CorEnergy Infrastructure Trust Inc. Q1 2023 Earnings Call
Speaker 2: Good morning, everybody. I'm Brad and I'm Ken. You're muted. You will be. Good day and welcome to the Core Energy first quarter 2023 earnings conference call.
Speaker 2: At this time, all participants are on a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. I would now like to turn the call over to Matt Kreps. Please go ahead. Thank you for your attention.
Speaker 3: Thank you, Kelly. And thank you, everyone, for joining today's Core Energy Infrastructure Trust conference call. With me today are Dave Schulte, CEO and Chairman, Robert Waldron, President and CFO , and Chris Huffman, Chief Accounting Officer.
Speaker 3: Robert and Chris will provide updates on our business operations and results, and all three will be available for Q&A.
Speaker 3: Earlier this morning, we published a press release announcing the first quarter results for 2023. We expect to file our Form 10Q later today.
Speaker 3: 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 and subject to the safe harbor protection available under the applicable securities laws.
Speaker 3: Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in our violence with the SEC.
Speaker 3: These documents are available on the investor relations section of our website. We do not update our forward-looking statements.
Speaker 3: During this call, we will also make reference to 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 with related reconciliations.
Speaker 3: And with that, I would like to now turn the call over to Robert Waldron.
Speaker 4: Let's go ahead.
Speaker 5: Good morning, everyone. It's been an eventful couple of months since our last earnings call, and I am pleased to report that we are implementing favorable long-term solutions to the near-term challenges we have discussed. My name is
Speaker 5: Our team has been diligently working on a number of initiatives, including streamlining our executive team, reducing our corporate cost structure, initiating an asset divestiture program, and working to de-leverage our balance sheet. The benefits of these actions will become more visible as we move further into 2023.
Speaker 5: Starting with the overview – a few overview comments of our recently completed first quarter, we continued the steady performance of our predictable mow gas and omega natural gas operations that serve the St. Louis and surrounding areas. However, due to the process underway, the mow gas and omega natural gas operations have
Speaker 5: These entities are now reflected as assets held to sell on our balance sheet. We expect to update our progress on that divestiture when appropriate.
Speaker 5: Turning to our Crimson assets, as anticipated, volumes decreased to lower levels compared to Q3 and Q4 2022 due to the restart of a third-party pipeline system that had been down since July 2022.
Speaker 5: Volumes appear to have stabilized at the reduced level previously anticipated.
Speaker 5: We believe this lower volume level will continue indefinitely. Furthermore, we are seeing some expense pressures in the areas of labor, asset maintenance, and electricity costs which seem to be consistent with the rest of the industry.
Speaker 5: As a response to those changes in volumes and costs, Crimson filed for a 36% rate increase on its San Pablo pipeline and 107% rate increase on its KLM pipeline.
Speaker 5: both based on the regulated cost of service.
Speaker 5: Both filings were protested by shippers and will proceed through the CPUC process with resolution expected in 2025.
Speaker 5: We are always open to negotiating with our shippers to find a resolution acceptable to all parties and may lead to an earlier resolution.
Speaker 5: While the California energy market has been more challenging and volatile than we have ever experienced or planned, our Crimson Pipelines remain a critical link in the state's energy infrastructure, operating under fixed tariffs for volumes transported with long-term investment grade customers.
Speaker 5: Once the tariffs are properly aligned to current volumes of costs, we believe these assets will profit and fill critical energy needs in California for decades to come, both in the existing energy economy and in the emerging new energy economy.
Speaker 5: We hold a strong belief that our Crimson assets have a significant and critical role to play in the energy transition in California, especially the new hydrogen and carbon capture and sequestration markets.
Speaker 5: Our Crimson system and rights of way provide a critical linkage between large carbon emission sources and prospective storage reservoirs. An asset we believe would be difficult or even impossible to replicate today.
Speaker 5: We are working with multiple parties to determine the best path forward in this new market opportunity.
Speaker 5: The commercial case for CO2 capture remains better in California than in any other state. The California Air Resource
Speaker 5: This board 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.
Speaker 5: Federal legislation has increased the carbon capture credit from $50 a ton to $85 a ton and to $185 a ton for direct air capture. In many cases, it's also possible to take advantage of the LCFS credit. Finally, we published an updated ESG progress report with the filing of our 10K...
Speaker 5: And we have implemented board oversight of wide ranging cybersecurity and ESD programs for our critical business systems.
Speaker 5: With that.
Speaker 5: I'll turn it over to Chris to address the financials and other notable items.
Speaker 6: Thanks, Robert.
Speaker 6: February 2023.
Speaker 6: Given the process underway with MOGAS and OMEGA, I will address CRMZN results, VIN corporates, and noteworthy balance sheet items. As expected, and included in the company's previous 2023 outlook, California transported volumes were lower in Q1 due to volumes that reverted away from our San Pablo Bay pipeline system after a competitor pipeline returned to service in January of this year.
Speaker 6: In order to address this dynamic, we previously announced and began collecting a series of tariff increases on our Crimson systems.
Speaker 6: We began collecting 10% tariff increases upon styling our new rates even for larger tariff increases.
Speaker 6: The requests are subject to ship or protest and refund if not found to be earned. The company will also begin collecting an additional 10% increase on the anniversary date of the original filings until the matters are resolved.
Speaker 6: In Q1, 2023, in anticipation of lower revenue, we acted to realign our corporate structure, reduce corporate GNA, reduce 2022 incentive bonus payouts, and senior management took a 10% salary reduction.
Speaker 6: The impact of all of these actions are included in both our 2023 Outlook and Rake case filing.
Speaker 6: The Management Realignment, which reduced the layers of management and streamed line the organization, resulted in a 1.7 million restructuring charge in the first quarter.
Speaker 6: The company expects the restructuring and other completed cost savings initiatives to reduce Crimson costs by approximately $2.5 million on an annualized basis.
Importantly, we believe that these proposed tariff rates and other changes we are undertaking will return core to appropriate profit levels analogous to any other regulated utility, generating fee cash flow that can be used to pay reasonable returns to our capital partners, both debt and equity. So the three months ended March 31st, we had a just fee of about $7.8 million, an adjusted net loss of $1 million. The Board evaluated these results and agreed with management's recommendation to continue the suspension of dividends on both our Series A preferred and common equity. As a reminder,
Core Energy 7.375 Series A cumulative redeemable preferred stock will approve dividends during any period in which dividends are not paid.
Any accrued series A cumulative redeemable for dividends must be paid prior to the company resuming common dividend payments. Although no cash payments were made on the preferred stock, the company has included the effects of the cumulative unpaid dividends in the financial statements. The Board will continue to evaluate dividends each quarter.
making a 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 resume dividend payments as soon as practicable. Regarding the first quarter balance sheet, please note the company's MOGAS and OMEGA assets and liabilities are classified into one line as held for sale on the balance sheet.
but the income statement includes those operating results. More information can be found in the footnotes of the company's 10Q'd be filed later today.
Additionally, RPLA inventory position was higher than normal at the end of the first quarter, but we subsequently sold 81,000 barrels during April , which generated 6.3 million in proceeds during the second quarter.
We would not expect your inventory at the level as a matter of normal practice. Also in February 2023, we amended our credit facility to extend the maturity to May 2024, as well as deferring the step down in certain covenant ratios from Q1 2023 to Q3 2023. This will provide its additional time to manage our near-term debt maturity.
and pursue previously announced asset monetization and leverage reduction initiatives. Regarding our outlook, which includes the results of MOGAS and OMEGA, we are maintaining our full year 2023 adjusted EVA to range of $33 to $35 million, inclusive of maintenance expense in the range of $9 to $10 million.
Maintenance capital expenditures are expected to be in the range of 10 to 119. These costs are not expected to be uniform throughout the year due to project timing. At this time, we will take questions from our covering analysts for institutional stock voters 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. We ask that while posing your question, you please pick up your handset if listening on a speaker phone to provide optimum sound quality. Please hold just a moment while we pull questions. Your first question is coming from Salman Akio with Steeple. Please pose your question. Please.
to expect to see that roll through and then I guess on the GNA line it was up sequentially from.
Q4 and so is there anything in there? I guess maybe related to the sale process that would be taking it up.
I'll take the first part of that and now Chris you can take the second part on the GNA. You know, something that the impact of the restructuring charges will really roll out throughout 2023. So, you know, they're the...
The accounting for it happens in Q1, but the impact will spread, the savings impact, 2.5 million will spread throughout. So I think it's a little bit later in the year you'll start seeing full run rate impact of that.
Okay, and we mainly see that in the GNA line or will be in the operation, you know, operations line.
Okay, and we mainly see that in the GNA line or will be in the operation operations line or a combination there are
It will be both. It will be spread. I don't know the exact split between opx DNA, but it'll be in both areas. Got it.
We have, as we'll disclose later in the queue today, we have about 850,000 of that 1.7 million is actually included in the G&A line. There's some additional components including in transportation distribution expense as well for the remainder. And you'll see some more information on later when we disclose that. But on a go-forward basis, we think about a million dollars.
of the annualized amounts should be coming into out of GNA and then another million or so in transportation distribution expense. And then I know it's limited in terms of what you can say on the sale process, but I guess you know, going according to expectations.
you're getting a number of interested parties. Could you comment on that at all? Sumlin, we do say in the queue that we'll file later today, we basically repeat the prior announcement of process initiation and expected timing later in Q3 of announcement. So we don't have any reason to change what we said before, but as you say, we're not going to comment specifically on any.
on the transaction status. Okay, all right. That does it for me. Thank you kindly.
Thank you. Your next question is coming from Chris Cooke, what was that though? Please close your question. Your line is live. Yeah, questions been asked and answered. Your next question is coming from Garib Fellas with J.A. Each lane partners.
Please pose your question. Your line is fine. Hi, guys. Two from me. One, being you guys mentioned, the potential for sales of real estate previously, could you just help us think about the kind of size of those sales and how much you might receive there?
Yeah, I can take that. You know, we haven't really disclosed how big those are. You know, we do own some. These are primarily most of the surface area that we own is around our pump stations and things like that. So it's.
It's typically in the acres, a few acres. We do have some larger areas up in the San Joaquin Valley, but, you know, it's – depending on obviously the value of the land up in San Joaquin Valley is a little different than some of the land we've got in California, but... Would you to stop thanks Oooh yeah we should go back to San Joaquin Valley for that video or we could just birds there wouldn't be a lot of water coming out of a few acres, but
You know, we're really working through that. We don't have anything currently to disclose on that. But we still think that's a viable option to get something done, although it does take some time to actually realize cash from those sales. Okay. And then next, you know, if you guys had.
So let's say hypothetically you had received the kind of rate you think you deserve on the Crimson Pipeline, what would earnings look like if you guys were getting the rates that you think you deserve?
for is if we earn our cost of service and with a successful sale of MoGas and we earn our cost of service, the company should be able to and continue to use, and I think there is no expectation that that is the best conversation
Should be able to satisfy all the different pieces of the capital structure, whatever debt is remaining on the company preferred and common equity. So being able to pay a dividend on those. Is where we think the company would be.
with Crimson earning their cost of service on all persistence. Okay. All right. That's all for me. 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 Robert Waldron for any closing remarks. Thank you all for joining us today. Thank you.