Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



This Deal Makes Perfect Sense

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

At the end of June I wondered aloud which company would eventually land Hess' (NYSE: HES  ) extensive East Coast terminal network. Hess had just put them on the auction block as part of its transition into a pure-play exploration and production company. Finally, after three months of waiting we have that answer and it comes as no surprise to me.

In my previous article I had considered the three main companies that were rumored to be interested. However, I came away thinking that only one made sense: Buckeye Partners (NYSE: BPL  ) . I went so far to say that, "if I were a betting man, I'd pick Buckeye as the most logical destination for Hess' terminal network." Too bad I didn't actually make that bet because in the end it was Buckeye that ended up buying Hess' terminals.

The $850 million deal will see Buckeye pick up 20 liquid petroleum terminals from Hess with total storage capacity of 39 million barrels. Of these, 19 are located in the U.S. with the final terminal located on St. Lucia in the Caribbean. It's a great strategic fit for Buckeye.

The following map details the locations of the Hess network:

Source: Hess

As the map shows, the 19 domestic terminals are located in the New York Harbor, Upstate New York, Mid-Atlantic and Southeast. All but two of the facilities are marine terminals and a dozen have deep-water access. As the next map shows, these assets both compliment and extend Buckeye's own terminal network.

Source: Buckeye Partners

Overly these two maps and its easy to see the compelling strategic rationale behind this deal. However, there is one other asset that Buckeye is picking up worth noting and that is Hess' St. Lucia terminal. This is actually why this deal makes so much strategic sense for Buckeye as it already owns two terminals in the Caribbean. The addition of the St. Lucia terminal adds 10 million barrels of crude oil and refined products storage as well as deep-water access. It will allow the company to accommodate a larger portion of the growing Latin American crude oil production volumes. Its really building out a top-tier position in the region.

Not only that, but Buckeye has a history of creating value when it acquires terminals. It's able to do more with them than the previous owners because its goals are income as opposed to support. For example, back in 2011 it bought $165 million in midstream assets from BP (NYSE: BP  ) . At the time, BP was looking to cash in on some of its non-core assets in order to bolster its balance sheet following the disaster in the Gulf of Mexico. In just one year Buckeye was able add 32 new third-party customers, which enabled it to grow EBITDA from the acquired assets by 34% in just one year.

I'd expect Buckeye to do the same thing with the acquired Hess assets. While the foundation is a multi-year storage and throughput commitment from Hess to secure the cash flow, real value will be created as Buckeye adds customers and grows the business. That's why this deal just makes so much sense.

Looking for another great company to own?
Buckeye just made a really great move, but does that make it a top stock? Not according to The Motley Fool's chief investment officer, who has selected another company as his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2676579, ~/Articles/ArticleHandler.aspx, 9/28/2016 1:14:58 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 3 hours ago Sponsored by:
DOW 18,228.30 133.47 0.74%
S&P 500 2,159.93 13.83 0.64%
NASD 5,305.71 48.22 0.92%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/27/2016 4:02 PM
BPL $70.45 Down -0.51 -0.72%
Buckeye Partners CAPS Rating: *****
HES $46.81 Down -0.82 -1.72%
Hess CAPS Rating: ****
BP $33.61 Down -0.07 -0.21%
BP CAPS Rating: ****