GENESIS ENERGY LP annual report, FY2019

Abrir documento

Genesis Energy, L.P. — 2019 Form 10-K

Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. Genesis is a diversified midstream partnership with offshore and onshore pipelines, refinery services, marine transportation, and Wyoming natural soda ash operations.

Financial performance and liquidity

  • Annual revenue: $2.481 billion, down 14.8% from $2.913 billion in 2018. Management attributed much of the decline to lower crude oil and petroleum-product prices and sales volumes, as well as the 2018 Powder River Basin asset divestiture.
  • Profit: Operating income was $272.7 million, versus $170.2 million in 2018. Net income attributable to Genesis was $96.0 million, compared with a $6.1 million net loss. Net income available to common unitholders was $21.5 million, or $0.18 per unit, after $74.5 million of accumulated preferred distributions.
  • Fourth quarter: Revenue was $604.3 million, operating income $70.9 million, net income $24.7 million, and diluted earnings $0.03 per common unit. In Q4 2018, revenue was $689.3 million, operating income $4.1 million, net loss $28.9 million, and loss per unit $0.35.
  • Segment Margin: $713.3 million, essentially flat versus $712.8 million in 2018. Offshore pipeline margin rose to $320.0 million from $285.0 million; sodium minerals and sulfur services declined to $223.9 million from $260.5 million; onshore facilities and transportation fell to $111.4 million from $119.9 million; marine transportation increased to $57.9 million from $47.3 million. Segment Margin is a non-GAAP measure.
  • Cash flow and capital spending: Operating cash flow was $382.3 million, down from $390.0 million, mainly due to working-capital needs. Available Cash before Reserves, a non-GAAP measure, was $359.5 million versus $466.1 million. Capital expenditures were $176.5 million, including $103.9 million maintenance and $72.6 million growth spending.
  • Margins: The filing does not present a single consolidated GAAP operating-margin measure. Annual operating income was approximately 11.0% of revenue; interpret cautiously given the substantial product-sales component and year-over-year revenue mix changes.
  • Debt and liquidity: Year-end long-term debt was $3.429 billion net of issuance costs, including $959.3 million drawn on a $1.7 billion revolving facility. The partnership reported $739.6 million of remaining facility availability and $29.1 million cash plus $27.3 million restricted cash. Total liabilities were $4.251 billion. It reported compliance with debt covenants at year-end.
  • Distributions: Common-unit distributions were maintained at $0.55 quarterly during 2019 ($2.20 declared per unit for the year). The fourth-quarter distribution was paid February 14, 2020. Preferred units carry an 8.75% annual distribution rate; cash payments followed the earlier period in which distributions were paid partly or wholly in kind.

Material changes and notable developments

  • Offshore crude throughput increased to 652,862 barrels per day from 562,467. Buckskin and Hadrian North began production, and new ship-or-pay arrangements added committed volumes on CHOPS and Poseidon without Genesis-funded capital investment.
  • Soda ash sales volumes decreased to 3.59 million short tons from 3.67 million, with downtime and planned maintenance affecting production. NaHS and caustic soda volumes also declined, partly because of refinery production issues and weaker South American demand.
  • Marine Segment Margin improved 22%, supported by higher vessel utilization and market day rates, partly offset by higher dry-docking costs.
  • Genesis arranged up to $350 million of GSO-affiliated preferred investment in Alkali Holdings to fund up to the full anticipated cost of the Granger Optimization Project. The project is expected to add about 750,000 tons of annual production and be completed in 2022. By year-end, $130 million of preferred units had been issued; the investment has a 10% annual distribution rate, with in-kind distributions permitted during the first 36 months.
  • In January 2020, Genesis issued $750 million of 7.75% notes due 2028. Proceeds were used to tender and redeem the 6.75% notes due 2022 and repay part of the revolver. This extends the notes’ maturity but at a higher stated coupon.
  • Genesis adopted lease accounting in 2019, recording approximately $209 million of operating lease right-of-use assets and corresponding liabilities at transition.

Outlook, risks, and unusual items

  • Management’s stated priorities are stable cash generation, debt reduction, safe operations, and financial flexibility. It expected minimal material growth capital spending in 2020 apart from the externally funded Granger expansion, and described a goal of being cash-flow neutral in 2020 and positive thereafter. These are forward-looking statements, not guarantees.
  • The 2018 comparison included $126.3 million of impairment expense and $42.3 million of asset-sale gains; neither item occurred in 2019. The 2019 results also included a $9.0 million non-cash loss on the preferred-unit embedded derivative, compared with an $8.4 million gain in 2018.
  • Leverage, substantial interest costs, variable-rate revolver exposure, refinancing access, debt covenants, and the ability to sustain distributions are key financial risks. Management’s 10% LIBOR sensitivity estimate was approximately $4.2 million of net-income impact for 2019.
  • ANSAC, Genesis’s largest soda ash export customer and related-party sales channel, accounted for 15% of consolidated revenue in 2019. Its customers and credit terms are not directly controlled by Genesis.
  • Other material risk areas include commodity and customer demand, refinery shutdowns, vessel and pipeline incidents, environmental and regulatory changes, severe weather, cybersecurity, and mining reclamation obligations. The Wyoming reclamation bond was approximately $80 million; asset retirement obligations were $175.1 million at year-end.
  • The filing says pending legal matters were not expected to materially affect financial condition, results, or cash flows. The auditor issued an unqualified opinion on the financial statements and internal controls; management also assessed controls as effective.

Investor verification priorities

  1. Confirm debt maturities, covenant headroom, revolver availability, and the full effects and costs of the 2020 refinancing.
  2. Assess whether operating cash flow and available cash can support debt reduction, common distributions, preferred distributions, and maintenance needs simultaneously.
  3. Track Granger project costs, completion timing, expected incremental output, and the preferred investment’s return, redemption, and governance terms.
  4. Verify whether offshore committed volumes persist and whether soda ash and sulfur-service volumes recover from 2019 production and customer disruptions.
  5. Review ANSAC concentration and receivables, preferred-unit dilution and seniority, and the non-guarantor status of the Alkali Business for noteholders.