Buckeye Partners LP has put its faith and cash into condensate. Should you put your faith and cash into Buckeye?
David Aferiat, managing partner of Trade Ideas LLC, says yes. Wall Street says maybe. Standard & Poor’s Ratings Services (S&P) has its doubts.
Houston-based Buckeye agreed to pay $860 million to Trafigura AG for an 80% interest in a new company, Buckeye Texas Partners, which incorporates a marine terminal, a condensate splitter and an LPG storage complex in Corpus Christi, Texas, as well as three crude oil and condensate gathering facilities in the Eagle Ford Shale.
Aferiat, writing on TheStreet.com site, likes the company and the deal.
“The company’s strengths can be seen in multiple areas, such as its robust revenue growth, increase in stock price during the past year and notable return on equity,” Aferiat said. “We feel these strengths outweigh the fact that the company has had subpar growth in net income.”
Investors have been underwhelmed. Buckeye’s stock was up 10.9% for the year in early September. Not bad compared to indexes like the Dow Jones industrial average (up 3.2%), S&P 500 (up 8.4%) or NASDAQ (up 9.5%).
Lagging behind peers
Against its peers, though, Buckeye has lagged. Kayne Anderson’s $1.4 billion Midstream/Energy Fund advanced 23.9% during that time. Fidelity’s Select Natural Gas Portfolio was up 18.2%.
S&P cut its outlook on Buckeye’s BBB- credit rating to negative after the company announced the deal, citing its poor track record with mergers and acquisitions. Bloomberg Intelligence notes the cut could impact Buckeye’s $600 million bond offering, which the company is issuing to finance the purchase.
As well as sharing ownership of the new company with Trafigura, Buckeye has secured seven-to-10-year agreements for minimum volume throughput, storage and tolling with the $133 billion Swiss commodities giant. Buckeye plans to invest as much as $270 million into the platform in the next 18 months.
What’s a massive shale boom without a little risk?
Joseph Markman can be reached at jmarkman@hartenergy.com or 713-260-5208.
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