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NuStar Energy (NS) Q1 2020 Earnings Call Transcript

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NuStar Energy (NYSE: NS)
Q1 2020 Earnings Call
May 05, 2020, 10:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to the NuStar Energy L.P.'s first 2020 earnings conference call. [Operator instructions] I would now like to turn the call over to our speaker today, Ms. Pam Schmidt. Thank you.

Please go ahead.

Pam Schmidt -- Vice President of Investor Relations

Good morning, and welcome to today's call. On the call today are Brad Barron, NuStar Energy'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 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. Also, throughout the call today, when we talk about our results, we will be describing our results from continuing operations. In other words, the results we will refer to in this call exclude the St. Eustatius facility we sold last July.

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In addition, references to adjusted EBITDA exclude the first-quarter 2020 noncash goodwill impairment charge related to our crude oil pipelines reporting unit. 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 taking the time to join us today. It's hard to believe that our last conference call, in February, was only three months ago. Back in February, we reported a record-breaking 2019, and we were poised for an even better 2020, which you will see in the first-quarter results that Tom will talk about in a moment.

And then, in March, as we all know, the public health threat posed by COVID-19 changed the landscape for people all over the world. It's changed for now how we live, how our children are schooled and where and how we work. As people sheltered-in-place to stop the spread of the virus and energy demand plummeted, that already difficult situation on the demand side was exacerbated by OPEC+'s oversupply actions and the resulting impact to the global economy and markets around the world has been unprecedented. With that in mind, I want to update you on what NuStar has been focused on over the last two months and give you an idea of what we think will happen for the remainder of the year.

Since the start of the pandemic, our three primary goals have been in protecting our employees and their families, protecting our communities by continuing to supply the energy our country needs to maintain critical access to goods and services and protecting our business to ensure we are in the best position to weather the current storm and to benefit as conditions improve. In March, we implemented our business continuity plans, and the vast majority of our office workers have been working remotely every since that time. At our headquarters here in San Antonio, nearly everyone has been working from home, and I might add, remaining highly productive while doing so. For those of our employees whose work require their physical presence on site, immediately instituted protective distancing practices and provided them with the PPE to continue to do their job safely.

I'm proud to report that our employees have responded to these challenges as they always do by giving 110%, as they continue to perform the essential functions to keep our nation's energy flowing. I'm also grateful that none of our employees have tested positive for COVID-19. Because of our employees' commitment, NuStar's day-to-day business has not missed a beat throughout this crisis. And that continuity is truly critical, not only for our business but for the communities that our assets serve.

Sometimes it's easy to take the energy we transport and handle for granted. But in times like these, it's important to note without the contributions of the U.S. energy industry as a whole, including our employees' efforts and the investments of our unitholders, there would be no energy to transport sick individuals to healthcare facilities, no energy to provide power for hospitals, no energy to make the plastics that are used to manufacture nearly every single component of the life-saving equipment that's been so critical during this crisis. Back in March, we also began taking steps to protect the company from the changes brought by COVID-19 by reducing spending, preserving cash, strengthen our balance sheet and addressing our near-term debt maturities.

As we reported in recent press releases, we lowered the range of our strategic capital spending for 2020 to 165 to 195 million, which midpoint to midpoint is a $145 million reduction or approximately 45% below previously forecasted 2020 strategic capital spending and approximately 60% below our 2019 strategic capital spending. We've also identified 40 to 50 million of controllable and operating expense reductions for the full-year 2020. And in addition, we've identified a significant amount of additional pension reductions that we are prepared to make to scale back spending in 2021 as conditions warrant. On March 6, we renewed our revolving credit agreement.

And I'm happy to report that our $1 billion unsecured facility now runs through October of 2023. About two weeks ago, we also entered into a three-year $750 million unsecured term loan agreement with Oaktree Capital Management L.P. to increase our liquidity and to address near-term debt maturities. This transaction did not increase our debt, rather we used the initial $500 million proceeds to pay down our revolving credit agreement.

During the next 12 months, we have the option to draw down an additional 250 million, if necessary, to further enhance our flexibility. And last week, we announced a reset of our quarterly distribution to $0.40 per unit. That reduction was not an easy decision, but it was necessary and prudent step to assure that NuStar has the financial flexibility in the near-term to navigate through these difficult market conditions. We believe that NuStar is positioned to weather the challenging current conditions because of our commitments from diverse, creditworthy customers, our balanced asset base, the resilience we built into our business over the last few years and also due to the decisive actions we've taken in the last two months.

At times like these, NuStar stands out because of its best-in-class customers and assets. With regard to our customers, we are fortunate to generate over 75% of our pipeline segment revenues from customers that are either investment-grade or we have provided a letter of credit or similar credit support, and our storage segment is even higher at around 85% of revenues. With regard to our assets, it's important to understand that we are balanced, pretty evenly balanced at about 60-40 between our pipeline and storage segments and about 60-40 between refined products and crude oil. That balance is now more important than ever.

Because as the world returns to work and normal activities over the course of the next few months, we believe demand for refined products should bounce back relatively quickly. After refined product demand rebounds, crude demand, price and production should then begin to recover as well. While our refined products pipelines have reduced demand due to shelter-in-place directives, the geographic location of our assets and the products we transport have mitigated some of the negative impact. We've all heard that in the places hardest hit by COVID-19, the East and the West Coast, demand for refined products declined in April by 40 to 60%.

Fortunately, our refined products pipelines have fared better, as they're located mostly in the center of the country. These areas are more rural. The population is more spread out, and the end users have not suffered the same impact as some of the coastal population centers. Also, the mix of refined products on our system has helped to mitigate the effects of falling demand.

For example, NuStar transports very little jet fuel, the hardest hit of all the refined products. It's only about 2 to 3% of all the refined products we transport. Now let me walk you through what we're seeing on our systems and what we expect through the rest of the year. On our Central West system, we've seen demand decline the most about 35% at its low point in April.

We are starting to see that number improve as state home orders have been lifted in Texas. In South Texas, distillate is holding steady, while gasoline demand at its low point was down about 25%. Again, we expect to see that number improve as well. And demand has declined even less in the Midwest, where our Central East system is located.

That system serves a very rural population with a lot of agriculture demand. On that system, we've seen gasoline demand decline around 20%, while the distillate market has held up well. Speaking of agriculture demand, our ammonia line is performing at near-record levels as agricultural demand is very strong again this year. Although forecasting is difficult, given the uncertainties of COVID-19 and associated economic impacts, the numbers we will talk about today assume similar demand to what I just described through May.

We then project recovery beginning in June, ramping up steadily through the summer and returning to 85% of typical demand in September and staying at that level through the remainder of the year. Turning to the Permian. Prior to the pandemic, during the first quarter, our Permian system was moving an average of about 450,000 barrels a day. That's up about 4% over the fourth quarter of 2019.

Activity remained robust through April, as we moved 434,000 barrels per day last month. However, we are seeing rig counts come down. At the beginning of May, the rigs on our system were down about 25% year over year, while the Permian Basin, as a whole, is down over 52%. We believe our relative number of rigs attest to the fact that although we expect current conditions to temporarily depress production growth in the Permian in the near term, our core of the core assets in the Midland Basin should continue to outperform, not only other shale plays, but also other gathering systems in the Permian, as our system has since we acquired it, due to its geological advantages, including lower production costs and higher product quality than any other shale plays.

After talking with producers on our system, we now expect to exit 2020 at about 370,000 barrels per day, a decline of about 18% in volumes versus our December average. It's important to keep all this in context. While we focus a lot on the growth we expect in the system. The Permian crude system represents only about 20% of our total adjusted EBITDA.

Elsewhere on our crude systems, Eagle Ford volumes have held up remarkably well through March and April, but we are forecasting a decline to T&D minimums for the back half of the year. With regard to Permian crude exports, you will recall that we have a substantial take-or-pay agreement with Trafigura and we continue to forecast those revenues at the MVC levels. And last, but certainly not least, turning to our storage segment. As I mentioned earlier, storage represents about 40% of our pipeline and storage revenue.

We are fortunate that we have 75 million barrels of storage capacity, which serves as a counterbalance to the near-term challenges to the pipeline segment, which is incredibly valuable at a time like this. As you would expect, when markets are in contango, when crude and product prices are lower than the market expects them to be in the future, as is currently the case, the demand for storage asset grows, which benefits our storage segment. Up until a few weeks ago, we were about 94% leased on usable storage. Since then, our business development group has hustled and signed a number of new contracts on very favorable terms with customers across our storage locations and extended others, and now we are 100% leased.

As a result of that hustle, the actions I described previously, along with the rest of the puts and takes that I've outlined, we expect to generate full-year 2020 adjusted EBITDA of between 665 million and 735 million, which midpoint to midpoint is less than 6% lower our pre-pandemic guidance. This speaks volumes to the work of our employees and the resilience of our business. There's still a lot of unknowns with COVID-19, but we consider our current forecast to be realistic based on what we've gathered from our customers, the trends we've seen in our utilization and the projections of third-party experts. And with that, I'll turn it over to Tom to give you some more specifics on our strong first quarter and our 2020 outlook.

Tom Shoaf -- Executive Vice President and Chief Financial Officer

Thanks, Brad, and good morning, everyone. As a reminder, when I talk about the results, I will be describing the results from continuing operations and excluding the noncash goodwill impairment charge. Regarding the goodwill impairment, because of the large decline in our unit price that occurred in March, the fair value of our crude oil pipeline reporting unit fell below its carrying value. This resulted in a noncash goodwill impairment loss totaling 225 million.

I would like to remind everyone that this is a noncash charge and does not reflect the reduction in any value of our physical assets, which continue to generate cash flow. Now let's talk through the first-quarter results. For the first quarter of 2020, we generated adjusted EBITDA of 196 million, up 54 million or 38% over the first-quarter 2019 EBITDA of 141 million. First-quarter 2020 DCF available to common limited partners was 122 million, up 55 million or 81% compared to DCF available to common limited partners of 67 million for the first quarter of 2019.

And our distribution coverage ratio for the common limited partners was 2.8 times. First-quarter 2020 adjusted EBITDA in our pipeline segment was 145 million, up 37 million or 34% from the first quarter of 2019 EBITDA of 108 million due to continued throughput volume ramp on our Permian crude system and increased crude and refined products volumes on our McKee System resulting from operational issues at one of our customers' refineries in the first quarter of last year. Additionally, we saw a full quarter's contribution from the completion of our Taft 30-inch pipeline in our Corpus Christi crude system on our Valley pipeline expansion. Our first-quarter 2020 EBITDA in our storage segment was 73 million, up 17 million or 30% from the first quarter of 2019 EBITDA of 56 million, mostly as a result of a full quarter's contribution from completion of our Taft 30-inch pipeline, which flows into our North Beach terminal within the Corpus Christi crude system, as well as contributions from our West Coast terminals from project completions and our Gulf Coast terminals for increased unit train activity and product improvements -- sorry, product movements.

First-quarter 2020 EBITDA in our fuels marketing segment was 6 million, 4 million higher than our first-quarter 2019 EBITDA of 2 million, due to healthy margins from our bunkering operations and strong performance from our butane blending and transmix businesses. Our March 31st debt balance was 3.4 billion, and our debt-to-EBITDA ratio was 3.73 times, which puts NuStar under four times for the fourth consecutive quarter, much better than our debt covenant limit of five times. And in early March, we extended our unsecured revolver maturity date out to October 2023. As Brad mentioned earlier, we also entered into an unsecured $750 million term loan with Oaktree, and we have drawn down 500 million in order to address our upcoming September maturity and have the option to draw another 250 million to address our February 2021 maturity, if warranted.

The bridge loan allows us the optionality to reenter the public debt markets when they recover, but provides the necessary liquidity to ensure that we can address all of our cash needs in these turbulent times, and we're fortunate to have Oaktree as a partner. Turning to our full-year 2020 projections. We now expect NuStar's 2020 adjusted EBITDA to be 665 to 735 million, a decrease of less than 6% at the midpoint under our previous 2020 guidance. We expect strong contango uplift in our storage segment as a result of new business and favorable renewals to be more than offset by a decrease in gasoline and crude demand in our pipeline segment as a result of the COVID-19 pandemic and volatile commodity markets.

With regard to 2020 capital spending estimates, we plan to spend 165 to 195 million on strategic and other capital, a 45% reduction from previous guidance and approximately 60% below our 2019 capital spending. We have currently spent around 65 million year-to-date through April. In addition, we continue to expect 40 to 50 million of reliability capital spending in 2020. And based on these projections, we expect our common unit distribution coverage for 2020 to be in the range of 1.6 times to 1.8 times.

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

Brad Barron -- President and Chief Executive Officer

Thank you, Tom. Thanks to our employees' dedication, the inherent balance of our assets and our strong customer base, along with the steps we've taken to build resilience and flexibility into our business over the last two months and over the past few years, we are prepared to weather the storm and expect to turn in solid results for full-year 2020. It's been a difficult couple of months for the country. With March and April behind us, we plan to continue to focus on protecting our employees, our communities, our business and our operations.

Please note that NuStar is working hard every day to assure safe and efficient operations to provide the critical midstream services needed to support our nation's vital energy infrastructure and to continue to build value now and in the future. I look forward to a time when our economy is recovered and social distancing is just a memory. In the meantime, I hope you stay healthy and safe. Thank you.

And with that, I'll open up the call for Q&A.

Questions & Answers:


Operator

[Operator instructions] We have a question from Theresa Chen with Barclays.

Theresa Chen -- Barclays -- Analyst

Good morning. Thank you for taking my questions. I'd like to ask about what you're seeing across your refined product system in terms of just recent live data as we are almost halfway into second quarter? We've had several companies, both on the refining and midstream site, evidence of green shoots or cautious optimism or at least a deceleration in the pace of decline related to gasoline demand disruption. Is there any color you can provide on what you're seeing perhaps by region?

Danny Oliver -- Senior Vice President Marketing and Business Development

Yes. Theresa, this is Danny Oliver. So we -- what we do is, every week, we pull all of our refined product truck rack demand, and we analyze it two ways. We look at the week-on-week changes, and we also look at the same seven calendar days in 2019 just to see where we are versus what you would assume a normal market is for this time of year.

What we saw is a weighted average. Brad talked to you about how the percentages are a little bit different by each market, but we saw those declines in demand kind of bottoming out in April. And really, just in the last week, we've seen some very encouraging increases in demand. Now a week doesn't make a trend.

So we'll keep watching that. But the last seven days, the one we ran yesterday, we saw some significant increases across the board.

Theresa Chen -- Barclays -- Analyst

Great. And then turning to the storage side. So when you talk about 100% utilization on your storage assets, does that include previously idle capacity brought back online at Piney Point, for example?

Danny Oliver -- Senior Vice President Marketing and Business Development

That includes all of our usable storage. So if we have storage that's out of service for one reason or another, that's not included in that amount. But I can tell you, we have taken a few tanks that we had that were out of service that were -- we were able to get back in service relatively quickly and cheaply, and we put those on the contracts. But we are -- that 100% is literally a 100% of everything we have available.

Theresa Chen -- Barclays -- Analyst

Got it. And given that we are in steep contango today, while we don't expect you to fully capture what's in the forward curve, as I imagine, you're trying to balance term and duration with the rate increases, but as you start recontracting, just order of magnitude, what kind of percentage uplift are you seeing in the rate increases? And what is your target duration for the new contracts versus what it was previously?

Danny Oliver -- Senior Vice President Marketing and Business Development

Yes. So well, you make a good point. Some of the -- most of these, I would say, we've termed up for a little over a year. They go out to about the end of June, something like that.

We have some that are a little bit shorter. But rate increases, rates have definitely increased. It's different depending on where you are. But I would say we've seen pretty close to 40, 50% increases in rates where we've signed some of these new contracts.

We do take into account term as well.

Theresa Chen -- Barclays -- Analyst

Understood. And then lastly, just looking at the distillates market, the product margins have been more volatile there versus gasoline recently. And the contango in distillates is very strong incentivizing storage, I imagine. Is it easy for you to switch between gasoline and distillates, if we are at an inflection point in demand for gasoline, for example, but distillate is still a bit volatile?

Danny Oliver -- Senior Vice President Marketing and Business Development

It depends on where we are. We have some -- the main differences is that you have to have a floating -- internal floating roof for gasoline storage and you don't for distillate. So some terminals, we have that available for either product and some we don't.

Theresa Chen -- Barclays -- Analyst

Got it. Thank you very much. And glad to hear it that you are all safe and well.

Danny Oliver -- Senior Vice President Marketing and Business Development

Thank you, you too.

Operator

Your next question is from Gabe Moreen with Mizuho.

Gabe Moreen -- Mizuho Securities -- Analyst

Hi, good morning everyone. Just a question in terms of PCS and the Eagle Ford systems. You mentioned the year-over-year expected change on PCS. Can you talk a little bit about your expectations or what you're seeing for shut-ins in the system? And what you're expecting there just for the rest of the year and maybe currently?

Danny Oliver -- Senior Vice President Marketing and Business Development

Sure, Gabe. This is Danny again. So we haven't seen any shut-ins in the system through April. As Brad mentioned, we've kind of been hanging right around this 440,000 barrel a day mark.

We do know that in the month of May, we're going to see some wells either choke back or shut-in. We've obviously made the rounds with all of our producer customers and have a really good idea of what we're going to see here in May. And we're expecting somewhere in the neighborhood of 15 to 18% decline in volumes based on that activity. And we've assumed in our forecast that that's going to go out for a couple of months and before pricing is impacted and you get some of those wells turned back on.

But basically, for the balance of the year, even with those wells turning back on, with natural declines and lower levels of activity, we think we're going to exit, as Brad mentioned, about 370,000 barrels per day by the end of the year.

Gabe Moreen -- Mizuho Securities -- Analyst

And then maybe just sort of a related question on the capex puts and takes. Assuming that your forecast holds for PCS, is there any capex needed to spend out in that system in '21 for example, or even in the back half of this year?

Danny Oliver -- Senior Vice President Marketing and Business Development

We have a small amount of capex left in our budget to the tune of about 25 million or so for the Permian. That's just all variable based on what kind of activity we see. If we see activity picking up quicker than we have modeled, then we would welcome the capital back into our forecast, but we'll just kind of play that by year, but very little left for the balance of the year.

Gabe Moreen -- Mizuho Securities -- Analyst

And then just a bigger picture question on sort of the distribution cut, the new term loan. Can you maybe talk about some of the gives and takes and other maybe alternatives you might have explored, whether it was equity, asset sales kind of how you arrived to this? And clearly, you moved pretty quickly in terms of, I think, taking some of your refinancing risk off the table, but can you just talk about some of the thought process there?

Tom Shoaf -- Executive Vice President and Chief Financial Officer

Yes. This is Tom. We were very pleased to get the $750 million unsecured term loan from Oaktree. And as we said, we've already drawn down 500 million of that to pay down our revolver.

We felt it was very important for NuStar, our bondholders, our investors, our rating agencies, to obtain the loan to improve our liquidity. We were looking at those September 2020 and February 2021 bond maturities. And as you guys know, the high-yield bond markets remain close for energy midstream companies like NuStar. So we looked at various alternatives.

But at the end of the day, we like getting the liquidity from the 750 million. It certainly seemed like our best option. We got enough and we got it quickly to be able to take care of those maturities and be able to get that off the table and say, we've taken care of that. We don't have those liquidity needs going forward.

Brad Barron -- President and Chief Executive Officer

Yes. Gabe, this is Brad. What I -- in an answer to your question, I would tell you that we're trying to take a balanced approach and not leaning too heavily on any one particular lever. We have several levers that are available to us, and we like to think that we've struck a good balance across those particular things.

Gabe Moreen -- Mizuho Securities -- Analyst

And then last quick one for me. Any issues in terms of product going into Mexico at all on those pipes, force majeure or otherwise? Or is that -- are those pipes just running ratably and contractually everything going according to plan?

Danny Oliver -- Senior Vice President Marketing and Business Development

Yes, yes, everything running ratably and contractually. We did finish and go into full-service on our Nuevo Laredo piece of that project, and that T&D kicked off April 1st. And by the end of April, they were flowing volumes above T&D levels.

Gabe Moreen -- Mizuho Securities -- Analyst

Good to hear. Thanks everyone.

Operator

The next question is from Jeremy Tonet with JP Morgan.

Joe Martoglio -- J.P. Morgan -- Analyst

Hi, this is Joe on for Jeremy. First, I wanted to ask on the distribution reduction. And specifically, I guess, why the 33% reduction was the right level? Some peers have done more, some have been cut. And then also, I guess, how you see the ability to kind of naturally delever at that distribution level?

Tom Shoaf -- Executive Vice President and Chief Financial Officer

This is Tom. I guess to first talk about the distribution reduction, we ran many different cash flow forecast scenarios using a wide variety of assumptions. And the 33% reduction gives us additional liquidity of around 80 to 90 million, which we feel is the appropriate level. I know that other MLPs have cut deeper, but given our company's resilience, the diversity of our well-balanced business segments, we didn't think we needed to cut any further than that.

So that's kind of on the distribution. As far as leverage goes, what we can tell you is, we've made a lot of progress in the last few years delevering, and we've actually beat our leverage guidance in the past couple of years. We finished out 2019 at 3.88 times. And in the first quarter, we're down to 3.7 times, and we've been below four times for four consecutive quarters.

Going forward, I'd say that delevering from our current level will be more challenging in this post-COVID environment, but we'll spend our capital wisely. As we said, our 2020 capital spending guidance is about 60% lower than last year, and we have room to cut capital further in 2021, if needed. So those are the things we're looking at. It's still a focus, but it could be a little bit more challenging until we get past this COVID thing.

Brad Barron -- President and Chief Executive Officer

What I would add to that is, I wouldn't look at where we stand right now this quarter in the middle of a pandemic. So what I would look at is what we've been able to accomplish over the last couple of years. So Tom mentioned our leverage metrics for the end of 2019 and the beginning of this year -- the first quarter this year. So this quarter mark the fourth consecutive quarter that we were below four times.

The last time that happened was about 14 years ago. So what that shows you is NuStar's commitment to delevering. So the pandemic -- pandemics end, and markets recover. And as that happens and as that comes back, and as we've talked about in my comments here, we have an extraordinarily resilient business, and we will return to our plan for delevering.

Joe Martoglio -- J.P. Morgan -- Analyst

OK. That makes sense. And then it looks like a lot of progress on reducing operating expenses as well. Any, I guess, color there you can give on what specific areas you were able to reduce expenses on?

Danny Oliver -- Senior Vice President Marketing and Business Development

On the opex side, some of that was naturally occurring as we've reduced capacities on pipelines to save money on power and some other variable-type expenses. I think there's a little bit of comp and then some other things that we've found just to help ourselves on.

Joe Martoglio -- J.P. Morgan -- Analyst

OK. Makes sense. And then just one quick one. The impairment, just is that related to Navigator or a different crude pipe or the South Texas system? Can you say that?

Danny Oliver -- Senior Vice President Marketing and Business Development

I'd just say it's related to our crude pipe segment -- crude pipeline segment in general. Again, that was more of a product of a reduction in our unit price, which drove the market cap down. And when you compare that to book value, that's what created the impairment, but it was related to the crude pipelines.

Joe Martoglio -- J.P. Morgan -- Analyst

OK, thank you. That's all for me.

Operator

Your next question is from Shneur Gershuni with UBS.

Shneur Gershuni -- UBS -- Analyst

Good morning guys. A couple of follow-up type questions here. First off, with respect to your guidance around Navigator and the pipelines. In general, what levels of shut-ins are you assuming? And when do you expect them to be turned back to services? Is that the way we should think about the bottom end and top end of your guidance range?

Danny Oliver -- Senior Vice President Marketing and Business Development

Yes. I think -- I mean, what we're -- what we've got in our forecast is for the month of May and June to see about a 15 to 18% drop in volumes due to the shut-ins or choke backs. And really, we've got it in there for two months, but our producers are telling us it's really kind of a week-by-week decision if they get some improvement in crude prices, they could turn them back on. And so we'll just kind of see what happens on crude pricing here over the next couple of months.

But as I mentioned before, once eventually, I think prices will react and then as we see -- if we see the wells being turned back on, then I think you'll see the natural decline curves kind of keeping a lid on growth until we see even more improvement in pricing.

Shneur Gershuni -- UBS -- Analyst

OK. Cool. A couple more questions here. Just the storage you said in your prepared remarks that you're now 100% contracted on storage.

What's the next maturity on your stores? Or how should we think about the average contract like? Could we see that this is in place for the next year or two years? Just trying to understand what your average rate -- your average storage --

Danny Oliver -- Senior Vice President Marketing and Business Development

Yes, we've got about 26%. I think it is just under 30% of our lease revenues up for renewal in the next year. We don't really have a significant block of storage coming up for renewal until the end of this year, right around December. So we won't see a lot of activity there until the end of the year gets here.

But I suspect that we'll still be in a contango environment at that time.

Shneur Gershuni -- UBS -- Analyst

OK. Just two more follow-up questions here. Just trying to understand the protections you have on your MVCs from the exporting side on the terminal. And maybe I'll say this word very carefully, how -- what protections do you have to avoid, shall we say, a price majeure attempt? Just trying to understand what protections do you have in that respect?

Brad Barron -- President and Chief Executive Officer

Are you asking are we worried about force majeure on a contract?

Shneur Gershuni -- UBS -- Analyst

Well, I was really more saying price majeure, but I guess, it would be an attempted force majeure on the contract.

Pam Schmidt -- Vice President of Investor Relations

All right. Are you talking about customers coming in and asking us for lower tariffs?

Shneur Gershuni -- UBS -- Analyst

Yes. Exactly.

Danny Oliver -- Senior Vice President Marketing and Business Development

OK. That has not happened, and we're not expecting to deal with that issue.

Shneur Gershuni -- UBS -- Analyst

OK. And then one final question. With respect to the terms related to the recent credit facility that you just signed, they were pretty high, and I understand that the market was very tough at that point in time. Did the lenders know about the plans to cut the distribution ahead of timing? Was that factored into the rates, and they could have been even higher? Or could you have strategically announced your distribution cut before those negotiations to help reduce the owner's terms that they put on that facility?

Brad Barron -- President and Chief Executive Officer

I'll let Tom answer some of that. But I do want to correct one thing that you said there, which is the terms are high. The term -- we're very pleased with the terms that we have on the Oaktree loan. When we priced that facility, it was very close to what our bonds were trading at.

And so we feel that in this market, that was a good deal. So --

Tom Shoaf -- Executive Vice President and Chief Financial Officer

Yes. And to take it a step further. I mean, we didn't think we needed to incorporate a distribution cut in the loan agreement. We don't believe we would have gotten a better deal, how we layered in that cut.

I can't disclose all the negotiations and all the counterparties that we dealt with, but I can tell you that we took the best deal with the best partner.

Shneur Gershuni -- UBS -- Analyst

All right, that sounds good. Really appreciated the call earlier today and stay safe.

Tom Shoaf -- Executive Vice President and Chief Financial Officer

Thank you for your time

Operator

[Operator instructions] Your next question is from Ryan Levine with Citi.

Ryan Levine -- Citi -- Analyst

Good morning. What portion of your cost reductions are recurring versus nonrecurring? I think you had highlighted that some of the cost reductions related to lower power charges?

Tom Shoaf -- Executive Vice President and Chief Financial Officer

Well, in terms of reoccurring, a lot of those cost reductions were what we call variable, right? Some of it was tied to volumes and things like that. When you talk about opex, other G&A cuts, I mean, they're just across the board. We made cuts in many, many different areas of the company. And so that was a direct result of the pandemic and the things we thought we needed to do to shore things up and get into a safer mode of operation going forward.

As far as reoccurring, we're going to be held on this pandemic lasts. I don't think that if this thing carries on for a long period of time, we'll probably continue with some of those reductions. But as things improve, obviously, your opex would go up as volumes go up accordingly, and some of these cuts that we made may not be necessary. So we'll just kind of monitor that as we go forward.

Brad Barron -- President and Chief Executive Officer

But to echo what Tom said, I think some of these cuts, you will see those extend out into 2021. I mean, we've learned how much we can tighten our belt and how to work more efficiently. And so I think you'll see the effect of some of these continue on.

Ryan Levine -- Citi -- Analyst

Maybe just a follow-up on that. So if most are more variable, I mean, the portion that's likely to continue into the future, is it directionally worth maybe $10 million? Or is it more isolated?

Brad Barron -- President and Chief Executive Officer

I don't think we sat down and quantified that. So --

Ryan Levine -- Citi -- Analyst

OK. And then in the prepared remarks, there was commentary about additional identified costs that can be pursued if the COVID dynamic extends longer. Are those variable in nature as well? Or is there any more permanent cost-cut initiatives that the company can pursue?

Tom Shoaf -- Executive Vice President and Chief Financial Officer

Well, some of that is capex, right? So we have the ability to cut capex pretty significantly, really in 2021, if needed, and we'll just have to wait and see how things progress and with demand and volumes, etc., because that's going to be pretty much tied to that as well. So a lot of that is capex that, I'll call it, the low-hanging fruit for 2021. But there are some more cost reductions in our expenses that we could do in 2021 as well. Again, if that's warranted, if it's needed and things don't improve dramatically between now and then.

Ryan Levine -- Citi -- Analyst

OK, that's all for me. Thank you.

Operator

I am showing no further questions at this time. I would like to turn the conference back over to our host.

Brad Barron -- President and Chief Executive Officer

So since there's no further questions, I want to end by thanking our employees once again. So our employees worked safely and kept energy flowing all across the country. What they've done is nothing short of incredible, and I'm proud to be associated with each and every one of them. To our investors and others on this call, I wish you all the best, and I hope that you stay healthy and safe.

Pam?

Pam Schmidt -- Vice President of Investor Relations

All right. Thank you very much. We'd like to thank everybody for joining us today. If anyone has any additional questions, please feel free to contact NuStar investor relations.

Thank you again, and have a great day.

Operator

[Operator signoff]

Duration: 47 minutes

Call participants:

Pam Schmidt -- Vice President of Investor Relations

Brad Barron -- President and Chief Executive Officer

Tom Shoaf -- Executive Vice President and Chief Financial Officer

Theresa Chen -- Barclays -- Analyst

Danny Oliver -- Senior Vice President Marketing and Business Development

Gabe Moreen -- Mizuho Securities -- Analyst

Joe Martoglio -- J.P. Morgan -- Analyst

Shneur Gershuni -- UBS -- Analyst

Ryan Levine -- Citi -- Analyst

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