NuStar Energy LP was one of the pioneers of the master limited partnership (MLP) structure that now dominates the midstream. But a lot has changed since it began, and the San Antonio-based firm enters 2013 a far different organization than it was a year ago. A series of late-2012 deals—including an acquisition of a major Eagle Ford shale midstream operator, sale of a major interest in its asphalt business and a refinery—markedly changed its asset base. But NuStar retains its most valuable asset, its people, who will continue to make it a major midstream player, says its chief executive.

MIDSTREAM Tell us about your background. How did you enter the energy business?

ANASTASIO I’m from New York City originally. I have a law degree from Harvard Law School, and then I went to work at a Wall Street law firm doing mergers, acquisitions and corporate finance. I met some folks in the energy business who wanted to bring me in as their general counsel. That was a British-owned company with a New York office, Ultramar PLC. Time went by and the chief executive said to me one day, “Would you like to be chief executive of this company?” I said, “That sounds pretty good.” Then he replied, “Well, you're not going to get there from the general counsel’s office, so, I'd like you to undertake some other things and see if you're the type of guy who has the potential that we think you might have.”

I then embarked on a series of non-legal jobs, just about everything you can think of, business development, trading, marine transportation and refinery operations, and I never looked back. Then one day, it was the end of 1999, I was asked to lead a team of people to bring public what is now NuStar Energy as a partial spinoff of a refining company that was a predecessor of Valero Energy Corp. We brought what is now NuStar public in April of 2001. And about a week after that, I learned that Valero was acquiring my general partner and majority owner and would be my new general partner and majority owner.

MIDSTREAM NuStar has been restructuring recently with the sale of interests in its asphalt business, sale of its San Antonio refinery and acquisition of TexStar Midstream Services LP. How are you changing your corporate focus?

ANASTASIO We are in the midst of a strategic redirection. Our objective is reducing our exposure to asphalt and to fuels refining and marketing and increasing our exposure to the more fee-based pipeline and storageterminal business. We are a very strong pipeline and terminal business, and that’s where we want to expand as we move forward.

And we’ve taken several big steps in that direction already. In late September 2012, we completed the sale of a 50% interest in our asphalt operations to a joint venture with Lindsay Goldberg LLC, which is a New York private equity firm and, as a result, we substantially deleveraged the company and deconsolidated asphalt from our financial statements. Also, we’ve sold our San Antonio refinery to Calumet Specialty Products Partners LP.

We also announced an agreement to purchase TexStar Midstream’s Eagle Ford assets in South Texas. They consist of a crude oil pipeline and related oil and natural gas liquids (NGL) assets in the Eagle Ford shale, which integrates very well with NuStar’s existing Eagle Ford pipeline operation. The purchase of the crude oil assets has been completed, and next we should close on its NGL business not later than the first quarter of 2013. So, it’s a combination of both crude oil gathering and transportation, and also NGL transportation and fractionation.

MIDSTREAM NuStar has taken a contrarian view with some success in the past. What overlooked opportunities do you believe lie out there in the midstream sector?

ANASTASIO The big opportunity for us right now in the midstream sector is pipelines in the domestic shale plays in the U.S. We were the first pipeline company to move Eagle Ford crude oil in South Texas. We now have four pipelines doing that and with the TexStar deal, we’re going have a lot more capacity there in addition to the NGLs that are generated by all of that oil and gas shale production in South Texas. And that’s not the only shale play, as you well know.

There’s the Niobrara, where again, NuStar has pipe in the ground that is underutilized and can be converted to crude transportation. And there are others where we have assets that overlap shale plays, such as the Granite Wash and even some of the Permian basin, which is a combination of traditional and unconventional production. about energy infrastructure, which the country needs. And for investors, MLPs have been a great deal, particularly more senior investors or investors who are income- oriented.

MIDSTREAM What’s your perspective on the midstream sector for 2013?

ANASTASIO I’ve never been more optimistic about this sector and about the opportunities for NuStar. We’ve got some big opportunities in the pipelines, as I mentioned, because of this new domestic production. I think it’s an attractive investment opportunity. There are big dividends paid by NuStar and other MLPs. And there’s just a lot of infrastructure that has to be built in this country. At a time when other types of infrastructure are casting about for some model to finance that infrastructure, whether it is roads, bridges or building out a modern Internet system, everyone wants to have these things, but nobody can ever agree how to finance them. Well, here in the energy midstream, in the pipeline business, we have a model: It’s called the master limited partnership. People want to invest in that sector because they see the value of it, and they get value from it. So, I’m very optimistic.

MIDSTREAM What is the biggest challenge facing the North American energy industry?

ANASTASIO The big things you always have to be concerned about in energy, first and foremost, are safety and environmental regulations and compliance. Not just compliance with regulations but making sure you’re best-in-class in those things. And I think we are. If you’re not, not only are you not doing enough to protect your employees and the community, but also it really can hurt the business. If you have a bad record, your company is going to lose a lot of value. To keep the North American energy business going as well, we have to be cautious about over-regulation. The U.S. has a great opportunity to have the lowest-cost energy and the most ample energy supply in the world. That’s bigger than any tax break in terms of the economic value to the country.

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