Genesis Energy LP -- Offshore Pipes & Soda Ash Mining

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ajootian
Posts: 47
Joined: Thu Jun 17, 2010 7:16 am

Genesis Energy LP -- Offshore Pipes & Soda Ash Mining

Post by ajootian »

This unusual MLP offers a good place to in effect "hide out" during these uncertain times, IMO. They have an eclectic mix of businesses, the two largest of which are offshore pipelines and soda ash mining. They are in the midst of a significant growth phase for both of these businesses, which is keeping their distributions fairly low (currently a little over 6% yield) and is keeping their financial position on the ugly side (they currently have a large preferred stock issuance out that is currently yielding 11%).

The growth prospects here are what have me very intrigued with this stock. The soda ash market is currently in a structural deficit position and the only way supply is meeting demand is that some soda ash is being "synthetically" manufactured, vs. mined naturally. Anyone who can mine the ash can sell all they can mine since the cost of doing that is half the cost of manufacturing it. Genesis is about a month away from re-starting a soda ash mine that they had idled awhile ago. Production from this mine will increase their soda ash production about 15%. They are also working on expanding that mine to allow for a further 25% increase in company production starting in 3Q of next year.

Their offshore oil pipelines are also in growth mode. Even though the growth of GOM production has slowed in total, GEL's pipelines happen to be situated in the parts of that basin that are seeing substantial increases in production.

The financial results of this company have been distorted by the significant investments it has been making to advance the growth of its soda ash business and its offshore pipelines. For the first 3 quarters of this year, it spent about $229M, or $1.86/share, for growth cap ex. If those funds had been distributed to shareholders vs. invested in growing the business, the yield on the stock would have been around 30% vs. the 6% actual yield.

I believe the stock is significantly undervalued, mostly due to the fact that one of its largest businesses (soda ash mining) is not well understood, combined with the fact that its financials have been distorted due to the substantial investments it has been making to fund its growth. I believe this situation will slowly correct itself as it starts to realize the benefits of all the investments it is making.

It appears that both offshore pipelines and soda ash mining are relatively immune to recessions. Soda ash is primarily used to make certain types of glass and demand for soda ash does not appear likely to decline very much in the event we have a recession. Offshore pipelines are designed only in response to requests made by the E&P companies and only in conjunction with the E&P companies spending massive amounts of money to drill a bunch of expensive deepwater wells to discover and delineate their resource. Oil prices would have to tank significantly lower than where they are today before GEL's offshore pipelines business would be affected by changes to the offshore E&P companies' production plans.

While the company's balance sheet currently has some warts (i.e. the large preferred stock issuance @ 11%), they have shown that they can be very creative with respect to financings in the past and I fully expect this situation to be significantly improved over the coming quarters.

Dan, I see from a search that you had these guys on your 'MLP Watch List about 11 years ago. You may want to take another look at them for possible inclusion in your High Yield portfolio, if not right now, then when they re-open their closed soda ash mine.
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Genesis Energy LP -- Offshore Pipes & Soda Ash Mining

Post by dan_s »

Good stuff!
Networking of our super smart members is a significant value for our members.

From Q3 results press release:
> Cash Flows from Operating Activities of $94.3 million for the third quarter of 2022 compared to $54.2 million for the same period in 2021.

> We declared cash distributions on our preferred units of $0.7374 for each preferred unit, which equates to a cash distribution of approximately $18.7 million and is reflected as a reduction to Available Cash before Reserves to common unitholders.

> Available Cash before Reserves to common unitholders of $92.6 million for the third quarter of 2022, which provided 5.04X coverage for the quarterly distribution of $0.15 per common unit attributable to the third quarter.
Dan Steffens
Energy Prospectus Group
moke
Posts: 36
Joined: Mon Aug 22, 2022 8:11 pm

Re: Genesis Energy LP -- Offshore Pipes & Soda Ash Mining

Post by moke »

Thanks for posting your report, looks interesting!
Fraser921
Posts: 2955
Joined: Mon Mar 22, 2021 11:48 am

Re: Genesis Energy LP -- Offshore Pipes & Soda Ash Mining

Post by Fraser921 »

I agree, thanks for the tip. This is an important feature and hope more post ideas.
I admit I was reluctant initially too because there is a possibility one could be wrong and I didn't want to lead others astray. But on the other hand , one is getting the best ideas members have.

One of my first picks TORM ( TRMD ) was in the 9's in May, is now pushing 28.
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Genesis Energy LP -- Offshore Pipes & Soda Ash Mining

Post by dan_s »

Focus on companies that have real income, strong balance sheets with low debt/EBITDA ratios, growth funded by operating cash flow, dividends & stock buybacks reduce risk. For upstream oil & gas companies "running room" is a big plus.

As pointed out in my podcast, there are some outstanding dividend paying companies in the energy sector.
For those of you who are bullish on natural gas, I think Coterra Energy (CTRA) is a "Screaming Buy" up to $30.00. It closed at $24.48 on Dec 9.
Based on my forecast:
> 2022 Dividends should be $2.81 for annualized yield based on $24.48 share price of 11.6%
> 2023 Dividends assuming $5.00/mcf average realized ngas price should be $2.56 for annualized yield of 10.5%
> If 2023 average ngas prices is $6.00, the variable dividends should be $2.95.
> TipRanks' current average price target is $35.25. My current valuation is $40.00 based on $5.00/mcf average ngas price.
> Coterra will still generate a lot of free cash flow even if ngas price went to $3.00
Dan Steffens
Energy Prospectus Group
ajootian
Posts: 47
Joined: Thu Jun 17, 2010 7:16 am

Re: Genesis Energy LP -- Offshore Pipes & Soda Ash Mining

Post by ajootian »

Genesis Energy LP (GEL) -- Great SA Piece Calling For Double-Triple in 3 Yrs.

See https://seekingalpha.com/article/456640 ... sis-energy

Best part of the article follows:

"Future Valuation from 2023-2025
Genesis has guided to a "mid $700 million" EBITDA guide for 2023 already. This likely includes half of normal run rate for BP's Argos, which is slated to come on "mid year", and half a year of Granger expansion. EBITDA in this range will yield free cash flow of ~$300 million, most of which will be used to internally fund the construction of SYNC pipeline and expand the CHOPS pipeline.

If we look ahead to 2024, adjusted EBITDA will likely be in the $825 million range with a full year's worth of Argos and Granger, with free cash flow nearer to $400 million. At this point, I expect growth capital needs to be around $100 million to finish SYNC and the CHOPS expansion, leaving $300 million over to reduce debt or increase the distribution. We'll likely see a combination of both.

In 2025, Genesis will add $100-125+ million from Shenandoah and Salamanca. Using the lower end to be conservative, we should see EBITDA of at least $925 million.

From the $925 million in EBITDA, we subtract

$225 million in interest expense (this assumes none is paid down by then, which I find unlikely.)
$100 million in preferred distributions.
$100 million in maintenance capital. (It's worth nothing that maintenance capital for Genesis's business is relatively low.)
That leaves $500 million for common unit holders. With a current common unit market value of $1.1 billion, that's nearly a 50% DCF yield at today's price. Genesis could restore the distribution to $2/unit, and still have over $250 million left over to reduce debt, repurchase units or invest in high ROI projects.

In this scenario, I believe units will at least double to $20, and could go near $30 or higher if additional offshore projects are added at low cost."

%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

Its nice to see someone who dares to dream on this stock. GEL is my largest position by a long shot.

One thing that I was made aware of by this piece that I didn't know about previously was some nasty IRS regulations that were issued last month that announced that, effective next year, any sales of a US MLP by a foreign person will be subject to a 10% withholding tax (i.e. 10% of the proceeds). This is no doubt inducing many foreign investors to dump their US MLPs by year-end.
Fraser921
Posts: 2955
Joined: Mon Mar 22, 2021 11:48 am

Re: Genesis Energy LP -- Offshore Pipes & Soda Ash Mining

Post by Fraser921 »

Wow!

11 % yield on the Pr not to shabby as well. Thanks again
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