With the boom in domestic energy production, it's easy to become too focused on what's going on within our borders and forget that there's a great big world bursting with potential. That's especially true when it comes to income-seeking investors and our beloved U.S. onshore-focused master limited partnerships. What if I told you that you could have both income and international growth all rolled into one investment?
Best of both worlds
Buckeye Partners (BPL +0.00%) is a midstream MLP that offers the unique aspects of an energy importer and exporter to its investors. While nearly three-quarters of its income is derived from domestic pipelines and terminals, the company offers great optionality to the outside world. That's because unlike many of its peers, the company's final quarter of income is derived from international pipelines and terminals. Before we get to those, let's take a quick peek at what's going on domestically.
Building a winner in the U.S.
Buckeye has been adding capacity via acquisitions in a variety of geographies over the past few years. In 2011 it acquired $165 million in midstream assets from BP (BP 2.05%). That deal included 33 liquid product terminals and 643 miles of refined product pipeline. BP, as you know, has been shedding assets to plug a hole in its balance sheet, and these were assets that it could live without and were a better fit for an MLP.
What's even better for Buckeye investors is that the company has been able to grow the assets' capabilities since the the deal closed. This has yielded a 13.1% growth thanks to adding 32 new third-party customers for the terminals. Add it up, and the asset has yielded a 34% increase in its contribution to EBITDA from June 2011 to June 2012.
The company also acquired the Perth Amboy facility in New York Harbor from Chevron (CVX 1.39%) for $260 million in cash last year. Chevron will remain closely tied to the facility, having signed a multiyear commitment to be a customer of the facility. However, like the BP assets, Buckeye sees further upside in the years ahead.
One potential avenue for growth is for Buckeye to determine whether Perth Amboy could handle Bakken crude. Recently, an East Coast-based refinery owned by Phillips 66 (PSX 1.65%) signed a five-year supply deal to have Bakken crude shipped in by rail. As more East Coast refiners join Phillips 66 to exploit this domestically sourced oil, Buckeye has the potential to add value by using its strategically located facility.
International exposure growing
Since 2010, Buckeye has acquired two international assets, one in the Bahamas and one in Puerto Rico. The Yabucoa terminal in Puerto Rico was purchased for just $32.6 million and has a long-term fee-based commitment from Royal Dutch Shell (NYSE: RDS-A). It's in a strong local market and provides the company with opportunities to grow regionally. The commitment to the facility from a world-class multinational like Shell removes some of the execution risk that can come from operating in international waters.
The crown jewel of its international operations is the BORCO facility in the Bahamas. The world-class marine storage terminal stores crude oil, fuel oil, and refined petroleum products. It also has deepwater access, and its 24.9 million barrels of capacity is secured by three- to five-year take-or-pay contracts for a growing list of world-class customers. It's also strategically positioned for future international growth.
In fact, Buckeye is in the middle of a 4.7 million barrel expansion program that will be completed later this year, and it has the room to double capacity if market conditions are favorable. There are two potential catalysts on the horizon to watch -- first, the Panama Canal expansion in 2014 will allow for Suezmax ships to pass through and could lead to 20%-30% greater traffic in area from which BORCO can capitalize. Further, expected increases in Latin American production could also boost Buckeye's BORCO business, as it could become a staging area for oil trade in the region.
My Foolish takeaway
There's a lot to like in Buckeye Partners, as the growth I've mentioned is designed to fuel one thing -- its nearly 8% distribution. The company has developed quite the history of growing that yield, and it's showing no signs of slowing down. Few MLPs offer investors the opportunity to benefit from growth in production domestically and internationally.
