Greetings, and welcome to Genesis Energy's Q1 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Dwayne Morley. Thank you. You may begin.

Welcome to the 2021 first quarter conference call for Genesis Energy. Genesis Energy 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 products. Genesis's operations are primarily located in Wyoming, the Gulf Coast states, and the Gulf of Mexico. During this call, management may be making forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The law provides Safe Harbor protection to encourage companies to provide forward-looking information. Genesis intends to avail itself of the 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. As we mentioned in this morning's earnings release, the first quarter of 2021 demonstrated our market-leading businesses were impact-resilient and our financial results were consistent with, if not slightly ahead of our internal expectations. As we look forward, we remain increasingly confident that improving macroeconomic conditions provide us significant operating leverage to the upside. In combination with our de minimis capital requirements outside of our Granger soda ash expansion project, we believe we are poised to deliver significant value in future periods to all of our stakeholders. Our actions taken in early April to extend our senior secured credit facility coupled with the tack-on offering to our senior unsecured notes due 2027 have positioned Genesis with no maturities of long-term debt until 2024 while providing ample liquidity and flexibility to deal with the trailing impacts of COVID-19 and the 2020 hurricane season. While we continue to expect 2021 to be a year of transition, the partnership is well-positioned for long-term success with a recovery in our soda ash business, significant additional free cash flow coming from our two contracted projects in the Gulf of Mexico, and first production from our fully expanded Granger soda ash facility in the back half of 2023. Now turning to our individual business segments. Our Offshore Pipeline Transportation segment performed in line with our expectations and achieved a more normalized earnings run rate during the first quarter. As we look forward, the second quarter is typically a heavy maintenance quarter for our producer customers in the Gulf of Mexico, and we would expect a certain level of planned downtime associated with these activities. Even with this expected downtime, we still anticipate to achieve quarterly Segment Margin in the second quarter of around $80 million. Our two large contracted…

[Operator Instructions] Our first question comes from the line of Kyle May with Capital One Securities. Please, proceed with your question.

Hi good morning, everyone. Grant, you mentioned some of the synthetic soda ash production in China was offline. Can you talk more about what's going on, I guess, with the environmental restrictions perhaps, how much global supply that represents and any indication how long it could be offline?

It's a little bit of a dark space from our perspective, but that's the indications that we hear from consultants and other boots on the ground. But that's - it's basically due to the discharges - environmental discharges associated with synthetic production. So, we don't know really the whole quantity or the duration of it. But it appears in the first part of - first quarter of 2021, this is on somewhat of a lagging basis, the total exports out of China, which we can track, but again on a lagging basis were down about 10%, year-over-year.

Okay got it, that's helpful. And then I guess, as we think about the ANSAC price increase and a better backdrop for soda ash pricing this year. Can you remind us if Genesis has much exposure to the better pricing or are you pretty much entirely contracted for the year?

In round terms, about half of our sales are domestically, and those are pretty much fixed for the remainder of 2021. About half of our export sales or 25% of our total sales are to Latin America through ANSAC and those are typically also fixed for the period. So, the other half of exports are 25% of our total sales which are sales from ANSAC to Asian economies outside of China are typically shorter duration and the majority of them reprice on a quarterly basis. So during 2021, the only real uplift you're going to see from a move in pricing is on the 25% of the sales, but the mix within either of those portfolios can affect some of the pricing. But suffice it to say, that it certainly is, I'm trying to make clear in our comments, it certainly feels that the market is rebalancing. And that the supply overhang and the continued demand running below a year earlier levels at the - which occurred at the end of 2020 kind of gave a - the backdrop for lower prices in 2021, but we see that reversing and the dynamic changing, that we would expect prices to recover in 2022.

Okay, that's very helpful. Thanks for taking the questions.

Our next question comes from the line of Theresa Chen with Barclays. Please, proceed with your question.

Hi, Grant thanks for taking my questions. Wanted to kind of follow-up on the pricing question just, when you boil all of that down in relation to the mix of your portfolios as far as what is contracted versus what is rebreeding in price quarterly? And the magnitude of the ANSAC price increases and also the mix of the portfolio of your 25% exports to Asia ex-China? What kind of quarter-to-quarter uplift should we expect near-term? And also looking to 2022 as you renegotiate contracts in - at the end of 2021, what kind of uplift should we expect just from the price movement alone there?

Well the, we're - the crystal ball is not as crystal as sometimes it would appear to be. I mean I think, and let's go back and Theresa with a little bit of historical perspective. We had in late 2019 pre-pandemic and so when we were setting prices for 2020, we had kind of - at the beginning of a slowdown and worldwide economic activity, as well as an overhang of a potential trade war between the U.S. and China going on. So, there was a little bit of an overhang. So, 2020 prices actually started the year lower than they were in 2019 and then the pandemic hit. And so, we had this - we went through 2020, the domestic prices and LATAM prices held up because they were negotiated. And then but Chinese - Asian prices ex-China continued to fall as we went through 2020 and we have the dynamic going in 2021. So, a long-winded answer is that, we're not exactly sure how rapidly things are going to recover, although they are going to recover. If we could get back to - I would say it this way if we can get back to 2019 prices, which again I'm not claiming that we're going to get there in 2022, but certainly 2023 feels potentially that the business would recover, order of magnitude back into the 160 to 180 run rate and that's before Granger comes on. And with those 2019 prices - the mid-2019 prices, when Granger comes on, we’d expect incremental segment margin contribution from optimized Granger to be in the $60 million range. So, again we're getting back to 220 to 240 kind of in a 2023, 2024 type timeframe certainly seems reasonable to us.

Understood, thank you. And then just turning to marine a lot of moving parts in this segment as well, can you just still for us. What the run rate should be assuming a more normalized quarter for drydocks and session as refining utilization continues to increase? And then also on the heels of the new American Phoenix contract?

Yes, the AP contract in the first quarter was the low watermark. It's gone under contract at probably in round terms $6,000 or $7,000 a day more than it got in the first quarter. So, that's under - that will be a 12-month contract on a prospective basis. So, and also in the first quarter due to various drydocks and the other things, we more or less had one net blue water unit out of service during the entire quarter, which again we think that that's kind of behind us. So, we should get a little bump in that. And then, importantly, once - in reality the winter storm which I think some people call it, Uri, I never knew what that meant, but once it caused some dislocations in refining along the Gulf Coast, our specific types of barges, black oil barges or internal new barges actually started to see a dramatic increase in utilization. And that is roughly - as you point out, Theresa refinery runs continuing to inch their way higher. If the world can figure out what to do with the jet cut on crude barrels, and we would expect it to even recover more. So, as we sit here today, our ground water utilization is in the high 80% range. So, we've seen a fairly steady cadence of improvement in that as the refinery utilization has continued. So on a go-forward basis, it's the - I don't know what the good run rate is, because we're kind of stuck for 12 months in the fairly low pricing environment for the American Phoenix, which really moves the needle. But things are improving from a fundamental point of view rather rapidly for us.

Thank you, Grant.

Thanks, Theresa.

[Operator Instructions] Our next question comes from the line of Shneur Gershuni with UBS. Please, proceed with your question.

Hi good morning, everyone. I figured since soda ash is popular, I'll just continue with the questions there. Given the growing renewable initiatives, just kind of curious if it's possible for you to accelerate the timeline on Granger? And just also wondering if your customer base is expanded to include these green buyers? And if so, can you give us some examples?

Yes, I think there are certain circumstances where we can accelerate the Granger expansion. But we could always at some point within probably a four to six-month timeframe if prices supported it. So there was a dramatic recovery in primarily export prices because it doesn't make any sense to kind of bring it up and try to fight for market share. If something that's already contracted domestically, but if export prices got to the point where it made sense even on an efficient basis to resume the 550,000-ton annual production we can get out of Granger. We could probably put that back into service and call it four to six months, kind of at the outside if conditions warranted. But there is not all that much we can do to accelerate the overall, the expansion to the 1.2 million to 1.3 million ton range so, not a lot that we can do. Now, relative to the second - your second question embedded in that. I mean obviously, companies like Albemarle, which is the world's largest lithium producer and others. We're seeing increased demand from those types of applications. And certainly is pointed out, both in the U.S., but especially in China, which again is our major competitor at the margin for export sales out of Wyoming, is really dramatically increasing their demand of soda ash worldwide for solar panel manufacturing. So, I'm not going to go into the individual discussions with the individual customers and stuff. But suffice it to say that we are participating in those discussions and looking to be a supply chain partner with some of the leaders on other things that are the building blocks for the green initiatives.

All right perfect. Maybe as a follow-up question, you had mentioned in your prepared remarks about a liquidation of some crude that generates a $22 million leverage benefit. Just want to understand, is that just a leverage benefit or is that something that we should be thinking about for second quarter from an earnings perspective as well too? And how does this impact the securities buyback basket that you have currently outstanding?

No whatever margin, if you will, that we earned associated with the contango market in play was reflected in the first quarter. So, that is strictly kind of a balance sheet item that the cash is coming in, post the end of the quarter. So it's - all it does is otherwise reduced our total outstanding debt. So, we have - within our revolving facility, we have a sub hedged inventory facility. So, it doesn't fill up any of the baskets are relieve any pressure or relieve anything taking the kind of using any of the other baskets. So, it's not a net earnings effect, it's just a net cash and a reduction in total outstanding debts simply because we received the cash proceeds post the - end of the quarter.

All right perfect. I have a few more questions, but I'll jump back in the queue. Thank you.

Thank you.

Our next question comes from the line of T.J.Schultz with RBC Capital Markets. Please, proceed with your question.

Hey, good morning. So in the Gulf, just one question around your prepared commentary on the discussions with new standalone deepwater hubs that would hit maybe in the 2024, 2025 timeframe? Are those hubs where you have the natural system to get the volumes, what type of magnitude either volumes or to your segment margin are - some of the discussions around those hubs? And are these low capital projects that just utilize some of your open capacity or do you invest in the new infrastructure?

We're probably not in a position under NDAs and other things to go into a lot more detail out. I can give you - I'm comfortable that from a volume metric point of view, that the - some of it would be - some are arguably on peak production between 200,000 and 220,000 barrels a day of incremental production. Everything else is the same, it certainly feels and looks like that we are the logical trans-border to shore given the capacity configurations that we have on our systems and the capacity situations on competing systems. So, that's about as far as I can go at this point. But again, indicative of - if you put it in context, I mean, Argos and King's Quay together, because Argos is quite a large system, but from a FPU, Floating Production Unit, those two are 210. So, right behind here kind of three additional ones that add up to about the same amount.

Okay great. Thank you. That's all I’ve got.

Thanks, T.J.

[Operator Instructions] We do have a follow-up question from the line of Shneur Gershuni with UBS. Please, proceed with your question.

Hi, Grant. As promised I did say I had some more questions. Just out of curiosity when I sort of think about this soda ash business. I imagine that there is a lot of fixed cost absorption within that business. I was wondering, you make a constant pricing environment. At this stage, right now, what is the marginal ton due to your margin like, from - if you add an incremental ton at this point right now, production does that expand your margin even in the constant priced environment?

Yes, I mean that's the - in part, some of the financial results that we saw in 2020 was that we weren't even - even after we made the decision to temporarily mothball Granger, even at our Westvaco facility which notionally can produce 3.5 million tons of soda ash because some of it goes into - either to make caustic or specialty products, it doesn't exactly match up to some of the volumes that we report. But we weren't even operating at 100%. And when you're not operating in such a massive industrial complex at 100% here you lose the fixed cost absorption benefit. So, in the fourth quarter, we got back to running 100% and we anticipate Westvaco, and we anticipate running at 100% throughout. And our team led by Fred von Ahrens on the ground and - leading there our soda ash business. We're always looking for ways to squeeze that incremental ton out because the variable operating expense is quite low relative to the average fixed cost. And so getting that incremental ton of ash on the belt as we like to say is very valuable to us. Yes and that's I mean - and the kind of the analogy, Shneur, is kind of Granger, and that is, is that Granger has the infrastructure and essence to fix cost almost to at 1.2 million to 1.3 million ton a year facility but because it had inadequate evaporate capacity for lack of a better description. It was only capable of producing 550,000 tons. So, it was kind of inefficient and by expanding it, we make the same economics as Westvaco, which we believe is the cheapest or among the cheapest producing facilities in the world. So, Granger will join that rank when it comes on an expanded basis.

Well that makes perfect sense. And one follow-up - you have a scheduled longwall move this year or next year. Just wondering if that's something that we just need to think about in terms of modeling?

We have just completed a longwall move. So, it will, to the extent there is any effect, will show up in the second quarter. But we built up as much inventory in the ore pile as we could prior to doing that, and continue to have more mining operations, while we were doing the longwall move. So, we don't anticipate a significant effect. But it is behind us at this point. And the team did a great job of getting it done safely and within schedule.

Perfect, thank you very much. That’s it from me.

Thank you.

And with that ladies and gentlemen, we've reached the end of our question-and-answer session. And I would now like to turn the call back over to management for any closing remarks.

Okay. Well, I think we appreciate everybody's attendance and hope to talk to you in 90 days, if not a little bit sooner. So, thanks, everyone.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.