The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Oil Refining Company (BORCO) is embroiled in a court battle to recover $20-$30 million in damages caused when a ship collided with one of its jetties in late May 2012, it was revealed yesterday.

The Grand Bahama-based petroleum products storage facility’s owner, New York Stock Exchange (NYSE) listed Buckeye Partners, disclosed that while it had insurance to cover the loss, albeit after paying a $5 million deductible, the ship’s owner was arguing that its liability was capped at $17 million.

Buckeye, in its 10-K annual report filing with the US Securities & Exchange Commission (SEC), said: “In May 25, 2012, a ship collided with a jetty at our BORCO facility while berthing, causing damage to portions of the jetty.

“The extent of the damage is being assessed and presently is estimated to range between $20 million and $30 million. We have insurance to cover this loss, subject to a $5 million deductible.”

It then added: “On May 26, 2012, we commenced legal proceedings in the Bahamas against the vessel’s owner and the vessel to obtain security for the cost of repairs and other losses incurred as a result of the incident. Full security for our claim has been provided by the vessel owner’s insurers, reserving all of their defenses, but the vessel owner is claiming it is entitled to limit its liability to approximately $17 million.”

“We also have notified the customer on whose behalf the vessel was at the BORCO facility that we intend to hold them responsible for all damages and losses resulting from the incident pursuant to the terms of an agreement between the parties. Any disputes between us and our customer on this matter are subject to arbitration in Houston, Texas.”

BORCO’s services had not suffered any “material interruption of service” due to the incident, with repairs already begun.

Buckeye said it had suffered “a $4.2 million loss on disposal due to the assets destroyed in the incident, and $3.5 million related to other costs incurred”. Yet it felt recovering its losses at BORCO was “probable”.

Elsewhere in its 10-K, Buckeye Partners warned investors about the risks created by BORCO generating two-thirds of its storage rates from just three customers.

“Storage revenue represented approximately 76 per cent of BORCO’s total revenue for the year ended December 31, 2012,” Buckeye said.

“Currently, BORCO has a limited number of long-term storage customers, consisting of major oil companies, energy companies, physical traders and one national oil company.

“For the year ended December 31, 2012, approximately 32 per cent and 66 per cent of BORCO’s storage revenue was derived from the top one and the top three customers, respectively.”

This situation was set to continue for the immediate future, with BORCO set “to continue to derive substantially all of its total revenue from a small number of customers”.

Buckeye added: “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.”

BORCO was exposed to political risk due to the fact “a substantial portion” of its revenues related to petroleum products exported from Venezuela, while its owner again reflected the uncertainties created by the 2015 expiration of Freeport’s current Business Licence and real property tax exemptions.

In a nod to the Government and Grand Bahama Port Authority (GBPA) to get a move on in clarifying the issue, Buckeye said: “BORCO is currently exempt from income and property tax in the Bahamas pursuant to concessions granted under the Hawksbill Creek Agreement between the Government of the Bahamas and the Grand Bahama Port Authority.

“BORCO’s exemption from Bahamian taxation pursuant to the Hawksbill Creek Agreement is scheduled to expire in 2015. If the Bahamian governmental authorities do not extend the concessions under the Hawksbill Creek Agreement, or BORCO’s tax status in the Bahamas were to otherwise change, such that BORCO has more tax liability than we anticipate, our cash flow could be materially adversely affected.”

Looking ahead, Buckeye said it expected to place a further 2.8 million barrels of expansion storage capacity into service at BORCO, including 1.2 million barrels of crude storage.

“We have seen increased demand for crude storage in the Caribbean as production off the coast of South America begins to ramp up,” Buckeye said.

“BORCO has the capability to function as a staging and blending facility in the logistics chain for producers as they move crude production to refining centres.

“We expect moderate increases in storage service rates prospectively, and expect BORCO to be fully leased for 2013, except for required maintenance work. Our ability to achieve higher rates and increase storage utilization is ultimately dependent on the global product demand in the markets we serve.”