Welcome to the 2020 Third 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 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 product.

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, L.P.; Mr.

Sims will be joined by Bob Deere, Chief Financial Officer; and Ryan Sims, Senior Vice President, Finance and Corporate Development..

Good morning, everyone, and thanks for joining. As we mentioned in our earnings release, during the third quarter, we were successful in paying down approximately $70 million in debt in spite of continuing, but improving macro challenges from the worldwide COVID-19 pandemic, as well as the most disruptive hurricane season since 2005.

We are continuing to realize the benefits of the actions we took earlier this year to maintain and improve our financial flexibility and are encouraged about what these actions will bear for the remainder of 2020 and in the years ahead.

We have clear and defined opportunities to realize improving financial results in future periods as the upstream community gets back to normalized operations in the Gulf of Mexico and the demand for some of our goods and services continue, it's returned to pre-pandemic levels, and which will more than likely grow from there.

Now turning to our individual business segments. Our offshore pipeline transportation segment was negatively impacted from hurricanes Marco and Laura combining for basically two weeks of complete temporary cessation of production in the Central Gulf of Mexico during the quarter.

As we have previously discussed, a platform that our CHOPS pipeline goes up and over, encourage some limited structural issues, which has required investigation and analyses.

We continue to discuss with the Bureau of Safety and Environmental Enforcement to determine how best to return to normal, safe and responsible operations on CHOPS as soon as practicable.

To date, we have been successful in routing all affected volumes through our Poseidon pipeline system and are close to revenue neutral, although the financial impact from Poseidon is on a one-month lag due to it being effectively a joint venture.

So far in the fourth quarter, we experienced almost 15 days of disruptions and the production flowing through our pipes from hurricanes Delta and Zeta.

To put this in perspective, the aggregate financial impact to us in this remarkable year, resulting from the disruptions to producer activity and incurrence of extraordinary operating expenses, including several million in costs that will show up in this quarter, we'll likely be in the $40 million to $50 million range, as opposed to the approximately $8 million to $10 million that we would reasonably expect in a “normal year.” On top of this, there are some major maintenance happening this quarter.

While a negative now, we believe that is an acceleration of work that was needed to occur in any event, allowing for more sustainable production and throughput and future quarters beginning in 2021.

Despite these challenges nothing and I want to emphasize absolutely nothing has occurred to lose any future production or existing reserves from dedicated fields where to alter the normalized earnings profile of our offshore segment.

I would point everyone to the first quarter of this year’s financial results of approximately $85 million as the current normalized quarterly earning capability of our industry critical infrastructure assets in the Gulf of Mexico. In fact, we would reasonably expect overall increasing volumes is Atlantis Phase 3 and Katmai continued to ramp.

We always anticipate scheduled and unscheduled maintenance downtime as well as weather-related downtime. But under any kind of historical normalized scenario, an average of $80 million to $85 million a quarter is our expected average quarterly run rate as we currently see it.

Plus, we're now just 12 or 18 months from initial flows from Argos and King’s Quay, which required minimal capital from us. And in the case of King's Quay come with take-or-pay agreements, covering a significant portion of expected production.

These two fields are scheduled for first production in late 2021 or early 2022 and early to mid 2022 respectively. When fully ramped up, they will likely generate an excess of $25 million a quarter or over $100 million a year in incremental segment margin, EBITDA, and importantly cash flow to us in the very near future.

It is important to note that while volumes from onshore shale plays are seen accelerating declines, production and throughput in the Central Gulf of Mexico continues to increase even in this current environment.

For example, we are pleased to announce today that we have recently entered into agreements with LLOG and other working interest owners to provide downstream transportation services for all of the crude oil associated with our recently announced Spruance discovery. Spruance is located in Ewing Bank blocks 877 and 921.

And it was initially discovered by LLOG and his partners in mid-2019. LLOG from Spruance with oil expected in early 2022 are 100% dedicated to Poseidon for the life of lease contained certain take-or-pay features and required exactly zero dollars from us to capture this incremental cash flow.

This is just one example of an active and steady backlog of additional development wells and subsea tiebacks that will keep base production flat to slightly increasing while lumpy projects such as Argos and King’s Quay, as well as anchor, which happens to be dedicated to a competitor's pipeline by the way, happens to be currently oversubscribed will all be coming online over the next few years.

Additionally, there remains a number of other projects that could reach their FID, final investment decision, in the next 12 to 24 months, it would otherwise represent additional incremental production to come online in 2023 or 2024 and beyond.

All of these projects will support continued, steady to potentially significantly increased production and throughput from the Central Gulf of Mexico. We remain resolute in our belief that the Gulf of Mexico will be an important producing province for the U.S. and the world as a whole for decades and decades to come.

Switching gears to our second largest segment. Our sodium minerals and sulfur service segment continues to improve from the depths of the second quarter.

Recent data suggests that soda ash market is re-balancing and improving and early indications would suggest we will be sold out this quarter from our Westvaco facility and that will continue into and throughout 2021.

Not only do we expect to pick up additional sales, but this is very important to our cost given the loss of fixed cost absorption and other inefficiencies we've experienced by not running Westvaco at full design capacity over the last six months or so.

In terms of soda ash market dynamics, we are seeing a steady near-term improvement in worldwide supply and demand balances for soda ash as the world's economies begin to reopen along with certain supply responses like the temporary mothballing of our Granger facility and more permanent reductions in capacity in China, as well as short-term supply disruptions from flooding in Central China.

In other words, the market is working through inventories and existing bulges in the soda ash supply chain that developed at the end of last year and became materially worse as a result of the economic reaction to COVID-19.

While one would expect to see prices rise under these developing market conditions, we are taking a conservative view and expect price action to be reasonably muted entering 2021 but see prices increasing, perhaps meaningfully, as we move through next year, provided we do not see a second shut down of economic activity in response to the virus.

It is very important to recognize that our naturally produced soda ash doesn't compete with a substitute product. It competes with synthetically produced soda ash, which basically costs twice as much as our natural production and enviable position to be in any market.

Regarding the decision to mothball our Granger facility until the expansion is complete, I would point out that this was by far our highest cost facility – then annual production rate of 500,000 tons to 600,000 tons. Even at 2019 prices, operating Granger was marginally profitable. It's such an inefficient level of operations.

It's important to point out that if our Westvaco facility sold out of it’s roughly 3.5 million tons per year of production, and there's a return to something akin to 2019 prices. Our soda ash business is quite capable of generating $160 million plus per year of segment margin and EBITDA, even with no volumes from Granger.

Having said that, we remain excited and on track with our Granger expansion project. We believe when it comes on line in late 2023 and expanded 1.2 million tons per year, our Granger plant will be one of the most economic soda ash production facilities in the world similar to our world-class, if not leading Westvaco production facility.

This will allow all of our production from Granger to compete more favorably for both growing incremental global demand, as well as displacing significantly more expensive synthetic production.

Longer term, it would be hard to conceive of a brighter future than what we envisioned for this segment, whether it is general fiscal stimulus, general infrastructure expenditures, or spending targeted at energy conservation and a lengthy process of transitioning from hydrocarbons as the primary transportation fuel.

These businesses will materially benefit. Soda ash, among other applications, is an essential component using glass manufacturing and the production of lithium ion/phosphate batteries.

Construction of new homes and new automobiles, as well as the retrofitting of older buildings with new LEED certified glass windows, will continue to drive increasing soda ash demand.

The demand from the production of new batteries to facilitate the storage and usage of developing renewable sources of energy is likely to be a major contributor to increasing demand for soda ash in the years ahead.

By some accounts, the demand for soda ash to produce new batteries alone may be an additional 6 million tons to 7 million tons a year by 2030. This alone represents more than a 15% increase in demand for soda ash outside of China relative to today.

All of these growth drivers are in addition to the intrinsic growth of 2% to 3% per year, we would expect as the developing countries resume their inexorable path of growth towards the per capita consumption levels of the more mature OECD economies. Our legacy refinery services business performed in line with our expectations.

We saw demand for NaSH, the sodium and sulfur based product we produce increased during the quarter is our copper mining customers, which is our primary end market resumed operations that were otherwise halted or cut back in the second quarter from government or self-imposed shutdowns associated with the pandemic.

Copper issues and everything from phones to automobiles, to bridges and will undoubtedly benefit from the continued economic recovery and future global economic expansion, which in turn will drive the demand for NaSH for decades to come.

Furthermore, our process helps our host refineries limit their air pollution like closed chemical reaction, as opposed to their alternative method of the conventional combustion process to remove sulfur from their finished products. Our Marine Transportation segment performed in line with our expectations for the quarter.

We were starting to see the negative impacts of lower refinery runs in the Midwest and Gulf Coast, which is putting pressure on both day rates and utilization, especially in the inland world.

We do expect to see an acceleration in asset retirements beginning this year, into and throughout 2021, which will help balance supply with the current reduced demand for marine tonnage. At the end of the quarter, we successfully re-contracted the American Phoenix with a credit-worthy new customer, albeit at a lower rate.

We only re-contracted her, inclusive of our customer’s options, through next year, as we believe the market will tighten given expected asset retirements and a recovery of demand as we move through 2021.

Nonetheless, given the pressure on utilization rates and this new contract starting for the Phoenix, the fourth quarter is going to be challenging for Marine. Our onshore facilities and transportation segment performed in-line with our expectations. We've started to see certain rail volumes returning to our Scenic Station in the fourth quarter.

But we will not see any significant financial impact from these movements as our main customer will be utilizing prepaid credits.

Assuming our return over refinery demand and upstream production, along with the government of Alberta's recent announcement to eliminate their self-imposed two years’ worth of production curtailments on December first, we can see this trend continuing into 2021.

Additionally, if something happened to the operations of [indiscernible], we would expect a benefit is more volumes would have to move by rail is such a conduit where shut off by regulatory fiat.

As previously disclosed, we received approximately $41 million in cash from Denbury, which was included in segment margin and adjusted consolidated EBITDA in the quarter. As we further disclosed yesterday, we have finalized an agreement with Denbury, which allows us to totally exit the CO2 pipeline business, a non-core business for us.

We were receiving an additional $22.5 million in cash in this fourth quarter and additional $70 million in cash to be paid in equal installments of 17.5 million in each quarter of calendar year 2021. Combined, we will receive approximately $134 million in cash from Denbury, which we use to pay down debt.

Additionally, we will recognize all of that $134 million as adjusted consolidated EBITDA under our bank revolving credit facility for purposes of complying with our covenant therein. The run rate on these two pipeline assets had fallen to around $24 million to $25 million of margin and EBITDA a year.

By their explicit terms they were essentially going to go to zero in five or six years anyway.

We felt it was better to work with Denbury, who had exclusive use of these assets to accelerate the monies due us to let us pay down debt more quickly and importantly, recognize significantly incremental EBITDA while our two main businesses significantly improve and ramp over the next four or five quarters.

As we look forward for the remainder of 2021, we now expect adjusted consolidated EBITDA as defined by our banks and use to calculate compliance with our covenants, how we have always represented it for the full year to come in a range a $590 million to $610 million.

We will continue to evaluate additional sales of non-core assets and examine our general, administrative and operating expenses in the context of the economic operating environment.

Accordingly, we see no scenarios where we have the risk of not comfortably compliant with all of our financial covenants and look forward to the improving financial performance of our core businesses as previously described.

In the third quarter, we added back approximately $19.7 million to our LTM last 12 months adjusted consolidated EBITDA which included $13.5 million from one-time charges associated with our cost savings initiatives, which we are permitted to add back through the first quarter of 2021.

The remaining $6.2 million is from the material project completion credit for approximately $12 million of additional infrastructure we are installing in the Gulf of Mexico that is supported by certain take-or-pay contracts. This project was approximately 18% complete as of the third quarter.

We have added a footnote, when I point that out to everybody, we've added a footnote in our earnings release, which describes these proforma adjustments in greater detail, so investors and analysts alike can more closely approximate how we and our banks evaluate our financial results.

With this accelerating the ability to pay down debt and with relatively diminimus capital requirements to realize the financial benefits of these improving business conditions, we foresee no issues in extending our senior secured credit facility and refinancing our near-term unsecured maturity, which by the way is still some 2.5 years out.

I would like to once again, recognize our entire workforce and especially our miners, mariners and offshore personnel who live and work in close quarters during this time of social distancing.

I am extremely proud to say we have safely operated our assets under our own COVID-19 safety procedures and protocols with no impact to our business partners and customers with limited confirmed cases amongst our, some 2,000 employees. It is an honor to have the ability to work alongside such quality folks.

With that, I'll turn it back to the moderator for any questions..

Thank you. And I'll be conducting a question-and-answer session. [Operator Instructions] One moment, please, while we poll for questions. Our first question today is coming from Theresa Chen from Barclays, your line is now live..

Good morning. Thank you for that thorough review Grant. I wanted to follow-up on the soda ash side to begin with and ask how much rationalization permanent versus temporary have you observed currently versus [indiscernible] capacity including Granger..

In total, we've seen worldwide including about 650,000 tons of annual capacity in China shutdown permanently is of our understanding and approximately 4,000 – I mean 400,000-ton shutdown permanently in Europe. So a million tons of permanent reduction in a worldwide 55 million-ton a year business.

And then obviously the temporary cessation and another 0.5 million or so from our shutting down Granger in addition to several large facilities were temporarily affected in the third quarter in China due to the flooding in Central China. But it's our belief that they are back up and running on right at this point..

Got it.

And in terms of the incremental demand from battery alone, the six to seven million tons, what underlies this estimate and how visible do you think it is? Is it completely based on electrification of the fleet or other factors, are there which is for infrastructure investments that need to be met before that number can have more legs and drive demand for soda ash directly?.

I mean, it's pulled from public pronouncements and projections that are provided by other public companies. But including kind of on the end use side, companies such as Tesla, as well as those that are on the production side of companies such as Albemarle, which is the largest – the world's largest producer of lithium phosphorus.

So in any event – I mean, sorry, lithium carbonate. So in any event, it's kind of, those are – the data points that we use to back up the forecast that we gave today..

Okay.

And in terms of the offshore segment, can you remind us as far as returning CHOPS to normal operations, what exactly needs to be done at this point either on your end or on [indiscernible]end?.

We are currently in discussions with [indiscernible] about what to do and how to do it relative to the limited structural issues developed at the GB 72 platform. So as those discussions progress, we're prepared to move quickly to be able to restore normal service.

So at this point we don't have a resolution with [indiscernible], although we hope to have one and a clear path forward shortly..

Understood. And lastly, I really appreciate all the color you provided on the offshore visibility in terms of inventory and opportunity on the production side.

If we do see a federal lease ban put in place and potentially a permitting slowdown, do you think this affects the inventory pathway much?.

Not on the identified at this point, because, I think, it's – by and large, it's already permitted and other things. And concerning a lease ban it's leased far.

And I'm not a lawyer and I'll probably get in trouble for practicing law, but I'm not sure that the leasing program, the Gulf of Mexico is covered under the Outer Continental Shelf Lands Act, or OCSLA, as we call it. And that requires the Department of Interior by law, by legislation to maintain an active leasing program of federal waters there..

So they are the ones that have more of the fight to develop the resources which are known and have been discovered to date..

Thank you very much. .

Thanks very much. Your next question today is coming from Shneur Gershuni from UBS. Your line is now live..

Hi, good morning, everyone. Maybe just to follow-up on that last question if I recall there was an attempt to put an executive order for exactly Theresa’s question back under the Obama Administration. If I recall correctly, what's in that push, that Congress would actually have to change the law rather than using executive order.

And is that kind of the summary of what – how you just responded to the question?.

That that is correct. Post April, 2010, the very unfortunate Macondo incident, the Obama Administration attempted to limit activities going on in Gulf of Mexico and the upstream community took it to court. And immediately had determined that that is a congressional action is required to do what they were trying to do.

So I think that that's still our view in terms of a permanent ban or whatever on policing activity and other extraction activities for the resources underlying the federal waters in Gulf of Mexico..

Okay. That was my understanding also. Okay, perfect. Just to pivot to a few questions here you announced a couple of new projects in the Gulf. You also mentioned the contract with LLOG. If I recall typically you don't really need much capital for these types of new additions.

Is that the case here as well, too, that it's just incremental EBITDA without any or minimal CapEx spend?.

Yes, this is Ryan. I mean, it's out in the public domain, but it's going into the – it's a subsea tieback development back to intervene as the operator of the Lobster platform, which has one export crude oil pipeline off of it, which is besides it..

Okay. And maybe to pivot to your commentary on the call with respect to soda ash, you sort of indicated that you expect to be conservative around setting expectations, and I respect that. I'm just trying to understand, like we see the strength in the soda ash market right now.

I would have thought that would bode well for the upcoming negotiation season, but at the same time, I get it that it represents, I think, two thirds of your soda ash production.

So is that why you are conservative that some of the strengths might come after the contracting cycle or flow through? Just trying to understand where the puts and takes are in terms of the conservatism and why – what we're seeing in the spot market won't necessarily materialize in the upcoming negotiations?.

I think that again, a lot of it has to do with our conservatism, a lot of it has to do with the nature of the contracting processes, where most domestic prices are subject to caps and collars. And so there's not a lot of volatility from one year to the next.

But there is attempts to market share grabs from time to time, given the limited member of players on the supply side and domestically, and then annual contracts in Latin America predominantly, and then shorter term contracts quarterly or so out in Asia, outside of China. So a lot of market dynamics.

Tomorrow in terms of placing volumes and to borrow a line from Warren Buffett, it's hard to be a lot smarter than your dumbest competitor. So we're being conservative of how we think that 2021 is setting up. But the fundamentals for sure are driving. Where supplying demand is balancing people are working through the inventories.

And I think pertains very well for as we move through 2021 and certainly into 2022 and beyond..

Great. I appreciate that. Maybe one last question if I may. You sort of talk about being able to hit full capacity – and I assume that obviously it presents operating leverage from a margin perspective.

On a constant pricing basis, how much would your margins expand in a soda ash business just by being able to one flat out rather than partially running since you were this year?.

I don't have a specific number off the top of our head. We will do a little bit of investigation and try to work that in prior for future discussions. But I don't have that off the top of my head..

Not a problem. Totally appreciate it. Thank you for the color today and have yourself a safe day..

Thank you. You too..

Thank you. [Operator Instructions] Our next question is coming from T. J. Schultz from RBC Capital Markets. Your line is now live.

Great, thanks. On the rail volumes into Scenic Station and the MBCs, when would you expect to get through the credits where the increased activity would impact cash flow? And then you talked about dapple, if you could just quantify the benefit to our capacity to handle more trains if on potential dapple disruptions. Thanks..

Yes, I think at the current level as we said, they're using kind of prepaid credits. But if they kind of stay on this path and typically because of ambient operating conditions the pipeline capacities out of Canada are effected in the winter operating months.

So if they go up a little bit maybe in the first or second quarter of next year, we could see an incremental contribution. And then obviously we have the capability of handling multiple trains a day, we're nowhere near that. But it is somewhat encouraging and there's perhaps the fundamentals that could drive some margin in 2021..

Okay.

And then on asset sales, how engaged are you on additional, potential asset sales? And what assets do you consider core versus non-core?.

That's a loaded question. I think that, as I said, we just evaluate everything and we're not going to comment one way or the other on any active discussions and/or what we might consider. But I do think that there's the potential to do some other stuff with – and to accelerate the de-leveraging.

But we'll take advantage of that if the market conditions are right. And we think that that's a value for anything that we have..

Okay, great. Thanks, Grant. .

Thanks T. J..

Thank you. We reached the end of our question-and-answer session, I'd like to turn the floor back over for any further or closing comments..

Well, again, I appreciate everybody. I know that it's a pretty hectic schedule this morning with all the other reporting that's going on. So we appreciate everybody carving out 30 minutes to spend with us. And we'll talk to you soon. Thank you..

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today..