Genesis Energy, L.P. Aktie

Greetings, and welcome to the Genesis Energy LP First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Dwayne Morley, Vice President of Investor Relations. Thank you. Please go ahead.

Thanks, Donna. Good morning, and welcome to the 2026 First Quarter Conference Call for Genesis Energy. Genesis Energy has 3 business segments. The Offshore Pipeline Transportation segment is engaged in providing the critical infrastructure to move oil produced from our long-lived, world-class reservoirs from the deepwater Gulf of America to onshore refining centers. The Marine Transportation segment is engaged in the maritime transportation of primarily refined petroleum products. The Onshore Transportation and Services segment is engaged in the transportation, handling, blending, storage and supply of energy products, including crude oil and refined products primarily around refining centers as well as the processing of sour gas streams to remove sulfur at refining operations. Genesis' operations are primarily located in the Gulf Coast states and the Gulf of America.

During this conference call, management may be making forward-looking statements within the meanings of the Securities Act of 1933 and the Securities Exchange Act of 1934 [indiscernible] 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 this morning 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'd like to introduce Grant Sims, CEO of Genesis Energy LP. Mr. Sims is joined by Kristen Jesulaitis, Chief Financial Officer and Chief Legal Officer; Ryan Sims, President and Chief Commercial Officer; and Louie Nicol, Chief Accounting Officer.

With that, I'll now turn the call over to Grant.

Good morning, and thanks for joining us today. As noted in our earnings release this morning, when we step back and look at the first quarter in totality, results came in a touch below where we had envisioned, driven primarily by the confluence of factors we had flagged and largely anticipated heading into the year. Our Offshore Pipeline Transportation segment, while up 40% year-over-year, came in short of our near-term expectations for a reason I'll walk through in a moment. The rest of our businesses, for the most part, performed right in line with where we expected them to be. None of what we experienced in the quarter changes our view of the underlying businesses. This is a year that was always going to be shaped by the cadence of producer activity and turnarounds in the deepwater Gulf of Mexico as well as the impact of a heavier-than-usual dry docking calendar on our marine fleet. And the first quarter reflects exactly that.

At the same time, the world around us continues to evolve in ways that could work to our benefit. The current geopolitical backdrop is creating disruptions to traditional hydrocarbon trade flows. And to the extent these dislocations persist or there's a protracted period to return to normal, we have seen and we have taken advantage of opportunities to capture incremental volumes and margin that were not necessarily contemplated in our original plan. Against that backdrop, we expect to deliver 2026 adjusted EBITDA at or near the midpoint of the range we outlined in February, which called for plus or minus 15% to 20% growth over our normalized 2025 baseline of approximately $500 million to $510 million.

Beyond the operating results, the quarter was also very productive on the balance sheet front. We were active and opportunistic, completing a series of transactions that we believe meaningfully improve our financial profile, extended our maturity runway and reduced the cost to finance the business on a go-forward basis. I'll walk through those actions in more detail later in the call, but the net result is a reduction in the annual financing cost of approximately $12 million and a capital structure that is simpler, leaner and more flexible than it was just 90 days ago.

With that, I'll go into a little bit more detail on each of our business segments. Let me start with offshore, and to set the stage what happened in the first quarter, something we largely telegraphed on our year-end call. We knew going into the quarter that several of our producer customers had scheduled turnarounds at key production hubs tied directly into our pipeline systems. And we told you that those events would weigh on sequential results. One of those turnarounds did come to pass in the first quarter and frankly, ran a bit longer than anyone had originally expected. Separately, we also saw a sequential reduction in throughput from the Shenandoah FPU which began producing last year and came out of the gate with impressively high initial flow rates, rates that actually were above and beyond our predrill expectations. A step back from those early peaks is, in our experience, a fairly normal part of how these deepwater reservoirs behave, and it does not change our fundamental view of what Shenandoah represents for Genesis over time.

That said, having now run the production from 4 wells through the system for almost 9 months and based upon what we are being told by the operator, we have revised our expectations for Shenandoah volumes for the rest of the year. The net effect to us is roughly $12 million to $15 million less segment margin from that field in 2026 versus what we had embedded in our original guidance for the year. But just to reiterate, we believe we have other positives that will keep us on track to achieve the midpoint of our original guidance we outlined in February.

I want to spend a little more time on the subsurface picture at Shenandoah because I think that will provide genuinely important context for how we should think about this field and deepwater conventional reservoirs in general over the longer term. The operator has recently shared their analysis with us, which is based upon the production history from the 4 Phase 1 wells drilled and producing to date. And I can share that what they are seeing is encouraging. Their conclusions regarding the aerial extent and connectivity of the hydrocarbon-bearing sands have led to upward revisions in their estimates of total original oil in place.

Additionally, bottom hole pressures are starting to stabilize across the wells, and they have concluded through observed pressure measurements that the field is ideally positioned and connected to a very large and strong associated aquifer that, in essence, acts like a natural waterflood, a mechanism that when present in a reservoir like this tends to significantly improve cumulative recovery of the original oil in place. While there is still inherent risk in subsurface analysis, the combination of more calculated oil and a higher recovery of that original oil in place over time is very encouraging relative to original expectations for the 20- to 30-year productive life of the Shenandoah Monument and Shenandoah South fields.

The important nuance worth pointing out is that wells in these strong water drive reservoirs need to be produced at rates calculated to ensure the water does not, in essence, get produced in lieu of the more viscous oil and before the aquifer serves its purpose to push the oil in place to the perforations in the producing wells. Managing that process carefully is how you maximize what ultimately comes out of the ground. So while we might see slightly lower volumes in the near term, we believe there is an increasing chance that volumes will be stronger for longer versus what we originally anticipated, and that is, in fact, a very good thing.

Looking at near-term activity around the Shenandoah FPU, the current -- the operator currently has a rig on location working in the Monument field, which is a 2-well 17-mile subsea tieback development sanctioned to produce across the Shenandoah FPU. The first of those Monument wells is expected to be brought online before year-end, ahead of our original expectations with the second well following in very early 2027.

After Monument, the plan is to keep that rig in the vicinity, drilling and completing 2 more Shenandoah wells through the balance of 2027. Layered on top of that, a subsea pumping system is being planned for installation in early 2028 to expand and extend total production across both the existing and future well inventory at Shenandoah proper.

Simultaneously, the Shenandoah South partnership is well into execution of their subsea development project with production from the first well in that adjacent field expected to cross the Shenandoah FPU in the first half of 2028. To accommodate all of this near-term activity, the Shenandoah FPU operator is actively working to expand the facility's crude oil handling capacity to 140,000 barrels per day. That kind of proactive investment speaks to the confidence the operator has in the development program ahead.

While 2026 may reflect a more measured year from Shenandoah than we initially projected, the trajectory from here is one we find genuinely exciting. Every barrel that flows from the Shenandoah FPU as well as from the future tiebacks and subsea developments in the area moves exclusively through our 100% owned sink lateral and onto shore through our 64% owned CHOPS pipeline. Our position is durable. It is competitively and contractually protected and the runway in front of it is long.

Elsewhere in the portfolio, Salamanca continues to progress. The fourth well at that facility was brought online during the quarter, ahead of schedule, lifting total production from the Salamanca FPU to just over 40,000 barrels per day. A fifth well remains on the schedule for later this year. We also expect the fifth well at Buckskin to come on production here in the second quarter, adding yet another layer of incremental throughput across our systems. Importantly, we are also seeing the broader LLOG-operated development program continue to accelerate. Harbour Energy, through their acquisition of LLOG has contracted a second rig in pursuit of their stated goal of doubling their production in the Gulf of Mexico by the end of 2027 with 20% compounded annual growth rate through 2030, a majority of which will flow through us.

Beyond the near-term activity I just described, we could reasonably expect to see 2, 3 or maybe even 4 additional wells drilled and completed by the end of 2027 or early 2028 at LLOG-operated fields contractually dedicated to us, the production from which would flow exclusively through our existing infrastructure. That kind of development cadence with a second rig now in the mix speaks to the conviction our producer customers have in the opportunity set in the Gulf of America and gives us increasing confidence in the volume trajectory across our systems as we move into 2027 and beyond and none of which requires any of our capital.

More broadly, the pace of sanctioning and exploration activity around our infrastructure in the deepwater Gulf of America continues to underscore the long-term vitality of the basin in which we operate. Just recently, Kosmos Energy and Occidental announced final investment decision on the Tiberius development in Keathley Canyon, a subsea tieback project in the outboard Wilcox trend, targeting first oil in the second half of 2028. Importantly, for Genesis, Tiberius is being tied back to the Lucius platform. And from Lucius, production will flow directly into our 100% owned SEKCO Pipeline and downstream through our 64% owned Poseidon Pipeline. In other words, every barrel from Tiberius will move exclusively through Genesis-owned infrastructure, adding yet another tranche of dedicated volumes to our system when the field comes online in 2028, again, requiring no capital from Genesis.

Separately, the Bandit prospect located in Green Canyon Block 680 in the Deepwater Gulf of America, recently announced and highlighted by Occidental, Woodside and Chevron is yet another encouraging data point with an announced new discovery in the Central Gulf of America. The interesting thing about the Bandit discovery is that it is on acreage that has been dedicated to our 100% owned Anaconda-associated gas gathering system, our 100% owned Constitution oil gathering system and our 64% owned Cameron Highway Pipeline since 2004. This is a concrete example of something we have reiterated numerous times in the past. We believe we have decades and decades of future production inventory in place from contractually dedicated leases in the Gulf of America, the production from which will require 0 additional capital expenditures from us.

Stepping back, the setup for the remainder of 2026 in our Offshore Pipeline Transportation segment is solid. The commodity prices with where they are, our producer customers have every incentive to push for maximum uptime and throughput, and we are seeing that discipline reflected in how they are running their operation. The broader cadence of additional activity remains on track with multiple wells anticipated to come online over the next several quarters, which provides us with a good line of sight into strong volumes not only over the remainder of the year, but for many years to come. Putting aside the near-term noise of turnarounds in Shenandoah current production rates, the longer-term story in our Offshore Pipeline segment remains intact.

Our Marine Transportation segment delivered results largely in line with our expectations. Underlying market fundamentals across both our brown water and blue water fleet remains stable with supply and demand dynamics appearing well balanced. We expect this equilibrium to persist for the remainder of the year, supported by steady demand and minimal net supply additions of new Jones Act tonnage. The 60-day Jones Act waiver issued in March and the 90-day extension issued at the end of April has had 0 practical effect on the markets we serve, where a significant amount of the foreign flagged activity associated with the waiver appears to have been concentrated on the movement of clean products from the Gulf Coast to the West Coast, well outside our operating lanes. Operationally, we continue to run at or near 100% of available capacity across all vessel classes and remain well positioned to capture incremental demand and potentially higher inland day rates should additional heavy crude imports flow into the Gulf Coast refineries and drive more intermediate product movements through our heater barge fleet.

On the dry docking front, 2 of our 4 blue water vessels completed their required regulatory yard periods during the first quarter. A third, one of our 2 largest vessels entered the shipyard in early March and expected back in service toward the end of May. And the fourth is scheduled to enter in early June and exit around mid-third quarter. Collectively, this activity reduced total available operating days in our blue water fleet by approximately 16% in the first quarter. And the second quarter will see a comparable reduction with some residual effect potentially carrying over into the third quarter.

Despite these temporary periods off the water, we remain confident that these blue water vessels will recontract into a stable, if not improving rate environment when they return to service. Looking ahead to 2027, our remaining 5 blue water vessels are scheduled to complete their regulatory dry dockings over the course of that year, and we are actively evaluating whether to shift one of those into late '26 or alternatively into early 2028 to better balance fleet availability and earnings potential across the next several years.

Taken together, we continue to believe our Marine Transportation segment remains well positioned over the medium to long term to benefit from broader structural momentum in the Jones Act market, supported by steady utilization, the ongoing retirement of older tonnage and a substantial lack of new construction comparable Jones Act vessels.

Our Onshore Transportation & Services segment had a quiet quarter. This part of the business does what it's supposed to do, moving molecules reliably for a broad base of upstream and downstream customers who depend on us for access to Gulf Coast refinery markets and the flow assurance and market optionality comes with it. During the quarter, volumes did just that and moved through both our Texas and Raceland terminal and pipeline systems at healthy levels, benefiting from the continued ramp of offshore production finding its way to shore. Our Baton Rouge terminal also saw good activity with a steady flow of intermediate products through the facility to ExxonMobil, our main refinery customer.

Our Sulfur Services business had a more challenging quarter, and the primary culprit was operational disruptions at our largest host refinery, which also happens to be our lowest cost production facility. When that refinery runs below capacity, our NaSH production drops accordingly and our cost increase, and that is what played out in the first quarter. We expect that refinery in our NaSH facility to return to more normalized operations. And as it does, production volumes and the associated segment margin should recover.

The one ongoing headwind I would flag is the competitive pressure we are seeing from sulfur-related products -- product imports originating in China and moving into South American markets. That situation has not resolved itself and with sulfur prices moving higher recently is something we are watching carefully.

As I mentioned earlier, I want to take a moment to highlight the meaningful steps we took during the quarter to further strengthen our balance sheet and materially lower our cost of financing this business. During the first quarter, we completed a series of transactions, a new $750 million senior unsecured notes offering with a coupon of 6.75%, the tender and full redemption of our higher cost 7.75% senior unsecured notes due 2028, and upsized and extended revolving credit facility as well as the opportunistic repurchase of $135 million in the aggregate of our high-cost Series A corporate preferred securities that together are expected to reduce our annual financing cost by approximately $12 million per year on a run rate basis.

To put this in context, after all this activity, the remaining face value of our Series A corporate preferred stands at approximately $394 million. If we can refinance and ultimately retire this in one form or another over the next couple of years, we can further reduce the cash cost of supporting our business by close to $20 million a year in the case of refinancing and $45 million or so in the case of fully redeeming and extinguishing it.

Additionally, if we are able to refinance our other senior unsecured bonds, the nearest tranche of which matures in January 2029 at the same coupon that we just printed on our longest-dated bonds, we could realize roughly another $35 million a year in reduced financing costs to support our business. So while it's obviously important to focus on our business performance, we should not lose sight that we have the opportunity to drive additional value as much as $80 million a year or perhaps more as we continue to rightsize and optimize our capital structure.

In closing, I want to be clear that our first quarter results, while slightly below our internal expectations in the aggregate, do not change our conviction in the Genesis story or our confidence in the longer term. The fundamental drivers of our business remain intact. The activity in the Gulf of America continues to be strong, and the balance sheet actions we have taken this quarter have lowered our cost of capital and materially improved our financial flexibility going forward, and we still have lots of additional optimization to look forward to.

As our operational and financial performance continues to strengthen over the coming years, and we generate increasing amounts of free cash flow, we will continue to redeem the remaining balance of our high-cost Series A corporate preferred securities, reduce debt in absolute terms and work our way toward our target leverage ratio of approximately 4x, all of which we should create the room to thoughtfully grow distributions to our common unitholders over time while maintaining the flexibility to evaluate future organic and inorganic opportunities as they may arise.

Finally, I would like to say that the management team and the Board of Directors remain steadfast in our commitment to building long-term value for all of our stakeholders, regardless of where you are in the capital structure. We believe the decisions we are making reflect this commitment and our confidence in Genesis moving forward. I would once again like to recognize our entire workforce for their individual efforts and unwavering commitment to safe and responsible operations. I'm extremely proud to be associated with each and every one of you.

With that, I'll turn it back to the moderator for questions.

[Operator Instructions] Our first question today is coming from Michael Blum of Wells Fargo.

I wanted to ask a little bit about the Sulfur Services business. Obviously, you had a little bit of an operational issue in the first quarter, but more wanted to ask about the Chinese competition coming into the market. Is that something new that's developed recently? Or has that been something that's been ongoing? And how do you see that sort of normalizing over time?

It is -- we've talked about it on previous calls that we have seen over the last several years, the introduction of what we call Chinese flake, which is dehydrated sodium hydrosulfide, which comes from China, then it is rehydrated in a rehydration facility in South America and distributed to the mining operations that historically, we have shipped sodium hydrosulfide in solution form from the Gulf Coast, primarily a terminal in Lake Charles through the Panama Canal to the western side of South America. So it's something that we have been dealing with for quite some time.

I never thought that we'd have to talk about China once we exited the soda ash business again, but we are seeing increasing amounts at noneconomic prices show up. And given where sulfur prices were $650 a ton or so accelerating as a result of the dislocations occurring in large part in the Middle East, the prices at which this competitive flake mash, so to speak, are being offered are completely uneconomic from a capitalistic economic-animal point of view. So it's something that we have to keep an eye on.

Our sales over the last several years because we've been supply constrained have actually diminished into South America, into the mines in South America because we have had this competitive pressure, but we've also had some supply constraints. We are evaluating that as a potential future market, but concentrating on new market applications and higher-value markets in North America and elsewhere.

And then I just wanted to ask your comments about the cost savings you could realize from retiring the preferreds and some of the other high-cost debt. Would you say that the plan is sort of steady as she goes as you've been doing sort of opportunistically reducing those various tranches as you can? Or is there any possibility that you could do something sort of larger and eliminate some of that high-cost paper more quickly?

Yes. I think that because our covenant under our senior secured facility gives 100% equity treatment, which we think is appropriate to the convertible preferred. We're kind of somewhat limited in terms of taking it out in one fell swoop while we try to manage the headline number of our bank calculated leverage ratio. But -- so I think it's kind of a chipping away, but as we, a, chip away at debt at the numerator and EBITDA continues to grow that at some point, we would have the flexibility to opportunistically potentially take it out in a big chunk and still have plenty of runway and room under our debt covenants. So -- but I think for the remainder of '26, again, it's opportunistically chipping away at it.

[Operator Instructions] We're showing no additional questions in queue at this time. I'd like to turn the floor back over to Mr. Sims for closing comments.

Again, we appreciate everybody's interest in dialing in, and we look forward to having a positive discussion with you in 90 days. So thanks very much.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.

Greetings, and welcome to the Genesis Energy Fourth Quarter 2025 Earnings Conference Call Webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]

It's now my pleasure to turn the call over to your host, Dwayne Morley, Vice President, Investor Relations. Please go ahead, Dwayne.

Good morning, and welcome to the 2025 Fourth Quarter Conference Call for Genesis Energy. Genesis Energy has three business segments. The Offshore Pipeline Transportation segment is engaged in providing the critical infrastructure to move oil produced in the long-lived world-class reservoirs from the Deepwater Gulf of America to onshore refining centers.

The Marine Transportation segment is engaged in the maritime transportation of primarily refined petroleum products. The Onshore Transportation and Services segment is engaged in the transportation, handling, blending, storage and supply of energy products, including crude oil and refined products primarily around refining centers, as well as the processing of sour gas streams to remove sulfur at refining operations. Genesis' operations are primarily located in the Gulf Coast states and the Gulf of America.

During this conference call, management may be making forward-looking statements within the meanings 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, or a copy of the press release we issued this morning 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 Kristen Jesulaitis, Chief Financial Officer and Chief Legal Officer; Ryan Sims, President and Chief Commercial Officer; and Louie Nicol, Chief Accounting Officer.

And with that, I'll now turn the call over to Grant.

Thanks, Dwayne, and good morning to everyone. Thanks for listening to the call. As noted in our earnings release this morning, our fourth quarter results came in slightly ahead of our internal expectations. As our Offshore Pipeline Transportation segment saw strong growth driven by steady base volumes, a full quarter of volumes from Shenandoah well above its minimum volume commitment, along with continued ramping volumes from Salamanca.

Our Marine Transportation segment returned to a more normalized level of operating performance as our refinery customers increased runs of heavy crude oil, which drove higher volumes of intermediate black oil available for transport. In addition, the transitory market conditions and supply pressures that impacted our blue water fleet last quarter, now appear to be behind us, all of which should provide for a constructive outlook for our Marine segments we look ahead.

The strategic actions we took in 2025, combined with the strong operating performance from our underlying businesses and new offshore volumes enabled us to exit the year with effectively zero outstanding under our $800 million senior secured revolving credit facility at the end of the year after giving effect to cash on hand. With ample liquidity and an increasingly clear line of sight ahead of us, the Board made the decision to increase our quarterly common unit distribution to $0.18 per unit, representing a 9.1% increase year-over-year.

Furthermore, just last week, we opportunistically purchased an additional $25 million of our corporate preferred units in a privately negotiated transaction. Taken together, these actions demonstrate our disciplined approach to capital allocation. As we look ahead to 2026 and assuming our other businesses perform as expected, the Genesis story at this point is largely a deepwater Gulf of America growth story. Based on our ongoing discussions with our offshore producer customers and the conversations we have with them during their year-end budgeting cycle, we have been provided with lots of information, including expected production volumes for 2026 and beyond, along with current and future expected drilling schedules.

We were also notified a certain planned and routine turnaround they have scheduled for 2026, a couple of which will take place at production facilities where we handle the hydrocarbon molecules more than once, and thus can be more financially impactful. While we benefited from no significant turnarounds in 2025, these are absolutely normal and customary. And in some cases, unfortunately, they can last upwards of 30 to 45 days each. These are their plans.

And as I believe everyone can appreciate, we ultimately do not control our customers' operations nor the precise timing of them drilling, completing and bringing new high-impact wells online. We fully understand the plans and schedules offshore change, deepwater drillship schedules change, weather throughout the year changes, planned turnarounds can be delayed or extended for a variety of reasons outside our control.

What is important, though, is that despite all of this and the heavier than normal mine dry docking schedule, which we'll go into more detail in 2026, we still reasonably expect to deliver sequential growth and adjusted EBITDA of plus or minus 15% to 20% over our normalized 2025 adjusted EBITDA of approximately $500 million to $510 million. We obviously hope to exceed the top end of that range in 2026. And quite frankly, we could easily make a case for such an outcome.

To the extent our actual results differ in any significant way, we would simply view that as more of a timing issue with ultimate cash flows just sliding to the right rather than any fundamental degradation in the long-term cash flows expected from the field's contracted to access or offshore infrastructure. Even if certain offshore activity slips to the right, 2027 should be meaningfully stronger than 2026 based upon our producer customers' current development plans that we've seen. And as a result, the opportunities available to us and '26 become even more compelling in 2027 and beyond.

With that, I'll go into a little more detail on each of our business segments. As noted in our earnings release, our Offshore Pipeline Transportation segment delivered another quarter of strong sequential growth with both segment margin and total volumes increasing across our CHOPS and Poseidon pipeline rising approximately 19% and 16%, respectively, versus the third quarter marking the third consecutive quarter of sequential improvement.

In fact, from the first quarter to the fourth quarter of 2025, segment margin increased by roughly 57% with total volumes across both systems growing approximately 28%. These results were driven by steady volumes from our legacy fields, strong contributions from Shenandoah and the continued ramp-up in volumes from Salamanca. During the quarter, volumes from the Shenandoah FPU remained steady as the facility continued to operate at our nearest 100,000 barrel per day target rate from four Phase I wells.

At Salamanca, volumes continue to ramp from its first three wells, and we remain encouraged by both reservoir performance and the remaining development plans. An additional well at Salamanca is scheduled for completion in the second quarter with the potential for a fifth well as early as the fourth quarter. Together, these wells are expected to result in total production of 50,000 to 60,000 barrels a day per day from the Salamanca production facility.

Looking ahead, we expect the monument development a two-well subsea tieback to Shenandoah to be completed and flowing through our facilities by late this year, certainly early 2027. Following Monument, a fifth well at Shenandoah is scheduled to be drilled which could increase total throughput across Shenandoah FPU to as much as 120 kbd with potential upside of an additional 10,000 to 20,000 barrels per day in early 2027.

In addition to the five development wells between Salamanca and Shenandoah, we are aware of at least eight additional development or subsea tieback wells at legacy production facilities, served exclusively by our pipeline infrastructure that are planned to be drilled over the next 12 to 15 months. Taken together, this activity underscores that producers in the Gulf of America continue to prioritize long cycle, high-return deepwater developments. We remain actively engaged in commercial discussions around future tieback and development opportunities that could access our offshore systems as projects are sanctioned.

Given the competitive economics and long planning cycles associated with these developments, we do not expect near-term commodity price volatility to materially impact offshore development activity in the Gulf. As we look beyond 2026, we would be remiss not to highlight the results of BOEM's most recent lease sale, Big Beautiful Gulf 1 or BBG1, which was held on December 10, 2025. The outcome of this sale further reinforces our view and that of the broader upstream industry that there remains strong long-term interest in the Central Gulf of Mexico.

BBG1 generated over $300 million in high bids for 181 tracks, covering approximately 1 million acres in federal waters with roughly 65% of the acreage located in the Central Gulf of Mexico. When combined with lease sales 259 and 261, which took place in March and December of 2023, respectively, more than 4.4 million acres have been leased in federal Gulf waters over the past 3 years.

Approximately 2.4 million acres or 53% of the total of which are located in the Central Gulf where our offshore pipeline infrastructure is located as existing capacity. The breadth of current development activity, the scale of recent lease sales and the long-cycle nature of deepwater investment all underscore our conviction that the Gulf of America remains a world-class basin with decades and decades of existing inventory.

We believe Genesis is uniquely positioned as the only truly independent third-party provider of crude oil pipeline logistics in the region, offering producers with flow assurance and downstream market optionality along the Gulf Coast. Our differentiated asset footprint, deep customer relationships and decades of existing and future inventory ahead position us for continued growth and decades and decades of opportunity in this world-class basin.

Our Marine Transportation segment returned to a more normalized level of operating performance during the quarter. Market conditions across both our brownwater and blue water fleet stabilized as refinery runs of heavy crudes increase and broader equipment utilization improved. Demand for our inland or brownwater fleet recovered as Gulf Coast refiners responded to the widening of light to heavy differentials and increased runs of heavy crude oil, which allowed the supply of intermediate black oil needing to be transported to return to more normalized levels.

Looking ahead, we remain optimistic that our Marine Transportation segment could benefit over time from additional volumes produced in the Gulf of America and incremental crude imports into the Gulf Coast, including volumes from Canada, the resumption of exports from Kirkuk, Iraq and the potential for additional volumes from Venezuela should they all materialize. At a minimum, all of these additional heavier medium sour volumes showing up on the Gulf Coast should cause heavy to sour differentials to continue to widen providing refiners the incentive to process increasing volumes of heavier crudes.

To the extent, these additional heavy volumes come to fruition. This should result in additional intermediate refined products volumes that need to be kept heated and moved from one refinery location to another, which should drive demand for our inland heater barges, providing a constructive backdrop for increasing rates as we move through the year and into next year. Recent commentary from Gulf Coast refiners would reaffirm they are, in fact, starting to see additional heavy sour discounts as additional volumes arrive on the Gulf Coast.

To quote from Valero's recent earnings call, looking at differentials not only with Venezuela, but we've had several beneficial factors that have occurred to kind of help move this market weaker. After last year, with discounts fairly tight, most of these markets moves are making differentials increasingly favorable for refiners with high complexity refiners such as ours, "we are pushing to maximize heavy crude processing in the system going forward with better differentials."

Meanwhile, conditions in our blue water fleet have normalized as incremental capacity that migrated from the West Coast to the Gulf Coast and Mid-Atlantic trade lanes has largely been absorbed by the market. As we noted in our earnings release, 2026 is expected to be a higher maintenance year for our blue water fleet with four of our nine offshore vessels scheduled to undergo regulatory dry dockings in the first half of the year. These planned shipyard periods will temporarily reduce vessel availability and may mute the near-term benefit of any improvement in day rates.

Importantly, however, we expect these vessels to reenter the market against a more constructive backdrop and be well positioned to recontract the day rates that are consistent with or modestly above their current levels when they exit the shipyard. In addition, the American Phoenix remains under contract through early 2027. Based upon prevailing market rates for comparable assets, we would expect American Phoenix to recontract at a higher day rate than recurrent charter when that contract expires.

Overall, we remain confident in the long-term fundamentals of the marine transportation sector with effectively zero net new supply of our classes of Jones Act vessels and the high cost of long lead times required to construct new equipment, the market remains structurally tight as demand continues to improve across both our brown and blue water fleets, we expect our Marine Transportation segment to deliver stable to modestly growing contributions in the years ahead.

Our Onshore Transportation and Services segment performed in line with our expectations during the quarter. Throughput volumes continued to increase across both our Texas and Raceland terminals, and pipelines as new offshore volumes ramped and moved onshore through our system. Our legacy refinery services business also delivered results largely consistent with our expectations.

As we have mentioned in the past, our Refinery Services business has faced certain structural headwinds over the past several years. Specifically, we have been supply constrained in part because refineries move to run more light sweet crudes as a result of the Shell revolution over the last 10 to 15 years. As shell production is peaking and/or the gas-to-oil ratios are increasing from the shale plays and as the heavy sours we mentioned above are returning to the Gulf Coast, we believe we should have the opportunity to make more NASH or sodium hydrosulfide at several of our existing facilities in future periods.

We, generally speaking, can sell every ton we make, and we look forward to restoring some of our supply flexibilities. As our financial performance continues to strengthen over the coming years, and we generate increasing amounts of free cash flow, we will continue to reduce debt in absolute terms, redeem our high-cost corporate preferred securities and thoughtfully evaluate future increases in our quarterly distributions to common unitholders over time. Importantly, we will pursue these objectives while maintaining the flexibility to evaluate future organic and inorganic opportunities as they may arise.

Finally, I would like to say that the management team and the Board of Directors remain steadfast in our commitment to building long-term value for all of our stakeholders, regardless of where you are in the capital structure. We believe the decisions we are making reflect this commitment and our confidence in Genesis moving forward. I would once again like to recognize our entire workforce for their individual efforts and importantly, unwavering commitment to safe and responsible operations. I'm extremely proud to be associated with each and every one of you.

With that, I'll turn it back to the moderator for questions.

[Operator Instructions] Our first question today is coming from Michael Blum from Wells Fargo.

So I wanted to start with the guidance for 2026. If I simplistically just annualize Q4 '25 EBITDA and compare that to the midpoint of the '26 guidance, there's a delta there of, call it, $35 million to $40 million. So I'm wondering if you can just give us a rough ballpark for how much of an EBITDA deduct you're assuming for typical hurricane disruptions and then the higher-than-typical marine maintenance because if I just remove those and don't even assume volume growth, which in the offshore, which I'm sure you'll have, just wanted to get a sense of like where the low end of the guidance could come.

Yes. No, I mean, it's a good question. And as we basically tried to explain, we think that we're being conservative, especially based upon some of the things that we've been told by our producing customers. But again, yes, we are assuming 10 days' worth of anticipated downtime for -- in essence, treating the third quarter is an 82-day quarter instead of a 92-day quarter for our offshore business.

We probably net expect $5 million to $10 million reduction on segment margin line, if you will, from the heavy dry docking schedule on the marine side.

So I think that, as I said in the commentary that I just gave that we fully expect and we can make a case that we can comfortably exceed it. But we're -- the only reason that we're not pulling out a larger number, the primary reason is basically just taking into account that things can happen beyond our control and try to emphasize to make sure that everybody understands that it's really just a timing of recognition of the future cash flows out of the Gulf of Mexico and has nothing to do with structural issues or subsurface issues. So hopefully, it will turn out to be a conservative range that we throw out.

Great. Appreciate that. And then on capital allocation, really have like a two-part question first. Can you just remind us where you'd like to take the leverage ratio and what time frame you think you'll get there? And then as it relates to distribution growth, how do we think about the cadence of increases going forward? Is this something you'll be evaluating once a year every fourth quarter? And will the growth in EBITDA, is that a good proxy for how we should think about growth and distribute?

Well, I mean, again, on a bank calculated basis, I think at 12/31, it was 5.12. So as we continue to use our increasing amounts of free cash flow to pay down debt in absolute terms at the same time that we're seeing increase in our calculated LTM EBITDA, I think that it's -- in essence, it's the debt ratios are going to improve because we're paying down the numerator and while at the same time that the denominator is increasing.

So our long-term target has always been in the neighborhood of four and again, it's -- we have a pretty clear line of sight on it and assuming that everything holds up and the producers do -- the quicker they do things, the quicker that we hit those targets. But it's pretty obvious that we can get there. So depending upon the performance, it dictates the time schedule under which we get there.

Relative to distribution growth, it's something that the board discusses every quarter. There is no hard and fast program that, in essence, we can talk about at this point. But I do think that it's -- it's clear that the Board has committed as are we as a management team to kind of an all of the above approach. As you -- as we said, we were also successful in negotiating a redemption of another tranche on a negotiated basis of the outstanding corporate preferred. So we will evaluate it on a quarterly basis. And let the market know how -- how things are going at that point in time.

The next question today is coming from Wade Suki from Capital One.

Thank you, operator, and good morning, everyone. I appreciate you all taking my questions. Just wanted to -- it's a question I've probably asked you guys before, repetition is always a good teacher. But wondering if you might be able to sort of revisit how you think about potential opportunities to pick up, let's say, the remaining interests in some of these offshore systems that you have, how that might fit with your longer-term priorities and -- of course, I appreciate any insight you might have there or how the counterparties might be looking at it. But yes, to the extent you could sort of clarify or revisit that for us, that would be great.

Well, again, we're not going to comment in one form or other, you would expect on the potential for M&A activity or other things. I mean, obviously, you can you understand from our enthusiasm that we very much like our existing position to the extent that from an ownership position, it would be possible to increase that exposure, that's something that we would be very comfortable with.

But as I want to point out, and you mentioned repetition is a good thing that we have substantial existing capacity on our two major pipelines, the 64% owned and operated Poseidon pipeline and 64% owned and operated CHOPS pipeline. And so we are in a very comfortable position and arguably an enviable position that depending upon developments in the right place that we could have substantial increases and see substantial increases in segment margin and basically flowing to the bottom line in terms of incremental EBITDA without spending any capital. So it's a good runway of continued opportunities in the Central Gulf that we think that we've positioned ourselves for.

No question. I appreciate that color. Just switch gears a little bit. I think I know the answer here, but obviously, some M&A among a customer or maybe soon to be two customers. Just wondering if you could sort of speak to impact expectations. I would expect some maybe acceleration potential, but any kind of longer-term impact you might see from that would be great.

Can you repeat it? I'm sorry, I didn't quite fully understand the question.

I was asking about some of the consolidation we've seen among your customers in the Gulf. And I think there soon to be one more possibly. So just wonder what the implication might be for you all longer term. I imagine positive acceleration or whatnot, but I'd love to hear your thoughts on that.

Yes. No, it's a very good question. And I think that a transaction just closed yesterday, which was basically Harbor Energy out of the U.K. closed on the acquisition of LOG. LOG is obviously an extremely important customer of ours. To the best of my knowledge, we actually moved 70% of LOG's operated production through our pipelines with most of it of those coming through or the large portion of that coming through our SECO lateral and then downstream transportation, which is 100% owned and downstream transportation on our 64% owned Poseidon line.

It is in the public domain, as Harbor said, that it is their intent to double that production from the asset base that they're acquiring in the LOG acquisition to double that between now and the end of '28. So that's a positive read-through on things. So if anything, we view that as an extreme positive of a large -- significantly large public company acquiring a private company and with the full intent of doubling its production over the next 2 years is a very good outcome for us, especially given our existing relationship with LOG.

Your next question today is coming from Elvira Scotto from RBC Capital Markets.

I just wanted to go back to the guidance. And -- can you maybe provide a little more detail around what specifically are you embedding in offshore for Salamanca and Shenandoah. Then you also mentioned kind of the development of eight additional tieback wells planned at legacy facilities. Like is any of that in your 15% to 20% guidance I'll stop there, and then I have some follow-ups.

Yes, I mean, basically, Elvira, again, yes, based upon what we've been able to ascertain in terms of talking to our producer customers that we are extremely comfortable that we will meet or achieve the 15% to 20% off of the baseline that we talked about.

So -- and again, we are trying to set expectations to under promise and over deliver on a prospective basis and -- but to make sure that to reemphasize that to the extent that there's any failure to achieve over performance is really -- is just a timing issue and not an underlying ultimate value consideration. So that's the approach that we're taking as opposed to formal guidance. It's more of an informal guidance that we could easily construct a case, as I said in the prepared remarks, based upon what we know to significantly exceed that range that we just -- we threw out there.

Okay. Great. And then just going back to the dry docking. I think you said the expectation there was $5 million to $10 million kind of impact to margin. Is there an impact to maintenance CapEx on that?

Yes. I think we made reference to it in the earnings release itself. But because of that, yes, we would expect this to be a heavier maintenance capital here than we experienced in 2025.

Is there any quantification of the impact that you can provide?

I think, and generally speaking, you looked at a $15 million to $20 million increase that would be within the ballpark.

Okay. Great. And then just -- just one last question for me. You mentioned how the refineries are increasing runs of heavier crude and importing more Venezuelan crude. What do you think -- how much incremental inland barge utilization could this drive this year?

Well, utilization has remained fairly high, but as -- which is the necessary condition before rates start going up. So as we anticipate whether or not -- we gave a specific example of Valero, but P66 and others have also mentioned that as we see more and more of the heavies run, whether or not it's Venezuela or incremental Gulf of Mexico medium sours or other imports of Canadian and other things that the total black oil pool or the total supply of intermediate refined products, which were specifically designed to move will go up. And so in an already, in essence, close to 100%, if not practically 100% utilization world, we anticipate being able to move prices up, day rates up as we progress through this year and on into next.

We reached the end of our question-and-answer session. I'd like to turn the floor over to Grant for any further closing comments.

Well, as always, I appreciate everybody listening in, and we look forward to delivering more good news as we progress through '26. So thank you very much.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Greetings, and welcome to the Genesis Energy Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I will now turn the conference over to Dwayne Morley. Thank you, Dwayne. You may begin.

Good morning, and welcome to the 2025 Third Quarter Conference Call for Genesis Energy. Genesis Energy has 3 business segments. The Offshore Pipeline Transportation segment is engaged in providing the critical infrastructure to move oil produced from the long-lived low-cost reservoirs in deepwater Gulf of America to onshore refining centers. The Marine Transportation segment is engaged in the maritime transportation of primarily refined petroleum products.

The Onshore Transportation and Services segment is engaged in the transportation, handling, blending, storage and supply of energy products, including crude oil and refined products, primarily around refining centers as well as the processing of sour gas streams to remove sulfur at refining operations. Genesis's operations are primarily located in the Gulf Coast states and the Gulf of America.

During this conference 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 this morning 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 Kristen Jesulaitis, Chief Financial Officer and Chief Legal Officer; Ryan Sims, President and Chief Commercial Officer; and Louie Nicol, Chief Accounting Officer. And with that, I'll now turn the call over to Grant.

Thanks, Dwayne. Good morning to everyone, and thanks for listening to the call. As noted in our earnings release this morning, our third quarter results were broadly in line with our expectations in spite of a few pluses and minuses across our businesses. On the positive side, our Offshore Pipeline Transportation segment started to really shine as it benefited from several factors, including the absence of any weather-related disruptions, the resolution of a number of the producer mechanical issues we have experienced over the past 12 to 18 months and the recognition of the minimum volume commitments to SYNC and CHOPS associated with the new Shenandoah Floating Production Unit, or FPU.

On the other hand, our Marine Transportation segment faced some temporary challenges in July and the first part of August due to some short-term market conditions that affected both day rates and utilization levels. That said, we believe these headwinds are largely subsided as financial results in both September and October returned to levels consistent with the first half of the year. This improvement positions us for a more in line fourth quarter and some momentum heading into the next year from our Marine group. With a sequential 16% improvement, the third quarter offered a glimpse of what's ahead for our Offshore Pipeline Transportation segment. First, in late July, we received first oil from the new Shenandoah floating production unit. Then at the end of September, the operator of Salamanca announced it commenced production from the first of 3 predrilled wells with plans to relatively quickly ramp production to a total level of some 40,000 barrels a day, with expectations to drill another well and further increase production to the original design capacity of 50 kbd in the first half of next year.

The financial results reported today only reflect the minimum volume commitments from Shenandoah and in essence, 0 contribution from Salamanca. Of note, in early October, the operator of Shenandoah announced the successful completion of the ramp-up of its 4 Phase 1 development wells to their cumulative target rate of 100,000 barrels per day, which is well above the MVC level, just 75 days after initial start-up. We remain extremely encouraged by the successful start-up and ramp of both the Shenandoah and Salamanca new FPUs, which are now delivering oil to our 100% owned and operated SYNC and SEKCO laterals, respectively. These laterals deliver these volumes to our 64% owned and operated CHOPS and/or Poseidon crude oil pipelines for further transportation to onshore delivery points. There is no doubt these 2 developments will contribute to a significant increase in the future financial performance of our offshore Pipeline Transportation segment.

When combined with minimal future growth capital expenditures and the expected steady, if not marginally growing performance from our other businesses, we remain well positioned to generate increasing amounts of free cash flow in excess of the cash cost of running our businesses. In fact, I can report we generated excess cash in the third quarter from which we were able to further reduce outstanding borrowings under our senior secured revolving credit facility, and we fully expect to continue to do so in the fourth quarter. Looking forward, the combination of growing total segment margin and lower absolute debt should produce a clear trajectory of significant and rapid improvement in our leverage ratio throughout 2026 and provide us with the foundation and financial flexibility to deliver meaningful long-term value for all of our stakeholders in future periods. With that, I'll go into a little more detail on each of our business segments. As mentioned, our Offshore Pipeline Transportation segment again saw a sequential improvement in both volumes and segment margin.

Several of the previously impacted offshore wells that have been down due to producer mechanical issues were brought back online and are now flowing again on our pipelines. While one relatively high-margin field continues to have some lingering challenges impacting some 10 to 15 kbd of production, we are confident the operator is focused on restoring the impact of production as quickly as is feasible. If the existing wells cannot be fully remediated, we believe we could possibly see an acceleration of the development of at least one other subsea discovery, which will be tied back to the subject FPU with all of its production flowing through our pipelines in 2026 in any event.

We saw a steady ramp in volumes from the Shenandoah FPU during the quarter, which in early October reached its targeted production rate of 100 kbd from its 4 Phase 1 wells. Given additional wells that have already been sanctioned at Shenandoah, Monument and Shenandoah South, we would reasonably expect total throughput to grow to as much as 120 kbd and possibly 10 to 20 kbd higher by the end of 2026 or early in 2027. As mentioned earlier, the operator commenced production off the Salamanca FPU at the end of September, and is working to establish production from its first 3 wells. The operator is in the process of cleaning up these 3 wells and lining out the production facilities on the new FPU, which, as a reminder, was our previously deployed Independence Hub deepwater platform we sold to them in May of 2022.

The repurposed platform not only accelerated the date of first oil and reduced the total development cost, but it also reduced the environmental footprint of the Salamanca development relative to the option of constructing a new deepwater production facility. We expect volumes from these initial 3 wells to continue to ramp and approach approximately 40,000 barrels a day in the near future. The fourth well is planned to be drilled and completed in the second quarter of 2026, at which point Salamanca production levels are anticipated to approach the original design capacity of 50 kbd. The operator now believes that the Salamanca FPU can likely handle as much as 60,000 barrels a day of oil. As such, there is a developing scenario that a fifth well could be drilled, completed and turned to production in late 2026 or early 2027, at which point total production could be as much as 20% higher than what was originally anticipated at the time of making the decision to sanction the Salamanca project.

The addition of new volumes from both Shenandoah and Salamanca has meaningfully increased the total throughput we transport to shore on our CHOPS and Poseidon pipelines. Total throughput on these 2 main pipeline systems has exceeded 700,000 barrels a day in recent days, and we reasonably expect volumes to regularly surpass this level as both projects reach their full potential and additional developments are tied back and brought online. Let me try to put this in perspective, at least in the context of current and future activity in the Central Gulf of America.

At 750,000 barrels a day of average daily throughput on Poseidon and CHOPS, which we expect once Shenandoah and Salamanca are fully ramped, we will move approximately 275 million barrels of oil over a 1-year period. At a conservative average economic ultimate recovery of 25 million barrels of oil per deepwater well, we need to have the producing community drill, complete and tie back to FPUs currently connected to our infrastructure, only 11 or so wells per year to, in essence, fully replace the reserves produced and transported through our pipelines in any 1 year. This, in turn, simply extends or annuitizes our ability to produce these anticipated 2026 type run rate financial results from our offshore segment for many years, if not decades in the future without having to spend any money.

As we sit here today, we are aware of 10 wells that have either already been drilled or in the process of being drilled and which are scheduled to be turned to production from dedicated leases in 2026. Currently, almost half of the entire fleet of deepwater rigs working in the Gulf are drilling on dedicated leases. We are confident that more than 10 currently identified wells will be drilled as we go through 2026, further adding to the backlog, so to speak, of future throughput and financial contribution from our offshore segment. We are very encouraged with the early results from Shenandoah and Salamanca. The success at Shenandoah as well as other recent industry commentary about other high-pressure, high-temperature opportunities in the Gulf of America is extremely exciting.

We believe there is a positive read-through for additional significant discoveries and opportunities, specifically around our existing pipeline infrastructure in the Central Gulf of America. In fact, it is very likely we are in the early innings of a multi-decade opportunity set in which we are in an enviable position with strategically located, installed, paid for and available pipeline capacity to shore. In that regard, it's important to note that the current nameplate capacity of the Shenandoah FPU represents only about 50% of SYNC's capacity and roughly half of the incremental capacity we and our partner have added on to the CHOPS pipeline.

We continue to engage in robust commercial discussions with producers across the Central Gulf of America, and we believe Genesis is uniquely positioned as the only truly independent third-party provider of crude oil pipeline logistics in the region, setting the stage for continued growth in decades and decades of opportunities out of this world-class basin. Our Marine Transportation segment performed slightly below our expectations, primarily due to temporary market conditions. Demand for our inland or brown water fleet was modestly impacted during the first half of the third quarter as Gulf Coast refiners maximize runs of light crude oil, which temporarily reduces supply of intermediate black oil needed to be transported.

The shift in refinery feedstock was largely driven by the narrowing discount of heavier crude grades relative to light crude, prompting refiners to favor lighter barrels. Public filings from several independent refiners confirm this trend, showing a notable decline in medium and heavy feedstock volumes, consistent with what we observed in the market. As noted last quarter, we have been closely monitoring when Gulf Coast refiners might return to heavier crude slates, including Venezuelan barrels. Early third quarter earnings commentaries from refiners such as Valero has been encouraging. To quote directly from Valero's recent call on medium sours, we had seen discounts as narrow as 2.5%, that's widened out closer to an 8% discount.

So discounts have certainly moved to the point where we are seeing an economic benefit in our system to running medium and heavy sour crudes. Our expectation is you'll continue to see those widen. Then as medium sour discounts widen, you'll see heavy sours react to remain competitive with medium sours. So we anticipate that to continue to happen as we move through the fourth quarter. We also have Venezuelan barrels back in the mix, which is helping. I think you'll see in the fourth quarter a heavier crude diet than what we had in the third quarter, filling out a lot of our conversion capacity. Based on this commentary, we are confident that Gulf Coast refiners are responding to wider heavy crude discounts and shifting back towards heavier crude slates.

This transition should generate more refinery bottoms along the Gulf Coast, increasing demand for our inland heater barges through year-end and on into 2026. Meanwhile, conditions in our blue water fleet were a little softer in the first part of the quarter. Operators continued relocating equipment from the West Coast to the Gulf Coast and Mid-Atlantic trade lanes, in part based upon the coming closure of approximately 17% of California's refining capacity, specifically Phillips 66 Los Angeles area refinery by late 2025 and Valero's Northern California refinery by early 2026. These relocations temporarily increase the available supply of larger vessels in our operating markets, temporarily pressuring both utilization and day rates.

However, we think all such relocated vessels have now found a home, and we do not expect these shifts to cause any lasting structural change in the blue water market. 8 of our 9 blue water vessels are contracted through year-end with several extending well into 2026, helping to mitigate any near-term volatility as the market continues to absorb this tonnage. Overall, we remain confident in the long-term fundamentals of the marine transportation sector. With effectively 0 net new supply of our classes of Jones Act vessels and the high cost and long lead times required to construct new equipment, the market remains structurally tight. As demand continues to improve across both our brown and blue water fleets, we expect our Marine Transportation segment to recover in the fourth quarter and deliver stable to modestly growing contributions in the years ahead.

Our Onshore Transportation and Services segment performed as expected during the quarter. We are seeing increasing volumes through our Texas and Raceland terminals and pipelines. We expect this trend to continue as volumes from both Shenandoah and Salamanca access our onshore pipeline systems for further distributions to refineries and downstream markets in both Texas and Louisiana, which we serve both directly and indirectly.

Our legacy refinery business performed in line with expectations. As we have emphasized over the last several years, 2025 has always been about reaching the inflection point we have all been anticipating. I can confidently say as our financial performance continues to grow and we generate increasing amounts of free cash flow in coming years. We remain firmly focused on creating long-term value for all our stakeholders.

Our approach to capital allocation will be measured and deliberate with a priority of absolute debt reduction, opportunistic redemption of our high-cost corporate preferred securities and a thoughtful evaluation of future increases in our quarterly distributions to common unitholders. As we begin returning capital, we will continue to act with patience, discipline and balance, ensuring we maintain the financial flexibility as well as liquidity needed to evaluate and pursue any accretive opportunities as they may arise.

Finally, I'd like to say that the management team and the Board of Directors remain steadfast in our commitment to building long-term value for all our stakeholders regardless of where you are in the capital structure. We believe the decisions we are making reflect this commitment and our confidence in Genesis moving forward. I'd once again like to recognize our entire workforce for their individual efforts and unwavering commitment to safe and responsible operations. I'm extremely proud to be associated with each and every one of you. With that, I'll turn it back to the moderator for questions.

[Operator Instructions]. And our first question comes from the line of Wade Suki with Capital One. Please proceed with your question.

I know the big project spend has been completed. But can you give us a sense for where future growth capital might be directed or recognizing it's pretty modest at this point? And maybe sort of the dovetail on that. I may have asked you the same question last quarter, but do you see any material project potential on the horizon to something a little chunkier?

Wade, I mean, as a normal course of business, I think we view growth capital to be in the $10 million, $15 million range, which, generally speaking, is -- might be tanks or pumps at one or more of our offshore facilities and/or onshore facilities to support the operations of our -- allow us to increase the throughputs on our existing footprint. So we don't have anything on the horizon that we're looking at, evaluating. But that doesn't mean that ultimately, things may opportunistically pop up. But we are really focused, Wade, on being in a position to generate increasing amounts of free cash flow and simplifying the balance sheet capital structure and returning capital to our unitholders. So that's what our focus is at this point.

Understood. And I was hoping to revisit, I think you made some comments in your prepared remarks about 11 more wells per year needed. If I heard you correctly, is that sort of to offset declines, anticipated declines from Shenandoah and Salamanca? Just any clarification you could give would be great.

I think that it really is -- we view this -- the offshore business is a self-regenerating annuity, and it will regenerate itself every year if we "If the producers replace the reserves regardless of where they come from, that they move through our pipeline in any 1 year." So that's kind of how we think about it, Wade, is that -- so if we move 275 million barrels in '26, which we would anticipate that we would, if the producers across the footprint of existing production facilities, which are dedicated and tied into us, exclusively tied into our infrastructure, if they drill just 11 additional development wells, they're adding a year. They're replacing that throughput and annuitizing our ability without us spending any money, annuitizing the ability for us to repeat year after year after year the financial performance that we expect.

Fantastic. If I could squeeze one more in, guys, I appreciate you all bearing with me here. But recognizing how underutilized the assets are, what do you think offshore -- and you might have touched on this in previous calls, what do you think offshore segment margin could look like with full utilization, I guess? Is that something you're kind of prepared to touch on?

Well, I mean, let's -- we'll kind of give you a little bit of the financial and leverage is a bad word in this context, but the operating results that are levered to the existing capacity. So we have kind of publicly stated if the producers for Salamanca and Shenandoah kind of come close to hitting their forecast, then we would expect an incremental plus or minus $160 million a year of recognized segment margin. And we have, in essence, used half of the capacity that we have installed and paid for. So if we filled it up with similarly situated fields, including coming through a lateral and then going downstream on Poseidon or you can appreciate the "upside" we have without spending any money at this point forward.

[Operator Instructions]. It doesn't look like there are any further questions at this time. With that, I'd like to turn the floor back to Grant Sims for closing remarks.

Okay. Well, thanks, everyone, for listening in, and we look forward to talking to you in another 90 days, if not sooner. So thanks very much.

Thank you, ladies and gentlemen. And with that, this does conclude today's teleconference. We thank you for your participation, and you may disconnect at this time. Have a wonderful day.

Greetings, and welcome to the Genesis Energy L.P. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Dwayne Morley, Vice President of IR. Please...

Good morning, and welcome to the 2025 Second Quarter Conference Call for Genesis Energy. Genesis Energy has 3 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 America to onshore refining centers.

The Marine Transportation segment is engaged in the maritime transportation of primarily refined petroleum products.

The Onshore Transportation and Services segment is engaged in the transportation, handling, blending, storage and supply of energy products, including crude oil and refined products, primarily around refining centers as well as the processing of sour gas streams to remove sulfur at refining operations.

Genesis' operations are primarily located in the Gulf Coast states and the Gulf of America.

During this conference 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 this morning 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 Kristen Jesulaitis, Chief Financial Officer and Chief Legal Officer; Ryan Sims, President and Chief Commercial Officer; and Louie Nicol, Chief Accounting Officer.

Good morning to everyone, and thanks for listening to the call. As we mentioned in our earnings release this morning, the second quarter was generally in line with our expectations. What is much more important from our perspective is looking ahead. And along those lines, I'm extremely excited to report the successful commissioning and start-up of the Shenandoah production facility and its 120,000 barrels per day of nameplate capacity, which just last week delivered first oil to our new sink pipeline lateral and then onto shore through our newly expanded CHOPS pipeline.

This is a tremendous milestone for our entire Genesis team. I want to publicly thank them for all the hard work and dedication over the last 3-plus years during the design and construction phase as well as the countless hours day and night put in by our operations folks offshore to bring these exciting new projects into full service.

Despite initial production from Shenandoah being delayed, first by around 6 months because of an industrial mishap during construction in Korea and then 6 weeks or so due to some commissioning challenges, primarily driven by abnormal loop currents in the Gulf, the operator successfully cleaned up the first of its 4 predrilled and completed wells last week.

On Tuesday of this week, the operator began the cleanup of the second well, with such cleanup operations likely to continue through this weekend. The operator will then move to the third well and then on to the fourth well. Based upon initial results, it appears more likely than not that the initial wells will meet and/or exceed original predrill expectations. In fact, the operator and at least one of Shenandoah's nonoperating working interest owners have publicly affirmed that the initial phase should achieve 100,000 barrels a day of oil production from just these 4 wells, conceivably as early as the end of September.

With first production flows through SYNC and CHOPS now underway, it is timely to discuss the tremendous potential in and around the Shenandoah Floating Production Unit, or FPU, and the currently identified and sanctioned developments, which will exclusively flow through our SYNC lateral and downstream on CHOPS, giving Genesis decades worth of anticipated throughput.

After the first 4 wells are brought into full production, the Shenandoah FPU is expected to be debottlenecked and its capacity expanded to notionally 140,000 barrels of oil per day, targeted to be completed in advance of a fifth Shenandoah Phase 1 well that is slated for drilling and completion by mid-2026. Phase 2 of the Shenandoah development will add 2 additional wells and a subsea booster pump also in mid-2026.

Beyond Shenandoah itself, the Monument discovery represents a further extension of the regional development and will entail 2 new producing wells developed by a 17-mile subsea tieback to the Shenandoah FPU slated for the fourth quarter of 2026.

In addition to announcing first production from Shenandoah Phase 1 last week, the operator also confirmed the sanctioning of the Shenandoah South discovery located in Walker Ridge 95 -- Block 95 and water ranges depth ranging from 5,800 to 6,000 feet. Shenandoah South will be developed through a cost-efficient subsea tieback, utilizing a 3-mile oil flow line and a dedicated riser connection to the FPU.

The project will include the drilling and completion of 2 wells with first production from the initial well targeted for the second [quarter] of 2028. This backlog of developments highlights Shenandoah's and our SYNC and CHOPS pipelines strategic role as a critical infrastructure that will facilitate the development of additional reserves within at least a 30-mile radius of the Shen FPU for many, many years ahead. Just these currently identified and sanctioned development projects represent almost 600 million barrels of oil equivalent reserves that will come -- all come through our 100% owned SYNC pipeline for further transportation to shore through our 64% owned and operated CHOPS pipeline.

I would remind everyone that the total current nameplate capacity of the Shenandoah FPU represents only about 50% of the capacity of SYNC as well as only about half of the incremental capacity we have added on the CHOPS pipeline.

The Salamanca development, which will flow exclusively through our 100% owned SEKCO pipeline for further transportation to shore through our 64% owned and operated Poseidon pipeline remains on track to achieve first oil by the end of the third quarter. The operator who has been largely dependent on some of the same support equipment and vessels that are currently working on Shenandoah has been progressing through their well completions and through safety checks and other pre-commissioning activities, including their subsea connection to our SEKCO pipeline lateral in advance of first production.

Like Shenandoah, we expect Salamanca's production to ramp relatively quickly over the subsequent few months after first production to its initial peak design of 40,000 to 50,000 barrels of oil per day.

Additionally, just like Shenandoah, we expect the Salamanca FPU will facilitate the development of additional reserves within at least a 30-mile radius for many, many years to come. These incremental volumes from Shenandoah and Salamanca are key to the Genesis story over the remainder of 2025 and certainly 2026 and beyond. This expected significant increase in our Offshore Pipeline Transportation segment margin driven initially by these new developments and sustained by the incremental identified and sanctioned opportunities I mentioned earlier as well as expected future exploratory successes and proximity to this expanded infrastructure is extraordinarily exciting for Genesis.

Combined with the completion of our growth capital expenditures and the expected continued steady performance from our other businesses, we believe we are very well positioned to generate increasing amounts of free cash flow in excess of the cash cost of running our businesses starting in this -- the third quarter and which should grow and ultimately give us tremendous financial flexibility to be opportunistic and create long-term value for all of our stakeholders in future periods.

With that, I'll go into a little more detail on each of our business segments. As mentioned in our earnings release, our Offshore Pipeline Transportation segment saw a sequential increase in volumes as a couple of the previously impacted offshore wells that have been down due to producer mechanical issues were brought back online and are now flowing again on our pipelines. While we continue to have several high-margin wells offline, we remain confident that producers are more incented than us and that they are actively working to restore these outages in conjunction with drilling new development wells that will also be tied into these existing production facilities.

The remediation efforts have obviously been frustrating and slower than what we had originally been told, but we believe there continues to be no lasting impact on the underlying reservoirs. And regardless, we will ultimately transport every barrel produced from these fields on our offshore pipelines.

Based upon what we have recently been told by the producers, we would reasonably expect the remaining wells will be fixed and back on production by and large, by the end of the third quarter, which should come close to restoring our base volume, so to speak, and allow the ramp in volumes from both Shenandoah and Salamanca to be mostly incremental.

Our Marine Transportation segment performed in line with our expectations. Demand fundamentals for our inland or brown water fleet remain generally constructive. While the second quarter was a little sloppy as refinery crude slates, particularly in the Midwest, shifted and heavy to light differentials narrowed on the Gulf Coast, we have seen increased activity levels so far in the third quarter as refiners in the Gulf and Midwest begin their turnaround season, which has historically driven increased demand for our brown water equipment.

It will be interesting to see if Gulf Coast refiners return to running Venezuelan heavies as the administration has just authorized a partial return to importing such highly viscous crude. This could widen the heavy to light differential and ultimately yield more "refining bottoms" along the Gulf Coast. Both would be expected to push demand for internal heater barges such as ours.

Meanwhile, demand conditions in our blue water fleet have softened a little bit in recent months as we saw weaker demand to move clean products from the Gulf Coast to the Mid-Atlantic and New England. At the same time, certain large operators have relocated marine equipment away from the West Coast and into the Gulf Coast, which has increased the available supply of larger equipment in the markets in which we operate. While utilization rates in our blue water fleet have remained steady, these current market fundamentals have somewhat limited our ability to continue to drive day rates higher, especially as term charters come up for renewal. Ultimately, this new incremental equipment will find a home in the Gulf and East Coast trade. And while it might cause some sloppy periods in the interim, we do not believe it will contribute to any lasting structural changes.

The long-term fundamentals in the marine world remain constructive, driven by effectively 0 net supply additions of our classes of Jones Act equipment and the significant cost and extended time line needed to construct a new vessel. As we have consistently mentioned in the past, even if an operator were to embark on such a new construction program today, it would be years before any new equipment was delivered. We, along with other industry participants, believe that day rates still need to rise another 20% to 30-plus percent and be expected to sustain at such higher levels for the next 5 to 8 years before anyone will undertake a significant newbuild program.

All of this is to say, we continue to believe there remains structural support in the Jones Act world. Given our diversified and relatively young fleet, we continue to expect steady and likely growing financial contributions from our Marine Transportation segment for the foreseeable future.

Switching briefly to our Onshore Transportation and Service segment. Our OTS segment performed in line with our expectations as we saw strong volumes through both our Texas system and Raceland terminal as refineries in both Texas City and South Louisiana increased their appetite for offshore barrels. We continue to believe we should see a modest increase in volumes through both our Texas City and Raceland terminals as new production from Shenandoah and Salamanca comes online and quickly ramps in the back half of the year.

Our legacy refinery services business also performed in line with our expectations. As we highlighted last quarter, the lower and upper values in the range of our adjusted EBITDA guidance for the full year of 2025 were mostly dependent upon the timing around the resolution of the producer-related mechanical issues of certain high-margin offshore fields and the timing of first oil as well as the rate at which Shenandoah and Salamanca actually ramp to their anticipated initial production levels.

As you can tell from our earnings release and our prepared remarks here today, the resolution of all of the producer mechanical issues has taken longer than we had previously been told and first oil from Shenandoah and subsequently Salamanca has been delayed a month or so from what we previously had expected. As a result for 2025, we expect to now come in at or near the low end of our previous guidance range.

Having said that, the main takeaway from today is that none of the delays we have experienced in 2025, whether related to producer remediation efforts or the start of first production from both Shenandoah and Salamanca will have any significant, much less material impact on our ability to begin generating free cash flow starting this quarter nor have they altered our outlook for 2026 and beyond whatsoever.

We remain committed to using our increased financial flexibility and liquidity to, first and foremost, make progress in seeing our bank calculated leverage ratio trend closer to our long-term targeted range of plus or minus 4 turns. In conjunction therewith, we remain committed to finding the highest and best use for future available dollars, whether that includes the further reduction of debt in absolute terms, the possible further redemption of our high-cost corporate preferred securities and/or the potential for increased distributions to our common unitholders in future periods.

At the same time, we will remain disciplined and balanced, preserving the ability to evaluate and pursue incremental commercial opportunities that align with our long-term strategic objectives.

Finally, I would like to say that the management team and the Board of Directors remain steadfast in our commitment to building long-term value for all of our stakeholders, regardless of where you are in the capital structure. We believe the decisions we are making reflect this commitment and our confidence in Genesis moving forward.

I would once again like to recognize our entire workforce for their individual efforts and unwavering commitment to safe and responsible operations. I'm extremely proud to be associated with each and every one of you.

With that, I'll turn it back to the moderator for questions.

[Operator Instructions] Our first question is from Michael Blum with Wells Fargo.

I wanted to ask about the timing on Salamanca. I realize it's out of your control directly, but just wanted to get your confidence level in the latest time line. Are there any other kind of variables that could shift that? Or do you feel pretty good about the latest projection there?

I think we -- based upon our most recent conversations, we feel very good about the projected time line at initial production certainly by the end of the third quarter. This is the kind of starting to get into the peak season for named storms that can cause interruptions. But at least the long term or at least the 7- to 10- to 14-day forecast at this point is that there's no significant disruptive weather on the horizon. So we feel very good about it. I think the operator feels very good about it. And so we're looking forward to seeing that start.

Great. And then appreciate all your comments on capital return and the different avenues and constituents there. Just wondering, given the delays in the -- ramp of these offshore projects, should we think about all this capital return really starting in 2026? Or do you think possibly some of this could start in 2025?

Well, I think that as we said in our prepared remarks, our focus for the rest of this year as we hit our free cash flow numbers is to pay our revolving balance to 0 by the end of the year. We think that, that is an achievable outcome.

And then -- but I would say that by the time we get to the fourth quarter in the context of distribution for the fourth quarter that we would expect to have 3 to 4-plus months worth of operating history under our belt, so to speak, for the 2 major fields that are coming on, and we may have at that point, we may have a discussion and the flexibility to do something in '25 as opposed to '26.

Our next question is from Wade Suki with Capital.

Not sure if I got cut off or not, but I'll give it a try anyway just in case -- I think I might have asked this on the last call, but just looking at new commercial opportunities, anything out there on the horizon right now you can sort of discuss or opine on?

No. We have nothing on the horizon other than to use -- it's almost football season. So blocking and tackling for purposes of seeing the ramp and fully placed into service the significant offshore expansion projects at this point. So no, there's nothing identified that we're working on in terms of additional capital expenditures. We are getting into the free cash flow world and having the high-class problem of being able to allocate that across everybody in the capital structure.

I appreciate that. Love the analogy there. Just, I guess, in terms of the portfolio kind of as it sits today, are you all pretty happy with where it is? Any inorganic opportunities or maybe even a divestiture candidate out there that might be material or meaningful?

I think that we are -- we think that as you could tell from our prepared remarks that the underlying macro fundamentals for all of our businesses are as good as they've been in many, many, many years. And so we're very comfortable with where we are, and we look forward to continuing to deliver increasing financial results in a positive macro backdrop for our businesses.

So the short answer is, we like where we're at, and we intend on harvesting cash from where we have and look forward to, at some point in the future, having the financial flexibility to be opportunistic, but I don't see us stepping outside of our current lines of businesses whatsoever, just focusing on our preeminent positions that we've worked very hard to build.

Understood. I hear that loud and clear. Just one more, if I could squeeze it in. Is Monument sort of the next chunky development coming online after Salamanca?

Yes, it's a combination of, as we said, Phase 1 of Shenandoah represented by the first 4 wells is anticipated to achieve about 100,000 barrels a day of oil flows. With the debottlenecking, both whether or not it's Phase 2 or Monument, we would expect that we would see additional volumes come up with -- through the expanded Shenandoah FPU in the back half of '26, if not into early '27. But that should -- again, that cost us no money whatsoever. And so we look forward to their continued success in bringing the wells on and as they tie in the incremental facilities or incremental reserves to the Shenandoah FPU is a great thing for us.

Our next question is from Elvira Scotto with RBC Capital Markets.

Can you talk a little bit or elaborate a little bit on some of these trends that you noted in the Marine Transportation segment and just the impact to your ability to raise day rates? What are your expectations here kind of going forward? I think you mentioned it's going to be a little sloppy, but what are we thinking here like quarters into next year? Just any incremental detail there?

Yes. I mean I think that the second quarter was a little sloppier than the third quarter, at least for the brown our inland barges. I mean we still achieved the inland barge utilization rate for the quarter in excess of 98% and that's adjusted for scheduled dry dockings and other issues, which wouldn't allow us to otherwise use the equipment.

So that's a pretty high utilization rate, but we anticipate that to be even higher in the third quarter. So really, the sloppiness we saw in the inland side, we think is behind us. What we're dealing with on the blue water side and the larger barges, ATBs and wireline units, as you're aware, we have 9 of those. We have seen some equipment that had previously been in the West Coast trade that due to some emission restrictions -- new emission restrictions in the Republic of California, primarily, they are leaving the West Coast trade and coming to the Gulf Coast.

So we've seen a little bit of -- but our utilization continues to be 97%, which means we have a substantial amount of under longer-term contract and not so much in the spot business. But we -- as I said in the prepared remarks, we think that, that will ultimately find a home and everything will kind of settle down.

And given those utilization rates that are in the high 90%, approaching 100%, that's the necessary condition for being able to ultimately raise rates. So some short-term speed bumps along the way that have no significant impact on the long-term fundamentals in the Jones Act tonnage world from our perspective.

Great. And then the -- can you just remind us of the time line to reach that leverage ratio of 4x? And how do you plan to balance shareholder returns with your focus on kind of reducing leverage and improving the balance sheet?

I think, again, we'll probably get into a further discussion of '26 later in the year and certainly the first part of '26. And again, driven primarily just as our range for the '25 is driven by the performance of these 2 significant incremental economic opportunities for us represented by Shen and Salamanca that we'll have more clarity as we go through the year and enter '26, so we can give you a more concise answer on that.

But again, I think that the total distribution to common unitholders is order of magnitude, what $78 million or something in that regard. So 10% increases in distribution is less than $8 million. And so that's not a significant heroic cost of beginning a return to unitholders, but that's something that we will consider as we move through the year.

And given Michael's comments or question earlier, how I responded to that, it's something that I think that we can potentially consider beginning as early as the fourth quarter or as we progress through '26.

Great. And then just my last one. Given the timing of Salamanca and Shenandoah and some of the remediation work, you are now guiding to the low end of your previous adjusted EBITDA guidance. Do you think given the line of sight that you have now and visibility, are you pretty confident that you can, at the very least, hit that low end?

You never say never -- at this red hot moment, we have 2 wells out of what are 7/8 predrilled or pre-completed wells on. So again, as I said, based upon early analysis, it certainly -- it appears to be meeting or exceeding our predrill expectations. So time will tell, but we're in the very early stages, but we're very excited, as you can tell from where we are at this point.

[Operator Instructions]

This does conclude our question-and-answer session. If you'd like -- I would now like to pass the floor back over to management for any closing comments.

Well, thanks, everyone, for listening to the call, and we look forward to discussing better things as we continue through 2025 and into 2026. Thanks very much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.