Blueknight Energy Partners, L.P.
Q2 2015 Earnings Call Transcript

Published: 9 Aug 2015

[Operator:]

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, this event is being recorded. I would now like to turn the conference over to Brent Gooden, Blueknight Media Relations. Please go ahead, sir.

[Brent Gooden:]

Thank you and good afternoon. My pleasure to welcome you to our call today and we will be discussing our financial and operating results for the second quarter of 2015. Alex Stallings, our CFO is on the call and he will discuss the financial results for the quarter ended June 30, 2015. We also have Mark Hurley, our Chief Executive Officer, who will update you on our operational performance, project opportunities as well as external factors influencing our business. After our prepared comments, Mark and Alex will take your questions. Before we begin, I would like to remind everyone that the information on this call may contain certain forward-looking statements that are subject to various risk and uncertainty. 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 third-party customers, the partnership's future cash flows and operations, future market conditions, current and future government regulations, future taxation and other factors. If any of these risk or uncertainties materializes or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those expected. Please refer to Blueknight's SEC filings for a description of these and other risk 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 21 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. One crude oil terminalling and storage services, two, crude oil pipeline services, three, crude oil trucking and producer field services, and four, asphalt services. Now I am pleased to turn the call over to our CFO, Alex Stallings. Alex?

[Alex Stallings:]

Thanks, Brent. Yesterday, we reported financial results for the second quarter of 2015. Distributable cash flow for the three months ended June 30, 2015, increased to $13.3 million as compared to $10.7 million for the three months ended June 30, 2014, which was an increase of 24%. BKEP's adjusted EBITDA was $17.2 million for the second quarter of 2015 as compared to $14.8 million for the same period in 2014, an increase of 16%. Partnership reported net income of $7.7 million on total revenues of $46.6 million for the three months ended June 30, 2015, as compared to net income of $3.6 million on total revenues of $45.8 million for the second quarter of 2014. We previously announced the second quarter 2015 cash distribution of $0.1425 per common unit, which was a 2.2% increase over the previous quarter's distribution and a 7.5%, increase over the second quarter of 2014 distribution and a $0.17875 distribution per preferred units, which are both payable on August 14, 2015. Additional information regarding the partnership's results of operations will be provided in the partnership quarterly report on Form 10-Q for the three months ended June 30, 2015 to be filed with the SEC later today. A few highlights for each of our segments, Asphalt Services recorded another strong quarter with operating margin, excluding depreciation and amortization growing to $12.7 million for the three months ended June 30, 2015 as compared to $10.1 million for the similar period in 2014. Increase was driven by renegotiated throughput fees for certain of our facilities as well as the acquisition of the Cheyenne asphalt terminalling facility acquired in May of 2015. Crude oil terminalling and storage, for the quarter ended June 30, 201 5 operating margin increased to $4.9 million or 10% from $4.4 million for the quarter ended June 30, 2014. Operating margin increased due to the timing of storage contract renewals. As we previously discussed, as contracts were expiring early in 2014, the rates at which we were able to re-contract the storage at Cushing were impacted by a backwardated market for West Texas Intermediate crude, which led to a decrease in the average rates for the comparative three-month periods. However in the fourth quarter of 2014, the market for West Texas Intermediate crude oil returned to contango, in which future prices are higher than current prices. This has increased demand for storage services in the Cushing Interchange, resulting in an upward trend for storage rates. Due to the timing of the expiration of the historical contracts and the execution of new storage contracts, the overall impact of the increase in storage rates began in the second quarter of 2015. As of July 31 of 2015, we had approximately 5.9 million barrels of crude oil storage under service contract with remaining terms up to 23 months. Operating expenses for both comparable periods in 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. Crude oil pipeline, reported operating margin of $2.0 million for the second quarter of 2015, excluding D&A, which is an increase of $0.4 million as compared to the second quarter of 2014. Revenues increased due primarily to increased volumes on our Mid-Continent system related to the Arbuckle pipeline system. Also impacting revenues was an increased tariff that was being charged through June of 2015 on certain barrels transported on our East Texas pipeline system under a throughput and efficiency agreement. The tariff will return to a lower rate after the second quarter of 2015, which will decrease the total revenues generated on an East Texas pipeline system beginning in the third quarter. In addition, we recorded $1.3 million of equity earnings relating to our 30% ownership in the West Texas Pecos River Pipeline for the second quarter ended June 30 of 2015 as compared to only $300,000 for the same period in 2014. Volumes have continued to increase steadily on this system. Crude oil trucking and producer field services reported margin of $0.4 million for the quarter ended June 30, 2015, which was a decrease of $1.2 million for the quarter ended June 30, 2015 as compared to the quarter ended June 30, 2014. Operating margin declined due to an increase in pipeline-connected barrels and a significant decrease in crude oil drilling, which have both adversely impacted volumes. In addition, the decrease in the average distance barrels were hauled for our customers decreased our overall rate per barrel charge in operating margin. Couple of other items I wanted to mention, with respect to liquidity, our total consolidated and total leverage ratio was 3.5 times at June 30, 2015. As of August 1st, we had aggregate unused commitments under our revolving credit facility of approximately $168.1 million, which is subject to financial covenant limits. From a capital investment perspective, expansion capital expenditures had totaled $11.4 million for the six months ended June 30, 2015. We are currently estimating expansion capital expenditures of $100 million to $125 million, inclusive of the previously announced Cheyenne asphalt terminal acquisition for 2015 depending primarily on the timing of the capital spend on the Knight Warrior Pipeline project. Majority of the Knight Warrior spend is expected to be the second half of 2015 with most of the balance expected to be in the first half of 2016. We continue to monitor various MLP debt and equity markets and continue to evaluate our financing alternatives for the Knight Warrior project and remain very mindful of minimizing any additional equity dilution to existing BKEP unitholders. As previously discussed, we are able to pro forma expected EBITDA from Knight Warrior subject to limitations, which will continue to increase our borrowing capacity as we proceed with the project and we have the ability to temporarily increase leverage as we build out the project. Maintenance capital expenditures for the six months ended June 30, 2015 totaled $2.9 million. We expect maintenance capital expenditures to be in the $9 million to $11 million range, net of reimbursable expenditures for 2015. With that, I will turn it over to our CEO, Mark Hurley. Mark?

[Mark Hurley:]

Thanks, Alex. Thanks to all of you, who have dialed in today, I think any discussion of the second quarter results has to start with the recognition of a very difficult market we find ourselves in. This is truly one of those historically challenging times for the entire energy business, but particularly difficult for the upstream and midstream segments. We have certainly been exposed to those challenges in our business as well. As we have been communicating over the last several months, we think we have an asset base and a strategy to perform well in these difficult markets as evidenced by our results in the second quarter. The keys for us are, first, a business portfolio that is diversified. In our case, about half of our earnings are driven by the asphalt business and about half by the crude oil business. The asphalt business has provided us steady cash flow and a nice hedge in this low-price crude oil environment. Yes. It is now providing growth as well. It is important to note that many MLPs have marketing affiliates that do have some exposure to commodity prices, basis differentials and so forth. At Blueknight, we have none of that. We are strictly a fee-based, services-based business model and we intend to keep it that way. To dive into the business segments further, our asphalt services business performed extremely well in the second quarter with operating margin growing 25% over the same period in 2014. This is due to three factors. Strong business environment, recently renegotiated throughput contracts and the addition of our Cheyenne, Wyoming plant, which we acquired in May. Our strategy in asphalt is to continue with our services only long-term contract model and to grow the business primarily through acquisition. It is important to remember that while the product is different, the commercial model in the asphalt business is almost identical to that across the rest of the midstream energy complex. In some cases, it is better. We love the asphalt services business and the unique business model we have established. Let us move to our crude oil pipeline segment, where we are now seeing growth that we have been targeting. Our first half earnings are up more than 100% over the same period in 2014 and volumes across all of our systems have now set five consecutive quarterly records. Our Oklahoma systems are performing very well with pipes essentially running at full capacity, with about 75% of this volume being contracted on a take-or-pay basis. Our investment in the Advantage Pipeline is paying off above our initial investment expectations. Volumes on this system have consistently grown since start up in late 2013, and are now averaging over 70,000 barrels a day. This pipe serves the Delaware Basin in West Texas. In spite of the challenges across the crude oil business, this area continues to perform very well. If you step back and look at the combined performance of our asphalt and crude oil pipeline segments, our key growth areas, our operating margin has increased 23%, which in this business environment is a performance we are very pleased with. Moving over to crude oil terminals, those of you who follow Blueknight will know that we have encountered some headwinds in this segment over the last two to three years. Demand for storage at Cushing had been diminished and the slower demand put downward pressure on rates. However, today we are happy to report the first quarter-over-quarter increase in operating margin since 2011. This is another great example of where our diverse business portfolio has helped us. The drop in crude prices and the transition of the forward price curve from backwardation to contango at the end of 2014 resulted in a higher demand for storage. However, our improved earnings were not only a result of the change in market conditions. As we were going through a period of contract renegotiation last year, we made a deliberate attempt to diversify our Cushing customer base by adding more customers and specifically customers who require operational services as well as storage space. This results in higher revenue per barrel as we are now collecting fees for tank capacity as well as services such as crude oil blending. The strategy has really paid off in 2015. Our trucking and field services segment performance demonstrates that we have certainly not been immune to the downturn in the crude market. This segment of our business is the one that has been impacted most significantly. Truck volumes depend largely on new drilling and with the decline in the rig count, volumes have been down. It is important to note that we have not lost customers. It is just that our customers are moving less volume. We have been working hard to improve the efficiency of this business, which has helped and we will continue to implement actions to reduce cost. We also got no help from the weather this year and record amounts of rainfall in Texas and Oklahoma slowed production and really hurt trucking volumes. Back on the subject of growth, we continue to move forward or moving towards a key milestone for the company, which is the start-up of our Knight Warrior pipeline project in the second quarter of 2016. This is a 160 mile 16-inch pipeline originating in Madison County to move crude produced in the Eaglebine area in East Texas, South of the Houston Refining market. We continue to make good progress on this project. We have begun construction of our stations at North Zulch, Midway and Roans Prairie. We have placed orders for long lead-time equipment. Also, the right of way acquisition process is well underway. The project remains on time and on budget. Finally, I would like to add that we have a very active M&A process within the company. We have looked at a number of potential deals this year and have submitted bids on several. In fact, we are looking at some potential acquisitions at this time. When we find the right asset at a price that creates value for the company, we will not hesitate to do a purchase. Overall, we are very pleased with the second quarter and remain optimistic for the rest of the year. Operator, this concludes my prepared comments and we are ready to open up the line for questions.

[Operator:]

Yes. Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Tristan Richardson with SunTrust.

[Tristan Richardson:]

Afternoon, guys.

[Mark Hurley:]

Hi, Tristan.

[Tristan Richardson:]

Just curious bridge mind [ph], but maybe just an update on commercial activity for Knight Warrior?

[Mark Hurley:]

Yes. Absolutely, we have on the call today Brian Melton. He is our Vice President of Business Development. He and his team work on the commercial side of the projects, so I am going to go ahead and turn that one over to him.

[Brian Melton:]

Thank you, Mark. Tristan, we continue to have a meaningful number of discussions around Knight Warrior, as we sit here today. Really no update from the last quarterly conference call, we are still about half contracted, about 50% contracted on our initial capacity, in terms of contracts that we have in place. We are having conversations with a number of parties, so we are optimistic that we will be able to execute additional contracts as we go through the second half of this year. Obviously, it is a challenging environment for our producer customers out there and it makes a little more difficult relative to securing commercial contracts, but we are very pleased with where we are at, we think as we get closer to the startup of the pipeline. We will continue to get additional commercial commitments as well.

[Tristan Richardson:]

That is great. Thanks, Brian. Then, Mark, you just touched on just starting to see the benefits of higher rates on the storage side. I am curious, as far as showing up in the numbers, are there still benefits to be realized from the higher rates that you are seeing now as that as we go throughout 2015?

[Mark Hurley:]

Yes. I think Tristan. Well, first of all, contracting for 2015 is pretty much on and pretty much put to bed. We are contracted essentially on all of our assets through the end of the year. Then we have got about another two-thirds of our assets contracted through 2016 and about a third through 2017. I think we may get a little more uplift, because we are working some projects now to improve some blending capability, so I think you will get a little bit of an increase over the course year. I think all-in-all, we will probably hold about where we are in the second quarter through 2015.

[Tristan Richardson:]

That is great. Thanks a lot Mark. I appreciate it.

[Mark Hurley:]

Thank you.

[Operator:]

Thank you. The next question comes from Gabe Moreen from Bank of America Merrill Lynch

[Gabe Moreen:]

Hey, good afternoon guys. Can you talk also a little bit of about in terms of the trucking assets and the vols [ph] and our realize the rig count influx and everything, but it sounds like it was mostly volumes and not necessarily weather, but can you quantify the weather impact and as far as things that are trending in 3Q, do you think 2Q is kind of a trough at all or it just depends on where the rig counts gone?

[Mark Hurley:]

I think that the weather impact was pretty much in the month of May. That probably hurt us to the tune of 3,000 to 4,000 barrels a day, which is about 5% of our volumes. I think that the volumes going forward are going to depend more on rig count than anything else. I made the comment that we have been very successful in holding onto our customers. We do business with about 12 to 15 companies. Historically, and we have all of those same companies in our customer list today. It is just that each of those customers are just moving less volume than they had been historically. When the rig count picks up and they start poking more holes in the ground that is when trucking services become more in demand. The over and more established wells are often connected to pipelines and there is always a transition of existing wells to pipeline connections, so obviously hurts trucking volumes. I think, until the rig count actually starts to pick up it will be difficult to see any increase in those volumes.

[Gabe Moreen:]

Got it. Thanks, Mark. On your comments at the end on M&A, is it something where you are kind of sticking to [indiscernible]. Crude oil pipelines, storage and looking at asphalt as well or is it something where you are looking for their feel and I guess second part of the question is how do you balance sort of the need to ultimately fund Knight Warrior and I think make sure you got the dry powder to do that with pursuing M&A at this moment?

[Mark Hurley:]

Well, in terms of the kind of things that we go after in the M&A area, we look for assets that have some sort of connectivity or some sort of synergy to our existing business either from a standpoint of geography or the businesses they are in or physical connections, so we are more likely to look at assets in the Oklahoma, Texas area or if it is an asphalt play looking at areas on our map we might have a hold. That was a perfect the example about was the plant in Wyoming. We did not have any plants in Wyoming, yet we had plants in or we have plants in Colorado, Utah, so it kind of filled our footprint, so very nicely and we were able to put an existing customer in there. We are not likely to go too far a field with that. As far as the financing is concerned, we are totally focused on getting the cheapest financing we can get from Knight Warrior, so that is our highest priority. Anything that we would do from an acquisition standpoint, we think, first of all that it is a little bit easier to finance, because if it is something that is up and operating, it just tends to be easier to finance and we also have [ph] structure within our GP that we have access to, we chose not to use it up to this point, but it is always out there as an opportunity for us. Alex, you want to add anything?

[Alex Stallings:]

I will add maybe, Gabe, I think, we are looking at transaction that are - and again we are small, but if it is $50 million or less, we probably we will try to do that on Blueknight's balance sheet, something much more significant than that and probably we have to look to do something somewhere else like what [ph] or something a little bit more structured.

[Gabe Moreen:]

Got it. Thanks, Mark. Thanks, Alex. I appreciate it.

[Mark Hurley:]

Thanks, Gabe.

[Operator:]

Thank you. Next question comes from Matt Schmid with Stephens.

[Matt Schmid:]

Good afternoon, guys.

[Mark Hurley:]

Hi, Matt.

[Matt Schmid:]

The Advantage Pipeline continues to show itself to be a great asset. Could you touch on potential incremental expansion or extension opportunities around there?

[Mark Hurley:]

Yes. Absolutely, we have done a couple of things. We tied in one of the larger producers out there, just to [ph] the pipeline into Advantage and that added a volume boost of about 20,000 to 30,000 barrels a day and we think we will be able to maintain most of that in the future. We will tie in another small pipeline system in the area, I believe, in August. That is just a few weeks away. We look for opportunities for the producers in the area, who will either build gathering systems or contemplating building gathering systems to tie them directly into line. We absolutely are pursuing that and implementing a few things already. Also, longer-term, we want to find a second outlet for that pipe. Right now, everything flows into Magellan's Longhorn system, which has served us well. Longhorn has been able to take all the volume that has come onto the Advantage system, but we just like to able to give shippers an option to go to another market if they choose to. I think longer-term, those are the things that we would like to do with that system.

[Matt Schmid:]

Okay, great. Just on growth projects in general, with crude rolling over the past month, month-and-a-half. How has that impacted potential project discussions? Just what is the mindset of producer customers currently?

[Alex Stallings:]

Yes. I think that is another great question for Brian, so I would turn that one over to him.

[Brian Melton:]

Matt, I guess, in short, it makes it challenging relative to the volatility in commodity prices whenever you are doing commercial discussions and you have got the volatility we have had recently in commodity prices. I will say that a number of the folks that we are having commercial discussions with are more larger counterparties. They tend to be a little more forward-thinking and less tied to current volatility and so we are able to advance depending on the project some of our commercial discussions, but it has made it a little more challenging than it otherwise would. We are still focused on those conversations and trying to work on things that work with our producer and marketing customers and also work for Blueknight as well.

[Mark Hurley:]

I would add, we have a number of things going right now that we feel pretty good about in the pipeline segment, one in Oklahoma, one in West Texas, we chose not to talk a lot about it. Just in the interest of time, but we think we have got some very, very good ideas and ideas that are getting a very positive response from potential customers. Market today is going to take a little longer to get a volume commitment in particular, so we will keep at it. I think, we have got some good traction and some ideas, but it is just going to take longer, that is where we are.

[Matt Schmid:]

Okay. That makes sense. Well, I appreciate the color. Thanks.

[Mark Hurley:]

Absolutely. Thanks.

[Operator:]

Thank you. Our next question comes from TJ Schultz with RBC Capital.

[TJ Schultz:]

Great. Thanks. Hey, how are you doing? I guess just one thing from me on asphalt, maybe if could you just talk about volumes I understand that pricing in Cheyenne helped this last quarter a bit, but Mark you also highlighted kind of the strong business environment, so maybe if you could kind of just discuss volume trends given kind of lower asphalt prices. Just thinking about how we should think through, if this kind of recent strength can carry through especially given where oil prices are today?

[Mark Hurley:]

Yes. Absolutely. We do expect the year to bring us additional volume just because of the fundamental relationships between crude and asphalt. We had a very, very, good second quarter, very strong second quarter and we saw volumes ramp up over the course of that quarter. We expect to continue to see that in the third quarter and then to a certain extent into the fourth quarter. The first half of the year, obviously, contains the first quarter, which is always a low volume quarter, really, it is a matter of a lot of customers filling up tanks and doing their fill for the second and third quarter, which is one where the volume really cranks up. I think that we would expect to see volume increases are up maybe in the 4% to 6% kind of range for the year.

[TJ Schultz:]

Okay. Thanks. That is helpful. Good quarter.

[Mark Hurley:]

Thank you.

[Operator:]

Thank you. The next question comes from Michael Tanzer with DG Capital Markets.

[Michael Tanzer:]

Hello. Good afternoon guys. How are you? I had a couple of questions, first, on asphalt. This sort of plays off of the last questions, my understanding of how the asphalt business works in times of higher demand such as this is that as you have described it, tanks basically turn in incremental time and looking at the surprisingly good earnings in that segment in Q2, what was that certain net effect of those turns of tank and it seems like we should see additional turns for the rest of the year?

[Alex Stallings:]

Yes. I mean, it is a little bit early to see how many turns we will have this year. We had three things going on in the second quarter. One was that we added a facility in Cheyenne. One was that it was just in general a good business environment, so volumes were strong. Then the third thing is that going back a few months, we had renegotiated some contracts and those paid some benefits and will continue to pay benefits for the rest of the year. We had an impact at the new plant, we have had an impact of a good business environment and we had an impact of some improved rates through some existing facilities or business that we had already had, so all three of those things helped to give us a real nice quarter and we expect to have another good quarter here in Q3.

[Michael Tanzer:]

Okay.

[Alex Stallings:]

If you ask that question, ask that question again at the end of the third quarter and we will have a little better view of how the heavy volumes season played out.

[Michael Tanzer:]

Okay. On Knight Warrior, this has also been touched upon by other questions, but I wanted to ask something more specific, on Apache's Q2 quarterly supplement indicated that some of the well results coming out of there, they call it the Eagle Ford/Gulf Coast properties, but if you look at their map of the counties, it seems to be in the area, which would be covered by the Knight Warrior pipeline and they said that in Q2, they averaged zero rigs and they had four gross and four net operated wells, but then they indicated that they are moving a rig back into the area, because of how good the results were. By the end of the year, they will have approximately 20 drilled, but uncompleted wells in the backlog, which seems like perfect timing for the start of the Knight Warrior project, so is that applicable to your demand story for that project or is this just irrelevant?

[Mark Hurley:]

No. I think it is typical particularly of the bigger player. The area has a combination of larger companies and smaller companies, which I think is actually kind of beneficial and I can explain why, but I think what we saw with particularly the bigger companies and I am going to be careful I do not speak on behalf of any of them, but I think in general for the bigger companies this was an area that they were moving into, alright, and feel very good about and it is like you said, we have seen that same report a number of times about how well the wells produce and the efficiency with which they can go after oil. When crude prices really collapsed late last year in the first quarter, late last year in the first quarter, I think we saw the big companies really retreat to their course, right, so if this was a developing play for some of the bigger companies, they have the tendency of just kind of pull back until they could see what the market was going to do and until they can get a better feel for their capital plans going forward, but the pattern that you described where you had a big company pull rigs out and now they are planning to move the rigs back is something that we had seen with a number of big companies there, so I think what you saw there, what you heard is pretty representative particularly with of the bigger producers. From the smaller producers' standpoint, these are obviously companies that have to be conservative with their spending, so they went into a conservative mode, they got to manage their debt, but they still produce a good portion of the oil and there were a number of wells that they call it docks side drilled, but not completed that they are now completing and it has a lot of the area to maintain production volumes at about where they were at the beginning of the year. When prices bounce back and we all think that they will, because the environment we are in now we think is really kind of unsustainable. It is these small companies who will I think produce a lot of the oil there at least initially. Then as the bigger companies move rigs in, you will see it transition from maybe the small companies to the big one there

[Michael Tanzer:]

Understood. I guess, perhaps more specifically would that production flow to the pipeline or not, like specifically…

[Mark Hurley:]

The beauty of this area is that there really is the area where we are laying our pipe, there is really no other pipeline infrastructure in the counties where we are targeting, so we think it will naturally flow through the pipe, just purely on economic and physical reasons. The cost to get oil to the Houston market out of that area today is in the range of $5 per barrel and we will undercut that cost considerably, when our pipe starts up, so we think it will naturally get essentially all the volume.

[Michael Tanzer:]

Got you. Just two more questions.

[Mark Hurley:]

Sure.

[Michael Tanzer:]

Previously in your presentations, you have indicated the guidance was mid-60s to $70 million of EBITDA for 2015. From where you are sitting now, are those numbers intact and do those numbers entail income from PLA in the crude oil pipeline services segment?

[Mark Hurley:]

I am going to turn it over to Alex. Alex, it is yours.

[Alex Stallings:]

Michael, we have not changed our guidance. I think that is the last guidance we gave and that is really still where we are. We did sell some PLA [ph] in the past couple of years. We have not done so this year. Whether we do or we do not, it is not really something that we can sit around and think a lot about. It is just we may if we need to or we have it, we will sell some. If we do not, then we won't. We have not sold any similar to what we did in the past couple of years so far in 2015.

[Michael Tanzer:]

If you do not sell any this year, can you still get in that range?

[Mark Hurley:]

Yes. Absolutely. I mean, I was going to add on to Alex's comments. Just from an operational standpoint, I think it is more likely we would accumulate some and sell it, but whether we do or not, it does not affect our guidance at all.

[Michael Tanzer:]

Got you. Then my final question is, it seems like the outlook for the Knight Warrior Pipeline is improving oil prices notwithstanding the asphalt business is hitting new highs both, organically and inorganically. Trucking is a very small percentage of your business and your existing pipeline projects are ramping up quite profitably. This indicates to me that there is a wonderful fundamental picture in your business, but the stock keeps going sort of flat to down, so I guess what do you think of that disconnect?

[Mark Hurley:]

I can answer half of that question. I agree 100%. I think we got a great fundamental picture here. I think we feel very good about where our business is going. We like the assets we have, we like our strategy, we think we have got a great diversified portfolio and it has played out that way. Why the stock does not respond to that is, that is a question beyond me and beyond all us I think. Obviously, the MLP space, which has been really been up in the last two months and I think to a certain extent we have gotten caught up in that and I think when you look at our performance relative to the industry, we have not really done that bad, but we are just not getting rewarded for what I think is a very positive outlook.

[Michael Tanzer:]

Okay. Well, we look forward to the progress. Thanks for taking all my questions.

[Mark Hurley:]

Absolutely. Thanks.

[Operator:]

Thank you. [Operator Instructions] The next question comes from [indiscernible] Private Investor.

[Unidentified Analyst:]

Yes. Good afternoon. My question deals with the perspective reduction or decline in tariff income on the East Texas pipeline, I wonder if you could quantify that in dollar amounts for the rest of the year.

[Alex Stallings:]

We are going to revert back to kind of a normalized tariff. I do not have the exact figure in front of me, but it is probably a few couple of $300,000 a month, somewhere in that ballpark, so you will see that fall off. I mean it is something we have anticipated and something that is built into our models or forecasts or expectations, but it will be with respect to that one segment and with respect to what we will see in the pipeline segment going forward, it will probably be a couple or $300,000 a month.

[Unidentified Analyst:]

Good. That has already accounted for in your guidance I assume?

[Mark Hurley:]

Yes.

[Alex Stallings:]

Yes.

[Unidentified Analyst:]

Good. Thanks very much.

[Operator:]

Thank you. The next question comes from Will Hardee of RBC.

[Will Hardee:]

You had mentioned that the asphalt business, there is not many new builds going on, so you are out making acquisitions. Could you kind of describe what that market is like and some are very familiar with it and what holds you still have in your universe that you could fill?

[Mark Hurley:]

Yes. Absolutely. Just in general, we think the supply of asphalt processing facility, the current structure probably is adequate to meet the country's needs. Occasionally you see a Greenfield plant built, but it is not very typical. Then if you look at our footprint, we have some gaps west to fill and we have a gap generally in the east, more in the southeastern than anywhere else. What we look for typically are some of the smaller regional players. Oftentimes you will get small companies that might be family-owned, that might be private, completely independent entities and they might be in their second or third generation of ownership and for whatever reason are just ready to exit the business, so there are a number of those companies around the country and those are the ones that we look out for and keep an eye on and have ongoing discussions with, so it is that kind of acquisition that we are targeting.

[Will Hardee:]

What kind of multiples do you pay for that?

[Alex Stallings:]

Something in the high single digits is kind of typical, $7 million to $10 million range.

[Will Hardee:]

They typically run under $50 million?

[Mark Hurley:]

Makes them a little more affordable than some of the things you see in the crude oil side of the business.

[Will Hardee:]

They are typically under the $50 million, Mark you all had mentioned earlier for acquisitions you could do in your balance sheet?

[Mark Hurley:]

That is right. I think the kind of companies that we would be targeting have price tags that would be in kind of the $30 million to $50 million range.

[Will Hardee:]

Thanks.

[Mark Hurley:]

Maybe a small company with four or five plants that may be cover two or three states that sort of thing.

[Will Hardee:]

Thank you.

[Mark Hurley:]

Sure.

[Operator:]

Thank you. As there are no more questions at the present time, I would like to turn the call back over to Management for any closing comments.

[Mark Hurley:]

Yes. Well, thank you very much. We appreciate the interest in Blueknight. We think we have a great story to follow-up on. I think it was Michael's question that we have a great story. We feel good about 2015. We feel good about 2016. For us, it is an all hands on deck story around getting Knight Warrior right. I think we have got some other good things coming as well. We appreciate your interest in Blueknight. Please call us if you have any follow-up questions.

[Operator:]

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.