Blueknight Energy Partners' (BKEP) CEO Mark Hurley on Q4 2015 Results - Earnings Call Transcript

| About: Blueknight Energy (BKEP)

Blueknight Energy Partners, L.P. (NASDAQ:BKEP)

Q4 2016 Results Earnings Conference Call

March 09, 2016 02:30 PM ET

Executives

Brent Gooden - Media Relations

Alex Stallings - CFO

Mark Hurley - CEO

Brian Melton - VP, Pipeline Marketing & Business Development

Analysts

Tristan Richardson - SunTrust

Matt Schmid - Stephens

Lin Shen - HITE

Steve Banker - Newmark

Edward Spilka - Praxis Foundation

John Lydecker - MJ Whitman

Operator

Good day and welcome to the Blueknight Energy Partners’ Fourth Quarter and Year-end 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Brent Gooden, Blueknight Media Relations. Please go ahead.

Brent Gooden

Okay. Thank you very much, and good afternoon, everyone. It’s our pleasure to welcome you to today’s conference call where we will discuss Blueknight’s financial and operating results for the fourth quarter and year ended December 31, 2015.

Alex Stallings, our Chief Financial Officer will discuss financial results. And Mark Hurley, our Chief Executive Officer will update you on our operational performance, projects, opportunities as well as external factors influencing our business. After prepared comments, Mark and Alex will take your questions.

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 risks 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 credit risk of our fourth party customers, the Partnership’s future cash flows and operations, future market conditions, current and future governmental regulations, future taxation, and other factors. If any of these factors or uncertainty materialize or should underlying assumptions prove incorrect and 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 in this call, whether as a result of new information, future events, or otherwise.

Blueknight Energy Partners L.P. is a publicly traded master limited partnership with operations in 24 states. We provide integrated terminalling, storage, gathering and transportation services for companies engaged in the production, distribution, and marketing of crude oil, asphalt and other petroleum products. 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 filled services.

Now, I am pleased to turn the call over to CFO, Alex Stallings. Alex?

Alex Stallings

Thanks, Brent.

Yesterday, we reported financial results for the fourth quarter and full year ended 2015. Our adjusted earnings before interest, taxes, depreciation and amortization, EBITDA, was $14.1 million for the fourth quarter of 2015 as compared to $18.2 million for the same period in 2014. Adjusted EBITDA was $70.1 million for the 12 months ended December 31, 2015 as compared to $66.6 million for the same period in 2014, which is an increase of 5.3%. Our distributable cash flow was $9.3 million for the three months ended December 31, 2015 as compared to $14.4 million for the three months ended December 31, 2014. Distributable cash flow for the 12 months ended December 31, 2015 was a record $54.2 million versus $51.1 million for 2014, an increase of 6.1%. Fully diluted distribution coverage was 1.3 times for 2015 as compared to 1.4 times for 2014.

One point that I do want to make is that our coverage was 0.9 times for the fourth quarter of 2015. The reason for this is that we do have some seasonality in our asphalt terminalling cash flows. Typically, our first and fourth quarters are weaker and we may drop below 1 times coverage from time to time, as we did in this particular instance.

Adjusted EBITDA and distributable cash flow were impacted in both 2015 periods by a restructuring charge of $1.6 million, which was associated with our exit from the West Texas trucking business. The Partnership reported a net loss of $16.9 million on total revenues of $43.9 million for the three months ended December 31, 2015 versus net income of $8.8 million on total revenues of $46 million for the same period in 2014. BKEP reported net income of $6.4 million on total revenues of $180 million for the 12 months ended December 31, 2015 compared to net income of $27.6 million on total revenues of $186.6 million for the same period in 2014. Net income for both 2015 periods was impacted by non-cash impairment charges of $22 million related to certain pipeline and trucking assets as well as associated goodwill resulting from decreased production and market values.

BKEP previously announced a fourth quarter 2015 cash distribution of $0.145 per common unit, which was equal to the previous quarter’s distribution and a 6.2% increase over the fourth quarter of 2014’s distribution. The Partnership also announced a $0.17875 distribution for preferred unit. Additional information regarding the Partnership’s results of operations will be provided in the Partnership’s Annual Report on Form 10-K for the year-ended December 31, 2015, which will be filed later today with the SEC.

A few highlights for each of the segments. Asphalt terminalling services -- in short, the asphalt terminalling services segment had a great year. The segment reported operating margin excluding D&A of $48.2 million for the 12 months ended December 31, 2015 as compared to $41.2 million for 2014, an increase of 17% year-over-year. This increase was driven by increased product throughput, renegotiated throughput fees for certain of our facilities, and the acquisition of the Cheyenne asphalt terminalling facility acquired in May of 2015. I would like to note that in 2015, certain of our customers exceeded their minimum take or pay volume commitments earlier in the year than they did in 2014. As a result, the majority of their incremental revenues were recognized by us in the second and third quarters of 2015, whereas in 2014, their incremental revenues were earned in Q3 and Q4 of 2014. This will impact the sequential year-over-year results.

Crude oil terminalling and storage results: For the year-ended December 31, 2015, operating margin excluding depreciation and amortization, was $18.8 million, essentially flat with 2014. As mentioned in previous quarters, our 2015 operating margin was 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. 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 market curve, which typically favors transportation businesses, to a contango market curve, which typically favors storage businesses. The transition of the slope of the curve took place in late 2014. As of March 2016, we have approximately 5.7 million barrels of crude oil storage under service contracts, with remaining terms of up to 13 months. Operating and expenses for 2015 were higher as compared to 2014, primarily as a result of the timing of tank inspections and related maintenance and repair, increases in utility expenses, as well as an increase in the percentage of total corporate shared services costs incurred by the crude oil terminalling and storages service segment.

Crude oil pipeline: Reported operating margin of $7.7 million for the year ended December 31, 2015 excluding depreciation and amortization, which is a decrease of $2.8 million, as compared to 2014. If you’ll recall, included in revenues and operating margin for 2014 were $4.2 million in sales of crude oil related to accumulated pipeline loss allowances. There were no such sales of crude oil related to pipeline loss allowances in 2015. Excluding these sales, revenues would have increased nearly $5 million year over year, which was driven by crude oil sales related to a marketing contract associated with the 75-mile pipeline that we acquired in November of 2015, and a $0.8 million increase in volume deficiency payments related to one of our Oklahoma pipeline systems. Operating expenses for 2015 include $3.2 million in cost of crude oil sales related to a marketing contract associated with the pipeline we acquired. In addition, we received a $1.5 million insurance claim settlement in September of 2014 that is also contributing to the change in operating expenses as you compare 2014 to 2015. We also recorded $3.9 million of equity earnings related to our ownership in the West Texas Pecos River pipeline for the 12 months ended December 31, 2015, as compared to $0.9 million for the same period in 2014.

Crude oil trucking and producer field services: Operating margin decreased in 2015 to $1.3 million as a result of the significant decrease in crude oil prices, an increase in pipeline connected barrels, and an increase in competition as competitors repositioned their underutilized equipment to areas in which we operate. All of these changes led to decreased volumes, transportation rates, and margins. The decreasing operating expense from 2014 to 2015 is primarily due to decreased wages and commissions paid to drivers; fuel costs, which are due to decreased volumes transported; and due to a decline in the usage of third party trucking companies in 2015. Partially offsetting these decreases is an expense of $1.6 million recognized in the fourth quarter of 2015 related to the cost of restructuring the segment, which resulted in our exit from the West Texas trucking. The expense consists of severance costs paid to employees, and the recognition of future operating lease payments for idled equipment. Mark will spend additional time in his comments to discuss our strategy with respect to this business segment.

A couple of other items: General and administrative expenses were $19 million for the year-ended December 31, 2015, as compared to $17.5 million for 2014. This increase is primarily attributable to employee compensation-related expenses and increased legal expenses incurred in connection with litigation that will settle in the third quarter of 2015.

The asset impairment expense: During 2015, we recorded non-cash impairment charges of $22 million related to certain pipeline and trucking assets, as well as associated goodwill resulting from decreased production and market values. Gain on sale of the assets for the three months ended December 31, 2015 includes a $6 million sale. Actually, the gain on sale of assets for the year ended December 31, 2015 includes a $6 million of gain on the sale of crude oil pipeline line fill and storage tank bottoms, realized in relation to the settlement of litigation in the third quarter of 2015.

From a liquidity perspective, our total consolidated leverage was 3.75 times to 1 at December 31, 2015 and as of March 2016, we have aggregate unused commitments under our revolving credit facility of approximately $130 million, which is subject to financial covenant limits. From a capital investment perspective, our expansion capital expenditures totaled $33.2 million for the year ended December 31, 2015. Currently, we are estimating expansion capital expenditures of $10 million to $15 million for 2016, not including the acquisition of the previously-announced Dumfries, Virginia and Wilmington, North Carolina asphalt terminal acquisitions. Maintenance capital expenditures for 2015 totaled $7.9 million. We expect maintenance capital expenditures to be in the $5 million to $7 million range, net of reimbursable expenditures for the year 2016.

With that I’ll turn it over to Mark, our CEO.

Mark Hurley

Hey. Thank you very much, Alex. And thanks to all of you who dialed in today.

I’d like to break my comments down into three sections for the call. First, I’ll talk about 2015 performance; then 2016 growth and strategy; and finally, our 2016 guidance.

Starting with 2015, I will start by congratulating the employees of Blueknight for achieving our best ever health, safety and environmental performance. We achieved all-time best results in practically every metric we follow in this critical area; and more importantly, I’m proud of the culture we’ve created at Blueknight that puts safety and environmental performance at the forefront of everything we do. And to top off a great year, Blueknight trucking received a safety award just this past week from the Oklahoma Transit Association where we finished in second place in the State for petroleum carriers. This award is based on accident frequency, employee injury rate, driver selection and certification, and the quality of systems in place to ensure the safety of our drivers and the public. We are very proud of this award and it comes only with the hard work and dedication of our people.

Moving to the financial side, I was very happy with our performance in 2015. We achieved record distributable cash flow of $54.2 million. Adjusted EBITDA came in at just over $70 million for the year. We had strong results from our asphalt terminalling business, where EBITDA was up 17%. We also improved results in our crude oil terminalling and storage business, as well as a solid performance from our crude pipeline business. In particular, our Oklahoma pipeline system performed very well. We significantly upgraded our asset portfolio with three acquisitions over just the last 10 months. The Cheyenne asphalt terminal, the Red River pipeline, and just recently, two asphalt terminals in North Carolina and Virginia. All three acquisitions are performing in line with or better than our expectations.

We have become a very terminalling centric company, if that’s a word, with our 45 asphalt terminals spread across the US and our large facility in Cushing, Oklahoma. Our pipeline systems in Oklahoma and West Texas enjoyed another good year in 2015. We did, of course, delay our Knight Warrior project in East Texas due to the challenging market conditions, and we will continue to evaluate this project as we navigate our way through 2016.

Our crude trucking and services business is in the midst of a very challenging market. As we have mentioned previously, it is this segment that is most impacted by reduced drilling activity. Margins became very thin over the course of the year, and particularly in West Texas, which was flooded with excess hauling capacity moving in from other regions, where production had declined. So, we made the difficult decision late in the year to exit the business in this region; however I do want to be clear. We are not getting out of the trucking business as a whole, just the West Texas area. We will continue doing business in Oklahoma and Kansas, without interruption. As a result of the West Texas exit, we took a restructuring charge of $1.6 million to cover employee severance costs and the recognition of future lease expense on idle equipment. I also want to remind the investment community that we have a very seasonal business. Alex mentioned this earlier in his comments, and the impact that the asphalt business has on our overall cash flow and coverage ratios, particularly for the first and fourth quarters.

I also want to point out that even within a given year, the asphalt paving season can start earlier or later than the previous year. It can end earlier or later than the previous year, so it makes very difficult quarter-over-quarter comparison and really not very meaningful in some cases. It’s much more meaningful to look at this business on a year-to-year basis as opposed to quarter-to-quarter basis. And of increasing importance these days, we finished the year with a very strong balance sheet. Our debt to EBITDA ratio was less than 4 times, our fully diluted coverage for the year was 1.3 times, and we increased our common unit distribution by 7.2%, as compared to 2014. And this was at the high end of our previous guidance.

Switching to 2016 growth and strategy, as we look to grow the Company, we will continue to focus on both organic projects and mergers and acquisitions. Our focus on M&A is stronger than ever, as we see potential opportunities coming out of this challenging market. We would love to do more deals like the one we just completed in acquiring the terminals in Virginia and North Carolina. We have an active M&A team working now to seek out similar deals. Our M&A target zone is smaller deals, say $25 million or less, that we can do at reasonable multiples, with solid counterparties. We have a particular interest in terminalling assets, but we are also looking at pipelines, and under the right circumstances even gathering and processing assets.

On organic growth, we are moving forward with our Oklahoma condensate pipeline project recently, that we had previously discussed. This project has been well received and we think it will fill a significant need for a dedicated condensate pipeline, as this material is becoming more abundant in Southern Oklahoma. And since we are converting an existing system, the capital need of this project is very small. We expect to have the system in service in the third quarter of this year. Our terminalling businesses, both crude and asphalt, are very well-positioned for the rest of the year. These businesses make up 85% of our operating margin, and we are contracted out for the remainder of the year, with very strong counterparties.

Moving to 2016 guidance: As we look out through the end of the year, we are committed to keeping our unit distribution coverage above 1. We are targeting EBITDA consistent with 2015 levels, in the mid to upper 60s, which would equate to a coverage ratio range of 1.1 to 1.3. Our revenue is more than 80% contracted for the year and we have very strong focus on cost control and operational efficiency. Counterparties are very strong and we have no counterparty credit concerns at this time. The balance sheet is in good shape. And we see no need to raise capital, unless it would be required for a substantial growth project. We will evaluate any growth in our dividend on a quarter-to-quarter basis for the rest of 2016 but we are committed to growing the distribution on a longer-term basis.

Okay. Chad, that concludes my prepared comments. We are ready to open it up for questions and answers.

Question-and-Answer Session

Operator

Certainly. [Operator Instructions] Our first question comes today from Tristan Richardson with SunTrust. Please go ahead.

Tristan Richardson

Just curious, could you remind us, on the condensate project, I know you completed an open season, but could you give us a sense of where commitment levels were when you decided to go forward with the project, or was there certain thresholds you decided was a green light go ahead for you?

Mark Hurley

Well, going into that open season, because the capital requirement on the first phase and simplest phase in the project was very low, we actually needed very little commitment, which we were, we feel confident we will get. And so, on that basis, we will move forward.

Tristan Richardson

And so, is it fair there will be a steady ramp period once the project comes online in Q3; not necessarily just turning the valve and we’re 100% full?

Mark Hurley

I think we will see fairly strong volumes, very early on, in the start up of that pipe. There’s quite a need now to be able to segregate condensate, and move it to the market. The producers and marketers in the area are undergoing a significant margin reduction in being able to get that material to market. So I believe we will start that up with fairly strong volume actually.

Tristan Richardson

Great, that’s helpful. And just on the pipeline side, when you look at 2016, I know there were some extra items that -- the sale of the loss allowances in 2014. When you look at 2016, is there potential that you could see some of those one-off items occur, or was that pretty much a one-time specific to 2014?

Mark Hurley

We would anticipate as pipeline loss allowances accumulate, we would anticipate building sufficient inventory this year to do another sale. It’s a little bit too early to predict exactly what the volume would be, and certainly too early to predict what the price would be, but we would expect to see some of that revenue this year.

Operator

[Operator Instructions] The next question comes from Matt Schmid with Stephens. Please go ahead.

Matt Schmid

Mark, I know you touched on the M&A opportunities a little bit, and how that’s going to be a focus. The Cheyenne acquisition has been a good one. Could you provide a little bit of color maybe on the uplift or expectations expected from these North Carolina and Virginia acquisitions?

Mark Hurley

Yes, I’ll give you some general guidance and we don’t get into extremely detailed economics on any particular deal, but these deals for the asphalt terminals are done in the $10 million to $20 million range. The asphalt, I’m sorry, the most recent was on the upper end of that, because it was actually two terminals. We go into these deals targeting a 7 to 8 multiple, and we feel really comfortable that we are going to be able to achieve that on this one. The contract actually took effect January 1, so we’ll see the benefit of that throughout the whole year.

Matt Schmid

Okay, thanks, that’s helpful. And then looking at West Texas and the Pecos River pipeline, I noticed that unconsolidated income was down a little bit. Is there anything specific going on out there, and just what should we expect for 2016 from that investment?

Mark Hurley

We think it will continue to perform pretty well. The area out there is undergoing the same dynamics that we’re seeing everywhere else. Although it’s less -- the Permian and, in particular, the Delaware Basin is less impacted than a lot of other production areas are. So I think it would be reasonable to expect some volume decline, just because of less drilling activity. But I think it will still be meaningful to us this year, and fundamentally, we feel good about that project going forward.

Operator

The next question is from Lin Shen with HITE. Please go ahead.

Lin Shen

When I think about your 2016 guidance, given you’re exiting some trucking business, so how should we think about your maintenance CapEx? Should we think about you can run a lower CapEx -- maintenance CapEx?

Mark Hurley

Do you want to take that, Alex?

Alex Stallings

Yes. I think on the maintenance CapEx side, I think we were real close to like $8 million in 2015. I think the guidance we’re providing for 2016 is in the $5 million to $7 million range.

Lin Shen

Great, also after exiting the trucking business in West Texas, do you think that you’re getting more strong positions for your whole trucking business segment, because for other areas you have strong competitive advantage?

Mark Hurley

I’ll say a few words about that. Our business, our trucking business in West Texas was a little bit different than our trucking business in Oklahoma and Kansas, and the difference was that out in West Texas, we were really just a pure; it was really just a pure trucking play, right? We don’t have a lot of assets, a lot of pipeline assets in West Texas. Obviously we had the advantage system, but compared to all of West Texas, it’s fairly small. It’s a different situation in Oklahoma, where we have the two pipeline systems, and in addition to the one that we bought last year. So we have a lot more synergy between our trucking operation and our pipeline operation in Oklahoma and Kansas than we did in West Texas. So it being just a pure play, with the trucking margins really being squeezed, with all of the trucking capacity that came into the area, it was just very difficult to make money. And so, we made the decision to pull the plug on our business out there. But we will continue, because it’s just a better strategic fit for us in Oklahoma and Kansas, So, we’ll continue there.

Operator

The next question is from Steve Banker with Newmark. Please go ahead.

Steve Banker

So, I would like you guys to address the share price and what actions you are contemplating to boost the share price, buybacks. It’s got to be frustrating for you; it’s frustrating as a shareholder; what actions are you contemplating?

Mark Hurley

Yes. I mean, in terms of actions around share buybacks and that sort of thing, we are not contemplating doing any of that. We think in the end, good fundamental performance and growth will rule the day, and we haven’t had the growth that we want to see. Although something has been happening within the Company that we are very pleased with, and that has to do with our asset portfolio. And so if you would look at business segments over the last three to four years, you would see a significant growth in the asphalt segment. I think you would have seen significant growth in the pipeline segment through 2015. You will see I think over the next two to three years growth in our terminalling business, crude terminalling business, because we’re just in a better place in the cycle. And so our fundamental businesses are just in better shape, and we are less reliant on the trucking and field services businesses that tend to be on a 30-day cycle.

And so I think now that we’ve got a stronger asset portfolio and with the things that we will do both organically with, for example, the condensate project and being able to go acquire some things, I think you will see, you will continue to see us have a very strong balance sheet and good growth prospects. And we have confidence that good performance in the end will rule the day, even though it can be very frustrating, I know when the Blueknight shares tend to just ride with everything else that’s going on in the industry.

Steve Banker

But, at what point does growth of the Company become impeded by the fact that you really can’t go out and issue more shares at these prices and does the cash flow support your ability to do more acquisitions? What levers do you have to pull?

Mark Hurley

First of all we have a lot of room in our credit facility, and that’s by far our cheapest form of capital right now. And we talked about the acquisitions that we want to do being the kind that we’ve done in the last year or so, which are small, so we can do them within the credit facility. They are immediately accretive, so it helps our cash flow. And in the event that we would want to do something larger, and we might, we would look at the option of doing something, some equity on a very structured basis with possibly a pick, possibly preferred units. And we also have very strong companies that make up our general partner, so we don’t feel, even though yes, the cost of capital is higher today than it was certainly a year ago and two years ago. We don’t really feel really handcuffed by that in the event that a nice opportunity comes along.

Operator

The next question comes from Edward Spilka with Praxis Foundation. Please go ahead.

Edward Spilka

I guess my question relates to the dividend yield also. It’s got to be a little frustrating for you to fundamentally be in completely different position than most of your peers, yet at 12% or thereabouts your price is though -- you’re with everyone else. So, I guess my question would be can you envision a scenario where you might want to cut the dividend for growth opportunities since you aren’t really getting credit for what you are creating underneath?

Mark Hurley

Do you want to take that, Alex?

Alex Stallings

I think though -- well, one, I’ll tell you, we haven’t really thought at all about cutting the dividend, so that really hasn’t been at all on our mind. And I think to Mark’s point, we do think that we are being given now a little bit of credit for being a little bit more diverse than some of our competitors, and that the bad news is our yield is at 12 but good news is our yield is at 12. And a lot of other peers in our space are trading at yields significantly higher than that. But at the same time, I echo what Mark said is, I think over time, I think that differentiation is going to continue. And I think the right types of opportunities; I think we still have a couple levers we can pull. But I can tell you we haven’t thought about or contemplated doing any type of a dividend cut to affect an acquisition. But I think the size of acquisitions that we’re targeting, which are the smaller transactions in the $25 million range, those are pretty bite-size and I think in doing those types of deals, we have a number of levers available to us that maybe people don’t who are trying to raise or have to raise $300 million, $400 million, $500 million in a fell swoop. So we would look to our sponsors, I think will be very supportive of deals, they’re very involved in our strategy with respect to what we look for in acquisitions and projects.

And so, I think we’ve got other means to effectively finance growth, if the right project comes along. And frankly, we just haven’t seen many good deals yet come to market. We think they still seem to be way overpriced, but we have to believe that these assets are going to start shaking loose very, very soon, and hopefully, we will be poised to jump on a few if and when they do.

Operator

[Operator Instructions] Next question comes from John Lydecker with MJ Whitman. Please go ahead.

John Lydecker

Could you talk a little bit more about your counterparty risk? I mean, I heard your statement during the call that you’ve got strong counterparties and no credit concerns, but could you just elaborate on that, and talk a little bit more about how you might be different than some of the other companies in the industry? There’s a little bit of a scare yesterday with Sabine getting a ruling that they could reject some of those contracts.

Mark Hurley

So we’re fortunate in that the pipeline counterparties that we have, who have agreed to take or pay deals are very big companies, so one is XTO/Exxon. That’s a big commitment that we have. Valero has been another big commitment that we have. And then when you get into our storage business and our trucking business, our big customer is Vitol. And in moving on to asphalt, we do business with Ergon, who is our biggest customer, they are a private company, but incredibly well, just very strong financial company in very good standing. And then it is companies like Suncor and a few smaller ones. And so, if you were to look at our entire customer portfolio, those are the companies that you see. And the other thing is that we, we don’t do deals; we don’t make large investments based on acreage dedications. So we have no acreage dedications out there that we are worried about. We certainly wouldn’t do one with a highly leveraged smaller producer. So our customer mix is just incredibly strong, and so it’s not a worry that we have. I don’t know, Alex, do you want to just say anything about that?

Alex Stallings

Yes, well the only other thing I’d add to that is that we don’t have any of the minimum volume commitments that are under water. We don’t, when you look at the -- if you look at the Sabine deal, they have, and a number of other counterparties they have these acreage dedications, or they have these minimum volume commitments that are significantly under water. We don’t have any of those that I’m aware of. We do have volume commitments on our asphalt, most of our asphalt facilities. There may be a couple of exceptions, but I can’t really think of them. But I can -- almost in every instance they are at least hitting or significantly exceeding their minimum commitments. So we just don’t have -- we have a pretty diverse customer mix. We don’t have, we really don’t have any direct E&P exposure, with the exception of maybe the Exxon and XTO. So we just, it’s a pretty diverse customer list, but it just is very dissimilar to a lot of our other competitors that have these types of acreage dedications or these minimum commitments on pipelines that are just significantly under water right now, and we just don’t have any of that today.

Mark Hurley

I’ll just add to that. One of the frustrations over the years is that we’ve gone out for a lot of projects, a lot of projects in West Texas in particular. And we’re just a conservative Company. And we would not -- we just would not fall into the trap of doing a major investment based on an acreage dedication. And we lost a lot of projects because of that. But today, we are sitting here thanking our lucky stars that we had that discipline, and that conservatism.

Operator

The next question is from Tom Heloisa, [ph] a Private Investor. Please go ahead.

Unidentified Analyst

I’ve got just two questions. First of all, with the Cushing terminal storage there -- crude storage, what do the contract renewals look like for 2016 and could you provide some color as far as price increase over 2015? And my second question would be the Knight Warrior pipeline; can you give me a status update on it?

Mark Hurley

Sure. Hey Brian, do you want to take that one?

Brian Melton

Absolutely. Tom, the first question on the Cushing storage renewal, we do have contracts. We try to structure our Cushing storage business to have contracts that rollover a two to three-year period of time. Alex mentioned earlier, our average contract tenure is probably in that just under two years today. Most of our 2016 contracts are actually back-end weighted, so we don’t have any significant renewals early in the year. It’s the second half of the year.

In terms of what the market looks like, we’re still in a fairly strong contango, which was in place for most of 2015, and so we anticipate a market very similar to 2015, just based on the forward curves in 2016, which is quite a bit different, as you heard earlier today than the market we had in 2014 where it was backwardated for most of the year and then went into contango very late in 2014. So that’s expectations as it relates to Cushing storage renewal.

On the Knight Warrior project, as Mark I think alluded to in his comments earlier, we had put that project on pause or on hold, based on market conditions. We just based on current market conditions, we continue to have discussions and talk to producers on an active basis in that area. We do see drilling activity continue in the Eaglebine/Woodbine area, albeit at reduced levels, from what we had anticipated in late 2014, early 2015. But we do continue to see activity levels there. We continue to have an active dialogue with all of the producers, and if we get either a return to a more robust drilling market or we get producer commitments to the back stop, a minimum volume that we need to underwrite the project, we’ll restart it. But, we continue to have those conversations and we’re just not at that point at this time.

Unidentified Analyst

One more quick question be on debt-to-adjusted EBITDA; I believe throughout the year it was 3.75 times. Does that include the most recent acquisition?

Alex Stallings

It does not include the most recent acquisition. It’s probably going to be probably a little, little north of that, maybe -- I don’t know, maybe a couple of bps -- couple of points, maybe 4, 4.8, 5ish, somewhere in that ballpark; not a lot of change. It will still be under 4.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I’d like to turn the conference back over to Mark Hurley for any closing remarks.

Mark Hurley

Okay. As usual, thank you very much for dialing in. We appreciate your interest and more appropriately, your investment in Blueknight. And as always, if you have follow-up questions, feel free to contact Alex or Brian or myself. So, again, thank you very much.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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