Genesis Energy, L.P. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Genesis is a master limited partnership operating four segments: offshore pipeline transportation; sodium minerals and sulfur services, including natural soda ash; onshore facilities and transportation; and marine transportation.
Financial results and liquidity
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Revenue | $2.789 billion | $2.125 billion | Up 31% |
| Operating income | $315.0 million | $75.7 million | Includes a $40 million gain on sale of the Independence Hub platform |
| Net income (loss) attributable to Genesis | $75.5 million | $(165.1) million | Improved substantially year over year |
| Net income (loss) available to common unitholders | $(4.6) million; $(0.04) per unit | $(239.8) million; $(1.96) per unit | After preferred-unit distributions |
| Net cash from operating activities | $334.4 million | $338.0 million | Down slightly; working-capital changes offset stronger segment margin |
| Segment Margin | $770.1 million | $617.7 million | Up $152.3 million; management-defined non-GAAP measure |
| Available Cash before Reserves | $352.6 million | $203.9 million | Up $148.7 million; management-defined non-GAAP measure |
| Net interest expense | $226.2 million | $233.7 million | Down $7.6 million |
| Capital expenditures, per company schedule | $476.6 million | $325.9 million | Includes growth, maintenance and equity-investee expenditures |
Revenue growth reflected higher soda ash and NaHS prices and volumes, increased marine utilization and rates, and greater crude-oil marketing revenue. Crude oil averaged $94.90 per barrel in 2022 versus $68.14 in 2021; management says back-to-back contracts and hedges generally limit direct margin exposure.
Segment Margin by segment: offshore $363.4 million (2021: $317.6 million); sodium minerals and sulfur services $306.7 million ($166.8 million); onshore facilities and transportation $33.8 million ($98.8 million); marine transportation $66.2 million ($34.6 million). Offshore growth reflected King’s Quay activity and a $32 million distribution related to the Independence Hub sale, partly offset by downtime and reduced CHOPS ownership. Onshore’s year-over-year decline mainly reflected $70 million of NEJD cash receipts in 2021 that did not recur. Marine benefited from higher utilization and day rates.
Debt and liquidity: At year-end, long-term debt was approximately $3.5 billion gross principal ($3.464 billion net carrying value). This included $205.4 million outstanding on the senior secured revolver, $2.9 billion of senior unsecured notes, and $425 million principal of Alkali senior secured notes. The partnership reported $436.1 million of availability under its $650 million revolving facility, subject to covenants, and $7.9 million of cash plus $18.6 million restricted cash. It reported compliance with debt covenants at year-end. The filing does not provide a clear year-end consolidated leverage ratio.
The common-unit distribution remained $0.15 per unit quarterly. Preferred distributions reset in September 2022 from an 8.75% to an 11.24% annual rate; the fourth-quarter cash distribution was $0.9473 per preferred unit. Preferred distributions totaled $80.1 million in 2022 and are deducted in arriving at income available to common unitholders.
Material changes, outlook and unusual items
- Growth projects: Genesis expects to spend approximately $650 million gross (about $550 million net to its ownership) to expand CHOPS and build the 105-mile SYNC pipeline. The projects serve two deepwater developments with combined production capacity of about 160,000 barrels per day; first production is expected in late 2024 or 2025. The company estimated approximately $400 million net of offshore project spending over the following two years.
- Alkali expansion: The original Granger facility restarted January 1, 2023, adding approximately 500,000 tons of annual capacity. The Granger Optimization Project is expected to begin production in the second half of 2023 and add 750,000 tons per year, ramping over the next nine to twelve months. Management expected 2023 weighted-average soda ash selling prices to exceed 2022 levels.
- Financing after year-end: In January 2023, Genesis issued $500 million of 8.875% senior notes due 2030. Proceeds funded the repurchase of about $316 million of 2024 notes, repayment of revolver borrowings and general partnership purposes; the remaining 2024 notes were subsequently discharged. In February 2023, it replaced its credit agreement with an $850 million revolving facility, generally maturing in 2026, subject to terms and conditions.
- Capital structure: In May 2022, Genesis issued $425 million of 5.875% Alkali secured notes due 2042, using proceeds in part to redeem $288.6 million of Alkali Holdings preferred units that carried an implied 12–13% return and to repay revolver borrowings. Management said this simplified the capital structure and lowered its cost of capital.
- Other unusual items: The $40 million Independence Hub sale generated a $40 million accounting gain; $8 million was attributable to noncontrolling interests. Genesis also recorded an $18.6 million noncash loss from the preferred-unit embedded derivative and $8.6 million of cancellation-of-debt income from open-market note repurchases.
- Management priorities and risks: Management prioritizes stable operating cash flow, deleveraging, safe operations and growth investment. Key risks include high debt and refinancing costs, interest-rate and inflation exposure, project cost or timing overruns, commodity and customer-demand volatility, Gulf Coast storms and operational interruptions, environmental and safety regulation, climate policy, and cybersecurity. Management noted continued uncertainty related to the war in Ukraine and economic conditions.
- Controls and contingencies: Management stated that a material weakness in internal control identified in the second quarter of 2022 had been remediated by year-end; the auditor issued an unqualified opinion on the financial statements and internal controls. The company reported no environmental proceedings meeting its disclosure threshold and did not expect pending legal matters to have a material effect.
Important facts for investors to verify
- Whether the Granger expansion and SYNC/CHOPS projects meet stated schedules, budgets and ramp-up assumptions, and whether expected producer volumes materialize.
- How operating cash flow, working capital and distributions support growth spending and debt reduction, particularly given the higher preferred distribution rate.
- Debt balances, borrowing availability, covenant headroom and refinancing costs under the new credit agreement and 2030 notes.
- Whether soda ash pricing and demand, including export sales through ANSAC, sustain the improvement in Alkali segment results; ANSAC became a Genesis subsidiary in 2023.
- Performance of internal-control remediation and the accuracy of estimated offshore contract volumes used in variable-revenue recognition.