blueknight investor presentation...blueknight investor presentation may 2020 downstream terminalling...

Private & Confidential

Blueknight Investor Presentation May 2020

Downstream Terminalling Solutions for Tomorrow’s

Infrastructure and Transportation End Markets

2Private & Confidential

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, 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 contains the non-GAAP financial measures of Adjusted EBITDA 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, gains

and losses on asset sales 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 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 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.

Blueknight does not provide GAAP financial measures, including reconciliations, on a forward-looking basis because the partnership is unable to predict with

reasonable certainty impairments, depreciation and amortization, non-cash equity based compensation, the ultimate outcome of legal proceedings and acquisition

related expenses.


Blueknight’s Robust and Unique Platform

Asphalt

Terminalling

• 8.8 million barrels of asphalt

and residual fuel oil storage

• 53 terminals across 26 states

• Largest independently

owned asphalt network

Pipeline and

Trucking

• OK pipeline system with

combined capacity of

50,000 bpd

• 63 trucks

• XTO crude oil dedication

and minimum volume

commitment

Downstream Terminalling Solutions for Tomorrow’s Infrastructure and Transportation End Markets

Asphalt Terminalling

Crude Oil Terminalling

Pipeline

Trucking

• Master limited partnership established in 2007 and

headquartered in Tulsa, Oklahoma

• Geographically-diversified, high-quality assets in

26 states

• Stable cash flows underpinned by long-term, take-

or-pay contracts and over 50% of revenue from

investment grade customers

• Common and preferred units on NASDAQ under

“BKEP” and “BKEPP”, respectively

2019 Operating Margin

Contribution

2019 Terminalling

Revenue %

Take-Or-Pay

Asphalt

Terminalling 80%

16%Crude Oil

Terminalling

93%

Crude Oil

Terminalling

• 6.6 million barrels of

Cushing, OK storage

• Operate additional 1.0

million barrels for

TransMontaigne

• Strong connectivity and

blending capability

Take-Or-Pay

Source: Company reports; note operating margin excludes depreciation and amortization


Ergon Inc, a Leading Asphalt Marketer and Blueknight Sponsor

A Leading Energy

Company With Over Six

Decades of Market

Experience

Diversified Portfolio

• Private, family-owned, diversified company in petroleum, road construction materials and real estate

• Formed in 1954 and based in Jackson, Mississippi

• Largest customer of Blueknight with commercial services in 28 of the 53 asphalt facilities

• General partner of Blueknight since 2016

High Quality,

Supportive Sponsor

Midstream and Logistics Oil and GasAsphalt and EmulsionsRefining and Marketing

• Presence in over 12 countries worldwide, over 2,500 employees globally

• 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

• Midstream & Logistics: logistics support including a fleet of river, road and rail transportation equipment along

with numerous terminal locations and pipelines

• Oil & Gas: retail distribution network for propane, mid-river fleeting, refueling & supply and oil & gas

exploration and development


MLP Organizational Structure with Two Public Securities

• Blueknight General Partner

ownership: Ergon, Inc.

• Two classes of publicly traded

equity (NASDAQ):

─ Series A Preferred Units:

BKEPP

─ Common Units: BKEP

Blueknight Energy Partners G.P., L.L.C. (DE)

BKEP Operating Subsidiaries

Blueknight Energy Partners, L.P. (DE)

Blueknight GP Holding, LLC (DE)

1.6% General Partner Interest

100.0% Ownership Interest


71.2% Limited Partner Interest

Ergon Asphalt & Emulsions, Inc.


Ergon, Inc.

27.2%

Limited

Partner

Interest

Ergon Asphalt Holding, LLC

Public Unitholders

$400 million Senior Secured

Credit Facility

(1) Market capitalization includes BKEP and BKEPP

(2) Market data as of 4/30/20

(3) Unit count and balance sheet data as of Q1 2020 filings

NASDAQ Tickers BKEP & BKEPP

Market Capitalization ($ millions) (1,2,3) $245

Enterprise Value ($ millions) (2,3) $516

Annual BKEP Distribution ($/unit) $0.16

Annual BKEPP Distribution ($/unit) $0.72

Source: Company reports

Highlights and Strategy


Blueknight Investment Highlights

• Robust, geographically-diversified system of logistics terminalling solutions focused on niche end markets

• Largest independently-owned network of 53 asphalt terminals across the U.S. in major markets

• Highly strategic terminal at Cushing Interchange with 6.6 million barrels of crude oil storage

Unique Platform

of High-Quality

Terminal Assets

1

• Target long-term leverage of 3.5x and coverage on all distributions greater than 1.2x

• 2020 guidance with adjusted EBITDA outlook in-line with 2019; internally generated cash flow to fully fund 2020

distribution payments with expected coverage greater than 1.2x and debt leverage between 4.0x-4.25x

Disciplined

Financial Principles

and 2020 Guidance

3

• Stable earnings underpinned by 90%+ take-or-pay revenue, over 50% revenue from investment grade customers

• Minimal direct commodity exposure or dependence on U.S. upstream drilling activity and production

Strong Fee-Based

Cash Flow Profile

2

• Core Asphalt Terminalling business driven more by infrastructure/road construction trends than oil & gas

commodity markets; steady growth expected ahead for state and federal infrastructure spending

• Crude Oil Terminalling business in Cushing benefitting from deep 2020 crude oil contango market

Favorable

Industry Trends

Driving Continued

Market Growth

4

• Leverage existing asset footprint to grow alternative specialty terminalling business in niche product markets

• Focus on opportunistic consolidation of competitor non-core asphalt facilities in key strategic markets

Focused Strategic

Growth

Opportunities

5

• Seasoned management team with extensive and complementary industry experience

• Deep knowledge base and strong entrenched relationships within the highly specialized asphalt industry

Experienced

Management Team

6


($20.0)

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

2014 2015 2016 2017 2018 2019

Asphalt Terminalling Services Crude Oil Terminalling Services Crude Oil Pipeline Services Crude Oil Trucking Services

48% 63%

25%

68%

24%

5%

80%

22%

93%

12%

80%

16%

2015 Crude Oil Contango Environment

53%

24%

Unique and Stable Platform of High-Quality Terminal Assets1

• Diversified provider of downstream terminalling solutions for infrastructure and niche transportation end markets

─ Robust platform of geographically diversified, high-quality terminal assets, representing 96% of total operating margin in 2019

─ Over 90% of terminalling revenues supported by take-or-pay contractual agreements

─ Minimal direct commodity exposure or dependence on U.S. upstream drilling activity and production

─ Reviewing strategic options for crude oil pipeline and trucking businesses, including potential joint venture or sale

Blueknight Operating Margin Contribution ($ in Millions)



Unique Platform of High-Quality Terminal Assets: Asphalt 1

• Asphalt Terminalling Services

─ Largest independently owned asphalt terminal network in the U.S.

─ 8.8 million barrels of asphalt and residual fuel oil storage capacity

─ 53 terminals located across 26 states

─ Multiple loading/unloading logistics options, including truck, marine and rail

─ 80% of operating margin in 2019; 95% of 2019 revenue supported by take-or-

pay fixed-fee arrangements

─ Weighted average contract term approximately five years and recently

extending 19 of 53 sites to seven year terms

─ Historically very low customer turnover

─ High value, strategic locations in key urban centers: Austin, Denver,

Las Vegas, Little Rock, Memphis, Nashville, Salt Lake City, St. Louis

Location Facilities

Total Capacity

(thousands of barrels)

Alabama 1 295

Arizona 1 66

Arkansas 1 21

California 1 66

Colorado 4 401

Georgia 2 192

Idaho 1 285

Illinois 2 232

Indiana 1 156

Kansas 5 662

Missouri 3 662

Mississippi 1 202

Montana 1 123

Nebraska 1 292

New Jersey 1 459

Nevada 1 280

North Carolina 1 243

Ohio 1 38

Oklahoma 7 1,420

Pennsylvania 1 59

Tennessee 4 770

Texas 4 248

Utah 2 300

Virginia 2 635

Washington 3 468

Wyoming 1 220

Total 53 8,795


Unique Platform of High-Quality Terminal Assets: Crude Oil 1

• Crude Oil Terminalling Services

─ Strategic crude oil terminal at Cushing Interchange with 34 tanks and 6.6 million barrels of storage capacity

─ Connections and access to all Cushing terminal facilities with a receiving and delivering capacity of 350,000 bpd

─ High quality blending services and capabilities

─ 1.0 million barrels of storage operated for TransMontaigne at Cushing

─ 16% of total operating margin in 2019; 85% of 2019 revenue supported by take-or-pay fixed-fee arrangements

─ Favorable market environment during periods of contango WTI market structure

Cushing Inboard/Outbound Connections

Illinois

Wink

Lubbock

Platteville/Lucerne/Riverside

Guernsey

St. James

Port Arthur

Freeport

Keystone

PonyExpress

Grand MesaSaddlehornWhitecliffs

Basin

Blueknight Pipeline

Seaway

Market-Link


$0

$20

$40

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$100

$120

$140

$0.0

$10.0

$20.0

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$80.0

2014 2015 2016 2017 2018* 2019

WT

I ($

/b

bl)

BK

EP

Fre

e C

ash

Flo

w (

$ m

illi

on

)

Adjusted EBITDA WTI Price

Strong Fee-Based Cash Flow Profile 2

• Blueknight’s high-quality terminal assets generate stable, steady free cash

flow generation despite oil price volatility

• Asset base positioned for minimal direct commodity exposure or

dependence on upstream drilling activity and production

• Asphalt and Crude Oil Terminalling services underpinned by 95% and 85%

contracted take-or-pay fixed-fees, respectively

Source: Company reports, FactSet

Adjusted EBITDA vs. WTI

* 2018: BKEP divested three asphalt terminals and its producer field services business

2019 Terminalling Segments Revenue Mix

Take-or-Pay 95%

Variable5%

Asphalt

Terminalling

Take-or-Pay85%

Variable15%

Crude Oil

Terminalling


Strong Fee-Based Cash Flow Profile: High-Quality Customer Base 2

Select Crude Oil Terminalling CustomersSelect Asphalt Terminalling Customers Select Transportation Customers

• Strong support from high-quality, stable customer base across all businesses

• Over 50% of revenue from terminalling customers are investment grade entities

• Asphalt Terminalling customers typically significant players in the industry

─ Weighted average contract term of approximately 5 years

─ Contract terms range from 5 to 10 years

• Crude Oil Terminalling customers typically trading and marketing firms and midstream entities

─ No upstream producers among customer base, minimal upstream counterparty risks

• XTO Energy primary customer of pipeline business, supported by minimum volume commitments and dedications


• Target long-term leverage of 3.5x and coverage greater than 1.2x

• Committed to improving capital structure, reducing cost of capital and maintaining strong liquidity

• Operate within cash flow and grow business without public equity issuances

• Maximize risk-adjusted returns with excess cash through the following:

─ Disciplined investments in high-return, growth opportunities

─ May opportunistically pursue preferred unit buybacks at or near target leverage

─ Distribution growth underpinned by sustainable growth and coverage greater than 1.2x

Balance Sheet

Capital

Investment and

Allocation

Financial

Management

• Focus on growing long-term, fee-based cash flows from high-quality customers

• Maintain robust forecast process and economics to best reflect outlook and financial metrics

• Ensure high-quality reporting and messaging on strategy, industry dynamics and financial results

• Pursue attractive, low-cost sources of capital for potential larger opportunities

3 Disciplined Financial Principles and 2020 Guidance

2020 Guidance

• Well positioned to showcase and develop its unique strength and core competencies within the

terminalling business in 2020 despite turmoil in both energy and broader markets

• 2020 guidance:

─ Adjusted EBITDA in-line with 2019

─ Coverage greater than 1.2x

─ Leverage between 4.0 and 4.25x


Favorable Industry Trends Driving Continued Market Growth4

• Blueknight’s asphalt terminal business driven

largely by transportation construction trends at

federal, state and local levels

• Terminal usage not dependent on E&P drilling

or oil production activity

• ARTBA forecasting steady 3.9% CAGR of U.S.

asphalt-related transportation construction from

2018-24 to $164.6 billion for:

─ Public highway and street work

─ Private highway work

─ Private driveway and parking lot work

• New federal infrastructure spending legislation

proposed

─ U.S. Senate: July 2019 vote to authorize

$287 billion for surface transportation needs

─ Congressional Democrats: proposed $329

billion surface transportation spending plan

─ Trump Administration: considering $2

trillion infrastructure stimulus plan in

response to coronavirus pandemic market

impacts

Source: American Road & Transportation Builders Association

$0

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$180

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

E

2020E

2021E

2022E

2023E

2024E

Public Highway, Street & Related Work Private Driveway & Parking Lot

Private Highway & Bridge Work

2020 Asphalt Transportation Construction Activity ($ in Billions)


Focused Strategic Growth Opportunities5

• Strategic focus to transition towards a pure-play

terminalling entity

─ 2019 operating margin contribution

• Asphalt Terminalling: 80%

• Crude Oil Terminalling: 16%

• Asphalt Terminalling system well optimized

operationally

─ Consistent, stable annual operating margin

contribution per site

─ 3Q strongest seasonal period from peak paving

demand in summer months

• Future growth prospects

─ Leverage existing assets to further develop

advanced, customized terminalling solutions

─ Focus on growing terminalling business in new,

specialty niche product markets

─ Heated storage tank infrastructure in place to

leverage into renewable diesel and heavy oil

markets

─ Evaluate opportunistic terminal acquisitions

Asphalt Segment Operating Margin Per Terminal

($ thousand/terminal)

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

2016 2017 2018 2019*

* 2019: Asphalt Terminalling results negatively impacted by severe weather events in 2Q19

Quarterly Seasonality

2016-19

(% of annual total)

1Q 22%

2Q 23%

3Q 30%

4Q 25%



Focused Strategic Growth Opportunities: Acquisition Targets5

• Blueknight operates the largest independently-owned U.S. network of 53 asphalt terminals

• Blueknight has a long history of successful asphalt terminal acquisitions, totaling approximately $175 million and representing 26% of

current system facilities since May 2015

• Asphalt market characteristics

─ Highly fragmented ownership: refiners, midstream entities, construction materials companies, paving contractors

─ Terminals generally either (1) standalone, asphalt-only facilities, or (2) integrated into broader product terminals

• Opportunistic acquisition targets

─ Refiner-owned, standalone facilities

─ Materials company-owned, standalone facilities

─ Standalone, non-integrated facilitiesBlueknight Historical Asphalt Acquisitions

Purchase Price

Date Terminal Facility Seller ($ millions)

Mar 2018 Muskogee, OK Frontier Terminal, LLC $22.0

Cummins Investment Corp.

Dec 2017 Bainbridge, GA Ergon $10.2

Oct 2016 Birmingport, AL Nashville, TN Ergon $108.8

Chandler, AZ Ennis, TX

Wolcott, KS Mt. Pleasant, TX

Yellow Creek, MS Pleasanton, TX

Memphis, TN

Feb 2016 Dumfries, VA Axeon Specialty Products $19.0

Wilmington, NC

May 2015 Cheyenne, WY Simon Contractors $13.9

Source: Company reports


Experienced Management Team6

• Mark Hurley, Chief Executive Officer

─ CEO of Blueknight’s General Partner since September 2012

─ 2010-2012: served as the Senior Vice President, Crude Oil and Offshore of Enterprise Products, LLC, led newly formed crude oil

and offshore business segment

─ 1981-2009: began career at Shell, lastly as President of Shell Pipeline Co., LP.

─ Bachelor of Science in chemical engineering from North Carolina State University

• Andrew Woodward, Chief Financial Officer

─ CFO of Blueknight’s General Partner since April 2019

─ Previously served at Andeavor Logistics (NYSE: ANDX) as Vice President, Finance and Treasurer, appointed as principal financial

officer and prior head of investor relations

─ Prior to ANDX, served in corporate development at Andeavor (NYSE: ANDV)

─ Served as Vice President at RBC Capital Markets within the energy investment banking group

─ Master of Business Administration from the University of Texas at Austin, Bachelor of Arts in economics and philosophy from

Colorado College

• Jeffrey Speer, Chief Operating Officer

─ Chief Operating Officer of Blueknight’s General Partners since July 2013

─ 2009-2013: served as Blueknight’s Senior Vice President-Operations and Vice President of Operations of the partnership’s asphalt

and emulsion subsidiary

─ Prior to Blueknight, served as Vice President of Operations for Koch Industries, Inc. with operational responsibility for Koch’s

crude oil, pipeline and trucking divisions in Oklahoma, Texas and Canada and Koch’s agricultural and asphalt businesses

─ Bachelor of Science in mechanical engineering from Kansas State University

Appendix


Financial Reconciliations to Non-GAAP Financial Measures

The following table presents a reconciliation of adjusted EBITDA to net income for the periods shown:

Twelve Months Ended

December 31,

($ in thousands) 2014 2015 2016 2017 2018 2019

Net Income (loss) $ 27,572 $ 6,396 $ (4,840) $ 20,045 $ (42,047) $ 18,412

Interest expense 12,268 11,202 12,554 14,027 16,860 15,975

Income taxes 469 323 260 166 198 63

Depreciation and amortization 26,045 27,228 30,820 31,139 29,359 25,533

Non-cash equity-based compensation 2,322 2,825 3,417 2,280 2,284 1,183

Asset impairment expense - 22,404 25,761 2,400 53,068 2,476

(Gain) loss on sale of assets (2,464) (6,137) (108) 975 (149) (453)

Other (2,079) (267) 1,783 - 555 443

Adjusted EBITDA $ 64,133 $ 63,974 $ 69,647 $ 71,032 $ 60,128 $ 63,632


Financial Reconciliations to Non-GAAP Financial Measures

Twelve Months Ended

December 31,

($ in thousands)2014 2015 2016 2017 2018 2019

Operating margin, excluding depreciation and amortization

Asphalt terminalling services operating margin $ 41,244 $ 48,212 $ 56,769 $ 64,623 $ 66,327 $ 60,360

Crude oil terminalling services operating margin 18,818 18,842 20,048 17,977 8,778 11,765

Crude oil pipeline services operating margin 10,457 7,694 4,347 (1,700) (3,604) 3,298

Crude oil trucking services operating margin 7,907 1,304 1,829 (434) (442) 410

Total operating margin, excluding depreciation and amortization $ 78,426 $ 76,052 $ 82,993 $ 80,466 $ 71,059 $ 75,833

Depreciation and amortization (26,045) (27,228) (30,820) (31,139) (29,359) (25,533)

General and administrative expense (17,498) (18,976) (20,029) (17,112) (15,995) (14,095)

Asset impairment expense - (21,996) (25,761) (2,400) (53,068) (2,476)

Gain/(loss) on sale of assets 2,464 6,137 108 (975) 149 453

Operating income $ 37,347 $ 13,989 $ 6,491 $ 28,840 $ (27,214) $ 34,182

The following table presents a reconciliation of operating margin, excluding depreciation and amortization, to total

operating income for the periods shown:

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