The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Oil Refining Company (BORCO) produced a 14.3 per cent year-over-year revenue increase to $52.7 million for the 2013 first quarter, as it awaits the likely recovery of a $5 million insurance deductible.

The Grand Bahama-based oil storage terminal’s owner, Buckeye Partners, said in its latest US regulatory filing that it still regarded the recovery of damages to a key BORCO jetty as “probable”.

The damage was caused when a ship collided with the jetty on May 25 last year, and Buckeye estimated that repairs would cost between $25-$30 million.

While both itself, and BORCO, have insurance to cover the repair costs/loss, Buckeye noted in its 10-Q filing with the US Securities & Exchange Commission (SEC) that it first had to pay a $5 million deductible under the policy.

“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,” Buckeye said.

“Full security for our claim has been provided by the vessel owner’s insurers, reserving all of their defenses. 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.”

Disputes between BORCO’s customer and Buckeye on this issue are subject to arbitration in Houston, Texas, the 10-Q filing added.

“The vessel owner and customer are each claiming they are entitled to limit their liability to approximately $17 million, but we are contesting the right of either vessel owner or customer to such limitation,” Buckeye said.

“At this time, we have not experienced any material interruption of service at the BORCO facility as a result of the incident and have commenced the process of repairing the jetty.”

And since “recovery of our losses is probable”, Buckeye has recorded the likely return of the $5 million insurance policy deductible as a receivable under its other ‘non-current assets’.

Elsewhere, Buckeye Partners disclosed that BORCO’s first quarter revenues rose from $46.1 million in 2012 to $52.7 million this year - a 14.3 per cent increase.

Much of that will have been driven by the 3.5 million barrel increase in BORCO’s storage capacity compared to the same time last year. Some 1.9 million barrels of that expansion was placed into service late in 2012, with the remaining 1.6 million barrels coming on-line late in the 2013 first quarter.

“The International Operations segment’s revenue generated in the Bahamas was $52.7 million and $46.1 million for the three months ended March 31, 2013 and 2012, respectively,” Buckeye’s filing with the SEC reiterated.

“Our flagship marine terminal in the Bahamas, BORCO, is one of the largest marine crude oil and petroleum products storage facilities in the world, serving the international markets as a global logistics hub.

While Buckeye’s international revenues grew from $50.2356 million in the 2012 first quarter to $170.85 million year-over-year, most of this came from its newly-launched fuel oil supply and distribution services business in the Caribbean.

Still, BORCO will have accounted for a significant share of Buckeye’s $62.053 million in expansion capital spending for the 2013 first quarter.

For the 2013 full year, Buckeye’s international operations are projected to require between $10-$20 million in maintenance capital expenditure, and between $80-$105 million in project capital expenditure. The lion’s share of these sums is likely to go to BORCO.

Buckeye said adjusted Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) from its international operations business rose by 11.3 per cent during the 2013 first quarter, hitting $35.2 million as opposed to $31.7 million - up $3.5 million.

“The positive factors impacting Adjusted EBITDA were primarily related to a $4.6 million increase in storage revenue as a result of incremental storage capacity brought online [at BORCO], and a $1.6 million increase in ancillary revenues, including berthing of ships at our jetties, and heating services due to increased customer utilization of our facilities,” Buckeye said.

It added that there was a $1.7 million increase in operating expenses, largely due to the increased costs required to operate BORCO’s expanded capacity.