NSH 2Q13 10-Q

10-Q 1 nsh2q1310-q.htm 10-Q NSH 2Q13 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________

FORM 10-Q

_________________________________________

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2013



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _______ to _______

Commission File Number 1-32940

_________________________________________

NUSTAR GP HOLDINGS, LLC

(Exact name of registrant as specified in its charter)

_________________________________________



Delaware		85-0470977
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

19003 IH-10 West San Antonio, Texas		78257
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (210) 918-2000

_________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act:



Large accelerated filer	x	Accelerated filer	£

Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of common units outstanding as of July 31, 2013 was 42,628,563.

Table of Contents

NUSTAR GP HOLDINGS, LLC AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS



PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2013 and 2012	4

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012	5

	Condensed Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 4.	Controls and Procedures	22

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 6.	Exhibits	36

SIGNATURES		37

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PART I – FINANCIAL INFORMATION


Item 1.	Financial Statements

NUSTAR GP HOLDINGS, LLC

CONSOLIDATED BALANCE SHEETS

(Thousands of Dollars)



	June 30, 2013			December 31, 2012
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,053		$	2,597
Receivable from related parties	11,259			7,870
Income tax receivable	2,444			2,450
Other receivables	—			147
Deferred income tax assets, net	103			928
Other current assets	267			248
Total current assets	16,126			14,240
Investment in NuStar Energy L.P.	440,540			464,981
Long-term receivable from related party	26,736			18,071
Deferred income tax assets, net	20,955			20,424
Total assets	$	504,357		$	517,716
Liabilities and Members’ Equity
Current liabilities:
Short-term debt	$	18,500		$	20,000
Accounts payable	376			1,002
Accrued compensation expense	18,561			14,968
Accrued liabilities	352			429
Taxes other than income tax	526			1,399
Total current liabilities	38,315			37,798
Long-term liabilities	75,345			67,096
Commitments and contingencies (Note 8)
Members’ equity	422,433			444,844
Accumulated other comprehensive loss	(31,736		)	(32,022		)
Total members’ equity	390,697			412,822
Total liabilities and members’ equity	$	504,357		$	517,716

See Condensed Notes to Consolidated Financial Statements.

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NUSTAR GP HOLDINGS, LLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Equity in earnings (loss) of NuStar Energy L.P.	$	13,417		$	(32,428	)	$	25,561		$	(20,656	)
General and administrative expenses	(618		)	(795		)	(1,418		)	(1,652		)
Other income (expense), net	18			(30		)	99			106
Interest expense, net	(170		)	(151		)	(343		)	(284		)
Income (loss) before income tax (expense) benefit	12,647			(33,404		)	23,899			(22,486		)
Income tax (expense) benefit	(88		)	196			(265		)	324
Net income (loss)	$	12,559		$	(33,208	)	$	23,634		$	(22,162	)
Comprehensive income (loss)	$	12,648		$	(33,953	)	$	23,920		$	(28,667	)
Basic and diluted net income (loss) per unit	$	0.29		$	(0.78	)	$	0.55		$	(0.52	)
Weighted-average number of basic units outstanding	42,618,376			42,575,563			42,612,057			42,574,991
Weighted-average number of diluted units outstanding	42,618,376			42,575,563			42,612,057			42,574,991

See Condensed Notes to Consolidated Financial Statements.

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NUSTAR GP HOLDINGS, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, Thousands of Dollars)



	Six Months Ended June 30,
	2013			2012
Cash Flows from Operating Activities:
Net income (loss)	$	23,634		$	(22,162	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in (earnings) loss of NuStar Energy L.P.	(25,561		)	20,656
Distributions of equity in earnings from NuStar Energy L.P.	25,561			—
Gain on sale of NuStar Energy L.P. limited partner units in connection with unit-based compensation	(99		)	(106		)
Provision for deferred income tax	294			733
Changes in current assets and liabilities (Note 6)	49			(11,841		)
Increase in long-term receivable from related party	(8,623		)	(639		)
Increase in long-term liabilities	8,249			9,079
Other, net	91			76
Net cash provided by (used in) operating activities	23,595			(4,204		)
Cash Flows from Investing Activities:
Distributions in excess of equity in earnings from NuStar Energy L.P.	22,544			45,665
Proceeds from sale of NuStar Energy L.P. units in connection with unit-based compensation	1,262			2,475
Net cash provided by investing activities	23,806			48,140
Cash Flows from Financing Activities:
Proceeds from short-term debt borrowings	18,500			15,000
Repayment of short-term debt	(20,000		)	(16,500		)
Distributions to unitholders	(46,445		)	(43,428		)
Other, net	—			368
Net cash used in financing activities	(47,945		)	(44,560		)
Net decrease in cash and cash equivalents	(544		)	(624		)
Cash and cash equivalents at the beginning of the period	2,597			1,354
Cash and cash equivalents at the end of the period	$	2,053		$	730

See Condensed Notes to Consolidated Financial Statements.

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NUSTAR GP HOLDINGS, LLC

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

NuStar GP Holdings, LLC (NuStar GP Holdings) (NYSE: NSH) is a publicly held Delaware limited liability company. Unless otherwise indicated, the terms “NuStar GP Holdings,” “we,” “our” and “us” are used in this report to refer to NuStar GP Holdings, LLC, to one or more of our consolidated subsidiaries or to all of them taken as a whole.

We have no operations or sources of income or cash flows other than our investment in NuStar Energy L.P. (NuStar Energy) (NYSE: NS). As of June 30, 2013, we owned approximately 15.0% of NuStar Energy, consisting of the following:


•	the 2% general partner interest;


•	100% of the incentive distribution rights (IDR) issued by NuStar Energy, which entitle us to receive increasing percentages of the cash distributed by NuStar Energy, currently at the maximum percentage of 23%; and


•	10,295,500 common units of NuStar Energy representing a 13.0% limited partner interest.

NuStar Energy is a publicly held Delaware limited partnership engaged in the terminalling and storage of petroleum products, the transportation of petroleum products and anhydrous ammonia, and fuels marketing. NuStar Energy has terminal and storage facilities in the United States, Canada, Mexico, the Netherlands, including St. Eustatius in the Caribbean, the United Kingdom and Turkey.

Basis of Presentation

These unaudited condensed consolidated financial statements include the accounts of NuStar GP Holdings and subsidiaries in which it has a controlling interest. Intercompany balances and transactions have been eliminated in consolidation.

We account for our ownership interest in NuStar Energy using the equity method. Therefore, our financial results reflect a portion of NuStar Energy’s net income based on our ownership interest in NuStar Energy. We have no separate operating activities apart from those conducted by NuStar Energy and therefore generate no revenues from operations.

These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature unless otherwise indicated. Financial information for the three and six months ended June 30, 2013 and 2012 included in these Condensed Notes to Consolidated Financial Statements is derived from our unaudited condensed consolidated financial statements. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. The consolidated balance sheet as of December 31, 2012 has been derived from the audited consolidated financial statements as of that date. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012.

New Accounting Pronouncement

Other Comprehensive Income. In February 2013, the Financial Accounting Standards Board further amended the disclosure requirements for the presentation of comprehensive income. The amended guidance requires that entities present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification. The amended guidance is effective prospectively for annual and interim reporting periods beginning after December 15, 2012. Accordingly, we adopted the amended guidance January 1, 2013, and it did not have a material impact on our disclosures.

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NUSTAR GP HOLDINGS, LLC

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

2. INVESTMENT IN NUSTAR ENERGY

Summary Financial Information

Condensed consolidated financial information reported by NuStar Energy is presented below (in thousands of dollars):



	June 30, 2013		December 31, 2012
	(Unaudited)
Balance Sheet Information:
Current assets	$	620,792	$	939,443
Property, plant and equipment, net	3,300,089		3,238,460
Goodwill	948,754		951,024
Other long-term assets, net	543,763		484,162
Total assets	$	5,413,398	$	5,613,089
Current liabilities	$	440,702	$	845,971
Long-term debt, less current portion	2,469,062		2,124,582
Other long-term liabilities	63,368		57,541
Total liabilities	2,973,132		3,028,094
NuStar Energy partners’ equity	2,429,132		2,572,384
Noncontrolling interest	11,134		12,611
Total liabilities and partners’ equity	$	5,413,398	$	5,613,089



	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013		2012
	(Thousands of Dollars)
Statement of Comprehensive Income (Loss) Information:
Revenues	$	904,196	$	1,767,748		$	1,903,906	$	3,377,153
Operating income (loss)	$	74,043	$	(204,908	)	$	133,505	$	(145,889	)

Income (loss) from continuing operations	$	32,266	$	(244,466	)	$	48,304	$	(206,514	)
Income (loss) from discontinued operations, net of tax	703		(2,344		)	9,069		(14,042		)
Net income (loss)	$	32,969	$	(246,810	)	$	57,373	$	(220,556	)

Other

Our investment in NuStar Energy reconciles to NuStar Energy’s total partners’ equity as follows:



	June 30, 2013			December 31, 2012
	(Thousands of Dollars)
NuStar Energy’s total partners’ equity	$	2,429,132		$	2,572,384
NuStar GP Holdings’ ownership interest in NuStar Energy	15.0		%	15.0		%
NuStar GP Holdings’ share of NuStar Energy’s partners’ equity	364,370			385,858
Step-up in basis related to NuStar Energy’s assets and liabilities, including equity method goodwill, and other	76,170			79,123
Investment in NuStar Energy	$	440,540		$	464,981

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NUSTAR GP HOLDINGS, LLC

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

3. RELATED PARTY TRANSACTIONS

We had a receivable from related parties of $11.3 million and $7.9 million, as of June 30, 2013 and December 31, 2012, respectively, mainly relating to payroll, employee benefit plans and unit-based compensation for NuStar Energy and for services provided to NuStar Energy’s joint ventures. We also had a long-term receivable of $26.7 million and $18.1 million from related party as of June 30, 2013 and December 31, 2012, respectively, related to amounts payable for retiree medical benefits and other post-employment benefits for NuStar Energy. The following table summarizes information pertaining to related party transactions:



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(Thousands of Dollars)
Expenses for payroll, employee benefit plans and unit- based compensation	$	46,292	$	50,371	$	99,197	$	108,376
Other expenses	$	84	$	90	$	177	$	186

GP Services Agreement

NuStar Energy and NuStar GP, LLC, a wholly owned subsidiary of NuStar GP Holdings, entered into a services agreement, effective January 1, 2008 (the GP Services Agreement). The GP Services Agreement provides that NuStar GP, LLC will furnish administrative and certain operating services necessary to conduct the business of NuStar Energy. All employees providing services to both NuStar GP Holdings and NuStar Energy are employed by NuStar GP, LLC; therefore, NuStar Energy reimburses NuStar GP, LLC for all employee costs, other than the expenses allocated to NuStar GP Holdings (the Holdco Administrative Services Expense). The GP Services Agreement will terminate on December 31, 2014, renewing automatically every two years unless terminated by either party upon six months’ prior written notice. The aggregate amounts of Holdco Administrative Services Expense that we incurred were $0.2 million and $0.3 million for the three months ended June 30, 2013 and 2012, respectively, and $0.6 million and $0.8 million for the six months ended June 30, 2013 and 2012, respectively.

Asphalt JV Services Agreement

On September 28, 2012, NuStar Energy sold a 50% ownership interest (the Asphalt Sale) in NuStar Asphalt LLC (Asphalt JV), previously a wholly-owned subsidiary of NuStar Energy. NuStar GP, LLC entered into a services agreement with Asphalt JV, effective September 28, 2012 (the Asphalt JV Services Agreement). The Asphalt JV Services Agreement provides that we furnish certain administrative and other operating services necessary to conduct the business of Asphalt JV. Asphalt JV compensates us for these services through an annual fee totaling $10.0 million, subject to adjustment based on the annual merit increase percentage applicable to our employees for the most recently completed contract year. The Asphalt JV Services Agreement will terminate on December 31, 2017 and will automatically renew for successive two-year terms. Asphalt JV may terminate the Asphalt JV Services Agreement at any time, with 180 days prior written notice or reduce the level of service with 45 days prior written notice. In the first and second quarters of 2013, Asphalt JV provided written notice to reduce the level of services that we provide to Asphalt JV. The aggregate amounts of the Asphalt JV Services Agreement charged were $2.2 million and $4.7 million for the three and six months ended June 30, 2013, respectively.

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NUSTAR GP HOLDINGS, LLC

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

4. DISTRIBUTIONS FROM NUSTAR ENERGY

The following table reflects the allocation of NuStar Energy’s cash distributions earned for the periods indicated among its general and limited partners:



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(Thousands of Dollars, Except Per Unit Data)
General partner interest	$	1,961	$	1,782	$	3,922	$	3,564
General partner incentive distribution	10,805		9,816		21,610		19,632
Total general partner distribution	12,766		11,598		25,532		23,196
Limited partner distribution	11,272		11,223		22,552		22,434
Total distributions to NuStar GP Holdings	24,038		22,821		48,084		45,630
Public unitholders’ distributions	74,013		66,255		148,018		132,522
Total cash distributions	$	98,051	$	89,076	$	196,102	$	178,152
Cash distributions per unit applicable to limited partners	$	1.095	$	1.095	$	2.190	$	2.190

On May 10, 2013, NuStar Energy paid a quarterly cash distribution totaling $98.1 million, or $1.095 per unit, related to the first quarter of 2013. On July 26, 2013, NuStar Energy announced a quarterly cash distribution of $1.095 per unit related to the second quarter of 2013. This distribution will be paid on August 9, 2013 to unitholders of record on August 5, 2013 and will total $98.1 million.

5. FAIR VALUE MEASUREMENTS

We segregate the inputs used in measuring fair value into three levels: Level 1, defined as observable inputs such as quoted prices for identical assets or liabilities in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets that are not active; and Level 3, defined as unobservable inputs in which little or no market data exists.

The following liabilities are measured at fair value on a recurring basis:



	June 30, 2013
	Level 1		Level 2		Level 3		Total
	(Thousands of Dollars)
Accrued compensation expense:
NuStar Energy restricted units and performance awards	$	13,654	$	—	$	—	$	13,654
NuStar Energy unit options	—		152		—		152
Total	$	13,654	$	152	$	—	$	13,806

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(Thousands of Dollars)
Accrued compensation expense:
NuStar Energy restricted units and performance awards	$	10,376	$	—	$	—	$	10,376
NuStar Energy unit options	—		70		—		70
Total	$	10,376	$	70	$	—	$	10,446

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NUSTAR GP HOLDINGS, LLC

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The fair value of our accrued compensation expense for NuStar Energy restricted units and performance awards is determined using the NuStar Energy unit price at the reporting date. The fair value of our accrued compensation expense for NuStar Energy unit options is determined using the Black-Scholes option-pricing model on the reporting date based on the following weighted-average assumptions:



	June 30, 2013		December 31, 2012
Expected life in years	6.5		6.5
Expected volatility	23.2	%	22.4	%
Expected distribution yield	9.6	%	10.3	%
Risk-free interest rate	0.2	%	0.2	%

Fair Value of Financial Instruments

We recognize cash equivalents, receivables, payables and debt in our consolidated balance sheets at their carrying amount. The fair values of these financial instruments approximate their carrying amounts. The fair value of our debt would fall in Level 2 of the fair value hierarchy.

6. STATEMENTS OF CASH FLOWS

Changes in current assets and liabilities were as follows:



	Six Months Ended June 30,
	2013			2012
	(Thousands of Dollars)
Decrease (increase) in current assets:
Receivable from related parties	$	(2,011	)	$	(9,866	)
Income tax receivable	6			(1,037		)
Other receivables	147			(558		)
Other current assets	(110		)	(145		)
Increase (decrease) in current liabilities:
Accounts payable	(626		)	190
Accrued compensation expense	3,593			701
Accrued liabilities	(77		)	(148		)
Taxes other than income tax	(873		)	(978		)
Changes in current assets and liabilities	$	49		$	(11,841	)

Cash flows related to interest and income tax were as follows:



	Six Months Ended June 30,
	2013			2012
	(Thousands of Dollars)
Cash paid for interest	$	246		$	240
Cash refunded for income tax	$	(35	)	$	(20	)

7. CREDIT FACILITY

On June 28, 2013, we entered into a 364-day revolving credit agreement that matures on June 27, 2014 and has a borrowing capacity of up to $40.0 million, of which, up to $10.0 million may be available for letters of credit (the 2013 Credit Facility). Our obligations under the 2013 Credit Facility are guaranteed by Riverwalk Holdings, LLC (Riverwalk), our wholly owned subsidiary. Riverwalk pledged 1,792,918 NuStar Energy units that it owns to secure its guarantee.

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NUSTAR GP HOLDINGS, LLC

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

All outstanding borrowings under the previous 364-day revolving credit facility that was set to mature on June 28, 2013, were paid off with proceeds from the 2013 Credit Facility on June 28, 2013. As of June 30, 2013, we had outstanding borrowings of $18.5 million and availability of $21.5 million for borrowings under the 2013 Credit Facility. Interest on the 2013 Credit Facility is based upon, at our option, either an alternative base rate plus 1.00% or a LIBOR-based rate plus 2.00%. As of June 30, 2013, the interest rate was 2.3%.

The terms of the 2013 Credit Facility require NuStar Energy to maintain, as of the end of each rolling period, which consists of any period of four consecutive fiscal quarters, a consolidated debt coverage ratio not to exceed 5.0-to-1.0. If NuStar Energy consummates an acquisition for an aggregate net consideration of at least $50.0 million, the maximum consolidated debt coverage ratio will increase to 5.5-to-1.0 for two rolling periods. As of June 30, 2013, NuStar Energy’s consolidated debt coverage ratio was 4.3x. We are also required to receive cash distributions of at least $12.5 million in respect of our ownership interests in NuStar Energy each fiscal quarter. Our management believes that we are in compliance with the covenants of the 2013 Credit Facility as of June 30, 2013.

8. COMMITMENTS AND CONTINGENCIES

Contingencies

We are not currently a party to any material legal proceedings and have not recorded any accruals for loss contingencies. NuStar Energy is a party to claims and legal proceedings arising in the ordinary course of its business, which it believes are not material to its financial position or results of operations. However, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on NuStar Energy’s results of operations and ability to pay distributions, which would impact our results of operations and ability to pay distributions.

9. MEMBERS’ EQUITY

The following table presents changes to our members’ equity (in thousands of dollars):



Balance as of December 31, 2012	$	412,822
Net income	23,634
Distributions to unitholders	(46,445		)
Other comprehensive income	286
Unit-based compensation	400
Balance as of June 30, 2013	$	390,697

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NUSTAR GP HOLDINGS, LLC

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Accumulated Other Comprehensive Loss

The following tables present changes in accumulated other comprehensive loss by component:



	Three Months Ended June 30, 2013
	Share of NuStar Energy’s Other Comprehensive Loss			Pension and Other Postretirement Benefit Plan Adjustments			Accumulated Other Comprehensive (Loss) Income
	(Thousands of Dollars)
Beginning Balance	$	(9,056	)	$	(22,769	)	$	(31,825	)
NuStar Energy other comprehensive loss adjustment	(421		)	—			(421		)
Net loss reclassified into income:
Amortization of prior service credit	—			(60		)	(60		)
Amortization of net loss	—			570			570
Other comprehensive (loss) income	(421		)	510			89
Ending Balance	$	(9,477	)	$	(22,259	)	$	(31,736	)



	Six Months Ended June 30, 2013
	Share of NuStar Energy’s Other Comprehensive Loss			Pension and Other Postretirement Benefit Plan Adjustments			Accumulated Other Comprehensive (Loss) Income
	(Thousands of Dollars)
Beginning Balance	$	(8,743	)	$	(23,279	)	$	(32,022	)
NuStar Energy other comprehensive loss adjustment	(734		)	—			(734		)
Net loss reclassified into income:
Amortization of prior service credit	—			(120		)	(120		)
Amortization of net loss	—			1,140			1,140
Other comprehensive (loss) income	(734		)	1,020			286
Ending Balance	$	(9,477	)	$	(22,259	)	$	(31,736	)

We recognized the net loss reclassified into income as general and administrative expense. NuStar Energy reimburses NuStar GP, LLC for these employee costs.

Cash Distributions

The table set forth below shows our cash distributions applicable to the period in which the distributions were earned:



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(Thousands of Dollars, Except Per Unit Data)
Cash distributions per unit	$	0.545	$	0.510	$	1.090	$	1.020
Total cash distributions	$	23,236	$	21,713	$	46,458	$	43,433

On May 15, 2013, we paid a quarterly cash distribution totaling $23.2 million, or $0.545 per unit, related to the first quarter of 2013. On July 26, 2013, we announced a quarterly cash distribution of $0.545 per unit related to the second quarter of 2013. This distribution will be paid on August 14, 2013 to unitholders of record on August 5, 2013, and totals $23.2 million.

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NUSTAR GP HOLDINGS, LLC

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

10. NET INCOME (LOSS) PER UNIT

We treat restricted units granted under our long-term incentive plan as participating securities in computing net income (loss) per unit pursuant to the two-class method. The computation of diluted net income (loss) per unit for the three and six months ended June 30, 2013 and 2012 excludes the outstanding options to purchase NuStar GP Holdings units, as the exercise price exceeded the average market price and their effect would have been anti-dilutive. Outstanding options to purchase NuStar GP Holdings units totaled 289,100 and 300,766 for the three and six months ended June 30, 2013 and 2012.

11. EMPLOYEE BENEFIT PLANS

The components of net periodic benefit cost related to our defined benefit plans were as follows:



	Pension Plans (a)						Other Postretirement Benefit Plans
	2013			2012			2013			2012
	(Thousands of Dollars)
For the three months ended June 30:
Components of net periodic benefit cost:
Service cost	$	4,080		$	3,904		$	293		$	315
Interest cost	1,259			1,003			235			244
Expected return on assets	(1,134		)	(979		)	—			—
Amortization of prior service credit	(10		)	(4		)	(50		)	—
Amortization of net loss	518			348			52			35
Net periodic benefit cost	$	4,713		$	4,272		$	530		$	594

For the six months ended June 30:
Components of net periodic benefit cost:
Service cost	$	8,160		$	7,808		$	586		$	630
Interest cost	2,518			2,006			470			488
Expected return on assets	(2,268		)	(1,958		)	—			—
Amortization of prior service credit	(20		)	(8		)	(100		)	—
Amortization of net loss	1,036			696			104			70
Net periodic benefit cost before disposition charge	$	9,426		$	8,544		$	1,060		$	1,188
Disposition charge (b)	180			—			—			—
Net periodic benefit cost	$	9,606		$	8,544		$	1,060		$	1,188


(a)	Includes amounts related to the pension plan, the excess pension plan and the supplemental executive retirement plan.


(b)	Disposition charge relates to NuStar Energy’s sale of its fuels refinery in San Antonio, Texas and related assets on January 1, 2013.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains certain estimates, predictions, projections, assumptions and other forward-looking statements that involve various risks and uncertainties. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report. These forward-looking statements can generally be identified by the words “anticipates,” “believes,” “expects,” “plans,” “intends,” “estimates,” “forecasts,” “budgets,” “projects,” “will,” “could,” “should,” “may” and similar expressions. These statements reflect our current views with regard to future events and are subject to various risks, uncertainties and assumptions. Please read our Annual Report on Form 10-K for the year ended December 31, 2012, Part I, Item 1A “Risk Factors,” as updated by the risk factors disclosed in Part II, Item 1A of this Form 10-Q, as well as our subsequent current and quarterly reports, for a discussion of certain of those risks, uncertainties and assumptions.

If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those described in any forward-looking statement. Other unknown or unpredictable factors could also have material adverse effects on our future results. Readers are cautioned not to place undue reliance on this forward-looking information, which is as of the date of this Form 10-Q. We do not intend to update these statements unless it is required by the securities laws to do so, and we undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

OVERVIEW

NuStar GP Holdings, LLC (NuStar GP Holdings) (NYSE: NSH) is a publicly traded Delaware limited liability company. Unless otherwise indicated, the terms “NuStar GP Holdings,” “we,” “our” and “us” are used in this report to refer to NuStar GP Holdings, LLC, to one or more of our consolidated subsidiaries or to all of them taken as a whole.

Our only cash generating assets are our ownership interests in NuStar Energy L.P. (NuStar Energy), a publicly traded Delaware limited partnership (NYSE: NS). As of June 30, 2013, our aggregate ownership interests in NuStar Energy consisted of the following:


•	the 2% general partner interest;


•	100% of the incentive distribution rights (IDR) issued by NuStar Energy, which entitle us to receive increasing percentages of the cash distributed by NuStar Energy, currently at the maximum percentage of 23%; and


•	10,295,500 common units of NuStar Energy representing a 13.0% limited partner interest.

We account for our ownership interest in NuStar Energy using the equity method. Therefore, our financial results reflect a portion of NuStar Energy’s net income based on our ownership interest. We have no separate operating activities apart from those conducted by NuStar Energy and therefore generate no revenues from operations.

NuStar Energy is engaged in the terminalling and storage of petroleum products, the transportation of petroleum products and anhydrous ammonia, and fuels marketing. NuStar Energy has terminal and storage facilities in the United States, Canada, Mexico, the Netherlands, including St. Eustatius in the Caribbean, the United Kingdom and Turkey.

NuStar Energy is required by its partnership agreement to distribute all of its available cash at the end of each quarter, less reserves established by its general partner, in its sole discretion, to provide for the proper conduct of NuStar Energy’s business. Similarly, we are required by our limited liability company agreement to distribute all of our available cash at the end of each quarter, less reserves established by our board of directors.

On January 1, 2013, NuStar Energy sold the fuels refinery in San Antonio, Texas (the San Antonio Refinery) and related assets, which included inventory, a terminal in Elmendorf, Texas and a pipeline connecting the terminal and refinery for approximately $117.0 million (the San Antonio Refinery Sale). NuStar Energy presented the results of operations for the San Antonio Refinery and related assets as discontinued operations for all periods presented.

On December 13, 2012, NuStar Energy completed its acquisition of the TexStar Crude Oil Assets (as defined below), including 100% of the partnership interest in TexStar Crude Oil Pipeline, LP, from TexStar Midstream Services, LP and certain of its affiliates (collectively, TexStar) for approximately $325.0 million (the TexStar Asset Acquisition). The TexStar Crude Oil Assets consist of approximately 140 miles of crude oil pipelines and gathering lines, as well as five terminals and storage facilities providing 0.6 million barrels of storage capacity.

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On September 28, 2012, NuStar Energy sold a 50% ownership interest (the Asphalt Sale) in NuStar Asphalt LLC (Asphalt JV), previously a wholly owned subsidiary of NuStar Energy. Asphalt JV owns and operates the asphalt refining assets that were previously wholly owned by NuStar Energy (collectively, the Asphalt Operations). Upon closing, NuStar Energy deconsolidated Asphalt JV and started reporting its remaining investment in Asphalt JV using the equity method of accounting.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

Financial Highlights

(Unaudited, Thousands of Dollars, Except Per Unit Data)



	Three Months Ended June 30,
	2013			2012			Change
Equity in earnings (loss) of NuStar Energy	$	13,417		$	(32,428	)	$	45,845
General and administrative expenses	(618		)	(795		)	177
Other income (expense), net	18			(30		)	48
Interest expense, net	(170		)	(151		)	(19		)
Income (loss) before income tax (expense) benefit	12,647			(33,404		)	46,051
Income tax (expense) benefit	(88		)	196			(284		)
Net income (loss)	$	12,559		$	(33,208	)	$	45,767
Basic and diluted net income (loss) per unit	$	0.29		$	(0.78	)	$	1.07

The following table summarizes NuStar Energy’s statement of comprehensive income (loss) data:



	Three Months Ended June 30,
	2013		2012			Change
	(Unaudited, Thousands of Dollars, Except Per Unit Data)
Revenues	$	904,196	$	1,767,748		$	(863,552	)
Cost of product sales	648,766		1,528,059			(879,293		)
Operating expenses	115,072		134,497			(19,425		)
Depreciation and amortization expense	44,063		41,887			2,176
Asset and goodwill impairment loss	—		268,483			(268,483		)
Segment operating income (loss)	96,295		(205,178		)	301,473
General and administrative expenses	19,653		23,134			(3,481		)
Other depreciation and amortization expense	2,599		2,039			560
Other asset impairment loss	—		3,295			(3,295		)
Gain on legal settlement	—		(28,738		)	28,738
Operating income (loss)	$	74,043	$	(204,908	)	$	278,951

Income (loss) from continuing operations	$	32,266	$	(244,466	)	$	276,732
Income (loss) from discontinued operations, net of tax	703		(2,344		)	3,047
Net income (loss)	$	32,969	$	(246,810	)	$	279,779

Net income (loss) per unit applicable to limited partners	$	0.28	$	(3.56	)	$	3.84

Cash distributions per unit applicable to limited partners	$	1.095	$	1.095		$	—

NuStar Energy’s net income increased $279.8 million for the three months ended June 30, 2013, compared to the three months ended June 30, 2012, primarily due to an operating loss of $290.9 million in the fuels marketing segment for the three months

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ended June 30, 2012. The operating loss of the fuels marketing segment mainly resulted from an asset impairment charge of $266.4 million in the second quarter of 2012 related to the goodwill and long-lived assets of NuStar Energy’s asphalt operations. In addition, as a result of the Asphalt Sale, the fuels marketing segment includes the results of the Asphalt Operations for the three months ended June 30, 2012, but not for the three months ended June 30, 2013.

Equity in earnings (loss) of NuStar Energy

The following table summarizes our equity in earnings (loss) of NuStar Energy:



	Three Months Ended June 30,
	2013			2012			Change
	(Thousands of Dollars)
NuStar GP Holdings’ Equity in Earnings (Loss) of NuStar Energy:
General partner interest	$	446		$	(5,131	)	$	5,577
General partner incentive distribution rights (IDR)	10,805			9,816			989
General partner’s interest in earnings and incentive distributions of NuStar Energy	11,251			4,685			6,566
Limited partner interest in earnings of NuStar Energy	2,887			(36,392		)	39,279
Amortization of step-up in basis related to NuStar Energy’s assets and liabilities	(721		)	(721		)	—
Equity in earnings (loss) of NuStar Energy	$	13,417		$	(32,428	)	$	45,845

For the three months ended June 30, 2013, NuStar Energy reported a net income per unit applicable to limited partners of $0.28, compared to a net loss of $3.56 per unit for the three months ended June 30, 2012. As our results related to both our general and limited partner interests are based on NuStar Energy’s results, we reported equity in earnings related to our general and limited partner interests for the three months ended June 30, 2013, compared to equity in loss for the three months ended June 30, 2012.

NuStar Energy’s number of limited partner units outstanding increased for the three months ended June 30, 2013, compared to the three months ended June 30, 2012, resulting from the issuance of units in the third quarter of 2012. That increase resulted in NuStar Energy increasing its total cash distributions. Since our IDR in NuStar Energy entitle us to an increasing amount of NuStar Energy’s cash distributions, our equity in earnings of NuStar Energy related to our IDR increased for the period.

Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

Financial Highlights

(Unaudited, Thousands of Dollars, Except Per Unit Data)



	Six Months Ended June 30,
	2013			2012			Change
Equity in earnings (loss) of NuStar Energy	$	25,561		$	(20,656	)	$	46,217
General and administrative expenses	(1,418		)	(1,652		)	234
Other income, net	99			106			(7		)
Interest expense, net	(343		)	(284		)	(59		)
Income (loss) before income tax (expense) benefit	23,899			(22,486		)	46,385
Income tax (expense) benefit	(265		)	324			(589		)
Net income (loss)	$	23,634		$	(22,162	)	$	45,796
Basic and diluted net income (loss) per unit	$	0.55		$	(0.52	)	$	1.07

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The following table summarizes NuStar Energy’s statement of comprehensive income (loss) data:



	Six Months Ended June 30,
	2013		2012			Change
	(Unaudited, Thousands of Dollars, Except Per Unit Data)
Revenues	$	1,903,906	$	3,377,153		$	(1,473,247	)
Cost of product sales	1,401,020		2,882,589			(1,481,569		)
Operating expenses	232,646		259,611			(26,965		)
Depreciation and amortization expense	84,491		83,648			843
Asset and goodwill impairment loss	—		268,483			(268,483		)
Segment operating income (loss)	185,749		(117,178		)	302,927
General and administrative expenses	47,147		50,301			(3,154		)
Other depreciation and amortization expense	5,097		3,853			1,244
Other asset impairment loss	—		3,295			(3,295		)
Gain on legal settlement	—		(28,738		)	28,738
Operating income (loss)	$	133,505	$	(145,889	)	$	279,394

Income (loss) from continuing operations	$	48,304	$	(206,514	)	$	254,818
Income (loss) from discontinued operations, net of tax	9,069		(14,042		)	23,111
Net income (loss)	$	57,373	$	(220,556	)	$	277,929

Net income (loss) per unit applicable to limited partners	$	0.45	$	(3.33	)	$	3.78

Cash distributions per unit applicable to limited partners	$	2.190	$	2.190		$	—

NuStar Energy’s net income increased $277.9 million for the six months ended June 30, 2013, compared to the six months ended June 30, 2012, primarily due to an operating loss of $296.3 million in its fuels marketing segment for the six months ended June 30, 2012. The operating loss of NuStar Energy’s fuels marketing segment mainly resulted from an asset impairment charge of $266.4 million in the second quarter of 2012 related to the goodwill and long-lived assets of its asphalt operations. In addition, as a result of the Asphalt Sale, NuStar Energy’s fuels marketing segment includes the results of its Asphalt Operations for the six months ended June 30, 2012, but not for the six months ended June 30, 2013.

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Equity in earnings (loss) of NuStar Energy

The following table summarizes our equity in earnings (loss) of NuStar Energy:



	Six Months Ended June 30,
	2013			2012			Change
	(Thousands of Dollars)
NuStar GP Holdings’ Equity in Earnings (Loss) of NuStar Energy:
General partner interest	$	722		$	(4,800	)	$	5,522
General partner incentive distribution rights (IDR)	21,610			19,632			1,978
General partner’s interest in earnings and incentive distributions of NuStar Energy	22,332			14,832			7,500
Limited partner interest in earnings (loss) of NuStar Energy	4,671			(34,046		)	38,717
Amortization of step-up in basis related to NuStar Energy’s assets and liabilities	(1,442		)	(1,442		)	—
Equity in earnings (loss) of NuStar Energy	$	25,561		$	(20,656	)	$	46,217

For the six months ended June 30, 2013, NuStar Energy reported a net income per unit applicable to limited partners of $0.45, compared to a net loss of $3.33 per unit for the six months ended June 30, 2012. As our results related to both our general and limited partner interests are based on NuStar Energy’s results, we reported equity in earnings related to our general and limited partner interests for the six months ended June 30, 2013, compared to equity in loss for the six months ended June 30, 2012.

NuStar Energy’s number of limited partner units outstanding increased for the six months ended June 30, 2013, compared to the six months ended June 30, 2012, resulting from the issuance of units in the third quarter of 2012. That increase resulted in NuStar Energy increasing its total cash distributions. Since our IDR in NuStar Energy entitle us to an increasing amount of NuStar Energy’s cash distributions, our equity in earnings of NuStar Energy related to our IDR increased for the period.

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TRENDS AND OUTLOOK

NuStar Energy’s Storage Segment

NuStar Energy expects its storage segment earnings for the third quarter of 2013 to be less than the second quarter of 2013 and less than the third quarter of 2012. Continued backwardation of the forward pricing curve has resulted in reduced demand for storage at certain of NuStar Energy’s terminal locations. The reduced demand is putting downward pressure on storage rates in certain markets as some of NuStar Energy’s storage contracts come up for renewal, thus negatively affecting its earnings.

Expansion projects completed in 2012 and in the first quarter of 2013 at NuStar Energy’s St. James, Louisiana terminal and its St. Eustatius terminal in the Caribbean, as well as the expected completion of a second rail-car offloading facility at its St. James, Louisiana terminal in the fourth quarter should offset the impacts of reduced demand at some of NuStar Energy’s terminals. NuStar Energy expects the full-year earnings for 2013 to be comparable to 2012.

NuStar Energy’s Pipeline Segment

NuStar Energy expects earnings for the pipeline segment to continue to improve throughout the year. Results for the third and fourth quarter and full year of 2013 should exceed the comparable periods of 2012, mainly due to higher throughputs resulting from NuStar Energy’s Eagle Ford Shale projects completed in 2012 and from its December 2012 TexStar Asset Acquisition.

During the third and fourth quarter of 2013, NuStar Energy expects to complete additional projects in the Eagle Ford Shale region that should continue to increase throughputs and improve its earnings. These increased throughputs, coupled with the July 1, 2013 tariff increase on NuStar Energy’s pipelines regulated by the Federal Energy Regulatory Commission, should contribute to higher earnings.

NuStar Energy’s Fuels Marketing Segment

Although NuStar Energy continues to experience challenges in its fuels marketing segment, NuStar Energy expects improved performance in the second half of 2013. In addition, NuStar Energy expects full year 2013 results for the fuels marketing segment to be higher than the results for 2012, primarily due to the sale of the Asphalt Operations and higher projected earnings from heavy fuel oil and bunker fuel marketing. However, due to the many factors affecting margins of these businesses, actual results may be higher or lower than what NuStar Energy currently forecasts.

NuStar Energy’s outlook for the partnership may change depending on, among other things, crude oil prices, the state of the economy, changes to refinery maintenance schedules and other factors that affect overall demand for the products it stores, transports and sells, as well as changes in commodity prices for the products it markets.

We expect our equity in earnings of NuStar Energy to increase or decrease consistent with NuStar Energy’s earnings.

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LIQUIDITY AND CAPITAL RESOURCES

General

Our cash flows consist of distributions from NuStar Energy on our partnership interests, including the IDR that we own. Due to our ownership of NuStar Energy’s IDR, our portion of NuStar Energy’s total distributions may exceed our ownership interest in NuStar Energy. Our primary cash requirements are for distributions to members, capital contributions to maintain our 2% general partner interest in NuStar Energy in the event that NuStar Energy issues additional units, debt service requirements, benefit plan funding and general and administrative expenses. In addition, because NuStar GP, LLC, a wholly owned subsidiary of NuStar GP Holdings, elected to be treated as a taxable entity in August 2006, we may be required to pay income taxes, which may exceed the amount of tax expense recorded in the consolidated financial statements. We expect to fund our cash requirements primarily with the quarterly cash distributions we receive from NuStar Energy and borrowings under our revolving credit facility, if necessary. Additionally, NuStar Energy reimburses us for all costs incurred on their behalf, primarily employee-related costs.

Cash Distributions from NuStar Energy

NuStar Energy pays quarterly distributions within 45 days following the end of each quarter based on the partnership interests outstanding as of a record date that is set after the end of each quarter. Available cash is defined as all cash on hand at the end of any calendar quarter less the amount of cash reserves necessary or appropriate, as determined in good faith by our board of directors, to fund debt we may incur, if any, general and administrative expenses, future distributions and other miscellaneous uses of cash. The table set forth below shows the cash distributions earned for the periods shown with respect to our ownership interests in NuStar Energy and IDR:



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Thousands of Dollars, Except Per Unit Data)
Cash distributions per unit	$	1.095		$	1.095		$	2.190		$	2.190
Total cash distributions by NuStar Energy to all partners	$	98,051		$	89,076		$	196,102		$	178,152
Cash distributions we received from NuStar Energy:
General partner interest	$	1,961		$	1,782		$	3,922		$	3,564
General partner incentive distribution	10,805			9,816			21,610			19,632
Limited partner interest – common units	11,272			11,223			22,552			22,434
Total cash distributions to us	$	24,038		$	22,821		$	48,084		$	45,630
Distributions to us as a percentage of total cash distributions	24.5		%	25.6		%	24.5		%	25.6		%

Cash Flows for the Six Months Ended June 30, 2013 and June 30, 2012

Cash distributions received from NuStar Energy for the six months ended June 30, 2013 were $48.1 million compared to $45.7 million for the six months ended June 30, 2012. The cash distributions we received were used principally to fund distributions to our unitholders, totaling $46.4 million for the six months ended June 30, 2013, compared to $43.4 million for the six months ended June 30, 2012. We also used excess cash to repay $1.5 million on our revolving credit facility for the for the six months ended June 30, 2013.

Credit Facility

On June 28, 2013, we entered into a 364-day revolving credit agreement that matures on June 27, 2014 and has a borrowing capacity of up to $40.0 million, of which, up to $10.0 million may be available for letters of credit (the 2013 Credit Facility). Our obligations under the 2013 Credit Facility are guaranteed by Riverwalk Holdings, LLC (Riverwalk), our wholly owned subsidiary. Riverwalk also pledged 1,792,918 NuStar Energy units that it owns to secure its guarantee.

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Cash Distributions to Unitholders

Our limited liability company agreement requires that, within 50 days after the end of each quarter, we distribute all of our available cash to the holders of record of our units on the applicable record date. The table set forth below shows our cash distributions applicable to the period in which the distributions were earned:



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(Thousands of Dollars, Except Per Unit Data)
Cash distributions per unit	$	0.545	$	0.510	$	1.090	$	1.020
Total cash distributions	$	23,236	$	21,713	$	46,458	$	43,433

Related Party Transactions

Please refer to Note 3 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for total transactions charged to and amounts due from related parties, and a description of the agreements.

Contingencies

As previously discussed, our only cash-generating assets are our indirect ownership interests in NuStar Energy. NuStar Energy is subject to certain loss contingencies, the outcomes of which could have a material effect on NuStar Energy’s results of operations and cash flows. Please refer to Note 8 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for a more detailed discussion of contingencies.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

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Item 4.	Controls and Procedures


(a)	Evaluation of disclosure controls and procedures.

Our management has evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report, and has concluded that our disclosure controls and procedures were effective as of June 30, 2013.


(b)	Changes in internal control over financial reporting.

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Except as set forth below, there have been no changes in or additions to the risk factors disclosed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2012. The information contained in this Item 1A updates, and should be read in conjunction with, related information set forth in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2012, in addition to the unaudited interim consolidated financial statements, accompanying notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations presented in Part I, Items 1 and 2 of this Quarterly Report on Form 10-Q.

RISKS INHERENT IN AN INVESTMENT IN US

Our only cash generating assets are our ownership interests in NuStar Energy. Our cash flow and ability to make distributions at current levels is therefore completely dependent upon the ability of NuStar Energy to make cash distributions at its current levels to its partners, including us. If NuStar Energy does not make cash distributions at its current levels or reduces the level of cash distributions to its partners, we may not have sufficient cash to pay distributions at our current levels.

Our operating cash flow is currently completely dependent upon NuStar Energy making cash distributions at current levels to its partners, including us. The amount of cash that NuStar Energy can distribute to its partners each quarter principally depends upon the amount of cash it generates from its operations, which will fluctuate from quarter to quarter based on, among other things:


•	the amount of throughput volumes transported in its pipelines;


•	lease renewals or throughput volumes in its terminals and storage facilities;


•	tariff rates and fees it charges and the returns it realizes for its services;


•	the results of its marketing, trading and hedging activities, which fluctuate depending upon the relationship between refined product prices and prices of crude oil and other feedstocks;


•	demand for crude oil, refined products and anhydrous ammonia;


•	the effect of worldwide energy conservation measures;


•	its operating costs;


•	weather conditions;


•	domestic and foreign governmental regulations and taxes; and


•	prevailing economic conditions.

In addition, the amount of cash that NuStar Energy will have available for distribution will depend on other factors, including:


•	its debt service requirements and restrictions on distributions contained in its current or future debt agreements;


•	the sources of cash used to fund its acquisitions;


•	its capital expenditures;


•	fluctuations in its working capital needs;


•	its issuances of debt and equity securities; and


•	adjustments in cash reserves made by NuStar Energy’s general partner, in its discretion.

Because of these factors, NuStar Energy may not have sufficient available cash each quarter to continue paying distributions at its current level or at all. Furthermore, cash distributions to NuStar Energy unitholders depend primarily upon cash flow, and not solely on profitability, which is affected by non-cash items. Therefore, NuStar Energy may make cash distributions during periods when it records net losses and may not make cash distributions during periods when it records net income.

In the future, we may not have sufficient cash to pay distributions at our current quarterly distribution level or to increase distributions.

Because our only source of operating cash flow consists of cash distributions from NuStar Energy, the amount of distributions we are able to make to our unitholders may fluctuate based on the level of distributions NuStar Energy makes to its unitholders, including us. We cannot assure you that NuStar Energy will continue to make quarterly distributions at its current level of $1.095 per unit, or any other amount, or increase its quarterly distributions in the future. In addition, while we would expect to increase or decrease distributions to our unitholders if NuStar Energy increases or decreases distributions to us, the timing and amount of such changes in distributions, if any, will not necessarily be comparable to the timing and amount of any changes in

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distributions made by NuStar Energy to us. Our ability to distribute cash received from NuStar Energy to our unitholders is limited by a number of factors, including:


•	interest expense and principal payments on any indebtedness we may incur;


•	restrictions on distributions contained in any future debt agreements;


•	our general and administrative expenses, including expenses we incur as a public company;


•	expenses of our subsidiaries, including tax liabilities of our corporate subsidiaries;


•	reserves necessary for us to make the necessary capital contributions to maintain our 2% general partner interest in NuStar Energy, as required by the partnership agreement of NuStar Energy upon the issuance of additional partnership securities by NuStar Energy; and


•	reserves our board of directors believes prudent for us to maintain for the proper conduct of our business or to provide for future distributions.

We cannot guarantee that in the future we will be able to pay distributions or that any distributions NuStar Energy pays to us will allow us to pay distributions at or above our current quarterly distribution of $0.545 per unit. The actual amount of cash that is available for distribution to our unitholders will depend on numerous factors, many of which are beyond our control or the control of NuStar Energy. Therefore, a reduction in the amount of cash distributed by NuStar Energy per unit or on the incentive distribution rights, or an increase in our expenses, may result in our not being able to pay our current quarterly distribution of $0.545 per unit.

NuStar Energy’s unitholders, excluding the owner of NuStar Energy’s general partner, have the right to remove NuStar Energy’s general partner by a simple majority vote, which would cause us to divest our general partner interest and incentive distribution rights in NuStar Energy in exchange for cash or common units of NuStar Energy and cause us to lose our ability to manage NuStar Energy.

We currently manage NuStar Energy through Riverwalk Logistics, L.P., NuStar Energy’s general partner and our indirect, wholly owned subsidiary. NuStar Energy’s partnership agreement, however, gives unitholders of NuStar Energy the right to remove the general partner of NuStar Energy upon the affirmative vote of holders of a majority of outstanding NuStar Energy common units, excluding the common units owned by us. As of June 30, 2013, we own a 13.0% limited partner interest in NuStar Energy, and the public unitholders own 85.0%. If Riverwalk Logistics, L.P. were removed as the general partner of NuStar Energy, it would receive cash or common units in exchange for its 2% general partner interest and its incentive distribution rights and would lose its ability to manage NuStar Energy. While the common units or cash that Riverwalk Logistics, L.P. would receive are intended under the terms of NuStar Energy’s partnership agreement to fully compensate it in the event it is removed as general partner, these common units or the investments made with the cash over time may not provide us with as much distributable cash, or be as valuable, as the 2% general partner interest and incentive distribution rights had we retained them.

NuStar Energy’s general partner, with our consent, may limit or modify the incentive distributions we are entitled to receive in order to facilitate the growth strategy of NuStar Energy. Our board of directors can give this consent without a vote of our unitholders.

We indirectly own NuStar Energy’s general partner, which owns the incentive distribution rights in NuStar Energy that entitle us to receive increasing percentages, up to a maximum of 23%, of any cash distributed by NuStar Energy as it exceeds a distribution of $0.60 per NuStar Energy common unit in any quarter. A substantial portion of the cash flows we receive from NuStar Energy is provided by these incentive distributions. Our limited liability company agreement provides that our board of directors may consent to the elimination, reduction or modification of the incentive distribution rights without our unitholders’ approval if our board determines that the elimination, reduction or modification will not adversely affect our unitholders in any material respect.

Restrictions in our credit facility limit our ability to make distributions to our unitholders; credit facility matures in June 2014.

Our credit facility contains covenants limiting our ability to incur indebtedness, grant liens, engage in transactions with affiliates and make distributions to our unitholders. The credit facility also contains covenants requiring NuStar Energy to maintain certain financial ratios. Our and NuStar Energy’s ability to comply with any restrictions and covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If we or NuStar Energy are unable to comply with these restrictions and covenants, a significant portion of any indebtedness under our credit facility may become immediately due and payable, and our lenders’ commitment to make loans to us under our credit facility may terminate. We might not have, or be able to obtain, sufficient funds to make these accelerated payments.

Our payment of principal and interest on any future indebtedness will reduce our cash available for distribution on our units. Our credit facility limits our ability to pay distributions to our unitholders during an event of default or if an event of default would result from the distribution.

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In addition, this and any future levels of indebtedness may:


•	adversely affect our ability to obtain additional financing for future operations or capital needs;


•	limit our ability to pursue acquisitions and other business opportunities; or


•	make our results of operations more susceptible to adverse economic or operating conditions.

Our revolving credit facility matures in June 2014. It is possible that our lenders may not agree to renew our credit facility or may only agree to renew it at substantially less favorable terms. If our credit facility is renewed on substantially less favorable terms, or if our credit facility is not renewed and we must enter into alternative financing arrangements, various limitations in these financing agreements may reduce our ability to incur additional indebtedness, to engage in some transactions or to capitalize on business opportunities. In the event we are unable to obtain adequate financing and NuStar Energy issues additional units, we may not be able to make contributions to NuStar Energy necessary to maintain our 2% general partner interest.

Our ability to sell our ownership interests in NuStar Energy may be limited by securities laws restrictions and liquidity constraints.

All of the units of NuStar Energy that we own are unregistered, restricted securities, within the meaning of Rule 144 under the Securities Act of 1933. Unless we exercise our registration rights with respect to these units, we are limited to selling into the market in any three-month period an amount of NuStar Energy common units that does not exceed the greater of 1% of the total number of common units outstanding or the average weekly reported trading volume of the common units for the four calendar weeks prior to the sale. We face contractual limitations on our ability to sell our 2% general partner interest and incentive distribution rights, and the market for such interests is illiquid.

The market price of our units could be adversely affected by sales of substantial amounts of our units into public markets, including sales by our existing unitholders.

Sales by us or any of our existing unitholders, including William E. Greehey, Chairman of the Boards of Directors of NuStar GP Holdings and NuStar GP, LLC, of a substantial number of our units in the public markets, or the perception that such sales might occur, could have a material adverse effect on the price of our units or could impair our ability to obtain capital through an offering of equity securities. Mr. Greehey currently owns 18.8% of our outstanding units.

Distributions on our incentive distribution rights in NuStar Energy are more uncertain than distributions on the common units we hold.

Our indirect ownership of the incentive distribution rights in NuStar Energy entitles us to receive our pro rata share of specified percentages of total cash distributions made by NuStar Energy with respect to any particular quarter only in the event that NuStar Energy distributes more than $0.60 per unit for such quarter. As a result, the holders of NuStar Energy’s common units have a priority over the holders of NuStar Energy’s incentive distribution rights to the extent of cash distributions by NuStar Energy up to and including $0.60 per unit for any quarter.

Our incentive distribution rights entitle us to receive increasing percentages, up to 23%, of all cash distributed by NuStar Energy. Because the incentive distribution rights currently participate at the maximum 23% target cash distribution level in all distributions made by NuStar Energy at or above the current distribution level, future growth in distributions we receive from NuStar Energy will not result from an increase in the target cash distribution level associated with the incentive distribution rights.

Furthermore, a decrease in the amount of distributions by NuStar Energy to less than $0.66 per unit per quarter would reduce our percentage of the incremental cash distributions above $0.60 per unit per quarter from 23% to 8%. As a result, any such reduction in quarterly cash distributions from NuStar Energy would have the effect of disproportionately reducing the amount of all distributions that we receive from NuStar Energy based on our ownership interest in the incentive distribution rights in NuStar Energy as compared to cash distributions we receive from NuStar Energy on our 2% general partner interest in NuStar Energy and our NuStar Energy common units.

If NuStar Energy’s general partner is not fully reimbursed or indemnified for obligations and liabilities it incurs in managing the business and affairs of NuStar Energy, it may not be able to satisfy its obligations and its cash flows will be reduced.

The general partner of NuStar Energy and its affiliates may make expenditures on behalf of NuStar Energy for which they will seek reimbursement from NuStar Energy. In addition, under Delaware law, the general partner, in its capacity as the general partner of NuStar Energy, has unlimited liability for the obligations of NuStar Energy, such as its debts and environmental liabilities, except for those contractual obligations of NuStar Energy that are expressly made without recourse to the general partner. To the extent Riverwalk Logistics, L.P. incurs obligations on behalf of NuStar Energy, it is entitled to be reimbursed or indemnified by NuStar Energy. If NuStar Energy does not reimburse or indemnify its general partner, Riverwalk Logistics, L.P.

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may be unable to satisfy these liabilities or obligations, which would reduce its cash flows. In turn, Riverwalk Logistics, L.P. would have less cash to distribute to us.

If distributions on our units are not paid with respect to any fiscal quarter, our unitholders will not be entitled to receive such payments in the future.

Our distributions to our unitholders are not cumulative. Consequently, if distributions on our units are not paid with respect to any fiscal quarter at the current distribution rate, our unitholders will not be entitled to receive such payments in the future.

Our cash distribution policy limits our growth because we do not retain earnings to reinvest in any acquisitions or growth capital expenditures, and NuStar Energy’s distribution policy may limit NuStar Energy’s growth.

Because we distribute all of our available cash, our growth may not be as fast as businesses that reinvest their available cash to expand ongoing operations. In fact, our growth is currently completely dependent upon NuStar Energy’s ability to increase its quarterly distributions because our only cash-generating assets are indirect ownership interests in NuStar Energy. If we issue additional units or incur debt to fund acquisitions and growth capital expenditures, the payment of distributions on those additional units or interest on that debt could increase the risk that we will be unable to maintain or increase our current per unit distribution level.

Consistent with the terms of its partnership agreement, NuStar Energy distributes to its partners its available cash each quarter. In determining the amount of cash available for distribution, NuStar Energy sets aside cash reserves, which it uses to fund its growth capital expenditures. Additionally, it has relied upon external financing sources, including commercial borrowings and other debt and equity issuances, to fund its acquisition capital expenditures. Accordingly, to the extent NuStar Energy does not have sufficient cash reserves or is unable to finance growth externally, its cash distribution policy will significantly impair its ability to grow. In addition, to the extent NuStar Energy issues additional units in connection with any acquisitions or growth capital expenditures, the payment of distributions on those additional units may increase the risk that NuStar Energy will be unable to maintain or increase its per unit distribution level, which in turn may impact the available cash that we have to distribute to our unitholders. The incurrence of additional debt to finance its growth strategy would result in increased interest expense to NuStar Energy, which in turn may impact the available cash that we have to distribute to our unitholders.

If in the future we cease to manage NuStar Energy, we may be deemed to be an investment company under the Investment Company Act of 1940, which would cause us either to have to register as an investment company, obtain exemptive relief from the Securities and Exchange Commission (the SEC), or modify our organizational structure or our contract rights.

If we cease to manage NuStar Energy as a consequence of Riverwalk Logistics, L.P.’s removal or withdrawal as NuStar Energy’s general partner or otherwise, and are deemed to be an investment company under the Investment Company Act of 1940 because of our ownership of NuStar Energy partnership interests, we would either have to register as an investment company under the Investment Company Act, obtain exemptive relief from the SEC, or modify our organizational structure or our contract rights to fall outside the definition of an investment company. Registering as an investment company could, among other things, materially limit our ability to engage in transactions with affiliates, including the sale and purchase of certain securities or other property to or from our affiliates, restrict our ability to borrow funds or engage in other transactions involving leverage.

An increase in interest rates may cause the market price of our units to decline resulting in the loss of a portion of your investment in us.

As interest rates rise, the ability of investors to obtain higher risk-adjusted rates of return by purchasing government-backed debt securities may cause a corresponding decline in demand for riskier investments generally, including yield-based equity investments, such as limited liability company membership interests. Reduced demand for our units resulting from investors seeking other more favorable investment opportunities may cause the trading price of our units to decline. As a result, you may lose a portion of your investment in us.

We may issue an unlimited number of additional securities without the consent of our unitholders, which will dilute your ownership interest in us and may increase the risk that we will not have sufficient available cash to maintain or increase our per unit distribution level.

At any time we may issue an unlimited number of additional securities without the approval of our unitholders on terms and conditions determined by our board of directors. The issuance by us of additional units or other equity securities of equal or senior rank will have the following effects:


•	our unitholders’ proportionate ownership interest in us will decrease;


•	the amount of cash available for distribution on each unit may decrease;


•	the relative voting strength of each previously outstanding unit may be diminished;


•	the ratio of taxable income to distributions may increase; and


•	the market price of the units may decline.

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NuStar Energy may issue additional NuStar Energy units, which may increase the risk that NuStar Energy will not have sufficient available cash to maintain or increase its per unit cash distribution level and that we will have to make a capital contribution to NuStar Energy.

NuStar Energy may issue additional NuStar Energy units, including units that rank senior to the NuStar Energy common units and the incentive distribution rights as to quarterly cash distributions, on the terms and conditions established by its general partner. Additionally, we are required to make additional capital contributions to NuStar Energy upon NuStar Energy’s issuance of additional units in order to maintain our 2% general partner interest in NuStar Energy. Furthermore, to the extent NuStar Energy issues units that are senior to the NuStar Energy common units and the incentive distribution rights, their issuance will render more uncertain the payment of distributions on the common units and the incentive distribution rights. Neither the common units nor the incentive distribution rights are entitled to any arrearages from prior quarters. The payment of distributions on any additional NuStar Energy units may increase the risk that NuStar Energy will be unable to maintain or increase its per unit cash distribution level and the requirement that we make capital contributions to NuStar Energy to maintain our 2% general partner interest may impact the available cash that we have to distribute to our unitholders.

Anti-takeover provisions in our limited liability company agreement may make an acquisition of us complicated and the removal and replacement of our directors and executive officers difficult.

Our limited liability company agreement contains provisions that may delay or prevent a change in control. These provisions may also make it difficult for unitholders to remove and replace our board of directors and executive officers.

Section 203. Our limited liability company agreement effectively adopts Section 203 of the Delaware General Corporation Law (DGCL). Section 203 of the DGCL, as it applies to us, prevents an interested unitholder, defined as a person who owns 15% or more of our outstanding units, from engaging in business combinations with us for three years following the time such person becomes an interested unitholder. Section 203 broadly defines “business combination” to encompass a wide variety of transactions with or caused by an interested unitholder, including mergers, asset sales and other transactions in which the interested unitholder receives a benefit on other than a pro rata basis with other unitholders. This provision of our limited liability company agreement could have an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that might result in a premium over the market price for our units.

Limited Voting Rights. Our limited liability company agreement provides that if any person or group other than our affiliates acquires beneficial ownership of 20% or more of any class of units, that person or group loses voting rights on all of its units. This loss of voting rights does not apply to any person or group that acquires all of its units from our affiliates or any transferees of that person or group approved by our board of directors or to any person or group who acquires the units with the prior approval of our board of directors.

Staggered Board. In addition, our limited liability company agreement divides our board of directors into two classes serving staggered two-year terms and permits the board to be divided into three classes serving staggered three-year terms upon the election of a fifth director to our board. This provision, when coupled with the provision of our limited liability company agreement authorizing only the board of directors to fill vacant or newly created directorships or increase the size of the board of directors and the provision providing that directors may only be removed at a meeting of unitholders and cannot be done by written consent, may deter a unitholder from gaining control of our board of directors by removing incumbent directors or increasing the number of directorships and simultaneously filling the vacancies or newly created directorships with its own nominees.

Preferred Unit Purchase Rights. On July 19, 2006, we entered into a rights agreement with Computershare Investor Services, LLC, as amended by the first amendment effective February 28, 2008 and the second amendment effective October 23, 2012, under which our board of directors declared a distribution of one preferred unit purchase right for each of our outstanding units. The rights become exercisable under specified circumstances, including any person or group (an “acquiring person”) becoming the beneficial owner of 15% or more of our outstanding units, subject to specified exceptions. If events specified in the rights agreement occur, each holder of rights, other than an acquiring person, can exercise their rights. When a holder exercises a right, the holder will be entitled to receive units valued at some multiple of the exercise price of the right. In some cases, the holder will receive cash, property or other securities instead of units. We may redeem the rights prior to a person or group becoming an acquiring person.

These provisions may delay or prevent a third party from acquiring us and any such delay or prevention could cause the market price of our units to decline.

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NuStar Energy’s unitholders may not have limited liability if a court finds that limited partner actions constitute control of NuStar Energy’s business and may therefore become liable for certain of NuStar Energy’s obligations, which may have an impact on the cash we have available to make distributions.

Under Delaware law, unitholders could be held liable for NuStar Energy’s obligations to the same extent as a general partner if a court determined that actions of a unitholder constituted participation in the “control” of NuStar Energy’s business. Under Delaware law, the general partner generally has unlimited liability for the obligations of the partnership, such as its debts and environmental liabilities, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. In addition, Section 17-607 of the Delaware Revised Uniform Limited Partnership Act provides that, under some circumstances, a limited partner may be liable to NuStar Energy for the amount of a distribution for a period of three years from the date of the distribution.

RISKS RELATED TO CONFLICTS OF INTEREST

Although we manage NuStar Energy through our indirect ownership of its general partner, NuStar Energy’s general partner owes fiduciary duties to NuStar Energy and NuStar Energy’s unitholders, which may conflict with our interests.

Conflicts of interest exist and may arise in the future as a result of the relationships between us and our affiliates, including NuStar Energy’s general partner, on the one hand, and NuStar Energy and its limited partners, on the other hand. The directors and officers of NuStar GP, LLC have fiduciary duties to manage NuStar Energy’s business in a manner beneficial to us, its owner. At the same time, NuStar GP, LLC has a fiduciary duty to manage NuStar Energy in a manner beneficial to NuStar Energy and its unitholders. The board of directors of NuStar GP, LLC or its conflicts committee will resolve any such conflict and have broad latitude to consider the interests of all parties to the conflict. Our independent directors will not be the same as the independent directors who serve on the conflicts committee of NuStar GP, LLC. The resolution of these conflicts may not always be in our best interest or that of our unitholders.

For example, conflicts of interest may arise in the following situations:


•	the allocation of shared overhead expenses to NuStar Energy and us;


•	the determination and timing of the amount of cash to be distributed to NuStar Energy’s partners and the amount of cash to be reserved for the future conduct of NuStar Energy’s business;


•	any proposal by NuStar GP, LLC to eliminate, reduce or modify the incentive distribution rights;


•	the decision whether NuStar Energy should make acquisitions, and on what terms;


•	the determination of whether NuStar Energy should use cash on hand, borrow or issue equity to raise cash to finance acquisitions or expansion capital projects, repay indebtedness, meet working capital needs, pay distributions to NuStar Energy’s partners or otherwise; and


•	any decision we make in the future to engage in business activities independent of, or in competition with, NuStar Energy.

Our limited liability agreement limits and modifies our directors’ fiduciary duties and the fiduciary duties of our officers and directors may conflict with those of the general partner of NuStar Energy’s general partner’s officers and directors.

Our limited liability company agreement contains provisions that modify and limit our directors’ fiduciary duties to our unitholders. For example, our limited liability company agreement provides that:


•	our directors will not have any liability to us or our unitholders for decisions made in good faith, meaning they believed the decision was in our best interests; and

•

our board of directors will not be liable for monetary damages to us or our unitholders for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the board of directors acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that such conduct was unlawful.

Our directors and officers have fiduciary duties to manage our business in a manner beneficial to us and our unitholders. Simultaneously, three of our directors and all of our officers are also directors and officers of NuStar GP, LLC, the general partner of NuStar Energy’s general partner, and have fiduciary duties to manage the business of NuStar Energy in a manner beneficial to NuStar Energy and its unitholders. For instance, William E. Greehey is our Chairman of the Board as well as the Chairman of the Board of NuStar GP, LLC. Consequently, these directors and officers may encounter situations in which their fiduciary obligations to NuStar Energy, on the one hand, and us, on the other hand, are in conflict. The resolution of these conflicts may not always be in our best interest or that of our unitholders. For example, we share certain executive officers and administrative personnel with NuStar GP, LLC to operate both our business and NuStar Energy’s business. Our executive officers, who are also the executive officers of NuStar GP, LLC, will allocate, in their reasonable and sole discretion, their time spent on our behalf and on behalf of NuStar Energy. These allocations may not be the result of arms-length negotiations between NuStar GP, LLC and us, and therefore the allocations may not exactly match the actual time and overhead spent.

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RISKS RELATED TO NUSTAR ENERGY’S BUSINESS

Reduced demand for refined products could affect NuStar Energy’s results of operations and ability to make distributions to its partners at current levels, including us.

Any sustained decrease in demand for refined products in the markets served by NuStar Energy’s pipelines, terminals or fuels marketing operations could result in a significant reduction in throughputs in its pipelines, storage in its terminals or earnings in its fuels marketing operations, which would reduce NuStar Energy’s cash flow and its ability to make distributions at current levels to its partners, including us. Factors that could lead to a decrease in market demand include:


•	a recession or other adverse economic condition that results in lower spending by consumers on gasoline, diesel, and travel;


•	higher fuel taxes or other governmental or regulatory actions that increase, directly or indirectly, the cost of gasoline;


•	an increase in automotive engine fuel economy, whether as a result of a shift by consumers to more fuel-efficient vehicles or technological advances by manufacturers;

•

an increase in the market price of crude oil that leads to higher refined product prices, including fuel oil prices, which may reduce demand for refined products and drive demand for alternative products. Market prices for crude oil and refined products, including fuel oil, are subject to wide fluctuation in response to changes in global and regional supply that are beyond NuStar Energy’s control, and increases in the price of crude oil may result in a lower demand for refined products that NuStar Energy markets, including fuel oil;


•	a decrease in corn acres planted, which may reduce demand for anhydrous ammonia; and


•	the increased use of alternative fuel sources, such as battery-powered engines.

A decrease in lease renewals or throughputs in NuStar Energy’s assets would cause NuStar Energy’s revenues to decline and could adversely affect NuStar Energy’s ability to make cash distributions at current levels to its unitholders, including us. Such a decrease could result from a customer’s failure to renew a lease, a temporary or permanent decline in the amount of crude oil or refined products stored at and transported from the refineries NuStar Energy serves or construction by NuStar Energy’s competitors of new transportation or storage assets in the markets it serves. Factors that could result in such a decline include:


•	a material decrease in the supply of crude oil;


•	a material decrease in demand for refined products in the markets served by NuStar Energy’s pipelines and terminals;


•	scheduled refinery turnarounds or unscheduled refinery maintenance;


•	operational problems or catastrophic events at a refinery;


•	environmental proceedings or other litigation that compel the cessation of all or a portion of the operations at a refinery;


•	a decision by NuStar Energy’s current customers to redirect refined products transported in NuStar Energy’s pipelines to markets not served by NuStar Energy’s pipelines or to transport crude oil or refined products by means other than NuStar Energy’s pipelines;


•	increasingly stringent environmental regulations; or


•	a decision by NuStar Energy’s current customers to sell one or more of the refineries NuStar Energy serves to a purchaser that elects not to use NuStar Energy’s pipelines and terminals.

If NuStar Energy is unable to complete capital projects at their expected costs and/or in a timely manner, or if the market conditions assumed in its project economics deteriorate, NuStar Energy’s financial condition, results of operations, or cash flows could be affected materially and adversely.

Delays or cost increases related to capital spending programs involving construction of new facilities (or improvements and repairs to our existing facilities) could adversely affect NuStar Energy’s ability to achieve forecasted operating results. Although NuStar Energy evaluates and monitors each capital spending project and tries to anticipate difficulties that may arise, such delays or cost increases may arise as a result of factors that are beyond its control, including:


•	denial or delay in issuing requisite regulatory approvals and/or permits;


•	unplanned increases in the cost of construction materials or labor;


•	disruptions in transportation of modular components and/or construction materials;


•	severe adverse weather conditions, natural disasters or other events (such as equipment malfunctions, explosions, fires or spills) affecting NuStar Energy’s facilities, or those of vendors and suppliers;


•	shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages;


•	market-related increases in a project’s debt or equity financing costs; and/or


•	non-performance by, or disputes with, vendors, suppliers, contractors or sub-contractors involved with a project.

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NuStar Energy’s forecasted operating results also are based upon its projections of future market fundamentals that are not within its control, including changes in general economic conditions, availability to its customers of attractively priced alternative supplies of crude oil and refined products and overall customer demand.

NuStar Energy’s operations are subject to operational hazards and unforeseen interruptions, and NuStar Energy does not insure against all potential losses. Therefore, NuStar Energy could be seriously harmed by unexpected liabilities.

NuStar Energy’s operations are subject to operational hazards and unforeseen interruptions such as natural disasters, adverse weather, accidents, fires, explosions, hazardous materials releases, mechanical failures and other events beyond its control. These events might result in a loss of equipment or life, injury or extensive property damage, as well as an interruption in NuStar Energy’s operations. In the event any of NuStar Energy’s facilities are forced to shut down for a significant period of time, it may have a material adverse effect on NuStar Energy’s earnings, its other results of operations and its financial condition as a whole.

NuStar Energy may not be able to maintain or obtain insurance of the type and amount it desires at reasonable rates. As a result of market conditions, premiums and deductibles for certain of NuStar Energy’s insurance policies have increased substantially and could escalate further. Certain insurance coverage could become unavailable or available only for reduced amounts of coverage and at higher rates. For example, NuStar Energy’s insurance carriers require broad exclusions for losses due to terrorist acts. If NuStar Energy were to incur a significant liability for which it is not fully insured, such a liability could have a material adverse effect on NuStar Energy’s financial position and its ability to make distributions at current levels to its unitholders, including us, and to meet its debt service requirements.

The price volatility of crude oil and refined products can reduce NuStar Energy’s revenues and ability to make distributions to its unitholders, including us.

Revenues associated with NuStar Energy’s fuels marketing operations result primarily from blending and trading operations and fuel oil sales. NuStar Energy also maintains product inventory related to these activities. The price and market value of crude oil and refined products is volatile. NuStar Energy’s revenues will be adversely affected by this volatility during periods of decreasing prices because of the reduction in the value and resale price of NuStar Energy’s inventory. Conversely, during periods of increasing petroleum product prices, its revenues may be adversely affected because of the increased costs associated with obtaining its inventory. Future price volatility could have an adverse impact on NuStar Energy’s results of operations, cash flow and ability to make distributions to its unitholders, including us.

NuStar Energy’s marketing and trading of crude oil and refined products may expose NuStar Energy to trading losses and hedging losses, and non-compliance with NuStar Energy’s related risk management policies could result in significant financial losses.

In order to manage NuStar Energy’s exposure to commodity price fluctuations associated with its fuels marketing segment, NuStar Energy may engage in crude oil and refined product hedges. As a result, NuStar Energy’s marketing and trading of crude oil and refined products may expose NuStar Energy to price volatility risk for the purchase and sale of crude oil and petroleum products, including distillates and fuel oil. NuStar Energy attempts to mitigate this volatility risk through hedging, but it is still exposed to basis risk. NuStar Energy may also be exposed to inventory and financial liquidity risk due to the inability to trade certain products or rising costs of carrying some inventories. Further, NuStar Energy’s marketing and trading activities, including any hedging activities, may cause volatility in NuStar Energy’s earnings. In addition, NuStar Energy will be exposed to credit risk in the event of non-performance by counterparties.

NuStar Energy’s risk management policies may not eliminate all price risk since open trading positions will expose it to price volatility. Further, there is a risk that NuStar Energy’s risk management policies will not be complied with. Although NuStar Energy has designed procedures to anticipate and detect non-compliance, there are no assurances these steps will detect and prevent all violations of NuStar Energy’s trading policies and procedures, particularly if deception and other intentional misconduct are involved.

As a result of the risks described above, the activities associated with NuStar Energy’s marketing and trading business may expose NuStar Energy to volatility in earnings and financial losses, which may adversely affect its financial condition and ability to distribute cash to its unitholders, including us.

Hedging transactions may limit NuStar Energy’s potential gains or result in significant financial losses.

While intended to reduce the effects of volatile crude oil and refined product prices, hedging transactions, depending on the hedging instrument used, may limit NuStar Energy’s potential gains if crude oil and refined product prices were to rise substantially over the price established by the hedge. In addition, such transactions may expose NuStar Energy to the risk of financial loss in certain circumstances, including instances in which:


•	the counterparties to NuStar Energy’s futures contracts fail to perform under the contracts; or

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•	there is a change in the expected differential between the underlying price in the hedging agreement and the actual prices received.

The accounting standards regarding hedge accounting are complex, and even when NuStar Energy engages in hedging transactions that are effective economically, these transactions may not be considered effective for accounting purposes. Accordingly, NuStar Energy’s financial statements will reflect increased volatility due to these hedges, even when there is no underlying economic impact at that point. In addition, it is not possible for NuStar Energy to engage in a hedging transaction that completely mitigates its exposure to commodity prices. NuStar Energy’s financial statements may reflect a gain or loss arising from an exposure to commodity prices for which NuStar Energy is unable to enter into an effective hedge.

NuStar Energy is exposed to counterparty credit risk. Nonpayment and nonperformance by NuStar Energy’s customers, vendors or derivative counterparties could reduce its revenues, increase its expenses or otherwise have a negative impact on its operating results, cash flows and ability to make distributions to its unitholders, including us.

NuStar Energy is subject to risks of loss resulting from nonpayment or nonperformance by its customers to whom it extends credit. In addition, nonperformance by vendors who have committed to provide NuStar Energy with products or services could result in higher costs or interfere with its ability to successfully conduct its business. Furthermore, nonpayment by the counterparties to any of NuStar Energy’s outstanding interest rate or commodity derivatives could expose NuStar Energy to additional interest rate or commodity price risk. Weak economic conditions and widespread financial stress could reduce the liquidity of its customers, vendors or counterparties, making it more difficult for them to meet their obligations to NuStar Energy. Any substantial increase in the nonpayment and nonperformance by NuStar Energy’s customers, vendors or counterparties could have a material adverse effect on its results of operations, cash flows and ability to make distributions to its unitholders, including us.

NuStar Energy’s future financial and operating flexibility may be adversely affected by its significant leverage, downgrades of its credit ratings, restrictions in its debt agreements, disruptions in the financial markets, significant working capital needs and Asphalt JV’s working capital needs.

As of June 30, 2013, NuStar Energy’s consolidated debt was $2.5 billion. Among other things, this significant leverage may be viewed negatively by credit rating agencies, which could result in increased costs for NuStar Energy to access the capital markets. The ratings of NuStar Logistics, L.P. (NuStar Logistics) were recently downgraded to Ba1 by Moody’s Investor Service Inc. (Moody’s), BB+ by Standard & Poor’s Ratings Services (S&P) and BB by Fitch, Inc., all with a stable outlook. As a result of the S&P and Moody’s downgrades, interest rates on borrowings under NuStar Energy’s five-year revolving credit agreement (the 2012 Revolving Credit Agreement), its 7.65% senior notes due 2018 and NuStar Terminals Limited’s £21 million term loan due December 10, 2013 have increased. NuStar Energy may also be required to post cash collateral under certain of its hedging arrangements, which it expects to fund with borrowings under its 2012 Revolving Credit Agreement. Any future downgrade could result in additional increases to the interest rates on borrowings under NuStar Energy’s credit facilities and its 7.65% senior notes due 2018, significantly increase NuStar Energy’s capital costs and adversely affect its ability to raise capital in the future.

NuStar Energy’s 2012 Revolving Credit Agreement contains restrictive covenants, including a requirement that, as of the end of each rolling period, which consists of any period of four consecutive fiscal quarters, NuStar Energy maintains a consolidated debt coverage ratio (consolidated indebtedness to consolidated EBITDA, as defined in the 2012 Revolving Credit Agreement) not to exceed 5.00-to-1.00. Failure to comply with any of the restrictive covenants in the 2012 Revolving Credit Agreement will result in a default under the terms of this credit agreement and could result in acceleration of this and possibly other indebtedness.

Debt service obligations, restrictive covenants in NuStar Energy’s credit facilities and the indentures governing its outstanding senior and subordinated notes and maturities resulting from this leverage may adversely affect NuStar Energy’s ability to finance future operations, pursue acquisitions and fund other capital needs and its ability to pay cash distributions to its unitholders, including us. In addition, this leverage may make NuStar Energy’s results of operations more susceptible to adverse economic or operating conditions. For example, during an event of default under any of NuStar Energy’s debt agreements, NuStar Energy would be prohibited from making cash distributions to its unitholders, including us.

If NuStar Energy’s lenders file for bankruptcy or experience severe financial hardship, they may not honor their pro rata share of NuStar Energy’s borrowing requests under the 2012 Revolving Credit Agreement, which may significantly reduce its available borrowing capacity and, as a result, materially adversely affect NuStar Energy’s financial condition and ability to pay distributions at current levels to its unitholders, including us. Additionally, NuStar Energy may not be able to access the capital markets in the future at economically attractive terms, which may adversely affect its future financial and operating flexibility and its ability to pay cash distributions at current levels.

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Asphalt JV requires significant amounts of working capital to conduct its business. NuStar Logistics agreed to provide an unsecured credit facility to Asphalt JV (the NuStar Facility) to fund working capital loans to Asphalt JV in an aggregate principal amount not to exceed $250 million. Under the NuStar Facility, NuStar Energy also agreed to provide guarantees or credit support, as applicable, of up to $150 million under operating contracts related to Asphalt JV’s operations (the Credit Support). Since NuStar Energy’s sale of 50% of the business in September 2012, Asphalt JV has generated significant losses. While its working capital needs have not yet exceeded the limits of its funding sources, Asphalt JV’s losses may continue and contribute to working capital needs in excess of those limits. If this occurs, NuStar Energy may choose to fund all or a portion of that shortfall; however, if the shortfall NuStar Energy chooses to fund were to exceed the funds available to it under the terms of its 2012 Revolving Credit Agreement, then it may seek additional sources of capital, which may not be available or available on commercially reasonable terms, and its ability to pay cash distributions at current levels may be undermined.

NuStar Energy may become liable as a result of its financing arrangements and guarantees of Asphalt JV.

Asphalt JV entered into a third-party asset-based revolving credit facility (ABL Facility), as well as the NuStar Facility, including the Credit Support described above. In the event that Asphalt JV defaults on any of its obligations under the NuStar Facility, NuStar Energy would have available only those measures available to an unsecured creditor with the rights and limitations provided in the NuStar Facility, and, to the extent provided in the agreements, the ABL Facility lenders would be senior to those rights. In the event of a default on any of the obligations underlying the Credit Support, NuStar Energy would be responsible for Asphalt JV’s liabilities for the default and have only the rights of repayment associated with that instrument. In either scenario, the liability imposed on NuStar Energy may have an adverse impact on its financial condition, results of operations and ability to pay distributions to its unitholders at current levels.

The Crude Oil Sales Agreement (the CSA) with Petróleos de Venezuela S.A. (PDVSA), the national oil company of Venezuela, Presents Potential Supply Risks To NuStar Energy.

If Asphalt JV were to become insolvent or could not pay its debts when due, and it stopped purchasing crude oil nominated under the CSA (the PDVSA Crude), NuStar Energy would continue to be obligated to purchase the PDVSA Crude at the contractually specified volumes, which would increase its working capital requirements significantly. While NuStar Energy does not believe that it is likely that this will occur, if it did, this would have a material adverse effect on NuStar Energy’s financial condition, results of operations and ability to pay distributions at current levels to its unitholders.

Asphalt JV’s asphalt refinery is currently utilizing PDVSA Crude, and decisions of the Organization of Petroleum Exporting Countries (OPEC) to decrease production of crude oil, as well as the Venezuelan economic and political environment, may disrupt supply of PDVSA Crude, which could increase Asphalt JV’s working capital requirements.

Asphalt JV currently purchases PDVSA Crude, nominated by NuStar Energy under the CSA, for its refinery. OPEC cuts, coupled with Venezuela’s ongoing political, economic and social turmoil, could have a severe impact on PDVSA’s production or delivery of crude oil. If the market price for alternative crude is substantially higher than the price of the PDVSA Crude, then a major disruption of Asphalt JV’s supply of crude oil from Venezuela could result in Asphalt JV having substantially greater working capital needs, which could have a material adverse impact on its financial condition and ability to meet its obligations.

Asphalt JV, as well as the agreements related to or contemplated thereby, present a number of challenges that could have a negative impact on NuStar Energy’s financial condition, results of operations and ability to pay distributions to its unitholders at current levels.

Asphalt JV may present any or all of the financial, managerial and operational challenges typically associated with joint venture arrangements, including the possibility of disputes with or actions by joint venture partners that cause delays, liabilities or contingencies. Differences in views among the venture partners may result in delayed decisions or in failures to agree on major matters, such as large expenditures or contractual commitments, the construction or acquisition of assets or borrowing money, among others. Delay or failure to agree may prevent action with respect to such matters, even though such action may serve NuStar Energy’s best interest or that of the joint venture. Accordingly, delayed decisions and failures to agree can potentially adversely affect the business and operations of the joint venture and in turn NuStar Energy’s business and operations. From time to time, Asphalt JV may be involved in disputes or legal proceedings which, although not involving a loss contingency to NuStar Energy, may nonetheless have the potential to negatively affect its investment. The joint venture agreement for Asphalt JV provides NuStar Energy’s joint venture partner with a distribution preference that may prevent NuStar Energy from receiving any distributions related to its 50% ownership interest in Asphalt JV.

Increases in interest rates could adversely affect NuStar Energy’s business and the trading price of NuStar Energy’s units.

NuStar Energy has significant exposure to increases in interest rates. As of June 30, 2013, NuStar Energy had approximately $2.5 billion of consolidated debt, of which $1.5 billion was at fixed interest rates and $1.0 billion was at variable interest rates. In addition, ratings downgrades on NuStar Energy’s existing indebtedness have caused interest rates under its 2012 Revolving Credit Agreement and its senior notes due 2018 to increase effective January 2013, and future downgrades may cause such

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interest rates to increase further. NuStar Energy’s results of operations, cash flows and financial position could be materially adversely affected by significant increases in interest rates above current levels. Further, the trading price of NuStar Energy’s common units is sensitive to changes in interest rates and any rise in interest rates could adversely impact such trading price.

NuStar Energy could be subject to damages based on claims brought against it by its customers or lose customers as a result of the failure of its products to meet certain quality specifications.

Certain of NuStar Energy’s products are produced to precise customer specifications. If a product fails to perform in a manner consistent with the detailed quality specifications required by the customer, the customer could seek replacement of the product or damages for costs incurred as a result of the product failing to perform as guaranteed. A successful claim or series of claims against NuStar Energy could result in a loss of one or more customers.

Potential future acquisitions and expansions, if any, may increase substantially the level of NuStar Energy’s indebtedness and contingent liabilities, and NuStar Energy may be unable to integrate them effectively into its existing operations.

From time to time, NuStar Energy evaluates and acquires assets and businesses that it believes complement or diversify its existing assets and businesses. Acquisitions may require substantial capital or the incurrence of substantial indebtedness. If NuStar Energy consummates any future material acquisitions, its capitalization and results of operations may change significantly, and you will not have the opportunity to evaluate the economic, financial and other relevant information that NuStar Energy will consider in connection with any future acquisitions.

Acquisitions and business expansions involve numerous risks, including difficulties in the assimilation of the assets and operations of the acquired businesses, inefficiencies and difficulties that arise because of unfamiliarity with new assets and the businesses associated with them and new geographic areas. Further, unexpected costs and challenges may arise whenever businesses with different operations or management are combined. Successful business combinations will require NuStar Energy’s management and other personnel to devote significant amounts of time to integrating the acquired businesses with NuStar Energy’s existing operations. These efforts may temporarily distract their attention from day-to-day business, the development or acquisition of new properties and other business opportunities. If NuStar Energy does not successfully integrate any past or future acquisitions, or if there is any significant delay in achieving such integration, NuStar Energy’s business and financial condition could be adversely affected.

Moreover, part of NuStar Energy’s business strategy includes acquiring additional assets that complement NuStar Energy’s existing asset base and distribution capabilities or provide entry into new markets. NuStar Energy may not be able to identify suitable acquisitions, or it may not be able to purchase or finance any acquisitions on terms that it finds acceptable. Additionally, NuStar Energy competes against other companies for acquisitions, and NuStar Energy may not be successful in the acquisition of any assets or businesses appropriate for its growth strategy.

NuStar Energy may have liabilities from its assets that pre-exist NuStar Energy’s acquisition of those assets, but that may not be covered by indemnification rights NuStar Energy may have against the sellers of the assets.

In some cases, NuStar Energy may have indemnified the previous owners and operators of acquired assets. Some of NuStar Energy’s assets have been used for many years to transport and store crude oil and refined products. Releases may have occurred in the past that could require costly future remediation. If a significant release or event occurred in the past, the liability for which was not retained by the seller, or for which indemnification from the seller is not available, it could adversely affect NuStar Energy’s financial position and results of operations.

Climate change legislation and regulatory initiatives may decrease demand for the products NuStar Energy stores, transports and sells and increase NuStar Energy’s operating costs.

Scientific studies have suggested that emissions of certain gases, commonly referred to as “greenhouse gases” and including carbon dioxide and methane, may be contributing to warming of the Earth’s atmosphere. In response to such studies, the U.S. Congress is actively considering legislation to reduce emissions of greenhouse gases. In addition, at least one-third of the states, either individually or through multi-state regional initiatives, have already taken legal measures to reduce emissions of greenhouse gases, primarily through the planned development of greenhouse gas emission inventories and/or greenhouse gas cap and trade programs. As an alternative to reducing emission of greenhouse gases under cap and trade programs, Congress may consider the implementation of a program to tax the emission of carbon dioxide and other greenhouse gases. In December 2009, the Environmental Protection Agency (the EPA) issued an endangerment finding that greenhouse gases may reasonably be anticipated to endanger public health and welfare and are a pollutant to be regulated under the Clean Air Act. Passage of climate change legislation or other regulatory initiatives by Congress or various states of the United States or the adoption of regulations by the EPA or analogous state agencies that regulate or restrict emissions of greenhouse gases in areas in which NuStar Energy conducts business, could result in changes to the demand for the products NuStar Energy stores, transports and sells, and could increase the costs of its operations, including costs to operate and maintain its facilities, install new emission controls on its facilities, acquire allowances to authorize its greenhouse gas emissions, pay any taxes related to its greenhouse gas emissions and administer and manage a greenhouse gas emissions program. NuStar Energy may be unable to recover any

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such lost revenues or increased costs in the rates it charges its customers, and any such recovery may depend on events beyond NuStar Energy’s control, including the outcome of future rate proceedings before the Federal Energy Regulatory Commission (the FERC) and the provisions of any final legislation or regulations. Reductions in NuStar Energy’s revenues or increases in its expenses as a result of climate control initiatives could have adverse effects on its business, financial position, results of operations and prospects.

NuStar Energy operates a global business that exposes it to additional risks.

NuStar Energy operates in seven foreign countries and a significant portion of its revenues comes from its business in these countries. Its operations outside the United States may be affected by changes in trade protection laws, policies and measures, and other regulatory requirements affecting trade and investment, including the Foreign Corrupt Practices Act, the United Kingdom Bribery Act and other foreign laws prohibiting corrupt payments. NuStar Energy has assets in certain emerging markets, and the developing nature of these markets presents a number of risks. Deterioration of social, political, labor or economic conditions in a specific country or region and difficulties in staffing and managing foreign operations may also adversely affect its operations or financial results.

NuStar Energy’s operations are subject to federal, state and local laws and regulations relating to environmental protection and operational safety that could require NuStar Energy to make substantial expenditures.

NuStar Energy’s operations are subject to increasingly stringent environmental and safety laws and regulations. Transporting and storing petroleum products produces a risk that these products may be released into the environment, potentially causing substantial expenditures for a response action, significant government penalties, liability to government agencies for damages to natural resources, personal injury or property damages to private parties and significant business interruption. NuStar Energy owns or leases a number of properties that have been used to store or distribute refined products for many years. Many of these properties were operated by third parties whose handling, disposal or release of hydrocarbons and other wastes was not under NuStar Energy’s control.

If NuStar Energy were to incur a significant liability pursuant to environmental or safety laws or regulations, such a liability could have a material adverse effect on its financial position and its ability to make distributions at current levels to its unitholders, including us, and its ability to meet its debt service requirements.

NuStar Energy’s interstate common carrier pipelines are subject to regulation by the FERC.

The FERC regulates the tariff rates for interstate oil movements on NuStar Energy’s common carrier pipelines. Shippers may protest NuStar Energy’s pipeline tariff filings, and the FERC may investigate new or changed tariff rates. Further, other than for rates set under market-based rate authority, the FERC may order refunds of amounts collected under newly filed rates that are determined by the FERC to exceed what the FERC determines to be a just and reasonable level. In addition, shippers may challenge tariff rates even after the rates have been deemed final and effective. The FERC may also investigate such rates absent shipper complaint. If existing rates are challenged and are determined by the FERC to be in excess of a just and reasonable level, a shipper may obtain reparations for damages sustained during the two years prior to the date the shipper filed a complaint.

NuStar Energy uses various FERC-authorized rate change methodologies for its interstate pipelines, including indexing, cost-of-service rates, market-based rates and settlement rates. Typically, NuStar Energy adjusts its rates annually in accordance with FERC indexing methodology, which currently allows a pipeline to change their rates within prescribed ceiling levels that are tied to an inflation index. The current index (which runs through June 30, 2014) is measured by the year-over-year change in the Bureau of Labor’s producer price index for finished goods, plus 2.65%. Shippers may protest rate increases made within the ceiling levels, but such protests must show that the portion of the rate increase resulting from application of the index is substantially in excess of the pipeline’s increase in costs from the previous year. However, if the index results in a negative adjustment, NuStar Energy will typically be required to reduce any rates that exceed the new maximum allowable rate. In addition, changes in the index might not be large enough to fully reflect actual increases in NuStar Energy’s costs. If the FERC’s rate-making methodologies change, any such change or new methodologies could result in rates that generate lower revenues and cash flow and could adversely affect NuStar Energy’s ability to make distributions at current levels to its unitholders, including us, and to meet its debt service requirements. Additionally, competition constrains NuStar Energy’s rates in various markets. As a result, NuStar Energy may from time to time be forced to reduce some of its rates to remain competitive.

Changes to FERC rate-making principles could have an adverse impact on NuStar Energy’s ability to recover the full cost of operating its pipeline facilities and its ability to make distributions at current levels to its unitholders, including us.

In May 2005, the FERC issued a statement of general policy stating it will permit pipelines to include in cost of service a tax allowance to reflect actual or potential tax liability on their public utility income attributable to all partnership or limited liability company interests, if the ultimate owner of the interest has an actual or potential income tax liability on such income. Whether a pipeline’s owners have such actual or potential income tax liability will be reviewed by the FERC on a case-by-case

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basis. Although this policy is generally favorable for pipelines that are organized as pass-through entities, it still entails rate risk due to the case-by-case review requirement. This tax allowance policy and the FERC’s application of that policy were appealed to the United States Court of Appeals for the District of Columbia Circuit (D.C. Court), and, on May 29, 2007, the D.C. Court issued an opinion upholding the FERC’s tax allowance policy.

In December 2006, the FERC issued an order addressing income tax allowance in rates, in which it reaffirmed prior statements regarding its income tax allowance policy, but raised a new issue regarding the implications of the FERC’s policy statement for publicly traded partnerships. The FERC noted that the tax deferral features of a publicly traded partnership may cause some investors to receive, for some indeterminate duration, cash distributions in excess of their taxable income, creating an opportunity for those investors to earn additional return, funded by ratepayers. Responding to this concern, the FERC adjusted the equity rate of return of the pipeline at issue downward based on the percentage by which the publicly traded partnership’s cash flow exceeded taxable income. Requests for rehearing of the order are currently pending before the FERC.

Because the extent to which an interstate oil pipeline is entitled to an income tax allowance is subject to a case-by-case review at the FERC, the level of income tax allowance to which NuStar Energy will ultimately be entitled is not certain. Although the FERC’s current income tax allowance policy is generally favorable for pipelines that are organized as pass-through entities, it still entails rate risks due to the case-by-case review requirement. How the FERC’s policy statement is applied in practice to pipelines owned by publicly traded partnerships could impose limits on NuStar Energy’s ability to include a full income tax allowance in cost of service.

The FERC instituted a rulemaking proceeding in July 2007 to determine whether any changes should be made to the FERC’s methodology for determining pipeline equity returns to be included in cost-of-service based rates. The FERC determined that it would retain its current methodology for determining return on equity but that, when stock prices and cash distributions of tax pass-through entities are used in the return on equity calculations, the growth forecasts for those entities should be reduced by 50%. Despite the FERC’s determination, some complainants in rate proceedings have advocated that the FERC disallow the full use of cash distributions in the return on equity calculation. If the FERC were to disallow the use of full cash distributions in the return on equity calculation, such a result might adversely affect NuStar Energy’s ability to achieve a reasonable return.

The rates that NuStar Energy may charge on its interstate ammonia pipeline are subject to regulation by the Surface Transportation Board (STB).

The STB, a part of the United States Department of Transportation, has jurisdiction over interstate pipeline transportation and rate regulations of anhydrous ammonia. Transportation rates must be reasonable, and a pipeline carrier may not unreasonably discriminate among its shippers. If the STB finds that a carrier’s rates violate these statutory commands, it may prescribe a reasonable rate. In determining a reasonable rate, the STB will consider, among other factors, the effect of the rate on the volumes transported by that carrier, the carrier’s revenue needs and the availability of other economic transportation alternatives. The STB does not provide rate relief unless shippers lack effective competitive alternatives. If the STB determines that effective competitive alternatives are not available and NuStar Energy holds market power, then it may be required to show that its rates are reasonable.

Increases in natural gas and power prices could adversely affect NuStar Energy’s operating expenses and its ability to make distributions at current levels to its unitholders, including us.

Power costs constitute a significant portion of NuStar Energy’s operating expenses. For the year ended December 31, 2012, NuStar Energy’s power costs equaled approximately $55.9 million, or 10% of NuStar Energy’s operating expenses for the year ($6.1 million of power costs were capitalized into inventory related to NuStar Energy’s refineries prior to the sale of its 50% interest in the Asphalt Operations). NuStar Energy uses mainly electric power at its pipeline pump stations, terminals and refineries, and such electric power is furnished by various utility companies that primarily use natural gas to generate electricity. Accordingly, NuStar Energy’s power costs typically fluctuate with natural gas prices. Increases in natural gas prices may cause NuStar Energy’s power costs to increase further. If natural gas prices increase, NuStar Energy’s cash flows may be adversely affected, which could adversely affect NuStar Energy’s ability to make distributions to its unitholders, including us.

Terrorist attacks and the threat of terrorist attacks have resulted in increased costs to NuStar Energy’s business. Continued hostilities in the Middle East or other sustained military campaigns may adversely impact NuStar Energy’s results of operations.

Increased security measures taken by NuStar Energy as a precaution against possible terrorist attacks have resulted in increased costs to its business. Uncertainty surrounding continued hostilities in the Middle East or other sustained military campaigns may affect NuStar Energy’s operations in unpredictable ways, including disruptions of crude oil supplies and markets for refined products, and the possibility that infrastructure facilities could be direct targets of, or indirect casualties of, an act of terror or instability in the financial markets that could restrict NuStar Energy’s ability to raise capital.

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Item 6.	Exhibits



Exhibit Number		Description

10.01		364-Day Revolving Credit Agreement dated as of June 28, 2013, among NuStar GP Holdings, LLC, as Borrower, the Lenders Party Hereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and SunTrust Bank, as Syndication Agent (incorporated by reference to Exhibit 10.01 of NuStar GP Holdings, LLC’s Current Report on Form 8-K filed July 3, 2013)

10.02		Amendment to Crude Oil Sales Agreement between PDVSA-Petróleo S.A., NuStar Logistics, L.P. and NuStar Marketing, effective as of October 1, 2012 (incorporated by reference to Exhibit 10.01 of NuStar Energy L.P.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013)

*31.01		Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal executive officer

*31.02		Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal financial officer

*32.01		Section 1350 Certification (under Section 906 of the Sarbanes-Oxley Act of 2002) of principal executive officer

*32.02		Section 1350 Certification (under Section 906 of the Sarbanes-Oxley Act of 2002) of principal financial officer

*101.INS		XBRL Instance Document

*101.SCH		XBRL Taxonomy Extension Schema Document

*101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

*101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

*101.LAB		XBRL Taxonomy Extension Label Linkbase Document

*101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NUSTAR GP HOLDINGS, LLC

(Registrant)



By:		/s/ Curtis V. Anastasio
		Curtis V. Anastasio
		President and Chief Executive Officer
		August 7, 2013

By:		/s/ Steven A. Blank
		Steven A. Blank
		Executive Vice President and Chief Financial Officer
		August 7, 2013

By:		/s/ Thomas R. Shoaf
		Thomas R. Shoaf
		Senior Vice President and Controller
		August 7, 2013