Business context and reporting period
Genesis Energy, L.P. (NYSE: GEL) filed this Form 10-K for the fiscal year ended December 31, 2021; it is an annual report, not a standalone fourth-quarter report. Genesis operates Gulf of Mexico and Gulf Coast midstream assets, Wyoming natural soda ash production, sulfur services and marine transportation.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $2.125 billion | $1.825 billion |
| Operating income (loss) | $75.7 million | $(246.0) million |
| Net loss attributable to Genesis | $(165.1) million | $(416.7) million |
| Segment Margin (non-GAAP) | $617.7 million | $607.5 million |
| Cash from operating activities | $338.0 million | $296.7 million |
| Available Cash before Reserves (non-GAAP) | $203.9 million | $255.3 million |
Net loss available to common unitholders was $239.8 million, or $1.96 per common unit. The filing does not provide a consolidated operating-margin percentage. Net interest expense was $233.7 million, up $23.9 million. Capital expenditures for fixed and intangible assets were $325.6 million, including $225.7 million of growth spending and $99.9 million of maintenance spending.
At year-end, total debt was approximately $3.006 billion: $49.0 million drawn on the senior secured facility and approximately $2.957 billion of senior unsecured notes. Available borrowing capacity was $599.7 million under the $650 million revolving facility, subject to covenants. Cash and cash equivalents were $20.0 million; current assets were $542.5 million and current liabilities were $496.9 million. The partnership reported compliance with its debt covenants.
Material changes versus the prior comparable period
- Revenue increased 16%, reflecting higher commodity prices and stronger volumes and pricing, particularly in soda ash and offshore pipelines.
- Net loss narrowed substantially, primarily because 2020 included $280.8 million of impairment expense and a $22.0 million asset-sale loss. Genesis recorded no impairment expense in 2021.
- Segment Margin rose $10.3 million. Offshore pipeline margin increased $47.5 million and sodium minerals and sulfur services margin rose $36.7 million; onshore facilities and transportation margin fell $48.4 million and marine transportation margin declined $25.5 million.
- Operating cash flow improved, but Available Cash before Reserves fell $51.4 million, driven mainly by higher interest expense, increased maintenance capital utilized, and cancellation-of-debt income included in 2020.
- Genesis sold a 36% interest in CHOPS for approximately $418 million, retained 64% and operating control, and used proceeds to repay the $300 million term loan. It also issued an additional $250 million of 8% notes due 2027 and redeemed the remaining $80.9 million of 2023 notes.
- Common-unit distributions remained at $0.15 per unit quarterly, down from $0.55 in 2019. The annualized preferred distribution was $2.9496 per unit.
Outlook, management commentary, risks and unusual items
- Management’s priorities are stable cash flow generation and deleveraging. It expected Argos and King’s Quay production to begin in the first half of 2022, adding volumes to offshore pipelines with existing capacity.
- Management expected soda ash market recovery to continue. It planned to restart approximately 500,000 tons of Granger capacity in the first quarter of 2023 and begin production from the Granger Optimization Project in the second half of 2023, adding 750,000 tons per year at design capacity after ramp-up. The filing estimates $150–$200 million of 2022 contractual growth-project cash requirements, including the project.
- Genesis reported a $30.8 million non-cash loss in 2021 from revaluing the embedded derivative in its Class A Convertible Preferred Units. It also recorded approximately $35.7 million of revisions to asset-retirement obligations, mainly reflecting updated timing and costs for certain offshore gas assets.
- Risks include substantial leverage and debt-service costs, covenant restrictions, commodity and volume volatility, refinery utilization, project execution and funding, customer and counterparty credit, severe weather and operational interruption, environmental and climate regulation, and cybersecurity. COVID-19 and market conditions remained uncertain; deterioration could prompt material asset impairments.
- Marine spot contracts represented 51% of marine revenue in 2021, versus 37% in 2020; management said it favored shorter-term contracts while rates recovered. The M/T American Phoenix charter then extended through the first quarter of 2022.
- The audited financial statements received an unqualified opinion, and the auditor and management reported effective internal control over financial reporting as of year-end.
Most important facts for investors to verify
- Whether the expected Gulf of Mexico production starts and Granger restart and expansion timelines were achieved, and what incremental cash flow and capital spending resulted.
- Debt maturities, interest costs, covenant headroom and actual progress on deleveraging; year-end debt was about $3.0 billion against $599.7 million of revolving availability.
- Whether operating cash generation can sustain distributions and fund remaining growth and maintenance capital; Available Cash before Reserves declined despite higher operating cash flow.
- Realized soda ash prices and volumes, offshore throughput, refinery-related demand, and marine charter rates and utilization.
- Potential cash obligations tied to the Alkali Holdings preferred investment, including its 10% annual distribution, redemption provisions and related control or monetization rights.