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Genesis Energy, L.P. (GEL)

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Genesis Energy, L.P. (GEL)

Q4 2018 Earnings Conference Call

February 20, 2019 09:30 AM ET

Company Participants

Grant Sims - CEO

Conference Call Participants

Theresa Chen - Barclays

Shneur Gershuni - UBS

Ethan Bellamy - Baird

Kyle May - Capital One Securities

Barrett Blaschke - MUFG Securities

Presentation

Operator

Welcome to the 2018 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 in 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 at 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 and 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.

Grant Sims

Good morning and welcome to all. As mentioned in this morning's release, we announced record segment margin of 185.5 million in the quarter, which is a testament to the strength of our underlying diverse business segments. This was primarily driven by continued over performance in our soda ash business and continued ramp up of volumes on our Louisiana infrastructure. We try to provide a little more detail in the release because for whatever reason we don't usually get a lot of live participation in our calls.

As we have previously alluded, we have identified and are currently evaluating several organic growth opportunities that are complementary to our existing core businesses with apparent multiples to adjusted EBITDA plus or minus 5 times. In conjunction with our desire to internally fund these potential investments and possibly other future opportunities as well as to further strengthen our balance sheet and maintain our financial flexibility, our Board of Directors has made the decision to hold our quarterly distribution rate flat at $0.55 per common unit, beginning with the distribution attributable to the quarter ending March 31, 2019.

We intend to use our capital for the highest and best use for all of our stakeholders. We will revisit our distribution policy quarterly, but we currently expect for our quarterly distribution rate to remain at $0.55 per unit for the foreseeable future. For those that have followed us closely over the years, I would mention that our distribution coverage ratio would have been greater than 1 times in each quarter since we reduced our distribution on October 2017, even had we not reduced quarterly distribution.

Turning to our quarterly financial results, our businesses continue to perform well in the quarter and we generated recurring financial results have provided 1.66 times coverage for our increased distribution. I just want to point out that our distribution coverage ratio is calculated, should be slightly lower in future periods everything else the same as we move out of the paid in kind period on our preferred equity units beginning March 1, 2019 and start paying the 8.75% per annum preferred payment in cash on a go forward basis.

In our offshore segment, we are currently seeing increased demand for our assets from production that is currently dedicated to pipelines of our competitors that in our estimation appear to be oversubscribed. Given our excess capacity and connectivity of certain of our systems, we expect to benefit from this takeaway capacity constraint for the next 12 to 24 months and perhaps longer.

We're very encouraged by the current activity in and around our substantial footprint in the Gulf of Mexico. We have several new dedicated tiebacks scheduled to come online in the second half of 2019, representing up to an additional 40,000 to 50,000 barrels per day or KBD throughput, exiting 2019. In fact, we have either executer and are in the process of finalizing agreements, adding incremental dedicated volumes approaching 80 KBD in 2020, including Atlantis Phase 3, 70 KBD in 2021 and 150 KBD in 2022, including Mad Dog 2, none of which requires any capital expenditures by us.

We're in early, but active discussions regarding incremental 300 KBD, which could quite possibly come on in the 2022 to 2025 timeframe, a portion of which represents one of the strategic capital opportunities mentioned earlier. And now for the usual caveat, unless and until the parties enter into definitive agreements, there is no guarantee that we will be successful in capturing some or any of these logs.

Read the rest of this transcript on seekingalpha.com