The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Oil Refining Company’s (BORCO) owner invested more than $140 million into expanding the Grand Bahama-based facility in 2012, and believes it is poised to “expand its Caribbean leadership position” in Vacuum Gas Oil (VGO) storage.

Buckeye Partners executives, addressing a Wall Street analysts conference to discuss their 2013 first quarter results, lauded BORCO’s “unique storage segregation and blending capabilities” as giving it a competitive advantage over all rival regional terminals.

Keith St Clair, Buckeye’s chief financial officer, said the latest 1.6 million barrels of storage capacity placed into service at BORCO would generate “incremental benefits” for the New York Stock Exchange (NYSE) listed company in the 2013 second quarter.

The latest expansion comes on top of another 1.9 million barrels of storage capacity added at BORCO late last year, and a further 1.7 million barrels - already fully leased - should come into service on Grand Bahama during the 2013 third quarter.

Clark Smith, Buckeye’s chief executive and president, said BORCO - which accounts for 25 million barrels of its 30 million-barrel international operations - had helped to make the segment one of its four 2013 first quarter growth drivers.

“Contributions from growth capital projects, particularly in terms of operations, helped to drive this performance,” he told Wall Street analysts, in a clear nod to Buckeye’s Grand Bahama assets.

“At BORCO we achieved the third phase of our expansion project with 1.6 million barrels of capacity committed and fully leased....

“Work continues on a further 1.7 million barrels, which should be in operation by the third quarter and is fully committed. We remain confident that we will bring that through on time and on budget, as we have done with the other phases at BORCO.”

Mr Smith said BORCO’s 2013 first quarter performance had been further boosted by ancillary revenue streams, such as blending and heating.

In particular, he marked out VGO as a “future growth area” with relatively high rates, and added: “BORCO is a leader in VGO storage in the Caribbean. We expect that lead to expand.”

Mr St Clair, meanwhile, said Buckeye’s 38.1 per cent increase in first quarter year-over-year adjusted Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA), was driven by a “strong performance” by BORCO and other international operations, plus other business segments.

He added that BORCO had taken on additional employees to handle the storage capacity expansion, and said: “The second quarter of 2013 will see incremental benefits from the 1.6 million barrels of expansion capacity placed into service late in the first quarter, and 1.9 million barrels of incremental capacity placed into service in late 2012.”

Buckeye’s international operations, including BORCO, saw year-over-year adjusted EBITDA rise from $31.67 million to $35.243 million for the three months ended March 31, 2013.

Mr St Clair said that excluding the $140.3 million revenue impact of Buckeye’s newly-launched fuel oil marketing and distribution business, its international operations would have enjoyed year-over-year revenue and adjusted EBITDA increases of $3.6 million and $4.6 million, respectively.

Those increases were “largely the result” of BORCO’s 3.5 million barrel capacity expansion, and its revenue increases from heating and blending.

The fuel oil marketing and distribution business incurred a $1 million operating loss for the 2013 first quarter, which Buckeye blamed on a “product downgrade” and start-up costs.

Voicing confidence in future prospects for the business, which aims to supply Caribbean utility plants, the New York Stock Exchange (NYSE) listed company said it had been forced to write-off one shipment after laboratory assurances on its quality proved incorrect.

Writing on BORCO’s growth in Buckeye’s 2012 annual report, Mr Smith said: “These initial expansion phases were the most ambitious growth capital projects completed in Buckeye’s long history, and I am happy to report they were completed safely, on-time and on-budget.

“In addition, we have seen exciting new opportunities for transporting and storing crude oil, both domestically, with the resurging domestic crude oil

production, and internationally, where BORCO is emerging as a critical staging location for new crude oil production off the coast of South America.”

Mr Smith added: “With respect to BORCO, crude oil storage has always been a significant aspect of this business, comprising just over a fifth of leased capacity at the facility for 2012.

“We expect that percentage will increase, as we believe crude oil storage and services to be a significant growth opportunity in the coming years with the ramp-up in crude production on a global basis.

“In 2012, we announced the execution of an important long-term agreement with a customer for significant crude oil storage at BORCO. This agreement supports the construction of additional expansion capacity as well as making use of substantial existing tankage,” Mr Smith said.

“BORCO is expected to act as a staging and blending hub for this customer, which has new production coming on-line off the coast of South America. BORCO is uniquely positioned to serve as a crude oil staging hub due to its location and its capabilities, including redundant deep water berthing and high-speed loading and offloading pumping capabilities.”

BORCO’s expansion largely drove the 17 per cent increase in the adjusted EBITDA for Buckeye’s international operations in 2012, which hit $132.1 million.

Mr Smith said that delivering “on our expansion and enhancement projects at BORCO” were among Buckeye’s 2013 priorities.