Genesis Energy, L.P. Price & Performance (GEL)

Genesis' operations are primarily located within Wyoming, the Gulf Coast states and the Gulf Of America. 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 Genesis intends to avail itself of those safe harbor provisions and directs you to its most recently filed and future filings [indiscernible] We also encourage you to visit our website at genesisenergy.com Genesis. A copy of the press release we issued this morning is located. GAAP financial measures. At this time, I'd like to introduce Grant Simms, CEO of Genesis Energy LP. Mr. Sims will be joined by Kristen Gesellaitis, Chief Financial Officer and Chief Legal Officer Ryan Sims, President and Chief Commercial Officer and Louis Nicholl, Chief Accounting Officer. Thanks, Troy. Good morning to everyone and thank you for listening to the call. As we mentioned in our earnings release this morning, we are now just a few short months away from reaching the inflection point when we will current major capital spending program be a short time away from a notable step change in realized segment margin and most importantly, being positioned to generate cash from operations in excess of the cash costs are running and sustaining our businesses.

Needless to say, this moment has been a long time coming while we've had a few hiccups along the way, we remain on schedule. I get more and more encouraged with the long term prospects of Genesis as each day passes.

We set a dwelling on what could have been in 2024, I'd rather focus my comments here today on what lies ahead for the remainder of 2025 and beyond.

We remain encouraged with what is in front of us.

And are confident we are well positioned to deliver meaningful sequential earnings growth over 2024 driven primarily by mid year startup of our new contracted offshore volumes and strong structural tailwinds in our Marine segment, even if we see static performance from our other two segments. This year relative to last. Our offshore segment is expected to see significant growth in offshore volume and segment margins associated with our two new contracted developments Shenandoah and Salamanca. They remain on schedule with first production from both developments expected in the second quarter. Based on recent conversations with both operators, we could see volumes from each development ramp very quickly to, if not above their originally expected high case When combined with the eventual resumption of the volumes from the fields that were negatively impacted last year, which we are now told should occur over the next several months.

We should be positioned to deliver upwards of 20 plus percent sequential growth in our offshore pipeline transportation segment in 2025. Our Marine Transportation segment is again expected deliver record results in 2025, driven in large part by more days on the water as they for our offshore fleet relative to 2024, and steady to increasing day rates across all classes of our vessels. The macro story of Marine remains constructed We see reasonably steady demand At the same time, we continue to see net supply reductions in the market driven by the limited number of new barges being constructed while more and more older barges are being retired. We believe these structural indicators will persist in marine quite some time and should support steady to marginally improving financial performance from our Marine Transportation segment throughout 2025. As we sit here today, we expect the challenging macro conditions in the soda ash market we saw in the back half of last year to persist into 2025 at least in the early part of the year. The combination of a well supplied market and a mixed demand picture outside China is expected to keep a lid on [indiscernible] especially in our export markets.

While current prices are undoubtedly below the cash costs of high cost synthetic producers, particularly in China, we expect the market continues to need a combination of further supply rationalizations a resumption of historical demand growth to ultimately help prices recover. I'll give a little more color later in my prepared remarks, but we are encouraged that these necessary supply reductions are starting to and they will no doubt tighten the market as we move through this year and into next. Given this market backdrop, however, and despite an improving operating performance and implementing certain cost savings initiatives we expect the segment margin from our soda ash business to be at or near what we generated in 2024. Kind of a sideways year until we get to 2026, when we would otherwise expect prices to recover and more closely reflect at least the cash cost of the marginal suppliers. Similarly, we expect our legacy Refinery Services business our onshore facilities and transportation segment to also perform in line with their While we would rather see all of our businesses hitting on all selling our path forward remains crystal clear Even with this anticipated sideways year over year in a couple of segments, in 2025.

We will begin to harvest accelerating amounts of cash above and beyond the cash cost to operate and sustain our business we will use to strengthen and simplify our capital structure. We are committed to not pursuing any capital intensive projects for the foreseeable future. We expect to use this excess cash flow to pay down debt in absolute terms opportunistically redeem or retire our high cost convertible preferred both of which will lower the cash cost of lending and sustaining our business and look to return increasing amounts of capital to our unitholders in one form or another all while managing our bank calculated leverage ratio to our long term target. We remain confident that the path we are on will allow us in the years ahead to deliver long term value to everyone in the capital structure.

With that, I'll touch briefly on our individual business site As mentioned in our earnings release, several of our producer customers continue to experience mechanical issues that are affecting multiple fields that are connected to our offshore infrastructure.

We can now report that three out of the total of only 21 available deepwater rigs working in the Gulf Of are now actively working on restoring production from these affected wells. We are told by the operators that such remedial intervention activities should be completed over the next several months. The effective producers and operators continue to reiterate they expect no long term negative impacts to the underlying reservoir. And they fully expect volumes to return to levels consistent to what they were producing prior to the mechanical issues cropping up. More importantly, our offshore construction projects are Our team is preparing to start the final stages of construction which will primarily consist of lifting the sink pipeline off the seafloor and connecting it to the Shenandoah floating production system Once it is installed at this final location, The Shenandoah FPUs that sell from South Korea and Mid and recently arrived in Ingleside, Texas. Thus completing its 18,000 mile journey in less than two months. After completing its final outfitting and safety checks, it is expected to move to its final location in advance of first production in the second quarter. Similarly, the Salamanca production facility is also nearing In fact, I visited the Salamanca FPU earlier this week for its christening and can confirm it is very close to being complete and is really quite a sight to see.

I'm confident the Salamanca FEU will Long be a great case study of the benefits of repurposing, an existing offshore platform to serve as a new production facility that will likely last for many more decades to cut The carbon footprint of the refurbished facility is estimated to be some 70% less than a new build was cheaper than a new build and importantly accelerated the data first reduction by some twelve plus months. The Salamanca FPU2 will be sending sale from Texas to its final location in the Gulf Of America in the very near future and remains on schedule for first production in the middle of the year. We continue to believe these two new standalone production to facilities and are combined almost 200,000 barrels of oil per day of incremental production handling We'll ramp very quickly and will likely reach our anticipated production levels by the end of the year, if not significantly sooner.

In both cases, the operators continue to anticipate producing at rates mid materially higher than our take or freight levels or perhaps even higher than their original high end internal expectations when they sanctioned the projects. As we have mentioned in the past, these two new floating production facilities are also expected to service host platforms for additional future subsea developments or tieback opportunities which could sustain or increase these cash flows to us for years and years into the future. In addition to the Monument Field, which is a sanctioned sub fee tieback to the Shenandoah FPU, that is expected to start production in the fourth quarter of twenty twenty six Beacon announced the operator announced in December that it sanctioned the next phase of development at Shenandoah, known as Shenandoah Phase two. Activities associated with this phase two include the drilling and completion of two additional wells in the Shannon Doak field.

Beacon estimates that the activities from Shenandoah based II will be conducted between 2025 and 2028 and will add approximately 110,000,000 barrels of oil equivalent P50 reserves.

Additionally, Beacon and as partners are advancing plans to facilitate the development of the Shenandoah South Discovery located in Walker Ridge 95 and water depth ranging from [indiscernible] and dedicated riser connection to the Shenandoah FBU. Shenandoah South is expected to include the drilling and completion of two wells with initial production from the first well expected to occur in the second quarter of twenty twenty eight. Beacon estimates a total of 74,000,000 barrels of oil equivalent of reserves for Shenandoah South. While Beacon and its partners have not yet made their final investment decision on the Shenandoah South project, It is yet another example of the multitude of opportunities that exist once a new floating production unit is installed and connected to our offshore infrastructure. When taken together, are estimated to be able to produce nearly 600,000,000 barrels of oil equivalent P50 reserves. With 100% of the oil production dedicated to our new sink lateral and expanded CHOPS pipeline, Truly a remarkable opportunity set for the next decade around this one new connected to our offshore infrastructure. Turning now to our Soda and Sulfur Services segment. I'm pleased to report that the operating issues we experienced at our Vaco production facility in 2024 now behind us.

And at our Grainger facility, it's recently been performing at or above its design capacity. Our team is constantly looking for opportunities to optimize our operating performance and I'm confident these efforts will contribute towards more steady production levels moving forward. As we mentioned last quarter, and in response to current market conditions, we have also recently made a As a result of these efforts, our team has identified numerous and we have since started to implement several initiatives to reduce our fixed and marginal operating costs in the business. We continue to believe that the combination of improved operating performance and a lower overall cost structure will allow us to meaningfully benefit when the broader market fundamentals improve which they will. And they always do. As mentioned in our release, the global soda ash market remains relatively consistent with last quarter global demand being mixed, and most markets remaining well supplied. Furthermore, inventories in China and the availability of export [indiscernible] remain elevated from recent lows. In the short term, the market needs more high cost and environmentally inferior synthetic production to come out of the market. Having said that, we have recently started to see some synthetic supply be shuttered with the last remaining synthetic soda ash production facility in The United Kingdom ceasing operations at the end of just last month, January.

Reducing global supply by approximately 220,000 tons per year. Late last year, another producer announced it was reducing production by approximately 300,000 tons per year from its synthetic production facility in Spain, And just yesterday, a different synthetic producer announced it was to suspending production from a 700,000 ton a year facility in Poland. In discussing such decision, it also say there would be forced to consider additional production cuts at other facilities it operates in EU if market conditions don't soon improve. As more and more of this [indiscernible] we would expect to move closer to a more balanced market where soda ash prices could improve everything else is same, we would reasonably expect marginal improvement in prices As we progress through 2025, but almost certainly based on historical market behavior and the supply of rat certainly in 2026 and beyond. Regardless of when we these events occur, we are confident as one of the world's lowest cost producers that the steps we are taking in our operations and on the cost side will allow us to meaningfully benefit from any such recovery of soda ash prices in the future. Our marine transportation segment performed in line with our expectations as the broader market conditions remain and we operated with utilization rates at or near 100% of practical available capacity for all classes of our Jones Act vessels.

We We continue to see reasonably steady demand for all classes of our vessels. At the same time, there has been limited, if not realistically, zero net additions to the market. As older vessels continue to be retired and a limited number of new barges [indiscernible] This market dynamic doesn't turn around quickly. To conclude, we could not be more excited about 2025 and beyond. And remain fully committed to reaching that special inflection point in just a few months. Where we stopped spending growth capital start harvesting significant and growing cash flows in excess of the cash costs are running and sustaining our business. Along those lines and based upon what we know today, we believe adjusted EBITDA in 2025 will be around $700,000,000 and at 2026, even if there is no meaningful improvement in our soda ash business, could be around $800,000,000 If there is a recovery in soda ash prices in 2026, which as I mentioned early could reasonably expected, Based on historical market behavior and shutting in of high cost synthetic production, that number could turn out to be conservative. The cash cost of running and sustaining our business Currently, the $600,000,000 to $625,000,000 per year.

We will begin generating later this year and accelerate in 2026 and beyond as we use it to pay down debt and periodically redeem high cost preferred, that cash cost of running and sustaining the business will decrease That will give us even more flexibility to pay off even more debt redeem even more preferred securities and return even more capital to our unitholders in one form or another, all while managing our calculated leverage ratio to our long term target. Finally, I'd like to say that the management team and the Board of Directors remain steadfast in our commitment to building long term value for all our stakeholders regardless of where you are in the capital structure. We believe the decisions we are making reflect this commitment and our confidence in Genesis moving I would once again like to recognize our entire work force for their individual efforts and unwavering commitment to safe, responsible operations. I'm extremely proud to be associated with each and every one of With that, I'll turn it back to the moderator for questions. Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from Michael Blum with Wells Fargo.

Please proceed with your question. Thank you. Good morning. So wanted to ask about the offshore producers that continue to have challenges. Can you maybe bracket like the outer bound of of outcomes in 2025? So for example, if this production stays offline for all of '25, how much cash flow you sort of forgoing? And then don't know if it came on, let's say, in the second quarter of this year, how much incremental cash flow would you realize for the year?

At this point, we are baking into the the guidance that we just gave, basically what the producer us taking a little bit of liberty to build in some cushion in the event that it slides to the right a little bit. I'm not sure that we have ever quantified it but I mean, I think we're a magnitude is between $5,000,000 and $10,000,000 I wish I mean that all of it was off, but we are seeing some of it has already been rectified and some of it is within a week or so coming back at least according to the operator. So Michael, I mean, we don't really as we sit here today, we don't see a scenario where this is a lasting issue throughout 2025.

Okay, perfect. That's super helpful. And then on the 2026 EBITDA forecast $800,000,000 Does that assume a continued improvement in the marine business or is that assume more of like a flat outlook relative to 2025?

I would consider it to yes, it's reasonably flat. I mean, so in the world where we're generating kind of 30, 140 or so in that business and While there could be more upside in that, that's kind of we're just kind of penciling that in to be reasonably flat in 'twenty six relative to what we expected in 'twenty five. Our next question comes from Wade Suki with Capital One.

Please proceed with your question. Good morning, everyone. Thank you for taking my questions. First on capital allocation, just quick, I'm wondering if you could remind us how the banks looking at the press? Just just sort of in the context of your capital return priorities?

How the banks are looking at? Yes, exactly in terms of lending.

Yes. Our banks which are obviously insiders and have read all of the agreements, they treat they give it 100% equity treatment in the calculation of our compliance with them. That's not necessarily how rating agencies and others necessarily look at it that have spent as much time as the inside banks have to make that determination. So For us to rapidly we can't really or not intent on levering up to take it out because it has a double whammy, if you will, but converting equity into debt in one respect. So So I think it's fair to say that our intent is to really use the excess cash flow We're not prohibited from in fact, we have some flexibility under our senior secured credit facilities to harvest it And so as we continue to get closer to our long term target of four turns on the bank calculated leverage ratio will have the ability in future periods to potentially take it out at a more rapid pace because we have the flexibility under the under our covenants, but So we have the ability to deal with it. And but it is given 100% equity treatment, which is the appropriate treatment from our perspective.

Great.

Thank you. And just as we approach the sort of free cash flow inflection point later this year, can you help us in terms of how to think about the timing and maybe even order of magnitude of potential distribution increases?

I think that the Board will evaluate that on at the appropriate time. Again, I think As we've discussed that My view but obviously the Board needs to weigh in on it is that it's likely use of capital is or capital allocation is going to be kind of a little bit of all of the above. But in what's absolute or and or relative uses of that, I can't speak at this point. Speak to at this point.

Understood. Appreciate that. If I could squeeze a multi part question and one more just on soda ash, Grant. You always give us really good color on for the supply [indiscernible] Would you mind maybe touching on how kind of contracting season went where you are on that front and then maybe talk a little bit about some of the end market demand you're seeing or the weakest areas are and areas of resilience as well? Thank you very much.

Yes. No, I mean, it's contracting season went about as expected I mean, obviously, in the environment of being [indiscernible] a well supplied market There was where we had caps and collars and we typically would priced towards the lower end of that range and but we [indiscernible] purposely under the belief that or under our belief that the prices are going to rise as we go through '25, especially as I said, I mean, we've seen a reduction of almost 4% of the total supply outside of China being shut in, which is going to significantly balance the market. That we went short term as as much as we could and didn't lock in low prices so that we will benefit prices increase throughout this year. And then as we get into we continue to see a demand recovery and especially additional removal of high priced synthetic production from the market and we believe this macro fundamentals will improve and that when we go into '26 or contracting that will be in a significantly different environment than what we were in late 'twenty four approaching 'twenty five contract We have reached the end of the question and answer session.

I'd now like to turn the call back over to management for closing comments.

Again, thanks everybody for the listening in and we'll talk to you in another ninety days if not sooner. So This concludes today's And we thank you for your participation.