NuStar Energy L.P.
Q1 2008 Earnings Call Transcript

Published: 23 Apr 2008

[Operator:]

Good morning. My name is Jennifer and I will be your conference operator today. At this time, I would like to welcome everyone to the NuStar Energy LP and NuStar GP Holdings LLC First Quarter 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr. Meador, you may begin your conference.

[Mark Meador:]

Thank you, operator. Good morning, and welcome to our conference call to discuss NuStar Energy LP and NuStar GP Holdings LLC's first quarter of 2008 earnings results. If you have not received the earnings releases and would like copies of each, you may obtain them from our websites at nustarenergy.com and nustargp.com. Attached to the earnings releases, we have provided additional financial information for both companies, including information on NuStar Energy LP's business segments. If after reviewing the attached tables you have questions on the information as presented there, please feel free to contact us after the call. In addition, we have posted slide material to go along with the remarks this morning under the Investors portion of the LP and GP websites, and I encourage you to have these available during the conference call. With me today is Curt Anastasio, CEO and President of NuStar Energy LP and NuStar GP Holdings LLC; Steve Blank, our CFO; and other members of our management team. Before we get started, we would like to remind you that during the course of this call, NuStar management will make certain statements concerning the future performance of NuStar and other statements that will be forward-looking statements as defined by securities laws. These statements reflect our current views with regard to future events and are subject to various risks, uncertainties and assumptions. Actual results may materially differ from those discussed in the forward-looking statements and you should refer to the additional information contained in NuStar Energy LP's and NuStar GP Holdings LLC's Form 10-Ks for the year ended December 31, 2007, and subsequent filings with the Securities and Exchange Commission. I will now turn the call over to Curt.

[Curt Anastasio:]

Good morning, and thanks for joining us today for the first quarter of 2008 earnings conference call. For those of you who are viewing the slide presentation that can be found on our websites, we are now starting on Slide Number 5 of the presentation. 2008 is off to a great start, as I am excited to report that we had the highest quarterly earnings in the partnership's history. Net income applicable to limited partners, distributable cash flow and EBITDA were all up significantly over the first quarter of last year. Net income applicable to the limiteds was $51.8 million, or 1.05 per unit, or around 95% higher than the 26.7 million or $0.57 per unit we reported in the first quarter of last year, while distributable cash flow available to limited partners was $1.42 per unit, or 41% higher than the $1.01 per unit reported last year. One of the reasons for the significant increase in our earnings quarter-over-quarter was due to higher throughputs on our pipeline and terminalling [ph] assets that serve Valero Energy's McKee Refinery. Even though we were able to recoup most of our losses through business interruption insurance, throughputs on our pipelines and terminals in 2007 were significantly impacted due to the fire that started at Valero's refinery in mid February of last year. Storage, lease and throughput revenues in our refined product terminals business segment were up nearly $12 million compared to last year, as we benefited from additional customer storage and throughputs at our St. Eustatius, Point Tupper, Piney Point, Vancouver, Portland, Amsterdam and United Kingdom terminals. Another reason our results were up significantly from last year was the contribution from our refining and marketing business segment. Excluding the impact of the CITGO Asphalt acquisition, our marketing, supply and trading business contributed an incremental $6.7 million of operating income compared to last year. We also benefited from several non-recurring items which have been included in other income on our income statement. One of those items was a $4.3 million gain, or $0.08 per unit, on the sale of an idle pipeline. The settlement of our business interruption insurance claim on the Valero McKee Refinery fire, which amounted to 3.3 million or $0.06 per unit, also contributed to our earnings in the first quarter. And our results included a 1.8 million gain, or $0.04 per unit, relating to a non-cash foreign exchange gain on US dollars held by our Canadian subsidiary. Excluding the impact of these and other special items, adjusted earnings for the first quarter of 2008 would have been $43.8 million, or $0.89 per unit, which still represents the highest first-quarter earnings in the partnership's history. I'd also like to note that at the time of the fourth-quarter conference call we had guided the Street to a range of 60 to $0.70 for earnings per unit for the first quarter of 2008. Our actual first-quarter results came in higher than the guidance we provided, primarily due to higher-than-expected revenues on our pipelines and terminals, and lower-than-expected operating and G&A expenses. With respect to NuStar Energy LP's distribution, the Board declared a quarterly distribution of $0.985 per unit, or $3.94 per unit on an annual basis, payable May 14 to unit holders of record of May 7. This distribution represents an increase of $0.07 per unit, or 7.7%, over the $0.915 distribution for the first quarter of 2007. I'm also pleased to say that we had a strong coverage ratio of 1.44 times, applicable to the limited partners for the first quarter. And the NuStar GP Holdings' Board declared a quarterly distribution of $0.36 per unit, or $1.44 per unit on an annual basis, payable May 16 to unit holders of record on May 7. This quarterly distribution represents an increase of $0.04, or a 12.5% increase, over the $0.32 distribution paid in the first quarter of '07. Turning to the next slide, you can see the status of our $400 million strategic capital program. Year-to-date we've already completed two very significant projects, including the third and final phase of our $50 million tank expansion at St. Eustatius in the Caribbean, and a part of the first phase of our $100 million Amsterdam expansion. The remainder of the projects, including work in Amsterdam, at Texas City, St. James, Louisiana, Linden, New Jersey and Jacksonville, Florida should be completed by year-end. These projects and the $90 million or so completed last year are the drivers of the $40 million EBITDA increase we are forecasting on the base business, in other words pre-CARCO acquisition, in 2008 over 2007. And we continue to evaluate the additional 500 million of organic growth projects we announced last quarter, and the $35 million of high-return projects on the new asphalt business. And we'll have more information about those as they are further developed during the year. As you can see, these are projects we would expect to begin between 2009 and 2011. Turning to the next slide, currently we're getting questions on how slower refined product demand, as a result of a weak economic growth in the United States, or potential demand destruction because of higher pump prices, might impact our throughputs on our pipeline and terminalling systems, as well as the new asphalt business. In the first quarter of 2008, despite a small decline in our pipeline throughputs as a result of turnarounds at a couple of refineries we serve, and due to the seasonality of the business, we saw no material impact to our pipeline and terminal throughputs as a result of weaker economic growth, despite year-to-date demand for refined products being about 1% lower compared to last year. And as you can see from the chart on this slide, despite an estimated decline in GDP growth in the first and second quarters of 2008, we are expecting throughputs on our crude oil and refined product pipelines to remain steady for the full year. Keep in mind starting on July 1 of '08 we expect to benefit from a 5.1% tariff increase on the majority of our crude and refined product pipelines as a result of the tariff adjustments based on the producer price index to be set by the Federal Energy Regulatory Commission. Part of the reason we don't expect a material impact to our throughputs from a slowdown in refined product demand is that our crude oil and refined product pipelines and the associated terminals are linked to refineries that are in major markets that have to be supplied. Refiners may run harder or easier for relatively brief periods, but overall they tend to run ratably because they have the economic incentive to do so. It's really remarkable how steady our throughputs have been over the course of time, regardless of whether GDP is trending higher or trending lower. And I would like to reiterate that during the seven years we have been a public company at NuStar Energy, we have operated with oil prices ranging from 10 or $11 a barrel to now about 117 or $118 a barrel. We have been through economic expansions and economic slowdowns. And throughout that entire period, we have increased cash flow, increased distribution payment and grown and strengthened the company significantly. And on our terminalling business, most of our volumes are contracted, so a slowdown in refined product demand is not really a factor on this major part of our business. Keep in mind approximately 90% of our new terminal expansions are supported by contracts ranging from 5 to 10 years. With respect to the recently acquired asphalt business, we have looked back several years, analyzing the impact of GDP growth on asphalt demand. Surprisingly, what we find is that for each 1% drop in GDP, asphalt demand declined only around 0.6%. So there's really not a significant impact as to asphalt demand as a result of changes in GDP alone. So long story short, although higher prices and slower economic growth are certainly something we need to monitor carefully, we do not expect a material impact to our businesses. I would like now to focus on our new asphalt business which starts on Slide 9. First of all, I want to say I'm grateful for the efforts of our employees to integrate the new asphalt business. A couple of weeks ago Bill Greehey, myself, and others from the management team got a chance to see both refineries in Paulsboro and Savannah up close. We were so impressed by the good condition of these refineries. CITGO may not have invested much growth capital in them, but they did take good care of these assets. I'm also upbeat about the new management team and personnel we've hired. Our employees have already done a terrific job integrating these assets in a short time that we've owned them, and everyone I have met at the refineries is excited about doing his part and is focused now more than ever since we have taken over. So you can tell that I'm very excited about owning these new assets and the future we have ahead of us. I'd like to remind investors that as shown here on this slide, NuStar remains predominantly in stable fee-based businesses with nearly 80% of our assets continuing to generate fee-based cash flow from our refined product terminals, refined product and crude oil pipelines, and crude oil storage tanks. The remainder of the business, or a bit more than 20%, comes from the refining and marketing activities. So we still expect to generate the large majority of our income from the fee-based businesses we own. And in addition, our focus will continue to be on growing our business around these more traditional assets. I'd also like to note that we've combined the recently acquired asphalt business with our existing marketing businesses in these new refining and marketing business segment reported in the segmental information attached to the earnings release. As you've probably noticed, we've been busy over the last several months raising money to finance the transactions, so I thought it would be timely to show a sources and uses of cash flow related to the financing of the acquisition on the next slide. In Slide 10 you see that the total value of the deal, including an estimate for the post-closing true-up of the inventory position, is expected to be around $800 million; of that, $450 million was the purchase price for the refinery and terminal assets, and $205 million was for inventories based on an agreed February 1 valuation day. The balance of the $800 million, or $145 million, is comprised of the inventory true-up value expected to be paid in the next few weeks. To finance this we stayed true to our target of 50% debt, 50% equity financing by raising $387 million in November of '07 and April '08 in common unit offerings,$347 million in an April '08 senior notes offering, and we expect to finance the balance, or around $66 million of inventories, through borrowings on our revolver. Proceeds from the common unit issuances and the senior notes offering went to pay off a $124 million bridge loan we took out just prior to the completion of the Asphalt acquisition and to pay off a portion of a borrowings outstanding under our revolving credit facility. So with the offerings behind us, we are in good shape to finance additional working capital requirements in internal growth projects in 2008, with around 600 million of liquidity currently under our revolver, and we continue to maintain our investment grade rating. On the next slide, I'd like to discuss briefly current supply and demand asphalt fundamentals for PADD I or the East Coast of the U.S. Everyone is aware, I am sure, that we've seen a dramatic increase in the price of crude oil since the fourth quarter of 2007, continuing through the first and second quarters of this year. This has certainly squeezed margins not only for lighter, higher value products such as gasoline, but also bottom of the barrel products like asphalt, which has led to lower asphalt margins. This has come at a time when demand for asphalt is typically very low, that is the fourth and first quarters, since asphalt is not being used to pave roads during much of that time. Fortunately we avoided most of the negative margins since we closed the deal on the acquisition in late March. Going forward, our position is that with crude oil prices as high as they are, and the current bullish apply and demand fundamentals we see, we expect asphalt prices to increase over the next two to three months, thereby increasing the asphalt margin. With respect to some of the bullish supply and demand fundamentals we see for asphalt, we believe seasonal demand should ramp up during the second quarter. We typically see the paving season on the East Coast start in April and continue through October. As you can see in the chart on the top right, asphalt demand typically follows a bell-shaped curve, with demand for asphalt being strongest in the second and third quarters and weaker in the first and fourth. Also, asphalt inventories in PADD I are currently at low levels compared to last year, providing further support to our thesis for higher margins in 2008. The chart on the left of the page shows PADD I asphalt inventories which were running at high levels during the first nine months of 2007, but by the end of the year had declined significantly, falling below 2006 levels, which was a record year for asphalt margins and in line with the five-year average. On top of that we have not seen nearly the level of asphalt imports to the US East Coast over the past six months as we have seen in recent years. Our arrangement with PDVSA, the Venezuelan national oil company, affords Venezuela the flexibility to cover their internal asphalt supply needs before having to offer any export quantities to NuStar. So as a result we are expecting this will help asphalt margins recover significantly over the weak fourth quarter and first quarter of 2008 levels we saw before we did the acquisition. And although we do expect a certain amount of demand destruction due to higher asphalt prices, we have already taken this into account in our 2008 guidance. So we continue to be bullish on the long-term fundamentals of the asphalt business given that coker is expected to be in service over the next few years, which should further tighten asphalt supplies, resulting in higher margins. I continue to be excited about the projects we have identified and are evaluating at both asphalt refineries as summarized on Slide 12. As I previously mentioned, we have identified around $35 million of high return and quick payback projects at both refineries that can be completed in next 6 months to 24 months. Most of these, or around $21 million, are projects that will generate higher annual refinery utilization and allow us greater flexibility at running alternative crude oil qualities. The remaining projects, around $14 million, focus on increasing the energy efficiency of the plants, increasing the production of higher quality, higher value polymer modified asphalts and improving the yields and quality of roofing flux in intermediate products. Longer term, we'll continue to evaluate other projects that focus on increased flexibility and year-round operations of the refineries to limit the seasonality of the asphalt business. For example, we'll evaluate the installation of the hydrotreater at Paulsboro that would remove sulfur from some of the products we produce, making them more marketable. On Slide 13 we've provided updated guidance on the business for the second quarter and the full year of 2008. For the full year 2008 we still expect the EBITDA contribution from the base business to be about $40 million higher in 2008 than it was in 2007. With the weaker asphalt margins exhibited in the market currently we would expect the incremental EBITDA contribution from the asphalt business to be at the lower end of the $80 million to $120 million range we previously provided. Reliability CapEx is expected to be in the range of $60 million to $65 million for 2008 and includes about $10 million for the asphalt business, while strategic capital is expected to be in a range of $170 million to 180 million and includes about $30 million to $40 million for the asphalt business. Looking at expense estimates for the second quarter, operating expenses associated with our asphalt business and which are included in cost of goods sold are expected to be in the range of $23 million to $24 million. Operating expense on the base business between $105 million and $115 million; G&A expense in the range of 18 to 19 million; DD&A, around $34 million to $35 million; interest expense $26 million to $26.5 million; and income tax expense around $2 million to $3.5 million. I've also provided the typical product yields in 2006 production volumes of the asphalt refineries on the bottom right of the slide for your reference. Looking forward, I laid out on Slide 14 our business strategies going forward. First and foremost our goal is to complete the remaining projects under the $400 million construction program on time and on budget. We've had an excellent track record on the projects we've already completed and I continue to see the remaining projects being on track with the schedule I provided earlier. Second, our goal is to quickly integrate the recently acquired asphalt business into NuStar. We've already accomplished a lot in the short time we've owned the refineries. However, we have some more work to do. Efforts continue to be focused on integrating the personnel, the systems and the culture of the two refineries into NuStar's business, exploring opportunities to increase the value of the refineries and looking for further growth opportunities. And with the many projects we've already identified at the refineries and are evaluating, the next step will be to prioritize and execute those projects. As I've mentioned, we're in a great position to build on the asset base, having identified about 35 million of high return quick payback projects that can be completed in the next six to 24 months. I expect that we will start pushing forward on those projects very soon and we'll continue to evaluate other projects focused on increased flexibility and year-round operations of the refinery. These are expected to be more long-term projects, at least one to two years out. I also want to emphasize that I do not expect our proportion of traditional fee-based business to more volatile margin-based marketing and refining businesses to vary much going forward. We will continue to grow our traditional pipeline transportation, terminalling and storage operations, which make up the majority of what we already do. As you know, we recently announced a $500 million construction program for 2009 through 2011 that's focused on expanding our pipeline and terminal sales. In addition, we continue to evaluate acquisitions focused on expanding our terminalling and storage position, both here in the US and internationally. All of these are projects that would generate stable fee-based income. We're also looking at expanding opportunities for our marketing businesses, primarily the asphalt marketing group. That group will be critical in getting our product to customers on the US East Coast and elsewhere through our network of owned and third-party terminals and expanding our customer base, which includes asphalt paving contractors, governmental entities and asphalt roofing shingle manufacturers. Finally we believe it's extremely important, particularly in the current environment, to maintain our financial strength and an investment grade rating. As a result we will stick to our disciplined approach to evaluating internal growth projects and acquisitions. All of this should allow NuStar to continue to provide further distribution growth to our unit holders. So in conclusion I'm excited about the future we have at NuStar and the many opportunities we have to increase unit holder value and so at this time, operator, I'll open it up for questions and answers. Question And Answer

[Operator:]

[Operator Instructions]. Your first question comes from Michael Blum from Wachovia. Your line is now open.

[Michael Blum:]

Hi, good morning.

[Curt Anastasio:]

Good morning.

[Michael Blum:]

Couple of questions, one, if you could just elaborate a little bit, I guess you said your intention is to maintain sort of the base business if you will at around 80%. How do you manage that? I mean if you come up with an opportunity on the refining side that's significant, how do you balance that versus maintaining more of the fee-based business?

[Curt Anastasio:]

Well obviously since we still believe in the longer-term bullish... we are bullish on the fundamentals of the asphalt business. If we see a good opportunity we'll certainly be interested in having it, but we're not going to transform our company into a company that's mainly a margin-based businesses. The majority of our business is and will be the more traditional fee-based pipeline and terminal business, so I see the balance coming from, we've identified sort of in our pipeline another $500 million of what I'll call fee-based businesses. So that goes on that side of the scale and as other opportunities come up we'll evaluate, we'll do the best opportunities that present themselves to our company, but that gives us... those projects in the pipeline give us a high degree of confidence that we're going to be able to maintain relatively close to the balance that we have today between fee-based and margin-based.

[Michael Blum:]

Okay, great. And then is it still your intention to sort of pay out 50% on the cash flow from the asphalt business?

[Curt Anastasio:]

Yes and all of our plans assume the 50% holdback that we've previously described.

[Michael Blum:]

Okay. And then the last question if you could just talk about the thought process in not raising the distribution given that you had a pretty high coverage ratio and a very strong quarter?

[Curt Anastasio:]

Yes, we've a great quarter obviously, which gives us a good running start for evaluating what we can do for distribution increases this year. But we just acquired a sizable business that is a more volatile margin-based business and we just acquired it right at the end of the first quarter. We want to get a quarter under our belts, especially in the current environment with this business and give our management team and the Board, evaluate where we go on distribution increase at that point for the second quarter. But obviously especially given the strong start we have in the first quarter, we're going to taking a very serious look at this for second quarter. So, so far so good, but we want to get a full quarter under our belts before we... we want to be sure we're prudent on the next proposed distribution increase.

[Michael Blum:]

Great. Thanks, Curt.

[Curt Anastasio:]

Yes.

[Operator:]

Our next question comes from Gabe Moreen from Merrill Lynch. Your line is now open.

[Todd Kincaide:]

Good morning, everybody. It's Todd Kincaide calling in for Gabe Moreen.

[Curt Anastasio:]

Hi.

[Todd Kincaide:]

I just had a quick question. Going forward do you plan on breaking out any additional operating metrics related to the asphalt business like throughput or margins?

[Curt Anastasio:]

Yes, I mean I think we absolutely do plan to do that. We want to be sure that we do it in a way though that's meaningful to people because it's not quite in the asphalt business, as you might appreciate, it's not quite as easy to do as you could for a complex refiner that might require a 3-2-1 or a 6-3-2-1 crack or something because you don't have a futures market for asphalt. And even some of the intermediate products we make are not that well reflected in futures markets for widely traded products. So, yes we do plan to come up with something that at least is a proxy for our forward look on the business and I have here Mike Hoeltzel in charge of our corporate development who's been working on that. Mike, you want to comment any further on that?

[Mike Hoeltzel:]

Yes, I believe we put in throughputs, asphalt production and looking at some type of margin that we could release in our future, on our web site in future announcements.

[Curt Anastasio:]

But for now we're just sticking with giving the EBITDA ranges, which gets you there pretty easily without boring you with all the deep complexities of how to calculate an asphalt market

[Michael Blum:]

All right, great. Thanks very much.

[Curt Anastasio:]

Sure.

[Operator:]

Our next question comes from Ross Payne from Wachovia. Your line is now open.

[Ross Payne:]

First question on increasing the flexibility of your asphalt plant, is that in anticipation that more of your supplies will come from other sources other than Venezuela?

[Curt Anastasio:]

We have a seven year contract with Venezuela that in fact they are honoring and we expect them to continue to honor. We don't have any indication at all to the contrary, it's a good deal for both sides. They're getting a good price and we are getting good crude oil. But I think that it behooves us to have that flexibility and that optionality, especially as we look to running these refineries more year-round. To do that you need to modify the products like some do so that when asphalt sales are relatively weak like they were this year, they are every year in the fourth quarter and first quarter, you have a product offering that brings you an attractive return from the marketplace. And that'll provide opportunities to alter the feedstocks somewhat here and there to make that product slate. So I don't really see it as... it should not signal to you in any way an expectation that we're not going to run the Venezuelan crude. We have a contract and they're supplying it and we expect them to continue to supply it.

[Ross Payne:]

Okay, so that's more on the new product side than on the supply side obviously?

[Curt Anastasio:]

Yes.

[Ross Payne:]

Also on the terminals you talked about contracts. Is that volume-based, is it for a percentage of... how do you negotiate the contracts?

[Curt Anastasio:]

No, our new contracts, those long-term contracts I alluded to are rentals, effectively rentals. So people are renting capacity and the revenue is not dependent on a base load of throughput or not. We have the opportunity for incremental revenue on just some of those contracts if there are additional tank turns or there's so-called excess throughput, but that's upside. So no, it's independent of throughputs.

[Ross Payne:]

Okay. That's real helpful. Also on the marketing side in asphalt, that's obviously variable, what percentage of the 21% is marketing versus asphalt currently?

[Curt Anastasio:]

Well, let's see, if you look at the current results we can do it.

[Mike Hoeltzel:]

Well I would say asphalt of that is of the 20-something percent shown on that pie chart is probably 15% or 16% would be asphalt marketing.

[Ross Payne:]

Okay. And as you grow that is marketing going to grow the most I assume or you see it just being a combination of items?

[Mike Hoeltzel:]

It's probably a combination of items. I mean really what we're looking at now is kind of growing the marketing across the board, not just in asphalt. But, Paul, why don't you?

[Paul Bratloff:]

Well I would just say the full year I guess we expect the asphalt to be considerably higher than the trading piece of it, of the marketing, so is that the question?

[Mike Hoeltzel:]

But not in a proportionate sense, yes, I mean in total sales, yes, but proportionately I wouldn't necessarily think that pie chart slice would change that much.

[Paul Bratloff:]

Of the whole business, you're correct.

[Mike Hoeltzel:]

Yes.

[Paul Bratloff:]

Of just the marketing is what I was speaking to, but of the whole business it will stay relatively constant. Yes, you're absolutely right.

[Ross Payne:]

And finally on this 35 million of growth CapEx here in the refining side of the business, how quick is that payback?

[Curt Anastasio:]

Well I think we're... the estimated EBITDA and again, some of these projects are in early stage, but the estimated EBITDA I think is about 21 million or so from the 35 million investment. And some of it would come toward the end of this year, but for the most part you'd see it in '09.

[Ross Payne:]

Very nice return, okay. That's it for me, thanks.

[Curt Anastasio:]

Yes.

[Operator:]

Your next question comes from Barry Gleicher [ph] from NuStar. Your line is now open.

[Unidentified Analyst:]

Correction first, I'm not from NuStar, I'm a unit holder of NuStar and congratulations on a great quarter and doing such a great job for us. Now my question concerns the Federal Energy Regulatory Commission came out with new guidelines last Thursday on interstate pipelines. So my question is do we know what the downside would be upon the implementation of FERC regulations on our pipelines that are subject to their regulations and can't use market-based contracts?

[Curt Anastasio:]

I don't think we see any downside from those, but I have, fortunately I have with me here Mary Morgan, in charge of marketing and development who follows that for us. And, Mary, do you want to comment further on that?

[Mary Morgan:]

I think the thing that you're probably referring to had to do with the Commission announcement that they would allow MLPs to be included in the proxy group and certain other items that go into what can be considered cost-of-service ratemaking. And all of those are things that our industry has been a proponent of and should be positive for us. All the developments over the last six months to a year, including things regarding income tax allowance and everything have been generally positive for our industry. So we really don't see any downside there.

[Unidentified Analyst:]

My question would concern where they came out with statements that they would not allow any allowance for the expenses of MLPs that have GPs as partners, so that they wouldn't allow anything for that. So my question would be there may have been one or two negative aspects in their announcement, I agree with the positive aspect that you spoke about. But there were one or two negative aspects, but that would only be concerned with our pipelines that are subject to their regulations, but don't have market-based contracts. So perhaps I should rephrase my question and ask this, what percentage of our revenues are subject to FERC regulations?

[Curt Anastasio:]

It's a majority of our pipeline revenue, but our pipeline and terminal revenue is really less than half of the overall revenue of the company. So, let me clarify, though, the things you're alluding to I think we can talk to you offline about it, but I don't think we're reading it the same way you are that there were negative aspects to these ways for pronouncement. So maybe we can leave it at that for now rather than debating it on the phone and would be very happy if you were to contact Mark Meador, Head of Investor Relations, we'll be very happy to try to clarify this further with you.

[Unidentified Analyst:]

Okay, thank you very much and a great quarter again.

[Curt Anastasio:]

Thank you.

[Operator:]

And our next question comes from Brian Bharin [ph] from Lehman Brothers. Your line is now open.

[Unidentified Analyst:]

Good morning.

[Curt Anastasio:]

Good morning.

[Unidentified Analyst:]

Could you comment on how rising labor and material costs could impact your future growth projects?

[Curt Anastasio:]

Yes, what we've seen to this point is that despite increases in laborer and materials we've been able to manage projects on time and on budget. Going forward you have to take all of those costs into account and make sure the marketplace supports paying you an adequate return on investing projects based on those higher costs. So to this point it has fortunately. We've looked at very strong markets, we've invested a lot of money in terminals and the market has supported paying us a good return despite those higher costs. And when you think about it, it's not entirely surprising because the whole energy structure has moved up in cost. And so the infrastructure piece, whether you're talking about terminals or some other aspect of the supply chain, proportionately still is a relatively minor piece of the overall energy supply chain cost structure. So as that whole structure moves up we've been able to pass through, if you will, our higher costs to people who play in that energy supply chain just because proportionately it looks affordable to them based on the kind of returns they can get elsewhere in the supply chain. I hope I haven't confused you, but I think that's the reason why we have not seen that materially impact our project economics and our growth opportunities.

[Unidentified Analyst:]

So is it reasonable to continue to assume EBITDA multiples of roughly six to seven times on these growth projects?

[Curt Anastasio:]

On projects yes, yes.

[Unidentified Analyst:]

Okay, thank you.

[Curt Anastasio:]

You're welcome.

[Operator:]

[Operator Instructions]. We have no further questions in queue.

[Mark Meador:]

Thank you, operator. If you have any further questions please call NuStar. Thank you for joining us today.

[Operator:]

This concludes today's conference call. You may now disconnect.