The asphalt joint venture
Following the sale of the remaining 50% ownership interest in asphalt JV to Lindsay Goldberg in February 2014, NuStar is on course to improve its margin from the Fuels Marketing segment. The asphalt operations were proving to be a drag on its bottom-line; and the company felt that the asphalt JV was not sufficient to finance its activities without additional subordinated support.
Operating expense as percentage of revenues was higher (5.1%) in the Asphalt operation than in the overall Fuels Marketing segment (2.9%) in 2012, when asphalt business was still a part of its operations. Following partial exit in 2013, operating expense came down to 4.6%, while operating expense of the remaining Fuels Marketing segment decreased further to 2.1%. In 2013, operating expense fell to 1.9% after the complete sell-off of the business in early 2014. It is expected that the full effect of the divestiture will be realized from the second quarter of 2014. Brad Barron, the President & CEO of NS, said in the 1Q14 conference call, “Our EPU for the first quarter was $0.36 per unit, which is our highest quarterly EPU since third quarter of 2011. However, if you exclude the losses associated with 50% interest in the asphalt joint venture, our EPU would have been $0.46 per unit.”
The Fuels Marketing segment, which now comprises of bunkering and fuel oil marketing, crude oil trading, and refined products marketing including NGLs, is established on a solid footing pursuant to a renewed supply agreement at the St. Eustatius terminal. The agreement would reduce its working capital by approximately $50 million and operating expense by $5 million to $10 million. In 2014, the Fuels Marketing segment is expected to generate EBITDA of $10 million to $30 million.
As we can find from the table above, the segment’s revenue has declined by 50% from 2012, after the sell-off. While the overall effect of the asphalt sale is also critical, strictly in terms of numbers (asphalt accounted for 87% of Fuel Marketing segment’s 2013 gross margin). The more significant impact to NuStar was the change in the strategic direction. It may not be a coincidence that the current management has also undergone a change in recent times. During November and December of 2013, the company appointed Brad Barron and Tom Shoaf as the new CEO and CFO, respectively. The new guard appears to be confident in steering the company toward its core operational structure consisting of storage, terminalling, and pipeline business.
NuStar Energy (NS) is a master limited partnerships operating in the midstream energy space. Other major companies operating in the same sector as NS include Boardwalk Energy Partners (BWP), Plains All American Pipeline (PAA), and Energy Products Partners (EPD). Most of these companies are components of the Alerian MLP ETF (AMLP) and MLP ETF (MLPA). NS is part of the Multi Asset Income ETF (CVY)