By NATARIO McKENZIE
Tribune Business Reporter
nmckenzie@tribunemedia.net
THE Bahamas Oil Refining Company’s (BORCO) merchant services segment for the second quarter was “particularly disappointing”, its owners telling Wall Street analysts that they believed the poor performance was isolated to the second quarter, with much stronger results expected for the second half of the year.
Buckeye Partners executives, addressing a Wall Street analysts conference to discuss their 2014 second quarter results said that the losses experienced by the company were driven by overall weakness in business conditions as well as unfavourable results from strategies which had been intended to grow the business, optimise the utilisation of the company’s assets and mitigate risk.
Buckeye’s Chairman, President and CEO Clark Smith said: “The business conditions we experienced during the second quarter included declining ethanol prices, and continued backwardation of in our fuel markets. We saw a decline in gasoline basis in excess of $0.11 cent per gallon. In addition ethanol prices fell nearly $2 per gallon during the quarter from the winter peak in the first quarter.”
Mr Smith added: “We also had a number of initiatives with the intent of supporting the growth of our business, expanding to new markets and mitigating risks in the overall portfolio. As part of our growth strategy merchant services contracted for a clean product storage position at BORCO that became available in the first quarter.
“The initiative became available in the first quarter and was put in place to leverage our handling and blending capabilities at BORCO to provide gasoline supplies to the southeast and New York Harbour with intent to ultimately increase our overall market and asset utilisation at BORCO.
“We blended the first two cargos profitably and then increased our inventory position to support an anticipated volume increase consistent with our overall strategy. Merchant services stepped into this position to demonstrate the commercial value of BORCO’s handling and blending capabilities and we intended to exit the storage position upon execution of new agreements with third party customers.”
“BORCO’s negotiations with third parties moved at a faster pace than anticipated and merchant services exited the facility to turn the capacity over to a new third party customer. Given this time constraint and the weakening bases we liquidated our inventory position at the facility and incurred losses.
“While disappointing from a merchant services perspective this strategy did lead to BORCO entering into a new long-term contract with a third party for the storage capacity previously occupied by merchant services.”
Mr Smith said that the company’s disappointing results in the Q2 merchant services segment was “non-recurring” with the company having seen improvement in that segment in July.
Buckeye Partners reported income from continuing operations for the second quarter of 2014 of $61.9m compared to income from continuing operations for the second quarter of 2013 of $85.7m. Adjusted earnings before interest, taxes, depreciation and amortisation (EBIDTA) from continuing operations for the second quarter of 2014 was $150.8m compared to $153.8m for the second quarter of 2013.
The merchant services segment generated a negative EBITDA of $26.2m for the quarter. The company said that the strategies that led to the poor Q2 performance were terminated in the second quarter with new leadership put in place for the segment.
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