Add
BGH to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| BGH > SEC Filings for BGH > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
Overview
The following discussion provides an analysis of the financial condition and results of operations for Buckeye GP Holdings L.P. ("BGH") and each of BGH's operating segments, including an overview of BGH's liquidity and capital resources and certain other items related to BGH. The following discussion and analysis should be read in conjunction with (i) the accompanying interim condensed consolidated financial statements and related notes and (ii) BGH's consolidated financial statements, related notes, and management's discussion and analysis of financial condition and results of operations included in BGH's Annual Report on Form 10-K for the year ended December 31, 2008.
Buckeye GP Holdings L.P.
BGH's limited partner units are owned approximately 62% by BGH GP Holdings, LLC ("BGH GP"), approximately 1% by certain members of senior management and approximately 37% by the public. BGH owns and controls Buckeye GP LLC ("Buckeye GP"), which is the general partner of Buckeye Partners, L.P. ("Buckeye"), a publicly traded Delaware limited partnership. BGH is managed by its general partner, MainLine Management LLC ("MainLine Management"), which is owned by BGH GP. BGH's only cash-generating assets are its partnership interests in Buckeye, comprised primarily of the following:
† the incentive distribution rights in Buckeye; † the general partner interests in Buckeye (representing 243,914 general partner units (the "GP Units"), or an approximate 0.5% interest in Buckeye); |
† the indirect ownership of the general partner interests in certain of Buckeye's operating subsidiaries (representing an approximate 1% interest in each of such operating subsidiaries ); and
† 80,000 Buckeye limited partner units (the "LP Units").
The incentive distribution rights noted above entitle BGH to receive amounts equal to specified percentages of the incremental amount of cash distributed by Buckeye to the holders of Buckeye's LP Units (each, a "unitholder") when target distribution levels for each quarter are exceeded. The 2,573,146 LP Units originally issued to Buckeye's Employee Stock Ownership Plan ("ESOP") are excluded for the purpose of calculating incentive distributions. The target distribution levels begin at $0.325 and increase in steps to the highest target distribution level of $0.525 per eligible LP Unit. When Buckeye makes quarterly distributions above this level, the incentive distributions include an amount equal to 45% of the incremental cash distributed to each eligible unitholder for the quarter, or approximately 29.5% of total incremental cash distributed by Buckeye above $0.525 per LP Unit.
BGH's earnings and cash flows are, therefore, directly dependent upon the ability of Buckeye and its operating subsidiaries to make cash distributions to Buckeye's unitholders. The actual amount of cash that Buckeye will have available for distribution will depend primarily on Buckeye's ability to generate earnings and cash flows beyond its working capital requirements.
The following table summarizes BGH's cash received for the three months ended March 31, 2009 and 2008 as a result of its partnership interests in Buckeye:
Three Months Ended
March 31,
2009 2008
(In thousands)
Incentive distributions from Buckeye $ 10,505 $ 8,926
Distributions from the ownership of 243,914 of
Buckeye's GP Units 216 204
Distributions from the indirect 1% ownership in
certain of Buckeye's operating subsidiaries 362 125
Distributions from the ownership of 80,000 of
Buckeye's LP Units 71 67
$ 11,154 $ 9,322
|
Buckeye Partners, L.P.
Buckeye has one of the largest independent refined petroleum products pipeline systems in the United States in terms of volumes delivered with approximately 5,400 miles of pipeline and 64 active products terminals that provide aggregate storage capacity of approximately 24.7 million barrels. In addition, Buckeye operates and maintains approximately 2,400 miles of other pipelines under agreements with major oil and chemical companies. Buckeye also owns and operates a major natural gas storage facility in northern California which provides approximately 33 billion cubic feet ("Bcf") of gas capacity (including capacity provided pursuant to a nearly completed expansion project) and a wholesale distributor of refined petroleum products in the northeastern and midwestern United States in areas also served by Buckeye's pipelines and terminals.
BGH conducts business in five reportable operating segments: Pipeline Operations; Terminalling and Storage; Natural Gas Storage; Energy Services; and Other Operations. See Note 15 to the condensed consolidated financial statements for a more detailed discussion of BGH's operating segments.
Results of Operations
The results of operations discussed below principally reflect the activities of Buckeye. Since the accompanying condensed consolidated financial statements of BGH include the consolidated results of Buckeye, BGH's consolidated statements are substantially similar to Buckeye's except as noted below:
† Interest of non-controlling partners in Buckeye-BGH's condensed consolidated balance sheet includes a non-controlling interest liability that reflects the proportion of Buckeye owned by its partners other than BGH. Similarly, the ownership interests in Buckeye held by its partners other than BGH are reflected in BGH's condensed consolidated income statement as non-controlling interest expense. These non-controlling interest liabilities and expenses are not reflected in Buckeye's condensed consolidated financial statements.
† BGH's capital structure-In addition to incorporating the assets and liabilities of Buckeye, BGH's condensed consolidated balance sheet includes BGH's own indebtedness and related debt placement costs, and the partners' capital on BGH's balance sheet represents BGH's partners' capital as opposed to the capital reflected in Buckeye's balance sheet, which reflects the ownership interest of all its partners, including its owners other than BGH. Consequently, BGH's income statement reflects additional interest expense, interest income, and debt amortization expense that is not reflected in Buckeye's financial statements.
† Inclusion of Buckeye Pipe Line Services Company-The financial statements of Buckeye Pipe Line Services Company ("Services Company"), which employs the employees who manage and operate the assets of Buckeye, are consolidated into BGH's financial statements. The financial statements of Buckeye do not include the financial statements of Services Company.
† BGH's general and administrative expenses-BGH incurs general and administrative expenses that are independent from Buckeye's operations and are not reflected in Buckeye's condensed consolidated financial statements.
† Elimination of intercompany transactions-Intercompany obligations and payments among Buckeye and its consolidated subsidiaries, BGH and Services Company are reflected in Buckeye's consolidated financial statements but are eliminated in BGH's consolidated financial statements.
Summary operating results for BGH were as follows:
Three Months Ended
March 31,
2009 2008
(In thousands)
Revenue $ 416,840 $ 380,275
Costs and expenses 347,975 324,181
Operating income 68,865 56,094
Other expenses (17,251 ) (17,564 )
Income before equity income 51,614 38,530
Equity income 2,082 2,055
Net income 53,696 40,585
Less: Net income attributable to noncontrolling interest (43,547 ) (34,736 )
Amounts attributable to BGH. $ 10,149 $ 5,849
|
First Quarter of 2009 compared to First Quarter of 2008
Consolidated:
Consolidated income attributable to BGH's unitholders was $10.1 million in the first quarter of 2009 compared to $5.8 million in the first quarter of 2008. The increase in income attributable to BGH's unitholders was due to an increase in Buckeye's net income. The increase in Buckeye's net income is a result of three months of operations of the Energy Services segment, compared to just over 1½ months in the first quarter of 2008, resulting from Buckeye's acquisition of Farm & Home Oil Company ("Farm & Home") on February 8, 2008. Buckeye's operations in the first quarter of 2009 also include three months of operations of the Natural Gas Storage segment, compared to approximately 2½ months in the first quarter of 2008, resulting from Buckeye's acquisition of Lodi Gas Storage, LLC ("Lodi Gas") on January 18, 2008.
A summary of operating income by segment is as follows:
Three Months Ended March 31,
2009 2008
(In thousands)
Revenues:
Pipeline Operations $ 99,195 $ 96,389
Terminalling and Storage 30,643 27,632
Natural Gas Storage 15,077 11,464
Energy Services 268,480 234,547
Other Operations 9,125 10,869
Intersegment (5,680 ) (626 )
Total $ 416,840 $ 380,275
Total costs and expenses (excluding
depreciation and amortization):
Pipeline Operations $ 45,908 $ 52,437
Terminalling and Storage 18,264 13,692
Natural Gas Storage 7,454 5,766
Energy Services 261,288 232,627
Other Operations 7,377 8,902
Intersegment (5,680 ) (626 )
Total $ 334,611 $ 312,798
Depreciation and amortization:
Pipeline Operations $ 8,839 $ 8,423
Terminalling and Storage 1,722 1,355
Natural Gas Storage 1,459 954
Energy Services 977 264
Other Operations 367 387
Total $ 13,364 $ 11,383
Operating income:
Pipeline Operations $ 44,448 $ 35,529
Terminalling and Storage 10,657 12,585
Natural Gas Storage 6,164 4,744
Energy Services 6,215 1,656
Other Operations 1,381 1,580
Total $ 68,865 $ 56,094
|
Pipeline Operations:
Revenue from the Pipeline Operations segment was $99.2 million in the first quarter of 2009, which is an increase of $2.8 million or 2.9% from the corresponding period in 2008. This overall increase was driven by increased transportation and settlement revenue of $8.5 million that was significantly offset by a decrease in product sales of $5.9 million. The increase in transportation revenue resulted from three tariff increases, which totaled 7.3% that were implemented on May 1, 2008, July 1, 2008 and January 1, 2009. The benefit of the tariff increases was partially offset by reduced transportation volumes of approximately 1% in 2009 as compared to 2008. The decreased product sales were caused by reduced product volumes sold to a wholesale distributor.
Costs and expenses, excluding depreciation and amortization, were $45.9 million for the Pipeline Operations segment in the first quarter of 2009, which is a decrease of $6.5 million from the corresponding period in 2008. This overall decrease was driven primarily by reduced costs of product sales of $5.8 million as noted above, along with reduced
pipeline integrity expenses of $2.0 million. These expense reductions were offset primarily by an increase in environmental remediation expense of $1.5 million.
Product volumes transported in the Pipeline Operations segment for the first quarter ended March 31, 2009 and 2008 were as follows:
Average Barrels Per Day
Three Months Ended March 31,
Product 2009 2008
Gasoline 632,400 641,500
Distillate 353,100 337,500
Jet Fuel 333,300 356,400
LPG's 14,400 15,300
Natural gas liquids 21,300 21,100
Other products 13,400 11,700
Total 1,367,900 1,383,500
|
Terminalling and Storage:
Revenue from the Terminalling and Storage segment was $30.6 million in the first quarter of 2009, which is an increase of $3.0 million or 10.9% from the corresponding period in 2008. This overall increase resulted primarily from $4.3 million of revenue in 2009 from terminals that were acquired at various times in 2008. Aggregate terminal volumes in the first quarter of 2009, however, were virtually unchanged from the first quarter of 2008.
Costs and expenses, excluding depreciation and amortization, were $18.3 million for the Terminalling and Storage segment in the first quarter of 2009, which is an increase of $4.6 million from the corresponding period in 2008. This overall increase was driven primarily by additional operating expenses of $1.9 million from the terminal acquisitions made in 2008, combined with $2.3 million for environmental remediation expenses. The remaining increase in expense of $0.4 million was caused primarily by an increase in tank integrity expenses.
Average daily throughput for the refined products terminals for the quarters ended March 31, 2009 and 2008 were as follows:
Average Barrels Per Day Three Months Ended March 31, 2009 2008
Products throughput 521,000 522,300
Natural Gas Storage:
Revenue from the Natural Gas Storage segment was $15.1 million in first quarter of 2009, which is an increase of $3.6 million or 31.5% from the corresponding period in 2008. This overall increase resulted primarily from the inclusion of a full three months of revenue in 2009 compared to approximately 2½ months in the corresponding period in 2008, reflecting Buckeye's purchase of Lodi Gas on January 18, 2008, as well as increased hub services revenues in the first quarter of 2009 driven by increased marketing efforts.
Costs and expenses, excluding depreciation and amortization, were $7.5 million for the Natural Gas Storage segment in the first quarter of 2009, which is an increase of $1.7 million from the corresponding period in 2008. As noted above, this overall increase is related to the timing of this acquisition in 2008.
Energy Services:
Financial results for the Energy Services segment for the quarter ended
March 31, 2009 and 2008 are summarized below.
Three Months Ended
March 31,
2009 2008
Product sales $ 268,480 $ 234,547
Cost of product sales 255,574 230,086
Gross margin $ 12,906 $ 4,461
Gallons of product sold (in thousands) 205,200 83,400
Average revenue per gallon $ 1.31 $ 2.81
Average cost per gallon $ 1.25 $ 2.76
Average gross margin per gallon $ 0.06 $ 0.05
|
Buckeye believes that the most relevant statistic in analyzing results of operations for the Energy Services segment is gross margin. Energy Services strives to maintain a consistent margin per gallon on product sales irrespective of product cost, which can vary significantly depending on market conditions. In the first quarter of 2009, gross margin was $12.9 million compared to $4.5 million in the comparable period in 2008. This increase resulted principally from higher product sales volumes in the first quarter of 2009 compared to 2008. Increased product sales volumes resulted from the inclusion of a full three months of revenue in 2009 compared to just over 1½ months in the corresponding period in 2008, reflecting Buckeye's purchase of Farm & Home on February 8, 2008. Product sales volumes also increased as a result of substantial volumes of heating oil delivered in the first quarter as a result of a colder winter in Energy Services' principal Pennsylvania and New York markets in 2009 as compared to 2008. Further, substantial declines in the price of heating oil in the second half of 2008 caused customers to delay purchases of heating oil normally made in the fourth quarter into the first quarter of 2009.
Energy Services' average margin per gallon improved to $0.06 per gallon from $0.05 per gallon in the prior year, principally due to the benefit of fixed price contracts which were entered into in 2008 when prices were significantly higher but for which deliveries occurred in the first quarter of 2009.
Operating expenses, excluding cost of product sales and depreciation and amortization, were $5.7 million for the Energy Services segment in the first quarter of 2009, an increase of $3.3 million from the corresponding period in 2008. The increase resulted from the inclusion of three months of operations in 2009 compared to just over 1½ months in 2008. In addition, professional fees increased by $0.7 million primarily as a result of consulting expenses associated with implementing and integrating operational controls associated with the Energy Services segment's ongoing petroleum products marketing programs.
Other Operations:
Revenue for the Other Operations segment, which consists principally of Buckeye's contract operations and engineering services for third party pipelines, was $9.1 million in the first quarter of 2009 compared to $10.9 million in the corresponding period in 2008. The decrease in revenues resulted from reduced operating services revenues of $1.0 million reflecting a customer's termination of a contract in the second quarter of 2008, along with reduced construction management revenue of $0.7 million associated with fewer engineering projects in process in the first quarter of 2009 compared to the same period in the prior year.
Costs and expenses, excluding depreciation and amortization, were $7.4 million for the Other Operations segment in the first quarter of 2009, a reduction of $1.5 million from the corresponding period in 2008. The reduction resulted from
reduced operating expenses associated with the terminated contract as well as the reduced engineering activity in the first quarter of 2009.
Total depreciation and amortization:
Total depreciation and amortization expense for the three months ended March 31, 2009 increased by $2.0 million compared to the same period in 2008, primarily due the inclusion of a full quarter of depreciation in 2009 for acquisitions made in the Terminalling and Storage, Natural Gas Storage, and Energy Services segments at various times in 2008.
Operating Expenses:
Costs and expenses attributable to Buckeye, Services Company and BGH were as
follows:
Three Months Ended
March 31,
2009 2008
(In thousands)
Attributable to Buckeye $ 346,737 $ 322,143
Elimination of Buckeye deferred charge (1,174 ) (1,174 )
Net effect of ESOP charges 399 965
Attributable to BGH 2,013 2,247
Total $ 347,975 $ 324,181
|
Amounts attributable to BGH consist of the following:
Three Months Ended
March 31,
2009 2008
(In thousands)
Salaries and benefits $ 1,187 $ 1,334
Professional fees 297 583
Other 529 330
Total $ 2,013 $ 2,247
|
As described in Note 1 to the condensed consolidated financial statements, effective January 1, 2009, Buckeye and its operating subsidiaries agreed to pay for all executive compensation and benefits earned by Buckeye GP's four highest salaried officers in return for an annual fixed payment from BGH to Buckeye in the amount of $3.6 million. The $3.6 million consisted of the anticipated 2009 salaries, incentive compensation and benefits of these executives plus 15% over such amounts. Salaries and benefits shown above for the first quarter of 2009 consist of the salaries, incentive compensation and benefits included in the $3.6 million annual fixed payment, plus allocations of the cost of Buckeye personnel performing administrative services directly for BGH. Salaries and benefits in 2008 include salaries and benefits for the four highest paid executives performing services on behalf of Buckeye which were paid for by BGH pursuant to the Services Agreement and an Executive Employment Agreement plus the allocated administrative salaries.
Other income (expense) for the three months ended March 31, 2009 and 2008 was as follows:
Three Months Ended
March 31,
2009 2008
(In thousands)
Investment income $ 152 $ 614
Interest and debt expense (17,403 ) (18,178 )
Total $ (17,251 ) $ (17,564 )
|
The reduction in investment income of $0.5 million for the three months ended March 31, 2009 as compared to same period in 2008 was primarily the result of a decline in interest income caused by lower interest rates in 2009.
Similarly, the reduction of interest and debt expense of $0.8 million for the three months ended March 31, 2009 was primarily the result of a decline in interest rates on a credit facility and a credit agreement in 2009 as compared to 2008 (discussed under "Liquidity and Capital Resources" below).
Liquidity and Capital Resources
BGH
BGH currently has no capital requirements apart from Buckeye's capital requirements. Buckeye's capital requirements consist of maintenance and capital expenditures, expenditures for acquisitions, and debt service requirements.
As noted in "Overview" above, BGH's only cash-generating asset is its ownership interest in Buckeye GP. BGH's cash flow is, therefore, directly dependent upon the ability of Buckeye and its operating subsidiaries to make cash distributions to Buckeye's partners. The actual amount of cash that Buckeye will have available for distribution depends primarily on Buckeye's ability to generate cash beyond its working capital requirements. Buckeye's primary future sources of liquidity are operating cash flow, proceeds from borrowings under Buckeye's revolving credit facility, and proceeds from the issuance of Buckeye's LP Units or public debt.
BGH's principal use of cash is the payment of its operating expenses and distributions to its unitholders. BGH generally makes quarterly cash distributions of substantially all of its available cash, generally defined as consolidated cash receipts less consolidated cash expenditures and such retentions for working capital, anticipated cash expenditures and contingencies as MainLine Management deems appropriate. In the first three months of 2009, BGH paid cash distributions of $0.33 per unit on February 28, 2009. In the first three months of 2008, BGH paid cash distributions of $0.285 per unit on February 29, 2008. Total cash distributed to BGH unitholders in the three months ended March 31, 2009 and 2008 was approximately $9.3 million and $8.1 million, respectively.
On April 30, 2009, MainLine Management declared a distribution of $0.35 per unit to be paid on May 29, 2009 to unitholders of record as of May 11, 2009. This distribution is expected to be approximately $9.9 million.
Buckeye
Typically, Buckeye's principal sources of liquidity are cash from operations, borrowings under its unsecured revolving credit agreement (the "Credit Facility") and proceeds from the issuance of LP Units. Buckeye will, from time to time, issue debt securities to permanently finance amounts borrowed under the Credit Facility. Buckeye Energy Services ("BES") funds its working capital needs principally from operations and a secured credit facility (the "BES Credit Agreement"). Buckeye's principal uses of cash are capital expenditures, distributions to Unitholders and acquisitions as described in "Cash Flows from Investing Activities" below.
. . .
|
|