You know your partnership has been through some hard times when the press release for its annual results is headlined “NuStar Energy Covers Distribution in the Fourth Quarter and for the Full Year.”

This was in fact the first time that’s happened in three years, and NuStar (NYSE: NS) might need some PR help.

But make no mistake: the MLP’s strong 2014 was no fluke. Instead, it likely marked the starting point of a multi-year growth spurt as NuStar capitalizes on its expanding midstream footprint in the fast-developing Eagle Ford shale in South Texas, port facilities in nearby Corpus Christi and a vast network of storage tanks newly in demand amid a glut of crude and related products.

This is a very different business than it was just a few years ago. Gone is an asphalt joint venture done in by soaring crude costs, and a refinery in San Antonio was also sold. Added since were hundreds of miles of strategic pipeline in the Eagle Ford, including a system purchased in late 2012 for a fraction of what it would most likely fetch today.


Source: NuStar presentation

As a result, pipeline income, which accounted for 55% of NuStar’s total last year, rose 18% in 2014, propelled by the 20% surge in crude throughput attributable largely to the Eagle Ford. Crude pipeline revenue has nearly caught up to that from the slow but steady refined products pipelines harking back to NuStar’s past as a Valero (NYSE: VLO) subsidiary. A small sliver (less than 10%) of pipeline revenue comes from an ammonia system forking from coastal Louisiana into the Midwest corn belt.

The 43 storage terminals across the U.S. and another 9 abroad, in the Caribbean, Nova Scotia and Europe provided 40% of recent income. NuStar controls an aggregate storage capacity of 93 million barrels, the rough equivalent of a single day’s global consumption. Storage pricing is continuing to improve amid a global buildup of crude and product stocks, and NuStar will continue to take advantage of the strength as 25% or so of its capacity comes up for renewal over the next year.

Source: NuStar presentation

NuStar’s pipeline contracts have typical terms of three to five years, with regulated, inflation-adjusted tariffs and minimum volume commitments. The latter are likely to prove unnecessary even at current oil prices. In fact, management noted on the last earnings call that Eagle Ford throughputs continue to set new monthly records. Shipments for Eagle Ford producers account for 25% of revenue, with the rest coming from downstream or end-use customers.

The refined products pipelines are often the only ones serving a particular refinery and, like the storage terminals, derive their income entirely from fees. Almost all of NuStar’s direct commodity exposure comes from the fuel marketing offshoot from the terminals business, which contributed 5% of 2014 segment income.

Indirectly, the partnership is heavily exposed to growth trends in the Eagle Ford. But the most economical U.S. shale is less at risk of a dramatic production slump than any other, in part because its proximity to the coast holds down shipping costs and ultimately boosts producer margins.

While distribution coverage was 1.04x for all of 2014, it was 1.12x in the fourth quarter, signifying lots of recent momentum. Although NuStar’s unit price has held up remarkably well through the oil crash and the MLP correction, it still yields an annualized 7.2%. The CEO has raised the possibility of increasing the distribution in the second half of the year as coverage continues to improve.

The cash flow will be boosted by another phase of Eagle Ford expansion and the startup of a previously idled propane pipeline running along the Texas coast. NuStar has forecast an increase of approximately 9% in its segment EBITDA in 2015. It plans to finance its $400 million to $420 million growth capex plan largely from credit facility borrowing, putting equity and debt issuance on the back burner.

Among the longer-term expansion projects on the drawing board is a joint venture with Pemex exporting liquefied petroleum gas south along two NuStar interconnects with the Mexican system.

Debt remains high at 5.2 times 2014 EBITDA, but it’s notable that NuStar has generated free cash flow for the last two years, and has not issued equity in more than two years.

Meanwhile, chairman of the board Bill Greehey, who built Valero and has been involved with NuStar from the beginning, has been buying. He spent $6.1 million on units in five separate transactions between Feb. 20 and March 2 to bring his stake in the LP units to 3.6%.

Greehey, 78, holds a much larger 19.1% stake in the units of NuStar’s general partner, NuStar GP Holdings (NYSE: NSH), which owns 15% of NuStar as well as its incentive distribution rights, and would be the primary beneficiary in the entirely plausible event of an acquisition. NSH currently yields 6.2%, though it hasn’t raised its own K-1 distribution in more than two years.

The Eagle Ford crude business is likely to remain a big rainmaker over the long haul, within a much larger, steady-earning asset base serving the needs of longtime customers such as refiners.

We’re adding NS and NSH to the Growth Portfolio. Buy NS below $70 and NSH below $45.