Genesis Energy LP (GEL) 2004 Q1 法說會逐字稿

Welcome ladies and gentlemen to the first quarter 2004 earnings conference call for Genesis Energy LP. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session with instructions given at that time. This conference call will be recorded. Genesis Energy LP operates crude oil, common carrier pipeline and is an independent gatherer and marketer of crude oil in North America with operations concentrated in Texas, Louisiana, Mississippi, Alabama and Florida. Genesis Energy LP also operates a wholesale carbon dioxide marketing business. During this conference call, management may be making forward-looking statements within the meaning of the Securities Act of 1933 and of the Securities Exchange Act of 1934. Although, management believes that its expectations are based on reasonable assumptions, no assurances can be made that its goals will be achieved. Important factors that could cause actual results to differ materially from the forward-looking statements made during this conference call include the ability of a partnership to meet its state of business goals and other risks noted from time to time in the Partnership Securities and Exchange Commission filings. At this time, I would like introduce Mark Gorman, President and CEO of Genesis Energy LP, who will be conducting this conference call.

Thank you and welcome to all of you who have dialed in or connected through the Internet. We are conducting this conference call to discuss first quarter 2004 earnings. Joining me are Ross Benavides, our Chief Financial Officer and General Counsel and Karen Pape, our Vice President and Controller. As stated in the press release, we are on track to meet our objectives for 2004. We generated available cash for the first quarter of $1,491, 000 or $0.15 per unit, which is slightly more than our distribution for the quarter of $1,426,000 or $0.15 per unit. We are currently in discussions with to expand our credit facility to allow us to make accretive acquisition. We may be able to complete this transaction during the second quarter.

We continue to innovate our business relationship with Denbury Resources, our general partner. We are making steady progress for placing the Mississippi system in a condition to handle Denbury's increased production from tertiary recovery program. We are working with Denbury to develop projects to expand Denbury's deal to pipeline and our own crude oil pipeline infrastructure in Mississippi.

We are also in discussions with Denbury regarding the purchase of a second field to volumetric production payment. While we cannot assure that we will complete the expansion of our credit facility or complete these transactions, we are making steady and positive progress. At this time, I would like to review our results for the first quarter of 2004. Net loss for the quarter ended March 31, 2004 was $1,005,000 or $0.11 per unit. This compares to net income for the quarter ended March 31, 2003 of $879,000 or $0.10 per unit. We generated a net loss for the continuing operations of $782,000 or $0.09 per unit for the 2004 period, an income for continuing operations of $382,000 or $0.04 per unit for 2003. The loss from discontinued operations for the 2004 period was $223,000 or $0.02 per unit. Income from discontinued operations for the comparable period of 2003 was $497,000 or $0.06 per unit. Segment margins from continuing crude oil gathering and marketing operations was $1,006,000 for the quarter ended March 31, 2004 as compared to $2,790,000 for the quarter ended March 31, 2003. The primary factor is decreasing segment margins between the two periods was a $2,099,000 negative price variance. Partially offsetting this negative price variance was a 9% increase in purchase volumes, increasing segment margins by $506,000. Field costs were slightly higher in the 2004 period.

Crude oil gathering segment margins during the first quarter of 2004 were disappointing. We have been reviewing our crude oil gathering and marketing operations and are taking steps to address the factors that contributed to the negative price variance between periods. We expect that these steps will improve gathering segment margins during the second quarter. Continuing crude oil pipeline segment margins was $1,853,000 for the quarter ended March 31, 2004 as compared to $1,511,000 for the first quarter of 2003. The increase in continuing pipeline segment margin is primarily attributable to decrease in pipeline operating cost. In the first quarter of 2003, we performed a hydro test of the segment of pipeline from Webster to Texas City for a cost of approximately $300,000. This test should not have to be repeated for several years. Pipeline revenues increased by $52,000 from prior year due to higher tariffs in improved throughput. We are pleased with the performance of the crude oil pipeline segment in this quarter.

CO2 wholesale marketing segment margin was $1.24m for the quarter ended March 31st, 2004. We commenced this operation with the acquisition of 167.5 billion cubic feet volume metric production payment from Denbury in November of 2003. This segment's performance during the first quarter of 2004 was better than the annualized segment performance during the fourth quarter of 2003. This was expected. General, administrative expenses were $3.164m, for the three months ended March 31st, 2004, which was an increase of $887,000 from 2003 period. The increase in general, administrative expenses is primarily attributable to a non-cash charge of $1.104m for a long-term incentive compensation plan. This recurring charge was unusually large this quarter due to the fact that our unit price increased by 27% from $9.80 to $12.45 during the quarter. This adjustment may impact our earnings in future periods, if our unit price is volatile. We do not expect to suggest, but they have an adverse impact on our ability to make or increase distributions to our unit holders. Depreciation and amortization in the 2004 quarter increased by $403,000 when compared to the 2003 period due to the acquisition of the CO2 assets during 2003. Interest expense decreased $372,000 due to the write-off of $400,000 of unamortized facility costs related to the City Corp agreement, which was replaced with the fleet facility offset by lower commitment fees in the 2003 period. The loss from discontinued operations for the first quarter of 2004 was $223,000. This compared to $497,000 of income from discontinued operations during the same period of 2003.

At this time, I would like to address our outlook for the remainder of 2004 and beyond. We expect the gathering and marketing business to perform better in 2004 than 2003. During 2003, annual continuing crude oil gathering and marketing segment margins was $7.908m. During 2003, gathering and marketing business performed above expectations during the first half of the year and below expectations during the later half of the year. We continue to expect this part of the business to be subject to volatility. We expect to improve 2004 results for this segment in spite of the disappointing crude oil gathering and marketing results during the first quarter. We have taken steps to address conditions that contributed to disappointing results in this segment during the first quarter of 2004. We expect that these steps will yield improved results for the remainder of the year.

We expect 2004 crude oil pipeline segment margin for continuing operations to be generally consistent with 2003 segment margin of $5.108m. We expect that increased revenues from Denbury related throughput increases or offset increased pipeline operating costs. We expect to incur some additional cost during 2004 related to discontinued operation. 2004 two marketing operations, are expected to be more than the annualized 2003 segment margin of $4.344m due to seasonally lower volume during the last two months of 2003. The CO2 business is expected to generate about $5m of gross margins in current 2004. The contracts with industrial customers are subject to maximum volume and minimum take or pay per vision that are likely to result in less cash flow in earning volatility for Genesis. At the same time, the wholesale field two businesses is subject to some seasonality during the year. General and administrative cost for 2004 are expected to increase somewhat from the $8.768m level in 2003 due to cost increases for insurance and other costs to comply with SEC regulations mandated by the Sarbanes-Oxley Act.

Interest expenses is expected to increase slightly from the 2003 level up $1,020,000. For the part of the first and second quarters, we expect to increase our borrowings by approximately by $7m to temporarily fund a settlement at the Pennzoil litigation that will be reimbursed by insurance underwriters during the second quarter. An important factor affecting our outlook will be capital expenditures. As a result of the sale of the Texas Gulf Coast operations to TEPPCO in 2003, we reduced our expected 2004 maintenance capital expenditures by $6,600,000. For 2004 we expect maintenance capital expenditures to be less than half of what we spent in total during 2003 and less than what we spent on continuing operations during 2003. Due to the sale of the Texas Gulf Coast operations to TEPPCO, we expect to reduce the projected 2004 maintenance capital expenditures to less than $2m.We continue to evaluate opportunities to dispose of or to make further investment in our existing assets, and to increase our operating income by reducing nonessential expenditures.

In 2004,we will explore strategic opportunities with respect to Cullen Junction to Webster, and West Columbia to Webster segment at Texas system and the Liberty to Maryland segment on the Mississippi system. We will continue to address opportunities for the entire Jay pipeline system. However, we do not expect to execute any changes regarding that pipeline system during 2004 or 2005. We continue to be comfortable then we will be able to sustain to our quality distribution at $0.15 per unit for the remainder of 2004. Based on existing conditions we do not expect to be able to restore the distribution for the target of minimum quality distribution level of $0.20 per quarter until 2005.At the same time as we gain experience with new asset base, as cost saving initiatives are implemented and as opportunities to make accretive acquisitions are developed, we may be able to restore the target of minimum quality distribution of $0.20 per unit during 2004.

Our outlook for being able to grow the distribution is dependant in some part on our ability to access capital market and our ability to identify and execute accretive acquisition. Our focus will be on acquisitions that had steady cash flows to smooth the volatility of crude oil and gathering business. As stated earlier, we are in discussion with Fleet Bank to expand our existing debt facility, and for obtaining an additional debt facility to provide us access to capital for acquisitions. We may be able to obtain this facility as soon as the second quarter of this year. In addition to addressing opportunities to purchase MLP-qualified midstream assets from other parties, we intend to focus much of this effort towards acquiring assets from Denbury that are in the interest of both companies. Denbury has more industrial CO2 contracts, which could be sold or contributed to Genesis. We are addressing opportunities to purchase or expand Denbury's CO2 infrastructure and our own crude oil pipeline facility in the Mississippi. We are currently working with Denbury to bring about these types of transaction, safe on our expectation that we will be able to complete the expansion of the bank facility this year. That concludes our prepared remarks for this conference call. At this time I will turn it to the moderator to take any question. John?

Thank you sir. At this time if you have question please press the one key on our touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue please press the pound key. Once again if you have question at this time, please press the number one key on your touch-tone telephone. We will pause for a movement.Our first question comes from Kent Green from Boston American Asset Management.

Question pertains to any exposure to commodity price either positive or negatively on the crude oil system. Historically as I recall correctly, you used to take tidal to the crude at -- you know, whether you hedge it out or what do you do? And then explain any differences in, say the crude oil pipeline system over to say volumes will be and as I understand it, you know Denbury is sort of increasing production of crude, particularly in Mississippi and whether you will benefit from that in the future?

Sure, dealing first with issue of commodity price exposure, in terms of our margins we have minimal exposure to flat crude oil prices. We tried to structure both our purchase contracts and our sales contracts, so that they are back-to-back and as a result, we tried to minimize the amount of inventory that we would carry. As such, other than the impact of increases or decreases in the price of crude oil inventory, we have very little exposure to the change in the price of crude oil. With regard to volumes -- increasing volumes, we did experience in the gathering of marketing segment of our business, an increase in volumes in the first quarter of this year. We expect that trend to continue. A portion of the volume increase is attributable to Denbury's increases in Mississippi. That does have some positive effect on our marketing business, but we primarily benefit in our common carrier pipeline operation in Mississippi, where we increased our share of revenues as a result of increases from Denbury throughput.

Thank you.

Once again, if you have a question at this time, please press the number one key on your touchtone telephone. We will pause one moment. I am showing no further questions sir, you may continue.

I would like to thank everybody for joining us today, and I look forward to speaking with you in several months to review our second quarter results. Have a good day. Good-bye.