Genesis Energy, L.P. Reports Third Quarter 2023 Results
HOUSTON–(BUSINESS WIRE)–Genesis Energy, L.P. (NYSE: GEL) today announced its third quarter results.
We generated the following financial results for the third quarter of 2023:
- Net Income Attributable to Genesis Energy, L.P. of $58.1 million for the third quarter of 2023 compared to Net Income Attributable to Genesis Energy, L.P. of $3.4 million for the same period in 2022.
- Cash Flows from Operating Activities of $141.0 million for the third quarter of 2023 compared to $94.3 million for the same period in 2022.
- We declared cash distributions on our preferred units of $0.9473 for each preferred unit, which equates to a cash distribution of approximately $22.6 million and is reflected as a reduction to Available Cash before Reserves to common unitholders.
- Available Cash before Reserves to common unitholders of $89.0 million for the third quarter of 2023, which provided 4.84X coverage for the quarterly distribution of $0.15 per common unit attributable to the third quarter.
- Total Segment Margin of $207.9 million for the third quarter of 2023.
- Adjusted EBITDA of $190.6 million for the third quarter of 2023.
- Adjusted Consolidated EBITDA of $808.8 million for the trailing twelve months ended September 30, 2023 and a bank leverage ratio of 3.92X, both calculated in accordance with our senior secured credit agreement and discussed further in this release.
Grant Sims, CEO of Genesis Energy, said, “Our financial results for the third quarter came in ahead of our internal expectations and once again demonstrated the resilient earnings power of our diversified market leading businesses. During the third quarter, our offshore pipeline transportation segment benefited from steady and increasing volumes across our footprint along with 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. Our soda and sulfur services segment performed in line with our expectations. Our marine transportation segment continued to perform in-line with, if not exceed, our expectations as the market for Jones Act equipment continues to remain structurally short, which is continuing to drive strong utilization and increasing day rates across all our classes of vessels. This strong financial performance in the third quarter resulted in our leverage ratio, as calculated by our senior secured lenders, ending the quarter at 3.92 times.
“We expect the balance of the year to consist of strong financial contributions from 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 continued weakness in soda ash prices, primarily in our export markets. These current expectations should, nonetheless, allow us to deliver full year results at or above the midpoint, if not approaching the top end, of our previously revised full year guidance range for Adjusted EBITDA(1) of $725 – $745 million. It is important to remember that we continue to expect to generate record annual Adjusted EBITDA(1) for the partnership this year, along with record segment margin for our offshore pipeline transportation segment, at or near record segment margin from our marine transportation segment and near record contribution from our soda ash business, despite the weakness in soda ash prices in the back half of the year. Importantly, we 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 4.00 times.
“As we look ahead to next year, we expect to see continued volume growth offshore from additional wells coming online at Argos, along with additional volumes from new sub-sea tiebacks and continuing in-field drilling. We believe the Jones Act market will remain structurally tight driving marginally increasing day-rates in both our inland and offshore fleets in addition to our new long-term contract for the American Phoenix commencing in mid-January. Any weakness in our soda ash business due to prolonged weakness in soda ash prices is expected to be at least partially offset by the new volumes from the Granger expansion project and the corresponding reduction in our average operating costs per ton.
“Regardless of the makeup of our 2024 results, it is important to remember that the long-term outlook for Genesis remains completely unchanged. We remain well positioned to benefit from the increasing amounts of cash flow we expect to generate once our identified and ongoing growth capital projects are complete in mid to late 2024, along with a significant step change in offshore volumes and corresponding segment margin contributions in 2025 as the Shenandoah and Salamanca developments are expected to come on-line. This increased financial flexibility will continue to afford us with the opportunity to further simplify our capital structure, return capital to our stakeholders in one form or another, and ultimately allow us to continue to build long-term value for everyone in the capital structure in the coming years ahead.
“With that, I would like to discuss our individual business segments in more detail. Our offshore pipeline transportation segment performed ahead of our expectations, driven in large part by robust volumes across our system and a hurricane season where we saw no downtime during the quarter as a result of zero weather events in the central Gulf of Mexico that negatively impacted the production from our customers. During the quarter, we continued to see a steady ramp in volumes from BP’s Argos facility, which is fast approaching 90,000 barrels per day as well as strong volumes from King’s Quay, Spruance and our other host fields. We expect the balance of the year to show continued steady volumes across our offshore infrastructure, including from Argos and our other host fields along with some new volumes from additional sub-sea developments such as Woodside’s Shenzi North project and Quarternorth’s Katmai project, both of which commenced production in the third quarter.
“During the third quarter we also achieved record throughput volumes on our long-haul pipelines to shore, shipping upwards of ~675,000 barrels per day on several days, which represents approximately 5% of total U.S. crude oil production and a 50% increase over our long-haul volumes exiting 2021, just some 18-20 months ago. It is important to remember that we continue to expect to see our volumes grow into 2024 with additional wells at Argos coming on-line and a full year’s worth of production from several new developments and sub-sea tiebacks. Furthermore, we have successfully laid the 105 miles of the SYNC lateral and remain on schedule and importantly on budget with this project and our CHOPS expansion project, both of which we expect to be ready for service in the second half of 2024. The contracted Shenandoah and Salamanca developments and their combined 160,000 barrels of oil per day of incremental production handling capacity remain on-schedule and will be additive to our then base of volumes in 2024. These two new projects, combined with our steady base volumes and an increasing inventory of identified sub-sea tiebacks, provides us with the visibility to generate more than $500 million per year of segment margin starting in 2025. All of this is to say that we remain well positioned to deliver steady, stable and growing cash flows from our offshore pipeline transportation segment for many years ahead.
“Our soda and sulfur services segment performed in-line with our expectations during the quarter. The continued weak economic data out of China, combined with a continued increase in new production from Inner Mongolia continues to affect normalized customer behavior and is ultimately contributing to an increase in export volumes from China, which is putting downward pressure on prices in our export markets in Asia. We have also started to see early signals of a slowdown in the domestic market and certain end markets in Europe, specifically in container glass, as customers look to further optimize their purchasing activities based on their most recent forecasts. Given these broader economic headwinds, one might reasonably expect to see some level of supply rationalization in the long run as higher cost synthetic production becomes increasingly uneconomic in Europe and China at today’s prices. Alternatively, a quicker recovery to more normalized levels of global economic activity and growth, when combined with the green shoots from steady and growing demand from lithium and solar panel customers could help the soda ash market return to balance much quicker than in prior periods of oversupply. While it is likely going to be a combination of both supply and demand responses that will begin to balance the soda ash market and the ultimate balancing might take some time, we remain extremely bullish on the long-term fundamentals of the business, regardless of any near-term price volatility.
“Our legacy Granger production facility continues to run at or above its original nameplate capacity of approximately 500,000 tons of annual soda ash production. We recently started the commissioning activities at our Granger expansion project and expect this work to continue over the balance of the year. Once fully on-line in 2024, we will undoubtedly benefit from the increased sales volumes and lower operating cost per ton as our fixed costs today will be spread over an additional 750,000 tons which should help to partially offset any potential weakness in soda ash prices next year. Our legacy refinery services business performed in-line with our expectations.
“Our marine transportation segment continues to exceed our expectations as market supply and demand fundamentals remain steady. We continue to operate with utilization rates at or near 100% of available capacity for all classes of our vessels as the supply and demand outlook for Jones Act tanker tonnage remains structurally tight, driven by a combination of steady and robust demand and effectively zero new supply of our types of marine vessels. This lack of new supply of marine tonnage, combined with strong demand continues to drive spot day rates and longer-term contracted rates in both of our fleets to record levels. These fundamentals, combined with our increasingly term contracted portfolio, lead me to believe our marine transportation segment remains well positioned to deliver marginally growing and steady earnings over the next few years.
“Turning now to our balance sheet. As we mentioned earlier in the release, we are nearing the completion of our Granger expansion project and continue to advance the construction of the SYNC lateral and CHOPS expansion project. Given the timing of certain milestone achievements for both projects, we expect to experience some timing differences in our growth capital expenditures between 2023 and 2024. As a result, we expect the cash outlay from our growth capital expenditures in 2023 to range from $350 – $400 million versus our original estimate of $400 million to $450 million. While both projects remain on schedule and more importantly on budget, we expect to see the balance of these growth capital expenditures to show up in the first half of 2024 and will be additive to the roughly $100-$150 million in tail capital associated with our offshore expansion projects we previously expected to incur next year. Regardless of these changes in timing, and based on our current expectations for the remainder of the year, we continue to expect to exit 2023 with a leverage ratio, as calculated by our senior secured lenders, at or near 4.0 times.
“We continue to believe we are uniquely positioned to generate additional significant cash flow, especially given our size, starting in 2024 and accelerating into 2025. This central thesis has not changed and will undoubtedly give us tremendous flexibility to optimize our capital structure and return capital to all of our stakeholders, all while maintaining a focus on our long-term leverage ratio. In advance of this significant step change in 2025, so far this year we have utilized a portion of our available liquidity to opportunistically re-purchase $75 million of our Series A preferred security at a discount to the contracted call premium as well as purchase 114,900 of our common units at an average price of $9.09 per unit. While we do not have a programmatic approach for additional purchases of these securities, we will continue to be opportunistic in acquiring all securities in our capital structure, including both debt and equity, to the extent we feel they remain mispriced in the market. As we gain an increasingly clear line of sight to generating cash flow of roughly $200 million to $300 million, or more, per year after certain cash obligations (including interest payments, preferred and existing common unit distributions, maintenance capital requirements, principal payments on our Alkali senior secured notes, and cash taxes) we will continue to evaluate the various levers we can pull to return capital to our stakeholders, all while maintaining a focus on our long-term leverage ratio.
“The management team and board of directors remain steadfast in our commitment to building long-term value for everyone in the capital structure, and we believe the decisions we are making reflect this commitment and our confidence in Genesis moving forward. I would once again like to recognize our entire workforce for their efforts and unwavering commitment to safe and responsible operations. I’m proud to have the opportunity to work alongside each and every one of you.”
(1) Adjusted EBITDA is a non-GAAP financial measure. We are unable to provide a reconciliation of the forward-looking Adjusted EBITDA projections contained in this press release to its most directly comparable GAAP financial measure because the information necessary for quantitative reconciliations of Adjusted EBITDA to its most directly comparable GAAP financial measure is not available to us without unreasonable efforts. The probable significance of providing these forward-looking Adjusted EBITDA measures without directly comparable GAAP financial measures may be materially different from the corresponding GAAP financial measures.
Financial Results
Segment Margin
Variances between the third quarter of 2023 (the “2023 Quarter”) and the third quarter of 2022 (the “2022 Quarter”) in these components are explained below.
Segment Margin results for the 2023 Quarter and 2022 Quarter were as follows:
|
|
Three Months Ended September 30, |
||||
|
|
|
2023 |
|
|
2022 |
|
|
(in thousands) |
||||
|
Offshore pipeline transportation |
$ |
109,267 |
|
$ |
91,402 |
|
Soda and sulfur services |
|
61,957 |
|
|
80,067 |
|
Onshore facilities and transportation |
|
9,547 |
|
|
9,442 |
|
Marine transportation |
|
27,126 |
|
|
15,279 |
|
Total Segment Margin |
$ |
207,897 |
|
$ |
196,190 |
Offshore pipeline transportation Segment Margin for the 2023 Quarter increased $17.9 million, or 20%, from the 2022 Quarter primarily due to higher crude oil and natural gas activity and volumes and less overall downtime during the 2023 Quarter. The increase in our volumes during the 2023 Quarter is primarily a result of the King’s Quay Floating Production System (“FPS”), which achieved first oil in the second quarter of 2022, and has since ramped up production levels reaching approximately 130,000 barrels of oil equivalent per day in the 2023 Quarter, and the Argos FPS, which achieved first oil in April 2023. The King’s Quay FPS, which is supporting the Khaleesi, Mormont and Samurai field developments, is life-of-lease dedicated to our 100% owned crude oil and natural gas lateral pipelines and further downstream to our 64% owned Poseidon and CHOPS crude oil systems or our 25.67% owned Nautilus natural gas system for ultimate delivery to shore. The Argos FPS, which supports BP’s operated Mad Dog 2 field development, began producing in the second quarter of 2023 and achieved production levels of approximately 90,000 barrels of oil per day in the 2023 Quarter, with 100% of the volumes flowing through our 64% owned and operated CHOPS pipeline for ultimate delivery to shore. We expect to continue to benefit from King’s Quay FPS and Argos FPS volumes throughout 2023 and over their anticipated production profiles. In addition to these developments, activity in and around our Gulf of Mexico asset base continues to be robust, including incremental in-field drilling at existing fields that tie into our infrastructure. Lastly, the 2023 Quarter had less overall downtime as compared to the 2022 Quarter, which was primarily a result of no weather-related events and no significant planned producer downtime during the period.
Soda and sulfur services Segment Margin for the 2023 Quarter decreased $18.1 million, or 23%, from the 2022 Quarter primarily due to lower export pricing in our Alkali Business and lower NaHS and caustic soda sales volumes and pricing during the 2023 Quarter, which was partially offset by higher soda ash sales volumes in the period. The 2023 Quarter was impacted by a decline in export pricing as compared to the 2022 Quarter (as well as when compared to the first half of 2023) as a result of slowing global demand and a slower than anticipated re-opening of China’s economy combined with the anticipated ramp in new global supply entering the market. We expect this volatility and supply and demand dynamic to continue to impact our pricing in the fourth quarter of 2023. We successfully restarted our original Granger production facility on January 1, 2023 and expect to see first production from our expanded Granger facility in the fourth quarter of 2023, which represents an incremental 750,000 tons of lower cost annual production that we anticipate to ramp up to. As a result of restarting our original Granger facility and ramping up production to its original nameplate capacity of approximately 500,000 tons on an annual basis, we had higher soda ash sales volumes during the 2023 Quarter. Once we complete the Granger Optimization Project, we would expect these incremental sales volumes to have a more meaningful impact to our reported Segment Margin in subsequent quarters as we can better absorb the fixed cost structure at our Granger facility. In our sulfur services business, we experienced a decrease in Segment Margin due to a decrease in NaHS sales volumes and pricing. NaHS sales volumes, when compared to the 2022 Quarter, decreased due to multiple factors, including a reduction in production volumes from a host refinery that partially converted its facility into a renewable diesel facility in the fourth quarter of 2022 and continued pressure on demand (that also negatively impacted prices) and timing delays in shipments, primarily in South America. In addition, the 2022 Quarter experienced robust NaHS sales volumes and pricing due to an increase in demand from our mining customers, primarily in South America, and due to our ability to leverage our multi-faceted supply and terminal sites in our sulfur services business to capitalize on incremental spot volumes as certain of our competitors experienced one-off supply challenges. NaHS production volumes and inventory levels during the 2023 Quarter returned to a more normalized level, as the unplanned operational and weather-related outages we experienced in the second quarter of 2023 were resolved.
Onshore facilities and transportation Segment Margin for the 2023 Quarter increased $0.1 million, or 1%, from the 2022 Quarter primarily due to a favorable mix of terminal and pipelines volumes on our Baton Rouge corridor assets (as we get a higher contribution to Segment Margin on intermediate refined products moving through our assets) and higher volumetric gains on our pipelines during the 2023 Quarter. These increases were offset by a decrease in rail unload volumes in the 2023 Quarter. The 2022 Quarter had an increase in rail volumes as a result of our main customer sourcing volumes to replace international volumes that were impacted by certain geopolitical events in the period. The rail unload volumes during the 2022 Quarter also increased our Louisiana pipeline volumes in the respective period as the crude oil unloaded was subsequently transported on our Louisiana pipeline to our customer’s refinery complex.
Marine transportation Segment Margin for the 2023 Quarter increased $11.8 million, or 78%, from the 2022 Quarter. This increase is primarily attributable to higher day rates in our inland and offshore businesses, including the M/T American Phoenix, during the 2023 Quarter. Demand for our barge services to move intermediate and refined products remained high during the 2023 Quarter due to the continued strength of refinery utilization rates as well as the lack of new supply of similar type vessels (primarily due to higher construction costs and long lead times for construction) as well as the retirement of older vessels in the market. These factors have also contributed to an overall increase in spot and term rates for our services. Additionally, the M/T American Phoenix is under contract for the remainder of 2023 with an investment grade customer at a more favorable rate than 2022, and during the 2023 Quarter, we entered into a new three-and-a-half-year contract starting in January of 2024 with a credit-worthy counterparty at the highest day rate we have received since we first purchased the vessel in 2014.
Other Components of Net Income
We reported Net Income Attributable to Genesis Energy, L.P. of $58.1 million in the 2023 Quarter compared to Net Income Attributable to Genesis Energy, L.P. of $3.4 million in the 2022 Quarter.
Net Income Attributable to Genesis Energy, L.P. in the 2023 Quarter was impacted by an increase in Segment Margin of $11.7 million primarily due to increased volumes and activity in our offshore pipeline transportation segment and higher day rates in our marine transportation segment, and a decrease in depreciation, depletion and amortization expense of $5.6 million during the 2023 Quarter. Additionally, the 2023 Quarter included $12.3 million in unrealized gains associated with the valuation of our commodity derivative transactions compared to unrealized losses of $1.3 million during the 2022 Quarter. The 2022 Quarter also included an unrealized (non-cash) loss from the valuation of the embedded derivative associated with our Class A Convertible Preferred Units of $25.0 million, which was included within “Other expense” on the Unaudited Condensed Consolidated Statement of Operations.
Earnings Conference Call
We will broadcast our Earnings Conference Call on Thursday, November 2, 2023, at 9:30 a.m. Central time (10:30 a.m. Eastern time). This call can be accessed at www.genesisenergy.com. Choose the Investor Relations button. For those unable to attend the live broadcast, a replay will be available beginning approximately one hour after the event and remain available on our website for 30 days. There is no charge to access the event.
Genesis Energy, L.P. is a diversified midstream energy master limited partnership headquartered in Houston, Texas. Genesis’ operations include offshore pipeline transportation, soda and sulfur services, onshore facilities and transportation and marine transportation. Genesis’ operations are primarily located in Texas, Louisiana, Arkansas, Mississippi, Alabama, Florida, Wyoming and the Gulf of Mexico.
| GENESIS ENERGY, L.P. |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED |
|
|
| (in thousands, except unit amounts) |
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
||||||||||||
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
REVENUES |
$ |
807,618 |
|
|
$ |
721,248 |
|
|
$ |
2,402,892 |
|
|
$ |
2,074,920 |
|
|
|
|
|
|
|
|
|
|
||||||||
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
||||||||
|
Costs of sales and operating expenses |
|
610,775 |
|
|
|
555,169 |
|
|
|
1,880,814 |
|
|
|
1,621,619 |
|
|
General and administrative expenses |
|
16,770 |
|
|
|
17,038 |
|
|
|
48,253 |
|
|
|
52,825 |
|
|
Depreciation, depletion and amortization |
|
68,379 |
|
|
|
73,946 |
|
|
|
209,966 |
|
|
|
217,125 |
|
|
Gain on sale of asset |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(40,000 |
) |
|
OPERATING INCOME |
|
111,694 |
|
|
|
75,095 |
|
|
|
263,859 |
|
|
|
223,351 |
|
|
Equity in earnings of equity investees |
|
17,242 |
|
|
|
13,236 |
|
|
|
49,606 |
|
|
|
40,252 |
|
|
Interest expense |
|
(61,580 |
) |
|
|
(57,710 |
) |
|
|
(184,057 |
) |
|
|
(168,773 |
) |
|
Other expense |
|
— |
|
|
|
(21,388 |
) |
|
|
(1,812 |
) |
|
|
(10,758 |
) |
|
INCOME BEFORE INCOME TAXES |
|
67,356 |
|
|
|
9,233 |
|
|
|
127,596 |
|
|
|
84,072 |
|
|
Income tax expense |
|
(574 |
) |
|
|
(660 |
) |
|
|
(1,748 |
) |
|
|
(1,535 |
) |
|
NET INCOME |
|
66,782 |
|
|
|
8,573 |
|
|
|
125,848 |
|
|
|
82,537 |
|
|
Net income attributable to noncontrolling interests |
|
(8,712 |
) |
|
|
(5,188 |
) |
|
|
(20,078 |
) |
|
|
(18,612 |
) |
|
Net income attributable to redeemable noncontrolling interests |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(30,443 |
) |
|
NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P. |
$ |
58,070 |
|
|
$ |
3,385 |
|
|
$ |
105,770 |
|
|
$ |
33,482 |
|
|
Less: Accumulated distributions and returns attributable to Class A Convertible Preferred Units |
|
(22,308 |
) |
|
|
(18,684 |
) |
|
|
(69,220 |
) |
|
|
(56,052 |
) |
|
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON UNITHOLDERS |
$ |
35,762 |
|
|
$ |
(15,299 |
) |
|
$ |
36,550 |
|
|
$ |
(22,570 |
) |
|
NET INCOME (LOSS) PER COMMON UNIT: |
|
|
|
|
|
|
|
||||||||
|
Basic and Diluted |
$ |
0.29 |
|
|
$ |
(0.12 |
) |
|
$ |
0.30 |
|
|
$ |
(0.18 |
) |
|
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS: |
|
|
|
|
|
|
|
||||||||
|
Basic and Diluted |
|
122,520,592 |
|
|
|
122,579,218 |
|
|
|
122,559,461 |
|
|
|
122,579,218 |
|
Contacts
Genesis Energy, L.P.
Dwayne Morley
VP – Investor Relations
(713) 860-2536
