By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Oil Refining Company (BORCO) is the “ideal location” to service the expected 20-30 per cent increase in tanker traffic resulting from the Panama Canal expansion, its owner yesterday describing the facility as the “optimum spot” for a bunker filling station and crude oil ‘top up’ unit.

Senior executives with New York Stock Exchange (NYSE) listed Buckeye Partners, addressing a Citigroup Midstream Infrastructure Conference, gave a further insight into the growth opportunities for their $1.7 billion Grand Bahama oil storage facility - possibilities that could also be seized on to attract other industries to the island and Freeport.

Describing BORCO as “the logical, geographical, optimum spot for a new ‘Bunker filling station’”, Buckeye’s chief executive, Clark Smith, and chief financial officer, Keith St Clair, indicated that they were looking to the Panama Canal expansion - set to be completed in 2014 - to generate additional business for their Grand Bahama asset, possibly supporting the doubling of its storage capacity.

Completion of the Panama Canal expansion, they added, would “allow passage of Suezmax vessels, expected to lead to a 20-30 per cent increase in traffic. BORCO’s location is ideal to service the incremental vessels”.

In addition, Buckeye’s top brass said the demand for low sulphur fuel oil meant there was “strong interest” in establishing a crude oil ‘top up’ unit at BORCO.

Indicating it was looking at a joint venture on such a unit, given that it referred to “a strategic alliance”, Buckeye said it could also support exports from BORCO following ‘minor processing’.

The presentation also revealed that BORCO accounts for more than one-fifth, or 20 per cent, of Buckeye’s adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA).

Given that the Bahamian facility accounts for 93 per cent of Buckeye’s international terminal and pipelines unit, and this unit accounts for 23.1 per cent of adjusted EBITDA, BORCO therefore accounts for 21.483 per cent of the parent’s total earnings.

Buckeye’s presentation again showed just how critical BORCO is to its strategy, the Grand Bahama facility acting as a marine storage terminal and hub to facilitate the flow of oil and fuel-related products into and out of the US, exploiting its position adjacent to major shipping lanes.

A “significant amount” of BORCO’s 22.5 million barrels of storage capacity was leased under long-term three-five year contracts, with 83 per cent of the facility’s 2011 revenue derived from this source.

Of the remainder, 11 per cent came from berthing and 6 per cent from providing other ancillary services.

As for the nature of its leased capacity, some 66 per cent of BORCO’s tankage was leased for refined products, with 20 per cent used for crude oil and 14 per cent for fuel oil.

Buckeye added that of the initial 4.7 million barrel expansion at BORCO, some 1.1 million barrels were complete and already in service.

Another 0.8 million barrels of capacity for refined product storage was set to come on line in the 2012 fourth quarter, while 1.6 million barrels would be complete in the 2013 first half.

The phase two, 1.2 million barrel expansion, was set for the 2013 third quarter.

The Buckeye presentation comes after a second quarter results conference in which it said some 65 per cent of BORCO’s first phase expansion has been leased, with the 1.9 million barrels of new storage capacity already operational set to generate $5-$7 million in extra 2012 second half operating income.

Pointing out that BORCO’s ability to meet whatever blending requirements customers wanted gave it a unique competitive advantage, Buckeye said then it would invest a further $70-$80 million in the Grand Bahama facility’s further expansion during the 2012 second half.

Mr Smith described the completion of the 1.1 million barrels of storage capacity at BORCO as “a major milestone reached”, with this and “related infrastructure” coming in “on time and on budget”.

Disclosing that there was “strong customer interest” in using BORCO for crude oil storage, and holding other fuels, Mr Smith said the Bahamian facility had already “leased 65 per cent of the 4.7 million barrels” set to be added in the first phase expansion.

Confirming that the balance of the 4.7 million barrel capacity increase will be phased in, the Buckeye chief executive added: “BORCO is a very strategic growth platform for Buckeye. It’s the hub of our marine terminal growth strategy.”

This, and Buckeye’s continued investment, is good news for the Bahamas - and particularly Grand Bahama, which needs every economic and employment boost it can get.

It again highlights the further possibilities for exploiting the Bahamas’ strategic geographic location, particularly when it comes to acting as a logistics/distribution hub for the Western Hemisphere - something that could spark the creation of new industries and business opportunities.