Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BPL > SEC Filings for BPL > Form 10-Q on 7-Aug-2013All Recent SEC Filings

Show all filings for BUCKEYE PARTNERS, L.P.

Form 10-Q for BUCKEYE PARTNERS, L.P.


7-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this "Report") contains various forward-looking statements and information that are based on our beliefs, as well as assumptions made by us and information currently available to us. When used in this Report, words such as "proposed," "anticipate," "project," "potential," "could," "should," "continue," "estimate," "expect," "may," "believe," "will," "plan," "seek," "outlook" and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements. Although we believe that such expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that such expectations will prove to be correct. Such statements are subject to a variety of risks, uncertainties and assumptions as described in more detail in Part I "Item 1A, Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2012. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected. Although the expectations in the forward-looking statements are based on our current beliefs and expectations, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date hereof. Except as required by federal and state securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason.

The following information should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included in this Report.

Overview of Business

Buckeye Partners, L.P. is a publicly traded Delaware master limited partnership and its limited partnership units representing limited partner interests ("LP Units") are listed on the New York Stock Exchange ("NYSE") under the ticker symbol "BPL." Buckeye GP LLC ("Buckeye GP") is our general partner. As used in this Report, unless otherwise indicated, "we," "us," "our" and "Buckeye" mean Buckeye Partners, L.P. and, where the context requires, includes our subsidiaries.

We were formed in 1986 and own and operate one of the largest independent refined petroleum products pipeline systems in the United States in terms of volumes delivered, with approximately 6,000 miles of pipeline and over 100 active products terminals that provide aggregate storage capacity of approximately 70 million barrels. We also operate and/or maintain third-party pipelines under agreements with major oil and gas, petrochemical and chemical companies, and perform certain engineering and construction management services for third parties. We also own and operate a natural gas storage facility in Northern California, and are a wholesale distributor of refined petroleum products in the United States in areas also served by our pipelines and terminals. Beginning in late 2012, we began to provide fuel oil supply and distribution services to third parties in the Caribbean. Our flagship marine terminal in The Bahamas, Bahamas Oil Refining Company International Limited ("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.

Our primary business objective is to provide stable and sustainable cash distributions to our LP unitholders, while maintaining a relatively low investment risk profile. The key elements of our strategy are to: (i) maximize utilization of our assets at the lowest cost per unit; (ii) maintain stable long-term customer relationships; (iii) operate in a safe and environmentally responsible manner; (iv) optimize, expand and diversify our portfolio of energy assets; and (v) maintain a solid, conservative financial position and our investment-grade credit rating.


Table of Contents

Recent Developments

Notes Offering

In June 2013, we issued $500.0 million of 4.150% Notes due July 1, 2023 (the "4.150% Notes") in an underwritten public offering at 99.81% of their principal amount. Total proceeds from this offering, after underwriters' fees, expenses and debt issuance costs of $3.3 million, were approximately $495.8 million. We used the net proceeds from this offering for general partnership purposes and to repay amounts due under our $1.25 billion revolving credit facility dated September 26, 2011 (the "Credit Facility") with SunTrust Bank, a portion of which was subsequently reborrowed in July 2013 in order to repay in full the $300.0 million principal amount outstanding under the 4.625% Notes maturing on July 15, 2013 (the "4.625% Notes"), including approximately $6.9 million of related accrued interest. We also settled all interest rate swaps relating to the 4.150% Notes for approximately $62.0 million during June 2013.

At-the-Market Offering Program

In May 2013, we entered into four separate equity distribution agreements (each an "Equity Distribution Agreement" and collectively the "Equity Distribution Agreements") with each of Wells Fargo Securities, LLC, Barclays Capital Inc., SunTrust Robinson Humphrey, Inc. and UBS Securities LLC. Under the terms of the Equity Distribution Agreements, we may offer and sell up to $300.0 million in aggregate gross sales proceeds of LP Units from time to time through such firms, acting as agents of the Partnership or as principals, subject in each case to the terms and conditions set forth in the applicable Equity Distribution Agreement. Sales of LP Units, if any, may be made by means of ordinary brokers' transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of such firms. During the three months ended June 30, 2013, we sold 0.4 million LP Units in aggregate under the Equity Distribution Agreements and received approximately $23.6 million in net proceeds after deducting commissions and other related expenses. During the three months ended June 30, 2013, we paid approximately $0.3 million of compensation in aggregate to the agents under the Equity Distribution Agreements.

Acquisition of Additional Interest in WesPac Pipelines - Memphis LLC

In April 2013, our operating subsidiary, Buckeye Pipe Line Holdings, L.P. ("BPH"), purchased an additional 10% ownership interest in WesPac Pipelines - Memphis LLC ("WesPac Memphis") from Kealine LLC for $9.7 million and, as a result of the acquisition, our ownership interest in WesPac Memphis increased from 70% to 80%. Since BPH retains controlling interest in WesPac Memphis, this acquisition was accounted for as an equity transaction.

Equity Offering

In January 2013, we completed a public offering of 6.0 million LP Units pursuant to an effective shelf registration statement, which priced at $52.54 per unit. The underwriters also exercised an option to purchase 0.9 million additional LP Units, resulting in total gross proceeds of approximately $362.5 million before deducting underwriting fees and estimated offering expenses. We used the net proceeds from this offering to reduce the indebtedness outstanding under our Credit Facility.

Overview of Operating Results

Net income attributable to our unitholders was $165.8 million for the six months ended June 30, 2013, which was an increase of $59.5 million, or 56.0% from $106.3 million for the corresponding period in 2012. Operating income was $224.8 million for the six months ended June 30, 2013, which is an increase of $61.9 million, or 38.0% from $162.9 million for the corresponding period in 2012. Our results for the six months ended June 30, 2013 includes year-over-year improvement in our Pipelines & Terminals, International Operations and Energy Services segments, while our Natural Gas Storage segment experienced challenges associated with a decline in storage rates compared to the corresponding period in 2012. Continued excess supply of natural gas, minimal volatility in natural gas prices and compressed seasonal spreads could cause further reduction in Adjusted EBITDA and a reduction of


Table of Contents

our estimates of future cash flows related to our Natural Gas Storage segment. Accordingly, we continue to monitor the effect of any adverse economic conditions on the carrying value of the long-lived assets related to this segment.

The increase in net income attributable to our unitholders was primarily the result of increased revenue in our Pipelines & Terminals segment, as well as increased contributions from our International Operations and Energy Services segments. Terminalling volumes for the first six months of 2013 increased over the prior year period in our Pipelines & Terminals segment as recent growth capital projects became operational in the latter half of 2012, including our propylene and storage project at our Chicago complex and transformation of our Albany terminal to add the ability to provide crude-handling services. This represents further product diversification for Buckeye as we were able to leverage our existing assets to provide a broader array of services to our customers. Our International Operations segment benefited from incremental storage capacity brought online at our BORCO facility in the second half of 2012 and early 2013. In addition to the storage revenue contribution from the expansion capacity, higher ancillary revenues, including berthing and heating revenue, were generated due to increased customer utilization of our facilities. Additionally, our Energy Services segment benefited from improved rack margins, largely the result of renewable identification number ("RIN") sales. Our Energy Services segment generates RINs through its ethanol blending and bio-blended diesel activities. The market for RINs, which are legislatively required to be purchased by refiners, experienced a substantial increase in value during the year. Furthermore, our Energy Services segment continued to benefit from the execution of our risk mitigation strategy, which included focusing on fewer, more strategic locations in which to transact business, better managing our inventories and reducing the cost structure of the business. Sales volumes declined as a result of our continued execution of this risk mitigation strategy.

Results of Operations



Consolidated Summary



Our summary operating results were as follows for the periods indicated (in
thousands, except per unit amounts):



                                       Three Months Ended             Six Months Ended
                                            June 30,                      June 30,
                                       2013           2012          2013           2012

Revenue                             $ 1,005,379    $  982,640    $ 2,350,340    $ 2,242,079
Costs and expenses                      899,728       900,494      2,125,540      2,079,199
Operating income                        105,651        82,146        224,800        162,880
Other expense, net                      (28,086 )     (25,791 )      (56,605 )      (52,721 )
Income before taxes                      77,565        56,355        168,195        110,159
Income tax expense                         (195 )        (329 )         (326 )         (666 )
Net income                               77,370        56,026        167,869        109,493
Less: Net income attributable to
noncontrolling interests                   (940 )      (1,647 )       (2,098 )       (3,155 )
Net income attributable to
Buckeye Partners, L.P.              $    76,430    $   54,379    $   165,771    $   106,338
Earnings per unit - diluted         $      0.72    $     0.55    $      1.58    $      1.10

Non-GAAP Financial Measures

Adjusted EBITDA is the primary measure used by our senior management, including our Chief Executive Officer, to: (i) evaluate our consolidated operating performance and the operating performance of our business segments;
(ii) allocate resources and capital to business segments; (iii) evaluate the viability of proposed projects; and (iv) determine overall rates of return on alternative investment opportunities. Distributable cash flow is another measure used by our senior management to provide a clearer picture of cash available for distribution to its unitholders. Adjusted EBITDA and distributable cash flow eliminate: (i) non-cash expenses, including but not limited to, depreciation and amortization expense resulting from the significant capital investments we make in our businesses and from intangible assets recognized in business combinations; (ii) charges for obligations expected to be settled with the issuance of equity instruments; and (iii) items that are not indicative of our core operating performance results and business outlook.


Table of Contents

We believe that investors benefit from having access to the same financial measures that we use and that these measures are useful to investors because they aid in comparing our operating performance with that of other companies with similar operations. The Adjusted EBITDA and distributable cash flow data presented by us may not be comparable to similarly titled measures at other companies because these items may be defined differently by other companies.

The following table presents Adjusted EBITDA by segment and on a consolidated basis, distributable cash flow and a reconciliation of net income, which is the most comparable GAAP financial measure, to Adjusted EBITDA and distributable cash flow for the periods indicated (in thousands):

                                         Three Months Ended            Six Months Ended
                                              June 30,                     June 30,
                                         2013           2012          2013          2012

Adjusted EBITDA:
Pipelines & Terminals                 $   109,085    $   89,598    $  224,629    $  177,830
International Operations                   37,203        30,591        72,446        62,257
Natural Gas Storage                        (5,757 )        (388 )      (7,584 )      (1,656 )
Energy Services                             4,773        (3,206 )      11,964        (9,378 )
Development & Logistics                     3,187         3,337         5,885         5,866
Total Adjusted EBITDA                 $   148,491    $  119,932    $  307,340    $  234,919

Reconciliation of Net Income to
Adjusted EBITDA and Distributable
Cash Flow:
Net income                            $    77,370    $   56,026    $  167,869    $  109,493
Less: Net income attributable to
noncontrolling interests                     (940 )      (1,647 )      (2,098 )      (3,155 )
Net income attributable to Buckeye
Partners, L.P.                             76,430        54,379       165,771       106,338
Add:  Interest and debt expense            30,237        27,612        60,486        56,422
      Income tax expense                      195           329           326           666
      Depreciation and
      amortization                         39,452        34,325        77,043        67,352
      Non-cash deferred lease
      expense                                 942           975         1,884         1,950
      Non-cash unit-based
      compensation expense                  3,984         5,061         7,327         7,688
Less: Amortization of unfavorable
      storage contracts (1)                (2,749 )      (2,749 )      (5,497 )      (5,497 )
Adjusted EBITDA                       $   148,491    $  119,932    $  307,340    $  234,919
Less: Interest and debt expense,
      excluding amortization of
      deferred financing costs,
      debt discounts and other            (28,505 )     (26,767 )     (57,887 )     (54,684 )
      Income tax expense                     (195 )        (329 )        (326 )        (666 )
      Maintenance capital
      expenditures                        (13,069 )     (10,765 )     (18,202 )     (23,875 )
Distributable cash flow               $   106,722    $   82,071    $  230,925    $  155,694



(1) Represents amortization of negative fair values allocated to certain unfavorable storage contracts acquired in connection with the BORCO acquisition.


Table of Contents

The following table presents product volumes and average tariff rates for the Pipelines & Terminals segment in barrels per day ("bpd") and total volumes sold in gallons for the Energy Services segment for the periods indicated:

                                      Three Months Ended         Six Months Ended
                                           June 30,                  June 30,
                                      2013         2012         2013         2012

Pipelines & Terminals (average
bpd in thousands):
Pipelines:
Gasoline                                756.3        724.9        708.7        693.8
Jet fuel                                337.8        342.9        335.7        337.7
Middle distillates (1)                  320.5        294.1        333.1        315.7
Other products (2)                       28.9         35.1         32.9         29.0
Total pipelines throughput            1,443.5      1,397.0      1,410.4      1,376.2

Terminals:
Products throughput                   1,015.0        919.6        986.4        898.4

Pipeline Average Tariff
(cents/bbl)                              82.3         82.7         79.7         80.7

Energy Services (in millions of
gallons):
Sales volumes                           225.3        258.5        537.3        603.3



(1) Includes diesel fuel and heating oil.

(2) Includes liquefied petroleum gas ("LPG"), intermediate petroleum products and crude oil.

Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

Consolidated

Adjusted EBITDA was $148.5 million for the three months ended June 30, 2013, which is an increase of $28.6 million, or 23.8%, from $119.9 million for the corresponding period in 2012. The increase in Adjusted EBITDA was primarily related to positive contributions from growth capital spending and higher transportation volumes in the Pipelines & Terminals segment, as well as increased earnings as a result of higher margins and lower operating costs in the Energy Services segment. Higher margins in the Energy Services segment were primarily the result of managing product costs through risk management activities and RIN generation. In addition, our International Operations segment benefited from increased storage capacity and customer utilization of our BORCO facility. These increases in Adjusted EBITDA were offset by compressed seasonal spreads and minimal volatility in natural gas prices in our Natural Gas Storage segment.

Revenue was $1,005.4 million for the three months ended June 30, 2013, which is an increase of $22.8 million, or 2.3%, from $982.6 million for the corresponding period in 2012. The increase in revenue was primarily related to incremental storage capacity brought online at our BORCO facility in the second half of 2012 and early 2013, as well as new fuel oil supply and distribution services in the International Operations segment. In addition, revenue in our Pipelines & Terminals segment increased as a result of increased pipeline and terminalling volumes and contribution from growth capital initiatives that were placed into service in the second half of 2012. These increases in revenue were offset by lower product sales volume in our Energy Services segment.

Operating income was $105.7 million for the three months ended June 30, 2013, which is an increase of $23.5 million, or 28.6%, from $82.1 million for the corresponding period in 2012. The increase in operating income was primarily related to increased pipeline and terminalling volumes and contributions from growth capital spending initiatives in the Pipelines & Terminals segment and increased contribution from our Energy Services segment as a result of higher margins and lower operating costs. In addition, our International Operations segment benefited from incremental storage capacity brought online at our BORCO facility in the second half of 2012 and early 2013. These increases were offset by decreased seasonal spreads in our Natural Gas Storage segment.


Table of Contents

Distributable cash flow was $106.7 million for the three months ended June 30, 2013, which is an increase of $24.7 million, or 30.0%, from $82.1 million for the corresponding period in 2012. The increase in distributable cash flow was primarily related to an increase of $28.6 million in Adjusted EBITDA as described above.

Adjusted EBITDA by Segment

Pipelines & Terminals. Adjusted EBITDA from the Pipelines & Terminals segment was $109.1 million for the three months ended June 30, 2013, which is an increase of $19.5 million, or 21.7%, from $89.6 million for the corresponding period in 2012. The positive factors impacting Adjusted EBITDA were primarily related to $8.8 million of incremental revenue from capital investments in internal growth and diversification initiatives, including expanded butane blending capabilities, crude-handling services, as well as storage and throughput of other hydrocarbons, an $8.7 million increase in revenue resulting from an increase in terminalling storage contracts, including those associated with the facility in Perth Amboy, New Jersey that we acquired in July 2012 (the "Perth Amboy Facility"), an $8.5 million increase in revenue due to higher pipeline and terminalling volumes, a $0.9 million increase in earnings due to the purchase of an additional 30% ownership interest in WesPac Pipelines - Memphis LLC in the second half of 2012 and the beginning of the second quarter of 2013, which increased our ownership interest from 50% to 80% and a $0.2 million increase in earnings from equity investments.

The negative factors impacting Adjusted EBITDA were a $5.0 million increase in operating expenses, primarily related to outside services for asset-maintenance, higher operating costs due to increased volumes, and incremental costs associated with the Perth Amboy Facility acquired in July 2012, as well as a $2.6 million decrease in revenue due to lower average pipeline tariff rates resulting from shorter-haul shipments.

Pipeline volumes increased by 3.3% due to stronger demand for gasoline and middle distillates resulting from changes in regional production and supply, as well as higher heating oil shipments due to cooler temperatures when compared to the corresponding period in 2012. Terminalling volumes increased by 10.4% due to higher demand for gasoline, distillates, and other hydrocarbons resulting from new customer contracts and service offerings at select locations, effective commercialization of acquired assets and continued positive contribution from our recently completed internal growth projects in a period of favorable market conditions.

International Operations. Adjusted EBITDA from the International Operations segment was $37.2 million for the three months ended June 30, 2013, which is an increase of $6.6 million, or 21.6%, from $30.6 million for the corresponding period in 2012. The positive factors impacting Adjusted EBITDA were due to a $6.7 million increase in storage revenue primarily as a result of incremental storage capacity brought online at our BORCO facility and a $1.0 million increase in ancillary revenues, including berthing of ships at our jetties, and heating services due to increased customer utilization of our facilities.

The increase in revenue was offset by a $1.0 million increase in operating expenses primarily due to increased costs necessary to operate the expanded capabilities of the BORCO facility and one-time costs related to certain organizational changes. Contribution related to new service offerings providing fuel oil supply and distribution services in the Caribbean remained relatively flat for the quarter ($86.1 million in revenue and $86.2 million in cost of product sales and related overhead expenses).

Natural Gas Storage. Adjusted EBITDA from the Natural Gas Storage segment was a loss of $5.8 million for the three months ended June 30, 2013, which is $5.4 million less favorable than a loss of $0.4 million for the corresponding period in 2012. The decrease in Adjusted EBITDA was primarily the result of a $2.7 million decrease in revenue for hub service activities related to decreased seasonal spreads, a $2.1 million increase in costs of natural gas storage services, which includes increased costs for hub services activities and a $2.0 million decrease in storage revenue due to lower rates and capacity utilization when compared to the corresponding period in 2012, partially offset by a $1.4 million decrease in operating expenses which primarily related to a decline in the number of well workovers performed during 2013 as compared to the 2012 period. Storage revenue and hub services revenue are affected by the difference in natural gas commodity prices for the periods in which natural gas is injected and withdrawn from the storage facility (i.e., time spread).


Table of Contents

Energy Services. Adjusted EBITDA from the Energy Services segment was $4.8 million for the three months ended June 30, 2013, which is an improvement of $8.0 million, or 248.9%, from a loss of $3.2 million for the corresponding period in 2012. The positive factors impacting Adjusted EBITDA were primarily related to cooler weather conditions in the Northeast when compared to the corresponding period in 2012, driving distillate demand and higher rack margins due to lower product costs from risk management activities and the generation of RINs, which are tradable "credits" generated by blending biofuels into finished gasoline or diesel products.

Adjusted EBITDA was positively impacted by a $104.0 million decrease in cost of product sales, which included a $96.0 million decrease due to 12.8% less volumes sold and a $8.0 million decrease in refined petroleum product cost due to a price decrease of approximately $0.04 per gallon (average cost prices per gallon were $2.85 and $2.89 for the 2013 and 2012 periods, respectively) and a $0.5 million decrease in operating expenses, which primarily related to overhead costs.

Adjusted EBITDA was negatively impacted by a $96.5 million decrease in revenue, which included a $96.0 million decrease due to 12.8% less volumes sold and a $0.5 million decrease in refined petroleum product sales due to no change in price per gallon (average sales price per gallon was $2.89 for both the 2013 and . . .

  Add BPL to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BPL - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.