Blueknight Energy Partners' (BKEP) CEO Mark Hurley on Q4 2017 Results - Earnings Call Transcript
Blueknight Energy Partners (NASDAQ:BKEP) Q4 2017 Earnings Conference Call March 8, 2018 12:00 PM ET
Executives
Mark Hurley - Chief Executive Officer
Alex Stallings - Chief Financial Officer
Analysts
Matthew Schmidt - Stephens Inc
Michael Gyure - Janney Montgomery Scott LLC
Bronson Fleig - SunTrust Robinson Humphrey
Willam Hardee - RBC Capital Markets
Operator
Good afternoon. And welcome to the Blueknight Energy Partners 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 that today’s event is being recorded.
I would now like to turn the conference over to Alex Stallings. Please go ahead.
Alex Stallings
Thanks, Andrea, Good morning. It’s my 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, 2017. Mark Hurley, our CEO will update you on our operational performance, projects, opportunities and external factors influencing our business, and I will provide a brief update on financial results. 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. Statements included in this call that are not historical facts including, without limitation, any statements about future, financial and operating results, guidance projected or forecasted financial results, objectives, project timing, expectations and intentions and other statements that are not historical facts, are forward-looking statements.
Such forward-looking statements are subject to various risks and uncertainties. These risks and uncertainties include, among other things, uncertainties relating to the Partnership’s debt levels and restrictions in its credit facility, its exposure to the credit risk of our third-party customers, the Partnership’s future cash flows and operations, future market conditions, current and future governmental regulation, future taxation and other factors discussed in the Partnership’s filings with the SEC.
If any of these risks or uncertainties materializes, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those expected. The Partnership undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Blueknight Energy Partners is a publicly traded master limited partnership with operations in 26 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 reporting segments: Asphalt Terminalling Services, Crude Oil Terminalling and Storage Services, Crude Oil Pipeline Services and Crude Oil Trucking and Producer Field Services.
I will now turn it over to Mark Hurley, our CEO. Mark.
Mark Hurley
Thank you, Alex and thanks to everyone who dialed in today. I will begin my comments by talking about our asphalt terminalling services business which had another very good year. Our operating margin in this segment increased 14% in spite of the fact that road construction in much of the country was slowed by wet weather conditions. Still we had a very solid volume performance for the most of our assets.
The segment was also bolstered by the full-year results of the nine Ergon terminal we acquired in October of 2016. In addition on December 1, 2017 we closed on the Bainbridge, Georgia terminal loan another acquisition from Ergon. This site is used to distribute asphalt products into states of Georgia, Florida and Alabama, which will expand the reach of the Blueknight terminalling business.
We also disclosed yesterday the previously announced acquisition of our terminal in Muskogee, Oklahoma. We had hoped to close on this transaction by year-end, but unfortunately the regulatory process took longer than we anticipated. Nevertheless this site is now on our asphalt portfolio and we are really excited about this one.
This terminal is located on the Arkansas River includes 500,000 barrels of asphalt storage and approximately 150 acres of undeveloped land. Blueknight will operate this site, which will be under long-term leases with two asphalt customers, both of whom are highly creditworthy with a strong presence in the regional market.
Of particular note, its 150 acres of available land, which we intend to develop for additional customers and products. The location of the site makes us a very attractive growth opportunity for Blueknight, and we will begin marketing it immediately.
These last two acquisitions will add meaningful cash flow to the Blueknight’s results, most of which you will not see until we get to the Q2 results. The two sites also bring us three new customers which is something we value. Our history is such that once we get established with a customer, it opens up new opportunities for business.
In addition to Bainbridge and Muskogee, we are working with other opportunities to acquire or construct additional asphalt terminals. These potential transactions fit both our size and our return profile, so we are hopeful to capitalize on more and more of these in 2018.
Our asphalt footprint is now 56 terminals across 26 states. This segment is now our largest and the operating margin of the business has grown from $41 million in 2013 to $65 million in 2017, an increase of nearly 60% and we expect 2018 to be a strong year for the business. Industry forecasters are predicting 6% growth year-over-year with additional growth forming if we get a federal infrastructure programs in the start.
In the Crude Oil Terminalling segment, our Cushing facility remained fully contracted. However, the flat to backwardated forward curve impacted storage rates as we win new contracts during the year. As a result, terminalling services’ revenues and operating margin were down compared to the prior year.
However, we have been through this cycle before and our focus remains to keep the terminal fully contracted through emphasis on our outstanding connectivity, lending capability and focus on customer service. We will also strive for continued diversification in our customer mix and contract terminalling.
Switching over to the Crude Oil Transportation side of our business, we had our challenges in 2017 primarily due to our out-of-service pipeline in Oklahoma, which limited our volumes. However, construction is now underway to get the line back in service by the end of the second quarter.
Once complete, we will have a line servicing the SCOOP and Merge shale plays in Central Oklahoma. This will double our total Oklahoma pipeline capacity and we will be able to transport multiple grades of crude oil from the producing regions of Oklahoma to our terminal in Cushing.
The increasing crude oil prices have bolstered producer and market confidence, and we anticipate volumes to move higher in 2018. We are also seeing improvements in our trucking business as we move into the first quarter of 2018. But before I talk about volume and the revenue side of our business.
I’m very happy and proud to tell you that the Blueknight’s trucking fleet just received a 2017 Grand Champion Safety Award from the Oklahoma Trucking Association. This means simply that we have the safest trucking fleet operating in the State of Oklahoma across all the industries, and this is the second year in a row we have won this award.
What an outstanding accomplishment for the men and women, who work in our trucking business. Safety’s work that has never done and we only achieved this kind of performance with incredible dedication to detail every minute of every day, so congratulations to them.
Back to the revenue and volume side of the business and the news is promising as we are seeing volumes ramp up. We have a new contract with a major Oklahoma producer and we expect at least a 25% increase in trucking volumes as we progress through the year.
Our trucking fleet will be also be better integrated into our overall crude oil business. Over the past couple of years, we have right-sized our fleet to serve our Oklahoma pipeline assets and key Kansas customers.
While 2017 presented some real challenges in our crude oil businesses, we are optimistic in 2018. We expect to fully integrate our three crude oil business segments during the year. The restoration of service at our Oklahoma pipeline will allow us to provide service opportunities to our customers by allowing them to transport multiple grades of crude to Cushing, where they will be able to take advantage of our crude storage service offers.
We also expect to expand our crude oil marketing footprint to better utilize capacity on our systems. We initiated this at the end of 2017 and we have been successful on obtaining additional Oklahoma volumes as crude oil prices have improved. Some of this incremental Oklahoma business has been in the SCOOP area, which supports the pipeline we are putting back into service.
Another key goal of our crude oil business is to establish more of presence in the emerging STACK play in Northern Oklahoma. We are now developing a pipeline project in the STACK and we are optimistic, this will go forward, which will add nicely to our Oklahoma crude oil footprint and further benefit and integrate our three crude oil segments.
With these efforts, we expect our crude oil businesses in Oklahoma to steadily improve starting in the second half of 2018 and continuing into 2019.
I would like to conclude my remarks by summarizing our key business objectives in 2018, particularly around growth. One, continue to develop projects both acquisitions and new builds to expand our terminalling footprint. Two, get all of our existing crude oil assets operational, integrated and fully utilized. Three, develop a new pipeline opportunity in the Oklahoma STACK region. Four, achieve this growth while maintaining a strong balance sheet and taking advantage of the consistent strong cash flow from our terminalling segment.
That concludes my remarks. And I will now turn it back over to Alex Stallings, our Chief Financial Officer.
Alex Stallings
Appreciate it Mark. Yesterday, we reported financial results for the fourth quarter and year ended December 31st of 2017. Net income was $0.4 million for the three months ended December 31st of 2017, as compared to $2 million for the same period in 2016. Net income for the fourth quarter of 2017 was impacted by $2.4 million asset impairment charge related to crude oil trucking and producer field services business segment.
Operating income was $3.6 million for the three months ended December 31st of 2017, as compared to $3.4 million for the same period in 2016. Adjusted earnings before interest, taxes, depreciation and amortization, adjusted EBITDA was $14.1 million for the fourth quarter ended December 31st of 2017, as compared to $17.1 million for the same period in 2016.
Distributable cash flow was $8.6 million for the quarter ended December 31st of 2017, as compared to $10.5 million for the same period in 2016. Adjusted EBITDA and distributable cash flow including a reconciliation of such measures to net income are explained in the non-GAAP financial measure section of the earnings release issued yesterday.
Net income was $20 million for the 12 months ended December 31st of 2017, as compared to a net loss of $4.8 million for the same period in 2016. Net income for the 12 months ended December 31 of 2017, was impacted as I mentioned previously by that $2.4 million asset impairment charge related to crude oil trucking and producer field services business segment, and net income for the 12 months ended December 31st of 2016 was impacted by $25.8 million asset impairment charge primarily associated with the Knight Warrior pipeline project that was canceled.
Operating income was $28.8 million for the 12 months ended December 31st of 2017, as compared to $6.5 million for the same period in 2016. Adjusted EBITDA was $70 million for the 12 months ended December 31, 2017, as compared to $69.8 million for the same period in 2016.
Distributable cash flow was $48.2 million for the 12 months ended December 31st of 2017, as compared to $46.6 million for the same period in 2016. Distribution coverage ratio for the 12 months ended December 31st of 2017, was approximately one times.
Additional information regarding the partnerships results of operations will be provided in the partnership’s annual report on Form 10-K for the year ended December 31st of 2017, which is expected to be filed with the SEC later today.
A few highlights for each of the segments. Asphalt terminalling services. Operating margin excluding depreciation and amortization increased $7.9 million or 14% for the year ended December 31st of 2017, as compared to the prior year, primarily due to the acquisition of 11 asphalt terminals in 2016 as well as the increased product throughput at our terminals and renegotiated throughput fees for some of our asphalt facilities.
Crude oil Terminalling and Storage. Operating margin excluding depreciation and amortization decreased $2.1 million year-over-year, due to a decrease in market rates for short-term monthly storage contracts and decreased throughput fees as lower volumes were transferred in and out of the facilities. As of March 1st of 2018, we have approximately 5.4 million barrels of crude oil storage under service contracts.
Crude oil pipeline. Operating margin excluding depreciation and amortization expense decreased $6 million from 2016 to 2017 due primarily to the out of service pipeline that Mark discussed previously, which is limited our opportunity to capture additional volumes. In addition, included in product sales revenue for the year ended 2016 is $4.2 million and sales of crude oil rising from accumulated product loss allowances, PLA. Product sales revenue for 2017 only included $0.3 million in PLA sales.
On April 18th of 2017, we exited East Texas by selling our East Texas Pipeline System and terminal. We received cash proceeds at closing of approximately $4.8 million and recorded a gain of less than $0.1 million.
Crude oil trucking and producer field services. Operating margin excluding depreciation and amortization decreased $2.3 million year-over-year due primarily to a sustained lower crude oil price environment and increased competition. However, as Mark suggested, we are now seeing volumes increased in 2018, which is supported by new trucking customers and the increase in the overall crude price.
General and administrative expenses were $17.1 million for the year-ended December 31, 2017 compared to $20 million in 2016. The decrease from 2016 to 2017 is due to $1.8 million of transaction fees related to the Ergon transactions incurred in 2016.
The equity earnings and unconsolidated affiliate are attributable to our former investment and Advantage pipeline. On April 3, 2017 we sold our investment and Advantage pipeline and received cash proceeds at closing from the sale of approximately $25.3 million and recognized a gain on the sale of $5.3 million during the year-ended December 31, 2017. We received a final payment of $2.2 million in January of 2018 which will be reflected on our first quarter of 2018 results.
During 2017, we recorded fixed asset and intangible asset impairment expense including an impairment of goodwill of $2.4 million which was related to a write down of our producer field services business to its estimated fair value. And in 2016, we recorded an asset impairment expense of $25.8 million due to the Knight Warrior pipeline project and the East Texas pipeline system.
Our consolidated total leverage is 4.6 times at December 31, 2017. The leverage ratio increased at year-end due to an incremental $7 million of browning that we were require because of the timing of cash recites and cash payments over the New Year holiday.
From the capital investment perspective net maintenance capital expenditures for the year-ended December 31, 2017 totaled to $7.9 million. We expect maintenance capital expenditures to be in the $8 million to $10 million range and net of reimbursable expenditures for 2018. Our expansion capital expenditures totaled $9.4 million for the year-ended December 31, 2017 in 2018 we are estimating expansion capital expenditures in the $10 million to $12 million range.
Andrea that concludes our prepared remarks, we will now open it up for Q&A.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Matt Schmidt of Stephens Inc. Please go ahead.
Matt Schmidt
Hi good morning guys. On the pipeline services segment, clearly the margins have improved in the second half of 2018 with the restoration of service, but maybe could you provide a little more color on the margins in the fourth quarter and just what caused them to weaken versus the third quarter?
Alex Stallings
Yes , you are talking about 2017 right?
Matt Schmidt
Yes, the fourth quarter actual. Right.
Alex Stallings
Yes, I mean the biggest thing obviously was the pipeline being out of service, but we had gone ahead and started to incur some repair and maintenance expense on the line knowing that we were going to find a good path and a good process forward to restore service to the pipeline in 2018. We went ahead and started some of the repair and maintenance expense that was going to be necessary to the system. So that was one impact, but we also as you will see in the K today, we were able to reach a settlement to find an alternative route for the pipeline which also impacted margin primarily in the fourth quarter those are the two things.
Matt Schmidt
Okay thanks that’s helpful. And then in 2018 I guess with the growth CapEx of $10 million to $12 million it seems like you all potentially have additional organic acquisition opportunities out there. Just how are you thinking about balancing incremental potential CapEx and leverage moving through the year?
Alex Stallings
Sure. I think with respect to the pipeline projects that Mark mentioned, I think a couple of things that we are thinking about there. One, we are not going to proceed with the project unless we have a partner on that particular project and that could either be through some type of a third-party and that third-party would probably bring some type of an acreage dedication or some type of a commitment to be able to at least dedicate some volumes to the project. So that’s kind of how we are thinking about that, with the respect to the piece that we would be required to fund.
I mean we are exploring a few different alternatives. There is a lot of interest in trying to finance a project like that, but we would probably be looking at some type of structure and maybe like a [devco] (Ph) type structure and whether that’s done with potentially our GP or whether that’s done with a third-party or you know then we are kind of exploring all those options. But those types of projects, we think with the right partner, with the right structure will be something that we will be able to finance.
Mark Hurley
The other thing I like about that project Matt is, it just really completes our Oklahoma footprint and brings more business into Cushing, brings more business potentially to our trucking fleet. And so it’s really a nice anchor for growth for us and further utilization of the assets that we already have in the ground. So it’s exactly a kind of project that we want to be doing.
Alex Stallings
And Matt, one other thing I would mention, as we go through the year and if there are opportunities for acquisitions, we have to evaluate each one of those as they come along, but I mean clearly where our common equity is, we are obviously not pleased with where it is trading and the yield. So we would have to look at some type of structured financing probably to do something if we wanted to something on our balance sheet.
Matt Schmidt
Okay, great thank you. I appreciate the color.
Mark Hurley
Thanks Matt.
Operator
Our next question comes from [Elliot Miller] (Ph), a Private Investor. Please go ahead.
Unidentified Analyst
Thank you. I have a bunch of easily answered quick questions. Number one is, when the out-of-service pipeline is reopened, to what extent will it be contracted?
Mark Hurley
There are no contracts on that pipe. We proceeded with the project because: Number one, it was very low cost for us to do. That then translates into a short timeframe unfortunately, because we had to work through some route issues. But what makes it such an appealing project Elliot is that it originates right kind of on the edge of the SCOOP and not far from the Merge Shale areas right there in kind of West Central Oklahoma. And so we know there is demand to move oil out of that area, particularly lighter oil which gets harder and harder to deal with for the producers and markers in the area…
Unidentified Analyst
Yes, you don’t think there will be an issue with filling the pipe?
Mark Hurley
No, I think we will be successful filling our pipe over 2018, 2019.
Unidentified Analyst
Great. Second question, deals with the impact of the crude oil strip prices or contracting in Cushing. Do you think we are at risk of a serious and lengthy backwardation?
Mark Hurley
The backwardations that have occurred in the last few years have actually been pretty short lived. I’m not personally concerned about an overly long backwardation now. I think a lot of the dynamics around the market are similar to what we had when the previous backwardations which were pretty short in nature came to an end. So no, I’m fearful of that.
Unidentified Analyst
Good, that’s reassuring. Next is, what is the cost to EBITDA multiple on the dropdowns in Bainbridge and Muskogee?
Mark Hurley
Bainbridge was a dropdown, Muskogee was an acquisition.
Unidentified Analyst
Oh, I’m sorry.
Mark Hurley
So we tend not to give the specific EBITDA numbers out there. But I can tell you that between the dropdowns and the acquisitions we are consistently doing these between seven and nine multiple and base transactions has been in that range as well.
Unidentified Analyst
That’s good. My last question is, why don’t you think you needed to incur the impairment charge for the write-down of the value of the trucking and field service operations?
Mark Hurley
I mean we do an impairment analysis every year and really that one was related to Producer Field Services business. So, it’s an analysis that we have to do. That asset we have had for a long period of time. And you can go back in its history, but it’s not making as much money as it used to if you go back 10 or 12 years ago, it’s primarily related to pulling natural gas strip in West Texas. And so those are very, very old systems. So it’s not a high growth business, so it’s a something that we evaluated and based on kind of where we thought, the value of the overall assets are, we have ended up taking a non-cash charge around $10 million.
Unidentified Analyst
Okay. That's it from me. Thank you very much.
Alex Stallings
Thanks, Elliot.
Operator
Our next question comes from Mike Gyure of Janney. Please go ahead.
Michael Gyure
Yes. Could you guys maybe give a little more color on the growth capital? Where you are planning on, I guess spending the dollars, at what segment; I realized obviously that lots go into the pipeline project. But maybe specifically how much is going to towards the asphalt terminalling business?
Mark Hurley
Yes. First of all, the projects that we have in the front of us include restarting the crude oil pipe in Oklahoma that’s actually a very small, fairly small expenditure roughly $5 million. And then we have two opportunities we are looking at and one is the STACK pipeline opportunity, which would be a significant expenditure. But as Alex mentioned, we would be doing that with our partner if it goes forward.
So we have a portion of that expenditure. And then we have two other asphalt opportunities we are looking at. One is potential acquisition, a fairly small acquisition. And then a new build, which is something we haven’t done in quite a while. But we have a customer instant building of a new terminal to service their needs. So that’s kind of a scope of things we are looking at. You want to talk?
Alex Stallings
Yes. I think again, I think what I mentioned previously. I mean we are looking at least in taking a pipeline project; we are looking at a partner relationship. And then probably to the extent, you’ve got long dated kind of construction-type projects. Those are probably more suitable for some type of project financing or something to like a depth code type of structure. So that’s really what we are looking at there.
With respect to any other acquisitions that might occur, we probably would have to do some type of structured financing. So that’s what a lot of other guys have done. So we are looking at the same types of things now. So to try to make sure and manage leverage the best we can and unless you see a dramatic recovery in kind of the overall equity prices. But we are very mindful to that and we are exploring a couple of different options if we were to have some success on the acquisition front.
Michael Gyure
Okay. And then maybe on the asphalt, I guess how do you feel entering this asphalt season and I guess compared to last year? Do you think weather is impacted anything or I guess how you are feeling about the inventory levels out there that kind of stuff?
Mark Hurley
We feel very good about it for a number of reasons. Number one, we have two new sites in our portfolio that you have not seen in our results except for a very limited amount at the end of last year with Bainbridge acquisition. So we have got earnings will be bumped by that. Secondly, last year was a bit of over the recent say four to five years. Last year was a bit of anomaly weather-wise.
Because we did have just a number of things and happened that are really hurt demand a little bit and hurt volumes. It wasn’t a bad year for us by any stretch, just it didn't get as we didn’t have as much revenue as we hope to get going into the year, but again we had gains. So we hope that was a bit of an anomaly. And then the industry in general is really predicting continued strong demand volume growth.
And again, we hope there is something will happen on the infrastructure front, which will even bolster that. So, we feel very good about the asphalt segment going into. And that growth we talked about of 60%, we think this time next year we will be talking about a significantly higher than that.
Michael Gyure
Great. Thanks very much.
Operator
Our next question comes from [indiscernible]. Please go ahead.
Unidentified Analyst
Thanks for taking the questions, guys. So just I’m thinking about your overall crude business and tying your three segments together. And then also in addition to that, I include putting your out-of-service pipe back online. What is the overall capital outlay you anticipate for those aspects? What does that show up in your maintenance versus growth CapEx? I think if you can just provide it.
Mark Hurley
Aside from the STACK project that we talked about is getting everything running getting all the assets running and fully utilize is only about $5 million of capital and that’s really the river or across the river, and upgrading some stations. So it’s only about $5 million. Our new pipeline of the STACK would obviously be more than that. What could I be able to talk them about is that was small capital outlay.
Unidentified Analyst
Okay. So the kind of the restart of the pipeline that $5 million is the lion share then of the overall tie-in that you are referring to?
Mark Hurley
Yes, yes.
Unidentified Analyst
Okay. All right. Great. And then am I correct that is the part of your growth, it’s 5 million of your growth CapEx budget for 2018?
Alex Stallings
Yes.
Unidentified Analyst
Okay.
Alex Stallings
I think it’s probably just a little as probably about 16% of it frankly and I think for whatever reason if that expands much faster we need to add some additional capacity there than obviously would be a little bit more capital, but that would be because we had good opportunities with some customers I mean right now we are just keeping the system back in service it’s really a minimal amount of capital?
Unidentified Analyst
Okay. And then kind of last question relatively, so the crude oil operating margin guidance that you’ve provided for 2018 of exit run rate of $18 million to $20 million and perhaps a little better if we get some normalization storage rates that is just getting current pipe back online plus the integration that we have talked about that doesn’t take into account new potential, new STACK pipeline correct?
Mark Hurley
That is correct. Yes.
Unidentified Analyst
Okay, great. Yes. Thank you very much.
Mark Hurley
Thank you.
Operator
Our next question comes from Tristan Richardson of SunTrust. Please go ahead.
Bronson Fleig
Good morning, guys. This is Bronson Fleig filling in for Tristan. Real quick, I think looking back at the 3Q call on the asphalt side; it looks like you guys were seeing some strong volumes in the first part of the fourth quarter. We were wondering if you get a pine on the flat year-over-year performance of the segment. Was the wet weather a factor specifically during the quarter or is there something else that we should be focused on?
Mark Hurley
No. It was mainly a weather-driven phenomenon. There is quite a bit of rain in the beginning of the year and in the spring, which kind of slowed the start of the season and then of course, we had a holiday that really created problems more towards the middle of the year or the third quarter, and third quarter is normally our strongest quarter. So< it was a different event throughout the year that really slowed things down a little bit.
Alex Stallings
Yes. I also mentioned two other things. I mean we thought that we would potentially see some uptick in Q4, because we thought some of those volumes might recover and they didn’t recover like we had anticipated. The other thing that we expected in Q4 was to have up to a couple of months of the acquisition that we announced the Muskogee deal and the Bainbridge deal.
Bainbridge closed in December, so we didn’t get one month of earnings from that, but we also anticipated having at least something coming from the other terminal, the Muskogee terminal and none of that was realized due to kind of a regulatory approval we were waiting on, which just happened this week.
So we would anticipate it kind of both of those things and also keep in mind that some of the other points, I mean 2015 and 2016 were really strong years for the asphalt business. So it wasn’t that 2017 was necessarily bad. It was just that it probably wasn’t as impressive as those two years. I think there was a little bit more weather issues that kind of compounded really the ability to kind of show a little bit more growth on kind of the incremental revenue side.
Bronson Fleig
Okay, great. Thanks for the details on that. And then kind of going back to the 2018 guidance and hitting on the crude oil business kind of run rate gross margin target of $18 million to $20 million for the year. Are we correct in thinking that this guide also assumes a return to profitability in both crude pipeline and trucking for the entire year or this perhaps be more of a back half weighted event?
Alex Stallings
Yes. I’m expecting it to be the last half of the year. So once we get the pipeline back up in running, but you are exactly right. I mean our intent is by really the second half of the year to kind of restore both of those to profitability and then we are trying to be somewhat cautious on the re-contracting of Cushing. So those are really kind of the drivers.
Bronson Fleig
Great. Thanks for the details guys.
Mark Hurley
Thank you.
Operator
[Operator Instructions]. Our next question comes from Will Hardee of RBC. Please go ahead.
William Hardee
My questions have been answered. Thank you very much.
Alex Stallings
Okay. Thanks Will.
Mark Hurley
Thanks Will.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Mark Hurley for any closing remarks.
Mark Hurley
Yes, well first of all, thank you all for dialing in. We appreciate your interest in Blueknight. We feel very good about our story and going through 2018 and into 2019. So we have a very positive outlook on things and again we appreciate the support out there. So thank you very much.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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