Genesis Energy LP -- Offshore Pipes & Soda Ash Mining
Posted: Sat Dec 10, 2022 4:11 pm
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.
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.