The Tribune

By NEIL HARTNELL Tribune Business Editor THE BAHAMAS Oil Refining Company's (BORCO) revenues could increase by up to $20 million per annum due to its owner creating "a critical link" between its Bahamian and US assets through a $260 million acquisition. New York Stock Exchange (NYSE)-listed Buckeye Partners said its purchase from Chevron of Perth Amboy, a New Jersey harbour-based petroleum products storage terminal, was designed to facilitate BORCO's long-term capacity expansion on Grand Bahama, the latter becoming a critical staging post for fuel and related products flowing into the northeastern US energy market. In a presentation to US-based analysts, Buckeye said the Perth Amboy purchase held the "potential for incremental $10-$20 million of revenue" per annum at BORCO, supporting plans to expand the Bahamian facility's storage tank, butane, renewable fuels and blending capacity. Its latest deal, Buckeye added, "represents the missing link in the logistic value chain to realise BORCO and Buckeye system synergies", since it establishes a direct waterborne connection between its Bahamian asset and US east coast facilities, and provides the potential to import fuels directly into its existing infrastructure. Clark Smith, Buckeye's president and chief executive, told a conference call with analysts: "This acquisition represents the critical link between our inland infrastructure with waterborne product supply and product flows that ultimately include utilisation of our BORCO terminal." All this represents potentially good news for the Bahamas, and Grand Bahama in particular, providing further evidence of the strategic value provided by the island's geographical location. It may also help to lessen the blow from December 2011's workforce downsizing at BORCO. Neither the company nor its parent revealed the scale of the redundancies at the time, but Keith St Clair, Buckeye's executive vice-president and chief financial officer, told the conference call that BORCO's workforce was downsized by close to 20 per cent. Given a current workforce of 174, according to a previous BORCO statement, that seems to imply that around 30-40 persons lost their jobs. Mr Smith and Mr St Clair said the redundancies effectively resulted from Buckeye's drive for increased efficiencies, which led to the implementation of its "best practices" model at BORCO in late 2011. "We successfully implemented our best practices model at BORCO during the [fourth] quarter, resulting in upfront transition expenses, but we expect to see the benefit of reduced operating costs prospectively," Mr Smith said. Mr St Clair said Buckeye's entire group had gone through the 'best practices' exercise in 2009, prior to its $1.7 billion BORCO purchase in early 2011. "We simply went in and overlaid the BORCO asset, and saw a reduction in personnel of somewhere like 20 per cent," he added. "I think we're there with the best practices at BORCO, and think we'll realise the benefits of that going forward in terms of reduced operating costs." Buckeye incurred some $4.4 million of so-called transition expenses in its 2011 financial year, some $1.5 million of which came in the international operations segment - that included BORCO - during the three months to end-December 2011. Mr Smith, meanwhile, said BORCO "continues to run smoothly" and was expected to generate increased revenues in 2012. He added that the Grand Bahama-based facility had already achieved "two key milestones" in its initial expansion plan - completion of its inland jetty, offering sheltered berthing capacity, and its second offshore jetty capable of handling the world's largest tankers. However, BORCO's 2011 second half performance "fell short of expectations", as a loss of refining capacity in the US Virgin Islands and Western Hemisphere resulted in a reduction in blending material availability. Refining "issues" in western Africa also resulted in product normally destined for BORCO being diverted elsewhere, which had the knock-on effect of also impacting the Grand Bahama-based facility's berthing revenues. "Overall, for 2012 we expect to see revenues at BORCO to improve as customers revise their logistics chains, but we see softness in berthing," Mr Smith said. "Looking forward to 2012, we're seeing increased customer interest for product storage." Mr St Clair said some two million barrels of storage capacity at BORCO were not renewed in the late 2011 third quarter, a situation that dragged into the next quarter. However, BORCO had seen "strengthening" in the demand for its services, and key customers were returning back to benchmark business levels. "The majority of capacity for which renewal was delayed has been secured, and we expect to see a strong first quarter performance," Mr St Clair said of BORCO. Berthing rates, he added, were returning to "more normal levels, and we expect to see things ramp up in the first quarter of 2012 and continue into the second half of 2012". Mr St Clair said "a certain amount of capacity" at BORCO was currently out of action for preventative maintenance work, an exercise expected to be completed during the 2012 first quarter. "We feel very good about this asset. We feel this asset will make a very significant contribution to our overall cash flow," the Buckeye chief financial officer said of BORCO.