Blueknight Announces Fourth Quarter and Full Year 2018 Results

Source Press Release
Company Blueknight Energy Partners, L.P. 
Tags Strategy - Corporate, Financial & Operating Data
Date March 11, 2019

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 Months
ended
December 31, 
      Twelve Months
ended
December 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 Months
ended
December 31, 
    Twelve Months
ended
December 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     
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  )% 

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 Months
ended
December 31, 
      Twelve Months
ended
December 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        0.67          0.97        0.83 
                           
(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 
December 31, 
    Twelve Months
ended 
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          1,780     
General and administrative expense        (4,112      (2,966        (17,112      (15,995        1,146      28      1,117     
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.

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd