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Genesis Energy (GEL) to Divest Midstream Assets for $300M

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Genesis Energy, L.P. GEL recently announced that it has agreed to divest its Powder River Basin Midstream properties for around $300 million in net cash proceeds, which will be used to pay down its credit revolver’s outstanding balance. Genesis is selling the assets to a subsidiary of Dallas-based Silver Creek Midstream, LLC, which is exercising its option to buy the properties.

The assets to be divested include the Houston, TX-based midstream energy partnership’s Powder River Basin Pipeline, rail facility and crude gathering system associated with the assets in Wyoming. The partnership expects the transaction to be over by the third quarter.

Along with the divestment, the partnership also made an alteration to its revolving credit facility. The move brings the bank leverage ratio to 5.50x for the remaining period of the credit revolver, till May 8, 2022. This will enable the partnership to reduce its debt burden. Notably, the partnership has a long-term total leverage ratio target of 4.00x. Currently, it has debt-to-capitalization ratio of 59.1%.

At the beginning of this month, the partnership offered an option of acquiring some of its non-core assets to a third party, which could fetch a payment of $30 million. Genesis expected the deal to reduce the bank leverage ratio by 0.3 times. 

Price Performance

Genesis Energy has lost 8.4% of its value in the past year against the 6.5% collective growth of the industry it belongs to.

Zacks Rank and Stocks to Consider

Genesis Energy currently has a Zacks Rank #5 (Strong Sell). Investors interested in the energy sector can opt for some better-ranked stocks like McDermott International, Inc. MDR, Subsea 7 S.A. SUBCY and Helix Energy Solutions Group, Inc. HLX, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based McDermott is an equipment provider for energy companies. The company’s top line for 2018 is likely to improve 145% year over year. In the last four reported quarters, the company delivered an average positive earnings surprise of 101.7%.

Luxembourg-based Subsea is an oilfield service providing company. In the last four reported quarters, the company delivered an average positive earnings surprise of 318.6%.

Houston, TX-based Helix Energy’s bottom line surpassed the consensus mark in three of the last four quarters, with the average positive earnings surprise being 66.7%.

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