The Tribune

By NEIL HARTNELL Tribune Business Editor THE Bahamas Oil Refining Company's (BORCO) parent has listed the Grand Bahama-based facility's narrow customer base among its material risks, with 58 per cent of its core oil storage revenues coming from just its top three customers. New York Stock Exchange (NYSE) listed Buckeye Partners, in its 10-K form filed with the US Securities & Exchange Commission (SEC), added that BORCO's top customer generated 27 per cent of its petroleum product storage revenue in 2011 - the business segment that accounts for 83 per cent of its total revenues. Again proving that BORCO is regarded as being very much the 'crown jewel' among its assets, Buckeye Partners said: "BORCO depends on a limited number of customers for substantially all of its revenue, and the loss of any of them could adversely affect our results of operations and cash flow. "Storage revenue represented approximately 80 per cent of BORCO's total revenue for the year ended December 31, 2011. Currently, BORCO has a limited number of long-term storage customers, consisting of oil majors, energy companies, physical traders and one national oil company. For the year ended December 31, 2011, approximately 27 per cent and 58 per cent of storage revenue was derived from the top one and the top three customers, respectively." In fact, according to a Buckeye Partners presentation to be given to a Morgan Stanley conference today, BORCO generated 83 per cent of its 2011 revenues from 'take-or-pay' storage contracts. Of the remaining 17 per cent, some 11 per cent came from berthing, and 6 per cent 'ancillary' activities. When it came to the petroleum products stored at BORCO, Buckeye Partners said some 66 per cent of these were fuel oil, with crude oil accounting for 20 per cent and refined products taking up the remaining 14 per cent. Buckeye Partners cautiously added: "We expect BORCO to continue to derive substantially all of its total revenue from a small number of customers in the future. BORCO may be unsuccessful in renewing its storage contracts with its customers, and those customers may discontinue or reduce contracted storage from BORCO. "If any of BORCO's customers, in particular its top three customers, significantly reduces its contracted storage with BORCO, and if BORCO is unable to find other storage customers on terms substantially similar to the terms under BORCO's existing storage contracts, our business, results of operations and cash flow could be adversely affected." And, Buckeye noted, BORCO was also exposed to political risk in Venezuela, where most of its stored petroleum products originate from. "A substantial amount of the petroleum products handled by BORCO are exported from Venezuela, which exposes us to political risks," it confirmed. Another potential weakness was BORCO's refining legacy. "The BORCO facility was constructed between 1968 and 1975, and was operated as a refinery until it was shut down in 1985," Buckeye Partners said. "We performed a certain level of diligence in connection with the acquisition of BORCO, and attempted to ascertain the extent of liabilities that might be associated with the facility, but there may be unknown and contingent liabilities related to BORCO of which we are unaware." Buckeye's filing with the SEC noted that BORCO's three deep-water jetties provided six berths capable of handling the largest crude tankers, thus giving them access to the storage terminals. "BORCO currently has a long-term agreement through 2057 with the Bahamas Government to lease 330 acres of seabed on which the jetties are located," Buckeye Partners added. "BORCO's terminal facility also includes an inland dock located in Freeport Harbour, with two berths. BORCO currently leases the inland dock from the Freeport Harbour Company under a long-term agreement through 2067."