Blueknight Energy Partners LP: Blueknight Announces Fourth Quarter and Full Year 2015 Results

Tickers: BKEP
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, 2015.

BKEP's adjusted earnings before interest, taxes, depreciation and amortization ('EBITDA') was $14.1 million for the fourth quarter of 2015, as compared to $18.2 million for the same period in 2014. Adjusted EBITDA was $70.1 million for the twelve months ended December 31, 2015, compared to $66.6 million for the same period in 2014, an increase of 5.3%. Adjusted EBITDA, including a reconciliation of such measure to net income, is explained in the section of this release entitled 'Non-GAAP Financial Measures.'

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BKEP's distributable cash flow was $9.3 million for the three months ended December 31, 2015, as compared to $14.4 million for the three months ended December 31, 2014. Distributable cash flow for the twelve months ended December 31, 2015, was a record $54.2 million versus $51.1 million for 2014, an increase of 6.1%. Fully diluted distribution coverage was 1.3 for 2015, as compared to 1.4 times for 2014. Adjusted EBITDA and distributable cash flow were impacted in both 2015 periods by a restructuring charge of $1.6 million associated with our exit from the West Texas trucking business. 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.'

The Partnership reported a net loss of $16.9 million on total revenues of $43.9 million for the three months ended December 31, 2015, versus net income of $8.8 million on total revenues of $46.0 million for the same period in 2014. BKEP recorded net income of $6.4 million on total revenues of $180.0 million for the twelve months ended December 31, 2015 compared to net income of $27.6 million on total revenues of $186.6 million for the same period in 2014. Net income for both 2015 periods was impacted by non-cash impairment charges of $22.0 million related to certain pipeline and trucking assets, as well as associated goodwill resulting from decreased production and market values.

BKEP previously announced a fourth quarter 2015 cash distribution of $0.1450 per common unit, which is equal to the previous quarter's distribution and a 6.2% increase over the fourth quarter 2014 distribution. The Partnership also announced a $0.17875 distribution per preferred unit. 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, 2015, to be filed with the Securities and Exchange Commission on March 9, 2016.

Comments from BKEP CEO Mark Hurley:

'We are pleased with our strong financial performance for the twelve months ended December 31, 2015, recognizing adjusted EBITDA of $70.1 million and posting record distributable cash flow of $54.2 million. As we consider our financial performance in 2015 and outlook for 2016 in a protracted low commodity price environment, we will continue to place a premium on financial discipline and operational efficiency, and work to both preserve and grow our fee based revenue across our diverse businesses. In doing so, we believe we can continue to successfully meet the challenges presented in today's market while also placing ourselves in a position to take advantage of opportunities when the market rebounds. Let me share additional highlights and observations:

  • The current crude oil and overall economic market is one of the most challenging in recent memory. Crude oil prices have plunged 70% since 2014, and the number of drilling rigs is down 57% year over year reflecting continued weakness as energy exploration and production companies dramatically cut their capital budgets. The uncertainty on the political and economic fronts are weighing on the market as well. These factors are all impacting midstream companies.
  • Our well-balanced business model has proven to be resilient in today's challenging market as illustrated by the strong performance of our asphalt terminalling services segment. This segment of our business increased operating margin 17% year over year on strong throughputs. A mid-year acquisition also bolstered revenue. Our crude oil terminalling and storage business reversed its declining operating margin trend from 2014 as storage rates strengthened and our core Oklahoma pipeline business was steady throughout 2015.
  • We successfully completed acquisitions. Consistent with our previously communicated strategy, we were able to complete two acquisitions in 2015 - the Cheyenne, Wyoming asphalt terminal in May and a small crude oil pipeline in November. In addition, we recently announced the acquisition of two more asphalt terminals in February of 2016 - one in Dumfries, Virginia and one in Wilmington, North Carolina. These acquisitions have collectively enhanced the overall quality of our asset portfolio as we further strengthen our fee-based business reducing our dependence on variable crude services businesses.
  • We aggressively managed costs and exited lower margin businesses. With the beginning of the decline in crude oil prices in late 2014, and the change in the slope of the crude oil market curve from backwardated (favors crude oil transportation) to contango (favors crude oil storage and terminalling), our transported volumes started declining. As crude oil prices continued their decline into 2015, and producers dramatically decreased drilling rig activity, particularly in the shale-play areas, crude oil trucking in West Texas became extremely competitive as under-utilized transportation equipment flooded into West Texas from more severely depressed production areas. This practice, coupled with increased pipeline transportation takeaway capacity negatively impacted margins as additional truck and pipeline transportation capacity competed for the same or less production volume. As a result, we reduced costs and made the difficult decision to exit the West Texas trucking business in the fourth quarter of 2015. We recorded a restructuring charge of $1.6 million, consisting of employee severance costs and the recognition of future lease payments on idle transport equipment. We continue to provide crude trucking transportation services in areas where we have a physical asset presence.'
'As we enter 2016, we remain optimistic that our overall base business will remain consistent even as we continue to face a volatile market. We enjoy strong, fee-based businesses with solid counterparties. Our balance sheet remains sound with debt to EBITDA leverage of less than 4.0 times. Our fully diluted unit distribution coverage for 2015 was 1.3 times. We remain focused on maintaining reasonable leverage and unit distribution coverage in excess of 1.0 times as we move through 2016. In 2015, we increased our common unit cash distribution 7.2% as compared to 2014. In 2016, we will take a prudent and conservative approach to our common unit cash distribution, evaluating market conditions on a quarter to quarter basis. We will continue to focus on growth and we will vigorously pursue acquisitions and complementary organic projects mindful of the opportunities the current environment may present to pursue attractive displaced assets. Let me also report, after concluding our open season on the Oklahoma condensate project, we are moving forward with expected completion during the second half of 2016. Lastly, we have an inherent competitive advantage over many of our competitors due to our diverse portfolio of assets, solid counterparties, more than 95% of our operating margins being fee-based, a conservative balance sheet with no significant 2016 required project capital and highly supportive General Partner sponsors.'

Results of Operations

The following table summarizes the financial results for the three and twelve months ended December 31, 2014 and 2015 (in thousands except per unit data):

Three Months
ended
December 31,

Twelve Months
ended
December 31,

2014 2015 2014 2015
(unaudited)
Service revenue:
Third party revenue $ 35,904 $ 36,054 $ 143,838 $ 140,926
Related party revenue 10,125 7,828 42,788 39,103
Total revenue 46,029 43,882 186,626 180,029
Expense:
Operating 31,974 33,760 134,245 131,205
General and administrative 4,373 4,589 17,498 18,976
Asset impairment expense - 21,996 - 21,996
Total expense 36,347 60,345 151,743 172,177
Gain (loss) on sale of assets 684 (340 ) 2,464 6,137
Operating income (loss) 10,366 (16,803 ) 37,347 13,989
Other income (expense):
Equity earnings in unconsolidated affiliate 407 594 883 3,932
Interest expense (net of capitalized interest of $47, $32, $291, and $184, respectively) (3,943 ) (625 ) (12,268 ) (11,202 )
Unrealized gains on investments held for sale