Nustar Energy L.P. (NS) Archives - INO.com Trader's Blog

2022 was an exceptionally good year for the energy sector, with most companies in the industry finishing the year off in the green, while the technology, communication services, and consumer cyclical sectors predominantly sported red. The energy sector was the S&P 500’s top performer last year, with a 58% spike.

Last year, an impressive run of energy stocks was supported by high oil and gas prices fueled by solid demand and tight supplies aggravated by Russia’s invasion of Ukraine.

Although energy prices have retreated from last year’s record highs, strong demand from extensive summer traveling, the reopening of the Chinese economy, and constrained supply amid recently announced production cuts by top exporters could significantly boost oil and gas prices.

Gasoline futures climbed past $2.8 per gallon, the highest in three weeks, driven by a bigger-than-expected inventory draw amid an improvement in domestic demand. Based on the new data from the Energy Information Administration, gas demand increased from 9.306 to 9.599 million b/d in the final week of last month.

In sync with gasoline prices, West Texas Intermediate (WTI) crude futures have been increasing toward two-month highs, boosted by output cuts by Saudi Arabia and Russia for August.

Energy stocks jumped sharply Friday afternoon while the S&P 500 struggled for direction, as U.S. oil prices witnessed their largest weekly gain since early April. The S&P 500’s energy sector grew 2.3% heading toward the closing bell Friday, while the broader stock market was mixed, according to FactSet data.

Moreover, WTI crude for August delivery increased 2.9% on Friday to settle at $73.86 a barrel on the New York Mercantile Exchange, the highest closing price since late May.

Several factors are putting upward pressure on gas and oil prices:

Increased Summer Travelling Boosts Demand for Gas

Gas and oil prices historically go up during the summer, starting around Memorial Day. More people traveling, especially on family vacations and road trips, boost demand for fuel. Approximately 85% of American adults intend to travel this summer, with nearly 42% of adults planning to travel more than last summer.

Also, approximately 39% of American adults, representing 100 million, intend to take a road trip more than 250 miles from their home.

Tight Fuel Supply in Spring Due to Refinery Maintenance

During the spring months, energy companies conduct maintenance on their refineries, shutting them down and limiting capacity until late May. US fuel production is likely to be affected by a heavy refinery maintenance schedule, and a stretched supply is expected to increase oil and gas prices considerably.

China Reopening Boosts Oil Demand

According to the latest International Energy Agency (IEA) Oil Market Report (OMR), global oil demand is expected to grow by 2.4 million barrels per day (mb/d) this year to a new record of 102.30 mb/d driven by substantial demand from China. The nation’s rebound remains persistent, with its oil demand reaching an all-time high of 16.3 mb/d in April.

Furthermore, Wood Mackenzie said in the report that China will make up roughly 40% of the world’s recovery in oil demand in 2023, driven by the reopening of its economy.

“A return to normal mobility in China is the single biggest demand driver, accounting for 1.0 million barrels per day (b/d) of the 2.6 million b/d increase this year,” a team of analysts led by Vice President Massimo Di Odoardo said in the report.

Recent Production Cuts

Supply cuts from top exporters, Saudi Arabia and Russia, would help to build a supportive environment for oil and gas prices this year. Saudi Arabia said last Monday that it would extend a cut in oil production of 1 mb/d that was announced in June through at least August to push up oil prices.
The Saudis were joined by Russia, whose deputy prime minister Alexander Novak said Moscow would cut output by 500,000 barrels in August. Together these cuts could amount to 1.5% of global supplies.

Last month, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, announced that it will stick to its 2023 oil production targets and will limit combined oil production to 40.463 mb/d over January-December 2024. Earlier, the alliance agreed to a 2 mb/d output cut in October 2022.

Also, in April this year, some OPEC+ members announced voluntary cuts to their oil production of approximately 1.16 mb/d in a surprise move.

3 Energy Stocks to Benefit from Strong Demand and Constrained Supplies

Cheniere Energy Partners, L.P. (CQP) is positioned to benefit from the demand and supply dynamics. Through its subsidiaries, the company offers liquefied natural gas (LNG) to integrated energy companies, utilities, and energy trading companies globally.

On February 23, CQP announced that certain of its subsidiaries initiated the pre-filing review process under the National Environmental Policy Act with the Federal Energy Regulatory Commission (FERC) for the proposed Sabine Pass Stage 5 Expansion Project (the SPL Expansion Project) adjacent to the existing Sabine Pass Liquefaction Project (the SPL Project).

The SPL Expansion Project, designed for a production capacity of 20 million tonnes per annum of liquefied natural gas, would utilize the existing infrastructure at the SPL Project and include improvements such as optimized ship loading at the marine facilities. This would enable the company to meet the growing demand for LNG, expand its market share, and generate higher revenue.

Also, in April, certain of the company’s subsidiaries signed a contract with Bechtel Energy Inc. to provide the Front End Engineering and Design (FEED) for the SPL Expansion Project.

For the first quarter that ended March 31, 2023, CQP reported total revenues of $2.92 billion, while its LNG revenues were $2.11 billion. Its income from operations rose 488.1% year-over-year to $2.13 billion. The company’s net income was $1.94 billion, up 1,117% from the prior year’s quarter.

In addition, CQP’s net income per common unit came in at $3.50, compared to a net loss per common unit of $0.11 in the previous-year period.

Analysts expect CQP’s EPS for the fiscal year (ending December 2023) to increase 35.1% year-over-year to $5.47. Furthermore, the company’s EPS is expected to grow 4.4% per annum over the next five years.

Another prominent energy stock, NuStar Energy L.P. (NS) , stands to profit from high fuel demand in the summer. NS engages in the transportation, terminalling, and storage of petroleum products and renewable fuels and the transportation of anhydrous ammonia in the United States and internationally. The company operates through Pipeline; Storage; and Fuels Marketing segments.

On May 4, NS and OCI Global (OCI) announced an agreement that would involve NS transporting ammonia on a new segment of NuStar Pipeline Operating Partnership L.P.’s Ammonia Pipeline System to OCI’s state-of-the-art ammonia products.

Under the deal, NS would install a new 14-mile pipeline segment connecting OCI’s Nitrogen facility in Wever, Iowa, with NS’ existing 2,000 miles anhydrous ammonia pipeline.

“We expect this healthy-return, low-capital project will meaningfully increase utilization of our Ammonia System,” said NS’ Chairman and CEO Brad Barron. “And we expect this project to be just the first of several, as we are actively working with a number of potential customers interested in connections to our system, across our footprint, for a variety of different opportunities.”

NS announced solid results for the first quarter of 2023, driven by strong volumes in its refined products and oil pipelines. The company’s Service revenues grew 7.5% year-over-year to $285.27 million. Its operating income was $159.99 million, an increase of 173.8% year-over-year. Also, its adjusted EBITDA rose 7.9% from the year-ago value to $187.03 million.

Furthermore, NS reported a net income of $106 million for the first quarter of 2023, or $0.61 per unit, compared to a net income of $12 million or a $0.22 net loss per unit for the first quarter of 2022. The company’s adjusted distributable cash flow (DCF) was $100.74 million, up 10.6% from the previous year’s period.

For the fiscal year 2023, NS’ EPS is estimated to increase 240.4% year-over-year to $1.23. In addition, analysts expect the company’s EPS and revenue for the fiscal year 2024 to grow 7.5% and 5% year-over-year to $1.32 and $1.65 billion, respectively
The third energy stock well-placed to capitalize on high demand during hot summer weather is MPLX LP (MPLX). The company owns and operates midstream energy infrastructure and logistics assets primarily in the United States. MPLX operates through two segments: Logistics and Storage and Gathering and Processing.

During the fiscal 2023 first quarter, MPLX reported total revenue and other income of $2.71 billion, up 4% year-over-year. Net income attributable to MPLX was $943 million, compared with $825 million for the same quarter of 2022. In addition, adjusted EBITDA attributable to MPLX was $1.52 billion, an increase of 9% from the prior year’s quarter.

Furthermore, during the quarter, the company generated $1.23 billion in net cash provided by operating activities, $1.27 billion of distributable cash flow, and adjusted free cash flow of £1.01 billion. MPLX returned $821 million to unitholders and announced a first-quarter 2023 distribution of $0.775 per unit, resulting in a distributable coverage ratio of 1.6x for the quarter.

Michael J. Hennigan, MPLX chairman, president, and CEO, said, “Our business continues to grow and generate strong cash flows. We are advancing our growth projects anchored in the Marcellus, Permian and Bakken basins.”

“These disciplined investments in high return projects, along with our focus on costs and portfolio optimization, are expected to grow our cash flows. This will allow us to reinvest in the business and return capital to unitholders,” he added.

Analysts expect MPLX’s revenue and EPS for the fourth quarter (ending December 2023) to increase 2.2% and 15.7% year-over-year to $2.72 billion and $0.90, respectively. The consensus revenue and EPS estimates of $10.98 billion and $3.64 for the fiscal year 2024 indicate a growth of 1.8% and 4% year-over-year, respectively.

The redrawing of the global energy map and shifting geopolitical inclinations in the Middle East since the beginning of the conflict in Ukraine has been nothing short of a windfall for U.S. energy producers. The U.S. has “gone from (being) a very domestically focused market into an international powerhouse.”

The demand-supply imbalance is not as acute as a year back due to macroeconomic headwinds and the initial pent-up demand from China losing momentum amid its faltering economic recovery.

However, on June 4, while OPEC+, which pumps approximately 40% of the world’s crude, made no changes to its planned oil production cuts for this year, Saudi Arabia announced that it would implement an additional voluntary and (extendable) one-month 1 million-barrel-per-day cut starting this July.
With this decision, the kingdom has reined in its production to 9 million barrels from 10 million barrels, putting upward pressure on crude prices that have been delicately balanced between demand and supply.

Moreover, the Federal Reserve has adopted a hawkish pause to hold rates steady until the economy absorbs the cumulative effect of the earlier ten interest-rate hikes. This could help businesses and consumers breathe a sigh of relief and translate to increased economic activity during the summer and, consequently, demand for energy.

However, the resulting increase in energy demand amid constrained supplies could play into the hands of and lead to short-term gains for U.S. energy producers. In this context, let’s look at a few well-positioned stocks to convert rising energy prices to increased shareholder returns.
As an energy infrastructure company, Cheniere Energy, Inc. (LNG)is engaged in providing clean, secure liquefied natural gas (LNG) to integrated energy companies, utilities, and energy trading companies worldwide.

On May 16, LNG announced its entry into a long-term liquefied natural gas sale and purchase agreement with Korea Southern Power Co. Ltd (KOSPO). Pursuant to the agreement, KOSPO would purchase approximately 0.4 million tonnes per annum (mtpa) of LNG on a delivered ex-ship (DES) basis from 2027 through 2046, with a smaller annual quantity to be delivered starting in 2024.

On February 23, Cheniere Energy Partners, LP (CQP) announced that it initiated the permitting process for significant expansion of the LNG export facility at Sabine Pass, after which the total production capacity would increase to 20 mpta.

As a global energy services company, Weatherford International plc (WFRD) provides equipment and services used in the drilling, evaluation, well construction, completion, production, intervention, and responsible abandonment of wells in the oil and natural gas exploration and production industry as well as new energy platforms.

WFRD operates through three segments: Drilling and Evaluation (DRE), Well Construction and Completions (WCC), and Production and Intervention (PRI).
On June 8, WFRD announced that it was awarded a three-year contract with Aramco to deliver drilling services. Under the contract, WFRD will deploy its drilling services portfolio to add value to Aramco’s drilling operations by minimizing OPEX, reducing risks, and optimizing production.

Nustar Energy L.P. (NS) is primarily engaged in transporting petroleum products, renewable fuels, and anhydrous ammonia, terminalling and storing petroleum products and renewable fuels, and marketing of petroleum products. Accordingly, the company operates through three segments: pipeline; storage; and fuels marketing.

As a testament to its future readiness, on May 3, NS announced its agreement with OCI Global to transport ammonia, which the latter would use to make fertilizer and produce DEF (Diesel Exhaust Fluid), which reduces emissions from diesel engines in cars, as well as light and heavy-duty trucks, farming equipment and other heavy machinery.

Moreover, with ammonia emerging as a likely candidate to capture, store, and ship hydrogen for use in emission-free fuel cells and turbines, NS’ expertise in the transportation of ammonia is expected to be a significant growth driver in the future.

Beyond The Horizons

In its latest Oil 2023 medium-term market report, the International Energy Agency (IEA) has forecasted that, under current market and policy conditions, crude oil demand will rise by 6% from 2022 to reach 105.7 million barrels per day in 2028 on the back of the petrochemical and aviation sectors.
However, the agency also found that global oil demand growth will trickle nearly to a halt thereafter with the advancement of electric vehicles, energy efficiency, and other technologies.

However, until the modern economy and society can develop renewable energy technologies enough to rely on them exclusively, natural gas transported in bulk and consumed in liquified and compressed forms, respectively, will keep playing a crucial role as a bridge fuel to manage decarbonization goals and facilitate a seamless energy transition.

Tag: Nustar Energy L.P. (NS)

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