Q2 2021 CorEnergy Infrastructure Trust Inc Earnings Call

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Greetings and welcome to CT Energy's conference call to discuss the second quarter 2021 results.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.

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

Thank you everyone and for joining today's core energy infrastructure Trust Conference call with me today are Dave Schulte, CEO, John career C O and Robert Waldron CFO.

And we published a press release announcing the second quarter results outlook for 2021, and we'll file our form 10-Q. This afternoon.

We will not present slides and our live call this quarter, but do you have archived slide ex available online for your reference at the Investor Relations section of our website.

And we plan to update our investor slides for conferences, beginning next week.

And can also access a webcast replay on site typically posted within a couple of hours and the live calls and.

I'd 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 safe Harbor protection available under the applicable securities laws and important factors that could cause actual results to differ materially from those and the forward looking statements are discussed in our filings with the SEC.

These documents are available on the Investor Relations section of our website.

And what update our forward looking statements.

And this call we will make reference to certain forward looking non-GAAP metrics, which we have reconciled and subsequent filings and part of our results reported.

We encourage all of you to review our complete disclosures risk factors GAAP numbers and as non-GAAP metrics with the related reconciliation.

And with that I would now like to turn the call over to Dave Schulte. Please go ahead.

Good afternoon, everyone and we continued to solidify the foundation of our capital structure post transaction.

Including the internalization of our REIT manager to create a more efficient cost structure, we believe and steps will facilitate opportunities to further scale and revenue and dividend generating asset base and why.

And to thank our stockholders for their support of our efforts at this year's annual meeting, which just finished at the end of June and.

And we've emerged from the Crimson transaction with a complement of critical oil and natural gas pipeline infrastructure, which serve a more diverse and stronger customer base.

With the new platform, demonstrating our business model and as an operator of infrastructure.

<unk> market to continue to acquire assets is very large with hundreds of billions of dollars of transportation and storage infrastructure currently serving the energy market.

Creating a stable base from which to grow has been our goal.

And we have successfully laid the foundation for our future by establishing first.

Solid coverage of our debt and preferred stock dividend obligations.

Our baseline of dividend coverage for our common stockholders, which is enhanced by the subordination of the class B common dividend for 3 years.

Third our plan to grow that dividend and through a variety of commercial activities and strategic actions.

And finally opportunities are emerging to gain scale through additional acquisitions of complementary as well as diversifying assets that fit our model.

And I'm pleased to report that we are seeing early signs of progress even if not yet fully reflected in our reported results for the second quarter on low gas and Omega assets are performing steadily and as you've seen for many years and delivering increased volumes under expanded customer contracts and new projects completed over the past year.

We are working to support the efforts of our customers spire and St. Louis which is a critical provider of natural gas to customers and that area, particularly with winter approaching.

And California refinery utilization has nearly returned to pre COVID-19 levels.

Oil production has lagged and the price of oil continues decline producers are back to profitable production for California wells and with a return and refinery demand and.

We expect the second quarter and maybe our revenue trough.

Reduces are indicating a desire to return to pre COVID-19 production levels by Q4.

Although permitting has been challenging and there's always a risk of adverse impacts from demand due to renewed COVID-19 impacts.

Luckily produced California crude is the ideal feedstock from California refineries, producing the states the carb required gasoline and diesel products and short, California refineries represent a captive market for in state production.

And Crimson operates and 1 of the most efficient and environmentally responsible petrochemical systems and the U S.

Turning to our platform opportunities I'm going to share with you that we are reviewing potential opportunities to expand with 2 goldson line.

First and with lowest execution risk with expansion within our existing pipeline footprint, we already executed incremental volume capacity on a mogul pipeline, which proved critical to our customers. This past winter.

We also are considering potential corporate mobile acquisitions that can add scale and diversification through expansion into new markets, where our business model offers a competitive advantage.

We remain diligent and cautious but should the right opportunity arise, we're ready to create new value opportunities for our stockholders.

And with that I'll turn it over to Robert to address the financials.

Thanks, David the second quarter of 2021 is the first core energy and report to include a full quarter of Crimson and the result.

For the 3 months ended June 32021, we had revenue of $32.3 million adjusted EBITDA of $10 million adjusted net income of $3 million.

And after providing for maintenance capital and debt amortization cash available for distribution of cash of 1 of negative $1 million.

Comparison to the second quarter and.

In 2020 have limited utility since the vast majority of the difference is the inclusion of Crimson and the 2021 result.

And when making comparisons to first quarter of 2021.

I remind you that Crimson and results are only included after February 1 and 2021.

Q2, 2021 represents the new baseline for future comparison.

We finished the quarter with liquidity of approximately $40 million, including cash of $18 million and $22 million of Undrawn revolver.

As a result of the proxy vote and subsequent corporate actions and the current equity capital structure consists of only series a preferred common stock class B common stock and Noncontrolling interest exchangeable into those securities subject to CPUC approval.

And the prospective forward looking and capitalization table located on page 63 of our second quarter 10-Q to be filed later today reflects the priorities of the fully exchange capitalization and provides additional details.

And most material impact of these changes was to move the distributions on 60 million of preferred equity to become subordinated to the common dividend.

The company's board declared dividends on all preferred obligations during the second quarter and a <unk> <unk> per share dividend on our common stock no dividend was declared on the class B common stock as a result of not meeting the required 125 coverage ratio.

For the class B shares.

Regarding class B stock.

Crimson and core energy management teams rolled their equity and a core equity.

And with much of that being subordinated class b common stock and equivalent LLC interest.

The internalization coupled with the Crimson transaction resulted in management owning just under 50% of the combined common and class b with over 90% of the common equity by management in the subordinated.

Class B common stock and equivalents.

This quarter highlights the reason that structure was utilized to provide a shock absorber as we navigate the next several quarters.

This structure.

Not only protects and prioritize the dividend for our common equity holders and the data in Q2, but also indicates our management team's confidence and our ability to execute on this strategy.

As a potential added benefit to our investors.

We expect to characterize our dividend and return of capital on due to our losses from 2020, rather than as ordinary dividends for tax purposes for the foreseeable future, which may provide a favorable tax circumstances for many of you.

And as Dave mentioned, we believe second quarter will be a trough for us with the back half of the year showing improvement 1 action, we have already taken and announced as it we embrace tariff on substantially all of our California regulated pipelines and 10%.

These increases were all in place by August 1st and represents the vast majority of our revenue in <unk> and Crimson.

Our ability to raise tariffs when appropriate demonstrates the long term stability of our regulated asset.

And are therefore, reaffirming our outlook for the back half of 2021.

At this time, we'd like to take questions from our covering analysts or institutional stockholders before closing the call. If you have additional questions or follow up needs not addressed on today's call. Please reach out to our investor relations team and they will make necessary arrangements. Thank you.

At this time, we will be conducting a question and answer session.

Would like to ask a question. Please press star 1 on your telephone keypad a.

A confirmation tone will indicate your line is and the question queue you.

You May press star 2 if he would like to remove your question from the queue.

For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, 1 moment, please while we poll for questions.

Our first question comes from Selman <unk> with Stifel.

You May proceed with your question.

Thank you good afternoon.

First up can you just break out the trash.

Aspartame and revenue from distribution revenue.

Uh huh.

Yes.

And the transportation and distribution revenue really are our 1 category for us.

Okay.

And then on the pipeline.

And last for allowance less I guess, the pipeline and subsequent to it sales and revenue seems like and accelerated pretty sharply this quarter compared to last quarter.

Is there any commentary around that.

The P L a and <unk>.

Subsequent sales.

Okay.

There's 2 components of our Pls revenue 1 is the revenue we earned.

Every.

Quarter every month as we transport.

Customers crude, but then the sub revenue of subsequent sales is really.

When we sell that revenue and so you really need to look at the to the revenue line and the offsetting expense and the net of that really represents.

Gains or losses on inventory from the time, we hold it so that will depend on those lines will always move around a little bit depending on the cell timing of the actual crude oil that we that we earn from our pls.

Okay, Okay, so yeah, and and I had net those 2 against it and then.

Also and in terms of just G and a further improvement to come.

Since the buy and.

So the management company fully expect net line to go down.

I think the biggest trend that we've identified that the biggest area that comment on it.

The first half of the year was very heavy on professional services as you might imagine with.

Integrating the acquisition and additional activity around with our auditors and and consultants around purchase price allocation and things like that.

So I think some of that activity will.

It is.

Is trending down and will continue third and fourth quarter.

But I don't think there is.

And I don't think we've really identified any other major savings as far as other G&A bucket.

Okay.

Alright that does it from me.

And Selman.

As a reminder, we are and the question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad. Our next question comes from Michael Zuk with Oppenheimer. You May proceed with your question.

Good afternoon, Dave can you give us an update on the Fort Leonard Wood.

Project and how it is developing from Mo gas.

Sure Mike.

Thanks for the question.

We have had some successful projects at Fort Leonard wood, including the installation of a supplemental.

Propane backup system, which was kicked in last winter and was used to generate incremental revenue.

The service contract that was.

And we won with our partner now 2 years ago, I think has yet to be awarded on specific projects, we identified at a bunch of projects and priorities of projects.

And the U S Department of defense.

As so far.

And not acted on the list, but but we would still be the incumbent and if they did act.

Toward those and.

And it's.

And it's just tough to predict the timing of when they would prioritize that activity level.

We have great relationships on base, we've been supportive of the day, there's a hospital construction projects. They just completed that required from incremental work on our behalf.

And so.

So Mike we don't have.

Anything else to add on that other than we're and the pole position, if and when the Dod decides to start work.

Fair enough.

Are there any other activities for potential incremental flow.

Low of gas on the Mo gas horsepower systems.

Well.

Beyond the project that we just completed in December of last year, and we are having conversations with spire about their position and the marketplace.

And how we can continue to be helpful to them.

There's public information about.

The spire pipeline.

Being reviewed again for its necessity and we filed supportive.

Documentation around that.

All public information out there but.

But other than continuing to be and are positioned to try to augment spires need to serve their market Theres no incremental flows from from incremental customers, which I think may be really what you're referring to is there. Other other development work that's going on along our pipeline.

And Mike might draw additional gas down and.

None that we've been aware of.

Yeah.

Appreciate the commentary thanks keep up the good work.

You bet. Thank you Michael.

Yeah.

Yeah.

As a reminder, we are and the question and answer session. If you would like to ask a question. Please press star 1 on your telephone keypad.

Our next question comes from Selman <unk> with Stifel.

Okay. Thanks, David and I, just wanted to follow up on the.

And the St. Louis pipeline so.

In the event that that were to get shutdown and.

How how would that impact you.

Well, we don't think it would impact us dramatically.

And we would it would impact the city of St. Louis dramatically right.

And the cold snap that they had in February.

And so we think it's therefore, we think it's unlikely you could shut down but there's always vulnerability when when you back and front of the regulator Court review.

Our.

Supply pipeline for spire would go back to maximum capacity.

But they would they would they've engineered around already Barrow and storage and other assets, which they've said and their public information.

So it would be it would be challenging for corn mcqueen per handle.

And the cold snap without access to the volumes on and.

On that pipeline.

And.

We don't believe it would have an adverse impact on us.

And.

Because.

And with.

Integrated into their system and a couple of different places.

So we would continue to be supportive I think in terms of.

How that might how that might functionally work depending on.

And any any changes too.

Spires ability to create secondary or.

No other plans for alternative access, which they don't they don't have right now because of the spire pipeline.

And I think our team thinks it would not be feasible to implement alternatives between now and and where.

Okay Fair enough and then.

I guess, Robert and can you just.

See how many barrels of oil transported this quarter.

Sure.

That is it.

1.

On a daily basis.

Net sales.

On a daily basis about 188000.

Per day.

Okay, and that's for both sort of the north system and the South system ready to me and just looking at them as 1.

1.

And then it will come out later later in our 10-Q.

Well as we've given in the past, we give all the quarterly volumes of 188.

Okay.

Alright, Thank you guys.

And some of them.

Okay.

1 moment, please while we poll for any more questions.

We have reached the end of the question and answer session and I'll turn the call back over to Dave Shull day for any closing remarks.

So please contact our investor relations team, if you'd like to meet with us and 1 of our upcoming Investor conference events or arrange a direct 1 on 1 call. Thank you for joining us today.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

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