Greetings. Welcome to the Genesis Energy 2Q 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 will now turn the conference over to your host, Dwayne Morley, Vice President of Investor Relations. Thank you. You may begin.

Good morning. Welcome to the 2021 second 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 products. Genesis' 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 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 of Finance and Corporate Development.

Thanks Dwayne, and good morning to everyone. As we mentioned in this morning's earnings release, the second quarter was in line with our expectations, but more importantly, the longer-term Genesis story continues to improve as we move through 2021 and into 2022 and beyond. Our two contracted upstream developments in the Gulf of Mexico remain on track for first oil in the front half of 2022, and are expected to ramp to full run rate sometime in late 2022 or early 2023. We also expect a continuing recovery in our soda ash business with longer-term growth driven by a combination of a return to pre-pandemic economic activity, a resumption of normalized GDP growth, and the expected demand growth for soda ash, given its critical importance as a fundamental building block for many activities in the unfolding green energy transition. As a result, we believe Genesis is very well positioned to see increased amounts of adjusted consolidated EBITDA, free cash flow, and improving balance sheet over the coming years. Now, turning to our individual business segments. Our Offshore Pipeline Transportation segment performed slightly ahead of our expectations during the quarter despite the increased level of maintenance and downtime from our producer customers. While we expect some producer maintenance from the second quarter to cross over into the third quarter, and assuming we experience no worse than a normalized hurricane season, we would reasonably expect our third quarter to come in towards the lower end of our previously announced range of $80 million to $85 million of segment margin per quarter. As we look forward to 2022, our two large contracted upstream developments, Argos and King's Quay continue to move closer and both remain on track. In fact, Murphy recently announced the King's Quay floating production platform is scheduled to sail away…

[Operator Instructions] Our first question comes from Kyle May with Capital One Securities.

Grant, you mentioned deploying capital for the offshore development or potentially deploying capital for the offshore development in 2024 or 2025 at low single-digit multiples. Can you give us any idea of the potential capital that would be required to support those projects?

We're not at liberty to disclose that at this point. As I said, there's - we're in active discussions with 3 stand-alone significant deepwater developments. And we're not in a position yet where they've been FIDed and we're in a position to disclose that.

Okay. Maybe asking a different way. I think you mentioned that those producers could make an FID later this year. Will the midstream provider be announced in the same time frame?

Yes. In all likelihood, that would be the catalyst for full disclosure.

Okay, got it. And then, taking into consideration your results for the first half of this year, it suggests that you'll see a meaningful ramp in the back half to reach the lower end of your EBITDA guidance. Can you walk us through where you expect to see this growth? And then maybe preliminary thoughts of how this will carry into next year?

Yes. I think that some of the ramp is because of the increasing pro forma contribution of getting up to the $30 million to $35 million, which we have disclosed, and I think was is further described in a footnote in the release. But we do anticipate sequential cadence of positivity as we go through the rest of the year. But I think really our focus is on - and I think you can tell by the tone of our prepared remarks, our focus really is on '22 and beyond, given the exciting developments that we have in the Gulf of Mexico, which are contracted, which are backed by take-or-pay, by the way, as well as continuing significant recovery in the financial contributions from our soda ash businesses in the entire result. So I mean, I think that as we said, the second quarter met our expectations internally. And we continue with - we anticipate that we would have a slightly quicker recovery in marine as we've cadence through '21, there's still - especially on the brown fleet, the inland fleet, given the refinery utilization on apparent - most refineries are maximizing runs of light in. So the heavies are not around that we are accustomed to moving. We've seen the - we anticipate because of some peculiar dynamics, no real movement of crude-by-rail out of Canada for the rest of the year. And importantly, some significant non-cash equity-based compensation, incentive-based compensation that was awarded to, throughout the organization earlier that those are kind of what's leading us towards the lower end for 2021. But again, we're not overly concerned about 2021. We're looking very forward to 2022 and beyond.

Our next question comes from Shneur Gershuni with UBS.

Maybe if we can start off on the soda ash business, in terms of the outlook and so forth. I think you've said in prior calls that you didn't expect to get to pre-pandemic pricing levels until 2023. So your comments kind of sound pretty consistent. I just wanted to confirm that you still expect to get towards the top end of your collars in terms of on the contracting side? And then also, you were talking about the transportation cost, you're pushing to get that to be a pass-through. Just wanted to sort of clarify both of those, if that was - did I hear that correctly? And if I'm thinking about it correctly.

Yes. I think that certainly, we would anticipate pricing at the top end, the outer range of the collars domestically. As we've said domestically, there are contracts typically are 3 years to 5 years in duration with annual redetermination subject to caps and collars. So in entering '21 when prices were set in 2020, that obviously translates into 20% to third of your domestic contracts are available every year for new contracting purposes. And given some of the dynamics, which will occur in late '20, some of those contracts under competitive pressures got reset at lower prices. But again, with caps and collars it takes a while to get through that. But clearly, given the current dynamics, there's no doubt that we'll be at the top end of our collars under our existing portfolio of contracts.

Freight?

Yes, freight. Sorry about that. Yes, we - in domestic contracting, we typically - all the freight is already passed on. We just act as agent for arranging the freight delivery to our customers in the U.S. market. So it's a direct pass-through of that. And basically, in ANSAC, we typically deliver our pricings on a delivered ton basis. So it's good that ANSAC, which is the largest and has a logistical scale and economy's scale, that was entered into - or had 80% of its transportation needs kind of fixed for 2021. And as everybody is facing the - so we're - advantaged in 2021, everybody is facing the same kind of dry bulk shipping costs. So we are moving quickly to, in essence, pass that, be in a position to be able to pass that on for volatility in that passing on to our customers in '22 and beyond.

Okay. And just one more clarification on the soda ash side. Any volumes that are delayed shipped towards the end of this year just because of the BEP [ph], those would just ship and fall into '22. So there would just be a revenue shift from '21 to '22. Is that sort of right way to think about that?

That's the way to think about it, yes.

Okay, great. And then, maybe if we can just pivot to the Offshore segment for a second. You had some good data points and color about progress. You sort of expect to get to an incremental $25 million worth of EBITDA on a quarterly basis or $100 million annualized, I believe, it's your expectation. Can you give us a sense on the cadence of how that will come into your earnings in '22 and '23? At what point do you hit the full $25 million? And when does it start to ramp?

We'll see ramp in the - starting in the first quarter, which is the initiation of production from Argos. And then in the second quarter, which is the initiation of production from King's Quay. As we've said in our remarks, there are a number of wells that have been pre-drilled at both the locations. And so we would otherwise anticipate a fairly rapid rate and could in fact, be at that quarterly run rate as early as the fourth quarter of 2022.

Okay. But you should see some EBITDA throughout the year as you ramp to that $25 million, that's 4Q?

That's correct, yes.

[Operator Instructions] Our next question comes from T.J. Schultz with RBC Capital Markets.

Just first on Louisiana. I guess I have two questions. First, what's - you mentioned Raceland in your press release. Just what's moving through there now and kind of your outlook for that to ramp with some of the offshore volumes. And then secondly, on Scenic Station, if you upgrade that for bitumen, when would you expect that to translate into any new activity?

Yes. I think that as we continue to see ramps in offshore production, the Argos production is all dedicated to Cameron Highway. And the King's Quay is split 50-50, so half of it goes through Poseidon and half of it goes through Cameron Highway. So we would anticipate everything else the same, additional volumes coming onshore and needing further transportation to refining centers onshore. So we could pick up incremental volumes in onshore Louisiana through the Raceland Terminal, which delivers them to a low cap, which basically gets everybody in the South Louisiana refining corridor. And then in Texas, we have the facilities in place in Texas City to distribute it both to local Texas City refineries, as well as bringing it to Webster and working on some additional interconnectivity there. So not only do the - we see the incremental throughputs on the offshore systems, but another bite at the apple, so to speak, with our onshore facilities, which are increasingly integrated with those offshore facilities; so that's a good thing. Relative to upgrading Scenic Station we - when we originally constructed it, we put in all of the piping and size the hoses and pumps, if you will, to be able to handle straight run bitumen, as I say, in Canada, but we did not install the heating required to handle it as a non-hazardous material off of the rail cars. So the timing of that is basically a function of, the pace of the development of diluent recovery units or DRUs in Canada. There's a number of them under discussions. And - but we think that, that's probably a '24, '25 type event at this point in time.

Got it. That's helpful. Just last question is just given where debt leverage is right now. Any thoughts on the distribution here or rebasing that to help accelerate some of the delevering? Or given the outlook you have for '22 and '23, clearly improving, you're comfortable with kind of carrying that bridge?

I think we're very comfortable given our outlook for '22 and '23. Extremely comfortable of the current level of the distribution and the ability to - it's a great thing to be in free cash flow mode. And to the extent that we have opportunities to deploy it in high-return, long-term valued projects, and we take a look at that. But we're very comfortable with the current level and really look forward to increasing financial performance in '22 and '23.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I will now turn the call over to Grant Sims for closing remarks.

Well, thanks everyone for participating. I know it's a pretty hectic day given the schedule of other earnings announcements. But we appreciate everybody's attendance, and we look forward to talking soon. Thank you.

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