Q4 2024 Genesis Energy LP Earnings Call
Dwayne Morley: This is Dwayne Morley, and this is Dwayne Morley, and this is Dwayne Morley, and this
Speaker Change: Greetings and welcome to Genesis Energy fourth quarter 2024 earnings conference call. At this time all participants are on a listen-only mode. A question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Dwight Morley, Vice President Investor Relations. Thank you. You may begin.
Speaker Change: Good morning and welcome to the 2024 fourth quarter conference call for Genesis Energy.
Speaker Change: Genesis Energy 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 in the deepwater Gulf of America to onshore refining centers.
Speaker Change: The soda and sulfur services segment includes TRONA and 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.
Speaker Change: 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.
Speaker Change: Genesis' operations are primarily located within Wyoming, the Gulf Coast States, and the Gulf of America.
Speaker Change: During this conference call, management may be making forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The law provides safe harbor protection to encourage companies to provide forward-looking information.
Speaker Change: Genesis intends to avail itself of those safe harbor provisions and directs you to its most recently filed and future filings securities exchange commission.
Speaker Change: We also encourage you to visit our website at genesisenergy.com where a copy of the press release we issued this morning is located. The press release also presents a reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures.
Grant Sims: At this time, I'd like to introduce Grant Sims, CEO of Genesis Energy L.P. Mr. Sims will be joined by Kristen Jessalitis, Chief Financial Officer and Chief Legal Officer, Ryan Sims, President and Chief Commercial Officer, and Louie Nickel, Chief Accounting Officer.
Speaker Change: Thanks Dwayne. Good morning to everyone and thank you for listening to the call.
Grant Sims: As we mentioned in our earnings release this morning, we are now just a few short months away from reaching the inflection point when we will complete our current major capital spending program.
Grant Sims: Be a short time away from a notable step change and realize segment margin and most importantly Be in position to generate cash from operations and excess of the cash costs are running and sustaining our businesses
Grant Sims: Needless to say, this moment has been a long time coming, and while we've had a few hiccups along the way, we remain on schedule.
Grant Sims: I get more and more encouraged with the long-term prospects of Genesis as each day passes.
Grant Sims: It's sort of dwelling on what could have been in 2024. I'd rather focus my comments here today on what lies ahead for the remainder of 2025 and beyond.
Grant Sims: We remain encouraged with what is in front of us, and are confident we are well positioned to deliver meaningful sequential earnings growth over 2024, driven primarily by mid-year start-up of our new contracted offshore volumes and strong structural tailwinds in our marine segment.
Grant Sims: even if we see static performance from our other two segments this year relative to last.
Grant Sims: Our offshore segment is expected to see significant growth in offshore volumes and segment margins associated with our two new contracted developments, Shenandoah and Salamanca. They remain on schedule, with first production from both developments expected in the second quarter.
Grant Sims: Based on recent conversations with both operators, we could see volumes from each development ramp very quickly to, if not above, their originally expected high cases.
Grant Sims: When combined with the eventual resumption of the volumes from the fields that were negatively impacted last year, which we are now told should occur over the next several months,
Grant Sims: We should be positioned to deliver upwards of 20 plus percent sequential growth in our offshore pipeline transportation segment in 2025
Grant Sims: Our marine transportation segment is again expected to deliver record results in 2025, driven in large part by more days on the water, as they say, for our offshore fleet relative to 2024, and steady to increasing day rates across all classes of our vessels.
Grant Sims: The macro story of marine remains constructed. We see reasonably steady demand. At the same time, we continue to see net supply reductions in the market, driven by the limited number of new barges being constructed, while more and more older barges are being retired.
Grant Sims: We believe these structural indicators will persist in marine for quite some time and should support steady to marginally improving financial performance from our marine transportation segment throughout 2025.
As we sit here today
Grant Sims: We expect the challenging macro conditions in the sodash market we saw in the back half of last year to persist into 2025 at least in the early part of the year the combination of a well-supplied market
Grant Sims: and a mixed demand picture outside China is expected to keep a lid on soda ash prices, especially in our export markets. While current prices are undoubtedly below the cash costs of high-cost synthetic producers, particularly in China, we expect the market...
continues to need a combination of further supply rationalizations.
Grant Sims: and a resumption of historical demand growth to ultimately help prices recover.
Grant Sims: I'll give a little more color later in my prepared remarks, but we are encouraged that these necessary supply reductions are starting to occur, and they will no doubt help tighten the market as we move through this year and into next.
Grant Sims: Given this market backdrop however, and despite an improving operating performance and implementing certain cost savings initiatives, we expect the segment margin from our SODAS business to be at or near what we generated in 2024.
Grant Sims: kind of a sideways year until we get to 2026 when we would otherwise expect prices to recover and more closely reflect at least the cash costs of the marginal suppliers.
Grant Sims: Similarly, we expect our legacy refinery services business and our onshore facilities and transportation segment to also perform in line with their performance last year.
Grant Sims: While we would rather see all of our businesses hitting on all cylinders, our path forward remains crystal clear.
Grant Sims: Even with this anticipated sideways action year over year and a couple of segments in 2025, we will begin to harvest accelerating amounts of cash above and beyond the cash costs to operate and sustain our business.
Grant Sims: and we will use to strengthen and simplify our capital structure.
Grant Sims: We are committed to not pursuing any capital-intensive projects for the foreseeable future.
Opportunistically redeem or retire our high-cost convertible preferred.
Grant Sims: Both of which will lower the cash costs of running and sustaining our business.
Grant Sims: and look to return increasing amounts of capital to our unit holders in one form or another, all while managing our bank-calculated leverage ratio to our long-term target.
Grant Sims: We remain confident that the path we are on will allow us in the years ahead to deliver long-term value to everyone in the capital structure.
With that, I'll touch briefly on our individual business segments.
Grant Sims: multiple fields that are connected to our offshore infrastructure. We can now report that three out of the total of only 21 available deep water rigs working in the Gulf of America are now actively working on restoring production from these affected wells.
Grant Sims: We are told by the operators that such remedial intervention activities should be completed over the next several months.
Grant Sims: As we have mentioned in the past, the affected producers and operators continue to reiterate they expect no long-term negative impacts to the underlying reservoir, and they fully expect volumes to return to levels consistent to what they were producing prior to the mechanical issues cropping up.
Grant Sims: More importantly, our offshore construction projects are expected to be totally complete in the next few months.
Grant Sims: Our team is preparing to start the final stages of construction, which will primarily consist of lifting the sink pipeline off the seafloor and connecting it to the Shenandoah Floating Production System.
once it is installed at its final location.
Grant Sims: The Shenandoah FBU set sail from South Korea in mid-December and recently arrived in Ingleside, Texas, thus completing its 18,000-mile journey in less than two months.
Grant Sims: After completing its final outfitting and safety checks, it is expected to move to its final location in advance of first production in the second quarter.
Similarly, the Salamanca Production Facility is also nearing completion.
In fact, I visited the Salamanca FPU
Grant Sims: earlier this week for its christening and can confirm it is very close to being complete and is really quite a sight to see.
Grant Sims: I'm confident the Salamanca FPU will long be a great case study of the benefits of repurposing an existing offshore platform to serve as a new production facility that will likely last for many more decades to come.
Grant Sims: The carbon footprint of the refurbished facility is estimated to be some 70% less than a new build.
Grant Sims: was cheaper than a new build and, importantly, accelerated the date of first production by some 12-plus months.
Grant Sims: The Salamanca FPU-2 will be heading south from South Texas to its final location in the Gulf of America in the very near future and remains on schedule for first production in the middle of the year.
Grant Sims: We continue to believe these two new stand-alone production facilities, and their combined almost 200,000 barrels of oil per day of incremental production handling capacity, will ramp very quickly and will likely reach their anticipated production levels by the end of the year, if not significantly sooner.
Grant Sims: In both cases, the operators continue to anticipate producing at rates materially higher than our take-or-pay levels, or perhaps even higher than their original high-end internal expectations when they sanction the project.
Grant Sims: As we have mentioned in the past, these two new floating production facilities are also expected to serve as host platforms for additional future subsea developments or tieback opportunities which could sustain or increase these cash flows to us for years and years into the future.
Grant Sims: In addition to the Monument Field, which is a sanctioned sub-sea tieback to the Shenandoah FBU that is expected to start production in the fourth quarter of 2026,
Grant Sims: Beacon announced, the operator announced in December, that it sanctioned the next phase of development at Shenandoah, known as Shenandoah Phase II.
Grant Sims: Activities associated with this phase, two, include the drilling and completion of two additional wells in the Shenandoah field.
Grant Sims: Beacon estimates that the activities from Shenandoah Phase 2 will be conducted between 2025 and 2028 and will add approximately 110 million barrels of oil-equivalent P50 reserves.
Grant Sims: The field's proximity to the Shenandoah FBU will enable a cost-efficient subsea tieback development to be accomplished via a three-mile waterline and dedicated riser connection to the Shenandoah FBU.
Grant Sims: Shenandoah South is expected to include the drilling and completion of two wells, with initial production from the first well expected to occur in the second quarter of 2028.
Grant Sims: Beacon estimates a total of 74 million barrels of oil equivalent of P50 reserves for Shenandoah South.
Grant Sims: While Beacon and its partners have not yet made their final investment decision on the Shenandoah South project, it is yet another example of the multitude of opportunities that exist once a new floating production unit is installed and connected to our offshore infrastructure.
Grant Sims: When taken together, the Shenandoah, Shenandoah Phase II, Monument, and Shenandoah South developments are estimated to be able to produce nearly 600 million barrels of oil equivalent P-50 reserves, with 100% of the oil production dedicated to our new Sink Lateral and Expanded Chops Pipeline.
Grant Sims: Truly a remarkable opportunity set for the next decade around this one new asset connected to our offshore infrastructure.
Grant Sims: Turning now to our soda and sulfur services segment. I'm pleased to report that the operating issues we experienced at our West Vaco production facility in 2024 are now behind us.
Grant Sims: and at our Granger facility has recently been performing at or above its design capacity.
Grant Sims: Our team is constantly looking for opportunities to optimize our operating performance, and I'm confident these efforts will contribute towards more steady production levels moving forward.
Grant Sims: As we mentioned last quarter, and in response to current market conditions, we have also recently made a concerted effort to focus on the cost side of our business.
Grant Sims: As a result of these efforts, our team has identified numerous opportunities, and we have since started to implement several initiatives to reduce our fixed and marginal operating costs in the business.
Grant Sims: We continue to believe that the combination of improved operating performance
and a lower overall cost structure.
Grant Sims: will allow us to meaningfully benefit when the broader market fundamentals improve, which they will, and they always do.
Grant Sims: As mentioned in our release, the global soda ash market remains relatively consistent with last quarter, with global demand being mixed and most markets remaining well-supplied.
Grant Sims: Furthermore, inventories in China and the availability of exports therefrom remain elevated from recent lows. In the short term, the market needs more high-cost and environmentally inferior synthetic production to come out of the market.
Grant Sims: Having said that, we have recently started to see some synthetic supply be shuttered.
Grant Sims: With the last remaining synthetic soda production facility in the United Kingdom ceasing operations at the end of just last month, January, reducing global supply by approximately 220,000 tons per year.
Grant Sims: Late last year, another producer announced it was reducing production by approximately 300,000 tons per year from its
Synthetic Production Facility in Spain. And just yesterday...
Grant Sims: A different synthetic producer announced it was suspending production from a 700,000 ton a year facility in Poland.
Grant Sims: In discussing such decision, it also stated it would be forced to consider additional production cuts at other facilities if operates in the EU if market conditions don't soon improve.
Grant Sims: As more and more of this high-cost synthetic supply has taken off land...
Grant Sims: We would expect a move closer to a more balanced market where soda ash prices could improve.
Grant Sims: Everything else the same. We would reasonably expect marginal improvement in prices as we progress through 2025, but almost certainly, based on historical market behavior and the supply rationalization we are beginning to see, certainly in 2026 and beyond.
Grant Sims: Regardless of when these events occur, we are confident as one of the world's lowest cost producers that the steps we are taking in our operations and on the cost side will allow us to meaningfully benefit from any such recovery in soda ash prices in the future.
Grant Sims: We continue to see reasonably steady demand for all classes of our vessels. At the same time, there has been limited, if not realistically zero, net additions to the market.
Grant Sims: as older vessels continue to be retired and a limited number of new barges have been built. This market dynamic doesn't turn around quickly.
Grant Sims: Go to Beadaholique.com for all of your beading supply needs! Don't forget to subscribe to our YouTube channel for more!
To conclude...
We could not be more excited about 2025 and beyond.
Grant Sims: start harvesting significant and growing cash flows in excess of the cash costs of running and sustaining our business.
Grant Sims: Along those lines, and based upon what we know today, we believe adjusted EBITDA in 2025 will be around $700 million.
Grant Sims: And that 2026, even if there is no meaningful improvement in our soda ash business, could be around $800 million.
Grant Sims: If there is a recovery in soda ash prices in 2026, which as I mentioned earlier could reasonably be expected based on historical market behavior and shutting in of high-cost synthetic production, that number could turn out to be conservative.
is $600 to $625 billion per year.
As we use the excess cash flow
Grant Sims: That will give us even more flexibility to pay off even more debt, redeem even more preferred securities, and return even more capital to our unit holders in one form or another, all while managing our bank-calculated leverage ratio to our long-term target.
Grant Sims: Finally, I'd like to say that the management team and the board of directors remain steadfast in our commitment to building long-term value for all our stakeholders, regardless of where you are in the capital structure.
Grant Sims: We believe the decisions we are making reflect this commitment and our confidence in Genesis moving forward.
Grant Sims: I would once again like to recognize our entire workforce for their individual efforts and unwavering commitment to safe and responsible operations.
Grant Sims: I'm extremely proud to be associated with each and every one of them.
Speaker Change: With that, I'll turn it back to the moderator for questions. Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you'd like to remove your question from the queue. One moment please while we poll for questions.
Thanks for watching!
Speaker Change: Our first question comes from Michael Blum with Wells Fargo. Please proceed with your question.
Thank you. Good morning.
Speaker Change: in 2025. So, for example, if this production stays offline for all of 2025, how much cash flow are you sort of foregoing? And then, I don't know, if it came on, let's say, in the second quarter this year, how much incremental cash flow would you realize for the year?
Speaker Change: are baking into the the guidance that we just gave basically what the producers are telling us with us taking a little bit of liberty to build in some Cushion in the event that it slides to the right a little bit. I'm not sure that we have
ever quantified it, but, you know, it's in,
Speaker Change: I mean, I think order of magnitude is between 5 and 10 million dollars.
Speaker Change: coming back, at least according to the operator. So, Michael, I mean, we don't really, as we sit here today, we don't see a scenario where this is a lasting issue throughout 2025.
Speaker Change: Okay, perfect. That's super helpful. And then on the on the 2026
EBITDA forecast, the $800 million.
Speaker Change: business, or is that more of a flat outlook relative to 2025? I would consider it, yeah, it's reasonably flat, I mean, so we're in a world where we're generating kind of, you know, 130, 140 or so in that business, and while there could be more upside in that, that's kind of, you know, we're just kind of penciling that in to be reasonably flat in 26 relative to what we expected in 20.
Bye.
Thank you so much.
Speaker Change: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions.
Speaker Change: Our next question comes from Wade Suki with Capital One. Please proceed with your question.
Speaker Change: Good morning, everyone. Thank you for taking my questions. First on capital allocations, just quickly, I'm wondering if you could remind us how the banks, looking at the press, just sort of in the context of your capital return priorities.
How the banks are looking at it?
Speaker Change: Yeah, exactly, in terms of leverage. Yeah, our banks, which are obviously insiders and have read all of the agreements, they give it 100% equity treatment.
Speaker Change: in the calculation of our compliance with them. That's not necessarily how rating agencies and others necessarily look at it. They haven't spent as much time as the inside banks have to make that determination. So, you know, for us to...
Speaker Change: Rapidly, you know, we can't really or not intent on levering up to take it out because it has a double whammy, if you will, by converting equity into debt in one respect. So.
Speaker Change: You know, I think it's fair to say that our intent is to really use the excess cash flow.
Speaker Change: We're not prohibited from, in fact, we have some flexibility under our senior secured credit facilities to harvest it. And so as we continue to, you know,
Speaker Change: potentially take it out at a more rapid pace because we have the flexibility under the under our covenants but you know so we have the ability to deal with it and but it is given a hundred percent equity treatment which is appropriate treatment from our perspective
Great. Thank you.
Speaker Change: As we approach the sort of free cash flow inflection point later this year, can you help us in terms of how to think about the timing and maybe even order of magnitude of potential distribution increases?
Speaker Change: I think that, you know, the board will evaluate that on, you know, at the appropriate time. Again, I think that as we've discussed that
Speaker Change: My view, but obviously the board needs to weigh in on it, is that it's likely capital allocation is going to be kind of a little bit of all of the above.
Speaker Change: uses of that, I can't speak at this point, speak to at this point.
Speaker Change: Understood, appreciate that. If I could squeeze a multi-part question in one more, just on soda ash, Grant. You always give us a really good color on sort of supply and demand.
Speaker Change: maybe talk a little bit about some of the end market demand you're seeing, where the weakest areas are, and areas of resilience as well. Thank you very much.
Ha ha ha
Speaker Change: You know, where we had caps and collars, and we typically would...
Speaker Change: you know, price towards the lower end of that, that range. And, but we have, we are purposely under the belief that or under our belief that the prices are going to rise as we go through.
Speaker Change: 25, especially as I said, I mean, we've seen a reduction of almost 4% of the total supply outside of China being shut in, which is going to help significantly balance the market.
Speaker Change: If we continue to see a demand recovery, and especially additional removal of high-priced synthetic production from the market, then...
Speaker Change: We believe that the macro-fundamentals will improve and that when we go into 26 recontracting that we'll be in a significantly different environment than what we were in late 24, approaching 25 contract seasons.
Thank you. Appreciate it. Thank you very much.
Speaker Change: We have reached the end of the question and answer session. I'd now like to turn the call back over to management for closing comments.
Speaker Change: Again, thanks everybody for listening in and we'll talk to you in another 90 days if not sooner. So, thanks again.
Speaker Change: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.