Blueknight Energy Partners L.P.

Thank you for standing by. This is the conference operator. Welcome to the Blue Knight fourth quarter and year-end conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Mr. Matt Lewis, Chief Financial Officer. Please go ahead.

Thank you, and good morning. We are pleased to welcome you to Blue Night's conference call, where we will discuss financial and operating results for the fourth quarter and full year ended December 31st, 2021. Please note that our earnings release, which can be found on our website, includes financial disclosures and reconciliations for certain non-GAAP financial measures, that should help you analyze our results. Additionally, supplemental information will be available in our annual report on Form 10-K, which will be filed tomorrow with the SEC. I would like to remind you that comments and answers to questions during the call today may include forward-looking statements that refer to management's expectations or future predictions. These statements are made as of the date of this call, and management is under no obligation to update these forward-looking statements in the future. They are subject to risks and uncertainties that could cause actual results to differ from management's expectations. Finally, as previously mentioned during our third quarter earnings call, on October 8th, Blue Knight's Board of Directors of the General Partner received a non-binding cash offer from Ergon, Inc. to acquire all of the outstanding publicly held preferred and common units. The Conflicts Committee, which is comprised solely of Blue Knight's three independent directors, has retained independent financial and legal advisors to assist in their evaluation and negotiation of the offer. Given that the Conflicts Committee's review is still ongoing, management is unable to comment about the process. I will now turn it over to Andy Woodward, our Chief Executive Officer.

Thanks, Matt. And good morning to everyone who dialed in. I'm pleased to review our performance during 2021, the various milestones achieved, and where our business stands today, along with updating you on the current macro environment and our growth strategy, including the two new projects announced at year end. Matt will then provide more details on our financials, capital allocation strategy, and 2022 guidance before we open the lines for Q&A. As Matt mentioned already, but worth reiterating, the Ergon Take Private offer is still ongoing and under negotiation. I can certainly understand and even empathize with the various levels of interest and feelings you might have regarding the process, timing, and ultimate outcome. That said, I hope you can appreciate our inability to comment on the matter and due to ongoing negotiations, the need for management to be particularly thoughtful about our forward-looking statements during these prepared remarks and Q&A. Also, please note that the process between Oregon and the Conflicts Committee is handled independently from management, outside of us answering questions on the business. This independence allows management to remain fully dedicated and focused on the business and executing our strategy. Furthermore, I'd like to add during this period, we have also received the necessary support from our board to deliver on our strategic plans as evidenced by the approvals received on our recent growth projects and common unit distribution increase. I am thankful for the support and look forward to sharing more of these details later on. Now, turning back to our business and highlights during 2021. I'd like to start by saying how proud I am of the Blue Knight team and the year we just had. As I reflected on the year ahead of this call, I'm reminded of how far we have come in a rather short amount of time. Our aim was high and we hit several critical milestones across many aspects of our business and continue to build upon our track record of executing on our strategic objectives. This includes achieving superb results in our environmental health and safety program, where we continue to demonstrate progress year after year, improving on all measurements we track by 50% versus the prior three-year averages. This is a strong testament to our team and culture. Our employees and operators have a sense of pride, personal responsibility, and ownership over their respective operations. And it shows not only in our continual EH&S outperformance, but also how we strive to better serve our customers and the communities in which we operate. Another key milestone during 2021 was the successful close of our crude oil transaction. This transaction was truly monumental in rewriting the Blue Knight story. Strategically, it sharpened our focus and enhanced our positioning as a pure play downstream terminaling company with the largest independent asphalt network in the nation, which we are now showing evidence of expanding. Our team is now fully dedicated to developing and growing this business garnering 100% of our full attention versus managing four different disparate business segments prior. Pro forma, the investment thesis of our business and risk profile have improved dramatically. We no longer have a portion of our business tied directly to changes in commodity prices or indirectly subjected to producer drilling activities and volume volatility. Our asphalt take-or-pay contracts are the most coveted type in the industry and what we believe the MOP structure was always intended for. As a result, our revenue is approximately 95% take-or-pay, the majority of which is from investment grade counterparties and from long-term contracts with a weighted average length over five years. Just as important, our crude oil transaction has led to best-in-class financial metrics and significantly strengthened the stability of our underlying cash flows. Post-transaction, our leverage dropped to two times and stands today near 1.8 times. Additionally, the timing could not have been more ideal as we looked to refinance our credit facility in the spring. We encountered a challenging banking market with strength. which led to extending our facility for another four years at competitive rates and terms. Since Blue Night went public, dating back to 2007, this is likely the first time in a very long time that we have a supportive and healthy balance sheet with the financial flexibility to pursue our strategy and growth in a disciplined and sustainable manner. Finally, crude oil transaction delivered significant value back to our investors without materially sacrificing cash flow. We ended 2021 with LTM coverage of 1.38 times on all distributions and increased our common distribution six and a quarter percent for the first time since 2015. It also gives me great pleasure to report that we've now achieved and exceeded with our long-term targets on leverage and distribution coverage. Shifting now to operations. During 2021, the base business had another strong year. This time last year, as you may recall, we had approximately 20% of our tank capacity expiring by year end. We successfully recontracted that available capacity at either current or more favorable terms. For 2022, 13% of our tank capacity will expire by year end, and there are no expirations expected in 2023, which should lead to further stability over the next few years. As for volumes, total asphalt delivered from our facilities during 2021 was slightly higher, up 2% versus the prior year, which, as a reminder, was also a strong year during the height of the pandemic. Year-over-year volumes did vary by region, driven by certain demand factors, competition, and supply changes. However, this also highlights the benefits of our diversified portfolio that, when taken together, often result in stable, growing volumes year-over-year. Looking forward as it relates to future volumes and roadwork activity, We are encouraged by the passage of the Infrastructure Investment and Jobs Act, a landmark and historic bill for our industry that has the potential to stimulate growth over multiple years. The bill contains a five-year reauthorization of the FAST Act, which was the prior federal funding program for roads, plus an additional $110 billion in new funding for roads, bridges, and other projects. When appropriated in full annually, this represents an approximately 50% increase in federal funding versus recent years past. As it relates to the appropriation of the funds, we anticipate that occurring sometime in the first half of this year, which implies the real benefits will likely be seen in 2023 and thereafter. As for 2022, We are encouraged by existing budgets and funds available at the federal and state level. We see healthy state surpluses, solid lettings and spendings, and expected growth across our regions in support of infrastructure and road work. For instance, in November of 2021, voters approved 89% of the state and local transportation ballot measures. These initiatives are estimated to generate an additional $7 billion of funding. Again, based on a combination of factors, we see strong footing for road work in 2022 and see most of the benefit from the new infrastructure law taking effect in 2023 and beyond. Now, with even that said, we do remain cautious with these expectations and continue to revisit our assumptions in the context of an ever-changing macro environment impacted by the Russian and Ukraine war and rising commodity prices, along with other inflationary measures. We do not know the full extent of how these factors could impact spending on infrastructure and road work, if at all. Turning back to 2021 and our achievements, we also delivered on our synergy targets throughout the year and continue to find efficiencies in our business. we estimate that run rate synergies at the end of the year reached $2 million, helping to offset increases elsewhere in the business. Collectively, these activities and many others during 2021 led to adjusted EBITDA up 9% year over year and distributive cash flow up 15% year over year. Matt will be spending more time on our financial performance I am incredibly pleased with this outcome. Finally, 2021 also marked the start of executing our new and refined strategy in earnest, initiating a new growth process in a meaningful way and reorienting our culture and organization at all levels around having a growth mindset. In our pursuit of growth, we now characterize our efforts into three different tiers. Tier 1 is within asphalt, which remains our core focus, leveraging on our competitive positioning, our core competencies, and customer relationships. We see growth in Tier 1 similar as before from either new organic developments or acquisitions. Tier 2 is serving similar customers, but in a complementary products and services outside of asphalt, either at existing sites or even new greenfield locations. And then lastly, Tier 3 is more opportunistic and regionally specific. It's capturing opportunities that better utilize our excess land for industrial use. These opportunities will likely be driven more by regional demand around our sites and could come in the form of long-term leases from various parcels of our excess land. I am pleased to report that this strategy, process, and renewed focus on growth led to announcing two new projects at the end of the year. The first opportunity was an acquisition of an existing asphalt terminal in the high-growth state of Colorado, which included a 200-acre industrial park. The second opportunity was an organic expansion of an existing site, adding rail and tankage and improving certain capabilities. Combined, these two projects require approximately $15 million of capital for an additional $5 to $10 million of growth capital over time. Matt will share more details on expected incremental cash flow timing and how they align with our risk-adjusted targeted returns. That said, I'm excited to report that we closed the Colorado acquisition in January and we received all permitting and regulatory approvals for the organic expansion in February. These two projects are perfect examples of our approach and symbolic of our investment strategy and growth aspirations. Not only are these sites a good example of Tier 1 opportunities as just described, but they also have the potential to lead to Tier 2 and 3 opportunities over time, providing additional potential upside. In summary, I'm incredibly proud of this team, these pivotal milestones, our progress, and our ability to deliver on what we said we would do. With that, I'll turn it over to Matt to walk through key financial details in our 2022 outlook. Matt?

Thanks, Andy. This morning, I plan to walk through highlights from the fourth quarter and full year before touching on capital allocation and a few details around our 2022 outlook. Starting with fourth quarter. Adjusted EBITDA from continuing operations was $13.9 million, up 2% compared to the prior year, and it excludes approximately $0.7 million of one-time professional and legal fees related to the conflict committee's ongoing review of the Ergon buyout offer. Total fixed fee taker pay revenue was $24.4 million, up compared to the prior year by approximately $0.4 million due to favorable contract renewals and annual contract escalators. This increase was essentially offset by lower variable throughput revenue of a similar amount, which, as we've discussed on previous calls, can fluctuate between third and fourth quarter each year depending on when certain customers achieve minimum annual thresholds. Last year, we had a seasonally strong fourth quarter as favorable weather conditions extended the construction season in certain operating regions. However, on a full year basis, 2021 variable throughput revenue was in line with the prior year and represented approximately 6% of total revenue, excluding variable cost recovery amounts. Fourth quarter distributable cash flow from continuing operations was 11.8 million, up 4% compared to the prior year. Our coverage ratio was 1.46 times on all distributions and 3.0 times on common unit distributions. Now stepping back to look at full year 2021, Blue Knights adjusted EBITDA from continuing operations was 54.2 million, up 9% compared to the prior year. In addition to higher fixed fee revenue, the partnership also benefited from lower operating expenses, net of recoverable costs, improvements in our run rate general and administrative expense, and approximately 2.2 million in non-recurring other income related to insurance claim reimbursements received during 2021. At the beginning of the year, we communicated synergy targets ranging between 1.5 and 2.5 million on an annual run rate basis following the crude oil divestiture. At year end, we are pleased to report that we've achieved approximately 2 million in annual run rate synergies through reductions in corporate overhead and administrative services. Full year 2021 distributable cash flow from continuing operations was 44.4 million, up 15% or 5.6 million compared to the prior year. Our full year coverage ratio was 1.38 times on all distributions and 2.74 times on common unit distributions. To put our 2021 distributable cash flow into context relative to historical periods, if you were to average Blue Knight's reported annual distributable cash flow over the last three years, 2018 to 2020, for both continuing and discontinued operations, so including the crude oil business, That average was $41.2 million. This year, we achieved distributable cash flow of $44.4 million from continuing operations, or just asphalt, pro forma for the crude oil sale. Said differently, we were able to divest three businesses and reduce our total leverage ratio from approximately four times to less than two times, and the distributable cash flow from our pro forma business actually increased versus the historical three-year average during periods when we owned the crude oil business. Now, as we move on to balance sheet and cash flow highlights, I'm going to use it as an opportunity to incorporate some thoughts on capital allocation. First, it starts with debt and strengthening our balance sheet. And thanks to the divestiture of the crude oil business and support from our senior lender group, Blue Knight successfully extended our credit facility to May 2025, and our current leverage and liquidity position are in the best place it's ever been in the partnership's history. and well-situated to support future growth. We ended the year with $98 million of total borrowings outstanding and approximately $201 million available under our credit facility, subject to covenant restrictions. As of March 1st, our total borrowings outstanding were $110 million, which also included $8 million related to our quarterly distributions paid in February. Our fourth quarter of 2021 total leverage ratio was 1.84 times. compared to 3.83 times in the prior year. Lower debt and leverage favorably impacted our effective interest rate on borrowings outstanding, which was reflected in material improvements in cash interest expense year over year. I'll make a brief statement on interest rates given the recent trends and commentary out in the market. Our credit facility calculates cash interest expense based on LIBOR plus a pricing grid that is leverage dependent, which does partially expose us to movements in the underlying LIBOR rate. Management is evaluating potential impacts and sensitivities from a higher floating interest rate environment, and we are currently exploring longer-term risk management strategies with our board and senior lenders. To close out our thoughts on debt, we are undoubtedly well below our internal long-term leverage target of three and a half times and intend to utilize liquidity from our credit facility to pursue growth projects, which is the next item in our capital allocation strategy. As we've mentioned on previous calls, we're keenly focused on maximizing risk-adjusted returns over the long term. We are targeting investment multiples ranging from six to eight times, calculated as a ratio of capital over EBITDA. And as Andy noted, the two growth projects announced in December fit our investment criteria and represent excellent examples of how we intend to utilize available liquidity to maximize returns. As far as timing of capital spend goes, close the asphalt terminal and industrial park acquisition during January and have taken over operations this month. Capital spend for the organic project will be spread out over the first three quarters of 2022 and credit to our engineering team for de-risking approximately 80% of the total project costs by procuring critical long lead items, which allow us to protect our construction timeline and returns. We expect the project to be fully in service during the fourth quarter of 2022. The $5 to $10 million of potential future expansion capital is separate and not currently included in our assumptions, but would only further improve our project cash flows and returns. Finally, we will continue to evaluate returning capital to our unit holders when appropriate. For instance, this past year we opportunistically repurchased 719,000 preferred units, and in January announced a 6.25% increase to the fourth quarter common unit distribution rate. This return of capital will be based on a number of factors that influence our decision-making process, including but not limited to potential headwinds and tailwinds affecting the business, the sustainability of an increase in our underlying cash flows, and maintaining our long-term coverage ratio target of 1.3 times or greater. Capital allocation is not an either or, it's an and, which allows us to maintain flexibility. Growth absolutely remains our top priority, which we believe will allow us to maximize risk-adjusted returns over the long-term versus other alternatives. I'll finish with a few notes related to our 2022 outlook. We expect adjusted EBITDA for the base business to be approximately 2% higher than 2021, excluding the $2.2 million in one-time other income related to insurance recoveries received during 2021. Incremental to the base business, The two recently approved and announced growth projects will provide incremental EBITDA for a portion of the year once they are in service. Now, on an annual run rate basis, these projects are expected to add combined EBITDA of approximately 2 million per year starting in the fourth quarter of 2022. We expect maintenance capital to be in a similar range to last year, between 5.5 million to 6.5 million. In summary, we accomplished a lot this past year. And I echo Andy's comments that the credit appropriately goes to the efforts of our whole team. Operator, we're ready for Q&A.

Thank you. We'll now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, press star then two. We'll pause for a moment as callers join the queue.

Once again, that star, then one.

Our first question is from Chris Cook with Davos. Please go ahead.

Hi. Thanks for taking my call. I think you said, and I missed it, how much have you spent on evaluating the proposal from Ergon?

Chris, this is Matt. We've spent about $700,000 in the fourth quarter, and that was related to the conflict committee's costs on the review.

So we would expect that kind of run right until the end of the negotiations?

No, Chris. This is Andy. As Matt just shared there, and just to remind you all, those are costs that the Conflicts Committee is spending. It's not Ergon's costs, and it's costs for their time along with their financial expenses. and legal advisors to be able to both evaluate and negotiate the offer on behalf of the unit holders. Depending on the outcome, there could be more costs if the outcome, if it were to get approved and go through. Obviously, there would be filings with the SEC. There would be fairness opinions. So, we would certainly expect more costs to be incurred. that was the case but outside of that we don't expect uh materially any uh further types of costs versus what you've what you've seen here in our release got it so it's just a one-time one-time cost with respect to firing up the and it's coming out of unit holders uh make no mistake correct yeah this is blue knight paying those costs on behalf of the conflicts committee

And supporting their work. That's right.

Okay. I guess, you know, evaluating a take-under and spending money doesn't make much sense, but I know you guys can't comment.

No, we can't.

But we certainly understand the question. But like you said, we can't comment.

Okay. Thanks, guys. Keep up the good work.

Thanks, Chris.

The next question is from Nat Stewart with NAS Capital. Please go ahead.

Hey, thanks for taking my question.

Hey, good morning, Nat.

Good morning. Yeah, I just had a few questions about the growth prospects. Is there any more kind of qualitative stuff you can tell us first about I guess it could potentially tie into what you called your tier three growth prospects. I don't know. But, you know, the Colorado acquisition, I wasn't sure if the asphalt terminal was on the 200 acres or if it was like a separate parcel that was nearby. And obviously, it sounds like that could be what you call tier three potentially. But does that land have significant potential commercial use or potential Is that something you'll be evaluating in the near term, potentially selling? Or just what was the thought process behind buying that large parcel of land?

Yeah, this is Andy. I can take that question. And so you're right. The Colorado site, 200 acres, is inclusive of the asphalt terminal there. And there's roughly... 335,000 barrels of storage, of which 155,000 is operational storage today. But that still leaves plenty of space for other industrial use throughout that property. It's in western Colorado near the Grand Junction area. So not in Denver, but you know, we still see and we've received a number of inbounds already on potential industrial use for that property. But we're continuing to evaluate our strategy around Tier 3 to ensure that we're best utilizing that excess land for the highest return possible. And so we're going through that work as you just mentioned.

Okay. Yeah, that makes sense. In terms of kind of the bigger picture, You know, you guys have quite a bit of financial capacity, particularly if you were to acquire, you know, an asset in your target range. What does the environment look like out there, you know, to potentially, you know, add, you know, some substantial acquisitions and move you closer to your target leverage ratio? Just how do things look out there and how do the prospects look I would classify this first acquisition, it sounds very good. I'd say for you guys, it's kind of on the moderate size. So how do things look for, you know, looking out for some larger acquisitions that could move you to the leverage ratio you want?

Yeah, no, it's a great question, Nat. And maybe a couple of points I could mention to help you understand that question from our standpoint. I think first, as it relates to the two projects we just announced, I mean, I would love to be able to do 10 more of those. I think they're, even though they are, to your point, modest or on the smaller size side, they're great projects that I think even just on the initial returns that we see are clearly within our investment targeted returns. And then as we just went through, there's also additional upside thereafter by either adding additional capital with current customers even today to exploring tier three opportunities on the land in particular in Colorado. So granted, I get the question, but I would love to be able to do 10 more of those over the next handful of years. But when it comes to our backlog, I mean, what we're aiming for is to have a robust and healthy backlog where in any given year we're executing on a certain amount of capital per year. And so the backlog today, you know, would I say we're there yet? I don't think so. But we are continuing to make good progress on that backlog. And I would also say it's a combination of these types of projects that we just announced here recently, but also bigger projects in a bigger range of capital.

Okay, that makes sense. So would you say you're mostly focused on building the pipeline of the smaller deals versus looking at kind of a more scaled transaction? I'd assume on a bigger transaction, you might have to pay, you know, you might not get that targeted return you're looking for. Is that kind of what the issue is?

I mean, it's certainly an either or. Or, excuse me, it's both. You know, we are certainly looking at both. I would say I'm really pleased with both the quantity that we're looking at and the quality. And I think at the end of the day, as Matt, in his section, what we're really after here is trying to best deploy that capital to be able to maximize returns back to our investors and back to Blue Knight. And like you said, those bigger deals can be harder for us to achieve that, but we're certainly looking at those size of opportunities along with the types of opportunities we just announced here recently. Okay.

Okay. So, so you think you are, you do have a decent looking pipeline of, of, of additional products, uh, projects that you're looking at or investments you're looking at?

Yes, absolutely. But like anything, you know, it's two different parties to be able to get over to the finish line. And I can promise you it's not us slowing things down. Uh, but we're working really hard and for us, this is something that's in our control. What we can't control is obviously whether the project gets done or not.

Okay, yeah. Yeah, I just wanted a little more details in terms of how you can put that money to work. You guys are doing a great job, and we all appreciate it.

Thanks. All right, thanks, Nat.

The next question is from Steve Chick with Sudbeast Garden Capital. Please go ahead.

Hi, thanks. um and uh thanks uh for the prepared remarks guys on on 2021 and what you have uh laid out ahead for you it was uh pretty well um i think uh orchestrated um i guess my first question is just on the numbers uh you know the quarter itself actually um ended up looking different than i had expected given the tough comparison with the throughput volumes of a year ago you know your operating margin was actually better than i thought and then the gna piece was a little bit heavier in the quarter, the 3.3 million. And so, Matt, I'm wondering if there's something you can speak to that was within that G&A for the quarter. And then secondly, you know, as we look to 2022 and your EBITDA guidance for growth of 2%, you know, is a $3.3 million quarterly run rate of G&A what we should think about, you know, within your guidance for next year?

Yes, Steve, I'll take that one, and I'll probably just weave in corporate synergies, too, because, you know, we did talk about achieving a run rate of around $2 million at the end of 2021, and a couple points there. Obviously, when we look at G&A, you know, make sure we take out the one-time items in the non-cash equity-based comp to try to get to, you know, a clean number, but within the synergies, I would make a note that not all that necessarily shows up in corporate. Some of it may show up in, you know, an improved asphalt operating margin just in the way that we allocate some of those costs, you know, between the segments. But, you know, going forward, I think that I would anticipate that there is a tail of that synergies that would roll into, you know, 2022. But also, I think the last piece is, Because of these synergies, you know, it helped us offset, you know, the underlying increase in costs of our business just within corporate. So, you know, an example of that this past year would be we did make some investments to upgrade the IT systems and cybersecurity, for example, that, you know, at first glance or first blush, if you tried to compare the synergies in year over year, you might see an increase. But We certainly expect benefit to continue into 2022, which, again, will just help us offset potentially some other increases in the business.

Okay. But I guess so in terms of next year, and I don't want to get too granular on what you want to disclose for guidance, but is this kind of general, this G&A run rate kind of the right runway we should think about for next year per quarter, you know, as we model this out?

I certainly wouldn't take just the fourth quarter. I think I would look again at the full year of 2021 and then fast forward to 2022 and recognizing that we will continue to get some benefit of those synergy costs. Excuse me.

Gotcha.

Okay. And then what's not in guidance, as you said, is any incremental benefit from, you know, the growth projects that you've announced. and maybe move into that, uh, of the 15 million of capital for the growth projects, can you say how much has been expended to date? Um, and I know that the debt level went up understandably versus, uh, year end by give or take 12 million, you know, you had a distribution that you made, um, and then you also had paid for the acquisition of the Colorado piece. How much of that 15 million has been expended within that? Um, and then secondly, uh, the $2 million incremental EBITDA from these projects, it kind of looks like that $2 million is you'll achieve that full year worth in 2023. How much, I mean, is it safe to assume that half of that or a million of it would be kind of a number to assume for 2022?

Yes, Steve. And I think you hit it on the head there at the end. I mean, we were very intentional about how we reported both the capital and EBITDA for these projects on a combined basis. And part of that is because we are negotiating with customers and we want to continue to do business with them. And so we're not necessarily going to break it out individually to give you all those details. But I think you're thinking about it exactly the right way. And roughly half from an EBITDA could certainly depend on when a project is in service. And then I'll tell you too, just on the capital piece, it is reflected partially in our debt balance as of March 1st. And those details will be included in, you know, future filings when we file the first quarter. Thank you.

Okay.

And the M&A portion will be in the first quarter that we're in now, right? Like in terms of positive EBITDA tax. I think you mentioned, I don't know, Andy or Matt, if you said that actually you took ownership of it just recently, or was that in January that you took ownership of that Colorado site?

So, Steve, this is Andy. The acquisition itself closed in January, and so we took ownership over that site, you know, call it beginning of February, and then we the the site itself was originally a leased site from an asphalt standpoint at least to our customer there we've now taken over operations of that site so it's no longer a leased site and we're operating it at the beginning of march hopefully that helps clear clear up the confusion yes all right that that helps thanks um and you you've uh

Related to these projects, you've called out the incremental potential of 5 to 10 million of capital that could be deployed. I'm kind of assuming that could be related to the Colorado site. And, you know, it's got 335,000 barrels of capacity. You know, 155 is now in operation. Would that be the capital that would be required to get that to the 335,000 barrels? barrels of capacity, is that what that capital would be towards?

This is Andy. Not exclusively, Steve, but a large portion would be to better utilize that full capacity that's available at the site today. There's also an ability with additional capital to incorporate rail at the site. And so that's another factor that would add to that additional additional capital estimate that we provided. But even the other project itself may require additional tankage over time, so there would be a portion of capital as well related to that. And any of this additional capital is not within our original economics, as we've communicated, but would be additional upside here.

Right. Okay. I got that. What dictates the timing of when? Is that kind of a customer or is that you guys seeing, okay, the project's kind of going well, we can get started on this next phase of the $5 million to $10 million?

What dictates the timing of that? Fully dictated by our customer and their want and need to those types of projects. Gotcha. Okay.

You know, another question on, I mean, Matt, you mentioned, I think, related to your credit agreements and your work with your lending group. You said something about potentially looking at long-term risk management strategies. I just wonder what does that mean? I mean, is that kind of swap-like agreements, or is it actually looking to term out, you know, debt? I mean, what do you mean by that?

Steve, it was related to interest rate hedging. You know, when we think about liability, risk management, For interest rates, we're looking at a pretty steep live or curve today. And so, again, I think just here internally with our board and senior lenders, it's just getting alignment around, you know, what's the real objective in terms of, you know, protecting cash flow and from volatility or shocks to the system again, and just making sure that, you know, it could be some sort of a. neutral strategy, if you will, which, again, is about 50% of our debt hedged. But the tenor amount, all of those things come into play, and we just want to make sure that we're being thoughtful about that, not knowing necessarily how interest rates might unfold over the next handful of years.

Okay. All right. Gotcha. That's helpful. And then one last question, if I could, changing gears a little. And it's actually, you know, related to the Blue Knight board. And I guess first off, you know, there's kind of inherent obstacles for some investors with MLPs, public trade MLPs in general, you know, just given the concentration of control and issues with corporate governance and so forth. And in the case of Blue Knight, I'm wondering or I'm curious if, you know, in the past it's ever been considered or if it could be entertained in the future to appoint a member of the senior management to the Blue Knight board. And I understand that would be kind of one of, you know, appointment of form really over substance. But I do think it'd be a favorable gesture and good for the stock. And when I look at the partnership documents, and please correct me if I'm wrong, but I don't see a structural reason why that couldn't happen. And Andy, I'd just be interested to hear your thoughts on that.

No, I appreciate that, Steve. And, you know, I think you're right. I don't think there's anything preventing management or somebody from management to act on the board. I think it happens quite regularly at other MLPs. But outside of that, you know, I really can't comment of whether that's something that would be considered in our situation. You know, again, that's certainly a board matter. But, you know, similar to other questions or comments in past calls, we'll certainly pass that along.

Yeah, I appreciate that. I mean, obviously, maybe once the dust settles, we get this argon bid resolved. I think it would be, I think it would help. So, in any event, thanks, guys.

Thanks, Steve. Thanks, Steve.

The next question is from Jeff Bailey with Beach Capital. Please go ahead.

Morning, Andy and Matt. Hey, morning, Jeff. Another, hey, another great quarter, great year. I think what could be said when you were talking about your transformation earlier is that the storage was sold pretty much at the perfect time. And right now, I don't know if I've ever seen storage worth less with the forward curve. It would be really hard to sell oil storage right now. So the timing on that divestiture was just perfect. My first question is for Matt. Matt, as we go through the press release and we look at the breakdown for distributable cash flow, in the other line is 684,000. Is that the 700,000 that we refer to for the conflicts committee expenses? That's exactly right, Jeff. Okay. And then Matt, also the 2% EBITDA growth projection is interesting. We talked on the last conference call about the inflation and it appears that it may be even getting stronger and the chances of it declining over the year seem to be slimmer. But we also talked about how the contracts with a lot of your customers will have sort of a lagged effect with the escalators. And then offsetting that, of course, you've got the growth projects. Can you talk a little bit about your assumptions around inflation for 2022?

In terms of for 2022 and where it's headed, I agree with you. It's tough to see it potentially being any less near term. I would reiterate what we did talk about on the last earnings call, which was there is a lag effect. So you can't take just one month and compare it to a prior year and ripple that all the way through a lot of our contracts. There is a historical or an annual average that you're comparing year over year and contracts renew throughout the year. So, again, it really does vary. But as we fast forward through 2022, you know, certainly I think you could potentially look at something higher if we got to call it effective contract rates in 2023. But I think I would also end it with a similar comment that Andy made during that Q&A, which is, In a lot of ways, too, we're working with customers over long-term relationships as well.

And so we have to take that into consideration. Okay. Okay.

I guess what I'm getting at is that if we just plug in a figure of 7% to 8% inflation and cost, it's – It's interesting that 2% EBITDA growth would still be your projection. Are you assuming 7% to 8% increase in cost just for general inflation? I mean, not excluding the growth projects and things like that. Are you excluding something higher or lower? And then, I mean, I assume you're not including 7% to 8% increases in your contracts because we talked about the lagged effect of the escalators.

Yeah, Jeff, this is Andy. When it comes to, you know, as Matt mentioned, you know, clearly there's on the revenue side, there's a benefit that we have, even though it's a slight lag around CPI increases on an annual basis. When it comes to costs, I think you remember this, but I'll just, I think it's worth stating that we do pass along utility costs which tend to be one of the more volatile from a perspective of inflation and clearly where prices are today, you can certainly see that being the case from a energy or utility perspective. So those are costs that due to our contract that we pass along. The probably biggest cost that we see changing year to year ends up being employment, but we've already baked all those assumptions in based on uh how we plan to provide merit increases uh for our people in this in this coming year so that's already baked into this two percent two percent increase you know outside of that it really comes then back back to maintenance and repair costs uh but based on our our even over the last few months and and and even longer than that with this type of environment we aren't seeing the creep that you would expect. There's certainly not at the 6% to 7% level that you quoted. So I think we're very comfortable with this guidance of 2% EBITDA growth on the base business.

Gotcha. Okay. So just plugging in the general assumption of 7% to 8% in the cost that Blue Knight does incur and doesn't pass on is erroneous. Your inflation, you're projecting it to be something lower than 7% to 8% general inflation level for 2022. Fair enough? That's fair. Okay. Got it. Got it. And, Andy, thank you very much for your elaboration on the distribution philosophy. I think that answers a lot of questions for a lot of investors. I would ask, too, it was interesting the way that the increase in distribution coincided with the growth projects. And then a little earlier in the call, you mentioned that you'd like to have 10 of those lined up at some point in time. As you go in front of the GP board to talk about distribution, could you see yourself recommending multiple distribution increases in the same year? Could you see... Could you visualize much larger increases in distribution, assuming, say, you had multiple big projects in front of you or you had other tailwinds in the business? Or are you looking to more moderate it even if there are a lot of tailwinds?

No, it's a good question, Jeff. And I think the latter is probably what I would steer you towards. I think Matt hit it on the head during his remarks. And I'll say it again, growth is our top priority here. And we're looking at this vehicle, the MLP vehicle, more so as a total return vehicle, not just a security yielding instrument. And that's built upon the strategy that I think we have in place. And it really all comes back to trying to maximize on a risk-adjusted basis returns back to our unit holders. And we think growth is going to be far and away the best path forward. And so I do want to reiterate that point as much as possible and how then that impacts our decisions as it relates to other ways of returning capital back to our unit holders. And I think we've shown that it's certainly not an either or, it's an and. When it comes to that, we've bought back preferred units, and we've now recently increased the distribution at what we think is a very appropriate increase. And so, I think looking forward to future increases, I certainly, I will promise you all that we're not the type of company that will get over our skis when it comes to trying to signal Distribution increases on a rateable basis. That's just I've seen too many management teams get in too much trouble where that distribution policy ends up dictating a lot of the other businesses' practices that management is doing. So we're not going to be that company at the end of the day. And so we look at a lot of different factors that go into that decision. one of which is where coverage is currently, but also how we see the outlook and other factors impacting the business.

Okay, thank you for that.

Thank you for that. Yeah, and it also helps that with the current unit price, you're definitely getting paid to increase the distribution. It's definitely one of the lower yielding securities in the space, which is wonderful. Last question, Andy. My understanding of MLP regulation is that you can have up to 10% of non-qualifying MLP income. And, you know, you have the strong balance sheet and it seems you have a pretty wide mandate to pursue growth. So is that something you would consider, some non-qualifying MLP income if the opportunity arose?

Good question, Jeff. You know, the quick answer is absolutely. You know, we would definitely consider other revenue sources that might not necessarily be qualifying. However, you know, as an MLP, we have to be very careful of that as well to make sure that in total, you know, our revenue is 90% from qualifying sources. But, you know, the good news is, and why I said it the way I said it in our prepared presentation, remarks, when we look at Tier 3 opportunities, leases count as qualifying income. And so, as we look to actually better utilize excess land at our sites, a lease would qualify and would contribute to our overall qualifying income for the company.

Wonderful. Okay. Well, that's all my questions. Thank you, Andy and Matt. Great year. Thanks, Jeff.

The next question is from Dov Gertselen of DG Capital. Please go ahead.

Hi, Andy and Matt. Thanks for taking the call and for taking the question for hosting the call. Absolutely. Thanks, Dov. My pleasure.

So I just wanted to ask you a quick question.

You know, a quick question on the distribution policy.

You know, the way, if I'm just looking at your financials, and I'm sure there's some puts and takes, but with your growth and some of the savings and then some of the one-time costs, but also some of the one-time benefits, it seems like you have at least maybe greater, $20 million available for distributable cash flow to common units.

Is that a fair way of looking at it?

And I assume that you're just kind of looking at the delta between our long-term target or potentially what we just reported and just a one-times distribution, though. Is that how you're thinking about it?

Yeah. I'm not saying what you should distribute. I'm just saying is what's available.

That's right. That's right. There's roughly that amount.

So, you know, when I divide that by roughly 41.5 million shares and maybe you get a little bit of growth, sounds like you're working on a lot of exciting things, which is great. And you're very low CapEx intensity. As you mentioned, significantly under levered. very, you know, very, very modest leverage. We're talking somewhere that should be available to common shareholders, unit holders, excuse me, of 50 cents a share. So I think from my question really relates to, and it's a part comment, part question, but, you know, with the stock at $3.35 or $3.40 right now, Even if you didn't grow ever, if you just distributed, and our view is we would like you to grow, but even if you just kept everything where it is and said, we're going to run this thing at low leverage and, you know, annual escalators and just kind of keep it where it is and pay 50 cents or something like that, you know, that's a 15% yield for a very low leverage business. relatively recurring revenue business. So my question is to management with the stock at 340, how do you think about, you know, when you balance different types of priorities and shareholder value, obviously the shareholders, we look at it and we say, that's pretty frustrating because we don't seem to be getting any credit for the company's underlying financial value. at least the common unit holder. So how do you think about that in terms of your allocation, you know, cap allocation process?

Well, you know, it's a good question, Dov.

And I think from our standpoint, I only wish it would be that easy to be able to distribute all of our our cash flow on a one-times basis and expect the business to perform as it's been performing. But as you know, and I know you're not necessarily implying that, there is tailwinds and headwinds to this business that we have to manage at all times. And so a big part of where we come out from a distribution standpoint is ensuring that when we increase the distribution, that we are as absolutely sure, and the board is on the same page with this, that we're absolutely sure that when we increase it, we won't touch that distribution again. Now, I'll be the first to put a disclaimer out there that nothing's as absolute as that, but that's at least the intentions that we have when we target a certain distribution level. And then when it comes to our long-term coverage, I mean, that's really what that's intended to do is to try to get us comfortable with the different business cycles that we could be in and what would that cushion need to be throughout all cycles for us to be able to be as consistent and sustainable from a distribution standpoint. But I hear you on your question and your comment and certainly can understand your perspective.

I appreciate that.

I would just say from our perspective, we would just say that the distribution is way too low given the coverage. The company worked through a lot of issues, obviously, over the past few years. You dramatically reduced that. You sold assets. You're in a very good position where I think you mentioned prior that there's something on the order of a 50% increase in highway spending. Um, this, uh, um, you know, this should be a very, um, exciting time for the company and, and we're all for growth, but, um, I, I think that there's a sense, uh, by shareholders that, uh, that the distributions just are being, you know, um, there's a hesitancy to raise it. And I would just encourage you as much as possible to take a more, what seems to us to be a more appropriate path or aggressive path given the very, very low leverage and the very high coverage ratio. I wouldn't call it, I use the word aggressive very often more rapid growth path for the distribution, given what seems to be up to 50 cents of potential distribution. 17 cents just seems to us to be too little.

We certainly appreciate that feedback, Dov, and certainly don't take it take it lightly. I fully stand behind the distribution level where it is today, especially knowing the history of Blue Knight. And I know that the board themselves feel the same way around distributions and the cuts we've had in the past. So we're going to take a very calculated approach here. But I certainly understand your perspective and and thoughts around the matter. Great.

Well, thanks for the time, and I look forward to seeing next quarter's results.

All right. Thanks, Dov. Appreciate it.

This concludes today's question and answer session. I'd like to turn the calls back over to Mr. Andrew Woodward for any closing remarks.

Thanks again, everybody, for participating in today's call.

Again, I think a lot of you that asked questions said it yourselves. We did truly have a great, great year, and we're looking forward to the next. And we just want to, as management, just reiterate that we really appreciate the support as we continue on our own journey. So thanks again, and hope everybody has a great week.

This concludes the conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.