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Edited Transcript of CORR earnings conference call or presentation 23-Jun-20 8:30pm GMT

Preliminary Q1 2020 CorEnergy Infrastructure Trust Inc Earnings Call

LEAWOOD Aug 19, 2020 (Thomson StreetEvents) -- Edited Transcript of CorEnergy Infrastructure Trust Inc earnings conference call or presentation Tuesday, June 23, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David John Schulte

CorEnergy Infrastructure Trust, Inc. - CEO, President & Chairman

* Matt Kreps

CorEnergy Infrastructure Trust, Inc. - Investor Relations

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Presentation

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Operator [1]

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Hello, and welcome to CorEnergy's first quarter results call. (Operator Instructions) As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Matt Kreps, Investor Relations for CorEnergy. Matt, please go ahead.

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Matt Kreps, CorEnergy Infrastructure Trust, Inc. - Investor Relations [2]

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Thank you, everyone, for joining CorEnergy Infrastructure Trust's First Quarter 2020 Results Call.

I am joined today by Dave Schulte, Chairman, President and CEO. Materials related to this call, such as our press release issued earlier today, and an audio replay of this conference call will be available on CorEnergy's website, corenergy.reit.

We currently expect to file the first quarter 10-Q on Thursday, June 25. The 10-Q will include additional non-GAAP metrics and a reconciliation to our GAAP results. We encourage all of you to review our complete disclosures and those metrics in the 10-Q filing when available. We will not specifically review the preliminary financial results from the press release on today's call. Instead, we will focus on our key assets and plans moving forward. Additionally, we will not host our typical question-and-answer session at the end of the call. We recognize that many of you have questions. We are presently engaged in a number of ongoing business activities that limit our ability to make further disclosures today.

Finally, I would like to remind everyone that statements made during the course of this presentation that are not purely historical may be forward-looking statements and are subject to the safe harbor protection available under the applicable securities laws. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in our filings with the SEC. These documents are available on the Investor Relations section of our website. We do not update our forward-looking statements.

With that, I would like to now turn the call over to Dave Schulte. Please go ahead.

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David John Schulte, CorEnergy Infrastructure Trust, Inc. - CEO, President & Chairman [3]

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Good afternoon, everyone, and thank you for joining the call today in the middle of this unusual time. The team at CORR has handled the pandemic extremely well. In fact, they've managed this disruption at a time when we've had extremely high demands and needed coordination of efforts to resolve challenging portfolio issues as well as our reporting obligations. Frankly, it is the professionalism and dedication of this team that will help build a path to the future. We have a solid business at MoGas and Omega and a well-positioned asset in GIGS, approximately $100 million for acquisitions, and the benefits of the REIT structure for an expanded set of energy midstream opportunities.

We're in a market environment where access to capital has never been more important. And add to that a battle tested team committed to creating a differentiated business model, and we believe we've got the makings of a good baseline to start from here.

With that in mind, let's look at our assets in more detail as well as how we plan to move forward. I'll start with the sale of our Pinedale Liquids gathering system in Wyoming. UPL filed for bankruptcy in 2016 and again in 2020. As permitted in bankruptcy, UPL filed a motion to reject the Pinedale lease agreement in order to start construction from their well pads to the water processing system they purchased from Shell a few years ago, which is known as the SWEPI system. The outcome of this UPL bankruptcy differed from their prior bankruptcy due to the meaningfully lower business enterprise value that's been accepted by the UPL lenders. To help illustrate this difference, the estate is currently valued at just $1 billion compared to approximately $6 billion in the prior bankruptcy.

In that event, our lease was not rejected. This time, no recovery would exceed the second lien position for unsecured creditors, including the value of our claim for indemnification for UPL's actions. In consultation with our lender, we agreed to the sale at a value approximately equal to UPL's cost of the SWEPI upgrade construction project. The proceeds from net sale of $18 million plus cash remaining at the subsidiary of around $3 million will be used to fully discharge the associated subsidiary secured debt of approximately $32 million. And the Pinedale facility will then be terminated.

Our second quarter 2020 results will reflect an income statement charge of approximately $147 million for this sale, offset by any reduction in debt over and above those cash proceeds. The company's tenant of the Grand Isle Gathering System is a subsidiary of Cox Oil we simply refer to as EGC tenant. They did not pay rent in April, May or June and attributed their failure to comply with the lease to the reduction in the price of oil in the current global economic and health pandemic. These events caused the company to recognize an approximately $140 million loss on impairment of leased property, plus a $30 million loss on the deferred rent receivable. Our impairment process included a review of various scenarios with input from outside experts to supplement our analysis.

With regard to the rent due each month, CORR has filed a complaint in Texas State Court to recover unpaid rents from the EGC tenant. And while that action is pending, we did receive a favorable judgment requiring EGC tenant to provide financial information. However, that has yet to be received.

Oil prices are now recovering, which should be beneficial for our tenants' prospects. In the last communication in April that we had directly from the EGC tenant and its parent was a request for CORR to consider options for restarting production, and we remain open to those discussions.

Our MoGas and Omega assets have performed well. MoGas entered into an agreement with a subsidiary of Spire to construct an interconnect to allow gas to be delivered by Spire and received by MoGas for an estimated cost of approximately $4 million. Construction is expected to be completed by the fourth quarter of this year, at which point, MoGas would begin receiving incremental revenue. MoGas also entered into an additional 10-year firm transportation services agreement with Amaren Energy, which will provide incremental revenue beginning in the fourth quarter of 2020.

Turning to our balance sheet. We believe that preserving liquidity is the prudent, responsible thing to do and a priority on behalf of our creditors and shareholders while we are actively pursuing new opportunities. At March 31, we had cash balance of $119 million. We believe that our current liquidity will be sufficient to fund operating requirements while we rebuild our business. We have taken steps to reduce operating expenses wherever possible, and no event of default has occurred or is expected under the convertible notes or the Series A preferred stock as a result of the impairments or the income statement charge. This outcome is reflective of the hard work and proactive efforts our team made to accommodate the needs of all of our capital providers.

There are currently no borrowings under the CorEnergy credit facility. In short, our balance sheet is in good condition to support opportunities to move forward. We believe we're well positioned for the acquisition of new assets, including our cash position and an array of asset level debt and equity financing options available to us from a variety of partners and sources of capital. We are moving responsibly to allocate our capital to a select number of opportunities which would satisfy our target returns, and we are sensing less competition from other capital providers for potential transactions of interest to us.

In closing, the CORR team is now looking to the future to reset the baseline on which to build a new base of dividend stability. Thank you for your support, and I hope all of you are staying safe in these unusual times.

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Operator [4]

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