What's Driving Buckeye Partners' Domestic Operations?

These days most investors know about the big fat distributions coming out of MLPs. However, few investors know exactly how or where these companies make their money. One MLP that should be catching the eye of investors is Buckeye Partners (NYSE: BPL  ) , especially since it sports a distribution of more than 6%. Let's take a quick look inside the company's largest segment, domestic pipelines and terminals, and see how it makes its money.

The pipelines
Buckeye owns and operates about 6,000 miles of pipelines in its domestic operations. For perspective, if laid end to end, that's enough pipe to stretch from New York to Los Angeles... twice. Buckeye's pipelines, though, are mostly located in the Northeast and Midwest, where the company delivers petroleum-based products to nearly 100 locations.

Buckeye moves nearly 1.4 million barrels of liquid petroleum products per day, including gasoline, jet fuel, and heating oil. Some of its key pipelines include delivering jet fuel to three New York City airports as well as a number of assets dedicated to piping refined products from the refineries to terminals owned by Buckeye to be stored until its ready to be moved to end users. The company's pipelines are very well integrated with its terminal and storage assets so that it can generate additional revenue by providing complementary services to its customers.  

The terminals and storage
Buckeye currently has about 100 petroleum product terminals and approximately 42 million barrels of liquid petroleum product storage capacity. The company has been busy over the past couple of years growing this asset base though a number of important strategic transactions. These are just starting to bear fruit and the company sees a lot of potential growth here as it continues to build its terminal franchise. 

One of the best assets that Buckeye has acquired recently is the Perth Amboy marine terminal in the New York Harbor, which it purchased from Chevron (NYSE: CVX  ) for $260 million. In conjunction with the sale, Chevron entered into a multi-year storage and services agreement. Buckeye plans to spend more than $100 million to transform the terminal into one that can store multiple products as well as link it by pipeline to its nearby Linden complex and to upgrade it to handle Bakken-sourced crude oil coming in by rail and ship. This is an area where Buckeye really excels as it can take an underutilized asset from a large integrated company like Chevron and turn it into something of even greater value. 

Source: Buckeye Investor Presentation

Another example of this occurred when Buckeye bought 33 liquid product terminals and 643 miles of pipeline assets from BP (NYSE: BP  )  for $165 million. After closing the deal, Buckeye was able to sign on 32 new customers which yielded a 34% year-over-year increase in the EBITDA contributed by those assets. This is why Buckeye sees a lot of potential in acquiring terminal assets from companies like BP and Chevron, because it believes it can operate them more efficiently while also creating additional value for investors.

Where's the growth?
Buckeye is seeing an increasing number of opportunities as a logistics solution provider for Bakken crude oil. Not only are there plans to accept Bakken oil at Perth Amboy, but the company's Albany, N.Y., and Woodhaven, Mich., terminals have both become key solutions in the transportation of crude oil by rail. Outside of that, Buckeye sees crude oil storage and transportation potential at its Chicago complex. Growth opportunities, both organic and acquired, are in abundance at Buckeye as its assets provide a key logistical role in the transportation of petroleum-based products to the population centers of the Northeast and Midwest.

Final Foolish thoughts
Buckeye is really well positioned to benefit from the continued growth in crude oil production here in the U.S. The company has a number of expansion and acquisition opportunities which should enable it to keep growing its distribution. Not only that but Buckeye could one day become an acquisition target of a larger MLP looking to build its presence in the highly populated marketplace of the Northeast. 

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