Q4 2021 CorEnergy Infrastructure Trust Inc Earnings Call

Okay.

Hello, and welcome to CT Energy's conference call to discuss the fourth quarter and full year 2021 results at.

At this time, all participants have been placed on a listen only mode and we will open the floor for questions and comments after the presentation.

If you do have any questions or comments you May press star one on your phone at any time to join the queue.

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

Thank you Kate and thank you everyone for joining today's core energy infrastructure Trust's conference call with me today are Dave Shull, CEO , John Graff, CFO and Robert Waldron CFO .

Earlier. This morning, we published a press release announcing the fourth quarter and full year results for 2021, we.

We expect to file our Form 10-K this afternoon.

You can also access a webcast replay of this call on the investors section of the company website at core energy REIT typically available within a couple of hours of live calls.

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

Factors that could cause actual results to differ materially from those in the forward looking statements are discussed in our filings with the SEC.

These documents are available in the Investor Relations section of our website, we do not update our forward looking statements.

Also during this call we will make reference to certain forward looking GAAP non-GAAP metrics.

Which will be reconciled and subsequent filings as part of our results reporting.

Encourage all of you to review our fleet disclosures risk factors GAAP numbers and those non-GAAP metrics with the related reconciliations.

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

Okay.

Good morning, everyone. We're happy to talk with you. This morning about our results and our outlook in 2021 core energy overcame the pandemic related challenges of 2020, and we believe we're now positioned for the future we.

We transitioned from a lease centric business to an owner operator model.

Under our industry, leading private letter ruling that enables us to recognize certain operating activities as good ramps within our REIT structure.

We also reorganized our operations reduce costs and strengthen dividend coverage all to the benefit of our common holders going into 2022.

This includes the reduction in management fees and simplification of the capital structure, both of which followed stockholder approval.

The net takeaway of these actions should be that while our common stock was already in a good dividend position. These steps provide even greater confidence with coverage for our common holders with subordinated management own shares acting as a shock absorber if necessary.

This is also an indication of the confidence your management team has and the future of our platform. We believe we've achieved great alignment of management performance with our stockholders fourth quarter revenue was $35 8 million Mo gas Omega, we're steady performers, while our Crimson, California business demonstrated that it has established a post.

Covid volume baseline.

And the benefits of our ability to implement rate increases when needed.

Our assets now primarily generate revenue based on our cost of service model.

Over time, the impact of any long term volume declines were mitigated by tariff rate increases. This secures a stable model for corn energy and supports our ability to cover our dividends, while providing opportunities for modest long term growth ahead.

Looking at California, and a little more detail in California.

As an energy island when it comes to oil since there are no interstate pipelines that carry crude from the other lower 48 states into the state. Therefore every barrel of oil that Californians consume it is not produced in the state must be brought in on ships or rail at a far higher carbon costs versus our pipelines.

With a significant percentage coming from foreign countries.

Despite oil price high oil prices and the signal that sends to producers.

Last October our court ruled that Kern County may not issue new drilling permits under its existing environmental impact report.

Until a legal challenge to that is ruled on by a court requiring any new permits to be issued by the state which has.

Slowed issuance significantly.

<unk>.

The hearing on the IR challenge is scheduled to occur next month.

In April although there are no guarantees were optimistic permits will begin being issued by the county soon thereafter.

Additionally for the past couple of years producers have focused on using free cash flows to pay down their debt and invest in energy transition or carbon mitigation programs in place to drill.

<unk> at higher than historical decline rates.

But recently they've expressed their desire to increase production should permits permitting issues be resolved.

We do see other opportunities ahead, including the return of the offshore production volumes curtailed late last year due to an underwater pipeline break in a third party system was not owned by the company.

We expect those production resources will be back online feeding into our system in the fall.

Prior to that break those accounted for about $1 2 million barrels of annual volume.

And it will represent a sizable boost our cash flows which were previously reported at approximately $98000 per month.

We're also encouraged by quarterly updates from Phillips 66 that Theyre rodeo refinery will convert to renewable diesel by 2024 and will no longer process crude oil.

Those crude volumes are expected to continue to be produced but we'll need a path to different refineries such as the Crimson pipelines provide among other possible routes.

Turning to our assets in the Midwest Megass in Omega systems continued performing steadily with.

We're delivering increased volumes and supporting the efforts of our customer spire in St. Louis which is a critical provider of natural gas to customers in that area.

The consistency and predictability of these assets are reflective of our long term goals across the asset base with that I'll turn it over to Robert to address the financials and introduce our new ESG report that report was supported by our senior leadership and board of directors and our results demonstrate exemplary stewardship of capital and consideration for our stakeholders.

Robert.

Thanks, Dave.

For the three months ended December 31, 2021, we had revenue of $35 8 million adjusted EBITDA of $12 3 million adjusted net income of 835000, and actual providing for maintenance capital and debt amortization adjusted cash available for distribution or adjusted CAD.

$2 4 million, resulting in a 3.2 times common dividend coverage.

Adjusted CAD included a nonrecurring 1 million measurement game after adjusting for that the common coverage was still one nine times.

Overtime, we expect measurement gains and losses to cancel out.

We finished the quarter with liquidity of approximately $35 million, including cash of $12 million and $23 million of Undrawn revolver.

The company's board declared dividends on all preferred obligations during the fourth quarter.

And a five cent per share dividend on our common stock no dividend was declared on class B common stock as a result of not meeting the required one five coverage.

Ratio for the class B shares.

We will only begin paying the class b common dividend. Once we are confident that the class b dividend can be maintained into the foreseeable future.

As a reminder, the class b common on by management acts as a buffer providing stability in the dividend for external stockholders.

Our dividend characterization for 2021 was return of capital or potential benefit for our investors now.

Now turning to our 2022 outlook, we believe we can achieve $44 million to $46 million and adjusted EBITDA.

With $8 million to $9 million of maintenance capital.

This should allow us to continue to earn and pay our common dividend in 2022.

There will be some quarterly variability in dividend coverage due to timing of maintenance spend.

<unk> on our 2022 athletes, we anticipate that a portion of the dividend characterization will also be return of capital.

I want to direct everyone to the prospective forward looking capitalization table located on page 17, our 2021 10-K.

To be filed later today, we believe this table when considered together with our GAAP financial information provides further insight into the impacts of the noncontrolling interest reflected on our balance sheet.

Lastly, I wanted to address our ESG profile, which is increasingly important in today's environment.

We are posting.

And initial ESG plan for investors and stockholders to view on our website, which serves as a baseline for continued improvement.

We will be working to formulate ways to improve on the space side in the weeks and months ahead.

As a company operating in the oil and gas industry and one of the most regulated markets in the world.

Our assets have been engaged in the E and S aspects of ESG is good business practice for the past 20 years.

Furthermore, core energy.

Has always believed in stocks strong corporate governance, which was further improved with the internalization of the manager in 2021.

I'll highlight just a few points that speak to our positive attributes in our ESG analysis.

But the pipeline company.

We are one of if not the most carbon efficient means of transporting large volumes.

Far more than other transportation options, such as rail ship barge or truck.

Second at the natural gas pipeline Mo gas plays an integral part of the energy transition transporting a cleaner burning fuel source that is readily available and using the existing infrastructure.

Third our California operations, while oil focus.

Our operating in what we believe might be the cleanest energy environment Chemical World, California has a rigorous regulatory and safety framework and California producers are among the lowest carbon mirrors in the world in fact, CRC one of the largest producers in California is possibly the lowest admit or per their publicly disclosed analysis.

And just a fraction of the average in their industry.

By virtue of being a highly efficient transportation system.

In state production to against state refining, who in turn supply local and state product markets, we minimize the globe the carbon emissions associated with the transportation portion of the value chain.

We welcome any feedback you may have on our initial report as we continue to develop the program.

At this time, we will 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.

Thank you ladies and gentlemen.

Floor is now open for questions. If you have any questions or comments. Please press star one on your phone now to join the queue.

We wish to leave the queue at any point you May press Star two we do ask that if you are listening via speakerphone. Please pick up your handset for Optum sound quality. Once again, if you have any questions or comments. Please press star one on your phone now.

Our first question today is coming from Selman <unk> at Stifel. Your line is live you may begin.

Thank you good morning.

I guess first starting off in terms of the Phillips 66, and those barrels looking to transport can you.

Maybe talk a little bit about just what youre seeing out there and your thoughts on being able to actually secure some of those barrels.

Unlike John Greer to answer that question has been operating in the state for for so many years and I think has the best perspective on that Soma.

John are you able to respond yes sure Selman.

It's.

P 66 has got.

Their plans to first shut in their refinery in Santa Maria which is a little bit of a pre process for the refinery that's in rodeo up in the Bay area.

And those barrels they they take on the order of 50000 barrels a day up to.

In combination to both of those refineries and those that 50000 barrels a day.

It has to go somewhere.

For the for the time being.

Aye.

We can't say for certain exactly where those barrels go but there was a shut in of the marathon.

A van refinery.

That's now approaching two years ago, and so there's a there's a shortage of barrels that's up in the bay area that needs to be made up somehow. We believe there is there is a reasonable expectation on our part.

That had been a lot of those barrels will have to go north that's our pipeline.

But theres not certainty on that one.

Got it and then I guess, maybe just talking a little bit more about sort of the whole permitting situation.

I'm looking for.

I guess ruling next month can you just maybe talk a little bit about that if successful how quickly barrels could start to flow again.

That's another one selman that that won't that won't happen.

Immediately.

There is a ruling and its generally on kind of a technicality or.

On the environmental impact report that are done in Kern County.

We believe theres good legal reason for that debt to go in favor.

Of producers.

But if it and Theres a number of.

Permit requests for drilling as well as permit requests for.

I'll say projects that winning increased production, which include you know well workovers and things that are like water floods and steam floods and the like.

That are in the state and we're optimistic that those move forward.

But but again, that's not that's not immediate relief for all of the producers I will say that.

While there are some headwinds for the for.

For the producers in California today, there's certainly a very much a willingness and desire to invest.

Invest in in the in increasing production and so did I I think eventually there is a benefit but I can't say I think that's immediate.

Understood and appreciate the color there last one for me and maybe more directly towards Dave can you just maybe talk a little bit about new business opportunities.

What youre seeing and what Youre chasing out there.

Sure some of them.

We still believe that the best return on investment is going to be projects.

<unk> developments that are within our existing footprint.

And and then secondarily.

Add on acquisitions.

That might that might diversify our platform.

We've got activity underway in both of those areas with limited capital, we're going to have to be choosy about where we go but I do think that 2022 is going to be a good year for us and.

We were very pleased with the level of activity, we have on both those fronts.

Okay. Thank you very much.

Selman if I can add this is John Greer again.

We have in our company, we had been looking at I'll call it sort of new energy investments and we have been making efforts to use our assets and rights of way and people skills to expand our business.

In a number of uses that include specifically for carbon sequestration.

And we're currently in discussions with Counterparties on those users and we hope to have some announcements later this year, but we're working on that.

Great. Thank you.

Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press star one now.

We have no further questions in queue at this time I would now like to turn the floor back over to David <unk> for any closing remarks.

Before closing the call I do want to recognize executive Vice President Becky Sandri, who will move on from the company in April Becky was a founder of core energy in 2010 with me.

She has been responsible for leading our internal and external professional teams to develop the landmark private letter rulings that enable our platform to operate as we do.

On behalf of our board of directors and her colleagues I'm going to thank Becky for her tireless efforts to build our company and wish her the best in her next chapter.

Thanks to everyone for joining us today, please contact our IR team, if you'd like to meet with US at one of the upcoming Investor conference events or range of direct one on one call have a great rest of your day.

Thank you ladies and gentlemen, this does conclude todays event you may disconnect at this time and have a wonderful day, we thank you for your participation.