Genesis Energy(GEL) - 2022 Q4 - Annual Report

Part I Business Genesis Energy is a master limited partnership with four segments providing midstream services to the oil and gas industry and producing natural soda ash - The company operates through four reportable segments: offshore pipeline transportation, sodium minerals and sulfur services, onshore facilities and transportation, and marine transportation[18] - Core businesses include being one of the largest pipeline network operators in the Deepwater Gulf of Mexico, a leading producer of natural soda ash, and a major service provider to major U.S. refinery complexes[21] - Primary objectives are to generate stable free cash flow, continue deleveraging the balance sheet, and advance its Environmental, Social, and Governance (ESG) program[38] - In February 2023, the company entered into a new $850 million senior secured revolving credit facility maturing in February 2026[49] - The Granger Optimization Project is expected to be completed in the second half of 2023, increasing soda ash production by approximately 750,000 tons per year[52] - The company has committed approximately $550 million (net) in capital expenditures to construct the new SYNC pipeline and expand the CHOPS pipeline, backed by long-term take-or-pay agreements[54][55] - As of December 31, 2022, the company employed 2,109 people, with approximately 700 covered under collective bargaining agreements[121] Offshore Crude Oil Pipeline Systems (100% basis) | Pipeline | Operator | System Miles | Design Capacity (Bbls/day) | Interest Owned | 2022 Throughput (Bbls/day) | | :--- | :--- | :--- | :--- | :--- | :--- | | Main Lines | | | | | | | CHOPS Pipeline | Genesis | 380 | 500,000 | 64% | 207,008 | | Poseidon Pipeline | Genesis | 332 | 490,000 | 64% | 257,444 | | Odyssey Pipeline | Shell Pipeline | 120 | 200,000 | 29% | 84,682 | | Eugene Island | Genesis/Shell | 184 | 39,000 | 29% | 6,964 | | Lateral Lines | | | | | | | SEKCO Pipeline | Genesis | 149 | 115,000 | 100% | N/A | | Shenzi Crude Oil Pipeline | Genesis | 83 | 230,000 | 100% | N/A | Marine Transportation Fleet Overview | Fleet Type | Aggregate Design Capacity (MBbls) | Number of Barges | Number of Push/Tug Boats | | :--- | :--- | :--- | :--- | | Inland | 2,285 | 82 | 33 | | Offshore | 884 | 9 | 9 | | American Phoenix (Tanker) | 330 | N/A | N/A | Risk Factors The company faces significant risks related to operations, financing, regulation, partnership structure, and taxes that could adversely affect its business - Operational Risks: Profitability is dependent on maintaining commodity volumes, which are influenced by factors beyond the company's control, such as producer drilling activity and commodity price volatility[189][200][214] - Liquidity and Financing Risks: The company's indebtedness could restrict its ability to operate and pay distributions, while access to capital is not guaranteed and rising inflation could increase costs[189][226][238] - Legal and Regulatory Risks: Operations are subject to stringent environmental and safety laws, and climate change legislation could decrease demand for fossil fuel products and increase operating costs[189][235][240] - Partnership and Tax Risks: The company's tax treatment depends on its partnership status; if treated as a corporation, cash available for distribution would be substantially reduced[189][191][262] Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[303] Properties The company's material properties include extensive trona ore reserves and mining operations in the Green River Basin, Wyoming - The Alkali Business holds leases covering 86,037 acres in Wyoming, primarily from the Federal government, the State of Wyoming, and Sweetwater Trona OpCo LLC[316] - Total trona reserves decreased by approximately 7 million short tons from 2021 to 2022, primarily due to ore consumption from mining operations[350][351][352] - The total book value of the Westvaco and Granger mining sites was approximately $1.528 billion as of December 31, 2022[344] Trona Mineral Reserves as of December 31, 2022 | Reserve Area/Type | Category | Million short tons (dry weight) | Grade (% Trona) | | :--- | :--- | :--- | :--- | | Westvaco dry extraction | Proven & Probable | 431 | 88 | | Westvaco solution mining | Probable | 369 | 88 | | Granger solution mining | Probable | 72 | 85 | | Total Reserves | Total | 872 | 87 | Legal Proceedings The company is involved in various incidental claims and lawsuits not expected to have a material adverse effect on its financial condition - The ultimate outcome of various incidental claims, lawsuits, and administrative proceedings is not expected to have a material adverse effect on its financial condition[361] - There are no environmental matters to disclose for this period under the SEC's specified threshold of $1 million[362] Mine Safety Disclosures Mine safety information for the company's Green River, Wyoming mine is included in Exhibit 95 of the Form 10-K - Mine safety disclosures for the Green River, Wyoming mine are provided in Exhibit 95 to the Form 10-K[363] Part II Market for Registrant's Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities The company's Class A common units trade on the NYSE under the symbol "GEL", with cash distributions determined quarterly by the general partner - The company's Class A common units are listed on the New York Stock Exchange (NYSE) under the ticker symbol "GEL"[365] - As of February 23, 2023, there were 122,539,221 Class A common units and 39,997 Class B Common Units outstanding[4] Selected Financial Data This item is not applicable and contains no data - None[369] Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported a significant turnaround to a $75.5 million net income in 2022, driven by a $152.3 million increase in Segment Margin - The increase in 2022 net income was primarily driven by a $152.3 million increase in segment margin, lower depreciation and interest expense, and income from debt cancellation[372] - The Sodium Minerals and Sulfur Services segment margin increased by $139.9 million (84%) due to favorable pricing and higher soda ash sales volumes[398] - The Marine Transportation segment margin increased by $31.6 million (92%) due to higher utilization rates and increased day rates for its barge fleet[410] - As of December 31, 2022, the company had $436.1 million of available borrowing capacity under its revolving credit facility[442] - Key accounting estimates include fair value in acquisitions, asset impairment, revenue recognition with variable consideration, and derivative valuation[489] 2022 vs 2021 Financial Highlights | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Income (Loss) Attributable to Genesis Energy, L.P. | $75.5 million | ($165.1 million) | | Segment Margin | $770.1 million | $617.7 million | | Cash flows from operating activities | $334.4 million | $338.0 million | | Available Cash before Reserves | $352.6 million | $203.9 million | Segment Margin by Segment (in thousands) | Segment | 2022 | 2021 | | :--- | :--- | :--- | | Offshore pipeline transportation | $363,373 | $317,560 | | Sodium minerals and sulfur services | $306,718 | $166,773 | | Onshore facilities and transportation | $33,755 | $98,824 | | Marine transportation | $66,209 | $34,572 | | Total Segment Margin | $770,055 | $617,729 | Capital Expenditures (in thousands) | Category | 2022 | 2021 | | :--- | :--- | :--- | | Maintenance capital expenditures | $132,539 | $99,868 | | Growth capital expenditures | $333,782 | $225,714 | | Capital expenditures related to equity investees | $10,301 | $352 | | Total capital expenditures | $476,622 | $325,934 | Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to commodity price risk, managed with derivatives, and interest rate risk from its floating-rate credit facility - Primary market risks are commodity price risk (crude oil, petroleum products, natural gas) and interest rate risk[512] - Commodity price risk is managed through derivative instruments, including futures, swaps, and options, to hedge inventory and purchase commitments[513] - Interest rate risk is associated with the floating-rate senior secured credit facility, and a 10% change in the SOFR rate was estimated to have an immaterial impact on 2022 net income[517][518] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements and the independent auditor's report for the year ended December 31, 2022 - The auditor's report from Ernst & Young LLP provides an unqualified opinion on the consolidated financial statements and internal controls[666][667] - A critical audit matter identified was the estimation of variable consideration for revenue recognition in the Offshore pipeline transportation segment[671][672][673] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[520] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of year-end, following the remediation of a previously identified material weakness - A material weakness in internal control over financial reporting, identified during Q2 2022, was remediated as of December 31, 2022[521] - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2022[522] Other Information The company reports no other information for this item - None[528] Part III Directors, Executive Officers and Corporate Governance The company is managed by its general partner, whose board is significantly influenced by the Davison family's ownership of Class B units - Members of the Davison family collectively own 77.0% of the Class B Common Units, giving them the ability to elect at least a majority of the board of directors[532] - The board consists of seven directors, with four determined to be independent under NYSE rules[534] - Grant E. Sims serves as Chairman and CEO, while Kenneth M. Jastrow II serves as the lead independent director[536][537] Executive Compensation Executive compensation aligns with unitholder interests through a mix of salary, bonuses, and long-term incentives benchmarked against a peer group - The compensation program for NEOs is overseen by the Governance, Compensation and Business Development (G&C) Committee, using an independent consultant and a peer group of 14 energy companies[570][573][576] - Long-term incentive awards granted in 2022 are cash-based and tied to performance metrics including Available Cash before Reserves, Consolidated Leverage Ratio, and safety metrics[594][611] - The CEO to median employee pay ratio for 2022 was 24:1, with CEO total compensation at $2,931,949[628] 2022 NEO Compensation Summary | Name | Position | Salary ($) | Bonus ($) | Non-equity Incentive Plan Comp ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Grant E. Sims | CEO | 758,461 | 665,000 | 792,000 | 2,931,949 | | Robert V. Deere | CFO | 450,000 | 270,000 | 288,000 | 1,049,704 | | Edward T. Flynn | EVP | 500,000 | 850,000 | 240,000 | 1,627,890 | | Kristen O. Jesulaitis | CLO & SVP | 436,154 | 410,000 | 198,000 | 1,080,050 | | Garland G. Gaspard | SVP | 365,307 | 295,000 | 180,000 | 885,061 | Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters Ownership is concentrated among directors, officers, the Davison family, and a few institutional and preferred unitholders - All directors and executive officers as a group beneficially own 11.3% of Class A Common Units and 80.8% of Class B Common Units[631] - Major institutional holders of Class A Common Units include ALPS Advisors, Inc. (13.3%), Invesco LTD (13.2%), and FMR LLC (6.0%)[631] - The Class A Convertible Preferred Units are beneficially owned 50% by GSO Rodeo Holdings LP and 50% by KKR Rodeo Aggregator L.P.[635] Certain Relationships and Related Transactions, and Director Independence The company discloses transactions with its CEO and a major preferred unitholder, and confirms the independence of four of its seven directors - The company paid its CEO, Grant E. Sims, $0.7 million in 2022 for the business use of his personal aircraft[637] - On May 17, 2022, the company fully redeemed the outstanding Alkali Holdings preferred units held by BXC (an affiliate of Blackstone) for $288.6 million[641] - The board of directors has determined that four of its seven members are independent under NYSE rules[644] Principal Accountant Fees and Services This section summarizes fees paid to the principal accounting firm, Ernst & Young LLP, for services rendered in 2022 and 2021 - All services provided by Ernst & Young LLP in 2022 and 2021 were pre-approved by the audit committee[648] Accountant Fees (in thousands) | Fee Category | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fees | $3,374 | $3,087 | | All Other Fees | $423 | $3 | | Total | $3,797 | $3,090 | Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report - This section provides an index of all financial statements, schedules, and exhibits included with the Form 10-K filing[652] Form 10-K Summary This item is not applicable - Not Applicable[657]