Genesis Energy, L.P. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Dollar amounts below are in millions unless stated otherwise. Genesis is a midstream energy partnership with offshore pipeline, soda and sulfur services, onshore facilities and transportation, and marine transportation businesses. It also produces natural soda ash.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $807.6 | $721.2 | $2,402.9 | $2,074.9 |
| Operating income | $111.7 | $75.1 | $263.9 | $223.4 |
| Net income attributable to Genesis | $58.1 | $3.4 | $105.8 | $33.5 |
| Net income (loss) attributable to common unitholders | $35.8 | $(15.3) | $36.6 | $(22.6) |
| Net income (loss) per common unit | $0.29 | $(0.12) | $0.30 | $(0.18) |
| Segment Margin, a non-GAAP measure | $207.9 | $196.2 | $617.6 | $572.9 |
| Cash flow from operating activities | $141.0 | $94.3 | $396.4 | $252.6 |
Q3 operating margin was approximately 13.8%, compared with 10.4% a year earlier. Q3 Segment Margin increased 6%; nine-month Segment Margin increased 8%. Nine-month capital expenditures, including equity investee contributions, were $428.2 million, versus $325.4 million in 2022. Cash payments for fixed and intangible assets were $395.8 million.
Balance sheet and debt at September 30, 2023: Cash and cash equivalents were $21.1 million, with an additional $18.8 million of restricted cash. Current assets were $1,091.5 million and current liabilities were $1,023.7 million. Debt principal totaled approximately $3.66 billion: $198.4 million under the revolving credit facility, approximately $3.04 billion of senior unsecured notes, and $425.0 million of Alkali secured notes. The facility had $642.1 million available, subject to covenant compliance. Nine-month net interest expense was $184.1 million, up from $168.8 million.
Common-unit distributions remained $0.15 per unit for the quarter; the preferred-unit distribution was $0.9473 per unit. Q3 Available Cash before Reserves, a non-GAAP measure, was $89.0 million, down 4% year over year.
Material changes and segment drivers
- Offshore pipelines: Q3 Segment Margin rose 20% to $109.3 million, principally on higher throughput from King’s Quay and Argos and reduced downtime. Nine-month margin rose 7% to $300.5 million.
- Soda and sulfur services: Q3 Segment Margin fell 23% to $62.0 million, primarily due to lower export soda ash pricing and lower NaHS and caustic soda volumes and prices. Nine-month margin was down 1% to $217.3 million. Soda ash sales volumes increased, but sulfur services faced lower production and demand.
- Marine transportation: Q3 Segment Margin increased 78% to $27.1 million, reflecting higher day rates; utilization remained high. Nine-month margin rose 75% to $78.6 million.
- Onshore facilities and transportation: Q3 Segment Margin was essentially flat at $9.5 million; nine-month margin declined 23% to $21.2 million amid lower pipeline and rail activity.
- ANSAC consolidation: Genesis became ANSAC’s sole member on January 1, 2023 and consolidated its results. ANSAC contributed $92.4 million of Q3 revenue and $321.9 million for nine months. Consolidated resale volumes supplied by former ANSAC members increase revenue and costs but, management says, have little direct effect on Segment Margin.
Outlook, risks and unusual items
- Management expected the Granger Optimization Project to be completed in Q4 2023, adding approximately 750,000 tons of annual production capacity, with ramp-up thereafter. The filing does not provide a formal earnings or distribution forecast.
- Offshore growth projects include CHOPS expansion and the new SYNC pipeline, with approximately $550 million of expected capital spending net to Genesis’s ownership interests. Completion is aligned with producer plans for first oil in late 2024 or 2025. Management expected to fund growth spending with operating cash flow and revolver capacity.
- Management anticipated continued soda ash export pricing volatility in Q4 2023, citing slowing global demand, a slower-than-expected China recovery and new global supply. It said international conflicts, inflation, economic weakness and capital-market conditions could affect results and potentially prompt asset impairment evaluations.
- Q3 earnings included $12.3 million of unrealized commodity derivative gains; the comparable quarter had $1.3 million of unrealized losses and a $25.0 million noncash loss on the former preferred-unit embedded derivative. Such valuation movements can make reported results volatile.
- In January 2023, Genesis issued $500 million of 8.875% notes due 2030 and used proceeds in part to retire its 2024 notes, extending maturities but increasing borrowing costs. It also redeemed 1.48 million preferred units during the first nine months for $50 million cash and repurchased 114,900 common units for approximately $1.0 million in Q3.
- Asset retirement obligations were $241.7 million. The partnership cited environmental, operational, commodity, customer, interest-rate, financing, project execution and geopolitical risks. It said pending lawsuits and regulatory matters were not expected to materially affect financial position, results or cash flows; no material legal-proceeding developments were reported.
Important facts for investors to verify
- Progress, final cost and production ramp of the Granger expansion, and realized soda ash prices and demand.
- Offshore project spending, schedule, producer first-oil timing and the expected contribution from King’s Quay and Argos volumes.
- Debt maturity and refinancing capacity, interest-rate exposure, covenant headroom and the ability to fund growth while meeting debt service and distributions.
- Whether operating cash generation and Available Cash before Reserves support ongoing common and preferred distributions and any further unit repurchases.
- How much reported revenue growth reflects ANSAC consolidation and third-party resale activity versus underlying changes in volumes, pricing and margins.
- Potential effects of environmental obligations, asset retirement estimates, derivative volatility and market conditions on future cash flow and asset values.