NuStar Energy L.P.
Q1 2010 Earnings Call Transcript

Published: 29 Apr 2010

[Operator:]

Good morning, my name is Michael and I will be your conference operator today. At this time I would like to welcome everyone to the NuStar Energy LP and NuStar GP Holdings LLC first quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to Mr. Curt Anastasio, CEO and President of NuStar. Sir, you may begin your conference.

[Curt Anastasio:]

Good morning and welcome to our conference call to discuss NuStar Energy L.P. and NuStar GP Holdings LLC's first quarter 2010 earnings results. I'd like to introduce our new Vice President of Investor Relations Chris Russell. Chris has been with NuStar for five years and has held the title of Assistant Treasurer overseeing our budgeting and forecasting, credit and cash management departments during that time. Previously Chris was with Citco for about 20 years and was involved in various accounting and finance roles. He has done an excellent job at NuStar having gained a thorough understanding of the company and its businesses and will be a great fit running the Investor Relations department. I'd like to thank Mark Meador, our outgoing Vice President of Investor Relations, who has been instrumental in getting our program to where it is today. Mark will be transitioning to a new role in the company in operations. This transition will allow both Chris and Mark to broaden their experience and knowledge of the company by taking on new roles. Now I'll turn it over to Chris Russell.

[Chris Russell:]

Thank you, Curt and good morning everyone. If you have not received the earnings releases and would like copies of each, you may obtain them from our website 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 operating highlights and fundamental data for our asphalt operations under the investor's asphalt highlights portion of the NuStar Energy L.P. website. If after reviewing this additional financial information and operating highlights you have questions on the information that's presented, 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'd 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 described in NuStar Energy, L.P. and NuStar GP Holdings Annual Reports on Form 10-K for the year ended December 31, 2009 and subsequent filings with the Securities and Exchange Commission. Actual results may materially differ from those discussed in these forward-looking statements and we undertake no duty to update any forward-looking statements to conform the statement to actual results or changes in our expectations. During the course of this call, we will also make reference to certain non-GAAP financial measures. We have provided an additional schedule under the investors financial reports and SEC filings portion of the NuStar Energy L.P. website reconciling these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with the U.S. Generally 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 measure of liquidity or financial performance. Now let me turn the call back over to Curt.

[Curt Anastasio:]

Thanks, Chris. First quarter 2010 earnings were in line with the $80 million to $100 million EBITDA guidance we had provided in late January during the fourth quarter earnings conference call. EBITDA came in at $81 million is at the lower end of the range but reflective of the seasonal weakness that occurs during this time of the year when sales and throughput volumes are relatively low but then ramp up during the second and third quarter as the asphalt, the summer driving and the agricultural season start up. In fact we are seeing sales and throughput volumes increase as we start the second quarter. Lower than expected earnings in the first quarter were also due to several timing issues. Some of our asphalt and fuel sales that we had expected to occur in the first quarter will actually take place in the second instead. In addition, we recorded some mark to market paper losses in the first quarter that will be recovered when the physical sales occur later. Compared to the first quarter of last year, first quarter 2010 EBITDA was lower. However, the first quarter of 2009 benefited from certain special items, especially a gain related to insurance proceeds received in the first quarter of 2009 for the damage incurred by Hurricane Ike at our Texas City Texas facility. That gain net of tax on the insurance proceeds amounted to $4.7 million or $0.08 per unit. We generated higher topline results on all three of our business segments in the first quarter. Higher tariffs as a result of last year’s 7.6% increase on July 1, 2009 benefited our pipeline transportation segment revenues in the first quarter of 2010 even though throughput volumes were negatively impacted mainly by the sale of the pipeline assets that we completed in the second quarter of 2009. Throughputs were also negatively impacted by a planned turnaround at Bolero energy from a key refinery in the Texas panhandle, which was originally scheduled by Bolero for the fourth quarter of 2010 but was moved up to the first quarter of this year. Storage segment revenues were up nicely compared to last year, higher by $8.8 million or around 7.5% as we continue to benefit from the completion of growth projects and higher renewal rates in certain of our markets. And last the growth margins in our asphalt and fuels marketing segment were higher by $1.6 million compared to last year, and that was driven by a $4.3 million increase in our asphalt operations as we sold significantly more asphalt and light product volumes compared to last year though our margin per barrel in the first quarter was slightly lower at $5.54 compared to $5.90 for last year’s first quarter. Total sales volumes were 957,000 barrels higher in this first quarter of which around 575,000 were related to asphalt sales volume. That was mainly due to additional wholesale volumes we sold in the first quarter of 2010 as our wholesale market was actually better than our retail market in the first quarter. Because the asphalt supply was tighter than usual in the first quarter of 2010 and we don't normally sell rack sales volumes during that time of the year, we took advantage of the strong pricing in the wholesale market by selling more wholesale volumes. A lower gross margin of $2.7 million in our fuels marketing operations partially offset the increase in the gross margin from asphalt. While we did experience topline growth this quarter compared to last year, our earnings per unit distributable cash flow per unit were negatively impacted by higher operating and G&A expenses and the dilutive impact of the LP’s equity offering completed in November of 2009. A principle reason for the higher operating expense was our decision last year and early this year to lease additional asphalt terminals to capture incremental asphalt sales volumes during the 2010 asphalt season. Because we didn't have those facilities in the first quarter of 2009 we carried their cost during this year's first quarter in anticipation of making money with them later this year. First quarter 2010 OpEx included $5.5 million of additional lease and power cost associated with those new terminals. We expect the new lease terminals to generate an additional $15 million to $20 million of operating income this year by capturing more high margin rack sales. So clearly we believe the additional first quarter expense is the right decision for the company. The increase in operating expense this quarter also had a lot to do with our decision last year to defer hiring and maintenance and repairs at some of our facilities in light of the distressed financial and capital market situation that prevail really throughout 2009. You may recall that in 2009 we also significantly cut back our targeted strategic capital to $80 million in 2009 due to the uncertainty about when and to what extent the capital markets, which were effectively closed in the first quarter of ‘09 (was reopened). Now that market conditions have improved we have restarted some of the maintenance projects that we deferred last year. We expect operating expenses to increase slightly in the second quarter of 2010; however, costs should trend lower by the end of the year. Going forward we expect a typical run rate for OpEx to be in the range of $115 million to $130 million. Higher G&A expenses compared to the first quarter of ‘09 were mainly related to higher unit compensation expense, higher pension and OPEB expenses and OPEB expenses resulting from a lower discount rate assumption and a 3% annual salary adjustment for our employees that was effective at the beginning of the third quarter of ‘09. With regard to NuStar Energy's quarterly distribution for the first quarter of 2010, the LP board declared $1.65 per unit distribution payable May 14, 2010. While distribution coverage was weaker in the first quarter as expected, I am confident that with our improved outlook we will see a coverage ratio at the end of the year in the range of 1.10 to 1.20 times even with a distribution increase expected this year. I'm glad to announce that the GP Board increased the quarterly distribution to $0.45 per unit payable May 19th. This distribution represents a 3.4% increase over the $0.435 per unit for the fourth quarter of ‘09 and a 4.7% increase over the $0.43 per unit for the first quarter of 2009. This increase is driven by the higher general partner distributions and higher incentive distribution rights paid to the GP as a result of the LP equity offerings completed in November of 2009. Had we not increased the distribution, the coverage ratio would have been 1.04 times instead of our planned one times cover. Looking ahead to the remainder of 2010, we continue to project higher EBITDA than in 2009. That's mainly due to higher contributions from our storage and asphalt and fuels marketing segments consistent with our previous statements about expectations for 2010. Asphalt fundamentals look favorable right now and bode well for the year. Asphalt demand should be comparable to last year as higher stimulus spending and an improving economy will be contributing factors during this years asphalt season. Stimulus fund outlays will continue to ramp up this year. Through April 19th, the Federal Highway Administration reported that only about $7.3 billion of the $27.5 billion available for highway projects had been spent. That $7.3 billion continues to represent a small fraction of the total or around 27%, but with the highway construction season underway those outlays should increase significantly. We're projecting that around $10 billion to $11 billion will be spent in 2010, a significant increase over the approximately $5.6 billion spent last year. The Federal Highway Administration is also reporting that there are around $21 billion of projects under construction and they expect most outlays to represent payments to contractors for work performed on highway and bridge improvement projects financed under the American Recovery and Reinvestment Act or ARRA. The US Department of Transportation says that all states met the March 2nd deadline for obligating all ARRA highway funds and as a result no funds were returned to the Federal Highway Administration for redistribution to other states. In addition, we continue to see stimulus funds being quick to work at the state and local level; 2010 year to date state and local highway awards exceed 2009 year to date highway awards by 32% for the entire United States and by 70% for states within NuStar’s market. This indicates that the stimulus funds are more than offsetting any state decreases in highway funds. State highway funding is also being supported by Build America Bonds for public works, which have been very popular over the last year and are used by states and municipalities to fund infrastructure projects. According to the US Treasury Department, volumes for these bonds have soared to $90 billion with at least 20% for highways and transit. With regard to federal highway funding, last month Congress passed and President Obama signed it to law a new jobs bill which provides full highway trucks fund reauthorization through 2010 and transferred $19.5 billion into the trucks fund to ensure the fund’s solvency. Refinery utilization rates for 2010 are still projected to be at low levels, even though they have increased recently with improving margins, the end of the turnaround season and the start of the driving season. However, refined product inventories continue to be high, which major refiners will have to be disciplined when it comes to production. Coker margins have also improved significantly, incentivizing refiners to run their cokers at higher utilization rates which has helped limit asphalt supply. We believe the resulting loss of asphalt production from coking refiners will more than offset any additional asphalt produce at the non-coking refiners as a result of seasonally higher refinery utilization rates. We are projecting NuStar’s 2010 asphalt sales volumes and margins to be higher than last year. As a result, adjusted EBITDA generated from our asphalt operations in 2010 should be better than the $70 million earned last year, but not as good as the $150 million generated in 2008, excluding the hedge loss we incurred that year. Longer-term, the coker thesis remains intact as all of the coker projects we have previously communicated appear to be on track and are expected to further tighten the supply of asphalt mainly in 2011 and 2012. Our fuels marketing operation should also post better results, somewhat higher than the $10 million of adjusted EBITDA generated last year. An improving economy helps our bunkering business, a shipping demand and vessel calls are expected to increase. And our heavy fuels marketing business at our Texas City Texas terminal to benefit from increased third-party refinery run which will allow us to increase fuel oil volumes that we market to fuel oil and bunkering customers. We are also excited about our recently announcement to upgrade our St. James, Louisiana facility. Bring new storage as a crude oil to this area and position the facility to become one of the nation’s leading crude trading hub. This will provide Gulf Coast refiners new access to domestic crude. For example, the Bakken crude from North Dakota. This crude oil is of critical importance to the United States oil and gas industry and one of the hottest new oil production prospects in the US. We are evaluating a longer-term strategy to develop a unit trained facility to ship inland domestic crude oil as well as Canadian crude oil and we are working to secure commitments for this starting in 2011. This could provide refiners easier access to heavy crudes at a time when some crudes are scarce are in decline. Our St. James facility is an ideal location for this strategy. Since it’s a large facility, it’s physically located, given its proximity to several large refining facilities, and has great access to logistics since it’s connected to several major crude delivery systems, including the Louisiana Offshore Oil Port or LOOP and CAP (ph) line. Those delivery systems provide access to almost 50% of the United States refining capacity and transport 10% of all US imports. So these are exciting times for us and we expect rates of returns on these projects in the range of 15% to 20%. We continue to see improving results from our fee-based storage segments and relatively stable results from our fee-based pipeline transportation segment. Currently, we are projecting that adjusted EBITDA in our storage segment will be $12 million to $16 million higher than the $242 million generated in 2009. And that’s mainly due to higher renewal rates in some of our markets and the contribution from internal growth projects completed in late 2009 and 2010. In our transportation segment, we continue to expect 2010 throughput volumes to be about 1% to 2% higher than they were in 2009; excluding the impact of sales, pipeline sales we had in the second quarter of last year. We see mounting evidence that refined product demand is recovering. As the economy improves and that will certainly benefit our transportation segment. In fact, we are already seeing evidence that refined product demand is recovery. The latest data from the Department of Energy shows the four-week average for gasoline is higher compared to last year. And diesel demand should improve with the economy which is encouraging as we start the summer driving season. We are already seeing good throughput numbers during the month of April for a number of our pipeline systems including our East pipeline, our ammonia pipeline and our pipeline serving several of the Bolero Energy Refineries. Our revenue per barrel rate should also be better in 2010, compared to ’09, even though tariff rates on interstate pipeline are expected to decline an estimated 1.2% starting July 1 of 2010, as part of the pipeline index established by the Federal Energy Regulatory Commission. That’s because we will benefit from last year’s 7.6% tariff increase for the first six months of 2010. So both of these bodes well for top line growth on our transportation segment. However, as we have said previously, increased operating expense due to higher power and maintenance and other operating cost in 2010 compared to 2009 will be an offset. Overall, we continue to expect full-year 2010 adjusted EBITDA in our transportation segment to be comparable to slightly lower than last year. As previously announced we have initiated a $500 million internal growth program, off which, we expect to spend around $275 million this year, mostly related to our storage segment. Some of the major projects include reconfiguring our St. Eustatius facility in the Caribbean in anticipation of a new major customer who will be leasing a large portion of our storage tax. We are also expanding our fuel oil blending and bunkering and upgrading at our Texas City Texas facility into a world-class facility after it was heavily damaged by Hurricane Ike in the late 2008. Expanding our pipeline systems in fast growing regions like South Texas and also putting in the infrastructure at some of our terminals to capture incremental fees from ethanol and biofuel blending. We also have a number of major projects planned for our St. James, Louisiana crude oil storage facility this year, including building additional crude oil storage for third parties under long-term contracts, expanding our recently announced crude oil handling strategy by developing a new unit train that will allow us to accept additional shipments of heavy crude oil. These are all attractive projects with the internal rates of return expected to exceed 15%. For the second quarter of 2010, we are projecting EBITDA will be significantly higher than the first quarter or in the range of $130 million to $150 million. Earnings applicable to limited partners for the second quarter of 2010, they are expected to be in the range of a $1.05 to a $1.25 per unit and this range is higher compared to last year’s a $1.04 per unit which excludes the $18.8 million or $0.34 per unit net gain, resulting primarily from the sale of the Ardmore-Wynnewood pipeline in Oklahoma and the Trans-Texas pipeline. Looking at the expense estimates for the second quarter. Operating expense are expected to be around $125 million to $130 million, G&A expense in the range of $27 million to $28 million, depreciation and amortization around $38 million to $39 million, and interest expense $18 million to $19 million. Reliability capital is expected to be in the range of $50 million to $60 million for the full-year 2010. This is higher than the $45 million we spent last year, mostly due to the spending reductions we instituted last year in view of the financial crisis. In closing, while we close the books on what we always expected to be seasonally weaker first quarter, I fully expect our results to pick up substantially for the remainder of the year. We have projected higher EBITDA this year compared to 2009 and a much improved distribution coverage ratio by the end of 2010. And I still expect to be in a position to recommend to the Board, an increase in the distribution for NuStar Energy this year. We have got a lot of exciting and attractive projects in the works right now that will be accretive to distributable cash flow and allow us to continue to provide distribution growth going forward. So at this time, I would like to open it up for questions and answers. Operator?

[Operator:]

(Operator Instructions). Your first question comes from the line of Joseph Siano with Credit Suisse.

[Joseph Siano:]

Hi, good morning, guys.

[Curt Anastasio:]

Good morning.

[Joseph Siano:]

Just a first question on the storage. I think last quarter you had suggested you are targeting $18 million to $22 million in incremental EBITDA and now that’s down a bit. Is that just you are seeing a little bit lower contract renewal rates or can you expand on that?

[Curt Anastasio:]

Yes, it’s mainly a timing thing. It is a little over than the 18 plus we said. But it’s mainly because some of the storage benefit that we thought we would get in 2010 is actually going to come in in 2011 and that’s the principal reason. And then we have covered what we said on OpEx, so you see what’s happened there. But it’s mainly the timing of a project that we initially anticipated we would see calendar year 2009 is actually going to come in in 2011.

[Joseph Siano:]

Okay. So you are still seeing pretty good renewal rates relative to –

[Curt Anastasio:]

Yes, no, absolutely that’s been very, very, strong. Good story there continues.

[Joseph Siano:]

Okay, great. And then, I guess turning to asphalt, you mentioned the economic recovery, the higher stimulus spending. I guess we are just wondering why you would see comparable demand to last year and not higher demand.

[Curt Anastasio:]

Right. But we certainly will see significantly more federal stimulus spending. I think at the state level, it’s probably going to be comparable to last year, because a lot of states are experiencing physical weakness. However with the buy America bonds, they have really been able to fill the gap. But we actually expect the state spending – spending at that level on roads and highways to be relatively stable. But we are still in a pretty weak economy albeit recovery. And if you look at the numbers say for like non-residential private construction, because that’s going to be – we are assuming that’s going to be down. Now we might be too conservative, it might be stable compared to last year. So the private sector particularly on the non-residential side, you are starting to see some motion on residential. But on the non-residential, if that is weak as we are assuming in our forecast, you will end up with demand not too dissimilar to last year. Maybe it will be slightly up if we are too conservative. We do expect higher margins though, higher profit margins. So the bottom-line number will be higher as I indicated.

[Joseph Siano:]

Okay, thanks. And I guess just to expand on a little bit further, when we are thinking about the demand from spending at municipalities versus the spending spurred by federal stimulus funds, how much of the demand do you see coming from the federal stimulus versus the municipalities just looking at the state and the local spending side?

[Steve Blank:]

The total for federal that we are seeing this year is what, which is about 27% or so. I am just looking at the guys across the table for me to see if they have the number handy. Total dollar amount is about $42 billion. But he is asking percentage wise of the total. Give us a minute to get that for you. It’s in the range. I said 27%. I was asking him to confirm it. It’s in that range.

[Joseph Siano:]

Okay, great. Thanks guys.

[Operator:]

Your next question comes from the line of Brian Zarahn with Barclays Capital.

[Brian Zarahn:]

Good morning.

[Steve Blank:]

Good morning.

[Brian Zarahn:]

Can you give a little more color on the pipeline volumes about how much of the decline was due to the asset sale looking on the raw numbers and also refinery maintenance?

[Curt Anastasio:]

Yes, I have got Danny Oliver here who runs that business. Danny?

[Danny Oliver:]

Sure. Off the decline, the vast majority of it was due to the (inaudible) of these were 11.5% decline and 6% of that which declined was due to those asset sales. But really the only mentionable that’s on the balance was McKee refinery turnaround in the first quarter. We lost some volumes on in our East – Central East pipeline system volumes were (inaudible).

[Curt Anastasio:]

Yes, remember, we say, full year is going to be up 1% to 2% in total. But we had some things happen in the first quarter that Danny mentioned the accelerated turnaround in McKee, we had some weather and other things which happened in the first quarter probably expect a (inaudible). So – but we are already seeing that come back pretty strong.

[Brian Zarahn:]

Turning to your growth projects, can you talk a little bit about your pipeline expansion in South Texas? And also the storage expansion has been changed. About how much capacity are you adding at St. James?

[Curt Anastasio:]

We have got a – well, in South Texas, we in addition to expansion we were doing the ethanol projects at the terminals that are associated with the pipelines. And Danny, you want to comment further on the pipeline projects?

[Danny Oliver:]

Sure. We have – South Texas, I think we have talked about a little bit before is one of those areas in the US that we really never saw any demand construction throughout 2000 – end of 2008 and 2009 as the economy faltered. So our pipelines down there has been running – in South Texas, it’s been running right at or near capacity. So we are just in the process of fitting together the interest backed project to expand those lines down there. And in addition we have been fitting in the ethanol lending capabilities in all of our South Texas facilities, so we are expecting some incremental EBITDA and volumes on those as well.

[Curt Anastasio:]

And then on the St. James storage, we are riding a lot of capacity.

[Danny Oliver:]

Yes, we are looking about additional 3.2 million barrels of third-party storage with St. James.

[Brian Zarahn:]

And what’s the timeline for that 3.2 million.

[Danny Oliver:]

Yes, those would be coming on in 2011.

[Curt Anastasio:]

Yes, this is a year where we are spending a lot more million than last year. $275 million is our forecasted internal gross spending for projects that cash flow in 2012 and beyond – I am sorry 2011 and beyond, I apologize, so. In that sense, it’s a little bit of a transition year for us on internal growth. We cut it way back last year. We ramped this layup this year. But most of the benefit you don’t see in 2011 on those projects or later.

[Brian Zarahn:]

Okay. Finally, can you give the availability on your revolver?

[Steve Blank:]

About $400 million at the moment.

[Brian Zarahn:]

Okay, thank you.

[Curt Anastasio:]

Thank you.

[Operator:]

Your next question comes from the line of Steven Maresca with Morgan Stanley.

[Steve Maresca:]

Good morning, gentlemen.

[Curt Anastasio:]

Good morning.

[Steve Maresca:]

A couple of questions. First on asphalt. Curt, you talked about $10 billion to $11 billion being spent in 2010. Timing wise, how do you see that playing out in relation to second quarter, third quarter or later for that amount?

[Curt Anastasio:]

The season is just ramping up now and we really think – we think we are going to have a very strong second and third quarter and pretty much evenly spread between the two. Maybe a little stronger in the third depending at how things play out in the market. So I have got Mike Stone here, who runs the asphalt market. Do you want to comment further on that Mike?

[Mike Stone:]

Typically season starts and the peak season around May and it will go through August to September, sometimes into October. But we feel that a lot of the asphalt participants and market this year had been very conservative in their winter field, which means that it could be a slightly stronger third quarter than second quarter when it’s time to replenish.

[Steve Maresca:]

Okay. And you had mentioned sales volumes and margins being up. What are your expectations on a percent basis for volumes to be up for this year versus last year?

[Curt Anastasio:]

For total sales –

[Steve Blank:]

Total sales volumes, we have least additional turn loads, so that’s going to add to our incremental volumes. So we are looking for a pretty good clip on volumes now, flat to flatter, same sales. Same sales is probably on comparable consistent with what we said about (inaudible) for demand.

[Curt Anastasio:]

We released what six new terminals. So you are going to get more rad sales out of that. And part of what’s driving our margin this year is channels and trades that we are selling out. So you are going to see more rad sale. Our total sales won’t vary much, but on the additional sales of those terminals –

[Steve Blank:]

About 2.2 million barrels.

[Curt Anastasio:]

About 2.2 million –

[Steve Blank:]

Barrels.

[Curt Anastasio:]

Of additional rad and that’s going to be the main difference.

[Steve Maresca:]

Okay, and final question on storage, volumes were up 8% but you also talked about renewal rates also on a percent basis what are we talking in terms of renewal rates going higher and what are the average contract terms in that – in your storage business right now.

[Curt Anastasio:]

I’m going to turn it over to Danny, but it is a market specific, I mean some markets are much hotter than others and for example on the West Coast we’re seeing very high increases in the renewal rate. So Dan you want to comment too.

[Daniel Oliver:]

Sure, well as we’ve talked about before the paying to market structure persists and continues to add value to storage rates and as we renew we’re consistently seeing higher rates across our system enough but keep in mind when we talk about throughputs it’s the vast majority of our storage segment revenues comes from lease assets. So the throughput revenues are very small portion of that segment, but as far as links of term we’ve got about 24% of our storage segment revenues are contracted up in one year or less.

[Curt Anastasio:]

So the other 76 is long term.

[Daniel Oliver:]

The other 76 was longer term.

[Curt Anastasio:]

Longer than a year.

[Daniel Oliver:]

Most out in the 3 years or longer.

[Steve Maresca:]

Okay, thanks a lot guys.

[Curt Anastasio:]

Thank you.

[Operator:]

Your next question comes from the line of John Tysseland with Citigroup.

[John Tysseland:]

Hi guys, good morning.

[Curt Anastasio:]

Good morning.

[John Tysseland:]

You guys gave a margin, I guess were EBITDA margin of 72, 150 just kind of the book ends of the range versus last couple of years of performance in asphalts base, but can you give us any feel for how much you expect asphalt margins to improve this year as a result of crude prices improving throughout your kind of winter-fill season from October to March, I guess it seems like the market was much more I guess favorable for you guys this year versus last year where average prices were likely a lot higher when you were filling storage last year versus where the crude price was in the summer, so it just seems like the bottom end of the range is very, very low and if you could just kind of give us some guidance as to where you will narrow that guidance down a little bit more?

[Curt Anastasio:]

No, you’re right about our inventory, our carrying cost we do have beneficial situation there compared to sort of similar time period in last year but we are prepared on this call to put out a margin on this call but as I said we do expect to be better than last year although not as high as sort of a $150 million EBITDA adjusted in 2008. So it’s going to be in between those two that’s our outlook for it right now. And I think we have to leave it at that on this call unless anybody have anything to add, Paul is here.

[Paul Brattlof:]

Sure, I just want to say real quick, one thing that we saw different this year in the wholesale market, typically you have the winter-fill or the winter time prices fall off relative to crude. This year that did not happen, most strong wholesale market during the winter season which just shows that the market is poised on we have our inventories (mission one) inventories are down almost 10 year lows right now. So through the winter we do not see those big discounts which just shows that the market is tight and as we head into the summer season we think that’ll just continue on inventory, but we did not see the big discounts that keeping the big winter-fills inventory.

[John Tysseland:]

What about on a margin for barrel basis, I guess as a result of where your inventories are this year versus where they were last year, any kind of feel for the range and I guess margins per barrel on the asphalt side that you could, -- that you’d be comfortable given?

[Curt Anastasio:]

Not right now, but again our outlook is on that basis better than last year.

[John Tysseland:]

Okay.

[Curt Anastasio:]

I can't get more specific right now.

[John Tysseland:]

Alright, thanks guys.

[Operator:]

Your next question comes from the line of Darren Horowitz with Raymond James.

[Darren Horowitz:]

Hey good morning guys. Just a couple of quick questions for you around asphalt supply, and trying to get a sense for how tight the market could be into the second, third quarter due to a lower relative refinery utilization versus lower asphalt imports. Can you kind of break that down for us and give us a sense for where the imports are trending year-over-year?

[Curt Anastasio:]

Yes, imports continued to be really very low and almost non-existed. The imports from Latin America is pretty much dried up to nothing, you get occasional opportunistic cargos from Canada and during the season come into the sort of the Northern tier of the North East, other than that we don’t see anything from Europe or anywhere else so that continued to quite a long at or near zero on the import side.

[Darren Horowitz:]

Okay.

[Curt Anastasio:]

With regard to refinery utilization, again it is trending by historic standards at low level even though you do have a little bit of seasonal ramp-up at this time of year in North America in refining as you would expect and the margins are a little better too for those refiners. So you see some of that going on. And then we made a comment about coker margin, how coker margins have significantly improved. So anybody looking at that we’re into refinery is incentivised to run their cokers harder as we go into this asphalt season which also is supportive of what we say about short supply. But if you look at – I’m looking at a graph right here which is titled US asphalt import, export trend and what you see in terms of thousands of barrels a day and you see we’ve gotten actually into negative territory meaning we’re in an export mode rather than an import mode. So it’s very, very bullish on the supply side.

[Darren Horowitz:]

Okay, and so a follow-up to that, if you kind of extrapolate those current trends and I recognize that this is relatively early on in forecasting, but when you look out to next year when a lot of coke and capacity comes online, do you have a sense for how much that variance between supply and demand can widen?

[Curt Anastasio:]

Yes, we do, we talked about that the other day, Mike or Steve go ahead you guys could comment on that.

[Mike Hoeltzel:]

It’s probably little less in 2010, there is about 60,000 barrels in coker capacity coming on in 2010. 2011, its about 115,000 barrels coming on and then in 2012, about 215 to 220,000 barrels coming on stream.

[Darren Horowitz:]

Okay.

[Curt Anastasio:]

Right, so you got a growing supply demand gap which I think was part of your question.

[Darren Horowitz:]

That’s right, yes. I appreciate the color, thanks guys.

[Curt Anastasio:]

Yes. Thank you.

[Operator:]

Your next question comes from the line of Michael Blum with Wells Fargo.

[Michael Blum:]

Very good morning, my questions were asked and answered, thanks.

[Curt Anastasio:]

Okay, thank you Mike.

[Operator:]

Your next question comes from the line of Mark Reichman with Madison Williams.

[Mark Reichman:]

Good morning, I guess what I would ask about was the global growth strategy, I think in a previous presentation you’d mentioned looking at other markets like in the Middle East and the far East for investments and I just wanted to ask you a little bit about that in terms of what you’re seeing and in terms of your capital allocation process, how you think about that?

[Curt Anastasio:]

Right, well capital allocation is best idea to whether its international or domestic but we are seeing good ideas internationally, what we said previously is still true and I expect, I think we’re getting close this year to announcing the next international storage acquisition. So we’re still – what we said previously still holds true and I think you’ll increasingly likely you’ll hear from us this year on an overseas acquisition and probably in the storage arena.

[Mark Reichman:]

Okay, thank you.

[Curt Anastasio:]

Thank you.

[Operator:]

Your next question comes from the line of Louis Shamie with Zimmer Lucas.

[Louis Shamie:]

Hi good morning everyone. I had two questions, first off, if we’re looking at the kind of the change in storage EBITDA year-on-year for ‘010 versus ‘09, how much of that would you attribute to new projects that came online in 2009 and 2010?

[Daniel Oliver:]

The vast majority of that is coming from renewal rates, higher renewal rates.

[Curt Anastasio:]

We’re pretty much done with that, remember we previously had a $400 million program we announced in mid ’06 and we said we’re going to do that over the next two to three years, that’s history basically, we might have a little bit of carryover from projects that were completed in ’09, but now we’re embarked on this $500 million internal growth program and there is more as I said earlier is a year of spending towards the $75 million for the future benefits. So I think Danny answered it.

[Louis Shamie:]

So you’re saying that most of its not coming from capital most of it coming from storage renewals. Okay. And then my other question was regarding your CapEx guidance. What’s your full CapEx guidance for this year and how does it break out into the different buckets?

[Daniel Oliver:]

Well you’ve got 275 (inaudible) alluded to and gave guidance on reliability (inaudible), Okay and then there is and that’s pretty much it.

[Louis Shamie:]

Okay, was there some third category that you guys created or…

[Curt Anastasio:]

Yes, there is a third category that was kind of other spend which doesn’t have a return, principally that would be a head off still then we purchased land and we would be constructing during the course of this year and so we’ll just talk about that as strategic but that’s not into 275 simply because return associated with that.

[Louis Shamie:]

Okay.

[Curt Anastasio:]

And we’re looking at possibly doing the sale (inaudible) as we go.

[Louis Shamie:]

Okay. Was there a dollar amount associated with that or is that looking like nothing?

[Curt Anastasio:]

40 of which I think we spend 13, 14 from just (land in the first quarter).

[Louis Shamie:]

Great, alright. Well thanks a lot guys.

[Curt Anastasio:]

Thank you.

[Operator:]

Your next question comes from the line of Michael Cerasoli with Goldman Sachs.

[Michael Cerasoli:]

Thanks, just a quick question on the new leases on the asphalt terminals and storage that you guys put on, are those – are the volumes that are going to flow through those terminals are they contracted out or are they going to kept open?

[Mike Stone:]

Just trying to grow on market share, is that what you’re asking?

[Danny Oliver:]

Yes, we don’t have any contract sales through those facilities. They’re just in market that do have a demand that we will capture by merchant having the terminal.

[Michael Cerasoli:]

Okay, thanks.

[Operator:]

(Operator Instructions). Your next question comes from the line of Mark Easterbrook with RBC Capital Markets.

[Mark Easterbrook:]

Yes, good morning guys. Just on those leases again, the asphalt leases, how long do those go out fore-end, what type of chance do you had to renew those leases?

[Curt Anastasio:]

Basically two or three years but I’d say good chance to renew them if you want, if they’re successful, we want to carry on in those markets.

[Mark Easterbrook:]

And they were send in last summer, is that correct?

[Curt Anastasio:]

Some last summer, some early this year.

[Mark Easterbrook:]

Okay.

[Curt Anastasio:]

So it’s kind of over that six month period or so.

[Mark Easterbrook:]

And then in terms of refinery maintenance we saw some of the key downturn in the first quarter, any plan maintenance from around to the second quarter or fourth coming?

[Curt Anastasio:]

There is just sort of demand and refinery supposed to be down in the second quarter and then the laterals or more refinery in the third quarter, that’s pretty much.

[Danny Oliver:]

But all of that is factored into the outlook numbers that we gave you.

[Mark Easterbrook:]

Okay, thanks.

[Operator:]

Your next question comes from the line of Yves Siegel with Credit Suisse.

[Yves Siegel:]

Good morning everybody.

[Curt Anastasio:]

Good morning Yves.

[Yves Siegel:]

I know, I probably just missed it but when you look at the storage year-over-year the operating income was down, operating expenses were up, could you just elaborate again on the year-over-year delta?

[Rick Bluntzer:]

Yes on the storage side lot of that was in operating expenses that we referred on paying maintenance between ’09 in first quarter of ’10. So basically you’ll see a run rate going forward.

[Curt Anastasio:]

We said (inaudible) 115 to 130 on a yearly basis, but we did have some different. When everything when the work lasted as Rick said in ’08 early ’09, I mean we said we’re going to be cautious until we get the visibility into how this is all going to get resolved. And some of those things really never got down, there is lead time involved, there is planning involved in those projects, couple of things get done in ’09 so we got some, as Rick said we got some catch up work that we did in the first quarter of 2010. And we think that OpEx should trail off the second half of the year until catch up gets done.

[Yves Siegel:]

So is it fair to say that the economics and the returns that you’re looking from that for from that business pretty much hasn’t changed?

[Curt Anastasio:]

Yes, that’s fair to say, I did point out this a timing thing, we said incremental EBITDA for storage $12 to $16 million, we previously said 18 or more and that was really mainly due to a storage project that slipped down us a little into 2011.

[Yves Siegel:]

And then lastly when you talk about the CapEx for this year, does that include the potential storage acquisition that you’re talking about internationally?

[Curt Anastasio:]

No.

[Yves Siegel:]

How bigger number could that be?

[Curt Anastasio:]

Not huge. It’s not a mega deal.

[Yves Siegel:]

Okay, great. Thanks guys.

[Operator:]

And we have no further questions in queue.

[Chris Russell:]

Thank you operator.

[Operator:]

Thank you, ladies and gentlemen, this will conclude today’s conference call. You may now disconnect. Copyright policy