Energy Prospectus

Dec. 21, 2020 7:54 AM ETBlueknight Energy Partners, L.P. (BKEP)By: Carl Surran, SA News Editor9 Comments

Blueknight Energy Partners (NASDAQ:BKEP) +18.9% pre-market after agreeing to sell its crude oil terminalling, pipeline and trucking business segments via multiple agreements for ~$162M.
The company will sell its crude oil terminalling segment to Enbridge (NYSE:ENB) for $132M, and sell its crude oil pipeline business to subsidiaries of CVR Energy (NYSE:CVI) for $20M.
Blueknight says the deals strategically reposition it as a pure-play, downstream terminalling company focused on infrastructure and transportation end markets.
Blueknight says it will maintain its annual coverage ratio of 1.2x or greater on all distributions as the deals strengthen the stability of underlying cash flows.
Blueknight likely will "further improve its financial health in 2021 and may achieve its long-term leverage target if it successfully monetizes the oil logistics assets," Sarfaraz A. Khan writes in a bullish analysis posted recently on Seeking Alpha.

I'm glad to see at least one EPG member holds BKEP.

This is a small company, but it is solid. The preferred units (BKEPP) are in our High Yield Income Portfolio because the quarterly cash distributions MUST be up-to-date before any cash distributions can be paid to the common units. BKEPP is currently yielding ~11% annually. Quarterly distributions are fixed on BKEPP. Owners of BKEP also get quarterly distributions ($0.04/unit last quarter), which are variable. BKEP has more risk because of the required distributions to BKEPP preferred unit holder, but it has a lot more upside. Why, because after these asset sales close, BlueKnight will be generating a lot more free cash flow.

I will be updating the profile on BlueKnight this week, but the forecast/valuation model has already been updated for Q3 results. Prior to these sales, my valuation of BKEP was $2.70. The valuation will be going up.

BlueKnight has a VERY STRONG partner in Ergon, Inc. Wholly owned subsidiaries of Ergon own 100% of BlueKnight's general partner and 27.2% of the limited partner units. My guess is that Ergon will be dropping down a lot more assets into BlueKnight in 2021.