Genesis Energy, L.P.

Greetings. Welcome to the Genesis Energy L.P. Third Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Dwayne Morley. Thank you. You may begin.

Good morning and welcome to the 2026 third quarter conference call for Genesis Energy. Genesis Energy has three business segments. The offshore pipeline transportation segment is engaged in providing the critical infrastructure to move oil produced from the long-lived world-class reservoirs in the deepwater Gulf of America to onshore refining centers. The marine transportation segment is engaged in the maritime transportation of primarily refined petroleum products. The onshore transportation and services segment is engaged in the transportation, handling, blending, storage, and supply of energy products, including crude oil and refined products primarily around refining centers, as well as the processing of sour gas streams to remove sulfur at refining operations. Genesis's operations are primarily located in the Gulf Coast states and the Gulf of America. During this 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 of the Securities Exchange Commission. We also encourage you to visit our website at genesisenergy.com where a copy of the press release we issued this morning is located. The press release also presents a reconciliation of non-GAAP financial measures to the comparable GAAP financial measures. At this time, I would like to introduce Grant Sims, CEO of Genesis Energy, L.P. Mr. Sims is joined by Kristen Jesulaitis, Chief Financial Officer and Chief Legal Officer, Ryan Sims, President and Chief Commercial Officer, and Louie Nicol, Chief Accounting Officer. And with that, I will now turn the call over to Grant.

Good morning, everyone, and thanks for joining us today. As noted in our earnings release this morning, our third quarter results came in modestly ahead of where we thought we would be internally. In broad terms, the third quarter played out consistent with what we described in August, with the back half of the year being shaped by two things largely outside of our control, hurricane season and the timing of producer activity in the deepwater Gulf of America. The weather cooperated in the third quarter as we had no weather-related disruptions during what is typically the most active part of hurricane season. Unfortunately, the benefit we would have otherwise expected to see was partially offset by lower than anticipated volumes from certain production facilities which flow exclusively through our pipelines. While volumes from a couple of these deep water facilities are expected to be lower than originally anticipated in the fourth quarter, and in all likelihood last through the early part of 2027, it is important to remember we have visibility to at least four new high impact wells that are scheduled to be completed and turned to production over the coming quarters. Ultimately, none of these temporary impact changed the amount of oil in the ground, the acreage that is dedicated to our pipelines, or the fact that none of this incremental production requires any additional capital from Genesis. It simply becomes a discussion around timing and when, not if, we will move the volumes who are off for infrastructure. In the Gulf, things can slide to the right. but rarely, rarely is there a total geophysical bust and if there is, lost volumes are virtually certain to be replaced by new discoveries that are developed in the same geographic neighborhood. Elsewhere, our onshore transportation and services segments once again performed ahead of our expectations and our marine transportation segment was generally in line with our expectations despite our final blue water dry docking of the year unexpectedly extending into the third quarter. Both of these businesses are being supported by the same set of macro fundamentals. Strong Gulf Coast refinery runs, shifting crude and product flows into and around the Gulf Coast, and in marine, a Jones Act market that is anything getting tight. Taken together, we are pleased with the quarter. And regardless of the timing of certain new wells or remediation work of existing wells, we're encouraged by the level of activity around our irreplaceable midstream infrastructure in the Gulf of America as well as the macro fundamentals driving our other businesses. With that, let me turn quickly to the balance sheet. Following the significant financing activities we completed in the first half of the year, there's very little new to report this quarter. We ended the quarter with no borrowings, outstanding $900 million senior secured credit facility, approximately $41.5 million of unrestricted cash on hand, No debt maturities until 2029 and a bank calculated leverage ratio of approximately 5.03 times. In February, we issued $750 million of 6.75% senior unsecured notes due 2034 and used the proceeds to take out in full the higher cost 7.75% notes due 2028, which pushed our nearest senior note maturity out to 2029. We also upsized and extended our revolving senior secured credit facility with our extremely supportive bank group. Additionally, as a reminder, we entered this year with approximately $529 million of our Series A corporate preferred outstanding, paying a current cash rate of 11.24%, clearly the most expensive current pay paper anywhere in our capital structure. In nine months, we have retired roughly 40% of it. taking the remaining face amount down to approximately $311 million. I would point out, had we paid down debt rather than retiring this very expensive security, our bank calculated leverage ratio would have been closer to 4.7 times. We think running a little higher leverage ratio in the near term to get rid of such high cost security is in the best interest of everyone else in the capital structure. We will continue to focus on right-sizing and optimizing our capital structure, and we expect to be able to drive future cash savings over the next several years from three places. We will focus on reducing debt in absolute terms, opportunistically refinancing our higher coupon senior unsecured notes with lower coupons and extended maturities as they become callable at more attractive premiums beginning in the first half of 2027, and redeeming the remaining approximately $311 million of the 11.24% Series A corporate preferred, still outstanding, all as we work towards our ultimate long-term leverage target of around four times. Consistent with the all-of-the-above approach to capital allocation that we have discussed both prior to and since turning cash flow positive, our board of directors declared a quarterly distribution of $0.20 per common unit. That is unchanged from last quarter, but represents an increase of approximately 21% as compared to the third quarter of last year. We would otherwise expect to thoughtfully and prudently grow distributions to our common unit holders over time, all while preserving our financial flexibility to pursue attractive organic and inorganic opportunities as they may emerge in the future. With that, I will go into a little more detail on each of our business segments. Let me start with the offshore. As I mentioned earlier, our offshore pipeline transportation segment operated without any weather-related downtime during the quarter. The offset was lower than anticipated volumes. Specifically, that included unplanned curtailments at a couple of our legacy connected fields, the continuing challenges from two of the initial wells at Shenandoah, and a planned turnaround at Salamanca that the operator moved forward from the fourth quarter into the third quarter. As we said last quarter, we do not believe any of these items have long-term negative implications for the ultimate recovery reserves already discovered and being developed. In the operator's view, and we would concur, these impacts are transitory and simply result in timing differences for when those reserves are produced and when those barrels enter our pipeline for transportation to shore. In this pricing environment, the producers are clearly incented to figure it out. They do, however, tend to play the long game, accepting lower current production in order to maximize total ultimate recoveries from these world-class hydrocarbon reservoirs. So things can indeed shift to the right, but that's precisely why we have minimum volume commitments, or MVCs, in most of our new contracts. We are protected to the downside. even if it takes longer than expected for them to execute. Owing to certain things about which we are not in position to go into a lot of detail, Shenandoah operated at or slightly below the MVC level in the third quarter and is expected to do so until several new wells come on. A rig is on location drilling a second well at the Monument Field and both wells will be tied back to Shenandoah at the producer's expense. It is now projected that production from the first well has slipped into early next year, but we would expect additional throughput from these two monument wells to be in the range of 20 to 25 KBD, or 1,000 barrels a day of oil, reaching that level sometime in the first quarter of 2027. The rig will then return to Shenandoah and drill a fifth producing well with initial production from it expected to be plus or minus 20 KBD. A subsea pumping system is scheduled to be installed in 2028, improving well performance and most importantly, maximizing the ultimate reserves to be recovered from Shenandoah. Beyond 2028, there are at least four and possibly as many as eight additional locations at Shenandoah proper. Possibly another location at Monument, two, maybe three locations at the Shenandoah Southfield, and as we understand it, there are already four additional exploratory prospects that have been identified within a 30 mile radius of the Shenandoah Production Facility. Suffice it to say, regardless of near term challenges, we expect significant volumes to flow across the Shenandoah Production Facility and exclusively into our 100% owned sink pipeline and onto shore through our 64% owned chops pipeline for decades and decades to come without requiring any additional capital from us. At Salamanca, there are currently two rigs on location, drilling wells to be completed and tied into the Salamanca facility, the production from which will flow through our 100% owned Seiko lateral and onto shore through our 64% owned Poseidon pipeline. We expect both of these wells at Salamanca to come online early in 2027. which should move total production closer to the facility's design capacity of 60 to 70 KBD. Harbor Energy, doing business in the U.S. as log, has added a second rig to their Gulf of America program. And this activity at Salamanca, as well as the expected additional activity there and at Buckskin, which also is transported exclusively through our facilities, is consistent with their stated goal of doubling their production out of the Gulf by the end of 2028. Elsewhere across our connected fields, the expansion of BP's Atlantis facility, which I mentioned last quarter, came online in July. A new development well at one of our legacy connected hubs is expected to be turned to production during the fourth quarter, and multiple well intervention and remediation projects are scheduled before year end that, if successful, could add meaningfully to the volumes moving across our infrastructure. Stepping back from the individual fields for a moment and focusing rather on the macro, there are 16 deepwater drilling units currently active in the Gulf of America, and nine of them are working on leases contractually dedicated to flow through our existing pipelines, even though we moved just a third of the current production out of the Gulf. Our pipelines are in the sweet spot for future activity. especially the rapidly developing deep Wilcox or high pressure high temperature geologic play and yet we believe there is a lot of runway left in the more mature myosin play in the central gulf there is no doubt the deep water gulf is a world-class basin our infrastructure is in the right place at the right time and is already paid for producer interest remains robust interestingly Every single one of the new nine-square-mile blocks leased by the federal government in the Central Gulf in its most recent sale sits within tieback range, within a 30-mile radius of an existing production facility connected exclusively to our existing pipeline. The resource underneath and around our dedicated acreage, both discovered and yet to be found, is vast. The pace at which it gets developed will be set by our producer customers, not by us. But whenever those barrels are produced, they will move to shore through our pipelines under existing or new life of lease dedications and without the need for any growth capital from us. This is exactly what has supported our offshore business for the last three decades, and we will continue to support it for decades and decades to come. Turning to marine, our marine transportation segment performed in line with our expectations during the quarter, despite the dry docking of one of our larger offshore units that began in the second quarter and extended further into the third quarter than originally planned. There are no dry dockings for offshore vessels expected for the rest of this year, so the fleet is back at full capacity in the fourth quarter. We are experiencing, in essence, 100% utilization of available capacity, and negotiated spot rates for all classes of vessels are extremely robust, which we believe will ultimately allow term contracts to follow higher. Demand continues to be supported by strong Gulf Coast refinery runs. And in particular, we are beginning to see the impact of increased volumes of Venezuelan crude being run at Gulf Coast refineries and the derivative effect that heavy crude is having on demand to move intermediate refined products from one location to another along the Gulf Coast and connected inland waterways. Our fleet of inland heater barges is specifically designed to transport exactly these heavy intermediate refined products, and we are well positioned to benefit as that demand continues to develop. On the supply side, nothing has changed. There is essentially no net new construction of Components Act tonnage. and we see very little on the horizon that could significantly affect this tight supply and demand balance for marine tonnage. Our onshore transportation services segment once again performed ahead of our expectations. We continue to see strong volumes through our Texas City Terminal and associated pipeline systems as well as through Raceland and South Louisiana supported by increasing volumes offshore moving onshore. In addition, certain of the opportunistic marketing opportunities that arose last quarter continued into the third quarter. We believe that we could possibly benefit from such opportunities in 2027 and perhaps beyond as some of the dislocations caused by the uranium situation, the required reinjection of barrels previously withdrawn from the U.S. Strategic Petroleum Reserve, as well as the resumption of significant crude imports from Venezuela, We are not building a business plan around it, or are we budgeting for it in future periods, but we will capture such opportunities as they present themselves. Our legacy sulfur services business performs slightly below our expectations as operational issues at our largest host refinery reduce the supply of sour gas available for our sodium hydrosulfide or NASH production. Much of that seems to be behind us and we are currently seeing higher operating rates as well as additional sulfur removal requirements as our two largest host refineries start running more sour crudes. We also remain in active dialogue with multiple parties to diversify our host refinery locations and restore our supply flexibility to historical levels. Looking ahead, we believe the market opportunity for Nash will increase in future periods. In a post-COVID world, we lost market share in South America to low-cost flake Nash coming out of China. More and more of our historical copper mining customers are starting to realize the apparent short-term cost savings simply are not worth the operational headaches they have encountered from their trials of the inferior Chinese flake product. Taken together, We are hopeful we will be able to recapture a meaningful portion of the NASH segment margin that we have lost in prior years, but that we know is there, given our historical level of activity and financial performance from this market-leading business. As we look towards the remainder of the year, we will likely be near or even possibly below the low end of our original guidance for adjusted EBITDA for the year. Having said that, I would reiterate that coming in at or below the low end of 2026 guidance has little to do with the underlying fundamentals and the ultimate cash flow generating capabilities of our businesses, especially in our largest segment. In any event, we will remain disciplined and focused on what we can control. Stepping back and keeping everything important and focused, 2026 has indeed turned out to be a transformational year for Genesys. just as we anticipated. Our businesses, while not without third-party operational challenges relative to our and our producer customers' expectations at the beginning of the year, have performed well enough to allow us to make meaningful progress on right-sizing our balance sheet and reducing the ongoing cash cost to run our business. This has been a very solid year under almost any objective metric, and we are proud to have delivered it. The operational side has simply taken a little longer than we and our producer customers had reasonably expected. We believe in the long-term value of our franchises, and we intend to execute the next phase of rightsizing our balance sheet and go after those additional cash savings available to us. Rather than focusing on what could have been this year, our attention is squarely on executing that plan. and we believe it represents a compelling setup to continue creating value for everyone in the capital structure. Finally, I would like to say that the management team and the board of directors remain steadfast in our commitment to building long-term value for all our stakeholders, regardless of where you are in the capital structure. We believe the decisions we are making reflect this commitment and our confidence in Genesis moving forward. I would once again like to recognize our entire workforce for their individual efforts and unwavering commitment to safe, reliable, and responsible operations. I'm extremely proud to be associated with each and every one of you. With that, I'll turn it back to the moderator for any questions.