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Executives

Clark C. Smith - Chief Executive Officer of of Buckeye GP, President of Buckeye GP and Member of The Board of Directors of Buckeye GP LIC

William H. Schmidt - Vice President of Buckeye GP LLC and General Counsel of Buckeye GP LLC

Keith E. St.Clair - Chief Financial Officer of Buckeye GP LLC and Executive Vice President of Buckeye GP LLC

Khalid A. Muslih - Senior Vice President of Corporate Development and Strategic Planning - Buckeye GP LLC

Mary F. Morgan - Senior Vice President of Buckeye GP LLC and President of International Pipelines & Terminals Business Unit

Jeremiah J. Ashcroft - Senior Vice President of of Buckeye GP LLC and President of Buckeye Services Business Unit

Analysts

Brian J. Zarahn - Barclays Capital, Research Division

Harry Mateer - Barclays Capital, Research Division

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

James Jampel

Louis Shamie

Selman Akyol - Stifel, Nicolaus & Co., Inc., Research Division

Curt N. Launer - Deutsche Bank AG, Research Division

Buckeye Partners LP (BPL) Q3 2012 Earnings Call November 2, 2012 11:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Buckeye Partners LP 2012 Third Quarter Results Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded.

I would now like to turn to your host in today's conference over to Mr. Clark C. Smith, President and Chief Executive Officer.

You may begin, sir.

Clark C. Smith

Thank you, and good morning, everyone, and welcome to the Buckeye Partners Third Quarter 2012 Conference Call. Also speaking on the call today will be Keith St. Clair, our Executive Vice President and Chief Financial Officer. After I make some introductory remarks and discuss the operating highlights for the quarter, Keith will review our financial results in further detail.

Also on the call today are Bob Malecky, the President of Domestic Pipelines & Terminals; Jerry Ashcroft, President of Buckeye Services; Mary Morgan, President of International Pipelines & Terminals; Khalid Muslih, Senior Vice President of Corporate Development & Strategic planning; Jeff Beason, Vice President and Controller; and Bill Schmidt, Vice President and General Counsel.

Following our prepared remarks, we will open the call to questions. But first, I'd like for Bill to provide our forward-looking statements disclaimer.

William H. Schmidt

Thanks, Clark. Before we begin, I'd like to remind everyone that we may make statements on the call today that could be construed as forward-looking statements as defined by the SEC. Future results are subject to numerous contingencies, many of which are outside our control, and any forward-looking statements we make are qualified by the risk factors and other information set forth in our Form 10-K for the year ended December 31, 2011, and our most recent Form 10-Q, each is filed with the SEC.

In addition, during the call, we will be discussing Buckeye's adjusted EBITDA and certain other non-GAAP measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is included in the press release that we issued earlier this morning, which is posted on the Investor Center section of Buckeye's website, www.buckeye.com.

Thanks, Clark.

Clark C. Smith

Thank you, Bill. I'd like to begin my comments by discussing our safety performance, which continues to be outstanding across all of Buckeye's assets. We continue to perform better than industry average safety benchmarks for OSHA recordable personal injuries and API motor vehicle incidents. We are on pace for an over 50% reduction in vehicle incidents in 2012 compared to 2011. BORCO, our largest terminal, has celebrated over 3.5 years without a loss time incident.

Okay, I know you are interested in our assessment of the impact of Hurricane Sandy on the Buckeye operations, so let me begin with this. First we are pleased to report that all Buckeye employees are accounted for and made it through the storm safety. Buckeye has managed through this crisis very well. Our emergency preparation, including acquiring and staging backup power generators, has proven to be critical in our ability to minimize any outages in the impacted areas. Our facilities in Pennsylvania and upstate New York were minimally impacted by the storm, and are back in full service.

Following the storm, our Linden facility switched to backup power generation and has been servicing the New York City and Pennsylvania markets on portable generator power. Late last night, the local utility restored power to the Linden area. And by the end of today, we expect to return to near-normal pipeline operations out of Linden with full pumping capabilities. Linden normally provides approximately 500,000 barrels per day to serve demand markets in New York including New York City and the area airports and Pennsylvania.

Although we remain concerned about the availability of petroleum products in the New York and New York-Jersey area several of the facilities that feed our Linden facility have restored operations and have begun to supply product into Linden. There are, however, several additional connecting facilities that are still working to reestablish supply in the Linden.

Certain facilities on Buckeye's pipeline system that delivered petroleum products the third-party terminals for supplying diesel and gasoline into New York City have been more affected by the storm. These facilities require some modest electrical cleanup work but we expect to have them operational later today. These facilities will run on backup power generation until the local utility is able to restore electrical service to the area.

We appreciate and want to recognize that our employees, the emergency responders and the utility personnel have been working tirelessly around the clock and have made great sacrifices in their efforts to get this essential transportation link back in service as soon as possible. We will continue to provide public updates on the status of our recovery going forward.

Now with respect to BORCO, which was also impacted by Hurricane Sandy, the facility incurred minimal damage and is fully operational. Ships resumed berthing at BORCO's offshore jetties last Wednesday. As you can imagine, we have not yet assessed the financial impact of the storm. But at this time, we do not believe the impact will be material to our results in the fourth quarter.

Now, turning to our third quarter financial performance. We are extremely pleased that we achieved record earnings, improving business conditions and the continued execution of our growth strategies contributed to an outstanding quarter. Our quarter benefited from year-over-year earnings improvements in 4 of our 5 business segments. Our Pipelines & Terminals segment was our strongest contributor with an over 30% increase in adjusted EBITDA, driven primarily by increased throughput on our Pipelines & Terminal assets.

The International, Natural Gas Storage and Development & Logistics segments also generated year-over-year earnings improvement.

Let me review some of the Buckeye's -- some of Buckeye's key highlights since our last earnings call, starting with our marine terminals. We expect this business to be our strongest growth platform over the next few years. In addition to the acquisition of the BORCO and Perth Amboy assets, our Albany marine terminal is another success story for Buckeye. The Albany terminal had been primarily an ethanol facility when Buckeye acquired it in 2008. We were pleased to announce last month that Buckeye signed a multiyear contract with a subsidiary of Irving Oil to provide crude oil services including offloading unit trains, storage and throughput at Albany. The Albany terminal has 2 ship docks on the Hudson River that will allow ship or barge transport of crude oil directly to Irving's facilities. Albany was transformed, as a result of this contract, to handle crude via rail and ship. And just as importantly, represents another connection for Buckeye to the crude-rich Bakken Shale play. The first unit train of crude arrived at our Albany terminal yesterday. We will see an incremental earnings contribution from this contract in the fourth quarter.

Moving to Perth Amboy. As announced on last quarter's earnings call, we closed our acquisition of the Perth Amboy marine terminal in July. And this quarter includes just over 2 months of adjusted EBITDA contribution from this asset. Our operating teams have successfully integrated this asset into Buckeye as we seamlessly transition the facility from Chevron to Buckeye ownership. Our base strategy to modernize Perth Amboy is well underway. We expect to transform this facility into a highly efficient, multi-product storage, blending and throughput facility. In particular, we have seen strong interest from new customers in storage in throughput solutions at Perth Amboy, which previously was operated as a proprietary facility. And this includes customers looking for rail to water solutions for crude oil, a solution we believe Perth Amboy is ideally suited to deliver.

Regarding our BORCO facility, I'm pleased to announce an additional 800,000 barrels of storage in Bluefield 1 was completed. It became operational in October. This capacity was fully leased prior to coming online. These tanks were completed earlier than planned and on budget, which demonstrates that our engineering and construction teams continue to successfully execute on the completion of the storage expansions at BORCO.

The next phase of the expansion plan, which is approximately 1.6 million barrels of clean product storage in Bluefield 2, is expected to be operational in the first quarter of next year. This capacity is partially leased and we expect to remain in capacity to be leased prior to completion.

In total, we will build 4.7 manual [ph]barrels of new storage capacity in Phase 1 of our expansion plan, which is approximately 75% leased. In addition, we are in negotiations regarding a second phase of storage expansions at BORCO to handle the new crude production expected to come online over the next few years.

Let me now shift to highlights for each of our operating segments, starting with our Pipes & Terminals. We experienced strong volume growth on our Pipes & Terminals driven by continued strengthening of underlying business conditions. Pipeline volumes increased approximately 4% compared to the prior year quarter and were up approximately 1% sequentially over the second quarter this year. Gasoline volumes, which were the primary driver of that increase, were up 5% over the prior year quarter, and jet fuel and distillates were both up over 2% as well.

Throughput at our terminals also increased during the quarter, experiencing an almost 4% increase over the year ago quarter and an over 1% increase sequentially. These increases are in excess of growth averages reported for the region, and we believe this growth is coming both from increased aggregate demand in the markets we serve as well as Buckeye gaining market share. Keith will provide additional explanation around these volume improvements in a few minutes.

Our recent communications have tended to emphasize our growth capital plans at our BORCO and Perth Amboy facilities, but we don't want our investors to lose sight of the strong incremental contribution we expect and have seen from internal growth projects across our legacy domestic facilities. We expect to spend between $115 million to $120 million in 2012 on internal growth projects across our domestic system, which excludes Perth Amboy, after having spent $121 million in 2011. These projects drive volume growth, fee and earnings growth and, in some cases, cost reductions. The Albany crude project I mentioned earlier is one example of our growth capital opportunities.

In addition, we have expanded our Pittsburgh terminal and also added biodiesel blending capabilities to this terminal to meet customer needs. At our Chicago complex, we are adding propylene storage and rail loading capabilities that we expect to come online in the fourth quarter. We also have a debottlenecking project underway to allow us to increase throughput at the Chicago complex in the busy winter months. And finally, our expansion at our Opelousas in Louisiana also contributed incremental EBITDA in the third quarter.

The domestic pipeline terminal assets acquired from BP in 2011 continued their strong performance during the third quarter, and are another example of the successful implementation of our terminal growth and modernization strategy. This strategy is now being applied at the Perth Amboy facility.

Turning to the international segment. BORCO benefited from the incremental contribution during the quarter of the initial 1.1 million barrels of expansion capacity in Yellowfield 1. We are beginning to realize the ramp up in cash flows from the capital investment we have made to improve and expand the BORCO facility. We are seeing stronger market conditions for BORCO storage. And are pleased to report that all available tankage at the facility is fully leased. It's important to note that although approximately 80% to 85% of our revenues come from our storage contracts, which are take-or-pay agreements, the remaining revenues are the result of various ancillary, berthing and blending services that BORCO offers to its customers. Higher customer utilization of their storage, such as more frequent tank turns, drive higher ancillary revenues during the quarter. We expect this trend to continue.

At Yabucoa, we're happy to announce another success story in our efforts to commercialize this facility, which had been operated on a proprietary basis prior to Buckeye acquiring it. We announced last quarter the signing of a contract for the storage of crude oil at this facility. This quarter, we are pleased to announce the signing of a contract with another new customer to store jet fuel for use at the San Juan airport. These 2 agreements represent an important diversification at both the customer base and the product mix handled at Yabucoa.

With respect to our Natural Gas Storage business, we saw improved performance in Lodi compared to the year ago quarter, but the market remains challenged. We have seen some improvement in the short-term markets, which we've been able to take advantage of in small amounts, and that there are no new developments to report regarding our efforts to monetize this asset.

Our Energy Services segment generated positive adjusted EBITDA for the third quarter and had a total contribution to Buckeye of $7.4 million, which includes $5.8 million of revenue contributed to the Pipeline & Terminals segment. The Energy Services segment's performance during the quarter, although down compared to the year-ago quarter, improved sequentially compared to the second quarter this year. The challenge that have negatively impacted this segment recently, such as backwardation and these basis moves have remained, but we believe our continued focus on minimizing risks, managing our inventories and reducing the cost structure of the business have better positioned us going forward. Energy Services delivered on its mission statement of driving EBITDA contribution across the Buckeye system, and we continue to believe Energy Services is a very important catalyst for the incremental utilization of facilities across the Buckeye system.

The Development & Logistics segment saw increased contribution quarter-over-quarter as a result of the propane caverns storage assets acquired from BP in the fourth quarter of 2011, as well as continued strong margins from our third party Engineering & Operations business. We are seeing many potential opportunities for this business. New deal flow is really strong, and we expect continued strong performance from BDL in the fourth quarter.

Okay, now I'm going to shift and provide you an update on the FERC matter. Since our last earnings call, FERC's show cause review of the tariff rate program used by Buckeye pipeline company remains pending. One of the non-airline interveners recently withdrew its intervention is no longer a party to the proceeding. Other than that withdrawal, there've been no further developments since the filing of reply pleadings by Buckeye pipeline and the protesting airline in July. We cannot predict when FERC will issue an order regarding the merits of the show cause proceeding or what FERC may include in that order.

Now on September 20, 4 airlines filed a complaint at FERC challenging Buckeye pipelines tariff rates for transporting jet fuel from New Jersey to 3 New York City area airports. These movements are the same ones that were the subject of the airlines' protest in March that led to the FERC show cause proceeds. The complaint is not directed at Buckeye pipelines rate for service to other destinations and it has no impact on the pipeline systems and terminals owned by Buckeye's other operating subsidiaries.

In 2011, Buckeye pipeline generated approximately 47% or $295 million of the total revenue in Buckeye's Pipelines & Terminals operating segment, and deliveries of jet fuel to the New York City airports generate approximately 10% or $30 million of Buckeye pipeline's total revenues in that segment, which represents about 5%.

On October 10, Buckeye pipeline filed its answer to the complaint. No third parties have filed to intervene in the complaint proceeding. Buckeye pipelines answer was followed by another airline filing on October 25. Buckeye pipeline expects to respond to this filing within the next week or so.

I should point out that in their complaint, the airlines expressed a willingness to explore a settlement by participating in FERC's standard settlement processes. In our answer, Buckeye Pipeline stated that we are also willing to engage in settlement discussions. FERC typically is supportive of parties pursuing settlement. Given that all active parties in this matter have expressed interest in such talks, we believe it is likely that FERC will initiate a settlement process, although we can't predict when that might occur or whether the process will be successful.

It also cannot predict when FERC will act on the airlines' complaint in Buckeye Pipelines' answer or what FERC may do. So there's no deadline -- there is no deadline for FERC's response.

Now on October 15, Buckeye Pipeline filed an application with FERC seeking authority to charge market-based rates for deliveries of refined petroleum products from its 3 New Jersey origin points to its 5 destinations in the New York City area market, including deliveries of jet fuel to the newer LaGuardia and JFK airports. The same jet rates that were the subject of the airline protest in March that led to the FERC show cause proceeding and the complaint subsequently filed by the airlines. Any protests or comments on Buckeye Pipeline's market-based rates application are due by December 14. We cannot predict when FERC will act on the application or what it will do. But additional detail on the airlines' complaint at Buckeye Pipeline's market-based rates application is available in the press releases we issued in September and October. I can say this, we will continue to aggressively defend Buckeye pipelines' tariff rates, and we look for opportunities to resolve these matters as expeditiously as possible.

Now to our quarterly distribution. This morning, we announced the declaration of a cash distribution of $1.0375 per limited partner unit payable November 30, 2012. This represents a 1.2% increase over the distribution paid for the third quarter of 2011.

So in closing, except for the interruptions caused by Hurricane Sandy, which we are still assessing, we expect continued improvement in business conditions, as well as benefits from our growth and expansion investments into the next quarter.

This concludes my remarks. Now, Keith will review our quarterly financial results, after which, we will open the call up for questions.

Keith?

Keith E. St.Clair

Thank you, Clark, and good morning, everyone. I'll now review our third quarter financial results in a little more detail.

Our quarterly adjusted EBITDA increased 20.6% to $152.6 million compared to $126.5 million a year ago. Our Pipeline & Terminals, International Operations, Natural Gas Storage and Development & Logistics segments generated improved quarter-over-quarter performance. As Clark mentioned earlier, Energy Services' current quarter results were down compared to a strong quarter of 2011, but were up sequentially and provided a positive contribution to adjusted EBITDA.

I'll provide additional color regarding the segment results in a moment.

We reported net income, attributable to Buckeye unitholders for the third quarter of 2012, of $85.1 million or $0.87 per diluted unit compared with a net loss attributable to Buckeye unit holders of $109.7 million or $1.18 per diluted unit in the prior year period. The diluted weighted average number of units outstanding in the third quarter of 2012 was $98.3 million compared to $93 million in the third quarter of 2011.

The third quarter 2012 results included a non-cash charge for the impairment of approximately $170 million of goodwill related to the Lodi acquisition. Excluding the goodwill impairment charge, net income attributable to Buckeye unitholders would have been $59.9 million or $0.64 per unit in 2011.

Consolidated revenues for the third quarter of 2012 totaled $966 million compared to $1.12 billion in the previous year. The decrease in revenues is primarily attributable to a 21.5% decline in sales volume for the Energy Services segment. This decrease was partially offset by an increase in revenues in our Pipelines & Terminals segments, which resulted from higher tariffs and volumes compared to the year ago quarter; and our International Operations segment where we benefited from incremental capacity coming on the line in the quarter combined with higher ancillary revenues.

Operating expenses for the quarter rose to $101.2 million from $96.8 million in 2011, while general and administrative expenses totaled $16.2 million compared to $15.1 million in the year ago quarter. The increase in operating expenses was largely driven by the Perth Amboy, BP cavern and main pipeline and terminal acquisitions completed subsequent to July 1, 2011. And the single largest contributor to the increase in G&A expenses for the quarter was spending related to the FERC matters Clark discussed earlier.

Now, I'd like to review in more detail the contribution each segment made to adjusted EBITDA, which is our primary measure of financial performance.

Adjusted EBITDA for our Pipelines & Terminals segment was $112.9 million for the third quarter of 2012 compared with $86.5 million for the third quarter of 2011. The third quarter of 2012 benefited from increased average tariffs and throughput volumes on our pipelines and at our terminals. The third quarter also benefited from favorable settlement experience, primarily related to the successful resolution of a $10.6 million product settlement allocation matter involving pipeline transportation-related services provided by Buckeye over a period of several years, of which $7.8 million pertained to services rendered in prior years. Together, these factors aggregated to a $27 million favorable benefit for the current quarter.

The quarter also included approximately a $3 million contribution from essentially 2 months of ownership of the Perth Amboy facility. These items were partially offset by higher expenses during the quarter including a $1.5 million payment to an existing customer that was temporarily displaced as a result of our transformation of the Albany terminal. Approximately $2 million of pipeline integrity work that was originally scheduled for earlier in the year and nearly $1 million of costs associated with various aspects of the FERC rate review. Earnings from equity investments also declined quarter-over-quarter due to environmental remediation costs related to 2 casualty events at West Shore, where we have a 35% ownership interest.

Aggregate pipeline volumes for the quarter increased over 1.4 million barrels per day, or 3.7%, compared to the third quarter of 2011. This increase is primarily the result of improved demand in most of the markets we serve combined with prior year volumes being negatively impacted by refinery maintenance and turnarounds, as well as business interruption from both Hurricane Irene and tropical storm Lee. This volume growth was fueled primarily as a result of strength in gasoline volumes, which increased approximately 5%, driven by higher volumes in the Northeast. The strength was also seen in jet fuel and distillate volumes which are up approximately 2.3% and 2.4%, respectively, compared with the prior year quarter.

Average transportation tariffs for the third quarter of 2012 increased 9.3% over the year ago quarter, reflecting 2011 tariff adjustments on all of our systems, 2012 tariff adjustments of 8.65% on our FERC index system effective July 1, and a shift in mix to longer haul interstate shipments.

Domestic terminal volumes increased 3.6% from 879,000 barrels per day in the third quarter of 2011 to 911,000 barrels per day in the third quarter of 2012. Higher gasoline and distillate volumes were driven by continued strength at the Chicago complex due to high utilization rates of Midwest refineries and the commercialization of the terminals acquired for BP, which demonstrates the success of our terminal growth strategy.

Our International Operations segment recorded adjusted EBITDA of $33.5 million in the third quarter of 2012 compared with $30.1 million in the comparable quarter last year. Revenue increased approximately $3.7 million as a result of the contribution from the newly operational 1.1 million barrels of Yellowfield 1 expansion tankage and higher ancillary revenues, including berthing and heating revenues due to increased customer utilization of our facilities.

Operating expenses decreased in the third quarter of 2012 compared to the year ago quarter as a result of the ongoing benefit of reduced payroll costs from the application of our best practices operating model and transition and other transaction costs incurred in the year ago quarter. Looking forward, the fourth quarter of 2012 will benefit from the leasing of 800,000 barrels of expansion capacity that was placed in service October 1 and is fully leased.

Adjusted EBITDA for our Natural Gas Storage segment was $1.4 million for the quarter compared to $400,000 a year ago. The improvement in financial results compared to the year ago quarter is primarily due to improved seasonal spreads, captured in hub services resulting partially from -- partially offset by lower lease rates and higher operating expenses primarily from the timing of well workovers.

The fourth quarter is expected to benefit from further improvement in hub services revenue as the recognition of these revenues tend to be backloaded primarily into the fourth quarter based on the summer to winter hub season.

In our Energy Services segment, adjusted EBITDA was a positive $1.6 million for the third quarter of 2012 compared to $7 million in the same period last year. We have spoken at length on past earning calls about the basis risk and extreme volatility we have seen, which, combined with market backwardation, continues to drive the year-over-year decline in performance.

Revenues decreased by approximately 23% to $692 million from $895 million in the year ago quarter, attributable to approximately 22% decline in sales volume as we exited certain markets to reduce our exposure to basis moves and market backwardation.

Product sales volume in the third quarter of 2012 totaled 233.4 million gallons compared with 297.4 million gallons in the third quarter of 2011.

In addition, the biodiesel blending tax credit, which benefited the year ago quarter, expired at the end of 2011 resulting in a 1 point -- $1.6 million further decrease in revenues in the quarter. For the year, elimination of this biodiesel tax credit adversely affected EBITDA by $5.3 million.

Looking at the trend in this business for a moment, the contribution from this segment during the quarter reflects a $4.8 million improvement over the second quarter of 2012 despite continued adverse market conditions. The execution of our risk mitigation strategy to access certain markets and improve inventory management, evidenced by reduced inventory levels and increased turns, is the primary factor in this sequential improvement. We also saw continued benefits from our efforts to rationalize operating costs and reduce borrowing costs as well.

Looking forward, the fourth quarter of this year, which is historically the strongest for this segment due to seasonal increases and higher margin heating oil revenues and opportunities for butane blending. It's also important to note that Energy Services contributed $31.5 million in revenues to our Pipelines & Terminals segment over the last 12 months, and as Clark noted, our marketing operations remain a key catalyst for incremental utilization of our pipeline internal assets.

Said another way, on a consolidated basis, the contribution from energy service -- Energy Services is significantly greater than its standalone reported results.

Wrapping up the segment review, our Development & Logistics segment generated $3.2 million of adjusted EBITDA in the third quarter of 2012 compared to $2.5 million in the third quarter of 2011. This segment benefited from improved margin on its Engineering & Operations business, as well as better-than-expected contribution from the recently acquired LPG storage facilities.

Now turning to our balance sheet. We ended the quarter with approximately $3 million in cash and long-term debt of $2.67 billion. At the end of the third quarter of 2012, our ratio of long-term debt to LTM adjusted EBITDA was approximately 5x. At the end of the quarter, we had $769 million borrowed under our credit facility, including approximately $603 million reflected as long-term debt.

During the quarter, Buckeye spent $11.9 million on maintenance capital, a reduction of 4.9 million compared to the third quarter of 2011. However, on a year-to-date basis, maintenance CapEx is in line with spending in the prior year.

We also spent several $73 million on revenue generating and cost-reduction capital projects in the quarter. We estimate that maintenance capital spending for the year will be between $50 million and $60 million. And including our newly acquired, Perth Amboy facility, we expect return capital spend for the year to be between $260 million and $280 million dollars.

I would also like to point out that Buckeye's coverage ratio, based on distributions declared, was 1.19x for the quarter.

As Clark mentioned earlier, we expect to continue to benefit from improved business conditions and anticipate solid performance in the fourth quarter of 2012.

That concludes my remarks. We'll now open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Brian Zarahn with Barclays.

Brian J. Zarahn - Barclays Capital, Research Division

Can you give a little more color on the settlement you discussed in the Pipeline & Terminals segment and how should we think about that impact on the third quarter from an operating distribution coverage standpoint?

Keith E. St.Clair

Well, essentially, Brian, if you look at it, as we indicated, there was a little less than $8 million that, frankly, related to prior periods. It was interpretation of a contract that we had with one of our customers. The issue had been identified. We've been working toward a resolution on this issue for a period of time. We were able to successfully conclude that discussion, if you will, with our customer, and were able to benefit to the tune of about $8 million, specifically for the year 2012, and a little over $10 million for the quarter. So you will not see that recurring going forward. But on an annual basis, the impact is a little less at $8 million.

Brian J. Zarahn - Barclays Capital, Research Division

And that's in the third quarter, the impact, the gain was about $10 million?

Keith E. St.Clair

That's correct.

Brian J. Zarahn - Barclays Capital, Research Division

Were there any other sort of, I thought you mentioned it -- was there a $27 million number put out there? I thought I heard that during...

Keith E. St.Clair

Yes, $27 million, that, related to all of the uplifts that we had in revenues of, which that 10 6 was a piece. The other thing I would point out, there were items, as we'd mentioned in the call, there was $1.5 million that we incurred that also is a one-time sort of charge, if you will, related to our Albany facility where we effectively had to eliminate the ability to provide some services during a 5-month transition period as we prepared to bring crude to that facility. That was something that we incurred. We also incurred nearly $1 million related to FERC. So while we have, clearly, the one item that benefits us that's sort of an out of period item, we have other items that are sort of nonrecurring in nature as well.

Brian J. Zarahn - Barclays Capital, Research Division

Okay. So it seemed like those 2 other charges then would be about a $8 million gain roughly in the segment from all of these items.

Keith E. St.Clair

Yes, that's fair. To be clear, the FERC -- until the FERC matter is resolved, we could see some -- we will see some continuing expenses there. But from looking at kind of a normalized operating result, I think it's fair to look at that as being a nonrecurring type item.

Brian J. Zarahn - Barclays Capital, Research Division

Okay, I appreciate that. And then on the -- can you talk a bit that more about the crude opportunities you see in Albany and also in Perth Amboy?

Khalid A. Muslih

Yes, sure. This is Khalid Muslih. Just to touch on Albany, I mean, in that particular project, I mean, we basically took a facility that we acquired, we positioned as a facility to accommodate ethanol unit trains to the East Coast again it was a rail to water link. We mentioned that we obviously have transitioned that facility over to be able to accommodate, now, eventually unit trains for crude oil. And in turn, we're also working on basically putting a side-by-side operation to be able to accommodate ethanol as well. So the expectation is that we'll be able to accommodate both ethanol and crude oil at Albany. So we'll continue with our strategy to be one of the low-cost suppliers on the East Coast. With regards to Perth, we see similar opportunities there as well. When we mentioned, I think in some of our previous conference calls, we see similar opportunity to install a crude unit train operation at that particular facility. We are in discussions with customers with regards to that. There appears to be a strong interest and we are moving forward with our plans. We're very excited about that. So that's all I have to report.

Brian J. Zarahn - Barclays Capital, Research Division

In terms of Albany, I think you mention or your press release, earlier in the month, mentioned about a 135,000 barrels a day of total capacity in Albany, when do you expect that to be in service?

Khalid A. Muslih

Well, like Clark mentioned, I mean, we received the first unit train on the first of this month. We are continuing to make certain upgrades, infrastructure upgrades, pumping, et cetera, at the particular facility. As far as being able to accommodate the 130,000 barrels a day, we have a contractual arrangement with Irving. We expect to see incremental volumes increase as we move forward into next year.

Brian J. Zarahn - Barclays Capital, Research Division

Okay. And the last question from me. I know you mentioned that you don't expect a material impact from Hurricane Sandy. But it just seems like given the disruptions in the Northeast and that this is a seasonally strong quarter. Do you see any potential impact to heating oil demand? And also given some of your terminals are using back up power generation, any potential cost impact?

Clark C. Smith

No. I mean, obviously there's going to be a cost, Brian. But, again, we don't think it's going to be material. We were well-prepared with backup generators. We've been running Linden on those backup generators until today when the power came back on. PSE&G did a great job working with us to get that back on, by the way. There'll be some loss of demand, obviously. But we will resume normal operation, I think, within the week, and we'll get New York back to getting restored with service so. Yes, there will be some losses, but it's not going to be anything material.

Operator

Next question comes from Harry Mateer with Barclays.

Harry Mateer - Barclays Capital, Research Division

Just 3 questions for you on the balance sheet. I guess, first, can you just update us on how you're thinking about your credit ratings? Any further discussions you've had with the rating agencies? Second, can you give us the total debt number, not just the long-term debt number? And then lastly, given your credit facility utilization, I think you said about $769 million or so, how do you think about terming that out over time, given where your credit rating's sit?

Keith E. St.Clair

First of all, let's talk about discussions with the rating agencies. In fact, we were scheduled to meet with the rating agencies next week. One of the things that we do here is we provide them with sort of quarterly updates on our performance and try to provide them with some insight as to what we are looking at our thinking about from a longer term and strategic perspective. So we're trying to reschedule those. But we'll be sitting and meeting with them likely over the course of the next couple of weeks. We certainly want to continue to preserve our investment-grade credit rating, and that's something that remains a consideration, certainly, as we look at managing this business and managing our balance sheet. I think you also asked what was the aggregate debt number for us at this point. We had said we had 2 -- $2.67 billion in long-term debt. We also have $166 million funded on the revolver related to BES, which is classified as current. So we're at a little over $2.8 billion in total debt.

Harry Mateer - Barclays Capital, Research Division

Okay. And sorry that long-term debt number's including the $300 million that comes due next year?

Keith E. St.Clair

Yes, it does. Because the way it's viewed from an accounting perspective, if you have the capacity to essentially refinance it like we would on our revolver, you can continue to have the benefit from the long-term classification.

Harry Mateer - Barclays Capital, Research Division

Got it. Okay. And then lastly, the last question was just on the revolver. Given where utilization is, how are you guys thinking about potentially terming that out or paying that down? I know, historically, you've been balanced, equity versus debt, but given where the ratings are, do you lean a little bit more towards equity to pay that down? Or how do you think about it?

Keith E. St.Clair

Well, yes certainly as transactions and opportunities for transactions to present themselves. We'll look at that. We'll look at what at what the right mix is there for funding any potential M&A activities. We also need to evaluate our 2013 capital requirements. Clearly, we'll have significant capital expenditures in 2013 that will -- in support of the expansion of BORCO as well as Perth Amboy and also our legacy business. So we'll just have to make decisions around what's the right mix to fund those activities. But certainly, we would be looking at terming out a substantial portion of that revolver balance. Naturally, we'll look to roll the $300 million then the issue will be how much, in addition to that, will we want to term out with longer term notes. But certainly, it's something that we address, something that we're focused on. And we want to ensure that we have adequate liquidity to address, not only our CapEx requirements, but also to ensure that we have sufficient liquidity to fund strategic opportunities.

Operator

Our next question comes from Michael Blum with Wells Fargo.

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

Just 2 questions for me. The first one, and I apologize if I missed this, on Lodi, can you just talk about what triggered the decision to take the write down this quarter? Are you receiving bids and their materially low? Or what, what -- just walk me through that.

Keith E. St.Clair

No, Michael. That write-down was in the third quarter of 2011. Those comments, if I wasn't clear, I apologize, but those comments were related to prior year comparison, not the current year.

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

Okay. Sorry about that. And then just, if you could provide a little more detail in terms of the trends you're seeing in refined product volumes. Obviously, you had a nice pick up here. Can you talk a little bit more about where specifically you're seeing it on your system and what you think's driving that and how you see that playing out for the coming year?

Clark C. Smith

Yes, Michael, Bob stepped out. He's on a call with a Deputy Secretary of Energy talking about Hurricane Sandy. He's the better one to answer. But let me say this, the growth we experienced, for a lot of the reasons that Keith explained, but we're doing very well in the west -- the refineries are running at very high levels. So we benefited, as you know, we source from those refineries. And when they operate at high levels, we get a lot more transport storage activity. So that's the area that we're seeing the most benefit. But really, all of the areas, we're seeing some incremental increases in hand. So we expect that trend. It's not going to be a high-growth rate. But I think it's going to continue to edge up.

Keith E. St.Clair

Yes, Michael, when I look at the details of those increases, it really was essentially across the board. We saw our upstate New York systems up year-over-year. We also saw improved performance there, relative to what our own internal expectations were. Central PA was stronger as well. Our systems in the East, Long Island we saw improvement. And as Clark mentioned, in his script and, just a moment ago on his comment, we continue to see improvement year-over-year, in particular in the Midwest, because of those -- the higher utilization rates at refineries. So we continue to remain, should I say, cautiously optimistic, anyway on these patterns continuing.

Operator

Our next question comes from James Jampel with HITE.

James Jampel

Did I hear you say that refined products consumption in the Northeast was up 5%?

Clark C. Smith

Refined products consumption total...

Keith E. St.Clair

Total was up 3.7% is what we saw. What I think you're referring to is the fact we said gasoline was up year-over-year about 5% with a significant portion of that being in the Northeast.

James Jampel

Well, that's truly, truly a great number.

Clark C. Smith

Yes it is.

James Jampel

Given we're up here in the Northeast and we don't see that kind of growth around here. Any other color on where that might be coming from?

Keith E. St.Clair

Well, again, James, part of that can be a function of coming off a soft Q3 last year. That clearly is a piece of it because gasoline would be the fuel that would be most impacted, because diesel, much of that, can get recouped. Some of the jet fuel wouldn't be recouped. But that's clearly a piece of that. But, again, it was in the upstate New York and also the New York markets.

Clark C. Smith

Yes, we don't expect those kinds of numbers every quarter, James.

James Jampel

Pardon me?

Clark C. Smith

We do not expect that growth level quarter-to-quarter that 4% and 5% for gasoline.

James Jampel

Fair enough, fair enough. We're just pleasantly surprised on that. Now on the rail moves to Perth Amboy and that are possible and the ones that are going to Albany now. Where did these unit trains originate?

Khalid A. Muslih

Again, I mean, several areas. I mean, you've got the Bakken and then there's obviously, other areas as well, from -- people are looking at areas outside of there, somewhere around Canada. But mainly the Bakken.

Clark C. Smith

It's primarily the Bakken, James.

James Jampel

Are they routed through Chicago?

Khalid A. Muslih

Yes.

Clark C. Smith

Yes.

Operator

Our next question comes from Louis Shamie with Zimmer Partners.

Louis Shamie

So my question is related to the average tariff, the pipeline tariff, that you report in your press release. It seems like that's been creeping up sequentially Q2 over Q1 and then Q3 over Q2. Given that you've got the FERC proceeding going on, on a large chunk of your pipeline, and you're not able to change rates there. Just wondering what's driving the increase in the average tariff?

Keith E. St.Clair

It's really 2 things, Louis. One, we still got the benefit in the third quarter of 2012 from a 3% increase that we introduced on our market-based systems, non-FERC index in 2011. So that's one piece of it. We also got the 8.65% increase that was effective July 1 of 2012, plus another contributor is we're seeing a shift in the mix of our transportation volumes. We're seeing more product sourced from Linden moving west rather than seeing products sourced from the Philadelphia markets. That drives it as well. So what you get is longer haul interstate tariff that's higher than the Pennsylvania, the PUC tariff.

Louis Shamie

Do you expect that trend to continue?

Keith E. St.Clair

We expect that there'll be some adverse impact from that when Trainer comes back on. But frankly, we're not sure what the impact in total will be. There is some potential that we would see some of that benefit diminish going forward. But that's kind of a wait-and-see to see what all the product movements ultimately what they -- how they end up, if you will, coming from the Philadelphia refineries. But we do think there's going to be an element of that, that will continue.

Louis Shamie

And just a follow-up on my earlier question. About what percentage of your pipelines are subject to the FERC index? And were you basically saying that you increased your market-based tariffs in 2011 but haven't tried to increase them at all in 2012?

Keith E. St.Clair

Yes. As a result of the show cause order, Louis, we're precluded from adjusting our market-based rates. That represents 70% of our overall system.

Operator

Our next question comes from Selman Akyol with Stifel.

Selman Akyol - Stifel, Nicolaus & Co., Inc., Research Division

Just as it relates to the terminal side of the business, can you talk a little bit about how you're seeing pricing going for the terminals right now? And if you could break it down, I guess, between BORCO?

Mary F. Morgan

This is Mary Morgan. And regarding BORCO, obviously, this quarter we had a really significant increase in revenues, and what we're seeing is the opportunity, really a lot of interest for additional storage, and particularly, for some of the more specialty services and products that we now are able to handle at BORCO due to a lot of the capital investments that we've made there. And so what we're seeing is its total value of the contracts. Our ancillary services revenues were up significantly and we expect that trend to continue because while storage rates are an important part of each contract, the other services are also part of the contract. And we're able to negotiate on fees for different services. So that's a trend that we expect to see continuing. So we're experiencing both very strong demand for tankage. All our tankage is fully leased. And basically, people are asking for more storage than what we currently have available. We're in negotiations to lease all the new storage that's currently under construction. So we're seeing demand both in storage, but also in increased services because something going forward, the more the customers utilize the existing storage, we get that increase in the fees. If they turn their tanks more, they use our other services. So overall, it's very positive at BORCO.

Selman Akyol - Stifel, Nicolaus & Co., Inc., Research Division

Is there a way to put a bracket around that on the additional services in terms of just sort of a percentage on what might be adding ?

Mary F. Morgan

Well, typically, I think, we are somewhere around 18% of our revenue is associated with the services. But I think we always talk about the storage as being take or pay. But the fees are also part of the contract and the negotiations. We are able to negotiate changes in the fees, because we're looking at total value when we negotiate a new contract with a customer. So that percentage between storage and fees is somewhat stable. But this quarter and we certainly expect that to continue that we're seeing the ancillary fees continue to increase as customers turn the tanks more, that means they bring in more vessels. They avail themselves of a lot of the very sophisticated blending capabilities that we've been adding at the terminal. We'll see more of that next year as the new manifolds and clean products tankage coming into service in the first quarter of next year.

Clark C. Smith

That's a good question, Selman. This is Clark. People look at things around terminals, they're just basically storage. And there's a lot more storage that drives the value of these terminals. And more broadly, at Buckeye, we've dedicated more commercial staff to look at all our terminals to see if we can get our load factors up, to add more services like the biodiesel blending. We got situations where we open up more racks, basically to increase throughput. There's a number of different ways you can increase value at these terminals with really not that large of an investment. So this business continues to show if you really pay attention to it and modernize it, you can bring in more revenue.

Keith E. St.Clair

I was going to say on the domestic side as well, in the terminals there. Most of our contracts have CPI escalators. So that's what we typically see as far as increases in rate.

Operator

Next question comes from Curt Launer with Deutsche Bank.

Curt N. Launer - Deutsche Bank AG, Research Division

If I could, first, I want to ask some of the particulars relative to the Class B pay in kind securities related to the BORCO transaction. It seems like you're moving ahead with the volumes at BORCO such that those pick [ph] securities may convert to LP units are earlier than the 3 year deadline, mid-'13, it seems like, that would be the first thing. And the impact of that, impact on credit ratings, all those kinds of things if you could discuss that whole transaction.

Keith E. St.Clair

Yes. Right now, based on our anticipated expansion, just to step back to be clear, so everyone understands the pick units that we issued in the first quarter of 2011. They convert to common at the earlier of the third anniversary from issuance or, us, placing 4 million barrels of incremental capacity into service. We would expect to see that fourth millionth barrel come into service likely sometime in Q3 2013. So you're right, Curt. I mean we, would expect to see that sometime probably the August-September timeframe of '13. And that will be -- we expect it to be somewhere around 8.5 million, roughly 8.5 million units.

Curt N. Launer - Deutsche Bank AG, Research Division

Okay. So we need to start putting those into our calculations for the latter part of 2013?

Keith E. St.Clair

That's correct.

Curt N. Launer - Deutsche Bank AG, Research Division

Okay. And the next question I have is as we're sitting here with this call, there's a news item that came across the tape relative to Secretary Napolitano putting in a Jones Act waiver for some period of time, unspecified, related to Hurricane Sandy and we certainly know there's lots of ships running around between BORCO and your facilities in New York. Would you see much impact from that in terms of potential for increased volumes?

Jeremiah J. Ashcroft

Yes, this is Jerry Ashcroft with Buckeye Services. We do see that there will be some opportunities for both our facilities in the Linden area and possibly the BORCO, where you'll see ships diverted from Latin America or South America up into New York Harbor. I think it's usually like a 6 or 8-day sale time from the Gulf Coast. And right now what we're seeing in the market on the Energy Services as there are some arbitrage opportunities there that we think people will take advantage of.

Curt N. Launer - Deutsche Bank AG, Research Division

Okay. And last question, if I could, just trying to get a gauge and a magnitude with all the tariff discussions and everything else going on, how do you think about your magnitude of fee-based business versus commodity leverage business given the current mix of business that you have?

Keith E. St.Clair

Curt, we are clearly skewed over 90% to 95%, frankly, that's fee-based and we have very little commodity exposure and, frankly, when you think about BES even, we're hedging the flat price risk there. So we're exposed to the basis volatility that is location differentials. But absent that, the vast majority of our business, again, in excess of 90%, probably closer to the 95%, is fee-based.

Operator

I'm not showing any further questions at this time I'd like to turn the conference back over the Clark for closing comments.

Clark C. Smith

All right. Thank you, and thank you, everyone, for joining our call today and for your interest in Buckeye. We are happy to be able to share the results of this strong quarter with you. I look forward to speaking with you regarding our progress on our next earnings call early next year. Have a good day.

Operator

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

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