Blueknight Announces Second Quarter 2018 Results

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 capital expenditures, 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				5	%				1,126				7	%
General and administrative expense				(4,322	)				(4,486	)				(8,907	)				(8,707	)				(164	)			(4	)%				200				2	%
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				5	%			$	(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 www.bkep.com
on Monday, August 6, 2018.

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:

• 8.8 million barrels of liquid asphalt storage located at 53 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
  Texas; 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20180801006016/en/

Source: Business Wire
(August 1, 2018 - 5:30 PM EDT)

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