Blueknight Announces Second Quarter 2018 Results

Company Blueknight Energy Partners, L.P. 
Tags Capital Spending, Financial & Operating Data, Strategy - Corporate
Date August 01, 2018

Blueknight Energy Partners, L.P. (“BKEP” or the “Partnership”) (NASDAQ: BKEP) (NASDAQ: BKEPP) reported its financial results today for the three and six months ended June 30, 2018.  

Highlights:

  • Net income of $1.8 million on total revenues of $83.5 million for the three months ended June 30, 2018, as compared to net income of $6.4 million on total revenues of $43.9 million for the same period in 2017.
  • Operating income of $6.8 million for the three months ended June 30,2018, as compared to operating income of $6.5 million for the same period in 2017.
  • Adjusted earnings before interest, taxes, depreciation, amortization (“Adjusted EBITDA”) of $15.4 million for the three months ended June 30, 2018, as compared to $19.2 million for the same period in 2017.
  • Distributable cash flow of $8.0 million for the three months ended June 30, 2018, as compared to $12.7 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.”
  • Net income, Adjusted EBITDA and distributable cash flow for the three months ended June 30, 2017, included gains of $4.2 million related to the sale of our interest in the Advantage pipeline.
  • Distribution coverage ratio for the three months ended June 30, 2018, was 0.82.

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 and six months ended June 30, 2018, to be filed with the SEC on August 2, 2018.

Comments from BKEP CEO Mark Hurley:

“Our asphalt terminalling services segment recorded solid quarter-over-quarter growth, achieving a 13% increase in operating margin, excluding depreciation and amortization, for the three months ended June 30, 2018, versus the same period in 2017. The recently completed acquisition of the Bainbridge, Georgia terminal from Ergon in December 2017 and of the Muskogee, Oklahoma terminal in March 2018 helped drive the increase in operating margin.

“Total Cushing crude oil inventories are currently at their lowest levels since November 2014, 51% below the 5-year average and 58% below last year’s storage level, and the crude oil forward price curve continues to be backwardated. Given the weak storage market coincides with our re-contracting efforts, our year-over-year operating margin, excluding depreciation and amortization, decreased in this business segment. However, a recently signed, two-million-barrel storage contract effective November 1, 2018, and continuing through December 31, 2019, indicates signs of improvement.

“The July 1, 2018, restoration of service on our Eagle pipeline will add approximately 20,000 barrels per day to our overall Oklahoma pipeline capacity and enhances our ability to better utilize our overall pipeline systems. The pipeline will transport lighter crudes to Cushing that are dominant in the south-central part of Oklahoma, which includes the active SCOOP region. The increased capacity comes at a time when increases in crude oil prices have bolstered producer and marketer activity. We also continue to see increased volumes in our trucking services segment. Volumes are up quarter-over-quarter and year-over-year and we expect this trend to continue through the second half of the year.

“The following strategic initiatives were completed during the second quarter:

  • On April 24, 2018, we exited our West Texas producer field services business. This business was not a long-term strategic business for us.
  • On June 29, 2018, we announced the sale of three asphalt terminals located in Lubbock and Saginaw, Texas and Memphis, Tennessee to Ergon, our general partner, for $90.0 million in cash. Net proceeds from the sale, which closed on July 12, 2018, were used to reduce outstanding indebtedness under our credit agreement.
  • We amended our credit agreement to provide additional flexibility.
  • We announced a reduction in our common unit cash distribution from $0.145/common unit to $0.08/common unit, which will be payable on August 14, 2018.

“As a result of these steps, we decreased our leverage to 4.7 times at June 30, 2018, and positioned ourselves to better self-fund projects and to manage through a challenging crude oil storage market.

“We are also pleased to report that the previously announced Cimarron Express Pipeline (“Cimarron Express”), a new 16 inch-diameter, 65-mile crude oil pipeline from northeastern Kingfisher County, Oklahoma to BKEP’s Cushing, Oklahoma crude oil terminal, is progressing well, with land right-of-way acquisition underway. Ergon, Inc. and Kingfisher Midstream, a wholly-owned subsidiary of Alta Mesa Resources, each owns 50% of Cimarron Express. BKEP is managing the construction of the pipeline under a Construction Management Agreement and will also operate the pipeline on behalf of Cimarron Express. The pipeline will provide direct market access at Cushing for producers and will have an initial capacity of 90,000 barrels per day, expandable to over 175,000 barrels per day. The new pipeline is expected to be completed in mid-2019.

“As we move forward into what is typically our strongest quarter for the asphalt business segment, we believe we are doing so with a stronger balance sheet better positioned to support our business objectives. In addition, strengthening storage demand and our ability to increase utilization of our transportation assets will enable us to take advantage of an improved Oklahoma crude oil production environment.”

Results of Operations

The following table summarizes the financial results for the three and six months ended June 30, 2017 and 2018 (in thousands except per-unit data):

             
      Three Months      Six Months 
      ended      ended 
      June 30,      June 30, 
        2017          2018          2017          2018   
      (unaudited) 
Service revenue:                         
Third-party revenue      28,145        14,103        56,808        31,421   
Related-party revenue        13,505          6,063          27,147          12,384   
Lease revenue:                         
Third-party revenue        —          10,237          —          20,041   
Related-party revenue        —          7,475          —          15,178   
Product sales revenue:                         
Third-party revenue        2,227          45,615          6,262          49,129   
Total revenue        43,877          83,493          90,217          128,153   
Costs and expenses:                         
Operating expense        30,610          28,988          62,516          60,123   
Third-party cost of product sales        1,669          20,041          4,808          22,678   
Related-party cost of product sales        —          23,747          —          23,747   
General and administrative expense        4,322          4,486          8,907          8,707   
Asset impairment expense        17          —          45          616   
Total costs and expenses        36,618          77,262          76,276          115,871   
Gain (loss) on sale of assets        (754        599          (879        363   
Operating income        6,505          6,830          13,062          12,645   
Other income (expense):                         
Equity earnings in unconsolidated affiliate        —          —          61          —   
Gain on sale of unconsolidated affiliate        4,172          —          4,172          2,225   
Interest expense (net of capitalized interest of $3, $43, $5 and $72, respectively)        (4,265        (5,024        (7,295        (8,593 
Income before income taxes        6,412          1,806          10,000          6,277   
Provision for income taxes        41          21          87          50   
Net income      6,371        1,785        9,913        6,227   
                         
Allocation of net income for calculation of earnings per unit:                         
General partner interest in net income      256        28        465        259   
Preferred interest in net income      6,279        6,279        12,558        12,557   
Net loss available to limited partners      (164      (4,522      (3,110      (6,589 
                         
Basic and diluted net loss per common unit      —        (0.11      (0.08      (0.16 
                         
Weighted average common units outstanding - basic and diluted        38,155          40,324          38,151          40,306   
                                         
                                         

The table below summarizes our financial results by segment operating margin, excluding depreciation and amortization, for the three and six months ended June 30, 2017 and 2018 (in thousands):

                   
Operating Results      Three Months
ended
June 30, 
    Six Months
ended
June 30, 
    Favorable/(Unfavorable) 
            Three Months      Six Months 
(in thousands)        2017          2018          2017          2018                   
Operating margin, excluding depreciation and amortization                                                 
Asphalt services      14,829        16,718        29,064        31,996        1,889        13      2,932        10 
Crude oil terminalling services        4,734          2,179          9,848          5,505        (2,555      (54  )%      (4,343      (44  )% 
Crude oil pipeline services        62          (570        76          (632      (632      (1,019  )%      (708      (932  )% 
Crude oil trucking services        (188        (197        (190        (485      (9      (5  )%      (295      (155  )% 
Total operating margin, excluding depreciation and amortization      19,437        18,130        38,798        36,384        (1,307      (7  )%      (2,414      (6  )% 
                                                                         
                                                                         

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, amortization, non-cash equity-based compensation, asset impairment charges, and fees related to the asset sale transaction. Distributable cash flow is defined as Adjusted EBITDA, minus cash paid for interest, cash paid for income taxes, maintenance capitalexpenditures, and fees related to the asset sale 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 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.

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

             
      Three Months      Six Months 
      ended      ended 
      June 30,      June 30, 
        2017          2018          2017          2018   
Net income      6,371        1,785        9,913        6,227   
Interest expense        4,265          5,024          7,295          8,593   
Income taxes        41          21          87          50   
Depreciation and amortization        7,839          7,413          15,905          14,779   
Non-cash equity-based compensation        627          634          1,127          1,136   
Asset impairment charge        17          —          45          616   
Fees related to asset sale transaction        —          555          —          555   
Adjusted EBITDA      19,160        15,432        34,372        31,956   
Cash paid for interest        (3,092        (4,474        (6,654        (8,147 
Cash paid for income taxes        (171        (144        (171        (144 
Maintenance capital expenditures, net of reimbursable expenditures        (3,203        (2,243        (4,521        (3,835 
Fees related to asset sale transaction        —          (555        —          (555 
Distributable cash flow      12,694        8,016        23,026        19,275   
                         
Distribution declared (1)      12,303        9,756        24,602        22,408   
Distribution coverage ratio        1.03          0.82          0.94          0.86   
 
(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 (in thousands):

                   
Operating Results      Three Months
ended 
June 30, 
    Six Months
ended 
June 30, 
    Favorable/(Unfavorable) 
            Three Months      Six Months 
(in thousands)        2017          2018          2017          2018                           
Total operating margin, excluding depreciation and amortization      19,437        18,130        38,798        36,384          (1,307      (7  )%        (2,414      (6  )% 
Depreciation and amortization        (7,839        (7,413        (15,905        (14,779        426              1,126       
General and administrative expense        (4,322        (4,486        (8,907        (8,707        (164      (4  )%        200       
Asset impairment expense        (17        —          (45        (616        17        100        (571      (1,269  )% 
Gain (loss) on sale of assets        (754        599          (879        363          1,353        179        1,242        141 
Operating income      6,505        6,830        13,062        12,645        325            (417      (3  )% 
                                                                             
                                                                             

Investor Conference Call

The Partnership will discuss second quarter 2018 results during a conference call on Thursday, August 2, 2018, at 10:30 a.m. CDT (11:30 a.m. EDT). The conference call will be accessible by telephone at 1-855-327-6837. International participants will be able to connect to the conference by calling 1-631-891-4304.

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.

Investor Meetings and Materials

Mark Hurley, Chief Executive Officer and Alex Stallings, Chief Financial Officer, will be participating in investor meetings in New York, New York on August 6 - 7, 2018. The materials used during the meetings will be accessible in the Investors section of BKEP’s website at  on Monday, August 6, 2018.

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd