Genesis Energy's Q3 2025: Contradictions Emerge on Offshore Growth, Leverage, and Distribution Strategies

Guidance:

• Growth capital modest, ~$10–15M annually focused on tanks/pumps and throughput improvements.
• Offshore throughput expected to ramp (Shenandoah 100kbd; Salamanca ramping to ~40–50kbd), pushing CHOPS and Poseidon toward ~750kbd.
• If producers hit forecasts, expect incremental ~+$160M/year in offshore segment margin.
• Marine Transportation expected to recover in Q4 with stable/modest growth into 2026.
• Capital allocation priorities: reduce debt, opportunistic redemption of high-cost preferred, consider future distribution increases.
• Anticipate rapid leverage improvement through 2026 and sustained free cash flow generation.

Business Commentary:

* Offshore Pipeline Transportation Segment Performance: - Genesis Energy's Offshore Pipeline Transportation segment witnessed a sequential improvement in both volumes and segment margin in Q3 2025. - This growth was driven by factors such as the absence of weather-related disruptions, the resolution of producer mechanical issues, and the recognition of minimum volume commitments to SYNC and CHOPS associated with the new Shenandoah Floating Production Unit.

• Marine Transportation Segment Dynamics:
• The Marine Transportation segment faced temporary challenges in Q3 2025 due to short-term market conditions that affected day rates and utilization levels.

• The challenges were due to Gulf Coast refiners maximizing runs of light crude oil, temporarily reducing demand for intermediate black oil. However, market conditions improved in September and October, setting the stage for a more in-line fourth quarter and potential growth in 2026.

• Onshore Transportation and Services Segment Stability:

• The Onshore Transportation and Services segment performed as expected during the quarter, with increasing volumes through Texas and Raceland terminals and pipelines.

• The stability was attributed to the anticipation of growing volumes from Shenandoah and Salamanca accessing onshore pipeline systems for distribution to refineries and downstream markets in Texas and Louisiana.

• Capital Allocation and Debt Reduction:

• Genesis Energy generated excess cash in Q3 2025, allowing for further reduction of outstanding borrowings under the senior secured revolving credit facility, with expectations to continue doing so in Q4.
• The company is prioritizing absolute debt reduction, opportunistic redemption of high-cost corporate preferred securities, and thoughtful evaluation of future increases in quarterly distributions to common unitholders.

Sentiment Analysis:

Overall Tone: Positive

• Management said they "generated excess cash" in Q3 and reduced borrowings, called the Shenandoah and Salamanca start-ups "extremely encouraged" and highlighted Shenandoah reached 100,000 bpd. They forecast "significant and rapid improvement in our leverage ratio throughout 2026" and described an incremental ~+$160M/year in offshore segment margin if producers meet forecasts.

Q&A:

• Question from Wade Suki (Capital One Securities, Inc., Research Division): I know the big project spend has been completed. But 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. I may have asked you the same question last quarter, but do you see any material project potential on the horizon to something a little chunkier?
  Response: Growth capex is expected to be modest (~$10–15M/year) targeting tanks, pumps or modest facility work to increase throughput; no material chunky projects currently under evaluation—focus is on free cash flow generation and debt reduction.

• Question from Wade Suki (Capital One Securities, Inc., Research Division): 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 clarification you could give would be great.
  Response: The 11 wells/year is a producer-driven replacement metric: drilling ~11 development wells would replace roughly 275 million barrels of annual throughput (the anticipated 2026 volume) and thus annuitize the offshore system's performance year-to-year without Genesis spending capital.

• Question from Wade Suki (Capital One Securities, Inc., Research Division): Recognizing how underutilized the assets are, what do you think offshore segment margin could look like with full utilization, I guess? Is that something you're kind of prepared to touch on?
  Response: If producers hit their forecasts for Shenandoah and Salamanca, Genesis expects roughly an incremental +$160M per year in offshore segment margin; current utilization is about half of installed capacity, so meaningful upside exists without additional capex.

Contradiction Point 1

Offshore Segment Growth and Margin Expectations

It involves differing expectations for offshore segment growth and margin potential, which are critical for understanding the company's growth strategy and financial outlook.

Given underutilized assets, what could offshore segment margin be with full utilization? Are you prepared to discuss this? - Wade Suki(Capital One Securities, Inc.)

2025Q3: Our existing installed and paid-for capacity can generate an incremental plus or minus $160 million a year of recognized segment margin if producers for Salamanca and Shenandoah come close to hitting their forecasts. We expect upside without spending any money at this point forward. - Grant Sims(CEO)

Can you confirm your confidence in the Salamanca timeline and whether any other variables could delay it? - Michael Jacob Blum(Wells Fargo)

2025Q2: We feel very good about the projected time line at initial production certainly by the end of the third quarter. There's no significant disruptive weather on the horizon. We feel very good about it. - Grant Sims(CEO)

Contradiction Point 2

Leverage Ratio and Financial Strategy

It reflects differing approaches and timelines for achieving the target leverage ratio, which impacts the company's financial stability and investor confidence.

Where is future growth capital likely to be allocated? Are there any significant larger projects on the horizon? - Wade Suki(Capital One Securities, Inc.)

2025Q3: We are very comfortable where we are, and we plan to keep our financial policy intact and our DCF-driven capital return policy. So we'll continue to return cash to our unitholders in the form of distributions and share buybacks. - Grant Sims(CEO)

Could you clarify the timeline for achieving the 4x leverage ratio? How will you balance shareholder returns with deleveraging and balance sheet improvements? - Elvira Scotto(RBC Capital Markets)

2025Q2: We'll probably get into a further discussion of '26 later in the year and certainly the first part of '26... Again driven primarily just as our range for the '25 is driven by the performance of these 2 significant incremental economic opportunities for us represented by Shen and Salamanca that we'll have more clarity as we go through the year and enter '26, so we can give you a more concise answer on that. - Grant Sims(CEO)

Contradiction Point 3

Offshore Segment Margin and Utilization

It involves differing expectations regarding the offshore segment margin and utilization, which directly impacts financial performance and investor expectations.

What do you think the offshore segment margin could be with full utilization, and are you prepared to discuss that? - Wade Suki (Capital One Securities, Inc., Research Division)

2025Q3: Our existing installed and paid-for capacity can generate an incremental plus or minus $160 million a year of recognized segment margin if producers for Salamanca and Shenandoah come close to hitting their forecasts. We expect upside without spending any money at this point forward. - Grant Sims(CEO)

Can you provide a segment margin forecast for the Offshore segment for this year or next year? - Wade Suki (Capital One)

2025Q1: We anticipate that the Offshore segment will contribute the majority of our annual EBITDA growth, with the Offshore Pipeline Transportation segment being the driver. - Grant Sims(CEO)

Contradiction Point 4

Distribution Adjustments and Capital Allocation

It involves changes in distribution strategy and capital allocation, which are critical for investor confidence and financial management.

Where might future growth capital be directed, given its current modest level? Are there any significant projects or larger-scale initiatives on the horizon? - Wade Suki (Capital One Securities, Inc., Research Division)

2025Q3: As a normal course of business, we view growth capital to be in the $10 million, $15 million range, which might include tanks or pumps at one or more of our offshore facilities and/or onshore facilities to support the operations of our existing footprint. We are focused on generating increasing amounts of free cash flow and simplifying the balance sheet capital structure, returning capital to our unitholders. - Grant Sims(CEO)

How do you allocate capital amidst current uncertainties, considering factors like repair timelines and the two major offshore projects' schedules? - Michael Blum (Wells Fargo)

2025Q1: We will likely maintain a flat distribution for Q2 but will have more visibility into the timing of the offshore projects and mechanical issue repairs by Q3, which could lead to distribution adjustments beyond Q3. - Ryan Sims(President and Chief Commercial Officer)

Contradiction Point 5

Offshore Production and Reserve Replacement

It involves differing views on the offshore business and the need for reserve replacement, which impacts the company's operational strategy and financial expectations.

Are the 11 additional wells per year needed to offset declines from Shenandoah and Salamanca? - Wade Suki (Capital One Securities, Inc., Research Division)

2025Q3: We view the offshore business as a self-regenerating annuity. If the producers replace the reserves regardless of where they come from, they move through our pipeline in any 1 year, it adds a year and annuitizes our ability without us spending any money, allowing us to repeat the financial performance year after year. - Grant Sims(CEO)

What is the range of potential outcomes for offshore producers' challenges in 2025? - Michael Blum (Wells Fargo)

2024Q4: We're baking the guidance with some producers' challenges, but we're not quantifying it. The issue isn't lasting all year. We're expecting some progress within the next few weeks. - Grant Sims(CEO)