GENESIS ENERGY LP Q4 FY2024 earnings call

• Near completion of major capital spending program, leading to cash flow generation in excess of cash costs. - Offshore projects: Shenandoah and Salamanca FPUs nearing completion, with first production in Q2; potential for additional developments like Shenandoah Phase Two, Monument, and Shenandoah South. - Soda and Sulfur Services: Operating improvements and cost-saving initiatives implemented; supply rationalizations in synthetic soda ash market observed. - Marine Transportation: Constructive market with steady demand and limited new supply, leading to high utilization rates for Jones Act vessels.

Genesis Energy has four segments. The Offshore Pipeline Transportation segment is expected to see significant growth in 2025 with the midyear startup of new contracted offshore volumes from Shenandoah and Salamanca, with first production from both in Q2. The Soda and Sulfur Services segment had operating issues at West Vaco resolved, and Grainger facility performing at or above design capacity; market conditions in soda ash remain challenging but supply rationalizations are starting. The Onshore Facilities and Transportation segment's legacy refinery services are expected to perform in line with 2024. The Marine Transportation segment is expected to deliver record results in 2025 due to more days on the water and steady day rates, with constructive market dynamics.

Adjusted EBITDA expected around $700 million in 2025 and $800 million in 2026 (could be higher if soda ash prices recover in 2026). Excess cash flow to be used for debt reduction, redeeming high-cost preferred, and returning capital to unitholders while managing leverage ratio to long-term target.

• Producers experiencing mechanical issues affecting offshore wells, though remediation expected in next few months. - Continued challenging macro conditions in soda ash market in early 2025, with well-supplied market and mixed demand outside China.

Q: Wanted to ask about the offshore producers that continue to have challenges. Can you maybe bracket like, the outer bounds of outcomes in 2025? So, for example, if this production stays offline for all of 2025, how much cash flow are you sort of forgoing? And then if it came on, let's say, in the second quarter of this year, how much incremental cash flow would you realize for the year?

A: At this point, we are baking into the guidance that we just gave basically what the producers are telling us with us taking a little bit of liberty to build in some cushion in the event that it slides to the right a little bit. I'm not sure that we have ever classified it but so you know, it's in I mean, I think order of magnitude is between $5 million and $10 million assuming that all of it was off, but we are seeing some of it has already been rectified and some of it is within a week or so of coming back at least according to the operator. So Michael, I mean, we don't really as we sit here today, we don't see a scenario where this is a lasting issue throughout 2025.

Q: On the 2026 EBITDA forecast of $800 million. Does that assume a continued improvement in the marine business or does that assume more of like a flat outlook relative to 2025?

A: I would consider it to yes, it's reasonably flat. I mean, so in the world where we're generating kind of no. While there could be more upside in that, that's kind of you know, we're just kind of penciling that in to be reasonably flat '26 relative to what we expected in '25.

Q: For some capital allocation, just quick, I'm wondering if you could remind us how the banks are looking at the press just sort of in the context of your capital return priorities. How the banks are looking at? Yes, exactly in terms of lending.

A: Our banks, which are obviously insiders and have read all of the agreements, they treat they give it a 100% equity treatment in the calculation of our compliance with them. That's not necessarily how rating agencies and others necessarily look at it. They'd have spent as much time as the inside banks have to make that determination. So yeah. For us to rapidly, you know, we can't really or not intent on levering up to take it out because it has a double whammy, if you will, about converting equity into debt in one respect. So you know, I think it's fair to say that our intent is to really use the excess cash flow. We're not prohibited from in fact, we have some flexibility under our senior secured credit facilities to harvest it. And so as we continue to get closer to our long-term target of four turns on the bank-calculated leverage ratio, we will have the ability in future periods to potentially take it out at a more rapid pace because we have the flexibility under our covenants, but so no. So we have the ability to deal with it and but it is given a 100% equity treatment, which is appropriate treatment from our perspective.

Q: Just as we approach the sort of free cash flow inflection point later this year, can you help us in terms of how to think about the timing and maybe even order of magnitude of potential distribution increases?

A: I think that the Board will evaluate that at the appropriate time. Again, I think that as we discussed that my view, but obviously, the board needs to weigh in on it is that it's likely, you know, use of capital is or capital allocation is going to be kind of a little all of the above. But in what's absolute and or relative uses of that. I can't speak at this point. Speak to at this point.

Q: Would you mind maybe touching on how the contracting season went? Where you are on that front and then maybe talk a little bit about some of the end market demand you're seeing or the weaker areas are and areas of resilience as well?

A: Yeah. No. I mean, it's contracting season went about as expected. I mean, obviously, in the environment of being in a well-supplied market, there was where we had caps and collars and we typically would price towards the lower end of that range. But we are purposely under the belief that or under yeah. Our belief that the prices are gonna rise as we go through 2025, especially as I said. I mean, we've seen a reduction of almost 4% of the total supply outs have helped significantly balance the market. We went short term as much as we could and didn't lock in low prices so that we will benefit prices increase throughout this year. And then as we get into if we continue to see a demand recovery and especially additional removal of high-priced synthetic production from the market and we believe this macro fundamentals will improve and that when we go into 2026 recontracting that will be in a significantly different environment than what we were in late 2024 approaching 2025 contracts season.