NuStar Energy L.P.
Q3 2008 Earnings Call Transcript

Published: 24 Oct 2008

[Operator:]

Good morning. My name is Anita. And I will be your conference operator today. At this time I would like to welcome everyone to the NuStar Energy L.P. and NuStar GP Holdings, LLC Third Quarter 2008 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 L.P. and NuStar GP Holdings, LLC's third quarter 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 L.P.'s business segments. In addition, we have posted additional operating highlights and fundamental data, for our asphalt business under the Investors portion of the NuStar Energy L.P. website. If after reviewing the attached tables and operating highlights you have questions on that information that is presented there, please feel free to contact us after the call. With me today is Curt Anastasio, CEO and President of NuStar Energy L.P. 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 these forward-looking statements. And you should refer to the additional information contained in NuStar Energy L.P. and NuStar GP Holdings LLC's Form 10-Ks for the year ended December 31st, 2007 and subsequent filings with the Securities and Exchange Commission. I'll now turn the call over to Curt.

[Curt Anastasio:]

Good morning and thank you all for joining us. With the global economic meltdown, I think we can all agree that these are certainly interesting, albeit, challenging, and volatile times. The MLP sector, which is normally defensive in nature during downturns, was not left unscathed by the widespread sell-off in equities, causing MLP yields to rise to unprecedented levels and leaving many of our investors asking us... what am I missing about you? Well, we all know here that this sell-off is not fundamentally driven but rather technical in nature. And that's especially true for NuStar with our strong fundamentals. Many in the MLP sector pushed for investments by institutions... mutual funds, hedge funds... to get them into the MLP sector. And many of those folks got in serious trouble over the last year or so and were required to liquidate positions, even in good companies. Total return swaps they had used to gain exposure to the sector were unwound when the credit crisis hit Wall Street. But NuStar's business continues to be strong. As you saw this morning, we reported the highest quarterly earnings in the company's history. We also provided a solid increase in the distribution of over 7% at the LP. and more than 19% at GP. And we continue to have a strong distribution coverage ratio. At the end of the third quarter, NuStar Energy's coverage was an outstanding 2.72 times. And we now expect the coverage ratio for the full year of 2008 to be higher than our previous guidance of 1.2 times. In addition, NuStar has excellent borrowing capacity under its $1.25 billion revolving credit facility with more than $0.5 billion of availability. Largely due to the excess cash flows generated from the asphalt operations and lower working capital needs, we reduced our debt balances during the third quarter by around $130 million and expect to reduce our debt balances by an additional $30 million in the fourth quarter. This has resulted in significantly improved debt metrics. Our debt to EBITDA ratio was 3.9 times at the end of the third quarter, compared to 4.85 times at the end of the second. As calculated in accordance with our debt covenant. Another point I'd like to make is that our revolver is well diversified with 24 banks in our groups, and it matures in 2012. Our other debt obligations at the LP... with regard to those, we don't have any significant maturities until 2012 and 2013, when four of our five senior notes become due. In addition, we are in the process of winding down a $400 million construction program and have only about $40 million of CapEx left to spend, which should be done by the late spring of 2009. We do have plenty of opportunities identified to grow the business, with about $500 million, as previously announced, of internal growth projects ideas and, on top of that, acquisition targets over the next few years. Fortunately, we are not obligated to push forward on these. And we have the flexibility to scale back or to accelerate, as appropriate, depending on conditions in the capital markets. And, in fact, that's exactly the approach we took in our 2009 budgeting. We want to enter 2009 cautiously, regarding growth capital, until we see more clearly how the financial crisis resolves itself. So, accordingly, we've budgeted around $80 million in 2009 and the remainder in 2010 and beyond. So while we still plan to grow the business in 2009 and to provide further distribution increases, we have mostly back-ended our growth capital plans for now. And we've prioritized the growth capital program in 2009 to focus on very, very high-return projects. So when the capital markets return and the current crisis resolves itself, we will have the ability to quickly ratchet up the growth program again. Another common question or concern we get from investors is how our businesses are expected to perform in a global recession. I'd first like to say that, despite the market sell-off in our sector, NuStar continues to be defensive in nature during times of economic slowdown, as our results proved and once again proved this year in 2008 because we largely operate stable-cash flowing and relatively recession-proof businesses. During the seven and a half years now that we've been a public company at NuStar Energy, we've been through economic expansion and through economic contraction and slowdowns, all kinds of oil price environments. And through that entire period, we have increased our cash flow, increased our distributions, and grown and strengthened the company significantly. While we do expect the global economic slowdown to impact the demand for refined products in the United States and elsewhere in 2009, we still expect our business to perform very well. We're currently projecting volumes on our crude and refined product pipelines to be slightly higher in 2009 versus 2008. And we also currently expect an increase, effective July 1 of '09, in the tariff that we charge our customers on our pipeline, resulting in a healthy contribution from our transportation segment. While many are concerned that a severe downturn could significantly impact product demand to the point where volume declines exceed the revenue benefits of our projected tariff increases next year, I'd like to emphasize that gasoline demand has never declined more than 6.5%, going back to 1945... the end of World War II. So I feel comfortable saying that our expected tariff increases should more than offset any volume declines from weaker demand. I'd also like to remind you that the majority of our storage business... that segment is contracted out under long-term contracts. And, finally, while we do expect budget constraints at the state and municipal levels to impact asphalt paving demand, which we already saw this year with demand down around 12% or so through the summer, we still believe that the asphalt business will be a strong contributor to our earnings next year with many of the same factors that impacted supply to continue next year. In addition, the coker projects coming online over the next few years should further tighten asphalt supplies that are already tight, as we saw this year, resulting in higher margins, especially post 2010, as we've always said when we discussed this matter. We have not seen any cancellations or significant changes on the timing of these coker projects. The last issue I'd like to address before we get into the results is counterparty risk. NuStar provides a world-class pipeline and terminaling service and markets asphalt and intermediate products to many of the world's largest and most credit-worthy, integrated oil companies, producers of crude oil, chemical companies, oil traders, refiners, and hot-mix and paving companies. While Valero Energy, who we've recently upgraded by the credit rating agencies, continues to be our largest customer at around 29% of our operating income or about 7% of revenue. We also serve over 500 other customers, including Exxon Mobil, ConocoPhillips, Chevron, BP, CITGO, Shell, top quality oil traders, Marathon, and a number of road construction hot-mix and paving companies. With respect to our small trading business in NuStar, we currently use only futures and swaps through the NYMEX exchange, so our counterparty risk is minimal. And we continue to remain un-hedged on our asphalt business. We hedged the majority of our bunker and gasoline inventories with our exposure limited to basis-risk changes. I'd also like to point out that our receivables profile at NuStar is excellent, as we are current or within 30 days on nearly 100% of our receivables. And we have set up adequate reserves. Last, I would like to remind you that we have a very experienced and dedicated management team and a group of employees who are focused on the long-term results of this company. Our Chairman, Bill Greehey, as well as other members of senior management, have significant positions in both NuStar Energy and NuStar GP Holdings because we believe strongly in the long-term direction of both companies. Now, I'd like to talk about the record third quarter results. I'm excited to report that we had an outstanding third quarter, with results at an all-time quarterly high. NuStar Energy reported record net income applicable to Limited Partners of $141.5 million, or $2.60 per unit almost three times higher than last year's results. And it was $1.59 per unit higher than the previous quarterly record of $1.01 per unit, which we earned just recently in the first quarter of this year. Distributable cash flow available to Limited Partners was a record $156.4 million or $2.87 per unit nearly, 115% increase higher than last year's quarter. NuStar GP Holdings, LLC also reported record earnings of $34.8 million, or $0.82 per unit, for the third quarter of 2008 nearly 150% higher than last year. NuStar Energy L.P.'s strong financial performance for the third quarter was primarily due to excellent margins and robust sales volumes from our asphalt operations, which contributed $122.5 million or almost two-thirds of our total segment operating income. Due to the tightness in asphalt supply, we saw record asphalt prices, even though demand was down. Combined with the wide discounts we have on the Venezuelan crudes we purchased and strong intermediate product prices, our product margins averaged $16.05 per barrel. Significantly higher than the $8.95 product margin per barrel earned before the hedging loss in the second quarter of this year. The acquisition from CITGO has certainly turned out to be a homerun for NuStar. In just the nine months we will have owned it this year, in 2008 we expect to generate EBITDA of nearly 45% of the $450 million purchase price, excluding the impact of second-quarter hedge loss. Now looking at how our other business has performed in the third quarter of '08. While we did see a decline on our total throughput volumes in our transportation segment, most of this decline is not related to weaker demand associated with higher fuel prices or a slowing economy. Revenues were only down 3%, or $2.7 million. The majority of which, or around $2.2 million, was related to a large deficiency payment we'd received in the third quarter of last year on our Burgos refined product pipeline. We also benefited during the third quarter from the 5.2% tariff increase that became effective on July 1, 2008. So if you breakdown the decline in volumes between our crude oil and our refined product pipeline, most of that decline, or around 9% of it, was related to refined products. Among the one-off issues that impacted refined product pipelines were unplanned outages at one of Valero Energy's refineries, lower long-haul throughputs on our East pipeline, compared to last year's record volumes resulting from a number of Mid-continent and Rocky Mountain supply disruptions. We'll talk about some of the impact of the hurricane later in the Q&A. We had lower volumes on our Houston pipeline as more barrels were exported versus shipped inland, due to export arbitrage opportunities being open. And also we had lower volumes on the [inaudible] pipeline space, as a shipper acquired our JV partner's interest and shipped some product on its purchase space rather than our space. There was no impact from generally weaker demand on our crude oil pipelines. Volumes did decline around 3%, as we saw lower volumes on our Capwood pipeline in Illinois, as one of our shippers took more supply from a different source. And operating issues at one of Valero Energy's refineries resulted in lower volumes on our Corpus to Three Rivers pipeline. Our crude oil pipeline revenues were actually higher by nearly $1 million, or 6%, versus last year, as we benefited from improved volumes on our lines that serve Valero's key refinery. This was partly due to refinery operational issues they had last year due to the fire that started in February. Again, most of the issues we dealt with on our pipelines during the third quarter were one-time occurrences. And we don't expect them to impact pipeline volumes going forward. We really do benefit from market areas that are more agricultural versus population center based in our pipeline business. And given the system volumes we continue to see, we do not believe that weaker demand will be a major factor for us going forward. Turning to our storage business. We saw lower volumes due to the change in the Corpus Christi North Beach contract from a throughput to a tank rental basis. And the impact, as I mentioned earlier, of Hurricanes Dolly, Gustav, and Ike... the impact that that had on our operations at our crude oil storage facilities occurred at Texas City and Corpus Christi, Texas. Total revenues were actually higher despite lower volumes. The revenues were higher by $8.8 million, or 8%, versus last year, as we benefited mainly from our expansion projects in Amsterdam and St. Eustatius and, also, customer contract escalations. Specifically related to Hurricane Ike, we sustained property damage, mainly at our Texas City terminal. And we estimate it to be around $18 million. The financial impact to us is expected to be limited to our insurance deductible of $1 million, as the remainder should be recovered through our property insurance. I'm also pleased to report that substantial repairs have already been made at the Texas City facility, that it is an operation, and that we're making excellent progress towards full recovery soon. And that's truly a testament to a lot of hard work our employees put in to get that facility back up and running, despite losing their homes and their possessions and working in less than adequate working conditions. I am also very thankful to all of those who were involved with that recovery effort. So with that I'll jump down to explanations for some of our expenses. Operating expenses in the third quarter of 2008 were higher by around $35.1 million, or 38%, compared to third quarter of last year. The bulk of that variance, or nearly $19.5 million, was due to the asphalt operations we acquired from CITGO in the first quarter of 2008. Most of the remaining difference had to do with the impact that significantly lower product prices had on our inventory product imbalance on our East pipeline at the end of the third quarter. Higher powder costs due to increased fuel consumption and higher natural gas prices and increased head count. G&A expense increased $4.2 million or 26%, compared to last year, as the addition of new workers late in '07 and, also, in 2008 helped support the company's growing business. DD&A was up around $5.6 million, or 19%, primarily due to the asphalt acquisition and the completion of our growth projects. And, last, interest expense increased by $5.8 million, or 30%, as we partially financed the asphalt acquisition and the associated working capital and growth projects with additional debt. We continue to finish out multiple projects in our $400 million construction program and expect to be completed entirely with this by May of 2009. As I've mentioned, we only have around $40 million more of capital expenditures left under the program, which primarily includes storage expansion projects at Texas City, Texas; St. James, Louisiana; and Amsterdam in the Netherlands. I'm excited to announce that we completed around $150 million of projects in the third quarter of '08, including storage expansion and pipeline optimization projects at St. James, Louisiana; Jacksonville, Florida; Linden, New Jersey, which is the New York harbor area; Amsterdam; and Texas City. When completed we expect all of the projects under our $400 million construction program will contribute around $45 million of operating income or nearly $60 million of EBITDA on an annual basis. As I've mentioned, we have a large portfolio of internal growth project ideas with strong rates of return over the next few years that currently total to nearly $500 million. The majority of which are primarily associated with our storage and transportation businesses. Some of the projects under this new construction program include building pipeline laterals on the ammonia pipeline and at our St. James facility, expanding our Valley pipeline in Texas and parts of our East refined product system, installing new ethanol blending capabilities at some of our terminal facilities, and building out new storage capacity at our United Kingdom; Point Tupper, Canada; and Texas City terminal facilities. The remaining projects are mainly focused on optimizing our asphalt plants in Paulsboro, New Jersey and Savannah, Georgia and increasing our polymer modified asphalt production. We're also looking at further opportunities to acquire asphalt logistics and supply assets and to acquire and build out additional storage internationally. Looking to the fourth quarter of '08, we expect fourth quarter earnings to be much lower than the third quarter, primarily due to the seasonality of the asphalt business, as paving demands decline significantly past October. However, the full year of 2008 should be a record year for NuStar, with the highest annual earnings in the Partnership's history. Reliability CapEx for the full year of 2008 is expected to be in the range of 50 to $55 million for 2008, while strategic capital is expected to be lower in the range of 155 to $160 million, as some of our construction projects move into 2009. In 2009, we expect our EBITDA will be even better than 2008. Of course, we're going to benefit from the projects fully of the $400 million construction program that is for a full 12 months. And we expect a good contribution again from our asphalt and transportation operation. However, we do expect to balance this out with a disciplined financial strategy of maintaining a conservative capital expenditure budget and maintaining adequate debt metrics. In summary, despite all of the volatility in the markets due to factors that are totally unrelated to the sound fundamentals of our business, we want to reassure you that NuStar has a very bright outlook for the future. While we take a conservative approach to capital spending as we watch how the credit crisis plays out, we will be looking carefully, also, for acquisition opportunities and investments in strategic capital projects with high returns. As this time, I will open it up for Q&A. Question and Answer

[Operator:]

[Operator Instructions]. Our first question will come from Michael Blum with Wachovia.

[Michael Blum:]

A couple of questions, can you hear me?

[Curt Anastasio:]

Yes, hearing you loud and clear.

[Michael Blum:]

Okay. Great. Just couple of questions. One, in terms of the decision to sort of scale back the '09 CapEx budget, can you just talk about the thought process there and maybe some of the dynamics behind it? For example, are you not getting high enough returns? Are you sort of scaling back those projects? Are the customers not willing to give you a higher tariff or high enough return? Is it your cost of capital? What are the different factors that are going into that?

[Curt Anastasio:]

Right. It's none of the things you mentioned. In other words, the projects are very high return. And our customer relations are excellent. And I have Mary Morgan here, but she can chime in later to tell you that we really are not getting any adverse consequences in terms of customers not wanting to renew contracts or anything like that. It's really to be prudent about the current financial crisis in the world and to maintain a position that we enjoy today, where we have plenty of liquidity. And I mentioned the $0.5 billion of availability on the revolver. Seasonally, when we peak on our working capital during the second quarter in the asphalt season, we look at that peak and we still have plenty availability there, but we just want to leave ourselves as much cushion as possible in the current market. And scaling back to the $80 million, even though these are all high-return projects and all backed by big customers that's something, again, where we have the flexibility to step on the accelerator and get up to a more normalized level of say 150 to $200 million of internal growth capital expanding. If the dust settles on this financial crisis and we feel comfortable that... we see how it's going to get resolved. But Steve might want to chat... our CFO, Steve, is here. He might want to chime in more on that.

[Steve Blank:]

Yes. I think that's a pretty good summary, Curt. I mean, obviously the cost of capital has gone up with the sell-offs in equities and, also, the credit crisis on the debt side. So we've seen, as everybody else has, significant increase in the weighted average cost of capital. The projects that we've got in the budget for next year, which we just reviewed with the Board, are all considerably above our, albeit higher cost of capital. Of the $500 million of projects that we have talked about, probably only about 25 to 50 of those are far enough along that we feel that we can move forward confidently with them and gain the capital. The rest are early days and it just doesn't make sense to kind of budget a bunch of on-the-come things for next year, given the credit issues that we all face. I think we can... as Curt's mentioned, we can quickly ratchet those back up and develop things if we see a window here in the debt market. It's kind of silly to just try and say well, I'm going to debt finance everything under my revolver because the equity market is going to open up in three months from now or six months now. I think it's just prudent to go slow in this environment.

[Curt Anastasio:]

The other thing I just want to mention is that we do want to try to stay as opportunistic as we can about acquisitions too because we're in an environment where, really, we expect some assets and maybe even some companies to shake loose at bargain prices by historic standards, if you will. We want to keep some dry powder, whether it be terminals or anything else that shakes out from some of the weaker competitors or weaker companies around. And since we are financially stronger than many of them, we want to keep that status too. So if we can acquire something to help ourselves, we want to be in a position to do it too without having to go back to the debt or equity markets in their weakened state.

[Steve Blank:]

And I think this is an important point. This budget does not put us in a position where we have to raise equity. We could self-fund this fully and fully expect to pay for everything that we budgeted for next year, out of our cash flow, with paying down further debt during the year. So it's a bit unusual. We, typically, an MLP would be raising capital to finance strategic, we're going to self-fund everything, plus pay down debt next year. If the markets change, we'll be the first to get in there, raise money, and go forward.

[Michael Blum:]

Thank you. That's helpful. Maybe if I can push this discussion one step further? Hypothetically, if there is demand for let's say additional storage in a certain area, is there any risk that your competitor will come in and build that storage because you don't want to commit the capital right now? Or is that not an issue?

[Curt Anastasio:]

Well, again, the projects that we have on... and even in the scaled-down, $80 million version are all very high return projects in great locations. And those are really extremely low risk. And that's why they stayed in our conservative plan. But as I've said before in the past, about building out storage, it's not that there's an opportunity to build out storage everywhere. There are some areas that are more competitive than others and some are less competitive than others. If you look at where we focused our investment, in storage in places like the Amsterdam and Rotterdam area, and St. Eustatius, and the Gulf Coast, some of the others, these were areas where we had a competitive advantage. We had superior marine access, pipeline access inland. We had the right type of assets to handle the products, which we thought were in demand in that region. So, again, yes, there are areas where there's a lot of interest... an example might be... just off the perfect example might be a place like Singapore, where it's an excellent location. There's a lot of good logistics around it. But you're not the only one to see that. A lot of people have recognized that's the place I want to have storage. And therefore it became quite competitive, and there's been quite a lot of building there in recent times. I'd say Singapore is a bad market. I just throw this out as an example of what you're talking about. So, what we've done is selectively invest in areas where that, has not happened. And we don't think there's a lot of incentive for that to happen because we have a competitive advantage, either in logistics or the type of facility we have. Or just a first-mover advantage sometimes discourages others from following on and overbuilding in an area. Mary, do you want to add anything to that?

[Mary Morgan:]

The only thing that I would add is we will continue to be developing these ideas. There's a lot of preliminary work that can be done as far as scoping and being sure that you have your ducks in the row for permitting. These kinds of things are activities that we can continue on with our internal resources so that, if things change and we want to accelerate the program, we'll be ready to go.

[Michael Blum:]

Great. My last question... and thanks for your time... just your thought process around the third quarter distribution increase, which, at least from our vantage point, was pretty meaningful. Should I read any into that in terms of... do you have a new level of confidence or comfort with what the sustainability of the asphalt business is? And that gives you the confidence to raise your distribution to this levels or anything?

[Curt Anastasio:]

Well, we wouldn't have raised it if we didn't feel comfortable about the level we're raising about. Because the last thing you want to do is raise the distribution and find out you raised it too much, and then you have to cut it back. So that's not in the cards for us. We wouldn't have proposed to our Board, and our Board would not have approved this 7% and 19% levels of increase if we didn't have a high degree of confidence that it was sustainable going forward. So, yes, the nice thing about the asphalt business, as you can see, it's been very additive to our cash flow, very additive to our earnings. And we were right about it. We bought it at the right time. We thought the market fundamentals would be supportive of the profit margins. We continue to be bullish about that business going forward. There is volatility in it, so you'll have issues about... you have to watch your levels of working capital. And, seasonally, it's weaker in the winter than the summer, and stuff you already know about the asphalt business. But, that having been said, over time this is going to be a very important contributor to our profit for the next number of years.

[Steve Blank:]

I think also, Michael, it's important to recognize, we, as recently as six or seven weeks ago, reiterated our belief that we would payout about 7% this year at the MLP. Now, obviously, that was before all the credit crisis hit and all the financial storms really took hold. But we felt it was really important, particularly since the performance of the business this year is going to be better than we expected and guided to... to do what we said we would do on the distribution. And I don't think that, in any way, sends a signal that it's always going to be 7% or it's always going be 19%. It may be more. It may be less. The distribution is one of the last things we think about because, obviously, you have to produce the financial results to fund that. It's just all kind of hung together. We were able to improve our credit metrics during the third quarter. We paid down debt by $130 million. And there really wasn't a reason not to do those good distribution ideas [ph].

[Michael Blum:]

Thank you.

[Curt Anastasio:]

Thank you.

[Operator:]

Your next question comes from Yves Siegel with Aroya Capital [ph].

[Yves Siegel:]

Good morning. If I could just follow up on a couple of Mike's thoughts. Steve, given what you just said, when you think about the distribution going forward, do you want to try to get back on a pattern of quarterly distribution increases?

[Curt Anastasio:]

We do not think about it that way. I can tell you. We don't have a program that says... if we have $0.005, we're going to payout $0.005 because we want to have quarterly distribution increases. We never have been that way. We look it as... we're going to run this business for the long term to optimize the profit and optimize the unit holder value. And we don't have any kind of pre-described program to say that it must be X% within Y time period. So that's just not us. And even if we have excess cash available, if we think it's prudent to pay down debt or reinvest it... fortunately, we've been able to do all of that this time around. And that's the best position to be in. But, we're all very substantial equity holders in this company, Bill Greehey above all else. We are guided by what is going to add long-term to unit-holder value. And it's a combination of delivering good distribution increases but, also, maintaining our status as one of the relatively few MLPs that is investment grade rated by the credit rating agencies. Most of them aren't. That looked smart for a while. Now it looks not so smart to be not investment-grade rated. And so its times like this where we cherish, more than ever, the financial discipline we've had to maintain our status as investment-grade rated. And we continue to do that. We have multiple factors in mind that drive you away from saying, no matter what I'm going to be on some kind of quarterly distribution increase program. We're concerned about our balance sheet. We're concerned about investing in the business. We're concerned about long-term growth projects. And that's really what you're getting with us. Plus, on a year-over-year basis, we've always delivered very competitive distribution increases, both the MLP and the GP.

[Yves Siegel:]

Thanks for that clarification. Could you also talk about in terms of 2009? Steve, you said that you'll be self-financing. Are you assuming that the asphalt market is equally as good as what you guys delivered or will deliver in 2008?

[Curt Anastasio:]

Well, we're not really putting out guidance today on the 2009 level. But, like I said, we continue to be bullish on it. We think the supply/demand picture is good. Many of the same fundamentals that existed this year... we think we're going to see some of the same next year. And, like I said, even though the demand was down some because of higher prices and other factors, supply was down even more. And we're able to capitalize on that because we're positioned in the whole chain. We're got a good crude contract. We've got good logistics. We've got the best on-purpose asphalt refineries. We've got the best marketing group out there, able to capture the best margin they can on the sales. None of that changes next year. All those things I just mentioned, we still got them next year. It's just going to be a matter of doing the most we can to optimize that business segment. And we're still optimistic about it.

[Yves Siegel:]

Okay. And if I could push just two more questions? Again, just elaborate on the throughput volumes on the pipeline business. Absent the one-time type of issues, what do you think normalized volumes would have been in the quarter?

[Curt Anastasio:]

That's a good question. I'm going to turn it over to Mary in just a second. But you're quite right. We had a lot... we really were impacted by these three hurricanes. And we really were impacted by un-planned outages at the refiners that feed some of these pipelines. So most of what you saw was in the category of one-time. And then there was some trade, arbitrage opportunities that opened up that sometimes are there. They're sometimes not for our pipeline customers that we regard, really, as non-recurring and sense that that volume could come back as easily as go away. But I'll turn it over to Mary to address the... what he's asking is a more normalized pipeline volume.

[Mary Morgan:]

I think really, again, the biggest impacts, again, were the hurricanes, un-planned refinery outages on several of our pipelines. And, again, some of these movements where people shifted due to outsourcing, things like that. Demand destruction from everything that we've been able to look at, I think, both last quarter and this quarter, is our lines really impact others than motor fuel demand, have a much great impact on our lines. So we're saying it's around 2% for demand destruction, plus or minus probably 0.2% on different pipelines. But, again, the bigger impacts have been these one-time events that Curt had mentioned earlier.

[Steve Blank:]

Yves, I think one thing that is going to be recurring is Valero bought space on a line going down to El Paso from ConocoPhillips and now is shipping more on their space than on the space we have. And that was a decrease of about 20,000 barrels per day third quarter to third quarter. So if they continue to do that... we expect they will. It's not really demand destruction in the sense of the market in El Paso is 20,000 barrels per day weaker. It's just lost volume on our space because they bought some pipeline space.

[Mary Morgan:]

Exactly. The volumes are moving. In fact, the volumes are slightly up on that pipeline. And, again, there, we moved through two segments. We had the long-haul pipeline segment from a key that has a much higher tariff. And, there, the volumes were only off a very small amount.

[Curt Anastasio:]

I'll even mention just on that specific system, we actually do have some ideas to expand the volume right on that very system where we lost Valero volume. But we're just working on that. So we're not counting that. And Steve's right, we're just assuming it was a permanent loss of volume there. But I can tell you, we think we have some ways to expand the volume on that very system.

[Mary Morgan:]

And the point, again, on that particular system while it looks big as far as throughput numbers. There is a loss on the long-haul high tariff volume is really small in comparison to the short segment where we pump over to [inaudible] does not have the same impact on the revenue.

[Yves Siegel:]

My last question. Could you give a rough approximation of the breakdown on the refined products? How much is gasoline versus jet fuel and diesel?

[Curt Anastasio:]

Yeah. We have that. I don't know about the latest numbers.

[Mary Morgan:]

In fact that does vary a bit from pipeline to pipeline, again, on our Mid-continent system. Our East line that has a lot of agricultural demand, we have a higher ratio of distillate to gasoline than you might see on other pipelines in other parts of the country.

[Curt Anastasio:]

And a big part of our pipeline segment is ammonia, too, which is not related to your question. So that's a lot of the volume. But then on sort of the legacy Valero system, let's call it... it will be mostly gasoline. We'll, get you the exact overall numbers because, as Mary points out, it does vary quite a lot depending on a specific pipeline you're looking at.

[Mary Morgan:]

And jet is not a major...

[Curt Anastasio:]

Jet is really small for us. Its low single digits in percentage of volume.

[Yves Siegel:]

That's great. Thank you for your time.

[Curt Anastasio:]

Sure.

[Operator:]

Your next question will come from Ross Payne with Wachovia.

[Ross Payne:]

Hi, guys.

[Curt Anastasio:]

Hi.

[Ross Payne:]

First of all, great performance in this quarter, particularly on the asphalt side. I wanted you to just touch on some of the dynamics that you see that may play out in asphalt for next year. I mean, here city budgets are tight. What's the possibility of them cutting back on demand for asphalt just in general and how that plays into what you see for supply decreases for next year as more crackers continue to come on here?

[Curt Anastasio:]

I will just start by saying... I've got Paul Brattlof and Mike Stone in the room. I'll let them chime in a second. But I'll start by saying one of the things we liked about this business when we studied it is, from a profit standpoint, it is relatively recession proof. When prices go up, that has some impact on demand but actually less than you'd think. It's not correlated anywhere near one to one. And when GDP goes down, that has some impact too but, again, relatively loose correlation. So the demand is relatively steady in this business. Now, that having been said, we did see demand declines this year, which we more than made up on the profit margin side of the volumes that we sold. One piece of good news on the funding front was that the Federal government acted to put back into the Federal Highway Trust Fund $8 billion that they had previously in previous years siphoned out for sort of general purposes. And what's nice about that is, not only, they put back the money so that the Federal Highway Trust Fund is fully funded for 2009, but it also was a very bipartisan approach, a very bipartisan recognition that infrastructure funding and highway funding is extremely important to the country. And you've got both presidential candidates talking that talk too. And states tend to want to spend money on this too. It gets votes. It gives jobs. But, also, they get matching funds from the Federal government, which they don't get if they don't spend. So those are all sort of positives on the funding front. But, Paul and Mike, do you want to talk some about impact on demand going into 2009.

[Paul Brattlof:]

I'll say, just real quickly, with crude oil prices setting new lows this year, even with the strong margins that we saw this year, prices will be down in '09 versus this year.

[Curt Anastasio:]

That helps demand.

[Paul Brattlof:]

That will help demand right there.

[Mike Stone:]

[inaudible] forward curve on your gas cracks for your conversion refiners are showing poor for next year, which will impact supply pre-runs from the suppliers.

[Curt Anastasio:]

On the supply side, yes. We still are very bullish on the supply side. But he was asking just about demand going forward. And I think it's safe enough to be pretty constructive, we think.

[Steve Blank:]

But this year we saw, through July I think it was, demand was down 12%, supply was down12%, but imports were down 37%. Next year, based on the GDP correlation, we think there will be minimal demand destruction of about 2%. So that's probably more optimistic than a lot of people would think when they think about the global recession. But it really gets to this defensive nature of the investment that Curt's talked about that these roads... so much of the money is spent for maintenance. And the states will not want to lose the matched dollars with the Federal funding. They will want that Federal funding. And they'll find a way to come up with their share of money.

[Ross Payne:]

Okay. So 2009 is fully funded, at this point, at the Federal level?

[Steve Blank:]

Yes.

[Curt Anastasio:]

Yes.

[Ross Payne:]

Okay. That's quite nice. Imports, obviously, had a pretty big impact this year. What percentage of the market is imports? And, second of all, what do you see imports doing in '09?

[Steve Blank:]

25,000 of a 500,000 barrel per day total demand.

[Curt Anastasio:]

Now by far the biggest component of that is Venezuela. And Venezuela is out of the export market to the U.S.

[Ross Payne:]

And you're not seeing them come back any time soon?

[Curt Anastasio:]

No.

[Ross Payne:]

And, Steve, you said that was 25,000 of a 500,000.

[Steve Blank:]

Yes. It's about 500,000 to 550,000 barrels per day.

[Ross Payne:]

Okay. So it's about 5% of the market?

[Steve Blank:]

And the U.S. is something like 30% of world demand.

[Ross Payne:]

Okay. If you can just talk a little bit more, too, about what you're seeing in terms of crackers and your expectations on lower supply for next year. Obviously it was down 12% this year.

[Curt Anastasio:]

On the coker it's still a very constructive story there. And Mike Hoeltzel, who's in charge of our development function, has done a lot of homework on this. Mike, if you want to address that question about the status of the coker projects going forward?

[Mike Hoeltzel:]

We're still seeing a lot of cokers proceeding as we expected.

[Curt Anastasio:]

We've had one or two people saying we're going to delay the start up from 2010 to 2011. But we've also had a couple of new ones announced. And so net-net we actually think there's a little bit more coker capacity now on the drawing boards than we thought when we did the CARCO acquisition... the CITGO acquisition.

[Mike Stone:]

We've got 83,000 barrels scheduled to come on stream in 2009. So that's going to take it right out of the asphalt market.

[Curt Anastasio:]

And that story, as we've said all along, really kicks in late 2010. Going into 2011 is when you see the big capacity taken out of the market due to the coker startups.

[Mike Stone:]

So by 2013, we still expect to be net short by 250,000 barrels per day, which is 10 times higher than the 21,000 net short in 2007. That's because of the coker projects.

[Ross Payne:]

Okay. So 83,000 is coming on in '09. Do you know how much came on in '08 and any expectations on 2010?

[Mike Hoeltzel:]

We had 27,000 that came on stream in 2008.

[Ross Payne:]

Okay.

[Mike Hoeltzel:]

There's only 19,000 in 2010, but that's because a number or a projects seemed to slip from the fourth quarter, 2010 to the first quarter of 2011.

[Ross Payne:]

So, 2011, you've got what expectation there?

[Mike Hoeltzel:]

2011 is around 240,000 barrels a day. That's when the real big ones come on stream.

[Ross Payne:]

Wow. Excellent. All right. Sounds quite promising. Thanks, guys.

[Mike Hoeltzel:]

Thank you.

[Operator:]

Your next question will come from Emily Wayne [ph] with Raymond James.

[Emily Wayne:]

Congratulations a great quarter.

[Curt Anastasio:]

Thank you on this.

[Emily Wayne:]

Hi. My first question, and not to harp on it too much, was going to back to throughput volumes. Aside from the benefits of pipeline optimization and some of your expansion projects, could you kind of just highlight some of the reasons why you guys haven't been seeing as much of demand destruction on your pipelines, as opposed to some of your peers who have? Is it kind of because agriculture demand? Or is it the tariffs that you charge?

[Curt Anastasio:]

We do benefit from the fact that rather than being so dependent on sort of population centers and people consuming gasoline to drive around, we do really benefit from our distillate heavy exposure on the East line, as Mary mentioned, and, of course, in the agriculture sector on the ammonia line. Mary, do you want to chime in more on that?

[Mary Morgan:]

Again, I think that's really important because it's not being where we're serving not only not as many population centers, there's also in some of our markets in the Mid-continent, where there's other pipeline providers, again, we have kind of specialized our target market even more to the agriculture. Magellan was right head to head with us. And so we kind of have served slightly different markets. Our terminals are in slightly different places. So ours is very heavily agricultural driven. We have, again... on the ammonia line, we did have a significant impact due to one of the hurricanes in the third quarter because there were a lot of power outages down in Southern Louisiana. But other than that, we've had record volumes on our ammonia line this year. We completed two expansion projects on that line.

[Paul Brattlof:]

I'd like to point out also that we're tied to our legacy systems around some flagship refineries at Valero. We captured a lot of the pipeline business from those particular markets.

[Mike Hoeltzel:]

And these are fast growing markets. I mean, that's the thing. Our pipelines are going into places like El Paso, Dallas, Houston...

[Mary Morgan:]

The Valley.

[Mike Hoeltzel:]

Albuquerque, Denver, which are growing... The Valley... East Texas is one of the fastest growing regions in the country. So we're somewhat significantly helped by that.

[Emily Wayne:]

Okay, great. Great clarity on that. Switching gears over onto the asphalt side, just off of Ross' question... so if there's 83,000 barrels coming online in 2009, have you guys been seeing any sort of changes and sort of timelines of if or when these refining coker units will come online, given the limited aspect of capital and funding right now?

[Curt Anastasio:]

Yes. I think as I mentioned, we've seen one or two delays where people push back the startup dates. Mike mentioned fourth quarter 2010 to first quarter 2011. So we've seen a little bit of that. And we've also seen some new announcements too. So these are long lead-time projects. And, actually, as time goes on, people have gotten their permits, they've ordered their steel. These are big projects. And they are not easily cancelled or deferred because you have a big investment here with a lot of lead times. So we have a high degree of confidence in this. Mike, do you want to add anything to this?

[Mike Hoeltzel:]

Okay.

[Emily Wayne:]

Great. So for 2009, you guys feel pretty confident about the 83 number coming online and maybe in 2011 that number could possibly change.

[Curt Anastasio:]

Yes.

[Emily Wayne:]

Great. Thanks for the clarity, guys.

[Operator:]

Your next question comes from Brian Zarahn with Barclays Capital

[Brian Zarahn:]

I joined the call a little late. So I apologize if this was already addressed. But you had some margin compression in your storage and transportation businesses. What drove the higher operating costs?

[Steve Blank:]

Well, there was a number of things. Power was pretty meaningful. You had natural gas prices. We're mostly exposed to natural gas on the power side. And they were nearly 40% higher than...

[Curt Anastasio:]

Now let me just mention on that, we have the tariff adjustments we have on our pipeline are partly to account for things like higher power costs and higher OpEx. As Steve, mentioned, you had a run up in power costs, but it's just a timing thing because we get a lot of that money back. That's one of the nice things about this pipeline business. It's hedged in the sense that that cost we recoup, we just recoup it later in the annual tariff adjustment. So part of that is timing. Go ahead, Steve.

[Steve Blank:]

There was the hurricane impact, which was pretty meaningful. And that will hit us somewhat in the fourth quarter too. So I would say those are kid of two items that hit us pretty hard during the quarter. We then had increased head count, as Curt mentioned, both in G&A and in OpEx. We've added... following the separation from Valero Energy, we've continued to beef up certain departments, which we think are going to help us as we grow the business... really in areas like corporate development and in the field trying to push down some of the administrative responsibility into the field to make them more accountable.

[Curt Anastasio:]

You know we're going to keep growing the business as we have. And you can't do that without the people. Those are the very people who brought us a record quarter and a record year. We added head count because they do the business that adds to profit.

[Steve Blank:]

But on a consolidated basis... moving away from sort of a segmental, transportation, and storage basis, by far, the biggest thing is you had operating expenses of $35 million third quarter to third quarter. Of that $35 million, 20 was just due to the CARCO...

[Curt Anastasio:]

CARCO acquisition.

[Steve Blank:]

Which we had in the third quarter last year. And then you add power costs, increased head count, and a few other things, including the hurricanes really accounting for the bulk of the $15 million that wasn't part of the CARCO deal.

[Brian Zarahn:]

So, looking ahead, operating margins should mirror, a little bit more, first half '08 levels?

[Steve Blank:]

Yes, I think so.

[Brian Zarahn:]

And transportation and storage not bad so.

[Steve Blank:]

The transportation and [ph] maintenance expense got deferred out of the first half and pushed into the second half.

[Curt Anastasio:]

There's some timing to all this.

[Steve Blank:]

And there's some timing to it. But I think Curt's point is very important that a lot of this inflation led to increases on the power side. Next July, we're going to have a significant increase in the tariff. So there's a big lag effect here that's hit us in years passed. It comes through it. That's the beauty of this business is that other than the asphalt side of the business, the 75% of the business that's feed based all of that is under contracts that get adjusted annually for inflation. And not too many businesses have that protection.

[Brian Zarahn:]

Looking at the economy, do you have a sensitivity to 1% change in GDP impacts your refined product volumes in your pipes... your crude oil volumes?

[Curt Anastasio:]

I don't think we have got that. But I can tell you... we've told you what we think our volumes are going to do. We think they're going to be slightly up next year. And we have accounted for the fact that we are in a flat to recessionary environment going into '09. I don't have a correlation for you.

[Brian Zarahn:]

Okay.

[Curt Anastasio:]

It would be tough for us to do, really, because of the variety of customers and product grades that I just went through for you. So you got the agriculture sector that plays into it big. And then you've got gasoline consumption. It almost might be meaningless if you blended all that together and said here's how all that correlates to GDP. You almost have to do it... I know it's a frustrating answer, but you almost you almost have to do it line by line, segment by segment.

[Brian Zarahn:]

And one last question. Even though your growth CapEx budget is smaller next year, how much growth benefit will lower steel prices be for your projects?

[Curt Anastasio:]

Yes, that will... that absolutely will. I don't know what the latest numbers show, but they're dropping pretty hard right now.

[Mike Hoeltzel:]

Yes. We've factored in because we're seeing almost a 15% reduction so far and we are going to just save some of that. So that's going allow our capital dollars to stretch a little further.

[Curt Anastasio:]

What it does is boosts the return on these projects, which are... this group, $80 million, is anywhere from like 30% to 100% plus IRR... very strong projects. And it's only helped if your steel cost is down.

[Brian Zarahn:]

Okay. Thanks for the color.

[Operator:]

Your next question comes from John Tysseland with Citi.

[John Tysseland:]

Hi, guys, great quarter.

[Curt Anastasio:]

Hi.

[John Tysseland:]

Steve, maybe you can give us a quick update on any of the discussions that you've had with your credit rating agencies recently and what it might take to get you guys off of a negative outlook?

[Steve Blank:]

Well, the most recent discussion I've had with them was yesterday when I booked an appointment to visit each of them the first week of November. So we're going to go up there, Curt and I and a few others, to basically show them the budget. Talk in a very similar fashion to the way we're talking right now and just layout how much financial flexibility we have. That we're coming right out of the backend of the $400 million program, and we're going to see the benefit of all that. And we want to grow the company, but access to capital is going to be the key. But, certainly, the credit metrics are greatly improved from where they were in the second quarter. They were burdened in the second quarter because of the $61 million hedging loss that hit EBITDA. So our debt to EBITDA was quite high at the end of the second quarter and has now come down from 4.9 then to 3.9 today. And we hope to continue to improve that debt to EBITDA next year, as we realize the benefit from the projects and so on and so forth. So, our hope is that ultimately we'll, at a minimum, get the negative outlook taken off.

[Curt Anastasio:]

Yes. Obviously that's our goal to get it off. But until we meet with them and hear what they have to say and give them the chance to do their work. Obviously, we've done everything we can. We improved our credit metrics quite substantially. The company is in great shape from a liquidity standpoint. The acquisition worked out better than we even told them it was going to work out. We're going to go and say okay, guys. Here's what we said we were going to do. We've done that and more. And they just have to do their work, and we'll take our best shot at it.

[John Tysseland:]

Yes. I agree with that. Was there any indication going into it before... what kind of metrics they were looking at? Now whether those metrics change in this environment or not, I don't know. But was there any kind of hurdle rates that they kind of threw at you that would help you say that maybe... or be able to forecast whether that negative would be there or not?

[Curt Anastasio:]

Not hard and fast. But Steve can comment in a minute. From what I know of this, I think it's fair to say that we should be in their comfort zone right now. But you know we might be wrong.

[Steve Blank:]

I think that's right. And I don't want to speak for the agencies because honestly we haven't had sort of a formal review with them in some time, since we went up there and laid out the case for buying CARCO. Because we did spend a lot of time with them, talking to them about the asphalt opportunity and specifically conditioned our offer to the Venezuelans on continuing to be rated investment grade.

[Curt Anastasio:]

Right.

[Steve Blank:]

As Curt said, we're going to show them that we've done better than what we laid out at the time we had those meetings. Now, whether the world has changed and they changed their metrics because of everything that's going on in the world, I don't know. We're running the business for the long run. And other than scaling back our CapEx, which we are able to do because we weren't contracted to do much with anybody, we're hoping that... we're not going to bet against the world economy or the U.S. economy. We believe that things will heal, and we're going to move forward. We're just in the fortunate position that we don't have to go into the markets right now to raise money or to do something, because we're not contracted to do anything.

[Curt Anastasio:]

Right.

[John Tysseland:]

That certainly sounds like a compelling argument. When you look at your marketing group and kind of what they spend their time on most of the time... when you compare it versus asphalt and your refined products business. How do they split up their time, and where do they see the most opportunities? Did the hurricane present any opportunities for them during the quarter?

[Curt Anastasio:]

We're going to have more opportunities on asphalt marketing. We're going to have... we're going to do more in fuel oil now too. We haven't talked much about fuel oil. Strategically, we can do more in that area, especially in and around assets that we have today. We have an important bunker and marketing business. It's an important part of the company's profit picture. That expanded some this year. We have opportunities to expand it even more. So I think and Paul should address this, because this is his area. But I think what you'll see us do is not just more in asphalt but more in fuel oil marketing and more in bunker marketing as we go through 2009.

[Paul Brattlof:]

I just think we have some good opportunities over the coming years to get into the auto logistics market to provide a solution for the marketplace out there to have a home further by then [ph]. Also, that ties right into our bunker marketing plan, where we'll be able to supply some of that and just tie it all together, which actually is a synergy, I guess, with the CARCO facilities. So it's all coming together, and that will come out over the next couple of years.

[John Tysseland:]

Well, thanks for the color, and congratulations again on a great quarter.

[Curt Anastasio:]

Okay. Thank you.

[Operator:]

Your next question comes from Louis Shamie with Zimmer Lucas Partners [ph].

[Louis Shamie:]

Hi, everyone. Congratulations on the quarter.

[Curt Anastasio:]

Thanks, Louis [ph].

[Louis Shamie:]

Actually, most of my questions have been answered, but just two minor questions. One is looking at the asphalt and marketing segment. Can you guys split out on an EBITDA basis how much of that came from the asphalt refineries and how much came from the legacy marketing business?

[Steve Blank:]

Yes it was on an operating income basis, 138. About 123 came from asphalt, 10 from bunkers, and 5 from the fuels marketing and trading business.

[Louis Shamie:]

Okay. And regarding maintenance CapEx, what do you guys see as an ongoing rate... an annual rate for maintenance capital?

[Steve Blank:]

Well, next year we've budgeted in the 60s. We're looking at 50 to 55 this year and next year it's 60 to 65.

[Louis Shamie:]

Okay. Looking at kind of asphalt pricing, seeing that crude has come off a lot, how do you guys expect... I guess this is the $1 million question. But how do you expect asphalt to trend relative to how much crude has come off? Do you see the correlation as being one to one?

[Curt Anastasio:]

Are you talking about 2008?

[Louis Shamie:]

2009.

[Curt Anastasio:]

2009. I think you'll see the same seasonal pattern that happened this year, where in the shoulder months and on the first quarter and the fourth quarter, the prices get weaker just as demand dies down. But I think with some of the other players in the Midwest kind of not there this coming year, I think you're going to see a potential for a higher seasonal move from the standpoint. The winter prices will go higher, but then they could come back off next winter. So I think you're going to see the same type things. If you normalize it to a flat, say, WTI price, the seasonality, I think, is going to be growing, which is a benefit to us.

[Steve Blank:]

Louis [ph], what we did was we put the budget together last week. We used the forward curve. WTI was 82. [inaudible] was 69. Black asphalt we've used about $80 per barrel or 447 per ton. That's what we've got.

[Louis Shamie:]

Great. Those seem like conservative numbers. All right. Thanks a lot.

[Curt Anastasio:]

Thank you.

[Operator:]

Your next question is from Mark Easterbrook with RBC Capital Markets.

[Mark Easterbrook:]

All of my questions has been answered, but just one quick one. You mentioned the North Beach contract was redone. Are there any other contracts in the storage business that are about to come off or about to be redone like that North Beach contract?

[Mary Morgan:]

Our contracts... we've looked at every contract up for renewal, and we're in negotiations and believe that we will actually be able to increase the rates on all the contracts that are up for renewal next year. That was a particular change coming from our separation with Valero Energy on that particular contract. We don't have any other contracts that we're planning to move from a traditional...

[Steve Blank:]

And we just moved it from a throughput basis to a lease basis. The same revenue was there. It was almost a very large amount [inaudible].

[Mark Easterbrook:]

Okay. And then my usual, typical quarterly question. Any upcoming refinery maintenance scheduled that's coming up here in the fourth quarter?

[Curt Anastasio:]

Nothing of significance. Not really.

[Mark Easterbrook:]

Okay, thanks. Great quarter.

[Curt Anastasio:]

Thank you.

[Operator:]

I'm showing one final question. It comes from Jon Lubert with IL Hedge.

[Jonathan Lubert:]

Hi, guys. Congratulations on a great quarter.

[Curt Anastasio:]

Thank you.

[Jonathan Lubert:]

I have two questions. I was wondering if the general partner ever considered buying more limited partnership shares as the price became irrational in this market.

[Curt Anastasio:]

No, not really because to do so they'd have to incur debt. And the rating agencies really don't like debt at a GP level. So we have not considered that.

[Jonathan Lubert:]

Okay. So not with cash flow? Basically all the cash flow would be given out as a distribution. Okay. Also, do you look at companies to expand your asphalt ownership like SemGroup or some of these guys that are having trouble? Have you looked at any of them and any of their assets that might be for sale?

[Curt Anastasio:]

Yes. We absolutely have looked at not just at SemGroup but a number of other possibilities. Yes.

[Jonathan Lubert:]

Okay. Thank you very much.

[Curt Anastasio:]

Okay. Thank you.

[Mark Meador:]

Operator, do you any other questions?

[Operator:]

No. At this time there are no further questions.

[Mark Meador:]

Thank you. If you have any further questions, please call NuStar.

[Operator:]

Thank you. This does conclude today's conference call. You may now disconnect. .