NuStar GP Holdings, LLC's Earnings Show the Benefits of Fees

The midstream general partner sees steady earnings from its relationship with MLP NuStar Energy.

Matthew DiLallo
Matthew DiLallo
Nov 7, 2015 at 12:05PM
Energy, Materials, and Utilities

When commodity prices turn volatile, the energy industry splits into two groups, those deeply affected by that volatility and those experiencing relatively little impact. NuStar GP Holding (NYSE:NSH)is in the latter, with the entirety of its income derived from earnings made from managing and owning a large stake in master limited partnership NuStar Energy (NYSE:NS), which primarily owns fee-based assets. Because these assets earn fees regardless of what commodity prices are doing, it drives steady results for the NuStar family.

NuStar results: The raw numbers


Q3 2015 Actuals

Q3 2014 Actuals

Growth (YOY)

Total Cash Distributions From NuStar Energy

$24.1 million

$24.1 million


Distributable Cash Flow

$22.8 million

$23.7 million


DCF Per Unit




Data source: NuStar GP Holdings.

What happened with NuStar this quarter? 
NuStar results were fairly stable:

  • All of NuStar GP's income is derived from cash distributions by NuStar Energy, including $1.9 million from its general partner interest, $10.8 million from its incentive distribution rights, and $11.3 million from its limited partner interests. It's that last number that is down ever so slightly year over year.
  • The only other change from the year-ago quarter is the fact that NuStar paid higher taxes this quarter. Last year, the company had a $608,000 tax benefit, while this quarter it had a $215,000 tax expense.
  • These two differences resulted in the minor year-over-year reduction in distributable cash flow.
  • This also affected its coverage ratio, which showed a slight shortfall from the $0.545 per unit it paid in distributions during the quarter.

What management had to say 
CEO Brad Barron, commenting on results, said that "the continued strength of NuStar Energy L.P.'s core, fee-based operations had a positive impact on NuStar GP Holdings, LLC's third quarter results."

So, given NuStar Energy's importance to NuStar GP investors, it's worth it to briefly review those results. The MLP reported distributable cash flow of $89.4 million, or $1.15 per unit, which was up from $87.9 million, or $1.13 per unit in the year-ago quarter. According to Barron, who is also the CEO of NuStar Energy, the primary drivers of this improvement was,

Higher storage utilization and positive renewals at several of our terminals, as well as the added benefit from our Linden terminal acquisition, contributed to a 17% increase in storage lease revenues for the quarter... [And] despite the recent pullback in domestic shale production, overall our pipeline segment experienced improved crude and refined products throughput volumes, compared to the same quarter last year. 

Those pipeline and terminal assets are primarily fee-based, which deliver steady cash flow for the company. Because of this, the company more than covered its distribution for the sixth straight quarter, delivering a 1.05 times coverage ratio during the third quarter. That bodes well for NuStar GP, because it suggests that, even though its coverage ratio was a little weak, the same ratio at its MLP is strong, suggesting that NuStar should be able to maintain its current payout rate.

Looking forward 
Barron provided fairly detailed guidance for NuStar Energy for the fourth quarter and 2016, which is important for driving results at NuStar GP. He said, "We haven't changed our overall view of 2015 from what we conveyed to you in the past, but we have adjusted our expectations for each segment." He then noted the changes, which showed that the net impact of these adjustments still resulted in the company meeting its full-year expectations. Barron continued by looking at 2016, saying that, "We expect increased throughputs on our refined product pipelines to be largely offset by lower projected Eagle Ford crude oil system volumes... [And that] based on our current projections, we expect to cover our distribution again for the full-year 2016." In other words, while there are some minor impacts from weaker commodity prices, most of those impacts will be offset elsewhere. The net result is relatively stable income, which suggests continued stability at NuStar GP as well.