The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Although only expected to hit its full earnings potential in 2014, the Bahamas Oil Refining Company (BORCO) has led a $6.7 million like-for-like operating income increase for its parent’s international operations.

Buckeye Partners, in its 2013 second quarter conference call, said the 3.5 million barrel expansion to BORCO’s storage capacity, coupled with increased ship berthing, fuel blending and heating revenues, drove a $7.8 million year-over-year revenue improvement in its international segment.

The New York Stock Exchange (NYSE) listed company, which has invested $340 million in expanding and upgrading BORCO since its January 2011 purchase, thus continues to benefit from its substantial Grand Bahama outlay.

Clark Smith, Buckeye’s president and chief executive, told Wall Street analysts that BORCO was “fully leased” during the the three months to end-June 2013.

He added that increased market demand for Vacuum Gas Oil (VGO) had further diversified BORCO’s storage products, and boosted its heating and blending revenues.

“We have now brought on line 3.5 million barrels of incremental storage capacity since July 2012,” Mr Smith said of BORCO, adding that its second quarter berthing revenues had increased as a result of customers using larger ships.

“2013’s improved financial performance is significant,” Mr Smith added of Buckeye as a whole. “We expect an even greater contribution from capital investments in 2014 and beyond, in relation to the continued benefits of the BORCO acquisition.”

Keith St Clair, Buckeye’s chief financial officer, said that excluding the new fuel oils marketing business, the company’s “legacy assets” - BORCO and the Yabucoa facility in Puerto Rico - generated a $6.7 million year-over-year increase on adjusted EBITDA for the international operations category.

This increase in adjusted earnings before interest, taxation, depreciation and amortisation came from a $7.8 million rise in revenue, the bulk of which was produced by BORCO.

“The improvement in the legacy business is largely the result of the 3.5 million barrel expansion in storage capacity [at BORCO] that was brought on line since the 2012 second quarter,” Mr St Clair said.

“What we saw in the second quarter was the benefit from the full quarter - the benefit of the 1.6 million barrels brought on line late in the first quarter.”

Some 1.9 million barrels of new storage capacity had come on-line in late 2012, with a further 1.6 million barrels activated during the 2013 first quarter.

This is part of a 4.7 million barrel expansion to BORCO’s storage capacity, which will take the Grand Bahama facility - at least for the moment - to 26.2 million barrels.

Noting that the final instalment in this expansion round had yet to be completed, Mr St Clair said: “The second half of 2013 will see incremental benefits from continued plans to expand.

“This [last] 1.2 million barrels of increased capacity is fully leased and expected to be operational next month.”

Disclosing that BORCO’s 2013 second quarter performance had also benefited from a “changing product mix and increased utilisation”, Mr St Clair added: “We really believe 2014 will be the year we see an appreciable upturn in cash flow, as well as full run rate from BORCO.

“The storage activity and ancillary services we provide a BORCO actually improved [international] revenue, increasing it $7.8 million year-over-year, and the majority of the increase was the storage capacity.”

Buckeye executives revealed that while BORCO’s workforce had increased as a result of the capacity increase, back office functions were also being outsourced away from the Bahamas.

“Certain administrative functions, primarily finance”, are being moved from the Bahamas to Houston in the US, analysts were told.

Khalid Muslih, Buckeye’s vice-president for international pipelines and terminals, said BORCO had “very high utilisation rates”.

He added that it had been “very successful” on customer retention, and attracting new ones.

Mr Muslih said BORCO had either been able to maintain or increase storage rates depending on the product, adding: “It’s a very dynamic market.”