NuStar Energy 4Q net down 53 percent; NuStar GP profit up 24 percent

NuStar Energy L.P.'s (NYSE: NS) fourth-quarter earnings fell 53 percent on weakness in its asphalt and fuels marketing business, while NuStar GP Holdings LLC (NSH), which holds a general- and limited-partner interest in NuStar Energy, reported 24 percent higher income.

The pipeline-and-storage firm, which is also one of the largest U.S. asphalt companies, is poised to take advantage of growing oil production in and around its home turf of Texas as major producers look to raise money and concentrate on their upstream businesses.

NuStar Energy has said it would most likely go on a buying spree as larger oil and gas companies strip themselves of pipeline and terminal assets.

NuStar reported a profit of $19.8 million, or 30 cents a unit, down from $41.9 million, or 65 cents a unit, a year earlier. Revenue increased 61 percent to $1.93 billion.

Analysts polled by Thomson Reuters most recently forecast earnings of 35 cents on revenue of $1.16 billion.

Operating margin narrowed to 2.5 percent from 5.9 percent.

The storage segment's operating profit was up 12 percent and revenue rose 12 percent.

Operating profit rose 0.6 percent at the transportation segment on higher revenue of 2.2 percent. The asphalt and fuels marketing business saw 73percent higher sales, while its swung to a loss of $12.5 million from a profit of $15.7 million a year earlier, amid higher input and operating costs.

Meanwhile, NuStar GP's profit rose to $19 million, or 45 cents a unit, from $15.3 million, or 35 cents a unit, a year earlier. Analysts were expecting earnings of 31 cents a share.

Nustar poised to benefit from higher pipeline tariffs, asphalt production

Effective July 1, NuStar Energy LP’s tariffs increase by about 7.5 percent. The tariffs reset automatically based on inflation-indexed increases.
NuStar also stands to benefit from another source. About one quarter of its operating earnings come from its two asphalt refineries.
Like all refining operations, NuStar's margins in asphalt vary from quarter to quarter. There are several potential positives for the asphalt markets. On the supply front, several companies that used to produce asphalt have stopped doing so. The reason is that most refiners have set up their operations to maximize production of light products such as gasoline and diesel fuels. These companies have installed special equipment that allows them to turn heavy residual products like asphalt into lighter, higher-value products.
As a result, U.S. asphalt production in 2008 was off 10 percent and imports were down nearly 50 percent against 2007 levels. This leaves less competition for NuStar's dedicated asphalt refineries.