Buckeye Partners (NYSE:BPL) is one of the more unique master limited partnerships in the business. Its pipeline and terminal business is solely focused on transporting and storing petroleum products. Even more unique to Buckeye is its international pipeline and terminal business which provided 23.6% of the company's adjusted EBITDA last year. That segment, which we'll take a closer look at, should grow to become a much larger portion of its income given the exceptional opportunities it has to grow.
By far the crown jewel, not just internationally, but among all its operations, is the BORCO Marine Terminal in the Bahamas. The terminal currently has about 25 million barrels of storage capacity which, for perspective, is more than half of the capacity of the company's entire domestic operations. If market conditions persist, the company has room to double BORCO's capacity, which would significantly add to Buckeye's future profits.
BORCO was acquired in 2011 for $1.7 billion and has seen another $340 million in capital investments since then. That capital investment is expected to bring about 4.7 million barrels of additional capacity by the end of this year. The best part of all is that BORCO is a great cash flow asset as 80.4% of its revenue is locked in by take-or-pay contracts. This takes away some of the volatility that's traditionally found when investing internationally.
Buckeye's other major international asset is its Yabucoa terminal, which it bought in 2010 for $32.6 million. The facility has 4.6 million barrels of storage capacity which is secured by long-term fee-based revenues under a multi-year commitment from Shell (NYSE:RDS-A). This terminal, like many that it has acquired domestically, was better suited in Buckeye's MLP structure than to continue under Shell's banner. One of the reasons is that this asset, like BORCO, has a strong strategic location which enables its growth to come from regional opportunities, including jet fuel and crude oil storage. This makes it a solid cash flow asset for Buckeye, even if it doesn't possess the same growth potential as BORCO.
Where's the growth
As I mentioned previously, the BORCO Terminal has significant opportunities for future growth. The big reason for this is its strategic location in the Caribbean with two big catalysts on the horizon. First, the advanced marine infrastructure at the facility is able to handle the vessels that will be headed its way thanks to the expansion of the Panama Canal, which is expected to be complete next year. Further, BORCO's location is prime to benefit from the Latin American crude oil production growth that will need to be blended and staged. If Buckeye is able to capture that growth, it will add additional fee-based revenue, which would add to the company's distributable cash flow.
Outside of organic growth, it's highly likely that the company will acquire additional assets to grow its international platform. One of the many opportunities could see the company picking up Hess' (NYSE:HES) international terminal assets, which are part of a larger terminal package that Hess is currently marketing for about a billion dollars. If Buckeye could pick up the entire package it would add $100 million in EBITDA to its overall bottom line while boosting its international business by adding up to 24 million barrels of storage capacity.
For a company that does about $150 million in EBITDA each quarter, the asset package could boost that number by 16%. These assets would be a great strategic fit for Buckeye's MLP structure and would fit much better than in Hess' current business model focused on exploration and production. Even if it doesn't acquire these particular assets, if the past is any indication, Buckeye will more than likely acquire storage and terminal assets that fit nicely within its current Caribbean assets.
Final Foolish thoughts
In my option, Buckeye's international operations are what sets the company up for great future growth. Not only will BORCO continue to expand, but Buckeye has the financial capacity to continue acquiring similar assets. These assets are great suppliers of distributable cash flow to help support its nearly 6% distribution. Even better, as these assets grow, it will support future distribution growth.
Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.