FOR IMMEDIATE RELEASE
Contact: Ross A. Benavides
Chief Financial Officer
(713) 860-2500
GENESIS ENERGY, L.P. REPORTS ANNUAL AND
FOURTH QUARTER RESULTS
March 7, 2003 - Genesis Energy, L.P. (AMEX:GEL) today issued the following:
Earnings Highlights
(in thousands except per unit amounts)
Three Months Ended Year Ended
December 31, December 31,
2002 2001 2002 2001
--------- --------- --------- ---------
Net Income (Loss) $ 1,569 $ (49,716) $ 5,092 $ (43,612)
Per Unit $ 0.18 $ (5.65) $ 0.58 $ (4.96)
Items Affecting Comparability after
Minority Interest:
Impairment Charge $ - $ (45,061) $ - $ (45,061)
Derivative-related Items - (1,240) (2,094) 2,726
Other operating charges - (1,500) (1,500) (1,500)
Minority Interest Effect
on Special Items - 4 - 4
--------- --------- --------- ---------
Total $ - $ (47,797) $ (3,594) $ (43,831)
========= ========= ========= =========
Net Income (Loss) Adjusted for
Items Affecting Comparability $ 1,569 $ (1,919) $ 8,686 $ 219
Per Unit $ 0.18 $ (0.22) $ 0.99 $ 0.02
Genesis Energy, L.P. announced that its net income for the quarter
ended December 31, 2002 was $1,569,000, or $0.18 per unit and net income for the
year was $5,092,000, or $0.58 per unit. In the comparable 2001 periods, its net
loss was $49,716,000, or $5.65 per unit for the quarter and $43,612,000, or
$4.96 for the year.
Net income adjusted for items affecting comparability for the quarter
ended December 31, 2002, was $1,569,000, or $0.18 per unit. This compares to net
loss adjusted for items affecting comparability for the quarter ended December
31, 2001, of $1,919,000, or $0.22 per unit. Net income adjusted for items
affecting comparability for the year ended December 31, 2002, was $8,868,000, or
$0.99 per unit. Income adjusted for items affecting comparability for 2001 was
$219,000, or $0.02 per unit.
Items affecting comparability include the change in fair value of
derivatives and an addition to the accrual for environmental costs associated
with a 1999 crude oil spill. Based upon a review of contracts existing at
December 31, 2002, the Partnership determined that it had no contracts meeting
the requirement for treatment as a derivative contract that did not meet hedge
requirements under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," (as amended and interpreted). As a result, the fair value
of the Partnership's net asset for derivatives decreased by $2,094,000 for the
year ended December 31, 2002. In addition, the Partnership increased its
environmental accrual by $1,500,000, primarily as a result of discussions with
regulatory agencies regarding potential fines that may be imposed under the
Clean Water Act in connection with the crude oil spill that occurred on its
Mississippi System in December 1999.
Items affecting comparability in the 2001 periods included an
impairment charge of $45,061,000 related to the Partnership's pipeline assets
and goodwill, as well as the effects of SFAS No. 133 and $1,500,000 recorded in
that year for the environmental accrual for the spill.
Highlights of 2002
"2002 was a very important transition year for Genesis," said Mark J.
Gorman, President and Chief Executive Officer of Genesis. "We are very proud of
the accomplishments listed below and look forward to meeting the challenges we
face in the next year."
o Salomon sold our General Partner to a subsidiary of Denbury Resources Inc.
("Denbury") on May 14, 2002. Genesis owns and operates a 219-mile pipeline
system in Mississippi adjacent to several of Denbury's existing and prospective
oil fields where Denbury is the largest oil and natural gas operator in the
state. Average daily throughput on the Mississippi System increased from
approximately 6,000 barrels per day during May 2002, to approximately 9,900
barrels per day in December.
o On May 14, 2002, the General Partner amended the Limited Partnership Agreement
of Genesis Energy, L.P. to broaden the right of the Common Unitholders to remove
the general partner of Genesis Energy, L.P. ("GELP"). Prior to this amendment,
the general partner could only be removed for cause and with approval by holders
of two-thirds or more of the outstanding limited partner interests in GELP. With
the approval of a majority of the limited partners in GELP, the Partnership
Agreement, as amended, provides that the general partner may be removed without
cause.
o We reached agreement in principal with the US Environmental Protection Agency
and the Mississippi Department of Environmental Quality for the payment of fines
under environmental laws with respect to the Leaf River Spill in December 1999.
Based on this agreement in principal, we have recorded accrued liabilities
totaling $3.0 million. While we are pleased with the progress made to resolve
the uncertainty of this environmental liability during 2002, no assurance can be
made that we will reach final agreement with the government or the specific
terms if a final agreement is reached.
o We completed a major transformation of our gathering and marketing business
model during 2002. The primary driver compelling us to make this change was the
December 31, 2001, replacement of the $300 million Guaranty Facility from
Salomon with a much smaller credit facility. As a result, we reduced credit
support from a daily average of $174.5 million in Salomon guarantees in 2001 to
a daily average of $30.2 million in letters of credit during 2002. We also
reduced the cost of trade credit from $1.2 million in 2001 to $0.6 million in
2002. To achieve this result, we reduced our average bulk and exchange volumes
by 86 percent and our average wellhead volumes by 25 percent from the 2001
levels. We also redirected the focus of our lease gathering business to
eliminate all volumes that required letters of credit but did not generate
sufficient gross margin to support the cost of such credit support. Under the
new business model, we generated gathering and marketing gross margin in 2002
that was 96 percent of the gross margin generated in 2001. We also were able to
make permanent reductions to general and administrative expenses of $1.0
million.
o We took several steps to improve the profitability of our pipeline operations.
First, we idled or abandoned 338 miles of pipe on our Texas System to reduce
cost or risk of operation. Second, we increased our tariffs wherever feasible to
achieve an acceptable risk adjusted rate of return. Third, we adjusted our
pipeline loss allowances to levels consistent with our peers.
o We implemented a plan during 2002 to place the Mississippi System in condition
to handle increased throughput from expected production increases in the area.
Such operational changes will allow us to operate much of the pipeline at
significantly reduced pressures and will allow us to monitor and evaluate the
system more effectively. We also completed the work necessary to restore the
segment idled by the 1999 Leaf River Spill.
o During 2002, we generated $11.8 million of Available Cash before required debt
reductions, reserves, and the special distribution. By retaining this cash we
have strengthened our balance sheet and positioned Genesis to move forward.
o During 2002, we did not make a regular quarterly distribution. In December
2001, we obtained a credit facility from Citicorp North America to replace our
Guaranty facility and our existing working capital facility. That facility
includes a provision that does not allow us to pay a distribution for any
quarter unless the Borrowing Base under the facility exceeded the usage under
the facility for every day of the quarter by at least $20 million plus the total
amount of the distribution. For the first and second quarters of 2002, we did
not meet that covenant and did not pay a distribution. During the third and
fourth quarters of 2002, we met the test but did not make a distribution for
these periods because of reserves established for future needs of the
Partnership.
o Because some of the Partnership's Unitholders were allocated taxable income
for 2002, we made a special distribution in the amount of $0.20 per unit on
December 16, 2002, to Unitholders of record as of December 2, 2002. The special
distribution was made to mitigate the burden of incurring a tax liability
without receiving a cash distribution.
Outlook
As stated above, we believe we have successfully changed our business
model for the gathering and marketing business to consume less credit support
and working capital. We expect this business to continue to perform well during
2003, although perhaps not as well as in 2002. Both volumes and margins are
expected be lower during 2003 as this business is likely to be subject to
volatility and increased trade credit costs. Additionally, this business may be
constrained by the need for trade credit if crude oil prices increase above
current levels.
Pipeline gross margins should decline slightly during 2003. We expect
to obtain the benefit of the 2002 tariff increases for the full year 2003 as
well as continued increases to throughput. Offsetting these revenue increases
will be increased costs for maintenance, insurance, and safety.
General and Administrative Costs are expected to remain stable.
Offsetting permanent cost reductions from the changed business model will be a
one-time adjustment for replacing the Citicorp Credit facility with a new bank
facility led by Fleet Bank and cost increases for insurance and other costs to
comply with SEC regulations mandated by the Sarbanes-Oxley Act.
An important factor affecting our outlook will be capital expenditures.
We previously indicated that we may need to increase capital expenditures as a
result of complying with federal pipeline integrity management program (IMP)
regulations and other regulatory requirements. Based on our preliminary
experience with the IMP program during 2002, we have established a capital
budget of $6.7 million for 2003. For 2004, we expect to make capital
expenditures of $8.4 million. After 2004, capital expenditures are expected to
return to a normal pattern of approximately $2.0 million per year.
Our outlook will also be impacted by our access to capital for growth.
We have obtained commitments from a group of banks to enter into a three-year
revolving credit facility led by Fleet Bank to replace our existing facility
that is due to expire at the end of 2003. This facility is expected to close
during March 2003. The new facility will include a restrictive covenant similar
to existing facility such that under this covenant, we may not pay a
distribution for any quarter unless the borrowing base exceeds usage under the
Credit Agreement by at least $10 million plus the amount of the distribution.
The combination of obtaining this new facility and our relationship with Denbury
should position us to grow our business. However, based on our experience in
obtaining this facility, we believe that it will be important for us to further
strengthen our balance sheet and improve our financial metrics before we will
have access to significant capital for growth.
Distribution
We expect to resume regular quarterly distributions during 2003 with an
anticipated first quarter distribution of at least $0.05 per unit on May 15,
2003, to unitholders of record as of April 30, 2003. Based on the need for
larger than normal capital expenditures to comply with the pipeline regulations
during 2003 and 2004 and the need to strengthen our balance sheet to improve our
access to capital for growth, and considering the restrictive covenant in our
new credit facility, we do not expect to restore the regular distribution to the
targeted minimum quarterly distribution amount of $0.20 per quarter for the next
year or two. However, if we exceed our expectations for improving the
performance of the business, if our capital projects cost less than we currently
estimate, or if our access to capital allows us to make accretive acquisitions,
we may be able to restore the targeted minimum quarterly distribution sooner.
Other Matters
Genesis Energy, L.P. will broadcast its Fourth Quarter and Year End
Earnings Announcement Conference Call on Wednesday, March 26, 2003, at 10:00
a.m. Central. This call can be accessed at www.genesiscrudeoil.com. Choose the
Investor Relations button. Listeners should go to this website at least fifteen
minutes before this event to download and install any necessary audio software.
For those unable to attend the live broadcast, a replay will be available
beginning approximately one hour after the event.
Genesis Energy, L.P., operates crude oil common carrier pipelines and
is an independent gatherer and marketer of crude oil in North America, with
operations concentrated in Texas, Louisiana, Alabama, Florida, Mississippi and
New Mexico.
This press release includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Although Genesis believes that its expectations
are based upon reasonable assumptions, it can give no assurance that its goals
will be achieved. Important factors that could cause actual results to differ
materially from those in the forward looking statements herein include the
timing and extent of changes in commodity prices for oil, ability to obtain
adequate credit facilities, environmental risks, government regulation, the
ability of the Company to meet its stated business goals and other risks noted
from time to time in the Company's Securities and Exchange Commission filings.
(tables to follow)
Genesis Energy, L.P.
Summary Consolidated Statements of Operations
(in thousands except per unit amounts and volumes)
Twelve Months Ended Twelve Months Ended
December 31, 2002 December 31, 2001
----------------- -----------------
Revenues $ 911,806 $ 3,340,198
Cost of Sales 888,691 3,320,382
-------------- -------------
Gross Margin 23,115 19,816
General & Administrative Expenses 8,289 11,691
Depreciation and Amortization Expense 5,813 7,546
Asset Impairment Charge - 45,061
Other Operating Charges 1,500 1,500
-------------- -------------
Operating Income (Loss) 7,513 (45,982)
Interest, Net (1,035) (527)
Change in Fair Value of Derivatives (2,094) 2,259
Gains on Asset Sales 708 167
-------------- -------------
Income (Loss) Before Minority Interest
and Cumulative Effect of Change in
Accounting Principle 5,092 (44,083)
Minority Interest - 4
-------------- -------------
Income (Loss) Before Cumulative Effect
of Change in Accounting Principle 5,092 (44,079)
Cumulative Effect of Change in
Accounting Principle, Net of Minority
Interest Effect - 467
-------------- -------------
Net Income (Loss) $ 5,092 $ (43,612)
Net Income (Loss) per Common Unit -
Basic and Diluted:
Before Cumulative Effect of Adoption
of Accounting Principle $ 0.58 $ (5.01)
Cumulative Effect of Accounting Change - 0.05
------------- -------------
Net Income (Loss) $ 0.58 $ (4.96)
Wellhead barrels per day 63,911 84,677
Pipeline barrels per day 75,869 84,686
Three Months Ended Three Months Ended
December 31, 2002 December 31, 2001
---------------- -----------------
Revenues $ 221,882 $ 667,379
Cost of Sales 216,695 664,240
------------- ------------
Gross Margin 5,187 3,139
General & Administrative Expenses 1,937 2,996
Depreciation and Amortization Expense 1,503 1,916
Asset Impairment Charge - 45,061
Other Operating Charge - 1,500
------------ ------------
Operating Income (Loss) 1,747 (48,334)
Interest, Net (188) (154)
Change in Fair Value of Derivatives - (1,240)
Gains on Asset Sales 10 7
------------ ------------
Income (Loss) Before Minority Interest 1,569 (49,721)
Minority Interest - 5
------------ ------------
Net Income (Loss) $ 1,569 $ (49,716)
============ ============
Net Income (Loss) per Common Unit-
Basic and Diluted $ 0.18 $ (5.65)
Wellhead barrels per day 62,730 79,593
Pipeline barrels per day 77,304 80,473
Genesis Energy, L.P.
Summary Consolidated Balance Sheets
(in thousands)
December 31, 2002 December 31, 2001
----------------- -----------------
ASSETS
Cash $ 1,071 $ 5,777
Accounts Receivable 80,664 161,798
Inventories 4,952 3,737
Other Current Assets 6,143 10,788
------------ -----------
Total Current Assets 92,830 182,100
Net Property 44,460 45,710
Other Assets 247 2,303
------------ -----------
Total Assets $ 137,537 $ 230,113
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts Payable $ 87,386 173,545
Accrued Liabilities 8,834 10,144
------------ -----------
Total Current Liabilities 96,220 183,689
Long-Term Debt 5,500 13,900
Minority Interest 515 515
Partners' Capital 35,302 32,009
------------ -----------
Total Liabilities and Partners' Capital $ 137,537 $ 230,113
============ ===========
# # #