PBF Logistics (NYSE: PBFX), a midstream partnership formed by PBF Energy (NYSE: PBF), went public in May 2014 as the primary vehicle for expanding its sponsor’s base of logistics assets. PBF Energy owns 52.1% of PBFX, 100% of the general partner (GP) and the incentive distribution rights (IDRs).

PBFX supports crude oil logistics for three PBF Energy refineries and will own or lease, operate, develop and acquire crude oil and refined petroleum products terminals, pipelines, storage facilities and similar logistics assets. Thus, it is an MLP in the same vein as Phillips 66 Partners (NYSE: PSXP) and MPLX (NYSE: MPLX), with one major difference: PBFX is relatively inexpensive compared to those two MLPs, and offers a much higher yield.

PBFX went public with assets consisting of a 105,000 barrel per day (bpd) light crude oil rail unloading terminal at PBF’s Delaware City, Delaware refinery that also serves its Paulsboro,  New Jersey, refinery, and a crude oil truck unloading terminal at PBF’s refinery in Toledo, Ohio, that facilitates crude oil delivery operations for all three refineries.

The Delaware City Rail Terminal has since been expanded to an unloading capacity of 130,000 bpd, and the Delaware City West Rack and the Toledo Storage Facility have been dropped down from PBF Energy. These two dropdowns are projected to boost annualized EBITDA of the partnership by more than 70% relative to annualized Q3 2014 EBITDA.

The Delaware City West Rack is a 40,000 bpd heavy crude oil rail unloading facility located at PBF Energy’s Delaware City refinery, but it is also capable of unloading light crude oil. The facility was acquired for $150 million and is expected to contribute $15 million of EBITDA annually to the partnership. The transaction closed on Sept. 30.

The Toledo Storage Facility is co-located with PBF Energy’s Toledo refinery, and provides approximately 3.9 million barrels of combined feedstock and product storage capacity, including a propane storage and loading facility. The tank farm and propane loading activities are expected to contribute approximately $15 million of EBITDA annually, and are supported by a 10-year terminaling and throughput agreement. This facility was also acquired for $150 million and the transaction closed on Dec. 11.

The $30 million in EBITDA these two acquisitions are expected to add is a substantial number considering that annualized EBITDA for Q3 2014 was $42 million. Even though Q4 results only reflected a partial quarter of results from the Toledo Storage Facility, annualized EBITDA rose to $70.4 million. The partnership also announced distributable cash flow of $16.7 million for Q4, and declared a quarterly distribution of $0.33/unit — a 10% increase over the Q3 distribution.

On the conference call discussing the Q4 results, the CFO said assets currently generating another $100 million to $125 million of EBITDA for the parent are available to be dropped down. Among them are marine terminals on the East Coast, additional storage facilities at Delaware City and Paulsboro, refined products pipelines, a heavy crude terminal, and miscellaneous rail terminals, truck racks and liquefied petroleum gas (LPG) loading and unloading facilities. Given the expected ~$72 million of EBITDA in 2015 from existing assets, the drop-down of assets contributing an additional $100 million or more implies strong distribution growth ahead for PBFX.

Yet the valuation of PBFX is very attractive relative to aforementioned peers PSXP and MPLX. Based on expected EBITDA in 2015 of $72 million (before additional drop-downs), PBFX trades at an Enterprise Value (EV) to EBITDA ratio of ~16. By contrast, PSXP trades at a trailing EV/EBITDA ratio of 41, while MPLX has a trailing EV/EBITDA ratio of ~26. PSXP and MPLX sport annualized yields below 2%, while PBFX is offering a respectable 5.6%.

Despite the 10% distribution increase in Q4, the current 5.6% yield, and an impressive portfolio of assets still to be dropped down, PBFX is trading 15% below its May IPO price. Several of the MLPs that have been formed by dropping down refinery assets are expensive. PBFX appears to be a real value among its peers.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

Portfolio Update

Teekay Tankers Steams Ahead    

The rising tide of surplus crude is lifting many boats, but perhaps none more so than the operators of tanker fleets.

Recent Aggressive Portfolio recommendation Teekay Tankers (NYSE: TNK) handily topped analysts’ estimates in fourth-quarter results reported Feb. 19, with free cash flow of 35 cents a share, up from 12 cents a year ago.

The best is very likely still to come, because the strongest spot oil tanker rates in six years have risen even more so far during the first quarter, with Aframax vessels that account for 12 of 32 directly owned ships in TNK’s fleet now fetching spot rates of $30,000 a day, up 17% from the quarter just reported and 36% from the third quarter of 2014. TNK’s 10 Suezmaxes can now pursue spot rates of $39,000 a day, up from $26,600 in the quarter just reported.

Even at the fourth quarter’s average Aframax spot rate of $25,700 a day, the company generated a 24% free cash flow yield based on its current share price, even as it continued doling out a modest dividend yielding an annualized 2.1%.

TNK’s exposure to the strong and improving spot market is higher than it’s been in years at 85% of capacity in 2015, leaving plenty of room for additional upside as tankers hired out in the past at lower rates come off charter this year.

Management cited increasing demand for crude as a result of lower prices as the primary reason for the rising rates. It’s also helped that 30 Very Large Crude Carriers have been hired for potentially long-term offshore storage as traders try to take advantage of the crude contango, which has futures contracts for delivery in late 2015 and in 2016 trading well above those for nearby months. Tankers storing crude are tankers not competing for cargoes on shipping routes.

Also boosting oil tanker rates are increased shipments of crude from the Atlantic basin to distant Asia, while product tankers have benefited from strong Asian demand for naphtha and from the increased traffic serving several large new Middle East refineries.

The share price soared 42% between Dec. 24 and Jan. 12, then pulled back to its rising 50-day moving average. It was up 5% in afternoon trading Thursday on the earnings news. So long as oil stays cheap, the future for crude tankers looks bright. Buy TNK below the increased price target of $7.50.  

— Igor Greenwald