Q3 2020 CorEnergy Infrastructure Trust Inc Earnings Call

This time, all participants are in a listen only mode.

Question and answer session will follow the formal presentation if.

If anyone should require operator assistance during the conference we suppose star zero on your telephone keypad.

As a reminder, this conference is being recorded.

I would now like to turn the call over to Mac reps Investor Relations for core energy. Please go ahead.

Thank you Doug and thank you everyone for joining core energy infrastructure Trust's third quarter 2020 results call I'm.

I'm joined today by David Santee, Chairman, President and CEO, Jeff Walmart or executive Vice President, Rick Crowley, President or what.

Good morning.

<unk>, our chief Accounting officer.

Oh Boy age this call such as our press release issued yesterday afternoon, and an audio replay of this conference call will be available on Corenergys website Corenergy outreach.

Our third quarter 10-Q will also be available SEC filings site on the Investor Relations section of Corenergy diary crush.

A press release, and 10-Q and additional non-GAAP metrics and the reconciliation to our GAAP results. We encourage all of you to review our complete disclosures.

It cleans up our GAAP numbers and those non-GAAP metrics with the related reconciliations.

We recognize that many of you have questions and while we are presently at a point that limits our ability to make further disclosures at this time, we will take a few analysts question at the end of today's call.

However, we will not be able to take questions about your potential acquisition activity detailed Norbert <unk> right to where our kids outside.

I would like to remind everyone that statements made during the course of this presentation that are not purely historical may be forward looking statements and are subject to the safe Harbor protection available under the securities laws.

Gordon factors that could cause actual results to differ materially from does not forward looking statements are discussed in our filings with the FCC.

These documents are available on the Investor Relations section of our website, we do not update our forward looking statements and with that I would now like to turn the call over to Dave <unk>. Please go ahead.

Hey, good afternoon, everyone. Thank you for joining us on the call today.

Election day is a good moment to talk about where our company is headed.

We believe that we have an opportunity to exit this challenging year by deploying our balance sheet liquidity into new dividend generating assets resetting our platform in a position for growth.

Those efforts are well along in the process and we believe that we are on track to meet our goal of announcing a transaction will bear fruit for our stock holders in 2021 and beyond and.

And before I cover more information about our future, let's start with a few comments about our current asset portfolio.

Our more gas and Omega assets continue to perform in a steady predictable manner as we expect regulated assets of this nature to do for.

For Omega, we continue to enjoy a strong working relationship with the department of defense at Fort Leonard Wood in South Central Missouri, We've been on post since 1991 and are currently in our third 10 year contract period with more than five years remaining on the current contract. This is a large army post with 30000 plus soldiers and civilians on so.

Right in any given day.

The D. continues to invest in the Fourq with projects that will need increased support from our system. Examples include a new large V. A regional hospital currently under construction.

Gas fired cogeneration facilities and.

And other new buildings and facilities that need natural gas.

We also just installed and commissioned a new propane air plant to provide energy redundancy.

For all gas population growth in the areas small gas serves is driving the need for additional capacity and facilities with amarin inspire Missouri.

We recently signed an additional 10 year 6000, Mcf per day agreement with Amarin and.

And we completed an additional delivery point with spire, Missouri in the suburbs of Western Saint Louis Our 12 so.

Delivery point with that customer.

We are presently engaged in the construction of a new interconnect.

But the Saint Louis pipeline, the STL pipeline with completion expected in a few weeks.

We're pleased to announce at this interconnect enabled us to sign a new 10 year transportation agreement with spire, Missouri that will more than double spires capacity and low gas.

We continue to operate safely with no effects from cobot, 19 virus and well within the OTI and Missouri PSC requirement.

Turning to the Grand Isle gathering system, the refusal to pay rent buyer tenant there earlier this year pertains in large part to the unprecedented disruption in oil pricing brought on by the global COVID-19 pandemic our efforts to achieve resolution in the third quarter were hampered by difficult series of events affecting Gulf of Mexico production.

Including continued price volatility business events related to other shippers on the system and multiple tropical storms in hurricane events, resulting in temporary production shut ins. Most recently hurricanes eight across our assets on October 20, Eightth and were awaiting more details on the degree of damage. However.

However, our triple net leased specifically addresses all of these scenarios and states clearly that the tenant is obligated to maintain the asset and to pay contracted rent while we work toward resolution. The rent is due each month and continues to accrue.

Now turning to the future with reference to our forward looking statements qualifier.

Our balance sheet is strong with approximately 100 million in cash at quarter end with.

With this cash and our bank line plus potential target asset financing, we believe core can execute new acquisitions in excess of $200 million in size with our resources on hand.

Enough to make significant headway in rebuilding our dividend paying capabilities for all of our stockholders we.

We believe there is support for even larger transactions from equity sources, if it is beneficial for existing stockholders.

I shared on our last call that we were engaged in diligence on new opportunities for acquisition and our Pinedale. This quarter shows nearly a million dollars and diligence related cost as we continued to advance our work on this important goal.

Well there is no assurance that a specific transaction will come to fruition. It has been our goal since the summer to complete an acquisition by the end of the year.

Our progress to date again gave the board confidence to approve the issuance of both to preferred and common dividends for the third quarter.

Well I cannot share details on a particular transaction today I can give you additional insight into the framework. We're applying in the acquisition work we have undertaken.

Our primary goal is to acquire additional operating assets analogous to Omega and Mogas with the benefit of our private letter ruling, thereby establishing core energy as the lowest cost midstream platform.

I did state, we expect to acquire assets that generate access and you sees from customers of pipelines storage facilities and related infrastructure and provide the highest level of resulting dividends to our shareholders.

Tax advantage structure.

And the restructured provides are very real advantage over him Lps and C. Corp's like an MLP, there's no entity level tax, but like a seacorp institutional investors can get a form 10 99 to.

The best of both worlds for qualifying assets and for access to capital.

But since rates are not limited to oil and gas I should be clear that our company can also consider opportunities to expand into different asset categories. We've not previously owned sub.

Such as renewable energy distribution or similar functioning assets.

Regarding the momentum to transition to renewable energy. Some of you have asked questions about this given the news coverage. So let me share a few thoughts from industry experts.

We believe that no matter, which party controls the white house or Congress. There is a vital continuing role for hydrocarbons to support the economy in daily life. More importantly, we believe this role will last many decades, even with a transition to alternative fuel sources as a reference point that I see a forecast oil and gas demand continuing to make up half the global enter.

As you mix in 2040 and in that scenario, they've modeled requiring sustain government subsidies for alternative energy sources.

Putting this into a practical example.

Strict vehicle mandates have gained a lot of attention lately as a way to reduce dependency on hydrocarbons.

However, electric generating and distribution grids lack the capacity to meet the required increase in demand that would accompany this transition we've already seen many stories and news about these deficiencies in their negative consequences.

With decades of government subsidized investment it construction necessary to make the grid and Germany capacity suitable for transition to electric vehicles hydrocarbons will continue to be required during and even well beyond a possible transition even in the best case scenario.

We believe this practical reality generates a rich opportunity set for core energy that we believe can result in favorable shareholder outcomes for the next 20 plus years.

Now our acquisition framework will continue to consider assets, which provide critical hard to duplicate services to numerous counterparties.

And we have a long term goal for our platform to diversify our our portfolio into assets across energy commodities and geographies and across the value chain from producers to consumers.

Well 2020 has been a difficult year, we're striving to reset our foundation with dividend stability as our primary shareholder objective, while pursuing asset growth to add diversification and scale to our platform and.

In summary, our diligence and negotiation work over the past quarter has reinforced our conviction in the competitive advantage of our platform.

We believe this will set the stage to rebuild our dividend generating capacities in 2021 for all of our stakeholders.

In closing I'd like to thank the core team for its hard work through this difficult time and thank our stockholders and bondholders. We are patiently continue to support our work.

During these challenging.

Periods and have expressed confidence in our business model and in our ability to rebuild.

At this time, we'll open the call for questions for analysts, but anybody is free to call into our Investor Relations line at any time operator.

Yes.

Thank you, ladies and gentlemen, we will now be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad a confirmation tunnel indicate your line is in the question queue. You May Press Star two if you would like to remove your question from a Q4 participants using speaker equipment. It may be necessary to pick up your handset before prosigna.

Starkey.

Our first question comes from the line of Barry, Oxford with D.A. Davidson. Please proceed with your question.

Great. Thanks, guys.

Quick question on the receivables.

Good where does that stand right now.

The total amount that's accrued today is approximately $30 million.

However.

Well at this time only recording.

Cannibals debt or that we received in cash our revenue excuse me the receiving cash so were not accruing to the lease payment with the revenue recognition associated with that.

Right right.

And <unk>.

As much as you can you can tell.

What might be the right.

<unk> time period.

That happens before resolution whatever that might be but how long do you kind of foresee. This is this.

Six month period of two year period, as an 18 month period.

You know I know, it's a tough question to answer, but when you're modeling up with your lawyer what are you guys foreseeing at this point.

Well Barry we.

I appreciate the question its certainly a sensitive one for our management team why and I just wanted to ask a question more in general terms [laughter].

And not get too I'm trying not to get too specific I I. Appreciate I. Appreciate the situation you are in.

So that.

The circumstances that gave rise to the tenant non paying have.

Have really not abated throughout this year, and whether it's commodity volatility or shut ins, which that which caused the shut in or other shut ins.

We have.

<unk> been exposed here too.

Unprecedented circumstances and as have day, so what we've decided to do is.

Hold our Littig put our litigation on hold while we try to work something out so that that was a public announcement last quarter right and that has not changed.

Fortunately, we're past hurricane season.

Knock on something but we.

We we can't predict whether there's incremental volatility.

In in other areas that would continue to hamper our Gulf of Mexico production. So generally speaking, we're it's a it's a top priority for us.

Do you sense that there's a willingness for them to want to pay back.

Or is that too sensitive.

Well, we're not going to comment on any specific element of the.

Of the current state of litigation.

Right right I appreciate that appreciate that.

When you indicated that you could do an acquisition in the $200 million ranges is that is that what I should take from your comments.

Yes.

Okay.

When when you're looking at acquisition, you mentioned kind of midstream pipeline or storage do you have a preference at this particular juncture.

I mean, you know a pipeline or storage or <unk>, yeah look very e. <unk> as long as you know both of them are are a good deal that you maximize shareholder return.

You know I mean different.

We are very sensitive to.

Our diligence path.

Confirming what we think is a reasonable risk adjusted return potential for every acquisition, we look at and we've looked at dozens over the last.

Three or four years.

And so where we have the opportunity to own both storage and pipelines. We think diversification is important for our platform.

Right now all of our of our operating assets were natural gas focused so we'd look to try to.

Diversify.

But were so.

Small enough today that we could in diversification is a long term goal.

Necessarily goal for any you know our next acquisition. So the nice thing is we have an opportunity to own all of the above from a from a.

Legal standpoint.

In a contract standpoint, and what we have the luxury to do is try to try to.

Make sure that we're looking out for our shareholders best interest no matter, what no matter, which way we go.

And then if the other party wanted to move quickly you guys are prepared to move as quickly as they are is that correct statement.

We are we have to close an acquisition that they.

Go ahead.

Yes, so our team is very focused on on.

Being prepared to evaluate all phases of an acquisition.

With.

With the.

Expertise of our team, including upstream engineering mid mid stream process operations experience and downstream.

Chemical engineering experience, we're ready to react and commercial terms as soon as possible and our our read qualification evaluation is a pretty well.

Well honed.

Our process at this point, we've been together 10 years as a team we've reviewed.

Has to be over 100 different acquisition opportunities many of those get to the level of review with our outside experts. So we need to provide opinions and so we've we've believe we've got a very efficient.

Review process as far as qualification of assets and revenue. So that's not usually going to be a.

Constraint to our ability to close.

And then we've got to confirm with lenders that.

Their availability on the assets, we're looking at is a level that.

Prudent and that are drawing our line would be prudent as well. So there are many parties involved in any particular acquisition evaluation.

We need to check yes on all of them.

Got you that all makes sense I appreciate the comments David that you know good luck to getting this close then I'm sure you're well on your way or you don't spend a million Bucks for no reason would be my guess so thanks guys.

Thanks Barry.

There are no for Oh, no. We do have a question from the line of Selman a coil with Stifel.

Please proceed with your question.

Thanks, a couple of quick.

[noise] clarification, so just as I think about this and I read it.

The press release and everything.

I <unk> you are looking at you are closer to sort of one acquisition right. I mean, you kind of highlighted a number of things you could look at from.

Sort of your structure standpoint, but you're really just looking at one acquisition is that.

The correct interpretation.

Selman I think we have been looking at several different acquisitions coming from earlier. This summer I think at this point, we're honed in on on.

On one that could include several different assets inside of it. So it's not to say it wouldn't be have some diversification with it potentially.

But we need we need to get one across finish line.

Fair enough.

And I appreciate that and then.

You also highlighted in sort of reiterated in the last question you know that.

Sort of an acquisition the $200 million race, so should we think of it as something.

In that size of you know something greater than $100 million.

Well 100 million is what we would invest in the equity.

So you would you would think that we can do more than that whether it's one acquisition or a handful.

Within a reasonable amount of time so.

I think I think it's reasonable to.

Consider that our balance sheet today can support $200 million in acquisitions without any incremental equity.

Okay.

And then just kind of going back to gauge real quick you.

Referenced the Hurricanes and.

I know previously I mean, there's been other hurricanes things have come through without damage are you, giving some sort of indication you expect damage on the system. This time.

Dave you want me to take that.

Yeah, sorry, Jeff Farmer go ahead.

Hey, Selman.

So theres been five name storms that hit la or Louisiana, and we have.

Looked at them all in some of these have wiped out.

Temporarily 80% of Gulf of Mexico production for a week or two and other ones have had little damage, but this this latest has.

It was a category too is that it hit.

In October 20 Eightth.

The advantage to it is that it was quick moving and so it involved.

Less flooding, but we're still waiting on details, but you can contrast that with hurricane Laura.

And where we had more details on and there was minimal damage and that and thought that was a category four and that included a lot more flooding.

Okay.

Alright.

All right I think that does it for me. So thank you very much.

Thank you gentlemen.

There are no further questions in the queue I'd like to hand, the call back over to Mr. Sheltie for closing remarks.

So thank you all for joining us today.

As a reminder, feel free to call our Investor Relations lines. If you have any further questions working hard to bring these various efforts. We discussed two successful conclusion for the benefit of all of our equity and debt holders and you know in addition to our quarterly reports and periodic press releases, we will be participating a few upcoming investor events. This month.

Hold meetings on November 17th the real World will participate in art and RBC Conference on November 18th and will host meetings and group session at the Sidoti Conference on November 19th So that's a busy week for us anymore available.

All of these events will be virtual but we'd be more than happy to set a meeting with anyone that's attending these conferences and soda scheduled meeting. Please coordinate through one of the firms are again contact our investor relations team. Thank.

Thank you everyone and have a good afternoon.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

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