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Date
Thursday, Oct. 30, 2025 at 10 a.m. ET
Call participants
Chief Executive Officer — Grant E. Sims
Chief Financial Officer and Chief Legal Officer — Kristen Jesulaitis
President and Chief Commercial Officer — Ryan Sims
Chief Accounting Officer — Louie Nickel
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Takeaways
Offshore pipeline transportation segment margin -- Delivered a sequential 16% improvement in the third quarter, with further growth expected as Shenandoah and Salamanca production ramps up.
Shenandoah floating production unit (FPU) -- Achieved its cumulative target rate of 100,000 barrels per day from four phase one wells within 75 days of initial start-up in early October 2025, exceeding minimum volume commitment levels.
Salamanca FPU ramp-up -- Commenced production from the first of three wells, targeting approximately 40,000 barrels per day in the near term and up to 50,000 barrels per day once a fourth well is completed in the second quarter of 2026. The operator believes the FPU can handle up to 60,000 barrels per day, potentially resulting in volumes 20% higher than the original project design, as discussed regarding Salamanca FPU production potential for late 2026 or early 2027.
Pipelines throughput -- CHOPS and Poseidon pipeline systems have recently surpassed 700,000 barrels per day, with management expecting sustained levels above this as more wells come online.
Incremental segment margin outlook -- Grant E. Sims said, "if the producers for Salamanca and Shenandoah, you know, 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."
Minimum future growth capital expenditures -- Projected in the $10 million to $15 million range annually, focused on enhancing throughput at existing facilities; no major capital projects planned near term.
Marine transportation segment -- Experienced lower day rates and utilization in July and August, but performance returned to first-half levels by September and October, positioning for a more stable fourth quarter.
Free cash flow and debt reduction -- Generated excess cash in the quarter, allowing for a reduction in outstanding borrowings under the senior secured revolving credit facility, with continued debt reduction expected.
Leverage ratio trajectory -- Management expects "significant and rapid" improvement in leverage through 2026 as total segment margin grows and absolute debt declines.
Wells backlog -- 10 wells have either been drilled or are in process, with plans for additional wells in 2026, supporting ongoing throughput and segment contributions.
Capital allocation priorities -- Emphasizing absolute debt reduction, potential redemption of high-cost corporate preferred securities, and future evaluation of quarterly distribution increases to common unitholders.
Summary
Genesis Energy (GEL 0.06%) reported fiscal third quarter 2025 results marked by a substantial increase in offshore pipeline activity, driven by rapid production growth from new floating production units. Management confirmed that pipeline throughput recently exceeded 700,000 barrels per day and expects further increases as additional wells are brought online. The company is maintaining a strategic focus on minimal capital expenditures, robust free cash flow generation, and accelerated debt reduction, positioning the offshore segment as a key annuity-like contributor for future years.
Management highlighted new commercial dialogue with producers for further development around existing pipeline assets, positioning Genesis Energy as a key independent third-party logistics provider in the Central Gulf of America.
Fleet redeployment, due to California refinery closures, temporarily affected marine transportation, but management does not see a long-term impact on utilization or rates.
Refiner commentary, directly quoted during the call, provided explicit support for the expectation that Gulf Coast crude feedstock mix will shift toward heavier barrels, thereby supporting increased demand for Genesis Energy's marine transportation assets.
Management reaffirmed commitment to measured capital allocation and the future potential for increasing quarterly distributions, contingent on continued financial performance improvement.
Industry glossary
CHOPS: The Cameron Highway Oil Pipeline System, a major deepwater offshore crude oil pipeline owned and operated partly by Genesis Energy.
FPU: Floating production unit, a vessel or floating facility used in offshore oil production to process and transfer hydrocarbons from subsea wells to pipelines.
Multilateral wells: Wells that branch out from a single main borehole, increasing access to multiple production zones within a field (implied in referenced field development and ramp-up discussion).
PVC: Minimum volume commitment, a contracted agreement where the shipper pays for a certain guaranteed volume on a pipeline, whether or not they fully use it.
Jones Act vessels: U.S.-flagged, U.S.-built ships that comply with the Jones Act, permitting them to operate between U.S. ports in domestic maritime commerce.
Full Conference Call Transcript
Grant Sims, who will be joined by Kristen Jesulaitis, Chief Financial Officer and Chief Legal Officer, Ryan Sims, President and Chief Commercial Officer, and Louie Nickel, Chief Accounting Officer. And with that, I'll now turn the call over to Grant. Thanks, Ryan. Morning to everyone, and thanks for listening to the call.
Grant E. Sims: 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 August due to some short-term market conditions that affected both day rates and utilization levels. That said, we believe these headwinds have 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 Salamanca announced it commenced production from the first of three pre-drilled 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, in essence, zero contribution from Salamanca.
Of note, in early October, the operator Shenandoah announced a successful completion of the ramp-up of its four phase one development wells through their cumulative target rate of 100,000 barrels per day, which is well above the MVC level, just seventy-five days after initial start-up. We remain extremely encouraged by this 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 SACO 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 two 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 costs 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 or 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 impacted 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 four phase one 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 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 three wells. The operator is in the process of cleaning up these three 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 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 three wells to continue to ramp and approach approximately 40,000 barrels a day in the near future. A 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 of oil.
As such, there is a developing scenario that a fifth well could be drilled, completed, and turned to production 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 two 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, we will move approximately 275 million barrels of oil over a one-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 one 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're aware of 10 wells that have either already been drilled or are 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're in the early innings of a multi-decade opportunity set in which we are in the 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 50% of Sync's capacity and roughly half of the incremental capacity we and our partner have added onto 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 and 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 maximized runs of light crude oil, which temporarily reduces the 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 have been encouraging. To quote directly from Valero's recent call, "On medium sours, we had seen discounts as narrow as 2.5%. That's why I'm not 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 sour. 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." End quote.
Based on this commentary, we are confident that Gulf Coast refiners are responding to wider heavy crude discounts, 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 increased 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. Eight of our nine 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 marine transportation.
With effectively zero 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 pipeline.
We expect this trend to continue as volumes from both Shenandoah and Salamanca access our onshore pipeline systems for further distribution 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. 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: Thank you. And with that, we will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad and a confirmation tone will indicate that your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. And our first question comes from the line of Wade Suki with Capital One. Please proceed with your question.
Wade Anthony Suki: Great. Good morning, everyone. Appreciate you all taking my questions. I know the big project spend has been completed, 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, and I may have asked you the same question last quarter, but do you see any material project potential on the horizon, sort of something a little chunkier?
Grant E. Sims: We, you know, I mean, there's a normal course of business, I think we view growth capital to be in the $10 million to $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 ex 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 or know, but that doesn't mean that ultimately, things, you know, 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.
Wade Anthony Suki: Understood. Thank you. 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 clarifications you could give would be great.
Grant E. Sims: I think that it really is, you know, we view this the offshore business as a self-regenerating annuity. And it will regenerate itself every year if we quote unquote if the producers replace the reserves regardless of where they come from, that they move through our pipeline any one year. So that's kinda how we think about it, Wade, is that so if we move 275 million barrels in 2026, 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.
Wade Anthony Suki: Fantastic. If I could squeeze one more in, guys, I appreciate y'all bearing with me here. But recognizing how underutilized the assets are, you know, 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?
Grant E. Sims: I guess. Is that something you're kinda prepared to touch on? Well, you know, I mean, let's we'll kinda 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 kinda publicly stated if the producers for Salamanca and Shenandoah, you know, 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 you know, if we filled it up with similarly situated fields including, you know, coming through a lateral and then going downstream on Poseidon or you can you can appreciate the quote unquote upside we have without spending any money at this point for.
Wade Anthony Suki: Understood. Very clear. Thank you so much. Appreciate it.
Grant E. Sims: Thank you.
Operator: Once again, if you'd like to ask a question, please press 1 on your telephone keypad. 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.
Grant E. Sims: Yeah. Well, thanks, everyone, for listening in, and we look forward to talking to you in another ninety days, if not sooner. So thanks very much.
Operator: Thank you, ladies and gentlemen. 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.