Alex Stallings - Chief Financial Officer and Secretary Mark Hurley - Chief Executive Officer Brian Melton - Vice President Pipeline Marketing and Business Development

Tristan Richardson - SunTrust Robinson Humphrey Matt Schmid - Stephens Will Hardee - RBC

Thank you, Nichole. It’s my please to welcome you to today’s conference where we will discuss Blueknight’s financial and operating results for the third quarter ended September 30, 2016.

I'll provide a brief update on financial results and Mark Hurley, our CEO, will update you on ou operational performance, projects, opportunities, and external factors influencing our business. We will then take your questions after our prepared comments.

Before we begin, I would like to remind everyone that information on this call may contain certain forward-looking statements that are subject to various risk and uncertainties. These risks and uncertainties include, among other things, uncertainties relating to the Partnership's debt levels and restrictions in our credit facility, our exposure to the credit risk of our customers, the Partnership's future cash flows and operations, future market conditions, current and future governmental regulation, future taxation, and other factors.

If any of these risks or uncertainties materializes or should have underlying assumptions prove incorrect, actual results or outcomes may vary materially from those expected. Please refer to Blueknight's SEC filings for a description of these and other risks and uncertainties that could affect our actual results.

Blueknight undertakes no obligation to update or revise any forward-looking statements contained on this call, whether as a result of new information, future events, or otherwise. BKEP owns and operates a diversified portfolio of complementary midstream energy assets.

We manage our operations through four operating segments: asphalt terminalling services, crude oil terminalling and storage services, crude oil pipeline services and crude oil trucking and producer field services. Yesterday we reported financial results for the third quarter and nine months ended September 30, 2016.

As Mark will further emphasize, we had a very strong third quarter and are exceptionally proud of the results. Do keep in mind that we had a very strong third quarter of 2015 as well.

However, results for both the three and nine months ended September 30, 2015 were impacted by litigation settlements that impacted comparability. I want to also mention that we continue to have some noise in our financial results as a result of fees incurred for the Ergon transaction, which amounted to approximately $1.4 million for the nine months ended September 30, 2016.

In addition, our distributions for the quarter reflect an increase of approximately $1 million related to the incremental common and preferred unit distributions related to the issuance of additional common and preferred units at the closing of Ergon transaction, which occurred on October 5, 2016. To the extent possible, we will try to identify and call out items to help better compare periods.

Yesterday, the partnership reported net income of $11.4 million on total revenues of $46.9 million for the three months ended September 30, 2016, which compares to net income of $14 million on total revenues of $47.2 million for the same period in 2015. BKEP recorded a net loss of $6.8 million on total revenues of $131.4 million for the nine months ended September 30, 2016, compared to net income of $23.3 million on total revenues of $136.1 million for the same period in 2015.

Net loss for the nine months ended September 30, 2016 was impacted by impairment expense of $22.8 million related to the cancellation of the Knight Warrior East Texas crude oil pipeline project as disclosed previously. BKEP’s adjusted EBITDA was $22.9 million for the three months ended September 30, 2016 as compared to $25.9 million for the same period in 2015.

Adjusted EBITDA was $52.7 million for the nine months ended September 30, 2016 compared to $56 million for the same period in 2015. BKEP’s distributable cash flow was $18.2 million for the three months ended September 30, 2016 as compared to $20.6 million for the same period in 2015.

Distributable cash flow for the nine months ended September 30, 2016 was $36.1 million as compared $44.9 million for the same period in 2015. Our fully diluted distribution coverage ratio was 1.49 times for the three months ended September 30, 2016 and 1.06 times for the nine months ended September 30, 2016.

Distributable cash flow and coverage for the three and nine months ended September 30, 2016 included $1.1 million and $1.4 million respectively of fees paid related to Ergon transaction. Our distribution coverage also includes approximately $1 million of distributions attributable to the incremental common and preferred units issued upon the closing of Ergon transaction on October 5, 2016.

Excluding both the Ergon transaction fees and incremental distributions, our coverage for the nine months ended September 30, 2016 would have been 1.13 times. Distributable cash flow and coverage for the first nine months of 2015 included $2.3 million of cash proceeds related to the sale of common units received in connection with the settlement of a 2008 claim with the previously related entity and a $6 million gain on the sale of crude oil pipeline linefill and storage tank bottoms as a result of the settlement litigation with the previously related entity.

BKEP also previously announced the third quarter 2016 cash distribution of $0.145 per common unit equal to the previous quarter's distribution and a $0.17875 distribution per preferred unit. Additional information regarding the Partnership's results of operations will be provided in the Partnership’s Annual Report on Form 10-Q for the quarter ended September 30, 2016, which will be filed later today.

A few highlights of each of the segments. Asphalt terminalling services, asphalt operating margin excluding depreciation and amortization increased $3.5 million or 23% quarter-over-quarter and $5 million or 14% nine months over nine months.

Due to the acquisition of one asphalt terminalling facility in May of 2015 and two more terminal acquisitions in February 2016 as well as annual contract fee escalations and increased throughput at our terminals. Crude oil terminalling and storage operating margin excluding depreciation and amortization was relatively stable quarter-over-quarter and increased $1.1 million or 8% nine months to nine months.

As discussed in previous quarters, our operating margin is impacted by the timing of storage contract renewals. Average storage rates during the first half of 2015 were lower than the average storage rates for the second half of 2015, which have continued into 2016.

As contracts expired in 2015, we were able to increase storage rates to better reflect current market rates, increased demand and the change from a backwardated crude market curve, which favors transportation to a contango market curve, which favors storage. Transition of the slope of the curve took place in late 2014.

As of October 28, 2016, we had approximately 6 million barrels of crude oil storage under service contract with remaining terms of up to 60 months. Crude oil pipeline, operating margin was higher by $0.3 million or 27% quarter-over-quarter, but down 1.9 million or 33% nine months to nine months.

Service revenues in 2016 were impacted by the suspension of service on our Mid-Continent pipeline system. We are currently operating one Oklahoma mainline system, which is a combination of both the Mid-Continent and Eagle pipeline systems.

Mark will provide further updates on our plans for the Oklahoma system in his commentary. Service revenues for the nine months of September 30, 2015 included a one-time temporary tariff that was being charged from June 2014 through May 2015 on certain barrels transported on our East Texas pipeline system under a throughput and efficiency agreement.

The tariff returned to a lower rate in June 2015. Revenues of $4.6 million were generated for the first nine months ended September 30, 2015 related to this increased tariff.

The three and nine months ended September 30, 2016 did include $1.6 million and $3.2 million respectively of crude oil sales, arising from product loss allowances. There were no such sales of crude oil arising from product loss allowances in the three or nine months ended September 30, 2015.

Crude oil trucking and producer field services, operating margin excluding D&A on an overall dollar basis was relatively flat for the three and nine months ended September 30, 2016 as compared to the comparable periods in 2015. Even transported volumes decreased nearly 50% when comparing three and nine month periods, as a result of declining crude oil prices and production volumes in the areas in which we serve we were able to maintain relatively flat operating margin.

Some of the other items I wanted to mention, general and administrative expenses increased to $4.9 million for the three months ended September 30 of 2016 which compared to $4.7 million for the three months ended September 30 of 2015. This increase is primarily due to $0.9 million of transaction fees related to Ergon transaction offset by decreases in compensation expense and insurance premiums.

General and administrative expenses were consistent at $14.4 million for the nine months ended September 30, 2016 as compared to the prior year. The decrease in compensation expense and reduction in insurance premiums was offset by approximately $1.4 million of transaction fees related to the Ergon transaction.

We expect additional Ergon transaction related expenses of approximately $0.2 million in the fourth quarter of 2016. The gain on sale of assets for the three and nine months ended September 30, 2015 included a $6 million gain on the sale of crude oil pipeline landfill realized in relation to the settlement of litigation with the former affiliate in September of 2015.

From a liquidity perspective, our consolidated total leverage ratio decreased to 3.94 times to 1 at September 30, 2016 which compared to 4.4 times to 1 at June 30, 2016. This was helped by the equity offering that we closed in July of 2016 which resulted in proceeds of approximately $21 million.

As of October 28, 2016 we have aggregate unused commitments under our revolving credit facility of approximately $83.6 million and cash on hand of about $1 million which are subject to financial covenant limits. From a capital investment perspective, net expansion capital expenditures totaled $8 million for the nine months ended September 30, 2016.

We currently estimate total expansion capital expenditures of $8.5 million to $9.5 million for the entire year of 2016, not including the acquisitions. Net maintenance capital expenditures for the nine months ended September 30, 2016 totaled $5.9 million.

For the year, we expect maintenance capital expenditures to be in the $7 million to $8 million range net of reimbursable expenses. With that, I will now turn it over to our CEO, Mark Hurley.

Mark?

Thanks, Alex, and thanks for everyone who dialed in today. We are very happy with our third quarter results and our overall results year-to-date.

Operating margin in the third quarter increased 16% over the same period last year. Adjusted EBITDA and distributable cash flow would have also reflected significant year-over-year increases if not for the approximate $8 million of income associated with the settlement of litigation that impacted comparable periods in 2015.

If you'll remember, 2015 was a very good year for us. And coming into 2016, we anticipate a very difficult business environment.

Frankly, we thought it would be difficult to top our performance of last year particularly with the unusual items that positively impacted our earnings. So we are very glad for year-over-year improvements in our base business and the partnership continues to generate significant amount of cash that we have distributed back to our unit holders.

I'm also pleased with the improvement and the quality of our earnings. Just a few years ago, we were dependent on businesses such as trucking where earnings can be short-lived and volatile, businesses with a very low barrier to entry for new competitors.

Today, however, our terminalling services segment comprise of asphalt and crude terminalling account for nearly 93% of our operating margin. These are fee-based long-term highway contracted businesses with creditworthy counterparties.

The success reflects our overall strategy to invest in businesses which are much less and variable in nature than volume and price-sensitive gathering and transportation businesses. It is important to note that these results do not take into consideration the closing of the Ergon transaction which was completed subsequent to quarter end on October 5.

The Ergon transaction will only continue to enhance and help further develop the strategy. With the completion of the Ergon transaction and with the three previous acquisitions done over the last 18 months, we have now invested about $150 million at an approximate eight times EBITDA multiple.

These investments will serve our unit holders well over the next several years. Because we are in the midst of a challenging business environment, another focus has been substantially reduce cost and we have accomplished that effort by decreasing the operating expenses nearly 20% and general and administrative expenses exclusive of the Ergon transaction fees by another 16% while increasing overall operating margin.

Getting into specific segment highlights, the increase in operating margin was driven by our asphalt terminalling business which reported a 23% increase in operating margin due to annual contract fee escalations, increased customer throughput and East Coast acquisition completed earlier in the year. The two asphalt acquisitions we have done over the last 18 months continue to perform above our investment expectations and we have now added the nine Ergon terminals to the asset base.

As we have stated previously, this acquisition will be immediately accretive and we will see the impact on our fourth quarter results. We are enjoying strong fundamentals in the asphalt industry and we expect this to continue for some time with the need for infrastructure projects in the U.S.

Switching gears, we also had another good quarter in our crude oil storage business, most of which is done at our Cushing, Oklahoma terminal. Our operating margin for the segment was up 8% year-to-date as compared to 2015.

I communicated last quarter that we had a number of contracts expiring at the end of 2016, but essentially all of this business has been extended through the end of 2017 and beyond. We are fully contracted today and in very good shape on our contract renegotiations.

We mentioned in the second quarter, our pipeline volumes in our trucking and field service businesses continue to be impacted by the decline in crude oil production and crude oil prices. In addition, pipeline volumes are impacted by our April 2016 decision to suspend service on our midcontinent pipeline system due to the discovery of a pipeline exposure caused by heavy rains in the erosion of a river bed in Southern Oklahoma.

We are currently operating in one Oklahoma mainline system instead of two separate systems. We are now putting in place plans to complete the modifications necessary to allow us to operate two separate Oklahoma pipeline systems and expect to have this project complete in mid 2017.

Once finished, one pipeline will transport a heavier stream of crude oil and the other will transport condensate produced in the SCOOP play in Southern Oklahoma. We remain very optimistic about the condensate project, as production in the area has continued to be strong even with the downturn in crude oil prices.

Overall, we like our crude oil assets in Oklahoma. We are fortunate to be located near two of the best shale plays in the United States with STACK and the SCOOP, and we intend to find ways to use our assets take advantage of the strong fundamentals in the region.

Financially, we continue to place a high priority on maintaining our overall balance sheet strength and distribution coverage. Accordingly, we were able to decrease our leverage to 3.9 times while distribution coverage increased to 1.5 times, and it would have been higher were not for the fees related to the Ergon transaction.

The distribution coverage for the third quarter of 2016 also includes $1 million of distributions attributable to the common and preferred units issued on October 05 associated with the closing of Ergon transaction. And as mentioned previously, the Ergon transaction will be transformative to Blueknight and provides immediate opportunity for growth.

This transaction is anticipated to result in a 15% to 20% year-over-year growth in adjusted EBITDA. And as previously announced, we anticipate a drop-down of an additional asphalt terminal from Ergon in 2017 and one more in 2018.

Further, we are evaluating other growth opportunities with a crude oil focus around the SCOOP and STACK plays in Oklahoma in addition to other terminal acquisition opportunities. We continue to actively seek additional organic and M&A growth, and are confident that we can set Blueknight on a strong growth trajectory as we move into 2017.

Looking ahead, our priorities and strategy remain unchanged. We will continue to focus on, one, maintaining excellence in our safety and environmental performance and by the way we've achieved our best ever safety environmental performance this year which is a real tribute to every employee of Blueknight; number two, strengthening our balance sheet; number three, keeping a strong focus on cost control; number four, continuing to look for accretive transactions and organic projects.

I do want to reiterate that the Ergon transaction will not change our growth focus in the manner in which we intend to grow. We have had success recently particularly with smaller acquisitions and our enthusiasm for finding these opportunities will not change.

Nichole, that is the end of my prepared comments and we are ready to open up the lines for Q&A.

Afternoon guys.

Hi, Tristan.

Hi, Tristan.

It’s great to hear that you guys are pursuing opportunities in Oklahoma in those attractive plays. I’m curious just generally, we know the condensate project was in that $10 million to $20 million range.

I'm curious if opportunities you are pursuing in SCOOP, STACK are of comparable size or if there's larger projects out there that at some point you might partner up with somebody on? Or just again give us a sense of opportunities you're looking at?

Good question. The condensate project itself you’re absolutely correct, it’s actually more in the $10 million to $15 million range, little lower if we go with a very, very simple system, a little more expensive if we go to something a little more elaborate and that would really depend on the interest of shippers.

But in addition to that, we’re actually looking at a number of opportunities some of which are relatively small. And I say relatively small, less than $5 million and then we are looking at some much bigger things, making so much bigger proposals to some of the producers in the area.

And in particular, we love to increase our presence in the STACK. We already have a system that originates at Nashville which is really quite near the heart of the SCOOP and we think that system will do very well particularly with condensate transport.

We would like to have a little more pipeline and gathering presence in the STACK. So we are chasing some opportunities to do that.

Great, that’s helpful. And then just I know still you guys have just recently closed but just in your prepared comments you talk about Ergon is transformative and it allows for opportunities for growth.

And I'm curious if you’re mainly referencing the nine terminals and although that does have an immediate impact I’m curious over longer-term now that you've had a little bit of time since the acquisition is closed, just thoughts on big picture several years out with the new partner you’ve got.

Well, first of all, we did this deal with Ergon because we mutually felt that there were a lot of opportunities here. You are combining I think the biggest most successful Asphalt & Emulsions company in the U.S.

with the largest operator of independent terminals. So we now have I think 54 terminals across the U.S.

And we just know and we are highly confident that there will be a lot of synergy there and it's been fun so far because as we get together with the Ergon folks and then just talk about ideas, the ideas really flow. And so I have no doubt that we will pursue things with them and many of them we haven’t even identified yet but there's just a lot of – this just seems to be a lot of energy there and a lot of synergy there.

We are doing the two dropdowns. We announced we would likely due to drop-downs over the next two years.

We haven’t planned at a detailed level beyond that but obviously Ergon is very big in terms of having midstream assets and we just haven’t gotten to that point yet, but certainly we hope for some further opportunities there as well.

Great. Thanks, Mark.

And then just last one from me, curious about with leverage coming down and coverage headed in the right direction, curious your thoughts about either trigger levels are or target areas where you’d like to be before you start assessing a resumption in LP distribution growth.

Yes, we look at that lot and I think we’ve guided it previously that we’ll probably stay flat for another several quarters, several being I don’t know three, four, five quarters and – but we like where things are going. We look at our three, four year models all the time obviously and we like the direction things are going.

And so we would definitely like to resume the distribution growth and we intend to do that a few quarters down the road.

Great. Thanks guys very much.

Thank you.

Good afternoon guys.

Hi, Matt, how are you doing?

Good. The cost reductions have been impressive.

Mark, I think as you mentioned in the prepared comments, operating expenses are down about 20%. What sort of the driver some of those reductions and what are the opportunities going forward to see some further margin improvement or cost reductions?

I can’t say there is one thing. It has been just an obsession with making sure we are not spending money that we don't have to spend and so [indiscernible] ranges from – it ranges from looking at our G&A cost and travel and meals and stuff like that to looking at improving utilization of our fleet, understanding of trying to find ways optimize our network and trucking and field services, consolidating locations.

Some of it is just a matter of doing less business, obviously that results in less OpEx as well. But I can guarantee that we’ve turned over every rock looking for ways to save money without sacrificing the integral operations and that's why I’m so happy to report that we’re having the best safety environmental performance we’ve ever had this year and its across-the-board.

It’s in our trucking operation, our pipeline operation, our terminalling operation and so we are very happy for that, how far that’s gone. But you name it, going to investor conferences we looked at everything you can imagine.

It’s an all out blitz on making sure we are not spending money we don’t need to spend.

Hey, Matt, the significant dollars really were from our decision to exit West Texas trucking at the end of last year. So when you're comparing 2015 to 2016, that’s a lot of it.

But I think what’s been important there and I think we alluded to this fact when we made that decision at the end of last year even though it was a very, very difficult decision to make. It really has and had a dramatic impact on our margins and so I think that we’ve been doing what we can in kind of a challenging environment to hold kind of trucking margins as stable as we can.

But a lot of costs that we’ve taken out were directly related to that business and it’s just some of these other business that we’ve just invested in you just see that don’t have near the OpEx.

Okay, great. Thank you.

That’s helpful. And I guess moving on to acquisitions, it’s great having the two terminals to be drop-down over time from Ergon giving some line of sight on further growth, what’s kind of the third-party market looking like for either asphalt or crude oil terminal acquisitions?

Yeah, good question. I will start with crude oil piece.

And frankly, I will say going into this year, we thought we would see affordability come down and we haven’t really seen that particularly on high quality assets in fact that we were talking the other day, I think, when a high quality asset comes to market if anything we are seeing values go up as opposed to come down. And then we’ve looked at a lot of other things that just are lower quality assets that we just don’t have a lot of interest in.

So I think we remain and the industry kind of remains challenged to go out and do acquisitions on the crude oil side that are immediately accretive and our discipline around that won’t change. On terminalling side or the asphalt side, we have been successful there.

We tend to find smaller assets that fit our footprint very well. We are working two or three of those now.

I can’t predict. It’s still early to tell if any of those will work out or not, but we do have opportunities out there like that.

We are looking at some greenfield construction opportunities as well. And odd are one of those will work out, I don’t know which one right now, but we always have a lot of balls in the air looking for those kinds of opportunities.

And so, I’m sure it’s something that will work out for us.

Okay, great. Well, that’s great color and I appreciate the details.

Thank you.

Good afternoon. Could you guys talk maybe a little bit about the margin profile of the Ergon asphalt terminals that you guys acquired maybe – to put with some context maybe, higher, lower margins compared with your predecessor terminals and kind of what type of synergies you are seeing so far and maybe how long do you think it will take to fully integrate everything together?

I would say the margins around those assets are pretty close to the rest of our portfolio. I mean, we – as we look across all the sites that we have, you see some facilities that have a higher margin, some that have a lower margin, it tends to be heavily connected to the strength of the market and the capabilities of the terminal.

So it’s hard to put it all in one bucket, but I would say a cross section of those assets looks a lot like a cross section of our total asset base. Second part of the question?

Go ahead and repeat the second part of your question.

On the synergies, maybe how long you think it will take for every things integrated?

Got it, got it. I think that will happen very quickly.

And the great thing about having the footprint that we have and [indiscernible] seen our map, our asset map, but we are coast to coast, border to border going North and South and so we are able to integrate new sites pretty quickly and we already have management folks in those areas, support staff. So we get those operational synergies pretty quickly.

And we are also excited about other synergies that we have like Ergon in general whether it would be procurement or integration of some of our other activities where we think we can get some efficiencies, sharing of best practices, that sort of thing. And so those are – that was I think a little bit longer term and a little more strategic in nature, but we are integrating that business very quickly.

Great. Thank you.

Good afternoon.

Hi, Will.

I’ve got a couple of questions for you. One, just out there, the public versus private buyers that you are seeing when you are talking about quality assets, do you have a breakdown as to what might be private capital versus the public market?

Are these private buyers that you are running into when you are competing for project or are they other entities like MLPs or combination?

I would say just as a generality, firstly, you run into a combination of private and public. I would say that from the standpoint of private equity, there is a lot of money sitting on the sideline waiting for a new opportunity to come along.

And so, they tend to be pretty aggressive when a high quality estimate or a high quality asset is available. And I will ask Brian Melton, who is our Vice President of Commercial, who weigh in on that was well because he kind of heads up our M&A activity.

Brian, do you have any comments?

Yeah, I would agree with what Mark said, I think it’s really in combination Will. I think on larger transactions, it’s probably [indiscernible] to public market buyers and we’ve seen a number of the large MLPs that have stepped out, done pretty large acquisitions at some pretty high multiples, but I would say on the lower end of things, one of the things we are seeing is probably more competition from private equity backed companies that are being more aggressive probably on the lower end.

And then the second part of my – or my second question is we’ve been through a pretty decent six month period where we had access to capital markets, if those markets begin to close down again, how do you view your parent helping you or have you already had discussions as to how that might work if the regular markets were closed to you?

Will, I guess, what I would say and again we’ve really just had the opportunity to start engaging with Ergon guys. So I don’t want to totally speak for them but my initial impression that we are kind of positioned kind of in the best of both worlds.

I think that Ergon has cash that they would like to put to work if for the right type of investment. So to some degree I cannot view them as almost a private equity sponsor that we have, I mean they obviously put cash to work when they did the transaction to get into Blueknight and so I think that – I think they will have competitive capital as we go out, if we were to need capital, I think they would be able to potentially offer competitively price capital.

At the same time, at least with the dropdowns that we’ve talked about that are possible for the next couple of years, at least the ones we specifically have mentioned, we don’t anticipate needing any additional capital for that. So it would have to be an incremental project, an incremental project of some size, since we do have a little bit of room to maybe finance another smaller acquisition kind of on our own without any more capital.

But my other impression too of the Ergon folks is that they are as sensitive as our investors are to incremental dilution. I think the benefit we have here with them as the GP is now is that they own equity throughout the entire chain, they’ve got preferreds, they also got commons and so they are acutely sensitive to dilution.

So I think it will be balance, but at least with – right now with what we have, at least identify today, we don’t anticipate needing any additional capital, so it’s only going to be for a good project. I think we are going to have again equity options if we need them and I think Ergon will be one of those options.

Thank you.

Well, thanks very much Nichole and I want to thank everyone for – who dialed in today. We appreciate your participation on the call.

We appreciate your interest in Blueknight. We think we have a great story here.

Like every CEO out there, I feel like we are a little undervalue right now and so I think we’ve got a great story and great future ahead of us. And as always if you have any further questions, or you think of a question later, please contact Alex or myself.

Again, thanks.