Blueknight Energy Partners, L.P. (“BKEP” or the
“Partnership”) (Nasdaq: BKEP) (Nasdaq: BKEPP) today announced its
financial results for the three and twelve months ended December
31, 2017.
Summary:
Results for the Quarter:
- Net income of $0.4 million for the
three months ended December 31, 2017, as compared to $2.0 million
for the same period in 2016. Net income for the fourth quarter
ended December 31, 2017, was impacted by a $2.4 million asset
impairment charge related to the crude oil trucking and producer
field services business segment.
- Operating income of $3.6 million for
the three months ended December 31, 2017, as compared to $3.4
million for the same period in 2016.
- Adjusted earnings before interest,
taxes, depreciation and amortization (“Adjusted EBITDA”) of $14.1
million for the fourth quarter ended December 31, 2017, as compared
to $17.1 million for the same period in 2016.
- Distributable cash flow of $8.6 million
for the quarter ended December 31, 2017, as compared to $10.5
million for the same period in 2016. Adjusted EBITDA and
distributable cash flow, including a reconciliation of such
measures to net income, are explained in the section of this
release entitled “Non-GAAP Financial Measures.”
Results for the Year:
- Net income of $20.0 million for the
twelve months ended December 31, 2017, as compared to a net loss of
$4.8 million for the same period in 2016. Net income for the twelve
months ended December 31, 2017, was impacted by a $2.4 million
asset impairment charge related to the crude oil trucking and
producer field services business segment. Net income for the twelve
months ended December 31, 2016, was impacted by a $25.8 million
asset impairment charge primarily associated with the cancellation
of the Knight Warrior pipeline project.
- Operating income of $28.8 million for
the twelve months ended December 31, 2017, as compared to $6.5
million for the same period in 2016.
- Adjusted EBITDA of $70.1 million for
the twelve months ended December 31, 2017, as compared to $69.8
million for the same period in 2016.
- Distributable cash flow of $48.2
million for the twelve months ended December 31, 2017, as compared
to $46.6 million for the same period in 2016.
- Distribution coverage ratio for the
twelve months ended December 31, 2017, was approximately 1.0
times.
Additional information regarding the Partnership’s results of
operations will be provided in the Partnership’s Annual Report on
Form 10-K for the year ended December 31, 2017, to be filed with
the SEC on March 8, 2018.
Comments from BKEP CEO Mark
Hurley:
“Highlighting our 2017 results is the 14% operating margin
increase in our asphalt terminalling services segment. This
increase, while impacted during the year by wetter-than-normal
weather conditions, was achieved by solid throughput at our
facilities and the full-year results of the nine terminals we
acquired from Ergon in October 2016. Also, on December 1, 2017, we
completed the acquisition of the Bainbridge, Georgia, terminal,
which was the first drop-down from Ergon. The previously announced
Muskogee, Oklahoma, asphalt terminal acquisition, while anticipated
to close in 2017, closed earlier today after obtaining final
regulatory approval. We are very pleased about the addition of the
Muskogee facility to our terminal network as it will provide
meaningful cash flow to our asphalt segment.
“In the crude oil terminalling services segment, while our
Cushing terminal remained fully contracted throughout the year, a
flat forward curve negatively impacted our storage rates as we
renewed contracts during the year. As a result, terminalling
services revenues and operating margin narrowed as compared to the
prior year.
“Our crude oil pipeline business was impacted in 2017 by our
out-of-service pipeline in Oklahoma, which limited our volumes.
However, at year-end, I am pleased to report we secured an
alternative route for our pipeline and construction has started
with a return to service anticipated by the end of the second
quarter of 2018. Once complete, we will nearly double our Oklahoma
pipeline capacity and will be able to transport multiple grades of
crude oil from the active producing regions of Oklahoma to our
terminal in Cushing. The increased capacity comes at a time when
increases in crude oil prices have bolstered producer and marketer
confidence. Given the more favorable economics, we anticipate
volumes to move higher in 2018. We also see trucking volumes
increasing as we move into the first quarter of 2018. We expect
both our pipeline and truck transportation businesses to see
significant improvement in 2018, particularly in the second half of
the year after restoration of service on our Oklahoma pipeline.
“In 2017, we took the opportunity to sell two non-strategic
assets. We sold our 30% ownership in Advantage Pipeline and
recorded a cash gain on the sale of $5.3 million in 2017. In
January of 2018 we received a final payment of $2.2 million related
to the sale. We also sold the East Texas pipeline system, receiving
cash proceeds of approximately $4.8 million and recognizing a small
gain on the transaction.
“While 2017 presented challenges in our crude oil businesses, we
are optimistic for 2018. We intend to integrate our three crude oil
business segments during the year which should increase utilization
of our assets. The restoration of service on our Oklahoma pipeline
will allow our customers to transport multiple grades of crude oil
to Cushing, where they will be able to take advantage of our crude
terminalling service offerings. We also expect to expand our crude
oil marketing footprint to better utilize the capacity of our
systems. The integration of our trucking fleet with our overall
crude oil business in 2018 will also drive cost efficiencies. Over
the past couple of years, we right-sized our fleet to better serve
our Oklahoma pipeline assets and Kansas customers. As a result, we
have successfully secured additional Oklahoma business as crude oil
prices have improved. Some of this incremental Oklahoma business
has been in the SCOOP and STACK areas, which overlaps with the
pipeline we are putting back into service this year. We also
continue to work on a substantial pipeline project in the STACK,
and we expect both our trucking and storage businesses will benefit
from the completion of this project. We expect both transportation
businesses to return to positive cash flow in 2018.
“In addition to growth projects within the crude oil business
and the acquisition of the Muskogee terminal, we have opportunities
in front of us to acquire and/or construct additional product
terminals. These transactions fit both our size and return profile.
We anticipate capitalizing on one or more of these opportunities in
2018.
“Our fully-diluted distribution coverage ratio for 2017 and 2016
was 1.0 times. Our leverage ratio for the fourth quarter of 2017
was 4.6 times, and we maintained our common unit distribution at
$0.1450 for the quarter.
“As we move into 2018, we are anticipating earnings growth over
2017. Excluding any additional projects, we anticipate asphalt
operating margin in the $67.0 million to $70.0 million range in
2018, increasing from $64.6 million in 2017. We expect our crude
oil businesses to exit 2018 on an annual operating margin run-rate
of $18.0 million to $20.0 million, increasing to approximately
$22.0 million to $24.0 million in 2019 based on stabilization of
the crude oil storage market and increasing volumes on our Oklahoma
pipeline systems.”
Results of Operations
The following table summarizes the Partnership’s financial
results for the three and twelve months ended December 31, 2016 and
2017 (in thousands, except per unit data):
Three Monthsended December 31,
Twelve Monthsended December 31,
2016 2017
2016 2017 (unaudited)
Service revenue: Third-party revenue $ 29,505 $ 26,329 $ 126,215 $
113,772 Related-party revenue 11,606 15,077 30,211 56,688 Product
sales revenue: Third-party revenue 4,910 2,842
20,968 11,479 Total revenue
46,021 44,248 177,394
181,939 Costs and expenses: Operating expense 30,779
31,909 111,091 123,805 Cost of product sales 3,341 2,324 14,130
8,807 General and administrative expense 5,580 4,112 20,029 17,112
Asset impairment expense 2,916 2,355
25,761 2,400 Total costs and expenses
42,616 40,700 171,011
152,124 Gain (loss) on sale of assets 23
11 108 (975 ) Operating
income 3,428 3,559 6,491
28,840 Other income (expense): Equity earnings in
unconsolidated affiliate 397 — 1,483 61 Gain on sale of
unconsolidated affiliate — 53 — 5,337 Interest expense (net of
capitalized interest of $0, $11, $41 and $18, respectively)
(1,813 ) (3,232 ) (12,554 ) (14,027 ) Income
(loss) before income taxes 2,012 380
(4,580 ) 20,211 Provision for income taxes
(61 ) (19 ) (260 ) (166 ) Net income
(loss) $ 1,951 $ 361 $ (4,840 ) $ 20,045
Allocation of net income (loss) for calculation of earnings
per unit: General partner interest in net income $ 142 $ 167 $ 433
$ 944 Preferred interest in net income $ 8,766 $ 6,278 $ 25,824 $
25,115 Net loss available to limited partners $ (6,957 ) $ (6,084 )
$ (31,097 ) $ (6,014 ) Basic and diluted net loss per common
unit $ (0.18 ) $ (0.15 ) $ (0.87 ) $ (0.15 ) Weighted
average common units outstanding - basic and diluted 37,955 38,878
35,093 38,342
The table below summarizes the Partnership’s financial results
by segment operating margin, excluding depreciation and
amortization for the three and twelve months ended December 31,
2016 and 2017 (dollars in thousands):
Operating Results Three
Monthsended December 31, Twelve
Monthsended December 31,
Favorable/(Unfavorable) Three Months Twelve
Months (in thousands) 2016
2017 2016
2017 $ %
$ % Operating margin,
excluding depreciation and amortization Asphalt terminalling
services operating margin $ 15,050 $ 15,013 $ 56,769 $ 64,623 $ (37
) — % $ 7,854 14 % Crude oil terminalling services operating margin
4,741 3,961 20,048 17,977 (780 ) (16 )% (2,071 ) (10 )% Crude oil
pipeline services operating margin 453 (1,388 ) 4,347 (1,700 )
(1,841 ) (406 )% (6,047 ) (139 )% Crude oil trucking and producer
field services operating margin 29 (17 ) 1,829
(434 ) (46 ) (159 )% (2,263 ) (124 )% Total
operating margin, excluding depreciation and amortization $ 20,273
$ 17,569 $ 82,993 $ 80,466 $ (2,704 ) (13 )% $ (2,527
) (3 )%
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, asset impairment
charges and fees related to the Ergon transactions. Distributable
cash flow is defined as Adjusted EBITDA minus cash paid for
interest, maintenance capital expenditures, cash paid for taxes and
cash paid for fees related to the Ergon transactions. 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 total 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 total 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. Where
references are pro forma, forward-looking, preliminary or
prospective in nature, and not based on historical fact, the tables
do not provide a reconciliation. The Partnership could not provide
such reconciliation without undue hardship because such Adjusted
EBITDA, distributable cash flow and total operating margin,
excluding depreciation and amortization amounts are estimations,
approximations and/or ranges. In addition, it would be difficult
for the Partnership to present a detailed reconciliation on account
of many unknown variables for the items including depreciation,
non-cash equity-based compensation, income taxes, impairment
expense and gain or loss on sale of assets. For the same reason we
are unable to address the probable significance of the unavailable
information, which could be material to future results.
The following table presents a reconciliation of adjusted EBITDA
and distributable cash flow to net income (loss) for the periods
shown (in thousands, except ratios):
Three Monthsended December 31,
Twelve Monthsended December 31,
2016 2017
2016 2017 Net income
(loss) $ 1,951 $ 361 $ (4,840 ) $ 20,045 Interest expense 1,813
3,232 12,554 14,027 Income taxes 61 19 260 166 Depreciation and
amortization 8,372 7,554 30,820 31,139 Non-cash equity-based
compensation 1,578 547 3,417 2,280 Asset impairment expense 2,916
2,355 25,761 2,400 Fees related to the Ergon transactions
394 — 1,783 —
Adjusted EBITDA $ 17,085 $ 14,068 $ 69,755 $
70,057 Cash paid for interest (3,326 ) (3,573 ) (12,404 )
(13,732 ) Cash paid for income taxes (23 ) 14 (282 ) (158 )
Maintenance capital expenditures, net of reimbursable expenditures
(2,862 ) (1,860 ) (8,724 ) (7,936 ) Cash paid for fees related to
the Ergon transactions (394 ) — (1,783
) — Distributable cash flow $ 10,480 $ 8,649
$ 46,562 $ 48,231 Distributions
declared (1) $ 12,250 $ 12,586 $ 46,390 $ 49,499 Distribution
coverage ratio 0.9 0.7 1.0 1.0
(1) Inclusive of preferred and common unit declared cash
distributions. Distributions declared in the three- and
twelve-month periods ended December 31, 2016, exclude $2.4 million
of distributions paid to Vitol and Charlesbank in conjunction with
the Partnership’s repurchase of 13.3 million Series A Preferred
Units from Vitol and Charlesbank; these distributions were
reimbursed to the Partnership in the form of a capital contribution
from Ergon.
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
Monthsended December 31, Twelve
Monthsended December 31,
Favorable/(Unfavorable) Three Months Twelve
Months (in thousands) 2016
2017 2016
2017 $ %
$ % Total
operating margin, excluding depreciation and amortization $ 20,273
$ 17,569 $ 82,993 $ 80,466 $ (2,704 ) (13 )% $ (2,527 ) (3 )%
Depreciation and amortization (8,372 ) (7,554 ) (30,820 ) (31,139 )
818 10 % (319 ) (1 )% General and administrative expense (5,580 )
(4,112 ) (20,029 ) (17,112 ) 1,468 26 % 2,917 15 % Asset impairment
expense (2,916 ) (2,355 ) (25,761 ) (2,400 ) 561 19 % 23,361 91 %
Gain (loss) on sale of assets 23 11
108 (975 ) (12 ) (52 )% (1,083 )
(1,003 )% Operating income $ 3,428 $ 3,559 $ 6,491
$ 28,840 $ 131 4 % $ 22,349 344 %
Investor Conference Call
The Partnership will discuss fourth quarter and full year 2017
results during a conference call on Thursday, March 8, 2018, at
11:00 a.m. CST (12:00 p.m. EST). The conference call will be
accessible by telephone at 1-888-347-8968. International
participants will be able to connect to the conference by calling
1-412-902-4231.
Participants should dial in five to ten minutes prior to the
scheduled start time. An audio replay will be available through the
investors section of the Partnership’s website for 30 days.
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:
- 10.3 million barrels of liquid asphalt
storage located at 56 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;
- 655 miles of crude oil pipeline located
primarily in Oklahoma and Texas; and
- 150 crude oil transportation and
oilfield services vehicles deployed in Kansas, Oklahoma 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.
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BKEPInvestor Relations, 918-237-4032investor@bkep.comorMedia
Contact:Brent Gooden, 405-715-3232 or 405-818-1900
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