Genesis Energy, L.P. Reports First Quarter 2023 Results
HOUSTON–(BUSINESS WIRE)–Genesis Energy, L.P. (NYSE: GEL) today announced its first quarter results.
We generated the following financial results for the first quarter of 2023:
- Net Loss Attributable to Genesis Energy, L.P. of $1.6 million for the first quarter of 2023 compared to Net Loss Attributable to Genesis Energy, L.P. of $5.3 million for the same period in 2022.
- Cash Flows from Operating Activities of $97.7 million for the first quarter of 2023 compared to $54.2 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 $24.0 million and is reflected as a reduction to Available Cash before Reserves to common unitholders.
- Available Cash before Reserves to common unitholders of $77.7 million for the first quarter of 2023, which provided 4.22X coverage for the quarterly distribution of $0.15 per common unit attributable to the first quarter.
- Total Segment Margin of $195.1 million for the first quarter of 2023.
- Adjusted EBITDA of $179.1 million for the first quarter of 2023.
- Adjusted Consolidated EBITDA of $775.0 million for the trailing twelve months ended March 31, 2023 and a bank leverage ratio of 3.99X, both calculated in accordance with our senior secured credit agreement and discussed further in this release.
Grant Sims, CEO of Genesis Energy, said, “While our financial results for the quarter were generally in-line and consistent with our annual guidance, they did end up below our internal expectations for reasons well beyond our control. During the first quarter, our soda ash business was negatively impacted by the coldest first calendar quarter in the last 23 years in southwest Wyoming. While the severe weather somewhat challenged our mining and processing operations, the primary reason for production and sales volumes coming in below internal goals was the lack of adequate and consistent rail service to move volumes from our Westvaco and Granger soda ash facilities to markets. Given the inadequate rail service and our limited on-site storage, we had no option other than to curtail production when loaded trains were not getting pulled out and/or empty trains were not returning to our facility on a ratable schedule. We estimate these lost volumes, which cannot practically be made up in subsequent periods, resulted in a reduction in realized Segment Margin and Adjusted EBITDA of approximately $15 million for the first quarter and fiscal year.
These weather and third-party service-related headwinds unfortunately masked the over-performance of our other businesses relative to internal expectations in the quarter. In any event, we continued to show improvement in our leverage ratio, as calculated by our senior secured lenders, ending the quarter at 3.99 times. We have achieved our long-term leverage target and the results show that the actions we have taken over the last several years, along with the underlying resilience of our market leading businesses, has positioned us with ample liquidity and financial flexibility going forward. Additionally, even with the non-recurring negatives in the first quarter, we are today reaffirming our previously announced guidance range for Adjusted EBITDA of $780 – $8101 million for the full year. Even at the low end of that range, we expect to exit the year with a leverage ratio, as calculated by our banks, below 4 times, and this is after some $400 – $450 million of growth capital to be expended this year related to the expansions of our world-class midstream infrastructure in the Gulf of Mexico and our world-class soda ash operations in Wyoming.
We continue to see tremendous oil and gas producer activity in the central Gulf of Mexico around our existing, and soon to be expanded, midstream footprint. We can confirm that, in mid-April, we started receiving volumes from the Argos production facility, which supports the development of the Mad Dog 2 field by BP, as operator, along with Chevron and Woodside Petroleum. The soda ash market appears to be moving from an extremely tight to a more balanced market, as some of our distributors, as well as some of our direct customers, are telling us they are seeing some slowdown in demand, both domestically as well as internationally. Having said that, we do not believe we were alone in missing production targets in the first quarter as a result of inadequate rail service, meaning the worldwide market will have at least 300,000 tons, in our estimation, of less supply from all producers in Wyoming to be absorbed in future periods. Our marine transportation assets continue to run at an effective 100% utilization rate, and we are seeing both spot and term contracts rates exceeding those we realized in 2014 and 2015. We continue to believe that the clear line of sight on significantly increasing volumes in both the offshore and soda segments over the next two to three years, provides a future path to increasing amounts of free cash flow, increasing financial flexibility to simplify the capital structure and increasing opportunities to continue to build long-term value for all our stakeholders in the coming years.
With that, I would like to discuss our individual business segments in more detail.
Our offshore pipeline transportation segment performed in-line with, if not slightly ahead of, our internal expectations and importantly demonstrated a more normalized level of activity when compared to the fourth quarter. While we do expect some regularly scheduled maintenance and downtime at one of our major host fields in the second quarter, there is no doubt the results in the first quarter were more representative of our industry leading footprint in the central Gulf of Mexico. As I mentioned earlier, we started to receive first oil from BP’s operated Argos floating production facility in mid-April, which is supporting the 14 wells pre-drilled and completed at BP’s operated Mad Dog 2 field in the Green Canyon area of the Gulf of Mexico. Based on BP’s public disclosures we expect volumes from Argos to ramp over the remainder of 2023 with 100% of the volumes flowing through our 64% owned and operated CHOPS pipeline for ultimate delivery to shore.
As we look out over the remainder of the year, we continue to be excited about our industry leading footprint in the central Gulf of Mexico. Volumes from King’s Quay, Spruance and Argos, combined with the continued in-field development drilling and other sub-sea tiebacks to existing production facilities connected to our critical infrastructure, will provide a bridge to the next wave of incremental volumes on our pipelines which includes the approximately 160,000 barrels of oil per day of production handling capacity we expect on-line in late 2024 and early 2025 from our contracted developments, Shenandoah and Salamanca. The corresponding CHOPS expansion and new SYNC lateral remain on schedule to be completed by mid-to-late 2024 in advance of first production. The combination of the steady base of production from existing fields, ramping volumes from new facilities and the large-scale contracted projects that will come on-line in 2024 and 2025 demonstrate the stability, longevity and future potential of the deepwater areas of the central Gulf of Mexico.
In addition to these identified projects that are destined for our pipelines, we were pleased to see that the Bureau of Ocean Energy Management, or BOEM, held a successful lease sale on March 29, 2023. The results of this most recent lease sale would indicate there is still a tremendous amount of interest in the geographies of the Gulf of Mexico where our existing pipeline infrastructure seems to be the most competitive alternative to get new production to shore. This is yet another tangible data point that reinforces the competitive advantages of the Gulf of Mexico versus traditional onshore shale basins and highlights its ability to regenerate itself and support long-term, stable and growing cash flows for decades and decades to come.
As I mentioned earlier, our soda ash business performed below our expectations during the quarter, primarily due to reasons outside of our control, including weather and rail service. The combination of these challenges led to a reduction in soda ash production volumes, lower fixed cost absorption and ultimately lower segment margin for the first quarter. I’m confident in saying had the railroad been able to provide us with adequate rail service we would have been able to normalize our production volumes and capture the margin we lost during the quarter. While the railroad serving us is undergoing some senior management changes and has recently committed to improving their service to Green River, we believe it will still take some time to allow their network to recover from these service disruptions, and we could potentially see some impacts to our production and sales volumes in the second quarter. That being said, we remain confident the railroad has a plan to provide us, and our three neighbors in Wyoming, with the required level of service to support our growing soda ash operations in the years ahead.
It is important to note that we believe all the producers in the Green River basin were impacted by the inadequate rail service in the first quarter. These supply disruptions are expected to show up in the market in the back half of the year and could impact market dynamics and purchasing behavior at the same time supporting prices in a well-balanced global market for the remainder of the year. Despite the demand headwinds we are hearing from our customers, we did in fact see prices for our uncontracted export volumes in the second quarter increase above first quarter pricing. As a result we have now contractually agreed on the pricing for approximately 90% of our anticipated sales volumes of soda ash and related products in 2023. Despite continuing to forecast some uncertainty in pricing for our uncontracted volumes in the back half of the year, we continue to expect our weighted average realized price for the full year to exceed the weighted average realized price we received in 2022.
As we mentioned last quarter, we safely and responsibly re-started our legacy Granger production facility on January 1, 2023. Production from the legacy Granger facility continues to ramp towards its nameplate capacity of 500,000 tons of annual soda ash production and the Granger expansion project remains on schedule for first soda ash “on the belt” sometime in the second half of 2023. Once fully on-line in 2024, we will have approximately 4.7 – 4.8 million tons of soda ash production capacity and would expect the cost structure of our expanded Granger facility to be more in-line with the lowest cost soda ash production facilities in the world, including our Westvaco facility, and solidify our position as one of the largest and lowest cost suppliers of soda ash to the world.
Our marine transportation segment once again exceeded our expectations as market supply and demand fundamentals remain steady. During the quarter we again saw utilization rates at or near 100% of available capacity for all classes of our vessels as demand for Jones Act tanker tonnage remains extremely robust, driven in large part by effectively zero construction of our types of marine vessels over the last few years and the continued retirement of older tonnage. This lack of new supply of marine tonnage, combined with reasonably robust refinery utilization rates and the increasing demand to move renewable diesel on the West Coast, has effectively reduced the practical supply of marine equipment to the Gulf Coast, Mississippi River and East Coast, and has driven spot day rates and longer-term contracted rates in both of our fleets to their highest levels in the last decade. Furthermore, given the increased cost of steel and long-lead times to build new equipment, which in some cases is up to 3 – 4 years for the larger equipment, we believe these supply and demand fundamentals will remain strong for the foreseeable future and certainly over the next few years, regardless of any slowdown in the broader economy.
Turning now to our balance sheet. Our capital expenditures were lighter than we had originally expected in the first quarter due to weather challenges in Wyoming and the scheduling of certain construction activities offshore. Given this adjustment in the timing of our capital dollars over the remainder of the year it would also be reasonable to expect to see our quarterly leverage ratio, as calculated by our senior secured lenders, to fluctuate in the second quarter and third quarter to slightly higher than what we reported today merely due to the timing differences of our expenditures. Regardless of these fluctuations, 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, below 4.0 times.
Last quarter we also mentioned that, subject to maintaining ample liquidity and financial flexibility to complete the remaining spend on our announced growth projects, we would look at opportunistic ways to eliminate high-cost capital and/or return capital to our stakeholders in one form or another, all while maintaining a focus on our long-term leverage ratio. I am happy to report that in April we opportunistically repurchased $25 million worth of our corporate Series A convertible preferred securities at a discount to the current call premium. This transaction was accretive to the partnership and importantly will help lower our cost of capital moving forward.
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 first quarter of 2023 (the “2023 Quarter”) and the first 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 March 31, |
||||
|
|
|
2023 |
|
|
2022 |
|
|
(in thousands) |
||||
|
Offshore pipeline transportation |
$ |
97,938 |
|
$ |
70,904 |
|
Soda and sulfur services |
|
66,107 |
|
|
67,375 |
|
Onshore facilities and transportation |
|
5,390 |
|
|
7,036 |
|
Marine transportation |
|
25,694 |
|
|
12,137 |
|
Total Segment Margin |
$ |
195,129 |
|
$ |
157,452 |
Offshore pipeline transportation Segment Margin for the 2023 Quarter increased $27.0 million, or 38%, from the 2022 Quarter due to increased crude oil and natural gas volumes and associated revenues during the 2023 Quarter. This increase in activity is primarily a result of production from the King’s Quay floating production system (“FPS”), which achieved first oil in the second quarter of 2022 and has successfully ramped up its production to levels of approximately 115,000 barrels of oil equivalent per day. 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. We expect to continue to benefit from volumes from King’s Quay along with new volumes at the Argos FPS, which supports the 14 wells pre-drilled and completed at BP’s operated Mad Dog 2 field development that achieved first oil in April 2023. We anticipate volumes from Argos to ramp up over the remainder of 2023 with 100% of the volumes flowing through our 64% owned and operated CHOPS pipeline for ultimate delivery to shore. In addition, the 2023 Quarter had less downtime as compared to the 2022 Quarter, which experienced a significant period of unplanned operational maintenance associated with one of our lateral pipelines that also impacted volumes on our main pipeline downstream of it.
Soda and sulfur services Segment Margin for the 2023 Quarter decreased $1.3 million, or 2%, from the 2022 Quarter primarily due to a decrease in soda ash and NaHS volumes sold during the 2023 Quarter. During the 2023 Quarter, our Alkali Business saw both lower production and ultimate sales of soda ash during the period due to extreme winter weather conditions that impacted our operations and certain supply chain functions, most notably the rail service in and out of the Green River Basin. The decrease in Segment Margin as a result of the decrease in sales volumes was mostly offset by higher export and domestic pricing in our Alkali Business. In our Alkali Business, we have continued to see a balanced market as a result of the global economic recovery and the continued application of soda ash in everyday end use products, including solar panels, and in the production of lithium carbonate and lithium hydroxide, which are some of the building blocks of lithium batteries that are expected to play a large role in the anticipated energy transition. We continue to expect our weighted average sales price for 2023 to exceed our weighted average sales price in 2022. Additionally, we successfully restarted our original Granger production facility on January 1, 2023 and are still on schedule to complete our Granger Optimization Project in the second half of 2023, which represents an incremental 750,000 tons of annual production that we anticipate to ramp up to. In our refinery services business, one of our largest host refineries completed its major turnaround in the fourth quarter of 2022 and spent the 2023 Quarter ramping back up to its normal level of activity. We were successfully able to build inventory prior to the turnaround to meet our customers’ demands during the fourth quarter of 2022, but exited the year with a minimal working level of inventory. As a result of this, and the slower than expected ramp up of activity in the 2023 Quarter by one of our largest host refineries, our NaHS production volumes and ultimately our sales volumes were lower during the period. We expect production levels to return to normal in the second quarter of 2023. Demand for NaHS remained high during the 2023 Quarter as a result of the continued global economic recovery and the use of NaHS in products, such as copper, that are a key part of the anticipated energy transition.
Onshore facilities and transportation Segment Margin for the 2023 Quarter decreased $1.6 million, or 23%, from the 2022 Quarter. This decrease is primarily due to a decrease in volumes on our Texas and Jay pipeline systems during the 2023 Quarter, as well as a decrease in rail unload volumes. The decrease was partially offset by an increase in pipeline and terminal volumes associated with our assets in the Baton Rouge corridor.
Marine transportation Segment Margin for the 2023 Quarter increased $13.6 million, or 112%, from the 2022 Quarter. This increase is primarily attributable to higher utilization and day rates in our inland and offshore businesses, including the M/T American Phoenix, during the 2023 Quarter. We have continued to see an increase in demand and utilization of our vessels due to increased refinery utilization and the increased need for movements from the Gulf Coast to the East Coast for certain products. Demand for our barge services to move intermediate and refined products remained high during the 2023 Quarter due to the recovery of refinery utilization rates as well as the lack of new supply of similar type vessels (primarily due to higher construction costs) combined with 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.
Other Components of Net Loss
We reported Net Loss Attributable to Genesis Energy, L.P. of $1.6 million in the 2023 Quarter compared to Net Loss Attributable to Genesis Energy, L.P. of $5.3 million in the 2022 Quarter.
Net Loss Attributable to Genesis Energy, L.P. in the 2023 Quarter was impacted primarily by: (i) an increase in operating income due to an increase in our Segment Margin of $37.7 million discussed above and a decrease in income attributable to our redeemable noncontrolling interests of $7.8 million as the associated Alkali Holdings preferred units were redeemed during the second quarter of 2022. These increases were offset partially by (i) an unrealized (non-cash) loss of $27.1 million in the 2023 Quarter compared to an unrealized (non-cash) gain of $6.2 million in the 2022 Quarter primarily from the valuation of our natural gas commodity derivatives; (ii) an increase in depreciation, depletion, and amortization expense of $3.7 million; and (iii) an increase in interest expense of $5.8 million. In addition, the 2022 Quarter included an unrealized (non-cash) loss of $4.3 million from the valuation of the embedded derivative associated with our Class A Convertible Preferred Units in the 2022 Quarter, which is included in “Other expense”.
Earnings Conference Call
We will broadcast our Earnings Conference Call on Thursday, May 4, 2023, at 8:30 a.m. Central time (9:30 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 March 31, |
||||||
|
|
|
2023 |
|
|
|
2022 |
|
|
REVENUES |
$ |
790,612 |
|
|
$ |
631,947 |
|
|
|
|
|
|
||||
|
COSTS AND EXPENSES: |
|
|
|
||||
|
Costs of sales and operating expenses |
|
653,519 |
|
|
|
495,648 |
|
|
General and administrative expenses |
|
14,552 |
|
|
|
15,122 |
|
|
Depreciation, depletion and amortization |
|
73,160 |
|
|
|
69,506 |
|
|
OPERATING INCOME |
|
49,381 |
|
|
|
51,671 |
|
|
Equity in earnings of equity investees |
|
17,553 |
|
|
|
12,444 |
|
|
Interest expense |
|
(60,854 |
) |
|
|
(55,104 |
) |
|
Other expense |
|
(1,808 |
) |
|
|
(4,258 |
) |
|
INCOME BEFORE INCOME TAXES |
|
4,272 |
|
|
|
4,753 |
|
|
Income tax expense |
|
(884 |
) |
|
|
(304 |
) |
|
NET INCOME |
|
3,388 |
|
|
|
4,449 |
|
|
Net income attributable to noncontrolling interests |
|
(5,032 |
) |
|
|
(1,876 |
) |
|
Net income attributable to redeemable noncontrolling interests |
|
— |
|
|
|
(7,823 |
) |
|
NET LOSS ATTRIBUTABLE TO GENESIS ENERGY, L.P. |
$ |
(1,644 |
) |
|
$ |
(5,250 |
) |
|
Less: Accumulated distributions attributable to Class A Convertible Preferred Units |
|
(24,002 |
) |
|
|
(18,684 |
) |
|
NET LOSS ATTRIBUTABLE TO COMMON UNITHOLDERS |
$ |
(25,646 |
) |
|
$ |
(23,934 |
) |
|
NET LOSS PER COMMON UNIT: |
|
|
|
||||
|
Basic and Diluted |
$ |
(0.21 |
) |
|
$ |
(0.20 |
) |
|
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS: |
|
|
|
||||
|
Basic and Diluted |
|
122,579,218 |
|
|
|
122,579,218 |
|
Contacts
Genesis Energy, L.P.
Dwayne Morley
VP – Investor Relations
(713) 860-2536
