Must-know: An overview of Genesis Energy (Part 2 of 5)
Assets and operations overview
Genesis Energy L.P. (GEL) is a diversified midstream energy master limited partnership (or MLP) headquartered in Houston, Texas. It has a diverse portfolio of customers, operations, and assets, including refinery-related plants, pipelines, storage tanks and terminals, marine operations, and trucks and truck terminals.
Description of segments and related assets
GEL’s core pipeline transportation business is the transportation of crude oil for a fee. Pipeline revenues are a function of the level of throughput and the particular point where the crude oil is injected into the pipeline and the delivery point.
GEL owns and operates three onshore common carrier crude oil pipeline systems—the Texas System, the Jay System, and the Mississippi System. It also has two carbon dioxide (or CO2) pipelines—the Free State pipeline and the Northeast Jackson Dome Pipeline System (or NEJD). Delivery points for the Texas Pipeline are the Texas City and Houston refineries. For Mississippi it’s the Shell’s (or RDSA) mobile refinery and Plains All American’s (PAA) mobile refinery. The Jay System caters to Midwest refiners. Denbury Resources (DNR) has sole use and control of the CO2 Free State Pipeline and the NEJD Pipeline through 2028. GEL is a part of the Alerian MLP ETF (or AMLP). DNR is a part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
GEL acquired 50% interest in the Cameron Highway Oil Pipeline Company (or CHOPS) in November, 2010. It’s the largest crude oil pipeline located in the Gulf of Mexico (or GOM). Delivery points are the Texas City and Port Arthur refineries. Apart from this, GEL owns Poseidon (28% ownership), Odyssey (29% ownership), and Eugene Island (23% ownership) in GOM. Delivery points include shell tankage in Louisiana, Delta Loop 20, Venice and Caillou Island, Louisiana.
GEL has also entered into a joint venture with Enterprise Products to construct a deepwater, Southeast Keathley Canyon Pipeline Company LLC (or SEKCO), pipeline in the GOM. It has also entered into agreements with ExxonMobil (XOM) to supply its Baton Rouge Refinery. Both of these pipelines are expected to begin service by mid-2014.
GEL’s refinery services segment (i) provides sulfur-extraction services to nine refineries, (ii) operates storage and transportation, and (iii) sells sodium hydrosulfide (or NaHS) and caustic soda (or NaOH) to large industrial and commercial companies. The refinery services activities involve processing high sulfur (sour) gas streams that the refineries have generated from crude oil processing operations. Caustic soda acts as a scrubbing agent under prescribed temperature and pressure to remove sulfur thereby producing NaHS. Sulfur removal in a refinery is a key factor in production of refined products such as gasoline, diesel, and aviation fuel. GEL then sells and delivers NaHS and NaOH which are used in the specialty chemicals, pulp and paper business, and mining industries. The refinery services contracts are typically long-term in nature.
Supply and logistics
GEL provides supply and logistics services to Gulf Coast oil and gas producers and refineries through a combination of purchasing, transporting, storing, blending, and marketing of crude oil and refined products. Crude oil related services include gathering crude oil from producers at the wellhead, transporting crude oil by truck to pipeline injection points, and marketing crude oil to refiners. Refinery services include gathering refined products from refineries, transporting refined products via truck, railcar, or barge, and selling refined products to customers in wholesale markets. For these services, GEL generates fee-based income.
GEL recently completed three crude oil rail loading or unloading facilities in Walnut Hill, Florida Wink, Texas and Natchez, Mississippi.
Assets include 285 trucks, 385 trailers, 55 barges, and 23 push or tow boats. The leased rail cars consist of approximately 80 refined product rail cars and 500 crude oil rail cars.
GEL depends on capital finance for the future development and acquisition of assets and businesses. It may not be able to fully execute its growth strategy if they’re unable to raise debt and equity capital at an affordable price. Uncertainty in the credit markets and tightening of the credit markets limits the company’s access to capital.
Due to GEL’s significant relationships with Denbury, adverse developments concerning Denbury could adversely affect them as it’s the operator of their largest CO2 pipeline. Denbury ships substantially all of the crude oil that is shipped on the Mississippi System. GEL could be adversely affected if Denbury experiences any adverse developments
To find out more about GEL and its 1Q14 earnings results, continue reading the next section of this series.
Browse this series on Market Realist:
- Part 1 - Must-know: A business overview of Genesis Energy
- Part 3 - Overview: Genesis Energy’s 1Q14 earnings and key statistics
- Part 4 - Must-know: Genesis Energy’s outlook for 2014 and 2015
- Oil, Gas, & Consumable Fuels