Buckeye Partners, L.P.

One Greenway Plaza, Suite 600
Houston, Texas 77046
U.S.A
.
Telephone: (832) 615-8600
Toll Free: (800) 331-4115
Web site: http://www.buckeye.com

Public Company
Founded:
1911
Incorporated: 1986
Employees: 1,870
Sales: $3.65 billion (2017)
Stock Exchanges: New York
Ticker Symbol: BPL
NAICS: 486910, Pipeline Transportation of Refined Petroleum Products

Buckeye Partners, L.P., based in Houston, Texas, is a master limited partnership trading on the New York Stock Exchange. The company operates a network of pipelines, terminals, and storage facilities serving major oil companies, refineries, and end users of petroleum products. In total, Buckeye Partners owns and operates 6,000 miles of pipelines and 135 liquid petroleum products terminals. In the United States, its domestic operations span the East Coast, Midwest, and Gulf Coast regions. Internationally, the company operates in the Caribbean, the Middle East, northwestern Europe, and Southeast Asia. Its Buckeye Bahamas Hub ranks as one of the world's largest marine crude oil and refined petroleum products storage facilities.

HERITAGE LINKED TO STANDARD OIL

Buckeye was once part of the 19th-century industrial behemoth, Standard Oil Company. The company was launched in 1863, when John D. Rockefeller and a pair of partners bought a Cleveland refinery at a time when the oil industry was in its infancy, western Pennsylvania fields were center stage, and the major petroleum product was kerosene, used as an illuminant. Rockefeller recognized that Cleveland, because of its links to railroads and Great Lakes shipping and proximity to Pennsylvania crude, was ideally situated to become a major hub for oil refining. In 1870 the business was incorporated, and Rockefeller set out to consolidate, if not conquer, the industry. In the process he displayed a keen business acumen as well as ruthlessness in getting his way.

COMPANY PERSPECTIVES

Buckeye—the logistical solutions partner of choice for the global energy business.

By the mid-1880s the only major petroleum deposits were to be found in Pennsylvania and Russia, and with the Pennsylvania fields beginning to play out, there was concern at Standard Oil that the company might be little more than a flash in the pan. Then, in May 1885 oil was discovered near Lima in northwestern Ohio, a deposit that stretched into Indiana, and within months hundreds of derricks were erected in the area and began pumping crude. However, there was one complication: The Ohio crude contained less kerosene than the Pennsylvania deposits, and what kerosene there was contained far too many impurities to make a commercial product.

Despite the risk of investing in the Ohio area, Rockefeller forged ahead, putting up money out of his own pocket to finance the business in defiance of the Standard Oil Company board. Thus, in March 1886 Standard Oil formed Buckeye Pipe Line Company to transport crude from independent wells through a network of pipelines to storage facilities or railroad terminals. At first, Standard Oil sold the Ohio oil as a heating fuel, but it was only after a company scientist found a way to refine the Ohio crude into a marketable kerosene that Rockefeller knew his gamble had paid off.

EMERGENCE OF BUCKEYE PIPE LINE

It was in Ohio that Standard Oil first became involved in production in a major way, as the company quickly gained complete control of the Lima field, and the trust took a major step in its move toward becoming a vertical monopoly. Because the Ohio deposits would be the dominant U.S. play until they were superseded by discoveries in Kansas and Texas during the early 1900s, Standard Oil was an unchallenged force in the U.S. oil industry for the rest of the 1800s. Although the transport of Ohio crude would not be as important after the Kansas and Texas discoveries, Buckeye Pipe Line remained a viable business because there was still a need to bring crude to the major refining operations established in Lima.

Standard Oil launched the era of the trusts, becoming just one of several industry monopolies. Congress, fearful of the power these firms wielded, passed the Sherman Antitrust Act in 1892. Two years later the Ohio Supreme Court ordered the breakup of Standard Oil, but the firm found a way to skirt the ruling by fleeing to New Jersey, where it was able to reform under a consolidated corporate structure as Standard Oil of New Jersey and continue to operate as a trust. The federal government sued Standard Oil, and in 1906 it was declared a monopoly and ordered to dissolve. After the company appealed the decision, the matter was eventually taken up by the U.S. Supreme Court, which in 1911 ruled against Standard Oil and forced its breakup. As a result, Standard Oil was split into several “Baby Standards,” and another two dozen smaller subsidiaries were also spun off, including Buckeye Pipe Line, which emerged as an independent, public company.

MOVING TOWARD REFINED PRODUCTS AFTER WORLD WAR II

Through the end of World War II in 1945, Buckeye was primarily involved in crude oil transportation. Management now decided to expand its ability to move refined products, which were more stable than crude and thus a safer investment. During the 1940s Buckeye established its Midwest Products System, a pipeline that ran from Toledo to Lima, Ohio, and from Indianapolis to southeastern Illinois. Next, Buckeye launched its Eastern Products System in 1952. This unit built pipelines from the New York Harbor refining and distribution complex, connecting New Jersey refineries to New York and Pennsylvania marketers. The system became operational in 1954.

In the meantime, Buckeye continued to build up its midwestern assets, in 1954 completing construction on an eight-inch refined products pipeline that extended from Lima to the Columbus refineries. The following year a link to Toledo's Wolverine Pipe Line Co. was completed, along with several other spurs. In addition, some of the crude oil lines were converted to refined products, although the transportation of crude products remained an important part of Buckeye's business. Because of these changes, Buckeye enjoyed steady growth, improving revenues from $7 million in 1946 to $17 million in 1954.

KEY DATES
1886:
Buckeye Pipe Line Company is formed by Standard Oil Company.
1911:
The breakup of Standard Oil leads to an independent Buckeye.
1964:
Pennsylvania Railroad acquires the company.
1986:
Buckeye is spun off as a master limited partnership.
1996:
Management and employees gain a majority ownership position.
2004:
Buckeye acquires 25 terminals from Royal Dutch/Shell.
2008:
Buckeye and Magellan Midstream Partners L.P. agree to build a $3 billion, 1,700-mile ethanol pipeline.
2013:
Hess Corp.'s U.S. East Coast and St. Lucia terminals are acquired for $850 million.
2014:
Buckeye Texas Partners is established when the company spends $860 million for 80 percent of Trafigura AG's South Texas midstream assets.
2017:
Buckeye acquires 50 percent of Vitol Tank Terminals International B.V. for $1.15 billion.

In the meantime, Buckeye's corporate parent underwent several changes. In 1968 the Pennsylvania Railroad merged with the New York Central Railroad, the largest merger in U.S. history, resulting in the Penn Central Railroad Company. Less than three years later, however, Penn Central was forced into bankruptcy, the largest corporate bankruptcy in history. With the railroad operations turned over to Conrail and Amtrak, the company emerged from bankruptcy in October 1978 as Penn Central Corporation, which had assets in real estate, hotels, oil companies, and pipelines.

BECOMING BUCKEYE PARTNERS

To raise cash, Penn Central spun off Buckeye in December 1986. Buckeye Partners, L.P., was incorporated in Delaware as a master limited partnership, and with Goldman Sachs & Co. acting as the lead underwriter, 12 million partnership units were then sold at $20 each, raising $240 million. This money, along with $300 million from a private placement of partnership debt securities, was used to purchase Penn Central's interest in Buckeye Pipe Line Co.

Penn Central retained a 19 percent stake in Buckeye Partners and also owned another corporation, Buckeye Management Company (BMC), which was formed in 1986 to serve as the general partner of Buckeye Partners. BMC owned a 1 percent interest in Buckeye Partners. Also of note in 1986, Buckeye acquired a controlling interest in Laurel Pipe Line Company, which served Pennsylvania markets from a Philadelphia terminal. The remaining 17 percent interest was then bought in December 1992.

Penn Central sold its 19 percent interest in Buckeye Partners in 1993 but held onto BMC for another three years. Then, in March 1996 Penn Central sold its interests to BMC Acquisition Company, a Delaware corporation created by a management team to acquire BMC. BMC was owned by Glenmoor Partners, an investment group headed by BMC's chairman and CEO Alfred W. Martinelli and including other members of senior management.

Also a participating entity in Glenmoor was the BMC Acquisition Company Employees Stock Ownership Plan. The plan was funded by a $63 million loan from Glenmoor, which in turn borrowed the money from Prudential Life Insurance Company of America. This $63 million along with $6 million contributed by Glenmoor was used to acquire Penn Central's interest in BMC. It took over the management of a company that in 1995 generated $183.5 million in revenues and posted a net income of nearly $50 million.

GAINING RECOGNITION

The AMG fuels division had been working with Buckeye for several years, and with Buckeye's backing it was hoped that the operation, already one of the largest transmix refining operations in the country, could grow even further. Later in 1999 Buckeye also acquired selected assets of Seagull Products Corporation and Seagull Energy Corporation at a cost of $5.75 million. Buckeye added a presence in the Gulf Coast area by picking up a 16-mile pipeline, partially leased by a chemical company, as well as six pipeline operating agreements with chemical firms in the area, thereby expanding Buckeye's business in operating pipeline assets for third parties.

To house these assets, the subsidiary Buckeye Gulf Coast Pipe Piles, LLC, was formed. The 1999 acquisition provided an immediate contribution to Buckeye's balance sheet. For the year revenues totaled $305.8 million, a significant improvement over the $184.5 million recorded the prior year. The addition of refining revenue, accounting for $107.5 million, provided most of the difference. Transportation revenue also grew by nearly $15 million.

GROWTH AT THE TURN OF THE MILLENNIUM

Buckeye continued to build on its network in 2000. From BP Amoco it added to its ability to serve the Detroit market by acquiring an area terminal that was capable of holding 280,000 barrels of petroleum product. Later in the year Buckeye bought another six petroleum product terminals from Agway Energy Products, LLC. Providing a combined capacity of 2 million barrels of petroleum product, the terminals were located in Macungie, Pennsylvania, and Brewerton, Geneva, Marcy, Rochester, and Vestal, New York. Buckeye also sold some assets in 2000, electing to leave refining operations to others and to concentrate on pipelines and terminals.

Kinder Morgan Energy Partners LP bought Buckeye Refining Company, LLC, for $37.3 million in cash and $8.3 million in net working capital, taking over Buckeye's transmix processing plants in Indianola and Hartford. Buckeye used the money to pay down debt and provide some operational cash. In 2000 Buckeye also forged an unusual alliance for a pipeline company. It agreed to provide right-of-way access to PetroNet, a fiber-optic network that served 22 northeastern and midwestern cities, in exchange for a stake in PetroNet of nearly 50 percent. Another development of note in 2000 was the appointment of William H. Seas to replace Martinelli as CEO. Martinelli stayed on as chairman. For the year revenues from continuing operations totaled $208.6 million, and income from continuing operations amounted to $64.5 million.

In 2001 Buckeye completed a pair of deals involving TransMontaigne Pipeline Inc. First, Buckeye bought a 482-mile pipeline and other assets for $62 million. Starting in Hartsdale, Indiana, the pipeline ran east to Toledo and west to Fort Madison, Iowa, plus an 11-mile spur that connected terminals in Hartsdale and East Chicago, Indiana. In addition, Buckeye added the Hartsdale and East Chicago facilities, along with four terminals located in South Bend and Indianapolis, Indiana; Peoria, Illinois; and Bryan, Ohio. The acquisition added significantly to Buckeye's ability to serve the Chicago market while providing flexibility to its midwestern pipeline network. Later in 2001 Buckeye supplemented these assets by acquiring an 18.5 percent stake in West Shore Pipe Line Company, paying Trans-Montaigne $23.3 million. West Shore owned a pipeline system that originated in the Chicago area and ran to Green Bay and Madison, Wisconsin, providing refined petroleum products to markets in northern Illinois and Wisconsin.

The effect of these acquisitions could be readily seen on Buckeye's balance sheet. Its revenues increased to $232.4 million in 2001, while its income improved to $69.4 million. In 2002 revenues topped $247.3 million, and the company recorded a net income of $71.9 million. Buckeye completed just one transaction in 2003, paying $28.5 million for a 20 percent interest in West Texas LPG Pipeline Limited Partnership, which owned and operated a 3,000-mile pipeline.

FINANCIAL FLEXIBILITY

In 2003 Buckeye took steps to raise money to pay off debt, thereby lowering the cost of capital and allowing it to further its growth through acquisitions and capital projects. In February 2003 the partnership sold 1.75 million units, raising nearly $60 million. Then in July Buckeye netted nearly $300 million through the placement of notes due in 2013. A month later the company raised another $150 million in notes, due in 2033.

A few months later, in July 2004, Buckeye returned to acquisition mode. The company agreed to pay $530 million to a unit of Royal Dutch/Shell for 25 terminals and more than 850 miles of pipeline in the Midwest. Early in 2005 Buckeye bought another 478 miles of pipelines and four more terminals, paying $180 million to affiliates of ExxonMobil Corporation.

BUILDING AN ETHANOL PIPELINE AND MORE ACQUISITIONS

Progress continued toward the end of the decade when, in 2008, Buckeye agreed to build a $3 billion ethanol pipeline with Magellan Midstream Partners L.P. Spanning 1,700 miles, the pipeline would stretch from the Midwest to the East Coast, connecting production facilities in South Dakota, Iowa, and other midwestern states to major markets such as New York and Philadelphia. Making the pipeline unique was its ability to transport up to 10 million gallons of ethanol per day. Also in 2008 the company expanded in the Northeast by acquiring the gasoline and distillate products distributor Farm & Home Oil Company, which became part of Buckeye Energy Services.

After generating $108.4 million via a public offering of limited partnership units in 2009, Buckeye received $22 million in 2010 from the sale of its NGL pipeline system, which ran between central Kansas and northern Colorado, to DCP Midstream Partners. A major development followed in 2011, when the company acquired Bahamas Oil Refining Company International Limited (BORCO). This deal was accomplished by purchasing First Reserve Corporation's 80 percent stake in BORCO for approximately $1.4 billion and Royal Vopak's 20 percent stake for $268 million.

Buckeye's growth began accelerating during the new decade. For example, in 2011 it spent $165 million to acquire 33 refined products terminals and some 1,000 miles of related pipelines from BP Products North America, Inc., in the Southeast, Midwest, and West. Early the following year, the company's Buckeye Tank Terminals LLC business purchased the Perth Amboy Marine terminal facility in New York Harbor from Chevron USA Inc. for $260 million, bolstering its liquid petroleum products capabilities.

EXPLOSIVE GROWTH

Buckeye acquired Hess Corp.'s U.S. East Coast and St. Lucia terminals for $850 million in 2013. The deal included 1 terminal in the Caribbean and 19 in New York Harbor and the Southeast, mid-Atlantic, and upstate New York regions of the United States. Collectively, the terminals added 39 million barrels of capacity.

In 2014 the joint-venture Buckeye Texas Partners was established when the company bought 80 percent of Trafigura AG's southern Texas midstream assets for $860 million. The deal was made in an attempt to give the company a presence in the Eagle Ford region of Texas and new operations in Corpus Christi. Another major deal unfolded in early 2017, when Buckeye expanded its international terminal and storage portfolio by acquiring 50 percent of the Dutch-based marine terminals firm Vitol Tank Terminals International B.V. for more than $1.1 billion. Also in 2017 the firm was preparing to develop a 24-inch crude oil pipeline between Corpus Christi and the Permian basin, with a capacity of 400,000 barrels per day.

Buckeye remained in expansion mode during the late 2010s. In early 2018 the company purchased the South Yard of Gulf Island Fabrication, Inc., of Ingleside, Texas, for $55 million, expanding its midstream business. In addition, the company entered a joint venture with Andeavor and Phillips 66 Partners LP to establish a new open access marine terminal on the site, to be named the South Texas Gateway Terminal. Buckeye held a 50 percent stake in the project, with each of its partners holding a 25 percent interest. In mid-2018 Buckeye announced it would spend $80 million to expand its Chicago Complex logistics hub, which would include the construction of 600,000 barrels of product blending tankages. Approaching the end of the decade, the company appeared to be well positioned for continued growth.

Ed Dinger
Updated, Paul R. Greenland

PRINCIPAL SUBSIDIARIES

Buckeye Partners has more than 70 subsidiaries in North America, the Caribbean, and Europe in the areas of transporting (via pipelines) and storing petroleum products.

PRINCIPAL COMPETITORS

AmeriGas Partners, L.P.; Energy Transfer Equity, L.P.; The Williams Companies, Inc.

FURTHER READING

“Buckeye Partners.” Pipeline & Gas Journal, May 2018, 73.

“Buckeye Partners Acquires 80% Interest in Bahamas Oil Refining (BORCO) from First Reserve.” Datamonitor Financial Deals Tracker, January 20, 2011.

“Buckeye Partners Acquires Refined Products Terminals and Pipelines from BP Products North America.” Datamonitor Financial Deals Tracker, June 2, 2011.

“Buckeye Partners to Buy Hess's East Coast, St Lucia Terminals for USD850m.” M & A Navigator, October 10, 2013.

“Buckeye Partners, L.P. Announces Agreement to Construct South Texas Gateway Terminal.” Plus Company Updates, April 25, 2018.

“Buckeye Plans Pipeline Projects in Permian.” Pipeline & Gas Journal, May 2017, 14.

Chernow, Ron. Titan: The Life of John D. Rockefeller, Sr. New York: Vintage Books, 2013.

“Magellan and Buckeye Plan $3 Billion Ethanol Pipeline.” Pipeline & Gas Journal, April 2008, 12.

Permenter, Kate. “Buckeye Planning to Buy 20 LP Terminals.” Pipeline & Gas Journal, November 2013, 6.