Buckeye Partners' (BPL) CEO Clark Smith on Q3 2016 Results - Earnings Call Transcript

| About: Buckeye Partners (BPL)
This article is now exclusive for PRO subscribers.

Buckeye Partners, L.P. (NYSE:BPL) Q3 2016 Earnings Conference Call October 25, 2016 11:00 AM ET

Executives

Kevin Goodwin - Vice President and Treasurer

Clark Smith - Chairman, President, and Chief Executive Officer

Keith St. Clair - Executive Vice President and Chief Financial Officer

Bob Malecky - Senior Vice President and President of Pipelines and Terminals

Khalid Muslih - Senior Vice President and President of Global Marine Terminals

Bill Hollis - Senior Vice President and President of Buckeye Services

Todd Russo - Senior Vice President and General Counsel

Joe Sauger - Senior Vice President, Engineering and Compliance Services

Pat Pelton - Vice President and Controller

Analysts

Faisel Khan - Citigroup

Jeremy Tonet - JPMorgan

Ross Payne - Wells Fargo

Jerren Holder - Goldman Sachs

Tom Abrams - Morgan Stanley

Becca Followill - U.S. Capital Advisors

John Edwards - Credit Suisse

Selman Akyol - Stifel

Lin Shen - HITE

Sunil Sibal - Seaport Global Securities

Noah Lerner - Hartz Capital

Operator

Good day, ladies and gentlemen, and welcome to your Buckeye Partners LP Third Quarter Financial Results and VTTI Acquisition Call. [Operator instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Kevin Goodwin, Vice President and Treasurer. Sir, you may begin.

Kevin Goodwin

Thank you, Esther. Good morning, everyone. Welcome to Buckeye Partners third quarter 2016 conference call. I trust that you have reviewed the news releases we issued yesterday. They include our 2016 third quarter earnings release, the announcement of our acquisition of a 50% equity interest in VTTI V.B., and a successful [upsized] equity offering to fund a portion of that investment. During today's call, we will discuss these topics and answer your questions at the end of the call.

The agenda for this morning's call is as follows. Clark Smith, our Chairman, President, and Chief Executive Officer, will first discuss highlights for the quarter. Keith St. Clair, Executive Vice President and Chief Financial Officer, will then review our financial results for the quarter in further detail. Then, Mr. Smith will provide more information about our announced VTTI transaction. Please note that we have posted a related presentation on the Investor Center section of our website at www.buckeye.com. Mr. Smith will refer to this presentation in his prepared remarks.

Also on the call today are Bob Malecky, Senior Vice President and President of Pipelines and Terminals, Khalid Muslih, Senior Vice President and President of Global Marine Terminals, Bill Hollis, Senior Vice President and President of Buckeye Services, Todd Russo, Senior Vice President and General Counsel, Joe Sauger, Senior Vice President, Engineering and Compliance Services, and Pat Pelton, Vice President and Controller.

Following our prepared remarks, we will open the call to your questions, but first I would like to remind everyone that we may make statements on this 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 of our control. 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, 2015, and our most recent Form 10-Q, each filed with the SEC. we undertake no obligation to revise our forward-looking statements to reflect events or circumstances occurring after today's date.

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

With that, I would like to turn the call over to our Chairman, President and CEO, Clark Smith.

Clark Smith

All right. Thank you, Kevin, and good morning, everyone. We have a lot to talk to you about this morning. I'd like to first focus on what I consider to be a great safety success story for Buckeye. A number of our facilities in the Caribbean and on the Southeastern US coastline were recently impacted by Hurricane Matthew, which was a category 4 storm. Most importantly, we are happy and thankful to report that all of Buckeye's employees and their families in Matthew's path have been accounted for and are safe with no injuries. Prior to the storm making landfall, our teams worked diligently to ensure that all of our operations were secure and that our facilities were fully prepared for its impact. Our teams have trained extensively for this type of incident. I believe this is the primary reason our facilities fared so well.

Following the passage of the storm, our teams worked to quickly and safely assess damages and prepared to safely restart operations. All of our domestic facilities were fully operational within four days of the storm's passing. Buckeye's Bahamas hub did sustain some damage as a result of the passage of the storm. Our teams are still assessing the financial impact of the damages and recovery efforts, but we currently do not expect such costs to be material. I am thankful for the preparation and hard work that allowed Buckeye's people and assets to weather this storm safely and with limited damage. Our employee's commitment to Buckeye's culture of safety is what saves lives and protects our assets during catastrophic events like Hurricane Matthew.

I want to now highlight the very impressive quarter we announced yesterday. We reported adjusted EBITDA of $271.6 million, a 33% increase over the third quarter of 2015. All of our segments posted significant year-over-year improvements to drive this strong performance. Our domestic pipelines and terminals, and our global marine terminal segments both benefited from continued strength in demand for storage services that continue to drive high utilization. Our domestic pipes and terminals segment also benefited from improved transportation and throughput revenues. As we referenced in our earnings release yesterday, this segment's results include a $14 million payment by one of our customers to exercise an early buyout clause and a crude-by-rail contract at our Albany facility. Global marine terminals benefited over the year-ago quarter from a full quarter contribution from our South Texas assets, and Buckeye Merchant Services also had a strong quarter due to favorable inventory management and strong ranked margins. We also announced yesterday a 1.25% increase in our quarterly distribution to $1.2250, which is a 4.3% increase over the third quarter of 2015. Our third quarter resulted in a very strong distribution coverage of 1.2 times and 1.16 times on a trailing 12-month basis. These strong results continue to demonstrate the value of our portfolio of diversified assets and services and the continued outstanding performance by the Buckeye team around executing our strategic plan.

Now I'd like to turn to a quick update on our Michigan-Ohio expansion projects. We announced last week the completion of a successful open season on the second phase of the Michigan-Ohio pipeline. We were happy to report that we received sufficient 10-year commitments from shippers to move forward with this meaningful project. This project will further expand Buckeye's capabilities to move more refined product barrels from Midwestern refineries to Pittsburgh and to destinations in central Pennsylvania. This is a significant multi-year project that includes the partial reversal of our existing Laurel pipeline. It is important to note that this expansion requires no new pipeline construction. We continue to move through the approval process, including working with regulatory authorities, and completion is expected in 2018. We are also working towards starting up the first phase of the Michigan-Ohio project. We notified the committee shippers that mechanical completion was accomplished in the third quarter, which was ahead of schedule. We are ramping up service on this project and continue to expect the full earnings contribution to be reached early in 2017.

And now, I'll turn the call over to Keith to discuss our financial results in more detail.

Keith St. Clair

Thank you, Clark, and good morning, everyone. I'll now provide further details on our third quarter financial results. Yesterday afternoon, we reported income from continuing operations of $160.3 million for the third quarter of 2016 compared to $99.9 million for the prior year quarter. The increase of $60.4 million, or 60.5%, was the result of a full quarter contribution from our Buckeye Texas Partners joint venture, continued strength in demand for storage services across all our assets, increased pipeline and terminal throughput revenues, and greater contribution from our marketing business. Income from continuing operations attributable to Buckeye's unitholders was $1.19 per diluted unit for the third quarter of 2016 compared to $0.78 per diluted unit for the prior year quarter. On a consolidated basis, we reported record adjusted EBITDA of $271.6 million for the third quarter of 2016 compared to $204.2 million last year.

Now, I'll review in further detail adjusted EBITDA, which is our primary measure of financial performance for each of our operating segments. For our domestic pipelines and terminals segments, adjusted EBITDA was $152.7 million for the third quarter compared with $121 million last year. The increase during the quarter is the result of continuing strong market conditions for segregated storage and increased transportation and throughput revenues combined with increased product recoveries.

In addition, a customer exercised an early buyout provision and a crude-by-rail contract at our Albany, New York terminal during the quarter that generated incremental revenue of $14 million. This facility is currently being repurposed to accommodate refined products, which will allow shippers to move volumes to the Midwest to capture west-versus-east pricing differentials. We would anticipate the ongoing impact to annual cash flows from the loss of this contract to be approximately $15 million.

Domestic terminal volumes increased to 1.24 million barrels per day, or a 3.3% increase in the third quarter compared to 1.2 million barrels per day last year. This increase was largely driven by higher throughput volumes in off-system terminals and at our Chicago complex. This segment also benefited from increased contributions from storage revenues during the quarter primarily as a result of bringing out-of-service tanks back into storage service. During the third quarter of 2016, we had 18 million barrels of capacity in service versus 14 million barrels last year.

Pipeline volumes, excluding crude oil, were up slightly quarter-over-quarter. Pipeline revenue, however, was up 2% as we benefited from a more favorable mix of product flows to long-haul destinations, especially in upstate New York. Our average pipeline tariffs increased approximately 2% year-over-year as a result of these longer haul moves plus the market-based tariff adjustments that we implemented in February of 2016.

Operating expenses in this segment, excluding depreciation and amortization, were down compared to the prior year primarily as a result of lower maintenance expenses during the period. These savings are really timing-related, as the performance of the maintenance activity will be completed during the fourth quarter of 2016.

Our global marine terminal segment generated record adjusted EBITDA of $110.7 million in the third quarter of 2016 compared to $80.6 million last year. The contribution of a full quarter's results from our Buckeye Texas Partners assets were the primary driver for this improvement year-over-year. In addition, strong demand for storage continued to drive high capacity utilization at favorable rates. Average utilization of capacity was 99% for the quarter compared to 97% in the prior year. We continued to grow our storage capabilities by placing approximately 5.5 million barrels of additional capacity into service across our GMT system since the prior year quarter.

Compared to the same period in 2015, revenue per leased barrel increased by 4.8% as a result of our commercial teams achieving higher rates on renewal contracts. Our teams were also successful in releasing all the capacity that was up for renewal through the end of the third quarter of this year.

Operating expenses, excluding depreciation and amortization, increased $7.5 million primarily as a result of supporting the incremental processing and throughput operations at Buckeye Texas Partners combined with incremental costs necessary to support the higher utilization across our legacy assets.

Now turning to our merchant services segment, we reported adjusted EBITDA of $8.2 million for the third quarter of 2016 compared to $2.6 million in the same period last year. The third quarter benefited from our continued inventory management efforts and strong rack margins. Revenues for this segment were $344 million, or a 10.9% decrease from $386.1 million last year, which was primarily due to the decline in refined products pricing resulting from the current commodity environment. This segment continues to drive higher utilization across the Buckeye system and has contributed over $31 million in fees to the other segments during the first three quarters of 2016.

Looking at our balance sheet, we have 3.8 billion of long term debt, including 203 million of borrowings outstanding at quarter end under our revolving credit facility. We also had approximately $218 million borrowed under our revolver that was reflected as short-term related to our merchant services working capital requirements. Our total debt to adjusted EBITDA ratio was under four times, at 3.98 times at the end of the quarter. We had nearly $1.1 billion of incremental capacity available at the end of the quarter on our revolving credit facility.

During the nine months ended September 30, 2016, we sold approximately 1.6 million LP units, raising proceeds of approximately $108 million under our ATM program. I should also point out that, in conjunction with our announcement to purchase a 50% equity interest in VTTI B.V. yesterday, we sold 7,750,000 units at $66.05 per unit, generating over $500 million in net proceeds to Buckeye.

For the third quarter, our distributable cash flow from continuing operations was $194 million compared to $135.6 million last year. And our distribution coverage ratio based on distributions declared on units outstanding at the end of the quarter was 1.2 times for the quarter and 1.16 times for the trailing 12 months.

Now looking at our capital spend, maintenance capital for the quarter was $33.1 million compared to $29.1 million last year, and return capital was $122.9 million for the third quarter of 2016. Looking forward, we expect maintenance capital spending for the year to be within the range of $110 million to $120 million, while we expect return capital spending to be between $300 million and $330 million for the year.

In closing, we generated record adjusted EBITDA from strong contributions across all of our business segments. Our diversified portfolio of fee-based assets continues to provide Buckeye with stable and consistent cash flows, maximizing returns to our unit holders. We believe that these results, along with our recently announced acquisition, demonstrates our commitment to our strategy of capitalizing on strategic growth opportunities to provide solid returns to our unit holders.

That concludes my remarks on the quarter. Next, Clark will provide more detailed information on our VTTI transaction. Clark?

Clark Smith

All right. Thank you, Keith. Now we'll turn to our announcement yesterday of our acquisition of a 50% equity interest in VTTI. I will refer to the presentation posted on our website during my prepared remarks.

To begin, slide two of the presentation includes our forward-looking statement disclaimer, which we covered at the beginning of this call. So now, turning to Slide 3, we are very excited about acquiring a 50% interest in VTTI, one of the largest independent global marine terminal businesses in the world, with approximately 54 million barrels of crude and petroleum product storage across 13 terminals located in 12 countries on five continents. The majority of this capacity's located in key global energy hubs, including the Amsterdam-Rotterdam-Antwerp hub, or ARA, in Northwest Europe, the Middle East with the Fujairah terminal in the United Arab Emirates, and the Singapore region. These hubs, along with the other terminals, offer world-class storage and marine terminaling services primarily for refined products, as well as crude and LPGs. We have continually emphasized Buckeye's strategy of diversifying our business across new products and services, as well as new geographic locations, placing particular emphasis on growing our terminal business. I enumerated this strategy in detail on last quarter's earnings call. we emphasized that we were reviewing a backlog of over $2 billion of potential investment opportunities that we believed were actionable, and importantly, we were focused on projects that met our criteria of fee-based cash flows backed by stable contracts with creditworthy counterparties with minimal commodity price exposure.

This transaction delivers on all of these important objectives. It establishes for Buckeye an immediate worldwide presence in the independent fee-based marine terminal business. Vitol, our new partner and the world's largest global trader of crude and petroleum products, is the anchor tenant across these assets. They account for approximately two-thirds of VTTI's cash flows. Importantly, VTTI is a high growth business, has had tremendous success with both Greenfield development and international terminal acquisitions, and has grown significantly since its formation in 2006. Vitol has been a catalyst for many new development projects during that timeframe. And as our joint venture partner, we expect them to continue to do so. Importantly, we expect this investment to be immediately accretive in 2017, and this accretion will grow to 3% to 5% as we achieve our expected acquisition multiple of less than 10 times based on growth projections. Funding for the acquisition is targeted to be a balance of debt and equity. We announced yesterday the successful completion of an equity offering of over $500 million, excluding the shoe. We are acquiring 50% of the equity interest in VTTI as outlined on the right-hand side of slide three. Buckeye will be equal partners in that entity, with Vitol continuing to own the other 50%. We will have equal representation on the Board of Directors, with each partner nominating two of the four Board members. The voting rights will be similarly split 50-50.

VTTI is an existing entity with a well-established, capable, and experienced management team in place. That team, headed by CEO, Rob Nijst, will continue to operate the business as a standalone entity post-acquisition. We are very impressed with the experience and talent of their senior leadership team and the culture they have instilled across their global employee base. The key principles that underpin their culture are very consistent with Buckeye's. They have an unwavering focus on environmental compliance and safety, employee empowerment through emphasizing ownership and accountability, along with fostering an entrepreneurial spirit to drive performance. The assets are organized in two primary groups, the TopCo and OpCo. TopCo serves as a development, or incubator, that typically sponsors Greenfield development, or significant Brownfield development at existing terminals. There are currently seven terminals representing approximately 18.5 million barrels of storage in TopCo. These assets and the resulting cash flows are 100% owned by VTTI. At the bottom of the chart sits VTTI MLP, or OpCo. OpCo holds the existing, more mature assets, currently six terminals offering approximately 35.7 million barrels of storage capacity. 51% of this entity is held by VTTI Energy Partners, which is a publicly traded MLP. And as I know many of you are aware, VTTI Energy Partners is traded on the New York Stock Exchange under the ticker symbol VTTI. The same leadership team manages both VTTI and this MLP. The MLP has been public since 2014, and it's 52% owned by its public unitholders. VTTI, through its wholly owned subsidiaries, owns the general partner, the incentive distribution right, and 48% of the limited partner interest of the MLP. Taken together, VTTI owns approximately 73.5% of OpCo.

Slide four provides a high-level overview of the assets. Here you can see a listing of specific terminals, including the ownership percentage and storage capacity offered by each. OpCo generally owns the larger facilities and key global energy hubs, including the ARA, Middle East, and Singapore. It also owns a terminal in Cape Canaveral, Florida. TopCo includes storage capacity built as a result of recently completed expansion projects at the marine terminals in Malaysia and Fujairah. TopCo also has a significant presence in the Baltics, the Eastern Mediterranean, South America, and Africa. Included in the total 54 million barrels of storage is 800,000 barrels of storage currently being built in Cape Town, South Africa. These are world-class marine assets, with each terminal offering deepwater access, and are located close to and offer superior connectivity to demand markets and supply centers.

With Vitol as a key backer, these assets were designed to emphasize optionality and flexibility, which are especially valuable to a trading organization. The VTTI management team and employees offer a high level of customer service and are known in the industry for working with customers to provide custom solutions. These facilities are multi-modal, offering a mix of ship, barge, pipeline, rail, and truck connectivity to the markets they serve. And very importantly, VTTI has a strong safety culture and safety record across its terminal operations.

Turning to slide five, this shows how this transaction furthers Buckeye's long-term diversification strategy. The VTTI assets are very complementary to the existing Buckeye assets. They serve a similar customer base with quite a bit of overlap, including Vitol. They provide an immediate diversification platform into the Eastern and Southern hemispheres. These assets are strategically located to capture regional supply-demand imbalances and growing overall demand for marine infrastructure. VTTI enjoys a competitive advantage given the limited availability of land and ports with suitable infrastructure in many of their locations. This map I think demonstrates the truly global reach that these assets provide.

Slide six highlights some of the key strategic reasons that we believe this is a very attractive investment for Buckeye. We have consistently indicated our desire for further geographic diversification beyond our existing marine terminal asset footprint. This acquisition gives us an immediate worldwide presence that is far beyond what would be possible to establish independently. Importantly, these high-quality assets offer customers premiere optionality and functionality with a focus on customer service. And as I mentioned, VTTI will continue to be operated on a standalone basis by a highly experienced management team and employee base.

VTTI also has a long track record of growth since 2006 through both Greenfield development and strategic acquisitions around the globe. We believe there still remains significant opportunities for additional M&A and development as emerging economies continue to impact global petroleum product logistics. In fact, VTTI is currently evaluating over $600 million of new projects that we expect to drive growth over the medium-term.

Vitol has been a significant customer for Buckeye over the past few years, and we're excited to build upon our relationship with this world-class global energy company. Vitol has indicated that they remain fully committed to continue to support development of new opportunities around the globe, as well as continuing to drive commercial activities through the acquired assets. We also believe Vitol will be able to provide unique insight and visibility to future potential growth opportunities in markets in which Buckeye has historically not participated.

And finally, we're excited about the financial contribution this investment provides for Buckeye. As I mentioned earlier, we expect immediate and growing accretion as we achieve an expected long-term acquisition multiple of less than 10 times. Importantly, we expect to accomplish these strong financial metrics with stable diversified cash flows derived from assets that have average utilization of 93% since inception. Given the extreme commodity price volatility over the past 24 months, it's also important to note that these assets have no direct commodity exposure.

Slides seven and eight provide some additional information about Vitol and VTTI's very successful track record of growth. They have accomplished this growth with a mix of acquisitions, Greenfield development, and further expansions of their existing terminals. Looking at Slide 8, the chart on the lower left shows VTTI has been able to achieve a very impressive growth rate of 40% since 2006. In that time, it has expanded from less than three million barrels of storage capacity to over 54 million barrels, including their development project underway in South Africa.

VTTI's management team has been very busy over the past two years responding to the storage needs of Vitol and other international customers, completing nearly 8 million barrels of organic expansion over that timeframe. They still have a robust plate of potential projects, and Vitol continues to move into the new markets. Both point to continued growth potential for these assets for years to come.

We believe there are also substantial opportunities for further consolidation in the international terminal space. Currently, the top 10 independent terminal companies hold only 16% of total non-US storage capacity. This compares to the US storage market, where the top 10 terminal companies hold 53% of domestic storage capacity. The 3.3 billion barrel international petroleum products terminal market is also over three times the size of the domestic market. Together, this points to a very robust opportunity to continue this impressive track record of growth.

In closing, slide nine summarizes some of the key benefits to Buckeye and our unit holders in this transaction. This investment establishes for Buckeye an immediate presence in key global hubs on a scale that would be difficult to achieve independently. The capabilities and experience of the existing VTTI management team reduces operational and execution risk associated with this investment. The partnership with Vitol, combined with a deep pool of M&A and Greenfield development opportunities in the international terminal market provide Buckeye with a new and significant growth platform.

And finally, the financial contribution from this transaction provides for immediate accretion for Buckeye underpinned by diversified, stable cash flows with zero commodity price exposure. We expect to close this strategic acquisition in early 2017.

That concludes my remarks. We can now open the call to questions, Esther.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Faisel Khan of Citigroup. Your line is now open.

Faisel Khan

Can you guys highlight what the commercial synergies are going to be from this transaction between domestic Buckeye assets and the international VTTI V.B. and VTTI Partnership assets?

Khalid Muslih

Just to comment on that point, I think like Clark mentioned in his remarks, VTTI will continue to be operated as a standalone company, and the day-to-day activities will continue to be directed by the VTTI management team. Obviously we're very excited about being involved in this as a long-term investment opportunity. But again, we'll continue to run our business separately.

Faisel Khan

So it doesn't sound like there's any near-term commercial opportunities with this transaction. Is that a fair statement?

Khalid Muslih

I think really where the commercial opportunities are going to be more around the opportunity to further expand this platform, either geographically or, frankly, in its existing asset base. Again, as far as the operations or the commercial activities of our respective businesses, those will continue to be on a standalone basis.

Faisel Khan

In terms of how VTTI B.V. is capitalized, is there any debt at VTTI B.V.? And also, as more of the OpCo is dropped into VTTI, are those proceeds going to be distributed up to VTTI B.V., and then to the 50-50 JV partners? How is that going to work?

Keith St. Clair

If you look at the overall consolidated family, if you will, of VTTI V.B. entities, there is about, on an 8/8ths basis, about $800 million of debt. That sits mostly on what we referred to in our presentation materials, Faisel, as TopCo and OpCo. So, that's the debt that is essentially part of the consolidated group of VTTI entities. The decisions on drops, and then what we do with the proceeds of the drops, will be something that we'll determine as a Board, and we have equal governance. Our expectation is that, to the extent you see material drops, there would be the opportunity for that capital to be distributed out of VTTI to the unitholders, shareholders.

Faisel Khan

If I look at the operations of VTTI, the OpCo and what looks to be at TopCo, it looks like there's about $75 million in distributable cash flow that would flow up to Buckeye. Is that the number we should be looking at in terms of the DCF that's net to BPL after this transaction is consummated?

Keith St. Clair

Faisel, we haven't given any guidance as far as our expectation on distribution, so I can't confirm that.

Operator

Our next question comes from the line of Jeremy Tonet with JPMorgan. Your line is now open.

Unidentified Analyst

It's actually Andy for Jeremy. Going back to the dropdown plan at VTTI, has there been any change to the calculus there? And I think the last few dropdowns have been on a sub-10 times multiple. Is the plan to continue to dropping down assets at eight to nine times, given that you paid 10 times for the asset?

Keith St. Clair

Yes. Andy, what we'll do is -- we don't expect that there are going to be any material change to the strategy certainly of VTTI, the MLP. The decisions on drops, the multiples on drops, etc., will be something that will be a matter for the Board to address on a go-forward basis. But, I would not expect any material changes certainly to anything that's been communicated publicly by VTTI, but those are questions you can ask them.

Unidentified Analyst

And you cited the global rollup opportunity. Just curious, we haven't seen, I don't think, VTTI do an acquisition since its IPO. Any sense of acceleration or deceleration of that opportunity? And also, should a material opportunity arise, what are your thoughts on Buckeye's share of the financing of some of those opportunities?

Keith St. Clair

Well, that has to depend on the magnitude, obviously, of the opportunity. And when you think about this, Andy, we're not just talking about the MLP as being the only growth vehicle. In fact, there are considerable assets that are held at TopCo, and that historically has been the growth engine and incubator for opportunities.

So, when you think about acquisitions, they wouldn't be limited to just being completed down at the MLP level. They could [be] under the TopCo level, as well. And as far as financing, we'd have to look at, again, the size of the opportunity and what made sense from a standpoint of how we would ultimately finance that, whether that be done within the VTTI group of companies, or whether it'd be something where there would be an infusion of capital from the shareholders.

Unidentified Analyst

Okay great. And then final fall upon and will talk of those five those question. Can we expect that all kind of DCF is passed through completely to BPL every quarter, or will there be some retained cash maybe for investment at TopCo, not necessarily [indiscernible] from dropdowns, but just quarterly cash flow?

Keith St. Clair

Well, what we anticipate doing from a standpoint of reporting results is our expected treatment from a standpoint of communicating EBITDA as well as DCF will be to take, if you will, a proportional look at what their cash flows are, both from a DCF as well as an EBITDA perspective. That is what we anticipate doing from a reporting standpoint.

So, what we will essentially report is the cash flow generating capability of the portion of the enterprise that we control.

Unidentified Analyst

Great. Thanks for answering my question.

Operator

Our next question is from Ross Payne with Wells Fargo. Your line is now open.

Ross Payne

Thank you very much. First question is, can you guys speak to the multiples that you're seeing in Europe in terms of potential roll-up candidates and how that might compare to the US? And Keith, secondarily, if you can, I missed some of the balance sheet information, if you can give some of that debt information one more time. Thank you.

Khalid Muslih

This is Khalid again. I'll speak to maybe the opportunities either in Europe or globally. Obviously, when you think about the European landscape, I think there's probably more opportunity for consolidation of existing infrastructure, just given somewhat of the fractured ownership that currently exists. It's scattered around the various majors and such. But, I think also there's this tremendous gap, or still imbalance, I think between supply and demand, and I think when you look at locations where there are opportunities to either invest to redevelop Brownfield locations, or more importantly Greenfield locations across the globe, to satisfy demand. I think that's where we see considerable opportunity. And frankly, this new joint venture will help facilitate that growth.

Keith St. Clair

Ross, on your leverage question, we mentioned earlier that on an 8/8ths basis within the VTTI B.V. group of entities, there's about $800 million of debt.

Ross Payne

And just for BPL for the quarter, what were your outstanding on the revolver? I missed that a little bit earlier. Thanks.

Keith St. Clair

It was right at $400 million. It was a little over $400 million.

Ross Payne

And the total debt number therefore was what?

Keith St. Clair

The total debt number, we had $3.8 million of long-term debt, and we had a little over $200 million as current. So, we had $3.8 billion, and then $200 million, so roughly $4 billion, about $4 billion[indiscernible] in total.

Ross Payne

Could you guys talk about how you bring the cash back to the US to BPL, and if there's any kind of tax drag on that, or how we need to think about that from an international standpoint? I know you've got existing international in place, but just want to kind of clarify on that. Thanks.

Keith St. Clair

There are some local taxes that some of the entities pay, income taxes, but that's very, very low now, and we expect it, certainly for the foreseeable future, to be fairly low from the standpoint of effective tax rate. And then, as far as bringing the cash back to the US, there are no withholdings. The majority of these entities are going to be treated as flow-through entities for US tax purposes, Ross, so there'll be no withholding. So, there'll be no leak from that perspective.

Operator

Our next question comes from the line of Jerren Holder of Goldman Sachs. Your line is now open.

Jerren Holder

Hi, good morning. Just wanted to touch on the Laurel pipeline reversal here, just any color in terms of what the cash flow uplift of this may be, recognizing that it's minimal CapEx, given that you're just reversing a portion of the pipeline. But, as we think about the commitments that you're getting from your customers versus some of the volumes that would have been flowing from the East to the West, how should we think about sort of that cash flow uplift to you guys?

Bob Malecky

This is Bob Malecky. While we're not seeing new pipeline builds associated with it, it still has a fairly substantial capital buildout associated with this. I think our first phase was a $100 million project. We're actually expecting this to be a $200 million investment, and with kind of organic growth capital of multiples that we see with our other projects.

Jerren Holder

And what happens to the volumes that was moving from East to West, or the customers that were being served there? Is there something else you guys need to do in that respect?

Bob Malecky

Yes. We've actually already undertaken a project associated with that to enable more flow from our Philadelphia refinery centers to upstate New York, as well as into New York Harbor. Earlier in the year there was a small project to enable us to get to the nexus point in Allentown, Pennsylvania. So, effectively, we've created routings for those barrels to go to alternate destinations.

Jerren Holder

Just given that you just had your open season, was there interest maybe to reverse other portions of the pipeline to go further east, or is this pretty much it?

Bob Malecky

I think at this juncture, that's it. It does create opportunities in the future, but at this juncture I think this is what we see. And as we announced, we're looking to put that into service in 2018.

Operator

Our next question comes from the line of Tom Abrams of Morgan Stanley. Your line is now open.

Tom Abrams

Just if you could give us some background on how this deal came to be, what was their motivation to sell? Was it an auction process? Did you approach them? And I had a second question, too.

Clark Smith

We have been in discussions with Vitol for quite a long time about expanding our global marine terminals platform farther into the international markets. We've always had our eye on these assets. Vitol is a premiere energy company, and we thought the partnership would be a great fit for us and our unitholders. It was a competitive process, and fortunately it worked out for us, and it's going to be a great partnership.

Tom Abrams

Second thing I wanted to ask was just domestically under the BPL, are there any other projects that you can elaborate on besides the lower reversal that might drive spending in the 2017, 2018, 2019 period?

Bob Malecky

I think we always have a list of singles and doubles, as we refer to them, smaller shape projects that we expect to continue in 2017. We do see a little bit additional -- a little bit of additional spending in our Chicago complex platform anticipated for the coming year or two, as well, as interest in that area continues to be robust.

Khalid Muslih

I think the other initiative that we're undertaking at the moment, we have a fairly significant capital development project in the New York Harbor. We're expanding not only our storage capabilities there, but also our interconnectivity transfer and service capabilities. So, in effect, what we're trying to do is replicate to a substantially similar level what we've done in the Chicago complex in New York. And again, we also are continuing to endeavor at looking at ways that we can leverage some of our existing platform along some new commodities, such as asphalt.

Operator

Our next question comes from the line of Becca Followill with U.S. Capital Advisors. Your line is now open.

Becca Followill

Not covering VTTI, assuming that the distributable cash flow, that that's fully taxable, or their EBITDA's fully taxable at the VTTI level?

Keith St. Clair

No. No, it's not fully taxable, no. In fact, they flow through that to their unitholders.

Becca Followill

They flow through the taxes to their unitholders?

Keith St. Clair

Yes, the taxable income.

Becca Followill

Can you talk a little bit about foreign exchange exposure? How do you handle that with these assets?

Keith St. Clair

Most of the commercial contracts are denominated either in US dollars or in euros. So really, when you think about currencies that have significant fluctuations, it would only relate to potentially operating expenses in the local countries. So, the majority of the FX exposure is in dollars or in euros.

Becca Followill

Do you have a [indiscernible] on the other 50%?

Khalid Muslih

We're not going to comment on [indiscernible] of the transaction at that level.

Becca Followill

This is a pretty sizable deal for you guys. Do you still have an appetite for further M&A?

Clark Smith

Yes, we do, and we have other terminals, both domestic and international, we're looking at.

Operator

Our next question comes from a line of John Edwards from Credit Suisse. Your line is now open.

John Edwards

Good morning everybody. I think you said the last quarter your backlog was about $2 billion. Was it including this deal? So, I don't know if you've had adds or takeaways from that since then. So, if you could just comment, where does your opportunity backlog stand now?

Clark Smith

Well, it's less than $2 billion since we closed on the biggest one and the one that we wanted more than any of the other opportunities. But, it's still robust, as Becca asked about our M&A, going forward. There are more opportunities, particularly the terminal business out there, both domestic and international. So, our backlog is still sufficient to meet our growth target.

And again, remember, this investment in VTTI is a growth platform by itself. There'll be more opportunities for us to invest money around this, as well.

John Edwards

Can you give us any sort of suggestions on the TopCo earnings, or TopCo cash flows?

Keith St. Clair

John, we haven't disclosed any split between TopCo or OpCo assets, and frankly really aren't in a position to do that.

John Edwards

Okay. I guess the other thing is that how are you thinking, then, about global inventories, going forward? Obviously they've remained very high. Are you anticipating that they're going to stay high? A lot of people are forecasting inventories have to come down as supply and demand balances. Any kind of comments you can make regarding your view of that global market would be really

Khalid Muslih

I think we could probably have a call on this for an hour, and we'd have so many different views. But, I think what's more important, clearly there's still an over-supply. We've still got inventory that's in tanks. Clearly you saw I think what came out of Algiers, trying to make an attempt to further stabilize the market and try to boost pricing. But, I think what's more important for us, I think we're positioned very well, just given the diversity of our platform. I don't think it really matters as much to us whether or not the market is in Contango or backwardation. I think we've figured out how to prosper in both environments.

And so, I think from our perspective, I think we're well positioned to be able to serve whatever the market puts at us, and more importantly, whatever our customer needs are.

John Edwards

Okay. and then, I guess in terms of the $600 million of new projects that you're evaluating, is there any way you can give us some insight as to how far along these are, what state of development, maybe what multiples you might expect, that kind of thing? Any kind of additional color would be helpful.

Khalid Muslih

Not to go into the specifics, but these are all assets that would be very similar to our existing business. I think they're all going to be at attractive multiples. But again, I don't think we're at a position where we can, frankly, disclose that at this point in time.

John Edwards

Okay. Alright that's it for me. Thank you.

Khalid Muslih

Thanks John.

Operator

Our next question comes from the line of Selman Akyol of Stifel. Your line is now open.

Selman Akyol

Thank you. Just a couple of quick one. Following up on John's last question, on the $600 million, should we view that as being self-funding, or would you guys be pushing cash down in order to make that happen?

Keith St. Clair

No, we'd look at it as being self-funded, Selman.

Selman Akyol

I know you guys talk about Vitol having about 70% of the contracting at this asset. Does that extend to TopCo as well, I presume, yes?

Keith St. Clair

Yes, that's across the entire footprint of assets, yes.

Selman Akyol

In your earlier comments you'd talked about the re-contracting environment being pretty strong. You continue to see that ongoing?

Khalid Muslih

Yes. Just again [Multiple Speakers] yes, talking about in global marine, just like Keith mentioned, we successfully re-contracted all open capacity that was up in the quarter. And we continue to see, frankly, very robust demand for our storage services. So, yes, we still remain very confident and optimistic around our re-contracting efforts.

Operator

And our next question comes from the line of Lin Shen of HITE. Your line is now open.

Lin Shen

First is for VTTI. My understanding is that their OpCo, the MLP [B.V.] is hedging its dollar-euro currency for four years. Does their TopCo also do the hedging for dollar-euro currency risk, or maybe you are exposed to dollar, euro [indiscernible]risk?

Keith St. Clair

You have the same management team, the same financial staff. I'm not sure all the specifics or the length of their hedging, but I know they do have a hedging program in place. And my expectation, although I can't say definitively, is they would be treating the TopCo assets no different than they're treating the OpCo assets. They just manage all of that really on a consolidated basis and have the same print operating philosophy and principles, the same as financial policies and principles, at both TopCo and OpCo.

Lin Shen

You mentioned that, for your [tank] at Albany, you are repurposing them to use for [refined] product. How do you see demand there? Do you think that you can repurpose that quickly?

Bob Malecky

We expect to have that repurposed before the year-end, and it's going to be repurposed with the ability to bring in product from the rail, from Western origin. So, we expect to be uniquely situated to be able to bring products from the Midwest into that marketplace by this winter.

Lin Shen

I just want to clarify, you're talking about moving gasoline by rail to Albany terminal?

Bob Malecky

That's correct.

Operator

Our next question comes from the line of Sunil Sibal with Seaport Global Securities. Your line is now open.

Sunil Sibal

When you look at the whole VTTI asset base, what's the average contract duration on those contracts that you have?

Keith St. Clair

It's a little over two years.

Sunil Sibal

When we think about leverage at BPL, the $800 million of debt which sits at VTTI, would 50% of that flow into BPL from how you [multiple speakers]?

Keith St. Clair

It doesn't flow into BPL, because we don't consolidate these assets. Now, if your question is how do the rating agencies look at it, I think it differs by the particular agency. But, some do look at proportional consolidation.

Sunil Sibal

And then, the remaining portion of the acquisition, is it fair to assume that basically is funded through debt?

Keith St. Clair

The remainder of the acquisition purchase price funded with debt, was that the question?

Sunil Sibal

Yes.

Keith St. Clair

Yes. Yes. We would anticipate doing that. There's also at this point in time, as we announced yesterday, the equity underwriters still have their over-allotment option that's available to them, so there may be some incremental equity if they exercise that option.

Operator

Our next question comes from the line of Noah Lerner of Hartz Capital. Your line is now open.

Noah Lerner

My first question is just a follow-up to Ross's, or one of his. I just want to make sure I take away. Did I hear correctly that VTTI B.V., the entity you're acquiring, for U.S. tax purposes will be treated as a flow-through entity so that the actual details will basically be just like every other partnership?

Keith St. Clair

You heard that correctly. Yes, Noah, that's correct.

Noah Lerner

I don't know from an international standpoint if it's also treated as a flow-through. Will there be any additional international filing requirements to the investors in Buckeye?

Keith St. Clair

I'm not aware of any incremental filing requirements for U.S. investors in Buckeye as a result of this transaction, no.

Noah Lerner

Just turning a little bit, I was just curious if you can talk about what kind of discussions, internal discussions, you might have had. A lot of these assets are in hot spots around the globe, or areas where there is currently political unrest. So, I'm just curious what kind of internal conversations you might have had to get management comfortable that the geopolitical risk is manageable.

Keith St. Clair

Yes. I mean, we spent a lot of time obviously both on the ground and in discussions with both VTTI and Vitol around these particular assets. If you think about it, the preponderance of the assets are in great locations, like the ARA, Fujairah, Singapore, and obviously Clark had touched upon some of these new development projects, Cape Town, South Africa. Some of the other locations that sit in TopCo are very strategic to Vitol, are very much integrated into their energy value chain, and I think we also did a tremendous amount of work just around diligence on the ground associated with those assets, country risk, so on and so forth. And I think we got very comfortable in those locations. So, I think from that standpoint, we feel terrific about the investment opportunity, and again, we're very excited about the go-forward.

Operator

Ladies and gentlemen, this does conclude our Q&A session. I would now like to turn the call back over to Clark Smith for any closing remarks.

Clark Smith

Thank you, Esther, and thanks to everyone for joining us on the call today. We're very excited about our third quarter results and our new partnership with Vitol. We look forward to working with Vitol and VTTI over the next few months as we work to close this transaction. We're also excited about what this investment means for Buckeye and our unitholders in the future. Thanks, and have a great day.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!