Genesis Energy, L.P. Q2 FY2026 earnings call

Balance Sheet Optimization & Capital Structure Progress

• In Q2 2026, Genesis sold non-core, underutilized offshore natural gas assets for $95 million, simplifying its offshore footprint, eliminating unprofitable operating expenses, and pre-funding a portion of asset retirement obligations for retained related assets.
• The company closed a $99.5 million non-recourse accounts receivable securitization facility priced at SOFR + 137.5 bps, roughly 200 bps cheaper than borrowings under its existing senior secured credit facility; borrowings under this facility do not count toward the bank leverage ratio, adding a new low-cost source of liquidity.
• Net proceeds from the two transactions were used to repurchase $83 million of 11.24% Series A corporate preferred securities at 102% of par, purchase 250,000 common units in the open market at a weighted average price of $14.57 per unit, and pay down the entire outstanding balance on the $900 million committed senior secured credit facility to zero by quarter end.
• Year-to-date through the first half of 2026, Genesis retired $218 million of its high-cost 11.24% Series A preferred securities ($135 million in Q1, $83 million in Q2), cutting the outstanding balance by ~40% to $311 million. Combined with Q1 2026 refinancing transactions (new $750 million 6.75% 2034 senior unsecured notes, full redemption of higher-cost 7.75% 2028 notes), the company has reduced annual all-in run rate cost of capital by ~$25 million.
• Management estimates an additional $50-$60 million in annual cash savings is achievable over the next several years through continued balance sheet optimization.

Capital Allocation Strategy

• Genesis follows a three-pronged capital allocation strategy: 1) reduce absolute debt levels toward a long-term leverage target of ~4x; 2) continue retiring high-cost Series A preferred securities using free cash flow and available liquidity; 3) grow common unit distributions or repurchase undervalued common equity, while retaining flexibility to pursue organic and inorganic growth opportunities.
• In mid-July 2026, the board of directors declared an 11% quarterly increase in the common unit distribution to 20 cents per unit, a 21% increase year-over-year and 33% increase over two years.

Operational Highlights

• Offshore pipeline segment achieved over 99% system uptime in Q2. BP announced an expansion of the 19-year-old Atlantis production facility, which is contractually dedicated to Genesis' CHOPS pipeline; the expansion will add ~10,000 barrels of oil equivalent per day in peak production and extend field life with no additional capital required from Genesis.
• The final vessel from the 2026 marine dry docking program returned to service after quarter end, restoring full operating capacity.

1. Offshore Pipeline Transportation: The segment performed slightly below internal expectations during the quarter. Uptime availability across the segment's pipeline systems was over 99%, but third-party producer operational issues and unplanned downtime at connected key fields created unplanned production volume fluctuations outside the segment's control that negatively impacted results. The segment supports long-term, multi-decade deepwater Gulf of America production with ~250,000 barrels of oil per day from each of three age cohorts of production facilities (20-30 years old, 10-20 years old, and less than 10 years old). No additional capital is required from Genesis to capture new volumes from existing connected reservoirs. No absolute financial figures were provided in the transcript.
2. Marine Transportation: Results were broadly in line with management expectations. The final vessel from the 2026 dry docking program returned to service after the quarter end, so the segment is now at full capacity. The segment operates at or near 100% available vessel capacity, supported by strong demand from Gulf Coast refinery runs and recovering heavy crude cargo volumes. There is no net new construction of comparable Jones Act vessels, with shipyard lead times remaining multi-year, and new build volume does not offset ongoing retirements of older tonnage, creating a favorable structural market dynamic. No absolute financial figures were provided in the transcript.
3. Onshore Transportation and Services: The segment delivered a solid quarter, with steady volumes across terminals and pipeline systems supported by growing onshore-bound offshore production. The segment captured incremental, non-recurring margin opportunities from market dislocations caused by the Iran conflict. The legacy sulfur services business performed in line with expectations, with strong demand from pulp and paper customers and steady operating performance supporting supply chain optimization. No absolute financial figures or revenue contribution percentages were provided in the transcript.

Management did not issue formal numerical guidance, but provided the following forward-looking statements:

• The temporary dry docking-related impact of the last marine vessel will weigh slightly on Q3 2026 results, but the marine segment is expected to deliver improving quarterly results for the remainder of 2026 and operate at a more normalized run rate going forward.
• The favorable structural supply-demand dynamic for Jones Act marine tonnage is expected to persist.
• Multiple new connected wells are expected to come online over the next several quarters, providing strong visibility for growing offshore volumes through the end of 2026 and for many years in the future, with no additional capital required from Genesis.
• The non-recurring incremental margin captured in Q2 2026 from market dislocations is not expected to continue in future quarters.
• Management maintains line of sight to $50-$60 million in additional annual cost of capital savings over the next several years through continued balance sheet optimization.

• Offshore pipeline segment results are exposed to short-term volume fluctuations from third-party producer operational issues, unplanned downtime, and variable timing of new well startup and well intervention work, which can have a notable financial impact if multiple events occur at high-margin fields in a single quarter.
• The high-cost 11.24% Series A preferred securities remain a drag on overall cost of capital for the company until full retirement.
• No additional material operational, financial, or market risks were discussed in the transcript.

Q: Can you provide more detail on the incremental marketing benefits captured in Q2 2026, and are these benefits expected to continue?

A: The benefits were non-recurring, stemming from market dislocations caused by the Iran conflict and SPR releases. One opportunity came from moving SPR barrels in a one-time government transaction. A second came from geographic price dislocations between Texas and Louisiana crude markets: the interconnected offshore pipeline network allowed producers to reroute barrels to Louisiana instead of their contractually-dedicated Texas route, so Genesis earned revenue from both pipelines for moving the same barrel. These benefits are not expected to continue in future quarters.

Q: Are there additional non-core assets that could be sold to accelerate preferred retirement, and are there other methods management is considering to speed up preferred retirement?

A: While all assets are potentially for sale at the right price, management currently has no active inquiries or plans to sell additional non-core assets. Management remains focused on retiring the high-cost preferred as a top priority as part of its three-pronged capital allocation strategy. Longer term, once leverage metrics improve, management could potentially issue an upsized new bond offering at much lower coupon rates to fully retire the remaining preferred, which would generate large annual interest savings, while using ongoing cash flow to pay down other debt.

Q: Confirm that the remaining outstanding principal of Series A preferred is $311 million?

A: Yes, that is the correct remaining principal amount.