2016 Citi MLP/Midstream Infrastructure Conference August 17 – 18, 2016
The Smart Move in Energy
Private and Confidential (NASDAQ: BKEP & BKEPP ) Legal Disclaimer
Forward-Looking Statements
This presentation includes forward-looking statements. Statements included in this presentation 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, satisfaction of the closing conditions to the transactions described herein, the Partnership's ability to pay future distributions, 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.
This presentation also 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, gains related to investments and fees related to the Ergon transactions. Distributable cash flow is defined as adjusted EBITDA, plus or minus cash proceeds from sale of investments, cash paid for interest, maintenance capital expenditures, cash paid for taxes, and cash paid for fees related to the Ergon transactions. 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. Private and Confidential 2 (NASDAQ: BKEP & BKEPP ) Partnership Overview
Private and Confidential 3 (NASDAQ: BKEP & BKEPP ) Partnership Overview
• Blueknight Energy Partners, L.P. (“BKEP”) is a publicly traded master limited partnership – Headquartered in Oklahoma City, Oklahoma; established in 2007 – General Partner currently owned equally by Vitol and Charlesbank Capital Partners
• Our strategically located assets position us to be a leading provider of midstream services in the energy industry. We provide services to our customers by focusing on four operational areas: – Asphalt Terminalling Services – Crude Oil Terminalling and Storage Services – Crude Oil Pipeline Services – Crude Oil Trucking and Producer Field Services
Private and Confidential 4 (NASDAQ: BKEP & BKEPP ) Common and Preferred Units
Common Units Preferred Units Market NASDAQ NASDAQ Symbol BKEP BKEPP Outstanding 37,049,876 30,147,624 Yield at 8/11/16 10.0% 9.6% Distribution $0.145/unit for quarter ended June 30, 2016 $0.715/unit annual distribution
Comment 1.8% increase over 2015 second quarter Convertible to common units on a distribution 1-1 basis under certain conditions
Market Capital/Enterprise $437.2MM/$716.2MM Value (1) (combined for Common and Preferred Units)
(1) Market value as of August 11, 2016. Enterprise value calculation utilizes balance sheet data as of June 30, 2016
Private and Confidential 5 (NASDAQ: BKEP & BKEPP ) Current Ownership
Charlesbank Capital Partners Vitol Holding B.V.
CB-Blueknight, LLC Blueknight Energy Holding, Inc.
50.0% 50.0% Ownership Ownership Interest Interest
Blueknight GP Holding, LLC (DE) 13.4% Limited 13.4% Limited Partner Interest Partner Interest 100.0% Indirect Ownership Interest
Blueknight Energy Partners G.P., L.L.C. (DE) Public Unitholders
1.7% General Partner Interest
71.5% Limited Blueknight Energy Partners, L.P. (DE) Partner Interest
100.0% Ownership Interest
BKEP Operating Subsidiaries
Private and Confidential 6 (NASDAQ: BKEP & BKEPP ) Diversified Operations
Asphalt Terminal Crude Oil Terminalling and Network (61.5%) Storage (27.9%)
– 8.2 million barrels of – 6.6 million barrels of asphalt and residual Cushing, OK storage fuel oil storage – 0.2 million barrels of – 45 terminals across Longview, TX storage 23 states – Operate 1.0 million barrel Cushing, OK terminal for – Largest TransMontaigne independently owned asphalt terminal network Crude Oil Pipeline Services (7.0%) Crude Oil Trucking & Producer Field – 3 primary gathering and Services (3.6%) transportation pipelines – Approximately 240 crude – Operate and own 30% of transports and service West Texas Pecos River trucks that complement the Pipeline (Advantage pipeline gathering and Pipeline) transportation business – Total length of 985 miles – Producer services include – Recently announced gas gathering pipeline Note: This map is deemed reliable but provided “as is” without any representation of accuracy, timeliness, reliability or completeness. These map Oklahoma condensate maintenance and water documents do not Represent a legal survey of the land and are for graphical purposes only. project services. – Acquired the 75 mile Red – Primary geographic River pipeline system and locations include Kansas, related crude oil marketing Oklahoma and Texas business in southern Oklahoma in November 2015 Note: Percentages above represent segment share of 6 months ended 6/30/16 operating margin (excluding D&A)
Private and Confidential 7 (NASDAQ: BKEP & BKEPP ) Blueknight Overview
Private and Confidential 8 (NASDAQ: BKEP & BKEPP ) Asphalt Services
• Largest independently owned asphalt terminal network
• 8.2 million barrels of asphalt and residual fuel oil storage capacity in 45 terminals across 23 states
• Generate revenues by charging fees for the lease of asphalt storage and processing terminals, as well as for processing and marketing activities
• Facilities are both operated and non-operated
• Minimal direct exposure to commodity prices
• Many terminals include multiple loading/unloading options including truck, marine and rail capabilities
• Contracts are typically long-term in nature
• Recently acquired terminal facilities in Dumfries, VA and Wilmington, NC – closed February 1, 2016
Private and Confidential 9 (NASDAQ: BKEP & BKEPP ) Crude Oil Terminalling & Storage Services
Customer Value Creation • Provides our customers the ability to effectively manage their crude oil inventories and add significant flexibility in their marketing and operating activities Cushing Interchange • 34 crude oil storage tanks with approximately 6.6 million barrels of storage capacity with access and connectivity to all the terminals located within the Cushing Interchange • Capable of receiving and/or delivering 350,000 bpd of crude oil Longview Terminal • 238,000 barrels of storage capacity in Longview, Texas. This terminal is connected to our Longview gathering and transportation pipeline Third Party Terminal Operations • Operate 1.0 million barrel Cushing, OK terminal for TransMontaigne
Note: Remaining 586,000barrels of storage capacity consists of miscellaneous storage tanks located at various points along our pipeline and gathering system
Private and Confidential 10 (NASDAQ: BKEP & BKEPP ) Crude Oil Pipeline Services: Oklahoma Systems
Mid-Continent Mainline System • 400-mile active pipe gathering and transportation network that gathers wellhead crude oil at a capacity of approximately 20,000 bpd • Transports crude oil to our Cushing terminal, other storage facilities and area refiners • Newly constructed 60-mile Arbuckle pipeline commenced operations in September 2013. Pipeline constructed as part of a long-term transportation agreement with XTO Energy, Inc., a subsidiary of Exxon Mobil Corporation • Acquired the 75 mile Red River pipeline system and related crude oil marketing business in southern Oklahoma in November 2015 • Suspended service in April 2016 due to a riverbed exposure. Connection made to Eagle Pipeline system and Eagle system reversed in July 2016 to restore Mid- Continent mainline system. Currently operating one mainline system
Eagle North Pipeline System • 195-mile system originating in Cushing which supplied Valero's Ardmore, Oklahoma refinery through June of 2016 with a capacity of approximately 20,000 bpd • Pipeline currently connected to the Mid-Continent system and flowing barrels north to Cushing. We expect to utilize this line for a separate condensate pipeline, which is currently being scoped and evaluated and is dependent on customer demand and/or volume commitments.
Private and Confidential 11 (NASDAQ: BKEP & BKEPP ) Crude Oil Pipeline Services: East Texas System
East Texas System
• 85 active miles of mostly intrastate crude oil pipelines near Longview, Texas
• Connected to Mid-Valley pipeline systems delivering crude oil to the Midwest and local markets
• Talco mainline system recently upgraded
• Feeds Longview terminal
• Longview terminal allows blending of local heavy crudes with condensates from the area
Private and Confidential 12 (NASDAQ: BKEP & BKEPP ) Crude Oil Pipeline Services: West Texas
• BKEP has 30% ownership and operates the 16” Pecos River Pipeline under a long-term service agreement with Advantage Pipeline, L.L.C.
• Provides crude transportation from west Texas to the Gulf Coast markets
• In September 2013, commercial service began from Grandfalls, Texas to the Longhorn Pipeline in Crane, TX
• Phase II was completed in October 2014 and extends the pipeline an additional 29 miles to the west to provide service for customers in Reeves, Culberson, Pecos and Ward counties
• Exploring options to add gathering systems, truck stations and further extensions of the Pecos River Pipeline system into additional Delaware Basin / West Texas markets
Private and Confidential 13 (NASDAQ: BKEP & BKEPP ) Crude Oil Trucking & Producer Field Services
Crude Trucking • Crude oil trucking operations extend our ability to gather and aggregate crude oil on our systems and deliver product for third parties to their facilities • Approximately 150 tanker trucks serving production in primarily in Kansas, Oklahoma and Texas • Transport more than 30,000 bpd of crude oil as of June 30, 2016 Producer Field Services • Approximately 90 service trucks providing tailored field services to producers in the Texas and Oklahoma panhandles and in southwest Kansas. Services include: – Gas gathering pipeline maintenance – Water transport – Deep well disposal
Private and Confidential 14 (NASDAQ: BKEP & BKEPP ) Recent Developments and Growth Projects
Private and Confidential 15 (NASDAQ: BKEP & BKEPP ) Ergon Transaction
• On July 19, 2016, BKEP announced a transaction with Ergon, whereby Ergon will purchase BKEP’s General Partner in a private transaction and, in turn contribute nine asphalt services terminals to BKEP valued at $108.8 million. – Terminal valuation implies a 8.9x multiple of initial 12 months projected EBITDA – Increases overall BKEP owned asphalt storage by 20%
Locations Type Tank Capacity Wolcott, KS Asphalt Terminal, blending 169,011 Ennis, TX Asphalt Terminal 174,280 Chandler, AZ Emulsions 66,160 Mt. Pleasant, TX Emulsions 25,872 Pleasanton, TX Emulsions 24,373 Birmingport, AL Asphalt Terminal, Emulsions, PMA letdown 211,638 Memphis, TN Asphalt Terminal, Emulsions, PMA & Other 805,815 Nashville, TN Asphalt Terminal, PMA 320,121 Yellow Creek, MS Asphalt Terminal 202,313 Total 1,999,584
• On July 20, 2016, BKEP announced that it completed an underwritten public offering of 3,300,000 (3,795,000 inclusive of exercised green-shoe) common units at a price of $5.90/common unit • At closing, in exchange for the contribution of nine terminals, BKEP will issue 18,312,968 of newly issued BKEP Series A Preferred Units to an affiliate of Ergon, Inc. valued at $130.9 million – BKEP will also receive $22.1 million of cash from Ergon – Vitol and Charlesbank will surrender for cancellation 13,335,390 Series A Preferred Units for cash of $95.3 million and will retain a total of 4,977,578 preferred units. – Ergon will purchase $5.0 million of newly issued common units at $5.90/unit equating to 847,457 of additional units
Private and Confidential 16 (NASDAQ: BKEP & BKEPP ) Ergon Transaction
Transaction Details Simplified Pro Forma Organizational Structure (1)
• Ergon Asphalt & Emulsions, Inc., a subsidiary of Jackson, Mississippi-based Ergon, Inc. ("Ergon"), agreed to purchase Ergon to 100% of the membership interests of Blueknight GP Holding, Ergon, Inc. L.L.C., which owns 100% of the outstanding membership Acquire interests of the general partner of BKEP, which owns the Blueknight GP general partner interest and the incentive distribution rights of Blueknight Energy Partners, L.P. (“BKEP”, “Blueknight” or the Blueknight Energy “Partnership”) Partners G.P., L.L.C.
• Ergon to contribute nine asphalt terminals it currently owns 18,312,968 General Partner Interest / plus $22.1 million of cash to BKEP in return for total Preferred Units, IDRs consideration of approximately $130.9 million, which consists Common Units of the issuance of 18,312,968 Series A preferred units in a private placement • Ergon to acquire an aggregate of $5.0 million of common Blueknight Energy Public Partners, L.P. Unitholders Dropdown and units for cash in a private placement Preferred Unit • BKEP to repurchase 13,335,390 of its Series A preferred Transaction units currently owned by Blueknight Energy Holding, Inc. ("Vitol") and CB-Blueknight, LLC ("Charlesbank" and, BKEP Operating together with Vitol, the "Existing Sponsors") for $95.3 million Subsidiaries • Existing Sponsors retain their remaining 4,977,578 of Series A preferred units
• The Partnership has amended its Credit Facility to address Nine Asphalt Terminals the change of control and has modified certain terms Currently Owned by Ergon
• The transactions are subject customary closing conditions, including Hart-Scott- Rodino and other regulatory approvals and the distribution to holders of Series A 1. Remaining Vitol and Charlesbank Series A preferred units not depicted preferred units of an information statement on Schedule 14C, and are expected to close on or before September 30, 2016
Private and Confidential 17 (NASDAQ: BKEP & BKEPP ) Post-Ergon Transaction Ownership Chart
Ergon, Inc.
25.8% Limited Ergon Asphalt & Emulsions, Inc. Partner Interest 100.0% Ownership Interest
Blueknight GP Holding, LLC (DE)
100.0% Indirect Ownership Interest
Charlesbank Capital Blueknight Energy Partners G.P., L.L.C. (DE) Public Unitholders Partners & Vitol Holding B.V. 1.7% General Partner Interest
6.7% 65.8% Limited Limited Blueknight Energy Partners, L.P. (DE) Partner Interest Partner Interest 100.0% Ownership Interest
BKEP Operating Subsidiaries
Private and Confidential 18 (NASDAQ: BKEP & BKEPP ) Post-Ergon Operations Map
Private and Confidential 19 (NASDAQ: BKEP & BKEPP ) Strategic Rationale
Ergon has been a long-term customer of Blueknight and is an ideal sponsor to help support and facilitate the growth of the Partnership
• Ergon has significant experience owning pipelines, terminalling and storage facilities and other similar assets
• Ergon is active in many facets of the refined products sector, including terminalling, crude trucking and marine transportation and expects to help identify and propose additional organic and third-party midstream opportunities of interest to Blueknight
• Pro forma for the initial dropdown, BKEP will own a network of 54 asphalt terminals in 26 states with a combined capacity of 10.2 million barrels of asphalt and residual fuel oil storage
• Ergon will contribute nine asphalt terminals and enter into a long-term services agreement for the facilities
• Terminals located in Wolcott, Kansas; Ennis, Texas; Chandler, Arizona; Mt. Pleasant, Texas; Pleasanton, Texas; Birmingport, Alabama; Memphis, Tennessee; Nashville, Tennessee; and Yellow Creek, Mississippi, and include approximately 2.0 million barrels of storage capacity
• Dropdown expected to be immediately accretive to the Partnership
• Anticipated Future Dropdowns:
• Ergon has identified two additional asphalt terminals that may be dropped into BKEP over the next couple of years
• Acquisitions would be of similar size to other acquisitions completed by the Partnership in the last 18 months
Private and Confidential 20 (NASDAQ: BKEP & BKEPP ) Overview of Ergon
A Leading Energy • Private, family-owned company formed in 1954 and based in Jackson, Mississippi Company with Over 6 • Presence in over 12 countries worldwide, over 2,500 employees globally Decades of Experience • One of the largest asphalt emulsion marketers in the U.S.
• Refining & Marketing: refinery operations and marketing of crude oil and various refined products including specialty naphthenic and paraffinic products • Asphalt & Emulsions: production, marketing and distribution of paving and specialty asphalt products Diversified Portfolio • Transportation & Terminalling: logistics support including a fleet of river, road and rail of Synergistic transportation equipment along with numerous terminal locations and pipelines Businesses • Oil & Gas: retail distribution network for propane, mid-river fleeting, refueling and supply and oil and gas exploration and development • Real Estate: retail, commercial and industrial real estate development and management services
• Ergon has had a long-term desire to help build a world-class MLP and believes its investment in BKEP will help achieve that goal • Aligned via the General Partner, preferred and common unit ownership and as one of BKEP’s Committed to the largest counterparties – currently a customer at 18 asphalt terminalling facilities Growth of the • Identified two additional asphalt terminals that may be dropped into BKEP over the next Partnership couple of years • Expects to develop additional organic and third-party midstream opportunities for Blueknight
Private and Confidential 21 (NASDAQ: BKEP & BKEPP ) Other Growth Opportunities
• Asphalt Projects • Re-Contracting Upside with Existing BKEP Plants • Additional Acquisitions • Potential green-field projects
• Crude Oil Pipeline Projects • Oklahoma SCOOP Condensate Pipeline Project • Additional Synergistic Acquisitions
• Other Growth Opportunities • Growth Via Acquisition in Other Terminalling Areas (Refined Products, NGL’s etc.) • Development of Internal Growth Projects Across BKEP’s Platform of Assets (Additional Tankage, Additional Product Categories, etc.)
Private and Confidential 22 (NASDAQ: BKEP & BKEPP ) Fee-Based Business Model
Operating Margin
Segment Percent of Contracted Fixed Fee Total Take-or-Pay Fixed Fee Variable Volumes Revenue (Non-Commodity Price Sensitive) (Non-Commodity Price Sensitive)
Asphalt Services 40.8% 95.3% 4.7% Crude oil terminalling and 13.7% 87.0% 13.0% storage Crude oil pipeline services 16.3% 31.7% 68.3%
Crude oil trucking and 29.2% 0.0% 100.0% producer field services
– BKEP’s operating margin is highly fixed and includes:
• Cents/bbl. contracts for specified volumes in the Crude oil terminalling and storage segment • Minimum take or pay agreements in the Pipeline Services segment • Minimum cents/ton for specified volumes or lease fees in the Asphalt Terminalling segment
– Overall, more than 85.2% of overall margin is highly fixed and/or contracted
Percentages are based on 2015 Operating Margin
Private and Confidential 23 (NASDAQ: BKEP & BKEPP ) Key Investment Highlights
• Cushing Interchange: Resident player at core location for crude oil distribution and marketing Attractive Core Base • Asphalt Facilities: Geographic diversification in key domestic markets with multiple potential counterparties of Energy Midstream at most locations Infrastructure • Gathering / Transportation: 985 miles of strategically positioned gathering and transportation pipelines in Oklahoma and Texas
• Initial dropdown of nine asphalt terminals • Identified two additional Ergon-owned, asphalt terminals that may be dropped into BKEP over the next couple of years Significant Growth • Recently announced Oklahoma condensate project Potential • Completed Dumfries, Virginia and Wilmington, North Carolina asphalt terminal acquisitions in February of 2016 • Prudent and conservative approach to growing our business through acquisitions
• Consistent profitability and earnings Solid and Stable • Adequate ability to fund current maintenance and near-term expansion capital expenditures Financial Profile • Minimal commodity price exposure and high quality customer base
• Strong alignment with Ergon General Partner • Ergon owns significant inventory of MLP qualifying assets throughout its business segments Sponsorship • Ergon may source additional organic and third-party midstream opportunities for BKEP
Deep and • Tenured management team with many years of industry experience Experienced • Proven ability to manage through cycles and generate executable growth opportunities Management Team
Private and Confidential 24 (NASDAQ: BKEP & BKEPP ) Financial Summary
Private and Confidential 25 (NASDAQ: BKEP & BKEPP ) Reconciliation of Adjusted EBITDA and Distributable Cash Flow to Net Income
Adjusted EBITDA
The following table presents a reconciliation of ad justed EBITDA to net income for the periods shown: Twelve Months Ended Six Months Ended ($s in thousands) December 31 June 30, 2013 2014 2015 2015 2016 Net income $ 28,035 $ 27,572 $ 6,396 $ 9,289 $ (18,210) Interest expense 11,615 12,268 11,202 6,234 8,567 Income taxes 593 469 323 198 90 Depreciation and amortization 24,241 26,045 27,228 13,384 14,823 Asset impairment expense 6,256 - 22,404 - 22,845 Non-cash equity-based compensation 2,347 2,322 2,825 1,275 1,188 Other 621 (2,079) (267) (267) 511 Adjusted EBITDA $ 73,708 $ 66,597 $ 70,111 $ 30,113 $ 29,814 Cash proceeds from sale of investments - - 2,346 2,346 - Cash interest expense (9,644) (9,085) (9,915) (4,825) (5,906) Cash tax expense (419) (508) (412) (384) (254) Maintenance capital expenditures, net of reimbursab le expenditures (13,472) (5,916) (7,882) (2,926) (5,512) Cash paid for transaction fees - - - - (274) Eagle North loan amortization (521) - - - - Distributable Cash Flow $ 49,652 $ 51,088 $ 54,248 $ 24,324 $ 17,868
Distribution declared (1) $ 33,661 $ 37,678 $ 42,019 $ 20,821 $ 21,880 Distribution coverage ratio 1.50 1.40 1.30 1.17 0.82
(1) inclusive of preferred and common unit declared cash distributions
Key Credit Statistics
Leverage Ratio 3.6x 3.1x 3.8x 3.5x 4.4x
Interest coverage ratio 7.8x 7.7x 6.5x 7.3x 5.7x
Private and Confidential 26 (NASDAQ: BKEP & BKEPP )