Genesis Energy L P : February 18, 2021 (PDF) 2020 Fourth Quarter Results Conference Call

2020 Fourth Quarter Results Conference Call

February 18, 2021

Notice: This transcript contains references to non-GAAP financial measures. A presentation of the most directly comparable GAAP measures and reconciliations to non-GAAP financial measures used in this presentation is available on our website at genlp.com and click on the non-GAAP Reconciliations icon at the Investor Relations page.

Welcome to the 2020 Fourth Quarter Conference Call for Genesis Energy. Genesis has four business segments. The offshore pipeline transportation segment is engaged in providing the critical infrastructure to move oil produced from the long-lived, world-class reservoirs from the deepwater Gulf of Mexico to onshore refining centers. The sodium minerals and sulfur services segment includes trona and trona-based exploring, mining, processing, producing, marketing and selling activities, as well as the processing of sour gas streams to remove sulfur at refining operations. The onshore facilities and transportation segment is engaged in the transportation, handling, blending, storage and supply of energy products, including crude oil and refined products. The marine transportation segment is engaged in the maritime transportation of primarily refined petroleum products. Genesis' operations are primarily located in Wyoming, the Gulf Coast

States and the Gulf of Mexico.

During this conference call, management may be making forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The law provides safe harbor protection to encourage companies to provide forward-looking information. Genesis intends to avail itself of those safe harbor provisions and directs you to its most recently filed and future filings with the Securities Exchange Commission. We also encourage you to visit our website at genesisenergy.com where a copy of the press release we issued today is located. The press release also presents a reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures.

At this time, I would like to introduce Grant Sims, CEO of Genesis Energy, L.P. Mr. Sims will be joined by Bob Deere, Chief Financial Officer and Ryan Sims, Senior Vice President -

Finance and Corporate Development.

[Grant]

Good morning.

As we mentioned in this morning's earnings release, 2020 was understandably a challenging year for our businesses due to the Covid-19 related demand destruction, lower refinery utilization and crude differentials as well as an unprecedented hurricane season. Despite these challenges, we were able to generate approximately $602 million of Adjusted Consolidated

EBITDA, as calculated under our senior secured credit facility, hitting the mid-point of our previously announced guidance. In fact, we were able to pay down and otherwise reduce Total

Adjusted Debt by some $62 million despite paying approximately $45 million of financing fees associated with two unsecured re-financings during the year and paying $50 million in the first quarter of this year that was actually associated with the quarterly distribution for the fourth quarter declared for the fourth quarter of 2019.

While we expect 2021 to be somewhat a year of transition as our base businesses continue to recover and we move ever closer to the significant contribution from several contracted offshore projects, we are increasingly confident in the long-term fundamentals of our businesses and our significant operating leverage to the upside as the global economy continues to improve.

Our offshore pipeline transportation segment was challenged in 2020 from an unprecedented hurricane season, but the outlook remains strong. While the downtime and the non-recurring costs associated with the inspections and repairs to the Garden Banks 72 platform,negatively impacted 2020 Segment Margin by some $40 million, the first quarter of 2021 remains on track to generate a more normalized earnings profile of approximately $85 million per quarter.

Regarding the new administration's most recent Executive Order, which directs the

Department of the Interior to temporarily pause new oil and natural gas leasing on federal lands, in our estimation it is very important to note the targeted pause by the Department of Interior "does not impact existing operations or permits for valid, existing leases, which are continuing to be reviewed and approved." In fact, since January 21st, the Bureau of Ocean Energy Management has issued 63 new permits, including 38 revised new well permits and 4 brand new well permits through February 16th, so basically the last three weeks.

I'd like to put this in perspective because the sheer magnitude of the deepwater Gulf is often misunderstood and, in my opinion, underappreciated. The recoverable reserves from a single deepwater well is often in the range of 15 to 20 million barrels of oil equivalent. Let me repeat.

15 to 20 million barrels are often recovered from a single well. So permitting and drilling a single well tied back into a production facility connected into one of our pipelines can be the equivalent of hooking up 25 or 30 onshore shale wells. The producers must hook these wells into a deepwater production handling facility, where once separated, the oil would then be metered into one of our pipelines, which as a practical matter is the only pipeline option. These kinds of typical deepwater wells are often at flush production for 2 or 3 years, not 2 or 3 months or weeks, and often have a productive economic life of 7 to 10 years per well. It is a completely different world than onshore, especially shale basins.

If the temporary ban on new leases were to be extended or become permanent, which we believe would require a change in the law, it is important to note we have hundreds of thousands of acres that are dedicated to our offshore pipeline systems under life of lease dedications, all ofwhich are existing, valid leases under primary term, previously granted extensions of their primary term or held by production in perpetuity, alone or in recognized units. We believe there is a tremendous inventory of incremental drilling and sub-sea tie back opportunities on these existing, valid leases that can keep our base production levels flat to slightly growing for many years, if not decades, to come.

Near to intermediate term activity is quite robust around our producing customers'

facilities. Occidental Petroleum has recently drilled and completed two new wells in the Lucius

Field, both of which are already contractually obligated to flow through our 100 percent owned

SEKCO pipeline and on to shore through our 64 percent owned Poseidon pipeline. BHP Petroleum has recently increased its working interest share in its operated Shenzi field. It has publicly announced its intent to dill several more infill wells in Shenzi proper, along with its intent to pursue a new two well, subsea development from what it calls Shenzi North. All of the production from these new wells are already contractually obligated to flow through our 100 percent owned Shenzi lateral and on to shore through either Poseidon or our 100 percent owned CHOPS pipeline.

Additionally, an affiliate of Beacon has just announced a new discovery at Winterfell, and late last year, Equinor announced a major new discovery at its Monument prospect. Together, these two new discoveries represent hundreds and hundreds of millions of barrels of newly discovered resources that are closer to our existing pipeline infrastructure than anyone else's.

All of this is of course in addition to our larger, contracted offshore projects, Argos and

King's Quay, which have both recently been publicly confirmed that they remain on track for first oil in 2022. We anticipate that these two fields, when fully ramped up, will generate in excess of $25 million a quarter, or over $100 million a year, in additional segment margin. We also remain in active discussions with three separate new stand-alone deep water production hubs, in various