Genesis Energy, L.P. Reports First Quarter 2022 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 2022:
- Net Loss Attributable to Genesis Energy, L.P. of $5.3 million for the first quarter of 2022 compared to Net Loss Attributable to Genesis Energy, L.P. of $34.2 million for the same period in 2021.
- Cash Flows from Operating Activities of $54.2 million for the first quarter of 2022 compared to $77.2 million for the same period in 2021.
- Total Segment Margin of $157.5 million for the first quarter of 2022.
- Available Cash before Reserves to common unitholders of $55.7 million for the first quarter of 2022, which provided 3.03X coverage for the quarterly distribution of $0.15 per common unit attributable to the first quarter.
- We declared cash distributions on our preferred units of $0.7374 for each preferred unit, which equates to a cash distribution of approximately $18.7 million and is reflected as a reduction to Available Cash before Reserves to common unitholders.
- Adjusted EBITDA of $143.1 million in the first quarter of 2022.
- Adjusted Consolidated EBITDA of $591.5 million for the trailing last twelve months ended March 31, 2022 and a bank leverage ratio of 5.10X, both calculated in accordance with our senior secured credit agreement and discussed further in this release.
Grant Sims, CEO of Genesis Energy, said, “The first quarter of 2022 was an exciting quarter for Genesis and the performance of our market leading businesses exceeded our expectations. During the quarter, we continued to see strong demand for soda ash driving increased prices in all of our markets, especially the export market. Activity levels in the Gulf of Mexico remain robust with first production from Murphy’s King’s Quay starting last month and first volumes from Argos just around the corner. The fundamentally driven momentum in our soda ash business combined with the new volumes in the Gulf of Mexico will continue to lead to earnings growth and improving leverage metrics over the remainder of 2022 and into the years ahead.
Before getting to the details of the quarter, I wanted to provide an update on the new opportunities in the Gulf of Mexico that we have mentioned over the past several quarters. Today, I am pleased to announce that we have entered into definitive agreements to provide downstream transportation services for 100% of the crude oil production associated with two separate standalone deepwater developments with a combined production handling capacity of some 160,000 barrels of oil per day, with first oil from both currently expected in the late 2024 or 2025 time frame. In conjunction with these new developments, we expect to spend approximately $500 million, net to our ownership interest, over the next 3 years expanding the capacity of the CHOPS system, as well as building a new 100% owned, approximately 105 mile, 20” diameter pipeline (the “SYNC” pipeline) to connect one of the developments to our existing footprint. Both of these developments include life-of-lease dedications to our assets. Additionally, they both include long term take-or-pay arrangements that represent a less than 5 times build multiple on a combined basis, which multiple could be less than 4 times if the producers hit just 75% of their expected production profiles.
In conjunction with one of these new developments, we have also entered into an agreement to sell our idled Independence Hub platform to one of the producers for gross proceeds of $40 million, resulting in a gain and a cash distribution of $32 million net to our 80% ownership interest. These proceeds, when combined with the gross proceeds of approximately $418 million we received from the sale of a 36% minority equity interest in the CHOPS system, have effectively allowed us to pre-fund the vast majority of the capital required to expand the capacity of the CHOPS system and construct the SYNC pipeline. We would expect to use increasing cash flow and availability under our senior secured credit facility to fund the capital expenditures over the next few years. In addition, we will receive a project completion credit under our calculated leverage ratio for bank compliance purposes.
These two new upstream developments, along with the SYNC pipeline and CHOPS expansion, represent a tremendous opportunity for Genesis to expand its market leading footprint in the central deepwater Gulf of Mexico. We are able to deploy capital at an extremely attractive multiple that is underpinned by credit-worthy take-or pay arrangements, much the same as our very successful SEKCO pipeline which was constructed some 8 years ago. By extending our reach geographically in the central Gulf of Mexico and increasing the capacity of the CHOPS system, both of which have effectively been underwritten by these two upstream developments, Genesis is well positioned to attract high margin incremental volumes to our industry leading network of offshore pipelines at little to no cost in the future. These are the exact types of opportunities we focus on at Genesis, and we believe these types of projects will continue to provide long-term value to all of our stakeholders for many years ahead.
Now I will touch on our individual business segments.
Our offshore pipeline transportation segment performed slightly below our expectations during the first quarter because of a significant amount of unplanned producer downtime and certain mechanical and operational disruptions which, importantly, have since been largely remedied. On April 12th, Murphy announced they achieved first oil at their King’s Quay floating production system which is supporting their Khaleesi, Mormont and Samurai field developments in the deepwater Gulf of Mexico. Volumes from King’s Quay are expected to ramp to its design capacity of some 85,000 barrels per day and 100 million cubic feet of gas per day as incremental wells are connected in the coming months. BP’s Argos floating production system remains on schedule for first oil in the third quarter. With some 14 wells pre-drilled at their Mad Dog 2 development, volumes from Argos are expected to ramp to its nameplate design capacity of 140,000 barrels per day over the subsequent 6 months or so after first production. These two projects, when combined with the two new standalone developments I mentioned earlier, represent a tremendous runway of additional growth in volumes, and importantly significant incremental financial performance, that we can expect to see out of our Gulf of Mexico franchise in the years ahead.
Our sodium minerals and sulfur services segment’s performance exceeded our expectations. During the first quarter, we continued to see robust demand for soda ash across the globe and specifically in our export markets. The market for soda ash worldwide remains very tight and is leading to strong soda ash pricing in all of our markets. We are starting to see the real effects of strong demand and soda ash supply being impacted by a net decrease in global supply that we mentioned last quarter, when a 1.3 million ton synthetic production facility in China closed at the end of 2021.
These tight conditions, coupled with the continued rise in energy input costs and increasing awareness of the environmental footprint of synthetic production, provide, we believe, a very constructive backdrop for soda ash pricing for the remainder of this year and especially as we discuss re-determinations for 2023 towards the end of this year. In fact, absent some unforeseen black swan event, there is nothing fundamentally to suggest that this supply and demand tightness will not be in place until at least through 2025 or longer, with no significant expansions of supply in the near-term other than our Granger facility.
We remain very excited to re-start our original Granger production facility and its roughly 500,000 tons of annual production in the first quarter of 2023. Furthermore, our Granger expansion project, representing an incremental 750,000 tons or so of annual production, remains on schedule and on budget for first production in the third quarter of 2023. We continue to believe the Granger facility and its incremental 1.3 million tons per year will be the most significant addition of new natural, baseload supply to the market for several years to come. Assuming prices remain at least where they are today, we continue to expect that the Granger project should exceed our original forecasts for incremental segment margin once fully ramped and on-line.
Our legacy refinery services business also exceeded our expectations. During the quarter, we benefited from steady operating rates at our host refineries. This afforded us with the opportunity to build our NaHS inventory and be in a favorable position to capitalize on certain supply disruptions of our competitors during the quarter. We also saw steady demand for NaHS from our copper customers, specifically in South America, as they continue to produce as much as possible to meet the continually increasing demand for copper throughout the world, especially given its importance in the energy transition.
Market conditions in our marine transportation segment continue to improve across all classes of vessels. We continue to see tremendous demand for our larger blue water vessels, specifically in and around New York Harbor, along the East Coast and in the Gulf Coast regions as the demand to move clean refined products from the Gulf Coast to demand centers along the East Coast has increased due to geopolitical events and economic sanctions related thereto. Utilization of our inland marine vessels is approaching 100% as we continue to see the effects of net equipment retirements across the industry come into play at the same time refinery utilization rates recover and the need to move intermediate refined products from location to location returns to historical norms. We have also seen customers of our inland fleet start to request term contracts which indicates the market is expected to continue to get tighter over time. The American Phoenix will conclude her most recent contract in early May, but she will remain in service with the same investment grade customer at a rate of roughly 20 percent higher per day until her 30-45 day mandatory 5 year dry-dock service in late July or early August. We would expect to re-contract the American Phoenix during the third quarter at an even higher rate. We remain excited with the trajectory of our marine business and would expect to continue to benefit from these market dynamics over the remainder of 2022 and into the years ahead as the industry deals with net tonnage retirements and rapidly inflating replacements costs.
Our onshore facilities and transportation segment performed in-line with our expectations. We continue to expect to see increasing volumes at our terminals and pipelines in both Texas and Louisiana over the remainder of the year as new volumes from the Gulf of Mexico will need to be further transported to refineries and market demand centers along the Gulf Coast. During the quarter we were also successful in extending our agreements with our main customer in and around our Baton Rouge terminal. The agreements provide a framework for future activity, which further reinforces the integration of our assets in to their future operations and plans.
The robust outlook for Genesis over the remainder of the year remains unchanged as our businesses continue to demonstrate their resiliency. New volumes in the Gulf of Mexico combined with strong pricing in our soda ash business and a recovery in our marine segment highlight the tremendous operating leverage we have to overall improving market conditions. As we sit here today, we would reasonably expect our 2022 financial performance to come in towards the high end of our previously announced Segment Margin and Adjusted EBITDA(1) guidance range of $620 – $640 million and $565 – $585 million, respectively. Furthermore, our current guidance does not include the gain and cash distribution proceeds from the sale of our interest in the Independence Hub platform as discussed earlier, which will be additive to both Segment Margin and Adjusted EBITDA in the second quarter of 2022 and will be included in our bank leverage ratio as calculated in accordance with our senior secured credit agreement. In fact, had we completed the sale of the Independence Hub platform in the first quarter, our calculated bank leverage ratio would have been 4.79X, or some three tenths of a turn lower than what we reported in this release.
The management team and board of directors remain steadfast in our commitment to build long-term value for all of our stakeholders, 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 be associated with 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 2022 (the “2022 Quarter”) and the first quarter of 2021 (the “2021 Quarter”) in these components are explained below.
Segment Margin results for the 2022 Quarter and 2021 Quarter were as follows:
|
|
Three Months Ended March 31, |
||||
|
|
2022 |
|
2021 |
||
|
|
(in thousands) |
||||
|
Offshore pipeline transportation |
$ |
70,904 |
|
$ |
84,269 |
|
Sodium minerals and sulfur services |
|
67,375 |
|
|
43,720 |
|
Onshore facilities and transportation |
|
7,036 |
|
|
20,999 |
|
Marine transportation |
|
12,137 |
|
|
7,109 |
|
Total Segment Margin |
$ |
157,452 |
|
$ |
156,097 |
Offshore pipeline transportation Segment Margin for the 2022 Quarter decreased $13.4 million, or 16%, from the 2021 Quarter primarily due to an increased level of downtime. During the 2022 Quarter, we 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, which has since been largely remedied, and incremental producer downtime. In addition to this, we also received lower distributions during the 2022 Quarter from our equity investments, specifically Poseidon. Our distribution from Poseidon during the 2021 Quarter, which covered business activities from December 2020 to February 2021, was higher due to an increase in volumes as a result of additional volumes being successfully diverted to the Poseidon pipeline from the CHOPS pipeline, which was out of service from August 26, 2020 to February 4, 2021 due to damage at a junction platform that the system goes up and over. Lastly, the 2022 Quarter was impacted, relative to the 2021 Quarter, by our decrease in ownership of CHOPS, as we sold a 36% minority interest on November 17, 2021.
Sodium minerals and sulfur services Segment Margin for the 2022 Quarter increased $23.7 million, or 54%, from the 2021 Quarter primarily due to higher export pricing in our Alkali Business and increased volumes and pricing in our refinery services business. In our Alkali Business, we have continued to see strong demand improvement and growth as a result of the global economic recovery and the continued application of soda ash in everyday end use products, including those such as solar panels and lithium batteries that are expected to play a large role in the anticipated energy transition. This continued demand, combined with flat or even slightly declining supply of natural soda ash in the near term, has tightened the overall supply and demand balance and created a higher price environment for our tons and increased contribution to Segment Margin during the 2022 Quarter from our Alkali Business. We expect to continue to see this favorable price environment throughout 2022 and until there are significant changes to the supply level entering the market. To take advantage of the existing market conditions, we made the decision to re-start our original Granger production facility and its roughly 500,000 tons of annual production in the first quarter of 2023 in advance of the completion of the Granger expansion, which represents an incremental 750,000 tons of annual production, and is expected to have first production in the third quarter of 2023. In our refinery services business, we had an increase in NaHS sales volumes and the corresponding pricing of these sales volumes in the 2022 Quarter due to an increase in demand from our mining and pulp and paper customers domestically and internationally 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 2022 Quarter decreased $14.0 million, or 66%, from the 2021 Quarter. This decrease is primarily due to higher cash receipts of $17.5 million during the 2021 Quarter associated with our previously owned NEJD pipeline. The last principal payment associated with our previously owned NEJD pipeline was received in the fourth quarter of 2021. This decrease was partially offset by higher volumes on our Texas pipeline, which is the destination point for various grades of crude oil generating in the Gulf of Mexico, as the 2021 Quarter had less receipts from our CHOPS pipeline while it was out of service for a portion of the period. While the volumes associated with our Baton Rouge corridor assets (including rail and pipeline) were higher during the 2021 Quarter, the impact to Segment Margin was minimal as we recognized our minimum volume commitment in both the 2021 Quarter and 2022 Quarter as our main customer utilized prepaid transportation credits during the 2021 Quarter, which were fully utilized by the end of 2021.
Marine transportation Segment Margin for the 2022 Quarter increased $5.0 million, or 71%, from the 2021 Quarter. This increase is primarily attributable to higher utilization and day rates in our inland business and higher day rates in our offshore business, including the M/T American Phoenix, during the 2022 Quarter. While we have continued to see increases in our day rates from both the 2021 Quarter and sequentially from the fourth quarter of 2021, we have continued to enter into short term contracts (less than a year) in the inland and offshore markets, including the M/T American Phoenix, because we believe the day rates currently being offered by the market have yet to fully recover from their cyclical lows.
Other Components of Net Income (Loss)
We recorded Net Loss Attributable to Genesis Energy, L.P. of $5.3 million in the 2022 Quarter compared to Net Loss Attributable to Genesis Energy, L.P. of $34.2 million in the 2021 Quarter.
Net Loss Attributable to Genesis Energy, L.P. in the 2022 Quarter was impacted primarily by: (i) an increase in operating income associated with our sodium minerals and sulfur services segment due to higher export pricing and corresponding revenues in our Alkali Business during the 2022 Quarter; and (ii) an unrealized (non-cash) loss from the valuation of the embedded derivative associated with our Class A Convertible Preferred Units of $4.3 million in the 2022 Quarter compared to an unrealized (non-cash) loss of $18.4 million during the 2021 Quarter recorded within “Other expense”. This increase in operating income and decrease in such unrealized (non-cash) loss were primarily offset by: (i) lower equity in earnings of equity investees by $8.2 million due to lower volumes on our Poseidon pipeline in the 2022 Quarter; (ii) higher income attributable to our noncontrolling interests by $4.9 million; and (iii) higher general and administrative costs by $3.5 million during the 2022 Quarter.
Earnings Conference Call
We will broadcast our Earnings Conference Call on Wednesday, May 4, 2022, at 9:00 a.m. Central time (10:00 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, sodium minerals 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, |
||||||
|
|
|
2022 |
|
2021 |
||||
|
REVENUES |
|
$ |
631,947 |
|
|
$ |
521,219 |
|
|
|
|
|
|
|
||||
|
COSTS AND EXPENSES: |
|
|
|
|
||||
|
Costs of sales and operating expenses |
|
|
495,648 |
|
|
|
415,246 |
|
|
General and administrative expenses |
|
|
15,122 |
|
|
|
11,666 |
|
|
Depreciation, depletion and amortization |
|
|
69,506 |
|
|
|
66,286 |
|
|
OPERATING INCOME |
|
|
51,671 |
|
|
|
28,021 |
|
|
Equity in earnings of equity investees |
|
|
12,444 |
|
|
|
20,660 |
|
|
Interest expense |
|
|
(55,104 |
) |
|
|
(57,829 |
) |
|
Other expense |
|
|
(4,258 |
) |
|
|
(20,065 |
) |
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
4,753 |
|
|
|
(29,213 |
) |
|
Income tax expense |
|
|
(304 |
) |
|
|
(222 |
) |
|
NET INCOME (LOSS) |
|
|
4,449 |
|
|
|
(29,435 |
) |
|
Net loss (income) attributable to noncontrolling interests |
|
|
(1,876 |
) |
|
|
2 |
|
|
Net income attributable to redeemable noncontrolling interests |
|
|
(7,823 |
) |
|
|
(4,791 |
) |
|
NET LOSS ATTRIBUTABLE TO GENESIS ENERGY, L.P. |
|
$ |
(5,250 |
) |
|
$ |
(34,224 |
) |
|
Less: Accumulated distributions attributable to Class A Convertible Preferred Units |
|
|
(18,684 |
) |
|
|
(18,684 |
) |
|
NET LOSS ATTRIBUTABLE TO COMMON UNITHOLDERS |
|
$ |
(23,934 |
) |
|
$ |
(52,908 |
) |
|
NET LOSS PER COMMON UNIT: |
|
|
|
|
||||
|
Basic and Diluted |
|
$ |
(0.20 |
) |
|
$ |
(0.43 |
) |
|
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS: |
|
|
|
|
||||
|
Basic and Diluted |
|
|
122,579,218 |
|
|
|
122,579,218 |
|
|
GENESIS ENERGY, L.P. OPERATING DATA – UNAUDITED
|
||||||
|
|
|
Three Months Ended March 31, |
||||
|
|
|
2022 |
|
2021 |
||
|
Offshore Pipeline Transportation Segment |
|
|
|
|
||
|
Crude oil pipelines (average Bbls/day unless otherwise noted): |
|
|
|
|
||
|
CHOPS(1)(2) |
|
175,881 |
|
|
116,427 |
|
|
Poseidon(1)(2) |
|
240,823 |
|
|
339,409 |
|
|
Odyssey(2) |
|
97,230 |
|
|
138,445 |
|
|
GOPL |
|
4,955 |
|
|
6,776 |
|
|
Offshore crude oil pipelines total |
|
518,889 |
|
|
601,057 |
|
|
|
|
|
|
|
||
|
Natural gas transportation volumes (MMBtus/day)(2) |
|
223,662 |
|
|
325,669 |
|
|
|
|
|
|
|
||
|
Sodium Minerals and Sulfur Services Segment |
|
|
|
|
||
|
NaHS (dry short tons sold) |
|
32,169 |
|
|
28,802 |
|
|
Soda Ash volumes (short tons sold) |
|
744,788 |
|
|
762,820 |
|
|
NaOH (caustic soda) volumes (dry short tons sold)(3) |
|
20,724 |
|
|
20,262 |
|
|
|
|
|
|
|
||
|
Onshore Facilities and Transportation Segment |
|
|
|
|
||
|
Crude oil pipelines (Bbls/day): |
|
|
|
|
||
|
Texas(4) |
|
69,333 |
|
|
32,762 |
|
|
Jay |
|
6,916 |
|
|
8,783 |
|
|
Mississippi |
|
5,742 |
|
|
5,097 |
|
|
Louisiana |
|
31,382 |
|
|
63,417 |
|
|
Onshore crude oil pipelines total |
|
113,373 |
|
|
110,059 |
|
|
|
|
|
|
|
||
|
Crude oil and petroleum products sales (Bbls/day) |
|
23,887 |
|
|
31,462 |
|
|
|
|
|
|
|
||
|
Rail unload volumes (Bbls/day)(5) |
|
2,505 |
|
|
40,252 |
|
|
|
|
|
|
|
||
|
Marine Transportation Segment |
|
|
|
|
||
|
Inland Fleet Utilization Percentage(6) |
|
90.3 |
% |
|
72.0 |
% |
|
Offshore Fleet Utilization Percentage(6) |
|
96.6 |
% |
|
95.7 |
% |
Contacts
Genesis Energy, L.P.
Ryan Sims
SVP – Finance and Corporate Development
(713) 860-2521
