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Buckeye Partners LP (BPL - Analyst Report) announced that it has inked a definitive agreement with Hess Corp. to purchase 20 liquid petroleum product terminals for $850 million. The terminals have a total storage capacity of roughly 39 million barrels. The transaction is anticipated to be completed by 2013 end and is subject to regulatory approval as well as customary closing conditions. The acquisition involves multi-year storage and throughput requirement by Hess.
The 19 domestic terminals are placed along the U.S. East Coast covering the areas of New York Harbor, Upstate New York, Mid-Atlantic, and Southeast. Except 2 the rest are marine terminals while 12 have deep-water access. The terminals have a storage capacity of around 29 million barrels of refined petroleum products which include 15 million barrels of capacity located in the key New York Harbor.
The St. Lucia terminal in the Caribbean has a crude oil and refined petroleum products storage capacity of roughly 10 million barrels and has deep-water access. Buckeye’s strategic acquisition will also expand its operation to the high-growth Southeast markets like Florida.
Additionally, the Port Reading terminal is in the vicinity of the company’s existing Perth Amboy terminal and the Linden Hub. This would help Buckeye Partners to create an integrated network of pipeline assets in New York Harbor, leveraging the pipeline connections between the terminals and optimizing capabilities at each facility.
The St. Lucia terminal will strengthen the partnership’s Caribbean storage operations and help tap the growing Latin American crude oil production volumes. Buckeye is poised to gain from continued investments in terminal expansion. The partnership has placed itself well to reap the synergies from global logistic product flows.
Buckeye’s pipeline and terminal business has been a key revenue churner thanks to its constant development efforts. These initiatives have helped the partnership in securing profitable long-term contracts. During the second quarter 2013, its Perth Amboy terminal and Chicago propylene storage asset successfully clinched several crude oil services and storage deals.
Nonetheless, deep sea operations do have its share of risks as harsh weather could disrupt Buckeye’s operations especially with the ongoing hurricane season. The coming years might pose significant challenges for Buckeye as the Energy Information Administration predicts petroleum products and diesel prices to weaken by 5.5% and 3.8% in 2014, respectively, from the 2012 level.
Currently, the partnership carries a Zacks Rank #4 (Sell). However, other well-placed pipeline operators include Zacks Ranked #2 (Buy) Magellan Midstream Partners L.P. (MMP - Analyst Report), Pioneer Southwest Energy Partners L.P. (PSE - Snapshot Report) and Sunoco Logistics Partners L.P. (SXL - Analyst Report).