The tie-up between both companies did not come as a surprise.
In December 2009, OPIS reported that Vitol was likely to take over more crude storage space at Cushing in the future, but the newly acquired Blueknight Energy Partners LP would remain an independent third-party storage terminal.
In late November, Vitol completed the purchase of a controlling interest in former SemGroup Energy Partners LP, which was renamed Blueknight Energy Partners on Dec. 1.
Vitol purchased 100% of the membership interests of Blueknight, Blueknight’s general partner and its subordinated units. In the MLP, Vitol owns the general partnership, but there could still be limited partners in the company.
Late last year, Vitol used about 30% of the total crude storage at Cushing. Blueknight owns and operates a portfolio of complementary midstream energy assets consisting of about 8.2 million bbl of crude oil storage located in Oklahoma and Texas, about 6.7 million barrels of which are located at the
Cushing, Okla., interchange.
In the latest throughput agreement, Vitol will purchase 100% of the throughput capacity on BKEP Crude’s Eagle North Pipeline System. BKEP Crude, a subsidiary of BlueKnight Energy Partners, currently intends to put the Eagle North Pipeline System into service in the fourth quarter of 2010.
Vitol Inc. will pay BKEP Crude a prepaid fee equal to $5.5 million and additional usage fees for every barrel delivered by or on behalf of Vitol Inc. on the system.
In addition, if the payments made by Vitol Inc. in any contract year under the throughput agreement are in the aggregate less than $2,364,892, then Vitol Inc. will pay BKEP Crude a deficiency payment equal to $2,364,892 minus the
aggregate amount of all payments made by Vitol Inc. during such contract year.
The agreement has a term that extends for four years after the Eagle North Pipeline System is completed and may be extended by mutual agreement of the parties for additional one-year terms.
If the capacity on the Eagle North Pipeline System is unavailable for use by Vitol Inc. for more than 60 days, whether consecutive or nonconsecutive, during
the term of the Throughput Agreement, then Vitol Inc. shall have the right to terminate the Throughput Agreement within six months after such lack of capacity.
BKEP Crude has previously contracted to provide throughput services on the Eagle North Pipeline System to a third party and Vitol Inc.’s rights to the capacity of the Eagle North Pipeline System are subordinate to the rights of such third party.
In addition, for so long as a default by Vitol Inc. relating to payments under the agreement has not occurred and is continuing, BKEP Crude will remit to Vitol Inc. any and all tariffs and deficiency payments received by BKEP Crude or its affiliates from such third party pursuant to its agreement with
BKEP Crude.
Entering into the throughput agreement was approved by the Conflicts Committee of the General Partner’s Board of Directors in accordance with the Partnership’s procedures for approval of related party transactions and the provisions of its partnership agreement.
Meanwhile, Blueknight trimmed its quarterly net loss in April-June. The second quarter net loss was down to $2.7 million from $4.8 million a year ago.