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San Antonio, Texas-based NuStar Energy, L.P. (NS), formerly Valero, L.P., is a master limited partnership (MLP) that owns and operates a portfolio of crude oil and refined product pipelines, terminals, and storage assets. The partnership's general partner (GP), NuStar GP Holdings, LLC, formerly Valero GP Holdings, LLC owns a 2% GP interest and a 21.4% limited partner (LP) interest in the partnership. NuStar GP was previously owned by Valero Energy (VLO). In NuStar GP's July 2006 IPO, Valero Energy sold 41% of its interest. The remaining 59% of Valero Energy's interest was sold through a follow-on offering in December 2006. As a result, Valero Energy no longer owns any financial interest either in NuStar L.P or its GP.

We view this development as a long-term positive as we believe the separation will allow the partnership to grow independently, diversify its customer base, and pursue for third-party acquisitions. Effective April 2, 2007, the names of the old Valero, L.P. and Valero GP Holdings, LLC were changed to the current names. The partnership and its GP are now trading under the new tickers of NS and NSH, respectively.

In the last five years, Valero, L.P. has grown from $387 million in assets to nearly $3.5 billion and from $46 million in net income to $133 million. It is now one of the largest independent terminal and petroleum liquids pipeline operators in the country. The partnership has operations in the U.S., the Netherlands Antilles, Canada, Mexico, the Netherlands, and the U.K. NuStar Energy, L.P.'s current asset base comprises 9,113 miles of pipelines, 85 terminal facilities, and four crude oil storage facilities. The partnership's combined system has approximately 81 million barrels of storage capacity. The partnership reports its operation under four business segments: Crude Oil Pipelines (accounted for approximately 14% of the combined entity's 2006 operating earnings), Refined Product Terminals (40%), Crude oil storage tanks (11%), and Refined Product Pipelines (35%).

In 2005, NuStar Energy, L.P. acquired Kaneb Pipe Line Partners for $2.8 billion. This acquisition increased the partnership's size and the geographic diversity of its asset base and made it one of the largest terminal and independent petroleum pipeline operators in the U.S. This deepening of the customer and asset mix significantly enhanced the partnership's distribution growth prospects. In the third-quarter of 2006, the partnership increased its quarterly distribution to the annualized run rate of $3.66 per unit, which was maintained till the first quarter this year. In the recently completed third quarter of 2007, the partnership increased its distribution to the annualized run rate of $3.94 per unit, representing a 3.7% sequential and 7.7% year-over-year growth. This increase represented an approximately 96% increase in quarterly distribution since the partnership's 2001 IPO. Given the partnership's diversified asset mix and strong pipeline of ongoing growth projects, many of which will soon be operational, we expect the partnership to maintain a high single-digit distribution growth rate, at least over the next two to three years.

While acquisitions have historically played a major role in the partnership's growth profile and are expected to remain significant in future as well, the partnership also has a number of organic growth opportunities. The Kaneb acquisition two years ago has proven to be the catalyst for the partnership's greatly expanded portfolio of growth projects. In the recent past, the partnership completed about $92 million of expansion projects, including the $58 million Burgos Pipeline project and $13 million ethanol and bio-diesel projects, which contributed roughly $22 million in EBITDA annually. Approximately $214 million worth of organic growth projects are on track for completion by the end of this year.

The partnership recently completed phase I of the St. Eustatius tank expansion, which increased the terminal's storage capacity by 500,000 barrels at a cost of $15.2 million. The other two expansion phases of St. Eustatius are expected to be completed later this year and early next year. Other expansion projects are currently underway at the partnership's terminals in Amsterdam, St. James, Texas City, Linden, Vancouver, Portland, and Stockton, which are expected to be completed on time and within budget, except Amsterdam Phase I. This last project has been pushed back slightly to the first quarter of 2008. NuStar currently has about $265 million of terminal expansion projects, the majority of which are expected to be completed by early to mid 2008, which will contribute approximately $33 million to EBITDA annually. On the acquisitions front, NuStar recently acquired CITGO's asphalt operations and other assets for approximately $450 million, which will add two asphalt refineries (with a combined throughput capacity of 104,000 barrels per day) and three terminals to its existing asphalt business.

Some of the promising projects include the expansion of NuStar's Vancouver terminal in Washington, construction of which has already begun. The partnership's $54 million expansion project at its St James terminal, which was acquired in December last year from Koch Supply and Trading, L.P. for $140 million, is currently underway. The expansion project includes the addition of 4 new oil tanks with a total storage capacity of approximately 1.45 million barrels. The construction of these tanks is expected to be completed by mid-2008. This project is backed by a 10-year contract and will contribute approximately $6.5 million to EBITDA annually. In addition, the partnership has identified further $30 million of expansion projects at its Amsterdam terminal on top of the $68 million expansion that is currently underway. These projects will contribute an additional one million barrel of storage to this facility and are expected to be completed in early to mid-2008. The partnership is also currently in the process of undertaking an expansion project at its terminal in Jacksonville, Florida, at a cost of approximately $21 million, which will expand the capacity of this facility by nearly 500,000 barrels under a committed storage agreement. The partnership expects its 2007 capital budget to be approximately $270 million, of which approximately 79% will go towards expansion projects and the remainder for maintenance capex.

Nustar is the fastest growing energy company in the US. Fifth in the world. [1] [2]


  1. http://www.businessinsider.com/the-worlds-15-fastest-growing-energy-companies-2010-11?slop=1#slideshow-start
  2. http://www.platts.com/Top250Home/top50fastest2010
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