The Tribune

By NEIL HARTNELL Tribune Business Editor THE BAHAMAS Oil Refining Company's (BORCO) parent company is planning to invest between $130-$180 million, more than half its total 2012 capital expenditure, in upgrading the Grand Bahama-based oil storage facility, following a year when it produced $66.4 million in net income. New York Stock Exchange (NYSE) listed Buckeye Partners, in its form 10-K filed with the Securities & Exchange Commission (SEC), disclosed that between 52-54.5 per cent of its 2012 capital expenditure will go on BORCO. The Grand Bahama facility generated $177.6 million worth of revenues for Buckeye during its last financial year. Some $120-$180 million of Buckeye's BORCO investment will be pumped into the ongoing 7.9 million barrel expansion, the SEC filing revealed. "We expect to spend approximately $250 million to $330 million for capital expenditures in 2012, of which approximately $50 million to $70 million is expected to relate to sustaining capital expenditures, and $200 million to $260.0 million is expected to relate to expansion and cost reduction projects," Buckeye said. "Approximately $130 million to $180 million of these amounts are related to capital expenditures in 2012 for the BORCO facility, of which $120 million to $160 million is expected to relate to expansion projects, and $10 million to $20 million is expected to relate to sustaining capital expenditures....... "Major expansion and cost reduction expenditures in 2012 will include storage tank expansion projects at the BORCO facility." The ongoing BORCO investment and expansion is potentially good news for a Grand Bahama economy that badly needs it, especially if it results in job creation on an island where the unemployment rate is estimated at 21 per cent. Elsewhere, Buckeye highlighted BORCO's ever-increasing importance to its financial performance and operations, noting that the latter accounted for 35.6 per cent - more than one-third - of its total assets. BORCO also produced, in 2011, 3.7 per cent of its parent's total revenues and 21.9 per cent of adjusted EBITDA (earnings before interest, taxation, depreciation and amortisation), a key indicator of operating income. "Our flagship marine terminal in the Bahamas, BORCO, is one of the largest marine crude oil and petroleum products storage facilities in the world, serving the international markets as a premier global logistics hub," Buckeye said, extolling the virtues of a facility that increased adjusted operating income for its international operations by $117.7 million year-over-year. BORCO was also largely responsible for the $193.1 million increase in revenues from Buckeye's international operations, although their costs and expenses also rose by $116.3 million. "Adjusted EBITDA from the international operations segment of $113 million for the year ended December 31, 2011, increased by $117.7 million from a loss of $4.7 million for the corresponding period in 2010," Buckeye said in its SEC filing. " Adjusted EBITDA increased as the result of the BORCO acquisition in 2011, and a full year of operations for the Yabucoa terminal, which was acquired in December 2010. The increase in Adjusted EBITDA was primarily due to $185.5 million in revenue, partially offset by a $62.9 million increase in operating costs, a $3.2 million increase in acquisition and integration expenses, and $1.7 million of non-controlling interest expense related to the 20 per cent of BORCO not acquired by us until February 16, 2011." On the revenue side, Buckeye said its international operations - again due to BORCO - saw "a $151 million increase in storage fees, $18.1 million of berthing fees, which represent amounts charged to ships that utilise the facility's jetties, $16.4 million of other ancillary service revenue and $7.6 million related to the revenue recognition from unfavourable storage contracts acquired in connection with the BORCO acquisition". Looking ahead, Buckeye said BORCO's 2011 performance was impacted by lower-than-expected berthing revenues, along with reduced tanker traffic and the closure of a US Virgin Islands refinery. Yet short-term petroleum product demand had risen, with crude oil production in South America increasing. "We believe the closure of the Caribbean refinery and the continued rationalisation of Northeast [US] refineries position BORCO to capitalise on increased demand for refined product storage, as customers re-work their logistics chains to respond to changing supply patterns," Buckeye said. "We may experience some softness in demand for berthing and other ancillary services if the forward product pricing does not create inventory optimisation opportunities for our customers, although we do not expect the lack of availability of blending components to impact 2012, as our customer has secured an alternate source of supply. "BORCO is also expected to benefit in 2012 as the first phase of our expansion project begins to come on-line in the second half of the year."