BPL & Irving in Oil Service Deal

Buckeye Partners LP (BPL - Analyst Report) has entered into a multi-year agreement with a subsidiary of Irving Oil Limited ("Irving Oil"). As per the agreement, the company will provide crude oil services from its 1.8 million barrel storage facility located in Albany, New York.

The terminal along the Hudson River is expected to begin services from November 1, 2012 onwards. Apart from handling crude oil, Buckeye Partners will also off-load unit-trains, storage, and throughput.

The Albany terminal has an active storage capacity of 1.8 million barrels, two deep-water docks, and ethanol unit train offloading capability. Buckeye Albany Terminal LLC has recently completed the acquisition of an ethanol and petroleum products distribution terminal located in Albany, New York from LogiBio Albany Terminal, LLC, an affiliate of U.S. Oil Co., Inc. and LogiBio, LLC.

In order to proceed well with the agreement, the partnership intends to make some modification to the Albany terminal. Post-modification, the terminal will have the capability to handle both crude oil and ethanol unit-trains with a total capacity of more than 135,000 barrels per day.

Buckeye Partners is a publicly traded master limited partnership that owns and operates one of the largest independent liquid petroleum products pipeline systems in the United States in terms of volumes delivered, with over 6,000 miles of pipeline. Buckeye's flagship marine terminal in The Bahamas, BORCO, is one of the largest crude oil and petroleum products storage facilities in the world, serving the international markets as a premier global logistics hub.

In July this year, the partnership had completed the purchase of a marine terminal facility for liquid petroleum products in New York Harbor from Chevron Corporation (CVX - Analyst Report) for $260 million. The facility consists of more than four million barrels of storage, four docks on the Arthur Kill, and pipeline, rail, and truck access. This purchase increased the Buckeye Partners’ total liquid petroleum storage capacity by approximately 6% to over 68 million barrels.

Buckeye Partners’ attractive portfolio of refined petroleum product transportation assets in key geographical markets generates stable and recurring fee-based revenue, providing an above-average level of safety to its earnings and cash flows. Moreover, the partnership has adopted the inorganic route to expand its operations in order to cope with increased customer demand.

However, demand variability arising out of changes in economic conditions, weather and transportation is a matter of concern. The partnership presently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.