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Lower Volumes Aren’t Always a Bad Thing

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The Daley Note: July 20, 2023

New Texas Railroad Commission (TRC) data indicates volumes continue to fall on NuStar’s (NS) Eagle Ford crude pipelines, but one specific segment is seeing higher throughput that could help stabilize earnings.

NuStar lumps the Eagle Ford pipelines with its Corpus Christi Crude system on its financial statements, but TRC data allows us to break out volumes and tariffs on specific lines. According to East Daley’s Financial Blueprints, the Eagle Ford Supply Lines at their peak generated $60MM and comprised 10% of NS’ EBITDA. However, dwindling supply and expiring minimum volume commitments (MVCs) led to a sharp drop in earnings. We estimate earnings fell to $29MM in 2021 and made up only 4% of NS’ total earnings.

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Volumes on the Eagle Ford pipes have further declined from 96 Mb/d in 2021 to 64 Mb/d for the trailing 12 months through 1Q23. Despite the decline, we estimate earnings have actually increased from $29MM to $37MM over this period. Although throughput fell 33%, volumes from ConocoPhillips’ (COP) terminal in Pawnee, TX increased 39%, from 22 Mb/d to 30 Mb/d. The rate from the Pawnee terminal to NS’ Corpus North Beach is $1.60/bbl, significantly higher than the rate of $0.89/bbl most other origin points receive.

We estimate there is a 25 Mb/d MVC on the Conoco - Pawnee route, but volumes are soaring past that. April 2023 data shows volumes from the terminal reached a record 45 Mb/d. Based on the new data, our forecast improved by ~$10MM annually due to increased volume at the higher rate.  

The improved outlook for the Eagle Ford asset adds to our positive view of NuStar, along with a healthy 13.3% rate bump at its FERCregulated refined products systems. We expect the company to generate $766MM in 2023, 2% above consensus and slightly higher than management’s guidance. - Ajay Bakshani, CFA Tickers: COP, NS.


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