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NuStar Energy LP  (NYSE:NS)
Q4 2018 Earnings Conference Call
Jan. 31, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day ladies and gentlemen and welcome to the NuStar Energy L.P. Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions) As a reminder this conference call is being recorded.

I would now like to introduce your host for today's conference, Pam Schmidt, Vice President of Investor Relations. You may begin.

Pam Schmidt -- Vice President of Investor Relations

Good morning and welcome to today's call. On the call today are Brad Barron, NuStar Energy L.P.'s President and CEO; and Tom Shoaf, Executive Vice President and CFO, along with 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 statements about our current views concerning the future performance of NuStar that are forward-looking statements. These statements are subject to the various risks, uncertainties and assumptions described in our filings with the Securities and Exchange Commission. Actual results may differ materially from those described in the forward-looking statements.

During the course of this call, we will also refer to certain non-GAAP financial measures. These non-GAAP financial measures should not be considered as alternatives to GAAP measures. Reconciliations of certain of these non-GAAP financial measures to U.S. GAAP may be found in our earnings press release with additional reconciliations located on the Financials page of the Investors section of our website at nustarenergy.com.

With that I will turn the call over to Brad.

Brad Barron -- President and Chief Executive Officer

Good morning. Thank you all for joining us today. We have a lot of positive news to report today about our strong financial results for the fourth quarter and full year 2018. Before I turn it over to Tom to provide you with the details on our results, I'll take a few minutes to provide some context for those results and review what we achieved in 2018 and how those achievements have positioned us for strong, stable growth.

This time last year we presented our comprehensive plan to reposition NuStar during 2018 to meet the changed MLP landscape. A paradigm shift had taken place in the MLP sector. And we recognize that in order to continue to build on the strength of our superior asset base, we would need to take the steps necessary for NuStar to achieve the hallmarks of what some refer to as MLP 2. 0. Strong distribution coverage and low leverage, while at the same time simplifying our corporate structure, eliminating our Incentive Distribution Rights or IDRs and minimizing our need to access the equity capital markets.

Over the course of this past year, we've executed on our plan step-by-step and achieved the goals we set for NuStar. Number one, strong coverage. Last March, when we first filed our Form-S4 for the simplification transaction, we projected we'd finish 2018 with a coverage ratio in the range of 1.1 times to 1.2 times. Thanks to the hard work of our employees and solid performance of our strong asset base, we finished 2018 with a 1.42 times cover.

Number two, low leverage. In part, due to the successful divestiture of our U.K. and European assets, we lowered our debt-to-EBITDA ratio to 4.05 times, which allowed us to achieve our three-year deleveraging target in a single year. Number three, simplified corporate structure and governance. Thanks to our simplification transaction, we are now a single, publicly traded Company with no IDRs.

Number four, minimal equity capital needs. Because of the combined impact of all the self-help measures we took in 2018, we do not anticipate needing to access the equity markets before 2022. Last March, we told you our plan was designed to ensure NuStar has the healthy balance sheet needed to execute on our organic growth opportunities as economic conditions improved. And here we are, one year later, we've implemented our plan as we told you we would. Our metrics have surpassed our own projections and provide NuStar with the financial stability required to produce strong stable growth. We now have more opportunities for higher return organic growth projects than in any time of our history. And the future truly looks even brighter than we anticipated at the beginning of 2018.

As I mentioned on our last call, by far the most attractive opportunities for midstream MLPs for capital projects is to solve the logistical dislocations in or emanating from the Permian Basin. That's not surprising, the Permian Basin's production has grown with more strength, speed and consistency than any other U.S. shale play, through high and low crude price cycles, and is expected to continue to be the dominant year (ph) shale play far into the future. NuStar is uniquely situated to benefit from a number of Permian-driven opportunities inside the basin and beyond.

Inside the basin itself we continue to expand our Permian Crude System as planned. As we've told you in past calls, we acquired our Crude System not only because it's a great pipeline system, but also because of the quality of the rock underlying our acreage dedications. The system is set to top some of the highest quality acreage in the Permian. And that geological superiority has attracted some of the most effective and efficient drillers in the country to drill in this portion of the basin. Given these key advantages, we acquired the system with confidence that the production growth from our dedicated acreage would far outpace the Permian Basin as a whole. And that's exactly what it's done. Since we acquired this system in May of 2017, the Permian Basin volumes have increased by 60%, which is impressive by any measure. However, during the same period, our Permian Crude System throughputs have increased by 190%, which is jaw-dropping. Numbers like these speak for themselves. So suffice to say we are very happy with our system's performance and outlook.

But we are also reaping the rewards of the Permian Basin's production growth outside the basin. From our South Texas system to our pipelines in Northeast Texas, to our world class export facilities in Corpus Christi and St. James. In recent months, we've seen ripple effects from the Permian Basin production on our South Texas Crude System in the Eagle Ford which has been benefiting from WTI volumes arriving by truck. We're currently seeing throughput volumes averaging 192,000 barrels per day, significantly above our minimum volume commitments of 116,000 barrels per day for the system.

We are also expanding our Wichita Falls crude oil pipeline to accommodate additional barrels from the Sunrise Pipeline expansion from Colorado City to Wichita Falls. The Sunrise connection and our related expansion project brought our customers additional access to Permian crudes, which we expect to increase our throughput and produce a healthy return for a relatively small capital outlay.

And a little further afield in Louisiana, as we told you on our last call, we restarted our unit train offloading facilities at our St. James terminal for customer commitments for five to 10 trains per month, bringing WTI, Bakken and WCS barrels.

Among the many in Permian -- among the many Permian ripple effects, the most promising of all for NuStar may be Gulf Coast crude export growth. Over the course of the next 12 months or so, approximately 2.1 million additional barrels of long-haul crude pipeline capacity from the Permian to Corpus Christi will be placed into service, bringing the total capacity of Permian crude pointed at the Port of Corpus Christi to about 2.6 million barrels. And if prediction is proved correct, propelling the port to be the Number 1 crude export outlet in the United States. Don't forget these Permian volumes are in addition to the existing pipeline capacity from the Eagle Ford.

NuStar is uniquely positioned to take advantage of this growth. We have a world-class storage terminal with three docks and related export infrastructure. And we are poised to benefit from what some have characterized as the oncoming tidal wave of outbound life barrels.

On our last call we announced we had signed long-term contracts with Trafigura to support projects to initially connect our South Texas System with the Cactus II Pipeline near Oakville to transport WTI barrels on our existing 16-inch pipeline to our Corpus Christi, North Beach export terminal. And interconnect or construct a new eight-mile, 30-inch pipeline from a new connection in Taft, Texas to our Corpus Christi terminal, as well as 600,000 barrels of additional storage. Those projects are under way and on schedule. And we expect to begin providing service to Trafigura on the 16-inch pipeline as soon as this summer.

We are also exploring connecting our existing South Texas system to other long-haul pipeline projects from the Permian to Corpus Christi. At the same time, we are working to ensure our Corpus Christi terminal has the connections and services to provide the optionality that our customers may need in the future, including continuing discussions to connect our facilities with proposed crude oil export terminal projects with VLCC loading capability.

Beyond Corpus Christi, we also expect to see benefits of export pressure from (inaudible) shale plays at our St. James facility as well. Our St. James facility offers optionality and critical connectivity along with export services with room for expansion. And we are looking to ensure our facility is prepared to take advantage of promising evolving regional opportunities. We are near completion of our connection to the Bayou Bridge, which will bring volumes of Bakken and Permian crude to St. James. And we expect to begin receiving barrels through that connection as early as the second quarter, increasing demand for storage and export services we offer there.

In addition to the proposed reversal of -- in addition, the proposed reversals of Kaplan would bring large volumes of heavy Canadian and Bakken crudes to St. James for use in regional refineries as well as for export.

Moving on, we also have updates on what we are accomplishing outside the Permian's extended reach. One great example of our successful optimization of our legacy asset base is our Central East System. Thanks in large part to the synergies and positive contribution of our Council Bluffs acquisition last year, we've increased our capacity and enhanced our market reach, which in turn has expanded our platform for butane blending. The combination of these improvements helped us generate nearly 25% more EBITDA on the system in 2018 than 2017.

Last year we announced projects to facilitate the export of refined products in Northern Mexico. These are progressing well and are backed by several long-term T&D contracts with strong creditworthy customers, including Valero and Howard Energy. As we have discussed in prior calls, we have been investing in our West Coast assets through a number of low-cost, high return biofuels projects to meet emerging demand in the region for biofuel storage which commands a premium over other storage rates.

While the total investment for all these project is only about $70 million, we expect these projects which go into service this year and next to deliver EBITDA multiple of around 6 times. The projects for Trafigura, the Northern Mexico projects and the West Coast biofuel projects offer a great illustration of why we decided to sell the U. K., Europe assets back in November. We sold those noncore assets for proceeds of about $270 million at a multiple well in excess for our targeted 10 times multiple, so that we can redeploy that capital for these very low multiple projects that grow our core business.

Now I'll turn it over to Tom to provide the details of our strong fourth quarter and full year 2018 results.

Tom Shoaf -- Vice President and Chief Financial Officer

Thanks Brad and good morning everyone. As Bran mentioned earlier, 2018 was a transformative year. We executed on our comprehensive plan to improve our key metrics, reduce our need for future equity and to reposition NuStar to execute on organic growth opportunities. As a result our 2018 EBITDA, net income and EPU includes the effects of a $79 million hurricane insurance gain in the first quarter, a simplification charge of $377 million in the third quarter that affects EPU only and a noncash charge of $43 million from the sale of the European operations in the fourth quarter. As a result, those amounts are not comparable to the corresponding periods of the prior year. DCF excludes the effects of those transactions and is therefore comparable between the periods. In the earnings press release, we have included a table showing fourth quarter and full year 2018 EBITDA, net income and EPU as adjusted to be a comparable to the amounts from prior year. And today I will be referring to those adjusted numbers.

As you can see, in all cases, our results improved over the prior comparable period. For the fourth quarter of 2018, we generated adjusted EBITDA of $165 million, up 15% compared to the fourth quarter 2017 EBITDA of $144 million. Adjusted net income for the fourth quarter of 2018 was $45 million, up 81% from the fourth quarter of 2017, net income of $25 million. Fourth quarter 2018 DCF available to Common Limited Partners was $91 million, up $50 million or 119% for the fourth quarter of 2017. And as Brad mentioned earlier, our distribution coverage ratio to the Common Limited Partners was approximately 1.42 times.

For the full year 2018, our adjusted EBITDA was $666 million, at the high end of the guidance range we provided on last quarter's call, with adjusted EBITDA being up 12% compared to 2017 EBITDA of $595 million. Full year 2018 DCF available to Common Limited Partners was $354 million, up $96 million or 37% from 2017. And our distribution coverage ratio to the Common Limited Partners was also approximately 1.42 times for the full year.

Fourth quarter 2018 EBITDA in our Pipeline segment was $115 million, up $26 million or 29% from the fourth quarter of 2017, largely due to continued throughput volume ramp on our Permian Crude System, as well as increased throughput volumes on our McKee system due to the large turnaround at one of our customer's refineries in the fourth quarter of last year. We also saw increased volumes on our East Pipeline System, driven by our CHS, Council Bluffs' Iowa acquisition.

Fourth quarter 2018 EBITDA on our Storage segment was $67 million, down $16 million from the fourth quarter of 2017, due to a variety of factors, including decreased revenue associated with our sale of the European assets in the fourth quarter and the impact of decreased storage rates at certain locations due to contract renewals in a backwardated market. As we mentioned in November, PDVSA also agreed to reduce its footprint at our St. Eustatius terminal to allow us to diversify our customer base there, as we are recontracting that storage over this year and next.

Our Fuels Marketing segment generated $13 million for the fourth quarter of 2018, up $11 million from the fourth quarter of 2017, mainly as a result of higher butane volumes and margins on our -- I'm sorry, higher butane volumes and margins on our East Pipeline System, as well as improved margins on our bunkering operations.

Our December 31st debt balance was $3.1 billion, while our debt-to-EBITDA ratio was 4.05 times, down significantly from 4.5 times at the end of the third quarter and below our 2018 credit agreement covenant threshold of 5.25 times.

Now let me spend a few minutes talking about our projections for 2019. We continue to expect NuStar's 2019 EBITDA to be in the range of $665 million to $715 million. With regard to 2019 capital spending estimates, we deferred certain 2018 spending into 2019. And as a result we now plan to spend $500 million to $550 million on strategic and other capital in 2019.

So expected strategic capital spending for 2018 and 2019 combined has not changed. Based on our revised spending forecast, we now expect to spend approximately $185 million on the Permian Crude System, $155 million on the Northern Mexico refined products supply projects and about $85 million on our Corpus Christi North Beach terminal export project. So once again our combined 2018, 2019 capital spend will be the same as reported on our third quarter earnings call, resulting in no change to EBITDA or our leverage guidance for 2019.

Regarding our reliability capital spending for 2019, we continue to expect to spend $70 million to $90 million, which includes about $35 million of hurricane repairs that would be paid with insurance proceeds, and $11 million to complete work on our ammonia system replacement project. Based on these projections, we continue to expect our common unit distribution coverage ratio for 2019 to be in the range of 1. 2 times to 1.3 times.

Because we are executing in 2019 on high return growth projects that Brad mentioned, we expect our debt-to-EBITDA ratio to be around 4.3 times at year end. However, as those projects are completed and begin generating EBITDA, the bar plan shows steady improvement in our debt metric thereafter.

And with that I'll turn the call back over to Brad for his closing remarks.

Brad Barron -- President and Chief Executive Officer

Thanks Tom. As Tom said, we produced strong results for the fourth quarter and for the full year, meeting or exceeding all of our projections. We also made dramatic strides in 2018. Not only did we reposition the Company for long-term success, but we delivered significantly higher quarter-over-quarter and year-over-year financial results, with higher adjusted net income, EPU and EBITDA while significantly improving our debt metrics and distribution coverage. We also achieved all the hallmarks of MLP health. We now have strong coverage, lower leverage, simplified governance and minimal equity and capital needs through 2021.

Now with 2018 in our rearview mirror we're focused on executing on high return growth projects to take advantage of some of the best midstream opportunities the MLP sector has ever seen while continuing to lower our leverage and maintaining strong coverage ratio.

Before I close and turn to Q&A I want to address the recent expansion of the U.S. sanctions on Venezuela and PDVSA. Since the announcement late on Monday we've been reviewing those changes. As you'll recall, last November we told you we'd entered into a settlement agreement with PDVSA that accomplished two key things for NuStar. First, we reduced PDVSA's footprint at the terminal by about half, allowing us to diversify to a broader customer base. Second, we received a one-time nonrefundable payment for PDVSA's financial obligations to NuStar through the end of August this year. As you heard Tom mentioned, we're mentioning our guidance for 2019, which means we remain confident in our outlook for strong performance this year. And thanks to the settlement that I mentioned, our exposure to PDVSA has been reduced substantially.

So thank you for listening in today. I'll now open it up for Q&A.

Questions and Answers:

Operator

(Operator Instructions) And your first question comes from the line of Theresa Chen with Barclays.

Theresa Chen -- Barclays -- Analyst

Good morning. Brad I want to follow up on your comments about the Venezuelan sanctions. Understand that you reiterated your guidance. But previously I believe you had expected cash payments from the counterparty from September through March of 2020. Just looking at 2019 September to December, at this point should we read the reiteration of guidance such that you don't expect the cash payments anymore, but the other pockets of strength in other parts of our business should account for that?

Brad Barron -- President and Chief Executive Officer

That's just one way of looking at it. The way we look at it is that what we have in the forecast for the remainder of the year is not substantial. And so whether we get it or not then it's not enough to move the needle outside of our guidance range.

Theresa Chen -- Barclays -- Analyst

Understood. And also related to your guidance range, clearly the trucked volumes to your South Texas System is helping a lot right now. What's your expectation for those volumes moving forward? And general expectations of any business that is exposed to the Midland to Gulf Coast's spread, just given recent volatility, which I imagine would include the crude by rail movements to St. James as well?

Danny Oliver -- Senior Vice President, Marketing and Business Development

Right. Theresa this is Danny Oliver. We are continuing to see, even with those mid-cush diffs coming in, we're continuing to see about 30,000 barrels a day of trucked volumes into our South Texas Crude System. We have not forecasted that out any further than a month or two out, just because it is so volatile. The Permian unit trains that we have in the forecast are committed to. But really it's a -- it flows between Permian or Western Canadian barrels coming in by unit train, and the arbs from Western Canada are still wide open.

Theresa Chen -- Barclays -- Analyst

Great. And can you just talk about the financing plans for this year? Given your leverage guidance, it looks like you're going to use your balance sheet again. Are you also reserving the optionality to go for another preps (ph), or potentially asset sales of other, I guess, discrete, non-core assets, maybe Point Tupper, West Coast terminals or the Ammonia System?

Brad Barron -- President and Chief Executive Officer

Yes, as far as financing plan goes, we don't have any plans to do any more preps. We don't have any need to do any common equity in the markets for several years. I think we said that we think we're good, likely through 2021, at least that's what our plan is showing today. And so no equity -- equity like issuances are planned during that period.

In terms of financing plans the only thing we really have on the table is to refinance the bonds that matured earlier in 2018. We still have that on the table. We need to get that done. The timing on that could be first quarter, it could be a little bit after that. We think our liquidity is fine. We're managing that. And we're going to be opportunistic in terms of timing of when we reissue those bonds and go into the market with those.

Asset sales, I mean we're always -- we're looking at things that we could potentially do there to help the delevering part. I'll tell you nothing is imminent. We're looking at a few things. But nothing really to report now on that.

Theresa Chen -- Barclays -- Analyst

Got it. And lastly, just given your presence in Corpus and the many projects in competition for a fully loaded V solution, do you have an opinion on either which project or what type of project will go forward, either onshore or offshore?

Brad Barron -- President and Chief Executive Officer

I don't think we have a real opinion on which one might get done or might not. I think they're all going to be challenged. But I think we think that Corpus Christi Port project in Harbor Island seems most likely in our view. But we continue to work with those involved in those projects to have a connection if those projects go through.

Theresa Chen -- Barclays -- Analyst

Thank you very much.

Operator

Thank you. And your next question comes from the line of Jeremy Tonet with JPMorgan. Your line is now open.

Jeremy Tonet -- JPMorgan -- Analyst

Hi, good morning. Just wanted to turn to Navigator here. And just wondered if you could let us know on the quarter where the volumes came out and what the EBITDA was. And as you look into 1Q '19 so far, do you see these trends kind of continuing? Or there are any impacts from freeze-offs or anything else that you could share with us?

Brad Barron -- President and Chief Executive Officer

Impacts from what? What was the last part? I missed it.

Jeremy Tonet -- JPMorgan -- Analyst

Freeze-offs?

Brad Barron -- President and Chief Executive Officer

Freeze-offs? What's a freeze-off?

Jeremy Tonet -- JPMorgan -- Analyst

Just cold temperatures adversely (multiple speakers)

Brad Barron -- President and Chief Executive Officer

We're in Texas, we don't see the cold like you guys are experiencing. But yes, there has been some impact from cold weather. There were several impacts in the fourth quarter. What I can tell you is we reached -- we had always talked about a goal of 360 (ph) on that system. We did hit 360 (ph) in December. And then we saw slight pullback based on weather, based on a gas line being down, weather being both freezing weather and wet weather. And so we ended the year in the mid-360s. We're seeing that continue into January. And so this is the same thing we saw last year. We saw a little bit below in January on through February. Then it began taking off again during the rest of the year.

Tom Shoaf -- Vice President and Chief Financial Officer

Yeah. That and the fact -- we have seen that. But in terms of volumes, there has been about -- like you said, about 300, 360 (ph) or so. In terms of EBITDA, fourth quarter EBITDA was about $28 million on the Permian System. So that's where we ended up there. We definitely have talked to producers. We don't see them tapping the brakes in terms of $50 oil or anything like that. They seem to be on spot with their projections of what they expect. If you remember last year, we went through kind of this same thing, weather-related in terms of volumetric with cold weather and all that. But certainly we think our guidance is intact. We think that the Permian is going to ramp up. The volumes are going to be there. The acreage is dedicated These guys really aren't tapping their brakes in terms of price of crude oil right now in the mid- 50s.

Brad Barron -- President and Chief Executive Officer

Yeah, I'll add on to what Tom said. And also want to clarify some I just said. Somebody here pointed out to me I may have misspoken. We did hit 360 (ph) in December. But it came off a little bit due to weather. So we're in the mid-300, somewhere between 330 and 350 (ph) through December and on into January. But based on everything that we've heard, and these are -- our forecasts are based on our actual conversations with producers. So we take into consideration the data that you get from (inaudible) and other things like that. But when we actually look at what we expect for the year it's based on actual conversations with producers on the ground. And all of those are unrelentingly positive.

Jeremy Tonet -- JPMorgan -- Analyst

Okay, thanks. It seems like maybe a little bit of noise here with the weather. But how did volumes enter the quarter, I guess, in October? What was the average for 4Q? Just trying to get a feel for what that ramp could look like when things are kind of normalized.

Brad Barron -- President and Chief Executive Officer

It was in the , I think, mid-330s was the average Tom. Do you have --

Tom Shoaf -- Vice President and Chief Financial Officer

For the fourth quarter? Yes.

Brad Barron -- President and Chief Executive Officer

Mid-330s for the average.

Jeremy Tonet -- JPMorgan -- Analyst

That's helpful. Thanks. And then just want to touch base on Storage as well. And I was just wondering, overall utilization, how that ended the quarter? Where you see kind of rates shaking out? Just getting the feel for where the storage market is and how you see that going over the course of the year? Any updated thoughts on IMO?

Tom Shoaf -- Vice President and Chief Financial Officer

Yes. So we're proud of our utilization rates. We're still in the mid-90s in terms of utilization. Some of the setbacks in terms of EBITDA for 2018 had to do with really a couple of locations. I think we've talked about on these calls before in the Northeast and in St. James some renewals in early 2018 when the markets were backwardated. And we saw some lower rates. Now we've got about a year left on most of those contracts. And now we're starting to see some contango creep back into the market. Brad talked about the Bayou Bridge Pipeline coming in. Now there's talk about a reversal of Kaplan. All those things I think, when we get another bite at the apple will help us get those rates back up.

Jeremy Tonet -- JPMorgan -- Analyst

That's helpful. Thanks. And in the DCF rack I was just hoping you could help me out a bit as far as the add-back. I think there was an add-back of about $55 million. And I believe $43 million of that relates to the kind of the noncash part of the sale there. But the other $12 million, could you give us some color on what drove that in the add-back?

Tom Shoaf -- Vice President and Chief Financial Officer

Yes absolutely. So as you mentioned, the big portion of that was the U.K. loss on the sale. And that was $43 million. There was about another $7 million that was customer or capital reimbursements. And then there was about another $6 million that was a combination of revenue timing adjustment and some other things as well.

Jeremy Tonet -- JPMorgan -- Analyst

Got you, great. Thanks. And so just going back to storage real quick here. Is this kind of a good run rate as we start '19, or were there any other kind of gives and takes we should think about? I think there was -- what there was -- there is still a partial contribution from the European storage assets in the quarter?

Tom Shoaf -- Vice President and Chief Financial Officer

Yes there was. I mean certainly there was some that in there, yes.

Brad Barron -- President and Chief Executive Officer

Minus the European contribution for part of the quarter, I think is probably a pretty good run rate there.

Tom Shoaf -- Vice President and Chief Financial Officer

Yes.

Jeremy Tonet -- JPMorgan -- Analyst

Got you. I'll hop back in the queue. Thank you.

Operator

Thank you. And our next question comes from the line of Shneur Gershuni with UBS.

Shneur Gershuni -- UBS -- Analyst

Hi, good morning guys.

Brad Barron -- President and Chief Executive Officer

Morning.

Shneur Gershuni -- UBS -- Analyst

I'll try and keep my questions to three or four. But first off can you talk about the maintenance CapEx run rate? It seemed pretty low in the quarter. Was it a seasonal factor? And how should we think about that on a go forward basis?

Tom Shoaf -- Vice President and Chief Financial Officer

Yes, I mean -- also keep in mind that the reliability capital number itself has those hurricane numbers in it. For example, with the fourth quarter, the $77 million of reliability capital that we reported had about $35 million with the hurricane reliability in it as well. So the net of that was probably what -- about the mid-40s or so, when you take that out. And looking at 2019 I gave guidance of $70 million to $90 million, I think it was for 2019. And so that again would include about $35 million worth of hurricane in it. So the net of that is probably a pretty good run rate going forward.

Brad Barron -- President and Chief Executive Officer

I think there's also some natural seasonality to reliability spending. We tend to do more work in the summer months than in the winter.

Shneur Gershuni -- UBS -- Analyst

All right that makes perfect sense. Just looking Storage and Pipeline results. It seemed a little bit lower than what we would have thought. I was just wondering if you can expand a little bit specifically on tariffs. Do you expect them to trend lower from here?

Tom Shoaf -- Vice President and Chief Financial Officer

No, we don't see any tariffs. We made adjustments in mid-2018 on our South Texas tariffs. But that's not changing going forward. Nothing is changing in the Permian.

Shneur Gershuni -- UBS -- Analyst

You're not like ramping up something with a lower tariffs when the average blended rate comes down? Or that's completely played out compared to last year?

Tom Shoaf -- Vice President and Chief Financial Officer

Yes. No, we're not ramping up something at new -- lower rates.

Shneur Gershuni -- UBS -- Analyst

Okay. Just looking at your revolver, you've got quite a bit drawn on it. I believe you answered in an earlier question you're looking to potentially term it out. Given the moves in the high yield market and given the -- what you're paying on the revolver itself, would it negatively impact your DCF expectations for the year? Or have you already accounted for that?

Tom Shoaf -- Vice President and Chief Financial Officer

In our guidance we've already accounted for refinancing for the bond. So that's already built in. We have seen rates climb up. There was some volatility in the market. The end of 2018 and moving into the early part of 2019, those markets have been improving. Right now we -- the indicative pricing guidance that we're getting on the new issue would put us right spot on with what we've budgeted for the year in terms of a rate on those bonds. So I think all of our guidance has already built in the fact that we're going to -- we want to refinance those bonds. And it's indicative of today's rates. So I think we're in good shape there.

Shneur Gershuni -- UBS -- Analyst

Great. And one final question. And I think you kind of touched on it before as well too. But a peer of yours is shutting down an ammonia pipeline. Is that an opportunity for you? I'm not sure if there's a major overlap. But at the same time is it a possibility that you can consider pruning that asset to help pay down leverage as well also?

Tom Shoaf -- Vice President and Chief Financial Officer

Yes, we do have some opportunities there with that event. We've been talking to customers. We have similar customers. And we've been talking to them over the last few months about that happening. And I do see that as some potential upside for our ammonia system.

Shneur Gershuni -- UBS -- Analyst

So most likely you're continuing with it rather than looking to prune?

Tom Shoaf -- Vice President and Chief Financial Officer

Yes, yes.

Brad Barron -- President and Chief Executive Officer

We don't have a plant for sale (ph).

Tom Shoaf -- Vice President and Chief Financial Officer

No.

Shneur Gershuni -- UBS -- Analyst

Okay. And do you have a regular process, ever since you've gone through the restructuring last year where you evaluate assets on an ongoing basis, and looking to prune the bottom 10%, let's say, just sort of high grade your capital assets?

Brad Barron -- President and Chief Executive Officer

We don't have a hard line like you suggest there, like 10%. But yes we are always looking at our portfolio of assets to see if that makes sense.

Shneur Gershuni -- UBS -- Analyst

Alright, perfect. Thank you very much guys. Really appreciate all the color.

Brad Barron -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And the next question comes from the line of Ryan Levine with Citi. Your line is now open.

Ryan Levine -- Citi -- Analyst

Good morning. Can you provide your updated thoughts around longer-term leverage targets?

Tom Shoaf -- Vice President and Chief Financial Officer

Well, as we said, we finished the year at a debt covenant of 4.05 times. We projected in 2019 that we'll likely be at 4.2 times by the end of 2019. And that's the guidance that we put out there -- I'm sorry 4.3 times. And so long-term target, I mean obviously we want to be lower than that. We want to be -- long term I want to be sub-4 times on debt-to-EBITDA. And we think we can get there. Certainly 2020 is a big year for us, given what our expectations in the Permian, increases in EBITDA, a lot of these projects, these very low multiple projects that we're working on today would indicate a pretty good ramp-up in EBITDA along with any other potential levers that we pull to continue to delever. So we are committed to delevering over the short term, the long-term, and we're going to keep looking at that and finding other ways to continue to delever over the next couple of years.

Brad Barron -- President and Chief Executive Officer

I'll say it a little bit different way. We tick up a little bit this next year just because we have some great projects that we need to do. So we go up from our 4.05 times to around 4.3 times. But as those products kick in, it brings us back down into this range or below, which feels pretty good to be around 4.0 times. And so if they are below we'd feel even better.

Ryan Levine -- Citi -- Analyst

Okay. And then in terms of St. Eustatius additional customer conversations or opportunities to expand beyond PDVSA. What are the state of those conversations? Or is there any update that you could provide?

Brad Barron -- President and Chief Executive Officer

Yes, we have been successful in releasing some of that storage that we got back from PDVSA. As you may recall, we said that we never anticipated filling that all at once. It was going to come in over 29 (ph) -- about half of it maybe by the middle of this year. And then the rest in 2020. And we're probably 25% or so of that storage we got back. We have released earlier than midyear. And we're still working opportunities on the rest of it. So we feel pretty good about it and we're on schedule.

Ryan Levine -- Citi -- Analyst

And how did the rates of the new customer contracts compare to legacy rates? And any change in contract portfolio, duration or other key terms that would be important to highlight?

Brad Barron -- President and Chief Executive Officer

The only thing I think would be important to highlight are the rates. And we mentioned this before, they're going to be lower than the PDVSA rates. It's just a different market than (inaudible). But we are recontracting at the rates that we assumed in our guidance.

Tom Shoaf -- Vice President and Chief Financial Officer

That's right. And all of our guidance reflects that recontracting, the lower rates all of that stuff is built in.

Ryan Levine -- Citi -- Analyst

Does the recent Venezuela news change the cadence for future recontracting or challenged anything in those efforts?

Brad Barron -- President and Chief Executive Officer

Not yet. No we haven't seen that changing any of our efforts to recontract what we have.

Ryan Levine -- Citi -- Analyst

Okay. And then just to clarify on the trucking volumes in South Texas. I understand (inaudible) the volume estimate that you provided you're only assuming that out for one or two quarters -- one or two months. You're not assuming that that's going to be in your full '19 guidance?

Tom Shoaf -- Vice President and Chief Financial Officer

That's correct.

Ryan Levine -- Citi -- Analyst

Okay, great. Thanks.

Operator

Thank you. And our next question comes from the line of Dennis Coleman with Bank of America Merrill Lynch. Your line is now open.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Hi, good morning everyone. Just one or two for me please. The fuels marketing business had a nice quarter. Anything there you might talk about, or that we can think about the run rate there?

Tom Shoaf -- Vice President and Chief Financial Officer

Yes, the lion's share of that improvement was in our butane blending business, which in our Fuels Marketing segment that is the one piece that really is pretty core to our pipeline business. It supports our Central East Pipeline System. And the improvements there on our butane blending business were in direct correlation to the CHS acquisition and some other improvements we've made on that pipeline system.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

So is this -- that's seasonal there -- some seasonality, or should we think about that as a good level going forward?

Tom Shoaf -- Vice President and Chief Financial Officer

Well, no, the butane business is seasonal. And the fourth quarter is a big period for blending the butane. But that's normal. We normally see that. But I think we're expecting continued strong annual results out of that business.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Okay. Thanks for that. And then just any update on the (inaudible) Colorado City project status and when that might be done?

Tom Shoaf -- Vice President and Chief Financial Officer

Yes so that's scheduled to come online May 1. And as you recall that is backed by firm commitments.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Okay. Alright, that's it from me. Thanks.

Brad Barron -- President and Chief Executive Officer

Thank you.

Operator

(Operator Instructions) And your next question comes from the line of Michael Blum with Wells Fargo. Your line is now open.

Michael Blum -- Wells Fargo -- Analyst

Thanks. My questions are actually addressed. Thank you.

Operator

Thank you. And we do have a follow-up question from the line of Jeremy Tonet with JP Morgan. Your line is now open.

Jeremy Tonet -- JPMorgan -- Analyst

Just had a follow-up as far as Navigator, and what was the CapEx for 2019 that you guys were expecting to kind of do what you want to do there?

Tom Shoaf -- Vice President and Chief Financial Officer

The CapEx for 2019 or 2018?

Jeremy Tonet -- JPMorgan -- Analyst

For 2019. As you disclosed like kind of how much more capital you're investing in the (multiple speakers)

Tom Shoaf -- Vice President and Chief Financial Officer

$185 million (ph) for Permian.

Jeremy Tonet -- JPMorgan -- Analyst

Got you, great. And then just last one. Trying to reconcile the facilities leverage that you mentioned, the 4.2 times (ph), where the rating agencies would have you guys stacked up? What are some -- where do the agencies have you guys these days? And what are some of the bigger drivers to those adjustments?

Tom Shoaf -- Vice President and Chief Financial Officer

Well, I mean in terms of where they have, every rating agencies differently -- every rating -- agencies are different on how they treat the preps (ph) and all that. The feedback we've gotten is, I think that we really need to be around for 4 times -- 4 -- the low 4s for most of the rating agencies. S& P doesn't give us as much credit for the preps as the other two do. So they're probably more around 4 times from a debt covenant standpoint.

Brad Barron -- President and Chief Executive Officer

You there? I think we lost Jeremy. Well Jeremy if you're listening, if that didn't answer your question just give us a call later. Is the call still on?

Operator

And ladies and gentlemen this concludes today's Q&A session. I would now like to turn the call back over to Pam Schmidt for any closing or final remarks.

Pam Schmidt -- Vice President of Investor Relations

Thank you Ashley. We once again like to thank everyone for joining us on the call today. If anyone has additional questions, please feel free to contact NuStar Investor Relations. Thanks again and have a great day.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.

Duration: 44 minutes

Call participants:

Pam Schmidt -- Vice President of Investor Relations

Brad Barron -- President and Chief Executive Officer

Tom Shoaf -- Vice President and Chief Financial Officer

Theresa Chen -- Barclays -- Analyst

Danny Oliver -- Senior Vice President, Marketing and Business Development

Jeremy Tonet -- JPMorgan -- Analyst

Shneur Gershuni -- UBS -- Analyst

Ryan Levine -- Citi -- Analyst

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Michael Blum -- Wells Fargo -- Analyst

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