(807,800)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to preferred unitholders
|
(60,846)
|
|
|
(30,424)
|
|
|
(30,423)
|
|
|
(30,425)
|
|
|
91,272
|
|
|
(60,846)
|
|
|
Distributions to common unitholders
|
(129,025)
|
|
|
(64,512)
|
|
|
(64,512)
|
|
|
(64,520)
|
|
|
193,544
|
|
|
(129,025)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from affiliates
|
—
|
|
|
—
|
|
|
—
|
|
|
11,999
|
|
|
(11,999)
|
|
|
—
|
|
|
Net intercompany activity
|
9,641
|
|
|
(75,900)
|
|
|
43,009
|
|
|
23,250
|
|
|
—
|
|
|
—
|
|
|
Payment of tax withholding for unit-based compensation
|
(6,368)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,368)
|
|
|
Other, net
|
(1,436)
|
|
|
(6,581)
|
|
|
(30)
|
|
|
(122)
|
|
|
—
|
|
|
(8,169)
|
|
|
Net cash (used in) provided by financing activities
|
(188,034)
|
|
|
99,748
|
|
|
(51,956)
|
|
|
(58,818)
|
|
|
272,817
|
|
|
73,757
|
|
|
Effect of foreign exchange rate
changes on cash
|
—
|
|
|
—
|
|
|
—
|
|
|
261
|
|
|
—
|
|
|
261
|
|
|
Net (decrease) increase in cash, cash equivalents and restricted cash
|
(769)
|
|
|
9,025
|
|
|
—
|
|
|
2,982
|
|
|
—
|
|
|
11,238
|
|
|
Cash, cash equivalents, and restricted cash as of the beginning of the period
|
1,255
|
|
|
51
|
|
|
—
|
|
|
12,338
|
|
|
—
|
|
|
13,644
|
|
|
Cash, cash equivalents and restricted cash as of the end of the period
|
$
|
486
|
|
|
$
|
9,076
|
|
|
$
|
—
|
|
|
$
|
15,320
|
|
|
$
|
—
|
|
|
$
|
24,882
|
|
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
In this Form 10-Q, we make certain forward-looking statements, such as statements regarding our plans, strategies, objectives, expectations, estimates, predictions, projections, assumptions, intentions, resources and the future impact of the coronavirus, or COVID-19, the responses thereto, the decline in economic activity and the actions by oil producing nations on our business. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report. These forward-looking statements can generally be identified by the words “anticipates,” “believes,” “expects,” “plans,” “intends,” “estimates,” “forecasts,” “budgets,” “projects,” “will,” “could,” “should,” “may” and similar expressions. These statements reflect our current views with regard to future events and are subject to various risks, uncertainties and assumptions, which may cause actual results to differ materially. Please read Item 1A “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2019, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and this Quarterly Report on Form 10-Q, as well as our subsequent filings with the Securities and Exchange Commission, for a discussion of certain of those risks, uncertainties and assumptions.
If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those described in any forward-looking statement. Other unknown or unpredictable factors could also have material adverse effects on our future results. Readers are cautioned not to place undue reliance on this forward-looking information, which is as of the date of this Form 10-Q. We do not intend to update these statements unless we are required by the securities laws to do so, and we undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented in five sections:
•Overview, including Trends and Outlook
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Policies
•New Accounting Pronouncements
OVERVIEW
NuStar Energy L.P. (NYSE: NS) is engaged in the transportation of petroleum products and anhydrous ammonia, and the terminalling, storage and marketing of petroleum products. 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.
Recent Developments
Term Loan Credit Agreement. On April 19, 2020, NuStar Energy and NuStar Logistics entered into an unsecured term loan credit agreement with certain lenders and Oaktree Fund Administration, LLC, as administrative agent for the lenders (the Term Loan). The Term Loan provides for an aggregate commitment of up to $750.0 million pursuant to a three-year unsecured term loan credit facility. NuStar Logistics drew $500.0 million on April 21, 2020, leaving an additional aggregate principal amount of $250.0 million, which NuStar Logistics may elect to draw, on or prior to April 19, 2021, in one or more draws, subject to certain conditions. Please refer to Note 5 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for further discussion.
COVID-19 and OPEC+ Actions. The coronavirus, or COVID-19, which was first identified in North America during the first quarter of 2020, has had a severe negative impact on economic activity, as government authorities have instituted stay-home orders, business closures and other measures to reduce the spread of the virus, and people around the world ceased or altered their usual day-to-day activities. The scale of this decrease in economic activity has significantly reduced demand for petroleum products. In March, the negative economic impact of the COVID-19 pandemic and demand deterioration was exacerbated by disputes among the Organization of Petroleum Exporting Countries and other oil producing nations (OPEC+) regarding their agreed production rates that contributed to a significant over-supply in crude, resulting in a sharp decline in, and increase in the
volatility of, crude oil prices. In the second quarter, crude oil prices stabilized somewhat but have remained low compared to recent years.
The uncertainty surrounding the ongoing impact of the pandemic and OPEC+ over-supply combined to undermine financial markets around the world, including U.S. equity markets, and contributed to precipitous drops in value and historically high volatility across many sectors. These adverse conditions also led to a decline in our unit price and market capitalization in March 2020, and, due to that decline, we recorded a goodwill impairment charge of $225.0 million associated with our crude oil pipelines in the first quarter of 2020. Please refer to Note 3 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for additional information about the goodwill impairment, including our method for determining the fair value of the reporting units.
As described below, in the second quarter of 2020, the COVID-19 pandemic had a negative impact on our results of operations. Lower consumer gasoline demand resulting from stay-home directives and business closures depressed production rates at refineries across the country, including those our assets serve, and lower crude oil prices from over-supply across global oil markets undermined drilling and production in U.S. shale plays, including in the Permian and Eagle Ford Basins, where our Permian and South Texas Crude Systems are located, and the combination of these conditions reduced demand and utilization for our assets. Fortunately, our operations were partially insulated from these negative conditions by strong agricultural demand, stable diesel demand, our minimum throughput agreements, the resiliency of our Permian assets and the basin overall, as well as our contracted rates for storage and new storage contracts from contango market conditions in March and April.
Trends and Outlook
In March, in response to the negative impacts of, and the continued uncertainty related to, the COVID-19 pandemic and actions by OPEC+, we implemented our business continuity plan and took measures to ensure we continue to conduct business, operate safely and maintain a safe working environment for our employees, whether working remotely or on-site at our locations across North America. We have implemented social distancing through revised shift schedules, work from home policies and designated remote work locations where appropriate, restricted non-essential business travel and began requiring self-screening for employees and contractors. At this time, we have not incurred, and we do not expect to incur in the future, significant expenses related to business continuity as a result of these measures. With continued changes in the number of cases of COVID-19 across North America, we are closely monitoring all of our locations to ensure the safety of our employees as well as the operational functionality of each location.
Beginning in March, we have taken several important steps to improve our liquidity and financial flexibility. In March, we extended the maturity on our revolving credit agreement from October 2021 to October 2023. At that time, we also began preserving and enhancing our liquidity by cutting spending to preserve cash and addressing our near-term debt maturities. We significantly reduced our strategic capital expenditures planned for the full-year 2020 by $145.0 million, or 45% below our forecast at the beginning of 2020, to a range of $165.0 to $195.0 million. We also reduced our controllable and operating expenses for the full-year 2020, mainly related to power and other costs associated with lower expected throughput and certain discretionary maintenance, travel and other expenses, and we lowered our distribution, beginning with the distribution related to the first quarter of 2020, to $0.40 per common unit. In addition, in April, we entered into a $750.0 million three-year unsecured Term Loan, which allowed us to pay down our revolving credit agreement with the proceeds of our initial $500.0 million draw to provide the financial flexibility to address our near-term debt maturities in September 2020 and February 2021. In June 2020, we successfully reoffered and converted $322.1 million of the revenue bonds related to our St. James, Louisiana terminal, which allowed us to not only convert the interest rate on the bonds from a weekly rate to a long-term rate and eliminate obligations to remarket all of the bonds for at least five years and a portion until maturity, but also eliminated the associated need for, and cost of, supporting letters of credit.
The COVID-19 pandemic and actions by OPEC+ have depressed economic activity and had a negative impact on our second quarter 2020 results of operations. While we have seen some initial signs of recovery and rebound starting in June, the uncertainty from the ongoing impact of the global pandemic makes it difficult to predict the country’s return to sustained, stable economic improvement and growth. As a result, we continue to expect lower throughputs, compared to 2019, on average, across our crude and refined product pipelines, through the second half of 2020.
The geographic location of our assets and the products we transport has mitigated some of the negative impact from COVID-19 demand destruction. For example, our refined product pipelines are located mainly in Texas, where the stay-home orders began being lifted at the beginning of May, and in the Midwest, where demand has been insulated by lower-density population centers and continued strong agricultural demand. In addition, while gasoline demand declined due to the stay-home directives and business closures, diesel demand in the markets we serve has remained stable, mainly supported by trucking demand, for delivery of supplies across the country, and agricultural demand. However, the increase in COVID-19 cases in Texas and other
states across the southern United States since May has led to another round of closures of certain categories of businesses in that region, which has slowed the rebound in demand from the initial lifting of stay-home directives and could continue if COVID-19 statistics do not improve. Our crude oil pipelines are somewhat insulated by minimum volume commitments on certain systems, but we do expect lower throughputs, compared to our expectations at the beginning of 2020, on our crude oil pipelines that serve producer demand in shale plays, especially in the Permian Basin, as the decline in the price of crude oil has reduced rig counts, signaling decreased drilling activity. While the crude oil price has depressed production growth in the Permian Basin in the near-term, we believe the Permian Basin, and our system in particular, has geological advantages over other shale plays, including lower production costs and higher product quality, that should benefit our assets as crude demand, price and production begin to recover. Although the crude oil price remains low compared to recent years, we believe it currently supports the completion of drilled yet unfinished wells by producers in the Permian Basin, which has recently driven, and may continue to drive, increased throughputs on our system, muting the negative effect from declines in the price of crude oil.
While overall demand for refined petroleum products has declined from the impact of stay-home orders and social distancing, which would tend to reduce the demand for terminal services in certain markets, the impact of lower economic activity is somewhat mitigated by our minimum volume commitments on certain pipeline assets, as well as our storage segment, including our contracted rates for storage and minimum throughput agreements. In addition, the contango market that emerged in March and April from the decline of crude oil prices coupled with the expectation those prices will rise in the future, increased demand for storage, and we were able to enter into additional contracts with several customers at certain of our terminals, which has resulted in our lease of all of our available storage capacity across our asset footprint.
Since current conditions emerged in March, we made significant reductions in our expenses and our planned spending for capital projects in 2020. Although we extended the maturity on our revolving credit agreement from October 2021 to October 2023 and entered into a $750.0 million three-year unsecured Term Loan that does not mature until 2023, we plan to continue to monitor the debt capital markets for opportunities to raise additional capital on favorable terms to lower interest costs and to evaluate divestitures of non-core assets to reduce leverage. Ongoing uncertainty surrounding the COVID-19 pandemic, including its duration and lingering impacts, and uncertainty surrounding future production decisions by OPEC+, continue to cause volatility and could significantly impact management’s estimates and assumptions in 2020 and beyond.
Other Events
Selby Terminal Fire. On October 15, 2019, our terminal facility in Selby, California experienced a fire that destroyed two storage tanks and temporarily shut down the terminal. The property damage was isolated, and in the fourth quarter of 2019, we incurred losses of $5.4 million, which represent the aggregate amount of our deductibles under various insurance policies. For the six months ended June 30, 2020, we received insurance proceeds of $25.0 million. Gains from business interruption insurance of $3.1 million for the six months ended June 30, 2020 are included in “Operating expenses” in the condensed consolidated statement of comprehensive loss. Insurance proceeds relate to cleanup costs and business interruption and are therefore included in “Cash flows from operating activities” in the consolidated statement of cash flows. We believe we have adequate insurance to offset additional costs in excess of the insurance deductibles.
Completed Projects. In the third quarter of 2019, we completed three major projects: (i) the construction of a 30-inch crude oil pipeline from Taft, Texas to our Corpus Christi North Beach terminal to transport volumes from the Permian Basin to Corpus Christi, Texas for export, (ii) an expansion project on our Valley Pipeline System, which originates in Corpus Christi and runs south to the Rio Grande Valley, and (iii) the reactivation of our refined products pipeline in South Texas to transport diesel to our Nuevo Laredo terminal in Mexico. In addition, the Nuevo Laredo terminal expansion was completed at the end of the first quarter of 2020.
Sale of St. Eustatius Operations. On July 29, 2019, we sold our St. Eustatius terminal and bunkering operations (the St. Eustatius Operations) for net proceeds of approximately $230.0 million (the St. Eustatius Disposition). The St. Eustatius Disposition included a 14.3 million barrel storage and terminalling facility and related assets on the island of St. Eustatius in the Caribbean. We previously reported the terminal operations in our storage segment and the bunkering operations in our fuels marketing segment.
The unaudited condensed consolidated statements of comprehensive income (loss) for the three and six months ended June 30, 2019 reflect the St. Eustatius Operations as discontinued operations. The consolidated statement of cash flows for the six months ended June 30, 2019 has not been adjusted to separately disclose cash flows related to discontinued operations. Please refer to Note 3 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for additional information on discontinued operations.
In the first quarter of 2019, we recorded long-lived asset and goodwill impairment charges of $297.3 million and $31.1 million, respectively, in discontinued operations related to the St. Eustatius Operations. Please refer to Note 3 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for further discussion of the impairment charges.
Operations
We conduct our operations through our subsidiaries, primarily NuStar Logistics, L.P. (NuStar Logistics) and NuStar Pipeline Operating Partnership L.P. (NuPOP). Our operations consist of three reportable business segments: pipeline, storage and fuels marketing.
Pipeline. We own 3,205 miles of refined product pipelines and 2,180 miles of crude oil pipelines, as well as 5.6 million barrels of storage capacity, which comprise our Central West System. In addition, we own 2,600 miles of refined product pipelines, consisting of the East and North Pipelines, and a 2,000-mile ammonia pipeline (the Ammonia Pipeline), which comprise our Central East System. The East and North Pipelines have storage capacity of 7.4 million barrels. We charge tariffs on a per barrel basis for transporting refined products, crude oil and other feedstocks in our refined product and crude oil pipelines and on a per ton basis for transporting anhydrous ammonia in the Ammonia Pipeline.
Storage. Our storage segment includes the operations of our terminal and storage facilities in the United States, Canada and Mexico, with 62.0 million barrels of storage capacity. 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).
Fuels Marketing. The fuels marketing segment 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.
Factors That Affect Results of Operations
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 and the operations of our competitors;
•factors that impact the operations served by our pipeline and storage assets, 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.
Increases or decreases in the price of crude oil affect sectors across the energy industry, including our customers in crude oil production, refining and trading, in different ways at different points in any given price cycle. For example, during periods of sustained low prices, as is currently the case, producers tend to reduce their capital spending and drilling activity and narrow their focus to assets in the most cost-advantaged regions. Refiners, on the other hand, can benefit from lower crude oil prices if they are able to take advantage of lower feedstock prices in areas with healthy regional demand; however, as refined product inventories increase, refiners typically reduce their production rate, which may reduce the degree to which they are able to benefit from low crude prices. Crude oil traders focus less on the current market commodity price than on whether that price is higher or lower than expected future market prices: if the future price for a product is believed to be higher than the current market price, or a “contango market,” as is currently the case, traders are more likely to purchase and store products to sell in the future at the higher price. On the other hand, when the current price of crude oil nears or exceeds the expected future market price, or “backwardation,” traders are no longer incentivized to purchase and store product for future sale.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
Financial Highlights
(Unaudited, Thousands of Dollars, Except Per Unit Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Change
|
|
|
2020
|
|
2019
|
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Service revenues
|
$
|
284,151
|
|
|
$
|
282,472
|
|
|
$
|
1,679
|
|
|
Product sales
|
55,389
|
|
|
89,973
|
|
|
(34,584)
|
|
|
Total revenues
|
339,540
|
|
|
372,445
|
|
|
(32,905)
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
Costs associated with service revenues
|
170,292
|
|
|
166,086
|
|
|
4,206
|
|
|
Cost of product sales
|
50,676
|
|
|
86,389
|
|
|
(35,713)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
23,700
|
|
|
24,868
|
|
|
(1,168)
|
|
|
Other depreciation and amortization expense
|
2,171
|
|
|
1,819
|
|
|
352
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
246,839
|
|
|
279,162
|
|
|
(32,323)
|
|
|
|
|
|
|
|
|
|
Operating income
|
92,701
|
|
|
93,283
|
|
|
(582)
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
(59,499)
|
|
|
(45,693)
|
|
|
(13,806)
|
|
|
|
|
|
|
|
|
|
Other (expense) income, net
|
(1,626)
|
|
|
621
|
|
|
(2,247)
|
|
|
Income from continuing operations before income tax expense
|
31,576
|
|
|
48,211
|
|
|
(16,635)
|
|
|
Income tax expense
|
1,810
|
|
|
1,296
|
|
|
514
|
|
|
Income from continuing operations
|
29,766
|
|
|
46,915
|
|
|
(17,149)
|
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(964)
|
|
|
964
|
|
|
Net income
|
$
|
29,766
|
|
|
$
|
45,951
|
|
|
$
|
(16,185)
|
|
|
Basic and diluted net (loss) income per common unit:
|
|
|
|
|
|
|
Continuing operations
|
$
|
(0.06)
|
|
|
$
|
0.11
|
|
|
$
|
(0.17)
|
|
|
Discontinued operations
|
—
|
|
|
(0.01)
|
|
|
0.01
|
|
|
Total
|
$
|
(0.06)
|
|
|
$
|
0.10
|
|
|
$
|
(0.16)
|
|
|
|
|
|
|
|
|
Overview
Net income decreased $16.2 million for the three months ended June 30, 2020, compared to the three months ended June 30, 2019, mainly due to increased interest expense resulting from the Term Loan we entered into in April 2020. Operating income for the three months ended June 30, 2020 was comparable to the three months ended June 30, 2019, as decreased operating income from the pipeline segment was mostly offset by increased operating income from the storage segment. Please refer to Note 5 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for additional information on the Term Loan.
Segment Operating Highlights
(Thousands of Dollars, Except Barrels/Day Information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Change
|
|
|
2020
|
|
2019
|
|
|
|
Pipeline:
|
|
|
|
|
|
|
Crude oil pipelines throughput (barrels/day)
|
1,063,739
|
|
|
1,089,848
|
|
|
(26,109)
|
|
|
Refined products and ammonia pipelines throughput (barrels/day)
|
452,678
|
|
|
569,820
|
|
|
(117,142)
|
|
|
Total throughput (barrels/day)
|
1,516,417
|
|
|
1,659,668
|
|
|
(143,251)
|
|
|
Throughput and other revenues
|
$
|
166,108
|
|
|
$
|
172,493
|
|
|
$
|
(6,385)
|
|
|
Operating expenses
|
50,099
|
|
|
52,930
|
|
|
(2,831)
|
|
|
Depreciation and amortization expense
|
44,028
|
|
|
40,851
|
|
|
3,177
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
71,981
|
|
|
$
|
78,712
|
|
|
$
|
(6,731)
|
|
|
Storage:
|
|
|
|
|
|
|
Throughput (barrels/day)
|
348,189
|
|
|
395,512
|
|
|
(47,323)
|
|
|
Throughput terminal revenues
|
$
|
32,199
|
|
|
$
|
23,170
|
|
|
$
|
9,029
|
|
|
Storage terminal revenues
|
87,208
|
|
|
87,233
|
|
|
(25)
|
|
|
Total revenues
|
119,407
|
|
|
110,403
|
|
|
9,004
|
|
|
Operating expenses
|
50,979
|
|
|
48,165
|
|
|
2,814
|
|
|
Depreciation and amortization expense
|
25,186
|
|
|
24,140
|
|
|
1,046
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
43,242
|
|
|
$
|
38,098
|
|
|
$
|
5,144
|
|
|
Fuels Marketing:
|
|
|
|
|
|
|
Product sales
|
$
|
54,025
|
|
|
$
|
89,549
|
|
|
$
|
(35,524)
|
|
|
Cost of goods
|
50,115
|
|
|
85,802
|
|
|
(35,687)
|
|
|
Gross margin
|
3,910
|
|
|
3,747
|
|
|
163
|
|
|
Operating expenses
|
561
|
|
|
587
|
|
|
(26)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
3,349
|
|
|
$
|
3,160
|
|
|
$
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Information:
|
|
|
|
|
|
|
Revenues
|
$
|
339,540
|
|
|
$
|
372,445
|
|
|
$
|
(32,905)
|
|
|
Costs associated with service revenues:
|
|
|
|
|
|
|
Operating expenses
|
101,078
|
|
|
101,095
|
|
|
(17)
|
|
|
Depreciation and amortization expense
|
69,214
|
|
|
64,991
|
|
|
4,223
|
|
|
Total costs associated with service revenues
|
170,292
|
|
|
166,086
|
|
|
4,206
|
|
|
Cost of product sales
|
50,676
|
|
|
86,389
|
|
|
(35,713)
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
118,572
|
|
|
119,970
|
|
|
(1,398)
|
|
|
General and administrative expenses
|
23,700
|
|
|
24,868
|
|
|
(1,168)
|
|
|
Other depreciation and amortization expense
|
2,171
|
|
|
1,819
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
$
|
92,701
|
|
|
$
|
93,283
|
|
|
$
|
(582)
|
|
Pipeline
Total revenues decreased $6.4 million and throughputs decreased 143,251 barrels per day for the three months ended June 30, 2020, compared to the three months ended June 30, 2019. In the second quarter of 2020, the negative impacts from COVID-19 and actions by OPEC+ resulted in lower overall demand on our crude and refined product pipelines. These unfavorable market conditions led to a decrease in revenues of $11.2 million and a decrease in throughputs of 126,340 barrels per day on our McKee System pipelines, as well as a decrease in revenues of $2.8 million and a decrease in throughputs of 12,106 barrels per day on our North Pipeline. Throughputs increased 17,018 barrels per day on our Corpus Christi Crude System, mainly due to the completion of the 30-inch crude oil pipeline from Taft, Texas to our Corpus Christi North Beach terminal in the third quarter of 2019 and the completion of a new pipeline connection in the fourth quarter of 2019, which were mostly offset by lower volumes from the Eagle Ford due to the demand decline in the second quarter of 2020, resulting in overall slightly lower revenues.
The decline in revenues was partially offset by the following:
•an increase in revenues of $3.9 million, despite throughputs that remained flat, on our Valley Pipeline System, mainly due to customer contracts related to the completion of an expansion project in the third quarter of 2019;
•an increase in revenues of $2.8 million and an increase in throughputs of 25,185 barrels per day on our Permian Crude System due to the completion of new pipeline connections with higher tariffs and expansion projects completed subsequent to the second quarter of last year, despite the market conditions described above that negatively affected throughput in the second quarter of 2020; and
•an increase in revenues of $1.9 million, despite a decrease in throughputs of 18,076 barrels per day, on our Ardmore System due to an increase in long-haul deliveries resulting in higher average tariffs in 2020 and the completion of new pipeline connections that began delivering Permian crude oil in the second quarter of 2019.
Operating expenses decreased $2.8 million for the three months ended June 30, 2020, compared to the three months ended June 30, 2019, primarily due to a decrease in power costs as a result of lower throughputs.
Depreciation and amortization expense increased $3.2 million for the three months ended June 30, 2020, compared to the three months ended June 30, 2019, mainly due to various completed projects in 2019.
Storage
Throughput terminal revenues increased $9.0 million, despite a decrease in throughputs of 47,323 barrels per day, for the three months ended June 30, 2020, compared to the three months ended June 30, 2019. Throughput terminal revenues increased $12.3 million and throughputs increased 17,872 barrels per day at our Corpus Christi North Beach terminal, mainly due to completion of the 30-inch crude oil pipeline from Taft, Texas to our Corpus Christi North Beach terminal in the third quarter of 2019. These increases were partially offset by decreased revenues of $3.2 million and decreased throughputs of 64,606 barrels per day on our Central West Terminals due to lower demand.
Storage terminal revenues for the three months ended June 30, 2020 were comparable to the three months ended June 30, 2019, primarily due to the following:
•a decrease in revenues of $2.6 million at our North East and Point Tupper terminals, mainly due to decreases in customer base and lower throughput and handling fees;
•an increase in revenues of $2.1 million at our Central West and West Coast terminals, mainly due to completed projects and associated new contracts at our Nuevo Laredo and Selby terminals; and
•an increase in revenues of $0.3 million at our Gulf Coast Terminals, mainly due to new customer contracts, rate escalations and higher reimbursable revenues at our Texas City and Jacksonville terminals, partially offset by lower reimbursable revenues and unit train activity at our St. James terminal.
Operating expenses increased $2.8 million for the three months ended June 30, 2020, compared to the three months ended June 30, 2019, primarily due to increases in maintenance and insurance costs at various terminals.
Depreciation and amortization expense increased $1.0 million for the three months ended June 30, 2020, compared to the three months ended June 30, 2019, primarily due to various completed projects.
General
Interest expense, net, increased $13.8 million for the three months ended June 30, 2020, compared to the three months ended June 30, 2019, primarily due to the Term Loan we entered into in April 2020 and the issuance of $500.0 million of 6.0% senior notes in May 2019, partially offset by lower borrowings under our revolving credit agreement after applying the proceeds from the above financings and the St. Eustatius Disposition in July 2019.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
Financial Highlights
(Unaudited, Thousands of Dollars, Except Per Unit Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Change
|
|
|
2020
|
|
2019
|
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Service revenues
|
$
|
600,897
|
|
|
$
|
541,499
|
|
|
$
|
59,398
|
|
|
Product sales
|
131,434
|
|
|
178,772
|
|
|
(47,338)
|
|
|
Total revenues
|
732,331
|
|
|
720,271
|
|
|
12,060
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
Costs associated with service revenues
|
338,535
|
|
|
326,315
|
|
|
12,220
|
|
|
Cost of product sales
|
118,126
|
|
|
172,571
|
|
|
(54,445)
|
|
|
|
|
|
|
|
|
|
Goodwill impairment loss
|
225,000
|
|
|
—
|
|
|
225,000
|
|
|
General and administrative expenses
|
46,671
|
|
|
50,559
|
|
|
(3,888)
|
|
|
Other depreciation and amortization expense
|
4,357
|
|
|
3,938
|
|
|
419
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
732,689
|
|
|
553,383
|
|
|
179,306
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
(358)
|
|
|
166,888
|
|
|
(167,246)
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
(106,993)
|
|
|
(89,984)
|
|
|
(17,009)
|
|
|
|
|
|
|
|
|
|
Other (expense) income, net
|
(8,115)
|
|
|
1,412
|
|
|
(9,527)
|
|
|
(Loss) income from continuing operations before income tax expense
|
(115,466)
|
|
|
78,316
|
|
|
(193,782)
|
|
|
Income tax expense
|
2,409
|
|
|
2,478
|
|
|
(69)
|
|
|
(Loss) income from continuing operations
|
(117,875)
|
|
|
75,838
|
|
|
(193,713)
|
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(307,750)
|
|
|
307,750
|
|
|
Net loss
|
$
|
(117,875)
|
|
|
$
|
(231,912)
|
|
|
$
|
114,037
|
|
|
Basic and diluted net (loss) income per common unit:
|
|
|
|
|
|
|
Continuing operations
|
$
|
(1.74)
|
|
|
$
|
0.05
|
|
|
$
|
(1.79)
|
|
|
Discontinued operations
|
—
|
|
|
(2.86)
|
|
|
2.86
|
|
|
Total
|
$
|
(1.74)
|
|
|
$
|
(2.81)
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
Overview
We incurred a loss from continuing operations of $117.9 million for the six months ended June 30, 2020, compared to income from continuing operations of $75.8 million for the six months ended June 30, 2019, mainly due to a non-cash goodwill impairment charge of $225.0 million in the first quarter of 2020 related to our crude oil pipelines reporting unit. Excluding the goodwill impairment charge, operating income increased for all our segments for the six months ended June 30, 2020, compared to the six months ended June 30, 2019.
For the six months ended June 30, 2019, loss from discontinued operations, net of tax, includes impairment charges totaling $336.8 million related to the St. Eustatius Operations. Please refer to Note 3 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for additional information on these impairments.
Segment Operating Highlights
(Thousands of Dollars, Except Barrels/Day Information)
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Six Months Ended June 30,
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Change
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2020
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2019
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Pipeline:
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|
Crude oil pipelines throughput (barrels/day)
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1,297,892
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|
|
1,054,425
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|
|
243,467
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|
|
Refined products and ammonia pipelines throughput (barrels/day)
|
523,555
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|
|
536,836
|
|
|
(13,281)
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Total throughput (barrels/day)
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1,821,447
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|
|
1,591,261
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|
|
230,186
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Throughput and other revenues
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$
|
361,789
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|
|
$
|
328,744
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|
|
$
|
33,045
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|
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Operating expenses
|
100,345
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|
|
101,028
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(683)
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|
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Depreciation and amortization expense
|
87,387
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|
|
81,700
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|
|
5,687
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|
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Goodwill impairment loss
|
225,000
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|
|
—
|
|
|
225,000
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Segment operating (loss) income
|
$
|
(50,943)
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$
|
146,016
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$
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(196,959)
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Storage:
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|
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Throughput (barrels/day)
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513,510
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|
|
380,267
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|
|
133,243
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Throughput terminal revenues
|
$
|
70,922
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|
|
$
|
44,856
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|
|
$
|
26,066
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Storage terminal revenues
|
171,702
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|
|
169,047
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|
|
2,655
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|
Total revenues
|
242,624
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|
|
213,903
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|
|
28,721
|
|
|
Operating expenses
|
100,915
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|
|
95,478
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|
|
5,437
|
|
|
Depreciation and amortization expense
|
49,888
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|
|
48,109
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|
|
1,779
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|
|
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|
|
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|
Segment operating income
|
$
|
91,821
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|
|
$
|
70,316
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|
|
$
|
21,505
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Fuels Marketing:
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|
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Product sales
|
$
|
127,927
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|
|
$
|
177,628
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|
$
|
(49,701)
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Cost of goods
|
117,069
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|
171,303
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|
(54,234)
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Gross margin
|
10,858
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|
|
6,325
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|
|
4,533
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|
|
Operating expenses
|
1,066
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|
|
1,240
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|
(174)
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|
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|
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Segment operating income
|
$
|
9,792
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|
|
$
|
5,085
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|
|
$
|
4,707
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|
Consolidation and Intersegment Eliminations:
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Revenues
|
$
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(9)
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|
$
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(4)
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|
|
$
|
(5)
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|
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Cost of goods
|
(9)
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|
|
28
|
|
|
(37)
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|
|
|
|
|
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Total
|
$
|
—
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|
|
$
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(32)
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|
|
$
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32
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|
|
Consolidated Information:
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Revenues
|
$
|
732,331
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|
|
$
|
720,271
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|
|
$
|
12,060
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|
|
Costs associated with service revenues:
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|
|
|
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|
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Operating expenses
|
201,260
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|
|
196,506
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|
|
4,754
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|
|
Depreciation and amortization expense
|
137,275
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|
|
129,809
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|
|
7,466
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|
|
Total costs associated with service revenues
|
338,535
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|
|
326,315
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|
|
12,220
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|
|
Cost of product sales
|
118,126
|
|
|
172,571
|
|
|
(54,445)
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|
|
Goodwill impairment loss
|
225,000
|
|
|
—
|
|
|
225,000
|
|
|
Segment operating income
|
50,670
|
|
|
221,385
|
|
|
(170,715)
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|
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General and administrative expenses
|
46,671
|
|
|
50,559
|
|
|
(3,888)
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|
|
Other depreciation and amortization expense
|
4,357
|
|
|
3,938
|
|
|
419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating (loss) income
|
$
|
(358)
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|
|
$
|
166,888
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|
|
$
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(167,246)
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|
Pipeline
Pipeline segment revenues increased $33.0 million and throughputs increased 230,186 barrels per day for the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to the following:
•an increase in revenues of $15.5 million and an increase in throughputs of 61,448 barrels per day on our Permian Crude System due to the completion of new pipeline connections with higher tariffs and expansion projects completed subsequent to the second quarter of last year, despite the market conditions described above that negatively affected throughput in the second quarter of 2020;
•an increase in revenues of $11.5 million and an increase in throughputs of 8,145 barrels per day on our Valley Pipeline System, mainly due to customer contracts related to the completion of an expansion project in the third quarter of 2019;
•an increase in revenues of $6.9 million and an increase in throughputs of 202,826 barrels per day on our Corpus Christi Crude System, mainly due to the completion of the 30-inch crude oil pipeline from Taft, Texas to our Corpus Christi North Beach terminal in the third quarter of 2019, a turnaround at a customer’s refinery in the first quarter of 2020 that resulted in crude oil volumes from the Eagle Ford being shipped to Corpus Christi instead of the refinery and the completion of a new pipeline connection in the fourth quarter of 2019, partially offset by lower demand in the second quarter of 2020;
•an increase in revenues of $2.7 million and an increase in throughputs of 6,042 barrels per day on our Three Rivers System, partially due to the turnaround at a customer’s refinery in the first quarter of 2020, resulting in higher volumes of refined product shipped from Corpus Christi, Texas to supply demand in markets served by the system and the reactivation of our refined products pipeline to transport diesel to our Nuevo Laredo terminal in Mexico, which began early service in the third quarter of 2019 and was at full service at the end of the first quarter of 2020, partially offset by decreased demand in the second quarter of 2020;
•an increase in revenues of $2.0 million and an increase in throughputs of 1,670 barrels per day on our Ammonia Pipeline due to weather conditions in 2019 that hindered early agricultural application; and
•an increase in revenues of $1.7 million despite a decrease in throughputs of 10,218 barrels per day on our Ardmore System, mainly due to an increase in long-haul deliveries resulting in higher average tariffs in 2020 and the completion of new pipeline connections that began delivering Permian crude oil in the second quarter of 2019.
These increases were partially offset by:
•a decrease in revenues of $3.7 million on our Houston pipeline due to a reduction in the lease rate;
•a decrease in revenues of $2.9 million and a decrease in throughputs of 30,225 barrels per day on our McKee System as a result of lower demand, partially offset by higher revenue and throughputs due to operational issues in 2019 at the refinery served by our McKee System pipelines; and
•a decrease in revenues of $2.7 million and a decrease in throughputs of 7,118 barrels per day on our North Pipeline due to lower demand in the second quarter of 2020.
Operating expenses decreased $0.7 million for the six months ended June 30, 2020, compared to the six months ended June 30, 2019, mainly due to decreases in power costs of $2.6 million resulting from lower throughputs on various pipeline systems and lower bad debt expense of $1.0 million. These decreases were partially offset by higher maintenance and regulatory expenses of $1.1 million, primarily on the Ammonia Pipeline, and higher ad valorem taxes of $1.0 million due to a 2019 settlement.
Depreciation and amortization expense increased $5.7 million for the six months ended June 30, 2020, compared to the six months ended June 30, 2019, mainly due to various completed projects in 2019.
Storage
Throughput terminal revenues increased $26.1 million, while throughputs increased 133,243 barrels per day for the six months ended June 30, 2020, compared to the six months ended June 30, 2019, mainly due to an increase in throughput terminal revenues of $29.0 million and an increase in throughputs of 166,574 barrels per day at our Corpus Christi North Beach terminal, consistent with higher volumes on our Corpus Christi Crude Pipeline System. These increases were partially offset by decreased revenues of $2.9 million and throughputs of 33,269 barrels per day at our Central West Terminals mainly due to lower demand in the second quarter of 2020.
Storage terminal revenues increased $2.7 million for the six months ended June 30, 2020, compared to the six months ended June 30, 2019 mainly due to the following:
•an increase in revenues of $4.8 million at our Texas City Terminal, mainly due to rate escalations, new customer contracts and higher reimbursable revenues and ancillary fees;
•an increase in revenues of $2.2 million at our West Coast terminals, primarily due to new contracts and rate escalations related to completed projects at our Selby terminal; and
•an increase in revenues of $1.8 million at our Central West terminals, mainly due to new contracts related to completed projects at our Nuevo Laredo terminal.
These increases were partially offset by a decrease in revenues of $6.4 million at our North East and Point Tupper terminals, mainly due to decreases in customer base and lower throughput and handling fees.
Operating expenses increased $5.4 million for the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to increases in reimbursable expenses of $5.0 million, resulting mainly from increased dockage and wharfage activity at our Corpus Christi North Beach terminal and increased customer activity at our Texas City Terminal. In addition, maintenance and regulatory expenses increased $1.5 million, primarily at our West Coast and North East terminals, and insurance expense increased $1.5 million due to higher premiums. These increases were partially offset by the business interruption insurance recovery of $3.1 million in the first quarter of 2020 related to the fire at our Selby terminal in the fourth quarter of 2019.
Depreciation and amortization expense increased $1.8 million for the six months ended June 30, 2020, compared to the six months ended June 30, 2019, mainly due to various completed projects.
Fuels Marketing
Segment operating income increased $4.7 million for the six months ended June 30, 2020, compared to the six months ended June 30, 2019, mostly due to higher margins from our bunkering business and blending operations.
General
General and administrative expenses decreased $3.9 million for the six months ended June 30, 2020, compared to the six months ended June 30, 2019, mainly due to lower compensation costs.
Interest expense, net, increased $17.0 million for the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to the Term Loan we entered into in April 2020 and the issuance of $500.0 million of 6.0% senior notes in May 2019, partially offset by lower borrowings under our revolving credit agreement after applying the proceeds from the above financings and the St. Eustatius Disposition in July 2019.
Other expense, net of $8.1 million for the six months ended June 30, 2020, consisted mainly of foreign currency transaction losses associated with our Mexico subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our primary cash requirements are for debt service, distributions to our partners, capital expenditures, acquisitions 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.
Each year, our objective is to fund our reliability capital expenditures and distribution requirements with net cash provided by operating activities during that year. If we do not generate sufficient cash from operations to meet that objective, we can use cash on hand or other sources of cash flow, which in the past have primarily included borrowings under our revolving credit agreement, sales of non-strategic assets and, to the extent necessary, funds raised through equity or debt offerings. We have typically funded our strategic capital expenditures and acquisitions from external sources, primarily borrowings under our revolving credit agreement or funds raised through equity or debt offerings. However, our ability to raise funds by issuing debt or equity depends on many factors beyond our control, including our ability to access such markets with the continued uncertainty surrounding the duration and severity of the impact from the COVID-19 pandemic and actions by OPEC+. Our risk factors in Item 1A “Risk Factors” of each of our Annual Report on Form 10-K for the year ended December 31, 2019, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and in this report describe the risks inherent to these sources of funding and the availability thereof.
Due to the negative impacts of, and the continued uncertainty related to, the COVID-19 pandemic and actions taken by OPEC+, we have taken steps to preserve and enhance our liquidity. As further described below, by deferring certain planned capital expenditures, we reduced our 2020 planned capital expenditures by an additional 45% below our expectations at the beginning of 2020. Planned 2020 capital expenditures had already been drastically reduced from 2019 as we completed several large pipeline expansion projects in the second half of 2019. We also have identified ways that we believe will reduce our operating expenditures, which should further reduce our overall cash requirements. At the same time, we enhanced our sources of liquidity by extending the maturity on our revolving credit agreement from October 2021 to October 2023 and entering into a $750.0 million three-year unsecured term loan, which provide us with the financial flexibility to address our near-term debt maturities in September 2020 and February 2021. In addition, beginning with the distribution for the first quarter of 2020, we lowered the quarterly distribution to $0.40 per common unit.
In the second quarter of 2020, we completed the reoffering and conversion of $322.1 million aggregate principal amount of Revenue Bonds Series 2008, Series 2010, Series 2010A, Series 2010B and Series 2011 issued by the Parish of St. James, Louisiana pursuant to the Gulf Opportunity Zone Act of 2005 (collectively, GoZone Bonds) with respect to our St. James, Louisiana terminal. The reoffering and conversion transaction provided us with additional financial flexibility by converting the interest rate on the GoZone Bonds from a weekly rate to a long-term rate, and eliminating the need to remarket the bonds prior to 2025, and, in some cases, until 2030 or the maturity of the bonds in 2040. In addition, the reoffering and conversion transaction provided us with additional liquidity by eliminating the letters of credit previously issued by various individual banks on our behalf to support the payments required in connection with the GoZone Bonds.
Although the Term Loan provides us the financial flexibility to fund debt maturities in the near term, we plan to continue to monitor the debt capital markets for opportunities to raise additional capital at favorable terms to lower interest costs and to evaluate divestitures of non-core assets to reduce leverage.
For 2020, we expect to generate sufficient cash from operations to fund our distribution requirements, reliability capital expenditures and a portion of our strategic capital expenditures.
Cash Flows for the Six Months Ended June 30, 2020 and 2019
The following table summarizes our cash flows from operating, investing and financing activities (please refer to our Consolidated Statements of Cash Flows in Item 1. “Financial Statements”):
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|
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|
|
Six Months Ended June 30,
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|
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|
|
2020
|
|
2019
|
|
|
(Thousands of Dollars)
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
Operating activities
|
$
|
270,441
|
|
|
$
|
240,894
|
|
|
Investing activities
|
(106,080)
|
|
|
(303,674)
|
|
|
Financing activities
|
(162,319)
|
|
|
73,757
|
|
|
Effect of foreign exchange rate changes on cash
|
(945)
|
|
|
261
|
|
|
Net increase in cash, cash equivalents and restricted cash
|
$
|
1,097
|
|
|
$
|
11,238
|
|
Net cash provided by operating activities increased $29.5 million for the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to changes in working capital. Our working capital increased by $6.2 million for the six months ended June 30, 2020, compared to an increase of $36.2 million for the six months ended June 30, 2019. Working capital requirements are mainly affected by our accounts receivable and accounts payables balances, which vary depending on the timing of payments. For the six months ended June 30, 2020, accounts receivable decreased $25.4 million due, in part, to insurance proceeds received in 2020 and timing of customer payments.
For the six months ended June 30, 2020 and 2019, net cash provided by operating activities exceeded our distributions to unitholders and reliability capital expenditures.
Net cash used in investing activities decreased by $197.6 million for the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to reductions to our 2020 capital expenditures in response to the COVID-19 pandemic and the actions of OPEC+ combined with major pipeline expansion projects in 2019.
Financing activities were a net use of cash of $162.3 million for the six months ended June 30, 2020 compared to a net source of cash of $73.8 million for the six months ended June 30, 2019. The year over year change was mainly due to a $198.3 million reduction in net proceeds from debt borrowings and the payment of $49.2 million to terminate the interest rate swaps in 2020, partially offset by the decrease in distributions to our unitholders of $20.2 million in 2020.
Sources of Liquidity
Term Loan. On April 19, 2020, NuStar Energy and NuStar Logistics entered into an unsecured term loan credit agreement with certain lenders and Oaktree Fund Administration, LLC, as administrative agent for the lenders. The Term Loan provides for an aggregate commitment of up to $750.0 million pursuant to a three-year unsecured term loan credit facility. NuStar Logistics drew $500.0 million (the Initial Loan) on April 21, 2020 (the Initial Loan Funding Date), leaving an additional aggregate principal amount of $250.0 million, which NuStar Logistics may elect to draw, on or prior to April 19, 2021, in one or more draws, subject to certain conditions. We utilized the proceeds from the Initial Loan, net of the original issue discount of $22.5 million (3.0% of the total commitment) and issuance costs of $14.4 million, to repay outstanding borrowings under our Revolving Credit Agreement (as defined below). The Term Loan also bolsters our liquidity to address our senior note maturities in 2020 and early 2021.
Outstanding borrowings bear interest at an aggregate rate of 12.0% per annum. Additionally, NuStar Logistics will pay a commitment fee in the amount of 5.0% per annum on the average daily undrawn amount. The obligations under the Term Loan are guaranteed by NuStar Energy and NuPOP.
NuStar Logistics is required to make mandatory prepayment in an amount equal to 100.0% of the proceeds received as a result of certain events, subject to certain exclusions and adjustments, such as the incurrence of additional indebtedness (excluding additional borrowings under the Revolving Credit Agreement) and the issuance of equity securities, and is required to offer to make such a prepayment with respect to the sale of property or assets. Depending on the amount of time that has passed since the Initial Loan Funding Date, if there is a payment or prepayment (subject to certain exceptions), NuStar Logistics is required to pay, as liquidated damages and compensation for the costs of making funds available, a make-whole premium or similar amount. From the Initial Loan Funding Date through the 18-month anniversary of the Initial Loan Funding Date, such premium will be the sum of (i) the make-whole amount and (ii) 6.25% of the aggregate principal amount of borrowings then paid, prepaid or accelerated. After the 18-month anniversary of the Initial Loan Funding Date through the 30-month anniversary of the Initial Loan Funding Date, such premium will be 6.25% of the aggregate principal amount of borrowings then paid, prepaid
or accelerated. Prepayments accepted in connection with one or more asset sales of up to an aggregate amount of $250.0 million will be subject to a lower prepayment premium. For such asset sale prepayments from the Initial Loan Funding Date through the 18-month anniversary of the Initial Loan Funding Date, such premium will be 5.0% of the aggregate principal amount of borrowings then paid, prepaid or accelerated. After the 18-month anniversary of the Initial Loan Funding Date through the 30-month anniversary of the Initial Loan Funding Date, such premium will be 3.0% of the aggregate principal amount of borrowings then paid, prepaid or accelerated. There will be no premium for any prepayments of borrowings after the 30-month anniversary of the Initial Loan Funding Date.
The Term Loan contains customary covenants (including ratio requirements) regarding NuStar Energy and its subsidiaries that are generally based upon and are comparable to those contained in the Revolving Credit Agreement and also contains customary events of default.
Revolving Credit Agreement. On March 6, 2020, NuStar Logistics amended its revolving credit agreement (the Revolving Credit Agreement) to, among other things, extend the maturity date from October 29, 2021 to October 27, 2023, reduce the total amount available for borrowing from $1.2 billion to $1.0 billion and increase the rates included in the definition of Applicable Rate contained in the Revolving Credit Agreement. On April 6, 2020, NuStar Logistics amended the Revolving Credit Agreement to allow for certain transactions related to the GoZone Bonds.
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 less than the total amount available for borrowing. For the rolling period of four quarters ending June 30, 2020, the consolidated debt coverage ratio (as defined in the Revolving Credit Agreement) could 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 June 30, 2020, our consolidated debt coverage ratio was 3.94x and our consolidated interest coverage ratio was 2.41x. As of June 30, 2020, we had $885.0 million available for borrowing.
In March of 2020, S&P Global Ratings changed our rating outlook from stable to negative, and back to stable in April 2020. In April of 2020, Fitch, Inc. downgraded our credit rating from BB to BB- and placed our rating on Rating Watch Negative. Also in April of 2020, Moody’s Investor Service Inc. placed our ratings under review for downgrade. Per the terms of the Revolving Credit Agreement, these changes did not impact the interest rate on our Revolving Credit Agreement, which is the only debt arrangement with an interest rate that is subject to adjustment if our debt rating is downgraded (or upgraded) by certain credit rating agencies. The following table reflects the current ratings and outlook that have been assigned to our debt:
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|
Fitch, Inc.
|
|
Moody’s Investor
Service Inc.
|
|
S&P
Global Ratings
|
|
Ratings
|
BB-
|
|
Ba2
|
|
BB-
|
|
Outlook
|
Rating Watch Negative
|
|
Rating Under Review
|
|
Stable
|
Receivables Financing Agreement. NuStar Energy and NuStar Finance LLC, a special purpose entity and wholly owned subsidiary of NuStar Energy, are parties to a $125.0 million receivables financing agreement with third-party lenders (the Receivables Financing Agreement) and agreements with certain of NuStar Energy’s wholly owned subsidiaries (collectively with the Receivables Financing Agreement, the Securitization Program). The amount available for borrowing under the Receivables Financing Agreement is limited to $125.0 million and is based on the availability of eligible receivables and other customary factors and conditions.
LOC Agreement. We are also a party to a $100.0 million uncommitted letter of credit agreement, which provides for standby letters of credit or guarantees with a term of up to one year (LOC Agreement). As of June 30, 2020, we had no letters of credit issued under the LOC Agreement.
Please refer to Note 5 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for a discussion of certain of our debt agreements.
Capital Requirements
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 for the six months ended June 30, 2020 and 2019, and the amount we expect to spend in 2020:
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Strategic Capital Expenditures
|
|
Reliability Capital
Expenditures
|
|
Total
|
|
|
(Thousands of Dollars)
|
|
|
|
|
|
For the six months ended June 30:
|
|
|
|
|
|
|
2020
|
$
|
85,307
|
|
|
$
|
11,051
|
|
|
$
|
96,358
|
|
|
2019
|
$
|
292,785
|
|
|
$
|
27,176
|
|
|
$
|
319,961
|
|
|
|
|
|
|
|
|
|
Expected for the year ended December 31, 2020
|
$ 165,000 - 195,000
|
|
$ 40,000 - 50,000
|
|
|
Strategic capital expenditures for the six months ended June 30, 2020 and 2019 mainly consisted of expansion projects on our Permian Crude System and Corpus Christi Crude System, as well as our Northern Mexico refined products supply projects. Reliability capital expenditures for the six months ended June 30, 2020 and 2019 primarily relate to maintenance upgrade projects at our terminals, including costs to repair the property damage at the St. Eustatius terminal prior to its sale in July 2019.
For the year ended December 31, 2020, in response to the impacts from the COVID-19 pandemic and the actions of OPEC+, we have reduced our expected strategic capital expenditures by 45% from our expectations at the beginning of 2020. We expect a significant portion of our 2020 strategic capital spending to relate to completing our expansion projects on our Permian Crude System and Corpus Christi Crude System, projects to handle bio-fuels demand on the West Coast and projects to increase flexibility at our St. James and other terminals. We continue to evaluate our capital budget and make changes as economic conditions warrant, and our actual capital expenditures for 2020 may increase or decrease from the expected amounts noted above. We believe cash on hand, combined with the sources of liquidity previously described, will be sufficient to fund our capital expenditures in 2020, and our internal growth projects can be accelerated or scaled back depending on market conditions or customer demand.
Distributions
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. The following table summarizes information about quarterly cash distributions to our common limited partners:
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|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Cash
Distributions
Per Unit
|
|
Total Cash
Distributions
|
|
Record Date
|
|
Payment Date
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
|
June 30, 2020
|
|
$
|
0.40
|
|
|
$
|
43,678
|
|
|
August 7, 2020
|
|
August 13, 2020
|
|
March 31, 2020
|
|
$
|
0.40
|
|
|
$
|
43,730
|
|
|
May 11, 2020
|
|
May 15, 2020
|
|
December 31, 2019
|
|
$
|
0.60
|
|
|
$
|
65,128
|
|
|
February 10, 2020
|
|
February 14, 2020
|
|
|
|
|
|
|
|
|
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|
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.
The following table provides the terms related to distributions for our Series A, Series B and Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (collectively, the Series A, B and C Preferred Units):
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Units
|
|
|
|
|
|
|
|
|
|
Fixed Distribution Rate Per Annum (as a Percentage of the $25.00 Liquidation Preference Per Unit)
|
|
Fixed Distribution Rate Per Unit Per Annum
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|
Fixed Distribution Per Annum
|
|
Optional Redemption Date/Date at Which Distribution Rate Becomes Floating
|
|
Floating Annual Rate (as a Percentage of the
$25.00 Liquidation
Preference Per Unit)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
|
Series A Preferred Units
|
|
|
|
|
|
|
|
|
|
8.50%
|
|
$
|
2.125
|
|
|
$
|
19,252
|
|
|
December 15, 2021
|
|
Three-month LIBOR plus 6.766%
|
|
Series B Preferred Units
|
|
|
|
|
|
|
|
|
|
7.625%
|
|
$
|
1.90625
|
|
|
$
|
29,357
|
|
|
June 15, 2022
|
|
Three-month LIBOR plus 5.643%
|
|
Series C Preferred Units
|
|
|
|
|
|
|
|
|
|
9.00%
|
|
$
|
2.25
|
|
|
$
|
15,525
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|
|
December 15, 2022
|
|
Three-month LIBOR plus 6.88%
|
The distribution rates on the Series D Preferred Units are as follows: (i) 9.75% per annum (or $0.619 per unit per distribution period) for the first two years (beginning with the September 17, 2018 distribution); (ii) 10.75% per annum (or $0.682 per unit per distribution period) for years three through five; and (iii) the greater of 13.75% per annum (or $0.872 per unit per distribution period) or the distribution per common unit thereafter. While the Series D Preferred Units are outstanding, the Partnership will be 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) have been, or contemporaneously are being, paid or set aside for payment through the most recent Series D Preferred Unit distribution payment date. Any Series D Preferred Unit distributions in excess of $0.635 may be paid, in the Partnership’s sole discretion, in additional Series D Preferred Units, with the remainder paid in cash.
In July 2020, our board of directors declared distributions with respect to the Series A, B and C Preferred Units and the Series D Preferred Units to be paid on September 15, 2020.
Debt Obligations
Our debt obligations as of June 30, 2020 are listed below:
•Term Loan due April 19, 2023 with $500.0 million of borrowings outstanding as of June 30, 2020;
•Revolving Credit Agreement due October 27, 2023, with $110.9 million of borrowings outstanding as of June 30, 2020;
•4.80% senior notes due September 1, 2020 with a face value of $450.0 million; 6.75% senior notes due February 1, 2021 with a face value of $300.0 million; 4.75% senior notes due February 1, 2022 with a face value of $250.0 million; 6.0% senior notes due June 1, 2026 with a face value of $500.0 million; 5.625% senior notes due April 28, 2027 with a face value of $550.0 million; and subordinated notes due January 15, 2043 with a face value of $402.5 million and a floating interest rate, which was 8.0% as of June 30, 2020;
•$322.1 million in GoZone Bonds due from 2038 to 2041; and
•Receivables Financing Agreement due September 20, 2021, with $48.6 million of borrowings outstanding as of June 30, 2020.
We expect to fund senior note maturities in 2020 and 2021 by utilizing proceeds from senior note issuances in the capital markets, borrowings under our Revolving Credit Agreement or the Term Loan. Although the Term Loan provides us the financial flexibility to fund these maturities in the near term, we plan to continue to monitor the debt capital markets for opportunities to raise additional capital at favorable terms.
On June 3, 2020, NuStar Logistics completed the reoffering and conversion of the GoZone Bonds, which, among other things, converted the interest rate from a weekly rate to a long-term rate. We did not receive any proceeds from the reoffering, and the reoffering did not increase our outstanding debt. As reflected in the table below, certain series of GoZone Bonds in principal amounts totaling $75.0 million and $103.8 million contain a requirement for the bondholders to tender their bonds in exchange for 100% of the principal plus accrued and unpaid interest on June 1, 2025 and on June 1, 2030, respectively, after which these bonds will potentially be remarketed with a new interest rate established.
The following table summarizes the GoZone Bonds outstanding as of June 30, 2020:
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Series
|
|
Date Issued
|
|
Amount
Outstanding
|
|
Interest Rate
|
|
Mandatory
Purchase Date
|
|
Maturity Date
|
|
|
|
|
|
(Thousands of
Dollars)
|
|
|
|
|
|
|
|
Series 2008
|
|
June 26, 2008
|
|
$
|
55,440
|
|
|
6.10
|
%
|
|
June 1, 2030
|
|
June 1, 2038
|
|
Series 2010
|
|
July 15, 2010
|
|
100,000
|
|
|
6.35
|
%
|
|
n/a
|
|
July 1, 2040
|
|
Series 2010A
|
|
October 7, 2010
|
|
43,300
|
|
|
6.35
|
%
|
|
n/a
|
|
October 1, 2040
|
|
Series 2010B
|
|
December 29, 2010
|
|
48,400
|
|
|
6.10
|
%
|
|
June 1, 2030
|
|
December 1, 2040
|
|
Series 2011
|
|
August 9, 2011
|
|
75,000
|
|
|
5.85
|
%
|
|
June 1, 2025
|
|
August 1, 2041
|
|
|
|
Total
|
|
$
|
322,140
|
|
|
|
|
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|
|
We believe that, as of June 30, 2020, we are in compliance with the ratios and 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. Please refer to Note 5 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for a discussion of certain of our debt obligations.
Interest Rate Swaps
In June 2020, we paid $49.2 million to terminate forward-starting interest rate swaps with an aggregate notional amount of $250.0 million. Please refer to Note 7 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for a more detailed discussion of our interest rate swaps.
Environmental, Health and Safety
Our operations are subject to extensive international, federal, state and local environmental laws and regulations, in the U.S. and in the other countries in which we operate, 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.
Contingencies
We are subject to certain loss contingencies, and we believe that the resolution of any particular claim or proceeding, or all matters in the aggregate, would not have a material adverse effect on our results of operations, financial position or liquidity, as further disclosed in Note 6 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements.”
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Ongoing uncertainty surrounding the COVID-19 pandemic, including its duration and lingering impacts, and uncertainty surrounding future production decisions by oil producing nations continue to cause volatility and could significantly impact management’s estimates and assumptions. Our remaining critical accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.
Impairment of Goodwill
We perform an assessment of goodwill annually or more frequently if events or changes in circumstances warrant. We have the option to first perform a qualitative annual assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. We performed a qualitative assessment as of October 1, 2019, and determined it was not more likely than not that the estimated fair value of each reporting unit exceeded its carrying value; thus, goodwill was not impaired.
In March 2020, the COVID-19 pandemic and actions taken by OPEC+ resulted in severe disruptions in the capital and commodities markets, which led to significant decline in our unit price. As a result, our equity market capitalization fell significantly. The decline in crude oil prices and demand for petroleum products also led to a decline in expected earnings from some of our goodwill reporting units. These factors and others related to COVID-19 and OPEC+ caused us to conclude there were triggering events that occurred in March that required us to perform a goodwill impairment test as of March 31, 2020.
In order to estimate the fair value of goodwill, management must make certain estimates and assumptions that affect the total fair value of the reporting unit. Management’s estimates are based on numerous assumptions about future operations and market conditions, which we believe to be reasonable but are inherently uncertain. The uncertainties underlying our assumptions and estimates could differ significantly from actual results, including with respect to the duration and severity of the COVID-19 pandemic, the extent of travel restrictions, business closures and other efforts to control the spread of COVID-19 in impacted areas and actions by OPEC+, and could cause a different conclusion about the fair value of our assets. If that were to occur, and we determined goodwill was impaired, the amount of impairment could be material to our results of operations.
We recognized a goodwill impairment charge of $225.0 million associated with our crude oil pipelines in the first quarter of 2020. Our assessment did not identify any other reporting units at risk of a goodwill impairment. Please refer to Note 3 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for discussion of the impairment charges and our assumptions and estimates. Through the filing date of this report, we did not identify any factors to warrant an evaluation of the recoverability of the carrying value of our long-lived assets or goodwill as of June 30, 2020.
NEW ACCOUNTING PRONOUNCEMENTS
Please refer to Note 2 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for a discussion of new accounting pronouncements.