BLUEKNIGHT ENERGY PRTNRS LP BKEP
August 24, 2012 - 4:57pm EST by
humkae848
2012 2013
Price: 6.44 EPS NA NA
Shares Out. (in M): 23 P/E NA NA
Market Cap (in $M): 146 P/FCF 9.3x 0.0x
Net Debt (in $M): 211 EBIT 55 0
TEV ($): 562 TEV/EBIT NA NA

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  • MLP
  • Elliott Management
  • Private Equity (PE)
  • Oil Services
  • Pipeline
  • Preferred stock
 

Description

Blueknight Energy Partners

Blueknight Energy Partners (“Blueknight” or the “Partnership”) is a publicly-traded master limited partnership which owns and operates crude oil terminals and pipelines and asphalt storage facilities in some key strategic locations across the United States.  As will be explained later, prior to the autumn of 2010, Blueknight was known as Semgroup Energy Partners, LP (or “SGLP”).  There are two securities in Blueknight that we will discuss:

(i)                  the common limited partnership units which trade on the NASDAQ under the ticker BKEP (the “Common LP Units”); and

(ii)                the 11% convertible preferred stock which trades on the NASDAQ under “BKEPP” (the “Series A Preferred”). 

Background and History

SGLP was formed in 2007 as an affiliated master limited partnership of SemGroup, LP (“SemGroup” or the “Former Parent”).  VIC readers may be familiar with the bankruptcy of privately-owned SemGroup in the summer of 2008 after it lost $2 billion trading in oil derivatives.  Because SemGroup was SGLP’s largest customer at the time, the bankruptcy disrupted SGLP’s operations while it had to find new customers, but the ultimate quality of SGLP’s underlying assets endured.  After SemGroup’s bankruptcy, SGLP became independent of its Former Parent, and it is now known as Blueknight Energy Partners.   The Partnership never filed for bankruptcy, and there were no material liabilities related to the SemGroup bankruptcy or trading activities at Blueknight.   

During the Partnership’s transitional period after SemGroup’s bankruptcy, it suspended payment of distributions on its publicly-traded Common LP Units.  A majority of Blueknight’s revenues had accrued from storage and transportation contracts with its Former Parent, and the Partnership had to stabilize the overall business.  Blueknight owns high quality fee-based assets, and this stabilization occurred over the last few years as it has contracted with new customers (at similar rates to that which its Former Parent had paid) and recapitalized its balance sheet to substantially lower its total leverage, which now stands at approximately 3x EBITDA. 

As part of SemGroup’s bankruptcy, Elliott Management gained control of the general partnership interest in Blueknight.  Elliott subsequently sold the general partnership interest to Vitol, a privately-owned major global energy marketing and trading firm.  Vitol then teamed with Charlesbank, a well-known Boston-based private equity firm, to recapitalize Blueknight in 2010-2011.  Currently, Vitol and Charlesbank each own 50% of Blueknight’s general partner.  As part of this recapitalization:

  • Vitol and Charlesbank invested $125 million through Series A Preferred;
  • the subordinated MLP units of Blueknight that were held by the general partner were cancelled;
  • the distribution on the Common LP Units was reinstated at a minimum level of 11 cents per quarter  (minimum quarterly distribution or “MQD”);
  • a rights offering for the convertible preferred (the Series A Preferred) was held for the common LP unitholders; and
  • the distribution schedule for the general partner incentive distribution rights (IDRs) was reset

It is important to note that there was a well-documented dispute between Vitol/Charlesbank and major holders of the LP units from 2010-2011 as part of the negotiation of the recapitalization of the Partnership.  Rather than dedicate this write-up to retelling that story, Blueknight’s 10-K and other public filings (such as the proxy dated July 28, 2011) provide a detailed summary of the history of that issue.  Ultimately, the final recapitalization proposal was supported by the major holders of the Common LP Units, and the rights offering of Series A Preferred in October 2011 to such holders was significantly oversubscribed.  The unit-holder vote and rights offering ended the dispute, allowing Blueknight to finalize its recapitalization and move forward under a business plan to continue improving its existing assets and pursue new growth opportunities.

Business Overview and Key Assets

Today, Blueknight continues to own and operate a collection of desirable midstream fee-based assets in some key locations.  

  • Crude storage and terminals – 7.8 million barrels of crude terminalling faclilities and storage tanks, including 34 storage tanks with approximately 6.6 million barrels of capacity at its terminals in Cushing, OK.  In addition to the Cushing operations, there are 430,000 barrels of capacity at the Partnership’s Longview, TX terminal and 787,000 barrels of storage at various points along Blueknight’s pipeline and gathering system.
  • Crude pipelines – 1,289 miles of crude oil pipeline primarily in Oklahoma and Texas, including and the 820 mile Mid-Continent Mainline System, the 139 mile Eagle North Pipeline System, and over 300 miles of pipeline related to the Longview System.
  • Producer field and Crude oil transport services – Approximately 130 producer field service trucks and 150 tanker truck.  
  • Asphalt storage – 44 terminals across 22 states providing 7.2 million barrels of asphalt and residential fuel oil storage capacity.  43 of these 44 terminals are under long-term contract through 2016. 
  • Expansion Opportunities – So far this year, the Partnership has announced $47 million of growth projects that will increase free cash once they are completed in mid-2013.  These include the recently announced $37 million Arbuckle pipeline in TX/OK under long-term agreement with XTO (Exxon-Mobil).  Blueknight is also working on opportunities to extend other pipelines to support key customers and has approximately 10 acres of land at Cushing, OK that could support additional storage capacity of 1 million barrels. 

 

Importantly, Blueknight does not engage in marketing and does not take title to products that it moves; it therefore has minimal direct commodity price exposure. 

Valuation

The Partnership’s fee-based assets generate reliable free cash flow with low capital expenditure requirements on a normalized basis.  Using management’s stated 2012 estimates, the free cash flow profile is:

(All figures in millions, except per unit amounts)

       
                 
     

Est. 2012

   

2012 "Normalized"

2012
"As-Converted"

Adjusted EBITDA

 

$68.0

   

$68.0

 

$68.0

Cash interest

 

11.9

   

11.9

 

11.9

Maintenance capex

 

17.0

   

12.5

 

12.5

Mandatory amortizations

1.6

   

1.6

 

1.6

Preferred distribution

21.9

   

21.9

 

0.0

Distributable cash flow

15.6

   

20.1

 

42.0

DCF/Unit

 

$0.69

   

$0.89

 

$0.79

                 

Common LP Units outstanding

22.7

   

22.7

 

52.8

Common distributions (MQD)

10.0

   

10.0

 

23.2

Distribution per Unit (Annual)

$0.44

   

$0.44

 

$0.44

Distribution Coverage

   

1.6x

   

2.0x

 

1.8x

                 

Series A Preferred Units (#)

30.2

   

30.2

 

0.0

                 

Expansion capex

 

$50.0

   

$50.0

 

$50.0

 

Note: 2012 has higher than normal maintenance capex due to some deferred maintenance during the Partnership’s transitional period after SemGroup’s bankruptcy.  The “As-Converted” column illustrates the dilutive effect of the convertible preferred using the “Normalized” cash flow.

The partnership estimated that it may generate approximately $68 million of EBITDA this year.  Maintenance capex in 2012 will be elevated (due to some deferred capex from the last two years) at approximately $17 million.  Typically, the partnership might expect maintenance capex of about $12.5 million per year.  In addition, the Arbuckle project, described earlier, may contribute approximately $5-6 million of EBITDA and 6-10 cents of additional cash flow per unit by the time it is on line, based on the published estimates of one research analyst and the Partnership’s general comments about the financial parameters of the project.  (This will come on-line in mid-2013 and is not included in the cash flow estimates set forth above.)  We would also note that the Partnership, with essentially the same set of assets, generated over $100 million of annualized EBITDA before the former Parent’s bankruptcy in 2008, so the $68 million of baseline operating earnings could reasonably have some additional upside as deferred capex is addressed and operations continue to be turned around. 

BKEP Common LP Units – the Partnership is currently paying a dividend to the holders of these units at the minimum quarterly distribution rate of $0.11 per quarter.  These units are currently trading at ~$6.42, implying a current yield of 6.9%.  It is important to understand that Blueknight now has among the lowest total leverage of any publicly-traded MLP with Net Debt/EBITDA of approximately 3.1x EBITDA, while having one of the highest LP unit yields in the same universe (other mid-stream crude MLPs have sub 5% yields despite lower potential distribution growth profiles).  Meanwhile, the Partnership may generate distributable cash flow in 2012 of $15.6 million, or $0.69 per unit, (after the 11% dividend on the convertible preferred), based on the estimates from management.    Accordingly, the coverage ratio on the common dividend is 1.6x, which is astounding for an MLP with these type of quality assets.  Typically, this ratio would be 1.05-1.20x, at the high end, suggesting the Partnership is under-distributing currently.  On a fully-diluted as-converted basis, we believe this partnership has numerous levers (such as increasing the payout ratio, normalizing free cash flow, and new projects) to grow its common unit distributions by 56% to over 17 cents per quarter based on the Partnership’s current earnings power.  Indeed, the IDR’s establish the incentive for the general partner to raise the distribution to 18.25 cents per quarter over the next 2-3 years.  As shown below, we calculate the Partnership’s illustrative near-term distribution power using the following assumptions:

  • Maintenance capex normalizes around $12.5 million per year.
  • An estimated contribution from the Arbuckle pipeline project slated for completion in mid-2013
  • Raising the payout ratio but still allowing for 1.15x distribution coverage (which would still be in the upper range of comparable companies)
  • No contribution from Growth Capex beyond the $50 million in 2012.  The Partnership is targeting mid-teens returns on future growth projects.
  • Accounts for revised IDR splits, which results in Common LP Units receiving approximately 90% of the earnings power at this distribution rate.

Illustrative Near-Term Distribution Power

Adjusted EBITDA

 

$68.0

 

Cash interest

 

11.9

 

Maintenance capex

 

12.5

 

Mandatory amortizations

1.6

 

Plus: Arbuckel Contribution

3.8

 

Plus: Other Growth Capex  Contribution

1.0

 

Preferred distribution

0.0

 

Distributable cash flow

$46.8

 

DCF/Unit

 

$0.89

 

As-Converted Units

52.8

 
         

Payout Ratio

 

1.15x

 

Implied Payout

 

$0.77

 

Est LP split after GP IDRs

89.2%

 

Implied Quarterly Distribution

$0.17

 

Increase over current distribution

 

56%

 
         

Note: Est 2012 Growth Project Contributions

     

Arbuckle

Other

EBITDA

   

6.0

1.9

Interest on Financing

(1.8)

(0.6)

Maintenance Capex

 

(0.5)

(0.3)

Net Cash Flow

 

3.8

1.0

 

In the July 2011 Proxy, the Partnership offered the following longer-range forecasts assuming its long-term business plan:

       

2013

2014

2015

Total Distributions

   

$17.6

$49.6

$56.0

Ave LP Units Outstanding

 

24.9

60.0

64.6

             

Implied Distribution (Annual) per Unit

$0.71

$0.83

$0.87

 

Both current earnings power and management’s business plan suggest that there is ample opportunity for significant increases in distributions to the Common LP Units.

BKEP Series A Convertible Preferred Units – The Series A Preferred securities convert into the Common LP Units at a price of $6.50 per unit and pay a coupon of 11% per year.  These are the same securities that Vitol and Charlesbank, who jointly own the general partner, own via their investment of $125 million in the recapitalization described earlier. If Vitol and Charlesbank convert to common, they would bring along the rest of the holders.  Also, the preferred convert after October 2015 if the common price is at least 130% of the conversion price.  Despite the conversion option of these securities being at the money (and, at various times during the past year, meaningfully in-the-money), they trade at $8.60 which offers an 8.3% yield.  The total enterprise value through the convertible preferred is only 6.1x.  Particularly considering the quality of the underlying assets, we believe the risk-reward for these securities is extremely attractive. 

Blueknight Summary Capitalization

 

Cash

     

$3.8

Total debt

   

215.0

Series A Convertible Preferred

204.6

         

EBITDA - 2012 Est.

   

$68.0

         

Net Debt/EBITDA

   

3.1x

Net Debt + Pfd/EBITDA

 

6.1x

   
         
         

There is scant research coverage and liquidity can be limited, but we believe both securities offer compelling investments.

Risks

Potential conflicting interests with GP, Customer relationship with Vitol, declines in storage/terminal rates, and interest rate risk.

Disclaimer

We now own any of the securities discussed above, and may decide to buy or sell such securities at any time of our choosing without providing an update.

Catalyst

New Project Announcements.  Distribution Increases.  Potential refinancing at lower rates.  Better Research Coverage.
    sort by    

    Description

    Blueknight Energy Partners

    Blueknight Energy Partners (“Blueknight” or the “Partnership”) is a publicly-traded master limited partnership which owns and operates crude oil terminals and pipelines and asphalt storage facilities in some key strategic locations across the United States.  As will be explained later, prior to the autumn of 2010, Blueknight was known as Semgroup Energy Partners, LP (or “SGLP”).  There are two securities in Blueknight that we will discuss:

    (i)                  the common limited partnership units which trade on the NASDAQ under the ticker BKEP (the “Common LP Units”); and

    (ii)                the 11% convertible preferred stock which trades on the NASDAQ under “BKEPP” (the “Series A Preferred”). 

    Background and History

    SGLP was formed in 2007 as an affiliated master limited partnership of SemGroup, LP (“SemGroup” or the “Former Parent”).  VIC readers may be familiar with the bankruptcy of privately-owned SemGroup in the summer of 2008 after it lost $2 billion trading in oil derivatives.  Because SemGroup was SGLP’s largest customer at the time, the bankruptcy disrupted SGLP’s operations while it had to find new customers, but the ultimate quality of SGLP’s underlying assets endured.  After SemGroup’s bankruptcy, SGLP became independent of its Former Parent, and it is now known as Blueknight Energy Partners.   The Partnership never filed for bankruptcy, and there were no material liabilities related to the SemGroup bankruptcy or trading activities at Blueknight.   

    During the Partnership’s transitional period after SemGroup’s bankruptcy, it suspended payment of distributions on its publicly-traded Common LP Units.  A majority of Blueknight’s revenues had accrued from storage and transportation contracts with its Former Parent, and the Partnership had to stabilize the overall business.  Blueknight owns high quality fee-based assets, and this stabilization occurred over the last few years as it has contracted with new customers (at similar rates to that which its Former Parent had paid) and recapitalized its balance sheet to substantially lower its total leverage, which now stands at approximately 3x EBITDA. 

    As part of SemGroup’s bankruptcy, Elliott Management gained control of the general partnership interest in Blueknight.  Elliott subsequently sold the general partnership interest to Vitol, a privately-owned major global energy marketing and trading firm.  Vitol then teamed with Charlesbank, a well-known Boston-based private equity firm, to recapitalize Blueknight in 2010-2011.  Currently, Vitol and Charlesbank each own 50% of Blueknight’s general partner.  As part of this recapitalization:

    It is important to note that there was a well-documented dispute between Vitol/Charlesbank and major holders of the LP units from 2010-2011 as part of the negotiation of the recapitalization of the Partnership.  Rather than dedicate this write-up to retelling that story, Blueknight’s 10-K and other public filings (such as the proxy dated July 28, 2011) provide a detailed summary of the history of that issue.  Ultimately, the final recapitalization proposal was supported by the major holders of the Common LP Units, and the rights offering of Series A Preferred in October 2011 to such holders was significantly oversubscribed.  The unit-holder vote and rights offering ended the dispute, allowing Blueknight to finalize its recapitalization and move forward under a business plan to continue improving its existing assets and pursue new growth opportunities.

    Business Overview and Key Assets

    Today, Blueknight continues to own and operate a collection of desirable midstream fee-based assets in some key locations.  

     

    Importantly, Blueknight does not engage in marketing and does not take title to products that it moves; it therefore has minimal direct commodity price exposure. 

    Valuation

    The Partnership’s fee-based assets generate reliable free cash flow with low capital expenditure requirements on a normalized basis.  Using management’s stated 2012 estimates, the free cash flow profile is:

    (All figures in millions, except per unit amounts)

           
                     
         

    Est. 2012

       

    2012 "Normalized"

    2012
    "As-Converted"

    Adjusted EBITDA

     

    $68.0

       

    $68.0

     

    $68.0

    Cash interest

     

    11.9

       

    11.9

     

    11.9

    Maintenance capex

     

    17.0

       

    12.5

     

    12.5

    Mandatory amortizations

    1.6

       

    1.6

     

    1.6

    Preferred distribution

    21.9

       

    21.9

     

    0.0

    Distributable cash flow

    15.6

       

    20.1

     

    42.0

    DCF/Unit

     

    $0.69

       

    $0.89

     

    $0.79

                     

    Common LP Units outstanding

    22.7

       

    22.7

     

    52.8

    Common distributions (MQD)

    10.0

       

    10.0

     

    23.2

    Distribution per Unit (Annual)

    $0.44

       

    $0.44

     

    $0.44

    Distribution Coverage

       

    1.6x

       

    2.0x

     

    1.8x

                     

    Series A Preferred Units (#)

    30.2

       

    30.2

     

    0.0

                     

    Expansion capex

     

    $50.0

       

    $50.0

     

    $50.0

     

    Note: 2012 has higher than normal maintenance capex due to some deferred maintenance during the Partnership’s transitional period after SemGroup’s bankruptcy.  The “As-Converted” column illustrates the dilutive effect of the convertible preferred using the “Normalized” cash flow.

    The partnership estimated that it may generate approximately $68 million of EBITDA this year.  Maintenance capex in 2012 will be elevated (due to some deferred capex from the last two years) at approximately $17 million.  Typically, the partnership might expect maintenance capex of about $12.5 million per year.  In addition, the Arbuckle project, described earlier, may contribute approximately $5-6 million of EBITDA and 6-10 cents of additional cash flow per unit by the time it is on line, based on the published estimates of one research analyst and the Partnership’s general comments about the financial parameters of the project.  (This will come on-line in mid-2013 and is not included in the cash flow estimates set forth above.)  We would also note that the Partnership, with essentially the same set of assets, generated over $100 million of annualized EBITDA before the former Parent’s bankruptcy in 2008, so the $68 million of baseline operating earnings could reasonably have some additional upside as deferred capex is addressed and operations continue to be turned around. 

    BKEP Common LP Units – the Partnership is currently paying a dividend to the holders of these units at the minimum quarterly distribution rate of $0.11 per quarter.  These units are currently trading at ~$6.42, implying a current yield of 6.9%.  It is important to understand that Blueknight now has among the lowest total leverage of any publicly-traded MLP with Net Debt/EBITDA of approximately 3.1x EBITDA, while having one of the highest LP unit yields in the same universe (other mid-stream crude MLPs have sub 5% yields despite lower potential distribution growth profiles).  Meanwhile, the Partnership may generate distributable cash flow in 2012 of $15.6 million, or $0.69 per unit, (after the 11% dividend on the convertible preferred), based on the estimates from management.    Accordingly, the coverage ratio on the common dividend is 1.6x, which is astounding for an MLP with these type of quality assets.  Typically, this ratio would be 1.05-1.20x, at the high end, suggesting the Partnership is under-distributing currently.  On a fully-diluted as-converted basis, we believe this partnership has numerous levers (such as increasing the payout ratio, normalizing free cash flow, and new projects) to grow its common unit distributions by 56% to over 17 cents per quarter based on the Partnership’s current earnings power.  Indeed, the IDR’s establish the incentive for the general partner to raise the distribution to 18.25 cents per quarter over the next 2-3 years.  As shown below, we calculate the Partnership’s illustrative near-term distribution power using the following assumptions:

    Illustrative Near-Term Distribution Power

    Adjusted EBITDA

     

    $68.0

     

    Cash interest

     

    11.9

     

    Maintenance capex

     

    12.5

     

    Mandatory amortizations

    1.6

     

    Plus: Arbuckel Contribution

    3.8

     

    Plus: Other Growth Capex  Contribution

    1.0

     

    Preferred distribution

    0.0

     

    Distributable cash flow

    $46.8

     

    DCF/Unit

     

    $0.89

     

    As-Converted Units

    52.8

     
             

    Payout Ratio

     

    1.15x

     

    Implied Payout

     

    $0.77

     

    Est LP split after GP IDRs

    89.2%

     

    Implied Quarterly Distribution

    $0.17

     

    Increase over current distribution

     

    56%

     
             

    Note: Est 2012 Growth Project Contributions

         

    Arbuckle

    Other

    EBITDA

       

    6.0

    1.9

    Interest on Financing

    (1.8)

    (0.6)

    Maintenance Capex

     

    (0.5)

    (0.3)

    Net Cash Flow

     

    3.8

    1.0

     

    In the July 2011 Proxy, the Partnership offered the following longer-range forecasts assuming its long-term business plan:

           

    2013

    2014

    2015

    Total Distributions

       

    $17.6

    $49.6

    $56.0

    Ave LP Units Outstanding

     

    24.9

    60.0

    64.6

                 

    Implied Distribution (Annual) per Unit

    $0.71

    $0.83

    $0.87

     

    Both current earnings power and management’s business plan suggest that there is ample opportunity for significant increases in distributions to the Common LP Units.

    BKEP Series A Convertible Preferred Units – The Series A Preferred securities convert into the Common LP Units at a price of $6.50 per unit and pay a coupon of 11% per year.  These are the same securities that Vitol and Charlesbank, who jointly own the general partner, own via their investment of $125 million in the recapitalization described earlier. If Vitol and Charlesbank convert to common, they would bring along the rest of the holders.  Also, the preferred convert after October 2015 if the common price is at least 130% of the conversion price.  Despite the conversion option of these securities being at the money (and, at various times during the past year, meaningfully in-the-money), they trade at $8.60 which offers an 8.3% yield.  The total enterprise value through the convertible preferred is only 6.1x.  Particularly considering the quality of the underlying assets, we believe the risk-reward for these securities is extremely attractive. 

    Blueknight Summary Capitalization

     

    Cash

         

    $3.8

    Total debt

       

    215.0

    Series A Convertible Preferred

    204.6

             

    EBITDA - 2012 Est.

       

    $68.0

             

    Net Debt/EBITDA

       

    3.1x

    Net Debt + Pfd/EBITDA

     

    6.1x

       
             
             

    There is scant research coverage and liquidity can be limited, but we believe both securities offer compelling investments.

    Risks

    Potential conflicting interests with GP, Customer relationship with Vitol, declines in storage/terminal rates, and interest rate risk.

    Disclaimer

    We now own any of the securities discussed above, and may decide to buy or sell such securities at any time of our choosing without providing an update.

    Catalyst

    New Project Announcements.  Distribution Increases.  Potential refinancing at lower rates.  Better Research Coverage.

    Messages


    Subjectfurther on comparables
    Entry08/27/2012 12:17 PM
    Memberotto695
    please provide more data for your statement: "having one of the highest LP unit yields in the same universe (other mid-stream crude MLPs have sub 5% yields despite lower potential distribution growth profiles)."
     
    Just a casual analysis of the industry group suggestes that this is not accurate:
     
    AMID: 8.5%
    APL: 6.5%
    BPL: 8.8%
    BWP: 8.0%
    DPM: 6.2%
    EEP: 7.4%
    EPB: 6.2%
    GEL: 5.8%
    HEP: 5.4%
    MMP: 4.6%
    NRGM: 6.8%
    WPZ: 6.2%
    XTEX: 8.6%
     
    I only see one name "sub 5%" and, with one exception (HEP), all the names in this group that are attracting the lower yields than BKEP (sub 6.8%) are MUCH bigger and MUCH more liquid.
     
    Are you slicing the universe more finely than this or have different comps to arrive at your conclusion?

    SubjectRE: RE: further on comparables
    Entry09/04/2012 02:03 PM
    MemberAAOI
     

    SubjectVitol Situation
    Entry09/04/2012 02:20 PM
    MemberAAOI
    humkae848,
     
    Appreciate the interesting idea and excuse the fat finger post.
     
    Was curious about the Vitol angle...if I remember correctly the idea is they are waiting for some expiry (is it IDR related? clearly it's been awhile...) before they are incentivized to begin dropping assets into BKEP correct? Any color on your thoughts there?
     
    I was actually surprised I didn't see that mentioned at all in the write-up so perhaps something's changed, but when I looked at this awhile back I always thought that was the most interesting growth kicker of all. Kind of like the cherry on top of all the additional levers you mentioned.
     
    AAOI     

    SubjectRE: RE: Vitol Situation
    Entry09/04/2012 04:20 PM
    MemberAAOI
    Appreciate the color...great to hear nothing's changed. While I still need to refamiliarize myself with the details I definitely like the risk/reward here. Pref's look pretty interesting too obviously.
     
    To me, conceptually at least, seems like Blueknight is a relatively low-risk double over the next 2-3 years, where managements decision making is itself the hard catalyst that ultimately forces a substantial re-rate if the market isn't complying. I've always loved (and done well with) situations where this type of dynamic is at play.
     
    And that's actually why I like the cherry on top analogy as the process should be relatively gradual and then bam! As management starts pulling each lever various soft internal catalysts gradually work themselves into hard catalysts over time as the partnerships augmented earnings power is ultimately reflected in a higher payout.
     
    Seems reasonable then that if the steadily increasing dividend ends up approximately doubling in two years and we haven't seen price appreciation in line with that, management brings out the magic wand by opening up the drop down spigot and wa la, all of a sudden the optics flip and BKEP becomes cinderalla at the ball. What today is boring, orphaned, low divi Blueknight all of a sudden appears gorgous as brokers everywhere ask themselves who is this underowned high quality MLP with a double digit+ yield and an attractive growth runway? What more could a yield seeker desire. Except here the story doesn't end at midnight and shareholders can look forward to many years of steady growth as Vitol/Charlesbank play multiple arbitrage happily ever after.
     
    Anyhow, speaking of management, are they still missing a CEO? Not that its all that important given this classifies to a certain extent as a business that runs itself, just curious to know if that's been taken care off. And one last thing, you mentioned that this same set of assets once upon a time did ~100m+ in EBITDA. Why is that specifically? Is it really something that is achievable or are we talking about a number that was only achievable because of the old regimes was charging itself below market rates or something along those lines?              

    SubjectRE: RE: RE: Vitol Situation
    Entry09/05/2012 02:51 PM
    Memberhumkae848
    Hi AAOI,
     
    The Partnership is still seeking a new CEO to replace the fellow from Vitol who was serving in that role during the transitional period.  We think a new CEO could be a constructive change for the business.
     
    As for the earnings power of hte existing assets, it is unclear whether they could replicate the $100 mm.  On the one hand, the Partnership claims to have contracted with Semgroup back in the early days at market rates; market rates, however, may have come down somewhat since then.  Whatever the case, they seem to have recontracted some of the crude terminals at lower rates in the last 1-2 years.
     
    The asphalt business seems to have stabilzed.  The opportunity may exist most substantially to get the gathering and transportation segment operating back at full capacity.  In addition, the Eagle North Pipeline is a newer asset to the mix.  Therefore, all-in, I'm not sure if they could earn $100 mm (after G&A) again, but even $80-90 mm would still be a terrific result for investors.  I note that in the Proxy filed last year, the Partnership contemplated just over $80 mm in EBITDA on its no growth case.  (You can see this on page 49.  Note that this was intended to convince unitholders to vote for their proposal, so it was likely a very draconian view of a "no growth" case, too.  The offered a "Successful Vote" case on page 48, showing how they they think they get to over $110 mm+ of EBITDA by 2015.  I did not base my analysis on this.)
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