Free Annual Reports
NuStar Energy Sets Up For Growth
NuStar Energy (NYSE:NS) will see flat results in 2011 due to weak performance in several business segments. Despite this lack of growth, the company is investing to set up for future growth off the increased demand for storage and transportation of crude oil.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.
Lower EBITDA
NuStar Energy reported $253 million in EBITDA during the first six months of 2011, a record for the company. Despite this performance, NuStar Energy projects that EBITDA in 2011 will be flat with $483 million the company reported in 2010.
This disappointing outlook for the balance of 2011 is due to weakness in the asphalt business, as sluggish economic conditions continue to impact this area. The company also experienced lower results in the transportation segment relative to 2010.
Growth Capital
NuStar Energy is investing $435 million in capital in 2011 on various growth projects in its portfolio of assets. This total includes funds used for acquisitions. This is more than double the $164 million spent in 2009, when the company cut back due to the economic recession.
This growth capital is being directed toward a number of different areas including various projects in its storage business. The company is also investing in the transportation segment, where it is spending to take advantage of increased development of the Eagle Ford Shale and other basins.
Storage Segment
NuStar Energy is investing heavily in the storage area to increase capacity at existing facilities. The company has expansion projects under way or planned at the St. James facility in Louisiana, St. Eustatius in the Caribbean and at the Linden storage complex in New Jersey.
These projects will cost the company $146 million in 2011 and $107 million in 2012 and add a significant amount of capacity to the company's base.
Transportation Segment
The transportation segment generated $199 million in EBITDA in 2010 and is NuStar Energy's second-largest business. This segment has been the source of slow but steady growth over the last five years, but this growth ended in 2011, as the company expects lower throughput volumes of crude oil to result in EBITDA down from $5 million to $15 million in 2011.
NuStar Energy expects this to be a temporary setback, and the company is looking for solid growth going forward from increased volumes of crude oil production from domestic oil plays. The company plans to spend $155 million in capital in 2011 and 2012 on various pipeline projects.
Valero Energy (NYSE:VLO) is the largest customer in the transportation segment, and NuStar Energy received 47% of its revenues from this company in 2010.
Other companies active in building pipelines and other projects to handle the increase in domestic oil production include Enterprise Products Partners (NYSE:EPD) and ONEOK Partners (NYSE:OKS). These two companies are expecting large increases of production from the Eagle Ford and Bakken plays.
Asphalt Segment
NuStar Energy's asphalt segment had $74 million in EBITDA in 2010, and the company expects this to be lower in 2011. The company is seeing weak demand for asphalt due to slow economic growth; reported demand is down 1.5% on an annualized basis through June 2011. The company is suffering from higher feedstock costs in this business as well.
The Bottom Line
NuStar Energy is seeing little growth in 2011, but the company is investing heavily to generate growth in the future, as it looks to ride the expansion of global oil and gas activity. This stock is an alternative play to a company that has more direct leverage to volatile commodity prices. (For additional reading, see What Determines Oil Prices?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.
Lower EBITDA
NuStar Energy reported $253 million in EBITDA during the first six months of 2011, a record for the company. Despite this performance, NuStar Energy projects that EBITDA in 2011 will be flat with $483 million the company reported in 2010.
This disappointing outlook for the balance of 2011 is due to weakness in the asphalt business, as sluggish economic conditions continue to impact this area. The company also experienced lower results in the transportation segment relative to 2010.
Growth Capital
NuStar Energy is investing $435 million in capital in 2011 on various growth projects in its portfolio of assets. This total includes funds used for acquisitions. This is more than double the $164 million spent in 2009, when the company cut back due to the economic recession.
This growth capital is being directed toward a number of different areas including various projects in its storage business. The company is also investing in the transportation segment, where it is spending to take advantage of increased development of the Eagle Ford Shale and other basins.
Storage Segment
NuStar Energy is investing heavily in the storage area to increase capacity at existing facilities. The company has expansion projects under way or planned at the St. James facility in Louisiana, St. Eustatius in the Caribbean and at the Linden storage complex in New Jersey.
Transportation Segment
The transportation segment generated $199 million in EBITDA in 2010 and is NuStar Energy's second-largest business. This segment has been the source of slow but steady growth over the last five years, but this growth ended in 2011, as the company expects lower throughput volumes of crude oil to result in EBITDA down from $5 million to $15 million in 2011.
NuStar Energy expects this to be a temporary setback, and the company is looking for solid growth going forward from increased volumes of crude oil production from domestic oil plays. The company plans to spend $155 million in capital in 2011 and 2012 on various pipeline projects.
Valero Energy (NYSE:VLO) is the largest customer in the transportation segment, and NuStar Energy received 47% of its revenues from this company in 2010.
Other companies active in building pipelines and other projects to handle the increase in domestic oil production include Enterprise Products Partners (NYSE:EPD) and ONEOK Partners (NYSE:OKS). These two companies are expecting large increases of production from the Eagle Ford and Bakken plays.
Asphalt Segment
NuStar Energy's asphalt segment had $74 million in EBITDA in 2010, and the company expects this to be lower in 2011. The company is seeing weak demand for asphalt due to slow economic growth; reported demand is down 1.5% on an annualized basis through June 2011. The company is suffering from higher feedstock costs in this business as well.
The Bottom Line
NuStar Energy is seeing little growth in 2011, but the company is investing heavily to generate growth in the future, as it looks to ride the expansion of global oil and gas activity. This stock is an alternative play to a company that has more direct leverage to volatile commodity prices. (For additional reading, see What Determines Oil Prices?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
Free Annual Reports
