NuStar Energy LP is buying Eagle Ford Shale crude oil pipeline, gathering and storage, and natural gas liquids (NGL) assets for $425 million from TexStar Midstream Services LP. The deal is part of NuStar’s transition to a fee-based pipeline and storage business and away from margin-based refining and marketing.

The company also said Thursday it is offering for sale its San Antonio refinery and related terminal in Elmendorf, TX. The asset was purchased out of bankruptcy in April 2011. The sale includes a pipeline NuStar constructed that connects the terminal to the refinery.

“NuStar was actually the first company to move Eagle Ford crude by pipeline, and we are fortunate to have extensive pipeline and terminal assets already in operation throughout the Eagle Ford region,” said CEO Curt Anastasio. “In fact, we have more high-return investment opportunities in stable, fee-based transportation and storage projects than we have seen in the history of our company. With this acquisition, we are capturing the opportunity to fill up previously underutilized and idle pipelines and to construct new pipeline connections and other logistics assets for further growth.”

The acquisitions are to close in two separate transactions and will likely be financed with a combination of borrowings under NuStar’s credit facility and junior subordinated notes. The crude oil assets will be acquired first, following antitrust review, with closing expected in December. Acquisition of the NGL assets is expected to be completed in the first quarter. The crude oil and NGL assets are to be integrated with NuStar’s pipeline operations in the region.

Fuels refining had not been part of NuStar’s plans when it bought the San Antonio refinery; however, the deal was too good to pass, Anastasio said. “We are extremely proud of the improvements we made at the refinery since we purchased it. The sales process we have initiated has attracted strong bidder interest and we expect to announce a definitive agreement within the next few weeks.”

Sale proceeds will be used to pay down debt. The company will be able to reduce earnings volatility and focus more on “stable, high-return pipeline and terminal assets and expansion projects,” Anastasio said.

Scott Martin, co-CEO of TexStar, said his company was an early entrant in the Eagle Ford of South Texas. “This foresight allowed TexStar to quickly see the opportunity set for expanded crude oil gathering and transportation in South Texas, positioning TexStar to be one of the first movers with its crude oil line,” he said. “…[T]he sale of the crude oil assets will allow us to refocus on TexStar’s gas gathering, treating and processing businesses. We believe the firm access this transaction will provide us to NGL transportation, fractionation and purity product takeaway will be a strong differentiator when compared to our competition.”

The acquisition by NuStar includes a crude oil pipeline system that runs from LaSalle and Frio counties to Live Oak County and has capacity to transport 100,000 b/d. It includes 140 miles of crude transmission and gathering lines. NuStar is also acquiring five storage terminals located along the pipeline that have a combined capacity of 643,400 bbl.

Storage includes TexStar’s Gardendale terminal in LaSalle County, its Highway 85 terminal in Frio County, its Highway 97 and Highway 16 (under construction) terminals in McMullen County and its Oakville terminal in Live Oak County. The TexStar system was connected to NuStar’s recently constructed 600,000 bbl Oakville storage terminal. Crude is transported to NuStar’s 1.6 million bbl Corpus Christi North Beach storage terminal via its existing 16-inch diameter pipeline.

The system is currently transporting about 60,000 b/d. Its 100,000 b/d capacity should be reached in the next few months, Anastasio said. The majority of the throughput on the system is secured by long-term, take-or-pay commitments and acreage dedications from Eagle Ford producers and marketers, according to NuStar.

The 38-mile Y-grade NGL pipeline NuStar is acquiring runs from Pettus to Refugio, TX. The system includes two fractionators that have a combined capacity of 57,000 b/d. NuStar said it and TexStar plan to enter into take-or-pay Y-grade transportation and fractionation agreements related to the assets. “We are strategically positioning ourselves to help Eagle Ford producers with the growing demand for NGL outlets by being able to transport and process NGLs as they produce petroleum reserves from the oil and wet gas regions of the shale play,” Anastasio said.

Y-grade will be transported on the acquired NGL pipeline and NuStar’s existing 12-inch diameter Houston pipeline, which runs from Corpus Christi to Houston after the lines are connected in mid-2013. The Y-grade pipeline systems will also be capable of delivering NGLs to Mont Belvieu, TX, through an extension of NuStar’s Houston pipeline.

Anastasio said NuStar has $57 million invested in its Houston pipeline, and it was projected to lose about $2 million in 2012 due to market conditions that made it more favorable for some NuStar’s customers to export refined products, rather than transport them to Houston. By integrating the Houston pipeline into the Y-grade system being acquired, the underutilized Houston pipeline will help generate $40-50 million in annual earnings before interest, taxes, depreciation and amortization once fully implemented, Anastasio said.

TexStar is expected to dedicate Y-grade NGL production from its Pettus gas processing plants for shipment on the acquired Y-grade NGL pipeline and NuStar’s 12-inch pipeline to fractionators to be refurbished and constructed by NuStar near Corpus Christi.

NuStar said it expects to spend $400-500 million over the next 18-24 months to complete the Y-grade system, finish fractionator refurbishment and relocation and integrate the crude oil system with its existing operations.

NuStar Logistics LP, an affiliate of NuStar Energy, is holding a binding open season for firm priority space to transport crude from the Niobrara Shale near Platteville and Watkins, CO, to Wichita Falls, TX. The open season ends Thursday (Nov. 15) (see Shale Daily, Oct. 18).