Genesis Energy, L.P. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. This is an annual filing, not a standalone fourth-quarter report; quarterly figures are noted separately below. Genesis operates offshore pipelines, soda ash and sulfur services, onshore facilities and transportation, and marine transportation businesses.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $2.913 billion | $2.028 billion |
| Operating income | $170.2 million | $220.6 million |
| Net income (loss) attributable to Genesis | $(6.1) million | $82.6 million |
| Net income (loss) available to common unitholders | $(75.9) million; $(0.62) per unit | $60.7 million; $0.50 per unit |
| Cash from operating activities | $390.0 million | $323.6 million |
| Segment Margin (non-GAAP) | $712.8 million | $594.5 million |
| Available Cash before Reserves (non-GAAP) | $466.1 million | $389.0 million |
| Year-end cash / current assets / current liabilities | $10.3 million / $443.3 million / $332.8 million | $9.0 million / $636.0 million / $456.3 million |
| Long-term debt, net carrying amount | $3.432 billion | $3.698 billion |
Revenue rose 44%, mainly because 2018 included a full year of the Alkali Business, acquired in September 2017, and higher crude oil prices increased both product revenues and costs. The filing does not present a single consolidated margin measure as a GAAP metric; Segment Margin is management’s non-GAAP measure. Operating income fell despite higher Segment Margin, reflecting impairment charges, higher depreciation and interest expense.
Operating cash flow increased by $66.5 million. Investing activities provided $140.7 million, including asset-sale proceeds; financing activities used $529.5 million. At year-end, Genesis had $970.1 million drawn under its $1.7 billion revolving facility and $728.7 million of stated borrowing capacity available. It reported compliance with debt covenants.
Material changes and unusual items
- Segment Margin increased 20% to $712.8 million. Sodium Minerals and Sulfur Services contributed $260.5 million, up $130.2 million, principally due to a full year of Alkali operations. Onshore Facilities and Transportation rose 24% to $119.9 million, aided by higher Louisiana volumes and minimum-volume commitments.
- Offshore Pipeline Transportation Segment Margin fell 10% to $285.0 million, with lower throughput from scheduled and unscheduled downtime, underperforming fields, and a prior-year fee step-down. Marine Transportation Segment Margin fell 6% to $47.3 million, reflecting spot-market exposure and higher dry-docking costs.
- Genesis recorded $126.3 million of impairments: $82.0 million on certain offshore gas assets, $23.1 million of supply-and-logistics goodwill, and $21.2 million on remaining Powder River Basin assets. It also recognized $42.3 million of gains on asset sales.
- The October 2018 sale of Powder River Basin midstream assets generated approximately $300 million net proceeds, used to reduce revolver borrowings. Baton Rouge infrastructure expansion, including 500,000 barrels of crude storage, entered service in the first half of 2018.
- Fourth-quarter 2018 revenue was $689.3 million, operating income $4.1 million, net loss $28.9 million, and net loss attributable to Genesis $24.8 million. The quarter included substantial impairment effects.
Outlook, distributions and principal risks
- Management said Alkali performance had exceeded expectations and expected continued strong performance in 2019. It anticipated 2019 growth capital expenditures would not exceed $50 million; all previously announced growth projects were in service by year-end 2018.
- Management expects no significant improvement in marine transportation fundamentals for at least the next several years, excluding the M/T American Phoenix, which was under long-term contract through September 2020. Two offshore subsea tie-backs were scheduled to come online in the second half of 2019, with minimal or no partnership capital required.
- The common-unit distribution was reset in 2017. The fourth-quarter 2018 distribution was $0.55 per unit, paid February 14, 2019; quarterly distributions had increased from $0.51 in the first quarter to $0.55 in the fourth quarter. The preferred-unit distribution rate is 8.75% annually; distributions through 2018 were paid in additional preferred units, while periods ending after March 1, 2019 require cash payment.
- Debt and refinancing capacity remain important risks: debt covenants can limit distributions, investment and financing flexibility, and the revolving credit facility bears variable interest rates. The filing identifies commodity-price and volume changes, refinery and producer activity, customer credit, competition, and access to capital as risks.
- Other material risks include Gulf Coast hurricanes and operational interruptions, environmental and safety liabilities, mine reclamation and surety-bond requirements, marine dry-docking and Jones Act rules, and potential climate-related regulation. The estimated mine reclamation bond was about $80 million; recorded asset retirement obligations were $239.9 million.
- Management reported no pending legal matters expected to materially affect financial condition, results or cash flows. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Review the impairment assumptions and the future production outlook for the offshore assets, including field performance and the expected 2019 tie-backs.
- Assess debt maturities, covenant headroom, interest-rate exposure and whether operating cash flow can cover debt service, maintenance needs and cash preferred distributions.
- Evaluate the sustainability of common-unit distributions against cash flow and capital requirements; Available Cash before Reserves is a non-GAAP measure and is not equivalent to cash available after all discretionary spending.
- Check Alkali sales, prices, costs, ANSAC concentration and customer receivables, and confirm whether reported performance continues to meet management’s expectations.
- Track marine contract renewals, spot-market rates, utilization and dry-docking costs, alongside environmental, reclamation and asset-retirement obligations.