Q4 2022 CorEnergy Infrastructure Trust Inc Earnings Call

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

Thank you Paul and thank you everyone for joining today's core energy infrastructure Trust's conference call with me today are Dave Shull, CEO , and Chairman, Robert Walden, President and CFO , and Chris Hoffman, Chief Accounting Officer, Dave Robert and Chris will provide updates on our business operations and results at all three will be available for Q&A.

I'd also like to introduce Jeff <unk>, our vice President of finance are joining the call today J T has been an integral part of for energy for many years and will be taking over the investor relations as well as that'd be Hagen exit our roles with the company it.

It's been a pleasure to meet many of you and to be a part of an amazing team.

Earlier. This morning, we published a press release announcing our fourth quarter results for 2022.

We expect to file our Form 10-K at a later date.

I would 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 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 on the Investor Relations section of our website, we do not update our forward looking statements. During this call we will make reference to certain non-GAAP metrics, which are reconciled in our filings as part of our results reporting <unk>.

All of you to review, our complete disclosure risk factors GAAP numbers and those non-GAAP metrics with the related reconciliations.

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

Thanks, Matt and good morning, everyone.

It's been an eventful couple of months in a period of change for core energy.

We will discuss the challenges, we're facing and our responses, including streamlining our executive team I want to begin by introducing Robert Waldron as the new President of core energy in this role Robert will oversee both the Crimson ammo gas organizations as well as take on increased responsibility over the day to day operations.

Robert will continue to serve as CFO for the near term.

He has a long diverse career in the energy sector with experience as an engineer finance professional and a business executive.

Robert joined Crimson in 2014, as CFO and he has been active in all facets of the business since that time.

His knowledge of our California pipeline operations has been a valuable asset to me and I believe for investors as we have navigated uncertain times over the past two years.

Core energy acquired Crimson It was an easy decision to offer Robert the core energy CFO role and I believe the company and shareholders will benefit greatly from his expanding influences president and I would also like to introduce Chris Hoffman, Our Chief Accounting Officer, who will present, the financial report today as we expand and enhance his leadership role at core energy.

Chris has been an integral part of our senior leadership team since 2021.

I heard that he has for 10 years as Chief Accounting officer at a private E&P company and began his career at Pwc.

The company is fortunate to have such a knowledgeable accountant and a strong leader I'm excited for both of these colleagues as they expand their influence at core energy.

I'll now turn over the call to Robert who will spend a couple of minutes updating you on our operations and then Chris will provide the financial comments and outlook Robert.

Thanks, Dave I'm grateful and humbled by the by the confidence and support shown by the board, Dave and the rest of the.

Our core energy organization in my new role as President.

The core energy team from top to bottom, including a deep finance and accounting group supported me is best in class and I'm excited about our future.

Turning to the recent quarter the fourth quarter saw continued.

Steady performance from our predictable Mo gas in a bag of natural gas.

Operations.

St Louis and the surrounding areas.

We have several projects in the works for Mo gas and Omega for example on Omega.

We received a notice to proceed on the utility energy service contract projects at Fort Leonard work, where our Mega system as the natural gas local delivery system for the base active.

Activities are expected to begin in mid 2024.

For more gas, we are evaluating a project to support potential increasing customer amount on that system.

These potential projects would add additional long term contracted revenue to that division.

Turning to our Crimson assets on our last call, we indicated that Crimson volumes increased in the third quarter of 2022 due to operational issues elsewhere in California.

Which continued into the fourth quarter. However, we noted this was a temporary increase the third party operational issues have now been resolved in February and volumes have returned to a lower level closer to Q2, 2022 volumes, which we believe will continue indefinitely.

We believe the disruption in global supply patterns, which began a year ago are still influencing California refiners and we have.

And we have experienced unprecedented volume shifts as a result.

In order to offset the volume declines in the first quarter of 2023 Crimson filed a 36% rate increase on its San Pablo Bay pipeline and 107% rate increase on its KLM pipeline based on the regulated cost of service tariff structure.

The SPV filing.

Was protested by shippers and will proceed through the CPUC process with resolution expected in 2024 or 2025. The case KLM filing is expected to be resolved be resolved shortly thereafter.

However, we are always open to negotiating with our shippers to find a resolution acceptable to all parties, which could result in Battersea and resolved earlier.

In California, we continue to believe our.

Our Crimson pipelines are a critical link in the state's energy infrastructure.

Operating under fixed tariffs for volumes transported with long term investment grade customers.

While the last year, it's been more challenging has been a more challenging time for Crimson, where we had planned. We believe these assets will profitably fulfill critical energy needs in California for decades to come.

Looking to the future our Crimson assets have significant untapped value in the energy transition in California, even as we work through these present challenges we are advancing our readiness for the new hydrogen and carbon capture and sequestration markets emerging in California.

Our Crimson systems and rights of way provide a critical link between large carbon emission sources and prospective storage reservoirs.

An asset we believe would be difficult or even impossible to replicate today, we are working with multiple parties to determine the best path forward in these new market opportunities.

The commercial case for Sidoti captures bettering in California than in any other state. The recent federal legislation increased carbon capture credits from $50 a ton to $85 a ton and $180 a ton for direct air capture plus in many cases, it's possible to also take advantage of the Lcs that's credit.

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

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

Finally, we continue to make progress on our ESG initiatives, we intend to publish an updated ESG progress report updated update with the filing of our 10-K for 2022.

Some of the highlights include scope, one and two emissions have been reduced by 56% from the 2021 baseline.

We have initiated a plan to reduce methane emissions by an estimated 65% by 2025.

We have implemented board oversight of wide ranging cyber security at ESG programs for our critical business system.

With that I'll turn it over to Chris to address the financials and other notable items.

Thanks Robert.

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

Increasing costs, but we only do so after we've exhausted other avenues, such as improved cost efficiencies.

We previously announced and began collecting a 10% tariff increase on Crimson KLM system, and a 10% increase from the proposed 35% tariff increase on Crimson Southern California system in Q3 2022.

Company plans to file a been collecting an additional 10% increase on a southern California, SPV and KLM systems on the anniversary date of the original filings until the matters are resolved.

We believe Crimson cost of service fully justifies all requested increases.

However in less than $2 per barrel for most shipping routes on our system. We believe our rates are economically advantageous for our customers and the environment compared to the alternatives are.

Our rates are not the reason for volume shifts away from our pipelines in our opinion.

Looking at the results fourth quarter revenue was $36 5 million, an increase from $33 million last quarter. As a result of steady performance from Mo gas at Omega and improved volumes in California.

We expect the Q1 2023, California volumes to be less than in Q4 as the operational issues that occurred in 2022 with a third party pipeline had been addressed or in February 2023.

For the three months ended December 31, 2022, we had adjusted EBITDA of $9 4 million and adjusted net loss of 553000 <unk>.

<unk> was a negative $2 8 million impacting our ability to cover dividends.

As such the board concurred with management's recommendation to suspend dividends on both our series a preferred and common equity.

Core energy seven 375% series, a cumulative redeemable for bolt preferred stock will accrue dividends during any periods, which dividends are not paid.

Any accrued series, a cumulative redeemable preferred dividends must be paid prior to the company resuming common dividend payments.

Consistent with our practice, our board will continue to evaluate dividends each quarter, making the decision on dividend payments based upon the most current data available.

It is our goal to successfully bring the business through this difficult period and resumed dividend payments as soon as is practical.

To wrap up our 2022 commentary. Unfortunately on March three 2023 after discussion with the company's management, our audit Committee determined the company's 2021, 10-K, and 2021 and 2022 10-Qs require restatement due to an error in its accounting for EPS arising from over allocation of <unk>.

The net income to Noncontrolling interests.

Fair statement does not affect key metrics. The company previously disclosed through these periods, including net loss adjusted net income CAD and adjusted EBITDA and had no impact on the company's evaluation poor decisions, including declarations of preferred or common stock dividends.

I would refer you to our 8-K that was filed earlier today for additional information.

We are introducing our 2023 adjusted EBITDA outlook of $33 million to $35 million inclusive of maintenance expense in the range of $9 million to $10 million maintenance capital expenditures are expected to be in the range of $10 million to $11 million.

Costs are not expected to be uniform throughout the year due to project timing.

In Q1, 2023 and response to the tough market conditions, we have realigned our corporate structure reduced corporate G&A.

Reduced 2022 incentive bonus payouts and senior management took a 10% salary reduction.

The impact of all these actions are included in both our 2023 outlook and rate case filings.

The management realignment, which is expected to reduce the layers of management and streamlined the organization will result in a $1 1 billion restructuring charge in Q1 2023.

Liquidity at quarter end was approximately $32 8 million, including cash of $17 8 million and $15 million of Undrawn revolver availability.

Our credit facility does place certain restrictions on utilization of cash and revolver capacity.

Finally in February 2023, we amended our credit facility to extend the maturity to May 2024, as well as the further step down in certain covenant ratios from Q1 2023 for Q3 2023.

This will provide us additional time to manage our near term debt maturities and pursued previously announced asset monetization and leverage reduction initiatives.

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

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And we did have a question coming from Selman <unk> from Stifel.

Simon Your line is life.

Thank you good morning can.

Can you.

Is there any update I guess on in terms of the monetization.

The initiatives that you've undertaken.

And what assets you are looking at potentially to use to reduce debt.

Yeah, So I mean I'll take that.

No.

We don't have anything to announce yet on that.

As.

As we think about the company.

Obviously.

The first one of the first things you think about monetizing.

Monetizing assets to load to decrease leverage in and provide a little more breathing room from our covenants and.

So we're looking at all opportunities there as well as refinancing opt.

Opportunities in <unk> and <unk>.

Longer term projects, but nothing specific to announce yet on that on the asset monetization side.

Got you.

Then as I think about your credit facility being extended I guess essentially by three months.

Okay.

Then I guess that would become current in may of this year.

It will okay alright.

And then.

Sure.

Thinking about <unk>.

Sort of your expenditures that you've gotten in I noticed and I noticed you said, there they're going to be lumpy.

But is there anything there just help us with timing in terms of how you expect to incur those expenses.

Yeah.

So the Lumpiness and then you can see how that Lumpiness is Kurt.

In our disclosure and.

In the MD&A section, we disclosed asset.

Maintenance expense, which is inside of EBITDA sort of operating expense and then.

Maintenance capital.

So it's hard to predict those I mean, we actually have done a lot of work on in 2023 budget budgeting process to try to smooth them out and so it won't we don't anticipate to be as lumpy as it was last year.

But it's it's really hard to say.

Quarter to quarter exactly what that'll be.

Okay, and when that'll be incurred okay.

Last one for me when do you guys anticipate having your payout.

Yeah.

Chris do you have the data the data on that we.

We don't have a specific date, yet, but we don't expect it to go beyond the end of March which would be our kind of filing deadline within the 90 days.

Got it.

Alright, I think that does it for me. Thank you very much.

Thanks Ellen.

Thank you.

And I would now like to hand, the call back to Dave <unk> for some closing remarks, Dave.

Yes. Thank you all for joining US today this is a challenging period.

But we are moving forward to resolve the underlying issues and we'll provide updates as appropriate feel free to contact our IR team if you'd like to arrange a meeting time Oracle.

Thank you and have a great day.

Thank you. This does conclude today's conference you may disconnect at this time and have a wonderful day. Thank you for your participation.