Greetings and welcome to the Genesis Energy L.P. First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Dwayne Morley, Vice President, Investor Relations for Genesis Energy. Thank you. You may begin.

Good morning. Welcome to the 2022 first quarter conference call for Genesis Energy. Genesis has four business segments. The Offshore Pipeline Transportation segment is engaged in providing the critical infrastructure to move oil produced from the long-lived, world-class reservoirs in 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 and Exchange Commission. We also encourage you to visit our website at genesisenergy.com, where a copy of the press release we issued today is located. The press release also presents a reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures. At this time, I would like to introduce Grant Sims, CEO of Genesis Energy L.P. Mr. Sims will be joined by Bob Deere, Chief Financial Officer; and Ryan Sims, Senior Vice President, Finance and Corporate Development.

Thanks, Dwayne, and good morning to everyone. Thank you for listening in. As we stated in our earnings release this morning, the first quarter of 2022 was an exciting quarter for Genesis as the performance of our market-leading businesses exceeded our internal expectations. Strong demand for soda ash drove increased prices in all of our markets, especially the export market, and we're starting to see activity levels in the Gulf of Mexico begin to ramp with first production from Murphy's King's Quay starting last month, and first volumes from Argos just around the corner. We continue to see fundamentally driven momentum in our soda ash business, which, when combined with expected ramp-up in volumes on our Gulf of Mexico infrastructure, will continue to drive earnings growth and improving leverage metrics over the remainder of 2022 and into the years ahead. I wanted to take this opportunity to provide an update on the new opportunities in the Gulf of Mexico that we've mentioned over the past several quarters. Today, I'm excited to announce that we have entered into definitive agreements to provide gathering and transportation services for 100% of the crude oil production associated with two brand-new standalone deepwater upstream developments, with a combined production handling capacity of approximately 160,000 barrels of oil per day, with first oil from both expected in the late 2024 to early to mid-2025 timeframe. In conjunction with these new upstream developments, we expect to spend approximately $500 million net to our ownership interest spread out over the next three years, expanding the capacity of the CHOP system, as well as building a new 100% owned approximately 105-mile, 20-inch diameter pipeline, which we call the sink pipeline, to connect one of the upstream developments to our existing footprint. Both of these new upstream developments include a life of lease dedications to our assets. Additionally, they both include long-term take-or-pay arrangements that represent roughly a five times build multiple on a combined basis, which would be closer to four times if the producers hit just 75% of expected production profiles. It's important to recognize that these calculated multiples assume absolutely zero other production or additional development ever being tied into the sink CHOPs, which is totally unrealistic. In fact, we are already in early discussions with the operators of several additional new opportunities representing potentially some 150,000 barrels a day of incremental production, which more likely than not will seek to access at least a portion of this new capacity starting as early as 2024. These volumes are newly identified subsea tiebacks or secondary recovery operations like waterflood projects, designed by the operator to increase and/or extend the production handling of existing standalone developments already connected to or that can otherwise access our pipelines to shore. We're also currently aware of at least one new standalone development that, if ultimately sanctioned, could potentially come our way. Our new 100% owned sink pipeline will connect the Walker Ridge area of the Gulf of Mexico directly to the CHOP system, with the Garden Bank 72 platform and the Shenandoah development serving as the anchored production facility. The Shenandoah project, operated by BOE Exploration Production, is located in Walker Ridge blocks 51, 52, and 53 and will have production handling capacity of approximately 100,000 barrels per day, with first deliveries of oil anticipated in late 2024 or early 2025 and will be further transported to shore through our 64% owned CHOPS pipeline. The second upstream development, Salamanca, is operated by LLOG and located across multiple blocks in the deepwater area of Keathley Canyon, with an expected production handling capacity of approximately 60,000 barrels per day, and first deliveries of oil anticipated in early to mid-2025. The Salamanca development will be directly connected into our 100% owned pipeline for further transportation downstream through our existing pipeline footprint. As we alluded to in our release, we have also entered into an agreement with LLOG to sell our idled Independence Hub platform to serve as the floating production system for the Salamanca development. The repurposed hub will not only accelerate the date of first oil and reduce the total development costs, but will also reduce the environmental footprint of this development compared to the option of constructing a new deepwater production facility, which is a win-win situation for the producers and us. The sale of the Independence Hub platform for gross proceeds of $40 million will result in a gain and a cash distribution of $32 million net to our 80% ownership interest. These proceeds, when combined with the gross proceeds of approximately $418 million we received from the sale of a 36% minority interest in the CHOP system, have effectively allowed us to pre-fund the vast majority of the capital required to expand the capacity of CHOPS and construct the sink pipeline. We would expect to use increasing cash flow and availability under our senior secured credit facility to fund the capital expenditures over the next few years. In addition, we will receive project completion credit associated with the capital we spend over the next several years under our calculated leverage ratio for bank compliance purposes. These two new upstream developments, along with the sink pipeline and CHOPS expansion, represent a tremendous opportunity for Genesis. We have been able to deploy capital at an extremely attractive multiple that is underpinned by life of lease dedications and credit worthy take-or-pay arrangements, much the same as our very successful previous pipeline, which was constructed about eight years ago and, quite frankly, has already contracted to additional fields that were unknown at that time. By extending our reach geographically in the Central Gulf of Mexico and adding capacity to the CHOP system, both of which have effectively been underwritten by these two anchor developments, Genesis is well-positioned to attract high-margin incremental volumes to our industry-leading network of offshore pipelines, with little to no future capital ever required. I'd also point out that the realized margins per barrel, both on our laterals and on the Poseidon or CHOP systems, are increasing as we facilitate the gathering and transportation to shore from the central Gulf of Mexico deepwater areas, as pipeline capacity becomes a dramatically more scarce commodity. We believe and have demonstrated time and time again that these types of investments will provide long-term value to all of our stakeholders for many decades to come. Now, I'll touch briefly on our individual business segments. As we mentioned in our earnings release, the first quarter was challenging in our offshore business from an operational and mechanical point of view. In fact, relative to our expectations, we would estimate the quarterly margin in the first quarter was negatively affected by around $8 million. Most, if not all, of the issues we experienced have since been rectified, and the second quarter, so far, is reflective of more normal and expected operations. There is no doubt that the rest of 2022 will be exciting for us in the offshore sector. On April 12, Murphy announced that they achieved first oil at their King's Quay floating production system, which is supporting their Khaleesi, Mormont, and Samurai field developments in the deepwater Gulf of Mexico, and we have started to receive these volumes on our pipelines. Volumes from King's Quay are expected to ramp to its design capacity of some 85,000 barrels per day and 100 million cubic feet of gas per day as incremental wells are connected in the coming months. As a reminder, we will handle these molecules four times, with all of the oil produced being gathered through our 100% owned Shenzi lateral and then split evenly between our 64% owned CHOPS system and our 64% owned Poseidon system for transportation to shore. In addition, all of the associated gas production will flow on our 100% owned Anaconda Gas Gathering System and then on our 26% owned Nautilus Gas System for ultimate transportation to shore. The second major project we expect to come online this year is BP's Argos floating production system, which supports their Mad Dog 2 development and remains on track for first oil in the third quarter. With a large number of wells pre-drilled, volumes from Argos are expected to ramp to its nameplate design capacity of 140,000 barrels per day over the subsequent six months or so after the date of first production. King's Quay and Argos, combined with Shenandoah, Salamanca, and the newly identified opportunities I referenced earlier, all coming on within the next four or five years, represent a tremendous runway of additional growth in volumes and, importantly, significant incremental financial performance that we expect to see from our Gulf of Mexico franchise in the coming years. Turning to our Sodium Minerals and Sulfur Services segment, we continue to see robust demand for soda ash across the globe, specifically in our export markets. The market for soda ash worldwide remains very tight, leading to strong soda ash pricing in all of our markets. We're starting to see the real effects of strong demand and soda ash supply impacted by a net decrease in global supply. We mentioned last quarter that a 1.3 million tons synthetic production facility in China closed at the end of 2021. According to our analyses, as well as third-party reports, for the global supply and demand of soda ash to balance, the market requires China's installed synthetic production capacity to operate at a roughly 95 to 96% rate. Historically, China has only operated around a 90% rate. In January and February of 2022, Chinese operating rates dropped to around 83% and 84% respectively. As a result, the worldwide market is even tighter than what we would have otherwise expected. I'd also note that the situation in Ukraine is not overly relevant to the world's soda ash market, and we have no direct exposure to such a terribly unfortunate situation. We do, however, continue to monitor geopolitical events and recognize that there could be a slowdown in economic activity worldwide, especially as measured against recent periods where the world was recovering from the policy decisions made during the height of the COVID pandemic. However, it is our view that it would take a previously unidentified Black Swan event to significantly, much less materially affect the current and forecasted supply and demand dynamics for soda ash. These fundamentally driven market conditions, coupled with the rise in energy input costs and increases in awareness of the environmental footprint of synthetic production, provide, we believe, a very constructive backdrop for soda ash pricing for the remainder of this year. We expect these conditions to continue over the near to intermediate term and, importantly, still be in place, as we discuss redeterminations for 2023 prices toward the end of this year. Should these conditions hold, as I said earlier, we believe it's more likely than not that they will, we would reasonably expect to see prices increase another $10 to $15 per ton across all the tons we sell. Even after considering our multiyear arrangements that often contain caps on annual increases. We remain very excited to restart our original Granger production facility and its roughly 5,000 tons of annual production in the first quarter of 2023. Furthermore, our Granger expansion projects, representing an incremental 750,000 tonnes or so of annual production, remains on schedule and on budget for first production in the third quarter of 2023. We continue to believe that the expanded Granger facility, with its incremental 1.2 million to 1.3 million tons per year, will be the most significant addition of new natural baseload supply to the market for several years to come. Assuming prices remain at least where they are today, or, quite frankly, even if they pull back some, we would expect that the Granger project will exceed our original forecast for incremental segment margin once fully ramped going online. On the cost side, we have a fair amount of tools already in place to largely maintain our margins for soda ash. Approximately 75% of our existing contracts already have a natural gas surcharge, and we will move to 100% as contracts allow and are reopened. We have also hedged a significant amount of our fuel requirements for at least 2022 that aren't already covered by such contractual surcharges. 100% of our export sales have a bunker fuel surcharge. Through ANSAC, we have a very high percentage of our dry bulk transportation costs contracted under favorable terms over the next year, and all of our competitors are facing the same increases we will ultimately face, all of which will ultimately be passed onto and paid by the retail consumer. Our historical refinery services business exceeded our expectations, as the demand for our sulfur-based products was quite strong, with copper and corrugated paper markets remaining robust. Both our marine and onshore facilities and transportation segments continue to show improvements. Market conditions in our marine transportation segment continue to improve across all classes of vessels. As the volatility in crude oil and refined product imports creates opportunities, at the same time, there is continued tightening in the overall supply and demand of both the blue and brown water fleets. We remain excited about the trajectory of our marine business and expect market conditions to continue to improve throughout the remainder of 2022 and into 2023 as the industry deals with net tonnage retirements and rapidly inflating replacement costs. We continue to expect to see increasing volumes at our onshore terminals and pipelines in both Texas and Louisiana over the remainder of the year, as new volumes in the Gulf of Mexico from both King's Quay and Argos come online and need to be further transported to refineries and market demand centers along the Gulf Coast. In addition, the new developments we announced this morning, with expected first oil in late 2024 and into 2025, will potentially add volume growth to these onshore assets in the years ahead. During the quarter, we were also successful in extending our agreements with our main customer around our Baton Rouge terminal. The agreements provide a framework for future activity, which further reinforces the integration of our assets into their future operations and plans. The robust outlook for Genesis over the remainder of the year remains unchanged as our businesses continue to demonstrate their resiliency. New volumes in the Gulf of Mexico, combined with strong pricing in our soda ash business and a recovery in our marine segment, highlight the tremendous operating leverage we have to overall improving market conditions. As we sit here today, we would reasonably expect our 2022 financial performance to come in towards the high end of our previously announced segment margin and adjusted EBITDA guidance range of $620 million to $640 million and $565 million to $585 million respectively, even after the challenging first quarter in our offshore operations discussed earlier. Furthermore, our guidance does not include the gain and cash distribution proceeds from the sale of our interest in the Independence Hub platform. This $32 million gain will be additive to both segment margin and adjusted EBITDA in the second quarter of 2022 and will be included in our bank leverage ratio as calculated in accordance with our senior secured credit agreement. In fact, had we completed the sale of the Independence Hub platform by March 31, our calculated bank leverage ratio would have been 4.79 times, or about three tenths of a turn lower than what we recorded for the quarter. In any event, this gain will be included in our financial results next quarter and will assist us for both covenant compliance and pricing purposes under our senior secured revolving facilities through the first quarter of 2023. The management team and Board of Directors remain steadfast in our commitment to building long-term value for all of our stakeholders, and we believe the decisions we're making reflect this commitment and our competence in Genesis moving forward. I would once again like to recognize our entire workforce for their efforts and, importantly, their unwavering commitment to safe and responsible operations. I'm proud to be associated with each and every one of you. With that, I'll turn it back to the moderator for questions.

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from the line of Kyle May with Capital One Securities. Please proceed with your question.

Hi, good morning, everyone.

Hey Kyle.

Grant, I appreciate all the prepared remarks about the current state of the business. And maybe just to start things off, you indicated that Genesis is trending towards the high end of your guidance for the year. Just wondering if you can provide any additional insight into maybe which aspects of the business are performing better than expected and kind of where you were you seeing that outperformance shaking out?

The soda ash business significantly exceeded our expectations in the first quarter. Given our outlook on pricing for the second quarter and the remainder of the year based on global market fundamentals, we expect this trend to continue. If you annualize the first quarter results, we estimate around $575 million, excluding the $32 million gain. As we resolve the operational issues in the Gulf of Mexico, it’s likely that when we connect with you in 90 days, we will expand and increase our projections as the year progresses. Overall, despite the initial operational challenges in the first quarter offshore, all our businesses are performing better than our internal expectations, and we look forward to sharing more as we move through 2022.

That's helpful. You mentioned that the impact observed in the first quarter from the offshore business was about $8 million. Therefore, it seems that would have brought you closer to $80 million with a segment margin in the first quarter. How should we consider that pacing for the remainder of the year, and can you provide more detailed information about the timing of the new projects?

I agree with your analysis that on a normalized basis, prior to King's Quay and Argos, we expected around an $80 million quarterly run rate. We adjusted that figure slightly for the third quarter to account for potential weather-related disruptions in the Gulf of Mexico. On April 12, Murphy reached first oil, which is public information in our investor presentation and earnings release, showing that the first two wells are producing about 30,000 barrels per day, 89% of which is oil. We benefit from this as we also capture all the gas; there is another well set to come online soon, followed by several others every 40 to 45 days as per their public announcements. So, you can calculate the expected production increase accordingly. In our prepared remarks, we discussed the value chain that allows us to receive 100% from the Shenzi lateral, which is then evenly distributed between the systems. This ramp-up is crucial for us throughout the year, and we are very enthusiastic about it. I can't speak for Murphy, but it is aligning with our expectations for the ramp-up with Argos. Argos has many pre-drilled wells, though we cannot be certain about the first delivery date; that would be a better question for BP. Since they have already pre-drilled the wells, we expect a quick ramp-up, potentially reaching design capacity within six months after first oil.

Okay, great. Appreciate the additional color there. I'll turn it back.

Thank you. Our next question comes from the line of TJ Schultz with RBC Capital Markets. Please proceed with your question.

Great. Hey, Grant. For the chalk expansion and sink pipeline, what's the cadence on the $500 million spend, and when does the take-or-pay begin?

The cadence will be a little bit front-loaded in terms of when the spend will occur, TJ, because there will be a little bit of capital up front as we acquire materials, but the installation itself will occur towards the end of the construction period in the late 2023, 2024 timeframe. So, it's not necessarily linear, but a little bit less upfront and a little bit back-loaded. The take-or-pay will basically begin in the late 2024 timeframe. However, under our credit agreement, or discussions with the banks, we get project completion credit relative to that amount of take-or-pay that we have. So, in other words, if we spend 10% of the $500 million, we get 10% of the value of the take-or-pay coming in as performing EBITDA for calculating our compliance and where we are on the pricing grid under this senior secured facility.

Okay. Makes sense. And then, on soda ash, you mentioned the market is tighter than you expected, given in part to the fact that China's capacity was running, I think, 83% to 84% at the beginning of the year. So is the expectation that this continues to run lower than called the 90% range heading into your redeterminations, and that's supporting the view on the $10 to $15 per tonne improvements? I guess, I'm just really looking for what's mainly driving outlook on the market remaining tight; is it more supply contraction or is it a demand growth story? Thanks.

Yes. I mean, it's a little combination of both. As we said, even with a slight reduction or a reduction in economic activity in the back half of the year, we think that it's really primarily a supply story that is extremely tight. Inventories have been depleted, there have been a couple of force majeure events by some of the domestic producers in the first half of the year, which again, reduced available inventories. Therefore, we think it's primarily driven on a supply basis that things are extremely tight. As a result, we believe that conditions will continue to remain tight. The $10 to $15 per ton in 2023 reflects the fact that we have several multi-year contracts that restrict their ability to increase by more than $5 or $10 in any annual redetermination period. If everything were able to reprice to the current market or spot market, then it would be an even more significant increase across all of our cuts.

Okay, makes sense. If I can squeeze one more in just on marine really quickly. We did see like the refining cracks really materialize higher rate in the first quarter. And there's clearly, as you know, a lot of focus to move products into the East Coast. So as we think about your fleet and the ability to capture this tighter market, should we expect some type of step change higher than what the segment can contribute? Or was the first quarter a pretty good indication of a run rate there? Thanks.

Yes. That’s a very good question. Internally, we’re looking at the potential for a step change, primarily driven by the market dynamics that you mentioned. There are, vis-à-vis Gulf Coast and mid-Atlantic, especially in New York Harbor, refined products that have been highlighted due to a lot of geopolitical events, as well as the demand for transportation fuels out of Gulf Coast refiners to Latin America, is dramatically increasing the demand for ocean-going vessels capable of moving refined products from the US Gulf Coast to mid-Atlantic. So we're currently at 100% utilization. We are seeing rates that are above what we saw in 2015 in that business. We anticipate that this high demand will continue, and our inland fleet is seeing similar trends due to refinery utilization in PADD 3 and PADD 2, allowing for increased rates. As it stands practically, we’re at about 100% on our inland fleet. We are seeing rates increase significantly, about 30% over the last three or four months. Therefore, marine could be very active in helping us achieve and exceed our previously provided guidance.

Okay. Thanks, Grant.

Thank you. It seems there are no other questions at this time. I'll turn the floor back to Mr. Sims for any final comments.

Well, thanks very much. And again, thanks everyone for dialing in. We look forward to visiting with you in another 90 days or so. So, thanks very much.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.