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Genesis Energy, L.P. (GEL)

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Genesis Energy, L.P. (GEL)

Q4 2017 Earnings Conference Call

February 15, 2018 10:30 AM ET

Executives

Grant Sims - Chief Executive Officer

Analysts

Ethan Bellamy - Robert W. Baird & Co.

Presentation

Operator

Welcome to the 2017 Fourth Quarter Conference Call for Genesis Energy.

Genesis has four 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 Sodium Minerals and Sulfur Services Division includes trona and trona-based exploring, mining, processing, producing, marketing and selling activities, as well as the processing of sour gas streams to remove sulfur and refining operations. The Onshore Facilities and Transportation Division is engaged in the transportation, handling, blending, storage and supply of energy products, including crude oil and refined products. The Marine Transportation Division is engaged in the maritime transportation of primarily refined petroleum 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 L.P. Mr. Sims will be joined by Bob Deere, Chief Financial Officer; and Karen Pape, Chief Accounting Officer.

Grant Sims

Good morning.

The fourth quarter was an exciting one, which included the first full quarter of our recently acquired soda ash operations, the additional long-term commitments for the production from approximately 300,000 acres for downstream transportation on our existing infrastructure in the Powder River Basin, the closing and the sale of our Wink terminal in West Texas, and refinancing of our existing 2021 notes effectively extending the term to 2026 and also resulting in the extension of our existing credit facility into May of 2022.

If we look forward to 2018, we’re well-positioned to deliver on our previously announced guidance for visible, achievable, long-term distribution growth and clear path forward to deleveraging. In keeping with the trend we started last quarter, we will skip the typical quarterly comparison of this quarter to the prior year’s quarter and we’ll attempt to provide a little color around each individual segment, their individual quarterly results and how we view the short, intermediate and longer-term financial performance of the businesses.

We think the discussion and the earnings releases, as will be expanded in our 10-K, adequately checks the box for those comparable period discussions. Before getting into that, I thought I would make a quick comment regarding the recasting of our non-GAAP measures we referenced in the press release.

In fourth quarter EBITDA and available cash, we recognized a $13.6 million gain in excess of the net book value on the sale of our Wink terminal to ExxonMobil. More than offsetting net gain in the quarter was the accrual or $16.8 million of additional G&A expenses, a portion of which related to a non-recurring employee compensation program. So everything else is the same, fourth quarter EBITDA and available cash were both negatively affected by those – these items on a net basis by a total of $3.2 million each.

Turning to the segments. In the Offshore segment, the quarterly results were negatively impacted by Hurricane Nate, which based on its path through the Central Gulf at an even bigger disruption on production facilities relevant to us than Hurricane Harvey. These disruptions were temporary in nature with no permanent damage to any of our or our customers’ key crude oil assets, although one situation, which reflects around $1 million a quarter net to us is expected to last into the second quarter.

The biggest challenge in the first quarter 2018 is that, there’s only 90 days instead of 92. That alone will cost us approximately $2 million in reportable segment margin for the Offshore segment.

With that being said, we’re excited about 2018 and anticipate active, infill drilling at several dedicated and connected platforms yielding 2018 and 2019 production with zero of our capital required. We still expect to move excess volumes from third-party owned and operated pipelines that are anticipated to have insufficient capacity to move volumes dedicated to their systems during the 2018/2021 timeframe.

In addition, we have executed agreements for two subsea developments being tied back to existing dedicated and connected hubs, one with first delivery in late 2018 and another in mid-2019, both ramping into 2020, again, with zero of our capital required.

To our knowledge, Mad Dog 2, a new 140,000 barrel per day production facility, which is contracted for delivery to shore through our 100% owned Cameron Highway pipeline and requires no capital is still on schedule for first production in late 2021 or 2022.

In addition, we continue to have active discussions with several other third-party and/or host operated subsea tiebacks to existing dedicated connected hubs and responding to RFPs for several new plus or minus 75 KBD standalone new hub type developments anticipated to be sanctioned in 2019 or so, with first deliveries in the 2022 to 2024 timeframe.

Read the rest of this transcript for free on seekingalpha.com