The Daley Note: November 10, 2023
East Daley had concerns about NuStar Energy’s (NS) Permian Crude gathering system heading into the latest earnings report, and the company did not allay them following a mixed 3Q23 update.
NS reported average throughput of 523 Mb/d for the Midland-based gathering system, a 3% increase Q-o-Q from a disappointing print in 2Q. The 3Q23 results were slightly under East Daley’s estimate (>1%) in the NS Financial Blueprint. However, volumes were down 10% (-56 Mb/d) Y-o-Y, and management lowered the year-end volumes target for the Crude segment to 545-550 Mb/d from 570-575 Mb/d previously.
Management has cited “producer-specific operational issues and delays” on the system that are now largely resolved. NS expects the Permian Crude segment to average 540 Mb/d in 4Q23 and noted October 2023 volumes averaged 533 Mb/d, up from the recent quarter.
The lower outlook for the Permian Crude system is concerning given the 13% exit-to-exit growth NS saw on the system in 2022. Crude oil volumes gathered by the West Texas system historically had grown faster than overall Midland Basin production, but that trend has reversed in recent quarters (see figure).
While Permian Crude volumes were negatively impacted by Winter Storm Elliot and operational issues in 1Q23 and 2Q23, EDA suspects some contracts or acreage dedications may have expired given the decreased YE23 guidance. If the new guidance proves accurate, we project Adj. EBITDA for the Permian Crude asset declines to $56MM in 4Q23 vs our previous estimate of $59MM in the NS Blueprint. – James Taylor Tickers: NS.
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