Genesis Energy, L.P.

Good morning. Welcome to the 2020 first quarter conference call for Genesis Energy. Genesis has four business segments. The offshore pipeline transportation segment is engaged in providing 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 LP. Mr. Sims will be joined by Bob Deer, Chief Financial Officer, and Ryan Sims, Senior Vice President, Finance and Corporate Development.

Good morning. I would doubt most of you are all that interested in the results for the quarter ended March 31st. Nonetheless, we had a pretty good quarter as discussed in greater detail in the earnings release we issued earlier this morning. As we pointed out, several obvious challenges, by no means unique to Genesis, started to arise in February and March and then continued into the second quarter. So let's just cut to the chase. Our and virtually every other energy industrial company's operating environment is the most challenging it has likely been in multiple generations, driven by the demand destruction of shutting down large swaths of economic activity across the world to deal with COVID-19. There will be a recovery, just no one knows when it will start, although maybe it has, or what it will look like. In our particular case, we believe we have already taken all the necessary steps and have all the tools we need in place to navigate through the next few quarters and be able to maintain our financial flexibility and manage our balance sheet and especially compliance with the covenant in our senior secured credit facility. With the proactive decision to reduce our quarterly distribution, we reduced our recurring annual cash obligations by approximately $200 million and bringing our run rate to around $410 to $420 million per year, inclusive of maintenance capital spent, but before growth capital and asset retirement expenditures. With limited growth capital and asset retirement expenditures of approximately $50 million over the next 12 months, our adjusted EBITDA would have to be less than, call it, $470 million for us to not be a net payer of debt outstanding over this period. Looking forward, given our recurring cash obligations and de minimis growth capital requirements outside of the Grainger expansion, which can be funded through our agreements with GSO Capital Partners, we have no need to access the capital markets and therefore expect to be a net payer of debt for the foreseeable future. No matter how challenging the environment is and remains, we just don't come up with a scenario that becomes insurmountable and that's a good segue into the discussion of our individual business segments. We expect total volumes out of the deepwater Gulf of Mexico to grow this year and for us, at least certainly over the next several years. While in the last 12 months, onshore rigs have fallen by somewhere between 50% to 55%. Mobile offshore drilling units working in the deepwater Gulf of Mexico have remained constant. These are long lab development and resource exploitation projects. As an example, just in March, we received an inquiry from a deepwater operator regarding capacity for more than 100,000 barrels a day, starting in late 2024 and going through 2046. Although the likely sanctioning of brand-new projects like this might be delayed in the current environment, we see little risk to the completion of or significant delays in our contracted and known sanctioned projects in progress, like Atlantis Phase III, Argos, and Kings Key, a significant portion of which have take-or-pay features, limiting our timing risk and production and reserve risk. There's been a lot of speculation about potential shut-ins due to the current low-priced environment in the Gulf of Mexico. While we have seen some, they are not significant, much less material from a financial point of view for our offshore segment. Because of confidentiality obligations and the Interstate Commerce Act, we can't go into a lot of details, but I will summarize in general terms what we're seeing across our assets. We expect a total of approximately 12,000 to 15,000 barrels a day to be shut in in May and June 2021. across our footprint. In addition to this, we expect approximately 35,000 barrels a day to be shut in for the entire month of May, but this same production was going to be shut in for 7 to 10 days for certain planned maintenance in any event, and it's expected to be fully back online in June. Finally, on a minority-owned pipeline, non-operated by us, we just became aware of additional shut-ins for at least the month of May, which could represent a total of less than $750,000 a month net to our ownership interest. In summary, the second and third quarters in the offshore would typically exhibit a lot of shut-ins for maintenance and often weather-related downtime. Given the low-price world, it would be logical to see extensive extended maintenance, but as described above, we do not expect significant declines in throughput or financial performance directly from this low-price environment. Turning to onshore, as we mentioned in the release, we would expect to see crude by rail volumes go to zero for the rest of the year. While we do have certain protections to the downside in terms of minimum take or pay commitments through 2020, stepping down in 2021 and lasting through the first quarter of 2022, We nonetheless expect to experience some 15 to 20 million less in terms of reported segment margin than we would have otherwise expected through the remainder of 2020. That being said, certain contango opportunities have appeared that will help to offset but by no means totally make up for lost segment margin this year. Other than that, we've not seen significant changes to our other onshore volumes and our operations relative to the first quarter. Our marine group turned in their best quarter since the first quarter of 2015. Fourth quarter of 2015, excuse me. We expect the fundamentals in the second quarter to be relatively consistent with the first quarter. Performance was driven by strong utilization, improving fundamentals and day rates across our inland and offshore fleets as the demand for our types of marine equipment continue to increase. Our inland fleet, which is focused on intermediate refined products and not crude oil and finished clean products, continues to benefit from refineries needing to move these intermediates from one location to another. Market volatility and uncertainty is actually a positive for us as the flexibility represented by marine assets is highly valued in getting the right barrel to the right location at the right time. I'll turn now to our sodium minerals and sulfur services segment. Our legacy refinery services business has experienced some volume loss starting at the end of the first quarter and continuing into the second. There are really two sources of this, both of which we think will resolve themselves and turn around fairly quickly. First, a number of our mining customers in South America and primarily in Peru have been mandated to shut in in order to combat the spread of COVID-19. We expect as we move forward through the quarter, we will see a reopening of the mines and believe the lost volumes are likely to be exclusively in the second quarter, and we could return to normal volume levels in the third quarter and beyond. Second, a number of our pulp and paper customers are pushing out turnarounds and outages as long as possible to avoid having third-party service providers entering their facilities during current mitigation efforts regarding COVID-19. We do not believe that they can go much longer without replenishing the sulfur and sodium molecules in their processes. As a result, these currently missing cells, we believe, have a high probability of showing up in the back half of the year. Volumes in our sodash business are challenged, especially in the second quarter, because of the demand destruction from the mitigation efforts for the virus, primarily in the export markets. We've reacted to these diminished sales volumes by placing our Grainger facility in hot hold mode probably through the end of September, thereby reducing our total production in 2020 by some 300,000 tons. We believe this is the minimum necessary to balance our total anticipated sales, both domestically and internationally, for calendar year 2020. Demand has slowed across all geographies, with the flat glass segment being the most affected. With the year having started off with high inventory levels, as we explained in our fourth quarter call, and now with the demand issues resulting from COVID-19, the rest of 2020 and perhaps into 2021 is going to be challenging. While export prices are under some pressure, it is really not a matter of price. With large portions of economic activity still shuttered worldwide, there just isn't the demand. If it goes on much longer, we believe synthetic capacity could be shuttered and natural production will take market share, giving us tremendous cost advantage. As the world economies start to reopen, demand for sodas should ultimately take care of itself. We are seeing construction activities in more and more states pick up, Detroit is looking at May 18th as the targeted date to start most automobile factories. Germany, Austria, and Italy, as well as other European and Asian economies, are starting to open back up. As said earlier, there's going to be a recovery. We just don't know when and what it will look like. Anecdotally, we have picked up around 30,000 tons of incremental domestic sales, but all in the back half of the year. An interesting phenomenon coming out of the pandemic might be a change in consumer preferences. For instance, there is evidence starting to emerge that single-family homes might be increasingly desirable relative to apartments or high-rises in densely populated areas. Also, the demand for cars, as evidenced after the reopening of Wuhan, could be quite robust given that public transportation and or rideshare services might be considered risky from a personal health point of view for an extended period of time. If these patterns emerge and stick, they could potentially contribute to an even stronger recovery in both our sodash and sulfur businesses. In summary, we and almost every business enterprise faces some challenges. We believe we have taken the steps and have the ability to manage our way through these challenges. We have confidence in the resiliency of our businesses. They have existed, survived, and thrived for many decades, not years, and through numerous previous cycles. There's no doubt that they will continue to do so. I would like to recognize our entire workforce, and especially our miners, mariners, and offshore personnel during this time of social distancing and other mitigation efforts. We started screenings and other changes to our policies and procedures to protect our employees from and their families and communities starting in late February and continued to modify and communicate our procedures and protocols as local, state, and federal guidelines were updated. I can proudly say, with their commitment, we have safely operated all of our assets under our company-recommended procedures with no impact to our customers or our operations whatsoever. and have had less than a handful of confirmed cases of COVID-19 amongst our somewhat 2,200 employees. It is a pleasure to have the opportunity to work alongside such quality people. With that, I'll turn it back to the moderator for any questions.

Thank you. For questions, please press star 1 for any questions. And we have our first question from the line of TJ Schultz with RBC.