Weak oil prices increased earnings for Buckeye Partners as oil producers looked to store their crude and wait for a rebound. The pipeline company is also bucking an industry trend by raising its quarterly distribution.
BUCKEYE PARTNERS L.P. (New York symbol BPL; www.buckeye.com)operates 9,700 kilometres of pipelines in the northeastern and Midwestern U.S. Its network pumps gasoline, jet fuel and other petroleum products.
In the past few years, Buckeye has steadily expanded its oil storage operations. It now has 117 terminals in the U.S. with a total capacity of 55.6 million barrels.
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The company also owns seven marine storage terminals that serve ocean-going oil tankers in New York City, Corpus Christi, Texas, Puerto Rico, St. Lucia and The Bahamas. These facilities have a combined capacity of 62.3 million barrels.
Due to the recent weakness in oil prices, many producers are opting to store their crude while they wait for prices to recover.
As a result, Buckeye’s marine terminals operated at 99% capacity in the three months ended March 31, 2016. That helped push up its revenue from storage and transportation services (51% of total revenue) by 13.8% from a year earlier. However, weaker volumes and prices cut revenue from the sale of oil products (49%) by 48.0%. That caused Buckeye’s overall sales in the quarter to decline 28.3%, to $780.6 million from $1.1 billion.
Thanks to higher margins from the storage operations, earnings jumped 17.5%, to $131.1 million from $111.6 million. Earnings per unit gained 14.8%, to $1.01 from $0.88, on more units outstanding.
Buckeye recently increased its quarterly distribution by 1.1%, to $1.20 a unit from $1.1875. The new annual rate of $4.80 yields 6.6%. Distributions accounted for 87.9% of its cash flow in the latest quarter.
The partnership’s sound balance sheet will let it continue to keep raising its distributions and investing in its operations. As of March 31, 2016, its long-term debt of $3.7 billion is a manageable 39% of its market cap. It also held cash of $5.7 million.
Buckeye trades at a reasonable 17.9 times the $4.08 a unit that it will probably earn in 2016.
Recommendation in Wall Street Stock Forecaster: BUY
Since oil prices started to slide a couple years ago, there has been nothing but dark skies about the industry, so it’s nice to see something on here about a silver lining. It makes sense that it would benefit from lower oil prices, but what happens when the production itself slows and demand for storage is reduced? I think that those companies that managed to keep their costs down now will be around to benefit from the return to normalcy.
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Since oil prices started to slide a couple years ago, there has been nothing but dark skies about the industry, so it’s nice to see something on here about a silver lining. It makes sense that it would benefit from lower oil prices, but what happens when the production itself slows and demand for storage is reduced? I think that those companies that managed to keep their costs down now will be around to benefit from the return to normalcy.
Good article. But Canadian investors should be aware of the tax implications of U.S. MLP distributions.
The government needs to look at including U.S. stocks in the dividend credit. That would really help retirees prepare better.