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Retail Supplier Parent Cites Increased Competitive Intensity Facing Natural Gas Business Among Reasons For Lower Guidance

January 23, 2019

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Reporting by Paul Ring • ring@energychoicematters.com

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Sprague Resources LP provided an update on adjusted EBITDA and distribution coverage ratio guidance for the fiscal year ended December 31, 2018, based on expected preliminary, unaudited financial results.

Sprague said that the Partnership continues to work with its independent public accountants to complete the audit of its financial statements for the year ended December 31, 2018. As a result, the information presented by Sprague is subject to change.

"Sprague experienced headwinds in the fourth quarter, in both Refined Products and Natural Gas, generating lower adjusted EBITDA than our most recent guidance," said David Glendon, President and Chief Executive Officer. "In Refined Products, warmer, late-year weather, a less supportive market structure, and limited blending opportunities led to the shortfall. Similarly, our Natural Gas business observed limited optimization opportunities and increased competitive intensity. Strong performance from our Materials Handling business partially offset the decline," added Mr. Glendon.

Sprague, in its most recent 10-Q, described its natural gas segment as follows, "The natural gas segment purchases, sells and distributes natural gas to commercial and industrial customers. The Partnership purchases the natural gas it sells from natural gas producers and trading companies. Natural gas revenue-producing activities are sales to customers at various points on natural gas pipelines or at local distribution companies (i.e., utilities). Natural gas sales not billed by month-end are accrued based upon gas volumes delivered."

As a result of the headwinds cited above, Sprague expects full-year 2018 adjusted EBITDA to be below its previously updated guidance of $110 to $120 million and its distribution coverage to be below 1.0x. At this time, Sprague has not provided preliminary, full year 2018 adjusted EBITDA due to the timing of the finalization of results, which primarily relates to uncertainty around the U.S. federal government excise tax credit program for biofuel blending activities.

Sprague expects to provide 2019 distribution, adjusted EBITDA, and distribution coverage guidance on its next quarterly earnings call scheduled for March 14, 2019

"While 2018 adjusted EBITDA is anticipated to be below fiscal year 2017 levels, the Board of Directors of the Partnership’s general partner, Sprague Resources GP LLC (the “Board”), believe that the drivers behind this decline are challenges that Sprague will be able to manage through incremental growth and continued cost management initiatives in 2019, together with normal weather and market structure assumptions. Accordingly, the Board today declared a cash distribution of $0.6675 per unit ($2.67 per unit on an annualized basis) for the fourth quarter ended December 31, 2018. The fourth quarter distribution is equal to the distribution for the third quarter ended September 30, 2018, and represents an increase of 4.7% over the quarterly distribution of $0.6375 per unit for the fourth quarter of 2017. The announced distribution will be paid on Wednesday, February 13, 2019 to unitholders of record as of the close of business on February 8, 2019," Sprague said

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