In a move that transitions Blueknight Energy Partners LP into a pure-play, downstream terminalling business, the Tulsa, OK-based company via three separate transactions has agreed to sell its crude oil terminalling, pipeline and trucking business segments for about $162 million in cash, including estimated crude oil linefill and inventory.

Blueknight

“This announcement represents a significant milestone as we transition Blueknight away from traditional oil and gas operations into a pure-play, downstream terminalling business focused on infrastructure and transportation end markets,” said CEO Andrew Woodward.

Under the largest deal, Blueknight would sell its crude oil terminalling segment to Enbridge Inc. for $132 million. The transaction, expected to close in February, is subject to customary adjustments and excludes crude oil linefill and inventory. It includes around 6.6 million bbl of crude oil storage in Cushing, OK. Upon completion, Enbridge’s overall storage capacity at Cushing would be around 26 million bbl.

“For our customers, we’re expanding our storage capabilities and connections in Cushing which brings more optionality, flexibility and value,” said Vince Paradis, Enbridge Vice President of Business Development in the United States. “This acquisition brings value for our customers and is important to our company as part of our U.S. Gulf Coast strategy.”

Enbridge said the deal comes at a price that is “more competitive than building new storage” and “further strengthens Enbridge’s top-tier position as a leader in the Cushing storage complex.” In addition to storage, the complex is a “vital transshipment point on the energy landscape,” according to the company, and “the most significant” trading hub for North American crude.

“This acquisition will provide connectivity to new production basins, Oklahoma and the Rockies, and support Enbridge’s strategy for directing barrels to the U.S. Gulf Coast, the largest refining complex in the U.S.,” the company said.

Blueknight also agreed to sell its crude oil pipeline business to subsidiaries of Sugar Land, TX-based oil refiner CVR Energy Inc. for $20 million, excluding crude oil linefill and inventory. The transaction includes 604 miles of crude oil pipeline, including the Cimarron Express Pipeline brought online in 2019, and about 0.3 million bbl of related crude oil storage located primarily in Oklahoma. Closing is expected to occur within the next 45 days.

Consideration for crude oil linefill and inventory is estimated in accordance with market-based valuation formulas set forth in each of the respective agreements and is subject to change at closing.

Blueknight also agreed to sell its crude oil trucking business to an undisclosed buyer, subject to customary adjustments.

Net proceeds are to be used initially to reduce debt and for general partnership purposes, according to Blueknight. Woodward touted the financial flexibility to both “materially improve” the company’s balance sheet and “pursue future investment opportunities predicated on risk-adjusted returns while maintaining our long-term financial targets.”

Pro forma for the transactions, Blueknight’s asphalt terminalling business delivers an “industry-leading, stable cash flow profile” underpinned by long-term, take-or-pay contracts with a weighted average term of six years, according to the CEO. “We believe these transactions, coupled with our new and improved strategy, best position the partnership for long-term growth and success.”

The company reported third quarter net income of $14.4 million, up from a net income of $7 million last year. The increase in third quarter 2020 net income was the result of higher operating margins in the crude oil pipeline segment, which included a $3.6 million non-cash gain and $1.5 million cash gain from commodity derivative contracts that settled during the quarter.

Simmons Energy, a division of Piper Sandler Companies, is serving as financial advisor, and Gibson, Dunn & Crutcher LLP is serving as legal counsel to Blueknight. Sidley Austin LLP is serving as legal counsel to Enbridge, and Baker Botts LLP is serving as legal counsel to CVR.