Genesis Energy LP (GEL) 2016 Q1 法說會逐字稿

Welcome to the 2016 First Quarter Conference Call for Genesis Energy. Genesis has five business segments. The Offshore Pipeline Transportation division is engaged in providing the critical infrastructure to move oil produced from the long-lived world-class reservoirs from the deepwater Gulf of Mexico to onshore refining centers. The Onshore Pipeline Transportation division is principally engaged in the pipeline transportation of crude oil.

The Refinery Services division primarily processes sour gas streams to remove sulfur at refining operations. The Marine Transportation division is engaged in the maritime transportation of primarily refined petroleum products. The Supply and Logistics division is engaged in the transportation, handling, blending, storage and supply of energy products, including crude oil and refined products. Genesis operations are primarily located in Texas, Louisiana, Arkansas, Mississippi, Alabama, Florida, Wyoming, and the Gulf of Mexico.

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 Exchange Commission. We also encourage you to visit our website at genesisenergy.com, where a copy of the press release we issued today is located. The press release also presents a reconciliation of 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 LP. Mr. Sims will be joined by Bob Deere, Chief Financial Officer, and Karen Pape, Chief Accounting Officer.

Good morning and welcome to everyone. This morning we reported available cash before reserves of $97.8 million, providing 1.32 times coverage of the total distribution we will pay on May 13. That distribution of $0.6725 per unit represents the 43rd consecutive increase in our quarterly distribution, 38 of which have been greater than 10% over the prior year's quarter, and none of which have been less than 8.7%.

As we stated in the earnings release, our diversified and yet increasingly integrated businesses continue to perform well in spite of the ongoing tumultuous energy environment. Even with a $3.3 million non-recurring charge reflecting certain cost initiatives, as well as previously discussed specific challenges like significant turnarounds for some of our refinery customers and utilization and rate pressures on certain of our marine assets, we maintained a coverage ratio of 1.32 times of our increased distribution.

Even in this environment, we would expect to see sequentially growing volumes in future quarters from the end of offshore turnarounds and continued development drilling in the deepwater Gulf of Mexico. We would also expect to see growing volumes from the initiation of service on some of our organic projects and the end of certain refinery turnarounds in the third quarter and beyond.

Additionally, we are seeing indications that the more recent rate and utilization challenges on our blue water offshore marine assets have or are in the process of bottoming. As a result, we feel very comfortable about the continuing growth in our financial results in future periods.

Last week, we announced an expansion of our credit facility, adding additional committed liquidity of $200 million. We appreciate the support of our existing banks and the participation of two brand new banks, all of whom combined to commit more of their knowledgeable money to the continued success and growth of the partnership.

We have had an SEC approved S-3 sitting around for almost 1.5 years. We are in the process of formalizing an at-the-market program. There are no plans whatsoever to actually use the program, but we feel it's a tool we should have at our disposal to give us the flexibility to raise conventional equity to allow us to pursue opportunities, which we believe may arise given many competitor companies have limited access to reasonably priced incremental capital.

To summarize, we have increased our committed liquidity. We have significant excess coverage, which will naturally delever our capital structure, especially once we exit peak spend in mid-2016 and begin to realize the contributions from our organic projects later this year and into 2017.

Given our substantial scale and our improving financial metrics, we are confident our debt ratings will improve well before any existing maturities with 2021 being the earliest maturity. Finally, we believe we can accomplish this while continuing to grow the distribution to our unit holders preserving our access to conventional equity not burdened by incentive distribution rights to a GP. All in all, not a bad place to be when times are bad.

With that, I'll turn it over to Bob.

Thank you, Grant. In the first quarter of 2016, we generated total available cash before reserves at $97.8 million, representing an increase of $33.8 million or 53% over the first quarter of 2015. Adjusted EBITDA increased $51.4 million over the prior year quarter to $133.8 million, representing 62% year-over-year growth.

Net income attributable to Genesis for the quarter was $35.3 million or $0.32 per unit compared to $20.2 million or $0.21 per unit for the same period in 2015. Segment margin from our Offshore Pipeline Transportation segment increased $53.4 million or 212% between the first quarter periods. This increase is primarily due to our Enterprise acquisition, which closed in July 2015 in which we obtained approximately 2,350 miles of additional offshore natural gas and crude oil pipelines and six offshore hub platforms.

Additionally, a portion of the increase in our segment margin is attributable to the SEKCO pipeline throughput exceeding its shippers' minimum volume commitments during the entirety of the 2016 quarter. Also, as a result of our Enterprise acquisition, our ownership interest in the SEKCO pipeline increased from 50% to 100%. Our SEKCO pipeline is connected to our Poseidon pipeline. So increases in throughput on our SEKCO pipeline also increase throughput on our Poseidon pipeline.

Onshore Pipeline Transportation segment margin increased $1.4 million or 9% between the first quarter periods. The increase was primarily the result of an increase in the volumes and tariff revenues mainly on our Louisiana and Wyoming pipeline systems. These increases were partially offset by decreases in volumes and revenues on our other offshore pipeline systems and a decrease in revenues generated from loss allowance volumes.

Refinery Services segment margin increased $2 million or 11% between the first quarter periods. That increase primarily resulted from our ability to realize benefits from our favorable management of the purchasing, including economies of scale and utilization of caustic soda in our operations and our logistics management capabilities. These benefits more than offset the slight decrease in NaHS sales volumes.

Segment margin from our Marine Transportation segment decreased $6.8 million or 26% between the first quarter periods. This decrease is primarily attributable to pressure on rates and utilization of our blue water offshore barges. These pressures are a result of several factors, including significant new builds coming into the market, declines in Eagle Ford production, a relatively mild winter and the effects of contango on the crude oil and products markets which created economic incentives for producers, marketers and refiners to store barrels.

Supply and Logistics segment margin increased by $700,000 or 7% between the first quarter periods, primarily due to improved performance of our now right-sized heavy fuel oil business relative to the 2015 quarter. This right-sizing principally entailed reducing volumes and related infrastructure to match new market realities resulting from the general lightening of refineries' crude slates, which has resulted in a better supply/demand balance between heavy refined bottoms and domestic coker and asphalt requirements. We also benefited from an increase in rail volumes at our Scenic Station rail terminal.

Corporate general and administrative expenses included in the calculation of available cash before reserves decreased by $600,000. This decrease is primarily related to decreases in our equity based compensation plan expense due to decreases in our unit price, as well as a decrease in expense related to our annual bonus program relative to the 2015 quarter. This decrease was substantially offset by a one-time charge of approximately $3.3 million that we took during the first quarter of 2016 related to certain severance and restructuring expenses.

In addition to the factors impacting available cash before reserves, depreciation and amortization expense increased $19.5 million between the quarterly periods, primarily as a result of the effect of placing recently acquired and constructed assets in service during calendar 2015, including the offshore pipeline assets acquired as a result of our Enterprise acquisition.

Equity earnings in our unconsolidated joint ventures also decreased by $4.8 million between the quarterly periods. As a result of our Enterprise acquisition, the composition of our equity investments has changed from the prior year period.

Grant will now provide some concluding remarks to our prepared comments.

Thanks, Bob. As discussed, our businesses are performing well and we would expect them to continue to do so in spite of challenges or headwinds that always seem to pop up. We expect to see volumes ramping up in the remainder of 2016 and beyond as turnarounds on certain of our offshore assets as well as refineries for whom we work are wrapping up along with some of our organic growth projects finalizing construction to begin operations.

We expect to continue to be well served by our business strategies including being primarily refinery-centric. After all, the only consumer of crude oil is a refinery and supporting long-lived world-class oil developments of integrated and large independent energy companies that have been around for decades and gone through and survived many commodities cycles.

As always, we'd like to recognize the efforts and commitment of all of those with whom we are fortune enough to work, including their commitments to providing safe, responsible and reliable service. With that, I'll turn it back to the moderator for any questions.

(Operator Instructions) John Edwards, Credit Suisse.

Congrats on a nice quarter in spite of the difficult conditions. Bob, maybe you could just help us out with the effect of the distribution from your equity method investees. I realize it's a detailed item, but it was a little bit lower than what we were expecting. Are there just some timing issues there or --

John, I'm not sure what your expectations were built on, but I suspect that it has to do with the changing and composition as we acquired additional -- as our additional interest in some of our joint ventures, they now have become consolidated entities.

At this point, Poseidon and Odyssey are the only two joint ventures that are accounted for on an equity basis. CHOPS as well as SEKCO are now consolidated entities, John. So, there is less of -- in essence, [a tie back] of backing out equity and earnings and replacing with distributions out of the joint ventures.

Right. So, we can follow up on that, but I'm confident that, that's pretty good the issue there.

Yes, that makes sense. Yes, I'll appreciate that clarification there. And then, maybe you could -- I know in past quarters you've talked a little bit about what's been going on sort of on the rail terminal front. I think at Walnut Hill, you indicated that maybe you're expecting volumes to be a little bit light given the conditions that we're in and then the offset was going to be, some of these volumes that you're getting from Scenic Station ramps up and some of your other new projects ramp up. So maybe, if you could talk about those, it would be helpful?

Yes, I think that -- we've been talking about it for probably 12 months now but with a significant collapse in differentials, some of our smaller facilities like Wink and Walnut Hill are seeing almost zero activity at this point. And again, that's part of what -- as we've described it, some of the plus or minus [$15 million] of quarterly EBITDA that was in our numbers when times were different than what they are now. So virtually, almost all of the rail barrels and rail activity now are still in the Louisiana corridor, Mississippi port, Natchez and Scenic at this point.

Okay. And then, you had mentioned also, there was some -- in the past, there were some lease gathering volumes that were being, in effect, taken by competitors that found themselves in challenged positions. Any update as far as how those [arms] are coming out?

That's continuing, and as you can see, on a sequential quarterly basis relative to the fourth quarter, total crude oil and petroleum products gathered this quarter was about 70,000 barrels a day versus 80,000 barrels a day or 81,000 in the prior quarter. So, we're continuing to see the effects of -- our perspective would be irrational, but it's not irrational given the fixed cost or MVCs or take-or-pay commitments that other people have on other things, but we don't have that same downstream either liability or asset. So we're not going to play that game.

Okay. Are you expecting that -- have you seen the change there? Are things about the same, getting worse from your perspective, better from your perspective?

It's not getting significantly worse, but we're still seeing it, and so it's still reflective of the -- again, are getting back to the challenges that we had segment margin contribution in previous periods, it's not there anymore because of the current market conditions.

Okay. And then just lastly, if you can just update us on kind of the expected ramp-up now on your new projects?

I think that, for a variety of reasons, primarily some weather-related delays and stuff, we're really in significant turnaround especially over in the Louisiana at the anchor customer refinery facility in Baton Rouge that we were looking for ramps starting in the third quarter and accelerating into 2017. So we're running a little bit behind in terms of starting to see the contribution from those.

(Operator Instructions) Gabe Moreen, Bank of America Merrill Lynch.

Grant, I want to ask a question on your -- (inaudible) the ATM and the shelf and seeing opportunities around M&As and other projects. Are you seeing more just single projects, is this corporate M&A, is this joint ventures, is this from producers, I'm just wondering if you can give some more color since the language seems a little bit different from prior?

Gabe, I don't know that there is anything specifically identified. I think that we had actually filed the S-3 as I said and had been reviewed and approved by the SEC probably 1.5 years ago, but because of the kind of conventional market and equity deal that we did to manage the capital structure, and I think was April, May of 2015 and then obviously, the Enterprise acquisition and the conventional issuance of equity associated with that in July of 2015. We did not actually put it in place and we just think that it's a prudent tool in our capital markets quiver to have in place.

We have, as I said in the prepared remarks, we have no identified use whatsoever for it. We're delevering naturally because of our excess coverage but have the ability to go ahead and activate it and on an opportunistic basis, we can "thicken" the equity account with conventional equity and not kind of hybrid securities that a lot of other people are forced to go to.

Got it. And then, following up on that, why not use the ATM at least somewhat, given, I guess, some of the recovery in your unit price from the market to delever maybe accelerate that?

I'm sure nobody -- we're probably not thrilled with where our current unit price is even though it has recovered substantially off the bottom, but given that we're still in a what is a plus or minus 8% yield current paid basis, it's not overly rational from our perspective to issue equity to pay down L+275 debt, when L is basically close to zero. So, we have no concerns of -- because of our coverage, and because of the growth and the stability and if things get better, it gets really good.

As I said on the call last quarter, instead of 1.3, 1.4, we go back to kind of 1.5 or 1.6 coverage, we would delever even quicker while still [be unable] to grow the distribution. So it doesn't concern us given the resiliency in our businesses in a bad environment and the growth that we can have a clear path of growth that we are going to delever over time with excess cash used to pay down the debt.

Got it. And then, I don't know if John asked this question around the offshore marine assets. So, from your perspective, is 2Q sort of the bottom here in terms of that segment?

It's what it's feeling like. I think that there is other people involved in this business that have reported it already and I think it's generally consistent with their commentary around the coastwise market or the ocean-going barge market that it seems to have -- is trying to bottom out, so to speak.

We have no further questions at this time. I'll turn the call back over to our presenters for any closing remarks.

Okay. Well, thanks everybody for participating this morning and we will talk to you in another three months or so, if not sooner. Thank you.

This concludes today's conference call. You may now disconnect.