Blueknight Announces Third Quarter 2018 Results

Source Press Release
Company Blueknight Energy Partners, L.P. 
Tags Exploration, Upstream Activities, Capital Spending, Financial & Operating Data, Strategy - Corporate
Date October 31, 2018

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

Highlights:

  • Net income of $2.4 million on total revenues of $133.2 million for the three months ended September 30, 2018, as compared to net income of $9.8 million on total revenues of $47.5 million for the same period in 2017.
  • Operating income of $6.7 million for the three months ended September 30, 2018, as compared to operating income of $12.2 million for the same period in 2017.
  • Adjusted earnings before interest, taxes, depreciation, amortization (“Adjusted EBITDA”) of $14.5 million for the three months ended September 30, 2018, as compared to $21.6 million for the same period in 2017.
  • Distributable cash flow of $9.0 million for the three months ended September 30, 2018, as compared to $16.6 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.”
  • Net income, Adjusted EBITDA and distributable cash flow for the three and nine months ended September 30, 2017, and the nine months ended September 30, 2018, included gains of $1.1 million, $5.3 million and $2.2 million, respectively, related to the sale of our interest in the Advantage pipeline.
  • Distribution coverage ratio for the three months ended September 30, 2018, was 0.92.

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 nine months ended September 30, 2018, to be filed with the SEC on November 1, 2018.

Comments from BKEP CEO Mark Hurley:

“Our third quarter represented a period of transition for Blueknight highlighted by the closing of the sale of assets to the General Partner, the restart of the second Oklahoma crude line, and the rebound of the crude oil storage and transportation markets. These developments are positioning us to meet the objectives we outlined in July to improve cash flow, increase distribution coverage, and reduce debt as part of our long-term growth plan. As a result, we expect to see gains in these areas over the remainder of 2018 and throughout 2019.

“After adjusting for the sale of the three terminals, our results from the asphalt segment were in line with expectations for the third quarter. As is typically the case, the third quarter is expected to be the peak earning quarter of the year for this segment. Year-to-date operating margin was flat compared to 2017 even with the sale of the three facilities and the majority of our customers either met or exceeded volume expectations. These solid results occurred in spite of the fact weather impacted our East Coast volumes with hurricanes and generally wet conditions. A reduction in state-funded construction spending impacted the Colorado market but the state has already announced an increase for 2019. We expect both markets to rebound in 2019, and we anticipate revenue growth across the terminal network.

“We are encouraged by the trends in our crude oil segments. Consistent with previous guidance, the third quarter represented the low revenue point for our crude oil terminalling services segment. However, the market has rebounded significantly in the last several weeks. As predicted by several industry analysts, Cushing inventories have now increased by approximately 10 million barrels over the last six weeks and the forward curve has moved from a backwardated to a contango structure. The prevailing view is that inventories will continue to increase at Cushing and remain relatively high for the foreseeable future, which should increase demand for storage. As a result of the improved market conditions, we secured new customer agreements for approximately 2.6 million barrels of storage becoming effective over the next two months. We now have contracts in place for 4.4 million barrels of storage as of January 1, 2019and an agreement in principle with a counterparty for an additional 0.6 million barrels of storage that we expect to execute this month. This represents approximately 90% of our total storage capacity available for contracting. We continue to see increasing demand, and now anticipate being fully contracted in 2019.

“Our second Oklahoma crude pipeline resumed service in July as planned and volumes are increasing steadily. The expected expense and additional working capital required to put the line back in service is included in our third quarter results. I am pleased to report the reopened line has significantly increased our crude oil volumes. We expect our total November pipeline volumes to reach 38,000 barrels per day which is more than double our volumes at the end of the second quarter. For the first time in over a year, our crude oilpipeline services segment was cash flow positive in September. The continued robust drilling activity in Oklahoma bodes well for this segment of our business, and we are optimistic the momentum will carry forward into the fourth quarter and throughout 2019.

“The high level of drilling activity in Oklahoma has also led to an increased demand for crude oil trucking services, and volumes increased steadily this year. We are confident the tighter supply and increased demand for trucking services will lead to improved margins in the fourth quarter of this year and in 2019. We expect our crude oil trucking services segment to return to positive cash flow during this period.

“In summary, we are very encouraged by the trends in our crude oil services segments. We think improved results in terminalling, pipeline, and trucking services could add approximately $10 million of EBITDA to our business in 2019. Together with another solid year expected in our asphalt terminalling services segment, we are optimistic that we can achieve our goals to increase EBITDA to the mid-$60 million range, improve distribution coverage to over 1.0x, and reduce the leverage ratio to approximately 4.0x by the end of 2019. The Cimarron Express Pipeline project, in the meantime, continues to proceed well – on-time and on-budget – and we are seeing interest from a number of producers. With the improved financial conditions, we will be well-positioned to acquire this assetfrom our general partner with no additional equity fundraising.”

Results of Operations

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

         
    Three Months
ended 
September 30, 
  Nine Months
ended 
September 30, 
      2017        2018        2017        2018   
    (unaudited) 
Service revenue:                 
Third-party revenue    30,635      12,743      87,443      44,164   
Related-party revenue      14,464        5,396        41,611        17,780   
Lease revenue:                 
Third-party revenue      —        11,368        —        31,409   
Related-party revenue      —        5,406        —        20,584   
Product sales revenue:                 
Third-party revenue      2,375        97,763        8,637        146,892   
Related-party revenue      —        482        —        482   
Total revenue      47,474        133,158        137,691        261,311   
Costs and expenses:                 
Operating expense      29,380        27,174        91,896        87,297   
Cost of product sales from related party      —        44,106        —        67,853   
Cost of product sales      1,675        50,815        6,483        73,493   
General and administrative expense      4,093        4,322        13,000        13,029   
Asset impairment expense      —        15        45        631   
Total costs and expenses      35,148        126,432        111,424        242,303   
Gain (loss) on sale of assets      (107      (63      (986      300   
Operating income      12,219        6,663        25,281        19,308   
Other income (expense):                 
Equity earnings in unconsolidated affiliate      —        —        61        —   
Gain on sale of unconsolidated affiliate      1,112        —        5,284        2,225   
Interest expense      (3,500      (4,090      (10,795      (12,683 
Income before income taxes      9,831        2,573        19,831        8,850   
Provision for income taxes      60        165        147        215   
Net income    9,771      2,408      19,684      8,635   
                 
Allocation of net income for calculation of earnings per unit:                 
General partner interest in net income    312      39      777      298   
Preferred interest in net income    6,279      6,279      18,837      18,836   
Net income (loss) available to limited partners    3,180      (3,910    70      (10,499 
                 
Basic and diluted net income (loss) per common unit    0.08      (0.09    —      (0.25 
                 
Weighted average common units outstanding - basic and diluted      38,189        40,380        38,164        40,331   
                                 

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

Operating Results    Three Months ended
September 30, 
  Nine Months
ended 
September 30, 
  Favorable/(Unfavorable) 
      Three Months    Nine Months 
(in thousands)      2017        2018        2017        2018                       
Operating margin, excluding depreciation and amortization                                 
Asphalt terminalling services    20,546      17,625      49,609      49,621      (2,921    (14  )%    12      — 
Crude oil terminalling services      4,168        1,226        14,017        6,730        (2,942    (71  )%      (7,287    (52  )% 
Crude oil pipeline services      (387      (506      (309      (1,137      (119    (31  )%      (828    (268  )% 
Crude oil trucking services      (228      (116      (419      (601      112      49      (182    (43  )% 
Total operating margin, excluding depreciation and amortization    24,099      18,229      62,898      54,613      (5,870    (24  )%    (8,285    (13  )% 

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
ended 
September 30, 
  Nine Months
ended 
September 30, 
      2017        2018        2017        2018   
Net income    9,771      2,408      19,684      8,635   
Interest expense      3,500        4,090        10,795        12,683   
Income taxes      60        165        147        215   
Depreciation and amortization      7,680        7,166        23,586        21,945   
Non-cash equity-based compensation      607        684        1,734        1,819   
Asset impairment charge      —        15        45        631   
Fees related to asset sale transaction      —        —        —        555   
Adjusted EBITDA    21,618      14,528      55,991      46,483   
Cash paid for interest      (3,506      (4,011      (10,160      (12,158 
Cash paid for income taxes      —        (1      (171      (145 
Maintenance capital expenditures, net of reimbursable expenditures      (1,554      (1,536      (6,075      (5,371 
Fees related to asset sale transaction      —        —        —        (555 
Distributable cash flow    16,558      8,980      39,585      28,254   
                 
Distribution declared (1)    12,311      9,756      36,913      32,161   
Distribution coverage ratio      1.34        0.92        1.07        0.88   

     
(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 
September 30, 
  Nine Months
ended 
September 30, 
  Favorable/(Unfavorable) 
      Three Months    Nine Months 
(in thousands)      2017        2018        2017        2018                     
Total operating margin, excluding depreciation and amortization    24,099      18,229      62,898      54,613      (5,870    (24  )%    (8,285    (13  )% 
Depreciation and amortization      (7,680      (7,166      (23,586      (21,945      514        1,641     
General and administrative expense      (4,093      (4,322      (13,000      (13,029      (229    (6  )%    (29    — 
Asset impairment expense      —        (15      (45      (631      (15    N/A      (586    (1,302  )% 
Gain (loss) on sale of assets      (107      (63      (986      300        44      41    1,286      130 
Operating income    12,219      6,663      25,281      19,308      (5,556    (45  )%    (5,973    (24  )% 
                                   

Investor Conference Call

The Partnership will discuss third quarter 2018 results during a conference call on Thursday, November 1, 2018, 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.

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd