Blueknight Announces First Quarter 2019 Results

Highlights

  • Net income of $3.8 million, operating income of $8.0 million and
    Adjusted EBITDA of $16.2 million
  • Asphalt terminal services operating margin, excluding depreciation and
    amortization, of $13.5 million, benefiting from March 2018 asphalt
    acquisition and offset by July 2018 asset divestiture
  • Crude oil terminalling services storage capacity fully leased with
    operating margin, excluding depreciation and amortization, of $2.6
    million
  • Higher operating margins from crude oil pipeline services and crude
    oil trucking services driven primarily by higher throughput across
    system
  • Cash flow and balance sheet continue to strengthen with distribution
    coverage increasing to 1.23 times and leverage ratio decreasing to 4.6
    times
  • Key financial roles, Chief Financial Officer and Chief Accounting
    Officer, successfully filled with experienced finance and accounting
    professionals

OKLAHOMA CITY–(BUSINESS WIRE)–Blueknight Energy Partners, L.P. (“BKEP” or the “Partnership”) (Nasdaq:
BKEP) (Nasdaq: BKEPP) today announced its financial results for the
three months ended March 31, 2019. Net income was $3.8 million for the
first quarter of 2019, as compared to net income of $4.4 million for the
same period in 2018. First quarter 2019 net income was impacted by asset
impairment expenses of $0.3 million related to a flood at one of our
asphalt facilities as well as $0.8 million related to a change in
estimate of the push down impairment of Cimarron Express Pipeline, LLC.
Adjusted earnings before interest, taxes, depreciation and amortization
(“Adjusted EBITDA”) was $16.2 million for the three months ended March
31, 2019, as compared to $16.5 million for the same period in 2018. The
year-over-year decrease was due primarily to the July 2018 asset
divestiture of three asphalt facilities, which was partially offset by
strong operations across our business.

“Our strong performance during the quarter was driven by higher
throughput and margins, especially within our crude oil transportation
segments,” said Mark Hurley, Chief Executive Officer. “We continue to
execute on our strategy to improve our financial profile by completing
sales of non-core assets, enhancing the performance and efficiency of
our current assets, and generating and retaining more cash flow to pay
down debt. With distribution coverage increasing significantly to 1.23
times and leverage ratio falling to 4.6 times, we are confident in our
ability to achieve our targets of distribution coverage greater than 1.0
times and a leverage ratio between 4.0 times and 4.5 times for the year.

“As we make progress on our plans to deliver greater value over the
long-term for our unitholders, we are excited about the future. We are
entering warmer months, when demand is highest for our asphalt
terminalling services. Our Cushing crude oil storage position is fully
contracted for the remainder of 2019 and we are encouraged by our
discussions with current and potential future customers for longer-dated
contracts not dependent on a contango crude oil market. Importantly, we
also filled two senior leadership roles including a new Chief Accounting
Officer with an internal candidate well versed in our business and a new
Chief Financial Officer with strong relevant industry experience and a
successful track record of growing operations, both strategically and
organically, during his time at Andeavor,” added Hurley.

SEGMENT RESULTS

Asphalt Terminalling Services. Total operating margin, excluding
depreciation and amortization, decreased $1.8 million for the three
months ended March 31, 2019, as compared to the three months ended March
31, 2018. The asphalt facility acquired in March 2018 resulted in an
increase to operating margin of $0.6 million and was offset by a
decrease of $2.4 million due to the sale of three asphalt facilities in
July 2018.

Crude Oil Terminalling Services. Total operating margin,
excluding depreciation and amortization, decreased for the three months
ended March 31, 2019, compared to the same period in 2018 due to a
decrease in market rates for storage contracts. Average crude oil stored
per month increased over 70% versus the same period last year as there
was more crude oil blending and segregation opportunities than the same
period last year. As of May 3, 2019, approximately 5.8 million barrels
of crude oil storage were under service contracts.

Crude Oil Pipeline Services. Average pipeline throughput for the
first quarter of 2019 was 37,000 barrels per day, an increase of 61%
compared to the same period in 2018. Most of the increase in throughput
was attributed to restoring our second Oklahoma pipeline to full service
in July 2018, bringing total pipeline capacity to 50,000 barrels per
day, and allowing for higher throughput driven by our crude oil
marketing business. As a result, crude oil pipeline services operating
margin, excluding depreciation and amortization, for the first quarter
of 2019 was $1.9 million higher than the same period in the prior year.

Crude Oil Trucking Services. Average volumes increased 17% for
the three months ended March 31, 2019, as compared to the three months
ended March 31, 2018. Operating margin, excluding depreciation and
amortization, increased by $0.2 million in the first quarter 2019
compared to the same period last year. The increase in operating margin
was primarily driven by higher volumes captured from producers to
service our two Oklahoma pipelines and the sale of the producer field
services business.

BALANCE SHEET AND CASH FLOW

For the three months ended March 31, 2019, distributable cash flow was
$10.0 million, as compared to $11.3 million for the same period in 2018.
Based on the Partnership’s most recent distribution announcement,
distribution coverage was 1.23 times for the first quarter 2019 versus
0.89 times for the same period in 2018. Net capital expenditures for the
first quarter 2019 were $2.8 million, which included $2.0 million of net
maintenance capital. The Partnership ended the first quarter of 2019
with total debt of $252.6 million, which resulted in a leverage ratio of
4.6 times, and $1.2 million of cash.

CONFERENCE CALL

The Partnership will discuss first quarter 2019 results during a
conference call tomorrow, Thursday, May 9, 2019, at 10:00 a.m. CDT
(11:00 a.m. EDT). The conference call will be accessible by telephone at
1-855-327-6837. International participants will be able to access the
conference call at 1-631-891-4304. An audio replay will be available
through the Investors section of the Partnership’s website at http://investor.bkep.com
for 30 days.

Additional information regarding the Partnership’s results of operations
will be provided in the Partnership’s Quarterly Report on Form 10-Q for
the three months ended March 31, 2019, to be filed with the SEC on May
9, 2019.

Results of Operations

The following table summarizes the Partnership’s financial results for
the three months ended March 31, 2018 and 2019 (in thousands, except per
unit data):

BLUEKNIGHT ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
    Three Months ended
March 31,
2018     2019
(unaudited)
Service revenue:
Third-party revenue $ 17,318 $ 15,886
Related-party revenue 6,321 4,219
Lease revenue:
Third-party revenue 9,804 9,763
Related-party revenue 7,703 4,940
Product sales revenue:
Third-party revenue   3,514     58,924  
Total revenue   44,660     93,732  
Costs and expenses:
Operating expense 31,135 27,243
Cost of product sales 2,637 24,587
Cost of product sales from related party 30,774
General and administrative expense 4,221 3,693
Asset impairment expense   616     1,119  
Total costs and expenses   38,609     87,416  
Gain (loss) on sale of assets   (236 )   1,724  
Operating income   5,815     8,040  
Other income (expenses):
Gain on sale of unconsolidated affiliate 2,225
Interest expense   (3,569 )   (4,271 )
Income before income taxes   4,471     3,769  
Provision for income taxes   29     12  
Net income $ 4,442   $ 3,757  
 
Allocation of net income for calculation of earnings per unit:
General partner interest in net income $ 231 $ 105
Preferred interest in net income $ 6,278 $ 6,279
Net loss available to limited partners $ (2,067 ) $ (2,627 )
 
Basic and diluted net loss per common unit $ (0.05 ) $ (0.06 )
 
Weighted average common units outstanding – basic and diluted 40,289 40,678
 

The table below summarizes the Partnership’s financial results by
segment operating margin, excluding depreciation and amortization for
the three months ended March 31, 2018 and 2019 (dollars in thousands):

Operating Results    

Three Months ended
March 31,

      Favorable/(Unfavorable)
Three Months
(in thousands) 2018     2019 $     %
Operating margin, excluding depreciation and amortization
Asphalt terminalling services operating margin $ 15,280 $ 13,518 $ (1,762 ) (12 )%
Crude oil terminalling services operating margin 3,325 2,589 (736 ) (22 )%
Crude oil pipeline services operating margin (60 ) 1,813 1,873 3,122 %
Crude oil trucking and producer field services operating margin   (290 )   (58 )   232   80 %
Total operating margin, excluding depreciation and amortization $ 18,255   $ 17,862   $ (393 ) (2 )%
 

Non-GAAP Financial Measures

This press release contains the non-GAAP financial measures of Adjusted
EBITDA, distributable cash flow and total operating margin, excluding
depreciation and amortization. Adjusted EBITDA is defined as earnings
before interest, income taxes, depreciation and amortization, non-cash
equity-based compensation, and asset impairment charges. Distributable
cash flow is defined as Adjusted EBITDA minus cash paid for interest,
maintenance capital expenditures and cash paid for taxes. Operating
margin, excluding depreciation and amortization is defined as revenues
from related parties and external customers less operating expenses,
excluding depreciation and amortization. The use of Adjusted EBITDA,
distributable cash flow and operating margin, excluding depreciation and
amortization should not be considered as alternatives to GAAP measures
such as operating income, net income or cash flows from operating
activities. Adjusted EBITDA, distributable cash flow and operating
margin, excluding depreciation and amortization are presented because
the Partnership believes they provide additional information with
respect to its business activities and are used as supplemental
financial measures by management and external users of the Partnership’s
financial statements, such as investors, commercial banks and others to
assess, among other things, the Partnership’s operating performance and
return on capital as compared to those of other companies in the
midstream energy sector, without regard to financing or capital
structure. Reconciliations of these measures to their most directly
comparable GAAP measures are included in the following tables.

The following table presents a reconciliation of Adjusted EBITDA and
distributable cash flow to net income for the periods shown (in
thousands, except ratios):

   

Three Months ended
March 31,

2018     2019
Net income (loss) $ 4,442 $ 3,757
Interest expense 3,569 4,271
Income taxes 29 12
Depreciation and amortization 7,367 6,734
Non-cash equity-based compensation 501 309
Asset impairment expense   616     1,119  
Adjusted EBITDA $ 16,524   $ 16,202  
Cash paid for interest (3,673 ) (4,189 )
Cash paid for income taxes
Maintenance capital expenditures, net of reimbursable expenditures   (1,593 )   (2,050 )
Distributable cash flow $ 11,258   $ 9,963  
 
Distributions declared (1) $ 12,652 $ 8,080
Distribution coverage ratio 0.89 1.23
 

(1) Inclusive of preferred and common unit declared cash
distributions.

 

The following table presents a reconciliation of total operating margin,
excluding depreciation and amortization to operating income for the
periods shown (dollars in thousands):

Operating Results    

Three Months ended
March 31,

      Favorable/(Unfavorable)
Three Months
(in thousands)     2018     2019 $     %
Total operating margin, excluding depreciation and amortization $ 18,255 $ 17,862 $ (393 ) (2 )%
Depreciation and amortization (7,367 ) (6,734 ) 633 9 %
General and administrative expense (4,221 ) (3,693 ) 528 13 %
Asset impairment expense (616 ) (1,119 ) (503 ) (82 )%
Gain (loss) on sale of assets   (236 )   1,724     1,960   831 %
Operating income $ 5,815   $ 8,040   $ 2,225   38 %
 

Forward-Looking Statements

This release includes forward-looking statements. Statements included in
this release that are not historical facts (including, without
limitation, any statements about future financial and operating results,
guidance, projected or forecasted financial results, objectives, project
timing, expectations and intentions and other statements that are not
historical facts) are forward-looking statements. Such forward-looking
statements are subject to various risks and uncertainties. These risks
and uncertainties include, among other things, uncertainties relating to
the Partnership’s debt levels and restrictions in its credit agreement,
its exposure to the credit risk of our third-party customers, the
Partnership’s future cash flows and operations, future market
conditions, current and future governmental regulation, future taxation
and other factors discussed in the Partnership’s filings with the
Securities and Exchange Commission. If any of these risks or
uncertainties materializes, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those
expected. The Partnership undertakes no obligation to publicly update or
revise any forward-looking statement, whether as a result of new
information, future events or otherwise.

About Blueknight Energy Partners, L.P.

BKEP owns and operates a diversified portfolio of complementary
midstream energy assets consisting of:

  • 8.8 million barrels of liquid asphalt storage located at 53 terminals
    in 26 states;
  • 6.9 million barrels of above-ground crude oil terminalling facilities
    located primarily in Oklahoma, approximately 6.6 million barrels of
    which are located at the Cushing Interchange in Cushing, Oklahoma;
  • 646 miles of crude oil pipeline located primarily in Oklahoma and
    Texas; and
  • 60 crude oil transportation vehicles deployed in Oklahoma, Kansas and
    Texas.

BKEP provides integrated terminalling, gathering and transportation
services for companies engaged in the production, distribution and
marketing of liquid asphalt and crude oil. BKEP is headquartered in
Oklahoma City, Oklahoma. For more information, visit the Partnership’s
web site at www.bkep.com.

Contacts

BKEP Investor Relations, (918) 237-4032
investor@bkep.com
or
BKEP
Media Contact:
Brent Gooden, (405) 715-3232 or (405) 818-1900

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