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Operator
Welcome to the 2007 fourth quarter and year-end earnings conference call for Genesis Energy. Genesis has four business segments. The Pipeline Transportation Division is engaged in the pipeline transportation of crude oil, and to a lesser extent carbon dioxide. The Refinery Services Division primarily processes sour gas streams to remove sulfur at refining operations principally located in Texas, Louisiana and Arkansas. The Logistics and Supply Division is engaged in the transportation, blending, storage and supply of energy products, including crude oil and refined products. The Industrial Gases Division produces and supplies industrial gases such as carbon dioxide and syngas. Genesis operations are primarily located in Texas, Louisiana, Arkansas, Mississippi, Alabama and Florida.
During this conference call management may be making forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The law provides Safe Harbor protection to encourage companies to provide forward-looking information. Genesis intends to avail itself of those Safe Harbor provisions and directs you to its most recently filed and future filings with the Securities and Exchange Commission.
We also encourage you to visit our website at genesiscrudeoil.com where a copy of the press release we issued today is located. The press release also presents a reconciliation of such non-GAAP financial measures to the most comparable GAAP financial measures.
At this time I would like to introduce Grant Sims, CEO of Genesis Energy, L.P. Mr. Sims will be joined by Ross Benavides, Chief Financial Officer and General Counsel, and Karen Pape, Senior Vice President and Controller.
Grant Sims - CEO
Good morning and welcome to everyone. This morning we reported a net loss for 2007 of $13,550,000 or $0.64 per unit. In 2006 we reported net income of $8,381,000 or $0.59 per unit. Net loss for the fourth quarter of 2007 was $15.5 million or $0.49 per unit. In the fourth quarter of 2006 Genesis had income of $700,000 or approximately $0.05 per unit.
As will be more fully discussed by Ross, the major contributing factor resulting in the loss for the quarter and the year is the front-end loading of the amortization of intangible assets acquired in the Davison transaction. These intangible assets include customer and supplier relationships that have been maintained by the Davisons for, in many cases, decades.
2007 truly was a transformational year for us. Our accomplishments are as follows. We completed $631 million in acquisitions during the year, including the Davison transaction in July, which more than tripled our size. In connection with the Davison transaction, we increased the commitments on our revolving credit facility from $125 million to $500 million.
Late in the fourth quarter we completed a successful follow-on equity offering raising approximately $213.5 million. At the request of the underwriters we upsized the offering from 7 million to 8 million units. The underwriters also exercised 100% of their overallotment, resulting in total issuance of 9.2 million common units to the public in December.
We made progress towards completing the expected $250 million drop-down of assets from Denbury Resources, our general partner. I will address the status of that transaction later in the call.
Last month we paid a total distribution of approximately $11.4 million or $10.9 million to our limited partners and $0.5 million to our general partner, including its incentive distribution. Coverage of our total distribution for the fourth quarter was 1.15 times or $13.1 million of cash available for distribution divided by $11.4 million, reflecting the total distribution payment. If you take into account $2.8 million of interest expense on debt that was paid off with the proceeds of our equity offering in December of 2007, as if that had occurred on the beginning of the quarter, and $700,000 of severance payments that are still in our financial statements, pro forma available cash would have been $16.6 million, resulting in coverage of our total distribution paid of 1.45 times.
Ross Benavides, our CFO, will now review the financial results for the quarter and 2007.
Ross Benavides - CFO
For the 2007 fourth quarter we generated a loss of $15,462,000 or $0.49 per unit. In the comparable period in 2006 we reported net income of $651,000 or $0.05 per unit. Results from our Pipeline Transportation segment increased from $2,564,000 to $4,177,000 or 63%. Pipeline revenues increased by $785,000, primarily due to increased tariffs and higher crude oil prices affecting our pipeline loss allowance revenue. Operating costs declined by [$828,000] between the quarters.
We acquired our Refinery Services segment in the Davison transaction on July 25, 2007. During fourth quarter of 2007 the Refinery Services segment contributed $13,353,000 or 47.5% of total segment margin. The Refinery Services segment contributed $8,545,000 for the two months activity included in the third quarter of 2007.
Segment margin from Industrial Gas activities in the 2007 fourth quarter increased $624,000 from the prior year period to $3,259,000. We sold on average 12,215 million cubic feet more per day to our CO2 industrial customers in the 2007 quarter. Equity in earnings of joint ventures for the 2007 quarter increased by $143,000 or 67% from the 2006 quarter.
Our Supply and Logistics segment was previously known as our Crude Oil Gathering and Marketing segment. With the acquisition of the Davison businesses we renamed the segment and included in it the petroleum products, fuel logistics, terminaling and track transportation activities we acquired in the Davison transaction.
Supply and Logistics segment margin's increased from $1,292,000 in the 2006 fourth quarter to $7,344,000 in the 2007 fourth quarter. The portions of the Supply and Logistics business acquired in the Davison transaction added approximately $5,625,000 to Supply and Logistics segment margins for the fourth quarter. Our existing crude gathering and marketing operations contributed for the fourth quarter -- contribution for the fourth quarter was $1,719,000 compared to $1,292,000 for the 2006 fourth quarter, or a 33% increase. The improvement was based on increased margins on a 10% lower volume.
General and administrative expenses increased from $3,125,000 in the 2006 fourth quarter to $12,268,000 in the 2007 period or an increase of $9,143,000. $2,622,000 of the increase was attributable to G&A costs at Davison locations. Additionally, we recorded $3.4 million of G&A expense related to non-cash compensation for our senior executives. The remaining increased for 2007 is primarily attributable to headcount increases and increased audit tax and other consulting fees.
Depreciation and amortization increased from $1,963,000 for the fourth quarter of 2006 to $26,401,000 for the fourth quarter of 2007. The increase is substantially all attributable to assets acquired in the Davison transaction. The intangible assets acquired in the Davison acquisition are being amortized over the periods during which the intangible asset is expected to contribute to our future cash flows.
As acquired intangible assets are generally viewed as being more valuable in the year shortly after the acquisition, the amortization expense is front-end loaded. However, we expect the customary supplier relationships with other intangible assets to continue to provide benefits due to a combination of the acquired value and our efforts to maintain those relationships and assets. Additionally, for G&A -- for DD&A we recorded an impairment charge of $1,498,000 on our natural gas pipeline operations.
Net interest costs increased during the fourth quarter by $4,123,000 due to a higher average outstanding debt balance from borrowing for the Davison transaction. This increase was mitigated by our issuing new partnership units and the follow on offering in December of 2007, generating $213.5 million, which was used to repay part of our outstanding debt, reducing the balance to $80 million at December 31.
Now we will review the results for the full year of 2007. We recorded a net loss for 2007 of $13,550,000 or $0.64 per unit compared to income for 2006 of $8,381,000 or $0.59 per unit. Segment margin from our pipeline operations increased from $12,426,000 in 2006 to $13,035,000 or approximately 5%. Tariff rates on all of our crude oil pipeline systems were increased during 2007.
Our volumetric gains produced higher revenues, primarily due to crude oil market price increases. And although expenditures for pipeline integrity testing and repairs were less than 2007 in 2006, part of this reduction was offset by expenses of our SAR plants and related personnel employed in our pipeline activities.
Average daily volumes on our Mississippi System increased 28% during 2007 due to increased receipts from Denbury's production. Average daily volumes out of the Jay Pipeline System were essentially unchanged. For our Texas System, average daily volumes decreased by 22%, but this decrease was partially offset by an increase in tariffs in June of 2007. Segment margins for Refinery Services in 2007 was $21,898,000 or 35% of the segment margin for the year. Again, we acquired the Refining Service segment in July of 2007 as part of that transaction.
Segment margin for Industrial Gas activities in 2007 was $12,063,000 as compared to $11,443,000 for 2006. CO2 sales volumes increased 4.468 million cubic feet per day or approximately 6%. Our net earnings from joint ventures increased $139,000 or 12% from 2006.
Segment margin from Supply and Logistics more than doubled from $7,366,000 in 2006 to $15,330,000 in 2007. The portion of the Supply and Logistics business acquired in the Davison transaction added approximately $8,591,000 to Supply and Logistics segment margins for the year. Our existing crude gathering and marketing operations' contributions for 2007 was $6,739,000 or a 9% decrease.
For 2007 G&A expenses were $25,920,000, an increase of $12,347,000 over 2006. Expenses related to acquired operations, the effect of our SAR and bonus plans, and costs related to our management team caused most of the increase. Excluding these items, G&A expenses were $3,118,000 higher in 2007.
Depreciation, amortization and impairment expenses increased $26,672,000 primarily as a result of the amortization of the assets we acquired in the Davison transaction in the third quarter of 2007. We spoke earlier about the impact of the intangible (inaudible) amortization. Interest costs for 2007 were $10,100,000 compared to $1,374,000 in 2006. As a result of the Davison acquisition, which partially was financed with borrowings under our credit facility, our interest expense including commitment fees increased $9,322,000 in 2007.
Our average outstanding bank balance of debt was $234.3 million during 2007, an increase of $231.3 million over 2006. Our average interest rate during 2007 was 7.61%, a decrease of a little over 1% from 2006. Our equity offering in December 2007 was used to partially repay our outstanding debt, reducing the balance to $80 million at December 31, 2007.
We recorded an income tax benefit of $652,000. While we recorded an overall benefit, we will pay current income taxes for 2007 of about $2 million. That will affect our available cash. This is the first year for us to have a significant income tax expense. Part of the Davison acquisition included businesses that generate nonqualified income for MLP purposes. We contributed some of those assets and businesses into corporations in order to assure that we meet the 90% qualified income test. Over time we expect to reduce the taxes paid by restructuring operations or outgrowing the limitation.
Grant will now discuss our strategy going forward.
Grant Sims - CEO
As stated at the beginning of the call, 2007 was a very important year for us. We completed a major acquisition and put in place the financial flexibility that has positioned us to negotiate a $250 million drop-down of CO2 pipelines from Denbury. At this time an update as to the status of the transaction is in order.
We have reached substantial agreement and are in the process of finalizing the business issues with Denbury and the lenders in our credit facility as to the terms of the drop-down by Denbury to us of Denbury's NEJD and Free State CO2 pipelines, and the terms of a long-term transportation service arrangement for the Free State line and a twenty-year direct financing lease for the NEJD system.
We expect to receive approximately $30 million per annum in the aggregate under the lease and the transportation services agreement, obviously prorated for 2008 from the effective date forward, with future payments for the NEJD pipeline fixed at $20.7 million per year during its twenty-year term, and the payments relating to the Free State pipeline dependent upon the volumes of CO2 transported therein.
While the business terms of the transactions and associated documentation has been substantially completed, the closing remains subject to completion of closing documentation, receipt of a fairness opinion, and approval by our bank group, the audit committee, and the Board of Directors of our general partner.
We expect to pay for these pipeline assets with $225 million in cash and $25 million of our common units based on the average closing price of our units on the 30 days prior to the closing of the transaction. We would expect to draw the $225 million for cash purposes under our revolving credit facility at LIBOR plus 150 basis points.
We are pleased with the performance of the businesses acquired during 2007. We continue to work on the integration of the business operations, the legacy business, businesses with the Davison assets and employees. I want to express appreciation to all of the employees of Genesis for their contribution to the value creation that has been accomplished over this past year. We are continuing to seek other opportunities to acquire assets from other parties that meet our criteria for acceptable returns and stable cash flows.
Assuming the continuing performance of the combined businesses since the Davison acquisition, and the expectation of completing the aggregate $250 million drop-down transaction, we are comfortable raising our guidance on distributions. Under these assumptions we would reasonably expect to be able to grow our distribution at a 15 to 18% annual rate for at least the next two years.
That concludes our prepared remarks for this conference call. At this time I will turn it back to the moderator to take questions from the audience.
Operator
(OPERATOR INSTRUCTIONS). Ron Londe, Wachovia.
Ron Londe - Analyst
I just had a little question about the refining services. If you can give us some insight into where you think the business is going to go over the near-term. It appears that with crude prices where they are, and with signing margins down, we hear more talk about longer maintenance downtime, maybe earlier maintenance downtime and more utilization rates. How do you think that would affect the refinery services business. And if you could also give us some insight into where sodium hydrosulfide prices are versus caustic soda right now?
Grant Sims - CEO
Obviously, what we're doing is, I think everybody is aware, inside the refineries that we are processing the high sulfur sour gas streams to remove the sulfur, and basically through that processing we take sodium hydrosulfide as payment in kind for rendering the services.
So obviously I think it is fair to say that to the extent that at any of our existing locations that there are refinery cutbacks or maintenance turnarounds that would have an effect on us. But we're not at this point aware of any out of scheduled refinery turnarounds anywhere, so we don't think that really -- that is not something that concerns us. And we are in -- constantly in discussions with other refineries providing the same types of services at other locations.
In the overall longer-term macros sense, to the extent that we believe that the fundamentals are very good for the services we provide because the overall crude slate appears to be getting more and more sour over time.
Ron Londe - Analyst
Also, from the standpoint of daily volumes in CO2, it was up 6% for the year. Can you give me some insight into what generated that growth? Whether you got some new customers or it was just underlying growth? And what you think the trends are going to be for this year?
Ross Benavides - CFO
It was growth with our existing customers.
Grant Sims - CEO
Just higher utilization of their contract volumes to the existing customers.
Ron Londe - Analyst
Do you think that is sustainable for this year?
Ross Benavides - CFO
It is not entirely clear all the time. We believe it will be, as the trend is going in that direction compared to the 2006 period. So we believe so, but we don't have a lot of intelligence on exactly where they are going with the business.
Ron Londe - Analyst
The general and administrative expenses clearly up significantly for the quarter, and you explained some of it. What kind of a runrate -- quarterly runrate do you think we should use going forward for G&A expense? It was $12.2 million in the fourth quarter.
Ross Benavides - CFO
We're looking at some information here.
Grant Sims - CEO
I think it is clear that at a minimum we back $5.5 million out of that number as kind of non-recurring associated with a combination of severance as well as --.
Karen Pape - SVP, Controller
Ron, that is about $2 million to $3 million off that fourth quarter number, primarily relating to severance. There is some pieces in that that are hard for us to predict because the stock depreciation rights plan expense varies with what happens with our stock price.
Ron Londe - Analyst
The Texas System pipeline barrels per day were down to 23,500 per day in that fourth quarter. Do you think that is a plateau number, or you're looking for that to come down some more?
Ross Benavides - CFO
Generally we're looking at that not coming down. When feel the (inaudible) is pretty much at the bottom from a base level that we would expect going forward. We also -- again, we had a fairly substantial increase in our tariffs back in June.
Ron Londe - Analyst
I would expect you will have another increase this year, given PPI.
Karen Pape - SVP, Controller
The tariff on the Texas System isn't PPI.
Operator
(OPERATOR INSTRUCTIONS). John Edwards, Morgan Keegan.
John Edwards - Analyst
I was curious -- first, a housekeeping item. I saw that the total common units outstanding -- I guess that was as of the end of the year. What was the weighted average number of units for the quarter and for the period?
Karen Pape - SVP, Controller
Give us a second. For the year it is 20,754,000.
John Edwards - Analyst
Okay, and for the quarter?
Karen Pape - SVP, Controller
We are having to get to that one. It is approximately 30 million.
John Edwards - Analyst
Then while you're getting that, I will just ask another question. For the depreciation and amortization, what is a good number that we should use in going forward? Obviously, you came in way above our estimate for that because we didn't properly account for the intangibles. But just if you can give us a little help on that, that would be great.
Karen Pape - SVP, Controller
Hold on one sec. For 2008 I would say probably it is going to be somewhere in the range of around $62 million or $63 million. And then it is going to drop by about $14 million the next year. Drop by $5 million or $6 million the next year. This is part of that front-end loading that we talked about on the amortization of the intangibles.
Ross Benavides - CFO
All that information is laid out in the 10-K that will be coming out.
John Edwards - Analyst
Great.
Karen Pape - SVP, Controller
On your question on the weighted average units for the quarter, it was 30,694,000.
John Edwards - Analyst
Okay. Then when do you expect to close the drop-down acquisition?
Grant Sims - CEO
We're basically waiting on approval of all of our bank groups with the amendments -- or all those member banks -- the required approvals by the member banks for amendments to our existing credit facility, and then the final preparation of the closing documents, along with the final sign off of the conflicts committee. But we anticipate that hopefully we will get it done by the end of the quarter.
John Edwards - Analyst
You're just a couple of weeks away. Then as far as your existing amount on the revolver are you still around $450 million, $475 million?
Grant Sims - CEO
Our outstanding is about $80 million. Is that what you're asking?
John Edwards - Analyst
I was looking at capacity, what you had available. You're saying you have only drawn $80 million.
Grant Sims - CEO
We only have $80 million outstanding, and we would anticipate, as I said, drawing $225 million, so we have just north of $300 million outstanding upon closing of the drop-down transaction.
John Edwards - Analyst
That will put you just north of $200 million available, around $200 million available.
Grant Sims - CEO
Correct. That is for the total committed amount.
John Edwards - Analyst
Last question was as far as the follow on drop-down, the $100 million to $150 million, are you still expecting that to occur in the fourth quarter or do you expect that to be pushed out to the first quarter of '09?
Grant Sims - CEO
Denbury has expressed that they consider the similar transactions for the drop-downs of the Tinsley -- the Jackson Dome to Tinsley line, which is actually in-service, and then the Tinsley to Delhi line in late 2008 or early 2009. It could or it could not be structured as two separate transactions.
John Edwards - Analyst
So essentially no change in schedule as far as that goes?
Ross Benavides - CFO
It is in part dependent on construction activities, so it may be in '09.
Operator
Mark Easterbrook, RBC Capital Markets.
Mark Easterbrook - Analyst
Maintenance CapEx for the quarter was a lot lower than we were expecting. What is a sort of a good quarterly runrate for that for '08?
Grant Sims - CEO
We would think that a conservative number is in the $1 million to $1.5 million a quarter range.
Mark Easterbrook - Analyst
Then obviously you had some tariff increases in '07. I know that some of your pipelines aren't on the PPI adjustment, but just -- do you have some sort of sense of what kind of tariff increases you might be experiencing in '08 on the pipeline side?
Karen Pape - SVP, Controller
It will be based off the PPI adjustment. I have not looked -- we're not anticipating making any changes other than the PPI at this point.
Mark Easterbrook - Analyst
On Ron's question about the increase of CO2 demand, just is that mainly an increase coming from Denbury or was that coming from other customers?
Ross Benavides - CFO
It is from the industrial customers.
Mark Easterbrook - Analyst
The industrial customers.
Ross Benavides - CFO
Which is not -- Denbury is not involved in that. That is the [Practair's] and BOC's of the world.
Mark Easterbrook - Analyst
Last question, your $500 million on your revolver, do you have an accordion feature on that that you can expand that?
Grant Sims - CEO
That is the maximum committed amount under that existing facility.
Operator
There is no further -- we have one more question from Todd Wood.
Todd Wood - Analyst
I wanted to follow on the Tinsley, Jacksonville and Tinsley Delhi since you dropped down. Will that require some additional non-Denbury acquisitions, if you keep yourself within the ratio of Denbury-related and non-Denbury-related?
Grant Sims - CEO
Again I think that is -- there's nothing cast in stone with that, but we have -- both Denbury and ourselves have discussed the 1.5 to 1. But given that we have done $600 million plus worth of third-party acquisitions under the 1.5 to 1, creates a conceptual bucket, if you will, for drop-down opportunities in excess of $400 million. So we are doing $250 million now, so it would not require anything else, assuming that Denbury wants to do the drop-down of the $150 million.
Todd Wood - Analyst
Okay, thank you for that clarification.
Operator
There are no further questions in queue at this time. I would like to turn the call back over to management for closing comments.
Grant Sims - CEO
Thank you very much. And we will look forward to talking to you again in 90 days or so. Thank you.
Operator
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.