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, 2018.
Summary:
Results for the Quarter:
- Net loss of $50.7 million for the three
months ended December 31, 2018, as compared to net income of $0.4
million for the same period in 2017. Net loss for the fourth
quarter ended December 31, 2018, was impacted by impairment charges
of $40.7 million and $10.0 million related to the Partnership’s
Oklahoma pipeline system and the Cimarron Express pipeline project,
respectively. 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.
- Adjusted earnings before interest,
taxes, depreciation and amortization (“Adjusted EBITDA”) of $13.8
million for the fourth quarter ended December 31, 2018, as compared
to $14.1 million for the same period in 2017.
- Distributable cash flow of $6.5 million
for the quarter ended December 31, 2018, as compared to $8.6
million for the same period in 2017. 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 loss of $42.0 million for the
twelve months ended December 31, 2018, as compared to net income of
$20.0 million for the same period in 2017. Net income for the
twelve months ended December 31, 2018, was impacted by impairment
charges of $40.7 million and $10.0 million related to the
Partnership’s Oklahoma pipeline system and the Cimarron Express
pipeline project, respectively. 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.
- Adjusted EBITDA of $60.3 million for
the twelve months ended December 31, 2018, as compared to $70.1
million for the same period in 2017.
- Distributable cash flow of $34.8
million for the twelve months ended December 31, 2018, as compared
to $48.2 million for the same period in 2017.
- Distribution coverage ratio for the
twelve months ended December 31, 2018, was approximately 0.83
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, 2018, to be filed with
the SEC on March 12, 2019.
Comments from BKEP CEO Mark
Hurley:
“As noted above, our net loss in the fourth quarter was impacted
by impairment charges primarily related to our Oklahoma pipeline
system and the Cimarron Express pipeline project. Our fourth
quarter 2018 Adjusted EBITDA results were in line with the same
period last year although, for the full year, we were down
approximately $9.8 million. As we have discussed in previous
communications, most of this reduction is attributable to the Crude
Oil Terminalling Services segment, where a challenging market in
mid-2018 led to a significant reduction in revenue. Fortunately,
the market has rebounded well. The contango structure in the crude
oil forward price curve has returned and our Cushing terminal, as
of the first quarter 2019, is once again fully leased and should
remain so through the rest of the year. In addition, we are seeing
a high rate of throughput at our terminal, which is also positive
for revenues.
“Inventories at Cushing have been consistently increasing since
the fourth quarter of 2018 and now stand at 47.5 million barrels,
according to the Energy Information Administration, which is
approximately 20 million barrels higher than this time last year.
Industry analysts are forecasting a continuing inventory build
through the rest of 2019, which should support a strong storage
market.
“Our asphalt business had another solid quarter, although the
year did have some challenges with respect to the weather. Wet
conditions in the East affected volumes. We are anticipating a good
year in our Asphalt Terminalling Services segment in 2019. Our
terminals in Colorado, in particular, are expected to see an
increase in throughput volume. Also, we are pleased to announce our
Ergon lease and services contracts have been renewed for 5 years.
In addition, the acquisition of the Muskogee terminal, completed in
April of 2018, has been a very successful investment.
“These two segments, Crude Oil Terminalling Services and Asphalt
Terminalling Services, make up most of our earnings and are highly
contracted on a take-or-pay basis for the rest of the year. We
estimate 92% of our revenue for these two segments is contracted on
a take-or-pay basis.
“Following the start-up of our light crude oil pipeline in the
second half of 2018, our Crude Oil Pipeline Services segment is
expected to be cash-flow positive in the first quarter of 2019.
Volumes ramped up in the fourth quarter of 2018 and have continued
to increase in the first quarter of 2019. The two systems together
are expected to average approximately 40,000 barrels per day in
March. As was communicated on February 26, work has been halted on
the previously announced Cimarron Express pipeline due to project
economic considerations. As of December 31, 2018, Cimarron Express
had spent approximately $30.6 million on the pipeline project. Both
BKEP and Ergon, Inc. (“Ergon”) are currently evaluating the status
of the investment in Cimarron Express. To the extent Ergon
exercises its right to “put” its interest in the Cimarron Express
project to BKEP, BKEP would be responsible for 50% of the total
amount spent by the pipeline project plus interest at 9% per annum.
BKEP anticipates the principal cost of Ergon’s put could be reduced
by $4.0 million to $7.0 million upon the sale of the assets of the
Cimarron Express joint venture, for a total net cost to BKEP of
$8.0 million to $11.0 million plus interest.
“Our consolidated total leverage ratio finished the year at 5.09
to 1.00 at year-end, down from 5.39 to 1.00 at the end of the third
quarter, 2018. Reducing leverage is a key priority for the
Partnership over the course of 2019 and our plans call for a steady
decline in the leverage ratio over the next several quarters.
“Finally, a huge congratulations to our Crude Oil Trucking
Services organization. For the third year in a row, they have won
the Oklahoma Trucking Association’s top safety award for their
division. And in two out of the last three years, they have won the
Association’s Grand Champion Award covering all divisions.”
Results of Operations
The following table summarizes the Partnership’s financial
results for the three and twelve months ended December 31, 2017 and
2018 (in thousands, except per unit data):
Three MonthsendedDecember
31,
Twelve
MonthsendedDecember 31,
2017 2018 2017
2018 (unaudited) Service revenue: Third-party revenue $
26,329 $ 14,592 $ 113,772 $ 58,756 Related-party revenue 15,077
4,351 56,688 22,131 Lease revenue: Third-party revenue — 10,658 —
42,067 Related-party revenue — 5,377 — 25,961 Product sales
revenue: Third-party revenue 2,842 88,546 11,479 235,438
Related-party revenue — — —
482 Total revenue 44,248
123,524 181,939 384,835 Costs
and expenses: Operating expense 31,909 26,593 123,805 113,890 Cost
of product sales 2,324 53,283 8,807 126,776 Cost of product sales
from related party — 34,616 — 102,469 General and administrative
expense 4,112 2,966 17,112 15,995 Asset impairment expense
2,355 52,437 2,400 53,068
Total costs and expenses 40,700 169,895
152,124 412,198 Gain (loss) on
sale of assets 11 (151 ) (975 )
149 Operating income (loss) 3,559
(46,522 ) 28,840 (27,214 ) Other income
(expense): Equity earnings in unconsolidated affiliate — — 61 —
Gain on sale of unconsolidated affiliate 53 — 5,337 2,225 Interest
expense (3,232 ) (4,177 ) (14,027 )
(16,860 ) Income (loss) before income taxes 380
(50,699 ) 20,211 (41,849 ) Provision
for income taxes 19 (17 ) 166
198 Net income (loss) $ 361 $ (50,682 ) $
20,045 $ (42,047 ) Allocation of net income (loss)
for calculation of earnings per unit: General partner interest in
net income (loss) $ 167 $ (810 ) $ 944 $ (512 ) Preferred interest
in net income $ 6,278 $ 6,279 $ 25,115 $ 25,115 Net loss available
to limited partners $ (6,084 ) $ (56,151 ) $ (6,014 ) $ (66,650 )
Basic and diluted net loss per common unit $ (0.15 ) $ (1.36
) $ (0.15 ) $ (1.61 ) Weighted average common units
outstanding - basic and diluted 38,878 40,398 38,342 40,348
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,
2017 and 2018 (dollars in thousands):
Operating Results
Three MonthsendedDecember
31,
Twelve
MonthsendedDecember 31,
Favorable/(Unfavorable) Three Months
Twelve Months (in thousands) 2017
2018 2017 2018 $
% $ % Operating margin, excluding
depreciation and amortization Asphalt terminalling services
operating margin $ 15,013 $ 16,706 $ 64,623 $ 66,327 $ 1,693 11 % $
1,704 3 % Crude oil terminalling services operating margin 3,961
2,048 17,977 8,778 (1,913 ) (48 )% (9,199 ) (51 )% Crude oil
pipeline services operating margin (1,388 ) (2,467 ) (1,700 )
(3,604 ) (1,079 ) (78 )% (1,904 ) (112 )% Crude oil trucking and
producer field services operating margin (17 ) 159
(434 ) (442 ) 176 1,035 %
(8 ) (2 )% Total operating margin, excluding depreciation and
amortization $ 17,569 $ 16,446 $ 80,466 $
71,059 $ (1,123 ) (6 )% $ (9,407 ) (12 )%
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 asset sales transaction.
Distributable cash flow is defined as Adjusted EBITDA minus cash
paid for interest, maintenance capital expenditures, cash paid for
taxes and fees related to the asset sales transaction. 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 (loss) for the periods
shown (in thousands, except ratios):
Three MonthsendedDecember
31,
Twelve
MonthsendedDecember 31,
2017 2018 2017
2018 Net income (loss) $ 361 $ (50,682 ) $ 20,045 $ (42,047
) Interest expense 3,232 4,177 14,027 16,860 Income taxes 19 (17 )
166 198 Depreciation and amortization 7,554 7,414 31,139 29,359
Non-cash equity-based compensation 547 465 2,280 2,284 Asset
impairment expense 2,355 52,437 2,400 53,068 Fees related to asset
sale transaction — — —
555 Adjusted EBITDA $ 14,068 $ 13,794 $
70,057 $ 60,277 Cash paid for interest (3,573 )
(3,928 ) (13,732 ) (16,088 ) Cash paid for income taxes 14 12 (158
) (133 ) Maintenance capital expenditures, net of reimbursable
expenditures (1,860 ) (3,378 ) (7,936 ) (8,749 ) Fees related to
asset sale transaction — — —
(555 ) Distributable cash flow $ 8,649 $ 6,500
$ 48,231 $ 34,752
Distributions declared (1)
$ 12,586 $ 9,747 $ 49,499 $ 41,898 Distribution coverage ratio
0.69
x
0.67
x
0.97
x
0.83
x
(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
Monthsended December 31, Twelve
Monthsended December 31,
Favorable/(Unfavorable) Three Months Twelve
Months (in thousands) 2017 2018
2017 2018 $ % $
% Total operating margin, excluding depreciation and
amortization $ 17,569 $ 16,446 $ 80,466 $ 71,059 $ (1,123 ) (6 )% $
(9,407 ) (12 )% Depreciation and amortization (7,554 ) (7,414 )
(31,139 ) (29,359 ) 140 2 % 1,780 6 % General and administrative
expense (4,112 ) (2,966 ) (17,112 ) (15,995 ) 1,146 28 % 1,117 7 %
Asset impairment expense (2,355 ) (52,437 ) (2,400 ) (53,068 )
(50,082 ) (2,127 )% (50,668 ) (2,111 )% Gain (loss) on sale of
assets 11 (151 ) (975 ) 149
(162 ) (1,473 )% 1,124 115 % Operating
income $ 3,559 $ (46,522 ) $ 28,840 $ (27,214 ) $
(50,081 ) (1,407 )% $ (56,054 ) (194 )%
Investor Conference Call
The Partnership will discuss fourth quarter and full year 2018
results during a conference call on Tuesday, March 12, 2019, at
10:00 a.m. CDT (11:00 a.m. EDT). 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:
- 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.
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BKEP Investor Relations, (918) 237-4032investor@bkep.comorBKEP
Media Contact:Brent Gooden, (405) 715-3232 or (405) 818-1900
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