UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September 30, 2020~~March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to _________

Commission File Number 001-33503

BLUEKNIGHT ENERGY PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

20-8536826

(IRS Employer Identification No.)

6060 American Plaza, Suite 600

Tulsa, Oklahoma 74135

(Address of principal executive offices, zip code)

Registrant’s telephone number, including area code: (918) 237-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller reporting company ☒
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Units	BKEP	The Nasdaq Global Market
Series A Preferred Units	BKEPP	The Nasdaq Global Market

As of ~~October 30, 2020~~April 28, 2021, there were ~~35,125,202~~34,436,785 Series A Preferred Units and ~~41,198,088~~41,468,125 common units outstanding.

Table of Contents

Table of Contents

		Page
PART I	FINANCIAL INFORMATION	~~FINANCIAL INFORMATION~~	1
Item 1.	Unaudited Condensed Consolidated Financial Statements	1
	Condensed Consolidated Balance Sheets as of December 31, ~~2019~~2020 , and ~~September 30, 2020~~March 31, 2021	1
	Condensed Consolidated Statements of Operations for the Three ~~and~~ ~~Nine~~ Months Ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021	2
	Condensed Consolidated Statements of Changes in Partners’ Capital (Deficit) for the Three ~~and~~ ~~Nine~~ Months Ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021	3
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021	4
	Notes to the Unaudited Condensed Consolidated Financial Statements	5
	1. Organization and Nature of Business	5
	2. Basis of ~~Consolidation and~~ Presentation	5
	3. Revenue	5
	4. ~~Property, Plant, and Equipment~~Discontinued Operations	87
	5. Debt	9
	6. Net Income Per Limited ~~Partner~~Partnership Unit	11
	7. Partners’ Capital and Distributions	1112
	8. ~~Related Party~~Related-party Transactions	12
	9. Long-term Incentive Plan	13
	10. ~~Derivative Financial Instruments~~Fair Value Measurements	14
	11. ~~Fair Value Measurements~~Commitments and Contingencies	14
	12. ~~Operating Segments~~	15
	~~13. Commitments and Contingencies~~	17
	~~14.~~ Recently Issued Accounting Standards	1714
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1815
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2920
Item 4.	Controls and Procedures	2920

PART II	OTHER INFORMATION	~~OTHER INFORMATION~~	3021
Item 1.	Legal Proceedings	~~Legal Proceedings~~	3021
Item 1A.	Risk Factors	~~Risk Factors~~	3021
Item 2.	Unregistered Sales of Equity Securities	21
Item 6.	Exhibits	~~Exhibits~~	3022

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

BLUEKNIGHT ENERGY PARTNERS, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except unit data)

	As of			As of			As of			As of
	December 31, 2019			September 30, 2020			December 31, 2020			March 31, 2021
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	558		$	972		$	805		$	13
Accounts receivable, net		23,716			15,039			3,297			6,897
Receivables from related parties, net		1,110			1,006			507			664
Other current assets		8,692			7,783			2,355			3,693
Current assets of discontinued operations								96,945			511
Total current assets		34,076			24,800			103,909			11,778
Property, plant and equipment, net of accumulated depreciation of $274,404 and $287,964 at December 31, 2019, and September 30, 2020, respectively		232,777			222,881
Property, plant and equipment, net of accumulated depreciation of $197,561 and $199,895 at December 31, 2020, and March 31, 2021, respectively								104,709			104,256
Goodwill		6,728			6,728			6,728			6,728
Debt issuance costs, net		2,344			1,591			1,340			998
Operating lease assets		10,758			9,009			8,548			8,020
Intangible assets, net		14,088			12,029			7,531			6,935
Other noncurrent assets		1,169			1,047			252			282
Total assets	$	301,940		$	278,085		$	233,017		$	138,997
LIABILITIES AND PARTNERS’ CAPITAL (DEFICIT)
LIABILITIES AND PARTNERS’ CAPITAL(DEFICIT)
Current liabilities:
Accounts payable	$	3,125		$	2,281		$	1,635		$	2,313
Accounts payable to related parties		2,460			837			31			14
Accrued crude oil purchases		6,706			3,668
Accrued crude oil purchases to related parties		11,807			7,425
Contingent liability with related party (Note 8)		12,221			-
Accrued interest payable		293			318			274			279
Accrued property taxes payable		3,247			3,451			1,757			1,505
Unearned revenue		1,942			3,874			1,789			1,852
Unearned revenue with related parties		2,934			2,910			4,603			4,594
Accrued payroll		4,823			4,794			4,977			2,377
Current operating lease liability		2,391			1,827			1,684			1,532
Other current liabilities		2,627			2,802			1,349			2,327
Current liabilities of discontinued operations								17,248			2,599
Total current liabilities		54,576			34,187			35,347			19,392
Long-term unearned revenue with related parties		2,149			4,224			4,153			3,985
Other long-term liabilities		2,417			927			168			162
Noncurrent operating lease liability		8,529			7,221			6,980			6,735
Long-term debt		255,592			260,592			252,592			106,592
Commitments and contingencies (Note 13)
Commitments and contingencies (Note 11)
Partners’ capital(deficit):
Common unitholders (40,830,051 and 41,198,088 units issued and outstanding at December 31, 2019, and September 30, 2020, respectively)		356,777			349,160
Preferred unitholders (35,125,202 units issued and outstanding at both dates)		253,923			253,923
Common unitholders (41,214,856 and 41,468,125 units issued and outstanding at December 31, 2020, and March 31, 2021, respectively)								312,591			384,755
Preferred unitholders (35,125,202 and 34,436,785 units issued and outstanding at December 31, 2020, and March 31, 2021, respectively)								253,923			248,946
General partner interest (1.6% interest with 1,225,409 general partner units outstanding at both dates)		(632,023	)		(632,149	)		(632,737	)		(631,570	)
Total partners’ deficit		(21,323	)		(29,066	)
Total liabilities and partners’ deficit	$	301,940		$	278,085
Total partners’ capital(deficit)								(66,223	)		2,131
Total liabilities and partners’ capital(deficit)							$	233,017		$	138,997

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BLUEKNIGHT ENERGY PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per unit data)

	Three Months ended September 30,						Nine Months ended September 30,						Three Months Ended March 31,
	2019			2020			2019			2020			2020			2021
	(unaudited)												(unaudited)
Service revenue:
Third-party revenue	$	15,716		$	12,886		$	47,318		$	39,935		$	6,853		$	6,919
Related-party revenue		3,934			4,849			12,189			12,945			4,055			4,849
Lease revenue:
Third-party revenue		11,444			9,142			31,004			27,051			9,831			8,303
Related-party revenue		5,427			7,490			15,179			19,239			4,921			7,004
Product sales revenue:
Third-party revenue		55,213			51,390			173,773			119,068
Total revenue		91,734			85,757			279,463			218,238			25,660			27,075
Costs and expenses:
Operating expense		25,215			23,715			78,432			73,066			15,660			15,880
Cost of product sales		18,972			19,833			64,069			41,133
Cost of product sales from related party		32,691			22,627			99,886			63,671
General and administrative expense		3,840			3,401			10,495			11,008			3,366			3,982
Asset impairment expense		83			-			2,316			6,417
Total costs and expenses		80,801			69,576			255,198			195,295			19,026			19,862
Gain (loss) on disposal of assets		(40	)		509			1,765			426
Loss on disposal of assets														(74	)		-
Operating income		10,893			16,690			26,030			23,369			6,560			7,213
Other income (expenses):
Other income(expenses):
Other income		69			176			475			969			650			233
Interest expense		(3,989	)		(2,472	)		(12,394	)		(8,586	)		(1,686	)		(1,333	)
Income before income taxes		6,973			14,394			14,111			15,752			5,524			6,113
Provision for income taxes		14			1			39			8			5			10
Income from continuing operations														5,519			6,103
Income(loss) from discontinued operations, net														(5,519	)		75,550
Net income	$	6,959		$	14,393		$	14,072		$	15,744		$	-		$	81,653

Allocation of net income (loss) for calculation of earnings per unit:
Allocation of net income(loss) for calculation of earnings per unit:
General partner interest in net income	$	110		$	228		$	268		$	249		$	-		$	1,292
Preferred interest in net income	$	6,278		$	6,278		$	18,836		$	18,836		$	6,279		$	6,341
Net income (loss) available to limited partners	$	571		$	7,887		$	(5,032	)	$	(3,341	)
Net income(loss) available to limited partners													$	(6,279	)	$	74,020

Basic net income (loss) per common unit	$	0.01		$	0.19		$	(0.12	)	$	(0.08	)
Diluted net income (loss) per common unit	$	0.01		$	0.18		$	(0.12	)	$	(0.08	)
Basic and diluted net income(loss) from discontinued operations per common unit													$	(0.13	)	$	1.75
Basic and diluted net loss from continuing operations per common unit													$	(0.02	)	$	(0.01	)
Basic and diluted net income(loss) per common unit													$	(0.15	)	$	1.74

Weighted average common units outstanding - basic		40,811			41,166			40,735			41,072
Weighted average common units outstanding - diluted		40,811			77,646			40,735			41,072
Weighted average common units outstanding - basic and diluted														41,015			41,430

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BLUEKNIGHT ENERGY PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL (DEFICIT)

(in thousands)

Common Unitholders Series A Preferred Unitholders General Partner Interest Total Partners’ Capital (Deficit)

(unaudited)

Balance, June 30, 2019
$ 360,861 $ 253,923 $ (631,952 ) $ (17,168 )
Net income
574 6,278 107 6,959
Equity-based incentive compensation
284 - 5 289
Distributions
(1,678 ) (6,278 ) (128 ) (8,084 )
Proceeds from sale of 98,631 common units pursuant to the Employee Unit Purchase Plan 103 - - 103
Balance, September 30, 2019 $ 360,144 $ 253,923 $ (631,968 ) $ (17,901 )

Balance, December 31, 2018
$ 370,972 $ 253,923 $ (631,791 ) $ (6,896 )
Net income (loss)
(4,983 ) 18,836 219 14,072
Equity-based incentive compensation
637 - 15 652
Distributions
(6,658 ) (18,836 ) (411 ) (25,905 )
Proceeds from sale of 161,971 common units pursuant to the Employee Unit Purchase Plan
176 - - 176
Balance, September 30, 2019 $ 360,144 $ 253,923 $ (631,968 ) $ (17,901 )

Balance, June 30, 2020
$ 342,651 $ 253,923 $ (632,252 ) $ (35,678 )
Net income 7,887 6,278 228 14,393
Equity-based incentive compensation 210 - 3 213
Distributions (1,703 ) (6,278 ) (128 ) (8,109 )
Proceeds from sale of 104,954 common units pursuant to the Employee Unit Purchase Plan 115 - - 115
Balance, September 30, 2020 $ 349,160 $ 253,923 $ (632,149 ) $ (29,066 )

Balance, December 31, 2019
$ 356,777 $ 253,923 $ (632,023 ) $ (21,323 )
Net income (loss) (3,341 ) 18,836 249 15,744
Equity-based incentive compensation 630 - 10 640
Distributions (5,076 ) (18,836 ) (385 ) (24,297 )
Proceeds from sale of 158,326 common units pursuant to the Employee Unit Purchase Plan 170 - - 170
Balance, September 30, 2020 $ 349,160 $ 253,923 $ (632,149 ) $ (29,066 )

	Common Unitholders			Series A Preferred Unitholders			General Partner Interest			Total Partners’ Capital (Deficit)
	(unaudited)
Balance, December 31, 2019	$	356,777		$	253,923		$	(632,023	)	$	(21,323	)
Net income(loss)		(6,279	)		6,279			-			-
Equity-based incentive compensation		105			-			3			108
Distributions		(1,675	)		(6,279	)		(128	)		(8,082	)
Proceeds from sale of 53,372 common units pursuant to the Employee Unit Purchase Plan		55			-			-			55
Balance, March 31, 2020	$	348,983		$	253,923		$	(632,148	)	$	(29,242	)

Balance, December 31, 2020	$	312,591		$	253,923		$	(632,737	)	$	(66,223	)
Net income		73,896			6,465			1,292			81,653
Equity-based incentive compensation		(80	)		-			3			(77	)
Repurchase of preferred units		-			(5,163	)		-			(5,163	)
Distributions		(1,700	)		(6,279	)		(128	)		(8,107	)
Proceeds from sale of 32,696 common units pursuant to the Employee Unit Purchase Plan		48			-			-			48
Balance, March 31, 2021	$	384,755		$	248,946		$	(631,570	)	$	2,131

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BLUEKNIGHT ENERGY PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months ended September 30,						Three Months Ended March 31,
	2019			2020			2020			2021
	(unaudited)						(unaudited)
Cash flows from operating activities:
Net income	$	14,072		$	15,744		$	-		$	81,653
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		19,211			17,698			6,094			3,065
Amortization of debt issuance costs		754			753
Amortization and write-off of debt issuance costs								251			391
Tangible asset impairment charge		2,316			6,417			5,122			156
Gain on disposal of assets		(1,765	)		(426	)
(Gain)loss on sale of assets								185			(75,069	)
Equity-based incentive compensation		652			640			108			(77	)
Changes in assets and liabilities:
Decrease in accounts receivable		7,128			8,677			4,201			10,022
Decrease (increase) in receivables from related parties		(830	)		104
Decrease(increase) in receivables from related parties								168			(157	)
Decrease in other current assets		3,615			3,032			1,345			1,630
Decrease in other non-current assets		2,255			1,767			566			379
Decrease in accounts payable		(250	)		(379	)
Increase (decrease) in payables to related parties		535			(1,256	)
Increase in accounts payable								104			412
Decrease in payables to related parties								(17	)		(17	)
Decrease in accrued crude oil purchases		(7,484	)		(4,244	)		(3,466	)		(3,868	)
Increase (decrease) in accrued crude oil purchases to related parties		1,219			(4,382	)
Increase (decrease) in accrued interest payable		(176	)		25
Increase in accrued property taxes		612			204
Increase in unearned revenue		1,557			318
Increase (decrease) in unearned revenue from related parties		(2,380	)		1,382
Increase (decrease) in accrued payroll		169			(29	)
Decrease in other accrued liabilities		(2,926	)		(2,145	)
Decrease in accrued crude oil purchases to related parties								(4,463	)		(8,842	)
Increase in accrued interest payable								8			5
Decrease in accrued property taxes								(381	)		(743	)
Increase(decrease) in unearned revenue								1,205			(373	)
Decrease in unearned revenue from related parties								(285	)		(227	)
Decrease in accrued payroll								(2,329	)		(3,822	)
Increase(decrease) in other accrued liabilities								(542	)		860
Net cash provided by operating activities		38,284			43,900			7,874			5,378
Cash flows from investing activities:
Acquisition of DEVCO from Ergon (Note 8)		-			(12,221	)		(12,221	)		-
Capital expenditures		(9,428	)		(12,381	)		(2,900	)		(2,044	)
Proceeds from sale of assets		7,089			2,409
Net cash used in investing activities		(2,339	)		(22,193	)
Net proceeds from sale of assets								25			155,316
Net cash provided by(used in) investing activities								(15,096	)		153,272
Cash flows from financing activities:
Payments on other financing activities		(1,894	)		(2,166	)		(638	)		(171	)
Debt issuance costs								-			(49	)
Borrowings under credit agreement		218,000			181,000			78,000			48,000
Payments under credit agreement		(225,000	)		(176,000	)		(62,000	)		(194,000	)
Proceeds from equity issuance		176			170			55			48
Repurchase of preferred units								-			(5,163	)
Distributions		(25,905	)		(24,297	)		(8,082	)		(8,107	)
Net cash used in financing activities		(34,623	)		(21,293	)
Net increase in cash and cash equivalents		1,322			414
Net cash provided by(used in) financing activities								7,335			(159,442	)
Net increase(decrease) in cash and cash equivalents								113			(792	)
Cash and cash equivalents at beginning of period		1,455			558			558			805
Cash and cash equivalents at end of period	$	2,777		$	972		$	671		$	13

Supplemental disclosure of non-cash financing and investing cash flow information:
Non-cash changes in property, plant and equipment	$	1,528		$	1,185		$	1,241		$	(74	)
Increase in accrued liabilities related to insurance premium financing agreement	$	2,356		$	2,324		$	1,517		$	1,208

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BLUEKNIGHT ENERGY PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	ORGANIZATION AND NATURE OF BUSINESS

Blueknight Energy Partners, L.P. and subsidiaries (collectively, the “Partnership”) is a publicly traded master limited partnership with operations in 26 states. The Partnership provides integrated terminalling ~~gathering, transportation and marketing~~ services for companies engaged in the production, distribution, and marketing of ~~crude oil and asphalt products.~~liquid asphalt. The Partnership manages its operations through ~~four~~one operating ~~segments: (i)~~segment, asphalt terminalling ~~services, (ii) crude oil terminalling services, (iii) crude oil pipeline services, and (iv) crude oil trucking~~ services. The Partnership’s common units and preferred units, which represent limited partnership interests in the Partnership, are listed on the ~~NASDAQ~~Nasdaq Global Market under the symbols “BKEP” and “BKEPP,” respectively. The Partnership was formed in February 2007 as a Delaware master limited ~~partnership initially~~partnership.

The Partnership previously provided integrated terminalling, gathering, and transportation services for companies engaged in the production, distribution, and marketing of crude oil in three different operating segments: (i) crude oil terminalling services, (ii) crude oil pipeline services, and (iii) crude oil trucking services. On December 21, 2020, the Partnership announced it had entered into multiple definitive agreements to ~~own, operate~~sell these segments. These transactions closed in February and ~~develop~~March of 2021. These segments are presented as discontinued operations for all periods presented. Unless otherwise noted, information in these notes to the consolidated financial statements relates to continuing operations. As the Partnership is only operating through one operating segment, a ~~diversified portfolio of complementary midstream energy assets.~~segment footnote is no longer required.

2.	BASIS OF ~~CONSOLIDATION AND~~ PRESENTATION

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated balance sheet as of ~~September 30, 2020~~March 31, 2021, the condensed consolidated statements of operations for the three ~~and~~ ~~nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021, the condensed consolidated statements of changes in partners’ capital (deficit) for the three ~~and~~ ~~nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021, and the condensed consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021, are unaudited. In the opinion of management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments necessary to state fairly the financial position and results of operations for the respective interim periods. All adjustments are of a recurring nature unless otherwise disclosed herein. The ~~2019~~2020 year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Partnership’s annual report on Form 10-K for the year ended December 31, ~~2019~~2020, filed with the Securities and Exchange Commission (the “SEC”) on March ~~26, 2020~~10, 2021 (the “~~2019~~2020 Form 10-K”). Interim financial results are not necessarily indicative of the results to be expected for an annual period. The Partnership’s significant accounting policies are consistent with those disclosed in Note 3 of the Notes to Consolidated Financial Statements in its ~~2019~~2020 Form 10-K. The following reclassifications have been made in the consolidated financial statements: (i) an immaterial operating cash flow item was combined with another operating cash flow item in the condensed consolidated statement of cash flows for the nine months ended September 30, 2019, and (ii) immaterial corporate items previously allocated to revenues and operating expenses have been reclassified to other income in the condensed consolidated statements of operations for all periods presented. These reclassifications had no impact on net income.

REVENUE

The Partnership recognizes revenue from contracts with customers as well as lease revenue. The following table includes revenue associated with contractual commitments in place related to future performance obligations as of the end of the reporting period, which are expected to be recognized in revenue in the specified periods (in thousands):

	Revenue from Contracts with Customers⁽¹⁾		Revenue from Leases		Revenue from Contracts with Customers(1)		Revenue from Leases
Remainder of 2020	$	9,620	$	14,358
2021		38,156		57,083
Remainder of 2021					$	29,431	$	43,923
2022		30,076		45,512		31,808		49,739
2023		26,462		38,446		28,131		42,546
2024		26,506		38,494		28,174		42,593
2025						26,857		37,595
Thereafter		61,140		76,644		37,078		43,000
Total revenue related to future performance obligations	$	191,960	$	270,537	$	181,479	$	259,396

___________________

(1)	Excluded from the table is revenue that is either constrained or related to performance obligations that are wholly unsatisfied as of ~~September 30, 2020~~March 31, 2021.

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Disaggregation of Revenue

Disaggregation of revenue from contracts with customers ~~for each operating segment~~and lease revenue by revenue type is presented as follows (in thousands):

Asphalt Terminalling Services

Crude Oil Terminalling Services

Crude Oil Pipeline Services

Crude Oil Trucking Services

Total

Three Months ended September 30, 2019

Revenue from contracts with customers

Third-party revenue:

Fixed storage, throughput and other revenue
$ 5,008 $ 3,264 $ - $ - $ 8,272
Variable throughput and other revenue
648 961 - - 1,609
Variable reimbursement revenue
1,729 - - - 1,729
Crude oil transportation revenue
- - 1,284 2,822 4,106
Crude oil product sales revenue
- - 55,213 - 55,213
Related-party revenue:

Fixed storage, throughput and other revenue
2,750 - 63 - 2,813
Variable throughput and other revenue
21 - - - 21
Variable reimbursement revenue
1,099 - 1 - 1,100
Total revenue from contracts with customers
$ 11,255 $ 4,225 $ 56,561 $ 2,822 $ 74,863
Lease revenue

Third-party revenue:

Fixed lease revenue
$ 9,415 $ - $ - $ - $ 9,415
Variable throughput and other revenue
1,451 - - - 1,451
Variable reimbursement revenue
578 - - - 578
Related-party revenue:

Fixed lease revenue
4,733 - - - 4,733
Variable throughput and other revenue
615 - - - 615
Variable reimbursement revenue
79 - - - 79
Total lease revenue
$ 16,871 $ - $ - $ - $ 16,871
Total revenue
$ 28,126 $ 4,225 $ 56,561 $ 2,822 $ 91,734

Three Months ended September 30, 2020

Revenue from contracts with customers

Third-party revenue:

Fixed storage, throughput and other revenue
$ 5,097 $ 3,327 $ - $ - $ 8,424
Variable throughput and other revenue
752 863 - - 1,615
Variable reimbursement revenue
1,665 - - - 1,665
Crude oil transportation revenue
- - 412 770 1,182
Crude oil product sales revenue
- - 51,390 - 51,390
Related-party revenue:

Fixed storage, throughput and other revenue
4,079 - - - 4,079
Variable throughput and other revenue
267 - - - 267
Variable reimbursement revenue
503 - - - 503
Total revenue from contracts with customers
$ 12,363 $ 4,190 $ 51,802 $ 770 $ 69,125
Lease revenue

Third-party revenue:

Fixed lease revenue
$ 7,930 $ - $ - $ - $ 7,930
Variable throughput revenue
713 - - - 713
Variable reimbursement revenue
499 - - - 499
Related-party revenue:

Fixed lease revenue
6,552 - - - 6,552
Variable throughput revenue
784 - - - 784
Variable reimbursement revenue
154 - - - 154
Total lease revenue
$ 16,632 $ - $ - $ - $ 16,632
Total revenue
$ 28,995 $ 4,190 $ 51,802 $ 770 $ 85,757

	Three Months Ended March 31, 2020
	Revenue from contracts with customers				Lease revenue
	Third-party revenue		Related-party revenue		Third-party revenue		Related-party revenue
Fixed storage and throughput revenue	$	5,245	$	3,084	$	-	$	-
Fixed lease revenue		-		-		9,227		4,800
Variable cost recovery revenue		1,607		971		604		121
Variable throughput and other revenue		1		-		-		-
Total	$	6,853	$	4,055	$	9,831	$	4,921

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Asphalt Terminalling Services

Crude Oil Terminalling Services

Crude Oil Pipeline Services

Crude Oil Trucking Services

Total

Nine Months ended September 30, 2019

Revenue from contracts with customers

Third-party revenue:

Fixed storage, throughput and other revenue
$ 14,852 $ 9,380 $ - $ - $ 24,232
Variable throughput and other revenue
877 2,435 - - 3,312
Variable reimbursement revenue
5,489 - - - 5,489
Crude oil transportation revenue
- - 5,748 8,537 14,285
Crude oil product sales revenue
- - 173,773 - 173,773
Related-party revenue:

Fixed storage, throughput and other revenue
8,296 - 229 - 8,525
Variable throughput and other revenue
136 - - - 136
Variable reimbursement revenue
3,491 - 37 - 3,528
Total revenue from contracts with customers
$ 33,141 $ 11,815 $ 179,787 $ 8,537 $ 233,280
Lease revenue

Third-party revenue:

Fixed lease revenue
$ 27,867 $ - $ - $ - $ 27,867
Variable throughput and other revenue
1,451 - - - 1,451
Variable reimbursement revenue
1,685 - - - 1,685
Related-party revenue:

Fixed lease revenue
14,249 - - - 14,249
Variable throughput and other revenue
615 - - - 615
Variable reimbursement revenue
316 - - - 316
Total lease revenue
$ 46,183 $ - $ - $ - $ 46,183
Total revenue
$ 79,324 $ 11,815 $ 179,787 $ 8,537 $ 279,463

Nine Months ended September 30, 2020

Revenue from contracts with customers

Third-party revenue:

Fixed storage, throughput and other revenue
$ 15,318 $ 9,858 $ - $ - $ 25,176
Variable throughput and other revenue
1,129 2,755 - - 3,884
Variable reimbursement revenue
4,754 - - - 4,754
Crude oil transportation revenue
- - 1,287 4,834 6,121
Crude oil product sales revenue
- - 119,068 - 119,068
Related-party revenue:

Fixed storage, throughput and other revenue
9,861 - - - 9,861
Variable throughput and other revenue
647 - - - 647
Variable reimbursement revenue
2,437 - - - 2,437
Total revenue from contracts with customers
$ 34,146 $ 12,613 $ 120,355 $ 4,834 $ 171,948
Lease revenue

Third-party revenue:

Fixed lease revenue
$ 24,729 $ - $ - $ - $ 24,729
Variable throughput and other revenue
746 - - - 746
Variable reimbursement revenue
1,576 - - - 1,576
Related-party revenue:

Fixed lease revenue
17,914 - - - 17,914
Variable throughput and other revenue
784 - - - 784
Variable reimbursement revenue
541 - - - 541
Total lease revenue
$ 46,290 $ - $ - $ - $ 46,290
Total revenue
$ 80,436 $ 12,613 $ 120,355 $ 4,834 $ 218,238

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	Three Months Ended March 31, 2021
	Revenue from contracts with customers				Lease revenue
		Third-party revenue		Related-party revenue		Third-party revenue		Related-party revenue
Fixed storage and throughput revenue	$	5,064	$	4,721	$	-	$	-
Fixed lease revenue		-		-		7,801		6,785
Variable cost recovery revenue		1,735		128		502		219
Variable throughput and other revenue		120		-		-		-
Total	$	6,919	$	4,849	$	8,303	$	7,004

Contract Balances

Billed accounts receivable from contracts with customers were $~~23.2~~2.1 million and $~~13.7~~3.7 million at December 31, ~~2019~~2020, and ~~September 30, 2020~~March 31, 2021, respectively.

The Partnership records unearned revenues when cash payments are received in advance of performance. Unearned revenue related to contracts with customers was $~~3.0~~ ~~million and~~ ~~$3.6~~3.2 million at both December 31, ~~2019~~2020, and ~~September 30, 2020~~March 31, 2021~~, respectively.~~. For the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021, the Partnership recognized $2.2 million of revenues that were previously included in the unearned revenue balance.

Practical Expedients and Exemptions

The Partnership does not disclose the value of unsatisfied performance obligations for ~~(i)~~ contracts with an original expected length of one year or ~~less and (ii) contracts for which revenue is recognized at the amount to which~~less.

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4.	DISCONTINUED OPERATIONS

On December 21, 2020, the Partnership ~~has the right~~announced executed agreements to ~~invoice for services performed. The Partnership is using the right-to-invoice practical expedient on all contracts with customers in~~sell its crude oil ~~terminalling~~trucking services, crude oil pipeline services, and crude oil terminalling services segments. These segments are reported as discontinued operations in the results of operations and financial position for all periods presented. The crude oil trucking services ~~segments.~~

4.	~~PROPERTY, PLANT, AND EQUIPMENT~~

agreement closed in two phases, one on December 15, 2020, and one on February 2, 2021. The ~~Partnership~~crude oil pipeline services agreement closed on February 1, 2021. Loss recognized ~~asset impairment expense~~on the disposal and classification of ~~$6.4~~ ~~million~~held for sale of these assets was recorded in the ~~nine months~~year ended ~~September 30,~~December 31, 2020. ~~In the second quarter of 2020, the Partnership recorded an impairment of $1.3 million~~The transaction related to the crude oil ~~trucking~~terminalling services segment ~~based~~closed on ~~the expected future cash flows and market~~March 1, 2021. The Partnership has allocated interest to discontinued operations on debt that was required to be repaid as a result of the sales of the crude oil pipeline and terminalling services segment ~~compared~~for the three months ended March 31, 2020 and 2021.

As part of the crude oil pipeline sale, $1.5 million of the gross sale proceeds are currently being held in escrow, subject to post-closing settlement terms and conditions. The Partnership expects to receive the ~~carrying value~~majority of ~~its assets,~~this in increments over the next two years.

Exit and ~~consisted of $1.1 million~~disposal costs related to ~~plant, property~~these sales, in the form of employee severance payments, are expected to total approximately $1.6 million. The Partnership is providing limited transition services to both of the buyers of the crude oil pipeline and ~~equipment and $0.2 million related~~terminalling services segments. These services are expected to ~~operating right-of-use assets. In addition,~~last approximately six months beyond the final closing date. The contracts were designed to recover the costs of providing services, so a minimal income statement impact is expected for these services.

During the three months ended March 31, 2020, an impairment of $4.9 million was ~~recorded in the first quarter of 2020~~recognized to write-down the value of the ~~Partnership’s~~Partnership's crude oil linefill ~~from $8.1 million as of December 31, 2019, to $4.0 million as of March 31, 2020,~~ based on the market price of crude oil as of March 31, 2020. ~~Early in 2020, $0.8 million of incremental crude oil linefill was acquired to meet the requirements of the pipeline system, resulting in a total impairment on the crude oil linefill of $4.9 million.~~

Assets and Liabilities of Discontinued Operations (in thousands)	As of December 31, 2020
	Crude Oil Trucking Services		Crude Oil Pipeline Services		Crude Oil Terminalling Services		Total
ASSETS
Accounts receivable, net	$	81	$	13,711	$	167	$	13,959
Plant, property, and equipment		442		23,541		52,854		76,837
Other assets		331		547		5,271		6,149
Total assets of discontinued operations	$	854	$	37,799	$	58,292	$	96,945

LIABILITIES
Current liabilities	$	1,017	$	14,921	$	1,310	$	17,248
Total liabilities of discontinued operations	$	1,017	$	14,921	$	1,310	$	17,248

~~During the~~ ~~nine months ended September 30, 2019, the Partnership recognized asset impairment expense of~~ ~~$2.3~~ million. A change in estimate of the push-down impairment related to Cimarron Express Pipeline, LLC (“Cimarron Express”) resulted in additional impairment expense of $2.0 million, which was recorded at the corporate level (see Note 8 for more information). In addition, flooding at several asphalt terminals in the Midwest led to an impairment of $0.3 million during that period.

~~During the three and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2020~~, the Partnership had a small gain on the disposal of assets that were no longer being used for operations. During the nine months ended September 30, 2019, the Partnership sold various surplus assets, including the sale of three truck stations for $1.6 million, which resulted in a gain of $1.5 million, and the sale of pipeline linefill for $1.6 million, which resulted in a gain of $0.3 million.

~~In addition, proceeds received during the~~

Assets and Liabilities of Discontinued Operations (in thousands)	As of March 31, 2021
	Crude Oil Trucking Services		Crude Oil Pipeline Services		Crude Oil Terminalling Services		Total
ASSETS
Accounts receivable, net	$	-	$	287	$	48	$	335
Other assets		40		-		136		176
Total assets of discontinued operations	$	40	$	287	$	184	$	511

LIABILITIES
Current liabilities	$	32	$	936	$	1,631	$	2,599
Total liabilities of discontinued operations	$	32	$	936	$	1,631	$	2,599

~~nine~~ ~~months ended~~ ~~September 30, 2019, included $2.6 million related to a sale~~Table of ~~pipeline linefill in December 2018, for which the proceeds were received in January 2019.~~Contents

Statement of Operations for Discontinued Operations (in thousands)		Three Months Ended March 31, 2020
	Crude Oil Trucking Services			Crude Oil Pipeline Services			Crude Oil Terminalling Services			Total
Revenue:
Third-party service revenue	$	2,543		$	502		$	3,330		$	6,375
Intercompany service revenue		1,425			-			-			1,425
Third-party product sales revenue		-			47,052			-			47,052
Costs and expenses:
Operating expense		4,025			3,302			2,023			9,350
Intercompany operating expense		-			1,425			-			1,425
Cost of product sales		-			14,221			-			14,221
Cost of product sales from related party		-			28,254			-			28,254
General and administrative expense		69			105			-			174
Tangible asset impairment expense		35			2,820			2,266			5,121
(Gain)loss on disposal of assets		(10	)		121			-			111
Interest expense		3			325			1,384			1,712
Loss before income taxes		(154	)		(3,019	)		(2,343	)		(5,516	)
Provision for income taxes		3			-			-			3
Net loss from discontinued operations	$	(157	)	$	(3,019	)	$	(2,343	)	$	(5,519	)

Statement of Operations for Discontinued Operations (in thousands)	Three Months Ended March 31, 2021
	Crude Oil Trucking Services			Crude Oil Pipeline Services			Crude Oil Terminalling Services			Total
Revenue:
Third-party service revenue	$	9		$	413		$	3,643		$	4,065
Intercompany service revenue		409			-			-			409
Third-party product sales revenue		-			15,591			-			15,591
Costs and expenses:
Operating expense		1,333			1,438			910			3,681
Intercompany operating expense		-			409			-			409
Cost of product sales		-			4,994			-			4,994
Cost of product sales from related party		-			9,461			-			9,461
General and administrative expense		59			118			-			177
Tangible asset impairment expense		92			41			23			156
Gain on disposal of assets		(3	)		(1,694	)		(73,372	)		(75,069	)
Interest expense		-			72			634			706
Income (loss) before income taxes		(1,063	)		1,165			75,448			75,550
Provision for income taxes		-			-			-			-
Net income (loss) from discontinued operations	$	(1,063	)	$	1,165		$	75,448		$	75,550

Select cash flow information (in thousands)
	Crude Oil Trucking Services		Crude Oil Pipeline Services		Crude Oil Terminalling Services		Total
	Three Months Ended March 31, 2020
Depreciation and amortization	$	200	$	1,170	$	1,139	$	2,509
Capital expenditures	$	180	$	882	$	89	$	1,152

	Three Months Ended March 31, 2021
Amortization	$	3	$	14	$	15	$	32
Capital expenditures	$	-	$	10	$	109	$	119

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DEBT

On May 11, 2017, the Partnership entered into an amended and restated credit agreement. On June 28, 2018, the credit agreement was amended to, among other things, reduce the revolving loan facility from $450.0 million to $400.0 million and amend the maximum permitted consolidated total leverage ratio as discussed below. On January 8, 2021, the credit facility was amended a second time to, among other things, reduce the revolving loan facility from $400.0 million to $350.0 million upon the sale of the crude oil terminalling segment, which became effective on March 1, 2021 (the “ January 2021 Amendment”).

As of ~~October 30, 2020~~April 28, 2021, approximately $~~255.6~~106.6 million of revolver borrowings and $~~1.7~~0.7 million of letters of credit were outstanding under the credit agreement, leaving the Partnership with approximately $~~142.7~~242.7 million available capacity for additional revolver borrowings and letters of credit under the credit agreement, although the Partnership’s ability to borrow such funds is limited by the financial covenants in the credit agreement. The proceeds of loans made under the credit agreement may be used for working capital and other general corporate purposes of the Partnership.

The credit agreement is guaranteed by all of the Partnership’s existing subsidiaries. Obligations under the credit agreement are secured by first priority liens on substantially all of the Partnership’s assets and those of the guarantors.

The credit agreement includes procedures for additional financial institutions to become revolving lenders, or for any existing lender to increase its revolving commitment thereunder, subject to an aggregate maximum of $600.0 million for all revolving loan commitments under the credit agreement.

The credit agreement will mature on May 11, 2022, and all amounts outstanding under the credit agreement will become due and payable on such date. The credit agreement requires mandatory prepayments of amounts outstanding thereunder with the net proceeds of certain asset sales, property or casualty insurance claims and condemnation proceedings, unless the Partnership reinvests such proceeds in accordance with the credit agreement, but these mandatory prepayments will not require any reduction of the lenders’ commitments under the credit agreement.

Borrowings under the credit agreement bear interest, at the Partnership’s option, at either the reserve-adjusted eurodollar rate (as defined in the credit agreement) (“Eurodollar Rate”) plus an applicable margin that ranges from 2.0% to 3.25% or the alternate base rate (the highest of the agent bank’s prime rate, the federal funds effective rate plus 0.5%, and the 30-day ~~eurodollar rate~~Eurodollar Rate plus 1.0%) plus an applicable margin that ranges from 1.0% to 2.25%. The Partnership pays a per annum fee on all letters of credit issued under the credit agreement, which fee equals the applicable margin for loans accruing interest based on the ~~eurodollar rate,~~Eurodollar Rate, and the Partnership pays a commitment fee ranging from 0.375% to 0.5% on the unused commitments under the credit agreement. The applicable margins for the Partnership’s interest rate, the letter of credit fee and the commitment fee vary quarterly based on the Partnership’s consolidated total leverage ratio (as defined in the credit agreement, being generally computed as the ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation, amortization, and certain other non-cash ~~charges (“credit agreement EBITDA”))~~charges).

The credit agreement includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter.

Prior to the date on which the Partnership issues qualified senior notes in an aggregate principal amount (when combined with all other qualified senior notes previously or concurrently issued) that equals or exceeds $200.0 million, the maximum permitted consolidated total leverage ratio will be 4.75 to 1.00; provided that the maximum permitted consolidated total leverage ratio may be increased to 5.25 to 1.00 for certain quarters, based on the occurrence of a specified acquisition (as defined in the credit agreement, but generally being an acquisition for which the aggregate consideration is $15.0 million or more).

From and after the date on which the Partnership issues qualified senior notes in an aggregate principal amount (when combined with all other qualified senior notes previously or concurrently issued) that equals or exceeds $200.0 million, the maximum permitted consolidated total leverage ratio is 5.00 to 1.00; provided that from and after the fiscal quarter ending immediately preceding the fiscal quarter in which a specified acquisition occurs to and including the last day of the second full fiscal quarter following the fiscal quarter in which such acquisition occurred, the maximum permitted consolidated total leverage ratio will be 5.50 to 1.00.

The maximum permitted consolidated senior secured leverage ratio (as defined in the credit agreement, but generally computed as the ratio of consolidated total secured debt to ~~credit agreement EBITDA)~~consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges) is 3.50 to 1.00, but this covenant is only tested from and after the date on which the Partnership issues qualified senior notes in an aggregate principal amount (when combined with all other qualified senior notes previously or concurrently issued) that equals or exceeds $200.0 million.

The minimum permitted consolidated interest coverage ratio (as defined in the credit agreement, but generally computed as the ratio of ~~credit agreement EBITDA~~consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges to consolidated interest expense) is 2.50 to 1.00.

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In addition, the credit agreement contains various covenants that, among other restrictions, limit the Partnership’s ability to:

create, issue, incur or assume indebtedness;

create, incur or assume liens;

engage in mergers or acquisitions;

sell, transfer, assign or convey assets;

repurchase the Partnership’s equity, make distributions to unitholders and make certain other restricted payments;

make investments;

modify the terms of certain indebtedness, or prepay certain indebtedness;

engage in transactions with affiliates;

enter into certain hedging contracts;

enter into certain burdensome agreements;

change the nature of the Partnership’s business; and

make certain amendments to the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership (the ~~“Partnership Agreement”~~“Partnership’s partnership agreement”).

At ~~September 30, 2020~~March 31, 2021, the Partnership’s consolidated total leverage ratio was ~~4.06~~2.12 to 1.00 and the consolidated interest coverage ratio was ~~5.79~~11.68 to 1.00. The Partnership was in compliance with all covenants of its credit agreement as of ~~September 30, 2020~~March 31, 2021.

Management evaluates whether conditions and/or events raise substantial doubt about the Partnership’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued (the “assessment period”). In performing this assessment, management considered the risk associated with its ongoing ability to meet the financial covenants.

~~Based~~ Based on the Partnership’s forecasted credit agreement EBITDA during the assessment period, management believes that it will remain in compliance with these financial covenants (as described below). However, there are certain inherent risks associated with the continued ability to comply with the consolidated total leverage ratio covenant. These risks relate, among other things, to potential future (a) decreases in storage volumescurrent operating plans and rates as well as throughput and transportation rates realized; (b) weather phenomenon that may potentially hinder the Partnership’s asphalt business activity; and (c) other items affecting forecasted levels of expenditures and uses of cash resources. Violation of the consolidated total leverage ratio covenant would be an event of default under the credit agreement, which would cause the ~~$260.6~~ ~~million in outstanding debt as of~~ ~~September 30, 2020, to become immediately due and payable. If this were to occur,~~forecasts, the Partnership would not expect to have sufficient liquidity to repay these outstanding amounts then due, which could cause the lenders under the credit facility to pursue other remedies. Such remedies could include exercising their collateral rights to the Partnership’s assets.

Based on management’s current forecasts, management believes the Partnership will be able to comply with the consolidated total leverage ratio during the assessment period. However, the Partnership cannot make any assurances that it will be able to achieve management’s forecasts. If the Partnership is unable to achieve management’s forecasts, further actions may be necessaryexpects to remain in compliance with all covenants of the Partnership’s consolidated total leverage ratio covenant including, but not limited to, cost reductions, common and preferred unitholder distribution curtailments, and/or asset sales. The Partnership can make no assurances that it would be successful in undertaking these actions or thatcredit agreement for at least the ~~Partnership will remain in compliance with the consolidated total leverage ratio during the assessment period.~~

next year.

The credit agreement permits the Partnership to make quarterly distributions of available cash (as defined in the ~~Partnership Agreement)~~Partnership’s partnership agreement) to unitholders so long as no default or event of default exists under the credit agreement on a pro forma basis after giving effect to such distribution. The Partnership is currently allowed to make distributions to its unitholders in accordance with this covenant; however, the Partnership will only make distributions to the extent it has sufficient cash from operations after establishment of cash reserves as determined by the Board of Directors (the “Board”) of Blueknight Energy Partners G.P., L.L.C. (the “general partner”) in accordance with the Partnership’s cash distribution policy, including the establishment of any reserves for the proper conduct of the Partnership’s business. See Note 7 for additional information regarding distributions.

In addition to other customary events of default, the credit agreement includes an event of default if:

(i)

the general partner ceases to own 100% of the Partnership’s general partner interest or ceases to control the Partnership;

(ii)

Ergon ceases to own and control 50% or more of the membership interests of the general partner; or

(iii)

during any period of 12 consecutive months, a majority of the members of the Board of the general partner ceases to be composed of individuals:

(A)

who were members of the Board on the first day of such period;

(B)

whose election or nomination to the Board was approved by individuals referred to in clause (A) above constituting at the time of such election or nomination at least a majority of the Board; or

(C)

whose election or nomination to the Board was approved by individuals referred to in clauses (A) and (B) above constituting at the time of such election or nomination at least a majority of the Board, provided that any changes to the composition of individuals serving as members of the Board approved by Ergon will not cause an event of default.

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If an event of default relating to bankruptcy or other insolvency events occurs with respect to the general partner or the Partnership, all indebtedness under the credit agreement will immediately become due and payable. If any other event of default exists under the credit agreement, the lenders may accelerate the maturity of the obligations outstanding under the credit agreement and exercise other rights and remedies. In addition, if any event of default exists under the credit agreement, the lenders may commence foreclosure or other actions against the collateral.

If any default occurs under the credit agreement, or if the Partnership is unable to make any of the representations and warranties in the credit agreement, the Partnership will be unable to borrow funds or to have letters of credit issued under the credit agreement.

Upon the March 1, 2021 effective date of the January 2021 Amendment, the Partnership expensed $0.1 million of debt issuance costs due to the reduction in available borrowing capacity. Debt issuance costs are being amortized over the term of the credit agreement. Interest expense related to debt issuance cost amortization for both the three months ended ~~September 30, 2019~~three months ended March 31, 2020 and ~~2020~~2021, was $0.3 ~~million. Interest expense related to debt issuance cost amortization for both the~~million and ~~nine~~$0.2 ~~months ended~~ ~~September 30,~~ ~~2019 and 2020, was~~ ~~$0.8~~ ~~million.~~million, respectively.

During the three months ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021, the weighted average interest rate under the Partnership’s credit agreement was ~~5.90%~~4.90% and ~~3.56%~~3.83%, respectively, resulting in interest expense of approximately $~~4.0~~1.7 million and $~~2.5~~1.2 million, ~~respectively. During~~respectively, excluding the ~~nine~~ ~~months ended~~ ~~September 30, 2019 and 2020, the weighted average interest rate under the Partnership’s credit agreement was~~ ~~6.20%~~ ~~and~~ ~~4.11%, respectively, resulting in interest expense of approximately~~ $~~12.3~~0.1 million ~~and~~ ~~$8.5~~ ~~million, respectively.~~of debt issuance costs that were expensed as described above.

6.	NET INCOME PER LIMITED PARTNER UNIT

For purposes of calculating earnings per unit, preferred units, general partner units, and common units are first allocated net income to the extent they receive a distribution. Next, the excess of distributions over earnings or excess of earnings over distributions for each period are allocated to the Partnership’s general partner based on ~~its respective~~the general partner’s ownership ~~interests~~interest at the time. For the three months ended March 31, 2021, the preferred units were also allocated income for the excess consideration paid over carrying value for the repurchase of 688,417 preferred units. The remainder is allocated to ~~the~~ common units. The following sets forth the computation of basic and diluted net income per common unit (in thousands, except per unit data):

	Three Months ended September 30,				Nine Months ended September 30,						Three Months Ended March 31,
	2019		2020		2019			2020			2020			2021
Net income	$	6,959	$	14,393	$	14,072		$	15,744		$	-		$	81,653
General partner interest in net income		110		228		268			249			-			1,292
Preferred interest in net income		6,278		6,278		18,836			18,836			6,279			6,341
Net income (loss) available to limited partners	$	571	$	7,887	$	(5,032	)	$	(3,341	)
Net income(loss) available to limited partners											$	(6,279	)	$	74,020

Basic weighted average number of units:
Common units		40,811		41,166		40,735			41,072			41,015			41,430
Restricted and phantom units		1,130		1,354		1,004			1,259			983			1,166
Total units		41,941		42,520		41,739			42,331			41,998			42,596

Diluted weighted average number of units:
Common units		40,811		77,646		40,735			41,072

Basic net income (loss) per common unit	$	0.01	$	0.19	$	(0.12	)	$	(0.08	)
Diluted net income (loss) per common unit	$	0.01	$	0.18	$	(0.12	)	$	(0.08	)
Basic and diluted net income(loss) from discontinued operations per common unit											$	(0.13	)	$	1.75
Basic and diluted net loss from continuing operations per common unit											$	(0.02	)	$	(0.01	)
Basic and diluted net income(loss) per common unit											$	(0.15	)	$	1.74

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7.	PARTNERS’ CAPITAL AND DISTRIBUTIONS

On March 12, 2021, the Partnership repurchased 688,417 outstanding preferred units at $7.50 per unit or total cash consideration of $5.2 million. The consideration paid was based on the fair market value of the units at the time of purchase. The carrying value of the units was $7.23 per unit, or total carrying value of $5.0 million. The preferred units were allocated additional net income for the $0.2 million of consideration paid in excess of carrying value. The units were retired on March 24, 2021.

On ~~October 15, 2020~~April 21, 2021, the Board approved a cash distribution of $0.17875 per outstanding preferred unit for the three months ended ~~September 30, 2020~~March 31, 2021. The Partnership will pay this distribution on ~~November 13, 2020~~May 14, 2021, to unitholders of record as of ~~November 3, 2020~~May 7, 2021. The total distribution will be approximately $~~6.4~~6.3 million, with approximately $~~6.3~~6.2 million and $0.1 million paid to the Partnership’s preferred unitholders and general partner, respectively.

In addition, the Board approved a cash distribution of $0.04 per outstanding common unit for the three months ended ~~September 30, 2020~~March 31, 2021. The Partnership will pay this distribution on ~~November 13, 2020~~May 14, 2021, to unitholders of record ~~as of~~on ~~November 3, 2020~~May 7, 2021. The total distribution will be approximately $1.7 million, with approximately $~~1.6~~1.7 million and less than $0.1 million to be paid to the Partnership’s common unitholders and general partner, respectively, and approximately $0.1 million to be paid to holders of phantom and restricted units pursuant to awards granted under the Partnership’s Long-Term Incentive Plan.

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8.	~~RELATED PARTY~~RELATED-PARTY TRANSACTIONS

The Partnership leases asphalt facilities and provides asphalt terminalling services to Ergon. On April 3, 2020, Ergon purchased another customer of the Partnership, increasing the number of asphalt facilities under contract with Ergon from 23 to 28. On August 4, 2020, the Partnership and Ergon entered into the 2020 Master Storage, Throughput and Handling Agreement, which was effective August 1, 2020. Pursuant to the 2020 Master Storage, Throughput and Handling Agreement, which replaced three previously filed agreements and all related amendments, the Partnership provides Ergon with storage and terminalling services at 22 facilities. The remaining six facilities under contract with Ergon continue under their existing agreements. For the three months ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021, the Partnership recognized related-party revenues of $~~9.3~~9.0 million and $~~12.4~~ ~~million, respectively, for services provided to Ergon. For the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2019 and 2020, the Partnership recognized related-party revenues of~~ ~~$27.2~~ ~~million and~~ ~~$32.3~~11.9 million, respectively, for services provided to Ergon. As of December 31, ~~2019~~2020, and ~~September 30, 2020~~March 31, 2021, the Partnership had receivables from Ergon of $~~1.1~~0.5 million and $~~1.0~~0.7 million, respectively. As of December 31, ~~2019~~2020, and ~~September 30, 2020~~March 31, 2021, the Partnership had unearned revenues from Ergon of $~~5.1~~8.8 million and $~~6.7~~8.6 million, respectively.

~~On August 4, 2020,~~As of December 31, 2019, the Partnership ~~and~~had a contingent liability to Ergon also entered into the Operating and Maintenance Agreement, effective August 1, 2020, pursuant to which Ergon will provide certain operations and maintenance services to the 22 facilities also under the 2020 Master Storage, Throughput and Handling Agreement. For both the three and ~~nine months ended September 30, 2020, the Partnership recognized expense~~ of ~~$3.1~~$12.2 million related to the ~~Operating~~Cimarron Express project, a previously disclosed joint venture between Kingfisher Midstream and ~~Maintenance Agreement.~~

Ergon's development company (“DEVCO”) that was cancelled in December 2018. The contingent liability reflected Ergon's investment in the joint venture and accrued interest, for which the Partnership, ~~has an~~in accordance with the membership interest purchase agreement with Ergon, ~~under which~~was meant to bear the ~~Partnership purchases crude oil in connection with its crude oil marketing operations. For the three months ended~~ ~~September 30, 2019 and 2020, the Partnership made purchases of crude oil under this agreement totaling~~ ~~$32.8~~ ~~million and~~ ~~$25.5~~ ~~million, respectively. For the nine months ended~~ ~~September 30, 2019 and 2020, the Partnership made purchases of crude oil under this agreement totaling~~ ~~$98.6~~ ~~million and~~ ~~$69.9~~ ~~million, respectively. As of~~ ~~September 30, 2020, the Partnership had payables to Ergon related to this agreement of~~ ~~$7.4~~ ~~million for the~~ ~~September~~ ~~crude oil settlement cycle, and this balance was paid in full on~~ ~~October 20, 2020~~.

In May 2018, the Partnership, along with Kingfisher Midstream and Ergon, announced the execution of definitive agreements to form Cimarron Express. Cimarron Express was planned to be a new 16-inch diameter, 65-mile crude oil pipeline running from northeastern Kingfisher County, Oklahoma to the Partnership’s Cushing, Oklahoma crude oil terminal, with an original anticipated in-service date in the second half of 2019. Ergon formed a Delaware limited liability company, Ergon - Oklahoma Pipeline, LLC (“DEVCO”), which held Ergon’s 50% membership interest in Cimarron Express. The Partnership and Ergon had an agreement (the “DEVCO Agreement”) that gave each party certain rights to obligate the counterparty to either sell or purchase the outstanding membership interests in DEVCO for a purchase price computed by taking Ergon’s total investment in Cimarron Express plus interest, subject to certain terms and conditions as described in the Agreement.

In December 2018, the Partnership and Ergon were informed that Kingfisher Midstream made the decision to suspend future investments in Cimarron Express as Kingfisher Midstream determined that the anticipated volumes from the dedicated acreage and the resultant project economics did not support additional investment from Kingfisher Midstream. The Partnership considered the SEC staff’s opinions outlined in SAB 107 Topic 5.T Accounting for Expenses or Liabilities Paid by Principal Stockholders, and, as the DEVCO Agreement was designed to have the Partnership, ultimately and from the onset, bear any risk of loss ~~on the construction~~related to DEVCO’s portion of the ~~pipeline project and eventually own a 50% interest in the pipeline, the Partnership recorded impairments on a push-down basis based on Ergon’s 50% interest in Cimarron Express. During the~~ ~~nine months ended September 30, 2019, the Partnership recorded impairment expense of $2.0 million related to the DEVCO Agreement, which included a change in estimate and accrued interest.~~project. The Partnership’s contingent liability as of December 31, 2019, consisted of Ergon’s $10.2 million investment plus accrued interest of $2.0 million. In November 2019, Ergon and Kingfisher Midstream wound up the business, distributed assets, and dissolved Cimarron Express. On January 2, 2020, Ergon exercised its right under the DEVCO Agreement to require the Partnership to purchase the outstanding member interest in DEVCO, and the Partnership paid ~~the amount~~this liability in full on January 3, ~~2020. This cash payment~~2020, and it is reflected as an acquisition of ~~DEVCO in~~ the ~~investing cash flows section~~DEVCO on the ~~Partnership’s condensed~~ consolidated statement of cash flows for the ~~nine~~three months ended ~~September 30, 2020~~.March 31, 2020.

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9.	LONG-TERM INCENTIVE PLAN

In July 2007, the general partner adopted the Long-Term Incentive Plan (the “LTIP”), which is administered by the compensation committee of the Board. ~~Effective April 29, 2014, the~~The Partnership’s unitholders have approved ~~an amendment to the LTIP to increase the number of~~8.1 million common units to be reserved for issuance under the incentive plan, ~~to 4,100,000 common units,~~ subject to adjustments for certain events. Although other types of awards are contemplated under the LTIP, currently outstanding awards include “phantom” units, which convey the right to receive common units upon vesting, and “restricted” units, which are grants of common units restricted until the time of vesting. The phantom unit awards also include distribution equivalent rights (“DERs”).

Subject to applicable earning criteria, ~~DERs entitle~~a DER entitles the grantee to a cash payment equal to the cash distribution paid on an outstanding common unit prior to the vesting date of the underlying award. Recipients of restricted and phantom units are entitled to receive cash distributions paid on common units during the vesting period which are reflected initially as a reduction of partners’ capital. Distributions paid on units which ultimately do not vest are reclassified as compensation expense. Awards granted to date are equity awards and, accordingly, the fair value of the awards as of the grant date is expensed over the vesting period.

Restricted common units are granted to the independent directors ~~annually.~~on each anniversary of joining the Board. The units vest in one-third increments over three years. The following table includes information on outstanding grants made to the directors under the LTIP:

Grant Date	Number of Units		Weighted Average Grant Date Fair Value⁽¹⁾		Grant Date Total Fair Value (in thousands)		Number of Units		Weighted Average Grant Date Fair Value(1)		Grant Date Total Fair Value (in thousands)
December 2017		15,306	$	4.85	$	74
December 2018		23,436	$	1.20	$	28		23,436	$	1.20	$	28
December 2019		7,500	$	1.07	$	8		7,500	$	1.07	$	8
December 2020								7,500	$	2.06	$	15

(1)	Fair value is the closing market price on the grant date of the awards.

The Partnership also grants phantom units to employees. These grants are equity awards under ASC 718 – Stock Compensation and, accordingly, the fair value of the awards as of the grant date is expensed over the three-year vesting period. The following table includes information on the outstanding grants:

Grant Date	Number of Units		Weighted Average Grant Date Fair Value⁽¹⁾		Grant Date Total Fair Value (in thousands)		Number of Units		Weighted Average Grant Date Fair Value(1)		Grant Date Total Fair Value (in thousands)
March 2018		396,536	$	4.77	$	1,891
March 2019		524,997	$	1.14	$	598		524,997	$	1.14	$	598
June 2019		46,168	$	1.08	$	50		46,168	$	1.08	$	50
March 2020		600,396	$	0.90	$	540		600,396	$	0.90	$	540
October 2020								16,339	$	1.53	$	25
March 2021								530,435	$	2.71	$	1,437

(1)	Fair value is the closing market price on the grant date of the awards.

The unrecognized estimated compensation cost of outstanding phantom and restricted units at ~~September 30, 2020~~March 31, 2021, was $~~0.7~~1.7 million, which will be expensed over the remaining vesting period.

The Partnership’s equity-based incentive compensation expense for the three months ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021, was $~~0.3~~0.2 million and $~~0.2~~ ~~million, respectively. The Partnership's equity-based incentive compensation expense for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2019 and 2020, was~~ ~~$0.8~~ ~~million and~~ ~~$0.7~~0.1 million, respectively.

Activity pertaining to phantom and restricted common unit awards granted under the LTIP ~~was~~is as follows:

	Number of Units		Weighted Average Grant Date Fair Value		Number of Units		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019		1,068,343	$	3.42
Nonvested at December 31, 2020						1,350,366	$	1.81
Granted		600,396		0.90		530,435		2.71
Vested		305,149		5.59		329,996		4.20
Forfeited		14,156		2.19		-		-
Nonvested at September 30, 2020		1,349,434	$	2.68
Nonvested at March 31, 2021						1,550,805	$	1.61

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~~10.~~

~~DERIVATIVE FINANCIAL INSTRUMENT~~

~~Commodity Derivative~~ - During the second quarter of 2020, the Partnership’s internal crude oil marketing department entered into crude oil forward purchase contracts for 0.3 million barrels of crude oil through sell/buy arrangements with a counterparty to facilitate spot storage deals in the Partnership’s Cushing terminal with such counterparty during a time of favorable contango spreads. The Partnership was not exposed to additional commodity price risk beyond its normal marketing activity. The final purchase settlement on the contracts occurred in August 2020 at then-market prices. There were no open derivative positions at September 30, 2020 or December 31, 2019.

~~Changes in the fair value of the commodity derivative are reflected in the unaudited condensed consolidated statements of operation as follows (in thousands):~~

Derivatives Not Designated as

Location of Gain(Loss) Recognized in Net

Amount of Gain Recognized

Hedging Instruments

Income on Derivatives

in Net Income on Derivatives

Three Months ended September 30,

2020

Commodity derivative

Cost of product sales
$ 3,589

Due to the corresponding loss that was recognized in the second quarter of 2020, there is no income statement impact for the change in fair market value of the derivative for the nine months ended September 30, 2020. The impact of the derivatives in the above table was reflected as cash from operations on our consolidated statements of cash flows.

~~11.~~10.

FAIR VALUE MEASUREMENTS

The Partnership uses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost) to value assets and liabilities required to be measured at fair value, as appropriate. The Partnership uses an exit price when determining the fair value. The exit price represents amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

The Partnership utilizes a three-tier fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1

Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2

Inputs other than quoted prices that are observable for these assets or liabilities, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3

Unobservable inputs in which there is little market data, which requires the reporting entity to develop its own assumptions.

This hierarchy requires the use of observable market data, when available, to minimize the use of unobservable inputs when determining fair value. ~~In periods in which they occur, the Partnership recognizes transfers into and out of Level 3 as of the end of the reporting period. There were no transfers during the~~ ~~nine months ended September 30, 2020~~. Transfers out of Level 3 represent existing assets and liabilities that were classified previously as Level 3 for which the observable inputs became a more significant portion of the fair value estimates. Determining the appropriate classification of the Partnership’s fair value measurements within the fair value hierarchy requires management’s judgment regarding the degree to which market data is observable or corroborated by observable market data.

As of ~~September 30,~~December 31, 2020, and ~~December~~March 31, ~~2019,~~2021, the Partnership had no recurring financial assets or liabilities subject to fair value measurement.

Fair Value of Other Financial Instruments

The following disclosure of the estimated fair value of financial instruments is made in accordance with accounting guidance for financial instruments. The Partnership has determined the estimated fair values by using available market information and valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.

At ~~September 30, 2020~~March 31, 2021, the carrying values on the unaudited condensed consolidated balance sheets for cash and cash equivalents (classified as Level 1), accounts receivable, and accounts payable approximate their fair value because of their short-term nature.

Based on the borrowing rates currently available to the Partnership for credit agreement debt with similar terms and maturities and consideration of the Partnership’s non-performance risk, long-term debt associated with the Partnership’s credit agreement at ~~September 30, 2020~~March 31, 2021, approximates its fair value. The fair value of the Partnership’s long-term debt was calculated using observable inputs ~~(eurodollar~~(Eurodollar Rate for the risk-free component) and unobservable company-specific credit spread information. As such, the Partnership considers this debt to be Level 3.

~~12.~~

~~OPERATING SEGMENTS~~

The Partnership’s operations consist of four reportable segments: (i) asphalt terminalling services, (ii) crude oil terminalling services, (iii) crude oil pipeline services, and (iv) crude oil trucking services.

~~ASPHALT TERMINALLING SERVICES~~ —The Partnership provides asphalt product and residual fuel terminalling services, including storage, blending, processing and throughput services. The Partnership has 53 terminalling facilities located in 26 states.

~~CRUDE OIL TERMINALLING SERVICES~~ ~~—The Partnership provides crude oil terminalling services at its terminalling facility located in Oklahoma.~~

~~CRUDE OIL PIPELINE SERVICES~~ —The Partnership owns and operates its Mid-Continent pipeline system that gathers crude oil purchased by its customers and transports it to refiners, to common carrier pipelines for ultimate delivery to refiners or to terminalling facilities owned by the Partnership and others. Crude oil product sales revenues consist of sales proceeds recognized for the sale of crude oil to third-party customers.

~~CRUDE OIL TRUCKING SERVICES~~ — The Partnership uses its owned tanker trucks to gather crude oil for its customers at remote wellhead locations generally not covered by pipeline and gathering systems and to transport the crude oil to aggregation points and storage facilities located along pipeline gathering and transportation systems.

The Partnership’s management evaluates segment performance based upon operating margin, excluding depreciation and amortization, which includes revenues from related parties and external customers and operating expense, excluding depreciation and amortization. Operating margin, excluding depreciation and amortization (in the aggregate and by segment) is presented in the following table. The Partnership computes the components of operating margin, excluding depreciation and amortization by using amounts that are determined in accordance with GAAP. Transactions between segments are generally recorded based on prices negotiated between the segments and are similar to prices charged to third parties. A reconciliation of operating margin, excluding depreciation and amortization to income before income taxes, which is its nearest comparable GAAP financial measure, is included in the following table. The Partnership believes that investors benefit from having access to the same financial measures being utilized by management. Operating margin, excluding depreciation and amortization is an important measure of the economic performance of the Partnership’s core operations. This measure forms the basis of the Partnership’s internal financial reporting and is used by its management in deciding how to allocate capital resources among segments. Income before income taxes, alternatively, includes expense items, such as depreciation and amortization, general and administrative expenses, and interest expense, which management does not consider when evaluating the core profitability of the Partnership’s operations.

The following table reflects certain financial data for each segment for the periods indicated (in thousands). Immaterial corporate items previously allocated to reportable segment revenues and operating expense, excluding depreciation and amortization in prior periods have been reclassified to other income to be consistent with current period presentation.

Three Months ended September 30,

Nine Months ended September 30,

2019

2020

2019

2020

Asphalt Terminalling Services

Service revenue:

Third-party revenue
$ 7,385 $ 7,514 $ 21,218 $ 21,201
Related-party revenue
3,870 4,849 11,923 12,945
Lease revenue:

Third-party revenue
11,444 9,142 31,004 27,050
Related-party revenue
5,427 7,490 15,179 19,240
Total revenue for reportable segment
28,126 28,995 79,324 80,436
Operating expense, excluding depreciation and amortization
11,058 12,518 35,050 36,139
Operating margin, excluding depreciation and amortization
$ 17,068 $ 16,477 $ 44,274 $ 44,297
Total assets (end of period) $ 141,153 $ 134,818 $ 141,153 $ 134,818

Crude Oil Terminalling Services

Service revenue:

Third-party revenue
$ 4,225 $ 4,190 $ 11,815 $ 12,613
Intersegment revenue
278 - 853 -
Total revenue for reportable segment
4,503 4,190 12,668 12,613
Operating expense, excluding depreciation and amortization
1,217 1,223 3,522 3,157
Operating margin, excluding depreciation and amortization
$ 3,286 $ 2,967 $ 9,146 $ 9,456
Total assets (end of period) $ 64,579 $ 57,056 $ 64,579 $ 57,056

~~Table of Contents~~

Three Months ended September 30,

Nine Months ended September 30,

2019

2020

2019

2020

Crude Oil Pipeline Services

Service revenue:

Third-party revenue
$ 1,284 $ 412 $ 5,748 $ 1,287
Related-party revenue
64 - 266 -
Product sales revenue:

Third-party revenue
55,213 51,390 173,773 119,068
Total revenue for reportable segment
56,561 51,802 179,787 120,355
Operating expense, excluding depreciation and amortization
2,642 2,247 8,123 6,714
Intersegment operating expense
1,642 1,434 4,971 4,364
Third-party cost of product sales
18,972 19,833 64,069 41,133
Related-party cost of product sales
32,691 22,627 99,886 63,671
Operating margin, excluding depreciation and amortization
$ 614 $ 5,661 $ 2,738 $ 4,473
Total assets (end of period) $ 94,247 $ 77,380 $ 94,247 $ 77,380

Crude Oil Trucking Services
Service revenue
Third-party revenue
$ 2,822 $ 770 $ 8,537 $ 4,834
Intersegment revenue 1,364 1,434 4,118 4,364
Total revenue for reportable segment 4,186 2,204 12,655 9,198
Operating expense, excluding depreciation and amortization
$ 4,058 2,289 $ 12,526 9,358
Operating margin, excluding depreciation and amortization
$ 128 $ (85 ) $ 129 $ (160 )
Total assets (end of period)
$ 5,498 $ 4,113 $ 5,498 $ 4,113

Consolidated Amounts
Total operating margin, excluding depreciation and amortization⁽¹⁾
$ 21,096 $ 25,020 $ 56,287 $ 58,066

Total reportable segment revenues
$ 93,376 $ 87,191 $ 284,434 $ 222,602
Elimination of intersegment revenues
(1,642 ) (1,434 ) (4,971 ) (4,364 )
Consolidated Revenues
$ 91,734 $ 85,757 $ 279,463 $ 218,238

Total reportable segment assets $ 305,477 $ 273,367 $ 305,477 $ 273,367
Corporate assets
8,498 4,718 8,498 4,718
Consolidated assets $ 313,975 $ 278,085 $ 313,975 $ 278,085

~~(1)~~

~~The following table reconciles segment operating margin (excluding depreciation and amortization) to income from continuing operations before income taxes (in thousands):~~

Three Months ended September 30,

Nine Months ended September 30,

2019

2020

2019

2020

Operating margin, excluding depreciation and amortization
$ 21,096 $ 25,020 $ 56,287 $ 58,066
Depreciation and amortization
(6,240 ) (5,438 ) (19,211 ) (17,698 )
General and administrative expense
(3,840 ) (3,401 ) (10,495 ) (11,008 )
Asset impairment expense
(83 ) - (2,316 ) (6,417 )
Gain (loss) on disposal of assets
(40 ) 509 1,765 426
Other income
69 176 475 969
Interest expense
(3,989 ) (2,472 ) (12,394 ) (8,586 )
Income before income taxes
$ 6,973 $ 14,394 $ 14,111 $ 15,752

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~~13.~~11.

COMMITMENTS AND CONTINGENCIES

The Partnership is from time to time subject to various legal actions and claims incidental to its business. Management believes that these legal proceedings will not have a material adverse effect on the financial position, results of operations or cash flows of the Partnership. Once management determines that information pertaining to a legal proceeding indicates that it is probable that a liability has been incurred and the amount of such liability can be reasonably estimated, an accrual is established equal to its estimate of the likely exposure.

The Partnership has contractual obligations to perform dismantlement and removal activities in the event that some of its asphalt product and residual fuel oil terminalling and storage assets are abandoned. These obligations include varying levels of activity including completely removing the assets and returning the land to its original state. The Partnership has determined that the settlement dates related to the retirement obligations are indeterminate. The assets with indeterminate settlement dates have been in existence for many years and with regular maintenance will continue to be in service for many years to come. Also, it is not possible to predict when demands for the Partnership’s terminalling and storage services will cease, and the Partnership does not believe that such demand will cease for the foreseeable future. Accordingly, the Partnership believes the date when these assets will be abandoned is indeterminate. With no reasonably determinable abandonment date, the Partnership cannot reasonably estimate the fair value of the associated asset retirement obligations. Management believes that if the Partnership’s asset retirement obligations were settled in the foreseeable future the present value of potential cash flows that would be required to settle the obligations based on current costs are not material. The Partnership will record asset retirement obligations for these assets in the period in which sufficient information becomes available for it to reasonably determine the settlement dates.

~~14.~~12.

RECENTLY ISSUED ACCOUNTING STANDARDS

Except as discussed in the ~~2019~~2020 Form 10-K, there have been no new accounting pronouncements that have become effective or have been issued during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021, that are of significance or potential significance to the Partnership.

1714

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

As used in this quarterly report, unless we indicate otherwise: (1) “Blueknight, ~~Energy Partners,~~” “our,” “we,” ~~“us,”~~“us” and similar terms refer to Blueknight Energy Partners, L.P., together with its subsidiaries, (2) our “General Partner” refers to Blueknight Energy Partners G.P., L.L.C., and (3) “Ergon” refers to Ergon, Inc., its affiliates and subsidiaries (other than our General Partner and us). The following discussion analyzes the historical financial condition and results of operations of the Partnership and should be read in conjunction with our financial statements and notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations presented in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020, which was filed with the Securities and Exchange Commission (the “SEC”) on March ~~26, 2020~~10, 2021 (the “~~2019~~2020 Form 10-K”).

Forward-Looking Statements

This report contains ~~forward-looking statements.~~“forward-looking statements” within the meaning of the federal securities laws. Statements included in this quarterly report that are not historical facts (including any statements regarding plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto), including, without limitation, the information set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, are forward-looking statements. These statements can be identified by the use of forward-looking terminology including “may,” “will,” “should,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “continue,” or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state other “forward-looking” information. We and our representatives may from time to time make other oral or written statements that are also forward-looking statements.

Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of the filing of this report. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to be correct. Important factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include, among other things, those set forth in “Part I, Item 1A. Risk Factors” in the ~~2019~~2020 Form 10-K.

All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this report.

Overview

We are a publicly traded master limited partnership with operations in 26 states. We have the largest independent asphalt facility footprint in the nation, and through that we provide integrated terminalling services for companies engaged in the production, distribution, and marketing of liquid asphalt for infrastructure or other end markets. We manage our operations through a single operating segment, asphalt terminalling services.

We previously provided integrated terminalling, gathering, and transportation services for companies engaged in the production, distribution, and marketing of ~~liquid asphalt and~~ crude ~~oil. We manage our operations through four~~oil in three different operating segments: (i) ~~asphalt~~crude oil terminalling services, (ii) crude oil ~~terminalling~~pipeline services, and (iii) crude oil ~~pipeline~~trucking services. On December 21, 2020, we announced we had entered into multiple definitive agreements to sell these segments. The transactions closed in February and March of 2021, and these segments are presented as discontinued operations for all periods.

Our 53 asphalt facilities are well-positioned to provide asphalt terminalling services in the market areas they serve throughout the continental United States. With our approximately 8.7 million barrels of total liquid asphalt storage capacity, we provide our customers the ability to effectively manage their liquid asphalt inventories in their processing and ~~(iv) crude oil trucking services.~~marketing activities. Our asphalt terminalling business delivers a stable cash flow profile through long-term take-or-pay contracts that generally have original terms of 5 to 7 years with options to extend the term. The stability comes from the contract structure that is comprised primarily of take-or-pay fixed fees, which make up approximately 95% of our revenues on an annual basis after excluding cost reimbursements primarily for utilities. The remaining revenue is variable, primarily consisting of volume-based throughput fees.

We have contractual agreements in place for all of our asphalt terminalling facilities. We lease certain facilities for operation by our customers and at the remaining facilities our employees operate the facility to meet our customers’ specifications. The agreements have, based on a weighted average by remaining fixed revenue, approximately 5.6 years remaining under their terms as of April 28, 2021. Approximately 18% of our tank capacity will expire at the end of 2021 if not renewed with the current customer or a new customer, and the remaining capacity expires at varying times thereafter, through 2027. Our varying contract expiration dates provide for staggered renewals, which provides additional stability to the cash flow.

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Potential Impact of ~~Crude Oil Market Price Changes and Other Matters~~Certain Factors on Future Revenues

~~The crude oil~~Due to the high percentage of fixed and reimbursement revenue from our long-term contracts, our focus and our primary risk is renewing contracts at favorable terms. Our ability to renew agreements on favorable terms, or at all, could be impacted if our customers experience negative market ~~price~~conditions. These factors include infrastructure spending, the strength of state and local economies, and the ~~corresponding forward market pricing curve may fluctuate significantly~~level of allocations of tax funding to transportation spending from ~~period~~state or federal funds. Public transportation infrastructure projects historically have been a relatively stable portion of state and federal budgets and represent a significant share of the United States construction market. Federal funds are allocated on a state-by-state basis, and each state is required to ~~period~~match a portion of the federal funds that it receives. Currently, from a macroeconomic view, there are positive indicators for the infrastructure and ~~other volatility in~~construction sector, such as continued discussion and support for infrastructure spending from all sides of the overall energy industry, specifically in the midstream energy industry, may impact our partnership in the near term. Factors include the overall market price for crude oil and whether or not the forward price curve is in contango (in which future prices are higher than current pricesfederal government, low interest rates, and a ~~premium is placed on storing product and selling at a later time) or backwardated (in which~~recovering economy since mid-2020. However, due to the ~~current crude oil price per barrel is higher than the future price per barrel and a premium is placed on delivering product to market and selling~~novel coronavirus disease (“ COVID-19”), as soon as possible), changes in crude oil production volume and the demand for storage and transportation capacity in the areas in which we serve, geopolitical concerns and overall changes in our cost of capital. As of ~~October 30, 2020, the forward crude oil price curve is in contango. Potential impacts of these factors are~~ discussed ~~below.~~below, some uncertainty exists.

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Due to the global pandemic related to COVID-19, the ~~coronavirus disease, COVID-19, and the Organization~~economy experienced a significant downturn during part of Petroleum Exporting Countries’ and Russia’s disagreements over production output, the energy market had historic drops in oil prices in March and April of 2020; however, prices have subsequently risen to near pre-COVID-19 levels.2020. Despite this economic volatility, ~~in prices,~~ our ~~business is uniquely positioned~~cash flows remained stable and ~~expected to benefit in certain areas, and cash flow for the full year is~~are expected to remain stable ~~in 2020. Our asphalt and crude oil terminalling services segments represented~~ ~~93%~~ ~~of our operating margin for the~~ ~~nine months ended September 30, 2020, and as of~~ ~~October 30, 2020, these segments are fully contracted with take-or-pay revenue that have a weighted average remaining term of~~ ~~5.8~~ ~~years.~~moving forward. While our customers ~~across all our segments could~~may be impacted by the ~~recent market~~economic volatility, they are primarily high-quality counterparties, with over 50% of our revenues earned from those that are investment grade quality, which minimizes our counterparty credit risk. ~~As of~~ ~~October 30, 2020, we~~We do not expect any supply chain disruptions from COVID-19 to affect our customers. Management is also actively monitoring the states and regions in which we operate, and, as of now, our operations are excluded from mandatory closings due to the essential designation of our assets. In addition, approximately ~~76%~~ of our operating margin for the year comes from the asphalt terminalling services business unit which is related to infrastructure spending at the federal, state, and local levels, and the U.S. government has continued to indicate its support for infrastructure spending. At the same time, state revenue is down due to COVID-19, so we remain cautious about future spending on infrastructure and road construction absent an infrastructure bill passed by the federal government to support funding efforts. While we are unaware of any potential negative impact of COVID-19 on our business at this time, we are continuing to monitor the situation and have ~~been preparing~~prepared our employees to take precautions and planning for unexpected events, which may include disruptions to our workforce, customers, vendors, facilities and communities in which we operate. In an effort to protect the health and safety of our employees and the customers and vendors we interact with, we took proactive action to adopt social distancing policies at our locations, including working from home, limiting the number of employees attending meetings, and reducing the number of people in our sites at any one ~~time, and suspending employee travel.~~time.

~~Asphalt Terminalling Services~~ ~~- While, historically, there have only been limited times in which asphalt prices and volumes have had~~Infrastructure spending is currently a ~~direct correlation with~~focus at the price of crude oil, due to the steep decline in crude oil prices earlier this year, asphalt prices also fell significantly before recovering. However, demand has held steady for road construction activity due to there being fewer vehicles on roads to interfere with construction work and the lower asphalt prices. This current environment is expected to have more positive than negative implications for our asphalt terminalling services operating segment. Generally, asphalt volumes correlate more closely with the strength offederal, state, and local ~~economies,~~levels, and the ~~level of allocations of tax funding to transportation spending, and an increase in infrastructure spending needs.~~

As previously mentioned, the U.S. government continues to indicate supporting infrastructure spending in this time of economic uncertainty. Further, customers have communicated that infrastructure projects may be accelerated and increased during this time of decreased transportation volume on the roads and highways. While customer throughput volumes were generally higher the first half of the year compared to prior year, the third quarter has seen lower volumes compared to prior year, but for the nine months theyinitiatives are consistent. Current conversations with our customers indicate volumes are expected to trend lower through the end of the year as compared to prior year, which could result in lower throughput revenues; however, this is not expected to have a material impact on our results of operations.

receiving high approval ratings. At the ~~end of June 2020,~~same time, state revenue is down due to COVID-19, so we remain cautious about future spending on infrastructure and road construction absent an infrastructure bill passed by the federal government to support funding efforts. The current federal administration has targeted infrastructure as a ~~40,000 barrel tank (less than 10% of facility capacity) caught fire~~top priority. Based on recent history, infrastructure investment has been renewed at ~~our Gloucester City, New Jersey, asphalt facility. The roof~~increased levels, and, ~~top portion of~~based on recent federal proposals, we expect the ~~tank was damaged, but the asphalt product remained in the tank. The facility remains operational, and we are making operational adjustments~~funding to continue to ~~fulfill~~increase. Increased funding potentially impacts us through favorable customer contract renewals as well as increased customer volumes through our obligation to meet our customer’s needs. Initial costs are estimated at $0.3 million for cleanup. Capital expenditures to repair the tank are expected to be between $1.0 million and $1.25 million, with the majority completed in the fourth quarter of 2020. We are pursuing insurance recoveries for this event, but there can be no assurance of the amount or timing of any proceeds we may receive.terminals.

~~Crude Oil Terminalling Services~~ ~~- A contango crude oil curve tends to favor the crude oil storage business as crude oil marketers are incentivized to store crude oil during the current month~~Another factor impacting us and ~~sell into the future month. From March 2016 through February 2020, the crude oil curve had generally been in~~our customers, from a ~~shallow contango or backwardation. In shallow contango or backwardated markets there~~short-term perspective, is ~~no clear incentive for marketers to store crude oil. Despite the shallow contango curve, we saw increased activity and interests from customers that are regularly turning over their~~weather patterns. Our customers’ volumes by blending various crude grades and delivering it out of the terminal or customers utilizing the storage for more operational purposes for their downstream operations. In late 2019, during recontracting efforts for 2020, the demand for storage declined and a small percentage of tanks were not contracted. However, as the forward price curve moved into a deeper contango in March and April 2020, there was a significant increase in demand for crude oil storage in Cushing and globally, which positively impacted contracted volumes and rates in the second and third quarters of 2020. As we have started recontracting efforts for 2021, they have been positivelycould be significantly impacted by ~~the current contango market; however,~~prolonged rain or snow seasons or any ~~shifts in the market in the fourth quarter~~severe weather that occurs. Damage to our terminal facilities from severe weather, such as flooding or hurricanes, could impact ~~rates on uncontracted tanks.~~our operating results through additional costs and/or loss of revenue.

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~~Crude Oil Pipeline Services~~ - Crude oil pipeline transportation, while potentially influenced by the shape of the crude oil market curve, is typically impacted more by overall drilling activity. The ability to fully utilize the capacity of our pipeline system may be impacted by the market price of crude oil and producers’ decisions to increase or decrease production in the areas we serve. With the historic drop in crude oil prices earlier this year, the outlook for increased drilling activity remains challenging and the risk is higher for potential well shut-ins in this environment. While volumes have decreased year-over-year, we expect a key customer to bring on several new wells in the fourth quarter of 2020.

In our internal crude oil marketing operations, we have market price exposure for inventory that is carried over month-to-month as well as pipeline linefill we maintain. Since our pipeline tariffs require shippers to carry their share of linefill, our crude oil marketing operations, as a shipper, also carries linefill. We may also be exposed to price risk with respect to the differing qualities of crude oil we transport and our ability to effectively blend them to market specifications.

~~Crude Oil Trucking Services -~~ Crude oil trucking, while potentially influenced by the shape of the crude oil market curve, is typically impacted more by overall drilling activity and the ability to have the appropriate level of assets located properly to efficiently move the barrels to delivery points for customers. Due to the historic drop in oil prices in March and April 2020 and continued uncertainty in the market, customers could have wells shut-in or request rate decreases, which could impact our revenues and operating margin. The expected new wells from a key customer noted above will also impact the crude oil trucking volumes.

~~Our Revenues~~

~~Our revenues consist of (i) terminalling revenues, (ii) gathering and transportation revenues, (iii) product sales revenues, and (iv) fuel surcharge revenues. For the~~ ~~nine months ended September 30, 2020, the Partnership recognized revenues of~~ ~~$32.3~~ ~~million for services provided to Ergon, with the remainder of our services being provided to third parties.~~

Terminalling revenues consist of (i) storage service and operating lease fees resulting from short-term and long-term contracts for committed space that may or may not be utilized by the customer in a given month and (ii) terminal throughput service charges to pump crude oil to connecting carriers or to deliver asphalt product out of our terminals. We earn terminalling revenues in two of our segments: (i) asphalt terminalling services and (ii) crude oil terminalling services. Storage service revenues are recognized as the services are provided on a monthly basis. Terminal throughput service charges are recognized as the crude oil or asphalt product is delivered out of our terminal.

~~We have leases and terminalling agreements with customers for all of our 53 asphalt facilities, including 28 under contract with Ergon. As of~~ ~~October 30, 2020, these agreements have, based on a weighted average by remaining fixed revenue, approximately~~ ~~6.0~~ years remaining under their terms. Six agreements with third parties, representing seven facilities, expire in late 2021, and the remaining agreements expire at varying times thereafter, through 2027. We may not be able to extend, renegotiate or replace these contracts when they expire and the terms of any renegotiated contracts may not be as favorable as the contracts they replace. We operate the asphalt facilities pursuant to the terminalling agreements, while our contract counterparties operate the asphalt facilities that are subject to lease agreements. The new storage, throughput and handling agreement and the new operating and maintenance agreement entered into on August 4, 2020, with Ergon at 22 facilities are expected to improve our earnings.

~~As of~~ ~~October 30, 2020, we had approximately~~ ~~5.7~~ ~~million barrels of crude oil storage under service contracts, including~~ ~~1.1~~ ~~million barrels of crude oil storage contracts that expire at the end of~~ ~~2020. The remaining terms on the service contracts that extend beyond~~ ~~2020~~ ~~range from~~ 5 to 14 ~~months. Storage contracts with a subsidiary of Vitol Group (together with its subsidiaries, “Vitol”) represent~~ ~~2.9~~ ~~million barrels of crude oil storage capacity under contract. We are in negotiations to either extend contracts or enter into new customer contracts for the agreements expiring in~~ ~~2020~~; however, there is no certainty that we will have success in contracting available capacity or that extended or new contracts will be at the same or similar rates as expiring contracts. If we are unable to renew even some of the expiring storage contracts, we may experience lower utilization of our assets which could have a material adverse effect on our business, cash flows, ability to make distributions to our unitholders, the price of our common units, results of operations, and ability to conduct our business.

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Gathering and transportation services revenues consist of service fees recognized for the gathering of crude oil for our customers and the transportation of crude oil to refiners, to common carrier pipelines for ultimate delivery to refiners, or to terminalling facilities owned by us and others. We earn gathering and transportation revenues in our crude oil pipeline services operating segment and our crude oil trucking services segment. Revenue for the gathering and transportation of crude oil is recognized when the service is performed and is based upon regulated and non-regulated tariff rates and the related transport volumes.

~~The following is a summary of our average gathering and transportation volumes for the periods indicated (in thousands of barrels per day):~~

Three Months ended

Nine Months ended

Favorable/(Unfavorable)

September 30,

September 30,

Three Months

Nine Months

2019

2020

2019

2020

#

%

#

%
Average pipeline throughput volume
23 15 31 15 (8 ) (35 )% (16 ) (52 )%
Average trucking throughput volume
25 16 26 19 (9 ) (36 )% (7 ) (27 )%

Volumes have decreased in both pipeline and trucking transportation due to decreased drilling activities in the areas we serve. In addition, a significant pipeline customer, Vitol, entered into a joint venture with a pipeline in the same area and in late 2019 began moving a significant portion of their volumes to this competing pipeline. Vitol accounted for ~~28%~~ ~~and~~ ~~38%~~ ~~of volumes transported on our pipelines in the three and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2019, respectively. Vitol accounted for less than 10% of volumes transported on our pipelines in both the three and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2020. A key customer is expected to bring on several new wells in the fourth quarter of 2020 that should positively impact both our crude oil pipeline and trucking services volumes.~~

Product sales revenues are comprised of (i) revenues recognized for the sale of crude oil to our customers that we purchase at production leases and (ii) revenue recognized in buy/sell transactions with our customers. We earn product sales revenue in our crude oil pipeline services operating segment. Product sales revenue is recognized for products upon delivery and when the customer assumes the risks and rewards of ownership.

Fuel surcharge revenues are comprised of revenues recognized for the reimbursement of fuel and power consumed to operate our asphalt terminals. We recognize fuel surcharge revenues in the period in which the related fuel and power expenses are incurred.

~~Our Expenses~~

~~Operating expenses~~ ~~decreased~~7% ~~for the~~ ~~nine months ended September 30, 2020, as compared to the~~ ~~nine months ended September 30, 2019~~, primarily due to decreases in compensation expense, utility costs and maintenance repairs expense as a result of a focus on managing costs as well as a decrease in depreciation expense. General and administrative expenses ~~increased~~ by 5% ~~for the~~ ~~nine months ended September 30, 2020, as compared to the~~ ~~nine months ended September 30, 2019~~. The increase is primarily due to the receipt in June 2019 of a $0.5 million settlement related to a payment made in 2018 to a fraudulent bank account due to a compromise of the vendor’s email system as disclosed in our 2018 Form 10-K, which reduced expenses for that period. Our interest expense ~~decreased~~ by ~~31%~~ ~~for the~~ ~~nine months ended September 30, 2020, as compared to the~~ ~~nine months ended September 30, 2019. See~~ ~~Interest expense~~ ~~within our results of operations discussion for additional detail regarding the factors that contributed to the decrease in interest expense in~~ ~~2020~~.

~~Distributions~~

The amount of distributions we pay and the decision to make any distribution is determined by the Board of Directors of our General Partner (the “Board”), which has broad discretion to establish cash reserves for the proper conduct of our business and for future distributions to our unitholders. In addition, our cash distribution policy is subject to restrictions on distributions under our credit agreement.

On ~~October 15, 2020, the Board approved a cash distribution of~~ ~~$0.17875~~ ~~per outstanding preferred unit for the three months ended~~ ~~September 30, 2020. We will pay this distribution on~~ ~~November 13, 2020, to unitholders of record as of~~ ~~November 3, 2020. The total distribution will be approximately~~ ~~$6.4~~ ~~million, with approximately~~ ~~$6.3~~ ~~million and~~ ~~$0.1~~ ~~million paid to our preferred unitholders and General Partner, respectively.~~

~~In addition, the Board approved a cash distribution of~~ ~~$0.04~~ ~~per outstanding common unit for the three months ended~~ ~~September 30, 2020. We will pay this distribution on~~ ~~November 13, 2020, to unitholders of record as of~~ ~~November 3, 2020. The total distribution will be approximately~~ ~~$1.7~~ ~~million, with approximately~~ ~~$1.6~~ ~~million and less than~~ ~~$0.1~~ ~~million paid to our common unitholders and General Partner, respectively, and approximately~~ ~~$0.1~~ ~~million paid to holders of phantom and restricted units pursuant to awards granted under our Long-Term Incentive Plan.~~

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Results of Operations

Non-GAAP Financial Measures

To supplement our financial information presented in accordance with GAAP, management uses additional measures that are known as “non-GAAP financial measures” in its evaluation of past performance and prospects for the future. The primary measure used by management is operating margin, excluding depreciation and amortization.

Management believes that the presentation of such additional financial measures provides useful information to investors regarding our performance and results of operations because these measures, when used in conjunction with related GAAP financial measures, (i) provide additional information about our core operating performance and ability to generate and distribute cash flow; (ii) provide investors with the financial analytical framework upon which management bases financial, operational, compensation and planning decisions and (iii) present measurements that investors, rating agencies and debt holders have indicated are useful in assessing us and our results of operations. These additional financial measures are reconciled to the most directly comparable measures as reported in accordance with GAAP, and should be viewed in addition to, and not in lieu of, our unaudited condensed consolidated financial statements and footnotes.

The table below summarizes our financial results for the three ~~and~~ ~~nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021, reconciled to the most directly comparable GAAP measure:

	Three Months ended						Nine Months ended						Favorable/(Unfavorable)												Three Months Ended						Favorable/(Unfavorable)
Operating results	September 30,						September 30,						Three Months						Nine Months						March 31,						Three Months
(dollars in thousands)	2019			2020			2019			2020			$			%			$			%			2020			2021			$				%
Operating margin, excluding depreciation and amortization:
Asphalt terminalling services	$	17,068		$	16,477		$	44,274		$	44,297		$	(591	)		(3	)%	$	23			0	%
Crude oil terminalling services		3,286			2,967			9,146			9,456			(319	)		(10	)%		310			3	%
Crude oil pipeline services		614			5,661			2,738			4,473			5,047			822	%		1,735			63	%
Crude oil trucking services		128			(85	)		129			(160	)		(213	)		(166	)%		(289	)		(224	)%
Fixed fee revenue																									$	22,356		$	24,371		$	2,015		9	%
Variable cost recovery revenue																										3,303			2,584			(719	)	(22	)%
Variable throughput and other revenue																										1			120			119		11900	%
Total revenue																										25,660			27,075			1,415		6	%
Operating expenses, excluding depreciation and amortization																										(12,075	)		(12,847	)		(772	)	(6	)%
Total operating margin, excluding depreciation and amortization		21,096			25,020			56,287			58,066			3,924			19	%		1,779			3	%		13,585			14,228			643		5	%

Depreciation and amortization		(6,240	)		(5,438	)		(19,211	)		(17,698	)		802			13	%		1,513			8	%		3,585			3,033			552		15	%
General and administrative expense		(3,840	)		(3,401	)		(10,495	)		(11,008	)		439			11	%		(513	)		(5	)%		3,366			3,982			(616	)	(18	)%
Asset impairment expense		(83	)		-			(2,316	)		(6,417	)		83			100	%		(4,101	)		(177	)%
Gain (loss) on disposal of assets		(40	)		509			1,765			426			549			1373	%		(1,339	)		(76	)%
Loss on disposal of assets																										74			-			74		100	%
Operating income		10,893			16,690			26,030			23,369			5,797			53	%		(2,661	)		(10	)%		6,560			7,213			653		10	%

Other income (expenses):
Other income		69			176			475			969			107			155	%		494			104	%		650			233			(417	)	(64	)%
Interest expense		(3,989	)		(2,472	)		(12,394	)		(8,586	)		1,517			38	%		3,808			31	%		(1,686	)		(1,333	)		353		21	%
Provision for income taxes		(14	)		(1	)		(39	)		(8	)		13			93	%		31			79	%		(5	)		(10	)		(5	)	(100	)%
Income from continuing operations																										5,519			6,103			584		11	%
Income(loss) from discontinued operations, net																										(5,519	)		75,550			81,069		1469	%
Net income	$	6,959		$	14,393		$	14,072		$	15,744		$	7,434			107	%	$	1,672			12	%	$	-		$	81,653		$	81,653		N/A

~~For~~Revenues. Total revenues increased to $27.1 million for the three ~~and~~ ~~nine~~ months ended ~~September 30, 2020~~March 31, 2021, ~~overall~~as compared $25.7 million for the same period in 2020. Revenues consist primarily of fixed fees for items such as storage and minimum throughput requirements, with consideration of annual CPI index increases built into our agreements. The increase in fixed fee revenue is primarily due to certain contracts that changed from a lease arrangement to an operating arrangement. Variable cost recovery revenue is driven by certain reimbursable operating expenses, such as utility costs, and therefore have no net impact on operating margin or net income.

Operating expenses, excluding depreciation and amortization. Operating expense, excluding depreciation and amortization, ~~was higher than~~increased to $12.8 million for the three months ended March 31, 2021, as compared to $12.1 million for the same period in ~~2019. The increase for the three months ended September 30, 2020, compared~~2020. Significant factors contributing to ~~the same period~~this change include certain contracts that changed from a lease arrangement to an operating arrangement and increases in ~~2019 is primarily driven by a derivative gain in the crude oil pipeline services segment for the three months ended September 30, 2020, of $3.6 million~~insurance premiums due to ~~the settlement of crude oil forward purchase contracts that were entered into in the~~overall market conditions from second quarter ~~of 2020. This gain is offset for the year by a corresponding unrealized loss that was recognized in the second quarter of~~ 2020 ~~so there is no impact on year-to-date results. The year-over-year increase is primarily driven by improved margins in our crude oil marketing operations within the crude oil pipeline services segment.~~

~~A more detailed analysis of changes in operating margin by segment follows.~~

~~Table of Contents~~

~~Analysis of Operating Segments~~

~~Asphalt terminalling services segment~~

Our asphalt terminalling services segment operations generally consist of fee-based activities associated with providing terminalling services, including storage, blending, processing, and throughput services, for asphalt product and residual fuel oil. Revenue is generated through operating lease contracts and storage, throughput and handling contracts.

~~The following table sets forth our operating results from our asphalt terminalling services segment for the periods indicated:~~

~~The following is a discussion of items impacting asphalt terminalling services segment operating margin for the periods indicated:~~

	•	~~Third-party service revenue was consistent for the three and~~ ~~nine months ended September 30, 2020, as compared to the three and~~ ~~nine months ended September 30, 2019~~. Annual CPI index increases in our long-term contracts were offset by lower reimbursement revenue from improved fuel and power costs compared to prior year. The movement of lease revenue from third-party to related-party was due to Ergon purchasing another customer of ours in April 2020.
	•	Increases in related-party lease and service revenues, in addition to Ergon’s purchase of another customer, was due to a new agreement with Ergon that became effective August 1, 2020. This storage, throughput and handling agreement replaced multiple previous agreements covering 22 facilities, of which certain facilities were previously under a lease-only arrangement.
	•	~~Operating expenses increased for the three and~~ ~~nine months ended September 30, 2020, as compared to the three and~~ ~~nine months ended September 30, 2019~~, due to the new operating and maintenance agreement with Ergon at 22 facilities. We expect the new agreements to improve operating margin, excluding depreciation and amortization at those facilities, at these facilities. Other operating expense increases relate to insurance premiums, which were partly offset by improved fuel and power costs.

~~Table of Contents~~

~~Crude oil terminalling services segment~~

Our crude oil terminalling services segment operations generally consist of fee-based activities associated with providing terminalling services, including storage, blending, processing, and throughput services, for crude oil. Revenue is generated through short- and long-term storage contracts.

~~The following table sets forth our operating results from our crude oil terminalling services segment for the periods indicated:~~

Three Months ended

Nine Months ended

Favorable/(Unfavorable)

Operating results

September 30,

September 30,

Three Months

Nine Months

(dollars in thousands)

2019

2020

2019

2020
$
%
$
%

Service revenue:

Third-party revenue
$ 4,225 $ 4,190 $ 11,815 $ 12,613 $ (35 ) (1 )% $ 798 7 %
Intersegment revenue
278 - 853 - (278 ) (100 )% (853 ) (100 )%
Total revenue
4,503 4,190 12,668 12,613 (313 ) (7 )% (55 ) (0 )%
Operating expense, excluding depreciation and amortization
1,217 1,223 3,522 3,157 (6 ) (0 )% 365 10 %
Operating margin, excluding depreciation and amortization
$ 3,286 $ 2,967 $ 9,146 $ 9,456 $ (319 ) (10 )% $ 310 3 %

Average crude oil storage contracted per month at our Cushing terminal (in thousands of barrels)
5,862 5,659 5,731 5,457 (203 ) (3 )% (274 ) (5 )%
Average crude oil delivered through our Cushing terminal (in thousands of barrels per day)
99 81 87 86 (18 ) (18 )% (1 ) (1 )%

~~The following is a discussion of items impacting crude oil terminalling services segment operating margin for the periods indicated:~~

	•	~~Total revenues for the three months ended~~ ~~September 30, 2020~~ decreased slightly from the comparable 2019 period due to lower contracted barrels. Prior year periods included an intersegment contract for 500 thousand barrels. In addition, revenues for the third quarter of 2020 decreased sequentially from the prior quarter by approximately $0.8 million due to short-term contracts that were executed during the second quarter of 2020. Total revenues for the ~~nine months ended September 30, 2020, were consistent with the same periods in~~ ~~2019~~ ~~despite lower contracted volumes due to those short-term contracts.~~
	•	~~Operating expenses for the three months ended~~ ~~September 30, 2020, were consistent with the same period in 2019, while operating expenses for the~~ ~~nine months ended September 30, 2020, decreased compared to the~~ ~~nine months ended September 30, 2019. Decreases due to lower tank repair expenses were partially offset by higher compensation cost and increases in insurance premiums.~~

~~Table of Contents~~

~~Crude oil pipeline services segment~~

Our crude oil pipeline services segment operations include both service and product sales revenue. Service revenue generally consists of tariffs and other fees associated with transporting crude oil products on pipelines. Product sales revenue is comprised of (i) revenues recognized for the sale of crude oil to our customers that we purchase at production leases and (ii) revenue recognized in buy/sell transactions with our customers. Product sales revenue is recognized for products upon delivery and when the customer assumes the risks and rewards of ownership.

~~The following table sets forth our operating results from our crude oil pipeline services segment for the periods indicated:~~

Three Months ended

Nine Months ended

Favorable/(Unfavorable)

Operating results

September 30,

September 30,

Three Months

Nine Months

(dollars in thousands)

2019

2020

2019

2020
$
%
$
%

Service revenue:

Third-party revenue
$ 1,284 $ 412 $ 5,748 $ 1,287 $ (872 ) (68 )% $ (4,461 ) (78 )%
Related-party revenue
64 - 266 - (64 ) (100 )% (266 ) (100 )%
Product sales revenue:

Third-party revenue
55,213 51,390 173,773 119,068 (3,823 ) (7 )% (54,705 ) (31 )%
Total revenue
56,561 51,802 179,787 120,355 (4,759 ) (8 )% (59,432 ) (33 )%
Operating expense, excluding depreciation and amortization
2,642 2,247 8,123 6,714 395 15 % 1,409 17 %
Intersegment operating expense
1,642 1,434 4,971 4,364 208 13 % 607 12 %
Third-party cost of product sales
18,972 19,833 64,069 41,133 (861 ) (5 )% 22,936 36 %
Related-party cost of product sales
32,691 22,627 99,886 63,671 10,064 31 % 36,215 36 %
Operating margin, excluding depreciation and amortization
$ 614 $ 5,661 $ 2,738 $ 4,473 $ 5,047 822 % $ 1,735 63 %

Transportation services average throughput volume (in thousands of barrels per day)
23 15 31 15 (8 ) (35 )% (16 ) (52 )%
Crude oil marketing volumes (in thousands of barrels per day)
11 11 11 11 0 0 % 0 0 %

~~The following is a discussion of items impacting crude oil pipeline services segment operating margin for the periods indicated:~~

	•	~~Included in third-party cost of product sales for the three months ended~~ ~~September 30, 2020~~, was the non-cash gain on our commodity derivative contracts of $3.6 million that settled during the third quarter, which is contributing to the significant increase in operating margin, excluding depreciation and amortization. A corresponding unrealized loss was recognized in the second quarter of 2020, and as the contracts were settled in the third quarter, there was no impact on year-to-date results from these mark-to-market adjustments. The Partnership realized a $1.5 million net cash gain from the related product sales during the third quarter of 2020. The increase in year-to-date margins for the comparative periods was due to improved margins on our crude oil marketing business.
	•	~~Throughput volumes and related service revenue have decreased for the three and~~ ~~nine months ended September 30, 2020~~, as compared to the same periods in 2019 due to decreased drilling activities in the areas we serve. In addition, a significant pipeline customer, Vitol, entered into a joint venture with a pipeline in the same area and moved a significant portion of their volumes to this competing pipeline beginning in late 2019. Vitol accounted for ~~28%~~ ~~and~~ ~~38%~~ ~~of volumes transported on our pipelines in both the three and nine months ended~~ ~~September 30, 2019, respectively. Vitol accounted for less than 10% of volumes transported on our pipelines in both the three and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2020~~.
	•	~~Product sales revenue for the~~ ~~nine months ended September 30, 2019~~ and 2020, included $0.8 million and $1.5 million, respectively, in sales of crude oil product accumulated over time through customer loss allowance deductions. The remaining change in product sales revenue is related to our crude oil marketing business and reflects the decrease in the market price of crude oil.
	•	~~Overall cost of product sales has decreased consistently with crude oil marketing revenue and reflects the decrease in the market price of crude oil.~~

~~Table of Contents~~

~~Crude oil trucking services segment~~

Our crude oil trucking services segment operations generally consist of fee-based activity associated with transporting crude oil products on trucks. Revenues are generated primarily through transportation fees.

~~The following table sets forth our operating results from our crude oil trucking services segment for the periods indicated:~~

Three Months ended

Nine Months ended

Favorable/(Unfavorable)

Operating results

September 30,

September 30,

Three Months

Nine Months

(dollars in thousands)

2019

2020

2019

2020

$%

$%

Service revenue:

Third-party revenue
$ 2,822 $ 770 $ 8,537 $ 4,834 $ (2,052 ) (73 )% $ (3,703 ) (43 )%
Intersegment revenue
1,364 1,434 4,118 4,364 70 5 % 246 6 %
Total revenue
4,186 2,204 12,655 9,198 (1,982 ) (47 )% (3,457 ) (27 )%
Operating expense, excluding depreciation and amortization
4,058 2,289 12,526 9,358 1,769 44 % 3,168 25 %
Operating margin, excluding depreciation and amortization
$ 128 $ (85 ) $ 129 $ (160 ) $ (213 ) (166 )% $ (289 ) (224 )%

Average volume (in thousands of barrels per day)
25 16 26 19 (9 ) (36 )% (7 ) (27 )%

~~The following is a discussion of items impacting crude oil trucking services segment operating margin for the periods indicated:~~

	•	~~Third-party service revenues decreased for the three and~~ ~~nine months ended September 30, 2020, as compared to the three and~~ ~~nine months ended September 30, 2019~~, due to decreased drilling activities in the areas we serve. Intersegment revenues increased for the same periods due to our crude oil marketing operations purchasing increased volumes from key producers.
	•	~~Operating expense, excluding depreciation and amortization, decreased for the three and~~ ~~nine months ended September 30, 2020, as compared to the three and~~ ~~nine months ended September 30, 2019~~, primarily due to decreases in compensation and fleet expense related to lower volumes. Fleet lease expense for the third quarter of 2020 were further impacted both by the impairment that was recognized in the second quarter of 2020, as well as, the purchase of all leased vehicles in August, both of which decreased lease expense for 2020 compared to 2019. The decrease in volumes also led to severance costs of $0.2 million in the second quarter of 2020 to optimize headcount.

~~Other Income and Expenses~~renewals.

Depreciation and amortization expense. Depreciation and amortization expense decreased to $~~5.4~~3.0 million for the three months ended ~~September 30, 2020~~March 31, 2021, compared to $~~6.2~~ ~~million for the three months ended~~ ~~September 30, 2019, due to a number of assets reaching the end of their depreciable lives at the end of the second quarter of 2020. Depreciation and amortization expense~~ ~~decreased~~ to ~~$17.7~~ ~~million for the~~ ~~nine months ended September 30, 2020, compared to~~ ~~$19.2~~3.6 million for the same period in ~~2019~~2020. This decrease is primarily the result of certain assets reaching the end of their depreciable ~~lives at the end of the first quarter of 2019 and the end of the second quarter of 2020.~~lives.

General and administrative expense. General and administrative expense ~~decreased~~increased to $~~3.4~~4.0 million for the three months ended ~~September 30, 2020~~March 31, 2021, compared to $~~3.8~~3.4 million for the same period in ~~2019, and increased to~~ ~~$11.0~~ ~~million for the~~ ~~nine months ended September 30,~~ 2020, ~~compared to~~ ~~$10.5~~ ~~million for the same period in~~ ~~2019. The decrease for the quarterly comparative periods is~~primarily due to ~~decreases in compensation expense~~severance costs and professional ~~fees. The year-over-year increase was due to~~fees associated with the ~~receipt during the~~ ~~nine months ended September 30, 2019, of a $0.5 million settlement payment as discussed above, which reduced expense for that period.~~

~~Asset impairment expense.~~ ~~Asset impairment expense for the~~ ~~nine months ended September 30, 2020, included~~ ~~$1.3 million related to adjustments to our~~ crude oil trucking services segment assets based on the expected future cash flows of the segment. This impairment consisted of $1.1 million related to plant, property, and equipment and $0.2 million related to operating right-of-use assets. In addition, ~~a $4.9 million write-down of crude oil linefill due to the decrease in the market price of crude oil occurred in the first quarter of 2020. Asset impairment expense for the~~ ~~nine months ended September 30, 2019~~, was $2.3 million and consisted of a change in estimate of the push-down impairment related to Cimarron Express Pipeline, LLC (“Cimarron Express”) of $2.0 million (see Note 8 of our condensed consolidated financial statements for more information) and $0.3 million related to a flood at an asphalt terminal in Wolcott, Kansas.

~~Gain(loss) on disposal of assets~~~~. Gains for the three and nine months ended~~ ~~September 30, 2020, relate to the sale of some idle real property in Michigan and pipeline linefill. Gains for the nine months ended September 30, 2019, relate to the sale of pipeline linefill.~~business sales.

Other income. Other income ~~includes~~for the three months ended March 31, 2021 and 2020, primarily relates to insurance recoveries related to flood damages incurred in 2019 and 2020 at certain asphalt ~~facilities of $0.7 million for the~~ ~~nine months ended September 30, 2020, and $0.3 million for the~~ ~~nine months ended September 30, 2019~~.

facilities.

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Interest expense. Interest expense represents interest on borrowings under our credit agreement as well as amortization of debt issuance costs. The following table presents the significant components of interest expense ~~(in~~(dollars in thousands):

	Three Months ended				Nine Months ended				Favorable/(Unfavorable)										Three Months Ended				Favorable/(Unfavorable)
	September 30,				September 30,				Three Months					Nine Months					March 31,				Three Months
	2019		2020		2019		2020		$		%			$		%			2020		2021		$			%
Credit agreement interest	$	3,714	$	2,200	$	11,585	$	7,778	$	1,514		41	%	$	3,807		33	%	$	1,435	$	942	$	493			34	%
Amortization of debt issuance costs		251		251		753		753		-		0	%		-		0	%		251		244		7			3	%
Other		24		21		56		55		3		13	%		1		2	%
Write-off of debt issuance costs																				-		147		(147	)		N/A
Total interest expense	$	3,989	$	2,472	$	12,394	$	8,586	$	1,517		38	%	$	3,808		31	%	$	1,686	$	1,333	$	353			21	%

The decrease in credit agreement interest is due to ~~a decrease in~~lower floating eurodollar interest ~~rates.~~rates, lower average borrowings outstanding during the period, and favorable changes to the applicable margin based on an improved leverage ratio.

~~Effects~~Distributions

The amount of ~~Inflation~~distributions we pay and the decision to make any distribution is determined by the Board of Directors of our General Partner (the “Board”), which has broad discretion to establish cash reserves for the proper conduct of our business and for future distributions to our unitholders. In addition, our cash distribution policy is subject to restrictions on distributions under our credit agreement.

On April 21, 2021, the Board approved a cash distribution of $0.17875 per outstanding preferred unit for the three months ended March 31, 2021. We will pay this distribution on May 14, 2021, to unitholders of record as of May 7, 2021. The total distribution will be approximately $6.3 million, with approximately $6.2 million and $0.1 million paid to our preferred unitholders and general partner, respectively.

In ~~recent years, inflation has been modest~~addition, the Board approved a cash distribution of $0.04 per outstanding common unit for the three months ended March 31, 2021. We will pay this distribution on May 14, 2021, to unitholders of record as of May 7, 2021. The total distribution will be approximately $1.7 million, with approximately $1.7 million and ~~has not had a material impact upon the results~~less than $0.1 million paid to our common unitholders and general partner, respectively, and approximately $0.1 million paid to holders of phantom and restricted units pursuant to awards granted under our ~~operations.~~Long-Term Incentive Plan.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined by Item 303 of Regulation S-K.

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Liquidity and Capital Resources

Cash Flows ~~and Capital Expenditures~~

The following table summarizes our sources and uses of cash, inclusive of both continuing and discontinued operations, for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021:

Nine Months ended September 30,

2019

2020

(in millions)

Net cash provided by operating activities
$ 38.3 $ 43.9
Net cash used in investing activities
$ (2.3 ) $ (22.2 )
Net cash used in financing activities
$ (34.6 ) $ (21.3 )

	Three Months Ended March 31,
	2020			2021
	(in millions)
Net cash provided by operating activities	$	7.9		$	5.4
Net cash provided by (used in) investing activities	$	(15.1	)	$	153.3
Net cash provided by (used in) financing activities	$	7.3		$	(159.4	)

Operating Activities. Net cash provided by operating activities ~~increased~~decreased to $~~43.9~~5.4 million for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021, as compared to $~~38.3~~7.9 million for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020, due to ~~increased net income as discussed in~~ ~~Results of Operations~~ ~~above as well as~~ changes in working capital.

Investing Activities. Net cash ~~used in~~provided by investing activities was $~~22.2~~153.3 million for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021, compared to net cash used in investing activities of $~~2.3~~15.1 million for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020. The ~~nine~~three months ended ~~September 30,~~March 31, 2021, included net proceeds from the sale of the crude oil businesses of $155.3 million, which excludes $1.5 million of funds held in escrow for right of way renewals. The three months ended March 31, 2020,, included a $12.2 million payment to Ergon related to our purchase of Ergon’s DEVCO entity related to Cimarron Express. ~~The~~ ~~nine months ended September 30, 2019, included net proceeds from the disposal of certain assets of~~ ~~$7.1~~ ~~million. Of such proceeds, $2.6 million related to the December 2018 sale of linefill for which the cash consideration was not received until January 2019.~~ Capital expenditures for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2021, inclusive of both continuing and ~~2020~~,discontinued operations, included maintenance capital expenditures of $~~7.5~~1.5 million and expansion capital expenditures $0.5 million. Capital expenditures for the three months ended March 31, 2020, inclusive of both ~~periods,~~continuing and discontinued operations, included maintenance capital expenditures of $1.8 million and expansion capital expenditures of $~~2.0~~1.1 ~~million and~~ ~~$4.9~~ ~~million, respectively.~~million.

Financing Activities. Net cash used in financing activities was $~~21.3~~159.4 million for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021, compared to net cash provided by financing activities of $~~34.6~~7.3 million for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020. ~~Net cash~~Cash used in financing activities for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021, consisted primarily of net payments on long-term debt of $~~24.3~~146.0 million, $8.1 million in distributions to our unitholders, ~~partially offset~~and the repurchase of preferred units of $5.2 million. Net cash provided by financing activities for the three months ended March 31, 2020, consisted primarily of net borrowings on long-term debt of $~~5.0~~16.0 ~~million. Net cash~~million partially offset by ~~used in~~ ~~financing activities for the~~ ~~nine months ended September 30, 2019, consisted primarily of~~ $~~25.9~~8.1 million in distributions to our ~~unitholders and net~~ ~~payments~~ ~~on long-term debt of~~ ~~$7.0~~ ~~million.~~unitholders.

~~Our~~ Liquidity and Capital Resources

Cash flows from operations and ~~from~~availability under our revolving credit ~~agreement~~facility are our primary sources of liquidity. At ~~September 30, 2020~~March 31, 2021, we had a working capital deficit of $~~9.4~~7.6 million. This is primarily a function of our approach to cash management. At ~~September 30, 2020~~March 31, 2021, we had approximately $~~260.6~~106.6 million of revolver borrowings and approximately ~~$1.7~~$0.7 million of letters of credit outstanding under the credit agreement, leaving us with approximately $~~137.7~~242.7 million of availability under our credit agreement subject to covenant restrictions, which limited our availability to $~~44.8~~132.9 million. As of ~~October 30, 2020~~April 28, 2021, we have approximately $~~255.6~~106.6 million of revolver borrowings and approximately $~~1.7~~0.7 million of letters of credit outstanding under the credit agreement, leaving us with aggregate unused commitments under our revolving credit facility of approximately $~~142.7~~242.7 million and cash on hand of approximately $1.2 million. The credit agreement is scheduled to mature on May 11, 2022.

~~Table of Contents~~

Our credit agreement contains certain financial covenants which include a maximum permitted consolidated total leverage ratio, which may limit our availability to borrow funds thereunder. The consolidated total leverage ratio is assessed quarterly based on the trailing twelve months of ~~credit agreement~~ EBITDA, as defined in the credit agreement. The maximum permitted consolidated total leverage ratio as of ~~September 30, 2020~~March 31, 2021, and for each fiscal quarter thereafter, is 4.75. Our consolidated total leverage ratio was ~~4.06~~2.12 to 1.00 as of ~~September 30, 2020~~March 31, 2021.

Management evaluates whether conditions and/or events raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued (the “assessment period”). In performing this assessment, management considered the risk associated with its ongoing ability to meet the financial covenants.

~~Based~~Based on forecasted EBITDA during the assessment period, management believes that we will meet the financial covenants. However, there are certain inherent risks associated with our continued ability to comply with our consolidated total leverage ratio covenant. These risks relate, among other things, to potential future (a) decreases in storage volumescurrent operating plans and rates as well as throughput and transportation rates realized; (b) weather phenomenon that may potentially hinder the asphalt business activity; and (c) other items affecting forecasted levels of expenditures and uses of cash resources. Violation of the consolidated total leverage ratio covenant would be an event of default under the credit agreement, which would cause our ~~$260.6~~ ~~million in outstanding debt, as of~~ ~~September 30, 2020~~, to become immediately due and payable. If this were to occur, we would not expect to have sufficient liquidity to repay these outstanding amounts then due, which could cause the lenders under the credit facility to pursue other remedies. Such remedies could include exercising their collateral rights to our assets. Based on our current forecasts, we believe we will be able to comply with the consolidated total leverage ratio during the assessment period. However, we cannot make any assurances that we will be able to achieve our forecasts. If we are unable to achieve our forecasts, further actions may be necessaryexpect to remain in compliance with our consolidated total leverage ratio covenant including, but not limited to, cost reductions, common and preferred unitholder distribution curtailments, and/or asset sales. We can make no assurances that we would be successful in undertaking these actions, or that we will remain in compliance withall covenants of the ~~consolidated total leverage ratio during~~credit agreement for at least the ~~assessment period.~~next year.

Table of Contents

Capital Requirements. Our capital requirements consist of the following:

	•	~~expansion capital expenditures, which are capital expenditures made to expand the operating capacity or revenue of existing or new assets, whether through construction, acquisition or modification.~~
	•	maintenance capital expenditures, which are capital expenditures made to maintain the existing integrity and operating capacity of our assets and related cash flows, further extending the useful lives of the assets; and

maintenance capital expenditures, which are capital expenditures made to maintain the existing integrity and operating capacity of our assets and related cash flows, further extending the useful lives of the assets; and

expansion capital expenditures, which are capital expenditures made to expand the operating capacity or revenue of existing or new assets, whether through construction, acquisition or modification.

The following table breaks out capital expenditures from continuing operations for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021 (in thousands):

	Nine Months ended September 30,						Three Months Ended March 31,
	2019			2020			2020			2021
Acquisitions	$	-		$	12,221		$	12,221		$	-

Gross expansion capital expenditures	$	1,969		$	4,860		$	214		$	517
Reimbursable expenditures		(61	)		(289	)		(93	)		-
Net expansion capital expenditures	$	1,908		$	4,571		$	121		$	517

Gross maintenance capital expenditures	$	7,459		$	7,521		$	1,534		$	1,408
Reimbursable expenditures		(202	)		(2,007	)		(97	)		(19	)
Net maintenance capital expenditures	$	7,257		$	5,514		$	1,437		$	1,389

Expansion capital expenditures for the nine months ended September 30, 2020, includes $1.7 million related to the buy-out of heavy-duty crude oil transportation trucks and trailers that were under operating leases due to a more favorable cost of capital under our credit agreements as well as the anticipation of a possible future sale of the crude oil trucking services operating segment. Expansion capital expenditures for nine months ended September 30, 2020, also includes crude oil purchases of $1.5 million to replenish linefill requirements on our Oklahoma pipeline related to our crude oil marketing business. Exclusive of these items, weWe currently expect our 2021 expansion capital expenditures for organic growth projects to be approximately $~~2.2~~0.5 million to ~~$2.6~~ ~~million for all of~~ ~~2020. We currently expect~~and our maintenance capital expenditures to be approximately $~~7.8~~6.0 million, to ~~$8.2~~ ~~million,~~each net of reimbursable ~~expenditures, for all of~~ ~~2020~~.expenditures.

Our Ability to Grow Depends on Our Ability to Access External Expansion Capital. Our partnership agreement requires that we distribute all of our available cash to our unitholders. Available cash is reduced by cash reserves established by our General Partner to provide for the proper conduct of our business (including for future capital expenditures) and to comply with the provisions of our credit agreement. We may not grow as quickly as businesses that reinvest their available cash to expand ongoing operations because we distribute all of our available cash.

~~Table of Contents~~

Recent Accounting Pronouncements

For information regarding recent accounting developments that may affect our future financial statements, see Note 1412 to our unaudited condensed consolidated financial statements.

~~Other Items~~

~~Commodity Derivative Agreements~~

During the second quarter of 2020, our internal crude oil marketing department entered into crude oil forward purchase contracts through sell/buy arrangements with a counterparty to facilitate spot storage deals in our Cushing terminal with such counterparty during a time of favorable contango spreads. Our crude oil marketing department only holds working inventory and linefill and does not hold excess inventory for speculative purposes. Typically, each month’s purchase and sale volumes, including those under the sell/buy arrangements, are similar and at the current month market price; thus, the Partnership is not exposed to additional commodity price risk beyond its normal marketing activity. The final purchase settlement of these contracts occurred during the third quarter of 2020 at then market prices. The product was then sold to a separate counterparty at then market prices; thus, effectively removing the commodity price risk. These contracts were carried at fair value on our consolidated balance sheets last quarter and were valued based on quoted prices in active markets.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Partnership is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures. Our General Partner’s management, including the Chief Executive Officer and Chief Financial Officer of our General Partner, evaluated, as of the end of the period covered by this report, the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of our General Partner concluded that our disclosure controls and procedures, as of ~~September 30, 2020~~March 31, 2021, were effective.

Changes in internal control over financial reporting. There were no changes to our internal control over financial reporting that occurred during the three months ended ~~September 30, 2020~~March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The information required by this item is included under the caption “Commitments and Contingencies” in Note 1311 to our unaudited condensed consolidated financial statements and is incorporated herein by reference thereto.

Item 1A. Risk Factors.

See the risk factors set forth in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020.

Item 2. Unregistered Sales of Equity Securities

The following table sets forth a summary of our purchases during the three months ended March 31, 2021, of equity securities that are registered by Blueknight pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.

Period	Total Number of Series A Preferred Units Purchased(1)		Average Price Paid per Series A Preferred Unit(1)		Total Number of Series A Preferred Units Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Value of Series A Preferred Units that May Yet Be Purchased Under the Plans or Programs
03/01/2021-03/31/2021		688,417	$	7.50		-	$	-
02/01/2021-02/28/2021		-	$	-		-	$	-
01/01/2021-01/31/2021		-	$	-		-	$	-

___________________

(1)	The repurchase was made pursuant to a privately negotiated transaction on March 12, 2021.

Item 6. Exhibits.

The information required by this Item 6 is set forth in the Index to Exhibits accompanying this quarterly report and is incorporated herein by reference.

INDEX TO EXHIBITS

Exhibit Number		Description
3.1		Amended and Restated Certificate of Limited Partnership of the Partnership, dated November 19, 2009, but effective as of December 1, 2009 (filed as Exhibit 3.1 to the Partnership’s Current Report on Form 8-K, filed November 25, 2009 (Commission File No. 001-33503), and incorporated herein by reference).
3.2		First Amendment to the Amended and Restated Certificate of Limited Partnership of Blueknight Energy Partners L.P., dated July 18, 2019 (filed as Exhibit 3.2 to the Partnership’s Current Report on Form 8-K, filed on July 22, 2019, and incorporated herein by reference).
3.3		Fourth Amended and Restated Agreement of Limited Partnership of the Partnership, dated September 14, 2011 (filed as Exhibit 3.1 to the Partnership’s Current Report on Form 8-K, filed September 14, 2011, and incorporated herein by reference).
3.4		Amended and Restated Certificate of Formation of the General Partner, dated November 20, 2009 but effective as of December 1, 2009 (filed as Exhibit 3.2 to the Partnership’s Current Report on Form 8-K, filed November 25, 2009 (Commission File No. 001-33503), and incorporated herein by reference).
3.5		First Amendment to the Amended and Restated Certificate of Formation of Blueknight Energy Partners G.P., L.L.C., dated July 18, 2019 (filed as Exhibit 3.1 to the Partnership’s Current Report on Form 8-K, filed on July 22, 2019, and incorporated herein by reference).
3.6		Second Amended and Restated Limited Liability Company Agreement of the General Partner, dated December 1, 2009 (filed as Exhibit 3.2 to the Partnership’s Current Report on Form 8-K, filed December 7, 2009 (Commission File No. 001-33503), and incorporated herein by reference).
4.1		Registration Rights Agreement, dated October 5, 2016, by and among the Partnership, Ergon Asphalt & Emulsions, Inc., Ergon Terminaling, Inc. and Ergon Asphalt Holdings, LLC (filed as Exhibit 4.1 to the Partnership’s Current Report on Form 8-K, filed October 5, 2016, and incorporated herein by reference).
31.1*		~~Certification~~Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		~~Certification~~Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1#		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551, this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
101#		The following financial information from Blueknight Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2020~~March 31, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) Document and Entity Information; (ii) Unaudited Condensed Consolidated Balance Sheets as of December 31, ~~2019~~2020 and ~~September 30, 2020~~March 31, 2021; (iii) Unaudited Condensed Consolidated Statements of Operations for the three ~~and~~ ~~nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021; (iv) Unaudited Condensed Consolidated Statement of Changes in Partners’ Capital (Deficit) for the three ~~and~~ ~~nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021; (v) Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2020~~2021; and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.

____________________

* Filed herewith.

# Furnished herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		BLUEKNIGHT ENERGY PARTNERS, L.P.

		By:	Blueknight Energy Partners, G.P., L.L.C.
			its General Partner

Date:	~~November~~May 5, ~~2020~~2021	By:	/s/ Matthew R. Lewis
			Matthew R. Lewis
			Chief Financial Officer

Date:	~~November~~May 5, ~~2020~~2021	By:	/s/ Michael G. McLanahan
			Michael G. McLanahan
			Chief Accounting Officer

	Asphalt Terminalling Services		Crude Oil Terminalling Services		Crude Oil Pipeline Services		Crude Oil Trucking Services		Total
	Three Months ended September 30, 2019
Revenue from contracts with customers
Third-party revenue:
Fixed storage, throughput and other revenue	$	5,008	$	3,264	$	-	$	-	$	8,272
Variable throughput and other revenue		648		961		-		-		1,609
Variable reimbursement revenue		1,729		-		-		-		1,729
Crude oil transportation revenue		-		-		1,284		2,822		4,106
Crude oil product sales revenue		-		-		55,213		-		55,213
Related-party revenue:
Fixed storage, throughput and other revenue		2,750		-		63		-		2,813
Variable throughput and other revenue		21		-		-		-		21
Variable reimbursement revenue		1,099		-		1		-		1,100
Total revenue from contracts with customers	$	11,255	$	4,225	$	56,561	$	2,822	$	74,863
Lease revenue
Third-party revenue:
Fixed lease revenue	$	9,415	$	-	$	-	$	-	$	9,415
Variable throughput and other revenue		1,451		-		-		-		1,451
Variable reimbursement revenue		578		-		-		-		578
Related-party revenue:
Fixed lease revenue		4,733		-		-		-		4,733
Variable throughput and other revenue		615		-		-		-		615
Variable reimbursement revenue		79		-		-		-		79
Total lease revenue	$	16,871	$	-	$	-	$	-	$	16,871
Total revenue	$	28,126	$	4,225	$	56,561	$	2,822	$	91,734

	Three Months ended September 30, 2020
Revenue from contracts with customers
Third-party revenue:
Fixed storage, throughput and other revenue	$	5,097	$	3,327	$	-	$	-	$	8,424
Variable throughput and other revenue		752		863		-		-		1,615
Variable reimbursement revenue		1,665		-		-		-		1,665
Crude oil transportation revenue		-		-		412		770		1,182
Crude oil product sales revenue		-		-		51,390		-		51,390
Related-party revenue:
Fixed storage, throughput and other revenue		4,079		-		-		-		4,079
Variable throughput and other revenue		267		-		-		-		267
Variable reimbursement revenue		503		-		-		-		503
Total revenue from contracts with customers	$	12,363	$	4,190	$	51,802	$	770	$	69,125
Lease revenue
Third-party revenue:
Fixed lease revenue	$	7,930	$	-	$	-	$	-	$	7,930
Variable throughput revenue		713		-		-		-		713
Variable reimbursement revenue		499		-		-		-		499
Related-party revenue:
Fixed lease revenue		6,552		-		-		-		6,552
Variable throughput revenue		784		-		-		-		784
Variable reimbursement revenue		154		-		-		-		154
Total lease revenue	$	16,632	$	-	$	-	$	-	$	16,632
Total revenue	$	28,995	$	4,190	$	51,802	$	770	$	85,757

	Nine Months ended September 30, 2020
Revenue from contracts with customers
Third-party revenue:
Fixed storage, throughput and other revenue	$	15,318	$	9,858	$	-	$	-	$	25,176
Variable throughput and other revenue		1,129		2,755		-		-		3,884
Variable reimbursement revenue		4,754		-		-		-		4,754
Crude oil transportation revenue		-		-		1,287		4,834		6,121
Crude oil product sales revenue		-		-		119,068		-		119,068
Related-party revenue:
Fixed storage, throughput and other revenue		9,861		-		-		-		9,861
Variable throughput and other revenue		647		-		-		-		647
Variable reimbursement revenue		2,437		-		-		-		2,437
Total revenue from contracts with customers	$	34,146	$	12,613	$	120,355	$	4,834	$	171,948
Lease revenue
Third-party revenue:
Fixed lease revenue	$	24,729	$	-	$	-	$	-	$	24,729
Variable throughput and other revenue		746		-		-		-		746
Variable reimbursement revenue		1,576		-		-		-		1,576
Related-party revenue:
Fixed lease revenue		17,914		-		-		-		17,914
Variable throughput and other revenue		784		-		-		-		784
Variable reimbursement revenue		541		-		-		-		541
Total lease revenue	$	46,290	$	-	$	-	$	-	$	46,290
Total revenue	$	80,436	$	12,613	$	120,355	$	4,834	$	218,238

Derivatives Not Designated as	Location of Gain(Loss) Recognized in Net	Amount of Gain Recognized
Hedging Instruments	Income on Derivatives	in Net Income on Derivatives
		Three Months ended September 30,
		2020
Commodity derivative	Cost of product sales	$	3,589