OPEN SEASON I. The BKEP Condensate Pipeline Project Blueknight Energy Partners, L.P. ( BKEP ) is pleased to announce the commencement of an Open Season for the BKEP Condensate Pipeline Project. The BKEP Condensate Pipeline Project will bring crude oil condensate from Southern Oklahoma to Cushing, Oklahoma. BKEP will convert the pipeline currently referred to as the Oklahoma System into a crude oil condensate only pipeline, allowing condensate to be originated in Maysville, Oklahoma ( Receipt Point ) and terminate in the BKEP terminal in Cushing, Oklahoma ( Delivery Point ). Once delivered, customers will be able to access the full range of connected terminals and available markets for these higher gravity barrels. The BKEP Condensate Pipeline will have an initial capacity of 24,000 barrels per day ( Project Capacity ) with plans for possible expansion. There are truck station opportunities along the BKEP Condensate Pipeline. The BKEP Condensate Pipeline is projected to be fully commissioned third quarter 2016. The In-Service Date means the first day the BKEP Condensate Pipeline is placed inservice for Condensate receipts and is able to make Condensate deliveries to the Delivery Point ( In-Service Date ). The BKEP Condensate Pipeline is expected to be regulated as an intrastate pipeline and a local tariff will be established from the origin near Maysville, Oklahoma to the destination at Cushing, Oklahoma. The BKEP Condensate Pipeline will be operated as a common carrier system. BKEP anticipates routine transportation of a single quality Condensate grade on the BKEP Condensate Pipeline, with the ability to batch a higher gravity, pending commercial support. Blueknight Energy Partners, L.P. is seeking shipper commitments for capacity on the BKEP Condensate Pipeline. Rev. 0, c. 11/01/15 Page 1 of 6
II. Proposed Commitment Options A. Overview The Open Season provides potential shippers with the opportunity to make long-term volume commitments ( Committed Shipper ) of at least 2,000 barrels per day ( Committed Volume ) on up to ninety percent (90%) of the Project Capacity ( Committed Shippers Capacity ). BKEP will reserve at least ten percent (10%) of the Project Capacity for shippers that do not make long-term volume commitments but elect to make timely monthly nominations ( Uncommitted Shippers ). Uncommitted Shippers will not have to sign a binding Transportation Services Agreement ( TSA ), and will be charged the standard rates for transportation, subject to terms and conditions in the applicable BKEP Rules and Regulations tariff ( Uncommitted Rate ). B. Volume Commitments Monthly Volume Commitment. Each Committed Shipper making a term and volume commitment must agree to ship a specified minimum volume of condensate per month ( Monthly Volume Commitment ) on the BKEP Condensate Pipeline at the rate applicable to the Committed Shipper ( Committed Rate ), all as set forth in the Committed Shipper s TSA. Any Committed Shipper that fails to ship its Monthly Volume Commitment during the term of its TSA will be required to make a deficiency payment to BKEP, the calculation of which will be set forth in detail in the TSA. Capacity allocated to a Committed Shipper during the Primary Term of the TSA will be committed capacity that is not subject to prorationing except as a result of events of force majeure or other operational disruptions. C. Committed Rates Committed Shippers will have the option to select a Committed Rate with a term of either two (2) or five (5) years ( Primary Term ). BKEP will have the right each year during the term of the TSA to increase the Committed Rates by an adjustment factor specified in the TSA. D. Term Along with the initial Primary Term of the TSA for either two (2) or five (5) years from the In-Service Date, BKEP will offer that the TSA will automatically extend for a two (2) year renewal period ( Renewal Term ), unless terminated by either the Committed Shipper or BKEP upon written notice to the other party of no less than six (6) months prior to the expiration of the initial Primary Term. During the Renewal Term, the Committed Shipper shall have the right to elect to: (i) continue receiving committed service at the Monthly Committed Volume level applicable during the Primary Term, or (ii) continue receiving committed service at a modified Monthly Committed Volume, subject to pipeline capacity. This modification of Monthly Committed Volumes, if applicable, cannot be less than 2,000 bpd. If the Shipper elects to not enter into the Renewal Term, the Shipper will lose Committed Shipper status, history and receive uncommitted service with no volume commitment at the Uncommitted Rate. E. Allocation of Committed Shipper Capacity Committed Shipper Capacity will be awarded to potential Committed Shippers based on pipeline volume commitment. If two or more potential Committed Shippers have the same pipeline volume commitment and should there be insufficient Committed Shipper Capacity to meet such Rev. 0, c. 11/01/15 Page 2 of 6
requests, such Shippers will be awarded capacity based on first receipt by BKEP of the executed TSA and historical shipments applicable. III. Key Terms for Proposed Transportation Services Agreement The following are some of the principal terms contained in the TSA as set forth below and should be taken into account in all binding bids. A. Committed Rates The rates applicable to Monthly Committed Volumes will be those specified in Exhibit A of the TSA and Committed Shippers will agree to pay for and support such rates in accordance with the terms of the TSA. All tariff rates assume a Maysville, Oklahoma Receipt Point and a Cushing, Oklahoma Delivery Point. Shipments will be subject to fees as set out in BKEP s prevailing Rules and Regulations. B. Shrinkage Deduction The BKEP standard deduction to cover shrinkage and incremental evaporation for crude oil with API gravity greater than 45 o would apply to all shippers as outlined in BKEP s prevailing Rules and Regulations. C. Rate Escalation BKEP reserves the right to escalate the Committed Rates and the Uncommitted Rate by the annual FERC Index or other factors should such index no longer be published. IV. Open Season Process A. Open Season Documents The following documents will be provided as part of the Open Season. Confidentiality Agreement Transportation Services Agreement (TSA) Rules and Regulations Tariff BKEP will provide the TSA, Tariff and Rules and Regulations upon execution of a Confidentiality Agreement in a form satisfactory to BKEP. BKEP reserves the right to revise the terms of the Open Season or any of the Open Season Documents. BKEP will inform prospective shippers of any such revisions as well as the availability of any additional information regarding the Open Season process or the Open Season Documents, by e-mailing the potential shippers that have requested and received the Open Season Documents. B. Binding Commitment Process Request for Commitments. BKEP is requesting binding capacity commitments from interested parties in the prospective BKEP Condensate Pipeline System. Interested parties should submit Rev. 0, c. 11/01/15 Page 3 of 6
binding offers to commit to capacity by completing and executing a TSA and sending it to BKEP. BKEP has the sole and exclusive right to determine whether to proceed with the BKEP Condensate Pipeline Project. However, it will notify potential shippers who have executed the TSA Potential Shipper document within thirty (30) days of the close of the Open Season of its decision to either terminate the Project or to seek final senior management approval of the project ( FID or Final Investment Decision ). If BKEP has not advised bidders of its having obtained FID by January 5, 2016, TSA Potential Shipper will be entitled to terminate their TSA. Open Season will commence on or around November 1st, 2015. BKEP looks forward to binding offers from interested companies by no later than 5 P.M. on November 30th, 2015 ( Open Season Period ). All interested parties must submit an executed TSA. All TSAs must be executed by a duly authorized representative. All submitted offers shall be non-revocable. Offers should be timely submitted in a sealed envelope, clearly marked Confidential to: Blueknight Energy Partners, L.P. Attn: Marcia Mehmert Sr. Manager, Business Development 210 NW 10 th Street, Ste 200 Oklahoma City, OK 73103 Office: (405) 278-6446 Cell: (405) 479-5292 V. Credit Requirements Each TSA Potential Shipper shall provide financial data sufficient for BKEP to ascertain the Committed Shipper s creditworthiness in accordance with the BKEP Rules and Regulations tariff and, if BKEP so determines, such assurance may be requested by BKEP. Financial assurance may be in the form of a letter of credit, guaranty agreement or such other security as may be acceptable by BKEP. VI. Limitations and Reservations The BKEP Condensate Pipeline Project, including the pipeline configuration, is subject to changes after the conclusion of the Open Season Period. BKEP reserves the right, in its sole discretion, not to proceed with construction in whole or in part of the BKEP Condensate Pipeline. Prior to the time that all TSAs are returned to BKEP by prospective Committed Shippers and they have been fully executed by both the Committed Shippers and BKEP, BKEP further reserves the right, in its sole discretion, to modify any of the Open Season materials, including the Committed Shipper Rate, if necessary, as indicated by economic, sound engineering design, environmental, legal or other factors. If BKEP decides not to proceed with all or part of the BKEP Condensate Pipeline, it will notify all TSA Potential Shippers that submitted TSAs as soon as reasonably practicable. These Open Season procedures, this Notice and the Open Season Documents do not establish a contractual relationship between or among BKEP or any of its affiliates and any party Rev. 0, c. 11/01/15 Page 4 of 6
who receives them. These procedures are intended to be used solely for the project discussed herein. No contract is established until BKEP signs the TSA and makes final approval of the BKEP Condensate Project. VII. Conclusion If you should have any questions or comments regarding the Open Season, project timing, the configuration of BKEP Condensate Pipeline (for example, origin and destination points), or commitment options related thereto, please feel free to contact Marcia Mehmert at any time at the contact information listed above. Rev. 0, c. 11/01/15 Page 5 of 6
Disclaimer This Information Memorandum and Binding Open Season Notice by BKEP is in connection with its proposed BKEP Condensate Pipeline. The issuance of this Information Memorandum should not be taken as any form of commitment on the part of BKEP to proceed with the project or any other transaction. This Information Memorandum is not intended to form the basis of any investment decision by a potential shipper and should not be considered as a recommendation by BKEP or any other person in relation to the project, or BKEP. In furnishing this document, BKEP nor any of their respective representatives is obliged to provide the recipients with access to any additional information or to update this document or to correct any inaccuracies therein which may become apparent. Nevertheless, BKEP reserves the right to amend or replace this Information Memorandum at any time and the information contained in this Information Memorandum is subject to change or amendment without notice. The description of agreements and other documents contained in this Information Memorandum, if any, are summary only, and such summaries are qualified in their entirety by reference to the complete text of such agreements and other documents. Recipients of this Information Memorandum should be aware of the following: BKEP may at any time conduct discussions and negotiations with any number of prospective shippers and on any basis with any prospective shippers as it or they consider appropriate, including different bases for different prospective shippers. Any changes to the terms of this Information Memorandum will be reflected on the Open Season webpage, and; Negotiations may be withdrawn and discontinued with respect to any or all prospective shippers at any time and any or all proposals or offers may be rejected at any time without any obligation or liability by BKEP. In each case above, BKEP may act in its sole and absolute discretion without giving any reasons and without any liability or obligation of any kind. In no circumstances shall BKEP or any of their respective directors, officers, employees, agents, attorneys, advisers and representatives be responsible for any costs or expenses incurred by any recipient or for any other liability, howsoever arising, incurred by any recipient, in each case, in connection with any investigation or evaluation of the BKEP Condensate Pipeline. Rev. 0, c. 11/01/15 Page 6 of 6