Buckeye Partners, L.P. (NYSE:BPL) Q4 2016 Earnings Conference Call February 10, 2017 11:00 AM ET
Kevin Goodwin - Vice President of Investor Relations
Clark Smith - Chairman, President and Chief Executive officer
Khalid Muslih - Executive Vice President and President of Global Marine Terminals
Keith St.Clair - Executive Vice President and Chief Financial Officer
Robert Malecky - Executive Vice President and President of Domestic Pipelines and Terminals
Ross Payne - Wells Fargo Securities
Theresa Chen - Barclays Capital
Jeremy Tonet - JPMorgan Chase & Co.
John Edwards - Credit Suisse
Lin Shen - HITE Hedge Asset Management LLC
Good day, ladies and gentlemen. Welcome to your Buckeye Partners Fourth Quarter and Full Year 2016 Financial Results Conference Call. At this time, all participant lines are in a listen-only mode to reduce background noise. But later we’ll be holding a question-and-answer session after the prepared remarks. Then instructions will follow at that time. [Operator instructions]
As a reminder, today’s conference call is being recorded. I would now like to introduce your first speaker for today, Kevin Goodwin, Vice President and Treasurer. You have the floor, sir.
Thank you, Andrew. Good morning, everyone. Welcome to Buckeye Partners’ fourth quarter and full-year 2016 financial results conference call.
On this morning’s call, Clark Smith, our Chairman, President and Chief Executive Officer, will discuss highlights from 2016. Khalid Muslih, Executive Vice President and President of Global Marine Terminals, will provide details on the performance of the Global Marine Terminals segment, provide an update on the recent VTTI acquisition. Keith St. Clair, Executive Vice President and Chief Financial Officer, will then review our financial results for the quarter.
Also on the call are Bob Malecky, Executive Vice President and President of the Pipelines and Terminals segment; Bill Hollis, Senior Vice President and President of Buckeye Services; Todd Russo, Senior Vice President and General Counsel; Joe Sauger, Senior Vice President, Operations for Global Marine Terminals and Engineering Services; and Pat Pelton, Vice President and Corporate Controller. Following prepared remarks, we will open the call to questions.
We would like to remind everyone that we may make statements on the call 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 and available on the Buckeye Partners’ website. We undertake no obligation to revise our forward-looking statements to reflect events or circumstances occurring after today.
In addition, during the call we will be discussing Buckeye Partners’ 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 issued this morning as well as in a supplemental reconciliation, both of which are available on the Investors 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.
All right. Thank you, Kevin. Good morning, everyone, and thank you for joining us. Today Buckeye reported strong fourth quarter and record full-year 2016 results. Our financial performance continues to prove the value of our growth strategy and our diversified asset base. This is also demonstrated by our pro forma distribution coverage, which when adjusted to exclude the impacts of our pre-funding for the VTTI transaction was 1.05 times for the fourth quarter and 1.13 times for the year.
As a result of this performance, we are pleased to announce a $0.0125 increase in our quarterly distribution to $1.2375 per diluted unit, which is a 4.2% increase over the fourth quarter of 2015. Based on our outlook for 2017, we will continue to focus on our balance sheet while growing cash flow, and to that end we expect to grow our quarterly distribution by $0.0125 throughout 2017.
I would like to take a minute to recognize our Buckeye Texas Partners’ asset team for a commendable safety milestone. You will recall that we have been running our two condensate splitters for just over a year. Our Global Marine processing team was able to complete the first full year of operations with zero recordable injuries.
And although I am singling out this team, I believe their safety record is representative of the emphasis all of our teams place on safe operations every day across Buckeye.
Now, I’d like to share some highlights of our 2016 performance, which turned out to be an exceptional year both financially and operationally. In addition to improving Buckeye’s position as a global enterprise, we had record financial performance across all three of our business segments. We surpassed $1 billion of EBITDA for the first time in our 130-year history, reporting a record $1.03 billion of adjusted EBITDA for 2016.
This represents an increase of $160 million or 18% over the prior year. All of our segments contributed to this growth. Domestic pipes and terminals has grown consistently through the contribution from numerous capital projects. Year after year, our commercial and operating teams have found opportunities to invest capital, frequently in projects of less than $25 million, to drive meaningful cash flow growth.
In addition, pipeline and terminal throughput revenues have grown through tariff increases, favorable long-haul versus short-haul tariff mix and growing terminal throughput volumes. We also saw favorable contributions from increased storage, as approximately 2.5 million barrels were brought back into storage service in 2016.
These 2016 improvements were largely offset by the impact of reduced butane blending and settlement revenues as a result of the decline in commodity prices over the past 18 months. Turning to Global Marine Terminals, we benefited from strong storage demand driving higher utilization and storage rates as well as new capital projects that brought additional capacity back into service.
In addition, Global Marine completed the build out of our South Texas hub, driving significant year-over-year improvements. Todd will talk more about Global Marine’s business in a moment.
Buckeye Merchant Services had a record year benefiting from disciplined inventory management as well as favorable business conditions. BMS also contributed a record level of revenues to the Buckeye umbrella, as it fulfilled its mission to drive higher utilization of our pipeline and terminal assets.
The 2016 results for Buckeye demonstrate the benefits of our growing geographic reach, new logistics services and a more diversified product slate. This increased diversity positions Buckeye to deliver strong results in any commodity cycle.
Next, I would like to provide an update of our portfolio of potential capital projects. Six months ago, I referenced that Buckeye had a portfolio of over $2 billion of potential projects that our teams were evaluating. We were successful at a number of these opportunities, investing almost $1.5 billion since the beginning of 2016.
And importantly, moving forward we continue to have a substantial opportunity set of approximately $2 billion of potential future projects under assessment. These projects include both growth capital and acquisitions. Our largest capital investment in 2016 was a $1.15 billion acquisition of a 50% equity interest in VTTI that we closed in January 2017. We expect this transition to be accretive in 2017, with increasing accretion in the coming years as the VTTI platform continues its growth.
Another successful investment for Buckeye was the completion of Phase 1 of the Michigan-Ohio pipeline expansion project. Refined product deliveries on the expansion began in the fourth quarter, although - excuse me - although the cash flow contribution was minimal. This expansion was supported by 10-year transportation agreements. And we expect volumes to continue to ramp up in early 2017 with the plan for full run rate being achieved during the second quarter.
This $100 million expansion project provides incremental capacity for our customers to move refined products from advantaged Midwestern refineries eastward to the Pittsburgh and Western Pennsylvania markets. During the fourth quarter, we also announced the completion of a successful open season for the second phase of our Michigan-Ohio pipeline expansion. This $200 million project is also supported by 10-year transportation agreements. It is expected to expand Buckeye’s ability to move competitively priced refined products from Midwestern refineries to Pittsburgh, and as far as Altoona, which is located 100 miles east of Pittsburgh.
This will require the partial reversal of our existing Laurel pipeline system. We are proceeding with engineering and have initiated the regulatory approval and permitting process. We expect to have our Phase 2 project online to meet demand in late 2018.
The annual EBITDA contribution from both phases of our expansions should fall within a normal range for our internal growth capital project. Looking forward to 2017, we expect to see significant year-over-year financial improvement based on the strength of our existing businesses, combined with our growth capital investment opportunity.
Our investment in VTTI along with the first phase of our Michigan-Ohio project will drive significant incremental EBITDA contribution in 2017. We will also benefit from tariff increases primarily on our pipeline systems, for which we’re able to charge market rate, as well as from anticipated longer haul movements resulting from our capital investment.
In addition, we expect improved financial performance from the work our teams are doing to optimize our performance at our South Texas hub. Offsetting some of this growth, we will not have contributions from the Albany crude-by-rail contract going forward, since this service agreement was canceled early as the result of a buyout by our customer in the third quarter of 2016.
And now, I’ll turn the call over to Khalid for a deeper dive into our Global Marine segment.
Thank you, Clark, and good morning, everyone. My remarks will focus first on our successful year, then I’ll spend a few minutes talking about the fourth quarter results and I will close with an update on our VTTI acquisition.
Before I begin, I’d like to reflect briefly on the tremendous growth of our Global Marine Terminals business. We entered into this space towards the latter part of 2010 with the initial purchase of our terminal in Puerto Rico. Since then, we’ve established market leading positions comprised world class assets offering over 62 million barrels of petroleum storage and handling capabilities across three critical hub locations in the Caribbean, New York Harbor and U.S. Gulf Coast.
By year-end 2016, Global Marine Terminals adjusted EBITDA has grown at a compounded annual growth rate in excess of 30% since inception and contributed a record $427.2 million of adjusted EBITDA compared to $323.8 million during the prior year.
Now turning the fourth quarter results for Global Marine Terminals, the fourth quarter was a continuation of a strong year, with the segment contributing adjusted EBITDA of $101.5 million compared to $90.1 million during the fourth quarter of 2015. This growth was driven by the increased contribution from our South Texas assets as well as continued high utilization and storage rate across our New York Harbor and Caribbean locations.
I’d like to take a moment to address a couple of items that impacted our fourth quarter results, particularly when compared to our third quarter contribution. We previously addressed the hurricane that impacted our Bahamas hub facility in October. We are extremely grateful that this storm caused no injuries to our employees or their families, and that our facilities were not materially damaged.
I’d like to commend our employees for their tireless efforts that allowed us to resume operations within a relatively short period post-hurricane landfall. In addition to these direct costs from the storm, we were also impacted by lost revenue opportunities, such as reduced berthing and other ancillary revenues as a result of the period of time that the facility was shut in from prior to hurricane landfall until initial recovery efforts were completed.
Finally, while we’ve completed the vast majority of our repair efforts in the fourth quarter, we do expect to incur additional operating costs and maintenance capital expenditures through the first half of 2017. We do not expect these additional repair costs to be material nor the affected assets to materially impact operational performance. While our fourth-quarter results at our South Texas facilities benefited year-over-year from the completion of the build out in early 2016, we did encounter certain operational and maintenance challenges that constrained our condensate splitter’s average daily processing rate during the quarter.
As a result we did incur slightly lower revenues and higher operating expenditures for the quarter. We have completed various modifications to enhance our ability to process expanding slates of crude, and I’m pleased to report that processing rates have largely resumed to normal levels in 2017. While we expect to experience a modest curtailment in our throughput for short periods to complete previously identified facility modifications or planned outages for follow-on maintenance activities, we do not anticipate the financial impact of any such curtailments to be material in nature.
More importantly, we continue to leverage the capabilities of the platform position and are working with our partner on a number of new growth projects to provide for a market distribution header system, and an alternative export outlet for increasing production of crude oil and natural gas liquids from the Permian and the Eagle Ford basins. We hope to have more to report on these developments on future calls.
Continuing to look forward, we are advancing on a number of infrastructure projects and enhanced service offerings to meet market demand across the balance of our asset base. These enhancements have contributed to the strong performance and consistently high utilization of our storage assets. Starting with our New York Harbor position, we expect to bring online an additional 640,000 barrels of capacity at our Port Reading facility by the end of the first quarter.
We also have a suite of infrastructure projects underway designed to improve our handling and transfer capabilities across our New York Harbor terminal and pipeline assets. These infrastructure projects will further integrate connectivity amongst our New York Harbor locations and provide our customer base with best-in-class transfer and handling capabilities to maximize capture of arbitrage opportunities and realization of incremental value.
Further, we are moving forward with several infrastructure projects in the Caribbean to provide additional handling of blending services for jet fuel, specialty crude oils and LPG. These projects are expected to come in service towards the latter part of this year and provide incremental handling services to our growing customer base. While we anticipate continued tightening of the supply demand balances to have an impact on the shape of the forward curve and market structure.
We believe our market position and continually improving asset capabilities positions us well to serve our customers as supply and demand patterns evolve and market structure changes.
Turning to our investment in VTTI, with the closing of our acquisition we have now further geographically expanded our portfolio and market position with shared control of an international platform comprising in excess of 56 million barrels in key hub and market locations.
Looking forward our growing platform significantly enhances our opportunity set and is poised to play an important role in supporting Buckeye’s future growth. To that effect I’m happy to report on two new growth platforms realized since the closing of our investment.
First, VTTI acquired a 75% interest in a 1.4 million barrel facility strategically located on the Pacific side of Panama, which is positioned to serve the growing demand for petroleum products within the country as well as other regional demand centers in Latin and South America.
The second completed acquisition is comprised of a 70% interest in a newly built terminal in Ploce, Croatia with approximately 300,000 barrels of refined product storage in place and a planned phased expansion for an additional 1.9 million barrels of refined product and LPG storage to capture demand growth in the Adriatic region.
In addition to these acquisitions VTTI has several organic growth projects underway including the construction of a new 800,000 barrel refined products Marine Terminal in Cape Town, South Africa that is anticipated to come online in the second quarter of 2017, as well as an expansion of the Rotterdam and Antwerp facilities providing an incremental 1.3 million barrels of petroleum product and LPG capacity.
Again, we are delighted with the trajectory and future prospects for our growing business platform and its increasing contributions for the growth of Buckeye’s distributable cash flow.
I will now turn the call over to Keith.
Thanks, Khalid, and good morning, everyone. I would like to now provide some further details on our fourth quarter financial results. This morning we reported income from continuing operations of $108.9 million for the fourth quarter of 2016 compared with $135.1 million for the fourth quarter of 2015. This decrease was primarily driven by the $16.8 million impact from Hurricane Matthew incurred in the fourth quarter as well as $7.7 million of acquisition and transition expenses related to our investment in VTTI.
Income from continuing operations attributable to Buckeye unitholders was $0.78 per diluted unit for the fourth quarter of 2016 compared to $1.03 for the prior year quarter. Earnings per unit were also impacted by the expenses related to Hurricane Matthew and the VTTI transaction, including additional units that were issued to pre-fund the deal.
The diluted weighted average number of units outstanding during the quarter was $138.4 million compared with $129.7 million last year. As noted, this increase in the weighted average number of units outstanding is directly attributable to the units issued to fund the acquisition of our 50% equity interest in VTTI B.V.
On a consolidated basis we reported adjusted EBITDA of $255.1 million for the fourth quarter of 2016 compared to $244.5 million last year. As previously noted, adjusted EBITDA is our primary measure of financial performance. Next I will review in further detail adjusted EBITDA for each of our operating segments. For our Domestic Pipelines & Terminals segment, adjusted EBITDA was $145.2 million for the fourth quarter compared to $146.2 million last year.
The underlying business continued to deliver solid results for the quarter driven primarily by strong pipeline and terminal throughput revenues as well as the contribution from storage across our domestic system. Offsetting this strength was the impact of the termination of a crude by rail contract, which we announced last quarter as well as lower realized butane blending margins.
Our pipeline transportation revenues increased $4.9 million to $118.7 million in the fourth quarter 2016, from $113.8 million last year. This increase was driven by higher average tariffs during the quarter, as a result of tariff increases on our market-based pipes as well as longer haul movements on volumes delivered particularly into upstate New York.
Our deliveries to upstate New York benefited from our recently completed capital project to increase our throughput capacity from Philadelphia area refiners to markets in the upstate New York, providing Philadelphia shippers incremental access to these important markets.
Looking at our terminal business for the quarter, we saw terminal throughput volumes increase to 1.24 million barrels per day or approximately 4.3% in the fourth quarter of 2016, compared to 1.19 million barrels per day last year. This volume growth was broad-based as we experienced higher volumes at the Chicago complex, and our Northeast and Southeast terminals, largely as a result of our continued investment in growth capital projects and expanded service offerings across our portfolio of assets.
These positive results were partially offset by the loss of our Albany crude-by-rail contract and the compressed butane blending spreads, both adversely impacting fourth quarter results. Last year’s fourth quarter benefited from our ability to lock in more favorable butane to gasoline spreads than we realized in 2016 impacting earnings by approximately $6.5 million year-over-year.
Our Global Marine Terminals segment generated EBITDA of $101.5 million in the fourth quarter of 2016, compared to $90.1 million in 2015. This $11.4 million or $12.6% increase was the result of the contribution from our Buckeye Texas Partners joint venture and continued strength in demand for storage across all of our assets. Our storage revenues benefited from an incremental 2.5 million barrels of available capacity, brought back into service through capital investments in 2016.
Average utilization of available capacity, including this incremental capacity, was 99% for the quarter. Global Marine operating expenses; excluding hurricane, acquisition and transitional expenses along with depreciation and amortization; increased by $7.9 million over the same period last year. This increase is mainly attributable to our Buckeye Texas Partners facility. I think it is important to note that certain of these expenses related to addressing the operational issues encountered during the quarter, and should be reduced going forward.
Now turning to our Merchant Services segment, we reported adjusted EBITDA for the fourth quarter of 2016 of $8.5 million, compared to $8.2 million for the same period last year. This segment generated record results in two areas. First, adjusted EBITDA of $30.4 million for the year and also contributions to the Buckeye of $44.8 million during the same period. We continue to benefit from diligent and disciplined inventory management efforts with a focus on driving increased utilization across our Buckeye system.
Our distribution coverage ratio, based on distributions declared on units outstanding at the end of the year was 0.98 times and 109 for the year. As Clark mentioned, the pre-funding of the VTTI acquisition adversely impacted our coverage level from both the quarter and the year. Excluding the impact of this transaction our pro forma earnings - rather our pro forma coverage would have been 1.05 times for the quarter and 1.13 times for the year.
Now, looking at our balance sheet, we had $4.2 billion in long-term debt with $1.5 billion available on our revolving credit facility. We were active in the capital markets during the fourth quarter. We raised $581 million from the issuance of 8.9 million units. And we issued $600 million of long-term debt with a 3.95% coupon that matures in 2026. As mentioned, the proceeds from these offerings were used to fund our VTTI investment in January of 2017.
In the interim, we used the proceeds to fully pay down all borrowings on our revolver and held $640 million in cash and cash equivalents as of the end of the year. Our total debt to adjusted EBITDA at the end of the year was 4.1 times.
Looking forward, our next debt maturity is $125 million in the second half of 2017, which we would expect to fund by borrowings on our revolver. Our next significant maturity is $300 million in January of 2018.
During 2016, we sold approximately 1.6 million units under our At-The-Market equity issuance program raising proceeds of approximately $108.4 million. And we expect to utilize our ATM to meet our equity funding needs for growth CapEx in 2017.
Our distributable cash flow for the fourth quarter was $170.7 million, compared to $176.2 million last year. This decrease in distributable cash flow is directly related to increased maintenance capital spend in the fourth quarter of 2016. Maintenance capital spend was higher than typical in the fourth quarter, as we were able to take advantage of certain construction synergies, particularly related to tank maintenance combined with pulling forward roughly $3 million of spend from 2017.
Our quarterly cash distribution of $1.2375 per limited partner unit reflects an increase of $0.05 per unit or approximately 4.2% over the distribution declared for the year-ago quarter. We expect to maintain our quarterly distribution growth rate at $0.0125 per limited partner unit throughout the remainder of 2017.
Now, looking at capital spend. Maintenance capital for the fourth quarter of 2016, excluding the impact related to Hurricane Matthew, was $39.1 million compared to $27.5 million for the fourth quarter of 2015. Maintenance capital spending was $120.6 million for the entire year, compared to $99.6 million in 2015.
Return capital spending was $74.9 million for the quarter and $327.7 million for the full year. Looking forward to 2017, we anticipate maintenance capital spending to be in the range of $110 million to $130 million and return capital spend is expected to be between $280 million and $330 million.
In closing, we continue to deliver strong financial results with contributions across all our business segments. We believe the strength of our diversified portfolio of assets, combined with contributions from our capital investments including our recent investment in VTTI position us to deliver increased unitholder value both in 2017 and beyond.
That concludes my remarks. Now we will open the call for questions.
Ladies and gentlemen, the question-and-answer queue is now open. [Operator Instructions] We’ll be taking our first question from the line of Ross Payne from Wells Fargo. Your line is open.
Good morning, guys.
Good morning, Ross.
Hey, a quick question. Can you put a little - can you quantify the EBITDA impact of the rail situation in New York? And maybe not so much what it was for the quarter or maybe so, but what you expect that impact to be going forward as well?
Ross, when we’ve looked at - we’ve looked at this, and I think we mentioned this in our third-quarter call, on kind of an ongoing basis we would expect the EBITDA impact on annualized basis to be around $15 million.
Okay, all right. That’s quite reasonable. Second question, Keith, I’ve got total debt - I mean, I’ve got long-term debt. What is the total debt for yearend?
Yes, it’s $4.2 billion. Same [indiscernible] current, because we’ve had zero borrowed on our revolver and we were sitting, as we noted, with our $600 million in cash, because we pre-funded the VTTI deal.
Perfect, perfect, okay. And then, since you are getting more international in focus, how do you think about the tax implications of bringing that cash flow back to make distributions? What are the hurdles? How do you think - how should we think about it?
We don’t anticipate there to be any leakage on bringing those dollars back in the form of distribution. The only tax leakage that would be experienced would be at the local entity level where they may be subject to some local income taxes.
Okay, all right, great. And one other thing, this is a little bit forward thinking. But if there is a border adjustment tax, how do you guys think that may impact your business going forward? Thanks.
Yes, this is Khalid. I mean, I think a lot needs to take shape before anyone can really give you a precise answer on that. But I think with the work that we’ve done looking at our asset base in our business, I think in the long term it is probably a fairly marginal impact net-net on the business. But I will say that we are well positioned just given the asset flexibility that we have at our various locations.
Okay, all right. Great. That is it for me, guys, thanks.
Our next question comes from the line of Theresa Chen from Barclays. Your line is open.
Good morning. Clark, can you give us an update on your organic CapEx outlook? I appreciate the reminder that you have $2 billion of potential future projects and acquisitions under consideration. But just on the organic front, where should we see the next wave of growth? Should we expect a Phase 3 on the expansion in the - of your Michigan-Ohio system or where else across your assets are you looking to invest?
All right, I’ll take the organic growth capital. Theresa, the organic growth capital outlook, which is pretty consistent from year to year, we are looking at something between $280 million to $330 million. And that’s fairly consistent with what we have been spending in the past. Again, that is a subset of the total opportunity set that I mentioned in my comments. And then as far as Michigan-Ohio, I will have Bob Malecky talk about that.
Sure, Theresa, this is Bob Malecky. I think for 2017 we will be executing on the second phase of Broadway, I don’t think we are really in a position to announce any further reaches on that that will take all of 2017 to affect that that will be a fairly significant chunk of the capital spend, as well as the normal single and double projects that we have in the terminals across our systems from adding a little bit of ethanol rail pipe projects and connectivity projects that are germane to so many of our different terminals across our systems.
Yeah, we have a number of different capital investment projects that are currently underway or will be underway. Certainly Michigan-Ohio is the largest single - the single opportunity. Khalid mentioned also activities in New York harbor, we are improving connectivity. We are looking at some opportunities around our Chicago complex, we’ve got one of our Southeast terminals where we are going to embark on an expansion and improve our ethanol as well as butane blending capabilities. And we are also looking at butane capabilities in the Caribbean as well.
Yeah, and I think I would just like to add on that. I mean if you recall my remarks, we also have quite a bit of activity with our partner Trafigura around South Texas. And in fact, we are moving forward with a few initiatives there. One entails trying to enhance connectivity within the Corpus marketplace by connecting our facilities to the various long-haul pipelines and nearby refineries.
The other activity, and this is something that we hope to be able to report on, but we are working diligently on trying to provide more efficient solutions for both Permian and Eagle Ford production takeaway options, just given the capability that we have in Corpus for both storage and export. And we hope to be able to provide more color on that. But it is both for NGLs and for crude oil.
Great color. Thank you. On the VTTI front, it seems that the entity has wasted no time in continuing to roll up the international market. As far as thinking about the magnitude and pace of the consolidation, can you give us an idea of what your expectations are for that either in number of barrels you want to acquire per year or dollars? And any color around that would be great. Thank you.
Yes, this is Khalid. I don’t think there is necessarily a target that we are setting up as far as barrels that we want to acquire per year or that sort of thing. I think, like we stated, we see the opportunity set enhanced quite a bit by virtue of having controlled share of this platform. As you know, supply and demand imbalances and dislocations I should say between supply and demand are obviously well distributed around the globe. There is I think a need for infrastructure in many of these emerging markets or emerging sources of supply.
And to be able to partner with VTAL [ph] to be able to satisfy that market demand I think really positions us very, very well. So we like the space, the arena quite a bit. You can see just, like you mentioned, right out of the gates we announced a few new platforms and quite frankly we believe that the pipeline is quite robust. And I think more importantly, we see it being able to accomplish consolidation and growing this platform at very attractive investment multiples. So I think from that perspective we are delighted.
Yes, and Rob Abbott, Theresa, who is VTTI’s CFO, indicated on their call last week that they are anticipating somewhere between $200 million and $250 million in growth capital investments that may include - that’s acquisitions as well as organic opportunities.
Great, thank you. And lastly, Keith, on the OpEx line, the uptick that we saw this quarter from third quarter, obviously lots of factors going into that. But if I just boil it all down should we anticipate this similar level in the first half and then ratchet down the second half?
Well, one of the things that you saw in the OpEx line right, there was about $17 million related to Hurricane Matthew, alignment of that related to incremental expenses to get facilities back up and operational, humanitarian aid, et cetera, roughly $6 million related to basically the write-off of assets that were actually damaged. So that certainly shouldn’t be - we should not see a continuation of that. And from a G&A perspective, we had nearly $8 million of expenses related to the VTTI transaction that will not be recurring.
And then also a portion of what we saw in GMT, as we mentioned, we had an elevated level of expenses there related to addressing some of the operational issues that Khalid walked through and we would expect certainly some reduction in the level of spend there.
Thank you very much.
Thank you. Our next question comes from the line of Jeremy Tonet from JPMorgan. Your line is open.
Good morning, Jeremy.
Just want to follow-up real quick with the hurricane issues as far - the impact on the quarter. Did you guys quantify just the lost revenue opportunity, what that meant for the Marine Terminals in Buckeye Texas?
Yes, look, I mean we didn’t necessarily isolate the lost revenue. Like I mentioned in my remarks, it was - we obviously had to shut down that facility in advance of landfall the hurricane. And then clearly we had the facility shut down for about a week or so before we started resuming normal operating services. I think it’s a small number. I don’t know - it’s less than $5 million.
That’s helpful, thanks. And was just wondering if you could broadly speak to what you are seeing in the storage renewal side, both domestic and Marine Terminal?
This is Khalid again. I will talk about I guess domestic on New York Harbor and then also international and then Bob can comment on the balance. Like I mentioned, again, in the remarks, I mean, clearly you see just as a result of the recent decision by OPEC, the cut supply and the impact on that, on both commodity prices and just tightening the supply and demand balances.
I mean, yes, we have seen a narrowing of the market structure associated with crude oil. It does have some impact, although I will tell you that we have been very successful in re-contracting our capacity through the fourth quarter. We still see quite a bit of demand for our capacity. And I think it goes back to the point around just the asset capabilities and the fact that we have a pretty diversified customer base that includes structural participants that are looking to satisfy their needs and demands. So, I think looking forward we will be able to manage through that volatility, so to speak. But I will turn it over to Bob who can maybe comment on [Multiple Speakers].
I think from a domestic side I think we are seeing some continued strength in the market - in the reenergized storage market that we have with our facilities. And we are continuing to move forward at the pace that we’ve had here. Many of the contracts go through the balance of the year. So we are really not exposed to a lot of that right now either.
So would it be fair to say domestic could be up a little and Marine could be down a little? Is that how I should think about it?
I think domestic will continue marginally up, yes, is something we could probably look at.
I think on the global side, I mean our expectation is to be somewhat in line with where we are. We might have some periods of time where we’d like to try to optimize our portfolio as we try to determine whether or not we want to maybe do something on a short-term basis to collect the higher value. So there might be a little bit of volatility there, but I don’t foresee it as something material.
Great, thanks. And just turning to VTTI, next quarter is going to be the first quarter where it is flowing into the financials. And just wondering if you could refresh us with any updated thoughts on how that would be treated in EBITDA, and DCF, and actual cash movements between the entity?
Yeah, Jeremy, what we plan to do is to report our proportional piece of the EBITDA from VTTI as well as distributable cash flow. And then we also intend to disclose the actual distributions paid to Buckeye.
Great, thanks. And then just one last one if I could. A competitor of yours noted contract cancellation on one of their - on a splitter. And just wondering if you could provide any color as far as how your splitter and your customer relationships stand now. It seems like you guys are aligned there, but anything you could say would be helpful.
Yeah, Jeremy, this is Clark, and Khalid can jump in too. He obviously deals with Trafigura even more. But, yeah, we are aligned. We have a great relationship with Trafigura, they are a 20% owner in our South Texas hub and we have worked really well with them and continue to work well with them.
And Khalid mentioned we have some other growth capital projects we are looking at. We have good relationship with all of our partners. The VTAL [ph] relationship is going to be a terrific one and even going into the pipeline the partners we have in place and like Westshore. So those partner relationships are the things that drive the success of these ventures and we have a really good partnership with Trafigura.
Yes, I mean I echo those remarks by Clark. And again, I am not really familiar with the other arrangement that’s with our competitors. But I think if I just look at the position and the joint venture that we have with Trafigura in South Texas, it really goes above and beyond just the condensate splitter. When we think about the proprietary talks that we have there, this world-class LPG system that we have over 1 million plus barrels of refrigerated LPG storage. It is quite integral to their North American business. So I really see our position very, very different. And I am very encouraged about future growth prospects in that area and with Traf as well.
That’s all helpful. Thank you.
Thank you. [Operator Instructions] We will be taking our next question from the line of John Edwards from Credit Suisse. Your line is open.
Yeah, good morning, everybody. Thanks for taking my question. Just - I just wonder if you could elaborate a little bit more on your CapEx opportunity? I think in your - a previous question was asked I think you said there was around $300 million or so of organic. And in terms of what the rest of the things you are looking at. I mean, is it kind of acquisition opportunities, maybe what areas if you are thinking about - any additional color on that would be helpful.
Yes, this is Clark, John. It is a wide assortment of different investment opportunities. It is obviously primarily focused on petroleum product logistics. We are looking for opportunities that diversify our business. Some of it is acquisition, some of it is organic. We are looking at more geographic reach.
So I mean if you look at a map of our assets and then you throw in a new platform like VTTI for the international side you get a pretty good read on the type of deals we are looking at. As I mentioned earlier, the organic growth capital is in that $300 million range. And whether we will be successful in a number of these acquisitions remains to be seen, but there are plenty of opportunity for Buckeye out there.
Okay, that’s helpful. And then, I’m just curious on VTTI, I believe - with regard to the way their distribution outlook could be impacted. I believe they are going to start to be an income tax payer here in the not too distant future. And I’m just curious, this is a little different question than what I think Ross was asking about repatriating. But I’m just wondering how you are thinking about the tax situation of VTTI and how that is factoring into your outlook there?
Well, it is no different today than what we anticipated when we entered into this investment. We recognize that the way their legal entity structure is particularly in the entities that are within the publicly traded MLP, they are essentially organized effectively as C corp., so they are going to have the tax leakage in some of the jurisdictions where they operate. And we have modeled all of that in and when we talk about the accretion from the transaction, et cetera, that’s all factored in. So there is really nothing new here from that perspective, John. I mean it’s just part of the investment in this enterprise and the way that they are structured.
Now, entities that are at TopCo and at the VTTI B.V. are check-the-box entity, so their pass through and so there is no tax leakage there. It is the ones that are in the MLP, is where you see the tax leakage.
Okay, that’s - yeah, that is helpful. And just - and maybe you covered this earlier, but just to verify then. As far as the hurricane is concerned, your Global Marine sector was really not impacted by that. Did I hear that correctly?
It was, but what we did - basically there were three aspects that are related to the hurricane. One, I mean, direct operating expenses were about $11 million. And we adjusted that - added that back effectively to our adjusted EBITDA. There is another roughly $6 million that related to essentially [guys would offset that to] [ph] write-off of some assets. And then there were $6 million of maintenance capital that related to putting back into service the assets that were impacted. So we had those three items.
I mean, in the aggregate we would expect the total impact of the hurricane to be somewhere between $20 million, $30 million. We incurred, when you add all those up, roughly $23 million, I guess, in the fourth quarter, there will probably be some that will dribble into the first quarter as well, John.
Okay. That’s helpful. That’s it for me. Thank you.
Okay. Thank you.
Thank you. Our next question comes from the line of Lin Shen from HITE. Your line is open.
Hi, good morning. Thanks for taking the call.
I just want to clarify to follow up the question Jeremy asked about the Trafigura, your JV with them for South Texas. So what was the average utilization rate for your facility there for last quarter and also what is the utilization rate now?
Yes, I mean, look, we’re not disclosing on, I guess, a quarterly basis what our average utilization rates are. But, I mean, I can tell you that we operate at a very high utilization rate. We did have, I guess, some operational challenges in the quarter where the - as you know, I mean, it’s a new facility. We continue to look for ways that we have to optimize from the original design. And, of course, we’re working with our customer on trying to understand how we might be able to increase flexibility of the asset.
As we’ve walked through the fourth quarter period and processing maybe slightly different slates of crude, we did incur some higher operating expenses. And some issues that required us to take a short outage and obviously that further constrained some of our operating levels during that period. But I mean, look, I mean, this asset is a very high utilization asset. I think we berthed in excess of 750 ships last year. And I think that will continue through the balance of this year and beyond.
Great. So even they announced to cancel the contract with one other facility, you don’t think there is any change of your will for the long-term demand for the facility for their U.S. condensate splitter facilities?
Yes, again, I can’t comment on the other facility. I have no knowledge of the arrangement there. It’s really not germane to us. I mean, I think if I go back and talk about our asset, it’s integral to Trafigura’s North American business. We continue to see them looking for ways to further optimize the asset. So as far as we’re concerned, we do see an increase in value for the asset on a go-forward basis.
Great, thank you very much. I appreciate it.
I’m seeing no other questioners in the queue at this time. So I’d like to turn the call back over to Mr. Clark Smith for closing remarks.
All right, thank you, Andrew. Well, we’d like to conclude by confirming that 2017 is shaping up to be another strong year for Buckeye. Our diversification strategy continues to be a catalyst for growth regardless of the volatility in commodity prices. And we are particularly excited about our VTTI acquisition and the opportunities to expand our global services.
Thank you for your support and have a great day.
Ladies and gentlemen, thank you again for your participation in today’s conference. This now concludes the program. And you may now disconnect at this time. Everyone have a great day.
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