Form 8-K Blueknight Energy Partne For: May 10
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (date of earliest event reported): May 10, 2018
BLUEKNIGHT ENERGY PARTNERS, L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE | 001-33503 | 20-8536826 |
(State of incorporation or organization) | (Commission file number) | (I.R.S. employer identification number) |
201 NW 10th, Suite 200 Oklahoma City, Oklahoma | 73103 |
(Address of principal executive offices) | (Zip code) |
Registrant's telephone number, including area code: (405) 278-6400
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Item 2.02. Results of Operations and Financial Condition.
On May 10, 2018, Blueknight Energy Partners, L.P. (“BKEP”) issued a press release announcing its financial results for the three months ended March 31, 2018. A copy of the press release is furnished as Exhibit 99.1 to this Current Report and is incorporated herein in its entirety by reference. In accordance with General Instruction B.2 of Form 8-K, the information set forth herein and in the press release is deemed to be “furnished” and shall not be deemed to be “filed” for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Item 7.01. Regulation FD Disclosure
Also on May 10, 2018, BKEP, along with Kingfisher Midstream, LLC, a wholly owned subsidiary of Alta Mesa Resources, Inc. and affiliates of Ergon, Inc., announced the execution of definitive agreements to form Cimarron Express Pipeline, LLC. The venture will include the construction and operation of a new crude oil pipeline serving STACK producers in central Oklahoma with a new 65-mile, 16-inch crude oil pipeline extending from northeastern Kingfisher County, Oklahoma, to BKEP’s Cushing, Oklahoma, crude oil terminal. Under the terms of the agreements, BKEP will construct and operate the pipeline.
A copy of the press release is furnished as Exhibit 99.2 to this Current Report and is incorporated herein in its entirety by reference. In accordance with General Instruction B.2 of Form 8-K, the information set forth in this Item 7.01 shall be deemed to be furnished and shall not be deemed to be “filed” for purposes of the Securities Exchange Act of 1934, as amended.
Item 9.01. | Financial Statements and Exhibits. |
(d) Exhibits
In accordance with General Instruction B.2 of Form 8-K, the information set forth in the attached Exhibit 99.1 and Exhibit 99.2 are deemed to be “furnished” and shall not be deemed to be “filed” for purposes of the Exchange Act.
EXHIBIT NUMBER | DESCRIPTION | |
99.1 | — | |
99.2 | — | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
BLUEKNIGHT ENERGY PARTNERS, L.P. | |||
By: | Blueknight Energy Partners G.P., L.L.C | ||
its General Partner | |||
Date: | May 10, 2018 | By: | /s/ Alex G. Stallings |
Alex G. Stallings | |||
Chief Financial Officer and Secretary | |||
Exhibit 99.1
Blueknight Announces First Quarter 2018 Results and the Cimarron Express STACK Pipeline
OKLAHOMA CITY - May 10, 2018 - Blueknight Energy Partners, L.P. (“BKEP” or the “Partnership”) (NASDAQ: BKEP and BKEPP) today announced its financial results for the three months ended March 31, 2018.
Summary:
Results for the Quarter:
• | Net income of $4.4 million on total revenues of $44.7 million for the three months ended March 31, 2018, versus net income of $3.5 million on total revenues of $46.3 million for the same period in 2017. |
• | Operating income of $5.8 million for the three months ended March 31, 2018, as compared to operating income of $6.6 million for the same period in 2017. |
• | Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) of $16.5 million for the first quarter of 2018, versus $15.2 million for the same period in 2017. Adjusted EBITDA, including a reconciliation of such measure to net income, is explained in the section of this release entitled “Non-GAAP Financial Measures.” |
• | Distributable cash flow of $11.3 million for the three months ended March 31, 2018, as compared to $10.3 million for the three months ended March 31, 2017. Distributable cash flow, including a reconciliation of such measure to net income, is explained in the section of this release entitled “Non-GAAP Financial Measures.” |
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 months ended March 31, 2018, to be filed with the Securities and Exchange Commission on May 10, 2018.
Comments from BKEP CEO Mark Hurley:
“Our first quarter results were highlighted by another year-over-year increase in operating margin on our asphalt terminalling services segment. Operating margin, excluding depreciation and amortization increased 7.3% for the quarter ended March 31, 2018, as compared to the same period in 2017. The recently closed acquisitions of the Bainbridge, Georgia terminal from Ergon in December 2017 and the Muskogee, Oklahoma terminal in March 2018 helped drive the increase in operating margin. We remain optimistic for our asphalt business in 2018. In addition, both Adjusted EBITDA and distributable cash flow increased 8.6% and 9.0% year-over-year, respectively, furthered by $2.2 million of cash received from the final installment of the Advantage Pipeline investment sale.”
“Cushing crude oil inventory is currently 34% below its five-year average and 46% below last year’s inventory level, which created soft demand for storage and lower overall storage rates. While we remained close to fully contracted during the first quarter of 2018, we anticipate a relatively weak recontracting market in the near-term, which will impact the profitability of this segment.”
“Our crude oil pipeline business continued to be impacted by our out-of-service pipeline in Oklahoma, which limited our volumes. However, this pipeline is anticipated to resume service by the end of the second quarter, doubling our total pipeline transportation capacity. 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. Given the more favorable economics, we anticipate volumes to increase during the second half of 2018. Also, we saw a slight year-over-year increase in our trucking volumes. We expect a more significant uptick in our trucking volumes as we move through the second quarter and into the second half of the year once service is restored on our pipeline.”
“Our fully-diluted distribution coverage for the first quarter of 2018 was 0.89 times versus a coverage of 0.84 times for the same period in 2017. Our leverage for the first quarter of 2018 was 4.90 times, and we maintained our common unit distribution at $0.1450 for the quarter. Because of the current anticipated weakness in the Cushing crude oil storage market and potential impact on overall cash flows, we are considering options to enhance our financial flexibility and fund our operations and growth projects. These options include a potential sale of certain assets and an approximate 30% reduction in the cash distributions to be paid to the Partnership’s common unitholders. We believe these steps are prudent considering the extremely weak equity markets and relative disconnect in common unit yields. Once executed, this plan is expected to help significantly decrease leverage and enhance our financial flexibility and enable us to manage through the challenging Cushing storage environment.”
“This morning, Kingfisher Midstream, LLC (“Kingfisher Midstream”), a wholly-owned subsidiary of Alta Mesa Resources, Inc. (“Alta Mesa”), together with affiliates of Ergon, Inc. (“Ergon”) and BKEP announced the execution of definitive agreements to form Cimarron Express Pipeline, LLC (“Cimarron Express”). The venture will construct a new 16-inch diameter, 65-mile crude oil pipeline from northeastern Kingfisher County, Oklahoma to BKEP’s Cushing, Oklahoma crude oil terminal. Kingfisher Midstream and Ergon will each own 50% of Cimarron Express. Ergon, owner of the General Partner of BKEP, will hold its ownership in Cimarron Express through a newly created, wholly-owned subsidiary, ERGON - OKLAHOMA PIPELINE, LLC (“Devco”). Ergon and BKEP also entered into an agreement that gives each party rights concerning the purchase or sale of Devco, subject to certain terms and conditions. In addition, Alta Mesa executed a long-term acreage dedication and transportation agreement with Cimarron Express, which incorporates approximately 120,000 net acres in Kingfisher and Garfield counties. BKEP will manage the construction of the pipeline under a Construction Management Agreement and will also operate the pipeline on behalf of Cimarron Express. This is a project we have been working on for some time and we are pleased to be entering into it with Ergon and Alta Mesa. 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, we will focus on creating value for our unitholders by maintaining discipline as we execute our financial and operational plans to expand margins and increase utilization of our assets across our business segments.”
Results of Operations
The following table summarizes the financial results for the three months ended March 31, 2017 and 2018 (in thousands, except per unit data):
Three Months ended March 31, | ||||||||
2017 | 2018 | |||||||
(unaudited) | ||||||||
Service revenue: | ||||||||
Third-party revenue | $ | 28,663 | $ | 17,318 | ||||
Related-party revenue | 13,642 | 6,321 | ||||||
Lease revenue: | ||||||||
Third-party revenue | — | 9,804 | ||||||
Related-party revenue | — | 7,703 | ||||||
Product sales revenue: | ||||||||
Third-party revenue | 4,035 | 3,514 | ||||||
Total revenue | 46,340 | 44,660 | ||||||
Costs and expenses: | ||||||||
Operating expense | 31,906 | 31,135 | ||||||
Cost of product sales | 3,139 | 2,637 | ||||||
General and administrative expense | 4,585 | 4,221 | ||||||
Asset impairment expense | 28 | 616 | ||||||
Total costs and expenses | 39,658 | 38,609 | ||||||
Loss on sale of assets | (125 | ) | (236 | ) | ||||
Operating income | 6,557 | 5,815 | ||||||
Other income (expenses): | ||||||||
Equity earnings in unconsolidated affiliate | 61 | — | ||||||
Gain on sale of unconsolidated affiliate | — | 2,225 | ||||||
Interest expense (net of capitalized interest of $2 and $28, respectively) | (3,030 | ) | (3,569 | ) | ||||
Income before income taxes | 3,588 | 4,471 | ||||||
Provision for income taxes | 46 | 29 | ||||||
Net income | $ | 3,542 | $ | 4,442 | ||||
Allocation of net income for calculation of earnings per unit: | ||||||||
General partner interest in net income | $ | 209 | $ | 231 | ||||
Preferred interest in net income | $ | 6,279 | $ | 6,278 | ||||
Net loss available to limited partners | $ | (2,946 | ) | $ | (2,067 | ) | ||
Basic and diluted net loss per common unit | $ | (0.08 | ) | $ | (0.05 | ) | ||
Weighted average common units outstanding - basic and diluted | 38,146 | 40,289 | ||||||
The table below summarizes our financial results by operating segment margin for the three months ended March 31, 2017 and 2018 (in thousands):
Three Months ended March 31, | Favorable/ (Unfavorable) | |||||||||||||
Operating Results | 2017 | 2018 | $ | % | ||||||||||
Operating margin, excluding depreciation and amortization | ||||||||||||||
Asphalt terminalling services operating margin | $ | 14,236 | $ | 15,280 | 1,044 | 7 | % | |||||||
Crude oil terminalling operating margin | 5,114 | 3,325 | (1,789 | ) | (35 | )% | ||||||||
Crude oil pipeline services operating margin | 14 | (60 | ) | (74 | ) | (529 | )% | |||||||
Crude oil trucking and producer field services operating margin | (3 | ) | (290 | ) | (287 | ) | (9,567 | )% | ||||||
Total operating margin, excluding depreciation and amortization | $ | 19,361 | $ | 18,255 | (1,106 | ) | (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 and amortization, non-cash equity-based compensation, and asset impairment charges. Distributable cash flow is defined as Adjusted EBITDA, less cash paid for interest, maintenance capital expenditures, and cash paid for taxes. 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 March 31, | |||||||
2017 | 2018 | ||||||
Net income | $ | 3,542 | $ | 4,442 | |||
Interest expense | 3,030 | 3,569 | |||||
Income taxes | 46 | 29 | |||||
Depreciation and amortization | 8,066 | 7,367 | |||||
Non-cash equity-based compensation | 500 | 501 | |||||
Asset impairment expense | 28 | 616 | |||||
Adjusted EBITDA | $ | 15,212 | $ | 16,524 | |||
Cash paid for interest | (3,563 | ) | (3,673 | ) | |||
Cash paid for income taxes | — | — | |||||
Maintenance capital expenditures, net of reimbursable expenditures | (1,318 | ) | (1,593 | ) | |||
Distributable cash flow | $ | 10,331 | $ | 11,258 | |||
Distribution declared (1) | $ | 12,229 | $ | 12,652 | |||
Distribution coverage ratio | 0.84 | 0.89 | |||||
(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):
Three Months ended March 31, | Favorable/ (Unfavorable) | |||||||||||||
Operating Results | 2017 | 2018 | $ | % | ||||||||||
Total operating margin, excluding depreciation and amortization | $ | 19,361 | $ | 18,255 | (1,106 | ) | (6 | )% | ||||||
Depreciation and amortization | (8,066 | ) | (7,367 | ) | 699 | 9 | % | |||||||
General and administrative expense | (4,585 | ) | (4,221 | ) | 364 | 8 | % | |||||||
Asset impairment expense | (28 | ) | (616 | ) | (588 | ) | (2,100 | )% | ||||||
Loss on sale of assets | (125 | ) | (236 | ) | (111 | ) | (89 | )% | ||||||
Operating income | $ | 6,557 | $ | 5,815 | (742 | ) | (11 | )% | ||||||
Investor Conference Call
The Partnership will discuss first quarter 2018 results during a conference call on Thursday, May 10, 2018 at 1:00 p.m. CDT (2:00 p.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 facility, 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:
• | 10.4 million barrels of liquid asphalt storage located at 56 terminals in 26 states; |
• | 6.9 million barrels of above-ground crude oil storage capacity, approximately 6.6 million barrels of which are located at the Cushing Interchange terminalling facility in Cushing, Oklahoma; |
• | 655 miles of crude oil pipeline located primarily in Oklahoma; and |
• | 65 crude oil transportation 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.
Contact:
BKEP:
Investor Relations, (918) 237-4032
or
BKEP Media Contact:
Brent Gooden, (405) 715-3232 or (405) 818-1900
Exhibit 99.2
KINGFISHER MIDSTREAM, BLUEKNIGHT ENERGY PARTNERS, AND ERGON
ANNOUNCE THE CONSTRUCTION OF A NEW CRUDE OIL PIPELINE
FROM KINGFISHER COUNTY TO CUSHING, OKLAHOMA
OKLAHOMA CITY, May 10, 2018 - Kingfisher Midstream, LLC (“Kingfisher Midstream”), a wholly owned subsidiary of Alta Mesa Resources, Inc. (“Alta Mesa”; NASDAQ: AMR), Blueknight Energy Partners, L.P. (“BKEP”; NASDAQ: BKEP and BKEPP), and affiliates of Ergon, Inc. (“Ergon”; Private), today announced the execution of definitive agreements to form Cimarron Express Pipeline, LLC (“Cimarron Express”). The venture will include the construction and operation of a new crude oil pipeline serving STACK producers in central Oklahoma with a new 65-mile, 16-inch crude oil pipeline extending from northeastern Kingfisher County, Oklahoma, to BKEP’s Cushing, Oklahoma, crude oil terminal. 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.
The ownership of Cimarron Express will be 50% Kingfisher Midstream and 50% Ergon. Ergon, owner of the general partner of BKEP, will hold its ownership in Cimarron Express through a newly created, wholly owned subsidiary, ERGON - OKLAHOMA PIPELINE, LLC (“Devco”). Ergon and BKEP also entered into an agreement that gives each party rights concerning the purchase or sale of Devco, subject to certain terms and conditions.
Concurrent with the formation of Cimarron Express, Alta Mesa executed a long-term acreage dedication and transportation agreement with Cimarron Express, which incorporates approximately 120,000 net acres in Kingfisher and Garfield counties.
Under the terms of the agreement, BKEP will construct and operate the pipeline. Also, BKEP will continue to operate its existing crude oil storage facilities in Cushing, Oklahoma. The receipt terminal for the newly constructed Cimarron Express pipeline will be located at Kingfisher Midstream’s crude oil storage facility located in northeastern Kingfisher County. The pipeline will connect to Kingfisher Midstream’s crude oil gathering system and truck unloading facilities at the Kingfisher Midstream crude oil facility.
“We are excited to participate in this project which will provide direct market access to the Cushing Oil Terminal for STACK producers and afford them the opportunity to maximize the value of their crude oil production,” added Craig Collins, COO of Kingfisher Midstream. “We also see long-term value in this project for Kingfisher Midstream as we aggregate STACK oil volumes on our crude gathering system to deliver to Cimarron Express.”
“We are pleased to be participating in this important project with a leader in the development of the prolific STACK production area in Oklahoma,” commented Mark Hurley, CEO of BKEP. “This pipeline will create a direct connection to our storage assets at our Cushing Crude Oil Terminal, enabling Alta Mesa Resources and other STACK producers to efficiently and safely move their production to the market. The addition of this pipeline underscores our commitment to work with exploration and production companies to build the needed infrastructure to support their capital investments. We are also happy to be working with Ergon, the owner of our general partner, who is supporting this project through the Devco structure. It is another example of the strategic relationship we envisioned when Ergon purchased our general partner in 2016.”
“This venture continues Ergon’s support of BKEP and our 64-year history of operations in the crude oil and petroleum market,” commented Emmitte Haddox, Ergon CEO. “As BKEP’s general partner, we are excited about working with Alta Mesa Resources on this project that will create value not only for our companies, but for other STACK producers, customers, and the communities in which we operate.”
About Alta Mesa Resources, Inc., and Kingfisher Midstream, LLC
Alta Mesa Resources, Inc., is an independent energy company focused on the development and acquisition of unconventional oil and natural gas reserves in the Anadarko Basin in Oklahoma, and through Kingfisher Midstream, LLC, provides best-in-class midstream energy services, including crude oil and gas gathering, processing and marketing to producers in the STACK play. For more information, please visit http://altamesa.net/.
Alta Mesa Contact:
Lance L. Weaver
(281) 943-5597
About Blueknight Energy Partners, L.P.
BKEP owns and operates a diversified portfolio of complementary midstream energy assets consisting of:
• | 10.4 million barrels of liquid asphalt storage located at 56 terminals in 26 states; |
• | 6.9 million barrels of above-ground crude oil storage capacity, approximately 6.6 million barrels of which are located at the Cushing Interchange terminalling facility in Cushing, Oklahoma; |
• | 655 miles of crude oil pipeline located primarily in Oklahoma; and |
• | 65 crude oil transportation 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 BKEP’s web site at www.bkep.com.
BKEP Investor Relations:
918-237-4032; [email protected]
or
Media Contact:
Brent Gooden, 405-715-3232 or 405-818-1900
About Ergon
Ergon is a group of privately held companies that operate under six primary business segments: Refining & Marketing, Asphalt & Emulsions, Transportation & Terminaling, Oil & Gas, Real Estate and Corporate & Other. For more information, visit Ergon’s website at www.ergon.com.
Ergon Contact:
Kathy Potts
Director of Marketing Communications
Ergon, Inc.
601-933-3000
Safe Harbor Statement and Disclaimer
The information in this press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of present or historical fact included in this press release, regarding strategy, completion date, pipeline capacity, future operations, prospects, plans and objectives of management are forward-looking statements. When used in this press release, the words “could”, “should”, “will”, “may”, “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. These forward-looking statements are subject to risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. Except as otherwise required by applicable law, each company disclaims any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this press release.