Hedging losses to hurt NuStar Energy 2Q profit

Pipeline operator and asphalt refiner NuStar Energy LP said Wednesday it expects to only break even in the second quarter due to hedging losses.

Included in NuStar Energy's expected earnings is a $61.3 million, or $1.15 per unit, hedging loss from the termination of New York Mercantile Exchange crude oil and intermediate product futures the partnership sold. These hedges comprised about 29 percent of the total inventories acquired with the Citgo asphalt acquisition.

Having closed out these positions, the partnership has no hedging contracts related to its asphalt business. Excluding the hedging loss, earnings are expected to total $1.05 to $1.15 per unit for the quarter ending in June.

Analysts polled by Thomson Financial expect, on average, a profit of 93 cents per unit. Such expectations typically exclude one-time charges.

"Although the hedging contracts were expected to limit the price volatility of the inventory position acquired from CITGO on March 20, 2008, the sharp and unprecedented rise in crude oil prices of approximately 30 percent since the partnership acquired the asphalt business resulted in the hedging loss," NuStar Energy said in a statement.

Also, NuStar GP Holdings LLC, which owns general partner and limited partner interests in NuStar Energy, said it expects to report earnings of 10 cents per unit for the second quarter of 2008. Analysts expect earnings of 37 cents per unit.

NuStar GP Holdings owns the 2 percent general partner interest, a 18.4 percent limited partner interest and the incentive distribution rights in NuStar Energy.

Shares of NuStar Energy rose 15 cents to $49.50 in morning trading, while shares of NuStar GP Holdings rose 3 cents to $24.78.