Genesis Energy (GEL) Misses Q1 EPS by 36c, Revenues Beat

Genesis Energy (NYSE: GEL) reported Q1 EPS of ($0.43), $0.36 worse than the analyst estimate of ($0.07). Revenue for the quarter came in at $521.22 million versus the consensus estimate of $409.92 million.

We generated the following financial results for the first quarter of 2021:

• Net Loss Attributable to Genesis Energy, L.P. of $34.2 million for the first quarter of 2021, compared to Net Income Attributable to Genesis Energy, L.P. of $24.9 million for the same period in 2020.
• Cash Flows from Operating Activities of $77.2 million for the first quarter of 2021 compared to $89.6 million for the same period in 2020.
• Total Segment Margin of $156.1 million for the first quarter of 2021 .
• Available Cash before Reserves to common unitholders of $54.6 million for the first quarter of 2021, which provided 2.97X coverage for the quarterly distribution of $0.15 per common unit attributable to the first quarter.
• We declared cash distributions on our preferred units of $0.7374 for each preferred unit, which equates to a cash distribution of approximately $18.7 million and is reflected as a reduction to Available Cash before Reserves to common unitholders.
• Adjusted EBITDA of $144.1 million in the first quarter of 2021.
• Adjusted Consolidated EBITDA of $603.2 million for the trailing last twelve months ended March 31, 2021 and a bank leverage ratio of 5.56X, both calculated in accordance with our credit agreement and are discussed further in this release.

Grant Sims, CEO of Genesis Energy, said, “The first quarter of 2021 demonstrated our market-leading businesses are in fact resilient and our financial results were consistent with, if not slightly ahead of, our internal expectations. As we look forward, we remain increasingly confident that improving macro-economic conditions provide us significant operating leverage to the upside. In combination with our de minimus capital requirements, outside of our Granger soda ash expansion project, we believe we are poised to deliver significant value in future periods to all of our stakeholders.

Our actions taken in early April to extend our senior secured credit facility, coupled with the tack-on offering to our senior unsecured notes due 2027, have positioned Genesis with no maturities of long-term debt until 2024, while providing ample liquidity and flexibility to deal with the trailing impacts of Covid-19 and the 2020 hurricane season. As we look ahead, the partnership is well positioned for long-term success with a recovery in our soda ash business, significant additional free cash flow coming from our two contracted projects in the Gulf of Mexico, and first production from our fully expanded Granger soda ash facility in the back half of 2023.

Our offshore pipeline transportation segment performed in-line with our expectations and achieved a more normalized earnings run rate during the first quarter. We successfully re-established service on our CHOPS pipeline system on February 4th and all barrels that were previously diverted to our 64% owned Poseidon pipeline have returned to our CHOPS pipeline system. The second quarter is typically a heavy maintenance quarter for our producer customers in the Gulf of Mexico, and we would expect a certain level of planned downtime associated with these activities. Even with this expected downtime, we still anticipate to achieve a quarterly Segment Margin of around $80 million.

Our two large contracted offshore projects, Argos and King’s Quay, continue to remain on track for first oil in the first half of 2022. BP recently announced the Argos platform had successfully arrived in Ingleside, Texas in mid-April for final preparatory work and regulatory inspections. Upon completion, the platform will be towed to its offshore home in the Gulf of Mexico in advance of first production in the first quarter next year. Murphy publicly announced they have received all permits to begin their drilling program in the second quarter of 2021 in anticipation of first production at King's Quay in the second quarter of 2022. We continue to anticipate that these two fields, when fully ramped up, will generate in excess of $25 million a quarter, or over $100 million a year, in additional Segment Margin and free cash flow.

We remain in discussions with multiple separate new stand-alone deepwater production hubs in various stages of sanctioning with anticipated first oil starting in the late 2024-2025 time frame. We understand from our discussions with the producer community that drilling and development activity on existing and valid leases in the Gulf of Mexico is continuing pretty much the same as it always has. It is our belief that a large percentage of the highly prospective acreage in the Gulf of Mexico under current technology and economics has already been leased, and this inventory of existing and valid leases should provide decades worth of drilling, development and production opportunities, regardless of when the statutorily mandated leasing programs in the Gulf might resume.

Turning to our sodium minerals and sulfur services segment. Our soda ash business continues to recover as demand for soda ash is steadily increasing as the world’s economies re-open and trending towards pre-Covid levels. During the quarter, we set an all-time record for first quarter production from our Westvaco soda ash facility and expect to remain sold out for the balance of 2021. The global supply and demand dynamic for soda ash continues to tighten and we now believe all natural producers are sold out globally for 2021. Within China, against whom we primarily compete in Asia, certain synthetic production has come off-line due to environmental restrictions while domestic demand for soda ash continues to increase, ultimately reducing the number of tons available to be exported outside of China. Lower export volumes from China and recent increases in container shipping rates are also driving up costs associated with Chinese synthetic production on a delivered basis to markets in Southeast Asia. In response to this dynamic, ANSAC announced a price increase for soda ash in early March for the second quarter on all of their non-contract sales of soda ash and on contracted sales when contracts allow. We believe this increasingly tight supply and demand dynamic will continue to support prices rising through the remainder of the year, especially towards the end of the year when we would otherwise re-determine most of our contract prices for the majority of our sales for 2022.

In addition to rapidly recovering demand from a resumption of economic activity, we remain encouraged with increasing demand for soda ash from a variety of the green initiatives around the world. Lithium producers utilize soda ash in a 2:1 ratio to support their production of lithium carbonate, which is also used to make lithium hydroxide, both of which are building blocks to new generation lithium ion/phosphate batteries that are placed in the exponentially growing electric vehicle and battery storage markets. In addition, soda ash is also a critical component in the glass manufacturing process and subsequently solar panels, which, when combined with the increasing demand for lithium hydroxide and lithium carbonate, should provide our soda ash business with increasing levels of participation and financial benefit from the various green initiatives around the world.

Our legacy refinery services business performed in line with our expectations. During the quarter we saw steady production levels combined with strong demand from our copper mining customers and improving volumes from our pulp and paper customers. Copper prices remain at near decade high levels driven by the tremendous demand for copper from the re-opening of the world’s economies and insatiable appetite for renewable and green initiatives around the world. We believe this dynamic will continue for the foreseeable future, which should help provide us with steady, and possibly increasing, demand for our sodium-hydrosulfide product in future years if and when any copper mining expansions come on-line.

Our onshore facilities and transportation segment performed in line with our expectations. We continued to see some crude-by-rail volumes at our Scenic station during the first quarter, but did not see any financial impact as our main customer continues to work through pre-paid credits. Had our main customer not been using their pre-paid credits, we would have seen our onshore facilities and transportation Segment Margin higher by approximately $8.4 million, or closer to $30 million for the first quarter. While we expect to see almost no crude-by-rail volumes at our Scenic station in the second quarter as the differential between WCS and the Gulf Coast does not currently support the movement, primarily due to producer turnarounds in Canada, our main customer will work through the remaining $8.1 million of current pre-paid credits during the remainder of 2021. If market conditions support crude-by-rail volumes, we could potentially see a net benefit in the back half of this year or into 2022.

Our marine transportation segment continues to be negatively impacted by lower refinery utilization which has pressured both rates and utilization. The first quarter also included a lower contract rate for the American Phoenix and multiple dry-docks in our blue water fleet which further lowered our fleet utilization. Despite these challenges, the severe weather in Texas and Louisiana in the first quarter provided a backdrop for increased utilization for our brown water fleet as refinery disruptions required the use of our type of marine equipment to move barrels in and out of certain refinery complexes. The equipment supply and demand dynamic that drove our financial performance in the first half of 2020 still exists in the market today and as refineries return to more normalized utilizations in the second half of 2021 and in to 2022 we would expect to experience improving fleet utilization, which is the pre-cursor to increasing rates and improving financial performance. The American Phoenix also started her new 12-month contract with an investment grade refining company in April at rates higher than the first quarter of 2021.

As mentioned above, in early April we successfully refinanced our senior secured credit facility receiving $950 million in total commitments consisting of a new $650 million senior secured revolving credit facility and a $300 million term loan, all held with a syndication of 13 banks. We proactively reduced the size, extended the tenor to March of 2024, and obtained certain additional flexibility to address any uncertainty of covenant compliance as we deal with the trailing impacts of Covid-19 and the 2020 hurricane season, even as our businesses are rapidly recovering. In mid-April we successfully priced a tack-on offering of additional 8.0% senior notes due 2027 at a premium of 103.75% and received net proceeds of approximately $256 million. The proceeds from this offering were used for general partnership purposes, including repaying a portion of the borrowings under our recently extended senior secured facility to further improve our liquidity position. As of March 31, 2021, pro-forma for these transactions, we would have had approximately $150 million outstanding on our $650 million senior secured revolving credit facility.

We remain on track with our previously announced guidance for full year Adjusted Consolidated EBITDA, as defined in our senior secured credit agreement, coming in a range between $630 and $660 million1, which includes approximately $30 - $40 million of pro-forma adjustments. In addition, we continue to expect to generate free cash flow, after all cash obligations, in the range of $80 and $110 million in 2021. That being said, given the anticipated cadence of the future spend on our Granger expansion project, we might choose to spend some of this or future periods’ free cash flow to fund portions over and above the $250 million minimum obligation for us to draw under our asset-level preferred funding arrangement. This option does not take away from the fact we will continue to generate increasing amounts of free cash flow and our ability to accelerate our deleveraging plan remains on track as we are steadfast in our commitment to achieving our long-term target leverage ratio of 4.0X.

I would like to once again recognize our entire workforce, and especially our miners, mariners and offshore personnel who live and work in close quarters during this time of social distancing. I am extremely proud to say we have safely operated our assets under our own Covid-19 safety procedures and protocols with no impact to our business partners and customers. As always, we intend to be prudent, diligent and intelligent and focus on delivering long-term value for everyone in our capital structure without ever losing our commitment to safe, reliable and responsible operations."

For earnings history and earnings-related data on Genesis Energy (GEL) click here.

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