Q3 2022 CorEnergy Infrastructure Trust Inc Earnings Call

Hello, and welcome to CT Energy's conference call to discuss third quarter 2022 results I would now like to turn the call over to Matt Kreps Investor Relations CT energy. Please go ahead.

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

Robert will provide updates on our business operations and results in all three of them will be available for Q&A.

Earlier. This morning, we published a press release announcing the third quarter results for 2022, we expect to file our Form 10-Q later today.

I'd like to remind everyone that the statements made during the course of this presentation that are not purely historical may be forward looking statements are subject to the safe Harbor protection available under the applicable securities laws important factors that could cause actual results to differ materially from those in the forward looking statements are discussed in our filings with the SEC.

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

During the call. We will also make reference certain non-GAAP metrics, which are reconciled in our filings as part of our results reporting we encourage all of you to review our complete disclosures risk factors GAAP financial numbers and those non-GAAP metrics, which are with the related reconciliations.

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

Good morning, everyone I'll spend a couple of minutes updating you on our operations and then turn the call over to Robert for financial comments.

The third quarter saw continued steady performance from our predictable Mo gas.

Natural gas operations that serve the St Louis and surrounding areas.

We also had several projects we're evaluating for both of those systems. These include supporting potential customer demand on the Mo gas system that could increase volume as well as.

As we discussed U S C projects at Fort Leonard Wood.

Our Omega system is the last mile of distribution to U S Army facilities.

In California, our Crimson pipelines provide a critical link in the state's energy infrastructure operating under fixed tariffs for volumes transported with long term investment grade customers.

Well this has been a more challenging year on Crimson than we had planned we believe these assets will feel critical energy needs in California.

For decades to come.

On our last call, we indicated that second quarter volumes have declined due to disruptions in global supply of crude oil following the war in Ukraine.

Uncertainty remains with the price cap on Russian crude taking effect in December .

However, crimson volumes increased sequentially in the third quarter due to operational issues elsewhere in California.

Which is continuing in the fourth quarter.

Looking to the future our Crimson assets have a significant untapped value in the energy transition process in California.

As John discussed last quarter, our California footprint is well positioned to help reduce greenhouse gas emissions through carbon capture and sequestration or Ccs.

The largest energy companies in the state are moving ahead with plans in this area Crimson pipeline networks provides a critical link to bring C. O two back to the field, where it can be stored using potential storage reservoirs.

We believe there is significant potential for us in this application of our assets.

The commercial case for COPD capture is better in California than in any other state.

The recent federal legislation increased the carbon capture credit from $50 a ton to $85 per ton.

And to $180 per ton for direct air capture.

The California Air Resources Board or Carb has set aggressive climate goals of a 40% reduction in carbon emissions by 2030.

And carbon neutrality by 2045 and identified Ccs as a central pillar to their targets.

We believe there are other low carbon energy transition related storage and transportation opportunities in California. In addition to Ccs, which we will continue to consider as we work to deploy our assets and expertise as part of the next generation of energy economy with that I'll turn over the call to <unk>.

Bert to address the financials.

Thanks, Dan.

During the third quarter, we filed for a tariff increase of 34, 9% on our southern California pipeline system and 10% on our KLM pipeline. Both of these tariff filings have been protested by shippers are proceeding and are proceeding through the CPUC process with resolution expected in second half of 2020.

Three.

However, we are already collecting on a 10% tariff rate tariff increase on both systems subject to refund.

Out by the CPUC rules.

In August 2020.

In August 2023, and we plan on filing for and collecting on an additional 10% increase for a total effective increase of 21% in southern California, which represents the anniversary date of the original filing for that system.

Assuming the rate case hasn't been resolved by that time.

We believe our cost of service fully justifies bolts requested increases.

We also filed for when you'll also filed a 10% increase on our STB system, but withdrew it due to increased volumes and general volume variability on that line.

We continuously monitor our cost of service and will file a rate increase oddness system if conditions warrant.

While the majority of our assets are regulated.

We always have the option to increase tariffs.

Since the majority of our assets are regulated we we always have the option to increase tariffs to offset declining volumes and our increase in costs.

But we only do so after we've exhausted other avenues, such as improved cost efficiencies, however at less than $2 per barrel for most shipping routes on our system. We believe we are a market for our customers and the environment compared to the alternatives.

We're also actively engaged in discussion with pipeline companies with systems adjacent system adjacent to our current assets that could further boost our revenue and adjusted EBITDA results, both smaller near term deals and larger transactions.

We own the largest independent crude oil pipeline system in California and are the natural consolidator in the state.

As previously discussed P. 66 is still on track to convert its were down refinery to renewable diesel production in early 2024.

Which results in a significant amount of crude oil needing to be transported to other refineries and should result in additional volumes on our SPP pipeline with no additional capex required more to come on these opportunities.

Looking at the results third quarter revenue was $33 million, an increase from $31 5 million last quarter as a result of steady performance for both gas and Omega and improved volumes in California, we.

We expect the Q4, California volumes to be similar to what we saw in Q3 since the operational issues with a third party.

System are expected to last at least through Q4 of this year.

For the for the three months ended September 32022, we had adjusted EBITDA of $8 9 million and adjusted net income of $1 1 million.

We also had adjusted cash available for distribution per share or adjusted CAD per share of negative <unk>.

However year to date adjusted CAD per share its 14th or <unk>.

96 coverage all of these results.

Our adjusted for the $16 2 million goodwill impairment incurred.

During the quarter as a result of the decline of our market capitalization.

The third quarter was impacted by unusual items, which when normalized result in what I believe is a cat number that is more indicative of the businesses ability to pay its common dividend in Q3, we spent $950000 to clean up a minor crude oil pipeline leak.

That occurred during the quarter the quarterly average expense incurred between 2018 and today is 135000. So the expense in Q3 is an outlier the.

The other expense is related to the tariff rate increase as previously mentioned in Q3, we spent 462000 nonprofessional services related to our rate filings.

Our quarterly average expense incurred between 2019 and today is 116000.

After normalizing these two expenses to historical average we had normalized adjusted CAD per share for Seth.

Or seven for coverage.

For the quarter and year to date normalized CAD per share of <unk> 21.3 dollars six coverage.

The board the company's board declared dividends on all preferred obligations during the third quarter and a <unk> <unk> per share dividend on our common stock our board evaluates dividends each quarter using a longer term view of coverage.

Given the quarterly variability that can occur with our asset.

We are maintaining our 2022 adjusted EBITDA outlook of $42 million to $44 million and still expect $8 million to $9 million of maintenance capital expenditures for the year.

While we expect fourth quarter volume for volumes and revenue to be similar to Q3, we expect the expenditure on our rate case proceedings to be above the historical quarterly average, which is accounted for the period expense, but what what would benefit future periods. We also expect to have higher maintenance expenditures.

During Q compared to Q3, we have provided a table of the historical and expected Q4 maintenance expenditures on page 51 of our 10-Q to be filed later today.

Based on historical experiments experienced permitting and fourth quarter holiday schedules some of our anticipated fourth quarter maintenance projects may move into 2023.

We expect to provide 2023 guidance in connection with the filing of our Form 10-K for 2022.

Liquidity at quarter end was approximately $39 8 million, including cash of $21 8 million, an $18 billion of drawn revolver availability, our credit facility does place certain restrictions on utilization of the cash and revolver capacity.

At this time, we will take questions from our covering analysts and institutional stockholders before closing the call. Thank you.

Certainly the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.

While posing your question. Please pickup your handset is listing on a speaker phone to provide optimum.

Please hold just a moment, while we poll for questions.

Your first question is coming from Selman <unk> with Stifel. Please pose your question your line is live.

Thank you good morning.

I was wondering maybe if you could just expand a little bit more in terms of carbon capture and where you are and sort of what opportunities you're seeing there.

Maybe any industries in particular talking about connecting to and to capture the carbon.

Thank you Sal and we've got John <unk> on the call.

Particularly for that expertise he has been spending most of the last year and a half.

Focusing our efforts on identifying developers and opportunities in California.

And so.

Ill, let John respond to that question.

Thanks, Dave.

Selman the.

The.

Many with whom we had.

An agreement continues to work forward on <unk>.

Permitting and things in place so that they can.

Start there sequestration.

We are working with other companies multiple other companies on projects that we can do use and do in the state whether there.

Joint ventures or.

Agreements in which we build out, but where we're continuing to make progress on that on those issues.

Got it.

<unk>.

Anything in terms of sequestration I presume someone else would own the sequestration site.

From that standpoint, and then.

Would it be.

And I know, it's still early but would it be using existing pipe or would you be building new pipe.

Okay.

It would be making it an upgrade to our pie.

You are correct in the sense of needing effectively three.

Different companies, one would do the sequestration what does transportation that's us when does capture.

And that's you know that.

They could be the meeting company or it could be someone that they've contracted.

But you are correct.

Airplane is to be able to use our rights of way and our pipe with some upgraded.

The investment to improve that.

The ability of the pipe transport that Cotwo, and we charge a fee for that.

Yeah.

Our crude oil.

Got it and then.

Just in terms of having a class six well can you just and I know again that there wouldn't be your responsibility, but any just high level thoughts on how that's going for California, and because I guess that has to come from the fed.

Sure.

We do know that there are companies in California, who have made that submission.

I can't comment on the progress that they've made accepted.

We've got no reason to believe they're not going according to their plan I do know there are other companies that intend on.

Also making future submissions to the EPA for permits to inject the classics.

Quest ration permits.

Gotcha, and then maybe you could just talk a little bit about.

Potential settlements or just how you're viewing pushing to these rate increases.

For the transportation of oil and just.

We feel like should we think about.

We feel very confident about our ability.

Those we've got a long history of.

Of success in asking for those permits the CPUC works on its own timeframe. We've got an estimate what we think about the timeframe but.

Yes.

It's <unk>.

Largely out of our control I mean, we're responsive to all of their request.

Okay, well, thank you very much.

Yes. Thank you.

There appear to be no further questions in queue. At this time I would now like to turn the floor back over to Dave Shaffer for any closing remarks.

Thank you all for joining US today, we continue to execute on our company's vision to safely deliver energy critical to the communities. We serve while advancing new energy projects that can extend and add value to our existing portfolio of assets. We've been operating safely for a very long time and with our lower carbon activities, we exceed <unk>.

Lighting opportunities to advance environmental stewardship for future generations. Please contact our IR team directly if you'd like to arrange a meeting or a call.

Have a great day.

Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.

Sure.

Okay.