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Purchase will put NuStar on Fortune 500 list
Web Posted: 11/07/2007 09:40 AM CST
Vicki Vaughan
Express-News Business Writer
San Antonio soon will gain another Fortune 500 company as NuStar Energy LP plans to announce today that it will acquire the largest asphalt refiner on the East Coast.
In a deal that's been in the works for months, NuStar said it will pay $450 million, plus $100 million for inventory, to acquire CITGO Asphalt Refining Co., known as CARCO.
The acquisition is expected to vault pipeline owner NuStar, which separated from Valero Energy Corp. earlier this year, into 393rd place in the 2007 Fortune 500 rankings, as its revenue will rise to $5.8 billion from $1.1 billion, according to company calculations.
"This is a new direction for NuStar, a new line of business," NuStar Chairman Bill Greehey said. "It separates us from our peer group."
NuStar would join five local companies now on the Fortune 500: Valero Energy Corp., AT&T Inc., Tesoro Corp., USAA and Clear Channel Communications.
The NuStar acquisition is expected to close by the end of the year.
The purchase will make Nu- Star a major player in the asphalt business, as the two refineries it is acquiring can produce 27 million barrels of asphalt a year, or about 15 percent of the nation's total market, NuStar said.
The refineries — in Paulsboro, N.J., and Savannah, S.C. — produce a combined 104,000 barrels of asphalt a day.
NuStar also is acquiring three asphalt terminals and an additional 4.8 million barrels of storage capacity. In addition, it will gain access to 20 terminals with a storage capacity of about 4 million barrels.
Greehey and NuStar CEO Curt Anastasio foresee tight supply and rising demand for asphalt. While demand for asphalt is growing at almost 2 percent a year, production is declining.
NuStar's research indicates refiners are investing heavily to upgrade their plants to handle heavier crude oil, with as many as 21 projects planned for coker units. Cokers use more of the byproducts needed to produce asphalt, so NuStar expects the supply of asphalt to tighten, Greehey said.
"As a result of refiners processing more heavy crudes, there will be less asphalt production," Greehey said. "As that continues, asphalt will be in shorter and shorter supply."
About 86 percent of the asphalt is used for highway construction. "And that's growing; all states are appropriating more money for that," Greehey said, while much of the rest is used for roofing.
"Asphalt is just not a strategic focus for refiners," Anastasio said. "No major (oil company) is going to bid on these opportunities." And master limited partnerships like NuStar "haven't focused on it, mainly because they don't have the expertise in-house. We do — this doesn't intimidate us," he said.
"We expect significantly higher rates of return — strongly in the double digits," to result from the acquisition, Anastasio said. That will put the partnership in a better position to increase its distributions to unit holders, he said.
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