NuStar to buy Eagle Ford, crude NGL pipelines

NuStar Energy LP has agreed to purchase crude oil pipeline, gathering, storage, and natural gas liquids assets in the Eagle Ford shale from TexStar Midstream Services LP. NuStar will integrate the crude oil and NGL assets with its existing pipeline operations in the region.

The company also began the process of selling its San Antonio refinery and related terminal in Elmendorf, Tex., (purchased out of bankruptcy in April 2011). The refinery assets include a NuStar-built pipeline connecting the terminal to the refinery.

NuStar described the transactions as moving it away from the margin-based refining and marketing business to further grow its fee-based pipeline and storage operations.

The pipeline acquisition includes a 100,000-b/d crude pipeline system that extends from LaSalle and Frio counties to Live Oak County in Texas. The system includes 140 miles of crude transmission and gathering lines. NuStar also plans to buy five storage terminals along the pipeline system with a combined capacity of 643,400 bbl.

The terminals include TexStar's Gardendale terminal in LaSalle County, its Highway 85 terminal in Frio County, its Highway 97 and Highway 16 terminals in McMullen County, Tex., (the Highway 16 terminal is currently under construction), and its Oakville terminal in Live Oak County. The TexStar system is connected to NuStar's recently built 600,000-bbl Oakville storage terminal from which crude is transported to NuStar's 1.6-million bbl Corpus Christi North Beach storage terminal via its existing 16-in. OD pipeline.

The system is transporting roughly 60,000 b/d, but NuStar expects to reach its 100,000-b/d capacity in the next few months. Long-term, take-or-pay commitments and acreage dedications from Eagle Ford producers and marketers secure the majority of the system’s throughput.

NuStar also plans to buy a 38-mile, Y-grade NGL pipeline that extends from Pettus to Refugio in Texas, and two fractionators with a combined 57,000 b/d capacity from TexStar. NuStar and TexStar plan to enter into take-or-pay, Y-grade transportation and fractionation agreements in conjunction with NuStar’s acquisition of these assets. Under the Y-grade transportation and fractionation agreements, TexStar will dedicate Y-grade NGL production from its Pettus, Tex., natural gas processing plants for shipment on the acquired Y-grade NGL pipeline and NuStar's existing 12-in. OD Houston pipeline to fractionators to be refurbished and constructed by NuStar near Corpus Christi.

NuStar's 12-in. Houston pipeline currently ships refined products from Corpus Christi to Houston, but will be put into NGL service after it and the newly acquired line are connected in mid-2013. The Y-grade pipeline systems will also be able to deliver NGLs to Mont Belvieu, Tex., through an extension of NuStar's Houston pipeline.

NuStar has $57 million invested in its Houston pipeline but projected a roughly $2-million on its operations in 2012 due to market conditions making it more favorable for some of its customers to export refined products directly from Corpus Christi rather than transport them to Houston. The company expects that integrating the Houston 12-in. pipeline into this Y-grade pipeline system will help generate $40-50 million in annual earnings once fully implemented.

NuStar expects the pipeline purchase to cost $425 million. The acquisition will close in two separate transactions, likely financed with a combination of borrowings under NuStar's credit facility and junior subordinated notes. The crude oil assets will be acquired first, followed by the acquisition of the NGL assets a couple of months later. Pending regulatory review, NuStar expects the acquisition of the crude oil assets to close in early December, while the NGL transaction expected to be completed early first-quarter 2013, subject to certain closing conditions.

NuStar last month launched a binding open season to assess shipper interest for its proposed Niobrara Falls project moving crude from Platteville and Watkins, Colo., to Wichita Falls, Tex. (OGJ Online, Oct. 18, 2012).

Contact Christopher E. Smith at chriss@ogjonline.com.

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