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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation and Consolidation
Organization
We are a growth-oriented master limited partnership founded in Delaware in 1996 and focused on the midstream segment of the crude oil and natural gas industry as well as the production of natural soda ash. Our operations are primarily located in the Gulf of Mexico, Wyoming and in the Gulf Coast region of the United States. We provide an integrated suite of services to refiners, crude oil and natural gas producers and industrial and commercial enterprises. We have a diverse portfolio of assets, including pipelines, offshore hub and junction platforms, our trona and trona-based exploring, mining, processing, producing, marketing, logistics and selling business based in Wyoming (our “Alkali Business”), refinery-related plants, storage tanks and terminals, railcars, barges and other vessels and trucks. We are owned 100% by our limited partners. Genesis Energy, LLC, our general partner, is a wholly-owned subsidiary. Our general partner has sole responsibility for conducting our business and managing our operations. We conduct our operations and own our operating assets through our subsidiaries and joint ventures.
We currently manage our businesses through the following four divisions that constitute our reportable segments:
•Offshore pipeline transportation, which includes the transportation and processing of crude oil and natural gas in the Gulf of Mexico;
•Soda and sulfur services involving trona and trona-based exploring, mining, processing, soda ash production, marketing, logistics and selling activities, as well as the processing of high sulfur (or “sour”) gas streams for refineries to remove the sulfur, and selling the related by-product, sodium hydrosulfide (or “NaHS,” commonly pronounced “nash”);
•Marine transportation to provide waterborne transportation of petroleum products (primarily fuel oil, asphalt and other heavy refined products) and crude oil throughout North America; and
•Onshore facilities and transportation, which includes terminaling, blending, storing, marketing, and transporting crude oil and petroleum products.
Basis of Presentation and Consolidation
The accompanying Unaudited Condensed Consolidated Financial Statements include Genesis Energy, L.P. and its subsidiaries.
Our results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. The Unaudited Condensed Consolidated Financial Statements included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they reflect all adjustments (which consist solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial results for interim periods. Certain information and notes normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the information contained in the periodic reports we file with the SEC pursuant to the Securities Exchange Act of 1934, including the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023 (our “Annual Report”).
Except for per unit amounts, or as noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnote disclosures are stated in thousands of dollars.
2. Recent Accounting Developments
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which enhances the disclosures required for operating segments in our annual and interim Consolidated Financial Statements. ASU 2023-07 is effective retrospectively for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact of this standard on our disclosures.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which is intended to enhance the transparency and usefulness of income tax disclosures. The amendments in ASU 2023-09 provide for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective prospectively to all annual periods beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact of this standard on our disclosures.
All other new accounting pronouncements that have been issued, but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.
3. Revenue Recognition
Revenue from Contracts with Customers
The following tables reflect the disaggregation of our revenues by major category for the three months ended September 30, 2024 and 2023, respectively:
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following tables reflect the disaggregation of our revenues by major category for the nine months ended September 30, 2024 and 2023, respectively:
Nine Months Ended September 30, 2024
Offshore pipeline transportation
Soda and sulfur services
Marine transportation
Onshore facilities and transportation
Consolidated
Fee-based revenues
$
302,133
$
—
$
243,941
$
51,167
$
597,241
Product Sales
—
1,100,648
—
482,415
1,583,063
Refinery Services
—
60,359
—
—
60,359
$
302,133
$
1,161,007
$
243,941
$
533,582
$
2,240,663
Nine Months Ended September 30, 2023
Offshore pipeline transportation
Soda and sulfur services
Marine transportation
Onshore facilities and transportation
Consolidated
Fee-based revenues
$
289,151
$
—
$
240,789
$
44,850
$
574,790
Product Sales
—
1,262,454
—
497,024
1,759,478
Refinery Services
—
68,624
—
—
68,624
$
289,151
$
1,331,078
$
240,789
$
541,874
$
2,402,892
The Company recognizes revenue upon the satisfaction of its performance obligations under its contracts. The timing of revenue recognition varies for our different revenue streams. In general, the timing includes recognition of revenue over time as services are being performed as well as recognition of revenue at a point in time for delivery of products.
Contract Assets and Liabilities
The table below depicts our contract asset and liability balances at December 31, 2023 and September 30, 2024:
Contract Assets
Contract Liabilities
Other Assets, net of amortization
Accrued Liabilities
Other Long-Term Liabilities
Balance at December 31, 2023
$
859
$
11,460
$
112,734
Balance at September 30, 2024
1,788
38,631
92,317
Transaction Price Allocations to Remaining Performance Obligations
We are required to disclose the aggregate amount of our transaction prices that are allocated to unsatisfied performance obligations as of September 30, 2024. However, we are permitted to utilize the following exemptions:
1)Performance obligations that are part of a contract with an expected duration of one year or less;
2)Revenue recognized from the satisfaction of performance obligations where we have a right to consideration in an amount that corresponds directly with the value provided to customers; and
3)Contracts that contain variable consideration, such as index-based pricing or variable volumes, that is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that is part of a series.
The majority of our contracts qualify for one of these exemptions. For the remaining contract types that involve revenue recognition over a long-term period and include long-term fixed consideration (adjusted for indexing as required), we determined our allocations of transaction price that relate to unsatisfied performance obligations. For our tiered pricing offshore transportation contracts, we provide firm capacity for both fixed and variable consideration over a long-term period. Therefore, we have allocated the remaining contract value to future periods.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following chart depicts how we expect to recognize revenues for future periods related to these contracts:
Offshore Pipeline Transportation
Onshore Facilities and Transportation
Remainder of 2024
$
36,110
$
6,456
2025
153,719
25,853
2026
124,324
26,170
2027
78,445
13,864
2028
45,937
10,000
Thereafter
124,320
2,500
Total
$
562,855
$
84,843
4. Business Consolidation
American Natural Soda Ash Corporation (“ANSAC”)
ANSAC is an organization whose purpose is to promote and market the use and sale of domestically produced natural soda ash in specified countries outside of the United States. Prior to 2023, our Alkali Business and another domestic soda ash producer were the two members of ANSAC. On January 1, 2023, we became the sole member of ANSAC and assumed 100% of the voting rights of the entity, and it became a wholly owned subsidiary of Genesis.
The allocation of the purchase price, as presented within our Condensed Consolidated Balance Sheet as of December 31, 2023, is summarized as follows:
Cash and cash equivalents
$
4,332
Accounts receivable - trade, net
231,797
Inventories
19,522
Other current assets
14,203
Fixed assets, at cost
4,000
Right of use assets, net
93,208
Intangible assets, net of amortization
14,992
Other assets, net of amortization
400
Accounts payable - trade(1)
(228,106)
Accrued liabilities
(75,224)
Deferred tax liabilities
(1,482)
Other long-term liabilities
(77,642)
Net Assets
$
—
(1)The “Accounts payable - trade” balance above includes $133.4 million of payables to Genesis at December 31, 2022 that eliminated upon consolidation in our Consolidated Balance Sheet.
Inventories principally relate to finished goods (soda ash) that have been supplied by current or former members of ANSAC. “Fixed assets, at cost” relate to leasehold improvements, and “Intangible assets, net of amortization” relate to the assets supporting our logistical and marketing footprint, and both have an estimated useful life of ten years, which is consistent with the term of our primary lease facilitating our logistics operations. “Right of use assets, net” and our corresponding lease liabilities, which are recorded within “Accrued liabilities” and “Other long-term liabilities,” are associated with our right to use certain assets to store and load finished goods, the vessels we utilize to ship finished goods to distributors and end users, as well as office space.
We have reflected the financial results of ANSAC within our soda and sulfur services segment from the date of acquisition, January 1, 2023. The following financial information was prepared from our historical financial statements that have been adjusted to give the effect of the consolidation of ANSAC, and was prepared using financial data of ANSAC. Net income attributable to common unitholders includes the effects of distributions attributable to our Class A Convertible Preferred Units. The dilutive effect of our Class A Convertible Preferred Units is calculated using the if-converted method.
Three Months Ended September 30, 2023
Nine Months Ended September 30, 2023
Consolidated financial operating results:
Revenues
$
807,618
$
2,402,892
Net Income Attributable to Genesis Energy, L.P.
58,070
105,770
Net Income Attributable to Common Unitholders
35,762
36,550
Basic and diluted earnings per common unit:
As reported net income per common unit
$
0.29
$
0.30
Pro forma net income per common unit
$
0.29
$
0.30
5. Lease Accounting
Lessee Arrangements
We lease a variety of transportation equipment (primarily railcars and vessels), terminals, land and facilities, and office space and equipment. Lease terms vary and can range from short term (not greater than 12 months) to long term (greater than 12 months). Certain of our leases contain options to extend the life of the lease at our sole discretion and we considered these options when determining the lease terms used to derive our right of use assets and associated lease liabilities. Leases with a term of 12 months or fewer are not recorded on our Unaudited Condensed Consolidated Balance Sheets and we recognize lease expense for these leases on a straight-line basis over the lease term.
Our “Right of use assets, net” balance includes our unamortized initial direct costs associated with certain of our transportation equipment, office space and equipment, and facilities and equipment leases. Additionally, it includes our unamortized prepaid rents and our deferred rents. Current and non-current lease liabilities are recorded within “Accrued liabilities” and “Other long-term liabilities,” respectively, on our Unaudited Condensed Consolidated Balance Sheets.
Lessor Arrangements
We have certain contracts discussed below in which we act as a lessor. We also, from time to time, sublease certain of our transportation and facilities equipment to third parties.
Operating Leases
During the three and nine months ended September 30, 2024 and 2023, we acted as a lessor in a revenue contract associated with our 330,000 barrel-capacity ocean going tanker, the M/T American Phoenix, included in our marine transportation segment. Our lease revenues for this arrangement were $7.2 million and $6.0 million for the three months ended September 30, 2024 and 2023, respectively, and $21.1 million and $17.7 million for the nine months ended September 30, 2024 and 2023, respectively.
The M/T American Phoenix is under contract through mid-2027. For the remainder of 2024, 2025, 2026, and through the expiration of the contract in 2027, we expect to receive undiscounted cash flows from lease payments of $7.2 million, $29.6 million, $30.7 million and $15.2 million, respectively. Our agreements generally contain clauses that may limit the use of the asset or require certain actions be taken by the lessee to maintain the asset for future performance.
The major components of inventories were as follows:
September 30, 2024
December 31, 2023
Crude oil
$
31,783
$
22,320
Caustic soda
6,496
9,150
NaHS
8,881
17,605
Raw materials - Alkali Business
9,291
8,355
Work-in-process - Alkali Business
3,416
11,404
Finished goods, net - Alkali Business
30,601
48,706
Materials and supplies, net - Alkali Business
20,219
17,691
Total
$
110,687
$
135,231
Inventories are valued at the lower of cost or net realizable value. As of September 30, 2024 and December 31, 2023, the net realizable value of inventories were below their respective cost by $0.4 million and $0.2 million, respectively, which triggered a reduction of the value of inventory in our Unaudited Condensed Consolidated Financial Statements by these amounts.
Materials and supplies include chemicals, maintenance supplies and spare parts, which will be consumed in the mining of trona ore and production of soda ash processes.
7. Fixed Assets, Mineral Leaseholds and Asset Retirement Obligations
Fixed Assets
Fixed assets consisted of the following:
September 30, 2024
December 31, 2023
Crude oil and natural gas pipelines and related assets
$
2,954,454
$
2,945,215
Alkali facilities, machinery and equipment
1,171,084
1,147,291
Onshore facilities, machinery and equipment
292,186
271,271
Transportation equipment
32,399
24,913
Marine vessels
1,033,398
1,021,080
Land, buildings and improvements
299,939
293,733
Office equipment, furniture and fixtures
26,330
25,029
Construction in progress(1)
939,331
731,197
Other
26,665
41,168
Fixed assets, at cost
6,775,786
6,500,897
Less: Accumulated depreciation
(2,143,320)
(1,972,596)
Net fixed assets
$
4,632,466
$
4,528,301
(1)Construction in progress primarily relates to our ongoing offshore growth capital projects, which are expected to be completed in 2025, and represents 100% of the costs incurred, including those funded by our noncontrolling interest holder.
Mineral Leaseholds
Our Mineral Leaseholds, relating to our Alkali Business, consist of the following:
Our depreciation and depletion expense for the periods presented were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Depreciation expense
$
77,269
$
64,104
$
220,295
$
197,590
Depletion expense
1,112
1,107
3,598
3,256
Asset Retirement Obligations
We record asset retirement obligations (“AROs”) in connection with legal requirements to perform specified retirement activities under contractual arrangements and/or governmental regulations.
The following table presents information regarding our AROs since December 31, 2023:
ARO liability balance, December 31, 2023
$
243,708
Accretion expense
8,331
Settlements
(357)
ARO liability balance, September 30, 2024
$
251,682
At September 30, 2024 and December 31, 2023, $25.8 million and $26.1 million are included as current in “Accrued liabilities” on our Unaudited Condensed Consolidated Balance Sheets, respectively. The remainder of the ARO liability as of September 30, 2024 and December 31, 2023 is included in “Other long-term liabilities” on our Unaudited Condensed Consolidated Balance Sheets.
Certain of our unconsolidated affiliates have AROs recorded at September 30, 2024 and December 31, 2023 relating to contractual agreements and regulatory requirements. In addition, certain entities that we consolidate have non-controlling interest owners that are responsible for their representative share of future costs of the related ARO liability. These amounts are immaterial to our Unaudited Condensed Consolidated Financial Statements.
8. Equity Investees
We account for our ownership in certain of our joint ventures under the equity method of accounting. The price we pay to acquire an ownership interest in a company may exceed the underlying book value of the capital accounts we acquire. Such excess cost amounts are included within the carrying values of our equity investees. At September 30, 2024 and December 31, 2023, the unamortized excess cost amounts totaled $280.7 million and $291.4 million, respectively. We amortize the differences in carrying value as changes in equity earnings.
The following table presents information included in our Unaudited Condensed Consolidated Financial Statements related to our equity investees:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Genesis’ share of operating earnings
$
15,200
$
20,808
$
50,986
$
60,304
Amortization of differences attributable to Genesis’ carrying value of equity investments
(3,566)
(3,566)
(10,698)
(10,698)
Equity in earnings of equity investees
$
11,634
$
17,242
$
40,288
$
49,606
Distributions received(1)
$
18,488
$
23,629
$
58,829
$
68,141
(1) Distributions attributable to the respective period and received within 15 days subsequent to the respective period end.
Poseidon’s Revolving Credit Facility
Poseidon Oil Pipeline Company, LLC (“Poseidon”) has a revolving credit facility, which was amended and restated on June 1, 2023 (the “June 2023 credit facility”). Borrowings under Poseidon’s revolving credit facility have historically been used to fund spending on capital projects and for working capital needs, if necessary. The June 2023 credit facility, which matures on June 1, 2027, is non-recourse to Poseidon’s owners and secured by its assets. The June 2023 credit facility contains customary covenants such as restrictions on debt levels, liens, guarantees, mergers, sale of assets and distributions to owners. A breach of any of these covenants could result in acceleration of the maturity date of Poseidon’s debt. Poseidon was in compliance with the terms of its credit agreement for all periods presented in these Unaudited Condensed Consolidated Financial Statements.
The following table summarizes the components of our intangible assets at the dates indicated:
September 30, 2024
December 31, 2023
Gross Carrying Amount
Accumulated Amortization
Carrying Value
Gross Carrying Amount
Accumulated Amortization
Carrying Value
Offshore pipeline contract intangibles
$
158,101
$
76,277
$
81,824
$
158,101
$
70,036
$
88,065
Other
80,477
20,230
60,247
70,974
17,502
53,472
Total
$
238,578
$
96,507
$
142,071
$
229,075
$
87,538
$
141,537
Our amortization of intangible assets for the periods presented was as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Amortization of intangible assets
$
3,309
$
3,069
$
8,969
$
8,747
We estimate that our amortization expense for the next five years will be as follows:
Remainder of
2024
$
2,855
2025
15,632
2026
15,159
2027
14,706
2028
14,448
10. Debt
Our obligations under debt arrangements consisted of the following:
September 30, 2024
December 31, 2023
Principal
Unamortized Premium, Discount and Debt Issuance Costs
Net Value
Principal
Unamortized Premium, Discount and Debt Issuance Costs
Net Value
Senior secured credit facility(1)
$
207,600
$
—
$
207,600
$
298,300
$
—
$
298,300
6.250% senior unsecured notes due 2026
—
—
—
339,310
1,746
337,564
8.000% senior unsecured notes due 2027
981,245
2,568
978,677
981,245
3,549
977,696
7.750% senior unsecured notes due 2028
679,360
4,997
674,363
679,360
6,121
673,239
8.250% senior unsecured notes due 2029
600,000
14,804
585,196
600,000
17,202
582,798
8.875% senior unsecured notes due 2030
500,000
7,347
492,653
500,000
8,342
491,658
7.875% senior unsecured notes due 2032
700,000
11,864
688,136
—
—
—
5.875% Alkali senior secured notes due 2042(2)
416,305
21,195
395,110
425,000
21,791
403,209
Total long-term debt
$
4,084,510
$
62,775
$
4,021,735
$
3,823,215
$
58,751
$
3,764,464
(1)Unamortized debt issuance costs associated with our senior secured credit facility (included in “Other Assets, net of amortization” on the Unaudited Condensed Consolidated Balance Sheets), were $8.0 million and $5.7 million as of September 30, 2024 and December 31, 2023, respectively.
(2)As of September 30, 2024 and December 31, 2023, $12.7 million and $11.6 million, respectively, of the principal balance are considered current and included within “Accrued liabilities” on the Unaudited Condensed Consolidated Balance Sheets.
On July 19, 2024, we entered into the Seventh Amended and Restated Credit Agreement (our “credit agreement”) to replace our Sixth Amended and Restated Credit Agreement. Our credit agreement provides for a $900 million senior secured revolving credit facility. The credit agreement matures on September 1, 2028, subject to extension at our request for one additional year on up to two occasions and subject to certain conditions, unless: (i) if more than $150 million of our 8.000% senior unsecured notes due January 15, 2027 (the “2027 Notes”) remain outstanding as of October 16, 2026, the credit agreement matures on such date; and (ii) if more than $150 million of our 7.750% senior unsecured notes due February 1, 2028 (the “2028 Notes”) remain outstanding as of November 2, 2027, the credit agreement matures on such date.
At September 30, 2024, the key terms for rates under our senior secured credit facility (which are dependent on our leverage ratio as defined in the credit agreement) are as follows:
•The interest rate on borrowings may be based on an alternate base rate or Term Secured Overnight Financing Rate (“SOFR”), at our option. Interest on alternate base rate loans is equal to the sum of (a) the highest of (i) the prime rate in effect on such day, (ii) the federal funds effective rate in effect on such day plus 0.5% and (iii) the Adjusted Term SOFR (as defined in our credit agreement) for a one-month tenor in effect on such day plus 1% and (b) the applicable margin. The Adjusted Term SOFR is equal to the sum of (a) the Term SOFR rate (as defined in our credit agreement) for such period plus (b) the Term SOFR Adjustment of 0.1% plus (c) the applicable margin. The applicable margin varies from 2.25% to 3.50% on Term SOFR borrowings and from 1.25% to 2.50% on alternate base rate borrowings, depending on our leverage ratio. Our leverage ratio is recalculated quarterly and in connection with each material acquisition. At September 30, 2024, the applicable margins on our borrowings were 2.00% for alternate base rate borrowings and 3.00% for Term SOFR borrowings based on our leverage ratio.
•Letter of credit fee rates range from 2.25% to 3.50% based on our leverage ratio as computed under the credit agreement and can fluctuate quarterly. At September 30, 2024, our letter of credit rate was 3.00%.
•We pay a commitment fee on the unused portion of the senior secured revolving credit facility. The commitment fee rates on the unused committed amount will range from 0.30% to 0.50% per annum depending on our leverage ratio. At September 30, 2024, our commitment fee rate on the unused committed amount was 0.50%.
•We have the ability to increase the aggregate size of the senior secured credit facility by an additional $150 million, subject to lender consent and certain other customary conditions.
At September 30, 2024, we had $207.6 million borrowed under our senior secured credit facility, with $24.2 million of the borrowed amount designated as a loan under the inventory sublimit of $200 million. Our credit agreement allows up to $50 million of the capacity to be used for letters of credit, of which $4.5 million was outstanding at September 30, 2024. Due to the revolving nature of loans under our senior secured credit facility, additional borrowings, periodic repayments and re-borrowings may be made until the maturity date. The total amount available for borrowings under our senior secured credit facility at September 30, 2024 was $687.9 million, subject to compliance with covenants. Our credit agreement does not include a “borrowing base” limitation except with respect to our inventory loans.
Alkali Senior Secured Notes Issuance
The agreement governing our 5.875% senior secured notes due 2042 (the “Alkali senior secured notes”) requires principal repayments on the last day of each quarter commencing with the quarter ended March 31, 2024. We made principal payments on our Alkali senior secured notes of $8.7 million for the nine months ending September 30, 2024. As of September 30, 2024, principal repayments totaling $73.2 million are due within the next five years, with the remaining quarterly principal repayments due thereafter through March 31, 2042.As of September 30, 2024, $12.7 million of the principal balance is considered current and included within “Accrued liabilities” on the Unaudited Condensed Consolidated Balance Sheet.We are required to maintain a certain level of cash in a liquidity reserve account (owned by GA ORRI, LLC (“GA ORRI”)) to be held as collateral for future interest and principal payments as calculated and described in the agreement governing the Alkali senior secured notes. As of September 30, 2024 and December 31, 2023, our liquidity reserve account had a balance of $18.8 million, which is classified as “Restricted cash” on the Unaudited Condensed Consolidated Balance Sheets.
On May 9, 2024, we issued $700.0 million in aggregate principal amount of 7.875% senior unsecured notes due May 15, 2032 (the “2032 Notes”). Interest payments are due May 15 and November 15 of each year with the initial interest payment due on November 15, 2024. The issuance of our 2032 Notes generated net proceeds of approximately $688 million, net of issuance costs incurred. The net proceeds were used to redeem all of our existing 6.25% senior unsecured notes due May 15, 2026 (the “2026 Notes”), $339.3 million in principal amount of which were outstanding, and pay the related accrued interest. The remaining proceeds were used to repay a portion of the borrowings outstanding under our senior secured credit facility and for general partnership purposes. We incurred a loss of $1.4 million associated with the write-off of the related unamortized debt issuance costs on our 2026 Notes, which is recorded as “Other expense” in our Unaudited Condensed Consolidated Statement of Operations for the nine months ended September 30, 2024.
On January 25, 2023, we issued $500.0 million in aggregate principal amount of 8.875% senior unsecured notes due April 15, 2030 (the “2030 Notes”). Interest payments are due April 15 and October 15 of each year with the initial interest payment due on October 15, 2023. The issuance generated net proceeds of approximately $491 million, net of issuance costs incurred. The net proceeds were used to purchase $316.3 million of our existing 5.625% senior unsecured notes due June 15, 2024 (the “2024 Notes”), including the related accrued interest and tender premium and fees on those notes that were tendered in the tender offer that ended January 24, 2023. The remaining proceeds at that time were used to repay a portion of the borrowings outstanding under our senior secured credit facility and for general partnership purposes. On January 26, 2023, we issued a notice of redemption for the remaining principal of $24.8 million of our 2024 Notes and discharged the indebtedness with respect to the 2024 Notes on February 14, 2023. We incurred a loss of $1.8 million on the tender and redemption of the 2024 Notes, inclusive of our transactions costs and write-off of the related unamortized debt issuance costs, which is recorded as “Other expense” in our Unaudited Condensed Consolidated Statement of Operations for the nine months ended September 30, 2023.
Our $3.5 billion aggregate principal amount of senior unsecured notes co-issued by Genesis Energy, L.P. and Genesis Energy Finance Corporation are fully and unconditionally guaranteed jointly and severally by all of Genesis Energy, L.P.’s current and future 100% owned domestic subsidiaries (the “Guarantor Subsidiaries”), except GA ORRI and GA ORRI Holdings, LLC (“GA ORRI Holdings”), and certain other subsidiaries. The non-guarantor subsidiaries are indirectly owned by Genesis Crude Oil, L.P., a Guarantor Subsidiary. The Guarantor Subsidiaries largely own the assets, other than GA ORRI’s fifty-year limited term 10% overriding royalty interest in substantially all of the Alkali Business’ trona mineral leases (the “ORRI Interests”), that we use to operate our business. As a general rule, the assets and credit of our unrestricted subsidiaries are not available to satisfy the debts of Genesis Energy, L.P., Genesis Energy Finance Corporation or the Guarantor Subsidiaries, and the liabilities of our unrestricted subsidiaries do not constitute obligations of Genesis Energy, L.P., Genesis Energy Finance Corporation or the Guarantor Subsidiaries.
11. Partners’ Capital, Mezzanine Capital and Distributions
At September 30, 2024, our outstanding common units consisted of 122,424,321 Class A Common Units and 39,997 Class B Common Units. The Class A Common Units are traditional common units in us. The Class B Common Units are identical to the Class A Common Units and, accordingly, have voting and distribution rights equivalent to those of the Class A Common Units, and, in addition, the Class B Common Units have the right to elect all of our board of directors and are convertible into Class A Common Units under certain circumstances, subject to certain exceptions. At September 30, 2024, we had 23,111,918 Class A Convertible Preferred Units outstanding, which are discussed below in further detail.
In an effort to return capital to our investors, we announced a common equity repurchase program (the “Repurchase Program”) on August 8, 2023. The Repurchase Program authorizes the repurchase from time to time of up to 10% of our then outstanding Class A Common Units, or 12,253,922 units, via open market purchases or negotiated transactions conducted in accordance with applicable regulatory requirements. These repurchases may be made pursuant to a repurchase plan or plans that comply with Rule 10b5-1 under the Securities Exchange Act of 1934. The Repurchase Program will be reviewed no later than December 31, 2024 and may be suspended or discontinued at any time prior thereto. The Repurchase Program does not create an obligation for us to acquire a particular number of Class A Common Units and any Class A Common Units repurchased will be canceled. During 2023, we repurchased and cancelled a total of 114,900 Class A Common Units at an average price of approximately $9.09 per unit for a total purchase price of $1.0 million, including commissions. We have not repurchased any Class A Common Units in 2024.
We paid, or will pay, the following cash distributions to our common unitholders in 2023 and 2024:
Distribution For
Date Paid
Per Unit Amount
Total Amount
2023
1st Quarter
May 15, 2023
$
0.150
$
18,387
2nd Quarter
August 14, 2023
$
0.150
$
18,387
3rd Quarter
November 14, 2023
$
0.150
$
18,370
4th Quarter
February 14, 2024
$
0.150
$
18,370
2024
1st Quarter
May 15, 2024
$
0.150
$
18,370
2nd Quarter
August 14, 2024
$
0.150
$
18,370
3rd Quarter(1)
November 14, 2024
$
0.165
$
20,207
(1)This distribution was declared in October 2024 and will be paid to unitholders of record as of October 31, 2024.
Class A Convertible Preferred Units
Our Class A Convertible Preferred Units rank senior to all of our currently outstanding classes or series of limited partner interests with respect to distribution and/or liquidation rights. Holders of our Class A Convertible Preferred Units vote on an as-converted basis with holders of our common units and have certain class voting rights, including with respect to any amendment to the partnership agreement that would adversely affect the rights, preferences or privileges, or otherwise modify the terms, of those Class A Convertible Preferred Units.
Accounting for the Class A Convertible Preferred Units
Our Class A Convertible Preferred Units are considered redeemable securities under GAAP due to the existence of redemption provisions upon a deemed liquidation event that is outside of our control. Therefore, we present them as temporary equity in the mezzanine section of the Unaudited Condensed Consolidated Balance Sheets. We initially recognized our Class A Convertible Preferred Units at their issuance date fair value, net of issuance costs, as they were not redeemable and we did not have plans or expect any events that constitute a change of control in our partnership agreement.
On April 3, 2023 and July 3, 2023, we entered into purchase agreements with the Class A Convertible Preferred unitholders whereby we redeemed a total of 1,483,240 Class A Convertible Preferred Units (the “Redeemed Units”) at an average purchase price of $33.71 per unit. The Redeemed Units had a carrying value of $35.20 per unit resulting in returns attributable to the Class A Convertible Preferred Units
Net Income (Loss) Attributable to Genesis Energy, L.P. is adjusted for distributions and returns attributable to the Class A Convertible Preferred Units that accumulate in the period to arrive at Net Income (Loss) attributable to Common Unitholders. Net Income (Loss) Attributable to Genesis Energy, L.P. was reduced by $21.9 million and $65.7 million for the three and nine months ending September 30, 2024, respectively, and $23.3 million and $71.3 million for the three and nine months ending September 30, 2023, respectively, due to Class A Convertible Preferred Unit distributions paid in the period (Class A Convertible Preferred Unit distributions are summarized in the table below). For the three and nine months ended September 30, 2023, Net Income (Loss) Attributable to Genesis Energy L.P. was increased by $1.0 million and $2.1 million, respectively, due to returns attributable to the Class A Convertible Preferred Units accumulated in the period.
As of September 30, 2024, we will not be required to further adjust the carrying amount of our Class A Convertible Preferred Units until it becomes probable that they would become redeemable. Once redemption becomes probable, we would adjust the carrying amount of our Class A Convertible Preferred Units to the redemption value over a period of time comprising the date redemption first becomes probable and the date the units can first be redeemed.
We paid, or will pay, by the dates noted below, the following cash distributions to our Class A Convertible Preferred unitholders in 2023 and 2024:
Distribution For
Date Paid
Per Unit Amount
Total Amount
2023
1st Quarter
May 15, 2023
$
0.9473
$
24,002
2nd Quarter
August 14, 2023
$
0.9473
$
23,314
3rd Quarter
November 14, 2023
$
0.9473
$
22,612
4th Quarter
February 14, 2024
$
0.9473
$
21,894
2024
1st Quarter
May 15, 2024
$
0.9473
$
21,894
2nd Quarter
August 14, 2024
$
0.9473
$
21,894
3rd Quarter(1)
November 14, 2024
$
0.9473
$
21,894
(1)This distribution was declared in October 2024 and will be paid to unitholders of record as of October 31, 2024.
Noncontrolling Interests
We own a 64% membership interests in Cameron Highway Oil Pipeline Company, LLC (“CHOPS”) and are the operator of its pipeline and associated assets (the “CHOPS pipeline”). We also own an 80% membership interest in Independence Hub, LLC. For financial reporting purposes, the assets and liabilities of these entities are consolidated with those of our own, with any third party or affiliate interest in our Unaudited Condensed Consolidated Balance Sheets amounts shown as noncontrolling interests in equity.
12. Net Income (Loss) Per Common Unit
Basic net income (loss) per common unit is computed by dividing net income (loss) attributable to Genesis Energy, L.P., after considering income attributable to our Class A preferred unitholders, by the weighted average number of common units outstanding.
The dilutive effect of our Class A Convertible Preferred Units is calculated using the if-converted method. Under the if-converted method, the Class A Convertible Preferred Units are assumed to be converted at the beginning of the period (beginning with their respective issuance date), and the resulting common units are included in the denominator of the diluted net income (loss) per common unit calculation for the period being presented. The numerator is adjusted for distributions declared in the period, undeclared distributions that accumulated during the period, and any returns that accumulated in the period. For the three and nine months ended September 30, 2024 and 2023, the effect of the assumed conversion of all the outstanding Class A Convertible Preferred Units was anti-dilutive and was not included in the computation of diluted earnings per unit.
The following table reconciles net income (loss) attributable to Genesis Energy, L.P. and weighted average units used in computing basic and diluted net income (loss) per common unit (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Net income (loss) attributable to Genesis Energy, L.P.
$
(17,177)
$
58,070
$
(14,568)
$
105,770
Less: Accumulated distributions and returns attributable to Class A Convertible Preferred Units
(21,894)
(22,308)
(65,682)
(69,220)
Net income (loss) attributable to common unitholders
$
(39,071)
$
35,762
$
(80,250)
$
36,550
Weighted average outstanding units
122,464
122,521
122,464
122,559
Basic and diluted net income (loss) per common unit
We currently manage our businesses through four divisions that constitute our reportable segments:
•Offshore pipeline transportation, which includes the transportation and processing of crude oil and natural gas in the Gulf of Mexico;
•Soda and sulfur services involving trona and trona-based exploring, mining, processing, soda ash production, marketing, logistics and selling activities, as well as processing of high sulfur (or “sour”) gas streams for refineries to remove the sulfur, and selling the related by-product, sodium hydrosulfide (or “NaHS,” commonly pronounced “nash”);
•Marine transportation to provide waterborne transportation of petroleum products (primarily fuel oil, asphalt and other heavy refined products) and crude oil throughout North America; and
•Onshore facilities and transportation, which includes terminaling, blending, storing, marketing, and transporting crude oil and petroleum products.
Substantially all of our revenues are derived from, and substantially all of our assets are located in, the United States.
We define Segment Margin as revenues less product costs, operating expenses (excluding non-cash gains and charges, such as depreciation, depletion, amortization and accretion) and segment general and administrative expenses, net of the effects of our noncontrolling interests, plus our equity in distributable cash generated by our equity investees and unrestricted subsidiaries. In addition, our Segment Margin definition excludes the non-cash effects of our long-term incentive compensation plan.
Our chief operating decision maker (our Chief Executive Officer) evaluates segment performance based on a variety of measures including Segment Margin, segment volumes, where relevant, and capital investment.
Segment information for the periods presented below was as follows:
Offshore pipeline transportation
Soda and sulfur services
Marine transportation
Onshore facilities and transportation
Total
Three Months Ended September 30, 2024
Segment Margin(1)
$
72,149
$
38,188
$
31,068
$
9,703
$
151,108
Capital expenditures(2)
$
74,461
$
30,280
$
30,424
$
2,112
$
137,277
Revenues:
External customers
$
101,119
$
372,146
$
78,496
$
162,536
$
714,297
Intersegment(3)
—
(2,081)
—
2,081
—
Total revenues of reportable segments
$
101,119
$
370,065
$
78,496
$
164,617
$
714,297
Three Months Ended September 30, 2023
Segment Margin(1)
$
109,267
$
61,957
$
27,126
$
9,547
$
207,897
Capital expenditures(2)
$
149,489
$
36,502
$
12,496
$
6,696
$
205,183
Revenues:
External customers
$
101,985
$
425,913
$
80,220
$
199,500
$
807,618
Intersegment(3)
4,312
(2,338)
—
(1,974)
—
Total revenues of reportable segments
$
106,297
$
423,575
$
80,220
$
197,526
$
807,618
Nine Months Ended September 30, 2024
Segment Margin(1)
$
256,086
$
125,181
$
93,974
$
25,278
$
500,519
Capital expenditures(2)
$
193,875
$
66,986
$
72,266
$
15,325
$
348,452
Revenues:
External customers
$
302,133
$
1,167,325
$
243,941
$
527,264
$
2,240,663
Intersegment(3)
—
(6,318)
—
6,318
—
Total revenues of reportable segments
$
302,133
$
1,161,007
$
243,941
$
533,582
$
2,240,663
Nine Months Ended September 30, 2023
Segment Margin(1)
$
300,505
$
217,319
$
78,578
$
21,242
$
617,644
Capital expenditures(2)
$
293,187
$
83,109
$
32,543
$
10,714
$
419,553
Revenues:
External customers
$
284,839
$
1,337,897
$
240,789
$
539,367
$
2,402,892
Intersegment(3)
4,312
(6,819)
—
2,507
—
Total revenues of reportable segments
$
289,151
$
1,331,078
$
240,789
$
541,874
$
2,402,892
(1)A reconciliation of Net income (loss) attributable to Genesis Energy, L.P. to total Segment Margin for the periods is presented below.
(2)Capital expenditures include maintenance and growth capital expenditures, such as fixed asset additions (including enhancements to existing facilities and construction of growth projects) as well as contributions to equity investees, if any.
(3)Intersegment sales were conducted under terms that we believe were no more or less favorable than then-existing market conditions.
Total assets by reportable segment were as follows:
Reconciliation of Net income (loss) attributable to Genesis Energy, L.P. to total Segment Margin:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Net income (loss) attributable to Genesis Energy, L.P.
$
(17,177)
$
58,070
$
(14,568)
$
105,770
Corporate general and administrative expenses
13,175
18,329
49,231
52,580
Depreciation, depletion, amortization and accretion
84,610
71,099
241,539
218,788
Interest expense, net
71,984
61,580
211,588
184,057
Adjustment to include distributable cash generated by equity investees not included in income and exclude equity in investees net income(1)
6,855
6,387
18,542
18,535
Unrealized losses (gains) on derivative transactions excluding fair value hedges, net of changes in inventory value
1,606
(12,299)
(9,335)
17,721
Other non-cash items
(1,573)
(7,228)
(6,258)
(16,886)
Loss on extinguishment of debt
—
—
1,429
1,812
Differences in timing of cash receipts for certain contractual arrangements(2)
(7,526)
11,385
8,366
33,519
Income tax expense (benefit)
(846)
574
(15)
1,748
Total Segment Margin
$
151,108
$
207,897
$
500,519
$
617,644
(1)Includes distributions attributable to the quarter and received during or promptly following such quarter.
(2)Includes the difference in timing of cash receipts from customers during the period and the revenue we recognize in accordance with GAAP on our related contracts.
14. Transactions with Related Parties
The transactions with related parties were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Revenues:
Revenues from services and fees to Poseidon(1)
$
4,249
$
4,812
$
15,257
$
13,858
Costs and expenses:
Amounts paid to our CEO in connection with the use of his aircraft
$
165
$
165
$
495
$
495
Charges for products purchased from Poseidon(1)
283
6,797
867
8,834
(1)We own a 64% interest in Poseidon.
Our CEO, Mr. Grant E. Sims, owns an aircraft which is used by us for business purposes in the course of operations. We pay Mr. Sims a fixed monthly fee and reimburse the aircraft management company for costs related to our usage of the aircraft, including fuel and the actual out-of-pocket costs. Based on current market rates for chartering of private aircraft under long-term, priority arrangements with industry recognized chartering companies, we believe that the terms of this arrangement reflect what we would expect to obtain in an arms-length transaction.
Transactions with Unconsolidated Affiliates
Poseidon
We provide management, administrative and pipeline operator services to Poseidon under an Operation and Management Agreement. Currently, that agreement automatically renews annually unless terminated by either party (as defined in the agreement). Our revenues for the three and nine months ended September 30, 2024 include $2.6 million and $7.8 million, respectively, of fees we earned through the provision of services under that agreement. Our revenues for the three and nine months ended September 30, 2023 include $2.5 million and $7.5 million, respectively, of fees we earned through the provision of services under that agreement. At September 30, 2024 and December 31, 2023, Poseidon owed us $1.5 million and $1.9 million for services rendered, respectively.
The following table provides information regarding the net changes in components of operating assets and liabilities.
Nine Months Ended September 30,
2024
2023
(Increase) decrease in:
Accounts receivable
$
14,487
$
54,474
Inventories
39,078
(29,281)
Deferred charges
(1,649)
31,003
Other current assets
10,673
(4,571)
Increase (decrease) in:
Accounts payable
31,723
(31,006)
Accrued liabilities
(34,560)
(17,015)
Net changes in components of operating assets and liabilities
$
59,752
$
3,604
Payments of interest and commitment fees were $234.4 million and $196.3 million for the nine months ended September 30, 2024 and 2023, respectively.
We capitalized interest of $36.4 million and $29.2 million during the nine months ended September 30, 2024 and September 30, 2023, respectively.
At September 30, 2024 and 2023, we had incurred liabilities for fixed and intangible asset additions totaling $65.4 million and $121.4 million, respectively, that had not been paid at the end of the quarter. Therefore, these amounts were not included in the caption “Payments to acquire fixed and intangible assets” under Cash Flows from Investing Activities in the Unaudited Condensed Consolidated Statements of Cash Flows. The amounts as of September 30, 2024 primarily relate to the capital expenditures associated with our offshore growth capital projects.
16. Derivatives
Crude Oil and Petroleum Products Hedges
We have exposure to commodity price changes related to our petroleum inventory and purchase commitments. We utilize derivative instruments (exchange-traded futures, options and swap contracts) to hedge our exposure to crude oil, fuel oil and other petroleum products. Our decision as to whether to designate derivative instruments as fair value hedges for accounting purposes relates to our expectations of the length of time we expect to have the commodity price exposure and our expectations as to whether the derivative contract will qualify as highly effective under accounting guidance in limiting our exposure to commodity price risk. We recognize any changes in the fair value of our derivative contracts as increases or decreases in “Onshore facilities and transportation product costs” in the Unaudited Condensed Consolidated Statements of Operations. The recognition of changes in fair value of the derivative contracts not designated as hedges for accounting purposes can occur in reporting periods that do not coincide with the recognition of gain or loss on the actual transaction being hedged. Therefore, we will, on occasion, report gains or losses in one period that will be partially offset by gains or losses in a future period when the hedged transaction is completed.
We have designated certain crude oil futures contracts as hedges of crude oil inventory due to our expectation that these contracts will be highly effective in hedging our exposure to fluctuations in crude oil prices during the period that we expect to hold that inventory. We account for these derivative instruments as fair value hedges under the accounting guidance. Changes in the fair value of these derivative instruments designated as fair value hedges are used to offset related changes in the fair value of the hedged crude oil inventory. Any hedge ineffectiveness in these fair value hedges and any amounts excluded from effectiveness testing are recorded as a gain or loss within “Onshore facilities and transportation product costs” in the Unaudited Condensed Consolidated Statements of Operations.
Natural Gas Hedges
Our Alkali Business relies on natural gas to generate heat and electricity for operations. We use a combination of commodity price swap contracts, future purchase contracts, and option contracts to manage our exposure to fluctuations in natural gas prices. The swap contracts are used to fix the basis differential between NYMEX Henry Hub and NW Rocky Mountain posted prices. We do not designate these contracts as hedges for accounting purposes. We recognize any changes in fair value of natural gas derivative contracts as increases or decreases within “Soda and sulfur services operating costs” in the Unaudited Condensed Consolidated Statements of Operations.
ANSAC is exposed to fluctuations in freight rates for vessels used to transport soda ash to our international customers. We use exchange-traded or over-the-counter futures, swaps and options to hedge future freight rates for forecasted shipments. We do not designate these contracts as hedges for accounting purposes. We recognize any changes in fair value of forward freight contracts as increases or decreases within “Soda and sulfur services operating costs” in the Unaudited Condensed Consolidated Statements of Operations.
Bunker Fuel Hedges
ANSAC is exposed to fluctuations in the price of bunker fuel consumed by vessels used to transport soda ash to our international customers. We use exchange-traded or over-the-counter futures, swaps and options to hedge bunker fuel prices for forecasted shipments. We do not designate these contracts as hedges for accounting purposes. We recognize any changes in fair value of bunker fuel contracts as increases or decreases within “Soda and sulfur services operating costs” in the Unaudited Condensed Consolidated Statements of Operations.
Rail Fuel Surcharge Hedges
ANSAC enters into rail transport agreements that require us to pay rail fuel surcharges based on changes in the U.S. On-Highway Diesel Fuel Price published by the U.S. Department of Energy (“DOE”). We use exchange-traded or over-the-counter futures, swaps and options to hedge fluctuations in the fuel price. We do not designate these contracts as hedges for accounting purposes. We recognize any changes in fair value of bunker fuel contracts as increases or decreases within “Soda and sulfur services operating costs” in the Unaudited Condensed Consolidated Statements of Operations.
Balance Sheet Netting and Broker Margin Accounts
Our accounting policy is to offset derivative assets and liabilities executed with the same counterparty when a master netting arrangement exists. Accordingly, we also offset fair value amounts recorded for our exchange-traded derivative contracts against required margin funding in “Current Assets - Other” in our Unaudited Condensed Consolidated Balance Sheets. Our exchange-traded derivatives are transacted through brokerage accounts and are subject to margin requirements as established by the respective exchange. Margin requirements are intended to mitigate a party’s exposure to market volatility and counterparty credit risk. On a daily basis, our account equity (consisting of the sum of our cash margin balance and the fair value of our open derivatives) is compared to our initial margin requirement resulting in the payment or return of variation margin.
As of September 30, 2024, we had a net broker receivable of approximately $6.0 million (consisting of initial margin of $4.9 million increased by $1.1 million variation margin). As of December 31, 2023, we had a net broker receivable of approximately $10.9 million (consisting of initial margin of $5.7 million increased by $5.2 million of variation margin). At September 30, 2024 and December 31, 2023, none of our outstanding derivatives contained credit-risk related contingent features that would result in a material adverse impact to us upon any change in our credit ratings.
Financial Statement Impacts
Unrealized gains are subtracted from net income (loss) and unrealized losses are added to net income (loss) in determining cash flows from operating activities. To the extent that we have fair value hedges outstanding, the offsetting change recorded in the fair value of inventory is also eliminated from net income (loss) in determining cash flows from operating activities. Changes in the cash margin balance required to maintain our exchange-traded derivative contracts also affect cash flows from operating activities.
At September 30, 2024, we had the following outstanding derivative contracts that were entered into to economically hedge inventory, fixed price purchase commitments or forecasted purchases.
Sell (Short) Contracts
Buy (Long) Contracts
Designated as hedges under accounting rules:
Crude oil futures:
Contract volumes (1,000 Bbls)
293
—
Weighted average contract price per Bbl
$
70.72
$
—
Not qualifying or not designated as hedges under accounting rules:
Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets
Current Assets - Other(1)
658
120
Net amount of liabilities presented in the Unaudited Condensed Consolidated Balance Sheets
$
—
$
—
(1)As noted above, our exchange-traded derivatives are transacted through brokerage accounts and subject to margin requirements. We offset fair value amounts recorded for our exchange-traded derivative contracts against required margin deposits recorded in our Unaudited Condensed Consolidated Balance Sheets under “Current Assets - Other”.
Unaudited Condensed Consolidated Statements of Operations Location
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Commodity and fuel derivatives - futures and put and call options:
Contracts designated as hedges under accounting guidance
Onshore facilities and transportation product costs
$
2,539
$
(5,012)
$
(438)
$
(2,657)
Contracts not considered hedges under accounting guidance
Onshore facilities and transportation product costs, Soda and sulfur services operating costs
(1,118)
(3,379)
269
(15,673)
Total commodity and fuel derivatives
$
1,421
$
(8,391)
$
(169)
$
(18,330)
Natural Gas Swap
Soda and sulfur services operating costs
$
(1,778)
$
8,600
$
(659)
$
15,086
17. Fair-Value Measurements
We classify financial assets and liabilities into the following three levels based on the inputs used to measure fair value:
(1)Level 1 fair values are based on observable inputs such as quoted prices in active markets for identical assets and liabilities;
(2)Level 2 fair values are based on pricing inputs other than quoted prices in active markets for identical assets and liabilities and are either directly or indirectly observable as of the measurement date; and
(3)Level 3 fair values are based on unobservable inputs in which little or no market data exists.
As required by fair value accounting guidance, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Our assessment of the significance of a particular input to the fair value requires judgment and may affect the placement of assets and liabilities within the fair value hierarchy levels.
The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2024 and December 31, 2023.
September 30, 2024
December 31, 2023
Recurring Fair Value Measures
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Commodity and fuel derivatives:
Assets
$
3,215
$
3,916
$
—
$
1,951
$
3,710
$
—
Liabilities
$
(5,971)
$
(3,104)
$
—
$
(12,504)
$
(5,536)
$
—
Our commodity and fuel derivatives include exchange-traded futures and exchange-traded options contracts. The fair value of these exchange-traded derivative contracts is based on unadjusted quoted prices in active markets and is, therefore, included in Level 1 of the fair value hierarchy. The fair value of the natural gas swaps contracts was determined using market price quotations and a pricing model. The natural gas swap contracts were considered a level 2 input in the fair value hierarchy at September 30, 2024.
See Note 16 for additional information on our derivative instruments.
We believe the debt outstanding under our senior secured credit facility approximates fair value as the stated rate of interest approximates current market rates of interest for similar instruments with comparable maturities. At September 30, 2024 and December 31, 2023, our senior unsecured notes had a carrying value of approximately $3.5 billion and $3.1 billion, respectively, and a fair value of approximately $3.6 billion and $3.2 billion, respectively. The fair value of the senior unsecured notes is determined based on trade information in the financial markets of our public debt and is considered a Level 2 fair value measurement. At September 30, 2024 and December 31, 2023, our Alkali senior secured notes had a carrying value and fair value of approximately $0.4 billion. The fair value of the Alkali senior secured notes is determined based on trade information in the financial market of securities with similar features and is considered a Level 2 fair value measurement.
18. Commitments and Contingencies
We are subject to various environmental laws and regulations. Policies and procedures are in place to aid in monitoring compliance and detecting and addressing releases of crude oil from our pipelines or other facilities and from our mining operations relating to our Alkali Business; however, no assurance can be made that such environmental releases may not substantially affect our business.
We are subject to lawsuits in the normal course of business and examination by tax and other regulatory authorities. We do not expect such matters presently pending to have a material effect on our financial position, results of operations, or cash flows.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and accompanying notes included in this Quarterly Report on Form 10-Q. The following information and such Unaudited Condensed Consolidated Financial Statements should also be read in conjunction with the audited financial statements and related notes, together with our discussion and analysis of financial position and results of operations, included in our Annual Report.
Included in Management’s Discussion and Analysis of Financial Condition and Results of Operations are the following sections:
•Overview
•Results of Operations
•Liquidity and Capital Resources
•Guarantor Summarized Financial Information
•Non-GAAP Financial Measures
•Forward Looking Statements
Overview
We reported Net Loss Attributable to Genesis Energy, L.P. of $17.2 million during the three months ended September 30, 2024 (the “2024 Quarter”) compared to Net Income Attributable to Genesis Energy, L.P. of $58.1 million during the three months ended September 30, 2023 (the “2023 Quarter”).
Net Loss Attributable to Genesis Energy, L.P. in the 2024 Quarter was impacted by: (i) a decrease in operating income associated with our reportable segments primarily due to a decrease in export pricing in our Alkali Business and a decrease in volumes in our offshore pipeline transportation segment in the 2024 Quarter (see “Results of Operations” below for additional details on the results of our operating segments); (ii) an increase in interest expense, net, of $10.4 million (see “Results of Operations” below for additional details); and (iii) an increase in depreciation, depletion and amortization of $13.5 million during the 2024 Quarter (see “Results of Operations” below for additional details). These impacts were partially offset by higher day rates in our marine transportation segment and higher soda ash sales volumes in our Alkali Business.
Cash flow from operating activities was $87.3 million for the 2024 Quarter compared to $141.0 million for the 2023 Quarter. The decrease in cash flow from operating activities is primarily attributable to the decrease in our reported Segment Margin (as discussed further below).
Available Cash before Reserves (as defined below in “Non-GAAP Financial Measures”) to our common unitholders was $24.5 million for the 2024 Quarter, a decrease of $64.5 million, or 72%, from the 2023 Quarter primarily as a result of: (i) a decrease in Segment Margin of $56.8 million, which is discussed in more detail below; and (ii) an increase in interest expense, net, of $10.4 million (see “Results of Operations” below for additional details).
Segment Margin (as defined below in “Non-GAAP Financial Measures”) was $151.1 million for the 2024 Quarter, a decrease of $56.8 million, or 27%, from the 2023 Quarter. A more detailed discussion of our segment results and other costs are included below in “Results of Operations.” See “Non-GAAP Financial Measures” below for additional information on Segment Margin.
Distribution to Unitholders
On August 14, 2024, we paid a distribution of $0.15 per common unit related to the second quarter of 2024. With respect to our Class A Convertible Preferred Units, we declared a quarterly cash distribution of $0.9473 per preferred unit (or $3.7892 on an annualized basis) for each preferred unit held of record. These distributions were paid on August 14, 2024 to unitholders holders of record at the close of business July 31, 2024.
In October 2024, we declared our quarterly distribution to our common unitholders of $0.165 per unit related to the 2024 Quarter. With respect to our Class A Convertible Preferred Units, we declared a quarterly cash distribution of $0.9473 per Class A Convertible Preferred Unit (or $3.7892 on an annualized basis) for each Class A Convertible Preferred Unit held of record. These distributions will be payable November 14, 2024 to unitholders of record at the close of business on October 31, 2024.
Management’s estimates are based on numerous assumptions about future operations and market conditions, which we believe to be reasonable, but are inherently uncertain. The uncertainties underlying our assumptions could cause our estimates to differ significantly from actual results, including with respect to the duration and severity of the lasting impacts of international conflicts and the result of any economic recession or depression that has occurred or may occur in the future as a result of or as it relates to changes in governmental policies aimed at addressing inflation, which could cause fluctuations in global economic conditions, including capital and credit markets. We will continue to monitor the current market environment and to the extent conditions deteriorate, we may identify triggering events that may require future evaluations of the recoverability of the carrying value of our long-lived assets, intangible assets and goodwill, which could result in impairment charges that could be material to our results of operations.
Although the ultimate impacts of these international conflicts, and fluctuations in global economic conditions, including capital and credit markets, are still unknown at this time, we believe the fundamentals of our core businesses continue to remain strong and, given the current industry environment and capital market behavior, we have continued our focus on increasing liquidity and completing our major growth capital projects in order to generate future cash flows to deleverage our balance sheet as further explained in “Liquidity and Capital Resources”.
Our revenues for the 2024 Quarter decreased $93.3 million, or 12%, from the 2023 Quarter and our total costs and expenses decreased $31.8 million, or 5%, between the two periods with an overall net decrease to operating income of $61.5 million as presented on the Unaudited Condensed Consolidated Statements of Operations. The decrease in our operating income during the 2024 Quarter is primarily due to: (i) lower export pricing in our Alkali Business in the 2024 Quarter; (ii) lower volumes on our offshore pipelines due to producer underperformance as a result of mechanical issues on certain wells; and (iii) an increase in depreciation, depletion and amortization. These decreases were partially offset by higher day rates in our marine transportation segment and higher soda ash sales volumes in our Alkali Business. See further discussion below under “Segment Margin” regarding the activity in our individual operating segments.
A substantial portion of our revenues and costs are derived from our Alkali Business, which is included in our soda and sulfur services segment, and the purchase and sale of crude oil in our crude oil marketing business, which is included in our onshore facilities and transportation segment. We describe, in more detail, the impact on revenues and costs for each of our businesses below.
As it relates to our Alkali Business, our revenues are derived from the extraction of trona, as well as the activities surrounding the processing and sale of natural soda ash and other alkali specialty products, including sodium sesquicarbonate (S-Carb) and sodium bicarbonate (Bicarb), and are a function of our selling prices and volumes sold. We sell our products to an industry-diverse and worldwide customer base. Our sales prices are contracted at various times throughout the year and for different durations. Our sales prices for volumes sold internationally are contracted for the current year either annually in the prior year or periodically throughout the current year (often quarterly), and our volumes priced and sold domestically are contracted at various times and can be of varying durations, often multi-year terms. The majority of our volumes sold internationally are sold through ANSAC, which became a wholly owned subsidiary of our Alkali Business on January 1, 2023 as we became the sole member of it at that time. ANSAC promotes export sales of U.S. produced soda ash utilizing its logistical asset and marketing capabilities. During the three and nine months ended September 30, 2024, in addition to the volumes supplied by our operations and sold by ANSAC, ANSAC continued to receive a level of soda ash supply from certain former members to sell internationally, which is expected to continue in some capacity for at least the next several years. As a result of consolidating the results of ANSAC beginning on January 1, 2023, the sale of the soda ash volumes by ANSAC that were supplied by non-members are included in our consolidated results and have a proportionate effect to our revenues and costs, with little to no direct impact to our reported Net income (loss), Segment Margin and Available Cash before Reserves. We will continue to report the sales volumes of soda ash included in the operating results table for our soda and sulfur services segment shown below as we have historically reported them for comparability purposes and due to the minimal impact these incremental sales volumes from ANSAC have on our reported Net income (loss), Segment Margin and Available Cash before Reserves. Our sales volumes and prices can fluctuate from period to period and are dependent upon many factors, of which the main drivers are the global market and supply, customer demand, economic growth, and our ability to produce soda ash. Positive or negative changes to our revenue, through fluctuations in sales volumes or sales prices, can have a direct impact to Net income (loss), Segment Margin and Available Cash before Reserves as these fluctuations have a lesser impact to operating costs due to the fact that a portion of our costs are fixed in nature. Our costs, some of which are variable in nature and others are fixed in nature, relate primarily to the processing and producing of soda ash (and other alkali specialty products) and marketing, logistics and selling activities. In addition, costs include activities associated with mining and extracting trona ore, including energy costs and employee compensation. In our Alkali Business, during the 2024 Quarter, we experienced a decrease in revenues relative to the 2023 Quarter primarily due to lower pricing on our export tons, which was partially offset by higher volumes sold and higher domestic pricing. For additional information, see our segment-by-segment analysis below.
As it relates to our crude oil marketing business, the average closing price for West Texas Intermediate crude oil on the New York Mercantile Exchange (“NYMEX”) decreased to $76.43 per barrel in the 2024 Quarter, as compared to $82.25 per barrel in the 2023 Quarter. We expect changes in crude oil prices to continue to proportionately affect our revenues and costs attributable to our purchase and sale of crude oil and petroleum products, resulting in a minimal direct impact on Net income (loss), Segment Margin and Available Cash before Reserves. We have limited our direct commodity price exposure related to crude oil and petroleum products through the broad use of fee-based service contracts, back-to-back purchase and sale arrangements and hedges. As a result, changes in the price of crude oil would proportionately impact both our revenues and our costs, with a disproportionately smaller impact on Net income (loss), Segment Margin and Available Cash before Reserves. However, we do have some indirect exposure to certain changes in prices for oil and petroleum products, particularly if they are significant and extended. We tend to experience more demand for certain of our services when prices increase significantly over extended periods of time, and we tend to experience less demand for certain of our services when prices decrease significantly over extended periods of time. For additional information regarding certain of our indirect exposure to commodity prices, see our segment-by-segment analysis below and the section of our Annual Report entitled “ Risks Related to Our Business.”
In addition to our Alkali Business and our crude oil marketing business discussed above, we continue to operate in our other core businesses including: (i) our offshore Gulf of Mexico crude oil and natural gas pipeline transportation and handling operations, which is focused on providing a suite of services primarily to integrated and large independent energy companies who make intensive capital investments (often in excess of a billion dollars) to develop large reservoir, long-lived crude oil and natural gas properties; (ii) our sulfur services business, which we believe is one of the largest producers and marketers (based on tons produced) of NaHS in North and South America; and (iii) our onshore-based refinery-centric operations (including the operations in both our onshore facilities and transportation and marine transportation segments) which focus on providing a suite of services primarily to refiners.
Refiners are the shippers of a majority of the volumes transported on our onshore crude pipelines, and refiners contracted for approximately 90% of the revenues from our marine transportation segment during the 2024 Quarter, which are used primarily to transport intermediate refined products (not crude oil) between refining complexes. The shippers on our offshore pipelines are mostly integrated and large independent energy companies whose production is ideally suited for the vast majority of refineries along the Gulf Coast. Their large-reservoir properties and the related pipelines and other infrastructure needed to develop them are capital intensive and yet, we believe, economically viable, in most cases, even in volatile commodity price environments. Given these facts, we do not expect changes in commodity prices to impact our Net income (loss), Segment Margin or Available Cash before Reserves derived from our offshore Gulf of Mexico crude oil and natural gas pipeline transportation and handling operations in the same manner in which they impact our revenues and costs derived from the purchase and sale of crude oil and petroleum products.
In our sulfur services business, our revenues and costs can be affected by the price movements in both caustic soda and NaHS. Average index prices for caustic soda decreased to $502 per dry short ton (“DST”) during the 2024 Quarter compared to $992 per DST during the 2023 Quarter primarily due to a downward non-market adjustment of $425 per DST to previously posted U.S. Caustic Soda Index prices. Typically, changes in caustic soda prices do not materially affect Net income (loss), Segment Margin, or Available Cash before Reserves as the pricing in many of our sales contracts for NaHS typically includes adjustments for fluctuations in commodity benchmarks (primarily caustic soda), freight, labor, energy costs and government indexes. The frequency at which those adjustments are applied varies by contract, geographic region and supply point. The mix of NaHS sales volumes to which we are able to apply such adjustments may vary due to timing or other factors such as competitive pressures. To the extent we are unable to pass these caustic soda price changes onto our customers, our results may be impacted.
Additionally, changes in certain of our operating costs between the respective quarters, such as those associated with our soda and sulfur services, offshore pipeline transportation and marine transportation segments, are not correlated with crude oil prices. We discuss certain of those costs in further detail below in our segment-by-segment analysis.
Segment Margin
The contribution of each of our segments to total Segment Margin was as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(in thousands)
(in thousands)
Offshore pipeline transportation
$
72,149
$
109,267
$
256,086
$
300,505
Soda and sulfur services
38,188
61,957
125,181
217,319
Marine transportation
31,068
27,126
93,974
78,578
Onshore facilities and transportation
9,703
9,547
25,278
21,242
Total Segment Margin
$
151,108
$
207,897
$
500,519
$
617,644
We define Segment Margin as revenues less product costs, operating expenses and segment general and administrative expenses (all of which are net of the effects of our noncontrolling interest holders), plus or minus applicable Select Items (defined below). Although we do not necessarily consider all of our Select Items to be non-recurring, infrequent or unusual, we believe that an understanding of these Select Items is important to the evaluation of our core operating results. See “Non-GAAP Financial Measures” for further discussion surrounding total Segment Margin.
A reconciliation of Net Income (Loss) Attributable to Genesis Energy, L.P. to total Segment Margin for the periods presented is as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Net Income (Loss) Attributable to Genesis Energy, L.P.
$
(17,177)
$
58,070
$
(14,568)
$
105,770
Corporate general and administrative expenses
13,175
18,329
49,231
52,580
Depreciation, depletion, amortization and accretion
84,610
71,099
241,539
218,788
Interest expense, net
71,984
61,580
211,588
184,057
Adjustment to include distributable cash generated by equity investees not included in income and exclude equity in investees net income(1)
6,855
6,387
18,542
18,535
Unrealized losses (gains) on derivative transactions excluding fair value hedges, net of changes in inventory value
1,606
(12,299)
(9,335)
17,721
Other non-cash items
(1,573)
(7,228)
(6,258)
(16,886)
Loss on debt extinguishment
—
—
1,429
1,812
Differences in timing of cash receipts for certain contractual arrangements(2)
(7,526)
11,385
8,366
33,519
Income tax expense (benefit)
(846)
574
(15)
1,748
Total Segment Margin
$
151,108
$
207,897
$
500,519
$
617,644
(1)Includes distributions attributable to the quarter and received during or promptly following such quarter.
(2)Includes the difference in timing of cash receipts from or billings to customers during the period and the revenue we recognize in accordance with GAAP on our related contracts. For purposes of our Non-GAAP measures, we add those amounts in the period of payment and deduct them in the period in which GAAP recognizes them.
(1)Offshore pipeline transportation Segment Margin includes distributions received from our offshore pipeline joint ventures accounted for under the equity method of accounting for the three and nine months ended September 30, 2024 and 2023.
(2)One of our wholly-owned subsidiaries (GEL Offshore Pipeline, LLC, or “GOPL”) owns our undivided interest in the Eugene Island pipeline system.
(3)Volumes are the product of our effective ownership interest throughout the year multiplied by the relevant throughput over the given year.
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Offshore pipeline transportation Segment Margin for the 2024 Quarter decreased $37.1 million, or 34%, from the 2023 Quarter primarily due to several factors including: (i) an economic step-down in the rate on a certain existing life-of-lease transportation dedication; (ii) producer underperformance at two of our major host platforms; and (iii) an increase in our operating costs. At the beginning of the 2024 Quarter, we reached the 10-year anniversary of a certain existing life-of-lease transportation dedication, which resulted in the contractual economic step-down of the associated transportation rate. In addition, there was an increase in producer downtime relative to the 2023 Quarter as a result of certain sub-sea operational and technical challenges at fields connected to two of our major host platforms. The production from these wells impacted our results as they are molecules that we touch multiple times throughout our oil and natural gas pipeline infrastructure. We anticipate that the operational and technical issues that were experienced in the 2024 Quarter will be resolved by the end of this year. Outside of these issues, activity in and around our Gulf of Mexico asset base continues to be robust, including incremental in-field drilling at existing fields that tie into our infrastructure. This activity is evidenced by projects such as the Warrior and Winterfell projects, which produced first oil in late June 2024 and early July 2024, respectively, and the Monument development which is currently expected to come on-line in mid to late 2026.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Offshore pipeline transportation Segment Margin for the first nine months of 2024 decreased $44.4 million, or 15%, from the first nine months of 2023 primarily due to several factors including: (i) an economic step-down in the rate on a certain existing life-of-lease transportation dedication during the 2024 Quarter; (ii) producer underperformance at two of our major host platforms; and (iii) an increase in our operating costs. During the 2024 Quarter, we reached the 10-year anniversary of a certain existing life-of-lease transportation dedication, which resulted in the contractual economic step-down of the associated transportation rate. Beginning in the second quarter of 2024, there was an increase in producer downtime as a result of several wells being shut in due to certain sub-sea operational and technical challenges, which extended through the 2024 Quarter due to delays in well intervention work. The production from these wells impacted our results as they are molecules that we touch multiple times throughout our oil and natural gas pipeline infrastructure.
These decreases were partially offset by an increase in volumes during the first nine months of 2024 on our CHOPS pipeline primarily due to the Argos Floating Production System (“FPS”). The Argos FPS has continued to ramp up production levels and achieved production levels in excess of 120,000 barrels of oil per day in 2024. Activity in and around our Gulf of Mexico asset base continues to be robust, including incremental in-field drilling at existing fields that tie into our infrastructure. This activity is evidenced by projects such as the Warrior and Winterfell projects, which produced first oil in late June 2024 and early July 2024, respectively, and the Monument development which is currently expected to come on-line in mid to late 2026.
Operating results for our soda and sulfur services segment were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Volumes sold:
Soda Ash volumes (short tons sold)
995,856
867,319
2,838,097
2,424,150
NaHS volumes (DST)
23,398
27,325
82,091
81,501
NaOH (caustic soda) volumes (DST)
16,215
18,229
52,999
58,751
Revenues (in thousands):
Revenues associated with Alkali Business(1)
$
314,135
$
350,121
$
966,781
$
1,098,951
NaHS revenues, excluding non-cash revenues
28,931
36,360
100,166
116,568
NaOH (caustic soda) revenues
10,964
14,044
36,332
49,839
Other revenues
1,069
1,142
3,687
3,915
Total external segment revenues, excluding non-cash revenues
$
355,099
$
401,667
$
1,106,966
$
1,269,273
Segment Margin (in thousands)
$
38,188
$
61,957
$
125,181
$
217,319
(1)See discussion above in “Results of Operations — Revenues and Costs and Expenses” regarding revenues associated with our Alkali Business.
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Soda and sulfur services Segment Margin for the 2024 Quarter decreased $23.8 million, or 38%, from the 2023 Quarter primarily due to lower export pricing in our Alkali Business during the 2024 Quarter and lower NaHS and caustic soda sales volumes and sales pricing, which was partially offset by higher soda ash sales volumes in the period.
In our Alkali Business, the 2024 Quarter was impacted by a decline in export pricing as compared to the 2023 Quarter as global supply has continued to outpace demand in most markets. Additionally, the 2024 Quarter was negatively impacted by temporary operational issues at our Westvaco facility that led to lower production volumes and reduced operating efficiencies. Despite these operational issues, our Alkali Business experienced higher soda ash sales volumes in the 2024 Quarter as production from our expanded Granger facility came online in the fourth quarter of 2023 and has since ramped up to levels near its nameplate capacity of approximately 100,000 tons of production per month.
In our sulfur services business, we have experienced continued pressure on demand in South America, which has negatively impacted NaHS and caustic soda sales volumes and pricing. In addition, production was impacted by a planned outage at one of our largest and lowest cost host refineries during the 2024 Quarter.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Soda and sulfur services Segment Margin for the first nine months of 2024 decreased $92.1 million, or 42%, from the first nine months of 2023 primarily due to lower export pricing in our Alkali Business and lower NaHS and caustic soda sales pricing.
In our Alkali Business, the first nine months of 2024 were impacted by a decline in export pricing as compared to the first nine months of 2023 as global supply has continued to outpace demand in most markets. Additionally, the first nine months of 2024 was negatively impacted by temporary operational issues at our facilities that led to lower production volumes and reduced operating efficiencies during the period. These were offset partially by higher soda ash sales volumes in the first nine months of 2024 as production from our expanded Granger facility came online in the fourth quarter of 2023 and has since ramped up to levels near its original nameplate production capacity of approximately 100,000 tons per month. Additionally, in the first quarter of 2023, we experienced extreme winter weather conditions that impacted our operations and certain supply functions, including rail service in and out of the Green River Basin.
In our sulfur services business, we have experienced continued pressure on demand in South America, which has negatively impacted NaHS and caustic soda sales pricing.
Within our marine transportation segment, we own a fleet of 87 barges (78 inland and 9 offshore) with a combined transportation capacity of 3.0 million barrels, 42 push/tow boats (33 inland and 9 offshore), and a 330,000 barrel capacity ocean going tanker, the M/T American Phoenix. Operating results for our marine transportation segment were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Revenues (in thousands):
Inland freight revenues
$
36,632
$
30,974
$
110,127
$
94,067
Offshore freight revenues
26,925
29,459
80,275
83,341
Other rebill revenues(1)
14,939
19,787
53,539
63,381
Total segment revenues
$
78,496
$
80,220
$
243,941
$
240,789
Operating costs, excluding non-cash expenses (in thousands)
$
47,428
$
53,094
$
149,967
$
162,211
Segment Margin (in thousands)
$
31,068
$
27,126
$
93,974
$
78,578
Fleet Utilization:(2)
Inland Barge Utilization
99.4
%
99.4
%
99.5
%
99.8
%
Offshore Barge Utilization
97.4
%
98.5
%
97.1
%
97.6
%
(1)Under certain of our marine contracts, we “rebill” our customers for a portion of our operating costs.
(2)Utilization rates are based on a 365-day year, as adjusted for planned downtime and dry-docking.
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Marine transportation Segment Margin for the 2024 Quarter increased $3.9 million, or 15%, from the 2023 Quarter primarily due to higher day rates in our inland and offshore businesses, including the M/T American Phoenix, during the 2024 Quarter. The increase in day rates more than offset the impact to Segment Margin from the increased number of regulatory dry-docking days in our offshore fleet during the 2024 Quarter. Demand for our barge services to move intermediate and refined products remained high during the 2024 Quarter due to the continued strength of refinery utilization rates as well as the lack of new supply of similar type vessels (primarily due to higher construction costs and long lead times for construction) as well as the retirement of older vessels in the market. We expect this favorable demand and supply balance to continue throughout the rest of 2024.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Marine transportation Segment Margin for the first nine months of 2024 increased $15.4 million, or 20%, from the first nine months of 2023. This increase is primarily attributable to an increase in overall day rates in our inland and offshore businesses, including the M/T American Phoenix. The increase in day rates more than offset the impact to Segment Margin from the increased number of regulatory dry-docking days in our offshore fleet during the first nine months of 2024. In addition, we have continued to see strong demand for our barge services to move intermediate and refined products keeping utilization rates high across both periods. The strong demand from our customers as well as the lack of new supply of similar type vessels and the retirement of older vessels in the market have contributed the increase in day rates discussed above. The M/T American Phoenix started a new three-and-a-half-year contract in January 2024 with a credit-worthy counterparty at the highest day rate we have received since we first purchased the vessel in 2014.
Our onshore facilities and transportation segment utilizes an integrated set of pipelines and terminals, trucks and barges to facilitate the movement of crude oil and refined products on behalf of producers, refiners and other customers. This segment includes crude oil and refined products pipelines, terminals and rail unloading facilities operating primarily within the U.S. Gulf Coast crude oil market. In addition, we utilize our trucking fleet that supports the purchase and sale of gathered and bulk purchased crude oil. Through these assets we offer our customers a full suite of services, including the following as of September 30, 2024:
•facilitating the transportation of crude oil from producers to refineries and from our terminals, as well as those owned by third parties, to refiners via pipelines;
•shipping crude oil and refined products to and from producers and refiners via trucks and pipelines;
•storing and blending of crude oil and intermediate and finished refined products;
•purchasing/selling and/or transporting crude oil from the wellhead to markets for ultimate use in refining;
•purchasing products from refiners, transporting those products to one of our terminals and blending those products to a quality that meets the requirements of our customers and selling those products (primarily fuel oil, asphalt and other heavy refined products) to wholesale markets; and
•unloading railcars at our crude-by-rail terminals.
We also may use our terminal facilities to take advantage of contango market conditions for crude oil gathering and marketing and to capitalize on regional opportunities which arise from time to time for both crude oil and petroleum products.
Despite crude oil being considered a somewhat homogeneous commodity, many refiners are very particular about the quality of crude oil feedstock they process. Many U.S. refineries have distinct configurations and product slates that require crude oil with specific characteristics, such as gravity, sulfur content and metals content. The refineries evaluate the costs to obtain, transport and process their preferred feedstocks. That particularity provides us with opportunities to help the refineries in our areas of operation identify crude oil sources and transport crude oil meeting their requirements. The imbalances and inefficiencies relative to meeting the refiners’ requirements may also provide opportunities for us to utilize our purchasing and logistical skills to meet their demands. The pricing in the majority of our crude oil purchase contracts contains a market price component and a deduction to cover the cost of transportation and to provide us with a margin. Contracts sometimes contain a grade differential which considers the chemical composition of the crude oil and its appeal to different customers. Typically, the pricing in a contract to sell crude oil will consist of the market price components and the grade differentials. The margin on individual transactions is then dependent on our ability to manage our transportation costs and to capitalize on grade differentials.
Operating results from our onshore facilities and transportation segment were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(in thousands)
(in thousands)
Gathering, marketing, and logistics revenue
$
158,035
$
188,276
$
510,644
$
517,262
Crude oil pipeline tariffs and revenues
5,398
6,872
19,165
19,389
Crude oil and products costs, excluding unrealized gains and losses from derivative transactions
(137,378)
(170,857)
(456,962)
(469,253)
Operating costs, excluding non-cash expenses
(18,319)
(17,246)
(52,664)
(51,762)
Other
1,967
2,502
5,095
5,606
Segment Margin
$
9,703
$
9,547
$
25,278
$
21,242
Volumetric Data (average barrels per day unless otherwise noted):
Onshore crude oil pipelines:
Texas
57,726
66,376
69,149
65,648
Jay
4,295
6,161
5,026
5,710
Mississippi
2,194
4,854
2,597
4,866
Louisiana(1)
60,255
60,973
63,084
70,843
Onshore crude oil pipelines total
124,470
138,364
139,856
147,067
Crude oil and petroleum products sales
18,978
23,703
21,364
23,006
Rail unload volumes
17,757
—
12,954
—
(1)Total daily volumes for the three and nine months ended September 30, 2024 include 22,959 and 24,159 Bbls/day, respectively, of intermediate refined products and 37,296 and 38,467 Bbls/day, respectively, of crude oil associated with our Port of Baton Rouge Terminal pipelines. Total daily volumes for the three and nine months ended September 30, 2023 include 42,622 and 34,720 Bbls/day, respectively, of intermediate refined products and 17,201 and 35,564 Bbls/day, respectively, of crude oil associated with our Port of Baton Rouge Terminal pipelines.
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Onshore facilities and transportation Segment Margin for the 2024 Quarter increased $0.2 million, or 2%, from the 2023 Quarter primarily due to an increase in the rail unload volumes at our Scenic Station facility. This increase was partially offset by an overall decrease in volumes on our onshore crude oil pipeline systems.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Onshore facilities and transportation Segment Margin for the first nine months of 2024 increased $4.0 million, or 19%, from the first nine months of 2023 primarily due to an increase in our rail unload volumes at our Scenic Station facility and an increase in volumes on our Texas pipeline system, which is a key destination point for various grades of crude oil produced in the Gulf of Mexico including those transported on our 64% owned CHOPS pipeline.
Third party costs related to business development activities and growth projects
—
—
60
105
Total general and administrative expenses
$
15,042
$
16,770
$
48,597
$
48,253
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Total general and administrative expenses for the 2024 Quarter decreased by $1.7 million from the 2023 Quarter primarily due to the assumptions used to value the outstanding awards under our long-term incentive compensation plan during 2024. This was partially offset by higher corporate general and administrative expenses as a result of us conforming our short-term cash incentive programs to industry standards.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Total general and administrative expenses for the first nine months of 2024 increased by $0.3 million from the first nine months of 2023 primarily due to higher corporate general and administrative expenses as a result of us conforming our short-term cash incentive programs to industry standards. This was partially offset by a decrease in long-term incentive compensation expense due to the assumptions used to value the outstanding awards under our long-term incentive compensation plan during 2024 as compared to 2023.
Depreciation, depletion and amortization expense
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(in thousands)
(in thousands)
Depreciation and depletion expense
$
78,381
$
65,211
$
223,893
$
200,846
Amortization expense
3,456
3,168
9,328
9,120
Total depreciation, depletion and amortization expense
$
81,837
$
68,379
$
233,221
$
209,966
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Total depreciation, depletion and amortization expense for the 2024 Quarter increased by $13.5 million from the 2023 Quarter. This increase is primarily attributable to our continued growth and maintenance capital expenditures and placing new assets into service, including the GOP (as defined further below), subsequent to the period ended September 30, 2023.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Total depreciation, depletion and amortization expense for the first nine months of 2024 increased by $23.3 million from the first nine months of 2023. This increase is primarily attributable to our continued growth and maintenance capital expenditures and placing new assets into service, including the GOP (as defined further below), subsequent to the period ended September 30, 2023.
Interest expense, senior secured credit facility (including commitment fees), net
$
5,997
$
5,970
$
20,893
$
15,461
Interest expense, Alkali senior secured notes
6,156
6,243
18,597
18,727
Interest expense, senior unsecured notes
69,979
57,874
199,607
172,059
Amortization of debt issuance costs, premium and discount
2,948
2,393
8,890
7,033
Capitalized interest
(13,096)
(10,900)
(36,399)
(29,223)
Interest expense, net
$
71,984
$
61,580
$
211,588
$
184,057
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Interest expense, net for the 2024 Quarter increased by $10.4 million primarily due to an increase in interest on our senior unsecured notes. The increase in interest expense associated with our senior unsecured notes was primarily related to: (i) the issuance of our 8.25% senior unsecured notes due January 15, 2029 (the “2029 Notes”) in December 2023, which have a higher principal and interest rate as compared to our 6.50% senior unsecured notes due October 1, 2025 (the “2025 Notes”) that were partially tendered in December 2023 and ultimately redeemed in January 2024; and (ii) the issuance of our 2032 Notes in May 2024, which have a higher principal and interest rate as compared to our 2026 Notes that were redeemed in June 2024.
These increases were partially offset by higher capitalized interest during the 2024 Quarter as a result of our increased capital expenditures associated with our offshore growth capital construction projects.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Interest expense, net for the first nine months of 2024 increased $27.5 million primarily due to an increase in interest on our senior secured credit facility and an increase in interest on our senior unsecured notes. The increase in interest expense associated with our senior secured credit facility is primarily due to a higher average outstanding indebtedness during the first nine months of 2024 and an increase in the SOFR rate, which is one of the main components of our interest rate, compared to the first nine months of 2023. The increase in interest expense associated with our senior unsecured notes was primarily related to: (i) the issuance of our 2029 Notes in December 2023, which have a higher principal and interest rate as compared to our 2025 Notes that were partially tendered in December 2023 and ultimately redeemed in January 2024; and (ii) the issuance of our 2032 Notes in May 2024, which have a higher principal and interest rate as compared to our 2026 Notes that were redeemed in June 2024.
These increases were partially offset by higher capitalized interest during the first nine months of 2024 as a result of our increased capital expenditures associated with our offshore growth capital construction projects.
Income tax expense
A portion of our operations are owned by wholly-owned corporate subsidiaries that are taxable as corporations. As a result, a substantial portion of the income tax expense we record relates to the operations of those corporations, and will vary from period to period as a percentage of our income before taxes based on the percentage of our income or loss that is derived from those corporations. The balance of the income tax expense we record relates to state taxes imposed on our operations that are treated as income taxes under generally accepted accounting principles and foreign income taxes.
On December 7, 2023, we issued $600.0 million in aggregate principal amount of our 2029 Notes, which generated net proceeds of approximately $583 million, after deducting the underwriters’ discount and issuance costs incurred. The net proceeds were used to purchase approximately $514 million of the 2025 Notes and pay the related accrued interest and tender premium and fees on those notes that were tendered in the tender offer that ended December 6, 2023. On December 8, 2023, we issued a notice of redemption for the remaining principal of approximately $21 million of our 2025 Notes, and discharged the indebtedness with respect to the 2025 Notes on December 28, 2023 by depositing the redemption amount with the trustee of the 2025 Notes for redemption of the 2025 Notes, all in accordance with the terms and conditions of the indenture governing the 2025 Notes.
On May 9, 2024, we issued $700.0 million in aggregate principal amount of the 2032 Notes. The issuance of our 2032 Notes generated net proceeds of approximately $688 million, net of issuance costs incurred. The net proceeds were used to redeem all of our existing 2026 Notes, $339.3 million in principal amount of which were outstanding, including the related accrued interest, and the remaining proceeds were used to repay a portion of the borrowing outstanding under our senior secured credit facility and for general partnership purposes.
On July 19, 2024, we entered into our credit agreement to replace our Sixth Amended and Restated Credit Agreement. Our credit agreement provides for a $900 million senior secured revolving credit facility that matures on September 1, 2028, subject to extension at our request for one additional year on up to two occasions and subject to certain conditions, unless: (i) if more than $150 million of our 2027 Notes remain outstanding as of October 16, 2026, the credit agreement matures on such date; and (ii) if more than $150 million of our 2028 Notes remain outstanding as of November 2, 2027, the credit agreement matures on such date.
The successful completion of our credit agreement (including its extended maturity and increased borrowing capacity), and the refinancing of our previously held 2025 Notes and 2026 Notes has extended our maturity runway, and has provided us an ample amount of available borrowing capacity under our senior secured credit facility, subject to compliance with the covenants in the credit agreement, to, amongst other things, utilize for funding the remaining growth capital expenditures estimated to be associated with our offshore growth projects discussed below under “Growth Capital Expenditures”.
We anticipate that our future internally-generated funds and the funds available under our senior secured credit facility will allow us to meet our ordinary course capital needs. Our primary sources of liquidity have been cash flows from operations, borrowing availability under our senior secured credit facility, proceeds from the sale of non-core assets, the creation of strategic arrangements to share capital costs through joint ventures or strategic alliances and the proceeds from issuances of equity (common and preferred) and senior unsecured or secured notes.
Our primary cash requirements consist of:
•working capital, primarily inventories and trade receivables and payables;
•routine operating expenses;
•growth capital (as discussed in more detail below) and maintenance projects;
•interest payments related to outstanding debt;
•asset retirement obligations;
•quarterly cash distributions to our preferred and common unitholders; and
•acquisitions of assets or businesses.
Capital Resources
Our ability to satisfy future capital needs will depend on our ability to raise substantial amounts of additional capital from time to time, including through equity and debt offerings (public and private), borrowings under our senior secured credit facility and other financing transactions, and to implement our growth strategy successfully. No assurance can be made that we will be able to raise necessary funds on satisfactory terms.
At September 30, 2024, our principal amount of debt outstanding totaled approximately $4.1 billion, consisting of $207.6 million outstanding under our senior secured credit facility (including $24.2 million borrowed under the inventory sublimit tranche), $3.5 billion of senior unsecured notes and $416.3 million of Alkali senior secured notes (of which $12.7 million is current), which are secured by the ORRI Interests. Our senior unsecured notes balance is comprised of $981.2 million of our 2027 Notes, $679.4 million of our 2028 Notes, $600.0 million of our 2029 Notes, $500.0 million of our 2030 Notes, and $700.0 million of our 2032 Notes.
The available borrowing capacity under our senior secured credit facility at September 30, 2024 is $687.9 million, subject to compliance with covenants. Our credit agreement does not include a “borrowing base” limitation except with respect to our inventory loans.
Shelf Registration Statement
We have the ability to issue additional equity and debt securities in the future to assist us in meeting our future liquidity requirements, particularly those related to opportunistically acquiring assets and businesses and constructing new facilities and refinancing outstanding debt.
We have a universal shelf registration statement (our “2024 Shelf”) on file with the SEC which we filed on April 16, 2024 to replace our existing universal shelf registration statement that expired on April 19, 2024. Our 2024 Shelf allows us to issue an unlimited amount of equity and debt securities in connection with certain types of public offerings. However, the receptiveness of the capital markets to an offering of equity and/or debt securities cannot be assured and may be negatively impacted by, among other things, our long-term business prospects and other factors beyond our control, including market conditions. Our 2024 Shelf is set to expire in April 2027.
Cash Flows from Operations
We generally utilize the cash flows we generate from our operations to fund our common and preferred distributions and working capital needs. Excess funds that are generated are used to repay borrowings under our senior secured credit facility and/or to fund a portion of our capital expenditures. Our operating cash flows can be impacted by changes in items of working capital, primarily variances in the carrying amount of inventory and the timing of payment of accounts payable and accrued liabilities related to capital expenditures and interest charges, and the timing of accounts receivable collections from our customers.
We typically sell our crude oil in the same month in which we purchase it, so we do not need to rely on borrowings under our senior secured credit facility to pay for such crude oil purchases, other than inventory. During such periods, our accounts receivable and accounts payable generally move in tandem as we make payments and receive payments for the purchase and sale of crude oil.
In our Alkali Business, we typically extract trona from our mining facilities, process it into soda ash and other alkali products, and deliver and sell the products to our customers domestically and internationally. When we experience any differences in timing between the extraction, processing and sales of this trona or Alkali products, including the logistics and transportation to our customers, this could impact the cash requirements for these activities.
The storage of our inventory of crude oil, petroleum products and alkali products can have a material impact on our cash flows from operating activities. In the month we pay for the stored crude oil or petroleum products (or pay for extraction and processing activities in the case of alkali products), we borrow under our senior secured credit facility (or use cash on hand) to pay for the crude oil or petroleum products (or extraction/processing of alkali products), utilizing a portion of our operating cash flows. Conversely, cash flow from operating activities increases during the period in which we collect the cash from the sale of the stored crude oil, petroleum products or alkali products. Additionally, for our exchange-traded derivatives, we may be required to deposit margin funds with the respective exchange when commodity prices increase as the value of the derivatives utilized to hedge the price risk in our inventory fluctuates. These deposits also impact our operating cash flows as we borrow under our senior secured credit facility or use cash on hand to fund the deposits.
See Note 15 in our Unaudited Condensed Consolidated Financial Statements for information regarding changes in components of operating assets and liabilities during the first nine months of 2024 and the first nine months of 2023.
Net cash flows provided by our operating activities for the nine months ended September 30, 2024 were $318.0 million compared to $396.4 million for the nine months ended September 30, 2023. The decrease in cash flows from operating activities is primarily attributable to a decrease in our reported Segment Margin in the first nine months of 2024 relative to Segment Margin in the first nine months of 2023, which was partially offset by positive changes in working capital for the first nine months of 2024 compared to the first nine months of 2023.
Capital Expenditures and Distributions Paid to Our Unitholders
We use cash primarily for our operating expenses, working capital needs, debt service, acquisition activities, internal growth projects and distributions we pay to our common and preferred unitholders. We finance maintenance capital expenditures and smaller internal growth projects and distributions primarily with cash generated by our operations. We have historically funded material growth capital projects (including acquisitions and internal growth projects) with borrowings under our senior secured credit facility, equity issuances (common and preferred units), the issuance of senior unsecured or secured notes, and/or the creation of strategic arrangements to share capital costs through joint ventures or strategic alliances.
Capital Expenditures for Fixed and Intangible Assets and Equity Investees
The following table summarizes our expenditures for fixed and intangible assets and equity investees in the periods indicated:
Nine Months Ended September 30,
2024
2023
(in thousands)
Capital expenditures for fixed and intangible assets:
Maintenance capital expenditures:
Offshore pipeline transportation assets
$
5,866
$
3,758
Soda and sulfur services assets
55,482
49,866
Marine transportation assets
58,369
26,870
Onshore facilities and transportation assets
6,445
5,602
Information technology systems and corporate assets
2,431
789
Total maintenance capital expenditures
128,593
86,885
Growth capital expenditures:
Offshore pipeline transportation assets(1)
187,724
285,291
Soda and sulfur services assets
11,504
33,243
Marine transportation assets
13,897
5,673
Onshore facilities and transportation assets
8,880
4,787
Information technology systems and corporate assets
8,230
7,834
Total growth capital expenditures
230,235
336,828
Total capital expenditures for fixed and intangible assets
358,828
423,713
Capital expenditures related to equity investees
285
4,463
Total capital expenditures
$
359,113
$
428,176
(1)Growth capital expenditures in our offshore pipeline transportation segment for 2024 and 2023 represent 100% of the costs incurred, including those funded by our noncontrolling interest holder (see further discussion below in “Growth Capital Expenditures”).
Growth Capital Expenditures
On September 23, 2019, we announced the Granger Optimization Project (“GOP”). During the fourth quarter of 2023, we completed the construction of the GOP and achieved first production.
During 2022, we entered into definitive agreements to provide transportation services for 100% of the crude oil production associated with two separate standalone deepwater developments that have a combined production capacity of approximately 160,000 barrels per day. In conjunction with these agreements, we are expanding the current capacity of our 64% owned CHOPS pipeline and constructing a new 100% owned, approximately 105 mile, 20” diameter crude oil pipeline, the SYNC pipeline, to connect one of the developments to our existing asset footprint in the Gulf of Mexico. We plan to be ready for the producers’ plan for first oil achievement, which is currently expected in the second quarter of 2025. Additionally, in 2023 and 2024, we entered into several additional definitive agreements with existing producers to further commit additional volumes transported on our offshore pipeline infrastructure. The producer agreements include long term take-or-pay arrangements and, accordingly, we are able to receive a project completion credit for purposes of calculating the leverage ratio under our credit agreement throughout the construction period.
We plan to fund our estimated growth capital expenditures utilizing the available borrowing capacity under our senior secured credit facility and our recurring cash flows generated from operations.
Maintenance Capital Expenditures
Maintenance capital expenditures incurred during the first nine months of 2024 and 2023 primarily related to expenditures in our marine transportation segment to replace and upgrade certain equipment associated with our barge and fleet vessels during our planned and unplanned dry-docks and in our Alkali Business due to the costs to maintain our related equipment and facilities. Additionally, our offshore transportation assets require maintenance capital expenditures to replace, maintain and upgrade equipment at certain of our offshore platforms and pipelines that we operate. See further discussion under “Available Cash before Reserves” for how such maintenance capital utilization is reflected in our calculation of Available Cash before Reserves.
On August 14, 2024, we paid a distribution to our common unitholders of $0.15 per common unit related to the second quarter of 2024. With respect to our Class A Convertible Preferred Units, we declared a quarterly cash distribution of $0.9473 per preferred unit (or $3.7892 on an annualized basis) for each preferred unit held of record. These distributions were paid on August 14, 2024 to unitholders holders of record at the close of business July 31, 2024.
In October 2024, we declared our quarterly distribution to our common unitholders of $0.165 per common unit totaling $20.2 million with respect to the 2024 Quarter and a distribution of $0.9473 per Class A Convertible Preferred Unit (or $3.7892 on an annualized basis) for each Class A Convertible Preferred Unit held of record. These distributions will be payable on November 14, 2024 to unitholders of record at the close of business on October 31, 2024.
Guarantor Summarized Financial Information
Our $3.5 billion aggregate principal amount of senior unsecured notes co-issued by Genesis Energy, L.P. and Genesis Energy Finance Corporation are fully and unconditionally guaranteed jointly and severally by the Guarantor Subsidiaries, except GA ORRI and GA ORRI Holdings and certain other subsidiaries. The remaining non-guarantor subsidiaries are indirectly owned by Genesis Crude Oil, L.P., a Guarantor Subsidiary. The Guarantor Subsidiaries largely own the assets that we use to operate our business. As a general rule, the assets and credit of our unrestricted subsidiaries are not available to satisfy the debts of Genesis Energy, L.P., Genesis Energy Finance Corporation or the Guarantor Subsidiaries, and the liabilities of our unrestricted subsidiaries do not constitute obligations of Genesis Energy, L.P., Genesis Energy Finance Corporation or the Guarantor Subsidiaries. See Note 10 in our Unaudited Condensed Consolidated Financial Statements for additional information regarding our consolidated debt obligations.
The guarantees are senior unsecured obligations of each Guarantor Subsidiary and rank equally in right of payment with other existing and future senior indebtedness of such Guarantor Subsidiary, and senior in right of payment to all existing and future subordinated indebtedness of such Guarantor Subsidiary. The guarantee of our senior unsecured notes by each Guarantor Subsidiary is subject to certain automatic customary releases, including in connection with the sale, disposition or transfer of all of the capital stock, or of all or substantially all of the assets, of such Guarantor Subsidiary to one or more persons that are not us or a restricted subsidiary, the exercise of legal defeasance or covenant defeasance options, the satisfaction and discharge of the indentures governing our senior unsecured notes, the designation of such Guarantor Subsidiary as a non-Guarantor Subsidiary or as an unrestricted subsidiary in accordance with the indentures governing our senior unsecured notes, the release of such Guarantor Subsidiary from its guarantee under our senior secured credit facility, or liquidation or dissolution of such Guarantor Subsidiary (collectively, the “Releases”). The obligations of each Guarantor Subsidiary under its note guarantee are limited as necessary to prevent such note guarantee from constituting a fraudulent conveyance under applicable law. We are not restricted from making investments in the Guarantor Subsidiaries and there are no significant restrictions on the ability of the Guarantor Subsidiaries to make distributions to Genesis Energy, L.P.
The rights of holders of our senior unsecured notes against the Guarantor Subsidiaries may be limited under the U.S. Bankruptcy Code or state fraudulent transfer or conveyance law.
The following is the summarized financial information for Genesis Energy, L.P. and the Guarantor Subsidiaries on a combined basis after elimination of intercompany transactions among the Guarantor Subsidiaries (which includes related receivable and payable balances) and the investment in and equity earnings from the non-Guarantor Subsidiaries.
Less: Accumulated distributions attributable to Class A Convertible Preferred Units
(65,682)
Net loss attributable to common unitholders
$
(101,722)
(1)Excluded from assets in the table above are net intercompany receivables of $117.8 million that are owed to Genesis Energy, L.P. and the Guarantor Subsidiaries from the non-Guarantor Subsidiaries as of September 30, 2024.
(2)There are no noncontrolling interests held at the Issuer or Guarantor Subsidiaries for the period presented.
(3)Excluded from revenues in the table above are $2.2 million of sales from Guarantor Subsidiaries to non-Guarantor Subsidiaries for the nine months ended September 30, 2024.
Non-GAAP Financial Measure Reconciliations
For definitions and discussion of our Non-GAAP financial measures refer to the “Non-GAAP Financial Measures” as later discussed and defined.
Available Cash before Reserves for the periods presented below was as follows:
Three Months Ended September 30,
2024
2023
(in thousands)
Net income (loss) attributable to Genesis Energy, L.P.
$
(17,177)
$
58,070
Income tax expense (benefit)
(846)
574
Depreciation, depletion, amortization and accretion
84,610
71,099
Plus (minus) Select Items, net
(1,870)
(767)
Maintenance capital utilized(1)
(18,000)
(17,200)
Cash tax expense
(333)
(200)
Distributions to preferred unitholders
(21,894)
(22,612)
Available Cash before Reserves
$
24,490
$
88,964
(1)For a description of the term “maintenance capital utilized”, please see the definition of the term “Available Cash before Reserves” discussed below. Maintenance capital expenditures in the 2024 Quarter and 2023 Quarter were $55.0 million and $33.6 million, respectively.
We define Available Cash before Reserves (“Available Cash before Reserves”) as Net income (loss) attributable to Genesis Energy, L.P. before interest, taxes, depreciation, depletion and amortization (including impairment, write-offs, accretion and similar items) after eliminating other non-cash revenues, expenses, gains, losses and charges (including any loss on asset dispositions), plus or minus certain other select items that we view as not indicative of our core operating results (collectively, “Select Items”), as adjusted for certain items, the most significant of which in the relevant reporting periods have been the sum of maintenance capital utilized, interest expense, net, cash tax expense and cash distributions paid to our Class A convertible preferred unitholders. Although we do not necessarily consider all of our Select Items to be non-recurring, infrequent or unusual, we believe that an understanding of these Select Items is important to the evaluation of our core operating results. The most significant Select Items in the relevant reporting periods are set forth below.
Differences in timing of cash receipts for certain contractual arrangements(1)
$
(7,526)
$
11,385
Certain non-cash items:
Unrealized losses (gains) on derivative transactions excluding fair value hedges, net of changes in inventory value
1,606
(12,299)
Adjustment regarding equity investees(2)
6,855
6,387
Other
(1,573)
(7,228)
Sub-total Select Items, net
(638)
(1,755)
II.
Applicable only to Available Cash before Reserves
Other
(1,232)
988
Total Select Items, net(3)
$
(1,870)
$
(767)
(1)Includes the difference in timing of cash receipts from or billings to customers during the period and the revenue we recognize in accordance with GAAP on our related contracts. For purposes of our Non-GAAP measures, we add those amounts in the period of payment and deduct them in the period in which GAAP recognizes them.
(2)Represents the net effect of adding distributions from equity investees and deducting earnings of equity investees net to us.
(3)Represents Select Items applicable to Adjusted EBITDA and Available Cash before Reserves.
Non-GAAP Financial Measures
General
To help evaluate our business, this Quarterly Report on Form 10-Q includes the non-generally accepted accounting principle (“non-GAAP”) financial measure of Available Cash before Reserves. We also present total Segment Margin as if it were a non-GAAP measure. Our non-GAAP measures may not be comparable to similarly titled measures of other companies because such measures may include or exclude other specified items. The schedules above provide reconciliations of Available Cash before Reserves to its most directly comparable financial measures calculated in accordance with generally accepted accounting principles in the United States of America (GAAP). A reconciliation of Net Income (loss) attributable Genesis Energy, L.P. to total Segment Margin is included in our segment disclosure in Note 13 to our Unaudited Condensed Consolidated Financial Statements, as well as previously in this Item 2. Our non-GAAP financial measures should not be considered (i) as alternatives to GAAP measures of liquidity or financial performance or (ii) as being singularly important in any particular context; they should be considered in a broad context with other quantitative and qualitative information. Our Available Cash before Reserves and total Segment Margin measures are just two of the relevant data points considered from time to time.
When evaluating our performance and making decisions regarding our future direction and actions (including making discretionary payments, such as quarterly distributions) our board of directors and management team have access to a wide range of historical and forecasted qualitative and quantitative information, such as our financial statements; operational information; various non-GAAP measures; internal forecasts; credit metrics; analyst opinions; performance; liquidity and similar measures; income; cash flow expectations for us; and certain information regarding some of our peers. Additionally, our board of directors and management team analyze, and place different weight on, various factors from time to time. We believe that investors benefit from having access to the same financial measures being utilized by management, lenders, analysts and other market participants. We attempt to provide adequate information to allow each individual investor and other external user to reach her/his own conclusions regarding our actions without providing so much information as to overwhelm or confuse such investor or other external user.
We define Segment Margin as revenues less product costs, operating expenses, and segment general and administrative expenses (all of which are net of the effects of our noncontrolling interest holders), plus or minus applicable Select Items (defined below). Although we do not necessarily consider all of our Select Items to be non-recurring, infrequent or unusual, we believe that an understanding of these Select Items is important to the evaluation of our core operating results. Our chief operating decision maker (our Chief Executive Officer) evaluates segment performance based on a variety of measures including Segment Margin, segment volumes where relevant and capital investment.
A reconciliation of Net income (loss) attributable to Genesis Energy, L.P. to total Segment Margin is included in our segment disclosure in Note 13 to our Unaudited Condensed Consolidated Financial Statements, as well as previously in this Item 2.
Available Cash before Reserves
Purposes, Uses and Definition
Available Cash before Reserves, often referred to by others as distributable cash flow, is a quantitative standard used throughout the investment community with respect to publicly traded partnerships and is commonly used as a supplemental financial measure by management and by external users of financial statements such as investors, commercial banks, research analysts and rating agencies, to aid in assessing, among other things:
(1) the financial performance of our assets;
(2) our operating performance;
(3) the viability of potential projects, including our cash and overall return on alternative capital investments as compared to those of other companies in the midstream energy industry;
(4) the ability of our assets to generate cash sufficient to satisfy certain non-discretionary cash requirements, including interest payments and certain maintenance capital requirements; and
(5) our ability to make certain discretionary payments, such as distributions on our preferred and common units, growth capital expenditures, certain maintenance capital expenditures and early payments of indebtedness.
Disclosure Format Relating to Maintenance Capital
We use a modified format relating to maintenance capital requirements because our maintenance capital expenditures vary materially in nature (discretionary vs. non-discretionary), timing and amount from time to time. We believe that, without such modified disclosure, such changes in our maintenance capital expenditures could be confusing and potentially misleading to users of our financial information, particularly in the context of the nature and purposes of our Available Cash before Reserves measure. Our modified disclosure format provides those users with information in the form of our maintenance capital utilized measure (which we deduct to arrive at Available Cash before Reserves). Our maintenance capital utilized measure constitutes a proxy for non-discretionary maintenance capital expenditures and it takes into consideration the relationship among maintenance capital expenditures, operating expenses and depreciation from period to period.
Maintenance Capital Requirements
Maintenance capital expenditures are capitalized costs that are necessary to maintain the service capability of our existing assets, including the replacement of any system component or equipment which is worn out or obsolete. Maintenance capital expenditures can be discretionary or non-discretionary, depending on the facts and circumstances.
Prior to 2014, substantially all of our maintenance capital expenditures were (a) related to our pipeline assets and similar infrastructure, (b) non-discretionary in nature and (c) immaterial in amount as compared to our Available Cash before Reserves measure. Those historical expenditures were non-discretionary (or mandatory) in nature because we had very little (if any) discretion as to whether or when we incurred them. We had to incur them in order to continue to operate the related pipelines in a safe and reliable manner and consistently with past practices. If we had not made those expenditures, we would not have been able to continue to operate all or portions of those pipelines, which would not have been economically feasible. An example of a non-discretionary (or mandatory) maintenance capital expenditure would be replacing a segment of an old pipeline because one can no longer operate that pipeline safely, legally and/or economically in the absence of such replacement.
Beginning with 2014, we believe a substantial amount of our maintenance capital expenditures from time to time have been and will continue to be (a) related to our assets other than pipelines, such as our marine vessels, trucks and similar assets, (b) discretionary in nature and (c) potentially material in amount as compared to our Available Cash before Reserves measure. Those expenditures will be discretionary (or non-mandatory) in nature because we will have significant discretion as to whether or when we incur them. We will not be forced to incur them in order to continue to operate the related assets in a safe and reliable manner. If we chose not to make those expenditures, we would be able to continue to operate those assets
economically, although in lieu of maintenance capital expenditures, we would incur increased operating expenses, including maintenance expenses. An example of a discretionary (or non-mandatory) maintenance capital expenditure would be replacing an older marine vessel with a new marine vessel with substantially similar specifications, even though one could continue to economically operate the older vessel in spite of its increasing maintenance and other operating expenses.
In summary, as we continue to expand certain non-pipeline portions of our business, we are experiencing changes in the nature (discretionary vs. non-discretionary), timing and amount of our maintenance capital expenditures that merit a more detailed review and analysis than was required historically. Management’s increasing ability to determine if and when to incur certain maintenance capital expenditures is relevant to the manner in which we analyze aspects of our business relating to discretionary and non-discretionary expenditures. We believe it would be inappropriate to derive our Available Cash before Reserves measure by deducting discretionary maintenance capital expenditures, which we believe are similar in nature in this context to certain other discretionary expenditures, such as growth capital expenditures, distributions/dividends and equity buybacks. Unfortunately, not all maintenance capital expenditures are clearly discretionary or non-discretionary in nature. Therefore, we developed a measure, maintenance capital utilized, that we believe is more useful in the determination of Available Cash before Reserves.
Maintenance Capital Utilized
We believe our maintenance capital utilized measure is the most useful quarterly maintenance capital requirements measure to use to derive our Available Cash before Reserves measure. We define our maintenance capital utilized measure as that portion of the amount of previously incurred maintenance capital expenditures that we utilize during the relevant quarter, which would be equal to the sum of the maintenance capital expenditures we have incurred for each project/component in prior quarters allocated ratably over the useful lives of those projects/components.
Our maintenance capital utilized measure constitutes a proxy for non-discretionary maintenance capital expenditures and it takes into consideration the relationship among maintenance capital expenditures, operating expenses and depreciation from period to period. Because we did not initially use our maintenance capital utilized measure before 2014, our maintenance capital utilized calculations will reflect the utilization of solely those maintenance capital expenditures incurred since December 31, 2013.
Critical Accounting Estimates
There have been no new or material changes to the critical accounting estimates discussed in our Annual Report that are of significance, or potential significance, to the Company.
Forward Looking Statements
The statements in this Quarterly Report on Form 10-Q that are not historical information may be “forward looking statements” as defined under federal law. All statements, other than historical facts, included in this document that address activities, events or developments that we expect or anticipate will or may occur in the future, including things such as plans for growth of the business, future capital expenditures, competitive strengths, goals, references to future goals or intentions, estimated or projected future financial performance, and other such references are forward-looking statements, and historical performance is not necessarily indicative of future performance. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “could,” “plan,” “position,” “projection,” “strategy,” “should” or “will,” or the negative of those terms or other variations of them or by comparable terminology. In particular, statements, expressed or implied, concerning future actions, conditions or events or future operating results or the ability to generate sales, income or cash flow are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond our ability or the ability of our affiliates to control or predict. Specific factors that could cause actual results to differ from those in the forward-looking statements include, among others:
•demand for, the supply of, our assumptions about, changes in forecast data for, and price trends related to crude oil, liquid petroleum, natural gas, NaHS, soda ash, and caustic soda, all of which may be affected by economic activity, capital expenditures and operational and technical issues experienced by energy producers, weather, alternative energy sources, international conflicts and international events (including the war in Ukraine, the Israel and Hamas war and broader geopolitical tensions in the Middle East and Eastern Europe), global pandemics, inflation, the actions of OPEC and other oil exporting nations, conservation and technological advances;
•our ability to successfully execute our business and financial strategies;
•our ability to continue to realize cost savings from our cost saving measures;
•our ability to successfully identify and close strategic acquisitions on acceptable terms (including obtaining third-party consents and waivers of preferential rights), develop or construct infrastructure assets, make cost saving changes in operations and integrate acquired assets or businesses into our existing operations;
•service interruptions in our pipeline transportation systems, processing operations, or mining facilities, including due to adverse weather events;
•shutdowns or cutbacks at refineries, petrochemical plants, utilities, individual plants, or other businesses for which we transport crude oil, petroleum, natural gas or other products or to whom we sell soda ash, petroleum, or other products;
•risks inherent in marine transportation and vessel operation, including accidents and discharge of pollutants;
•changes in laws and regulations to which we are subject, including tax withholding issues, regulations regarding qualifying income, accounting pronouncements, and safety, environmental and employment laws and regulations;
•the effects of production declines resulting from a suspension of drilling in the Gulf of Mexico or otherwise;
•the effects of future laws and regulations;
•planned capital expenditures and availability of capital resources to fund capital expenditures, and our ability to access the credit and capital markets to obtain financing on terms we deem acceptable;
•our inability to borrow or otherwise access funds needed for operations, expansions or capital expenditures as a result of our credit agreement and the indentures governing our notes, which contain various affirmative and negative covenants;
•loss of key personnel;
•cash from operations that we generate could decrease or fail to meet expectations, either of which could reduce our ability to pay quarterly cash distributions (common and preferred) at the current level or to increase quarterly cash distributions in the future;
•an increase in the competition that our operations encounter;
•cost and availability of insurance;
•hazards and operating risks that may not be covered fully by insurance;
•our financial and commodity hedging arrangements, which may reduce our earnings, profitability and cash flow;
•changes in global economic conditions, including capital and credit markets conditions, inflation and interest rates, including the result of any economic recession or depression that has occurred or may occur in the future;
•the impact of natural disasters, international military conflicts (such as the war in Ukraine, the Israel and Hamas war and broader geopolitical tensions in the Middle East and Eastern Europe), global pandemics, epidemics, accidents or terrorism, and actions taken by governmental authorities and other third parties in response thereto, on our business financial condition and results of operations;
•reduction in demand for our services resulting in impairments of our assets;
•changes in the financial condition of customers or counterparties;
•adverse rulings, judgments, or settlements in litigation or other legal or tax matters;
•the treatment of us as a corporation for federal income tax purposes or if we become subject to entity-level taxation for state tax purposes;
•the potential that our internal controls may not be adequate, weaknesses may be discovered or remediation of any identified weaknesses may not be successful and the impact these could have on our unit price; and
•a cyberattack involving our information systems and related infrastructure, or that of our business associates.
You should not put undue reliance on any forward-looking statements. When considering forward-looking statements, please review the risk factors described under “Risk Factors” discussed in Item 1A of our Annual Report . These risks may also be specifically described in our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K (or any amendments to those reports) and other documents that we may file from time to time with the SEC. New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for us to predict all such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. Except as required by applicable securities laws, we do not intend to update these forward-looking statements and information.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The following should be read in conjunction with Quantitative and Qualitative Disclosures About Market Risk included under Item 7A in our Annual Report. There have been no material changes that would affect the quantitative and qualitative disclosures provided therein. Also, see Note 16 to our Unaudited Condensed Consolidated Financial Statements for additional discussion related to derivative instruments and hedging activities.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in our filings as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Our chief executive officer and chief financial officer, with the participation of our management, have evaluated our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q and have determined that such disclosure controls and procedures are effective in ensuring that material information required to be disclosed in this Quarterly Report on Form 10-Q is accumulated and communicated to them and our management to allow timely decisions regarding required disclosures.
There were no changes during the three months ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Information with respect to this item has been incorporated by reference from our Annual Report. There have been no material developments in legal proceedings since the filing of such Form 10-K.
Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that we reasonably believe will exceed a specified threshold. Pursuant to recent SEC amendments to this item, we will be using a threshold of $1 million for such proceedings. We believe that such threshold is reasonably designed to result in disclosure of environmental proceedings that are material to our business or financial condition. Applying this threshold, there are no environmental matters to disclose for this period.
Item 1A. Risk Factors
There has been no material change in our risk factors as previously disclosed in our Annual Report.
For additional information about our risk factors, see Item 1A of our Annual Report, as well as any other risk factors contained in other filings with the SEC, including Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Form 8-K/A and other documents that we may file from time to time with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the 2024 Quarter.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Information regarding mine safety and other regulatory action at our mines in Green River and Granger, Wyoming is included in Exhibit 95 to this Form 10-Q.
Certificate of Limited Partnership of Genesis Energy, L.P. (incorporated by reference to Exhibit 3.1 to Amendment No. 2 of the Registration Statement on Form S-1 filed on November 15, 1996, File No. 333-11545).
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GENESIS ENERGY, L.P. (A Delaware Limited Partnership)