Genesis Energy, L.P. (NYSE:GEL) Q3 2023 Earnings Call Transcript

Genesis Energy, L.P. (NYSE:GEL) Q3 2023 Earnings Call Transcript November 2, 2023

Operator: Greetings. And welcome to the Genesis Energy L.P. Q3 2023 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dwayne Morley, Vice President of Investor Relations. Thank you, Mr. Morley. You may begin.

Dwayne Morley: Good morning. Welcome to the 2023 third quarter conference call for Genesis Energy. Genesis has four business segments. The Offshore Pipeline Transportation segment is engaged in providing the critical infrastructure to move oil produced from the long-lived world-class reservoirs from the deepwater Gulf of Mexico to onshore refining centers. Sodium and Sulfur Services segment includes trona and trona-based exploring, mining, processing, producing, marketing and selling activities, as well as the processing of sour gas streams to remove sulfur at refining operations. The Onshore Facilities and Transportation segment is engaged in the transportation, handling, blending, storage and supply of energy products, including crude oil and refined products.

The Marine Transportation segment is engaged in the maritime transportation of primarily refined petroleum products. Genesis’ operations are primarily located in Wyoming, Gulf Coast states and the Gulf of Mexico. During this conference call, management may be making forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The law provides Safe Harbor provision — protection to encourage companies to provide forward-looking information. Genesis intends to avail itself of those Safe Harbor provisions and directs you to its most recently filed and future filings with the Securities and Exchange Commission. We also encourage you to visit our website at genesisenergy.com, where a copy of the press release we issued today is located.

The press release also presents a reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures. At this time, I would like to introduce Grant Sims, CEO of Genesis Energy, L.P. Mr. Sims will be joined by Kristen Jesulaitis, Chief Financial Officer and Chief Legal Officer; Ryan Sims, President and Chief Commercial Officer; and Louie Nicol, Chief Accounting Officer.

Grant Sims: Thanks, Dwayne. Good morning to everyone and thank you for listening to the call. We’ve seen a steady increase in the number of registered participants for our earnings calls over the last few quarters and we’re encouraged that our story is generating interest from an increasing number of both fixed income, as well as equity investors. As we mentioned in our earnings release this morning, our financial results for the third quarter were ahead of our internal expectations and once again demonstrated the resilient earnings power of our diversified market leading businesses. While our Offshore Pipeline Transportation segment continued to benefit from steady volumes across our existing footprint and the increasing volumes from BP’s Argos facility, we also saw an uplift of some $8 million to $10 million as a result of zero downtime associated with any weather-related events in the Gulf of Mexico that would have otherwise caused our shippers to limit their production activities during the quarter.

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Q&A Session

Our Soda and Sulfur Services segment performed in line with our expectations and our Marine Transportation segment continued to exceed our expectations, driven in large part by the continued tightness for Jones Act equipment. This strong financial performance resulted in our leverage ratio as calculated by our senior secured lenders ending the quarter at 3.92 times and a coverage ratio for our current distribution to common unit holders at 4.84 times. As discussed in this morning’s release, we expect the remainder of the year to consist of strong performance from both our Offshore Pipeline Transportation and Marine Transportation segments being somewhat offset by marginally weaker performance in our soda ash operations, driven in large part by some weakness in soda ash prices, primarily limited to our export markets.

These expectations nonetheless should allow us to deliver full year results at or above the midpoint, if not approaching the top end of our full year guidance of adjusted EBITDA of $725 million to $745 million. While it is somewhat disappointing that the challenging macro conditions affecting our soda ash prices are cropping up here in the short-term, it is important to remember that we are still going to deliver record annual adjusted EBITDA for the partnership, along with record segment margin for our Offshore Pipeline Transportation segment, at or near record segment margin from our Marine Transportation segment, and still a near record contribution from our soda ash business, in spite of the weakness in soda ash prices in the back half of the year.

Importantly, we will also continue to expect to exit the year with a leverage ratio as calculated by our senior secured lenders at or near our long-term target leverage ratio of 4 times and a coverage ratio of our current distribution of more than 4.5 times, all with clear visibility to increasing EBITDA in future periods. As we look ahead to next year, we expect to see continued growth offshore from Argos, along with additional volumes from new subsea tiebacks and continued infill drilling, combined with marginally increasing performance from our Marine Transportation segment. While we have had limited conversations with our soda ash customers for pricing under contracts that are open in 2024, we believe any continuing weakness in soda ash prices will likely be partially offset by the additional 750,000 new tons we have coming online from the Granger expansion project and the corresponding reduction in our average operating cost per ton.

Regardless of the makeup of our 2024 results and any uncertainty that might exist today, it is important to remember that the long-term outlook for Genesis remains intact and as strong as I have seen it during my tenure at the company. In fact, 2024 should really be viewed as a transition year for Genesis, as we expect to complete our ongoing growth capital expenditures in mid-to-late 2024, in advance of the significant step changes in offshore volumes and corresponding segment margin contributions beginning in late 2024 and accelerating into 2025, as the Shenandoah and Salamanca developments are expected to come online. The combination of these events will provide us with increasing amounts of cash flow after all of our cash obligations and generate increased financial flexibility to continue to simplify our capital structure, return capital to our stakeholders and ultimately allow us to continue to build long-term value for everyone in the capital structure for many years ahead.

Now I’ll touch briefly on our individual business segments. Our Offshore Pipeline Transportation segment performed ahead of our expectations, driven in large part by robust volumes across our system in a hurricane season where we saw no downtime during the quarter as a result of any weather event that would have otherwise impacted the production of our customers. We continue to see a steady increase in volumes from BP’s Argos facility, which is fast approaching 90,000 barrels per day and strong volumes from our host fields and platforms. We continue to expect to see steady and increasing volumes from Argos over the balance of the year and into 2024, as BP further optimizes the facility and brings on additional wells towards its main plate capacity of 140,000 barrels per day.