The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Oil Refining Company (BORCO) is set to undergo further multi-million dollar upgrades beginning this quarter, as its owner seeks to improve its “crude oil handling” capabilities.

Top executives at New York Stock Exchange (NYSE) listed Buckeye Partners told a conference call with Wall Street analysts that they planned to increase an investment in BORCO that has already exceeded $350 million since they acquired the Grand Bahama-based facility in early 2011.

Clark Smith, Buckeye’s president and chief executive, said: “Since we acquired BORCO in 2011, we’ve invested over $350 million in growth capital projects, as we added 4.7 million barrels of incremental storage capacity, increasing this by over 20 per cent.”

Confirming that the last 1.2 million barrels of this figure had been completed and placed into service in September 2013, Mr Smith said Buckeye had improved BORCO’s berthing and jetty capacity; reconfigured the site’s layout, improved pumping rates between the docks and storage facility; and added additional product blending capabilities.

While not giving any details on the amount of Buckeye’s latest planned investment, or number of local jobs that might be created, Mr Smith said BORCO was being further upgraded to meet market demands.

“We’ve identified opportunities to invest further to upgrade crude handling from Canada and Latin America [Venezuela],” Mr Smith revealed. “We intend [to move on] these opportunities in the fourth quarter, and take tankage out of storage.”

Construction work, he estimated, would take around four months to complete, and reduced storage capacity would impact BORCO’s short-term revenues.

But this is likely to be worth it for long-term gain, with Mr Smith revealing that Buckeye views the Grand Bahama facility “as a feeder hub for as far away as Asia”.

He noted that BORCO already “acts as a staging and blending hub” for a major US energy customer, and further opportunities beckon in this line of work.

Khalid Muslih, Buckeye’s vice-president for international pipelines and terminals, explained that the BORCO upgrades would involve the “retrofitting” of storage tanks specifically used for crude oil storage, enabling them to be used for new heating and blending activities.

In particular, Mr Muslih said there was “very strong appetite in the market to handle this more viscous crude”.

He added: “We’ve invested a significant amount of capital to transform BORCO into more of a blending operation. We see crude oil coming in from all sorts of different locations.”

Mr Muslih said that apart from the volume of crude oil originating from Venezuela and Latin America, Buckeye was also seeking to use its US east coast rail infrastructure and take advantage of US regulations to transport Canadian crude oil to BORCO for refining.

“There is an opportunity to bring Canadian crude down to BORCO and other refining centres,” he added. “We’ve started to work on that front, and have conversations with suppliers and producers. We’re trying to utilise our footprint.”

Mr Muslih said Buckeye had also managed to “transition” BORCO’s customer base over the past three years from one largely composed of trading operations, focused on short and long market prices, to one featuring traditional oil industry “value chain” players who required logistics and blending capabilities.

With 80 per cent of BORCO’s revenues coming from ‘take or pay’ storage revenues, Mr Muslih said it was able to “charge more for increased utilisation” via heating, blending and other ancillary fees.

For the 2013 third quarter, the 3.5 million barrel increase in BORCO’s storage capacity year-over-year, combined with increase customer usage and a changed product mix, helped drive Buckeye’s international operating income from $33.5 million to $40.5 million.

Buckeye is expecting BORCO to deliver a strong 2013 fourth quarter and improved 2014 performance.