GENESIS ENERGY, L.P. 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 on Form 10-K for the year endedDecember 31, 2020 . 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 •Commitments and Off-Balance Sheet Arrangements •Forward Looking Statements Overview We reported Net Loss Attributable toGenesis Energy, L.P. of$34.2 million during the 2021 Quarter compared to Net Income Attributable toGenesis Energy, L.P. of$24.9 million during the 2020 Quarter. Net Loss Attributable toGenesis Energy, L.P. in the 2021 Quarter was impacted, relative to the 2020 Quarter, by: (i) lower Segment Margin of$13.2 million , which is inclusive of approximately$12.3 million of incremental cash receipts received in the 2021 Quarter associated with principal repayments on our previously owned NEJD pipeline not included in income and included in the 2021 Quarter's Segment Margin; and (ii) an unrealized loss from the valuation of the embedded derivative associated with our Class A Convertible Preferred Units of$18.4 million in the 2021 Quarter compared to an unrealized gain of$32.5 million during the 2020 Quarter recorded within Other income (expense). These decreases were partially offset by (i) lower depreciation, depletion and amortization expense of$8.1 million during the 2021 Quarter primarily due to lower depreciation expense on our rail logistics assets as they were impaired during the second quarter of 2020, and (ii) higher equity in earnings of equity investees of$6.5 million during the 2021 Quarter primarily due to increased volumes on our 64% owned Poseidon oil pipeline. Cash flow from operating activities was$77.2 million for the 2021 Quarter compared to$89.6 million for the 2020 Quarter. This decrease is primarily attributable to lower Segment Margin of$13.2 million in the 2021 Quarter. Available Cash before Reserves (as defined below in "Non-GAAP Financial Measures") to our common unitholders was$54.6 million for the 2021 Quarter, a decrease of$27.2 million , or 33.2%, from the 2020 Quarter, primarily due to lower Segment Margin of$13.2 million , as well as higher maintenance capital utilized, general and administrative expenses, and interest expense in the 2021 Quarter. See "Non-GAAP Financial Measures" below for additional information on Available Cash before Reserves and Segment Margin. Segment Margin (as defined below in "Non-GAAP Financial Measures") was$156.1 million for the 2021 Quarter, a decrease of$13.2 million , or 8%, from the 2020 Quarter. A more detailed discussion of our segment results and other costs is included below in "Results of Operations".
See "Non-GAAP Financial Measures" below for additional information on Available Cash before Reserves and Segment Margin.
Distribution
InApril 2021 , we declared our quarterly distribution to our common unitholders of$0.15 per unit related to the 2021 Quarter. With respect to our Class A Convertible Preferred Units, we declared a quarterly cash distribution of$0.7374 per Class A Convertible Preferred Unit (or$2.9496 on an annualized basis) for each Class A Convertible Preferred Unit held of record. These distributions will be payable onMay 14, 2021 to unitholders of record at the close of business onApril 30, 2021 . 29
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Covid-19 and Market Update
InMarch 2020 , theWorld Health Organization categorized Covid-19 as a pandemic, and the President ofthe United States declared the Covid-19 outbreak a national emergency. Our operations, which fall within the energy, mining and transportation sectors, are considered critical and essential by theDepartment of Homeland Security's CISA and we have continued to operate our assets during this pandemic. We have a designated internal management team to provide resources, updates, and support to our entire workforce during this pandemic, while maintaining a focus to ensure the safety and well-being of our employees, the families of our employees, and the communities in which our businesses operate. We will continue to act in the best interests of our employees, stakeholders, customers, partners, and suppliers and make any necessary changes as required by federal, state, or local authorities as we continue to actively monitor the situation. Covid-19 has caused commodity prices to fluctuate due to, among other things, reduced industrial activity and travel demand that are expected to continue in the near future. Additionally, actions taken byOPEC and other oil exporting nations beginning in earlyMarch 2020 caused additional significant volatility in the price of oil and gas. These volatile commodity prices are expected to continue at least for the near-term and possibly longer, reflecting fears of a global recession and potential further global economic damage from Covid-19, including factory shutdowns, travel bans, closings of schools and stores, and cancellations of conventions and similar events, resulting in, among other things, reduced fuel demand, lower manufacturing activity, and high inventories of oil, natural gas, and petroleum products, which could further negatively impact oil, natural gas, and petroleum products and industrial products. Due to the economic effects from commodity prices and Covid-19, demand and volumes throughout our businesses were negatively impacted throughout 2020 beginning in the second quarter. Additionally, during 2020, our businesses were negatively impacted by lower refinery utilization, crude differentials, supply and demand imbalances in our Alkali Business, and an unprecedented hurricane season. However, we began to see economic recovery across a majority of our asset footprint as we exited 2020, which continued during the 2021 Quarter. Specifically, during the 2021 Quarter, our offshore pipeline transportation segment experienced volumes at its normal run rate as we exited the quarter with our CHOPS pipeline back in service. Additionally, our Alkali Business sold out of all production at its Westvaco facility. We continue to monitor the market environment and will evaluate whether any triggering events would indicate possible impairments of long-lived assets, intangible assets and goodwill. 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 and estimates could differ significantly from actual results, including with respect to the duration and severity of the Covid-19 pandemic. In the current volatile economic 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 potential future limitations and impact of Covid-19 are still unknown at this time, and although we tend to experience less demand for certain of our services and products when commodity prices decrease significantly over extended periods of time (and we expect a similar impact on demand when global restrictions are in place limiting the economy and industrial product use), 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 de-leveraging our balance sheet, which included the reduction of our distribution to common unitholders beginning in the first quarter of 2020 and continuing to recognize the benefits from our cost savings initiative in the second quarter of 2020. Additionally, subsequent to the 2021 Quarter, we successfully refinanced and extended our senior secured credit facility and issued an additional$250 million in aggregate principal amount of our 2027 Notes. These two events resulted in no scheduled maturities of long-term debt until 2024, other than the minimal quarterly payments due on the term loan component of our credit facility beginning at the end of 2021. Refer to "Liquidity and Capital Resources" for addition discussion. 30 -------------------------------------------------------------------------------- Table of Contents Results of Operations Revenues and Costs and Expenses Our revenues for the 2021 Quarter decreased$18.7 million , or 3%, from the 2020 Quarter and our total costs and expenses as presented on the Unaudited Condensed Consolidated Statements of Operations increased$12.4 million , or 3%, between the two periods, with a net decrease to our operating income of$31.1 million . The decrease in our operating income during the 2021 Quarter is primarily driven by lower Segment Margin of$13.2 million , which is inclusive of approximately$12.3 million of incremental cash receipts received not included in income from our previously owned NEJD pipeline and incremental cash distributions received from our equity investees of$9.0 million . A more detailed discussion of our individual segment results is included in the section below, "Segment Margin." This was partially offset by lower depreciation, depletion, and amortization expense of$8.1 million during the 2021 Quarter primarily associated with our rail logistics assets, as they were impaired during the second quarter of 2020. A substantial portion of our revenues and costs are derived from the purchase and sale of crude oil in our crude oil marketing business, which is included in our onshore facilities and transportation segment, and revenues and costs associated with our Alkali Business, which is included in our sodium minerals and sulfur services segment. We describe, in more detail, the impact on revenues and costs for each of our businesses below. As it relates to our crude oil marketing business, the average closing prices for West Texas Intermediate crude oil on theNew York Mercantile Exchange ("NYMEX") increased 25% to$57.84 per barrel in the 2021 Quarter, as compared to$46.17 per barrel in the 2020 Quarter. Impacts from Covid-19 along with actions taken byOPEC and other oil exporting nations beginning in early 2020 have caused significant price volatility in oil and gas prices. We would 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, producing minimal direct impact on Segment Margin, net income, 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 net impact on our Segment Margin. However, we do have some indirect exposure to certain changes in prices for oil, natural gas, and petroleum products, particularly if they are significant and extended. We tend to experience more demand for certain of our services when commodity prices increase significantly over extended periods of time, and we tend to experience less demand for certain of our services when commodity 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." 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 volume sold. We sell our products to an industry-diverse and worldwide customer base. Our selling prices are contracted at various times throughout the year and for different durations. Typically, our selling prices for volumes sold internationally and through ANSAC are contracted for the current year (in a majority of cases, annually) in the prior December and January of the current year, and our volumes priced and sold domestically are contracted at various times and can be of varying durations, often multi-year terms. Our sales volumes can fluctuate from period to period and are dependent upon many factors, of which the main drivers are the global market, customer demand and economic growth. Positive or negative changes to our revenue, through fluctuations in sales volumes or selling prices, can have a direct impact to Segment Margin, net income 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, of which some 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 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 2021 Quarter as noted above, we had negative effects to our revenues (with a lesser impact to costs) due to lower sales volumes as a result of our Granger facility being put in a cold standby in 2020 and lower domestic pricing of soda ash during the 2021. During the 2021 Quarter, we were able to generate cost efficiencies due to our cost savings initiative, and lower energy consumption and maintenance spending. For additional information, see our segment-by-segment analysis below. In addition to our crude oil marketing business and Alkali Business discussed above, we continue to operate in our other core businesses including: (i) our offshoreGulf of Mexico crude oil and natural gas pipeline transportation and handling operations, focusing on providing a suite of services primarily to integrated and large independent energy companieswho make intensive capital investments (often in excess of a billion dollars) to develop numerous large-reservoir, long-lived crude oil and natural gas properties; (ii) our sulfur services business, which is one of the largest producers and marketers (based on tons produced) of NaHS inNorth and South America ; and (iii) our onshore-based refinery-centric operations located primarily in theGulf Coast region of theU.S. , which focus on providing a suite of services primarily to refiners. Refiners are the shippers of 31 -------------------------------------------------------------------------------- Table of Contents over 95% of the volumes transported on our onshore crude pipelines, and refiners contract for 75% of the use of our inland barges, 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 theGulf Coast , unlike the lighter crude oil and condensates produced from numerous onshore shale plays. 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 relatively low commodity price environments. Given these facts, we do not expect changes in commodity prices to impact our net income, Available Cash before Reserves or Segment Margin derived from our offshoreGulf 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. Additionally, changes in certain of our operating costs between the respective quarters, such as those associated with our sodium minerals and sulfur services, offshore pipeline 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 EndedMarch 31, 2021 2020 (in thousands) Offshore pipeline transportation $
84,269
Sodium minerals and sulfur services
43,720 36,941
Onshore facilities and transportation 20,999 28,099 Marine transportation 7,109 19,002 Total Segment Margin$ 156,097 $ 169,288 We define Segment Margin as revenues less product costs, operating expenses, and segment general and administrative expenses, after eliminating gain or loss on sale of assets, plus or minus applicable Select Items. 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. 32
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A reconciliation of total Segment Margin to Net Income (Loss) Attributable to
Three Months Ended
March 31,
2021 2020
Total Segment Margin $ 156,097 $ 169,288
Corporate general and administrative expenses (11,152) (6,492)
Depreciation, depletion, amortization and accretion (68,997) (75,978)
Interest expense (57,829) (54,965)
Adjustment to exclude distributable cash generated by equity investees not included in income and include equity in investees net income (1)
(8,856) (6,406)
Other non-cash items (2) (18,444) 33,261
Distribution from unrestricted subsidiaries not included in income (3)
(17,500) (2,238)
Provision for leased items no longer in use (604) 130
Differences in timing of cash receipts for certain contractual arrangements (4)
(299) (4,490)
Loss on debt extinguishment (5) (1,627) (23,480)
Redeemable noncontrolling interest redemption value adjustments (6)
(4,791) (4,086)
Income tax (expense) benefit (222) 365
Net Income (Loss) Attributable to Genesis Energy, L.P. $ (34,224) $ 24,909
(1)Includes distributions attributable to the quarter and received during or
promptly following such quarter.
(2)The 2021 Quarter and 2020 Quarter include a $18.4 million unrealized loss and
a $32.5 million unrealized gain, respectively, from the valuation of the
embedded derivative associated with our Class A Convertible Preferred Units.
(3)The 2021 Quarter and 2020 Quarter include $17.5 million and $2.2 million ,
respectively, in cash receipts not included in income associated with principal
repayments on our previously owned NEJD pipeline. Genesis NEJD Pipeline, LLC is
defined as an unrestricted subsidiary under our credit facility.
(4)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. 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.
(5)The 2021 Quarter includes the transaction costs and write-off of the
unamortized issuance costs associated with the redemption of our remaining 2023
Notes. The 2020 Quarter includes the transaction costs associated with the
tender and redemption of our 2022 Notes, as well as the write-off of the
unamortized issuance costs and discount associated with these notes.
(6) Includes PIK distributions attributable to the period and accretion on the
redemption feature.
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Offshore Pipeline Transportation Segment
Operating results and volumetric data for our offshore pipeline transportation
segment are presented below:
Three Months Ended
March 31,
2021 2020
(in thousands)
Offshore crude oil pipeline revenue, excluding non-cash revenues $ 62,662 $ 69,581 Offshore natural gas pipeline revenue, excluding non-cash revenues
10,397 13,337
Offshore pipeline operating costs, excluding non-cash expenses (18,006) (17,732)
Distributions from equity investments (1) 29,216 20,060
Offshore pipeline transportation Segment Margin $ 84,269 $ 85,246
Volumetric Data 100% basis:
Crude oil pipelines (average barrels/day unless otherwise noted):
CHOPS 116,427 242,182
Poseidon 339,409 279,181
Odyssey 138,445 149,440
GOPL (2) 6,776 7,249
Total crude oil offshore pipelines 601,057 678,052
Natural gas transportation volumes (MMBtus/d) 325,669 416,564
Volumetric Data net to our ownership interest (3):
Crude oil pipelines (average barrels/day unless otherwise noted):
CHOPS 116,427 242,182
Poseidon 217,222 178,676
Odyssey 40,149 43,338
GOPL (2) 6,776 7,249
Total crude oil offshore pipelines 380,574 471,445
Natural gas transportation volumes (MMBtus/d) 102,498 147,067
(1)Offshore pipeline transportation Segment Margin includes distributions received from our offshore pipeline joint ventures accounted for under the equity method of accounting in the 2021 Quarter and 2020 Quarter, respectively.
(2)Volumes are the product of our effective ownership interest through the year, including changes in ownership interest, multiplied by the relevant throughput over the given year. (3)One of our wholly-owned subsidiaries (GEL Offshore Pipeline, LLC , or "GOPL") owns our undivided interest in theEugene Island pipeline system.
Three Months Ended
Offshore pipeline transportation Segment Margin for the 2021 Quarter decreased$1.0 million , or 1%, from the 2020 Quarter, primarily due to lower overall volumes on our crude oil and natural gas pipeline systems. These lower volumes are primarily the result of our CHOPS pipeline being out of service throughFebruary 3, 2021 due to damage at a junction platform that the system goes up and over as a result of the 2020 hurricane season. OnFebruary 4, 2021 , we placed the CHOPS pipeline back into service upon the installation of a bypass that allows our pipeline to operate around the junction platform. The lower CHOPS pipeline volumes during the 2021 Quarter were partially offset by increased distributions from our equity method investments, primarily associated with our 64% owned Poseidon oil pipeline system, as we were able to successfully divert CHOPS volumes to Poseidon during its out of service period. Additionally, we had higher volumes on our 100% owned SEKCO pipeline as a result of higher volumes from the Buckskin production field, which is fully dedicated to SEKCO and further downstream, Poseidon. 34
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Sodium Minerals and Sulfur Services Segment
Operating results for our sodium minerals and sulfur services segment were as
follows:
Three Months Ended
March 31,
2021 2020
Volumes sold:
NaHS volumes (Dry short tons "DST") 28,802 30,082
Soda Ash volumes (short tons sold) 762,820 822,247
NaOH (caustic soda) volumes (dry short tons sold) 20,262 16,303
Revenues (in thousands):
NaHS revenues, excluding non-cash revenues $ 30,136 $ 33,191
NaOH (caustic soda) revenues 8,407 7,441
Revenues associated with Alkali Business 167,324 176,236
Other revenues 930 643
Total external segment revenues, excluding non-cash revenues(1) Segment Margin (in thousands)
Average index price for NaOH per DST(2)
(1) Totals are for external revenues and costs prior to intercompany elimination upon consolidation. (2) Source: IHS Chemical.
Three Months Ended
Sodium minerals and sulfur services Segment Margin for the 2021 Quarter increased$6.8 million , or 18%, from the 2020 Quarter. This increase is primarily due to increased production rates at our Westvaco facility and cost efficiencies recognized during the 2021 Quarter in our Alkali Business. Such cost efficiencies include favorable energy consumption, maintenance and other cost savings as implemented during the second quarter of 2020. These increases were partially offset by lower domestic pricing in our Alkali Business and lower volumes reported during the period. During the 2021 Quarter, we reported lower NaHS volumes in our refinery services business due to lower demand from our mining customers, primarily inPeru . We have begun to see some recovery in demand from previous customer shut-ins amidst the spread of Covid-19 and our customer's production levels and we expect these volumes to continue recovering to their normal levels as we move through 2021. We also reported lower soda ash volumes as a result of our Granger facility being put in cold standby during the second half of 2020. Our Granger facility is expected to come back online during the second half of 2023 upon the completion of our Granger facility expansion project. 35
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Onshore Facilities and Transportation Segment
Our onshore facilities and transportation segment utilizes an integrated set of pipelines and terminals, as well as trucks, railcars, 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 facilities operating primarily within theUnited States Gulf Coast crude oil market. In addition, we utilize our railcar and trucking fleets that support the purchase and sale of gathered and bulk purchased crude oil, as well as purchased and sold refined products. Through these assets we offer our customers a full suite of services, including the following: •facilitating the transportation of crude oil from producers to refineries and from owned and third party terminals to refiners via pipelines; •shipping crude oil and refined products to and from producers and refiners via trucks, pipelines, and railcars; •Unloading railcars at our crude-by-rail terminals; •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; and •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. We also use our terminal facilities to take advantage of contango market conditions, to gather and market crude oil, and to capitalize on regional opportunities which arise from time to time for both crude oil and petroleum products. When we purchase and store crude oil during periods of contango, we attempt to limit direct commodity price risk by simultaneously entering into a contract to sell the inventory in a future period, either with a counterparty or in the crude oil futures market. Despite crude oil being considered a somewhat homogeneous commodity, many refiners are very particular about the quality of crude oil feedstock they process. ManyU.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 and assets 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. In our refined products marketing operations, we supply primarily fuel oil, asphalt and other heavy refined products to wholesale markets and some end-users such as paper mills and utilities. We also provide a service to refineries by purchasing "heavier" petroleum products that are the residual fuels from gasoline production, transporting them to one of our terminals and blending them to a quality that meets the requirements of our customers. 36 -------------------------------------------------------------------------------- Table of Contents Operating results from our onshore facilities and transportation segment were as follows: Three Months Ended March 31, 2021 2020 (in thousands) Gathering, marketing, and logistics revenue$ 178,562 $ 135,307 Crude oil and CO2 pipeline tariffs and revenues 9,975 19,861
Distributions from unrestricted subsidiaries not included in income (1)
17,500 2,238
Crude oil and petroleum products costs, excluding unrealized gains and losses from derivative transactions
(161,984) (111,494)
Operating costs, excluding non-cash charges for long-term incentive compensation and other non-cash expenses
(15,266) (18,493)
Other (7,788) 680
Segment Margin $ 20,999 $ 28,099
Volumetric Data (average barrels per day unless otherwise noted):
Onshore crude oil pipelines:
Texas 32,762 84,499
Jay 8,783 10,013
Mississippi 5,097 6,409
Louisiana (2) 120,726 162,736
Onshore crude oil pipelines total 167,368 263,657
CO2 pipeline (average Mcf/day):
Free State (3) - 134,834
Crude oil and petroleum products sales:
Total crude oil and petroleum products sales 31,462 26,118
Rail unload volumes 40,252 94,040
(1) The 2021 Quarter includes cash payments received from our previously owned
NEJD pipeline of $17.5 million not included in income. 2020 includes cash
payments received from the NEJD pipeline of $2.2 million not included in income.
(2) Total daily volume for the 2021 Quarter includes 24,837 barrels per day of
intermediate refined products associated with our Port of Baton Rouge Terminal
pipelines. Total daily volume for the 2020 Quarter includes 44,322 barrels per
day of intermediate refined products associated with our Port of Baton Rouge
Terminal pipelines.
(3) The assets owned by Genesis Free State Pipeline, LLC were sold on October
30, 2020 .
Three Months Ended March 31, 2021 Compared with Three Months Ended March 31,
2020
Onshore facilities and transportation Segment Margin for the 2021 Quarter
decreased $7.1 million , or 25%, primarily due to lower volumes on our onshore
pipeline and rail logistics assets. These lower volumes are the result of: (i)
lower rail unload and pipeline volumes in Louisiana due to lower utilization at
the Gulf Coast refineries that our assets serve; (ii) lower volumes on our Texas
pipeline primarily due to less receipts originating in the Gulf of Mexico from
our CHOPS pipeline as it was out of service for a portion of the 2021 Quarter;
and (iii) the divestiture of our Free State pipeline during the fourth quarter
of 2020, which contributed positively to Segment Margin in the 2020 Quarter.
These decreases were offset by higher cash receipts received during the 2021
Quarter from Denbury of approximately $12.3 million associated with our
previously owned NEJD pipeline as a result of our agreement reached during the
fourth quarter of 2020.
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Marine Transportation Segment
Within our marine transportation segment, we own a fleet of 91 barges (82 inland
and 9 offshore) with a combined transportation capacity of 3.2 million barrels,
42 push/tow boats (33 inland and 9 offshore), and a 330,000 barrel ocean going
tanker, the M/T American Phoenix. Operating results for our marine
transportation segment were as follows:
Three Months Ended
March 31,
2021 2020
Revenues (in thousands):
Inland freight revenues $ 17,515 $ 27,572
Offshore freight revenues 14,526 21,091
Other rebill revenues (1) 8,290 13,683
Total segment revenues $ 40,331 $ 62,346 Operating costs, excluding non-cash charges for long-term incentive compensation and other non-cash expenses
Segment Margin (in thousands)$ 7,109 $ 19,002 Fleet Utilization: (2) Inland Barge Utilization 72.0 % 93.4 % Offshore Barge Utilization 95.7 % 99.4 %
(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
Marine transportation Segment Margin for the 2021 Quarter decreased$11.9 million , or 63%, from the 2020 Quarter. This decrease is primarily attributable to lower utilization and day rates in our inland business during the 2021 Quarter and lower rates in our offshore barge operation, including our M/T American Phoenix tanker. We expect to see continued pressure on our utilization, and to an extent, the spot rates on our inland business as Midwest andGulf Coast refineries have continued to run at lower utilization rates to better align with overall demand as a result of Covid-19 and the current operating environment. We have continued to enter into short term contracts (less than a year) in both the inland and offshore markets because we believe the day rates currently being offered by the market have yet to fully recover from their cyclical lows. We also re-contracted our M/T American Phoenix tanker beginning in the second quarter of 2021 through the first quarter of 2022 at a higher rate than the 2021 Quarter.
Other Costs, Interest, and Income Taxes
General and administrative expenses
Three Months Ended
March 31,
2021 2020
(in thousands) General and administrative expenses not separately identified below: Corporate
$ 9,421 $ 10,793 Segment 1,051 1,065 Long-term incentive compensation expense 1,080 (2,485)
Third party costs related to business development activities and growth projects
114 -
Total general and administrative expenses $ 11,666 $ 9,373
38-------------------------------------------------------------------------------- Table of Contents Three Months EndedMarch 31, 2021 Compared with March Months EndedMarch 31, 2020 Total general and administrative expenses for the 2021 Quarter increased by$2.3 million primarily due to higher long term incentive compensation expense in the 2021 quarter as a result of changes in assumptions used to value our outstanding awards between the two periods. This increase was partially offset by lower corporate general and administrative costs in the 2021 Quarter. Depreciation, depletion, and amortization expense Three Months Ended March 31, 2021 2020 (in thousands) Depreciation and depletion expense$ 63,614 $ 70,205 Amortization expense 2,672 4,152 Total depreciation, depletion and amortization expense$ 66,286 $ 74,357 Three Months EndedMarch 31, 2021 Compared with Three Months EndedMarch 31, 2020 Total depreciation, depletion, and amortization expense for the 2021 Quarter decreased by$8.1 million due to lower depreciation expense associated with our rail logistics assets in the 2021 Quarter as they were impaired during the second quarter of 2020. Additionally, our contract intangible associated with the M/T American Phoenix became fully amortized onSeptember 30, 2020 , which resulted in lower amortization expense in the 2021 Quarter. Interest expense, net Three Months Ended March 31, 2021 2020 (in thousands) Interest expense, senior secured credit facility (including commitment$ 7,431 $ 10,745
fees)
Interest expense, senior unsecured notes 48,335 42,358 Amortization of debt issuance costs and discount 2,715 2,391 Capitalized interest (652) (529) Net interest expense$ 57,829 $ 54,965 Three Months EndedMarch 31, 2021 Compared with Three Months EndedMarch 31, 2020 Net interest expense for the 2021 Quarter increased by$2.9 million primarily due to increased interest expense associated with our senior unsecured notes. OnJanuary 16, 2020 , we issued our$750 million 2028 Notes that accrue interest at 7.75%, and we purchased and extinguished our$750 million 2022 Notes that accrued interest at 6.75% during the 2020 Quarter. OnDecember 17, 2020 , we issued our$750 million 2027 Notes that accrue interest at 8.00%. We used the net proceeds to repay a portion of our 6% 2023 Notes that were validly tendered and we redeemed the remaining principal balance of$80.9 million on our 6% 2023 Notes onJanuary 19, 2021 . The excess proceeds received from the issuance of our 2027 Notes were used to repay borrowings on our revolving credit facility. The increase in interest expense on our senior unsecured notes was partially offset by lower interest expense on our senior secured credit facility. The decrease in interest expense on our senior secured credit facility was primarily due to a lower outstanding balance and a lower interest rate during the 2021 Quarter. Interest rates on our senior secured credit facility decreased as a result of lower LIBOR rates during the 2021 Quarter relative to the 2020 Quarter, which is one of the main drivers of interest expense on our credit facility.
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.
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Liquidity and Capital Resources
General
As ofMarch 31, 2021 , our balance sheet and liquidity position remained strong, which included$999.7 million of remaining borrowing capacity under our$1.7 billion senior secured revolving credit facility. We anticipate that our future internally-generated funds and the funds available under our new credit agreement discussed below 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 prior credit facility and the proceeds from issuances of equity and senior unsecured notes. Our primary cash requirements consist of: •working capital, primarily inventories and trade receivables and payables; •routine operating expenses; •capital growth and maintenance projects; •acquisitions of assets or businesses; •payments related to servicing and reducing outstanding debt; and •quarterly cash distributions to our preferred and common unitholders. OnApril 8, 2021 , we entered into the new credit agreement to replace our existing agreement. Our new credit agreement provides for a$950 million senior secured credit facility, comprising a term loan facility of$300 million and a revolving loan facility of$650 million , with the ability to increase the aggregate size of the revolving loan facility by an additional$200 million subject to lender consent and certain other customary conditions. The new credit agreement matures onMarch 15, 2024 , subject to extension at our request for one additional year on up to two occasions and subject to certain conditions. The successful completion of our new credit agreement has resulted in no scheduled maturities of long-term debt until 2024, other than the minimal quarterly payments due under the associated term loan facility each quarter beginning at the end of 2021 (which will be funded by the available capacity under our revolving loan facility). Furthermore, onApril 22, 2021 we completed our offering of an additional$250 million in aggregate principal amount of our 2027 Notes. The notes constitute an additional issuance of our existing 2027 Notes that we issued onDecember 17, 2020 in an aggregate principal amount of$750 million . The additional$250 million of notes have identical terms as (other than with respect to issue price) and constitute part of the same series of the 2027 Notes we issued onDecember 17, 2020 . The$250 million of the 2027 Notes were issued at a premium of 103.75%, plus accrued interest fromDecember 17, 2020 . We intend to use the net proceeds from the offering for general partnership purposes, including repaying a portion of the revolving borrowings outstanding under our new credit facility. As a result of this issuance, we have been able to increase the available borrowing capacity on our new credit agreement, which provides us additional liquidity to comfortably satisfy our primary cash requirements discussed above. 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 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 or implement our growth strategy successfully. AtMarch 31, 2021 , our long-term debt totaled approximately$3,370.3 million , which is a reduction of$23.5 million sequentially fromDecember 31, 2020 , and consisted of$699.0 million outstanding under our prior credit facility (including$13.0 million borrowed under the inventory sublimit tranche) and$2,671.3 million of senior unsecured notes, net of issuance costs, comprising of$338.4 million carrying amount due onJune 15, 2024 ,$529.5 million carrying amount dueOctober 2025 ,$355.8 million carrying value dueMay 2026 ,$737.5 million carrying value dueJanuary 15, 2027 , and$710.1 million carrying amount dueFebruary 15, 2028 . We remain focused on continuing to be a net payer of debt and reducing our operating leverage. OnSeptember 23, 2019 , we announced theGranger Optimization Project . We entered into agreements with GSO for the purchase of up to approximately$350 million of preferred units ofAlkali Holdings . The proceeds received from GSO will fund up to 100% of the anticipated cost of theGOP . OnApril 14, 2020 , we entered into an amendment to our agreements with GSO to, among other things, extend the construction timeline of the Granger expansion project by one year. The extended completion date of the project is anticipated in late 2023.The Alkali Holdings preferred unitholders receive PIK distributions in lieu of cash distributions during the new anticipated construction period. The expansion is expected to increase our production at the Granger facilities by approximately 750,000 tons per year. 40
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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 "2021 Shelf") on file with theSEC which we filed onApril 19, 2021 to replace our existing universal shelf registration statement that expired onApril 20, 2021 . Our 2021 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 2021Shelf is set to expire inApril 2024 . Cash Flows from Operations We generally utilize the cash flows we generate from our operations to fund our distributions and working capital needs. Excess funds that are generated are used to repay borrowings under our credit facility and/or to fund a portion of our capital expenditures and asset retirement obligations (if any). 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. We typically sell our purchased crude oil in the same month in which we acquire it, so we do not need to rely on borrowings under our 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 petroleum products onshore facilities and transportation activities, we purchase products and typically either move those products to one of our storage facilities for further blending or sell those products within days of our purchase. The cash requirements for these activities can result in short term increases and decreases in our borrowings under our credit facility. 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 alkali products to our customers all within a relatively short time frame. If we do experience any differences in timing of extraction, processing and sales of our trona or alkali products, it could impact the cash requirements for these activities in the short term. The storage of our inventory of crude oil and petroleum 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, we borrow under our credit facility (or use cash on hand) to pay for the crude oil or petroleum 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 or petroleum products. Additionally, we may be required to deposit margin funds with the NYMEX 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 credit facility or use cash on hand to fund the deposits.
See Note 14 in our Unaudited Condensed Consolidated Financial Statements for information regarding changes in components of operating assets and liabilities for the 2021 Quarter and 2020 Quarter.
Net cash flows provided by our operating activities for the 2021 Quarter were$77.2 million compared to$89.6 million for the 2020 Quarter. This decrease is primarily attributable to lower Segment Margin during the 2021 Quarter. Capital Expenditures, Distributions and Certain Cash Requirements We use cash primarily for our operating expenses, working capital needs, debt service, acquisition activities, organic growth projects, maintenance capital expenditures and distributions we pay to our preferred and common unitholders. We finance maintenance capital expenditures and smaller organic growth projects and distributions primarily with cash generated by our operations. We have historically funded material growth capital projects (including acquisitions and organic growth projects) with borrowings under our credit facility, equity issuances and/or issuances of senior unsecured notes. We currently plan to allocate a substantial portion of our excess cash flow to reduce the balance outstanding under our revolving credit facility and to opportunistically repurchase our outstanding senior unsecured notes. 41 -------------------------------------------------------------------------------- Table of Contents Capital Expenditures
A summary of our expenditures for fixed assets, business and other asset acquisitions for the 2021 Quarter and 2020 Quarter are as follows:
Three Months Ended
March 31,
2021 2020
(in thousands)Capital expenditures for fixed and intangible assets: Maintenance capital expenditures: Offshore pipeline transportation assets
$ 5,817 $ 768 Sodium minerals and sulfur services assets 7,639
4,575
Marine transportation assets 11,714
14,232
Onshore facilities and transportation assets 980
908
Information technology systems 3
75
Total maintenance capital expenditures 26,153
20,558
Growth capital expenditures: Offshore pipeline transportation assets 5,711
259
Sodium minerals and sulfur services assets 2,399
10,400
Marine transportation assets -
-
Onshore facilities and transportation assets 119
249
Information technology systems 1,653
1,178
Total growth capital expenditures 9,882
12,086
Total capital expenditures for fixed and intangible assets
Expenditures for capital assets to grow the partnership distribution will depend on our access to debt and equity capital. We will look for opportunities to acquire assets from other parties that meet our criteria for stable cash flows. We continue to pursue a long-term growth strategy that may require significant capital.
Growth Capital Expenditures
OnSeptember 23, 2019 , we announced theGranger Optimization Project . We entered into agreements with GSO for the purchase of up to approximately$350 million of preferred units (or 350,000 preferred units) ofAlkali Holdings . The proceeds received from GSO will fund up to 100% of the anticipated cost of theGOP . OnApril 14, 2020 , we entered into an amendment to our agreements with GSO to, among other things, extend the construction timeline of the Granger expansion project by one year. The extended completion date of the project is anticipated in late 2023. We issued 1,750 preferred units to GSO in consideration for the amendment.The Alkali Holdings preferred unitholders receive PIK distributions in lieu of cash distributions during the new anticipated construction period. As ofMarch 31, 2021 we had issued 161,209Alkali Holdings preferred units. The expansion is expected to increase our production at the Granger facilities by approximately 750,000 tons per year. Except for theGranger Optimization Project , we do not anticipate spending material growth capital expenditures on any individual projects during the rest of 2021.
Maintenance Capital Expenditures
Maintenance capital expenditures incurred during 2021 primarily relate to expenditures in our Alkali Business, our marine transportation segment, and in our offshore transportation segment. Our Alkali Business, which is included in our sodium minerals and sulfur services segment, incurs expenditures to maintain its equipment and facilities due to the nature of its operations. Our marine transportation segment incurs expenditures as we frequently replace and upgrade certain equipment associated with our barge and vessel fleet during our planned and unplanned dry-docks. Additionally, we incurred maintenance capital expenditures in our offshore transportation segment to replace certain pipeline and platform equipment and complete the installation of a bypass to allow our CHOPS pipeline to resume operations in the 2021 Quarter. See further discussion under "Available Cash before Reserves" for how such maintenance capital utilization is reflected in our calculation of Available Cash before Reserves.
Distributions to Unitholders
On
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With respect to our Class A Convertible Preferred Units, we declared a quarterly cash distribution of$0.7374 per Class A Convertible Preferred Unit (or$2.9496 on an annualized basis) for each Class A Convertible Preferred Unit held of record. These distributions will be payable onMay 14, 2021 to unitholders of record at the close of business onApril 30, 2021 . Guarantor Summarized Financial Information Our$2.7 billion aggregate principal amount of senior unsecured notes co-issued byGenesis Energy, L.P. andGenesis Energy Finance Corporation are fully and unconditionally guaranteed jointly and severally by all ofGenesis Energy, L.P.'s current and future 100% owned domestic subsidiaries (the "Guarantor Subsidiaries), except the subsidiaries that hold our Alkali Business (collectively, the "Alkali Subsidiaries"),Genesis Free State Pipeline, LLC ,Genesis NEJD Pipeline, LLC , and certain other subsidiaries. The assets owned byGenesis Free State Pipeline, LLC were sold onOctober 30, 2020 and the ownership ofGenesis NEJD Pipeline LLC's pipeline was transferred on October, 2020.Genesis NEJD Pipeline, LLC is 100% owned byGenesis Energy, L.P. , the parent company. The remaining non-guarantor subsidiaries are owned byGenesis Crude Oil, L.P. , a Guarantor Subsidiary. The Guarantor Subsidiaries largely own the assets that we use to operate our business other than our Alkali Business. As a general rule, the assets and credit of our unrestricted subsidiaries are not available to satisfy the debts ofGenesis Energy, L.P. ,Genesis Energy Finance Corporation or the Guarantor Subsidiaries, and the liabilities of our unrestricted subsidiaries do not constitute obligations ofGenesis Energy, L.P. ,Genesis Energy Finance Corporation or the Guarantor Subsidiaries except, in the case ofAlkali Holdings andGenesis Energy, L.P. , to the extent agreed to in the Services Agreement.Genesis Energy Finance Corporation has no independent assets or operations. See Note 9 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 restricted 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 toGenesis Energy, L.P.
The rights of holders of our senior unsecured notes against the Guarantor
Subsidiaries may be limited under the
The following is the summarized financial information forGenesis Energy, L.P. and the Guarantor Subsidiaries on a combined basis after elimination of intercompany transactions, which includes related receivable and payable balances, and the investment in and equity earnings from the Non-Guarantor Subsidiaries. Balance SheetsGenesis Energy, L.P.
and Guarantor Subsidiaries
March 31, 2021 December 31, 2020
ASSETS:
Current assets $ 383,742 $ 313,328
Fixed assets, net 3,096,330 3,115,492
Non-current assets 843,824 861,230
LIABILITIES AND CAPITAL:(1)
Current liabilities 354,508 266,688
Non-current liabilities 3,706,448 3,710,044
Class A Convertible Preferred Units 790,115 790,115
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Statements of Operations Genesis Energy, L.P. and Guarantor Subsidiaries
Three Months Ended Twelve Months Ended
March 31, 2021 December 31. 2020
Revenues $ 351,527 $ 1,156,428
Operating costs 335,149 1,421,674
Operating income (loss) 16,379 (265,246)
Loss before income taxes (40,856) (408,717)
Net loss(1) (41,077) (409,951)
Less: Accumulated distributions to Class A
Convertible Preferred Units (74,736) (74,736)
Net loss available to common unitholders (115,813) (484,687)
(1) There are no noncontrolling interests held at the Issuer or Guarantor Subsidiaries for either period presented.
Excluded from non-current assets in the table above are$80.1 million and$95.7 million of net intercompany receivables due toGenesis Energy, L.P. and the Guarantor Subsidiaries from the Non-Guarantor Subsidiaries as ofMarch 31, 2021 andDecember 31, 2020 , respectively. 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 March 31,
2021 2020
(in thousands)
Net income (loss) attributable to Genesis Energy, L.P. $ (34,224) $ 24,909
Income tax expense (benefit) 222 (365)
Depreciation, depletion, amortization and accretion 68,997 75,978
Plus (minus) Select Items, net 46,495 4,806
Maintenance capital utilized (1) (12,850) (8,800)
Cash tax expense (150) (150)
Distributions to preferred unitholders (18,684) (18,684)
Redeemable noncontrolling interest redemption value adjustments (2) 4,791 4,086
Available Cash before Reserves (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 2021 Quarter and 2020 Quarter were$26.2 million and$20.6 million , respectively. (2)Includes PIK distributions attributable to the period and accretion on the redemption feature. We define Available Cash before Reserves ("Available Cash before Reserves") as net income 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, net interest expense, cash tax expense, and cash distributions to our 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. 44
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Three Months Ended March 31,
2021 2020
(in thousands)
I. Applicable to all Non-GAAP MeasuresDifferences in timing of cash receipts for certain contractual arrangements
(1) $ 299 $ 4,490
Distribution from unrestricted subsidiaries not included in income (2) 17,500 2,238
Certain non-cash items:
Unrealized losses (gains) on derivative transactions excluding fair value
hedges, net of changes in inventory value (3) 17,687 (31,002)
Loss on debt extinguishment (4) 1,627 23,480
Adjustment regarding equity investees (5) 8,856 6,406
Other 757 (2,259)
Sub-total Select Items, net 46,726 3,353
II. Applicable only to Available Cash before Reserves
Certain transaction costs (6) 114 -
Other (345) 1,453
Total Select Items, net (7) $ 46,495 $ 4,806
(1) 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. 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) The 2021 Quarter includes $17.5 million in cash receipts associated with
principal repayments on our previously owned NEJD pipeline not included in
income. The 2020 Quarter includes cash payments received from the NEJD pipeline
of $2.2 million not included in income. Genesis NEJD Pipeline, LLC is defined as
an unrestricted subsidiary under our credit facility.
(3) The 2021 Quarter includes a $18.4 million unrealized loss from the valuation
of the embedded derivative associated with our Class A Convertible Preferred
Units and the 2020 Quarter includes a $32.5 million unrealized gain from the
valuation of the embedded derivative.
(4) The 2021 Quarter includes the transaction costs and write-off of the
unamortized issuance costs associated with the redemption of our remaining 2023
Notes. The 2020 Quarter includes the transaction costs associated with the
tender and redemption of our 2022 Notes, along with the write-off of the
unamortized issuance costs and discount associated with these notes.
(5) Represents the net effect of adding distributions from equity investees and
deducting earnings of equity investees net to us.
(6) Represents transaction costs relating to certain merger, acquisition,
transition, and financing transactions incurred in advance of acquisition.
(7) Represents Select Items applicable to Adjusted EBITDA and Available Cash
before Reserves.
Non-GAAP Financial Measures
General
To help evaluate our business, we use 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 total Segment Margin to net income (loss) is also included
in our segment disclosure in Note 12 to our Unaudited Condensed Consolidated
Financial Statements. 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 has 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; and 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
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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. Our non-GAAP financial measures
should not be considered as an alternative to GAAP measures such as net income,
operating income, cash flow from operating activities or any other GAAP measure
of liquidity or financial performance.
Segment Margin
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. We define Segment Margin
as revenues less product costs, operating expenses, and segment general and
administrative expenses, after eliminating gain or loss on sale of assets, plus
or minus applicable Select Items. 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.
A reconciliation of total Segment Margin to net income (loss) is included in our
segment disclosure in Note 12 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
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.
Initially, 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.
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As we exist today, a substantial amount of our maintenance capital expenditures
from time to time will 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 recently 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. Our
maintenance capital utilized measure, which is described in more detail below,
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 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.
Because we did not initially use our maintenance capital utilized measure, our
future maintenance capital utilized calculations will reflect the utilization of
solely those maintenance capital expenditures incurred since December 31, 2013 .
Commitments and Off-Balance Sheet Arrangements
Contractual Obligations and Commercial Commitments
There have been no material changes to the commitments and obligations reflected in our Annual Report. Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, special purpose entities, or
financing partnerships, other than as disclosed under "Contractual Obligations
and Commercial Commitments" in our Annual Report, nor do we have any debt or
equity triggers based upon our unit or commodity prices.
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, our expectations regarding the potential impact of the Covid-19
pandemic, the impact of our cost saving measures and the amount of such cost
savings, 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:
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•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 by energy producers, weather, alternative energy sources,
international events, pandemics (including Covid-19), 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 realize cost savings from our recent cost saving measures;
•the realized benefits of the preferred equity investment in Alkali Holdings by
GSO or our ability to comply with the GOP agreements and maintain control over
and ownership of the Alkali Business;
•throughput levels and rates;
•changes in, or challenges to, our tariff rates;
•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;
•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;
•the impact of natural disasters, pandemics (including Covid-19), 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;
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•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.
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