Genesis Energy LP (GEL) 2005 Q3 法說會逐字稿

Welcome ladies and gentlemen to the 2005 third-quarter 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 CO2 marketing business and a Syngas processing 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 the partnership to meet its stated business goals and other risks noted from time to time in the partnership's securities and Exchange Commission filings.

At this time, I would like to introduce Mark Gorman, President and CEO of Genesis Energy LP, who will be conducting the conference call.

Thank you and welcome to all of you who have dialed in or are connected through the Internet. We're conducting this conference call to discuss third-quarter earnings. Joining me are Ross Benavides, our CFO and General Counsel and Karen Pape, our Vice President and Controller.

During this conference, call we will use a non-GAAP financial measure. We direct you to our earnings release for a reconciliation of that measure.

We are pleased to have increased -- I would like to start with some general comments regarding the third quarter of 2005. We are pleased to have increased the distribution for the third quarter of 2005 from $0.15 to $0.16 per unit. For the quarter, we generated available cash before reserves of $1.165 million, or $0.12 per unit, which was less than our distribution of $1.521 million, or $0.16 per unit for the quarter.

We had previously indicated that we might not be able to start increasing our distribution until we resolve uncertainties associated with our pipeline integrity management program. With the last major section of our Mississippi pipelines tested and repair substantially complete, we felt comfortable that we could make a sustainable increase in the distribution at this time.

During the third quarter of 2005, three hurricanes hit our areas of operations. We suffered minimal direct damage from the hurricanes. However, power outages and damage to third parties caused brief disruptions to all of our operations in the areas affected, reducing revenues.

In general, third quarter results were positively impacted by increased segment margin from 2004 and 2005 pipeline construction projects and other acquisitions totaling $24 million. At the same time, third quarter results were negatively impacted by anticipated IMP repair costs to the Mississippi System. However, such repair costs were not as high as expected and the remaining costs will probably be less than previously expected.

We will now review the results of operations for the third quarter of 2005 in more detail. Today, we disclosed a loss of $596,000, or $0.06 per unit for the third quarter. This compares to a loss for the 2004 third quarter of $394,000 or $0.04 per unit. Loss from continuing operations was $641,000 or $0.06 per unit for 2005. We had income from discontinued operations of $45,000 in the 2005 quarter.

In the 2004 third quarter, loss from continuing operations was $359,000 or $0.04 per unit and the loss from discontinued operations was $35,000. Pipeline segment margin from continuing operations decreased $716,000 in the third quarter of 2005 as compared to the same period in 2004. This decrease was due primarily to an increase of pipeline operating costs of $1,454,000 partially offset by an increase in crude oil and CO2 tariff factors. The fluctuation in operating cost is a result of increased costs related to pipeline integrity management repairs in 2005 and the effects of the 2004 period of a reversal of an accrual related to a pipeline we were allowed to abandon, rather than remove.

Volumes on our pipelines were affected by the hurricane in both the 2004 and 2005 period, but overall volumes increased when comparing the quarters. The effects of lower tariffs on the Texas System were offset by increased volumes and tariffs on the Mississippi System. Most of the volume increase on the Mississippi System is attributable to Danbury's (ph) increased production from fields near our pipeline.

Segment margin from our wholesale CO2 activities increased by $137,000 to $1,680,000. The second volumetric production payment we acquired in September 2004 provided the majority of the increased margin. This business is somewhat seasonal with the period between April and October generally being the period with greater sales. Sales of CO2 would have been even greater had CO2 operations had not been shut down for several days following Hurricane Katrina.

Continuing gathering and marketing segment margins increased by $105,000 to $1,053,000 for 2005 as compared to the third quarter of 2004. Increased profit on sales of crude oil was substantially offset by increased field costs.

General and administrative expense increased by $571,000 during the 2005 period as compared to the 2004 period. The 2005 period included general and administrative expenses, a non-cash charge of $745,000 toward the effects of an increase in the unit price on our stock appreciation rights plan. The stock appreciation rights program was put in place at the end of 2003 and fluctuations in the market price of our units are a factor in determining the liability we report.

In the 2004 third quarter, we recorded a credit of $28,000 related to this plant. Excluding the stock appreciation rights plans charge, general and administrative expenses were $2,465,000 for the third quarter of 2005, a decrease of $202,000 from the 2004 third quarter. We made an investment at the beginning of the second quarter in T&P Syngas Supply Company. Our share of the earnings of T&P was $97,000 for the third quarter which was offset by $89,000 of amortization of the excess of the price we paid for our interest in T&P over our share of the equity of T&P at the time of the acquisition. This resulted in net earnings from this investment for the quarter of $8000.

During the third quarter, T&P performed a planned turnaround at its facility which reduced its revenues and increased its cost. Net interest expense increased $337,000 to $540,000 due to variances in outstanding debt and differences in rates. Outstanding debt was higher in the 2005 period as a result of the acquisitions we made during 2005.

Continuing operations also included a gain of 84,000 from the sale of surplus assets. The gain from discontinued operations in 2005 of $45,000 related to sales of assets in the Texas Pipeline System that we ceased to use as a result of the sale of a West Columbia portion of that system to TEPPCO in 2003.

The loss from discontinued operations for the 2004 third quarter was $35,000. This loss related primarily to dismantlement of the asset that we abandoned in 2003.

Turning now to the nine-month results, net income for the nine months ended September 30, 2005 was $2,917,000 or $0.31 per unit. This compares to a loss for the same period in 2004 of $300,000 or $0.03 per unit. We generated income from continuing operations of $2,599,000 or $0.28 per unit for the 2005 period and income from continuing operations of $19,000 for the 2004 period. Income from discontinued operations for the 2005 was $318,000 or $0.03 per unit. The loss from discontinued operations for the comparable period of 2004 was $319,000 or $0.03 per unit.

Pipeline Segment margin increased in the 2005 period as compared with the 2004 period. In 2004, Pipeline Segment margin was $6,111,000 and in 2005, it was $7,136,000. Increased revenues accounted for this change.

Just like in the quarterly comparison, the addition of a second volumetric production payment at September 2004 resulted in higher segment margin from our CO2 sales operations. CO2 segment margin increased from $4,244,000 in the 2004 period to $4,962,000 for the 2005 nine-month period.

Segment margin for crude oil gathering and marketing activities was $2,391,000 in 2005 compared to $3,898,000 in 2004. Field costs increased $2,386,000 with an increase in revenues offsetting $879,000 of the higher cost. Average field costs have increased over 36% per gallon since the 2004 period, which increased the cost to operate our trucks significantly. Employee compensation increased primarily due to rising benefit costs.

We ordered a reserve of $380,000 for our share of the expected cost for the environmental remediation of a site in Florida that we previously used as a truck unload facility. We also added some tractors and trailers to our fleet, increasing the lease costs.

Excess gathering capacity in the markets where we operate mean that we are subject to intense competition for declining volumes. This situation makes it difficult to pass our increased costs through to producers. The 2005 nine-month period included general and administrative expenses, a non-cash charge of $541,000 for the effects of a decrease in the unit price on our stock appreciation rights plans. In the 2004 first nine months, we recorded a charge of $564,000 related to this plan. Excluding the stock appreciation rights plan charge, general and administrative expenses were approximately $200,000 less than the 2005 nine-month period.

Our T&P Syngas investment added $260,000 to the nine-month period. Net interest expense was higher due to variances in average debt balances, rates and a larger facility which increased commitment fees. Continuing operations also included a gain of $482,000 from the sale of surplus assets, mostly from a site we owned in Houma, Louisiana.

Income from discontinued operations in 2005 consisted of a gain from the sale of segments of the Texas Pipeline System that we ceased to use the result of the sale of the West Columbia portion of that system to TEPPCO in 2003. We recognized a gain of $318,000 on the various sales.

The loss from discontinued operations for the 2004 period was $319,000. This loss related primarily to the dismantlement of assets that we abandoned in 2003.

We expect to provide guidance regarding 2006 performance and prospects for distribution growth later this year or early next year as we complete the formal planning process. Factors that we expect to affect that guidance include the following.

We will have completed IMP repairs and maintenance CapEx expenditures for the Mississippi System and we will have placed it condition to handle expected increased throughput from Danbury's tertiary recovery operations near our pipelines.

The planned major turnaround for the T&P Syngas facility was completed in the third quarter of 2005 and another turnaround is not anticipated to occur for two years. We will have the full-year benefit of the $31 million in acquisitions made during 2005. Such acquisitions included a T&P Syngas partnership interest in the second quarter and the third CO2 volumetric production payment from Danbury in the fourth quarter of 2005.

Excluding proceeds from sales of surplus assets, our available cash before reserves exceeded distributions by 28% for the first nine months of 2005. In effect, we will have placed much of the uncertainty behind us that we address in 2005 and we will be better positioned to grow our distribution going forward.

During the third quarter if 2005, we filed a shelf registration statement with the Securities and Exchange Commission. This registration statement allows us to issue in one or more offerings up to an aggregate of $250 million of partnership units. This registration statement, combined with our bank facility, provides us with access to capital for our future growth.

That concludes our prepared remarks for this conference call. At this time I will turn to the moderator to take any questions from the audience.

(Operator Instructions). Kent Green, Boston American Asset Management.

Could you tell me the size of your line of credit?

Our working capital facility is for a total of $100 million. That is split between our acquisition facility and our working capital facility.

Does the general partnership have any guarantees on either one of these, of the shelf for this one, or whatever?

I'm sorry, I'm not sure I understand your question.

Are these lines of credit just by Genesis, or is there any involvement of your general partner (multiple speakers)?

No, Danbury does not provide any guarantees to the banks under the facilities.

Very good. And then while there hasn't been any announcement, will there be possible sales from Danbury into Genesis in the future? Particularly, which projects are completed by them?

I think that's possible. As we said, we just recently completed our third volumetric production payment with Danbury, and we're always looking for additional opportunities to make acquisitions from then.

Thank you.

(Operator Instructions). Kent Green.

On your shelf registration, have you pursued a lot of these private partnerships which were talking about mainstream assets or dealing with MLPs? There's been half a dozen of them created as possible private placements, either with equity or debt or convertible debt?

I'm sorry, we're just not in a position to comment on that at this time.

(Operator Instructions). I'm currently showing we have no questions in the queue at this time.

I would like to thank everybody for joining us for our third quarter earnings conference call and I look forward to talking with you at the next meeting. Thank you, good bye.

Ladies and gentlemen, thank you for participating in today's conference call. This does conclude your presentation and you may now disconnect. Have a great day.