Grant Sims - Chief Executive Officer Robert Deere - Chief Financial Officer.

Eric Genco - Citigroup John Edwards - Credit Suisse Charles Marshall - Capital One TJ Schultz - RBC Capital Markets Ethan Bellamy - Robert W. Baird & Co..

Welcome to the 2016 Third Quarter Conference Call for Genesis Energy. Genesis has five business segments. The Offshore Pipeline Transportation Division 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 Onshore Pipeline Transportation Division is principally engaged in the pipeline transportation of crude oil. The Refinery Services Division primarily processes sour gas streams to remove sulfur at refining operations. The Marine Transportation Division is engaged in the maritime transportation of primarily refined petroleum products.

The Supply and Logistics Division is engaged in the transportation, handling, blending, storage and supply of energy products, including crude oil and refined products. Genesis’ operations are primarily located in Texas, Louisiana, Arkansas, Mississippi, Alabama, Florida, Wyoming 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 provides 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 Karen Pape, Chief Accounting Officer..

Good morning and welcome to everyone. Given the continuing challenging operating environment in the energy midstream space, we are very pleased with the financial performance of our diversified, yet increasingly integrated, businesses.

Relative to the year earlier period, for EBITDA to be up some 4% in the aggregate, in the face of such headwinds, demonstrates the resiliency of our assets and especially our people.

Before Bob goes into our typical detail about this past quarter, I thought it might be useful to simplistically review what those headwinds we mention have meant to us in terms of financial performance relative to historic periods.

In round terms, our Onshore Pipeline segment is down about $5 million a quarter, in large part due to volume cannibalization and margin compression. Our Supply and Logistics segment has suffered around $5 million a quarter, again due to volume cannibalization and margin compression.

Finally, our Marine segment is off almost $10 million a quarter, and you guessed it, primarily due to volume cannibalization and margin compression. Volume cannibalization and margin compression are symptomatic of excess capacity. Excess capacity is not necessarily resolved overnight or by underlying commodity prices rebounding $10 or $20 a barrel.

It takes time and having the assets and services that people want even in difficult operating conditions is not a bad place to be. For example, as we stated in the release, less than 5% of our total gross margin in the quarter was derived from minimum volume commitments or take-or-pay type agreements. To us, that’s a good thing.

It has nothing to do with fixed fee versus commodity sensitive fees or otherwise. It simply means, our customers by and large actually need, value and use our assets and services, even in what many have called an historic down cycle in the energy space.

If people mean, when they talk about things in the midstream space getting better in late 2017 or 2018, that activities are going to return to 2014 or early 2015 type conditions, then we’ll benefit from that and do even relatively better. However, we’ve tried very hard to position the partnership to do reasonably well even if things don’t get better.

That’s not to say it’s impossible for us to take additional marginal steps backwards. However, we are close to beginning to realize the incremental contributions from a number of organic initiatives starting this quarter and accelerating through 2017, which should hopefully more than offset incremental challenges if and when they might arise.

With that, I’ll turn it over to Bob to discuss this standalone quarter’s results in more detail..

Thank you, Grant. In the third quarter of 2016, we generated total available cash before reserves of $95 million, representing a decrease of $1.3 million, or 1%, over the third quarter of 2015. Adjusted EBITDA increased $4.9 million over the prior year quarter to $131.8 million, representing 4% year-over-year growth.

Net income attributable to Genesis for the quarter was $32.7 million, or $0.28 per unit, compared to $363.2 million, or $3.38 per unit for the same period in 2015.

The third quarter of 2015 included a one-time non-cash gain of $335.3 million, resulting from a step up in basis to fair value of our historical interest as result of certain interest acquired in the acquisition of the offshore pipeline and services business of Enterprise.

Exclusive of that gain, net income attributable to Genesis would have been $27.9 million for the third quarter of 2015, representing a comparative increase in 2016 of $4.2 million or 15%. Segment Margin from our Offshore Pipeline Transportation segment increased $15.6 million, or 22%, between the third quarter periods.

This increase is primarily due to our acquisition of the offshore pipeline business of Enterprise, which closed in July 2015.

As a result of our Enterprise acquisition, we obtained interests in approximately 2,350 miles of offshore crude oil and natural gas pipelines, including increasing our ownership interest in each of the Poseidon, SEKCO, and CHOPS pipelines and six offshore hub platforms.

The operating results of the offshore pipeline assets acquired from Enterprise continue to meet or exceed our expectations with a net increase in volumes as compared to the third quarter of 2015 for the most significant of those offshore crude oil pipelines we acquired.

Onshore Pipeline Transportation segment margin decreased $4.4 million, or 29%, between the third quarter periods. This was primarily the result of decreased volumes on our Texas pipeline system, particularly delivery volumes to the Texas City refining market.

We believe such lower volumes to historical customers will last indefinitely as those customers have made alternative arrangements as a result of our endeavors to expand, extend and repurpose our facility into the longer live, higher value service.

In addition, our Louisiana system experienced lower volumes between the respective quarters, as a major refinery customer emerged from a turnaround during the 2016 quarter. We anticipate a ramp-up in such volumes during the fourth quarter.

Volume variances on our other onshore pipeline systems had a less significant impact on the decrease in tariff revenues between the respective quarters due to a mix of tariff rates amongst those systems and less significant decreases in volumes. Refinery Services segment margin for the 2016 quarter decreased $200,000, or 1%.

NaHS volumes increased, primarily driven by an increase in sales volumes to our South American mining customers relative to the 2015 quarter. Sales volumes between quarters to customers in South America can fluctuate due to the timing of third-party vessels available to transport bulk deliveries.

The pricing in our sales contracts for NaHS typically includes adjustments for fluctuations in commodity benchmarks, primarily caustic soda, freight, labor, energy costs and government indexes. The frequency at which those adjustments are applied varies by contract, geographic region and supply point.

The mix of NaHS sales volumes to which we are able to apply such adjustments may vary due to timing or other factors such as competitive pressures, which had a negative effect on margin realized from NaHS sales for the 2016 quarter and when combined with decreased sales of caustic soda, offset the increase in NaHS sales volumes and revenues.

Segment margin from our Marine Transportation segment decreased $9.9 million, or 37% between the third quarter periods.

The decrease in segment margin is primarily due to a combination of lower utilization and lower day rates across our various marine asset classes, excepting the M/T American Phoenix which is under long-term contract through September 2020.

In our offshore barge fleet, as a number of our units have come off longer-term contracts, we have chosen to primarily place them in spot service or short-term, i.e., less than a year service, as we believe the day rates currently being offered by the market are at, or approaching, cyclical lows.

In our inland fleet, we saw somewhat of a strengthening in utilization and stabilization in spot day rates towards the end of the quarter, especially in the black oil, or heavy, intermediate refined products trade in which we are almost exclusively involved.

Supply and Logistics segment margin decreased by $600,000, or 7%, between the third quarter periods.

In the 2016 quarter, the decrease in segment margin is primarily due to lower demand for our services, compared to the 2015 quarter, in our historical back-to-back, or buy/sell, crude oil marketing business associated with aggregating and trucking crude oil from producers’ leases to local or regional re-sale points.

We have found it difficult to compete with certain participants in the market who are willing to lose money on such local gathering, because they are attempting to minimize their losses from minimum volume or take-or-pay commitments they previously made in anticipation of new production that has not yet and is unlikely to come online.

In addition, a portion of this decrease can be attributed to decreased rail volumes.

While rail volumes were down compared to the 2015 quarter, our results reflect the beginning of a ramp-up as a major refinery customer supported by our Baton Rouge facilities emerged from a refinery turnaround during the 2016 quarter and we expect this ramp up to continue into the fourth quarter.

These decreases were partially offset by the improved performance of our now right-sized heavy fuel oil business after reducing volumes and related infrastructure to match new market realities resulting from the general lightening of refineries’ crude slates, which had resulted in a better supply/demand balance between heavy refined bottoms and domestic coker and asphalt requirements.

In addition to the overall net increase in segment margin, as impacting both net income and available cash before reserves, the 2015 quarter also included a $335.3 million non-cash gain resulting from a step up in basis to fair value of our historical interest in certain of our equity investees as a result of our acquiring the remaining interest in those equity investees when we completed our Enterprise acquisition in July 2015.

Depreciation and amortization expense increased $13.1 million between the quarterly periods, primarily as a result of the effect of placing recently acquired and constructed assets in service during 2015, including the offshore pipeline assets acquired as a result of our Enterprise acquisition.

Interest costs for the 2016 quarter increased by $5.1 million from the 2015 quarter, primarily due to an increase in our average outstanding indebtedness from recently acquired and constructed assets, principally from additional debt outstanding as a result of our financing our Enterprise acquisition.

Interest costs, on an ongoing basis, are net of capitalized interest costs attributable to our growth capital expenditures. General and administrative expenses decreased by $15.6 million.

This decrease is primarily due to higher third-party costs related to business development and growth activities, i.e., financing, legal, accounting and business development activities surrounding the Enterprise acquisition as previously discussed. Grant will now provide some concluding remarks to our prepared comments..

Thanks, Bob. As discussed, our businesses are performing reasonably well and we would expect them to continue to do so in spite of the challenges we have laid out.

We are, in essence, mechanically complete with our significant infrastructure projects in the Baton Rouge area and would expect to see meaningful contribution beginning to ramp in the fourth quarter.

We are nearing completion with our repurposing project in Texas and we expect to see volume and financial contribution starting to ramp in the first quarter of 2017.

At Raceland, in south Louisiana, we would expect to see volumes starting to ramp in mid-2017, as we will be fully capable of receiving and terminalling heavy crudes via rail and medium sour crudes via pipeline.

To understand the economic background and commercial rationale for these projects, we would encourage market participants to research and analyze, for example, a number of publicly available studies estimating the growing material imbalance between rising Canadian production, even in this price environment, and lack of pipeline takeaway capacity, and know that has nothing to do with DAPL.

Additionally, for those who don’t understand or appreciate what’s really going on or is relevant in the deepwater Gulf of Mexico, we provide a lot of publicly available information in our posted investor presentations, which hopefully should help market participants better understand and make informed decisions regarding the resiliency of the deepwater over the years and decades to come, even in this lower for longer price environment.

We know we don’t live in a perfect world. We work hard to anticipate the negatives and position the partnership to do reasonably well across the cycle. As we mentioned, we have taken steps to bolster our liquidity and strengthen our balance sheet to maintain our financial flexibility.

Because of these financial steps, the continuing performance of our diversified businesses in an extremely challenging environment and the growth we anticipate from our major projects which are substantially complete and paid for, we believe we are well positioned over the next 4 or 5 years to deliver mid-single digit growth in distributions to unitholders as well as continue our de-leveraging process of actually beginning to pay down debt in 2017 while anticipating increasing EBITDA.

As always, we would like to recognize the efforts and commitment of all those with whom we are fortunate enough to work, including their commitment to providing safe, responsible and reliable services. With that, I’ll turn it back to the moderator for any questions..

[Operator Instructions] Your first question comes from the line of Eric Genco with Citi. Your line is open..

Good morning. I was hoping you guys could talk a little bit more about onshore pipeline and specifically Texas and you mentioned you talked a little bit about how customers have made some alternative arrangements and sort of buying cannibalization to move systems.

Just want to better understand we think about the return on capital from some of the growth projects like for instance the Houston area of $180 million.

Is that – the returns that you are expecting from there, is that on top of where you used to be or is that sort of making up for where you’re at now? And I guess from the perspective of like if onshore pipes is doing $15 million or so a quarter, a couple of quarters ago that’s $60 million annualized in new figure, and $10 million a quarter, it’s $40 million annualized and that’s a $20 million negative hit.

If you figure 6.5 times on the $180 million of Houston area CapEx that’s $28 million.

So I’m trying to figure out is the right number to be thinking about while that’s on $86 million or is it $68 million, that makes sense?.

You lost in a little bit on our rapid fire arithmetic, but let me go back to the symptomatic problem or issue and that is, is that we would expect that once our repurposing is fully operational that it will in the aggregate make up for and exceed what the previous contribution was.

What we did not anticipate was the cannibalization of some historic volumes and sadly basically $0.30 on the $1 of what the value of that service had been provided for decades was but that’s neither here nor there. That’s probably not coming back..

Okay.

And then I guess in terms of the marine fleet – inland marine fleet, I just wanted to get a sense like how is 4Q shaping up at this point and where are you in terms of getting some of that margin back from the heavy volumes you lost during the Canadian wildfires?.

I think what we said we indicated that towards the end of the third quarter that we saw stabilization and an increase in both the utilization as well as day rates in the inland fleet and we would anticipate that that would continue through the fourth quarter..

Okay. Thank you..

Your next question comes from the line of John Edwards with Credit Suisse. Your line is open..

Yeah, good morning, everybody and thanks for taking my question. Just Grant you were referring to distribution growth now I think of mid-single-digit, I think, prior quarter fall in the equity rates, I think you’d indicated high-single-digit expectation.

Can you talk a little bit about that change?.

Well, I’m not sure that it’s necessarily a change, but we’re also talking in the context of the next four or five years that growing in mid-single-digits for the next four or five years, it appears just to be a rational and very doable situation. So that’s what we’re – I’m not confident, as we said, we don’t depend on things getting better.

We’re not confident that things are going to get a lot better in the second-half of 2017, 2018 and – but that that is a rational way for us to bridge across a continuing difficult operating environment yet still deliver visible distribution growth and take off the table the – whatever risk factor that are may or may not be associated with cutting the distribution..

Okay. And then – that’s helpful.

Just your expectation then from the ramp up of the projects in – your terminal projects that have been under construction here, you don’t expect that to contribute enough to say offset I guess some of the declines you’ve been seeing in your other businesses?.

No, no. I’m in essence trying to say that for us particularly not for the aggregate, through the start of my job to comment on other people, but I feel fairly strongly that this is a bottom quarter for us that even with the difficult headwinds, which is basically we’re missing $20 million a quarter EBITDA from historical contributions.

This is kind of a bottom and that we anticipate the increase in contribution to start being reflected in fourth quarter and beyond. So for us this is this is a bottom..

Okay. All right, so then just following up on the earlier question on the onshore volumes, so I understand there’s the repurposing of the Texas pipeline.

On the other pipelines, are you expecting those to continue – those volumes expect to continues to decline? Jay, Mississippi, Louisiana, Wyoming, those volumes?.

I would say that, Jay and Mississippi probably minimal declines; Louisiana and Wyoming, I think, obviously, Louisiana as we kind of turn around and ramp up the activities in and around the Baton Rouge refining complex is that’s going to increase and Devon’s moving their rig back into Wyoming in the fourth quarter based upon their announcements, I would anticipate growth coming out of those..

Okay. That’s helpful. That’s it for me. Thank you so much..

Thank you..

Your next question comes from the line of Charles Marshall with Capital One. Your line is open..

Yeah, good morning, everyone.

I guess expanding a little bit further past these three projects that are going to be ramping up here in Q4 and throughout I guess mid-2017, if I look a little bit deeper maybe into your backlog, can you guys talk about what else you maybe looking at for 2017 growth on top of these projects? And if you could, a preliminary CapEx number – growth CapEx number for next year?.

We don’t have anything seasoned to the point putting it out. Our financial performance over the next four or five years as we have indicated in supporting that growth rate and distributions is not depending upon doing anything beyond what is already out there in the public domain.

So, again, I think that while we’re always looking for things, we’re basically in a very much a blocking and tackling mode and if the right opportunities come along as line in part we’ve made the moves.

We have to kind of bolster our financial flexibility, but we’re not dependent upon getting on a treadmill and spending money to feed the kitty to supply growth in the future. We have the growth wired in based upon the contributions, which will come from the significant projects as a ramp up.

The tremendous ramp up in value proposition that we’ve see out of the Gulf of Mexico over, let’s say, next four to five year horizon, so I think we’re in a very good position to meet our financial obligations without having to – financial goals without having to spend any money..

Got it. Appreciate the color. And then I guess going back just to those three projects. Can you just talk a little bit further about what type of ramp up we should expect.

I guess both the volumes and EBITDA associated with the projects, I mean, those could be more day one type cash flows or those more of the gradual step up declines throughout several quarters? If you can kind of just provide a little bit more color on the type of curve we should be expecting?.

I mean I think that while most of them in essence are repiping if you will for existing flowing volumes that still to – around complex consumers of crude oil, which is what a refinery is that it takes time to rebalance everything, so we would anticipate that’s just as a general proposition from the first quarter of the in service state that order of magnitude within 12 months, we would anticipate it ramping up to what we would consider to be an anticipated longer-term run rate..

That’s helpful. Thank you. And then just last one for me.

With respect to offshore, can you talk about what potential negative impact you may have been realized in 3Q either on the volumes or on EBITDA relative to any disruptions from the hurricane that came through and what type of outlook should we be expecting for 4Q? Is this going to be a considerable step change up versus 3Q volumes or could we kind of expect a little more of a flattish growth from 3Q level?.

I think that there was probably a reasonably minimal interruption in the third quarter probably order of magnitude, 72 hours of interruption on mainly the step over in the east, but some of it that would otherwise go into a Cameron Highway, but I think more important is it was a very active turnaround quarter with – in part it’s interesting to watch all of the reported inventory changes.

When somebody turns off 150,000 barrels a day for 30 days and it comes back on, I can tell you where 4.5 million of the barrels went to stayed underground during turnaround.

So we would anticipate probably a less active turnarounds in the fourth quarter than – and less disruption associated with the minimal disruption – with the tropical disturbance they came through.

So we would anticipate sequential growth fourth quarter over third quarter, but we’re not really in the – we don’t typically give that amount of detail for future period..

Got it. Thank you. That’s it for me..

Thank you..

Your next question comes from the line of TJ Schultz with RBC Capital Markets. Your line is open..

Hey, great. Good morning, Grant. I think just following up, one question for me on the comment you made regarding increased financial flexibility as we get into 2018 and without really much color on 2017 or 2018 growth CapEx or projects beyond kind of what’s ramping up on your current footprint.

Is your thought that M&A opportunity should present themselves and the actions that you’ve used this years through the equity deal and moderating some growth on distributions are really to position yourself for acquisitions as a lever for growth? And then if we think about M&A what are the types of businesses that that you may be interested in?.

Well, I mean, I don’t know – what I’ve tried to communicate and I think what we’ve continued to try to communicate is that we don’t need a whole lot of catalysts to provide the growth over the next four or five years, which is a very good position to be we think.

We will continue to be opportunistic if we identify issues whether or not there are M&A at the corporate level or acquisition of assets that we think meet the criteria of contributing towards the long-term value creation. I’m not convinced that in the aggregate that we’re at the bottom in the midstream space.

So I’m not sure that even if we were interested in being acquisitive that we’re at the bottom from when we should start to think about doing things. So – and I’m optimistic than a lot of other people of things turning around. I think things are not going to turn around near as rapidly as people want or expect or whatever.

So we have the financial flexibility to be opportunistic, but we’re not – we’ve not identified any opportunities at this point..

Okay, understood. Thanks, Grant..

Thank you..

[Operator Instructions] Your next question comes from the line Ethan Bellamy with Baird. Your line is open..

Good morning, Grant. As you look out into 2017, are there any visible lumpy items coming at you either in terms of integrity spending, or inflection point in the business, let’s say, a new field coming online offshore or something rolling off substantially? I’m just trying to get a sense for the trend lines here..

Ethan, as I have characterized it earlier, I think, the lumpy surprise that we didn’t really anticipate was in the Texas pipeline and we don’t anticipate anything like that.

So – and then just kind of going in full circle back to an earlier response that I had – for us, it feels like this is a bottom and even if we and as I’ve said in my prepared remarks, even if we take a couple of marginal steps backwards, we don’t see those marginal steps.

We see them more than being offset by the steady ramp up kind of the sequencing of putting things into place, the Baton Rouge infrastructure in the fourth quarter of this year starting its 12-month ramp so to speak, the repurposing of Texas starting in the first quarter of 2017 starting its 12-month ramp up, Raceland at all and the significant developing material imbalance between Canadian production and top line capacity starting in second quarter of 2017 and ramping up.

So while things have been a little bit delayed and pushed back and whatever, it’s – that’s kind of why we’re comfortable saying – reasonably comfortable in saying that the third quarter, it doesn’t get any worse than what we’ve seen, we’ve suffered the discrete setbacks and we’re facing kind of the sequencing of a ramp of contribution in the aggregate, which gives us a lot of comfort at this point to go forward and say, okay, for the next four or five years, we think we’ve got mid-single digits kind of bargain at least for that part of the capital structure..

Thank you, sir..

There are no further questions at this time. Let me turn the call back to the presenters..

Okay. Well, for a little levity I’ll make few observations regarding the game last night and that is Jogu [ph] needed a chicken and Franconi needed Ricky Martin and a bolt cannon in the tent. So with that, we appreciate everybody attending and we will talk in 90 days, if not sooner. Thank you..

This concludes today’s conference call. You may now disconnect..