NuStar Energy L.P.
Q4 2008 Earnings Call Transcript

Published: 27 Jan 2009

[Operator:]

At this time I would like to welcome everyone to the NuStar Energy LP NuStar GP Holdings LLC Fourth Quarter 2008 Earnings Conference Call. (Operator Instructions) 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 fourth quarter and full year 2008 earnings results. If you have not received the earnings releases and would like copies of each, you may obtain them from our Web sites 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. In addition, we have posted operating highlights and fundamental data for our Asphalt Operations under the investor's portion of the NuStar Energy LP Web site. If after reviewing the attached tables and operating highlights you have questions on the 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 LP and NuStar 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 risk, 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 LP and NuStar GP Holdings LLC's 4 and 10-Ks for the year ended December 31, 2007, and subsequent filings with the Securities and Exchange Commission. During the course of this call, we will also make reference to certain non-GAAP financial measures. We are providing additional schedules under the investor's and financial reports and SEC filings portion of the NuStar Energy LP Website, reconciling these certain non-GAAP financial measures to their most directly comparable financial measure, calculated and presented in accordance with the U.S. General Accepted Accounting Principles or GAAP. Our non-GAAP financial measures should not be considered as alternatives to GAAP measures, such as net income, operating income, net cash flows provided by operating activities or any other GAAP measures of liquidity or financial performance. We'll now turn the call over to Curt.

[Curt Anastasio:]

Good morning and thanks for joining us. I'm very pleased to say that while many companies struggled last year during a very challenging economic environment, NuStar shined, finishing 2008 with our best year ever in practically every single category. As you may have seen in the earnings release we issued this morning, NuStar reported record revenues, record earnings, distributable cash flow, and EBITDA for 2008, all significantly higher than the previous record and higher than last year, and with our 2008 revenues more than 225% higher than last year or $4.8 billion, we expect to be ranked on the Fortune 500 listing for the first time, which ranks the top 500 U.S. public corporations. That's indicative of the significant scale NuStar has achieved. We're one of the larges and most geographically diverse MLPs with a liquid storage capacity that ranks us the second largest in the United States and the world's third largest. We expect to hear our Fortune 500 ranking within the next couple of months. The single biggest contributor to the increase in our 2008 earnings was the addition of our Asphalt Operations, which generated $90 million of EBITDA or $76 million of operating income for the nine months we owned it. This is about two thirds of the nearly $140 million EBITDA increase year-over-year, and that's after accounting for the one time $61 million hedge loss we incurred in the second quarter. This business has already exceeded our expectations for just the short time we've owned it and with asphalt supply already tightening, the vast majority of U.S. coker projects proceeding as planned, which are expected to further tighten asphalt supply and increasing support for a stimulus package that if passed, will generate more demand for asphalt, the outlook for this business has never looked better. We also benefited during 2008 from the completion of storage expansion projects under our $400 million construction program, which contributed an additional $15 million of operating income for the year. While our $400 million construction program is coming to a close this year, we will benefit even more in 2009 as we expect to achieve a full year's contribution from the projects for around an incremental $30 million of EBITDA. While we benefited in the fourth quarter from the sale of non-strategic, poor performing assets that we've been looking to divest for some time, these deals were homeruns for us. The assets we sold generated substantial sales proceeds compared to the minimal income they were contributing to NuStar, so they were sold at extremely high multiples. All in all we received $44 million of proceeds from the assets we sold in the fourth quarter, $36 million of which came from the sale of our joint venture interest in the Skelly Bellvue pipeline in Texas. This was roughly a 36 times multiple to 2008 EBITDA, which is not bad considering multiples for midstream assets have more recently been in the 9 to 12 times range. So I really have to take my hat off to our corporate development group who did an excellent job marketing those assets. While these particular one time items helped the fourth quarter results, special items for the full year, including those asset sales actually hurt our 2008 results. If you add back $0.56 per unit of special items to the $4.22 per unit we reported for the full year of 2008, obviously our earnings would have been much higher at $4.78 per unit. In 2008, we also delivered on the distribution growth target we had set for NuStar Energy and exceeded our target for NuStar GP Holdings. At the LP, we increased the NuStar distribution by around 7% and still maintained a strong coverage ratio of 1.33 times, far above the 1.2 times we were previously targeting. At NuStar GP Holdings, we increased the distribution by almost 15%, exceeding our previously stated goal of about 12% for 2008. In addition, primarily due to lower working capital requirements as crude and product prices had declined, we reduced our debt balance at the LP by almost $300 million during the last six months of 2008 and currently have more than $600 million of availability under our $1.2 billion revolver. Importantly, our credit agreement does not come up for renegotiation until December of 2012, almost four years from now. I don't have to tell you that 2008 was the worst year for the capital market since the Great Depression, as the credit crisis intensified later in the year and the economy stalled, the markets crashed, wiping out multi year stock gains. Despite the tough market conditions, I am pleased to say that NuStar Energy and NuStar GP Holdings outperformed the S&P 500 and the O'Leary and MMP Index, as well as the vast majority of our peers in 2008, based on total return. In fact, NuStar GP Holdings was the number 1 best performing publicly traded general partner in its peer group for 2008 based on total return. In addition, we once again had an excellent year in our safety and environmental performance. In fact, we exceeded our 2007 performance, which was already a record year for us and also outperformed our peers and the industry averages. As a result, we continue to earn numerous awards for our safety and environmental performance and I'm proud to say that after just our first time applying, we recently learned that Fortune magazine ranked us as one of the 100 best companies to work for in America, specifically number 44. The results will appear in the February 2nd issue of Fortune magazine. We were also awarded the best company to work for in Texas by a group of business organizations which is spotlighted in the Texas Monthly magazine next month and previously we'd been recognized as the number one best large company to work for in San Antonio by the San Antonio Business Journal. These awards result from a culture that encourages giving back to the community, which make us a respected and admired company everywhere we operate. In other words, we are universally recognized as a good corporate citizen. These awards also result from treating every employee [inaudible], which help us attract and recruit the best people in the industry. To top it off we had a record year for the amount of time and money that our employees contributed in the communities where they live and work. A record year and the awards we received are a reflection of our philosophy at NuStar, that if you take care of the employees, they take care of the unit holders and the communities they work in. So as you can tell this was really an outstanding year for us in many respects and we intend to build on that going forward. Now I'd like to turn to our fourth quarter results. At the LP we reported net income applicable to limited partners of $25.3 million or $0.47 per unit, comparable to last years results. At NuStar GP Holdings we reported $10.7 million or $0.25 per unit, higher than the $9.2 million or $0.22 reported last year. Distributable cash flow applicable to limited partners was $28.8 million or $0.53 per unit for the fourth quarter of 2008 compared to $34.9 million or $0.72 reported last year. In addition, the LP and the GP boards declared quarterly distribution of $1.0575 per unit payable February 12, 2009 for the LP unit holders and a $0.43 per unit distribution payable February 17, 2009 for the GP unit holders. As previously mentioned, included in the LPs fourth quarter results is a net gain of around $ 23 million or $0.41 per unit primarily related to the sale of nonstrategic and underperforming assets. Obviously if we had not made these special items totaling $0.41 our earnings would have been lower than the $0.47 we reported in the fourth quarter. However, remember that for the full year of 2008 one time items actually hurt our results and our results would have been much higher if you excluded all those items, including those fourth quarter asset sales. While we expected the fourth quarter to be relatively weak primarily due to the seasonality of the asphalt business, the rapid collapse of the entire energy market during this time further aggravated an already weak quarter. As you may recall crude oil was around $100 per barrel at the start of the fourth quarter but fell to $45 per barrel by the end of the year, a $55 per barrel or 55% decline. The collapse in oil prices in the fourth quarter was much faster than the decline in our cost of goods sold. Within our asphalt and shields marketing segment our asphalt business generated an operating loss of $37.5 million. Partially offsetting this were hedging games primarily associated with our bunkering business. Asphalt sales were actually made during the quarter at prices well above current costs resulting in a positive gross margin per barrel on a spot basis. For example, our rock asphalt sales averaged around $515 per short ton or $92 per barrel for the fourth quarter. While our average crude oil cost was about $40 per barrel resulting in roughly a $50 per barrel spot gross margin. However, the continuing and significant decline in crude oil and asphalt and product prices throughout the fourth quarter outpaced the slower decline in our weighted average costs of goods sold, which caused the margins we actually book to compress. Since there’s typically a two to five month lag depending on the time of year, in other world faster in the summer slower in the winter, between when we buy the crude and when we sell the asphalt in intermediate products, our cost of goods sold will reflect this lag. In this instance, our cost of goods sold carried a price that was higher at the start of the fourth quarter and continued to be high relative to product prices even though spot crude oil prices dropped substantially. Ultimately this resulted in a slightly negative product margin of $1.66 per barrel for the fourth quarter. However, the margin for the full year of 2008 was $8.78 positive per barrel excluding the impact of the hedge loss in the second quarter. If we had used the LIFO inventory accounting method rather than weighted average cost, our operating income would have been significantly positive in the fourth quarter of '08 rather than a loss. But in a rising price environment like we experienced in the second and third quarters of 2008, LIFO accounting would have generated much worse results for those periods than we actually have reported using average cost. So while LIFO would have benefited us in the fourth quarter, average cost helped us in the second and third quarters and tends to be the least volatile method for us over the full year. As expected, our sales vines were lower in the fourth quarter compared to the third due to the seasonality in the business and the plan to shutdown our refineries in December for maintenance. This also impacted our cost to goods sold per barrel during the fourth quarter since the rate at which we turned over the higher priced inventory was much slower than, for example, during the second and third quarters when asphalt sales are much stronger. While we currently expect results from our asphalt operations to be seasonally weak in the first quarter of '09, we continue to work off higher price inventories resulting in a much lower weigh at average cost inventory by the start of the asphalt season. And we’re expecting the results from the asphalt operations to be better for the full year of 2009, compared to 2008, including the hedging loss with most of the benefit coming in the peak asphalt season or the second and third quarters. Our other business segments, transportation and storage, actually performed remarkably well during the fourth quarter compared to the third quarter of 2008 and the fourth quarter of last year, despite lower volumes on pipelines and throughput related facilities. Both segments experienced higher operating income in the fourth quarter of '08 compared to the third quarter of '08 and the fourth quarter of last year. On the transportation segment throughput volumes declined in the fourth quarter compared to the third by around 50,000 barrels a day and compared to the fourth quarter of last year volumes declined volumes declined around 130,000 barrels per day. This decline was primarily due to turnarounds in October and November at two of the Valero Energy refineries we serve. If you exclude the impact of those turnarounds, volumes on our pipelines would have been more than 3% higher than the third quarter of 2008 and comparable to the fourth quarter of the previous year. More importantly, the impact to our transportation result in the fourth from these turnarounds was minimal as we actually had higher revenues and higher operating income in this segment. Fourth quarter operating income on our transportation segment increased by $10.1 million or nearly 35% compared to the third quarter of '08, and it was actually the highest quarterly operating income for the year for this segment. While the positive variance was primarily due to about $7.5 million in lower operating expense, we also benefited from $2.6 million in higher revenues. Most of the higher revenues were from our east pipeline as lower product prices spurred stronger demand for gasoline and diesel in this region. Increased agricultural demand associated with a late harvest resulting in demand being higher in the year than it normally would, also, increasing our propane and diesel volumes on this line. A late harvest also benefited our ammonia pipeline system, which saw higher volumes and revenues for the period. And we saw higher throughputs on our south Texas pipelines that were impacted during the third quarter from the hurricanes but ramped up in the fourth quarter. Again, because of the markets we serve and the commodities we handle, we are more insulated from weaker demand compared to many other refined product pipelines, and this quarter again exemplifies that story. Operating expenses on our transportation segment were lower by about $7.5 million compared to the third quarter of '08 as we benefited from mainly lower power costs as natural gas prices declined during the period and also volume gains on our inventory product imbalances. On our storage business, throughputs were lower by around 11.6 thousand barrels a day or 1.6% compared to the third quarter. This was mainly due to reduced crude oil storage at our facility on the west coast as one of the refineries we serve cut back gasoline production. However, revenues and operating income were up. Operating income increased by $7.7 million or nearly 26% versus the third quarter of 2008, and it was much higher than the fourth quarter of last year by $12.7 million or 50%. While we benefited by lower operating expense during the period, we were also the beneficiary of higher revenues primarily due to increased business at our St. Eustatius facility in the Caribbean and the completion of storage construction program. During the fourth quarter of '08 we completed nearly $60 million of projects including tank expansions at our facilities in St. James, Louisiana and Amsterdam, The Netherlands. One last thing I'd like to point out about the storage business is that the majority of the almost 92,000 barrel per day or 12% shown as a decline in storage throughputs fourth quarter 2008 versus fourth quarter 2007, was really not a decline at all because it was simply due to a change in the contract at our storage facility at Corpus Christi, Texas at the beginning of '08. As we have mentioned previously we changed from a throughput agreement to a tank rental agreement. So if you exclude the impact of that change in the nature of the agreement our throughputs would have been down only about 2%. Again while this therefore impacted our volumes it had almost no impact on our revenues which were higher overall by about 10% for the comparative period. Looking at some of our other expenses for the fourth quarter, G&A expenses were flat compared to third quarter of '08 and only slightly higher compared to fourth quarter of last year. DD&A was roughly flat versus the third quarter and $6.1 million higher than the fourth quarter of last year. The increase over last year was mainly due to the acquisition of CITGO's asphalt business and the completion of our growth projects. And last, while interest expense was higher in the fourth quarter compared to last year by nearly $5 million as we partially financed the asphalt acquisition and the associated working capital and growth projects with additional debt, it was lower than the third quarter of '08 by about $1.4 million or 5.7%, mainly due to reduced borrowings on our revolver and a lower average interest rate. With respect to our capital expenditures for 2008, we were in line with our previous guidance for reliability capital, spending $55.6 million for the full year. However, we were a bit lower than the guidance we provided for strategic capital or at $142.3 million as some spending for our Amsterdam project slipped into 2009. Looking ahead to 2009 we're optimistic on the outlook for all three business segments and expect all of them to perform better than they did in 2008. Based on current expectations, while we are currently projecting total EBITDA to be higher in 2009 versus 2008, we have not taken into account certain items which would further benefit our results for the year. First, we have not included any impact in our forecast from the proposed economic stimulus package that provides for among other things additional highway funding. The current version of the $825 billion economic stimulus package out recently from the House democrats which is entitled the American Recovery and Reinvestment Act of 2009, pledges a total of $30 billion dedicated to highway and bridge projects and will be distributed using the current SAFETEA-LU as they call it, funding formula. However, states will not have to put up matching funds as they normally would and they'll have to spend the stimulus money or risk forfeiting it. While there are still several details that need to be sorted out as it makes its way through Congress, we could see upwards of 10% demand growth, 2009 over 2008, depending on the U.S. amount, timing and types of projects. In other words maintenance projects versus new build projects. This $30 billion would be a significant increase over the $42 billion of federal money that is currently funded through the SAFETEA-LU for 2009, and certainly much more than we would have ever imagined, further benefitting our asphalt operations. Congress will debate this package in both the coming days and weeks and other proposals will likely be offered. However, the major provisions, like the infrastructure spending portion are expected to remain the same. Bottom line there is significant support to make this bill happen; however, for the time being we have conservatively excluded this from our forecast until we know more. Our forecast also does not take into account what we expect to be a gradual recovery in refined product demand by the second half of this year due to lower prices and improving economy. In fact as I mentioned this morning, we’ve already partially benefited in the fourth quarter of 2008 from lower prices, as our gasoline and diesel volumes were higher on the East pipeline. This could generate stronger demand than expected and benefit our pipeline and storage throughput volumes in 2009. Without the benefit of stronger demand we’re currently projecting volumes on our transportation segment to be comparable in 2009 versus 2008. New pipeline business and anticipated reduced refinery maintenance schedule and a new pipeline project expected to start up in June should help us achieve this. Since the tariff increase effective for July 1st should be about 7.5% based on the latest 2008 PPI figures, this should help our result in 2009 to be better than 2008. Keep in mind that the expected 7.5% increase will be the highest tariff increase since indexing started in 1995. Our storage segment should also see better results in 2009 as we benefit from a full year's contribution from the projects completed under the $400 million construction program. As I mentioned previously we should see incremental EBITDA of around $30 million in 2009 from these projects. In addition, we do expect some benefit from contango markets to the extent that certain of our storage contracts are up for renewal. Currently, around 29% of contract revenues are up for renewal over the next year or so. Turning to asphalt operations, we believe EBITDA could be in the rage of $100 to $140 million for 2009. At the low end that would be a roughly $10 million increase over the 2008, $90 million EBITDA contribution, and at the high end a $50 million increase. Again, we have not taken into account at this time any impact from the imposed economic stimulus package, so there could be further upside. With respect to fundamentals our view that tightening U.S. asphalt supply driving better than historic margins is really not changed at all. In fact the significant reduction of asphalt production at numerous refineries due to lower refinery utilization rates, anticipated higher demand driven from the proposed economic stimulus package and really minimal change to our coker story, leads us to believe that our asphalt operations could be even better than we anticipated over the longer term. Based on the latest data from the U.S. Energy Information Administration through October of ’08, we’re seeing U.S. asphalt inventories more than 23% lower than 2007 and around 10% lower than the five year average. This has been primarily driven by decline in production of around 10%, and a reduction in imports of nearly 45%. If you recall the lack of imports from Venezuela since early last year has driven the sharp reduction in import and if inventories continue this declining trend a new five-year average low would be established by the start 2009’s asphalt paving season. Keep in mind that the bulk of the U.S. refinery coker projects we are tracking, which are expected to further tighten asphalt supplies as they come on line, don’t start until next year in 2011. With respect to our results for the first quarter of 09, we expect earning per unit to be in the range of $0.25 to $0.50 cents per unit. Our asphalt operations are typically weaker in the first quarter because of the seasonality of the asphalt business. A heavy plan to refinery maintenance schedule is also expected to negatively impact our transportation segment in the first quarter. However we anticipate a much lighter schedule for the balance of the year. Looking at some expense estimates for the first quarter of ’09, operating expenses are expected to be in the range of $110- to $115 million. G&A expense in the range of $21 to $22 million, DD&A expense around $36 to $37 million, interest expense of $20 to $21 million and income tax expense in the range of $1 to $2 million. Also reliability CapEx for the full year of 2009 is expected in the range of $65 to $70 million. We continue to be cautious on our capital spending given the challenging economic and capital market conditions, and continue to target around $80 million for internal growth projects in 2009. Despite this being significantly below what we normally would spend, we continue to believe this is prudent for the time being. I will say however, that there’s certainly no shortage of growth prospects for NuStar and we continue to evaluate attractive opportunities that may present themselves during this challenging time. While the majority of the $80 million is made up of numerous small U.S. projects, there are some larger ones we intend to work on in 2009. For example, we intend to spend about $15 million on pipeline projects on our East pipeline, ammonia pipe line and at our St James, Louisiana facility to increase the capacity and flexibility of our two pipelines and to accommodate new and existing customers. Another $9 million is expected to be spent on finishing up tank expansion projects at our Texas City and Amsterdam facilities as part of the 400 million program and we also expect to spend about $30 million at our Texas City facility as we continue our plan to improve and upgrade it to make it a world class terminal. And last we expect to spend around $14.5 million at our Paulsboro and Savannah asphalt refineries on some of the near term high return projects we’ve previously communicated. This includes projects to improve crude flexibility and rates, improve energy efficiency at the refineries and increase the production of higher quality, higher value polymer-modified asphalt. The weighted average IRR for these projects is expected to be around 45 to 50%. So again, we’ve prioritized our growth capital in 2009 to the very high return projects. In summary I hope you’ve taken away this call the great potential for NuStar to outperform this year and over the next few years. While we are proud of our many accomplishments in 2008, we know that we have to continue to work even harder to do better in 2009 and going forward as we build NuStar into a great world class company. At this time operator I’ll open it up for Q & A.

[Operator:]

(Operator Instructions) Your first question comes from Darren Horowitz – Raymond James.

[Darren Horowitz:]

… OpEx particularly as we try and get more comfortable with the relationship with OpEx sequentially with any sort of lack of utilization or throughput?

[Curt Anastasio:]

Hey Darren the first part of your question was not – we couldn’t hear it. Could you please repeat it?

[Darren Horowitz:]

Talking on the asphalt side of the business just more color into OpEx as we get more comfortable with basically looking at how realized OpEx hits sequentially versus any sort of lag in the business.

[Curt Anastasio:]

Okay. I’m sorry and the question is? We became more comfortable?

[Darren Horowitz:]

Well what we’re looking at is, I mean relative to what you’ve put up historically on a quarterly basis I think what a lot of us are modeling is obviously larger than expected operating expenses and I think what we’re trying to figure out as we gauge the sequential progression of the business through this year, obviously there’s a bit of a lag. And if product sales and utilization is decreasing how can we forecast the movements in OpEx? Is there anything that was experienced in this quarter that was abnormal or I guess if you could just give us a little bit more color around how we can forecast that.

[Curt Anastasio:]

Yes. Not for asphalt OpEx. The lag really relates not to OpEx but our cost of goods. And so in a very sharply declining price environment in Q4, then the prices declined more rapidly than we were able to sell the inventory and the inventory declined at a slower rate. That’s setting up to benefit us of course as we go into the asphalt season this year because we’re working off that higher price inventory. That cost of goods is getting lower and lower as we speak and as the market turns up and you get into the asphalt season we’ll be selling against that lower cost of goods. So I don’t see anything unusual in asphalt OpEx but that was – the cost of goods was really the driver there in connection with the lag that was I talking about.

[Darren Horowitz:]

Yes. No that makes a lot of sense on the COGS side. I guess OpEx at least on a sequential basis was higher and we're just trying to figure out some rationale behind it.

[Unidentified Corporate Participant:]

In 2008, first quarter, we did not have CARCO and that may be reflected in this year's higher anticipated rates, but that would be the only thing from an OpEx. The usual run rate is what we're going to expect going forward.

[Curt Anastasio:]

Yes maybe that's the difference on the numbers you're looking at. I'm just not sure what you're looking at.

[Darren Horowitz:]

I was just looking at the sequential reported OpEx 3Q to 4Q, that's all. Well, let me switch gears over to the transportation side. You mentioned in some of your remarks that you're going to see pretty heavy refine maintenance, at least in the first quarter, but can you give us a little bit more color on your expectation for kind of flat year-over-year volumes? Can you split it down between RPP and crude, and more importantly, do you see any additional demand to structure or any sort of impact in refinery utilization in the back half of this year?

[Curt Anastasio:]

Well let me answer it this way. I mean our – we're predicting our full-year volumes for the transportation segment to be basically flat and also our operating, our bottom line results with be up. And the reason for that is, although you have these first quarter turnarounds and so forth, we do benefit from the tariff adjustments, which hits like 92% of all our pipeline revenues. When you look at our OpEx forecasts and you look at some new revenues coming out of the transportation segment for projects that will be kicking in, we're going to have – we anticipate a higher bottom line result for the transportation segment going forward. But you will see turnarounds in the first quarter that are reflective of reduced demand and we've got that baked into our forecast already. We've got a couple of the Valero refineries we serve are going to be down for turnarounds. But, also, when you look at our throughput related stuff, like our pipeline throughputs and pipeline throughput revenues, lower prices do make a difference and these lower prices, we think, will be reflected in higher demand as we start moving through the year. You've already seen a little bit of that, actually in the fourth quarter. We talked about it on the [East line], but really overall, even nationally, we saw the decline in gasoline demand even, which has been pretty sharp year-over-year. You saw that lessening as the prices came down, the amount of that decline got less and less and less as you moved through the fourth quarter. So, the laws of economics, the laws of supply and demand, still apply. When prices are lower, demand goes up for these products, so that affect I – we expect to see as well. Anyway, even without increased demand, the pipeline segment will do better year-over-year, that's what we're forecasting.

[Darren Horowitz:]

Do you think it could be a situation just based on what you see today, that things might actually get worse volumetrically first quarter into the second quarter? And then, hopefully, as price kind of hits that inflection point where supply and demand balance out, that you get kind of a step change in volumes in the back-half of the year? Is that fair to assume?

[Curt Anastasio:]

The big event for us in the first quarter is these turnarounds, at a couple of Valero plants that we've mentioned. They've announced Texas City. They've talked about Corpus. And, yes, we do think lower prices lead to higher demand later. Danny, do you want to comment – we've got Danny Oliver here, you want comment further on that or Paul?

[Danny Oliver:]

Well we've got it baked into our 2000 numbers the same – in terms of volume, the same type of decrease as we saw in 2008, which was roughly 2% across our system; much lower the national average. We've got that baked in, but nothing incremental to that in 2009. I think it's important to note though that in our storage segment, which is – has about 10% of our revenue in the storage segment, is related to actual throughput contracts. Those throughput contracts only represent about 10% of our storage segments revenue and while these are affected by these run-cuts, we see in the first quarter about 10% decline in volumes on these throughput-related assets. But again, that only represents about 1% of the whole.

[Darren Horowitz:]

Finally, just on the storage side of the business, can you give us the average lease duration on your legacy tankage, and then how much higher in percentage terms your new lease rates are, just so we can kind get a sense of how the incremental capacities –

[Curt Anastasio:]

Right. We've got about 29%, I think, of our contract revenue coming up for renewal, in other words in less than a year. And so far, what we're seeing is higher rates on renewal either from the existing customers or from replacement customers. So, overall, the storage segment, again, will be up. Like the pipeline segment, it will be up 2009 versus '08. I don't know if Danny – and Danny, by the way is our VP of Business Development. He deals with the third party customers on the tank leases. Do you want to add anything to that, Danny?

[Danny Oliver:]

I'd just say that given the weakness, or as Curt mentioned earlier, as quickly as crude has fallen off, it's created a very steep contango market structure, which is just adding to the interest in our storage segment. And while we are almost fully leased on our capacities, those contracts that are due within a year as they come up, we are seeing in general, rate increases.

[Darren Horowitz:]

So, in total, what's the average lease duration for your tankage Danny?

[Danny Oliver:]

Well, we've got 21.9% is one-year or less, so that means 71% is long-term, like more than one year. And we've got – much of that is in sort of the one to five year range and then we've got close to 20% of our contract revenue is greater than five years.

[Operator:]

Your next question is from [Michael Suffranski] – Onyx Capital

[[Michael Suffranski]:]

Just a couple of questions. On the debt balance reduction, is that done by paying down your revolver or are you buying back some of your debt on the open markets?

[Steve Blank:]

Just paying down the revolver.

[[Michael Suffranski]:]

Any reason you're doing it that way?

[Steve Blank:]

Well, I mean we like the flexibility into the revolver. I mean going out, our bonds are pretty liquid and we also like to have that maturity out there. So, we just kind of – because it's working capital pay down really that targeted the revolver.

[[Michael Suffranski]:]

Now, turning to asphalt, how long do you anticipate the margins being this wide and how much would the stimulus plan, in your opinion, impact the margins? And, if you can also factor in any Chinese infrastructure spending into asphalt margins.

[Curt Anastasio:]

The good margins we saw during the period we owned that business in '08, we expect to continue in '09. Now, it could get better if the stimulus package – the economic stimulus package comes into place, because we're saying if it gets adopted anywhere like they're talking, that could increase demand by 10% or more. So that has a major, major impact on what the potential for margins is, but we're not assuming that. But, this is a political process. There's a lot of good talk around it and everybody seems to want to do it, but it's a political process. So until that works its way through, we're not assuming what's going to happen. There's a lot of devil in the detail, so. But to answer your question, we think good margins will continue in '09 and then we think they get a lot better as you go into 2010 and 2011, as the effect of the Coker project starts to kick in. Chinese demand really doesn’t have a, it's a very indirect impact on what we see being a U.S., Eastern half of the country-oriented asphalt manufacturer and marketer. So, it's really not a factor hardly at all in our calculations. For us, it's like a pebble in the ocean, really.

[[Michael Suffranski]:]

Are you able to lock in those margins?

[Curt Anastasio:]

Not very effectively, no, because there's not really a good hedge for asphalt unfortunately. Paul, do you want to comment further. Paul's in charge of training.

[Paul Brattlof:]

I agree. I think there's not a real good hedge, and at these price levels, I think much more to the upside than the downside, so I don't think there's a need to hedge from that standpoint.

[[Michael Suffranski]:]

And you hedge your costs?

[Paul Brattlof:]

By selling product, yes.

[[Michael Suffranski]:]

And just one last question, now just looking at the distribution, are more inclined to use any excess cash to increase the distribution, or are you just looking to continually pay down debt?

[Curt Anastasio:]

Well, we've got in our plan and the plan we presented to the Board, that we will increase the distribution in 2009. We haven't put out a specific target yet. We're going to wait a little until we get further into the year, but that's our plan, that we will increase the distribution, and we have every year that we've been in existence and that's our plan for 2009, too.

[Paul Brattlof:]

The budget also does have us paying down some additional debt, maybe about $50 million or more of debt over the course of the year. But the year's just started and so we'll have to see how it goes.

[Operator:]

Your next call question comes from Michael Blum – Wachovia Securities

[Michael Blum:]

Hi, good morning.

[Curt Anastasio:]

Good morning.

[Michael Blum:]

Just a couple of quick ones. Number one, Curt, you kind of alluded to this but can you talk a little bit more about the demand you're seeing for incremental storage projects? In other words to build more storage and I guess another way to think about that is if you were not constrained by capital markets or liquidity how much would you – what would your capital budget look like in ’09?

[Curt Anastasio:]

Yes, well, you know some of it, when you look at what we’ve done like for the last couple of years or say since ’06, you would have expected us to spend maybe twice that $80 million. So then that’s sort of one benchmark for us and the demand is out there. You know just I happened to come across a piece that was written by the head of Goldman Sach’s commodity group and it really just was a summary of some of the points we all see in this business. But basically one of the points he made is the world is really energy infrastructure short and in particular is oil storage short and there is a great need for investment in oil storage. You know really throughout the world and that’s really reflected in the fact that we as contracts for us come up for renewal we’re able to renew them or replace them and Danny and his guys are able to do it at higher rates. So we still see that out there and you know we have a business you know that’s not just the United States but it’s also international and we’ve got some very good locations you know? And that’s really where we benefit is from the advantaged locations you know like a Saint Eustatius or Gulf Coast like a St. James and what – how we’re transforming Texas City, Amsterdam and the ARA range and some of these other places where there’s lots of opportunity to invest. So that’s one of the things that I alluded to in my remarks; there's no shortage of opportunities. We could do a lot more and I expect we will do a lot more as we go through and we get a little more visibility into you know how the capital markets are resolving themselves. And on that score there’s some cracks in the ice already. Now you’ve seen MOPs doing equity deals for good size, good execution, which you probably wouldn’t have seen; I don’t have to tell you in the latter part of 2008. So you know thing are looking better from that standpoint.

[Michael Blum:]

Olay. The second question is when you look at the asphalt business your EBITDA was $90 million in ’08 for the nine months you owned it. What would that have looked like for the full year? Would that have been much different?

[Curt Anastasio:]

Well without the hedge loss you would have added the $61 million but, no, I mean, it actually like for example you saw that we reported a loss in the asphalt business itself in the fourth quarter. As we come around to the first quarter as these cost of goods sold has dropped we’re approaching – instead of a loss you’re coming to roughly a breakeven first quarter. So you know this is a business where you don’t expect to make money in the fourth and first and you do make you know a lot of money in the second and third and that’s the way it is. And we’re trying to improve that. We’ve talked in the past about things we can do to make more money in sort of the off season if you will and one of them that’s a recent development is the so called warm mix asphalt. It's been better technology which allows asphalt to be distributed and laid at lower heat levels which extends the season by two months. One month on each end is what our guys are estimating and so there’s an effort in the industry and we are part of it to go to all the state DOTs and get this product accepted. If you do that you’ll see more income in the fourth and first quarters and hopefully we’ll see some of that this season as we get into the fourth quarter of ’09 for example. There are things like that. There are some fuel oil possibilities for us as we make intermediate projects that can be blended into marketable fuel oils but that market didn’t work for us in the fourth quarter. But that could flip and be an opportunity as move forward as well. So there are things we’re looking at for ’09 and beyond where we do better in the fourth and first quarter in that segment. But you know I mean it is a seasonal business. There’s no question about it.

[Michael Blum:]

Great last question. You know clearly the GPNSH is trading at a discount no matter how you look at it. Is there anything you as a management team are thinking about as a way to improve the valuation there?

[Curt Anastasio:]

Well we’ve given a lot of thought to what we can do on that and really have not found a very good solution because there are tax challenges and other challenges and so we’ve just decided for now to keep it the way it’s going and–

[Curt Anastasio:]

But I agree that’s definitely [inaudible] at the end.

[Unidentified Corporate Participant:]

And hopefully that will improve; no question.

[Curt Anastasio:]

It is just mathematically undervalued so now as we continue to do well at the LP valuation of NSA should go up and reflect that but I agree with you. It's not reflective of where it should be just on the math.

[Operator:]

Your next question comes from Ross Payne – Wachovia.

[Ross Payne:]

Hey guys, Curt and Steve if you guys could comment a little bit on the crackers that are coming on line, which ones are coming online in 2010, 2011? And we’ve heard some cancellations; any significant projects there being delayed?

[Curt Anastasio:]

I am going to turn it over to Mike Hoeltzel our Senior VP of Corporate Development, but basically we’ve got a list of – we track about 24 projects and there’s been really very, very little change to that but if you want just the 2010, Mike, you’ve got the list right there?

[Mike Hoeltzel:]

Well we have a few in 2009; 2010 we have Hunt Tuscaloosa scheduled in the third quarter of 2010 for $18,500 today. The big ones come in 2011 with the Conoco Phillips Wood River project at $65,000 coming on the first quarter and the other big one is the BP Whiting Indiana, at $95,000. Actually it’s slipped until the first quarter 2012, but then there’s also some Gulf Coast cokers coming on stream. Both the $50,000 [Fena], Port Arthur and the $40,000 Motiva, Port Arthur coming on in the first quarter of 2011 and another one on Pasadena Refining System in the second quarter 2011.

[Curt Anastasio:]

Hey, Ross, and if you’re interested we have this list of projects in our Wachovia presentation on our website. It was the December presentation so you can see the full list there.

[Steve Blank:]

We’ve got just a – since this is a supply related point, you know just another thing to add to because you’re talking about cokers and destroying the supply of asphalt you know we’re, we see to be going into and I think I alluded to it, into the asphalt season here with very, very low inventories. You know below five year averages and below last year based on the EIA data that’s most recently available. So it’s a bonus supply picture shaping up here for ’09 which is one of the reasons we get optimistic about the profitability of asphalt this summer. Sorry go ahead.

[Ross Payne:]

Okay. Any major cancellations that you guys are aware of?

[Mike Hoeltzel:]

There’s some deferrals of Valero, Port Arthur]has been – we’re not sure if its deferred or cancelled and Marathon in Detroit has been deferred but we think only one to two quarters.

[Ross Payne:]

Also I wanted to ask what percentage of asphalt out there is used in residential or commercial paving?

[Curt Anastasio:]

That would be – I’m sorry go ahead, Mike, but I tell you paving is a big part of the demand.

[Mike Hoeltzel:]

Yes, paving is about 85% of the total demand and depending on what state you're in it varies from 40% to 60% public and 40% to 60% private, so roughly half and half.

[Curt Anastasio:]

But the paving is close to 90% of total demand.

[Ross Payne:]

Right.

[Curt Anastasio:]

And that’s why the economic stimulus package you know has a – is bullish for us.

[Ross Payne:]

I can see that on the public side and maybe just normal maintenance on the public side I mean how much of asphalt demand do you think is new build versus maintenance on the [inaudible].

[Mike Hoeltzel:]

We talked about 90% is maintenance and about 10% is new road.

[Ross Payne:]

All right, so not much of an impact here from lower building is what you guys are seeing or expecting?

[Mike Hoeltzel:]

No it should be pretty muted actually for that reason.

[Ross Payne:]

You mentioned that you know overall inventories for asphalts are at very low levels. How did you guys end the year relative to your expectations and relative to prior years for your own company?

[Curt Anastasio:]

Pretty close, we carry forwards some – as the whole price structure collapsed in the petroleum complex we carried forward a little more inventory than we would have just because we didn’t want to sale at what we thought were very low prices. We though we had better prospects to carry it forward and go into the new year but Paul, do you want to comment further on this?

[Paul Brattlof:]

Yes, we kind of have some flexibility of when we start our winter fill process and when the price, as Curt said, when the prices did collapse in November we chose to quit selling it. There are some of those discounted prices and did carry some over but that’ll be the beginning of our winter fill for next year.

[Ross Payne:]

Okay. Also, you gave us an EBITDA number of $30 million for the $400 million in projects.

[Steve Blank:]

Yes, that's the incremental, the incremental to be realized in '09.

[Ross Payne:]

Oh, the incremental. Okay.

[Steve Blank:]

Yes, the total is close to $60, $59 to $60 million.

[Ross Payne:]

Okay. That makes more sense.

[Steve Blank:]

About $59, $60 million that we expect from the project but, you know, as we've been putting these projects into service, you know, in '07 and '08, we've been already realizing some of the EBITDA from it.

[Ross Payne:]

Right. Okay. So you're under seven times for those projects for sure.

[Steve Blank:]

Yes.

[Ross Payne:]

That sounds good and one last thing, do you have an exact number on your availability? I know you gave us a round number but –

[Steve Blank:]

What, on the –

[Ross Payne:]

Revolver.

[Steve Blank:]

On the revolver, I think was $611 at the end of December.

[Ross Payne:]

Okay, great. All right. Thanks guys.

[Curt Anastasio:]

Thank you.

[Operator:]

Your first question comes from the line of Brian Zarahn – Barclays Capital.

[Brian Zarahn:]

The asphalt guidance for '09, is that $100 to $140 million of EBITDA?

[Curt Anastasio:]

Right.

[Brian Zarahn:]

Okay, and it seems like, what was the EBITDA in '08 for asphalt at? It seemed with the hedging loss, it seems to be about $128 million?

[Steve Blank:]

No, it's not. It was $90 million under GAAP for the nine months but if you add back $61 million hedging loss it would have been $151 million.

[Brian Zarahn:]

All right. And are you expecting, excluding the federal stimulus, a decline in your volumes in asphalt?

[Curt Anastasio:]

No.

[Brian Zarahn:]

No? Okay. So you're saying – okay.

[Curt Anastasio:]

Despite the lower margin.

[Brian Zarahn:]

Okay, and can you give us an update on your discussion with the rating agencies regarding your outlook?

[Paul Brattlof:]

Well, we met with them the first week of November and talked to them at that time about our approved hedging and five year outlook for the business and we'll be visiting with them here pretty soon for their annual review and we'll go through these numbers with them and our outlook for the business.

[Unidentified Corporate Participant:]

[Inaudible] for now, we just have to have the meeting.

[Brian Zarahn:]

Okay. Obviously the PPI adjustment won't be very favorable in '09 but looking at 2010, how do you think about that if PPI is actually negative?

[Curt Anastasio:]

I think our costs are going to go down to reflect that. That's what happened, for example, in natural gas prices, you saw that $7.5 million benefit, that's the kind of numbers that's going to be reflected at a lower PPI adjustment but we're getting into the lower costs. That's the purpose of the PPI adjustment, if your costs go up you're supposed to be covered on that and when they're lower they cover you less because you're benefiting from lower costs.

[Brian Zarahn:]

Okay. So you think it's sort of neutral?

[Curt Anastasio:]

It's a great hedge against inflation.

[Operator:]

Your next question comes from Paul Sankey – Deutsche Bank

[Paul Sankey:]

Hey. Just putting together some of the things you said, I'm thinking about your cash strategies, how far do you want to get your debt down before you're happy?

[Curt Anastasio:]

Well, I mean, what we've talked internally and with the rating agencies about is, now with the asphalt business adding some seasonality and volatility that we'd like debt-to-EBITDA to be below four times. So I would see it in the three-and-a-half to four times range and that's pretty much where it is as we look forward this year with the exception of the first quarter, because of the inventory build and also when you look back at the trailing 12-month EBITDA, we've got the big burden of having that extraordinary $61 million hedging loss in the second quarter, which gets into the EBITDA and also into the debt side because you've funded the payment with debt right, you cash settled it. So that's kind of a particular unusual burden to that number which makes it a little bit higher in our forecast at the end of the first quarter but, I'm balancing that 3 1/2, 4 range is what we're shooting for.

[Paul Sankey:]

So the payment that you mentioned earlier, the debt payment for '09, will probably be the last one, all things equal?

[Curt Anastasio:]

I'm sorry, the payment of?

[Paul Sankey:]

You mentioned paying down some more debt was one of the elements of your '09 guidance that you gave earlier on this call?

[Curt Anastasio:]

Yes, we work with the budget that we presented to the board in November. We had a budgeted distribution increase but we're also paying down about $50 million of debt.

[Paul Sankey:]

Yes, that $50 million–

[Steve Blank:]

Yes, as we look out beyond that in the five-year plan, there would be further debt repayments, because we would expect the asphalt business would continue to be generating pretty good free cash flow, as these coker projects come in. It's highly unpredictable. It's kicking out something like 110 million a quarter; the old legacy business, the transportation, and the storage business.

[Paul Sankey:]

Right, and the balance between the growth projects you've mentioned – the growth and the distribution – and an additional question from me regarding the level of coverage that you guys would aspire to for what is obviously a seasonal business as I guess you think about it annually. Could you just talk a little bit about the balance between having, I think we've gone through debt pay down, between the growth projects and the growth and the distribution, and the level of coverage? That would be great, thanks.

[Steve Blank:]

Yes, well, just I mean basically what we've done in the budget and for this year and last year is we presumed that we would only pay out half of the distributable cash flow coming from the asphalt business, all right. And, that's like wanting it two times cover, and that's just the deal with that volatility. The base business, we budgeted about 1.07 times cover, so on a blanket average basis, we're probably in like the 1.3 range for coverage. Now, last year, we actually held back all of the distributable cash flow from the asphalt business and we're able to do that because we got the nice payment on the asset sales in the fourth quarter. Okay, so that really more than offset, or that will offset the lower-than-anticipated EBITDA we got from the asphalt business, at the end of the year. As product prices came down so rapidly and our average cost of goods sold lagged, because of the weighted average, we lost EBITDA on the asphalt side of the business, compared to what we saw in September or October. But we really fully offset that with getting $44 million in the door in the fourth quarter from those asset sales, at the very high multiple. And we hardly lost EBITDA from those, but got the cash in. So when we look at 2008, the entire distribution was funded from the base business at a 1.07 times cover. Saying in another way, we held back all of the distributable cash flow from the asphalt business, and the asphalt and fuels marketing business, and use that to pay down debt. In '09, we won't have those special asset sales or at least we haven't budgeted for any, but we'll always try to look and see, the selling underperforming assets, but we've not budgeted any sales. But similarly, we would expect in about a 107 cover on the base business, and modeling holding back half of the distributable cash flow from the asphalt business. That will allow us, if we do all that, to fund all of our reliability, all of our strategic capital of $80 million, and pay down at least $50 million of debt. I don't know if that's more or less than what you wanted, but –

[Paul Sankey:]

No, that's extremely clear. That's great, thank you. I think I'll leave it there because we've kind of gone over the hour. Thanks a lot.

[Operator:]

Your next question comes from the line of Mark Easterbrook – RBC Capital Markets.

[Mark Easterbrook:]

I've got two quick questions, which is any impact from the hurricanes? And then secondly, you mentioned in the asphalt business you had a hedge in there for the bunkering business. How much was that hedge for the fourth quarter?

[Curt Anastasio:]

The only real impact we had from the hurricanes was at Texas City. That's the good news/bad news. So I mean we have insurance for that, let's say $1 million deductible, so we're fully insured on the property damage. It's never good to have property damage, but on the plus side, some of the older, smaller tanks, which were slated for demolition under our strategy for that terminal, were the ones that really got damaged. So this really gives us an opportunity to accelerate the rebuilding of the terminal, to position it the way we want to position it, going forward anyway. So that probably is kind of the good news on a bad news story. We didn't have any business interruption there, and that was really the main place where we had our hurricane impact. So, Rick Bluntzer, the head of operations, do you want to comment on further on that?

[Rick Bluntzer:]

The only comment would be, in our last conference call we projected that we were around $20 million in damage debt. The infrastructure was actually damaged more significantly than we had anticipated. So, that's ramped up to where we're looking at $50 to $60 million, as far as the damage. But then as you spoke to, we're at a $1 million deductible and we're reviewing that with our insurance carriers now.

[Curt Anastasio:]

And then on the hedge gain I think it was what, like $22 million?

[Rick Bluntzer:]

It was about $22 million in the quarter and about $28 million for the year.

[Operator:]

Your next question comes from the line of [Andrew Gavack] with [ASB].

[[Andrew Gavak]:]

Good morning, I have just a couple of questions. On the $100 to $140 million asphalt guidance, what does that translate into, in terms of a product margin expectation for the year?

[Curt Anastasio:]

Pretty similar, because we had the 878 four-year margin this year, and I think it's slightly a lower assumption for '09, but it's pretty close to that. I think, Mark, do you have the exact number?

[Steve Blank:]

It's like about 825, or something like that, that we've got at the moment in the latest forecast.

[[Andrew Gavak]:]

Sorry, Steve, you're at 825?

[Steve Blank:]

About, I think it was 825 that we've got, and that's a bit higher than budget Andrew.

[[Andrew Gavak]:]

And how much working capital do you need? I would expect this year you need less than last year, right?

[Steve Blank:]

It's about the average inventories, for our products or crude, for the asphalt business, for the asphalt business alone.

[[Andrew Gavak]:]

Asphalt?

[Steve Blank:]

Just the asphalt business not the fuels marketing, or–

[Curt Anastasio:]

Oh, yes, that's the average [inaudible], it goes from low to high, but yes.

[[Andrew Gavak]:]

Yes, what's the high? That's really my question. What's the high that you need March or April, whenever the peak is?

[Curt Anastasio:]

It looks like it's June, a little over $300 million.

[[Andrew Gavak]:]

Which is quite a bit down from last year that your interest expense ought to be a touch lower, is that right, or?

[Steve Blank:]

Yes, against our budget, which again we presented to the board in October, we look like we're going to benefit pretty nicely from lower interest expense and lower inventory levels. Just crude's collapsed so much since September.

[[Andrew Gavak]:]

Okay, and a contribution from the asset sales, that the three properties that you sold, are they negligible? Are they actually in the operating income, are they below the line, or?

[Steve Blank:]

No, they're in other income and they're pretty negligible. The big ticket item was the sale into the interest and the pipeline, Skelly Bellvue pipeline.

[Curt Anastasio:]

Well, then I think the last 12 months has generated about $700,000, I think, so.

[[Andrew Gavak]:]

Of which?

[Curt Anastasio:]

Oh, that was Skelly Bellevue but, they probably made about $1 million. Yes, $1 million, $ 1.1 million of the last 12 months.

[[Andrew Gavak]:]

I see, and I guess split somehow EBITDA and other income or something like that.

[Steve Blank:]

Well, all of the gain goes into the other income line.

[[Andrew Gavak]:]

No, no, I'm talking about the EBITDA.

[Curt Anastasio:]

EBITDA of $1 million, $1.1 million is – it would have been in our operating income.

[Steve Blank:]

It is in the income.

[[Andrew Gavak]:]

It was in the operating income?

[Curt Anastasio:]

Skelly Bellvue is an equity and–

[[Andrew Gavak]:]

Skelly Bellvue is an equity interest.

[Steve Blank:]

Yes. So, we would have backed out the EBITDA but shown cash in the distributable cash flow. Eliminate the EBITDA, but count the cash on cash flow statement.

[[Andrew Gavak]:]

Okay, and there's just two other quick, kind of strategic questions. With the price of tankers being so low – a total collapse, basically – and the cost of storing crude in the United States being substantially lower than almost anywhere else in the world, is there any impact on your business from that; traders taking advantage of the contango in storing oil a year and shipping elsewhere in the world? Do you see any of that, or is it too small to matter?

[Curt Anastasio:]

Yes, I mean the contango is supportive of demand. Of course, we've got a lot of our storage locked up in contract, which we did intentionally to hedge against a downturn in the market. But Dan, do you want to comment further on that effective contango and shift it?

[Dan Oliver:]

Well, again, as Curt mentioned, about 90% of our capacity is leased, so we have 10% remaining that's available on a throughput basis, but that's primarily attached to refineries, and uses crude oil supply. So while we see this increased, the speedness in the contango, adding interest for storage, and certainly helping us as contract renewals approach we really don't have a lot in our system available to lease.

[Curt Anastasio:]

What it does help lease is new projects. We talked about how we're being constrained on growth capital compared to what we could do, and having a big contango does gen up more interest in projects, too. So, there's a lot of potential out there, but –

[[Andrew Gavak]:]

Lastly, when you look at SemGroup, and maybe it appears that Morgan Stanley needs to get out of the business now, there's got to be a lot of M&A dialog, not to mention the distressed players. Is anyone willing to take your equity at these prices in return for providing you for interesting assets?

[Curt Anastasio:]

Yes, there are potential acquisitions out there. On SemGroup, we kind of express an interest in selected terminals, and they're in the midst of a lot of issues they have to deal with right now, so I don't expect short term anything to happen there. But, yes, there are acquisition discussions going on. I expect there will be more, because there'll be more people who are motivated to, maybe even forced to, sell assets, or even companies as we roll through what looks like, for a lot of people, a very negative 2009. So I think you'll see more of those activities, and, yes, I mean consideration could be stock, cash, or a combination of the two. So we look at all that all the time and those opportunities are out there. As I say, I think they'll increase as the months go by in 2009.

[[Andrew Gavak]:]

Sounds like price expectations haven't come down to what you would consider appropriate.

[Curt Anastasio:]

Well, it really depends. I think they've come down some, but I think they're going to come down more, is what I would tell you.

[[Andrew Gavak]:]

Right. Okay. Thanks for the update.

[Operator:]

There are no further questions at this time.

[Mark Meador:]

Thank you, Operator. If you have any further questions, please feel free to call us at NuStar. Thank you for joining us today.

[Operator:]

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.