Genesis Energy, L.P. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Genesis is a midstream energy and natural soda ash partnership operating across offshore pipelines, sodium minerals and sulfur services, onshore facilities and transportation, and marine transportation. Dollar amounts below are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $631.9 | $521.2 |
| Operating income | $51.7 | $28.0 |
| Net income (loss), consolidated | $4.4 | $(29.4) |
| Net loss attributable to Genesis | $(5.3) | $(34.2) |
| Net loss per common unit | $(0.20) | $(0.43) |
| Cash provided by operating activities | $54.2 | $77.2 |
| Capital expenditures for fixed/intangible assets and equity investees | $75.2 | $36.0 |
- Revenue rose 21% and operating income increased $23.7 million. Higher Alkali export pricing was the principal operating-income driver.
- Segment Margin, a non-GAAP measure, was $157.5 million, up 1% from $156.1 million. Available Cash before Reserves, also non-GAAP, was $55.7 million, up 2% from $54.6 million.
- Operating cash flow fell $22.9 million, primarily due to working-capital movements and higher cash interest payments. Cash interest and commitment-fee payments were $69.8 million versus $35.4 million; management attributed much of the increase to payment timing.
- Cash and cash equivalents were $9.5 million at quarter-end, with an additional $5.0 million of restricted cash. Current assets were $669.6 million and current liabilities were $597.2 million.
- Debt carrying value was approximately $3.03 billion: $94.8 million drawn on the revolving facility and approximately $2.93 billion of unsecured notes, net. Revolver availability was $553.7 million, subject to covenant compliance. No scheduled long-term debt maturities were reported before 2024.
- Common and preferred distributions were $0.15 and $0.7374 per unit, respectively, for the quarter; the Q1 distributions were declared in April and scheduled for payment May 13, 2022.
Segment performance and changes
- Sodium minerals and sulfur services: Segment Margin increased 54% to $67.4 million, driven by higher Alkali export pricing and increased refinery-services volumes and pricing. Soda ash volumes declined to 744,788 tons from 762,820.
- Offshore pipeline transportation: Segment Margin declined 16% to $70.9 million. Unplanned lateral-pipeline maintenance and producer downtime reduced volumes; lower Poseidon distributions and Genesis’s reduced CHOPS ownership also contributed.
- Onshore facilities and transportation: Segment Margin fell to $7.0 million from $21.0 million, mainly because Q1 2021 included $17.5 million of receipts from the previously owned NEJD pipeline. Higher Texas pipeline volumes partly offset the decline.
- Marine transportation: Segment Margin rose 71% to $12.1 million, reflecting improved inland utilization and higher day rates. Inland barge utilization was 90.3%, up from 72.0%.
Outlook, risks and notable items
- No formal earnings or distribution growth guidance is provided. Management expected favorable Alkali pricing to continue through 2022, subject to changes in supply, and anticipated higher offshore volumes as King’s Quay and Argos developments ramp up.
- Genesis decided to restart its original Granger facility in Q1 2023, ahead of the Granger Optimization Project, which was expected to begin production in Q3 2023 and add approximately 750,000 tons of annual capacity. The original facility is expected to add approximately 500,000 tons annually.
- Two offshore producer agreements are expected to require about $600 million of gross capital spending (approximately $500 million net to Genesis) over three years for CHOPS expansion and the new SYNC pipeline. First oil from the related developments is expected in late 2024 or 2025. Management expected to fund planned growth capital with revolver capacity and operating cash flow.
- Management cited continuing commodity-market volatility from COVID-19 and the war in Ukraine, with potential effects on demand, prices and asset valuations. Other key risks include operating interruptions, project execution and funding, capital-market access, debt covenant compliance, and the possibility that lower cash generation could constrain distributions.
- The preferred-unit rate-reset embedded derivative was a Level 3 fair-value liability of $87.5 million, up from $83.2 million at year-end; Q1 included a $4.3 million non-cash loss. Preferred units also accumulated $18.7 million of distributions during the quarter.
- Subsequent to quarter-end, Genesis agreed to sell its Independence Hub platform for gross proceeds of $40 million, with $8 million attributable to noncontrolling holders. The company expected to recognize an approximately $40 million gain in Q2 2022.
- Management reported no material change in risk factors or material legal-proceeding developments. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Whether offshore downtime has been resolved and projected volumes from King’s Quay and Argos ramp as expected.
- Progress, costs, timing and funding of the Granger project, CHOPS expansion and SYNC pipeline, including the impact on leverage and available credit.
- Whether Alkali pricing and demand remain favorable, and whether the planned Granger restart achieves expected production.
- Cash conversion and working-capital trends, actual capital spending, debt covenant headroom, and the capacity to fund distributions and investment needs.
- Changes in the preferred-unit rate-reset derivative’s valuation and the obligations associated with preferred and redeemable noncontrolling interests.