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Buckeye (BPL) to Divest $450M Asset to InstarAGF Subsidiary

Zacks Equity Research

Buckeye Partners, L.P. BPL recently announced that it has completed the previously declared sale of a package of domestic pipeline and terminal assets for a consideration of $450 million to a subsidiary of InstarAGF Asset Management Inc. The sale proceeds will be utilized for repaying the company’s revolving credit facility.

Details of the Deal

Per the deal, the divestment of assets includes a jet fuel pipeline from Port Everglades, FL to the Ft. Lauderdale and Miami, FL airports; pipelines and terminal facilities serving the Reno, NV; San Diego, CA and Memphis, TN airports plus refined petroleum products terminals at Sacramento and Stockton, CA.  

However, the company’s subsidiary Buckeye Development & Logistics will still be responsible to operate and maintain these assets for InstarAGF Asset Management under a long-term contract.

Buckeye’s Strategic Review

Buckeye is planning to strengthen balance sheet and improve distribution coverage. Along with the divestiture of a domestic pipeline and terminal asset package, the partnership will maintain an investment grade credit rating by reducing leverage. Also, it will increase its financial flexibility by eliminating the need to access the public equity markets for funding annual growth capital coupled with reallocation of capital resource to growth opportunities with higher returns across our remaining assets.

Recently, the partnership negotiated to sell off its entire 50% equity stake in VTTI for cash proceeds of $975 million. The transaction is expected to close by the first quarter of 2019. The sale proceeds from VTTI will be used to lower the debt burden by nearly $500 million.

Midstream Services – Rising Demand

Increasing demand for clean energy is leading to higher investments in natural-gas fired power plants, replacing coal units in the United States. This move should support natural gas production in the domestic market. However, the domestic oil and gas companies are currently facing a pipeline capacity constraint to transport surplus crude and natural gas volumes.

To this end, recently, Plains All American Pipeline L.P. PAA and ExxonMobil XOM entered into a joint venture for the construction of a crude oil transportation pipeline to deliver/supply crude from multiple locations in the Permian Basin to the Texas Gulf Coast.

Price Movement

In a year’s time, units of Buckeye have underperformed its industry. The units have lost 42.5%, wider than the industry’s decline of 16.5%.



 

Zacks Rank & a Key Pick

Buckeye has a Zacks Rank #4 (Sell).

A better-ranked stock is CONSOL Coal Resources LP CCR, which holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CONSOL Coal Resources pulled off average earnings surprise of 23.56% in the last four reported quarters. The Zacks Consensus Estimate for 2018 earnings has been revised 4.7% upward to $2.25 in the last 60 days.

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Plains All American Pipeline, L.P. (PAA) : Free Stock Analysis Report
 
Buckeye Partners L.P. (BPL) : Free Stock Analysis Report
 
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
CONSOL Coal Resources LP (CCR) : Free Stock Analysis Report
 
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