Recently, I participated in an investor roundtable here at the Fool and offered up one stock to buy in April. Due to space limitations I was only able to pen a few words on my pick: Buckeye Partners, L.P. (NYSE:BPL) Because the company is not that well-known, I thought it would be helpful to flesh out my thoughts on why I think Buckeye is a compelling opportunity for income-seeking investors.
The basics
Buckeye Partners, L.P. (NYSE:BPL) is a master limited partnership engaged primarily in the transportation and storage of crude-oil-based products. It’s history dates back all the way to the Standard Oil Company; however, it’s a company that has really undergone a lot of change over the past five years. Those changes should yield significant growth, especially when it comes to the company’s distribution, which I believe will begin to head higher over the next year.
Buckeye Partners, L.P. (NYSE:BPL)’s business consists of three segments, with its domestic pipeline and storage business currently doing the bulk of the heavy lifting. That segment owns and operates 6,000 miles of pipeline, 100 liquid petroleum product terminals and around 42 million barrels of liquid petroleum product storage capacity. It also produces about three-quarters of the company’s adjusted EBITDA.
The other segment of note is its international pipelines and terminal operations, which represents about a quarter of its adjusted EBITDA. This is the company’s big driver of growth and its crown jewel is the BORCO marine terminal in the Bahamas. Finally, Buckeye Partners, L.P. (NYSE:BPL) has a small natural gas storage business as well as service and logistic operations.
The opportunity
As I mentioned, the crown jewel here is BORCO. Buckeye Partners, L.P. (NYSE:BPL) is in the midst of adding 4.7 million barrels of storage capacity to the terminal’s 24.9 million barrels of capacity. However, there’s enough space to double capacity if market conditions permit. As I noted to roundtable readers:
The facility has a very strategic location in the Caribbean and unlike other locations it has the advanced marine infrastructure required for deepwater access. This gives BORCO an unmatched competitive advantage in two key growth areas. First, it can serve as a bunkering area for crude oil transportation through the soon-to-be-expanded Panama Canal and second, it has the potential to be a staging area for crude oil from Latin American production that’s expected to come online over the next decade.
While that international growth is nice, Buckeye Partners, L.P. (NYSE:BPL) does have several opportunities to grow its business here in the States. Last year, the company spent $260 million to buy the Perth Amboy Marine Terminal from Chevron Corporation (NYSE:CVX). The terminal is strategically located in the New York Harbor and offers a number of growth opportunities. As part of the deal, Buckeye signed a multi-year service contract with Chevron Corporation (NYSE:CVX) which will support it through a period of capital investments as it seeks to capitalize on the asset.
