Q2 2023 Genesis Energy LP Earnings Call

August 3, 2023

I will now turn the program over to Duane morally.

Thanks, Chris.

Welcome to the 2023 second quarter conference call for Genesis Energy Genesis has four business segments. The offshore pipeline transportation segment is engaged in providing the critical infrastructure to move oil produced from the long lived world class reservoirs from the deepwater Gulf of Mexico to onshore refining centers.

OTA and sulfur services segment includes trona, trona based exploring mining processing, producing marketing and selling activities as well as the processing of sour gas streams to remove sulfur at refining operations.

The onshore facilities and transportation segment is engaged in the transportation handling blending storage and supply of energy products, including crude oil and refined products.

The Marine Transportation segment is engaged in the maritime transportation of primarily refined petroleum products.

Genesis operations are primarily located in Wyoming, the Gulf Coast States and the Gulf of Mexico <unk>.

During this conference call management may be making forward looking statements within the meaning of the Securities Act of $19 33, and the Securities Exchange Act of $19 34.

The law provides safe harbor provisions protection to encourage companies to provide forward looking information.

Genesis intends to avail itself of those safe Harbor provisions and directs you to its most recently filed and future filings with the Securities Exchange Commission.

We also encourage you to visit our website at Genesis <unk> Dot com, where a copy of the press release, we issued today is located.

Press release also presents a reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures.

At this time I would like to introduce grant Sims CEO of Genesis Energy L. P. Mr. Sims will be joined by Chris and Jeff <unk>, Chief Financial Officer, and Chief Legal Officer.

Brian <unk>, President and Chief commercial Officer, and Louis Nicol Chief Accounting Officer.

Good morning to everyone and thanks for listening in.

As we mentioned in our earnings release. This morning, our financial results for the second quarter were slightly ahead of our internal expectations and once again demonstrated the resilient earnings power of our diversified market leading businesses.

Notably because of steady production across our footprint along with a continued ramp in volumes from Bp's Argos facility, which achieved first production in April has ramped quicker than we expected our offshore pipeline transportation segment was able to overcome a slightly longer than anticipated planned producer downtime at one of our major Ho.

Fields in the Gulf of Mexico.

During the quarter, our soda Ash business also returned to normal operating levels as rail service in and out of Green River, Wyoming, which restored to adequate levels.

In addition, our marine transportation segment continued to exceed our expectations driven in large part by continued tightness for Jones Act equipment.

As we look ahead to the remainder of the year our expectation of the continued strong performance from our offshore pipeline transportation Marine transportation segments.

We will likely be somewhat offset by softer than previously expected soda ash prices, primarily in our export markets.

Slowing industrial activity worldwide.

Lower reopening of China's economy.

Had anticipated three months ago, as well as anticipated new natural last natural soda ash production from the Braun facility in inner Mongolia has driven many consumers soda ash, especially in Asia, and Latin America to work down existing inventories and ultimately to delay purchases of new soda ash volume secured.

In the back half of 2023.

When existing customers delay their purchasing activity or otherwise refused to take contracted volumes at the then contracted price the.

The most efficient option for us is to find a home for these potentially stranded volumes at the highest netback price, we can get to ensure the tons move. So we can operate at full utilization to spread our out of our fixed cost and minimize our average total cost of production per ton.

As discussed in this morning's release.

We are today adjusted in our full year guidance for adjusted EBITDA to a range of 725% to $745 million for the full year.

Which is only a little over 5% below our original guidance range. If you exclude the $15 million, we did not really realize in the first quarter due to factors outside of our control like weather and inadequate Railroad service.

As you May recall in 2022, we in fact exceeded our initial annual guidance by more than 15% even after excluding approximately 41 million of nonrecurring income we received in 2022.

Having said that let's put this revised 2023 outlook in perspective.

First we are still going to deliver record annual adjusted EBITDA for the partnership.

Second word.

We're going to deliver record segment margin for offshore pipeline transportation segment.

Third.

We're going to deliver segment margin for our marine transportation business that we have not seen since 2015.

And finally, even with the outlook for the rest of the year. It is still likely we will deliver a record contribution from our soda ash business.

Furthermore, the midpoint of this revised guidance range is still delivering our stakeholders with consolidated sequential growth in a range of 8% to 10% over our normalized 2022 performance, which again excludes the roughly $41 million of nonrecurring income we received last year.

Importantly, we also continue to expect to exit the year with a leverage ratio as calculated by our senior secured lenders at or slightly above our long term target leverage ratio of four times.

Additionally, we expect to cover our current distribution to common unit holders by some four three times for the full year of 2023, not one three nor one six but four three times.

Looking through this short term noise I can sit here today and say the long term outlook for Genesis has not changed and remains as constructive as I've ever seen it.

We remain very excited about the expected ramp in our earnings in the coming years, and the resulting flexibility to deliver long term value for all of our stakeholders.

As we mentioned in the release, we currently expect our financial performance in 2024 to be greater than 2023, driven in large part by a known contracted and identified ramp and offshore volumes.

<unk> performance from a rating transportation segment.

A recovery in the supply related underperformance in our sulfur services business and the additional soda ash volumes, we expect to produce and sell for them are nearly completed granger expansion.

Then in 2025, we would expect a significant step change in our offshore volumes and segment margin contributions as both Shenandoah in Salamanca are expected to come online.

Despite some expected volatility in soda ash margins overtime.

This ramp is expect and expected earnings gives us a clear line of sight to generate roughly 200, 300, maybe even $400 million per year of.

Cash flow after all of our cash obligations, including interest payments preferred and existing common unit distributions at the current levels.

Maintenance capital requirements principal payments on our alcohol add senior secured notes de minimis growth capital et cetera, starting in late 'twenty, four and accelerating into 2025.

Enviable position for a company our size.

Now I'll touch briefly on our individual business segments.

Our offshore pipeline transportation segment performed in line with if not slightly ahead of our internal expectations despite longer than anticipated.

<unk> producer downtime at one of our major host platforms.

This extended downtime was partially offset by quicker than anticipated ramp in volumes from Bp's operated Argos facility and steady volumes for Murphy's operate King's key.

As well as base load volumes from our other existing host fields.

As we mentioned last quarter.

In mid April we started to receive first oil from Bp's operated Argos floating production facility, which is supporting the 14 wells pre drilled and completed a bp's operated Mad dog two field.

Argos is currently producing approximately 70000 barrels of oil from just four of their 14 existing wells.

Consistent with Bp's public disclosures, we would expect volumes from Argos to ramp over the remainder of 2023 towards its nameplate capacity of 140000 barrels per day with a 100% of the volumes flowing through our 64% owned and operated chops pipeline for ultimate delivery to shore.

In addition to the 14 wells at the Mad Dog two field.

<unk> recently announced a successful appraisal well that is an extension of the existing Mad dog complex and could be developed through a three to five well tie back to Argos or perhaps to either of the existing Mad dog Atlanta's production facilities.

This is yet another example of additional economic subsea tieback opportunities that exist once a host production facility is in place.

All the volumes coming across Argo, some mad dog and Atlantis will continue to add to our steady base of volumes flowing through our industry, leading crude oil midstream footprint in the central Gulf of Mexico for decades and decades to come.

As we look ahead to the new volumes from Shannon go and sell a bunker in late 'twenty four and early 25. It is important to know that we remain on schedule and importantly on budget with our chops expansion and the new sink pipeline with completion for both expected in the second half of 2024.

The combined 160000 barrels of oil per day of incremental contracted production handling capacity is underpinning our investment and will provide genesis with an approximate five times construction multiple.

This five times multiple is based solely on the firm minimum volume commitments, which as a reminder is set at approximately 60% to 70% of the volumes the operators expect to actually produce.

Additionally, all of the new capacity. We are currently installing is not contracted with these first two quote unquote anchor fields as we like to call them.

Therefore to the extent the anchor fields exceed these minimum volume levels, which we would expect.

Or if we are able to secure incremental third party volumes on our expanded assets and I am confident we will our construction multiple will go down accordingly.

I know I've said this before but I feel that is important to reiterate that the activity levels, we're seeing in the Gulf of Mexico.

<unk> to be as robust as I've seen them in my 30 plus years of focusing.

Focusing on the Gulf.

There has been some recent industry discussion that the majority of the perceived tier one acreage and short cycle onshore shale basins is getting closer to full development.

And as a result, you can see production levels flat Tony.

Whether or not you believe this I can tell you this.

We're seeing both existing and new operators with vast acreage positions in the Permian and other onshore shale basins looking to supplement their short cycle onshore production with longer cycle larger scale cost efficient and lower carbon intensity production.

In the deepwater, which only adds to the future long term prospects of the Gulf of Mexico.

The onshore shale basins really became exciting 15 to 20 years ago with a technological breakthrough of hydraulic fracturing.

I can share that there are two significant technological breakthroughs that are driving this dramatic increase in activity in the deepwater Gulf of Mexico that we have repeatedly referenced.

First there have been significant advancements in obtaining an algorithmic Lee processing seismic data that allows the producing community to better identify and define geologic prospects, especially below salt.

Murphy's operate at King's key.

As well as base load volumes from our other existing host fields.

And thereby significantly reducing exploratory risk and development costs of these world class reservoirs.

As we mentioned last quarter in mid April we started to receive first oil from Bp's operated Argos floating production facility, which is supporting the 14 wells pre drilled and completed a bp's operated Mad dog two field.

Second there have been significant advancements in the technology required to safely and responsibly exploit and produce hydrocarbons from high pressure and high temperature reservoirs with some pressures exceeding 20000 Psi.

Argos is currently producing approximately 70000 barrels of oil from just four of their 14 existing wells.

These technologies have been proven now by a number of operators and as a result entire new development Horizons are being opened up in the Gulf of Mexico is simply where technologically out have reached just three or four years ago.

As the leading independent midstream provider for crude oil produced in the deepwater areas in the central Gulf of Mexico. We are Super excited about the future prospects of our core business and we continue to believe the combination of strong resilient steady and growing base volumes combined with contracted growth projects.

In addition to the 14 wells at the Mad Dog two field.

<unk> recently announced a successful appraisal well that is is an extension of the existing Mad dog complex and could be developed through a three to five well tie back to Argos or perhaps to either of the existing Mad dog Atlanta's production facilities.

<unk> by firm take or pay agreements and expected future activity described above all will provide the foundation for growing and stable cash flows from offshore pipeline transportation segment for decades and decades ahead.

This is yet another example of additional economic subsea tieback opportunities that exist once they host production facility is in place.

Okay.

Yeah.

Turning now to our soda and sulfur services segment.

While our soda ash business did return to a more normal operating quarter during the second quarter.

The broader macro story for soda Ash has continued to soften.

And now seems to have quickly moved from a well balanced global market into a somewhat oversupplied market primarily in our export markets.

As we look ahead to the new volumes from Shannon go and sell a marker in late 'twenty four and early 25. It is important to know that we remain on schedule and importantly on budget with our chops expansion and the new sink pipeline with completion for both expected in the second half of 2024.

As we look back over the last 12 months to 18 months, we have seen and where ultimately the beneficiary.

A market that saw unprecedented demand growth for soda ash combined with lower global supply and an increase in cost structure.

Synthetic producers as a result of higher energy input cost.

All of which ultimately drove pricing and margins to all time record highs.

While we all had hoped this environment will last forever and retrospect, there was never realistic to expect to continue at those margin levels for an extended period of time and.

And we ultimately new soda ash prices and margins would return to historical averages at some point in the future.

Additionally, all of the new capacity. We are currently installing is not contracted with these first two quote unquote anchor fields, because we like to call them.

As we sit here today, the combination of slower global industrial production.

A slower reopening of China's economy, and anticipated new global natural gas natural supply, which suggests that pricing and margins will in fact returned to historical averages sooner rather than later.

Therefore to the extent the anchor fields exceed these minimum volume levels, which we would expect.

Or if we are able to secure incremental third party volumes on our expanded assets and I am confident we will.

Even with this revised outlook for the remainder of the year. We still believe we are likely to achieve the highest contribution in the history of our soda ash business. This year.

Construction multiple will go down accordingly.

I know I've said this before but I feel that is important to reiterate that the activity levels, we're seeing in the Gulf of Mexico.

It is important to remember that soda ash as a manufacturing business that produces a product.

Continue to be as robust as I've seen them in my 30, plus years of focusing focusing on the Gulf.

That in most applications has no known substitutes.

Rather our soda ash competes with them that denticle synthetically produced product that generally cost twice as much to manufacture and has a far inferior environmental footprint relative to our own natural production.

There's been some recent industry discussion that the majority of their perceived tier one acreage and short cycle onshore shale basins is getting closer to full development.

And as a result, you can see production levels flat towing.

As a result of this cost advantage.

Whether or not you believe this I can tell you this.

Naturally produce soda ash, which is all we do.

Is the base load supply to the worldwide market throughout normal economic cycles.

Less than 30% of the world's demand for soda ash is supplied by natural production the.

The other 70 plus percent of global demand is supplied by synthetically produced soda ash.

In the deepwater, which only adds to the future long term prospects of the Gulf of Mexico.

So at the margin market clearing prices must be high enough to cover their relatively high cost of it.

The onshore shale basins really became exciting 15 to 20 years ago with a technological breakthrough of hydraulic fracturing.

Synthetic producer and a natural producer will ultimately benefit and receive a relatively higher margin because of its lower cost structure.

I can share that there are two significant technological breakthroughs that are driving this dramatic increase in activity in the deepwater Gulf of Mexico that we've repeatedly referenced.

If you are going to be in a commodity business. This is the kind of economic position you want to be here.

As we stated in our release for the last 17 years pro forma for the Granger expansion.

This business has generated an average margin of approximately $50 per ton.

And that includes through the down years during the great recession of 2008, and 2009 and the Black Swan Covid pandemic years of 2020 in 2021.

And thereby significantly reducing exploratory risk and development costs of these world class reservoirs.

Pro forma for the Granger expansion.

We believe our approximately $4 8 million tons of production per year should generate on average approximately $240 million per year for us plus or minus over a normalized cycle.

Around $200 million in an off year absent a black Swan event, and maybe as much as 280 of the $300 million in our Goodyear like we experienced this last year.

While there will always be some expected volatility in this segment performance given soda ash as a commodity.

I would point out that this business on its face is not unlike some of our midstream peers that also have a portion of their earnings that is subject to commodity price volatility whether crude prices natural gas prices NGL prices NGL, Nat gas spreads or basin differentials.

Your opinion by firm take or pay agreements and expected future activity described above all will provide the foundation for growing and stable cash flows from offshore pipeline transportation segment for decades and decades ahead.

Guaranteed none of these peers have the advantages of being a market leader in a commodity that has no known substitute.

Only competes with something that generally cost twice as much to make and has a reserve life of three or 400 years.

Okay.

Turning now to our soda and sulfur services segment.

As north America's largest producer of natural soda ash.

While our soda ash business did return to a more normal operating quarter during the second quarter.

Commodity that remains a fundamental building block of global economic activity and continues to play an increasing role in the energy transition from solar panels to batteries for electric vehicles and renewable energy.

The broader macro story for soda Ash has continued to soften.

And now seems to have quickly moved from a well balanced global market into a somewhat oversupplied market primarily in our export markets.

We remain extremely bullish on the long term fundamentals of the soda ash business, regardless of any quarterly or annual price volatility.

As we look back over the last 12 to 18 months, we have seen and where ultimately the beneficiary of a market that saw unprecedented demand growth for soda ash combined with lower global supply and an increasing cost structure.

Our Granger expansion remains on schedule to have first soda ash on the belt towards the end of the third quarter early in the fourth quarter.

Synthetic producers as a result of higher energy input costs.

The incremental 750000 tons will expand the total production capability of Grainger to approximately $1 3 million tons of soda ash per year.

All of which ultimately drove pricing and margins to all time record highs.

While we all had hoped this environment would last forever in retrospect. It was never realistic to expect to continue at those margin levels for an extended period of time and.

These effectively free incremental tons will not only be additional tons to sell on a margin. Starting later this year and into 'twenty four but they will also help further reduce <unk> cost structure as we will soon be able to absorb grainger is fixed cost over the approximately $1 3 million tons. Instead of its original 500000 tons of annual production.

As we sit here today, the combination of slower global industrial production.

Sure.

We would also reasonably expect to be able to further optimize and ultimately debottleneck. The expanded granger facility to gradually increase production and continue to lower its operating cost over the coming years with minimal investment required.

Even with this revised outlook for the remainder of the year, we still believe we're likely to achieve the highest contribution in the history of our soda ash business. This year.

Okay.

Recently, we have spent a lot of time not we haven't spent a lot of time discussing our sulfur services or what we used to refer to as our refinery services business.

It is important to remember that soda ash as a manufacturing business that produces a product.

Just to remind everyone. We are by far the largest producer of sodium hydrosulfide in North America and also by far the largest supplier of the sodium hydrosulfide in north as well as South America.

That in most applications has no known substitutes.

2023 has and will be one of the worst years in recent memory for the financial contribution from this business, which has averaged around $65 million segment contribution margins for the 17 years that we've owned it.

As a result of this cost advantage.

Naturally produce soda ash, which is all we do.

This is strictly driven by supply issues.

Is the base load supply to the worldwide market throughout normal economic cycles.

With operating difficulties at a member of our host refineries, where we have the facilities to handle the host sulfur issues and make sodium hydrosulfide that we in turn take.

Less than 30% of the world's demand for soda ash is supplied by natural production the.

The other 70 plus percent of global demand is supplied by synthetically produced soda ash.

In-kind and sell.

We can sell everything we can make we just haven't been able to make as much as we can sell due to various operating issues at our host refineries.

So at the margin market clearing prices must be high enough to cover their relatively high cost of it.

Our 23 guidance reflects a reduction in the contribution from this market leading business of around $30 million from 2022.

Synthetic producer and a natural producer will ultimately benefit and receive a relatively higher margin because of its lower cost structure.

And around $20 million from its historical average.

If youre going to be in a commodity business. This is the kind of economic position you Wanna be it.

We are doing everything we can to address our supply issues and we believe we can get this business back on that average trend over the next several years.

This business has generated an average margin of approximately $50 per ton.

Our marine Transportation segment continues to meet or exceed expectations as market conditions and demand fundamentals continue to remain steady.

And that includes through the down years during the great recession of 2008, and 2009 and the Black Swan Covid pandemic years of 2020 in 2021.

We continue to operate at or near 100% utilization for all classes of our vessels driven in large part by continued shortage of Jones Act tonnage.

Pro forma for the Granger expansion.

We believe our approximately $4 8 million tons of production per year should generate on average approximately $240 million per year for us plus or minus over a normalized cycle.

This lack of new supply and ongoing retirements of older Jones Act vessels combined with steady demand continues to drive spot day rates and longer term contracted rates across our fleet approaching and hopefully soon to be exceeding the highest levels. We have seen during our ownership of the marine business.

Around $200 million in an off year absent a black Swan event, and maybe as much as 280 of the $300 million in our Goodyear like we experienced this last year.

As we mentioned in our earnings release.

While there will always be some expected volatility in this segment performance given soda ash as a commodity.

We recently entered into a new three and a half year contract for the American Phoenix was a creditworthy counterparty.

I would point out that this business on its face is not unlike some of our midstream peers that also have a portion of their earnings that is subject to commodity price volatility.

New contract term will begin immediately following its current contract that runs through mid January 2024, and we will provide genesis with the highest day rate we have ever received on the American Phoenix since we first purchased the vessel in late 2014.

Whether crude prices natural gas prices NGL prices, NGL, Nat gas spreads or basin differentials.

I guarantee none of these peers have the advantages of being a market leader in a commodity that has no known substitute.

This new contract is indicative of the broader market today for Jones Act vessels with multiple potential customers looking to secure adequate tonnage over multiple years to move crude oil refined products along the Gulf coast into the Heartland or two in front of the Gulf Coast East Coast and West Coast.

Only competes with something that generally cost twice as much to make and has a reserve life of three or 400 years.

We believe these broader industry fundamentals should continue to remain favorable for both our brown and blue water fleets for the foreseeable future and thus could provide us with more opportunities to term out larger portions of the earnings profile from our marine transportation to the extent it makes sense.

We remain extremely bullish on the long term fundamentals of the soda ash business, regardless of any quarterly or annual price volatility.

Regardless these market conditions, when combined with the American Phoenix, not effectively being contract through the middle of 2027.

It should set up our marine transportation segment to deliver higher and steady earnings for the next few years.

As a competitor said recently their marine transport business is in the very early innings of an upward cycle and day rates and thus meaningfully increase from where we are today.

The incremental 750000 tons will expand the total production capability of Grainger to approximately $1 3 million tons of soda ash per year.

To induce the construction of significant new tonnage across all classes of vessels.

These effectively free incremental tons will not only be additional tons to sell in a margin. Starting later this year and into 'twenty four but they will also help further reduce <unk> cost structure as we will soon be able to absorb grainger is fixed cost over the approximately one 3 million tons instead of its original 500000 tons of annual production.

We like our position.

As we look ahead, we continue to remain focused on completing our capital program in the next 12 to 15 months.

All while not losing focus on our leverage ratio.

As I mentioned earlier, and we'll reiterate again the long term story for Genesis has never been brighter.

One the completion of our current growth capital program, we expect to start generating approximately 200, 300, maybe $400 million per year of cash flow. After all let me repeat after all cash obligations I've mentioned earlier.

Yeah.

Starting in late 'twenty, four and accelerating into 2025, this will provide us with ample opportunity to deliver increasing value for everyone of our capital structure, while maintaining and strengthening our financial flexibility as well as potentially simplifying our balance sheet.

Just to remind everyone. We are by far the largest producer of sodium hydrosulfide in North America and also by far the largest supplier of the sodium hydrosulfide in north as well as South America.

I would again like to encourage everyone listening to this call to review our earnings supplement presentation on our website that details the key takeaways and highlights from our second quarter earnings to the extent that you have time.

Finally, I'd like to say that the management team and our board of directors remains steadfast in our commitment to building long term value for all of our stakeholders and we believe the decisions we are making reflect this commitment and our confidence in Genesis moving forward.

This is strictly driven by supply issues.

With operating difficulties at a member of our host refineries, where we have the facilities to handle the host sulfur issues and make sodium hydrosulfide that we in turn take.

I would once again like to recognize our entire work.

For their individual efforts and unwavering commitment to safe and responsible operations.

In-kind and sell.

I'm extremely proud to be associated with each and everyone.

We can sell everything we can make we just haven't been able to make as much as we can sell due to various operating issues at our host refineries.

With that I'll turn it back to the moderator for questions.

Our 23 guidance reflects a reduction in the contribution from this market leading business of around $30 million from 2022.

Oh.

You May press Star one on your telephone to join the question queue.

Again, Thats star one to.

To join the question Keith.

And around $20 million from its historical average.

Oh pardon me.

We are doing everything we can to address our supply issues and we believe we can get this business back on that average trend over the next several years.

Let's turn to our principles.

T J.

Okay.

Great. Thanks, Hey, great.

Great.

So to ask I want to start there.

Our marine Transportation segment continues to meet or exceed expectations as market conditions and demand fundamentals continue to remain steady.

<unk> with the.

Okay.

<unk>.

A range of kind of $200 million in a down year 240 call it mid cycle and $280 to $300 million and a good year.

We continue to operate at or near 100% utilization for all classes of our vessels driven in large part by continued shortage of Jones Act tonnage.

So as you sit today, just given all the dynamics with the Mangala <unk> production coming on and where you see.

Demand trending.

As 2024 shaping up to be on the downside of that bracketed range or at the mid cycle.

I just wanted to understand a little bit better how you frame that $200 million downside and how some of your customers clearing their inventory.

Before coming back for deliveries could direct you to that lower bound.

As we mentioned in our earnings release.

It's a good question T. J I think it's obviously, it's a dynamic market, but as we sit here today, we would we.

We would think that we're going to be at the midpoint of that range in 2000 and for given the.

Given our contracted portfolio.

A portion of our.

Contracts are at.

Subject to caps and collars and.

Essence.

Already loan pricing for 2004 as well as we have seen recently and this is very recent.

But what appears to be.

Bottoming of our prices. So at this point I think we view 24 is kind of being a.

Mid cycle outcome.

Okay. It makes sense and then looking at 2025, clearly an outlook for a step change to more meaningful free cash flow.

If I can just kind of focus on Capex once you get past the peak in the chops expansion.

What are the material potential capital projects that may come up are there other golf projects you are pursuing that would take newbuild pipe.

Regardless these market conditions, when combined with the American Phoenix, not effectively being contract through the middle of 2027.

Or is there any major spend in soda ash, you would expect and need beyond the green checks mentioned.

It should set up our marine transportation segment to deliver higher and steady earnings for the next few years.

Again good question no there are absolutely no additional major capital expenditures.

Anticipated or that we're working on or even on our radar screen at this point in time as I said in our prepared remarks.

To induce the construction of significant new tonnage across all classes of vessels.

The expansions and the construction of zinc in the capacity associated with zinc as well as.

We like our position.

The expansion of the chops system.

As we look ahead, we continue to remain focused on completing our capital program in the next 12 to 15 months.

In round terms around 50% of the incremental capacity associated with Shannon.

All while not losing focus on our leverage ratio.

That we're putting in is contracted for by the anchor tenant so to speak so we have.

As I mentioned earlier, and we'll reiterate again the long term story for Genesis has never been brighter.

We have prebuilt capacity.

To handle additional volumes.

And we are in discussions on additional volumes, but that would not require additional capital from us, but would only access the existing thing so and there are no additional significant.

Growth capital expenditures.

From.

Associated with Grainger.

As I did reference in the.

In the prepared comments.

Ranger is identical technology to.

Our yield <unk> facility at Westvaco, which was one of our four production facilities and our Westvaco facility, but originally it had a design capacity of 650000 tons per year and over 30 years with a.

Bit of money here, a little bit there and I'm talking.

Or whatever over.

For the 30 years, we actually produced probably around 850000 tons. So that's a type of small debottlenecking over a long period of time the opportunities but.

I'd once again like to recognize our entire work.

That's a long winded answer that.

For their individual efforts and unwavering commitment to safe and responsible operations.

The growth.

Growth capital.

Stops and.

I'm extremely proud to be associated with each and everyone.

Call it the third quarter, maybe some of the cash goes out the door in the fourth quarter of 24, and we are in a position to.

With that I'll turn it back to the moderator for questions.

To reap.

Oh.

The rewards from the investments that we have made.

You May press Star one on your telephone to join the question queue.

Great. Thanks, I'll leave it there.

Again that star one.

Okay. Thank you.

To join the question queue.

Okay.

Pardon me.

We have Michael Blum.

Let's turn to our principles.

Your line is now open.

Hey, James.

Oh.

Okay.

Thank you Michael.

Yeah.

Okay.

Hi, Michael.

Great. Thanks, Hey, Brian .

Oh Wow.

So to ask I want to start there bracketed with me.

Bob.

Okay.

Yeah.

And that.

Good morning, everyone. Thank you for taking my question.

On a range of $200 million in a down year 240 call it mid cycle and $280 to $300 million and a good year.

Last quarter, you all gave us a little color on sort of the various areas of end market demand I think you had pointed to.

So as you sit today, just given all the dynamics with the Mongolian production coming on and where you see.

On the soda ash business that is.

You pointed to some weakness in consumer related can you give us a little more color on what you're seeing on that front.

Demand trending.

As 2024 shaping up to be on the downside of that bracketed range or at the mid cycle.

Yes, I said a little bit of the.

I just wanted to understand a little bit better how you frame that $200 million downside and how some of your customers clearing their inventory before coming back for deliveries could direct you to that lower bound.

The consumer is pulling in discretionary.

Expenditures under in this under the circumstances kind of for the first time.

Seeing a decline in the demand for container.

It's a good question T. J I think it's obviously, it's a dynamic market, but as we sit here today, we would we would think that we're going to be at the midpoint of that range and 24, given the <unk>.

Glass maybe people were.

Drinking less or whatever and thats indicative of.

Perhaps obviously, a little bit of a slowdown in general construction spending and Thats really whats the main driver in the the weakening there or the less than robust recovery in the Chinese economy, as the real estate sector and construction sectors lagging behind.

Given our contracted portfolio.

A portion of our.

The contracts are at.

Already loan pricing for 2004 as well as we have seen recently and this is very recent.

Given the uncertainties and other things so that's really where the pressure points are if you will out of the demand side and generally speaking.

But what appears to be a bottoming of prices. So at this point I think that we view 24 is kind of being a.

Again.

Somewhat temporary that is and that's not unique to <unk>.

Mid cycle outcome.

China and other economies are slowing down a little bit.

Okay. It makes sense and then looking at 2025, clearly an outlook for a step change to more meaningful free cash flow.

You know kind of a little bit of the offset of that is happening is the dramatic increase in demand for soda ash for the construction of solar panels.

If I can just kind of focus on capex once you get past sneak in the chops expansion.

Certainly you read a bunch of the headlines about lithium production.

What are the material potential capital projects that may come up are there other golf projects you are pursuing that would take newbuild pipe.

A number of the lift.

Even here in the U S as well as internationally.

Increased lithium production to meet the demand for electric vehicles, all of which requires a soda ash and usually in one form or another so.

Again good question no there are absolutely no additional major capital expenditures.

That's the that's kind of where the where it is but there's definitely as we said in our remarks in the release that.

Anticipated or that we're working on or even on our radar screen at this point in time as I said in our prepared remarks.

It's a dynamic situation and there's it's a much more balanced market than it was in 2022.

The expansions and the construction of sync and the capacity associated with zinc as well as.

But you know.

The expansion of the chops system.

<unk>.

Cyclical market and we are very comfortable with where we're at.

In round terms are around 50% of the incremental capacity associated with Shannon.

Wonderful. Thank you that's very helpful. Just.

Just switching gears, a little bit I'm wondering if you might be able to sort of.

That we're putting in is contracted for by the anchor tenant so to speak so we have we.

Mind us refresh us.

Uh huh.

We have prebuilt capacity to handle additional volumes.

I guess capital allocation plans as you look out the next couple of years, you've got obviously, a big falloff in spending next year and the year after.

And we are in discussions on additional volumes, but that would not require additional capital from us, but would only access the existing thing so the and there are no additional significant.

Maybe if you could bracket for us.

Kind of a timing with your capital allocation priorities are and when do you think ultimately.

Growth capital expenditures.

You might start thinking about.

From the.

Increased shareholder returns in one way shape or form that's all I've got thank you.

Associated with Grainger.

As I did reference in the.

It's a good question.

In the prepared comments, a grainger is identical technology to.

I think that.

It's going to be and we are.

We're very excited as we said.

Our E M E. L. D M facility at Westvaco, which was one of our four production facilities at our Westvaco facility, but originally it had a design capacity of 650000 tons per year and over 30 years with a little bit of money here, a little bit there and I'm talking millions or whatever over the third.

Have the high class problem of what do we do with two or three or $400 million of your who no matter, how you slice and dice it discretionary cash flow.

I think first and foremost we're committed to maintaining the.

Leverage ratio consistent with our banks look at the world.

As the only covenant, we have in our capital structure.

Years, we actually produced a probably around 850000 tons. So that's a type of small debottlenecking over a long period of time the opportunities but.

Around four times.

And then with that when we have the flexibility to.

Either simplify the capital structure in terms of perhaps a calling them or redeeming some of the existing convertible preferred and or look at returning capital to the to.

That's a long winded answer that.

The growth capital.

Stops and.

Call it the third quarter, maybe some of the cash goes out the door in the fourth quarter of 24, and we are in a position to.

To the equity to the common equity holders.

All while maintaining.

To reap.

That targeted leverage ratios so.

The rewards from the investments that we have made.

I can't sit here today, it's something that the board will consider as we go forward but.

Great. Thanks, I'll leave it there.

Okay. Thank you.

Certainly we have a lot of flexibility to return capital.

Okay.

To everyone in the in the structure and all while maintaining a very conservative debt.

Your line is now open.

Oh, okay.

Okay Michael.

Yeah.

Debt profile for the company.

Hi, Michael.

Someone want to fall back in queue.

Awesome. Thank you very much.

Thank you.

Yeah.

All right.

Good morning, everyone. Thank you for taking my question.

We are going to.

Michael.

Uh huh.

First I just wanted to remind people.

Quarter, you all gave us a little color on sort of the various areas and market demand I think you had pointed to on the soda ash business that is I think you pointed to some weakness in consumer related can you give us a little more color on what you're seeing on that front.

Mike.

On your telephone keypad.

Again star one to join the question queue.

Hi, Michael.

Your line is now.

Thanks, Good morning, everyone.

I wanted to just one point of clarification for the balance of 2023 on soda Ash. So have you now effectively locked in prices for the balance of the year or is there still some potential movement. This year.

Yeah, I said, a little bit of a.

The consumer is pulling in discretionary.

Uh huh.

Expenditures under in this under the circumstances kind of for the first time.

We're seeing the decline in the demand for container.

There is as well.

We have a portion of our portfolio is still subject to negotiation of price for the fourth quarter.

Glass maybe people were.

Drinking less or whatever and thats indicative of.

Perhaps a obviously a little bit of a slowdown in construction spending and that's really what's the main driver in the the weakening or the less than robust recovery in the Chinese economy, as the real estate sector and construction sectors lagging behind.

But we've taken into account, where we think that that's going to come out as we sit here kind of halfway through the third quarter and based upon what we see we've taken that into account.

Providing the range that we gave you.

Okay perfect. Thanks, and then.

Given the uncertainties and other things so that's really where the pressure points are if you will on the demand side and generally speaking.

You made some.

And related in relation to the sulfur business, you talked a little bit about youre going to take some steps to get that kind of back to its normal kind of run rate.

But.

Again offs to somewhat temporary that is and that's not unique to <unk>.

Cash flow can you talk a little bit about what those steps may be.

It's basically we think that.

China other economies are slowing down a little bit but you.

It was beyond our control that has happened.

You know kind of a little bit of the offset of that is happening is the dramatic increase in demand for soda ash for the construction of solar panels.

<unk> of our host refineries.

One one of one one of our locations.

Half of the crude oil processing capacity and therefore.

Certainly you read a bunch of the headlines about lithium production and.

So for handling.

Requirement has been converted to <unk>.

A number of lift even here in the U S as well as internationally.

Biofuels.

There's nothing we can do about that structural thing other than try to increase the production from some of our other facilities. So we believe.

The increase lithium production to meet the demand for electric vehicles, all of which requires a soda ash and usually in one form or another so.

That the operating.

Sets that.

Occurred by a number of our host refineries are behind them we're seeing.

That's kind of where the where it is but there's definitely as we said in our remarks in the release that.

A return to normal operating rates.

Here in the third quarter and hopefully accelerated into the.

It's a dynamic situation or is it.

Much more balanced market than it was in 2022.

Fourth.

Based upon our daily discussions with the host refineries, because we want to be.

But you know it's.

Consistent and ready to help them as they ramp up that.

Wonderful. Thank you that's very helpful.

Just switching gears a little bit I'm wondering if you might be able to sort of remind us refresh us.

We think of that 24 will be a much better production year from our other locations than we experienced in 'twenty three.

Uh huh.

I guess capital allocation plans as you look out the next couple of years, you've got obviously, a big falloff in spending next year and the year after.

Got it.

Thanks for the time.

Okay.

Maybe if you could bracket for us.

Oh no.

Kind of a timing what your capital allocation priorities are and when do you think ultimately.

No further questions in queue.

Okay, well, thanks, everybody for joining and we look forward to continuing a dialogue with each and everyone. Thank you.

You might start thinking about.

Increased shareholder returns in one way shape or form that's all I've got thank you.

Yeah.

I think that.

Oh.

It's gonna be.

That concludes our call you may now disconnect. Your lines. Thank you again for joining us today.

We're very excited as we said to.

Have the high class problem of what do we do with two or three or $400 million of your who no matter, how you slice and dice it discretionary cash flow.

I think first and foremost we're committed to maintaining the <unk>.

Our.

Leverage ratio consistent with how our banks look at the World, which is the only covenant we have in our capital structure.

Around four times.

And then with that when we have the flexibility to.

Either simplify the capital structure in terms of perhaps calling them or redeeming some of the existing convertible preferred and or looking at returning capital to the to the equity common equity holders so all while maintaining.

That targeted leverage ratios so.

I can't sit here today, it's something that the board will consider as we go forward but.

Certainly we have a lot of flexibility to return capital to.

Everyone in the in the structure and all while maintaining a very conservative.

Debt profile for the company.

Thank you.

Yeah.

All right.

Thanks, Michael.

First I just wanted to remind people.

Sure.

Star one on your telephone keypad.

Again star one to join the question queue.

Hi, Michael.

Your line is now.

Thanks, Good morning, everyone.

Theirs is.

We have a portion of our portfolio is still subject to negotiation of price for the fourth quarter.

But we've taken into account, where we think that that's going to come out as we sit here kind of halfway through the third quarter and based upon what we see we've taken that into account.

Providing the range that we gave you.

Okay perfect. Thanks, and then.

You made some.

And related in relation to the sulfur business, you talked a little bit about youre going to take some steps to get that kind of back to a normal kind of run rate cash flow can you talk a little bit about what those steps may be.

It's basically we think that it.

It was beyond our control what has happened with a number of our host refineries.

One one of one one of our locations are actually half of the crude oil processing capacity and therefore sulphur handling kept requirement has been converted to a buyer.

<unk> fuels. So that's theres nothing we can do about that structural thing other than try to increase the production from some of our other facilities. So we believe.

That the operating upsets that.

Occurred by a number of our host refineries are behind them.

To normal operating rates.

Here in the third quarter and hopefully accelerated into the.

Fourth in the.

Based upon our daily discussions with the host refineries, because we want to be.

Insistent and ready to help them as they ramp up that.

We think of that 24 will be a much better production year from our other locations than we experienced in 'twenty three.

Got it.

Thanks for the time.

Okay.

There are no further questions in queue.

Okay, well, thanks, everybody for joining and we look forward to continuing a dialogue with each and every one of them. Thank you.

Okay.

And gentlemen that concludes your call.

Thank you again for joining us today.

The conference is no longer being recorded.

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Q2 2023 Genesis Energy LP Earnings Call

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