8-K

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): March 25, 2020

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)

6060 American Plaza, Suite 600

Tulsa, Oklahoma 74135

(Address of principal executive offices and zip code)

(918) 237-4000

(Registrant's telephone number, including area code)

(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. [ ]

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Units	BKEP	The Nasdaq Global Market
Series A Preferred Units	BKEPP	The Nasdaq Global Market

Item 2.02. Results of Operations and Financial Condition.

On March 25, 2020, Blueknight Energy Partners, L.P. issued a press release announcing its financial results for the year ended December 31, 2019. 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 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 is deemed to be “furnished” and shall not be deemed to be “filed” for purposes of the Exchange Act.

EXHIBIT NUMBER		DESCRIPTION
99.1	—	Press release, dated March 25, 2020.

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: March 25, 2020	By:	/s/ D. Andrew Woodward
		D. Andrew Woodward
		Chief Financial Officer

EX-99.1

Exhibit 99.1

Blueknight Provides 2020 Guidance and Fourth Quarter and Full Year 2019 Results

Highlights

• Fourth quarter net income of $4.3 million, operating income of $7.9 million, and Adjusted EBITDA of $16.0 million; full year net income of $18.4 million, operating income of $34.2 million, and Adjusted EBITDA of $63.6 million

• Exceeded 2019 financial targets with fourth quarter and full year distribution coverage of 1.36 times and 1.20 times, respectively, and leverage ratio of 4.05 times

• Balance sheet strengthened through strong business performance, cost efficiencies and disciplined capital management to position Partnership to settle Ergon put for $12.2 million on January 3, 2020

• Business and cash flow uniquely positioned and expected to be stable in 2020; guiding to Adjusted EBITDA in-line with 2019, distribution coverage of approximately 1.2 times or greater, and leverage ratio 4.0 to 4.25 times by year end

• Incremental revenue expected from increased demand for Cushing crude oil storage in 2020 and 2021 due to contango market fundamentals

• Long-term strategy focused on terminalling solutions for infrastructure and transportation end markets:

○	Differentiated and leading terminalling platform within Asphalt and Cushing Storage, representing 95% of total operating margin in 2019
○	Fully-contracted, take-or-pay revenue with weighted average remaining contract term of approximately five years as of March 23, 2020
○	High-quality counterparties, with over 50% of revenues attributed to investment-grade companies
○	Minimal direct commodity exposure and dependence on U.S. upstream drilling activity

TULSA - March 25, 2020 - Blueknight Energy Partners, L.P. (“Blueknight” or the “Partnership”) (Nasdaq: BKEP and BKEPP) today announced its financial results for the three and twelve months ended December 31, 2019. Net income was $4.3 million for the fourth quarter of 2019, as compared to a net loss of $50.7 million for the same period in 2018. The increase was driven by 2018 impairment charges related to the Oklahoma pipeline system and the Cimarron Express pipeline project and stronger 2019 performance across the three crude oil business segments. Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) was $16.0 million for the three months ended December 31, 2019, as compared to $13.9 million for the same period in 2018. The 15% year-over-year increase in Adjusted EBITDA was primarily due to stronger performance across the three crude oil business segments.

“I am proud to say the business performed well throughout the year and we accomplished many of our objectives in 2019. Our solid performance and capital discipline improved our financial profile considerably, resulting in decreasing leverage a full turn to 4.05 times, positive free cash flow after distributions and capital investments and solid distribution coverage of approximately 1.20 times for the full year,” said Mark Hurley, Chief Executive Officer.

“We are uniquely positioned for 2020 and beyond with our enhanced financial position, the recent increase in crude oil storage demand in Cushing and the fact that over 90% of our revenues in terminalling services, which represent 95% of our total operating margin, are supported by take-or-pay contractual agreements. In addition, the other key differentiating factor for us relative to traditional oil and gas midstream entities is that approximately 80% of our total operating margin is derived from our asphalt terminalling services segment which is linked to infrastructure and highway construction activity and not dependent on regional upstream activities. We believe this current market environment is an opportunity for Blueknight to showcase the stability and strength of its business and portfolio to existing and potential new investors.

“Looking forward, we are focusing efforts and our new long-term strategy on our core strengths and leading terminalling platform while reviewing strategic options for our crude oil pipeline and trucking businesses, including a potential joint venture or sale,” added Hurley. “The objective of any strategic actions taken would be to further reduce our leverage, maintain or improve distribution coverage and strengthen our focus on our core terminalling capability,” added Hurley. 

SEGMENT RESULTS

Asphalt Terminalling Services. Total operating margin, excluding depreciation and amortization, decreased $0.8 million for the three months ended December 31, 2019, as compared to the same period in 2018 primarily due to shifting tank cleaning expenses to the fourth quarter of 2019.   

Crude Oil Terminalling Services. Total operating margin, excluding depreciation and amortization, increased $0.6 million for the three months ended December 31, 2019, compared to the same period in 2018. The year-over-year increase was led by higher contracted storage and stronger throughput volume, an increase of 25% and 41%, respectively, versus the same period in 2018.

Crude Oil Pipeline Services. Total operating margin, excluding depreciation and amortization, increased $3.0 million for the three months ended December 31, 2019, compared to the same period in 2018 due to improved margins primarily in the Partnership’s crude oil marketing business and higher per barrel transportation fees despite lower fourth quarter 2019 volumes of approximately 20 thousand barrels per day. 

Crude Oil Trucking Services. Total operating margin, excluding depreciation and amortization, increased $0.1 million for the three months ended December 31, 2019, compared to the same period in 2018. While average volumes decreased to approximately 23 thousand barrels per day for the fourth quarter of 2019, margins improved due to higher rates from longer hauls.

BALANCE SHEET AND CASH FLOW

For the three months ended December 31, 2019, distributable cash flow was $11.0 million, as compared to $6.7 million for the same period in 2018, a 66% increase year-over-year. Based on the Partnership’s most recent distribution announcement, distribution coverage was 1.36 times for the fourth quarter of 2019 versus 0.68 times for the same period in 2018. Net capital expenditures for the fourth quarter of 2019 were $3.3 million, which included $1.7 million of net maintenance capital.

The Partnership ended the fourth quarter of 2019 with total debt of $256.6 million, which resulted in a leverage ratio of 4.05 times, and $0.6 million of cash. Total availability under the credit facility was approximately $143.4 million, and availability subject to covenant restrictions was $60.0 million at year end 2019. On January 3, 2020, the Ergon put was settled in cash for approximately $12.2 million. As of March 23, 2020, total debt was $274.6 million, and cash was $3.0 million.

2020 OUTLOOK

For 2020, Blueknight expects to showcase and develop its unique strength and core competencies within the terminalling business, leveraging positive infrastructure and highway construction activity trends within the asphalt terminalling services segment and the current favorable contango WTI market structure for the crude oil terminalling services segment. Blueknight holds minimal direct commodity exposure and dependence on U.S. upstream drilling activity and production.

The Partnership expects to generate stable Adjusted EBITDA in-line with 2019 and positive free cash flow, underpinned by predominately take-or-pay fixed fee contracts with a weighted average remaining contract term of approximately 5 years and over 50% of revenues related to investment-grade companies. Blueknight expects to use internally generated cash flow to fully fund 2020 distribution payments and total expected capital expenditures of $9.5 million to $10.5 million, including maintenance capital expenditures of $7.5 million to $8.0 million. At the midpoint of the range, total expected capital expenditures for the year are approximately 20% lower than 2019. The Partnership also expects to end 2020 with a leverage ratio of 4.0 to 4.25 times and distribution coverage of 1.2 times or greater.

Successful execution of strategic options for the Partnership’s crude oil pipeline and trucking businesses could result in improved financial positioning and more liquidity to pursue risk-adjusted investments. Blueknight also intends to leverage its existing asset footprint of over 53 sites to continue to develop advanced, customized logistics terminalling solutions for infrastructure and transportation end markets and focus on growing its terminalling business in new, specialty niche markets.

CONFERENCE CALL

The Partnership will discuss fourth quarter and full year 2019 results and guidance for 2020 during a conference call tomorrow, Thursday, March 26, 2020, at 10:00 a.m. CDT (11:00 a.m. EDT). The conference call will be accessible by telephone at 1-855-327-6837. International participants will be able to access the conference call at 1-631-891-4304. Participants are requested to dial in five to ten minutes before the scheduled start time. An audio replay will be available through the Investors section of the Partnership’s website at http://investor.bkep.com for 30 days.

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, 2019, to be filed with the SEC on March 26, 2020.

Results of Operations

The following table summarizes the Partnership’s financial results for the three and twelve months ended December 31, 2018 and 2019 (in thousands, except per unit data):

	Three Months Ended December 31,						Twelve Months Ended December 31,
	2018			2019			2018			2019
Service revenue:
Third-party revenue	$	14,592		$	14,482		$	58,756		$	61,811
Related-party revenue		4,351			3,796			22,131			16,053
Lease revenue:
Third-party revenue		10,658			10,686			42,067			41,712
Related-party revenue		5,377			5,264			25,961			20,443
Product sales revenue:
Third-party revenue		88,546			57,278			235,438			231,051
Related-party revenue		-			-			482			-
Total revenue		123,524			91,506			384,835			371,070
Costs and expenses:
Operating expense		26,593			24,963			113,890			103,289
Cost of product sales		53,283			19,250			126,776			83,319
Cost of product sales from related party		34,616			34,276			102,469			134,162
General and administrative expense		2,966			3,600			15,995			14,095
Asset impairment expense		52,437			160			53,068			2,476
Total costs and expenses		169,895			82,249			412,198			337,341
Gain (loss) on sale of assets		(151	)		(1,312	)		149			453
Operating income (loss)		(46,522	)		7,945			(27,214	)		34,182
Other income (expenses):
Other income		-			-			-			268
Gain on sale of unconsolidated affiliate		-			-			2,225			-
Interest expense		(4,177	)		(3,581	)		(16,860	)		(15,975	)
Income(loss) before income taxes		(50,699	)		4,364			(41,849	)		18,475
Provision for income taxes		(17	)		24			198			63
Net income(loss)	$	(50,682	)	$	4,340		$	(42,047	)	$	18,412
Allocation of net income(loss) for calculation of earnings per unit:
General partner interest in net income(loss)	$	(810	)	$	69		$	(512	)	$	337
Preferred interest in net income	$	6,279		$	6,279		$	25,115		$	25,115
Net loss available to limited partners	$	(56,151	)	$	(2,008	)	$	(66,650	)	$	(7,040	)
Basic and diluted net loss per common unit	$	(1.36	)	$	(0.05	)	$	(1.61	)	$	(0.17	)
Weighted average common units outstanding - basic and diluted		40,398			40,816			40,348			40,755

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, 2018 and 2019 (dollars in thousands):

	Three Months Ended					Twelve Months Ended					Favorable/(Unfavorable)
Operating results	December 31,					December 31,					Three Months						Twelve Months
	2018			2019		2018			2019			$		%				$		%
Operating margin, excluding depreciation and amortization:
Asphalt terminalling services	$	16,706		$	15,925	$	66,327		$	60,360	$	(781	)		(5	)%	$	(5,967	)		(9	)%
Crude oil terminalling services		2,048			2,604		8,778			11,765		556			27	%		2,987			34	%
Crude oil pipeline services		(2,467	)		541		(3,604	)		3,298		3,008			122	%		6,902			192	%
Crude oil trucking services		159			266		(442	)		410		107			67	%		852			193	%
Total operating margin, excluding depreciation and amortization	$	16,446		$	19,336	$	71,059		$	75,833	$	2,890			18	%	$	4,774			7	%

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, asset impairment charges, and other select items which management feels decreases the comparability of results among periods. Distributable cash flow is defined as Adjusted EBITDA minus cash paid for interest, maintenance capital expenditures, cash paid for taxes and other select items which management feels decreases the comparability of results among periods. 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 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 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. Reconciliations of these measures to their most directly comparable GAAP measures are included in the following tables.

The following table presents a reconciliation of Adjusted EBITDA and distributable cash flow to net income for the periods shown (in thousands, except ratios):

	Three Months Ended December 31,						Twelve Months Ended December 31,
	2018			2019			2018			2019
Net income(loss)	$	(50,682	)	$	4,340		$	(42,047	)	$	18,412
Interest expense		4,177			3,581			16,860			15,975
Income taxes		(17	)		24			198			63
Depreciation and amortization		7,414			6,319			29,359			25,533
Non-cash equity-based compensation		465			304			2,284			1,183
Asset impairment expense		52,437			160			53,068			2,476
(Gain) loss on sale of assets		151			1,312			(149	)		(453	)
Other(1)		-			-			555			443
Adjusted EBITDA	$	13,945		$	16,040		$	60,128		$	63,632
Cash paid for interest		(3,928	)		(3,333	)		(16,088	)		(15,150	)
Cash paid for income taxes		12			(7	)		(133	)		(227	)
Maintenance capital expenditures, net of reimbursable expenditures		(3,378	)		(1,676	)		(8,749	)		(8,932	)
Other(1)		-			-			(555	)		(443	)
Distributable cash flow	$	6,651		$	11,024		$	34,603		$	38,880
Distributions declared(2)		9,747			8,082			41,898			32,330
Distribution coverage ratio		0.68			1.36			0.83			1.20

___________________________

(1) Other for the twelve months ended December 31, 2018, includes fees related to an asset sale transaction.  Other for the twelve months ended December 31, 2019, relates to expenses incurred in relation to Ergon’s proposal to buy the outstanding partnership units.

(2) 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):

	Three Months Ended						Twelve Months Ended						Favorable/(Unfavorable)
	December 31,						December 31,						Three Months						Twelve Months
	2018			2019			2018			2019				$		%				$	%
Total operating margin, excluding depreciation and amortization	$	16,446		$	19,336		$	71,059		$	75,833		$	2,890			18	%	$	4,774		7	%
Depreciation and amortization		(7,414	)		(6,319	)		(29,359	)		(25,533	)		1,095			15	%		3,826		13	%
General and administrative expense		(2,966	)		(3,600	)		(15,995	)		(14,095	)		(634	)		(21	)%		1,900		12	%
Asset impairment expense		(52,437	)		(160	)		(53,068	)		(2,476	)		52,277			100	%		50,592		95	%
Gain (loss) on sale of assets		(151	)		(1,312	)		149			453			(1,161	)		(769	)%		304		204	%
Operating income(loss)	$	(46,522	)	$	7,945		$	(27,214	)	$	34,182		$	54,467			117	%	$	61,396		226	%

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 agreement, 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.

Blueknight 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 located primarily in Oklahoma, approximately 6.6 million barrels of which are located at the Cushing Interchange terminalling facility in Cushing, Oklahoma;

• 611 miles of crude oil pipeline located primarily in Oklahoma and Texas; and

• 63 crude oil transportation vehicles deployed in Oklahoma, Kansas and Texas.

Blueknight provides integrated terminalling, gathering and transportation services for companies engaged in the production, distribution and marketing of liquid asphalt and crude oil. Blueknight is headquartered in Tulsa, Oklahoma. For more information, visit the Partnership’s website at www.bkep.com.

Contact:

Investor Relations, (918) 237-4032

investor@bkep.com