GENESIS ENERGY, L.P.
2015 ANNUAL REPORT TO UNITHOLDERS
LETTER TO OUR UNITHOLDERS
Despite the tumultuous price environment facing the energy industry, Genesis delivered strong results in
2015. We had several exciting developments. Most notably, we cemented our position as the premier provider of
midstream infrastructure in the Gulf of Mexico when we completed the largest acquisition in the company’s
history, acquiring Enterprise Products Partners’ offshore pipeline and services business. Our “refinery-centric”
business strategy onshore and our focus on deepwater Gulf of Mexico development supporting integrated and
large independent companies offshore serve us well in the current price environment. While we are not directly
sensitive to lower commodity prices, we are not completely immune to certain macroeconomic conditions. The
bursting bubble in the energy space has created certain headwinds including competition for the marginal barrel in
certain areas, the reduction in contribution of our heavy fuel oil business, pricing effects on the sales of our
pipeline loss allowance barrels, and margin and utilization of certain of our marine assets. However, we
anticipated the lower for longer commodity price environment starting in 2014 and have taken steps to position
the partnership to withstand the challenges including ensuring the partnership does not have to access external
capital sources and making sure our costs are aligned with business opportunities.
The good news is that despite the economic headwinds and challenging environment our businesses continue
to perform well. Operational highlights and accomplishments in 2015 include:
(cid:1)
(cid:1)
(cid:1)
(cid:1) We achieved segment margin improvements in our Offshore Pipeline Transportation and Marine
Transportation segments. Segment margin improved over 2014 by approximately 176% and 20% in
each of these segments, respectively. These increases were partially offset by decreases in our Onshore
Pipeline Transportation, Refinery Services and Supply and Logistics segments.
In Offshore Pipeline Transportation, we saw a large increase in segment margin primarily due to our
Enterprise acquisition, which closed in July 2015. In addition, a portion of the increase in our segment
margin is attributable to the SEKCO pipeline commencing throughput of crude oil in 2015 (as opposed
to only earning certain minimum fees in 2014). As our SEKCO pipeline is connected to our Poseidon
pipeline, increase in throughput on SEKCO also increases throughput on Poseidon.
In Onshore Pipeline Transportation, our volumes increased due to the addition of our Louisiana pipeline
system, an increase in volumes on our Texas pipeline system and the addition of our new Wyoming
pipeline infrastructure. These volume increases were offset by the decrease in our crude oil pipeline loss
allowance volumes collected and sold.
In Refinery Services, we experienced decreased volumes primarily resulting from the bankruptcy of one
mining customer, reduced sales to a major customer as it works through an atypical ore seam as a result
of a landslide, and increased prior year volumes generated from heavy turn around schedules at certain
customers. The effects of these decreased volumes were partially offset by our realization of benefits
from our favorable management of the purchasing (including economies of scale) and utilization of
caustic soda in our (and our customers’) operations and logistics management capabilities.
In Marine Transportation, we experienced an increase in segment margin from a full year of operating
results from the M/T American Phoenix, which we added to our fleet in the fourth quarter of 2014. In
addition, we increased the size of our inland marine fleet with 4 additional barges and 7 additional inland
pushboats.
In Supply and Logistics, we experienced decreased volumes in our historical back-to-back, or buy/sell,
crude oil marketing business associated with aggregating and trucking crude oil from producers’ leases
to local or regional re-sale points, as we have found it difficult to compete with certain persons in the
market who are willing to lose money on such local gathering because they are attempting to minimize
their losses from minimum volume to take-or-pay commitments they previously made in anticipation of
new production not yet online.
(cid:1)
(cid:1)
(cid:1) To meet the capital requirements of our growing business and to provide for future growth opportunities,
we issued $400 million of senior unsecured notes in May 2015 (to redeem our $350 million 7.875%
notes which were due in 2018) and $750 million of senior unsecured notes in July 2015 (which were
issued in conjunction with the closing of our offshore acquisition). We also issued an additional
4,600,000 units in an April 2015 public offering and 10,350,000 units in a July 2015 public offering (in
conjunction with our offshore acquisition), raising approximately $198.2 million and $437.2 million in
new equity, respectively.
(cid:1) The fourth quarter of 2015 represented the forty-second consecutive quarter with an increase in the per
unit distribution. During this period, thirty-seven of those quarterly increases have been 10% or greater
year-over-year. The fourth quarter distribution of $0.655 per unit, paid in February 2016, represents a
10% increase in the distribution paid over the year earlier period.
Despite the lower for longer commodity price environment, we are well suited to handle any challenges.
Over the last decade, we have positioned the partnership to create long term sustainable value which will serve us
well in this generational commodity cycle and bursting energy credit bubble. With our recent acquisition and
organic growth projects, we have the infrastructure in place for continued growth moving into 2016 and beyond.
The recently announced Houston area crude oil pipeline and terminal infrastructure project, as well as the second
phase of our Wyoming crude oil pipeline project will come online. We anticipate meaningful volumes from these
projects during the second half of 2016. We continue to progress on our projects in Louisiana, stretching from
Port Hudson, through Baton Rouge, and south to Raceland, all designed to provide services for multiple refining
complexes in Louisiana. With a small portion of that infrastructure already in operation, we anticipate
meaningful volumes from these facilities as they are completed in the first half of 2016.
Over the last decade, our goals of achieving low double-digit growth in distributions, an increasing coverage
ratio and ultimately an investment grade leverage ratio have not changed. Our businesses and strategies that we
have put together coupled with the growth projects that will be ramping up in terms of financial contribution over
the next several years should position us well to continue to achieve these goals. Our growth and success in
enhancing long-term value for our unitholders would not be possible without the contribution of our employees
and their dedication to safe, responsible and reliable services. Because of their efforts, we were able to deliver the
forty-second consecutive quarterly increase in the distribution paid to our unitholders. We are targeting to keep
that trend going in 2016, while maintaining a conservative and flexible capital structure with adequate liquidity to
complete our announced ongoing growth projects.
This environment is one in which companies differentiate themselves. With our business strategies and
the infrastructure we have in place, we believe we are well positioned to continue to deliver long term value for
our stakeholders in the years to come.
Grant E. Sims
Chief Executive Officer
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12295
GENESIS ENERGY, L.P.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
76-0513049
(I.R.S. Employer
Identification No.)
919 Milam, Suite 2100, Houston, TX 77002
(Address of principal executive offices) (Zip code)
(713) 860-2500
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Units
Name of Each Exchange on Which Registered
NYSE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Act). Yes
No
The aggregate market value of the Class A common units held by non-affiliates of the Registrant on June 30, 2015 (the last business day of
Registrant’s most recently completed second fiscal quarter) was approximately $3.4 billion based on $43.89 per unit, the closing price of the
common units as reported on the NYSE. For purposes of this computation, all executive officers, directors and 10% owners of the registrant
are deemed to be affiliates. Such a determination should not be deemed an admission that such executive officers, directors and 10%
beneficial owners are affiliates. On February 26, 2016, the Registrant had 109,939,221 Class A Common Units and 39,997 Class B Common
Units outstanding.
Table of Contents
GENESIS ENERGY, L.P.
2015 FORM 10-K ANNUAL REPORT
Table of Contents
Item 1
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Properties
Legal Proceedings
Item 4. Mine Safety Disclosures
Part I
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Part III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Part IV
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Definitions
Unless the context otherwise requires, references in this annual report to “Genesis Energy, L.P.,” “Genesis,” “we,”
“our,” “us” or like terms refer to Genesis Energy, L.P. and its operating subsidiaries. As generally used within the energy
industry and in this annual report, the identified terms have the following meanings:
Bbl or Barrel: One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to crude oil or other liquid
hydrocarbons.
Bbls/day: Barrels per day.
Bcf: Billion cubic feet of gas.
CO2: Carbon dioxide.
DST: Dry short tons (2,000 pounds), a unit of weight measurement.
FERC: Federal Energy Regulatory Commission.
Gal: Gallon.
MBbls: Thousand Bbls.
MBbls/d: Thousand Bbls per day.
Mcf: Thousand cubic feet of gas.
mmBtu: One million British thermal units, an energy measurement.
MMcf: Thousand Mcf.
NaHS: (commonly pronounced as “nash”) Sodium hydrosulfide.
NaOH or Caustic Soda: Sodium hydroxide.
Natural gas liquid(s) or NGL(s): The combination of ethane, propane, normal butane, isobutane and natural gasolines that,
when removed from natural gas, become liquid under various levels of higher pressure and lower temperature.
Sour gas: Natural gas containing more than four parts per million of hydrogen sulfide.
Wellhead: The point at which the hydrocarbons and water exit the ground.
FORWARD-LOOKING INFORMATION
The statements in this Annual Report on Form 10-K that are not historical information may be “forward looking
statements” as defined under federal law. All statements, other than historical facts, included in this document that address
activities, events or developments that we expect or anticipate will or may occur in the future, including things such as plans
for growth of the business, future capital expenditures, competitive strengths, goals, references to future goals or intentions and
other such references are forward-looking statements, and historical performance is not necessarily indicative of future
performance. These forward-looking statements are identified as any statement that does not relate strictly to historical or
current facts. They use words such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “forecast,” “goal,”
“intend,” “may,” “could,” “plan,” “position,” “projection,” “strategy,” “should” or “will,” or the negative of those terms or
other variations of them or by comparable terminology. In particular, statements, expressed or implied, concerning future
actions, conditions or events or future operating results or the ability to generate sales, income or cash flow are forward-
looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and
assumptions. Future actions, conditions or events and future results of operations may differ materially from those expressed in
these forward-looking statements. Many of the factors that will determine these results are beyond our ability or the ability of
our affiliates to control or predict. Specific factors that could cause actual results to differ from those in the forward-looking
statements include, among others:
•
demand for, the supply of, our assumptions about, changes in forecast data for, and price trends related to crude
oil, liquid petroleum, natural gas, NaHS, caustic soda and CO2, all of which may be affected by economic activity,
capital expenditures by energy producers, weather, alternative energy sources, international events, conservation
and technological advances;
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throughput levels and rates;
changes in, or challenges to, our tariff rates;
our ability to successfully identify and close strategic acquisitions on acceptable terms (including obtaining third-
party consents and waivers of preferential rights), develop or construct energy infrastructure assets, make cost
saving changes in operations and integrate acquired assets or businesses into our existing operations;
service interruptions in our pipeline transportation systems, and processing operations;
shutdowns or cutbacks at refineries, petrochemical plants, utilities or other businesses for which we transport
crude oil, petroleum, natural gas or other products or to whom we sell such products;
risks inherent in marine transportation and vessel operation, including accidents and discharge of pollutants;
changes in laws and regulations to which we are subject, including tax withholding issues, regulations regarding
qualifying income, accounting pronouncements, and safety, environmental and employment laws and regulations;
the effects of production declines resulting from the suspension of drilling in the Gulf of Mexico and the effects of
future laws and government regulation resulting from the Macondo accident and oil spill in the Gulf;
planned capital expenditures and availability of capital resources to fund capital expenditures;
our inability to borrow or otherwise access funds needed for operations, expansions or capital expenditures as a
result of our credit agreement and the indentures governing our notes, which contain various affirmative and
negative covenants;
loss of key personnel;
cash from operations that we generate could decrease or fail to meet expectations, either of which could reduce
our ability to pay quarterly cash distributions at the current level or continue to increase quarterly cash
distributions in the future;
an increase in the competition that our operations encounter;
cost and availability of insurance;
hazards and operating risks that may not be covered fully by insurance;
our financial and commodity hedging arrangements, which may reduce our earnings, profitability and cash flow;
changes in global economic conditions, including capital and credit markets conditions, inflation and interest
rates;
natural disasters, accidents or terrorism;
changes in the financial condition of customers or counterparties;
adverse rulings, judgments, or settlements in litigation or other legal or tax matters;
the treatment of us as a corporation for federal income tax purposes or if we become subject to entity-level
taxation for state tax purposes; and
the potential that our internal controls may not be adequate, weaknesses may be discovered or remediation of any
identified weaknesses may not be successful and the impact these could have on our unit price.
You should not put undue reliance on any forward-looking statements. When considering forward-looking statements,
please review the risk factors described under “Risk Factors” discussed in Item 1A. These risks may also be specifically
described in our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Form 8-K/A and other documents that
we may file from time to time with the SEC. Except as required by applicable securities laws, we do not intend to update these
forward-looking statements and information.
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Item 1. Business
General
PART I
We are a growth-oriented master limited partnership formed in Delaware in 1996 and focused on the midstream
segment of the crude oil and natural gas industry in the Gulf Coast region of the United States, primarily Texas, Louisiana,
Arkansas, Mississippi, Alabama, Florida, Wyoming and in the Gulf of Mexico. Our common units are traded on the New York
Stock Exchange under the ticker symbol “GEL.” Our principal executive offices are located at 919 Milam, Suite 2100,
Houston, Texas 77002 and our telephone number is (713) 860-2500. Except to the extent otherwise provided, the information
contained in this annual report is as of December 31, 2015.
We provide an integrated suite of services to refiners, crude oil and natural gas producers, and industrial and
commercial enterprises. We currently have two distinct, complimentary types of operations-(i) our onshore-based refinery-
centric operations located primarily in the Gulf Coast region of the U.S., which focus on providing a suite of services primarily
to refiners, and (ii) our offshore Gulf of Mexico crude oil and natural gas pipeline transportation and handling operations,
which focus on providing a suite of services primarily to integrated and large independent energy companies who make
intensive capital investments (often in excess of billions of dollars) to develop numerous large-reservoir, long-lived crude oil
and natural gas properties. Our onshore-based operations occur upstream of, at, and downstream of refinery complexes.
Upstream of refineries, we aggregate, purchase, gather and transport crude oil, which we sell to refiners. Within refineries, we
provide services to assist in sulfur removal/balancing requirements. Downstream of refineries, we provide transportation
services as well as market outlets for finished refined petroleum products and certain refining by-products. In our offshore
crude oil and natural gas pipeline transportation and handling operations, we provide service to one of the most active drilling
and development regions in the U.S.-the Gulf of Mexico, a producing region representing approximately 15% of the crude oil
production in the U.S. in 2015. We have a diverse portfolio of customers, operations and assets, including pipelines, refinery-
related plants, storage tanks and terminals, railcars, rail loading and unloading facilities, barges and other vessels, and trucks.
Substantially all of our revenues are derived from providing services to refiners, integrated and large independent crude oil and
natural gas companies, and industrial and commercial enterprises.
We conduct our operations and own our operating assets through our subsidiaries and joint ventures. Our general
partner, Genesis Energy, LLC, a wholly-owned subsidiary that owns a non-economic general partner interest in us, has sole
responsibility for conducting our business and managing our operations.
We currently manage our operations through five divisions that constitute our reportable segments. Our offshore crude
oil and natural gas pipeline transportation and handling operations are comprised of our Offshore Pipeline Transportation
segment. Our onshore-based crude oil and refined petroleum products transportation and handling operations are comprised of
the following segments: Onshore Pipeline Transportation, Refinery Services, Marine Transportation and Supply and Logistics.
Offshore Pipeline Transportation Segment
We conduct our offshore crude oil and natural gas pipeline transportation and handling operations through our
Offshore Pipeline Transportation Segment, which focus on providing a suite of services to integrated and large independent
energy companies who make intensive capital investments (often in excess of billions of dollars) to develop numerous large-
reservoir, long-lived crude oil and natural gas properties in the Gulf of Mexico, primarily offshore Texas, Louisiana,
Mississippi and Alabama. This segment provides services to one of the most active drilling and development regions in the
U.S.-the Gulf of Mexico, a producing region representing approximately 15% of the crude oil production in the U.S. in 2015.
Even though those large-reservoir properties and the related pipelines and other infrastructure needed to develop them are
capital intensive, we believe they are generally much less sensitive to short-term commodity price volatility, particularly once a
project has been sanctioned. Due to the size and scope of these activities, our customers are predominantly large integrated oil
companies and large independent crude oil producers.
In July of 2015, we substantially expanded this segment by acquiring the offshore pipeline and services business of
Enterprise Products Partners, L.P. and its affiliates for approximately $1.5 billion, subject to certain adjustments. That acquired
business, which was complementary to our then existing offshore operations, included interests in approximately 2,350 miles of
offshore crude oil and natural gas pipelines and six offshore hub platforms.
As of December 31, 2015, our Offshore Pipeline Transportation Segment owned interests in various offshore crude oil
and natural gas pipeline systems, platforms and related infrastructure. We owned interests in approximately 1,437 miles of
crude oil pipelines with an aggregate design capacity of approximately 1,810 MBbls per day, a number of which pipeline
systems are substantial and/or strategically located. For example, we own a 64% interest in the Poseidon pipeline system and
100% of the Cameron Highway pipeline system, or CHOPS, which is one of the largest crude oil pipelines (in terms of both
length and design capacity) located in the Gulf of Mexico. We also own 100% of the Southeast Keathley Canyon Pipeline
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Company, LLC, or SEKCO, which is a deepwater pipeline servicing the Lucius field in the southern Keathley Canyon area of
the Gulf of Mexico that became operational in 2014.
Our interests in offshore natural gas pipeline systems and related infrastructure includes approximately 1,157 miles of
pipe with an aggregate design capacity of approximately 4,863 MMcf per day. We also own an interest in six offshore hub
platforms with aggregate capacity of approximately 2,256 MMcf per day of natural gas and 167 MBbls per day of crude oil.
Our offshore pipelines generate cash flows from fees charged to customers or substantially similar arrangements that
otherwise limit our direct exposure to changes in commodity prices. Each of our offshore pipelines currently has significant
available capacity to accommodate future growth in the fields from which the production is dedicated to that pipeline, including
fields that have yet to commence production activities, as well as volumes from non-dedicated fields.
Onshore Pipeline Transportation Segment
Crude Oil Pipelines
We own five onshore crude oil pipeline systems, with approximately 560 miles of pipe located primarily in Alabama,
Florida, Louisiana, Mississippi, Texas and Wyoming. The Federal Energy Regulatory Commission, or FERC, regulates the
rates our four onshore systems charge their customers. The rates for our other onshore pipeline are regulated by the Railroad
Commission of Texas. Our onshore pipelines generate cash flows from fees charged to customers.
Each of our onshore pipelines has significant available capacity to accommodate potential future growth in volumes.
CO2 Pipelines
We own two CO2 pipelines with approximately 270 miles of pipe. We have leased our NEJD System, comprised of
183 miles of pipe in North East Jackson Dome, Mississippi, to an affiliate of an independent crude oil company through 2028.
We receive a fixed quarterly payment under the NEJD arrangement. That company also has the exclusive right to use our Free
State pipeline, comprised of 86 miles of pipe, pursuant to a transportation agreement that expires in 2028. Payments on the Free
State pipeline are subject to an "incentive" tariff which provides that the average rate per mcf that we charge during any month
decreases as our aggregate throughput for that month increases above specified thresholds.
Refinery Services Segment
We primarily (i) provide services to ten refining operations located mostly in Texas, Louisiana, Arkansas, Oklahoma
and Utah; (ii) operate significant storage and transportation assets in relation to those services; and (iii) sell NaHS (pronounced
nash) - also known as sodium hydro-sulfide - and NaOH - also known as caustic soda - to large industrial and commercial
companies. Our refinery services primarily involve processing refiners’ high sulfur (or “sour”) gas streams to remove the sulfur.
Our refinery services footprint also includes NaHS and caustic soda terminals, and we utilize railcars, ships, barges and trucks
to transport product. Our refinery services contracts are typically long-term in nature and have an average remaining term of
three years. NaHS is a by-product derived from our refinery services process, and it constitutes the sole consideration we
receive for these services. A majority of the NaHS we receive is sourced from refineries owned and operated by large
companies, including Phillips 66, CITGO, HollyFrontier and Ergon. We sell our NaHS to customers in a variety of industries,
with the largest customers involved in mining of base metals, primarily copper and molybdenum, and the production of pulp
and paper. We believe we are one of the largest marketers of NaHS in North and South America.
Marine Transportation Segment
We own a fleet of 75 barges (66 inland and 9 offshore) with a combined transportation capacity of 2.7 million barrels
and 39 push/tow boats (30 inland and 9 offshore). Our marine transportation segment is a provider of transportation services
by tank barge primarily for refined petroleum products, including heavy fuel oil and asphalt, as well as crude oil. Refiners
accounted for approximately 90% of our marine transportation volumes for 2015.
We also own the M/T American Phoenix, an ocean going tanker with 330,000 barrels of cargo capacity. The M/T
American Phoenix is currently transporting refined products.
We are a provider of transportation services for our customers and, in almost all cases, do not assume ownership of the
products that we transport. Most of our marine transportation services are conducted under term contracts, some of which have
renewal options for customers with whom we have traditionally had long-standing relationships. For more information
regarding our charter arrangements, please refer to the Marine Transportation Segment discussion below. All of our vessels
operate under the U.S. flag and are qualified for domestic trade under the Jones Act.
Supply and Logistic Segment
Our supply and logistics segment is focused on utilizing our knowledge of the crude oil and petroleum markets to
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provide crude oil and natural gas producers, refineries and other customers with a full suite of services. Our supply and logistics
segment owns or leases trucks, terminals, gathering pipelines, railcars, and rail loading and unloading facilities. It uses those
assets, together with other modes of transportation owned by third parties and us, to service its customers and for its own
account. We have access to a suite of more than 300 trucks, 400 trailers, 522 railcars, and terminals and tankage with 3.3
million barrels of storage capacity in multiple locations along the Gulf Coast as well as capacity associated with our three
common carrier crude oil pipelines. Our crude-by-rail operations consist of a total of six facilities, either in operation or under
construction, designed to load and/or unload crude oil. The two facilities located in Texas and Wyoming were designed
primarily to load crude oil produced locally onto railcars for further transportation to refining markets. The four other facilities
(two in Louisiana, one in Mississippi and one in Florida) were designed primarily to unload crude oil from railcars into
pipelines, or onto barges, for delivery to refinery customers. Usually, our supply and logistics segment experiences limited
direct commodity price risk because it utilizes back-to-back purchases and sales, matching sale and purchase volumes on a
monthly basis. Unsold volumes are hedged with NYMEX derivatives to offset the remaining price risk.
Our Objectives and Strategies
Our primary business objectives are to generate stable cash flows that allow us to make quarterly cash distributions to
our unitholders and to increase those distributions over time. We plan to achieve those objectives by executing the following
business and financial strategies.
Business Strategy
Our primary business strategy is to provide an integrated suite of services to refiners, crude oil and natural gas
producers, and industrial and commercial enterprises. Successfully executing this strategy should enable us to generate and
grow sustainable cash flows. We currently have two distinct, complimentary types of operations-(i) our onshore-based crude oil
and refined petroleum products transportation, supply and logistics, and handling operations, focusing predominantly on
refinery-centric customers (as opposed to producers), and (ii) our offshore Gulf of Mexico crude oil and natural gas pipeline
transportation and handling operations, focusing on integrated and large independent energy companies who make intensive
capital investments (often in excess of billions of dollars) to develop numerous large-reservoir, long-lived crude oil and natural
gas properties. Refiners are the shippers of over 85% of the volumes transported on our onshore crude pipelines, and refiners
contract for approximately 90% of the use of our inland barges, which primarily are used to transport intermediate refined
products (not crude oil) between refining complexes. The shippers on our offshore pipelines are mostly integrated and large
independent energy companies who have developed, and continue to explore for, numerous large-reservoir, long-lived crude oil
properties whose production is ideally suited for the vast majority of refineries along the Gulf Coast, unlike the lighter crude oil
and condensates produced from numerous onshore shale plays. Those large-reservoir properties and the related pipelines and
other infrastructure needed to develop them are capital intensive and yet, we believe, economically viable, in most cases, even
in this lower commodity price environment.
We intend to develop our business by:
•
Identifying and exploiting incremental profit opportunities, including cost synergies, across an increasingly integrated
footprint;
• Optimizing our existing assets and creating synergies through additional commercial and operating advancement;
• Leveraging customer relationships across business segments;
• Attracting new customers and expanding our scope of services offered to existing customers;
• Expanding the geographic reach of our businesses;
• Economically expanding our pipeline and terminal operations;
• Evaluating internal and third party growth opportunities (including asset and business acquisitions) that leverage our
core competencies and strengths and further integrate our businesses; and
•
Focusing on health, safety and environmental stewardship.
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Financial Strategy
We believe that preserving financial flexibility is an important factor in our overall strategy and success. Over the
long-term, we intend to:
•
Increase the relative contribution of recurring and throughput-based revenues, emphasizing longer-term contractual
arrangements;
•
Prudently manage our limited commodity price risks;
• Maintain a sound, disciplined capital structure; and
• Create strategic arrangements and share capital costs and risks through joint ventures and strategic alliances.
Competitive Strengths
We believe we are well positioned to execute our strategies and ultimately achieve our objectives due primarily to the
following competitive strengths:
• We have limited commodity price risk exposure. The volumes of crude oil, refined products or intermediate feedstocks
we purchase are either subject to back-to-back sales contracts or are hedged with NYMEX derivatives to limit our
exposure to movements in the price of the commodity, although we cannot completely eliminate commodity price
exposure. Our risk management policy requires us to monitor the effectiveness of the hedges to maintain a value at
risk of such hedged inventory not in excess of $2.5 million. In addition, our service contracts with refiners allow us to
adjust the rates we charge for processing to maintain a balance between NaHS supply and demand.
• Our businesses encompass a balanced, diversified portfolio of customers, operations and assets. We operate five
business segments and own and operate assets that enable us to provide a number of services primarily to refiners,
crude oil and natural gas producers, and industrial and commercial enterprises that use NaHS and caustic soda. Our
business lines complement each other by allowing us to offer an integrated suite of services to common customers
across segments. Our businesses are primarily focused on providing (i) onshore-based refinery-centric crude oil and
refined products transportation and handling services and (ii) offshore crude oil and natural gas pipeline transportation
services in the Gulf of Mexico to mostly integrated and large independent energy companies. We are not dependent
upon any one customer or principal location for our revenues.
•
Some of our onshore and offshore pipeline transportation and related assets are strategically located. Our pipelines
are critical to the ongoing operations of our refiner and producer customers. In addition, a majority of our terminals are
located in areas that can be accessed by truck, rail or barge.
• We believe we are one of the largest marketers of NaHS in North and South America. We believe the scale of our well-
established refinery services operations as well as our integrated suite of assets provides us with a unique cost
advantage over some of our existing and potential competitors.
• Our supply and logistics business is operationally flexible. Our portfolio of trucks, railcars, barges and terminals
affords us flexibility within our existing regional footprint and provides us the capability to enter new markets and
expand our customer relationships.
• Our marine transportation assets provide waterborne transportation throughout North America. Our fleet of barges
and boats provide service to both inland and offshore customers within a large North American geographic footprint.
There are a limited number of Jones Act qualified vessels participating in U.S. coastwise trade. All of our vessels
operate under the U.S. flag and are qualified for U.S. coastwise trade under the Jones Act.
• Our businesses provide relatively consistent consolidated financial performance. Our historically consistent and
improving financial performance, combined with our goal of a conservative capital structure over the long term, has
allowed us to increase our distribution for forty-two consecutive quarters as of our most recent distribution declaration.
During this period, thirty-seven of those quarterly increases have been 10% or greater as compared to the same quarter
in the preceding year, although as in the past, future increases (if any) in our quarterly distribution rate will depend on
our ability to execute critical components of our business strategy.
• We are financially flexible and have significant liquidity. As of December 31, 2015, we had $374.3 million available
under our $1.5 billion credit agreement, including up to $166.2 million available under the $200 million petroleum
products inventory loan sublimit, and $89.4 million available for letters of credit. Our inventory borrowing base was
$33.8 million at December 31, 2015.
• Our expertise and reputation for high performance standards and quality enable us to provide refiners with economic
and proven services. Our extensive understanding of the sulfur removal process and crude oil refining can provide us
with an advantage when evaluating new opportunities and/or markets.
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• We have an experienced, knowledgeable and motivated executive management team with a proven track record. Our
executive management team has an average of more than 25 years of experience in the midstream sector. Its members
have worked in leadership roles at a number of large, successful public companies, including other publicly-traded
partnerships. Through their equity interest in us, our executive management team is incentivized to create value by
increasing cash flows.
Recent Developments and Status of Certain Growth Initiatives
The following is a brief listing of developments since December 31, 2014. Additional information regarding most of
these items may be found elsewhere in this report.
Acquisition of Enterprise Offshore Pipelines and Services Business
In July 2015, we acquired the offshore pipeline and services business of Enterprise Products Partners, L.P. and its
affiliates for approximately $1.5 billion, subject to certain adjustments. That business includes interests in approximately 2,350
miles of offshore crude oil and natural gas pipelines and six offshore hub platforms that serve some of the most active drilling
and development regions in the U.S., including deepwater production fields in the Gulf of Mexico offshore Texas, Louisiana,
Mississippi and Alabama. That acquisition complements and substantially expands our existing offshore pipelines segment and
was immediately accretive to Segment Margin and Available Cash before Reserves.
Houston Area Crude Oil Pipeline and Terminal Infrastructure
We are constructing new, and expanding existing, crude oil pipeline and terminal facilities in Webster, Texas and Texas
City, Texas as a result of expanding our crude oil pipeline and terminal infrastructure in the Houston area. We will construct a
new crude oil pipeline that will deliver crude oil received from upstream crude oil pipelines (including CHOPS, which delivers
crude oil originating in the deepwater Gulf of Mexico to the Texas City area) to our new Texas City Terminal, which will
ultimately connect to our existing 18-inch Webster to Texas City crude oil pipeline. Our new Texas City Terminal will include
initially approximately 750,000 barrels of crude oil tankage. Our Webster Terminal is connected to other crude oil pipelines
servicing other Houston area refineries. As a part of this project, we are also making the necessary upgrades on our existing 18-
inch Webster to Texas City crude oil pipeline to allow for bi-directional flow. The result of this expanded crude oil
infrastructure will allow additional optionality to Houston and Baytown area refineries, including the Exxon-Mobil Baytown
refinery, its largest refinery in the U.S.A., and provide additional delivery outlets for other crude oil pipelines. We expect these
assets to become operational in the second half of 2016.
Wyoming Crude Oil Pipeline
In the third quarter of 2015, we completed construction of a new 60 mile crude oil pipeline to transport crude oil from
new receipt point stations in Campbell County and Converse County, Wyoming to our existing Pronghorn Rail Facility. This
new crude oil pipeline has an initial capacity of approximately 45,000 barrels per day and is supplied by truck volumes and
third party gathering infrastructure in the Powder River Basin.
We are also constructing a new 75 mile pipeline from our Pronghorn Rail Facility to a delivery point at our new
Guernsey Station in Platte County, Wyoming. This Pronghorn to Guernsey pipeline will have an initial capacity of
approximately 45,000 barrels per day and will allow for connectivity to additional downstream pipeline markets at Guernsey,
including regional refineries and Cushing, Oklahoma via the Pony Express Pipeline. This pipeline became operational in early
2016.
Inland Marine Barge Transportation Expansion
We ordered 20 new-build barges and 14 new-build push boats for our inland marine barge transportation fleet. We
have accepted delivery of 12 of those barges and 9 of those push boats through December 31, 2015. We expect to take delivery
of those remaining vessels periodically into 2016.
Baton Rouge Terminal
We are constructing a new crude oil, intermediates and refined products import/export terminal in Baton Rouge that
will be located near the Port of Greater Baton Rouge and will be pipeline-connected to the port's existing deepwater docks on
the Mississippi River. We will initially construct approximately 1.1 million barrels of tankage for the storage of crude oil,
intermediates and/or refined products with the capability to expand to provide additional terminaling services to our customers.
In addition, we will construct a new pipeline from the terminal that will allow for deliveries to existing Exxon Mobil facilities
in the area, as well as connect our previously constructed 17 mile line to the terminal allowing for receipts from the Scenic
Station Rail Facility. Shippers to Scenic Station will have access to both the local Baton Rouge refining market, as well as the
ability to access other attractive refining markets via our Baton Rouge Terminal. Our Baton Rouge Terminal is expected to be
operational by in the first half of 2016.
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Raceland Rail Facility
Our Raceland Rail Facility, located in Raceland, Louisiana, is a new crude oil unit train facility capable of unloading
up to two unit trains per day. It will be connected to existing midstream infrastructure that provides direct pipeline access to the
Louisiana refining markets. We expect it to be operational in the first half of 2016.
Forty-two Consecutive Distribution Rate Increases
We have increased our quarterly distribution rate for forty-two consecutive quarters. Thirty-seven of those quarterly
increases have been 10% or greater as compared to the same quarter in the preceding year. On February 12, 2016, we paid a
quarterly cash distribution of $0.655 (or $2.62 on an annualized basis) per unit to unitholders of record as of January 29, 2016,
an increase of 2.3% from the distribution in the prior quarter, and an increase of 10.1% from the distribution in February 2015.
As in the past, future increases (if any) in our quarterly distribution rate will depend on our ability to execute critical
components of our business strategy.
Organizational Structure
The following chart depicts our organizational structure at December 31, 2015.
Description of Segments and Related Assets
We conduct our businesses through five operating segments: Offshore Pipeline Transportation, Onshore Pipeline
Transportation, Refinery Services, Marine Transportation and Supply and Logistics. These segments are strategic business units
that provide a variety of energy-related services. Financial information with respect to each of our segments can be found in
Note 12 to our Consolidated Financial Statements in Item 8.
We have a diverse portfolio of customers, operations and assets, including pipelines, refinery-related plants, storage
tanks and terminals, railcars, rail loading and unloading facilities, barges and other vessels, and trucks. Substantially all of our
revenues are derived from providing services to refiners, integrated and large independent crude oil and natural gas companies,
and large industrial and commercial enterprises. Our onshore-based operations occur upstream of, at, and downstream of
refinery complexes. Upstream of refineries, we aggregate, purchase, gather and transport crude oil, which we sell to refiners.
Within refineries, we provide services to assist in sulfur removal/balancing requirements. Downstream of refineries, we
provide transportation services as well as market outlets for finished refined petroleum products and certain refining
byproducts.
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Offshore Pipeline Transportation
Offshore Crude Oil and Natural Gas Pipelines
We own interests in several crude oil and natural gas pipelines and related infrastructure located offshore in the Gulf of
Mexico, a producing region representing approximately 15% of the crude oil production in the U.S. in 2015.
The table below reflects our interests in our operating offshore crude oil pipelines:
Offshore crude oil
pipelines
Operator
System
Miles
Design
Capacity
(Bbls/day) (1)
Interest
Owned
Throughput
(Bbls/day)
100% basis
Throughput
(Bbls/day) net
to ownership
interest
Main Lines
CHOPS
Poseidon
Odyssey
Eugene Island
Pipeline and Other
Total
Lateral Lines (2)
SEKCO
Shenzi Crude Oil
Pipeline
Allegheny Crude Oil
Pipeline
Marco Polo Crude
Oil Pipeline
Constitution Crude
Oil Pipeline
Viosca Knoll Crude
Oil Pipeline
Tarantula
Genesis
Genesis
Shell
Pipeline
Genesis/
Shell
Pipeline
380
367
120
184
1,051
500,000
350,000
100%
64%
172,647
259,568
124,928
115,219
200,000
29%
72,958
21,158
39,000
23%
1,089,000
13,038
518,211
13,038
274,343
Genesis
149
115,000
100%
Genesis
Genesis
Genesis
Genesis
Genesis
Genesis
83
40
37
67
6
4
230,000
100%
140,000
100%
120,000
100%
80,000
100%
5,000
30,000
100%
100%
(1) Capacity figures presented represent 100% of the design capacity; except for Eugene Island, which represents our net capacity in
the undivided interest (23%) in that system. Ultimate capacities can vary primarily as a result of pressure requirements, installed
pumps, related facilities and the viscosity of the crude oil actually moved.
(2) Represents 100% owned lateral crude oil pipelines which, other than our Viosca Knoll Crude Oil Pipeline, ultimately flow into our
other offshore crude oil pipelines (including CHOPS and Poseidon) and thus are excluded from main lines above.
•
Prior to the July 2015 acquisition of Enterprise's offshore pipeline and services business, we owned 50%, 28%, and
50% of CHOPS, Poseidon, and SEKCO, respectively. After the acquisition, we now own 100%, 64% and 100% of
CHOPS, Poseidon and SEKCO, respectively. As our SEKCO volumes ultimately flow into Poseidon and thus are
included within our Poseidon volume statistics, we have excluded them from our total for Offshore crude oil pipelines.
• CHOPS. CHOPS is comprised of 24- to 30-inch diameter pipelines designed to deliver crude oil from fields in the
Gulf of Mexico to refining markets along the Texas Gulf Coast via interconnections with refineries located in Port
Arthur and Texas City, Texas. CHOPS also includes two strategically located multi-purpose offshore platforms.
• Poseidon. The Poseidon system is comprised of 16- to 24-inch diameter pipelines to deliver crude oil from
developments in the central and western offshore Gulf of Mexico to other pipelines and terminals onshore and offshore
Louisiana. An affiliate of Shell owns the remaining 36% interest in Poseidon.
• Odyssey. The Odyssey system is comprised of 12- to 20-inch diameter pipelines to deliver crude oil from
developments in the eastern Gulf of Mexico to other pipelines and terminals onshore Louisiana. An affiliate of Shell
owns the remaining 71% interest in Odyssey.
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• Eugene Island. The Eugene Island system is comprised of a network of crude oil pipelines, the main pipeline of which
is 20 inches in diameter, to deliver crude oil from developments in the central Gulf of Mexico to other pipelines and
terminals onshore Louisiana. Other owners in Eugene Island include affiliates of Exxon Mobil, Chevron,
ConocoPhillips and Shell Oil Company.
•
•
SEKCO Pipeline. SEKCO is a deepwater pipeline serving the Lucius crude oil and natural gas field located in the
southern Keathley Canyon area of the Gulf of Mexico that was completed in June 2014. SEKCO has crude oil
transportation agreements with seven Gulf of Mexico producers, including Anadarko U.S. Offshore Corporation,
Freeport McMoran, Exxon Mobil Corporation, Eni Petroleum US LLC, Petrobras America, Plains Offshore
Operations, Inc and Inpex Corporation. Those producers have dedicated their production from Lucius to that pipeline
for the life of the reserves. We expect the SEKCO pipeline to also provide capacity for additional projects in the
deepwater Gulf of Mexico in the future. SEKCO’s customers commenced paying fees to SEKCO upon completion of
its pipeline and commenced crude oil deliveries to the SEKCO pipeline in the first quarter of 2015.
Shenzi Crude Oil. The Shenzi Crude Oil Pipeline gathers crude oil production from the Shenzi production field located
in the Green Canyon area of the Gulf of Mexico offshore Louisiana for delivery to both our CHOPS and Poseidon
pipeline systems.
• Allegheny Crude Oil. The Allegheny Crude Oil Pipeline connects the Allegheny and South Timbalier 316 platforms in
the Green Canyon area of the Gulf of Mexico with the CHOPS and Poseidon pipelines.
• Marco Polo Crude Oil. The Marco Polo Crude Oil Pipeline transports crude oil from our Marco Polo crude oil
platform to an interconnect with the Allegheny Crude Oil Pipeline in Green Canyon Block 164.
• Constitution Crude Oil. The Constitution Crude Oil Pipeline gathers crude oil from the Constitution, Caesar Tonga and
Ticonderoga production fields located in the Green Canyon area of the Gulf of Mexico for delivery to either the
CHOPS or Poseidon pipelines.
None of our offshore crude oil pipelines are rate regulated with the exception of Eugene Island, which is regulated by
the FERC.
The table below reflects our interests in our operating offshore natural gas pipelines:
Offshore natural gas pipelines
Operator
System Miles
Design Capacity
(MMcf/day) (1)
Interest
Owned
Independence Trail
Viosca Knoll Gathering System
High Island Offshore System
Matagorda Gathering System
Falcon Natural Gas Pipeline
Anaconda Gathering System
Green Canyon Laterals
Manta Ray Offshore Gathering
System
Nautilus System
Total
Genesis
Genesis
Genesis
Genesis
Genesis
Genesis
Genesis
Enbridge
Enbridge
135
107
287
59
14
183
34
237
101
1,000
600
500
450
400
300
213
800
600
100%
100%
100%
100%
100%
100%
Various (2)
25.7%
25.7%
1,157
4,863
(1) Capacity figures presented represent 100% of the design capacity.
(2) We proportionately consolidate our undivided interests, which range from 2.7% to 33.3%, in 28 miles of the Green Canyon Lateral
pipelines. The remainder of the laterals are wholly owned.
Overall offshore natural gas throughput for 2015 was 708,556 MMBtus/day from the period the pipelines and related
assets were acquired in July 2015.
•
Independence Trail. The Independence Trail pipeline transports natural gas from the Independence Hub platform and a
pipeline interconnect downstream of the Independence Hub platform to the Tennessee Gas Pipeline at a pipeline
interconnect on the West Delta 68 pipeline junction platform. Natural gas transported on the Independence Trail
Pipeline originates from production fields in the Atwater Valley, DeSoto Canyon, Lloyd Ridge and Mississippi Canyon
areas of the Gulf of Mexico.
• Viosca Knoll Gathering System. Viosca Knoll gathers natural gas from producing fields located in the Main Pass,
Mississippi Canyon and Viosca Knoll areas of the Gulf of Mexico for delivery to several major interstate pipelines,
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including the High Point Gas Transmission, Transco, Dauphin Island Gathering System, Tennessee Gas Pipeline and
Destin Pipelines.
• High Island. The High Island Offshore System (HIOS) transports natural gas from producing fields located in the
Galveston, Garden Banks, West Cameron, High Island and East Breaks areas of the Gulf of Mexico to interconnects
with the TC Offshore system and Kinetica Energy Express. HIOS includes 201 miles of pipeline and eight pipeline
junction and service platforms that are regulated by the FERC. In addition, this system included the 86-mile East
Breaks Gathering System, which connects HIOS to the Hoover-Diana deepwater platform located in Alaminos Canyon
Block 25.
• Matagorda Gathering System. Matagorda gathers natural gas from producing fields in the Matagorda Island area of the
Gulf of Mexico for delivery to interconnecting onshore pipelines located in Matagorda and Calhoun counties in Texas.
This system includes two pipeline junction platforms.
• Falcon. The Falcon Natural Gas Pipeline transports natural gas processed at the Falcon Nest platform to a connection
with the Central Texas Gathering System located at the Brazos Addition Block 133 platform. In November 2015, we
received notice from producers regarding their intent to shut down the remaining producing wells as processed by the
Falcon Nest Platform and shipped on the Falcon pipeline in 2016. Such pipeline and processing volumes have been
historically insignificant to our offshore pipeline transportation segment.
• Anaconda. The Anaconda Gathering System gathers natural gas from producing fields located in the Green Canyon
area of the Gulf of Mexico for delivery to the Nautilus System.
• Green Canyon. The Green Canyon Laterals represent a collection of small diameter pipelines that gather natural gas
for delivery to HIOS and various other downstream pipelines.
• Manta Ray. The Manta Ray Offshore Gathering System gathers natural gas from producing fields located in the Green
Canyon, Southern Green Canyon, Ship Shoal, South Timbalier and Ewing Bank areas of the Gulf of Mexico for
delivery to numerous downstream pipelines, including the Nautilus System. This system includes three pipeline
junction platforms.
• Nautilus. The Nautilus System connects the Anaconda Gathering system and Manta Ray Offshore Gathering System to
the Neptune natural gas processing plant located in south Louisiana.
Offshore Hub Platforms
Offshore Hub platforms are typically used to interconnect the offshore pipeline network; provide an efficient means to
perform pipeline maintenance; locate compression, separation and production handling equipment and similar assets; and
conduct drilling operations during the initial development phase of a crude oil and natural gas property. The results of
operations from offshore platform services are primarily dependent upon the level of commodity charges and/or demand-type
fees billable to customers. Revenue from commodity charges is based on a fee per unit of volume delivered to the platform
(typically per MMcf of natural gas or per barrel of crude oil) multiplied by the total volume of each product delivered.
Demand-type fees are similar to firm capacity reservation agreements for a pipeline in that they are charged to a customer
regardless of the volume the customer actually delivers to the platform. Contracts for platform services often include both
demand-type fees and commodity charges, but demand-type fees generally expire after a contractually fixed period of time and
in some instances may be subject to cancellation by customers.
The table below reflects our interests in our operating offshore hub platforms:
Offshore hub platform
Independence Hub (2)
Marco Polo (3)
Viosca Knoll 817
Garden Banks 72 (4)
East Cameron 373
Falcon Nest
Total
Operator
Anadarko
Anadarko
Genesis
Genesis
Genesis
Genesis
Water
Depth (Feet)
Natural Gas
Capacity (MMcf/
day) (1)
Crude Oil
Capacity (Bbls/
day) (1)
Interest
Owned
8,000
4,300
671
518
441
389
1,000
300
145
216
195
400
2,256
N/A
120,000
5,000
36,000
3,000
3,000
167,000
80%
50%
100%
50%
100%
100%
(1) Capacity figures presented represent 100% of the design capacity.
(2) We own an 80% consolidated interest in the Independence Hub platform through its majority owned subsidiary, Independence Hub,
LLC.
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(3) Our ownership interest in the Marco Polo platform is held indirectly through our equity method investment in Deepwater Gateway,
LLC.
(4) We proportionately consolidate our undivided interest in the Garden Banks 72 platform.
•
Independence Hub. The Independence Hub platform, which was acquired on July 24, 2015, is located in Mississippi
Canyon Block 920. This platform processes natural gas gathered from deepwater production fields in the Atwater
Valley, DeSoto Canyon, Lloyd Ridge and Mississippi Canyon areas of the Gulf of Mexico. In December 2015 we
were informed by producers that the remaining producing wells connected to the platform have ceased. These wells
will be shut down and we expect no further processing volumes. Such processing volumes have historically been
insignificant to our offshore pipeline transportation segment.
• Marco Polo. The Marco Polo platform, which is located in Green Canyon Block 608, processes crude oil and natural
gas from production fields located in the South Green Canyon area of the Gulf of Mexico.
• Viosca Knoll. The Viosca Knoll 817 platform primarily serves as a base for gathering deepwater production in the
Viosca Knoll area, including the Ram Powell development.
• Garden Banks. The Garden Banks 72 platform serves as a base for gathering deepwater production from the Garden
Banks area of the Gulf of Mexico. This platform also serves as a junction platform for the CHOPS and Poseidon
pipeline systems.
• East Cameron. The East Cameron 373 platform processes production from the Garden Banks and East Cameron areas
of the Gulf of Mexico.
• Falcon Nest. The falcon Nest platform, which is located in the Mustang Island East area of the Gulf of Mexico,
processes natural gas from the Falcon field. In November 2015, we received notice from producers regarding their
intent to shut down the remaining producing wells as processed by the Falcon Nest Platform and shipped on the
Falcon pipeline in 2016. Such pipeline and processing volumes have been historically insignificant to our offshore
pipeline transportation segment.
Customers
Due to the cost of finding, developing and producing crude oil properties in the deepwater regions of the Gulf of
Mexico, most of our offshore pipeline customers are integrated crude oil companies and other large producers, and those
producers desire to have longer-term arrangements ensuring that their production can access the markets.
Usually, our offshore crude oil pipeline customers enter into buy-sell or other transportation arrangements, pursuant to
which the pipeline acquires possession (and, sometimes, title) from its customer of the relevant production at a specified
location (often a producer’s platform or at another interconnection) and redelivers possession (and title, if applicable) to such
customer of an equivalent volume at one or more specified downstream locations (such as a refinery or an interconnection with
another pipeline). Most of the production handled by our offshore pipelines is pursuant to life-of-reserve commitments that
include both firm and interruptible capacity arrangements.
Revenues from customers of our offshore pipeline transportation segment did not account for more than ten percent of
our consolidated revenues.
Competition
The principal competition for our offshore pipelines includes other crude oil and natural gas pipeline systems as well
as producers who may elect to build or utilize their own production handling facilities. Our offshore pipelines compete for new
production on the basis of geographic proximity to the production, cost of connection, available capacity, transportation rates
and access to onshore markets. In addition, the ability of our offshore pipelines to access future reserves will be subject to our
ability, or the producers’ ability, to fund the significant capital expenditures required to connect to the new production. In
general, most of our offshore pipelines are not subject to regulatory rate-making authority, and the rates our offshore pipelines
charge for services are dependent on the quality of the service required by the customer and the amount and term of the reserve
commitment by that customer.
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Onshore Pipeline Transportation
Crude Oil Pipelines
Onshore Crude Oil Pipelines
Through the onshore pipeline systems and related assets we own and operate, we transport crude oil for our gathering
and marketing operations and for other shippers pursuant to tariff rates regulated by FERC or the Railroad Commission of
Texas (TXRRC). Accordingly, we offer transportation services to any shipper of crude oil, if the products tendered for
transportation satisfy the conditions and specifications contained in the applicable tariff. 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. We also may
earn revenue from pipeline loss allowance volumes. In exchange for bearing the risk of pipeline volumetric losses, we deduct
volumetric pipeline loss allowances and crude oil quality deductions. Such allowances and deductions are offset by
measurement gains and losses. When our actual volume losses are less than the related allowances and deductions, we
recognize the difference as income and inventory available for sale valued at the market price for the crude oil.
The margins from our onshore crude oil pipeline operations are generated by the difference between the sum of
revenues from regulated published tariffs and pipeline loss allowance revenues and the fixed and variable costs of operating and
maintaining our pipelines.
We own and operate five onshore common carrier crude oil pipeline systems: the Texas System, the Jay System, the
Mississippi System, the Louisiana System and the Wyoming System.
Product
Interest Owned
Design Capacity (Bbls/
day)
2015 Throughput (Bbls/
day) (1)
System Miles
Approximate owned
tankage storage
capacity (Bbls)
Texas System
Crude Oil
100%
Existing 8" -
60,000
Looped 18" -
275,000
Jay System
Crude Oil
100%
Mississippi
System
Crude Oil
100%
Louisiana
System
Crude Oil
100%
Wyoming
System
Crude Oil
100%
150,000
45,000
350,000
30,000
71,906
109
16,828
135
15,472
235
32,481
17
7,397
60
220,000
230,000
247,500
350,000
248,000
Location
West
Columbia, TX
to Webster, TX
Southern AL/
FL to Mobile,
AL
Soso, MS to
Liberty, MS
Webster, TX to
Texas City, TX
Webster, TX to
Houston, TX
Campbell
County, WY
to Pronghorn
Rail Facility
Port Hudson,
LA to Baton
Rouge, LA
Baton Rouge,
LA to Port
Allen, LA
Rate Regulated
TXRRC
FERC
FERC
FERC
FERC
(1) Our Wyoming pipeline system only had throughput for partial year during 2015, as it was placed into service in August 2015.
•
•
Texas System. Our Texas System transports crude oil from West Columbia to several delivery points near Houston,
Texas. We earn a tariff for our transportation services, with the tariff rate per barrel of crude oil varying with the
distance from injection point to delivery point.
Jay System. Our Jay System provides crude oil shippers access to refineries, pipelines and storage near Mobile,
Alabama. That system also includes gathering connections to approximately 49 wells, additional crude oil storage
capacity of 20,000 barrels in the field, an interconnect with our Walnut Hill rail facility, a delivery connection to a
refinery in Alabama and an interconnection to another common carrier pipeline that delivers crude oil into Mississippi.
• Mississippi System. Our Mississippi System provides shippers of crude oil in Mississippi indirect access to refineries,
pipelines, storage, terminals and other crude oil infrastructure located in the Midwest. That system is adjacent to
several crude oil fields that are in various phases of being produced through tertiary recovery strategy, including CO2
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injection and flooding. We provide transportation services on our Mississippi pipeline through an “incentive” tariff
which provides that the average rate per barrel that we charge during any month decreases as our aggregate throughput
for that month increases above specified thresholds.
•
Louisiana System. Our Louisiana System transports crude oil from Port Hudson to the Baton Rouge Scenic Station and
continues downstream to the Anchorage Tank Farm servicing Exxon Mobil Corporation's Baton Rouge refinery. This
refinery is one of the largest refinery complexes in North America, with more than 500,000 barrels per day of refining
capacity.
• Wyoming System. Our Wyoming System transports crude oil from receipt point stations in Campbell County and
Converse County, Wyoming to our Pronghorn Rail Facility. This crude oil pipeline has an initial capacity of
approximately 30,000 barrels per day and is supplied by truck volumes and third party gathering infrastructure in the
Powder River Basin. This pipeline system became operational in the third quarter of 2015. We have also completed
construction of a new 75 mile pipeline from our Pronghorn Rail Facility to a delivery point at our new Guernsey
Station in Platte County, Wyoming. This Pronghorn to Guernsey pipeline will have an initial capacity of
approximately 45,000 barrels per day and will allow for connectivity to additional downstream pipeline markets at
Guernsey, including regional refineries and Cushing, Oklahoma via the Pony Express Pipeline. This pipeline became
operational in early 2016.
CO2 Pipelines
We transport CO2 on our Free State pipeline for a fee and we lease our Northeast Jackson Dome Pipeline System,
or NEJD System, for a fee.
Product
Interest owned
System miles
Pipeline diameter
Location
Rate Regulated
Free State Pipeline
CO2
100%
86
20"
Jackson Dome near Jackson, MS
to East Mississippi
No
Our Free State pipeline extends from CO2 source fields near Jackson, Mississippi to crude oil fields in eastern
Mississippi. We have a transportation services agreement through 2028 related to our Free State pipeline with a single shipper
who has the right to use 100% of that pipeline's capacity.
Our NEJD System transports CO2 to tertiary crude oil recovery operations in southwest Mississippi. We have leased
that pipeline to an affiliate of the shipper on our Free State pipeline through 2028. Our NEJD lessee is responsible for all
operations and maintenance on that system and will bear and assume substantially all obligations and liabilities with respect to
that system.
Customers
Our customers on our Mississippi, Jay, Louisiana, Wyoming and Texas systems are primarily refiners and other large,
energy companies. The majority of our onshore crude oil pipeline systems directly serve one or more refiners.
Revenues from customers of our onshore pipeline transportation segment did not account for more than ten percent of
our consolidated revenues.
Competition
Competition among common carrier pipelines is based primarily on posted tariffs, quality of customer service and
proximity to refineries, production and connecting pipelines. We believe that high capital costs, tariff regulation and the cost of
acquiring rights-of-way make it unlikely that other competing pipeline systems, comparable in size and scope to our onshore
pipelines, will be built in the same geographic areas in the near future. In addition, as the majority of our onshore pipelines
directly serve refineries we believe that these pipelines are not subject to the same competitive pressures as those tied directly
to crude oil production. Additionally, the shipper on our Free State pipeline is required to use our Free State pipeline for any
transportation of CO2 within a dedicated area.
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Refinery Services
Our refinery services segment primarily (i) provides sulfur-extraction services to ten refining operations located
mostly in Texas, Louisiana, Arkansas, Oklahoma and Utah, (ii) operates significant storage and transportation assets in relation
to those services and (iii) sells NaHS and caustic soda to large industrial and commercial companies. Our refinery services
primarily involve processing refiners' high sulfur (or “sour”) gas streams that the refineries have generated from crude oil
processing operations. Our process applies our proprietary technology, which uses large quantities of caustic soda (the primary
raw material used in our process) to act as a scrubbing agent under prescribed temperature and pressure to remove sulfur. Sulfur
removal in a refinery is a key factor in optimizing production of refined products such as gasoline, diesel and aviation fuel. Our
sulfur removal technology returns a clean (sulfur-free) hydrocarbon stream to the refinery for further processing into refined
products, and simultaneously produces NaHS. The resultant NaHS constitutes the sole consideration we receive for our refinery
services activities. A majority of the NaHS we receive is sourced from refineries owned and operated by large companies,
including Phillips 66, CITGO, HollyFrontier, and Ergon. Our ten refinery services contracts have an average remaining life of
three years. The timing upon which these contracts renew vary based upon location and terms specified within each specific
contract.
Our refinery services footprint includes NaHS and caustic soda terminals in the Gulf Coast, the Midwest, Montana,
Utah, British Columbia and South America. In conjunction with our supply and logistics segment, we sell and deliver (via
railcars, ships, barges and trucks) NaHS and caustic soda to over 150 customers. We believe we are one of the largest marketers
of NaHS in North and South America. By minimizing our costs through utilization of our own logistical assets and leased
storage sites, we believe we have a competitive advantage over other suppliers of NaHS. NaHS is used in the specialty
chemicals business (plastic additives, dyes and personal care products), in pulp and paper business, and in connection with
mining operations (nickel, gold and separating copper from molybdenum) as well as bauxite refining (aluminum). NaHS has
also gained acceptance in environmental applications, including waste treatment programs requiring stabilization and reduction
of heavy and toxic metals and flue gas scrubbing. Additionally, NaHS can be used for removing hair from hides at the
beginning of the tannery process.
Caustic soda is used in many of the same industries as NaHS. Many applications require both chemicals for use in the
same process – for example, caustic soda can increase the yields in bauxite refining, pulp manufacturing and in the recovery of
copper, gold and nickel. Caustic soda is also used as a cleaning agent (when combined with water and heated) for process
equipment and storage tanks at refineries.
Customers
We provide on-site sulfur removal services utilizing NaHS units at ten refining locations. Even though some of our
customers have elected to own the sulfur removal facilities located at their refineries, we operate those facilities. We market all
of our NaHS as well as small amounts of NaHS for a handful of third parties.
We sell our NaHS to customers in a variety of industries, with the largest customers involved in mining of base metals,
primarily copper and molybdenum and the production of pulp and paper. We sell to customers in the copper mining industry in
the western U.S., Canada and Mexico. We also export the NaHS to South America for sale to customers for mining in Peru and
Chile. No sulfur removal customer or NaHS sales customer is responsible for more than ten percent of our consolidated
revenues. Many of the industries that our NaHS customers are in (such as copper mining and the pulp and paper industry)
participate in global markets for their products. As a result, this creates an indirect exposure for NaHS to global demand for the
end products of our customers. Provisions in our service contracts with refiners allow us to adjust our sour gas processing rates
(sulfur removal) to maintain a balance between NaHS supply and demand.
We sell caustic soda to many of the same customers who purchase NaHS from us, including pulp and paper
manufacturers and customers in the copper mining industry. We also supply caustic soda to some of the refineries in which we
operate for use in cleaning processing equipment.
Competition
Our competitors for the supply of NaHS consist primarily of parties who produce NaHS as a by-product of processes
involved with agricultural pesticide products, plastic additives and lubricant viscosity. Typically our competitors for the
production of NaHS have only one manufacturing location and they do not have the logistical infrastructure that we have to
supply customers. Our primary competitor has been AkzoNobel, a chemical manufacturing company that produces NaHS
primarily in its pesticide operations. Our only competitors for sulfur removal services include refineries themselves through the
use of their traditional sulfur removal processes.
Our competitors for sales of caustic soda include manufacturers of caustic soda. These competitors supply caustic soda
to our refinery services operations and support us in our third-party caustic soda sales. By utilizing our storage capabilities and
having access to transportation assets, we sell caustic soda to third parties who gain efficiencies from acquiring both NaHS and
caustic soda from one source.
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We do not have any sulfur removal customer or NaHS sales customer that accounted for more than ten percent of our
consolidated revenues.
Marine Transportation
Our marine transportation segment consists of (i) our inland marine fleet which transports heavy refined petroleum
products, including asphalt, principally serving refineries and storage terminals along the Gulf Coast, Intracoastal Canal and
western river systems of the U.S., principally along the Mississippi River and its tributaries, (ii) our offshore marine fleet which
transports crude oil and refined petroleum products, principally serving refineries and storage terminals along the Gulf Coast,
Eastern Seaboard, Great Lakes and Caribbean, and (iii) our modern double-hulled, Jones Act qualified tanker M/T American
Phoenix which is currently under charter serving a customer along the Gulf Coast until 2020. The below table includes
operational information relating to our marine transportation fleet:
Aggregate Fleet Design Capacity (Bbls) (in
thousands)
Individual Vessel Capacity Range (Bbls) (in
thousands) (1)
Number of:
Push/Tug Boats
Barges
Product Tankers
Inland
1,830
23-39
30
66
—
Offshore
American Phoenix
884
65-136
9
9
—
330
330
—
—
1
(1) Represents capacity per barge ranges on our inland and offshore barge, as well as the capacity of our M/T American Phoenix.
Customers
Our marine customers are primarily refiners and some large energy companies. Our M/T American Phoenix is
currently operating under a long term charter into 2020 with Phillips 66. We are a provider of transportation services for our
customers and, in almost all cases, do not assume ownership of the products we transport. Marine transportation services are
conducted under term contracts, some of which have renewal options for customers with whom we have traditionally had long-
standing relationships, as well as spot contracts. Most have been our customers for many years and we generally anticipate
continued relationships; however, there is no assurance that any individual contract will be renewed.
A term contract is an agreement with a specific customer to transport cargo from a designated origin to a designated
destination at a set rate (affreightment) or at a daily rate (time charter). The rate may or may not escalate during the term of the
contract; however, the base rate generally remains constant and contracts often include escalation provisions to recover changes
in specific costs such as fuel. Time charters, which insulate us from revenue fluctuations caused by weather and navigational
delays and temporary market declines, represented over 90% of our marine transportation revenues under term contracts during
2015, 2014 and 2013. A spot contract is an agreement with a customer to move cargo from a specific origin to a designated
destination for a rate negotiated at the time the cargo movement takes place. Spot contract rates are at the current “market” rate
and are subject to market volatility. We typically maintain a higher mix of term contracts to spot contracts to provide a
predictable revenue stream while maintaining spot market exposure to take advantage of new business opportunities and
existing customers’ peak demands. During 2015, 2014 and 2013, approximately 75%, 80% and 67%, respectively, of our
marine transportation revenues were from term contracts and 25%, 20% and 33%, respectively, were from spot contracts.
Revenues from customers of our marine transportation segment did not account for more than ten percent of our
consolidated revenues.
Competition
Our competitors for the marine transportation of crude oil and heavy refined petroleum products are both midstream
MLPs with marine transportation divisions, along with companies that are in the business of solely marine transportation
operations. Competition among common marine carriers is based on a number of factors including proximity to production,
refineries and connecting infrastructures, customer service, and transportation pricing.
Our marine transportation segment also competes with other modes of transporting crude oil and heavy refined
petroleum products, including pipeline, rail and trucking operations. Each such mode of transportation has different advantages
and disadvantages, which often are fact and circumstance dependent. For example, without requiring longer-term economic
commitments from shippers, marine and truck transportation can offer shippers much more flexibility to access numerous
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markets in multiple directions (i.e. pipelines tend to flow in a single direction and are geographically limited by their receipt
and delivery points with other pipelines and facilities), and marine transportation offers shippers certain economies of scale as
compared to truck transportation. In addition, due to construction costs and timing considerations, marine and truck
transportation can provide cost effective and immediate services to a nascent producing region, whereas new pipelines can be
very expensive and time consuming to construct and may require shippers to make longer-term economic commitments, such
as take-or-pay commitments. On the other hand, in mature developed areas serviced by extensive, multi-directional pipelines,
with extensive connections to various market, pipeline transportation may be preferred by shippers, especially if shippers are
willing to make longer-term economic commitments, such as take-or-pay commitments.
Supply and Logistics
We provide supply and logistics services to Gulf Coast crude oil refineries and producers through a combination of
purchasing, transporting, storing, blending and marketing of crude oil and refined products (primarily fuel oil, asphalt, and
other heavy refined products). In connection with these services, we utilize our portfolio of logistical assets consisting of trucks,
terminals, pipelines, railcars and barges. Our crude oil related services include gathering crude oil from producers at the
wellhead, transporting crude oil by gathering line, truck, railcar and barge to pipeline injection points and marketing crude oil to
refiners. Not unlike our crude oil operations, we also gather refined products from refineries, transport refined products via
truck, railcar and barge, and sell refined products to customers in wholesale markets. For these services, we generate fee-based
income and profit from the difference between the price at which we re-sell the crude oil and petroleum products less the price
at which we purchase the crude oil and products, minus the associated costs of aggregation and transportation.
Our crude oil supply and logistics operations are concentrated in Texas, Louisiana, Alabama, Florida, Mississippi and
Wyoming. These operations help to ensure (among other things) a base supply source for our crude oil pipeline systems and our
refinery customers while providing our producer customers with a market outlet for their production. We attempt to limit our
commodity price risk in our supply and logistics segment by utilizing back-to-back purchases and sales, matching sale and
purchase volumes on a monthly basis and hedging unsold volumes (primarily with NYMEX derivatives to offset the remaining
price risk); however, we cannot completely eliminate commodity price risks. By utilizing our network of gathering lines,
trucks, railcars, barges, terminals and pipelines, we are able to provide transportation related services to, and back-to-back
gathering and marketing arrangements with, crude oil refiners and producers. Additionally, our crude oil gathering and
marketing expertise and knowledge base provide us with an ability to capitalize on opportunities that arise from time to time in
our market areas. We gather and transport approximately 70,000 barrels per day of crude oil, much of which is produced from
large resource basins throughout Texas and the Gulf Coast. Given our network of terminals, we also have the ability to store
crude oil during periods of contango (crude oil prices for future deliveries are higher than for current deliveries) for delivery in
future months. When we purchase and store crude oil during periods of contango, we attempt to limit commodity price risk by
simultaneously entering into a contract to sell the inventory in a future period, either with a counterparty or in the crude oil
futures market. The most substantial component of the costs we incur while aggregating crude oil and petroleum products
relates to operating our fleet of owned and leased trucks and railcars and paying transportation fees to our other segments and to
third parties.
Our refined products supply and logistics operations are concentrated in the Gulf Coast region, principally Texas and
Louisiana, and in Wyoming. Through our footprint of owned and leased trucks, leased railcars, terminals and barges, we are
able to provide Gulf Coast area refineries with transportation services as well as market outlets for certain heavy refined
products. We primarily engage in the transportation and supply of fuel oil, asphalt, and other heavy refined products to our
customers in wholesale markets. We have the ability from time to time to obtain various grades of refined products from our
refinery customers and blend them to meet the requirements of our other market customers. However, because our refinery
customers may choose to manufacture such refined products based on a number of economic and operating factors, we cannot
predict the timing of contribution margins related to our blending services.
We own five active crude oil rail loading/unloading facilities located in Baton Rouge, Louisiana; Walnut Hill, Florida;
Wink, Texas; Natchez, Mississippi and Douglas, Wyoming which provide synergies to our existing asset footprint. We
generally earn a fee for loading or unloading railcars at these facilities.
As discussed in "Recent Developments and Growth Initiatives" above, in the fourth quarter of 2013, we began
construction on a new crude oil unit train unloading facility in Raceland, Louisiana which will connect to existing midstream
infrastructure that will provide direct pipeline access to refineries from the Baton Rouge area to the Gulf of Mexico. We expect
this facility to be operational in the first half of 2016.
Our industrial gases supply and logistics operations supply CO2 to industrial customers under four contracts. We
obtain our CO2 supply pursuant to our volumetric production payments (also known as VPPs). Our existing customer contracts
expire between 2015 and 2023. We plan to exit our industrial gases operations as our existing contracts expire.
Within our supply and logistics business segment, we employ many types of logistically flexible assets. These assets
include 300 trucks, 400 trailers, 522 railcars, and terminals and other tankage with 3.3 million barrels of leased and owned
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storage capacity in multiple locations along the Gulf Coast, accessible by pipeline, truck, rail or barge. Our leased railcars
consist of approximately 51 refined product railcars and 471 crude oil railcars.
Customers
Our supply and logistics business encompasses numerous refiners and hundreds of producers, for which we provide
transportation related services, as well as gather from and market to crude oil and refined products. During 2015, more than
10% of our consolidated revenues were generated from Shell.
Competition
In our crude oil supply and logistics operations, we compete with other midstream service providers and regional and
local companies who may have significant market share in the respective areas in which they operate. In our refined products
supply and logistics operations, we compete primarily with regional companies. See "Marine Transportation - Competition" for
additional discussion of our competitors. Competitive factors in our supply and logistics business include price, relationships
with customers, range and quality of services, knowledge of products and markets, availability of trade credit and capabilities
of risk management systems.
Geographic Segments
All of our operations are in the U.S.. Additionally, we transport and sell NaHS to customers in South America and
Canada. Revenues from customers in foreign countries totaled approximately $12 million, $18 million and $17 million in 2015,
2014 and 2013, respectively. The remainder of our revenues was generated from sales to customers in the U.S.
Credit Exposure
Due to the nature of our operations, a disproportionate percentage of our trade receivables constitute obligations of
refiners, large oil producers and integrated oil companies. This energy industry concentration has the potential to affect our
overall exposure to credit risk, either positively or negatively, in that our customers could be affected by similar changes in
economic, industry or other conditions. However, we believe that the credit risk posed by this industry concentration is offset
by the creditworthiness of our specific customer base in the context of our specific transactions as well as other factors,
including the strategic nature of certain of our assets and relationships and our credit procedures. Our portfolio of accounts
receivable is generally comprised in large part of obligations of refiners, integrated and large independent oil and natural gas
producers, and mining and other industrial companies that purchase NaHS, most of which have stable payment histories. The
credit risk related to contracts that are traded on the NYMEX is limited due to the daily cash settlement procedures and other
NYMEX requirements.
When we market crude oil, petroleum products and NaHS and provide transportation and other services, we must
determine the amount, if any, of the line of credit we will extend to any given customer. We have established procedures to
manage our credit exposure, including initial credit approvals, credit limits, collateral requirements and rights of offset. Letters
of credit, prepayments and guarantees are also utilized to limit credit risk to ensure that our established credit criteria are met.
We use similar procedures to manage our exposure to our customers in the onshore pipeline transportation, offshore pipeline
transportation and marine transportation segments.
As a result of our activities in the Gulf of Mexico and onshore, our largest customers include Royal Dutch Shell,
Exxon Mobil Corporation, BP PLC, Marathon Petroleum Corporation, Total SA and Anadarko Petroleum Corporation.
Employees
To carry out our business activities, we employed approximately 1,400 employees at December 31, 2015. None of our
employees are represented by labor unions, and we believe that relationships with our employees are good.
Regulation
Pipeline Rate and Access Regulation
The rates and the terms and conditions of service of our interstate common carrier pipeline operations are subject to
regulation by FERC under the Interstate Commerce Act, or ICA. Under the ICA, rates must be “just and reasonable,” and must
not be unduly discriminatory or confer any undue preference on any shipper. FERC regulations require that oil pipeline rates
and terms and conditions of service for regulated pipelines be filed with FERC and posted publicly.
Effective January 1, 1995, FERC promulgated rules simplifying and streamlining the ratemaking process. Previously
established rates were “grandfathered,” limiting the challenges that could be made to existing tariff rates. Increases from
grandfathered rates of interstate oil pipelines are currently regulated by FERC primarily through an index methodology,
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whereby a pipeline is allowed to change its rates based on the year-to-year change in an index. Under FERC regulations, we are
able to change our rates within prescribed ceiling levels that are tied to the Producer Price Index for Finished Goods. Rate
increases made pursuant to the index will be subject to protest, but such protests must show that the rate increase resulting from
application of the index is substantially in excess of the applicable pipeline’s increase in costs.
In addition to the index methodology, FERC allows for rate changes under three other methods—cost-of-service,
competitive market showings and agreements between shippers and the oil pipeline company that the rate is acceptable, or
Settlement Rates. The pipeline tariff rates on our Mississippi, Jay, Louisiana, and Wyoming Systems are either rates that are
subject to change under the index methodology or Settlement Rates. None of our tariffs have been subjected to a protest or
complaint by any shipper or other interested party.
Our offshore pipelines are neither interstate nor common carrier pipelines. However, these pipelines are subject to
federal regulation under the Outer Continental Shelf Lands Act, which requires all pipelines operating on or across the outer
continental shelf to provide nondiscriminatory transportation service.
Our intrastate common carrier pipeline operations in Texas are subject to regulation by the Railroad Commission of
Texas. The applicable Texas statutes require that pipeline rates and practices be reasonable and non-discriminatory and that
pipeline rates provide a fair return on the aggregate value of the property of a common carrier, after providing reasonable
allowance for depreciation and other factors and for reasonable operating expenses. Although no assurance can be given that
the tariffs we charge would ultimately be upheld if challenged, we believe that the tariffs now in effect can be sustained.
Our CO2 pipelines are subject to regulation by the state agencies in the states in which they are located.
Marine Regulations
Maritime Law. The operation of towboats, tugboats, barges, vessels and marine equipment create maritime obligations
involving property, personnel and cargo and are subject to regulation by the U.S. Coast Guard (“USCG”), the Environmental
Protection Agency (EPA), the Department of Homeland Security (DHS), federal laws, state laws and certain international
conventions under General Maritime Law. These obligations can create risks which are varied and include, among other things,
the risk of collision and allision, which may precipitate claims for personal injury, cargo, contract, pollution, third-party claims
and property damages to vessels and facilities. Routine towage operations can also create risk of personal injury under the
Jones Act and General Maritime Law, cargo claims involving the quality of a product and delivery, terminal claims, contractual
claims and regulatory issues. Federal regulations also require that all tank barges engaged in the transportation of oil and
petroleum in the U.S. be double hulled by 2015. All of our barges are double-hulled.
All of our barges are inspected by the USCG and carry certificates of inspection. All of our towboats and tugboats are
certificated by the USCG. Most of our vessels are built to American Bureau of Shipping (“ABS”) classification standards and
in some instances are inspected periodically by ABS to maintain the vessels in class standards. The crews we employ aboard
vessels, including captains, pilots, engineers, tankermen and ordinary seamen, are documented by the USCG.
We are required by various governmental agencies to obtain licenses, certificates and permits for our vessels
depending upon such factors as the cargo transported, the waters in which the vessels operate and other factors. We are of the
opinion that our vessels have obtained and can maintain all required licenses, certificates and permits required by such
governmental agencies for the foreseeable future.
We believe that additional security and environmental related regulations may be imposed on the marine industry in
the form of contingency planning requirements. Generally, we endorse the anticipated additional regulations and believe we are
currently operating to standards at least equal to anticipated additional regulations.
Jones Act: The Jones Act is a federal law that restricts maritime transportation between locations in the U.S. to vessels
built and registered in the U.S. and owned and manned by U.S. citizens. We are responsible for monitoring the ownership of
our subsidiary that engages in maritime transportation and for taking any remedial action necessary to insure that no violation
of the Jones Act ownership restrictions occurs. Jones Act requirements significantly increase operating costs of U.S.-flag vessel
operations compared to foreign-flag vessel operations. Further, the USCG and ABS maintain the most stringent regime of
vessel inspection in the world, which tends to result in higher regulatory compliance costs for U.S.-flag operators than for
owners of vessels registered under foreign flags or flags of convenience. The Jones Act and General Maritime Law also provide
damage remedies for crew members injured in the service of the vessel arising from employer negligence or vessel
unseaworthiness.
Merchant Marine Act of 1936: The Merchant Marine Act of 1936 is a federal law providing that, upon proclamation
by the president of the U.S. of a national emergency or a threat to the national security, the U.S. Secretary of Transportation
may requisition or purchase any vessel or other watercraft owned by U.S. citizens (including us, provided that we are
considered a U.S. citizen for this purpose). If one of our tow boats or barges were purchased or requisitioned by the U.S.
government under this law, we would be entitled to be paid the fair market value of the vessel in the case of a purchase or, in
the case of a requisition, the fair market value of charter hire. However, if one of our tow boats is requisitioned or purchased
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and its associated barge or barges are left idle, we would not be entitled to receive any compensation for the lost revenues
resulting from the idled barges. We also would not be entitled to be compensated for any consequential damages we suffer as a
result of the requisition or purchase of any of our tow boats or barges.
Security Requirements: The Maritime Transportation Security Act of 2002 requires, among other things, submission to
and approval by the USCG of vessel and waterfront facility security plans (“VSP”). Our VSP’s have been approved and we are
operating in compliance with the plans for all of its vessels and that are subject to the requirements, whether engaged in
domestic or foreign trade.
Railcar Regulation
We operate a number of railcar loading and unloading facilities and lease a significant number of railcars. Our railcar
operations are subject to the regulatory jurisdiction of the Federal Railroad Administration of the DOT, the Occupational Safety
and Health Administration ("OSHA"), as well as other federal and state regulatory agencies. We believe that our railcar
operations are in substantial compliance with all existing federal, state and local regulations.
DOT and OSHA have jurisdiction under several federal statutes over a number of safety and health aspects of rail
operations, including the transportation of hazardous materials. State agencies regulate some aspects of rail operations with
respect to health and safety in areas not otherwise preempted by federal law.
Environmental Regulations
General
We are subject to stringent federal, state and local laws and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. These laws and regulations may (i) require the acquisition of
and compliance with permits for regulated activities, (ii) limit or prohibit operations on environmentally sensitive lands such as
wetlands or wilderness areas or areas inhabited by endangered or threatened species, (iii) result in capital expenditures to limit
or prevent emissions or discharges, and (iv) place burdensome restrictions on our operations, including the management and
disposal of wastes. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and
criminal penalties, including the assessment of monetary penalties, the imposition of investigatory and remedial obligations, the
suspension or revocation of necessary permits, licenses and authorizations, the requirement that additional pollution controls be
installed and the issuance of orders enjoining future operations or imposing additional compliance requirements. Changes in
environmental laws and regulations occur frequently, typically increasing in stringency through time, and any changes that
result in more stringent and costly operating restrictions, emission control, waste handling, disposal, cleanup and other
environmental requirements have the potential to have a material adverse effect on our operations. While we believe that we are
in substantial compliance with current environmental laws and regulations and that continued compliance with existing
requirements would not materially affect us, there is no assurance that this trend will continue in the future. Revised or new
additional regulations that result in increased compliance costs or additional operating restrictions, particularly if those costs are
not fully recoverable from our customers, could have a material adverse effect on our business, financial position, results of
operations and cash flows.
Hazardous Substances and Waste Handling
The Comprehensive Environmental Response, Compensation, and Liability Act, as amended, or CERCLA, also
known as the “Superfund” law, and analogous state laws impose liability, without regard to fault or the legality of the original
conduct, on certain classes of persons. These persons include current owners and operators of the site where a release of
hazardous substances occurred, prior owners or operators that owned or operated the site at the time of the release of hazardous
substances, and companies that disposed or arranged for the disposal of the hazardous substances found at the site. We currently
own or lease, and have in the past owned or leased, properties that have been in use for many years with the gathering and
transportation of hydrocarbons including crude oil and other activities that could cause an environmental impact. Persons
deemed “responsible persons” under CERCLA may be subject to strict and joint and several liability for the costs of removing
or remediating previously disposed wastes (including wastes disposed of or released by prior owners or operators) or property
contamination (including groundwater contamination), for damages to natural resources, and for the costs of certain health
studies. CERCLA also authorizes the EPA and, in some instances, third parties to act in response to threats to the public health
or the environment and to seek to recover the costs they incur from the responsible classes of persons. It is not uncommon for
neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by
hazardous substances or other pollutants released into the environment.
We also may incur liability under the Resource Conservation and Recovery Act, as amended, or RCRA, and analogous
state laws which impose requirements and also liability relating to the management and disposal of solid and hazardous wastes.
While RCRA regulates both solid and hazardous wastes, it imposes strict requirements on the generation, storage, treatment,
transportation and disposal of hazardous wastes. Certain petroleum production wastes are excluded from RCRA’s hazardous
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waste regulations. However, it is possible that these wastes, which could include wastes currently generated during our
operations, will in the future be designated as “hazardous wastes” and, therefore, be subject to more rigorous and costly
disposal requirements. Indeed, legislation has been proposed from time to time in Congress to re-categorize certain crude oil
and natural gas exploration and production wastes as “hazardous wastes.” Any such changes in the laws and regulations could
have a material adverse effect on our capital expenditures and operating expenses.
We believe that we are in substantial compliance with the requirements of CERCLA, RCRA and related state and local
laws and regulations, and that we hold all necessary and up-to-date permits, registrations and other authorizations required
under such laws and regulations. Although we believe that the current costs of managing our wastes as they are presently
classified are reflected in our budget, any legislative or regulatory reclassification of oil and natural gas exploration and
production wastes could increase our costs to manage and dispose of such wastes.
Water
The Federal Water Pollution Control Act, as amended, also known as the “Clean Water Act,” and analogous state laws
impose restrictions and strict controls regarding the unauthorized discharge of pollutants, including crude oil, into navigable
waters of the U.S., as well as state waters. Permits must be obtained to discharge pollutants into these waters. In addition, the
Clean Water Act and analogous state laws require individual permits or coverage under general permits for discharges of storm
water runoff from certain types of facilities. These permits may require us to monitor and sample the storm water runoff from
certain of our facilities. Some states also maintain groundwater protection programs that require permits for discharges or
operations that may impact groundwater conditions. The Oil Pollution Act, or the OPA, is the primary federal law for crude oil
spill liability. The OPA contains numerous requirements relating to the prevention of and response to crude oil spills into waters
of the U.S., including the requirement that operators of offshore facilities and certain onshore facilities near or crossing
waterways must maintain certain significant levels of financial assurance to cover potential environmental cleanup and
restoration costs. Under the OPA, strict, joint and several liability may be imposed on “responsible parties” for all containment
and cleanup costs and certain other damages arising from a release, including, but not limited to, the costs of responding to a
release of crude oil to surface waters and natural resource damages, resulting from crude oil spills into or upon navigable
waters, adjoining shorelines or in the exclusive economic zone of the U.S.. A “responsible party” includes the owner or operator
of an onshore facility.
Noncompliance with the Clean Water Act or the OPA may result in substantial civil and criminal penalties. We believe
we are in material compliance with each of these requirements.
Air Emissions
The Federal Clean Air Act, or CAA, as amended, and analogous state and local laws and regulations restrict the
emission of air pollutants, and impose permit requirements and other obligations. Regulated emissions occur as a result of our
operations, including the handling or storage of crude oil and other petroleum products. Both federal and state laws impose
substantial penalties for violation of these applicable requirements. Accordingly, our failure to comply with these requirements
could subject us to monetary penalties, injunctions, conditions or restrictions on operations, revocation or suspension of
necessary permits and, potentially, criminal enforcement actions.
NEPA
Under the National Environmental Policy Act, or NEPA, a federal agency, commonly in conjunction with a current
permittee or applicant, may be required to prepare an environmental assessment or a detailed environmental impact statement
before taking any major action, including issuing a permit for a pipeline extension or addition that would affect the quality of
the environment. Should an environmental impact statement or environmental assessment be required for any proposed pipeline
extensions or additions, NEPA may prevent or delay construction or alter the proposed location, design or method of
construction.
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Climate Change
In December 2009, the EPA published its findings that emissions of carbon dioxide, methane and other greenhouse
gases ("GHGs") present an endangerment to human health and the environment because emissions of such gases are, according
to the EPA, contributing to the warming of the earth’s atmosphere and other climatic changes. These findings served as a
statutory prerequisite for EPA to adopt and implement regulations that would restrict emissions of GHGs under existing
provisions of the CAA. The EPA also adopted two sets of related rules, one of which purports to regulate emissions of GHGs
from motor vehicles and the other of which regulates emissions of GHGs from certain large stationary sources of emissions
such as power plants or industrial facilities. The EPA finalized the motor vehicle rule in April 2010 and it became effective in
July 2010. The EPA adopted the stationary source rule, also known as the "Tailoring Rule," in May 2010, and it became
effective in January 2011. The tailoring rule established new GHG emissions thresholds that determine when stationary sources
must obtain permits under the PSD and Title V programs of the Clean Air Act. On June 23, 2014, in Utility Air Regulatory
Group v. EPA (“UARG v. EPA”), the Supreme Court held that stationary sources could not become subject to PSD or Title V
permitting solely by reason of their GHG emissions. The Court ruled, however, that the EPA may require installation of best
available control technology for GHG emissions at sources otherwise subject to the PSD and Title V programs. On December
19, 2014, EPA issued two memoranda providing initial guidance on GHG permitting requirements in response to the Court’s
decision in UARG v. EPA. In its preliminary guidance, EPA indicated it would promulgate a rule to rescind any PSD permits
issued under the portions of the Tailoring Rule that were vacated by the Court. In the interim, EPA issued a narrowly crafted
“no action assurance” indicating it will exercise its enforcement discretion not to pursue enforcement of the terms and
conditions relating to GHGs in an EPA-issued PSD permit, and for related terms and conditions in a Title V permit. On April
30, 2015, the EPA issued a final rule allowing permitting authorities to rescind PSD permits issued under the invalid
regulations.
Additionally, in September 2009, the EPA issued a final rule requiring the reporting of GHG emissions from specified
large GHG emission sources in the U.S., beginning in 2011 for emissions occurring in 2010. Further, in November 2010, the
EPA expanded its existing GHG reporting rule to include onshore and offshore crude oil and natural gas production and onshore
processing, transmission, storage and distribution facilities, which may include certain of our facilities, beginning in 2012 for
emissions occurring in 2011. In October 2015, the EPA amended the GHG reporting rule to add the reporting of GHG
emissions from gathering and boosting systems, completions and workovers of crude oil wells using hydraulic fracturing, and
blowdowns of natural gas transmission pipelines. As a result of this continued regulatory focus, future GHG regulations of the
crude oil and natural gas industry remain a possibility. The EPA has continued to adopt GHG regulations of other industries,
such as its August 2015 adoption of three separate, but related, actions to address carbon dioxide pollution from power plants,
including final Carbon Pollution Standards for new, modified and reconstructed power plants, a final Clean Power Plan to cut
carbon dioxide pollution from existing power plants, and a proposed federal plan to implement the Clean Power Plan emission
guidelines. Upon publication of the Clean Power Plan on October 23, 2015, more than two dozen States as well as industry and
labor groups challenged the Clean Power Plan in the D.C. Circuit Court of Appeals.
Further, the U.S. Congress has considered various proposals to reduce GHG emissions that may impose a carbon
emissions tax, a cap-and-trade program or other programs aimed at carbon reduction, and almost half of the states, either
individually or through multi-state regional initiatives, have already taken legal measures to reduce GHG emissions, primarily
through the planned development of GHG emission inventories and/or GHG cap-and-trade programs. The net effect of this
legislation is to impose increasing costs on the combustion of carbon-based fuels such as crude oil, refined petroleum products
and natural gas. Our compliance with any future legislation or regulation of GHGs, if it occurs, may result in materially
increased compliance and operating costs.
In addition, in December 2015, the United States joined the international community at the 21st Conference of the
Parties (COP-21) of the United Nations Framework Convention on Climate Change in Paris, France. The resulting Paris
Agreement calls for the parties to undertake “ambitious efforts” to limit the average global temperature, and to conserve and
enhance sinks and reservoirs of GHGs. The Agreement, if ratified, establishes a framework for the parties to cooperate and
report actions to reduce GHG emissions.
The effect on our operations of CAA regulations, legislative efforts or related implementation regulations that regulate
or restrict emissions of GHGs in areas that we conduct business could adversely affect the demand for the products that we
transport, store and distribute and, depending on the particular program adopted, could increase our costs to operate and
maintain our facilities by requiring that we, among other things, measure and report our emissions, install new emission
controls on our facilities, acquire allowances to authorize our GHG emissions, pay any taxes related to our GHG emissions and
administer and manage a GHG emissions program. We may be unable to include some or all of such increased costs in the rates
charged by our pipelines or other facilities, and any such recovery may depend on events beyond our control, including the
outcome of future rate proceedings before the FERC or state regulatory agencies and the provisions of any final legislation or
implementing regulations. Any GHG emissions legislation or regulatory programs applicable to power plants or refineries
could also increase the cost of consuming, and thereby adversely affect demand for the crude oil and natural gas that we
produce. Consequently, legislation and regulatory programs to reduce GHG emissions could have an adverse effect on our
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business, financial condition and results of operations. It is not possible at this time to predict with any accuracy the structure or
outcome of any future legislative or regulatory efforts to address such emissions or the eventual costs to us of compliance.
Furthermore, claims have been made against certain energy companies alleging that GHG emissions from crude oil
and natural gas operations constitute a public nuisance under federal and/or state common law. As a result, private individuals
may seek to enforce environmental laws and regulations against us and could allege personal injury or property damages. While
our business is not a party to this litigation, we could be named in actions making similar allegations. An unfavorable ruling in
any such case could adversely impact our business, financial condition and results of operations.
Safety and Security Regulations
Our crude oil and CO2 pipelines are subject to construction, installation, operation and safety regulation by the U.S.
Department of Transportation, or DOT, and various other federal, state and local agencies. Congress has enacted several
pipeline safety acts over the years. Currently, the Pipeline and Hazardous Materials Safety Administration under DOT
administers pipeline safety requirements for natural gas and hazardous liquid pipelines pursuant to detailed regulations set forth
in 49 C.F.R. Parts 190 to 195. These regulations, among other things, address pipeline integrity management and pipeline
operator qualification rules. Significant expenses could be incurred in the future if additional safety measures are required or if
safety standards are raised and exceed the current pipeline control system capabilities.
We are subject to the DOT Integrity Management, or IM, regulations, which require that we perform baseline
assessments of all pipelines that could affect a High Consequence Area, or HCA, including certain populated areas and
environmentally sensitive areas. After completing a baseline assessment, we continue to assess all pipelines at specified
intervals and periodically evaluate the integrity of each pipeline segment that could affect a HCA. The integrity of these
pipelines must be assessed by internal inspection, pressure test, or equivalent alternative new technology.
The IM regulations required us to prepare an Integrity Management Plan, or IMP, that details the risk assessment
factors, the overall risk rating for each segment of pipe, a schedule for completing the integrity assessment, the methods to
assess pipeline integrity, and an explanation of the assessment methods selected. The regulations also require periodic review of
HCA pipeline segments to ensure that adequate preventative and mitigative measures exist and that companies take prompt
action to address pipeline integrity issues. No assurance can be given that the cost of testing and the required rehabilitation
identified will not be material costs to us that may not be fully recoverable by tariff increases.
We have developed a Risk Management Plan required by the EPA as part of our IMP. This plan is intended to
minimize the offsite consequences of catastrophic spills. As part of this program, we have developed a mapping program. This
mapping program identified HCAs and unusually sensitive areas along the pipeline right-of-ways in addition to mapping of
shorelines to characterize the potential impact of a spill of crude oil on waterways.
Our crude oil, refined products and refinery services operations are also subject to the requirements of OSHA and
comparable state statutes. Various other federal and state regulations require that we train all operations employees in
Hazardous Communication ("HAZCOM") and disclose information about the hazardous materials used in our operations.
Certain information must be reported to employees, government agencies and local citizens upon request.
States are responsible for enforcing the federal regulations and more stringent state pipeline regulations and inspection
with respect to hazardous liquids pipelines, including crude oil, natural gas and CO2 pipelines. In practice, states vary
considerably in their authority and capacity to address pipeline safety. We do not anticipate any significant problems in
complying with applicable state laws and regulations in those states in which we operate.
Our trucking operations are licensed to perform both intrastate and interstate motor carrier services. As a motor carrier,
we are subject to certain safety regulations issued by the DOT. The trucking regulations cover, among other things, driver
operations, log book maintenance, truck manifest preparations, safety placard placement on the trucks and trailer vehicles, drug
and alcohol testing, operation and equipment safety and many other aspects of truck operations. We are also subject to OSHA
with respect to our trucking operations.
The USCG regulates occupational health standards related to our marine operations. Shore-side operations are subject
to the regulations of OSHA and comparable state statutes. The Maritime Transportation Security Act requires, among other
things, submission to and approval of the USCG of vessel security plans.
Since the terrorist attacks of September 11, 2001, the U.S. Government has issued numerous warnings that energy
assets could be the subject of future terrorist attacks. We have instituted security measures and procedures in conformity with
federal guidance. We will institute, as appropriate, additional security measures or procedures indicated by the federal
government. None of these measures or procedures should be construed as a guarantee that our assets are protected in the event
of a terrorist attack.
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Available Information
The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at
100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. We make available free of charge on our internet website (www.genesisenergy.com)
our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after we electronically file the material with, or furnish it to, the SEC. These documents are also available at the SEC’s website
(www.sec.gov). Additionally, on our internet website we make available our Corporate Governance Guidelines, Code of
Business Conduct and Ethics, Audit Committee Charter and Governance, Compensation and Business Development Committee
Charter. Information on our website is not incorporated into this Form 10-K or our other securities filings and is not a part of
this Form 10-K or our other securities filings.
Item 1A. Risk Factors
Risks Related to Our Business
Our indebtedness could adversely restrict our ability to operate, affect our financial condition, and prevent us from
complying with our requirements under our debt instruments and could prevent us from paying cash distributions to our
unitholders.
We have outstanding debt and the ability to incur more debt. As of December 31, 2015, we had approximately $1.1
billion outstanding of senior secured indebtedness and an additional $1.8 billion of senior unsecured indebtedness. We must
comply with various affirmative and negative covenants contained in our credit facilities, some of which may restrict the way
in which we would like to conduct our business. Among other things, these covenants limit our ability to:
•
incur additional indebtedness or liens;
• make payments in respect of or redeem or acquire any debt or equity issued by us;
•
sell assets;
• make loans or investments;
• make guarantees;
•
•
•
enter into any hedging agreement for speculative purposes;
acquire or be acquired by other companies; and
amend some of our contracts.
The restrictions under our indebtedness may prevent us from engaging in certain transactions which might otherwise
be considered beneficial to us and could have other important consequences to unitholders. For example, they could:
•
•
•
•
increase our vulnerability to general adverse economic and industry conditions;
limit our ability to make distributions; to fund future working capital, capital expenditures and other general
partnership requirements; to engage in future acquisitions, construction or development activities; access capital
markets (debt and equity); or to otherwise fully realize the value of our assets and opportunities because of the need to
dedicate a substantial portion of our cash flow from operations to payments on our indebtedness or to comply with any
restrictive terms of our indebtedness;
limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate;
and
place us at a competitive disadvantage as compared to our competitors that have less debt.
We may incur additional indebtedness (public or private) in the future under our existing credit facilities, by issuing
debt instruments, under new credit agreements, under joint venture credit agreements, under capital leases or synthetic leases,
on a project-finance or other basis or a combination of any of these. If we incur additional indebtedness in the future, it likely
would be under our existing credit facility or under arrangements that may have terms and conditions at least as restrictive as
those contained in our existing credit facility. Failure to comply with the terms and conditions of any existing or future
indebtedness would constitute an event of default. If an event of default occurs, the lenders will have the right to accelerate the
maturity of such indebtedness and foreclose upon the collateral, if any, securing that indebtedness. In addition, if there is a
change of control as described in our credit facility, that would be an event of default, unless our creditors agreed otherwise,
and, under our credit facility, any such event could limit our ability to fulfill our obligations under our debt instruments and to
make cash distributions to unitholders which could adversely affect the market price of our securities.
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In addition, from time to time, some of our joint ventures may have substantial indebtedness, which will include
affirmative and negative covenants and other provisions that limit their freedom to conduct certain operations, events of
default, prepayment and other customary terms.
We may not be able to access adequate capital (debt and/or equity) on economically viable terms or any terms.
The capital markets (debt and equity) have previously been from time to time, and currently are, disrupted and volatile
as a result of adverse conditions, including recessionary pressures, bubble-affects and precipitous commodity price declines.
These circumstances and events, which can last for extended periods of time, have led to reduced capital availability, tighter
lending standards and higher interest rates on loans for companies in the energy industry, especially non-investment grade
companies. Although we cannot predict the future condition of the capital markets, future turmoil in capital markets and the
related higher cost of capital could have a material adverse effect on our business, liquidity, financial condition and cash flows,
particularly if our ability to borrow money from lenders or access the capital markets to finance our operations were to be
impaired for long.
If we are unable to access the amounts and types of capital we seek at a cost and/or on terms that have been available
to us historically, we could be materially and adversely affected. Such an inability to access capital could limit or prohibit our
ability to execute significant portions of our business plan, such as executing our growth strategy, refinancing our debt and/or
optimizing our capital structure.
We may not be able to fully execute our growth strategy due to various factors, such as unreceptive capital markets and/
or excessive competition for acquisitions.
Our strategy contemplates substantial growth through the development and acquisition of a wide range of midstream
and other energy infrastructure assets while maintaining a strong balance sheet. This strategy includes constructing and
acquiring additional assets and businesses to enhance our ability to compete effectively, diversify our asset portfolio and,
thereby, provide more stable cash flow. We regularly consider and enter into discussions regarding, and are currently
contemplating, additional potential joint ventures, stand-alone projects and other transactions that we believe will present
opportunities to realize synergies, expand our role in the energy infrastructure business, and increase our market position and,
ultimately, increase distributions to unitholders. A number of factors could adversely affect our ability to execute our growth
strategy, including an inability to raise adequate capital on acceptable terms, competition from competitors and/or an inability
to successfully integrate one or more acquired businesses into our operations.
We will need new capital to finance the future development and acquisition of assets and businesses. Limitations on
our access to capital will impair our ability to execute this strategy. Expensive capital will limit our ability to develop or acquire
accretive assets. Although we intend to continue to expand our business, this strategy may require substantial capital, and we
may not be able to raise the necessary funds on satisfactory terms, if at all.
In addition, we experience competition for the assets we purchase or contemplate purchasing. Increased competition
for a limited pool of assets could result in our not being the successful bidder more often or our acquiring assets at a higher
relative price than that which we have paid historically. Either occurrence would limit our ability to fully execute our growth
strategy. Our ability to execute our growth strategy may impact the market price of our securities.
We may be unable to integrate successfully businesses we acquire. We may incur substantial expenses, delays or other
problems in connection with our growth strategy that could negatively impact our results of operations. Moreover, acquisitions
and business expansions involve numerous risks, including:
•
•
•
difficulties in the assimilation of the operations, technologies, services and products of the acquired companies or
business segments;
inefficiencies and complexities that can arise because of unfamiliarity with new assets and the businesses associated
with them, including unfamiliarity with their markets; and
diversion of the attention of management and other personnel from day-to-day business to the development or
acquisition of new businesses and other business opportunities.
Our actual construction, development and acquisition costs could exceed our forecast, and our cash flow from
construction and development projects may not be immediate.
Our forecast contemplates significant expenditures for the development, construction or other acquisition of energy
infrastructure assets, including some construction and development projects with technological challenges. We (or our joint
ventures) may not be able to complete our projects at the costs currently estimated. If we (or our joint ventures) experience
material cost overruns, we will have to finance these overruns using one or more of the following methods:
•
•
using cash from operations;
delaying other planned projects;
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•
•
incurring additional indebtedness; or
issuing additional debt or equity.
Any or all of these methods may not be available when needed or may adversely affect our future results of
operations.
In addition, some construction projects require substantial investments over a long period of time before they begin
generating any meaningful cash flow.
Fluctuations in interest rates could adversely affect our business.
We have exposure to movements in interest rates. The interest rates on our credit facility ($1.1 billion outstanding at
December 31, 2015) are variable. Our results of operations and our cash flow, as well as our access to future capital and our
ability to fund our growth strategy, could be adversely affected by significant increases in interest rates.
An increase in interest rates may also cause a corresponding decline in demand for equity investments, in general, and
in particular, for yield-based equity investments such as our common units. Any such reduction in demand for our common
units resulting from other more attractive investment opportunities may cause the trading price of our common units to decline.
We may not have sufficient cash from operations to pay the current level of quarterly distribution following the
establishment of cash reserves and payment of fees and expenses.
The amount of cash we distribute on our units principally depends upon margins we generate from our businesses,
which fluctuate from quarter to quarter based on, among other things:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the volumes and prices at which we purchase and sell crude oil, natural gas, refined products, and caustic soda;
the volumes of sodium hydrosulfide, or NaHS, that we receive for our refinery services and the prices at which we sell
NaHS;
the demand for our services;
the level of competition;
the level of our operating costs;
the effect of worldwide energy conservation measures;
governmental regulations and taxes;
the level of our general and administrative costs; and
prevailing economic conditions.
In addition, the actual amount of cash we will have available for distribution will depend on other factors that include:
the level of capital expenditures we make, including the cost of acquisitions (if any);
our debt service requirements;
fluctuations in our working capital;
restrictions on distributions contained in our debt instruments;
our ability to borrow under our working capital facility to pay distributions; and
the amount of cash reserves required in the conduct of our business.
Our ability to pay distributions each quarter depends primarily on our cash flow, including cash flow from financial
reserves and working capital borrowings, and our cash requirements, so it is not solely a function of profitability, which will be
affected by non-cash items. As a result, we may make cash distributions during periods when we record losses and we may not
make distributions during periods when we record net income.
Our profitability and cash flow are dependent on our ability to increase or, at a minimum, maintain our current
commodity-crude oil, natural gas, refined products, NaHS and caustic soda-volumes, which often depend on actions and
commitments by parties beyond our control.
Our profitability and cash flow are dependent on our ability to increase or, at a minimum, maintain our current
commodity-crude oil, natural gas, refined products, NaHS, and caustic soda-volumes. We access commodity volumes through
various sources, such as producers, service providers (including gatherers, shippers, marketers and other aggregators) and
refiners. Depending on the needs of each customer and the market in which it operates, we can either provide a service for a fee
(as in the case of our pipeline, marine vessel and railcar transportation operations) or we can acquire the commodity from our
customer and resell it to another party.
Our source of volumes depends on successful exploration and development of additional crude oil and natural gas
reserves by others; continued demand for refining and our related sulfur removal and other services, for which we are paid in
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NaHS; the breadth and depth of our logistics operations; the extent that third parties provide NaHS for resale; and other matters
beyond our control.
The crude oil, natural gas and refined products available to us and our refinery customers are derived from reserves
produced from existing wells, and these reserves naturally decline over time. In order to offset this natural decline, our energy
infrastructure assets must access additional reserves. Additionally, some of the projects we have planned or recently completed
are dependent on reserves that we expect to be produced from newly discovered properties that producers are currently
developing.
Finding and developing new reserves is very expensive, requiring large capital expenditures by producers for
exploration and development drilling, installing production facilities and constructing pipeline extensions to reach new wells.
Many economic and business factors out of our control can adversely affect the decision by any producer to explore for and
develop new reserves. These factors include the prevailing market price of the commodity, the capital budgets of producers, the
depletion rate of existing reservoirs, the success of new wells drilled, environmental concerns, regulatory initiatives, cost and
availability of equipment, capital budget limitations or the lack of available capital and other matters beyond our control.
Additional reserves, if discovered, may not be developed in the near future or at all. The precipitous decline in crude oil and
natural gas prices from late 2014 through 2015 has forced most producers to significantly curtail their planned capital
expenditures. Thus, crude oil and natural gas production in our market areas could decline, which could have a material
negative impact on our revenues and prospects.
Demand for our services is dependent on the demand for crude oil and natural gas. Any decrease in demand for crude
oil or natural gas, including by those refineries or connecting carriers to which we deliver could adversely affect our cash flows.
The demand for crude oil also is dependent on the competition from refineries, the impact of future economic conditions, fuel
conservation measures, alternative fuel requirements or sources fuel sources such as electricity, coal, fuel oils or nuclear energy,
government regulation or technological advances in fuel economy and energy generation devices, all of which could reduce
demand for our services. A reduction in demand for our services in the markets we serve could result in impairments of our
assets and have a material adverse effect on our business, financial condition and results of operations.
Our ability to access NaHS depends primarily on the demand for our proprietary sulfur removal process. Demand for
our services could be adversely affected by many factors, including lower refinery utilization rates, U.S. refineries accessing
more “sweet” (instead of sour) crude, and the development of alternative sulfur removal processes that might be more
economically beneficial to refiners.
We are dependent on third parties for NaOH for use in our sulfur removal process as well as volume to market to third
parties. Should regulatory requirements or operational difficulties disrupt the manufacture of caustic soda by these producers,
we could be affected.
Our sulfur removal operations are dependent upon the supply of caustic soda, the demand for NaHS, and the
continuing operations of the refiners for whom we process sour natural gas.
Caustic soda is a major component of the proprietary sulfur removal process we provide to our refinery customers.
Because we are a large consumer of caustic soda, we can leverage our economies of scale and logistics capabilities to
effectively market caustic soda to third parties. NaHS, the resulting by-product from our sulfur removal operations, is a vital
ingredient in a number of industrial and consumer products and processes. Any decrease in the supply of caustic soda could
affect our ability to provide sulfur removal services to refiners and any decrease in the demand for NaHS by the parties to
whom we sell the NaHS could adversely affect our business. Refineries’ need for our sulfur removal services is also dependent
on refining competition from other refineries by refiners to process more “sweet” (instead of sour) crude, the impact of future
economic conditions, fuel conservation measures, alternative fuel requirements, government regulation or technological
advances in fuel economy and energy generation devices, all of which could reduce demand for our services.
Our crude oil and natural gas transportation operations are dependent upon demand for crude oil by refiners, primarily
in the Midwest and Gulf Coast, and the demand for natural gas.
Any decrease in this demand for crude oil by those refineries or connecting carriers to which, or for the natural gas, we
deliver could adversely affect our cash flows. Those refineries’ demand for crude oil also is dependent on the competition from
other refineries, the impact of future economic conditions, fuel conservation measures, alternative fuel requirements,
government regulation or technological advances in fuel economy and energy generation devices, all of which could reduce
demand for our services. The demand for natural gas is dependent on the impact of future economic conditions, fuel
conservation measures, alternative fuel requirements and alternative fuel sources such as electricity, coal, fuel oils or nuclear
energy, government regulation or technological advances in fuel economy and energy generation devices, all of which could
reduce demand for our services.
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We face intense competition to obtain crude oil, natural gas and refined products volumes.
Our competitors-gatherers, transporters, marketers, brokers and other aggregators-include integrated, large and small
independent energy companies, as well as their marketing affiliates, who vary widely in size, financial resources and
experience. Some of these competitors have capital resources many times greater than ours and control substantially greater
supplies of crude oil, natural gas and refined products.
Even if reserves exist or refined products are produced in the areas accessed by our facilities, we may not be chosen by
the refiners or producers to gather, refine, market, transport, store or otherwise handle any of these crude oil and natural gas
reserves, NaHS, caustic soda or other refined products. We compete with others for any such volumes on the basis of many
factors, including:
•
•
•
•
•
•
•
•
geographic proximity to the production and/or refineries;
costs of connection;
available capacity;
rates;
logistical efficiency in all of our operations;
operational efficiency in our sulfur removal business;
customer relationships; and
access to markets.
Additionally, on our onshore pipelines most of our third-party shippers do not have long-term contractual
commitments to ship crude oil on our pipelines. A decision by a shipper to substantially reduce or cease to ship volumes of
crude oil on our pipelines could cause a significant decline in our revenues. In Mississippi, we are dependent on
interconnections with other pipelines to provide shippers with a market for their crude oil, and in Texas, we are dependent on
interconnections with other pipelines to provide shippers with transportation to our pipeline. Any reduction of throughput
available to our shippers on these interconnecting pipelines as a result of testing, pipeline repair, reduced operating pressures or
other causes could result in reduced throughput on our pipelines that would adversely affect our cash flows and results of
operations.
Fluctuations in demand for crude oil or natural gas or availability of refined products or NaHS, such as those caused
by refinery downtime or shutdowns, can negatively affect our operating results. Reduced demand in areas we service with our
pipelines, marine vessels, rail facilities and trucks can result in less demand for our transportation services.
Many of our crude oil and natural gas transportation customers are producers who’s drilling activity levels and
spending for transportation have been, and may continue to be, impacted by the current deterioration in the commodity
markets.
Many of our customers finance their drilling activities through cash flow from operations, the incurrence of debt or the
issuance of equity. New credit facilities and other debt financing from institutional sources have generally become more
difficult and expensive to obtain, and there may be a general reduction in the amount of credit available in the markets in which
we conduct business. Additionally, many of our customers’ equity values have substantially declined. Adverse price changes
put downward pressure on drilling budgets for crude oil and natural gas producers, which have resulted, and could continue to
result, in lower volumes than we otherwise would have seen being transported on our pipeline and transportation systems,
which could have a material negative impact on our revenues and prospects. For example, prices for crude oil and natural gas
declined precipitously since late 2014 and could decline further in 2016. As a result, the onshore crude oil rig count in the U.S.
has declined from 1,499 rigs at December 31, 2014 to 536 rigs at December 31, 2015.
Fluctuations in prices for crude oil, refined petroleum products, NaHS and caustic soda could adversely affect our
business.
Because we purchase (or otherwise acquire) and sell crude oil, refined petroleum products, NaHS and caustic soda we are
exposed to some direct commodity price risks. Prices for those commodities can fluctuate in response to changes in supply,
market uncertainty and a variety of additional factors that are beyond our control, which could have an adverse effect on our
cash flows, profit and/or segment margin. We attempt to limit those commodity price risks through back-to-back purchases and
sales, hedges and other contractual arrangements; however, we cannot completely eliminate our commodity price risk
exposure.
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Our use of derivative financial instruments could result in financial losses.
We use derivative financial instruments and other hedging mechanisms from time to time to limit a portion of the
effects resulting from changes in commodity prices. To the extent we hedge our commodity price exposure, we forego the
benefits we would otherwise experience if commodity prices were to increase. In addition, we could experience losses resulting
from our hedging and other derivative positions. Such losses could occur under various circumstances, including if our
counterparty does not perform its obligations under the hedge arrangement, our hedge is imperfect, or our hedging policies and
procedures are not followed.
Non-utilization of certain assets, such as our leased railcars, could significantly reduce our profitability due to the fixed
costs incurred with respect to such assets.
From time to time in connection with our business, we may lease or otherwise secure the right to use certain third
party assets (such as railcars, trucks, barges, pipeline capacity, storage capacity and other similar assets) with the expectation
that the revenues we generate through the use of such assets will be greater than the fixed costs we incur pursuant to the
applicable leases or other arrangements. However, when such assets are not utilized or are under-utilized, our profitability is
negatively affected because the revenues we earn are either non-existent or reduced (in the event of under-utilization), but we
remain obligated to continue paying any applicable fixed charges, in addition to incurring any other costs attributable to the
non-utilization of such assets. For example, in connection with our rail operations, we lease all of our railcars that obligate us to
pay the applicable lease rate without regard to utilization. If business conditions are such that we do not utilize a portion of our
leased assets for any period of time, we will still be obligated to pay the applicable fixed lease rate. In addition, during the
period of time that we are not utilizing such assets, we will incur incremental costs associated with the cost of storing such
assets, and we will continue to incur costs for maintenance and upkeep. Our failure to utilize a significant portion of our leased
assets and other similar assets could have a significant negative impact on our profitability and cash flows.
In addition, certain of our field and pipeline operating costs and expenses are fixed and do not vary with the volumes
we gather and transport. These costs and expenses may not decrease ratably or at all should we experience a reduction in our
volumes transported by truck, marine vessel or rail or transported by our pipelines. As a result, we may experience declines in
our margin and profitability if our volumes decrease.
We cannot cause our joint ventures to take or not to take certain actions unless some or all of the joint venture
participants agree.
Due to the nature of joint ventures, each participant (including us) in our material joint ventures has made substantial
investments (including contributions and other commitments) in that joint venture and, accordingly, has required that the
relevant charter documents contain certain features designed to provide each participant with the opportunity to participate in
the management of the joint venture and to protect its investment in that joint venture, as well as any other assets which may be
substantially dependent on or otherwise affected by the activities of that joint venture. These participation and protective
features include a corporate governance structure that consists of a management committee composed of members, only some
of which are appointed by us. In addition, many of our joint ventures are operated by our “partners” and have “stand-alone”
credit agreements that limit their freedom to take certain actions. Thus, without the concurrence of the other joint venture
participants and/or the lenders of our joint venture participants, we cannot cause our joint ventures to take or not to take certain
actions, even though those actions may be in the best interest of the joint ventures or us.
The insolvency of an operator of our joint ventures, the failure of an operator of our joint ventures to adequately
perform operations or an operator’s breach of applicable agreements could reduce our revenue and result in our liability to
governmental authorities for compliance with environmental, safety and other regulatory requirements and to the operator’s
suppliers and vendors. As a result, the success and timing of development activities of our joint ventures operated by others and
the economic results derived therefrom depends upon a number of factors outside our control, including the operator’s timing
and amount of capital expenditures, expertise and financial resources, and the inclusion of other participants.
In addition, joint venture participants may have obligations that are important to the success of the joint venture, such
as the obligation to pay their share of capital and other costs of the joint venture. The performance and ability of third parties to
satisfy their obligations under joint venture arrangements is outside our control. If these third parties do not satisfy their
obligations under these arrangements, our business may be adversely affected.
We are exposed to the credit risk of our customers in the ordinary course of our business activities.
When we (or our joint ventures) market our products or services, we (or our joint ventures) must determine the
amount, if any, of the line of credit. Since certain transactions can involve very large payments, the risk of nonpayment and
nonperformance by customers, industry participants and others is an important consideration in our business.
For example, in those cases where we provide division order services for crude oil and natural gas purchased at the
wellhead, we may be responsible for distribution of proceeds to all of the interest owners. In other cases, we pay all of or a
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portion of the production proceeds to an operator who distributes these proceeds to the various interest owners. These
arrangements expose us to operator credit risk. As a result, we must determine that operators have sufficient financial resources
to make such payments and distributions and to indemnify and defend us in case of a protest, action or complaint.
Additionally, we sell NaHS and caustic soda to customers in a variety of industries. Many of these customers are in
industries that have been impacted by a decline in demand for their products and services. Even if our credit review and
analytical procedures work properly, we have experienced, and we could continue to experience losses in dealings with other
parties.
Further, many of our customers were impacted by the weakened economic conditions, and precipitous decline in
commodity prices, such as crude oil and natural gas, experienced in recent years in a manner that influenced the need for our
products and services and their ability to pay us for those products and services. It is uncertain if commodity prices will
increase in the near future.
Our sulfur removal operations are dependent on contracts with less than ten refineries and much of its revenue is
attributable to a few refineries.
If one or more of our refinery customers that, individually or in the aggregate, generate a material portion of our
revenue from sulfur removal services experience financial difficulties or changes in their strategy for sulfur removal such that
they do not need our services, our cash flows could be adversely affected. For example, in 2015, approximately 50% of our
sulfur removal operations’ NaHS by-product volumes were attributable to Phillips 66’s refinery located in Westlake, Louisiana.
That contract requires Phillips 66 to make available minimum volumes of sour natural gas to us (except during periods of force
majeure). Although the primary term of that contract extends until 2018, if, for any reason, Phillips 66 does not meet its
obligations under that contract for an extended period of time, such non-performance could have a material adverse effect on
our profitability and cash flow.
We may not be able to renew our marine transportation time charters and contracts when they expire at favorable rates
or at all, which may increase our exposure to the spot market and lead to lower revenues and increased expenses.
During the year ended December 31, 2015, our marine transportation segment received approximately 75% of its
revenue from time charters and other fixed contracts, which help to insulate us from revenue fluctuations caused by weather,
navigational delays and short-term market declines. We earned approximately 25% of our marine transportation revenues from
spot contracts, where competition is high and rates are typically volatile and subject to short-term market fluctuations, and
where we bear the risk of vessel downtime due to weather and navigational delays. If we deploy a greater percentage of our
vessels in the spot market, we may experience a lower overall utilization of our fleet through waiting time or ballast voyages,
leading to a decline in our operating revenue and gross profit. There can be no assurance that we will be able to enter into
future time charters or other fixed contracts on terms favorable to us. For further discussion of our marine transportation
contracts, see “Marine Transportation-Customers”
Our operations are subject to federal and state environmental protection and safety laws and regulations.
Our operations are subject to the risk of incurring substantial environmental and safety related costs and liabilities. In
particular, our operations are subject to increasingly stringent environmental protection and safety laws and regulations that
restrict our operations, impose consequences of varying degrees for noncompliance, and require us to expend resources in an
effort to maintain compliance. Moreover, our operations, including the transportation and storage of crude oil, natural gas and
other commodities, involves a risk that crude oil, natural gas and related hydrocarbons or other substances may be released into
the environment, which may result in substantial expenditures for a response action, significant government penalties, liability
to government agencies for natural resources damages, liability to private parties for personal injury or property damages, and
significant business interruption. These costs and liabilities could rise under increasingly strict environmental and safety laws,
including regulations and enforcement policies, or claims for damages to property or persons resulting from our operations. If
we are unable to recover such resulting costs through increased rates or insurance reimbursements, our cash flows and
distributions to our unitholders could be materially affected.
Climate change legislation and regulatory initiatives may decrease demand for the products we store, transport and sell
and increase our operating costs.
In December 2009, the EPA published its findings that emissions of carbon dioxide, methane and other GHGs present
an endangerment to human health and the environment because emissions of such gases are, according to the EPA, contributing
to the warming of the earth's atmosphere and other climatic changes. These findings served as a statutory prerequisite for EPA
to adopt and implement regulations that would restrict emissions of GHGs under existing provisions of the CAA. The EPA has
adopted two sets of related rules, one which purports to regulate emissions of GHGs from motor vehicles and the other of
which regulates emissions of GHGs from certain large stationary sources of emissions such as power plants or industrial
facilities. The EPA finalized the motor vehicle rule in April 2010 and it became effective in July 2010. The EPA adopted the
stationary source rule, also known as the "Tailoring Rule," in May 2010, and it became effective in January 2011. The tailoring
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rule established new GHG emissions thresholds that determine when stationary sources must obtain permits under the PSD and
Title V programs of the Clean Air Act. On June 23, 2014, in Utility Air Regulatory Group v. EPA (“UARG v. EPA”), the
Supreme Court held that stationary sources could not become subject to PSD or Title V permitting solely by reason of their
GHG emissions. The Court ruled, however, that the EPA may require installation of best available control technology for GHG
emissions at sources otherwise subject to the PSD and Title V programs. On December 19, 2014, EPA issued two memoranda
providing initial guidance on GHG permitting requirements in response to the Court’s decision in UARG v. EPA. In its
preliminary guidance, EPA indicated it would promulgate a rule to rescind any PSD permits issued under the portions of the
Tailoring Rule that were vacated by the Court. In the interim, EPA issued a narrowly crafted “no action assurance” indicating it
will exercise its enforcement discretion not to pursue enforcement of the terms and conditions relating to GHGs in an EPA-
issued PSD permit, and for related terms and conditions in a Title V permit. On April 30, 2015, the EPA issued a final rule
allowing permitting authorities to rescind PSD permits issued under the invalid regulations.
Additionally, in September 2009, the EPA issued a final rule requiring the reporting of GHG emissions from specified
large GHG emission sources in the U.S. beginning in 2011 for emissions occurring in 2010. Further, in November 2010, the
EPA expanded its existing GHG reporting rule to include onshore and offshore crude oil and natural gas production and
onshore processing, transmission, storage and distribution facilities, which may include certain of our facilities, beginning in
2012 for emissions occurring in 2011. In October 2015, the EPA amended the GHG reporting rule to add the reporting of GHG
emissions from gathering and boosting systems, completions and workovers of crude oil wells using hydraulic fracturing, and
blowdowns of natural gas transmission pipelines. As a result of this continued regulatory focus, future GHG regulations of the
crude oil and natural gas industry remain a possibility. The EPA has continued to adopt GHG regulations of other industries,
such as its August 2015 adoption of three separate, but related, actions to address carbon dioxide pollution from power plants,
including final Carbon Pollution Standards for new, modified and reconstructed power plants, a final Clean Power Plan to cut
carbon dioxide pollution from existing power plants, and a proposed federal plan to implement the Clean Power Plan emission
guidelines. Upon publication of the Clean Power Plan on October 23, 2015, more than two dozen States as well as industry and
labor groups challenged the Clean Power Plan in the D.C. Circuit Court of Appeals.
Further, the U.S. Congress has considered various proposals to reduce GHG emissions that may impose a carbon
emissions tax, a cap-and-trade program or other programs aimed at carbon reduction, and almost half of the states, either
individually or through multi-state regional initiatives, have already taken legal measures to reduce emissions of GHGs,
primarily through the planned development of GHG emission inventories and/or GHG gas cap-and-trade programs. The net
effect of this legislation is to impose increasing costs on the combustion of carbon-based fuels such as crude oil, refined
petroleum products and natural gas. Our compliance with any future legislation or regulation of GHGs, if it occurs, may result
in materially increased compliance and operating costs.
In addition, in December 2015, the U.S. joined the international community at the 21st Conference of the Parties
(COP-21) of the United Nations Framework Convention on Climate Change in Paris, France. The resulting Paris Agreement
calls for the parties to undertake “ambitious efforts” to limit the average global temperature, and to conserve and enhance sinks
and reservoirs of GHGs. The Agreement, if ratified, establishes a framework for the parties to cooperate and report actions to
reduce GHG emissions.
The effect on our operations of CAA regulations, legislative efforts or related implementation regulations that regulate
or restrict emissions of GHGs in areas that we conduct business could adversely affect the demand for the products that we
transport, store and distribute and, depending on the particular program adopted, could increase our costs to operate and
maintain our facilities by requiring that we, among other things, measure and report our emissions, install new emission
controls on our facilities, acquire allowances to authorize our GHG emissions, pay any taxes related to our GHG emissions and
administer and manage a GHG emissions program. We may be unable to include some or all of such increased costs in the rates
charged by our pipelines or other facilities, and any such recovery may depend on events beyond our control, including the
outcome of future rate proceedings before the FERC or state regulatory agencies and the provisions of any final legislation or
implementing regulations. Any GHG emissions legislation or regulatory programs applicable to power plants or refineries
could also increase the cost of consuming, and thereby adversely affect demand for the crude oil and natural gas that we
produce. Consequently, legislation and regulatory programs to reduce GHG emissions could have an adverse effect on our
business, financial condition and results of operations. It is not possible at this time to predict with any accuracy the structure or
outcome of any future legislative or regulatory efforts to address such emissions or the eventual costs to us of compliance.
Furthermore, claims have been made against certain energy companies alleging that GHG emissions from crude oil
and natural gas operations constitute a public nuisance under federal and/or state common law. As a result, private individuals
may seek to enforce environmental laws and regulations against us and could allege personal injury or property damages.
While our business is not a party to this litigation, we could be named in actions making similar allegations. An unfavorable
ruling in any such case could adversely impact our business, financial condition and results of operations.
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Regulation of the rates, terms and conditions of services and a changing regulatory environment could affect our
financial position, results of operations or cash flow.
FERC regulates certain of our energy infrastructure assets engaged in interstate operations. Our intrastate pipeline
operations are regulated by state agencies. Our railcar operations are subject to the regulatory jurisdiction of the Federal
Railroad Administration of the DOT, the Occupational Safety and Health Administration, as well as other federal and state
regulatory agencies. This regulation extends to such matters as:
•
•
•
•
•
•
rate structures;
rates of return on equity;
recovery of costs;
the services that our regulated assets are permitted to perform;
the acquisition, construction and disposition of assets; and
to an extent, the level of competition in that regulated industry.
In addition, some of our pipelines and other infrastructure are subject to laws providing for open and/or non-
discriminatory access.
Given the extent of this regulation, the evolving nature of federal and state regulation and the possibility for additional
changes, the current regulatory regime may change and affect our financial position, results of operations or cash flow.
A natural disaster, accident, terrorist attack or other interruption event involving us could result in severe personal
injury, property damage and/or environmental damage, which could curtail our operations and otherwise adversely affect
our assets and cash flow.
Some of our operations involve significant risks of severe personal injury, property damage and environmental
damage, any of which could curtail our operations and otherwise expose us to liability and adversely affect our cash flow.
Virtually all of our operations are exposed to the elements, including hurricanes, tornadoes, storms, floods and earthquakes. A
significant portion of our operations are located along the U.S. Gulf Coast, and our offshore pipelines are located in the Gulf of
Mexico. These areas can be subject to hurricanes.
If one or more facilities that are owned by us or that connect to us is damaged or otherwise affected by severe weather
or any other disaster, accident, catastrophe or event, our operations could be significantly interrupted. Similar interruptions
could result from damage to production or other facilities that supply our facilities or other stoppages arising from factors
beyond our control. These interruptions might involve significant damage to people, property or the environment, and repairs
might take from a week or less for a minor incident to six months or more for a major interruption. Any event that interrupts the
fees generated by our energy infrastructure assets, or which causes us to make significant expenditures not covered by
insurance, could reduce our cash available for paying our interest obligations as well as unitholder distributions and,
accordingly, adversely impact the market price of our securities. Additionally, the proceeds of any property insurance
maintained by us may not be paid in a timely manner or be in an amount sufficient to meet our needs if such an event were to
occur, and we may not be able to renew it or obtain other desirable insurance on commercially reasonable terms, if at all.
On September 11, 2001, the U.S. was the target of terrorist attacks of unprecedented scale. Since the September 11
attacks, the U.S. government has issued warnings that energy assets, specifically the nation’s pipeline infrastructure, may be the
future targets of terrorist organizations. These developments have subjected our operations to increased risks. Any future
terrorist attack at our facilities, those of our customers and, in some cases, those of other pipelines, could have a material
adverse effect on our business.
Our business could be negatively impacted by security threats, including cybersecurity threats, and related disruptions.
We rely on our information technology infrastructure to process, transmit and store electronic information, including
information we use to safely operate our assets. While we believe that we maintain appropriate information security policies
and protocols, we face cybersecurity and other security threats to our information technology infrastructure, which could
include threats to our operational and safety systems that operate our pipelines, facilities and other assets. We could face
unlawful attempts to gain access to our information technology infrastructure, including coordinated attacks from hackers,
whether state-sponsored groups, “hacktivists,” or private individuals. The age, operating systems or condition of our current
information technology infrastructure and software assets and our ability to maintain and upgrade such assets could affect our
ability to resist cybersecurity threats.
Our information technology infrastructure is critical to the efficient operation of our business and essential to our
ability to perform day-to-day operations. Breaches in our information technology infrastructure or physical facilities, or other
disruptions, could result in damage to our assets, loss of intellectual property, impairment of our ability to conduct our
operations, disruption of our customers’ operations, loss or damage to our customer data delivery systems, safety incidents,
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damage to the environment and could have a material adverse effect on our operations, financial position and results of
operations. It is also possible that breaches to our systems could go unnoticed for some period of time.
Our business would be adversely affected if we failed to comply with the Jones Act foreign ownership provisions.
We are subject to the Jones Act and other federal laws that restrict maritime cargo transportation between points in the
U.S. only to vessels operating under the U.S. flag, built in the U.S., at least 75% owned and operated by U.S. citizens (or
owned and operated by other entities meeting U.S. citizenship requirements to own vessels operating in the U.S. coastwise
trade and, in the case of limited partnerships, where the general partner meets U.S. citizenship requirements) and manned by
U.S. crews. To maintain our privilege of operating vessels in the Jones Act trade, we must maintain U.S. citizen status for Jones
Act purposes. To ensure compliance with the Jones Act, we must be U.S. citizens qualified to document vessels for coastwise
trade. We could cease being a U.S. citizen if certain events were to occur, including if non-U.S. citizens were to own 25% or
more of our equity interest or were otherwise deemed to control us or our general partner. We are responsible for monitoring
ownership to ensure compliance with the Jones Act. The consequences of our failure to comply with the Jones Act provisions
on coastwise trade, including failing to qualify as a U.S. citizen, would have an adverse effect on us as we may be prohibited
from operating our vessels in the U.S. coastwise trade or, under certain circumstances, permanently lose U.S. coastwise trading
rights or be subject to fines or forfeiture of our vessels.
Our business would be adversely affected if the Jones Act provisions on coastwise trade or international trade
agreements were modified or repealed or as a result of modifications to existing legislation or regulations governing the
crude oil and natural gas industry in response to the recent lifting of the crude oil export ban and the Deepwater Horizon
drilling rig incident in the U.S. Gulf of Mexico and subsequent crude oil spill.
If the restrictions contained in the Jones Act were repealed or altered or certain international trade agreements were
changed, the maritime transportation of cargo between U.S. ports could be opened to foreign flag or foreign-built vessels. The
Secretary of the Department of Homeland Security, or the Secretary, is vested with the authority and discretion to waive the
coastwise laws if the Secretary deems that such action is necessary in the interest of national defense. Any waiver of the
coastwise laws, whether in response to natural disasters or otherwise, could result in increased competition from foreign
product carrier and barge operators, which could reduce our revenues and cash available for distribution.
In December 2015, Congress voted to lift the four decade crude oil export ban. Although the impact of this legislation
is not yet determinable, increased exports of U.S. crude oil may lead to increased calls to repeal or modify the Jones Act. Even
before lifting the export ban, in the past several years, interest groups have lobbied Congress to repeal or modify the Jones Act
to facilitate foreign-flag competition for trades and cargoes currently reserved for U.S. flag vessels under the Jones Act.
Foreign-flag vessels generally have lower construction costs and generally operate at significantly lower costs than we do in
U.S. markets, which would likely result in reduced charter rates. We believe that continued efforts will be made to modify or
repeal the Jones Act. If these efforts are successful, foreign-flag vessels could be permitted to trade in the U.S. coastwise trade
and significantly increase competition with our fleet, which could have an adverse effect on our business.
Events within the crude oil and natural gas industry, such as the April 2010 fire and explosion on the Deepwater
Horizon drilling rig in the U.S. Gulf of Mexico and the resulting crude oil spill and moratorium on certain drilling activities in
the U.S. Gulf of Mexico implemented by the Bureau of Ocean Energy Management, Regulation and Enforcement (formerly,
the Minerals Management Service), may adversely affect our customers’ operations and, consequently, our operations. Such
events may also subject companies operating in the crude oil and natural gas industry, including us, to additional regulatory
scrutiny and result in additional regulations and restrictions adversely affecting the U.S. crude oil and natural gas industry.
A decrease in the cost of importing refined petroleum products could cause demand for U.S. flag product carrier and
barge capacity and charter rates to decline, which would decrease our revenues and our ability to pay cash distributions on
our units.
The demand for U.S. flag product carriers and barges is influenced by the cost of importing refined petroleum
products. Historically, charter rates for vessels qualified to participate in the U.S. coastwise trade under the Jones Act have been
higher than charter rates for foreign flag vessels. This is due to the higher construction and operating costs of U.S. flag vessels
under the Jones Act requirements that such vessels be built in the U.S. and manned by U.S. crews. This has made it less
expensive for certain areas of the U.S. that are underserved by pipelines or which lack local refining capacity, such as in the
Northeast, to import refined petroleum products carried aboard foreign flag vessels than to obtain them from U.S. refineries. If
the cost of importing refined petroleum products decreases to the extent that it becomes less expensive to import refined
petroleum products to other regions of the East Coast and the West Coast than producing such products in the U.S. and
transporting them on U.S. flag vessels, demand for our vessels and the charter rates for them could decrease.
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An easing or lifting of the U.S. crude oil export ban could adversely impact our U.S. Flag Fleet.
In December 2015, Congress voted to lift the four decade crude oil export ban. Although the impact of this legislation
on our U.S. Flag fleet’s operations is not determinable, the easing of the crude oil export ban could result in reduced coastwise
transportation of crude oil, which may have an adverse impact on our U.S. Flag segment.
We face periodic dry-docking costs for our vessels, which can be substantial.
Vessels must be dry-docked periodically for regulatory compliance and for maintenance and repair. Our dry-docking
requirements are subject to associated risks, including delay, cost overruns, lack of necessary equipment, unforeseen
engineering problems, employee strikes or other work stoppages, unanticipated cost increases, inability to obtain necessary
certifications and approvals and shortages of materials or skilled labor. A significant delay in dry-dockings could have an
adverse effect on our marine transportation contract commitments. The cost of repairs and renewals required at each dry-dock
are difficult to predict with certainty and can be substantial.
The U.S. inland waterway infrastructure is aging and may result in increased costs and disruptions to our marine
transportation segment.
Maintenance of the U.S. inland waterway system is vital to our marine transportation operations. The system is
composed of over 12,000 miles of commercially navigable waterway, supported by over 240 locks and dams designed to
provide flood control, maintain pool levels of water in certain areas of the country and facilitate navigation on the inland river
system. The U.S. inland waterway infrastructure is aging, with more than half of the locks over 50 years old. As a result, due to
the age of the locks, scheduled and unscheduled maintenance outages may be more frequent in nature, resulting in delays and
additional operating expenses. Failure of the federal government to adequately fund infrastructure maintenance and
improvements in the future would have a negative impact on our ability to deliver products for its marine transportation
customers on a timely basis.
Risks Related to Our Partnership Structure
Our significant unitholders may sell units or other limited partner interests in the trading market, which could reduce
the market price of common units.
As of December 31, 2015, we have a number of significant unitholders. For example, certain members of the Davison
family (including their affiliates) and management owned approximately 19 million or 17.4% of our common units. From time
to time, we also may have other unitholders that have large positions in our common units. In the future, any such parties may
acquire additional interest or dispose of some or all of their interest. If they dispose of a substantial portion of their interest in
the trading markets, such sales could reduce the market price of common units. In connection with certain transactions, we
have put in place resale shelf registration statements, which allow unit holders thereunder to sell their common units at any time
(subject to certain restrictions) and to include those securities in any equity offering we consummate for our own account.
Individual members of the Davison family can exert significant influence over us and may have conflicts of interest
with us and may be permitted to favor their interests to the detriment of our other unitholders.
James E. Davison and James E. Davison, Jr., each of whom is a director of our general partner, each own a significant
portion of our common units, including our Class B Common Units, the holders of which elect our directors. Other members
of the Davison family also own a significant portion of our common units. Collectively, members of the Davison family and
their affiliates own approximately 11.6% of our Class A Common Units and 76.9% of our Class B Common Units and are able
to exert significant influence over us, including the ability to elect at least a majority of the members of our board of directors
and the ability to control most matters requiring board approval, such as material business strategies, mergers, business
combinations, acquisitions or dispositions of assets, issuances of additional partnership securities, incurrences of debt or other
financings and payments of distributions. In addition, the existence of a controlling group (if one were to form) may have the
effect of making it difficult for, or may discourage or delay, a third party from seeking to acquire us, which may adversely
affect the market price of our common units. Further, conflicts of interest may arise between us and other entities for which
members of the Davison family serve as officers or directors. In resolving any conflicts that may arise, such members of the
Davison family may favor the interests of another entity over our interests.
Members of the Davison family own, control and have interests in diverse companies, some of which may (or could in
the future) compete directly or indirectly with us. As a result, the interests of the members of the Davison family may not
always be consistent with our interests or the interests of our other unitholders. Members of the Davison family could also
pursue acquisitions or business opportunities that may be complementary to our business. Our organizational documents allow
the holders of our units (including affiliates, like the Davisons) to take advantage of such corporate opportunities without first
presenting such opportunities to us. As a result, corporate opportunities that may benefit us may not be available to us in a
timely manner, or at all. To the extent that conflicts of interest may arise among us and any member of the Davison family,
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those conflicts may be resolved in a manner adverse to us or you. Other potential conflicts may involve, among others, the
following situations:
•
•
•
•
our general partner is allowed to take into account the interest of parties other than us, such as one or more of its
affiliates, in resolving conflicts of interest;
our general partner may limit its liability and reduce its fiduciary duties, while also restricting the remedies available
to our unitholders for actions that, without such limitations, might constitute breaches of fiduciary duty;
our general partner determines the amount and timing of asset purchases and sales, capital expenditures, borrowings,
issuance of additional partnership securities, reimbursements and enforcement of obligations to the general partner and
its affiliates, retention of counsel, accountants and service providers and cash reserves, each of which can also affect
the amount of cash that is distributed to our unitholders; and
our general partner determines which costs incurred by it and its affiliates are reimbursable by us and the
reimbursement of these costs and of any services provided by our general partner could adversely affect our ability to
pay cash distributions to our unitholders.
Our Class B Common Units may be transferred to a third party without unitholder consent, which could affect our
strategic direction.
Unlike the holders of common stock in a corporation, our unitholders have only limited voting rights on matters
affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Only holders
of our Class B Common Units have the right to elect our board of directors. Holders of our Class B Common Units may
transfer such units to a third party without the consent of the unitholders. The new holders of our Class B Common Units may
then be in a position to replace our board of directors and officers of our general partner with its own choices and to control the
strategic decisions made by our board of directors and officers.
Unitholders with registration rights have rights to require underwritten offerings that could limit our ability to raise
capital in the public equity market.
Unitholders with registration rights have rights to require us to conduct underwritten offerings of our common units. If
we want to access the capital markets (debt and equity), those unitholders’ ability to sell a portion of their common units could
satisfy investor’s demand for our common units or may reduce the market price for our common units, thereby reducing the net
proceeds we would receive from a sale of newly issued units.
We may issue additional common units without unitholder’s approval, which would dilute their ownership interests.
We may issue an unlimited number of limited partner interests of any type without the approval of our unitholders.
The issuance of additional common units or other equity securities of equal or senior rank will have the following
effects:
•
•
•
•
our unitholders’ proportionate ownership interest in us will decrease;
the amount of cash available for distribution on each unit may decrease;
the relative voting strength of each previously outstanding unit may be diminished; and
the market price of our common units may decline.
Our general partner has a limited call right that may require unitholders to sell their units at an undesirable time or
price.
If at any time our general partner and its affiliates own more than 80% of any class of our units, our general partner
will have the right, but not the obligation, which it may assign to any of its affiliates, including any controlling unitholder, or to
us, to acquire all, but not less than all, of the units held by unaffiliated persons at a price not less than their then-current market
price. As a result, unitholders may be required to sell their units at an undesirable time or price and may not receive any return
on their investment. Unitholders may also incur a tax liability upon a sale of their units.
The interruption of distributions to us from our subsidiaries and joint ventures could affect our ability to make
payments on indebtedness or cash distributions to our unitholders.
We are a holding company. As such, our primary assets are the equity interests in our subsidiaries and joint ventures.
Consequently, our ability to fund our commitments (including payments on our indebtedness) and to make cash distributions
depends upon the earnings and cash flow of our subsidiaries and joint ventures and the distribution of that cash to us.
Distributions from our joint ventures are subject to the discretion of their respective management committees. Accordingly, our
joint ventures may not continue to make distributions to us at current levels or at all.
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We do not have the same flexibility as other types of organizations to accumulate cash and equity to protect against
illiquidity in the future.
Unlike a corporation, our partnership agreement requires us to make quarterly distributions to our unitholders of all
available cash reduced by any amounts reserved for commitments and contingencies, including capital and operating costs and
debt service requirements. The value of our units and other limited partner interests may decrease in direct correlation with
decreases in the amount we distribute per unit. Accordingly, if we experience a liquidity problem in the future, we may not be
able to issue more equity to recapitalize.
Unitholders may have liability to repay distributions that were wrongfully distributed to them.
Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them.
Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution to you if the
distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three
years from the date of an impermissible distribution, limited partners who received the distribution and who knew at the time of
the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Substituted
limited partners are liable both for the obligations of the assignor to make contributions to the partnership that were known to
the substituted limited partner at the time it became a limited partner and for those obligations that were unknown if the
liabilities could have been determined from the partnership agreement. Neither liabilities to partners on account of their
partnership interest nor liabilities that are non-recourse to the partnership are counted for purposes of determining whether a
distribution is permitted.
Unitholder liability may not be limited if a court finds that unitholder action constitutes control of our business.
A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for
those contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership
is organized under Delaware law, and we conduct business in other states. The limitations on the liability of holders of limited
partner interests for the obligations of a limited partnership have not been clearly established in some states in which we do
business or may do business in from time to time in the future. Unitholders could be liable for any and all of our obligations as
if unitholders were a general partner if a court or government agency were to determine that:
• we were conducting business in a state but had not complied with that particular state’s partnership statute; or
•
unitholders right to act with other unitholders to remove or replace our general partner, to approve some amendments
to our partnership agreement or to take other actions under our partnership agreement constitutes “control” of our
business.
Tax Risks to Common Unitholders
Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being
subject to a material amount of entity-level taxation by individual states. A publicly-traded partnership can lose its status as
a partnership for a number of reasons, including not having enough “qualifying income.” If the Internal Revenue Service,
or IRS, were to treat us as a corporation or if we were to become subject to a material amount of entity-level taxation for
state tax purposes, then our cash available for distribution to unitholders would be substantially reduced.
The anticipated after-tax economic benefit of an investment in our common units depends largely on our being treated
as a partnership for federal income tax purposes. Section 7704 of the Internal Revenue Code provides that publicly traded
partnerships will, as a general rule, be taxed as corporations. However, an exception, referred to in this discussion as the
“Qualifying Income Exception,” exists with respect to publicly traded partnerships 90% or more of the gross income of which
for every taxable year consists of “qualifying income.” If less than 90% of our gross income for any taxable year is “qualifying
income” from transportation or processing of natural resources including crude oil, natural gas or products thereof, interest,
dividends or similar sources, we will be taxable as a corporation under Section 7704 of the Internal Revenue Code for federal
income tax purposes for that taxable year and all subsequent years. We have not requested, and do not plan to request, a ruling
from the IRS with respect to our treatment as a partnership for federal income tax purposes.
The decision of the U.S. Court of Appeals for the Fifth Circuit in Tidewater Inc. v. U.S., 565 F.3d 299 (5th Cir. April
13, 2009) held that the marine time charter being analyzed in that case was a “lease” that generated rental income rather than
income from transportation services for purposes of a foreign sales corporation provision of the Internal Revenue Code. Even
though (i) the Tidewater case did not involve a publicly traded partnership and it was not decided under Section 7704 of the
Internal Revenue Code relating to “qualifying income,” (ii) some experienced practitioners believe the decision was not well
reasoned, (iii) the IRS stated in an Action on Decision (AOD 2010-01) that it disagrees with and will not acquiesce to the Fifth
Circuit’s marine time charter analysis contained in the Tidewater case and (iv) the IRS has issued several favorable private
letter rulings (which can be relied upon and cited as precedent by only the taxpayers that obtained them) relating to time
charters since the Tidewater decision was issued, the Tidewater decision creates some uncertainty regarding the status of
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income from certain of our marine time charters as “qualifying income” under Section 7704 of the Internal Revenue Code.
Notwithstanding the foregoing, the Tidewater case is relevant authority because it is the only case of which we and our outside
tax counsel are aware directly analyzing whether a particular time charter would constitute a lease or service agreement for
certain U.S. federal tax purposes. Due to the uncertainty created by the Tidewater decision, our outside tax counsel, Akin Gump
Strauss Hauer & Feld, LLP, was required to change the standard in its opinion relating to our status as a partnership for federal
income tax purposes to “should” from “will.”
Although we do not believe based upon our current operations that we are treated as a corporation for federal income
tax purposes, a change in our business (or a change in current law) could cause us to be treated as a corporation for federal
income tax purposes or otherwise subject us to taxation as an entity. If we were treated as a corporation for federal income tax
purposes, we would pay federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of
35% and would pay state income tax at varying rates. Distributions to our unitholders would generally be taxable to them again
as corporate distributions and no income, gains, losses, or deductions would flow through to them. Because a tax would be
imposed upon us as a corporation, our cash available for distribution to unitholders would be substantially reduced. Therefore,
treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to our
unitholders, likely causing a substantial reduction in the value of our common units.
At the state level, because of widespread state budget deficits and other reasons, several states are evaluating ways to
subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. For
example, we are required to pay Texas franchise tax on our gross income apportioned to Texas. Imposition of any such taxes on
us by any other state would reduce the cash available for distribution to our unitholders.
Current law may change so as to cause us to be treated as a corporation for federal income tax purposes or otherwise
subject us to entity-level taxation. Moreover, any modification to the federal income tax laws and interpretations thereof may or
may not be applied retroactively. Any such changes could negatively impact the value of an investment in our common units.
At the state level, because of widespread state budget deficits and other reasons, several states are evaluating ways to subject
partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. For example,
we are required to pay Texas franchise tax on our gross income apportioned to Texas. Imposition of any such taxes on us by any
other state would reduce the cash available for distribution to our unitholders.
The tax treatment of publicly traded partnerships could be subject to potential legislative, judicial or administrative
changes and differing interpretations, possibly on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including us, may be modified by
administrative, legislative or judicial interpretation at any time. Any modification to the U.S. federal income tax laws and
interpretations thereof may or may not be applied retroactively and could make it more difficult or impossible to meet the
exception for us to be treated as a partnership for U.S. federal income tax purposes that is not taxable as a corporation, affect or
cause us to change our business activities, affect the tax considerations of an investment in us and change the character or
treatment of portions of our income. For example, from time to time, the President and members of Congress propose and
consider substantive changes to the existing U.S. federal income tax laws that would adversely affect the tax treatment of
certain publicly traded partnerships, including the elimination of partnership tax treatment for publicly traded partnerships.
In addition, the IRS, on May 5, 2015, issued proposed regulations concerning which activities give rise to qualifying
income within the meaning of Section 7704 of the Internal Revenue Code. We do not believe the proposed regulations affect
our ability to qualify as a publicly traded partnership. However, finalized regulations could modify the amounts of gross
income that we are able to treat as qualifying income for the purposes of the qualifying income requirement. Any modifications
to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible for us to meet
the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes.
We are unable to predict whether any of these changes, or other proposals, will ultimately be enacted. Any such
changes could cause a material reduction in our anticipated cash flows and could cause us to be treated as an association
taxable as a corporation for U.S. federal income tax purposes subjecting us to the entity-level tax and adversely affecting the
value of our common units.
A successful IRS contest of the federal income tax positions we take may adversely affect the market for our common
units, and the cost of any IRS contest will reduce our cash available for distribution to our unitholders and our general
partner.
We have not requested, and do not plan to request, a ruling from the IRS with respect to our treatment as a partnership
for federal income tax purposes or any other matter affecting us. The IRS may adopt positions that differ from the positions we
take. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court
may not agree with some or all of the positions we take. Any contest with the IRS may materially and adversely impact the
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market for our common units and the price at which they trade. In addition, our costs of any contest with the IRS will be borne
indirectly by our unitholders and our general partner because these costs will reduce our cash available for distribution.
Unitholders will be required to pay taxes on income (as well as deemed distributions, if any) from us even if they do not
receive any cash distributions from us.
Unitholders will be required to pay any federal income taxes and, in some cases, state and local income taxes on their
share of our taxable income (as well as deemed distributions, if any) even if unitholders receive no cash distributions from us.
Unitholders may not receive cash distributions from us equal to their share of our taxable income (or deemed distributions, if
any) or even the tax liability that results from that income (or deemed distribution).
Tax gain or loss on the disposition of our common units could be more or less than expected.
If unitholders sell their common units, they will recognize a gain or loss equal to the difference between the amount
realized and their tax basis in those common units. Prior distributions to unitholders in excess of the total net taxable income
unitholders were allocated for a common unit, which decreased their tax basis in that common unit, will, in effect, become
taxable income to unitholders if the common unit is sold at a price greater than their tax basis in that common unit, even if the
price they receive is less than their original cost. A substantial portion of the amount realized, whether or not representing gain,
may be ordinary income due to potential recapture items, including depreciation recapture. In addition, because the amount
realized includes a unitholder’s share of our non-recourse liabilities, if unitholders sell their units, they may incur a tax liability
in excess of the amount of cash they receive from the sale.
Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in
adverse tax consequences to them.
Investment in common units by tax-exempt entities, such as individual retirement accounts (known as IRAs), other
retirement plans, and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to
organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business
taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the
highest applicable effective tax rate and non-U.S. persons will be required to file U.S. federal income tax returns and pay tax on
their share of our taxable income. Tax-exempt entities and non-U.S. persons should consult their tax advisors before investing
in our common units.
We will treat each purchaser of our common units as having the same tax benefits without regard to the actual common
units purchased. The IRS may challenge this treatment, which could adversely affect the value of our common units.
Because we cannot match transferors and transferees of our common units, we adopt depreciation and amortization
conventions that may not conform to all aspects of existing Treasury Regulations and may result in audit adjustments to our
unitholders’ tax returns without the benefit of additional deductions. A successful IRS challenge to those conventions could
adversely affect the amount of tax benefits available to a common unitholder. It also could affect the timing of these tax
benefits or the amount of gain from a sale of common units and could have a negative impact on the value of our common units
or result in audit adjustments to the common unitholder’s tax returns.
Unitholders will likely be subject to state and local taxes in states where they do not live as a result of an investment in
the common units.
In addition to federal income taxes, unitholders will likely be subject to other taxes, including foreign, state and local
taxes, unincorporated business taxes and estate inheritance or intangible taxes that are imposed by the various jurisdictions in
which we do business or own property, even if unitholders do not live in any of those jurisdictions. Unitholders will likely be
required to file foreign, state, and local income tax returns and pay state and local income taxes in some or all of these
jurisdictions. Further, unitholders may be subject to penalties for failure to comply with those requirements. We own assets and
do business in more than 20 states including Texas, Louisiana, Mississippi, Alabama, Florida, Arkansas and Oklahoma. Many
of the states we currently do business in impose a personal income tax. It is our unitholders’ responsibility to file all applicable
U.S. federal, foreign, state and local tax returns.
We have subsidiaries that are treated as corporations for federal income tax purposes and subject to corporate-level
income taxes.
We conduct a portion of our operations through subsidiaries that are, or are treated as, corporations for federal income
tax purposes. We may elect to conduct additional operations in corporate form in the future. These corporate subsidiaries will
be subject to corporate-level tax, which will reduce the cash available for distribution to us and, in turn, to our unitholders. If
the IRS were to successfully assert that these corporate subsidiaries have more tax liability than we anticipate or legislation was
enacted that increased the corporate tax rate, our cash available for distribution to our unitholders would be further reduced.
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We prorate our items of income, gain, loss and deduction between transferors and transferees of our common units
each month based upon the ownership of our common units on the first day of each month, instead of on the basis of the
date a particular common unit is transferred.
We prorate our items of income, gain, loss, and deduction between transferors and transferees of our common units
each month based upon the ownership of our common units on the first day of each month, instead of on the basis of the date a
particular unit is transferred. The use of this proration method may not be permitted under existing Treasury Regulations. The
Department of the Treasury and the IRS recently adopted the final Treasury regulations allowing a similar monthly simplifying
convention for taxable years beginning on or after August 3, 2015. However, such regulations do not specifically authorize the
use of the proration method we have adopted. Certain publicly traded partnerships, including us, may but are not required to
apply the conventions provided by the Treasury regulations. If the IRS were to successfully challenge this method or new
Treasury Regulations were issued, we may be required to change the allocation of items of income, gain, loss, and deduction
among our unitholders.
A unitholder whose units are loaned to a “short seller” to cover a short sale of units may be considered as having
disposed of those units. If so, such unitholder would no longer be treated for tax purposes as a partner with respect to those
units during the period of the loan and may recognize gain or loss from the disposition.
Because a unitholder whose units are loaned to a “short seller” to cover a short sale of units may be considered as
having disposed of the loaned units, such unitholder may no longer be treated for tax purposes as a partner with respect to those
units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition.
Moreover, during the period of the loan to the short seller, any of our income, gain, loss or deduction with respect to those units
may not be reportable by the unitholder and any cash distributions received by the unitholder as to those units could be fully
taxable as ordinary income. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a
loan to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing
their units.
The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in
the termination of our partnership for federal income tax purposes.
We will be considered to have terminated our partnership for federal income tax purposes if there is a sale or exchange
of 50% or more of the total interests in our capital and profits within a twelve-month period. Our termination would, among
other things, result in the closing of our taxable year for all unitholders, which would result in us filing two tax returns (and
unitholders receiving two Schedule K-1s) for one fiscal year. Our termination could also result in a deferral of depreciation
deductions allowable in computing our taxable income. In the case of a common unitholder reporting on a taxable year other
than a fiscal year ending December 31, the closing of our taxable year may result in more than twelve months of our taxable
income or loss being includable in his taxable income for the year of termination. Our termination currently would not affect
our classification as a partnership for federal income tax purposes, but instead, we would be treated as a new partnership for tax
purposes. If treated as a new partnership, we must make new tax elections and could be subject to penalties if we are unable to
determine that a termination occurred. The IRS has announced a publicly traded partnership technical termination relief
program whereby, if a publicly traded partnership that technically terminated requests relief and such relief is granted by the
IRS, among other things, the partnership will only have to provide one Schedule K-1 to unitholders for the year
notwithstanding two partnership tax years.
If the IRS makes audit adjustments to our income tax returns for tax years beginning after December 31, 2017, it may
assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly
from us, in which case our cash available for distribution to our unitholders might be substantially reduced.
Pursuant to the Bipartisan Budget Act of 2015, for tax years beginning after December 31, 2017, if the IRS makes
audit adjustments to our income tax returns, it may assess and collect any taxes (including any applicable penalties and interest)
resulting from such audit adjustment directly from us. Generally, we may elect to have our general partner and our unitholders
take such audit adjustment into account in accordance with their interests in us during the tax year under audit, but there can be
no assurance that such election will be effective in all circumstances and the manner in which the election is made and
implemented has yet to be determined. If we are unable to have our general partner and our unitholders take such audit
adjustment into account in accordance with their interests in us during the tax year under audit, our current unitholders may
bear some or all of the tax liability resulting from such audit adjustment, even if such unitholders did not own units in us during
the tax year under audit. If, as a result of any such audit adjustment, we are required to make payments of taxes, penalties and
interest, our cash available for distribution to our unitholders might be substantially reduced. These rules are not applicable to
us for tax years beginning on or prior to December 31, 2017.
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Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
See Item 1. “Business.” We also have various operating leases for rental of office space, office and field equipment
and vehicles. See “Commitments and Off-Balance Sheet Arrangements” in Management’s Discussion and Analysis of Financial
Condition and Results of Operations, and Note 19 to our Consolidated Financial Statements in Item 8 for the future minimum
rental payments. Such information is incorporated herein by reference.
Item 3. Legal Proceedings
We are involved from time to time in various claims, lawsuits and administrative proceedings incidental to our
business. In our opinion, the ultimate outcome, if any, of such proceedings is not expected to have a material adverse effect on
our financial condition, results of operations or cash flows. See Note 19 to our Consolidated Financial Statements in Item 8.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our Class A common units are listed on the New York Stock Exchange (“NYSE”) under the symbol “GEL.” The
following table sets forth, for the periods indicated, the high and low sale prices per common unit and the amount of cash
distributions declared and paid per common unit.
2014
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2015
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Price Range
High
Low
Cash
Distributions
(1)
$ 56.80
$51.08
$ 57.47
$52.60
$ 56.32
$50.38
$ 49.92
$34.57
$ 48.66
$38.65
$ 50.04
$43.44
$ 48.15
$27.40
$ 44.32
$30.79
$
$
$
$
$
$
$
$
0.5350
0.5500
0.5650
0.5800
0.5950
0.6100
0.6250
0.6400
(1) Cash distributions are shown in the quarter paid and are based on the prior quarter’s activities.
At February 26, 2016, we had 109,939,221 Class A common units outstanding. As of December 31, 2015, the closing
price of our common units was $36.74 and we had approximately 42,756 record holders of our Class A common units, which
include holders who own units through their brokers “in street name.”
Available cash consists generally of all of our cash receipts less cash disbursements, adjusted for net changes to cash
reserves. Cash reserves are the amounts deemed necessary or appropriate, in the reasonable discretion of our general partner, to
provide for the proper conduct of our business or to comply with applicable law, any of our debt instruments or other
agreements. The full definition of available cash is set forth in our partnership agreement and amendments thereto, which are
incorporated by reference as an exhibit to this Form 10-K.
See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and
Capital Resources – Capital Expenditures and Distributions Paid to our Unitholders” and Note 11 to our Consolidated Financial
Statements in Item 8 for further information regarding restrictions on our distributions. See Item 12. “Security Ownership of
Certain Beneficial Owners and Management and Related Unitholder Matters” for information regarding securities authorized
for issuance under equity compensation plans.
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Item 6. Selected Financial Data
The table below includes selected financial and other data for the Partnership for the years ended December 31, 2015,
2014, 2013, 2012 and 2011 (in thousands, except per unit and volume data). The selected financial data should be read in
conjunction with our Consolidated Financial Statements and Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Income Statement Data:
Revenues:
Offshore pipeline transportation
Onshore pipeline transportation
Refinery services
Marine transportation
Supply and logistics
Total revenues
Equity of earnings of equity investees
Income (loss) from continuing operations
after income taxes
Income (loss) from continuing operations
after income taxes attributable to
Genesis Energy, L.P.
Income from continuing operations after
income taxes available to Common
Unitholders
Income (loss) from continuing operations
attributable to Genesis Energy, L.P. per
Common Unit: Basic and Diluted
Cash distributions declared per Common
Unit
Balance Sheet Data (at end of period):
Current assets
Total assets (2)
Long-term liabilities (2)
Partners' capital:
Common unitholders
Noncontrolling interests
Total partners’ capital
Other Data:
Volumes—continuing operations:
Offshore crude oil pipeline (barrels per
day)
Onshore crude oil pipeline (barrels per
day)
Natural gas transportation volumes
(MMBtus/d)
CO2 pipeline (Mcf per day)
NaHS sales (DST)
NaOH sales (DST)
Crude oil and petroleum products sales
(barrels per day)
(1)
2015
2014 (1)
Year Ended December 31,
2013 (1)
2012 (1)
2011 (1)
140,230
77,092
177,880
238,757
1,612,570
2,246,529
54,450
421,585
$
$
$
3,296
83,157
207,401
229,282
3,323,028
3,846,164
43,135
106,202
$
$
$
3,923
82,585
205,985
152,542
3,689,795
4,134,830
22,675
84,004
$
$
$
5,508
70,782
196,017
118,204
2,976,850
3,367,361
14,345
97,337
$
$
$
—
62,190
201,711
72,688
2,101,208
2,437,797
3,347
51,371
422,528
$
106,202
$
84,004
$
97,337
$
51,371
422,528
$
106,202
$
84,004
$
97,337
$
51,371
4.10
2.4700
306,316
5,459,599
3,136,712
$
$
$
$
$
1.18
2.2300
355,366
3,210,624
1,618,276
$
$
$
$
$
1.00
2.0150
535,223
2,848,528
1,304,238
$
$
$
$
$
1.24
1.8225
404,034
2,101,902
872,756
$
$
$
$
$
0.76
1.6500
376,104
1,724,625
682,559
$
$
$
$
$
$
$
$
$
$
2,029,101
1,229,203
1,097,737
916,495
792,638
(8,350)
—
—
—
—
$
2,020,751
$
1,229,203
$
1,097,737
$
916,495
$
792,638
579,977
446,548
404,787
359,387
120,723
144,084
116,225
104,026
92,897
82,712
708,556
161,409
127,063
86,914
—
173,770
150,038
94,693
—
190,274
147,297
87,463
—
186,479
142,712
77,492
—
169,962
147,670
99,702
91,074
99,139
99,651
79,174
56,903
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(1) Our operating results and financial position have been affected by acquisitions. For additional information regarding our
acquisitions and divestitures during 2015, 2014 and 2013, see Note 3 to our Consolidated Financial Statements included in Item 8.
(2) Our long-term liabilities and total assets for all years presented reflect changes in presentation of debt issuance costs as a direct
reduction of related debt liabilities with amortization of debt issuance costs reported as interest expense. See Note 10 to our
Consolidated Financial Statements included in Item 8 for further discussion.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
We are a growth-oriented master limited partnership formed in Delaware in 1996 and focused on the midstream
segment of the crude oil and natural gas industry primarily in the Gulf Coast region of the United States and Wyoming. We
have a diverse portfolio of assets, including pipelines, refinery-related plants, storage tanks and terminals, railcars, rail loading
and unloading facilities, trucks, barges and a product tanker. We provide an integrated suite of services to refiners, crude oil and
natural gas producers, and industrial and commercial enterprises. We currently have two distinct, complimentary types of
operations-(i) our refinery-centric operations located primarily in the Gulf Coast region of the U.S., which focus on a suite of
services primarily to refiners (as reported in our onshore pipeline, refinery services, marine transportation and supply and
logistics business segments), and (ii) our offshore Gulf of Mexico crude oil and natural gas pipeline transportation and handling
operations, which focus on providing a suite of services primarily to integrated and large independent energy companies who
make intensive capital investments (often in excess of billions of dollars) to develop numerous large-reservoir, long-lived crude
oil and natural gas properties. We conduct our operations and own our operating assets through our subsidiaries and joint
ventures.
Included in Management’s Discussion and Analysis are the following sections:
•
•
•
•
•
•
•
•
•
Overview of 2015 Results
Acquisitions, Divestitures and Growth Initiatives
Results of Operations
Other Consolidated Results
Financial Measures
Liquidity and Capital Resources
Commitments and Off-Balance Sheet Arrangements
Critical Accounting Policies and Estimates
Recent Accounting Pronouncements
Overview of 2015 Results
We reported Net Income Attributable to Genesis Energy, L.P. of $422.5 million, or $4.10 per common unit, in 2015
compared to Net Income Attributable to Genesis Energy, L.P. of $106.2 million, or $1.18 per common unit, in 2014. The large
increase in our net income was principally due to the $332.4 million non-cash gain we recognized during 2015 resulting from a
step up in basis to fair value of our historical interests in certain of our equity investees (CHOPS and SEKCO) as a result of our
acquiring the remaining interest in those equity investees when we completed our Enterprise acquisition on July 24, 2015. A
more detailed discussion of that acquisition is included below and a more detailed discussion of our related non-cash gain is
included in the "Other Costs" section.
Available Cash before Reserves (as defined below in "Financial Measures") increased $98.8 million in 2015 to $331.4
million as compared to 2014 Available Cash before Reserves of $232.6 million. See "Financial Measures" below for additional
information on Available Cash before Reserves.
Segment Margin (as defined below in "Financial Measures") was $476.6 million in 2015, an increase of $129 million,
or 37%, as compared to 2014. That increase in our Segment Margin was primarily attributable to the increase in Segment
Margin from our offshore pipeline transportation segment of $126 million, which was primarily related to assets recently
acquired as part of our Enterprise acquisition. That acquisition similarly benefited Available Cash before Reserves and net
income.
The above factors benefiting Net Income Attributable to Genesis Energy, L.P. were partially offset by a $34.0 million
increase in interest expense attributable to additional long term debt outstanding and a $59.2 million increase in depreciation
and amortization expense. Both of these items are the result of the effect of recently acquired and constructed assets placed in
service (and the associated financing of these items), in particular those offshore pipelines and services assets acquired as a
result of our Enterprise acquisition.
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A more detailed discussion of our segment results and other costs is included below in "Results of Operations".
Distribution Increase
In January 2016, we declared our forty-second consecutive increase in our quarterly distribution to our common
unitholders relative to the fourth quarter of 2015. Thirty-seven of those quarterly increases have been 10% or greater as
compared to the same quarter in the preceding year. In February 2016, we paid a distribution of $0.6550 per unit related to the
fourth quarter of 2015, representing a 10.1% increase from our distribution of $0.5950 per unit related to the fourth quarter of
2014.
Acquisitions, Divestitures and Growth Initiatives
Acquisition of Enterprise Offshore Pipelines and Services Business
In July 2015, we acquired the offshore pipeline and services business of Enterprise Products Partners, L.P. and its
affiliates for approximately $1.5 billion, subject to certain adjustments. That business includes interests in approximately 2,350
miles of offshore crude oil and natural gas pipelines and six offshore hub platforms that serve some of the most active drilling
and development regions in the United States, including deepwater production fields in the Gulf of Mexico offshore Texas,
Louisiana, Mississippi and Alabama. That acquisition complements and substantially expands our existing offshore pipelines
segment and was immediately accretive to Segment Margin and Available Cash before Reserves.
Houston Area Crude Oil Pipeline and Terminal Infrastructure
We are constructing new, and expanding existing, crude oil pipeline and terminal facilities in Webster, Texas and Texas
City, Texas as a result of expanding our crude oil pipeline and terminal infrastructure in the Houston area. We will construct a
new crude oil pipeline that will deliver crude oil received from upstream crude oil pipelines (including CHOPS, which delivers
crude oil originating in the deepwater Gulf of Mexico to the Texas City area) to our new Texas City Terminal, which will
ultimately connect to our existing 18-inch Webster to Texas City crude oil pipeline. Our new Texas City Terminal will include
initially approximately 750,000 barrels of crude oil tankage. Our Webster Terminal is connected to other crude oil pipelines
servicing other Houston area refineries. As a part of this project, we are also making the necessary upgrades on our existing 18-
inch Webster to Texas City crude oil pipeline to allow for bi-directional flow. The result of this expanded crude oil
infrastructure will allow additional optionality to Houston and Baytown area refineries, including the Exxon-Mobil Baytown
refinery, its largest refinery in the U.S.A., and provide additional delivery outlets for other crude oil pipelines. We expect these
assets to become operational in the second half of 2016.
Wyoming Crude Oil Pipeline
In the third quarter of 2015, we completed construction of a new 60 mile crude oil pipeline to transport crude oil from
new receipt point stations in Campbell County and Converse County, Wyoming to our existing Pronghorn Rail Facility. This
new crude oil pipeline has an initial capacity of approximately 45,000 barrels per day and is supplied by truck volumes and
third party gathering infrastructure in the Powder River Basin.
We are also constructing a new 75 mile pipeline from our Pronghorn Rail Facility to a delivery point at our new
Guernsey Station in Platte County, Wyoming. This Pronghorn to Guernsey pipeline will have an initial capacity of
approximately 45,000 barrels per day and will allow for connectivity to additional downstream pipeline markets at Guernsey,
including regional refineries and Cushing, Oklahoma via the Pony Express Pipeline. This pipeline became operational in early
2016.
M/T American Phoenix
On November 13, 2014, we acquired the M/T American Phoenix from Mid Ocean Tanker Company for $157 million.
The M/T American Phoenix is a modern double-hulled, Jones Act qualified tanker with 330,000 barrels of cargo capacity that
was placed into service during 2012.
Inland Marine Barge Transportation Expansion
We ordered 20 new-build barges and 14 new-build push boats for our inland marine barge transportation fleet. We
have accepted delivery of 12 of those barges and 9 of those push boats through December 2015. We expect to take delivery of
those remaining vessels periodically into 2016.
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ExxonMobil Baton Rouge Project
We are improving existing assets and developing new infrastructure in Louisiana, including connecting to Exxon
Mobil Corporation’s Baton Rouge refinery, one of the largest refinery complexes in North America, with more than 500,000
barrels per day of refining capacity. Our investment includes improving our existing terminal at Port Hudson, Louisiana, and
building a new crude oil unit train unload facility at Scenic Station as well as constructing a new 17-mile 24-inch diameter
crude oil pipeline connecting Port Hudson to the Baton Rouge Scenic Station and continuing downstream to the Exxon Mobil
Anchorage Tank Farm. The Port Hudson upgrades and new crude oil pipeline were completed in the first quarter of 2014, and
Scenic Station became operational in July 2014.
Baton Rouge Terminal
We are constructing a new crude oil, intermediates and refined products import/export terminal in Baton Rouge that
will be located near the Port of Greater Baton Rouge and will be pipeline-connected to the port's existing deepwater docks on
the Mississippi River. We will initially construct approximately 1.1 million barrels of tankage for the storage of crude oil,
intermediates and/or refined products with the capability to expand to provide additional terminaling services to our customers.
In addition, we will construct a new pipeline from the terminal that will allow for deliveries to existing Exxon Mobil facilities
in the area, as well as connect our previously constructed 17-mile line to the terminal allowing for receipts from the Scenic
Station Rail Facility. Shippers to Scenic Station will have access to both the local Baton Rouge refining market, as well as the
ability to access other attractive refining markets via our Baton Rouge Terminal. The Baton Rouge Terminal is expected to be
operational in the first half of 2016.
Ongoing Rail Projects
Raceland - The Raceland Rail Facility, a new crude oil unit train unloading facility capable of unloading up to two unit
trains per day, which is located in Raceland, Louisiana, and will be connected to existing midstream infrastructure that will
provide direct pipeline access to the Louisiana refining markets. It is expected to be operational in the first half of 2016.
Results of Operations
In the discussions that follow, we will focus on our revenues, expenses and net income, as well as two measures that
we use to manage the business and to review the results of our operations-Segment Margin and Available Cash before Reserves.
Segment Margin and Available Cash before Reserves are defined in the "Financial Measures" section below.
Revenues, Costs and Expenses and Net Income Attributable to Genesis Energy L.P.
Our revenues from continuing operations for the year ended December 31, 2015 decreased $1.6 billion, or 42% from
2014. Additionally, our costs and expenses from continuing operations decreased $1.6 billion or 44% between the two periods.
The majority of our revenues and our costs are derived from the purchase and sale of crude oil and petroleum products. The
significant decrease in our revenues and costs between 2015 and 2014 is primarily attributable to a decrease in market prices for
crude oil and petroleum products as described below. A decrease in our revenues due to a decrease in prices for crude oil and
petroleum products may not result in a decrease in net income, Segment Margin or Available Cash before Reserves, since our
cost of sales amounts would also be lower due to comparable decreases in the purchase prices of the underlying crude oil and
petroleum products. The same correlation would be true in the case of higher crude oil and petroleum products sale prices and
purchase costs.
The average closing prices for West Texas Intermediate ("WTI") crude oil on the New York Mercantile Exchange
("NYMEX") decreased 48% to $48.79 per barrel in 2015, as compared to $93.00 per barrel in 2014.
Prices of crude oil and petroleum products have continued to decline since December 31, 2015. We would expect
these changes in crude oil prices to continue to cause fluctuations in our revenues and, similarly, costs as derived from the
purchase and sale of crude oil and petroleum products, producing minimal direct impact on Segment Margin from those
operations. We currently have two distinct, complimentary types of operations-(i) our onshore-based refinery-centric crude oil
and refined petroleum products transportation, supply and logistics, and handling operations, focusing predominantly on
refinery-centric customers (as opposed to producers), and (ii) our offshore Gulf of Mexico crude oil and natural gas pipeline
transportation and handling operations, focusing on integrated and large independent energy companies who make intensive
capital investments (often in excess of billions of dollars) to develop numerous large reservoir, long-lived crude oil and natural
gas properties. Refiners are the shippers of over 85% of the volumes transported on our onshore crude pipelines, and refiners
contract for approximately 90% of the use of our inland barges, which primarily are used to transport intermediate refined
products (not crude oil) between refining complexes. The shippers on our offshore pipelines are mostly integrated and large
independent energy companies who have developed, and continue to explore for, numerous large-reservoir, long-lived crude oil
properties whose production is ideally suited for the vast majority of refineries along the Gulf Coast, unlike the lighter crude oil
and condensates produced from numerous onshore shale plays. Those large-reservoir properties and the related pipelines and
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other infrastructure needed to develop them are capital intensive and yet, we believe, economically viable, in most cases, even
in this lower commodity price environment. Given these facts, we do not expect changes in commodity prices to impact our
Segment Margin in the same manner in which they impact our revenues and costs derived from the purchase and sale of crude
oil and petroleum products. See below for further discussion surrounding Segment Margin.
Net Income Attributable to Genesis Energy L.P. increased $316.3 million in 2015 from 2014. See "Overview of 2015
Results" above for additional discussion.
Revenues from continuing operations in 2014 decreased $288.7 million, or 7% from 2013. Additionally, our costs and
expenses from continuing operations decreased $310.5 million, or 8%, between the two periods. The significant decrease in our
revenues and costs between 2014 and 2013 is primarily attributable to the decrease in market prices for crude oil and petroleum
products between the two periods. The average closing prices for WTI crude oil on the NYMEX decreased 5% to $93.00 per
barrel in 2014, as compared to $97.97 per barrel in 2013. Net Income Attributable to Genesis Energy L.P. increased $20.1
million in 2014 to $106.2 million from $86.1 million in 2013. The increase in net income during 2014 was primarily due to an
increase in assets placed in service in both the offshore pipeline transportation and marine transportation segments.
Included below is additional detailed discussion of the results of our operations focusing on Segment Margin and other
costs including general and administrative expenses, depreciation and amortization, interest and income taxes.
Segment Margin
The contribution of each of our segments to total Segment Margin in each of the last three years was as follows:
Offshore pipeline transportation
Onshore pipeline transportation
Refinery services
Marine transportation
Supply and logistics
Total Segment Margin
Year Ended December 31,
2015
2014
2013
(in thousands)
197,723
58,919
80,246
103,222
36,475
71,598
61,231
84,851
86,239
43,345
44,530
64,349
75,361
47,726
48,394
$
476,585
$
347,264
$
280,360
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Year Ended December 31, 2015 Compared with Year Ended December 31, 2014
Offshore Pipeline Transportation Segment
Operating results and volumetric data for our offshore pipeline transportation segment are presented below:
Offshore crude oil pipeline revenue
Offshore natural gas pipeline revenue
Offshore pipeline operating costs, excluding non-cash expenses
Distributions from equity investments
Other
Offshore Pipeline Transportation Segment Margin(1)
Volumetric Data 100% basis:
Crude oil pipelines (average barrels/day unless otherwise noted):
CHOPS
Poseidon
Odyssey
GOPL (2)
Total crude oil offshore pipelines
SEKCO (3)
Natural gas transportation volumes (MMBtus/d) (4)
Volumetric Data net to our ownership interest (5):
Crude oil pipelines (average barrels/day unless otherwise noted):
CHOPS
Poseidon
Odyssey
GOPL (2)
Total crude oil offshore pipelines
SEKCO (3)
Natural gas transportation volumes (MMBtus/d) (4)
Year Ended December 31,
2015
2014
(in thousands)
$
115,640
$
24,590
(39,685)
94,361
2,817
$
197,723
$
3,296
—
(1,271)
71,305
(1,732)
71,598
172,647
259,568
72,958
13,038
518,211
61,766
708,556
124,928
115,219
21,158
13,038
274,343
47,705
420,464
183,726
209,647
46,717
6,458
446,548
—
—
91,863
58,701
13,548
6,458
170,570
—
—
(1) Offshore Pipeline Transportation segment margin includes approximately $94 million and $71 million of distributions received
from our offshore pipeline joint ventures accounted for under the equity method of accounting in 2015 and 2014, respectively.
(2) One of our wholly-owned subsidiaries (GEL Offshore Pipeline, LLC, or "GOPL") owns our undivided interest in the Eugene Island
pipeline system.
(3) Our SEKCO pipeline was completed in June of 2014. Under the terms of SEKCO’s transportation arrangements, its shippers
commenced making minimum monthly payments at that time, even though they did not commence throughput of crude until
January 2015. As our SEKCO volumes ultimately flow into Poseidon and thus are included within our Poseidon volume statistics,
we have excluded them from our total for Offshore crude oil pipelines.
(4) Represents volumes per day from the period the pipelines and related assets were acquired in July 2015.
(5) Volumes are the product of our effective ownership interest throughout the year, including changes in ownership interest, multiplied
by the relevant throughput over the given year.
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Offshore Pipeline Transportation Segment Margin for 2015 increased $126 million, or 176%, from 2014. This
increase is primarily due to our Enterprise acquisition, which closed in July 2015. As a result of our Enterprise acquisition we
obtained approximately 2,350 miles of additional offshore natural gas and crude oil pipelines and six offshore hub platforms.
That transaction also increased our ownership interest in each of the Poseidon, SEKCO, and CHOPS pipelines. As a result of
our Enterprise Transaction, we now own 100% (up from 50%) of the SECKO pipeline and 64% (up from 36%) of the Poseidon
pipeline.
In addition, a portion of the increase in our Segment Margin is attributable to the SEKCO pipeline being completed
and earning certain minimum fees in 2014 and commencing throughput of crude in January 2015. For a portion of 2015,
SEKCO pipeline's throughput exceeded its shippers' minimum volume commitments. In addition, our SEKCO pipeline is
connected to our Poseidon pipeline, so increases in throughput on our SEKCO pipeline also increases throughput on our
Poseidon pipeline.
Onshore Pipeline Transportation Segment
Operating results and volumetric data for our onshore pipeline transportation segment are presented below:
Crude oil tariffs and revenues from direct financing leases—onshore crude oil pipelines
$
CO2 tariffs and revenues from direct financing leases of CO2 pipelines
Sales of onshore crude oil pipeline loss allowance volumes
Onshore pipeline operating costs, excluding non-cash charges for equity-based
compensation and other non-cash expenses
Payments received under direct financing leases not included in income
Other
Segment Margin
Volumetric Data (average barrels/day unless otherwise noted):
Onshore crude oil pipelines:
Texas
Jay
Mississippi
Louisiana (1)
Wyoming (2)
Onshore crude oil pipelines total
CO2 pipeline (average Mcf/day):
Free State
Year Ended December 31,
2015
2014
(in thousands)
$
44,096
24,169
4,629
(20,795)
5,685
1,135
42,347
25,241
9,049
(21,868)
5,529
933
$
58,919
$
61,231
71,906
16,828
15,472
32,481
7,397
58,829
24,131
14,829
18,436
—
144,084
116,225
161,409
173,770
(1) Represents volumes per day from the period the pipeline began operations in the first quarter of 2014.
(2) Represents volumes per day from the period the pipeline began operations in August of 2015.
Onshore Pipeline Transportation Segment Margin for 2015 decreased $2.3 million, or 4%, from 2014. Certain
significant components of this change were as follows:
• Onshore crude oil pipeline loss allowance volumes, collected and sold, decreased Segment Margin by $4.4 million.
This decrease is primarily due to the change in the market price of crude oil between the respective periods. Due to
the nature of our tariffs on the Louisiana system, we do not collect or sell pipeline loss allowance volumes on that
system.
• With respect to our onshore crude oil pipelines, tariff revenues increased $1.7 million, or 4%, principally due to a net
increase in throughput volumes of 27,859 barrels per day, primarily from increases in volumes on our Texas and
Louisiana pipeline systems as well as the addition of the Wyoming pipeline system. These increases were partially
offset by volume variances on our other onshore pipeline systems. Due to a mix of tariff rates on our onshore
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pipelines, the impact on onshore crude oil tariffs and revenues from these volume variances largely offset each other.
As our Baton Rouge growth projects become completed and operational, we anticipate a continued ramp up in
volumes on our Louisiana pipeline system in future periods. The increase in crude oil pipeline tariff revenues partially
offset the decrease in segment margin resulting from the decrease in crude oil pipeline loss allowance volumes
collected and sold.
• Volumes on our Free State CO2 pipeline system decreased 12,361 Mcf per day, or 7%. We provide transportation
services on our Free State CO2 pipeline system through an "incentive" tariff, which provides that the average rate per
Mcf that we charge during any month decreases as our aggregate throughput for that month increases above specific
thresholds. As a result of this "incentive" tariff, fluctuations in volumes above a certain base level on our Free State
CO2 pipeline system have a limited impact on Segment Margin.
Refinery Services Segment
Operating results for our refinery services segment were as follows:
Volumes sold (in Dry short tons "DST"):
NaHS volumes
NaOH (caustic soda) volumes
Total
Revenues (in thousands):
NaHS revenues
NaOH (caustic soda) revenues
Other revenues
Total external segment revenues
Segment Margin (in thousands)
Average index price for NaOH per DST (1)
Raw material and processing costs as % of segment revenues
(1) Source: IHS Chemical
Year Ended December 31,
2015
2014
127,063
86,914
213,977
150,038
94,693
244,731
$
137,825
$
161,962
42,746
6,686
187,257
80,246
581
39%
$
$
$
$
$
$
48,610
7,725
218,297
84,851
589
43%
Refinery Services Segment Margin for 2015 decreased $4.6 million, or 5%, from 2014. The significant components of
this fluctuation were as follows:
• NaHS revenues decreased 15% primarily due to a decrease in volumes. That decrease primarily resulted from lower
total volumes than in 2014 attributable to the bankruptcy of one mining customer, reduced sales to a major customer as
it works through an atypical ore seam as a result of a landslide, and increased prior year volumes generated from heavy
turn around schedules at certain customers.
• We were able to realize benefits from our favorable management of the purchasing (including economies of scale) and
utilization of caustic soda in our (and our customers') operations and our logistics management capabilities, which
somewhat offset the effects on Segment Margin of decreased NaHS sales volumes.
• Caustic soda revenues decreased 12% due to a decrease in both caustic sales volumes and our sales price for caustic
soda. Although caustic sales volumes may fluctuate, the contribution to Segment Margin from these sales is not a
significant portion of our refinery services activities.
• Average index prices for caustic soda decreased to $581 per DST during 2015 compared to $589 per DST during 2014.
Those price movements affect the revenues and costs related to our sulfur removal services as well as our caustic soda
sales activities. However, generally changes in caustic soda index prices do not materially affect Segment Margin
attributable to our sulfur processing services because we usually pass those costs through to our NaHS sales
customers. Additionally, our bulk purchase and storage capabilities related to caustic soda allow us to somewhat
mitigate the effects of changes in index prices for caustic on our operating costs.
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Marine Transportation Segment
Within our marine transportation segment, we own a fleet of 75 barges (66 inland and 9 offshore) with a combined
transportation capacity of 2.7 million barrels, 39 push/tow boats (30 inland and 9 offshore), and a 330,000 barrel ocean going
tanker, the M/T American Phoenix. Operating results for our marine transportation segment were as follows:
Revenues (in thousands):
Inland freight revenues
Offshore freight revenues
Other rebill revenues (1)
Total segment revenues
Operating costs, excluding non-cash charges for equity-based compensation and
other non-cash expenses
Segment Margin (in thousands)
Fleet Utilization: (2)
Inland Barge Utilization
Offshore Barge Utilization
Year Ended December 31,
2015
2014
$
$
$
$
95,588
$
102,281
40,888
238,757
135,535
103,222
$
$
$
92,311
82,732
54,239
229,282
143,043
86,239
96.7%
98.7%
97.5%
99.6%
(1) Under certain of our marine contracts, we "rebill" our customers for a portion of our operating costs.
(2) Utilization rates are based on a 365 day year, as adjusted for planned downtime and drydocking.
Marine Transportation Segment Margin for 2015 increased $17.0 million, or 20%, from 2014. The significant
components of this fluctuation were as follows:
• An increase in segment margin in 2015 due to a full year of operating results from the M/T American Phoenix
(included as part of our offshore marine fleet), which we acquired in November 2014, and higher realized contract
rates on several of our oceangoing barges.
• The expansion of our inland marine fleet in 2015, with "new builds" including the addition of 4 inland barges and 7
inland pushboat in 2015.
Utilization rates on our both our inland and offshore barge fleets did not change significantly in 2015 as compared to
2014. The decrease in operating costs, a large portion of which relate to fuel and other rebillable charges, was largely offset by
the decrease in other rebill revenues.
Supply and Logistics Segment
Our supply and logistics segment is focused on utilizing our knowledge of the crude oil and petroleum markets to
provide crude oil producers, refiners and other customers with a full suite of services. Our supply and logistics segment owns or
leases trucks, terminals, gathering pipelines, railcars, and rail loading and unloading facilities. It uses those assets, together
with other modes of transportation owned by third parties and us, to service its customers and for its own account. These
services include:
•
•
•
•
•
utilizing the fleet of trucks, trailers and railcars owned or leased by our supply and logistics segment to transport
products (primarily crude oil and petroleum products) for customers;
utilizing various modes of transportation owned by third parties and us to transport products (primarily crude oil and
petroleum products) for our own account to take advantage of logistical opportunities primarily in the Gulf Coast
states and waterways;
purchasing/selling and/or transporting crude oil from the wellhead to markets for ultimate use in refining;
supplying petroleum products (primarily fuel oil, asphalt and other heavy refined products) to wholesale markets;
purchasing products from refiners, transporting the products to one of our terminals and blending the products to a
quality that meets the requirements of our customers and selling those products;
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•
•
railcar loading and unloading activities at our crude-by-rail terminals; and
industrial gas activities, including wholesale marketing of CO2 and processing of syngas through a joint venture.
We also use our terminal facilities to take advantage of contango market conditions for crude oil gathering and
marketing and to capitalize on regional opportunities which arise from time to time for both crude oil and petroleum products.
Despite crude oil being considered a somewhat homogeneous commodity, many refiners are very particular about the
quality of crude oil feedstock they process. Many U.S. refineries have distinct configurations and product slates that require
crude oil with specific characteristics, such as gravity, sulfur content and metals content. The refineries evaluate the costs to
obtain, transport and process their preferred feedstocks. That particularity provides us with opportunities to help the refineries
in our areas of operation identify crude oil sources meeting their requirements and to purchase the crude oil and transport it to
the refineries for sale. The imbalances and inefficiencies relative to meeting the refiners’ requirements can provide opportunities
for us to utilize our purchasing and logistical skills to meet their demands. The pricing in the majority of our purchase contracts
contains a market price component and a deduction to cover the cost of transporting the crude oil and to provide us with a
margin. Contracts sometimes contain a grade differential which considers the chemical composition of the crude oil and its
appeal to different customers. Typically, the pricing in a contract to sell crude oil will consist of the market price components
and the grade differentials. The margin on individual transactions is then dependent on our ability to manage our transportation
costs and to capitalize on grade differentials.
In our petroleum products marketing operations, we supply primarily fuel oil, asphalt and other heavy refined products
to wholesale markets and some end-users such as paper mills and utilities. We also provide a service to refineries by purchasing
“heavier” petroleum products that are the residual fuels from gasoline production, transporting them to one of our terminals and
blending them to a quality that meets the requirements of our customers.
We utilize our fleet of 300 trucks, 400 trailers, 522 railcars, and 3.3 million barrels of leased and owned storage
capacity to service our crude oil and refining customers and to store and blend the intermediate and finished refined products.
Operating results for our supply and logistics segment were as follows:
Supply and logistics revenue
Crude oil and products costs, excluding unrealized gains and losses from derivative
transactions
Operating costs, excluding non-cash charges for equity-based compensation and other non-
cash expenses
Other
Segment Margin
Volumetric Data (average barrels per day):
Crude oil and petroleum products sales:
Total crude oil and petroleum products sales
Rail load/unload volumes (1)
Year Ended December 31,
2015
2014
(in thousands)
$
1,612,570
$
3,323,028
(1,479,972)
(3,167,749)
(96,047)
(76)
36,475
$
(111,548)
(386)
43,345
$
91,074
27,044
99,139
32,559
(1) Indicates total barrels for either loading or unloading at all rail facilities.
Segment Margin for our supply and logistics segment decreased $7 million or 16% , 2015 as compared to 2014.
In 2015 the decrease in our Segment Margin is primarily due to lower volumes, especially in our historical back-to-
back, or buy/sell, crude oil marketing business associated with aggregating and trucking crude oil from producers' leases to
local or regional re-sale points. We find it difficult to compete with certain persons in the market who are willing to lose money
on such local gathering because they are attempting to minimize their losses from minimum volume to take-or-pay
commitments they previously made in anticipation of new production that has not yet come online. These items were partially
offset by improved year to date performance in our recently right-sized heavy fuel oil business. Also impacting our results were
lower rail volumes reflecting a shift in demand at certain of our rail facilities, as partially offset by a ramp up in volumes at our
Scenic Station rail terminal as we continue to progress towards completion of our Baton Rouge growth projects.
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Other Costs and Interest
General and administrative expenses
General and administrative expenses not separately identified below:
Corporate
Segment
Equity-based compensation plan expense
Third party costs related to business development activities and growth projects
Total general and administrative expenses
Year Ended December 31,
2015
2014
(in thousands)
$
$
37,922
$
39,445
3,608
4,564
18,901
3,606
5,111
2,530
64,995
$
50,692
Total general and administrative expenses increased $14 million between 2015 and 2014, primarily due to higher third
party costs, mostly financing, legal and accounting, related to business development and growth activities (particularly third
party costs incurred for business development activities surrounding our Enterprise acquisition as previously discussed).
Depreciation and amortization expense
Depreciation on fixed assets
Amortization of intangible assets
Amortization of CO2 volumetric production payments
Total depreciation and amortization expense
Year Ended December 31,
2015
2014
(in thousands)
124,207
$
20,044
5,889
150,140
$
73,230
13,436
4,242
90,908
$
$
Total depreciation and amortization expense increased $59 million between 2015 and 2014 primarily as a result of
placing newly acquired and constructed assets in service during calendar 2015 (including the offshore pipelines and services
assets acquired as a result of our Enterprise acquisition).
Interest expense, net
Interest expense, senior secured credit facility (including commitment fees)
Interest expense, senior unsecured notes
Amortization and write-off of debt issuance costs and premium
Capitalized interest
Net interest expense
Year Ended December 31,
2015
2014
(in thousands)
23,072
$
87,326
7,266
(17,068)
100,596
$
15,592
60,047
4,785
(13,785)
66,639
$
$
Net interest expense increased $34 million during 2015 primarily due to an increase in our average outstanding
indebtedness from newly acquired and constructed assets, primarily related to additional debt outstanding as a result of
financing our Enterprise acquisition. In May 2015, we issued an additional $400 million of aggregate principal amount of
6.00% senior unsecured notes to redeem our $350 million 7.875% senior unsecured notes (which were due in 2018) and in July
2015, we issued an additional $750 million of aggregate principal amount of 6.75% senior unsecured notes. Capitalized interest
costs increased in 2015 due to our growth capital expenditures for projects still under construction when compared to the prior
year.
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Other Consolidated Results
Net income for 2015 and 2014 included an unrealized gain on derivative positions, excluding fair value hedges, of
$1.0 million and $18.0 million, respectively. Those amounts are included in supply and logistics product costs in the
Condensed Consolidated Statement of Operations and are not a component of Segment Margin.
As a result of acquiring the remaining 50% interest in CHOPS and SEKCO in our Enterprise acquisition, we
recognized a $332.4 million gain during 2015 relating to the effects of the re-measurement of our pre-acquisition historical
interest (prior to that acquisition, we owned 50% of each of CHOPS and SEKCO) at fair value based on accounting guidance
involving step acquisitions. A more detailed discussion of our enterprise acquisition is included under "Liquidity and Capital
Resources".
2015 also includes a loss of approximately $19.2 million that was recognized in relation to the early retirement of our
$350 million, 7.875% senior unsecured notes.
Year Ended December 31, 2014 Compared with Year Ended December 31, 2013
Offshore Pipeline Transportation Segment
During these periods, our offshore pipeline transportation segment was comprised of interests in five offshore pipeline
systems and related assets, including four joint ventures which were accounted for under the equity method of accounting. One
of our wholly-owned subsidiaries (GEL Offshore Pipeline, LLC, or "GOPL") owns our undivided joint interest in the Eugene
Island pipeline system. Segment Margin for our Offshore Pipeline Transportation Segment as disclosed below primarily
consists of distributions received based on our ownership percentage in each of our four offshore pipeline joint ventures. These
distributions typically correlate with volumes transported, as rates per barrel do not materially fluctuate between periods.
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Operating results and volumetric data for our offshore pipeline transportation segment are presented below:
Offshore crude oil pipeline revenue
Offshore pipeline operating costs, excluding non-cash charges for equity-based
compensation and other non-cash expenses
Distributions from equity investments
Other
Segment Margin (1)
Volumetric Data 100% basis:
Offshore crude oil pipelines (average barrels/day unless otherwise noted):
CHOPS
Poseidon
Odyssey
GOPL
Total crude oil offshore pipelines
SEKCO (2)
Volumetric Data net to our ownership interest (3):
Offshore crude oil pipelines (average barrels/day unless otherwise noted):
CHOPS
Poseidon
Odyssey
GOPL
Total crude oil offshore pipelines
SEKCO (2)
Year Ended December 31,
2014
2013
(in thousands)
3,296
$
3,923
(1,271)
71,305
(1,732)
71,598
$
(1,234)
43,670
(1,829)
44,530
$
$
183,726
209,647
46,717
6,458
446,548
143,854
207,372
44,978
8,583
404,787
—
—
91,863
58,701
13,548
6,458
71,927
58,064
13,044
8,583
170,570
151,618
—
—
(1) Offshore Pipeline Transportation segment margin includes approximately $71 million and $44 million of distributions received
from our offshore pipeline joint ventures accounted for under the equity method of accounting in 2014 and 2013, respectively.
(2) Our SEKCO pipeline was completed in June of 2014. Under the terms of SEKCO's transportation arrangements, its shippers
commenced making minimum monthly payments at that time, even though they did not commence throughput of crude until
January 2015. As our SEKCO volumes ultimately flow into Poseidon and thus are included within our Poseidon volume statistics,
we have excluded them from our total for Offshore crude oil pipelines.
(3) Volumes are the product of our effective ownership interest throughout the year, including changes in ownership interest, multiplied
by the relevant throughput over the given year.
Offshore Pipeline Transportation Segment Margin for 2014 increased $27.1 million, or 61%, from 2013. This increase
is primarily attributable to the SEKCO pipeline being completed and earning certain minimum fees despite no crude throughput
to date through 2014. This increase in segment margin from offshore crude oil pipelines is also partially attributable to higher
throughput volumes on our CHOPS pipeline in 2014.
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Onshore Pipeline Transportation Segment
Operating results and volumetric data for our onshore pipeline transportation segment are presented below:
Year Ended December 31,
2014
2013
(in thousands)
Crude oil tariffs and revenues from direct financing leases—onshore crude oil pipelines
$
42,347
$
CO2 tariffs and revenues from direct financing leases of CO2 pipelines
Sales of crude oil pipeline loss allowance volumes
Onshore pipeline operating costs, excluding non-cash charges for equity-based
compensation and other non-cash expenses
Payments received under direct financing leases not included in income
Other
Segment Margin
Volumetric Data (average barrels/day unless otherwise noted):
Onshore crude oil pipelines:
Texas
Jay
Mississippi
Louisiana (1)
Onshore crude oil pipelines total
CO2 pipeline (average Mcf/day):
Free State
25,241
9,049
(21,868)
5,529
933
39,627
26,342
11,526
(19,217)
5,110
961
$
61,231
$
64,349
58,829
24,131
14,829
18,436
51,067
34,933
18,026
—
116,225
104,026
173,770
190,274
(1) Represents volumes per day from the period the pipeline began operations in the first quarter of 2014.
Onshore Pipeline Transportation Segment Margin for 2014 decreased $3.1 million, or 5%, from 2013. The significant
components of this change were as follows:
• Onshore crude oil pipeline loss allowance volumes, collected and sold, decreased Segment Margin by $2.5
million. Due to the nature of our tariffs on the Louisiana system, we do not collect or sell pipeline loss allowance
volumes on this system.
• With respect to our onshore crude oil pipelines, tariff revenues increased $2.7 million, or 7%, primarily due to a net
increase in throughput volumes of 12,199 barrels per day, primarily from the addition of our Louisiana pipeline system
and increases in volumes on our Texas pipeline system. Our Louisiana pipeline system is a 17-mile 24-inch diameter
crude oil pipeline connecting Port Hudson to the Baton Rouge Scenic Station and continuing downstream to the
Anchorage Tank Farm. This system was placed into service during the first quarter of 2014. These increases were
partially offset by volume variances on our other onshore pipeline systems. Due to a mix of tariff rates on our onshore
pipelines, the impact on onshore crude oil tariffs and revenues from these volume variances largely offset each other.
• Onshore pipeline operating costs, excluding non-cash charges, increased $2.7 million, due to pipeline integrity
maintenance expenditures on our onshore pipelines, employee compensation and related benefit costs and general
increases in operating costs inclusive of safety program costs.
• Volumes on our Free State CO2 pipeline system decreased 16,504 Mcf per day, or 9% .We provide transportation
services on our Free State CO2 pipeline system through an "incentive" tariff, which provides that the average rate per
Mcf that we charge during any month decreases as our aggregate throughput for that month increases above specific
thresholds. As a result of this "incentive" tariff, fluctuations in volumes above a certain base level on our Free State
CO2 pipeline system have a limited impact on Segment Margin.
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Refinery Services Segment
Operating results for our refinery services segment were as follows:
Volumes sold (in DST):
NaHS volumes
NaOH (caustic soda) volumes
Total
Revenues (in thousands):
NaHS revenues
NaOH (caustic soda) revenues
Other revenues
Total external segment revenues
Segment Margin (in thousands)
Average index price for NaOH per DST (1)
Raw material and processing costs as % of segment revenues
(1) Source: IHS Chemical
Year Ended December 31,
2014
2013
150,038
94,693
244,731
147,297
87,463
234,760
$
161,962
$
159,125
48,610
7,725
218,297
84,851
589
43%
$
$
$
$
$
$
50,748
6,987
216,860
75,361
604
49%
Refinery services Segment Margin for 2014 increased $9.5 million, or 13%, from 2013. The significant components of
this fluctuation were as follows:
• NaHS revenues increased 2% primarily due to a slight increase in volumes. The pricing in our sales contracts for
NaHS includes adjustments for fluctuations in commodity benchmarks, freight, labor, energy costs and government
indexes. The frequency at which these adjustments are applied varies by contract, geographic region and supply point.
• Our raw material costs related to NaHS decreased correspondingly to the decrease in the average index price for
caustic soda. We were able to realize benefits from operating efficiencies at several of our sour gas processing
facilities, our favorable management of the acquisition (including economies of scale) and utilization of caustic soda in
our (and our customers') operations, and our logistics management capabilities.
• Caustic soda revenues decreased 4%, primarily due to a decrease in our sales price for caustic soda, which was
partially offset by an increase in sales volumes. Although caustic sales volumes may fluctuate, the contribution to
Segment Margin from these sales is not a significant portion of our refinery services activities. Caustic soda is a key
component in the provision of our sulfur-removal service, from which we receive the by-product NaHS. Consequently,
we are a very large consumer of caustic soda. In addition, our economies of scale and logistics capabilities allow us to
effectively purchase additional caustic soda for re-sale to third parties. Our ability to purchase caustic soda volumes is
currently sufficient to meet the demands of our refinery services operations and third-party sales.
• Average index prices for caustic soda decreased to $589 per DST during 2014 compared to $604 per DST during 2013.
Those price movements affect the revenues and costs related to our sulfur removal services as well as our caustic soda
sales activities. However, generally changes in caustic soda index prices do not materially affect Segment Margin
attributable to our sulfur processing services because we usually pass those costs through to our NaHS sales
customers. Additionally, our bulk purchase and storage capabilities related to caustic soda allow us to somewhat
mitigate the effects of changes in index prices for caustic on our operating costs.
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Marine Transportation Segment
Operating results for our marine transportation segment were as follows:
Revenues (in thousands):
Inland freight revenues
Offshore freight revenues
Other rebill revenues (1)
Total segment revenues
Operating Costs, excluding non-cash charges for equity-based compensation and
other non-cash expenses
Segment Margin (in thousands)
Fleet Utilization: (2)
Inland Barge Utilization
Offshore Barge Utilization
Year Ended December 31,
2014
2013
$
$
$
$
92,311
82,732
54,239
229,282
143,043
86,239
$
$
$
$
80,536
28,164
43,842
152,542
104,816
47,726
97.5%
99.6%
99.2%
99.8%
(1) Under certain of our marine contracts, we "rebill" our customers for a portion of our operating costs.
(2) Utilization rates are based on a 365 day year, as adjusted for planned downtime and drydocking.
Marine Transportation Segment Margin for 2014 increased $38.5 million, or 81% from 2013. The significant
components of this fluctuation were as follows:
• An increase in segment margin in 2014 due to a full year of operating results from our offshore marine transportation
business, which we acquired in August 2013.
• The expansion of our inland marine fleet in 2014, with "new builds" including the addition of 8 inland barges and 2
inland pushboat in 2014.
• The acquisition of the M/T American Phoenix in late 2014, which became immediately accretive to Segment Margin at
that time.
Utilization rates on our both our inland and offshore barge fleets did not change significantly in 2014 as compared to
2013.
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Supply and Logistics Segment
Operating results for our supply and logistics segment were as follows:
Supply and logistics revenue
Crude oil and products costs, excluding unrealized gains and losses from derivative
transactions
Operating costs, excluding non-cash charges for equity-based compensation and other non-
cash expenses
Segment Margin attributable to discontinued operations
Other
Segment Margin
Volumetric Data (average barrels per day):
Crude oil and petroleum products:
Continuing operations
Discontinued operations
Total crude oil and petroleum products
Rail load/unload volumes (1)
Year Ended December 31,
2014
2013
(in thousands)
$ 3,323,028
$ 3,689,795
(3,167,749)
(3,545,830)
(111,548)
—
(386)
43,345
$
$
(99,179)
2,378
1,230
48,394
99,139
—
99,139
99,651
13,110
112,761
32,559
19,721
(1) Indicates total barrels for which fees were charged for either loading or unloading at all rail facilities.
Segment Margin for our supply and logistics segment decreased $5 million, or 10%, in 2014 as compared to 2013. The
decline is primarily attributable to $5 million in charges related to our planned exit of certain terminal facilities relating to our
heavy fuel oil business, including non-recurring excess storage and tank cleaning costs from termination of certain storage
facility leases with third parties.
Crude and petroleum products volumes from continuing operations decreased slightly in 2014. In addition to this
decrease, operating costs (excluding the above charges) increased 7% due to primarily to the recent growth in our crude oil rail
loading and unloading and terminal operations. Segment margin was also negatively impacted by $2 million of 2013 margin
pertaining to discontinued operations. Offsetting these factors was an improvement at managing our revenues and direct
product costs in a volatile price environment in 2014.
The charge we took in our heavy fuel oil business allows us to "right size" that business prospectively to match the
lower volumes of blend materials currently available for us to economically handle compared to the volumes that have
historically been available to us. This new market reality has resulted, primarily, from the general lightening of refineries' crude
slates resulting in a better supply/demand balance between heavy refined bottoms and domestic coker and asphalt requirements.
In the first quarter of 2015, we began exiting certain third-party terminal facilities historically leased to us to support our heavy
fuel oil business and we believe that as of the end of 2015 this business is now appropriately sized given current market
realities.
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Other Costs and Interest
General and administrative expenses
General and administrative expenses not separately identified below:
Corporate
Segment
Equity-based compensation plan expense
Third party costs related to business development activities and growth projects
Total general and administrative expenses
Year Ended December 31,
2014
2013
(in thousands)
$
$
39,445
$
28,517
3,606
5,111
2,530
3,302
9,180
5,791
50,692
$
46,790
Total general and administrative expenses increased $4 million between 2014 and 2013, primarily due to higher
employee compensation expenses, as partially offset by decreases in equity-based compensation plan expense and third party
costs related to business development activities and growth project. Third party costs related to business development activities
and growth projects decreased $3.3 million due to the 2013 acquisition of our offshore marine transportation assets, during
which time a significant amount of such costs were incurred. Decreases in the market price of our common units resulted in
decreased expenses related to our equity-based compensation plans. The market price of our common units at December 31,
2014 was $42.42 compared to $52.57 at December 31, 2013, representing a 19% decrease, as compared to a 47% increase in
the market price of our common units between December 31, 2013 and December 31, 2012. This was partially offset by an
increase in the number of participants as of December 31, 2014 as compared to the number of participants as of December 31,
2013.
Depreciation and amortization expense
Depreciation on fixed assets
Amortization of intangible assets
Amortization of CO2 volumetric production payments
Total depreciation and amortization expense
Year Ended December 31,
2014
2013
(in thousands)
73,230
$
13,436
4,242
90,908
$
46,325
14,560
3,899
64,784
$
$
Total depreciation and amortization expense increased $26.1 million between 2014 and 2013 primarily as a result of
placing newly acquired and constructed assets in service during calendar 2014 and the later part of 2013. This increase is
partially offset by decreases in amortization of intangible assets. Depreciation expense increased $26.9 million primarily as a
result of the 2013 acquisition of our offshore marine transportation assets and recently completed internal growth projects.
Amortization of intangible assets decreased $1.1 million. A significant portion of our intangible assets were acquired in 2007
and are being amortized in relation to the benefit they provide to future cash flows, which is typically greater in the years closer
to the period of acquisition.
Interest expense, net
Interest expense, senior secured credit facility (including commitment fees)
Interest expense, senior unsecured notes
Amortization and write-off of debt issuance costs and premium
Capitalized interest
Net interest expense
Year Ended December 31,
2014
2013
(in thousands)
15,592
$
60,047
4,785
(13,785)
66,639
$
11,949
45,619
4,339
(13,324)
48,583
$
$
Net interest expense increased $18.1 million during 2014 primarily due to an increase in our average outstanding
indebtedness from newly acquired and constructed assets. In May 2014, we issued an additional $350 million of aggregate
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principal amount of 5.625% senior unsecured notes to repay borrowings under our senior secured credit facility. Capitalized
interest costs increased slightly in 2014 due to our growth capital expenditures when compared to the prior year.
Financial Measures
Segment Margin
We define Segment Margin, which is a "non-GAAP" measure because it is not contemplated by or referenced in
accounting principles generally accepted in the U.S., also referred to as GAAP, as revenues less product costs, operating
expenses (excluding non-cash gains and charges, such as depreciation and amortization), and segment general and
administrative expenses, plus our equity in distributable cash generated by our equity investees. In addition, our Segment
Margin definition excludes the non-cash effects of our legacy stock appreciation rights plan and includes the non-income
portion of payments received under direct financing leases. Our chief operating decision maker (our Chief Executive Officer)
evaluates segment performance based on a variety of measures including Segment Margin, segment volumes where relevant
and capital investment.
A reconciliation of Segment Margin to net income is included in our segment disclosures in Note 12 to our
Consolidated Financial Statements in Item 8. Our non-GAAP financial measure should not be considered as an alternative to
GAAP measures such as net income, operating income, cash flow from operating activities or any other GAAP measure of
liquidity or financial performance. We believe that investors benefit from having access to the same financial measures being
utilized by management, lenders, analysts and other market participants.
Overview
This Annual Report on Form 10-K includes the financial measure of Available Cash before Reserves, which is a “non-
GAAP” measure because it is not contemplated by or referenced in GAAP. Our Non-GAAP measures may not be comparable
to similarly titled measures of other companies because such measures may include or exclude other specified items. The
accompanying schedule below provides a reconciliation of this non-GAAP financial measure to its most directly comparable
GAAP financial measure - income from continuing operations. Our non-GAAP financial measures should not be considered (i)
as alternatives to GAAP measures of liquidity or financial performance or (ii) as being singularly important in any particular
context; they should be considered in a broad context with other quantitative and qualitative information. Our Available Cash
before Reserves measures is just one of the relevant data points considered from time to time.
When evaluating our performance and making decisions regarding our future direction and actions (including making
discretionary payments, such as quarterly distributions) our board of directors and management team has access to a wide range
of historical and forecasted qualitative and quantitative information, such as our financial statements; operational information;
various non-GAAP measures; internal forecasts; credit metrics; analyst opinions; performance, liquidity and similar measures;
income; cash flow; and expectations for us, and certain information regarding some of our peers. Additionally, our board of
directors and management team analyze, and place different weight on, various factors from time to time. We believe that
investors benefit from having access to the same financial measures being utilized by management, lenders, analysts and other
market participants. We attempt to provide adequate information to allow each individual investor and other external user to
reach her/his own conclusions regarding our actions without providing so much information as to overwhelm or confuse such
investor or other external user.
Available Cash before Reserves
Purposes, Uses and Definition
Available Cash before Reserves, also referred to as distributable cash flow, is a quantitative standard used throughout
the investment community with respect to publicly-traded partnerships and is commonly used as a supplemental financial
measure by management and by external users of financial statements such as investors, commercial banks, research analysts
and rating agencies, to aid in assessing, among other things:
(1) the financial performance of our assets;
(2) our operating performance;
(3) the viability of potential projects, including our cash and overall return on alternative capital investments as
compared to those of other companies in the midstream energy industry;
(4) the ability of our assets to generate cash sufficient to satisfy certain non-discretionary cash requirements,
including interest payments and certain maintenance capital requirements; and
(5) our ability to make certain discretionary payments, such as distributions on our units, growth capital
expenditures, certain maintenance capital expenditures and early payments of indebtedness.
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We define Available Cash before Reserves as net income as adjusted for specific items, the most significant of which
are the addition of certain non-cash gains or charges (such as depreciation and amortization), the substitution of distributable
cash generated by our equity investees in lieu of our equity income attributable to our equity investees, the elimination of gains
and losses on asset sales (except those from the sale of surplus assets), unrealized gains and losses on derivative transactions not
designated as hedges for accounting purposes, the elimination of expenses related to acquiring or constructing assets that
provide new sources of cash flows and the subtraction of maintenance capital utilized, which is described in detail below.
Recent Change in Circumstances and Disclosure Format
We have implemented a modified format relating to maintenance capital requirements because of our expectation that
our future maintenance capital expenditures may change materially in nature (discretionary vs. non-discretionary), timing and
amount from time to time. We believe that, without such modified disclosure, such changes in our maintenance capital
expenditures could be confusing and potentially misleading to users of our financial information, particularly in the context of
the nature and purposes of our Available Cash before Reserves measure. Our modified disclosure format provides those users
with new information in the form of our maintenance capital utilized measure (which we deduct to arrive at Available Cash
before Reserves). Our maintenance capital utilized measure constitutes a proxy for non-discretionary maintenance capital
expenditures and it takes into consideration the relationship among maintenance capital expenditures, operating expenses and
depreciation from period to period.
Maintenance Capital Requirements
MAINTENANCE CAPITAL EXPENDITURES
Maintenance capital expenditures are capitalized costs that are necessary to maintain the service capability of our
existing assets, including the replacement of any system component or equipment which is worn out or obsolete. Maintenance
capital expenditures can be discretionary or non-discretionary, depending on the facts and circumstances.
Historically, substantially all of our maintenance capital expenditures have been (a) related to our pipeline assets and
similar infrastructure, (b) non-discretionary in nature and (c) immaterial in amount as compared to our Available Cash before
Reserves measure. Those historical expenditures were non-discretionary (or mandatory) in nature because we had very little (if
any) discretion as to whether or when we incurred them. We had to incur them in order to continue to operate the related
pipelines in a safe and reliable manner and consistently with past practices. If we had not made those expenditures, we would
not have been able to continue to operate all or portions of those pipelines, which would not have been economically feasible.
An example of a non-discretionary (or mandatory) maintenance capital expenditure would be replacing a segment of an old
pipeline because one can no longer operate that pipeline safely, legally and/or economically in the absence of such replacement.
Prospectively, we believe a substantial amount of our maintenance capital expenditures from time to time will be (a)
related to our assets other than pipelines, such as our marine vessels, trucks and similar assets, (b) discretionary in nature and
(c) potentially material in amount as compared to our Available Cash before Reserves measure. Those future expenditures will
be discretionary (or non-mandatory) in nature because we will have significant discretion as to whether or when we incur them.
We will not be forced to incur them in order to continue to operate the related assets in a safe and reliable manner. If we chose
not make those expenditures, we would be able to continue to operate those assets economically, although in lieu of
maintenance capital expenditures, we would incur increased operating expenses, including maintenance expenses. An example
of a discretionary (or non-mandatory) maintenance capital expenditure would be replacing an older marine vessel with a new
marine vessel with substantially similar specifications, even though one could continue to economically operate the older vessel
in spite of its increasing maintenance and other operating expenses.
In summary, as we continue to expand certain non-pipeline portions of our business, we are experiencing changes in
the nature (discretionary vs. non-discretionary), timing and amount of our maintenance capital expenditures that merit a more
detailed review and analysis than was required historically. Management’s recently increasing ability to determine if and when
to incur certain maintenance capital expenditures is relevant to the manner in which we analyze aspects of our business relating
to discretionary and non-discretionary expenditures. We believe it would be inappropriate to derive our Available Cash before
Reserves measure by deducting discretionary maintenance capital expenditures, which we believe are similar in nature in this
context to certain other discretionary expenditures, such as growth capital expenditures, distributions/dividends and equity
buybacks. Unfortunately, not all maintenance capital expenditures are clearly discretionary or non-discretionary in nature.
Therefore, we developed a new measure, maintenance capital utilized, that we believe is more useful in the determination of
Available Cash before Reserves. Our maintenance capital utilized measure, which is described in more detail below, constitutes
a proxy for non-discretionary maintenance capital expenditures and it takes into consideration the relationship among
maintenance capital expenditures, operating expenses and depreciation from period to period.
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MAINTENANCE CAPITAL UTILIZED
We believe our maintenance capital utilized measure is the most useful quarterly maintenance capital requirements
measure to use to derive our Available Cash before Reserves measure. We define our maintenance capital utilized measure as
that portion of the amount of previously incurred maintenance capital expenditures that we utilize during the relevant quarter,
which would be equal to the sum of the maintenance capital expenditures we have incurred for each project/component in prior
quarters allocated ratably over the useful lives of those projects/components.
Because we have not historically used our maintenance capital utilized measure, our future maintenance capital
utilized calculations will reflect the utilization of solely those maintenance capital expenditures incurred since December 31,
2013. Further, we do not have the actual comparable calculations for our prior periods, and we may not have the information
necessary to make such calculations for such periods. And, even if we could locate and/or re-create the information necessary
to make such calculations, we believe it would be unduly burdensome to do so in comparison to the benefits derived.
Available Cash before Reserves for the years ended December 31, 2015, 2014 and 2013 was as follows:
Net income attributable to Genesis Energy, L.P.
Depreciation and amortization
Cash received from direct financing leases not included in income
Cash effects of sales of certain assets and discontinued operations
Effects of distributable cash generated by equity method investees not
included in income
Cash effects of legacy stock appreciation rights plan
Non-cash legacy stock appreciation rights plan expense (credit)
Expenses related to acquiring or constructing growth capital assets
Unrealized loss (gain) on derivative transactions excluding fair value
hedges, net of changes in inventory value
Maintenance capital expenditures (1)
Maintenance capital utilized (1)
Non-cash tax expense (benefit)
Gain on step up of historical basis
Loss on debt extinguishment
Other items, net
Available Cash before Reserves
Year Ended December 31,
2015
2014
2013
(in thousands)
$
422,528
$
106,202
$
150,140
5,685
2,811
43,018
(785)
(797)
18,901
1,674
—
(3,731)
2,787
(332,380)
19,225
2,345
90,908
5,529
272
31,093
(1,381)
(1,996)
2,528
(1,413)
—
(922)
1,745
—
—
62
86,109
64,784
5,110
1,910
23,889
(5,498)
5,704
5,791
1,313
(3,569)
—
(152)
—
—
674
$
331,421
$
232,627
$
186,065
(1) In the first quarter of 2014, we changed our method of including maintenance capital in our calculation of Available Cash before
Reserves to "maintenance capital utilized" rather than "maintenance capital expenditures." For a description of the term
"maintenance capital utilized," please see the definition of the term "Available Cash Before Reserves" previously discussed.
Maintenance capital expenditures in 2015 and 2014 were $45.2 million and $15.0 million, respectively.
Liquidity and Capital Resources
General
As of December 31, 2015, we believe our balance sheet and liquidity position remained strong. We had $374.3 million
of borrowing capacity available under our $1.5 billion senior secured revolving credit facility. We anticipate that our future
internally-generated funds and the funds available under our credit facility will allow us to meet our ordinary course capital
needs. Our primary sources of liquidity have been cash flows from operations, borrowing availability under our credit facility
and the proceeds from issuances of equity and senior unsecured notes.
Our primary cash requirements consist of:
• Working capital, primarily inventories;
• Routine operating expenses;
• Capital growth and maintenance projects;
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• Acquisitions of assets or businesses;
•
Interest payments related to outstanding debt; and
• Quarterly cash distributions to our unitholders.
Capital Resources
Our ability to satisfy future capital needs will depend on our ability to raise substantial amounts of additional capital
from time to time — including through equity and debt offerings (public and private), borrowings under our credit facility and
other financing transactions—and to implement our growth strategy successfully. No assurance can be made that we will be
able to raise the necessary funds on satisfactory terms.
In July 2015, we issued 10,350,000 Class A common units in a public offering at a price of $43.77 per unit, which
included the exercise by the underwriters of an option to purchase up to 1,350,000 additional common units from us. We
received proceeds, net of underwriting discounts and offering costs, of approximately $437.2 million from that offering. We
used the net proceeds to fund a portion of the purchase price for our Enterprise acquisition.
In April 2015, we issued 4,600,000 Class A common units in a public offering at a price of $44.42 per unit, which
included the exercise by the underwriters of an option to purchase up to 600,000 additional common units from us. We received
proceeds, net of underwriting discounts and offering costs, of approximately $198.2 million from that offering. We used the net
proceeds for general partnership purposes, including funding acquisitions (including organic growth projects) and repaying a
portion of the borrowings outstanding under our revolving credit facility.
In July 2015, we issued $750 million in aggregate principal amount of 6.75% senior unsecured notes due 2022.
Interest payments are due on February 1 and August 1 of each year with the initial interest payment due February 1, 2016.
Those notes mature on August 1, 2022. That issuance generated proceeds of $728.6 million, net of issuance discount and
underwriting fees. The net proceeds were used to fund a portion of the purchase price for our Enterprise acquisition.
In May 2015, we issued $400 million in aggregate principal amount of 6.0% senior unsecured notes due 2023. Interest
payments are due on May 15 and November 15 of each year with the initial interest payment due November 15, 2015. Those
notes mature on May 15, 2023. We used a portion of the proceeds from those notes to effectively redeem all of our outstanding
$350 million, 7.875% senior unsecured notes due 2018, using a combination of public tender offer and our redemption rights
relating to those notes. The aggregate principal amount of the 7.875% notes totaling $300.1 million were tendered and the
remaining $49.9 million were redeemed in full. A total loss of approximately $19.2 million for the tender and redemption of
notes is recorded to "Other income/(expense), net" in our Consolidated Statements of Operations.
Our Enterprise acquisition meaningfully expanded our size and is expected to improve our credit metrics over the
longer-term, which we believe should help accelerate an increase in our credit ratings in the future. In connection with our
expanded size and improved credit outlook, we amended our senior secured credit facility (which matures on July 28, 2019) in
the third quarter of 2015 to, among other things, (i) increase our committed amount to $1.5 billion, (ii) provide that, if and when
we achieve specified investment grade ratings, certain restrictive covenants will cease to apply and the applicable margin for
both alternate base rate and Eurodollar loans and the commitment fee on the unused committed amount will be reduced by
specified amounts, (iii) immediately provide us more operational flexibility by relaxing certain covenants, including by
increasing certain applicable limits and baskets, and (iv) increase the inventory financing sublimit amount from $150 million to
$200 million, which sub-limit is designed to allow us to more efficiently finance crude oil and petroleum products inventory in
the normal course of our operations by allowing us to exclude the amount of inventory loans from our total outstanding
indebtedness for purposes of determining our applicable interest rate.
The key terms for rates under our credit facility, which are dependent on our leverage ratio (as defined in the credit
agreement), are as follows:
• The interest rate on borrowings may be based on an alternate base rate or a Eurodollar rate, at our option. The alternate
base rate is equal to the sum of (a) the greatest of (i) the prime rate as established by the administrative agent for the
credit facility, (ii) the federal funds effective rate plus 0.5% of 1% and (iii) the LIBOR rate for a one-month maturity
plus 1% and (b) the applicable margin. The Eurodollar rate is equal to the sum of (a) the LIBOR rate for the
applicable interest period multiplied by the statutory reserve rate and (b) the applicable margin. The applicable margin
varies from 1.50% to 2.50% on Eurodollar borrowings and from 0.50% to 1.50% on alternate base rate borrowings,
depending on our leverage ratio. Our leverage ratio is recalculated quarterly and in connection with each material
acquisition. At December 31, 2015, the applicable margins on our borrowings were 1.50% for alternate base rate
borrowings and 2.50% for Eurodollar rate borrowings.
• Letter of credit fees range from 1.50% to 2.50% based on our leverage ratio as computed under the credit facility. The
rate can fluctuate quarterly. At December 31, 2015, our letter of credit rate was 2.50%.
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• We pay a commitment fee on the unused portion of the $1.5 billion maximum facility amount. The commitment fee on
the unused committed amount will range from 0.250% to 0.375% per annum depending on our leverage ratio (0.375%
at December 31, 2015).
At December 31, 2015, we had $1.1 billion borrowed under our credit facility, with $33.8 million of the borrowed
amount designated as a loan under the inventory sublimit. Our credit agreement allows up to $100 million of the capacity to be
used for letters of credit, of which $10.7 million was outstanding at December 31, 2015. Due to the revolving nature of loans
under our credit facility, additional borrowings and periodic repayments and re-borrowings may be made until the maturity date
of July 28, 2019. Our credit facility does not include a “borrowing base” limitation except with respect to our inventory loans.
The total amount available for borrowings under our credit facility at December 31, 2015 was $374.3 million.
Our 2021, 2022, 2023 and 2024 Notes were co-issued by Genesis Energy Finance Corporation (which has no
independent assets or operations) and are each fully and unconditionally guaranteed, subject to customary exceptions pursuant
to the indentures governing our 2021, 2022, 2023 and 2024 Notes, as discussed below, jointly and severally, by certain of our
wholly-owned subsidiaries. We have the right to redeem our 2021 Notes at any time after February 15, 2017, at a premium to
the face amount of our 2021 Notes that varies based on the time remaining to maturity on our 2021 Notes. We have the right to
redeem our 2022 Notes at any time after August 1, 2018, at a premium to the face amount of our 2022 Notes that varies based
on the time remaining to maturity on our 2022 Notes. Prior to August 1, 2018, we may also redeem up to 35% of the principal
amount of our 2022 Notes for 106.75% of the face amount with the proceeds from an equity offering of our common units. We
have the right to redeem our 2023 Notes at any time after May 15, 2018, at a premium to the face amount of our 2023 Notes
that varies based on the time remaining to maturity on our 2023 Notes. Prior to May 15, 2018, we may also redeem up to 35%
of the principal amount of our 2023 Notes for 106% of the face amount with the proceeds from an equity offering of our
common units. We have the right to redeem our 2024 Notes at any time after June 15, 2019, at a premium to the face amount of
our 2024 Notes that varies based on the time remaining to maturity on our 2024 Notes. Prior to June 15, 2017, we may also
redeem up to 35% of the principal amount of our 2024 Notes for 105.625% of the face amount with the proceeds from an
equity offering of our common units.
At December 31, 2015, our long-term debt totaled $2.9 billion, consisting of $1.1 billion outstanding under our credit
facility (including $33.8 million borrowed under the inventory sublimit tranche), $350 million of our 2021 Notes, $350 million
of our 2024 Notes, $400 million of our 2023 Notes and $750 million of our 2022 Notes. After completion of our organic
growth capital projects this year, we would expect our leverage to decline as we use our excess available cash to reduce debt.
For additional information on our long-term debt and covenants see Note 10 to our Consolidated Financial Statements
in Item 8.
Cash Flows from Operations
We generally utilize the cash flows we generate from our operations to fund our working capital needs. Excess funds
that are generated are used to repay borrowings from our credit facility and to fund capital expenditures. Our operating cash
flows can be impacted by changes in items of working capital, primarily variances in the carrying amount of inventory and the
timing of payment of accounts payable and accrued liabilities related to capital expenditures.
We typically sell our crude oil in the same month in which we purchase it, and we do not rely on borrowings under our
credit facility to pay for such crude oil purchases, other than inventory. During such periods, our accounts receivable and
accounts payable generally move in tandem as we make payments and receive payments for the purchase and sale of crude oil.
In our petroleum products activities, we buy products and typically either move the products to one of our storage
facilities for further blending or we sell the product within days of our purchase. The cash requirements for these activities can
result in short term increases and decreases in our borrowings under our credit facility.
The storage of crude oil and petroleum products can have a material impact on our cash flows from operating
activities. In the month we pay for the stored crude oil or petroleum products, we borrow under our credit facility (or use cash
on hand) to pay for the crude oil or petroleum products, utilizing a portion of our operating cash flows. Conversely, cash flow
from operating activities increases during the period in which we collect the cash from the sale of the stored crude oil or
petroleum products. Additionally, we may be required to deposit margin funds with the NYMEX when prices increase as the
value of the derivatives utilized to hedge the price risk in our inventory fluctuates. These deposits also impact our operating
cash flows as we borrow under our credit facility or use cash on hand to fund the deposits.
Net cash flows provided by our operating activities were $289.5 million and $291.1 million for 2015 and 2014,
respectively. As discussed above, changes in the cash requirements related to payment for petroleum products or collection of
receivables from the sale of inventory impact the cash provided by operating activities. Additionally, changes in the market
prices for crude oil and petroleum products can result in fluctuations in our working capital and therefore, our operating cash
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flows between periods as the cost to acquire a barrel of crude oil or products will require more or less cash. The slight decrease
in operating cash flow for 2015 compared to 2014 was primarily due to an increase in working capital needs.
Net cash flows provided by our operating activities were $291.1 million and $138.4 million for 2014 and 2013,
respectively. The increase in operating cash flow for 2014 compared to 2013 was primarily due to an increase cash earnings, as
well as a decrease in working capital needs.
Capital Expenditures and Distributions Paid to Our Unitholders
We use cash primarily for our operating expenses, working capital needs, debt service, acquisition activities, internal
growth projects and distributions we pay to our unitholders. We finance maintenance capital expenditures and smaller internal
growth projects and distributions primarily with cash generated by our operations. We have historically funded material growth
capital projects (including acquisitions and internal growth projects) with borrowings under our credit facility, equity issuances
and/or the issuance of senior unsecured notes.
Capital Expenditures and Business and Asset Acquisitions
The following table summarizes our expenditures for fixed assets, business and other asset acquisitions in the periods
indicated:
Years Ended December 31,
2015
2014
2013
(in thousands)
Capital expenditures for fixed and intangible assets:
Maintenance capital expenditures:
Offshore pipeline transportation assets
Onshore pipeline transportation assets
Refinery services assets
Marine transportation assets
Supply and logistics assets
Information technology systems
Total maintenance capital expenditures
Growth capital expenditures:
Offshore pipeline transportation assets
Onshore pipeline transportation assets
Refinery services assets
Marine transportation assets
Supply and logistics
Information technology systems
Total growth capital expenditures
Total capital expenditures for fixed and intangible assets
Capital expenditures for business combinations, net of liabilities
assumed:
Acquisition of American Phoenix
Acquisition of offshore marine transportation assets
Acquisition of offshore pipelines (1)
Total business combinations capital expenditures
Capital expenditures related to equity investees (2)
Total capital expenditures
$
1,888
$
1,543
$
7,441
1,555
26,124
7,665
515
45,188
4,633
1,963
5,539
833
474
—
1,104
608
954
820
83
14,985
3,569
$
963
$
20
$
227,628
40
42,885
166,953
2,243
440,712
485,900
—
—
1,521,569
1,521,569
2,900
41,978
422
70,186
324,297
2,165
439,068
454,053
157,000
—
—
157,000
36,076
—
129,683
2,650
28,902
214,318
2,341
377,894
381,463
—
230,880
—
230,880
94,286
$ 2,010,369
$
647,129
$
706,629
(1) Amounts represent our purchase price (subject to adjustments) for our Enterprise acquisition.
(2) Amount represents our investment in the SEKCO pipeline equity investee prior to our Enterprise acquisition (see below for more
information).
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Expenditures for capital assets to grow the partnership distribution will depend on our access to debt and equity
capital. We will look for opportunities to acquire assets from other parties that meet our criteria for stable cash flows. We
continue to pursue a long term growth strategy that may require significant capital.
Growth Capital Expenditures
Total capital expenditures on projects under construction are estimated to be approximately $880 million in 2016 and
in future periods, inclusive of expenditures incurred through December 31, 2015. We anticipate that approximately $250
million of that total will be spent in 2016. The most significant of these projects currently under construction are described
below.
Houston Area Crude Oil Pipeline and Terminal Infrastructure
We are constructing new, and expanding existing, crude oil pipeline and terminal facilities in Webster, Texas and Texas
City, Texas as a result of expanding our crude oil pipeline and terminal infrastructure in the Houston area. We will construct a
new crude oil pipeline that will deliver crude oil received from upstream crude oil pipelines (including CHOPS, which delivers
crude oil originating in the deepwater Gulf of Mexico to the Texas City area) to our new Texas City Terminal, which will
ultimately connect to our existing 18-inch Webster to Texas City crude oil pipeline. Our new Texas City Terminal will include
initially approximately 750,000 barrels of crude oil tankage. Our Webster Terminal is connected to other crude oil pipelines
servicing other Houston area refineries. As a part of this project, we are also making the necessary upgrades on our existing 18-
inch Webster to Texas City crude oil pipeline to allow for bi-directional flow. The result of this expanded crude oil
infrastructure will allow additional optionality to Houston and Baytown area refineries, including the Exxon-Mobil Baytown
refinery, its largest refinery in the U.S.A., and provide additional delivery outlets for other crude oil pipelines. We expect these
assets to become operational in the second half of 2016.
Wyoming Crude Oil Pipeline
In the third quarter of 2015, we completed construction of a new 60 mile crude oil pipeline to transport crude oil from
new receipt point stations in Campbell County and Converse County, Wyoming to our existing Pronghorn Rail Facility. This
new crude oil pipeline has an initial capacity of approximately 45,000 barrels per day and is supplied by truck volumes and
third party gathering infrastructure in the Powder River Basin.
We are also constructing a new 75 mile pipeline from our Pronghorn Rail Facility to a delivery point at our new
Guernsey Station in Platte County, Wyoming. This Pronghorn to Guernsey pipeline will have an initial capacity of
approximately 45,000 barrels per day and will allow for connectivity to additional downstream pipeline markets at Guernsey,
including regional refineries and Cushing, Oklahoma via the Pony Express Pipeline. This pipeline became operational in the
first quarter of 2016.
Baton Rouge Terminal
We are constructing a new crude oil, intermediates and refined products import/export terminal in Baton Rouge that
will be located near the Port of Greater Baton Rouge and will be pipeline-connected to that port's existing deepwater docks on
the Mississippi River. We will initially construct approximately 1.1 million barrels of tankage for the storage of crude oil,
intermediates and/or refined products with the capability to expand to provide additional terminaling services to our customers.
In addition, we will construct a new pipeline from the terminal that will allow for deliveries to existing Exxon Mobil facilities
in the area, as well as connect our previously constructed 17 mile line to the terminal allowing for receipts from the Scenic
Station Rail Facility. Shippers to Scenic Station will have access to both the local Baton Rouge refining market, as well as the
ability to access other attractive refining markets via our Baton Rouge Terminal. Our Baton Rouge Terminal is expected to be
operational in early 2016.
Raceland Rail Facility
The Raceland Rail Facility, a new crude oil unit train unloading facility capable of unloading up to two unit trains per
day, which is located in Raceland, Louisiana, and will be connected to existing midstream infrastructure that will provide direct
pipeline access to the Louisiana refining markets. It is expected to be operational in early 2016.
Inland Marine Barge Transportation Expansion
We ordered 20 new-build barges and 14 new-build push boats for our inland marine barge transportation fleet. We
have accepted delivery of 12 of those barges and 9 of those push boats through December 31, 2015. We expect to take delivery
of those remaining vessels periodically into 2016.
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Acquisition of Enterprise Offshore Pipelines and Services Business
In July 2015, we acquired the offshore pipeline and services business of Enterprise Products Partners, L.P. and its
affiliates for approximately $1.5 billion, subject to certain adjustments. That business includes interests in approximately 2,350
miles of offshore crude oil and natural gas pipelines and six offshore hub platforms that serve some of the most active drilling
and development regions in the U.S., including deepwater production fields in the Gulf of Mexico offshore Texas, Louisiana,
Mississippi and Alabama. That acquisition complements and substantially expands our existing offshore pipelines segment and
was immediately accretive to Segment Margin and Available Cash before Reserves.
Maintenance Capital Expenditures
Maintenance capital expenditures have annually ranged between $3 million and $45 million. We have recently gone
through the process of replacing many of our marine transportation vessels and barges in an effort to upgrade our fleet and do
not expect to see capital expenditures of this magnitude related to such items going forward in the foreseeable future. See
previous discussion under "Available Cash before Reserves" for how such maintenance capital utilization is reflected in our
calculation of Available Cash before Reserves.
Distributions to Unitholders
Our partnership agreement requires us to distribute 100% of our available cash (as defined therein) within 45 days
after the end of each quarter to unitholders of record. Available cash consists generally of all of our cash receipts less cash
disbursements adjusted for net changes to reserves. We have increased our distribution for each of the last forty-two quarters,
including the distribution paid for the fourth quarter of 2015, as shown in the table below (in thousands, except per unit
amounts). Each quarter, our board of directors determines the distribution amount, or available cash, per unit based upon
various factors such as our operating performance, cash on hand, future cash requirements and the economic environment. As a
result, the historical trend of distribution increases may not be a good indicator of future increases.
Distribution For
2013
4th Quarter
2014
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2015
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Date Paid
Per Unit
Amount
Total
Amount
February 14, 2014
May 15, 2014
August 14, 2014
November 14, 2014
February 13, 2015
May 15, 2015
August 14, 2015
$
$
$
$
$
$
$
November 13, 2015
February 12, 2016
$
(1) $
0.5350
0.5500
0.5650
0.5800
0.5950
0.6100
0.6250
0.6400
0.6550
$
$
$
$
$
$
$
$
$
47,453
48,783
50,114
54,112
56,542
60,774
68,737
70,387
72,036
(1) This distribution was paid on February 12, 2016 to unitholders of record as of January 29, 2016.
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Commitments and Off-Balance Sheet Arrangements
Contractual Obligations and Commercial Commitments
In addition to our credit facility discussed above, we have contractual obligations under operating leases as well as
commitments to purchase crude oil and petroleum products. The table below summarizes our obligations and commitments at
December 31, 2015.
Commercial Cash Obligations and
Commitments
Less than
one year
Payments Due by Period
1 - 3 years
3 - 5 Years
(in thousands)
More than
5 years
Total
Contractual Obligations:
Long-term debt (1)
Estimated interest payable on long-
term debt (2)
Operating lease obligations
Unconditional purchase obligations (3)
Other Cash Commitments:
Asset retirement obligations (4)
Total
$
— $
— $
1,115,000
$
1,807,054
$
2,922,054
114,493
23,878
111,173
228,987
33,101
—
9,760
65,549
228,907
28,445
—
—
207,898
82,138
—
780,285
167,562
111,173
113,353
188,662
$
259,304
$
327,637
$
1,372,352
$
2,210,443
$
4,169,736
(1) Our credit facility allows us to repay and re-borrow funds at any time through the maturity date of July 28, 2019. We have $350
million in aggregate principal amount of senior unsecured notes that mature on February 15, 2021(the "2021 Notes"), $750 million
in aggregate principal amount of senior unsecured notes that mature on August 1, 2022 (the "2022 Notes"), $400 million in
aggregate principal amount of senior unsecured notes that mature on May 15, 2023 (the "2023 Notes"), and $350 million in
aggregate principal amount of senior unsecured notes that mature on June 15, 2024 (the "2024 Notes").
(2) Interest on our long-term debt under our credit facility is at market-based rates. The interest rates on our 2021, 2022, 2023 and 2024
Notes are 5.75%, 6.75%. 6.00% and 5.625%, respectively. The amount shown for interest payments represents the amount that
would be paid if the debt outstanding at December 31, 2015 under our credit facility remained outstanding through the final
maturity date of July 28, 2019 and interest rates remained at the December 31, 2015 market levels through the final maturity date.
Also included is the interest on our senior unsecured notes through their respective maturity dates.
(3) Unconditional purchase obligations include agreements to purchase goods and services that are enforceable and legally binding and
specify all significant terms. Contracts to purchase crude oil and petroleum products are generally at market-based prices. For
purposes of this table, estimated volumes and market prices at December 31, 2015 were used to value those obligations. The actual
physical volumes and settlement prices may vary from the assumptions used in the table. Uncertainties involved in these estimates
include levels of production at the wellhead, changes in market prices and other conditions beyond our control.
(4) Represents the estimated future asset retirement obligations on an undiscounted basis. The recorded asset retirement obligation on
our balance sheet at December 31, 2015 was $188.7 million and is further discussed in Note 6 to our Consolidated Financial
Statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, special purpose entities, or financing partnerships, other than as disclosed
under “Contractual Obligations and Commercial Commitments” above.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted
in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. We base these estimates and assumptions on historical
experience and other information that are believed to be reasonable under the circumstances. Estimates and assumptions about
future events and their effects cannot be determined with certainty, and, accordingly, these estimates may change as new events
occur, as more experience is acquired, as additional information is obtained and as the business environment in which we
operate changes. Significant accounting policies that we employ are presented in the Notes to our Consolidated Financial
Statements in Item 8 (see Note 2 “Summary of Significant Accounting Policies”).
We have defined critical accounting policies and estimates as those that are most important to the portrayal of our
financial results and positions. These policies require management’s judgment and often employ the use of information that is
inherently uncertain. Our most critical accounting policies pertain to measurement of the fair value of assets and liabilities in
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business acquisitions, depreciation, amortization and impairment of long-lived assets, deferred maintenance on marine fixed
assets, equity plan compensation accruals and contingent and environmental liabilities. We discuss these policies below.
Fair Value of Assets and Liabilities Acquired and Identification of Associated Goodwill and Intangible Assets
In conjunction with each acquisition we make, we must allocate the cost of the acquired entity to the assets and
liabilities assumed based on their estimated fair values at the date of acquisition. As additional information becomes available,
we may adjust the original estimates within a short time period subsequent to the acquisition. In addition, we are required to
recognize intangible assets separately from goodwill. Determining the fair value of assets and liabilities acquired, as well as
intangible assets that relate to such items as customer relationships, contracts, trade names and non-compete agreements
involves professional judgment and is ultimately based on acquisition models and management’s assessment of the value of the
assets acquired, and to the extent available, third party assessments. Intangible assets with finite lives are amortized over their
estimated useful life as determined by management. Goodwill is not amortized but instead is periodically assessed for
impairment. Uncertainties associated with these estimates include fluctuations in economic obsolescence factors in the area and
potential future sources of cash flow. We cannot provide assurance that actual amounts will not vary significantly from
estimated amounts. See Note 3 to our Consolidated Financial Statements in Item 8 regarding further discussion regarding our
acquisitions.
Depreciation and Amortization of Long-Lived Assets and Intangibles
In order to calculate depreciation and amortization we must estimate the useful lives of our fixed assets at the time the
assets are placed in service. We compute depreciation using the straight-line method based on these estimated useful lives. The
actual period over which we will use the asset may differ from the assumptions we have made about the estimated useful life.
We adjust the remaining useful life as we become aware of such circumstances.
Intangible assets with finite useful lives are required to be amortized over their respective estimated useful lives. If an
intangible asset has a finite useful life, but the precise length of that life is not known, that intangible asset shall be amortized
over the best estimate of its useful life. At a minimum, we will assess the useful lives and residual values of all intangible assets
on an annual basis to determine if adjustments are required. We are recording amortization of our customer and supplier
relationships, licensing agreements and trade names based on the period over which the asset is expected to contribute to our
future cash flows. Generally, the contribution of these assets to our cash flows is expected to decline over time, such that greater
value is attributable to the periods shortly after the acquisition was made. Our favorable lease and other intangible assets are
being amortized on a straight-line basis over their expected useful lives.
Impairment of Long-Lived Assets including Intangibles and Goodwill
When events or changes in circumstances indicate that the carrying amount of a fixed asset or intangible asset with
finite lives may not be recoverable, we review our assets for impairment. We compare the carrying value of the fixed asset to
the estimated undiscounted future cash flows expected to be generated from that asset. Estimates of future net cash flows
include estimating future volumes, future margins or tariff rates, future operating costs and other estimates and assumptions
consistent with our business plans. If we determine that an asset’s unamortized cost may not be recoverable due to impairment;
we may be required to reduce the carrying value and the subsequent useful life of the asset. Any such write-down of the value
and unfavorable change in the useful life of an intangible asset would increase costs and expenses at that time. Goodwill
represents the excess of the purchase prices we paid for certain businesses over their respective fair values. We do not amortize
goodwill; however, we evaluate, and test if necessary, our goodwill (at the reporting unit level) for impairment on October 1 of
each fiscal year, and more frequently, if indicators of impairment are present.
We perform a qualitative assessment of relevant events and circumstances about the likelihood of goodwill
impairment. If it is deemed more likely than not the fair value of the reporting unit is less than its carrying amount, we calculate
the fair value of the reporting unit. Otherwise, further testing is not required. The qualitative assessment is based on reviewing
the totality of several factors, including macroeconomic conditions, industry and market considerations, cost factors, overall
financial performance, other entity specific events (for example, changes in management) or other events such as selling or
disposing of a reporting unit. The determination of a reporting unit’s fair value is predicated on our assumptions regarding the
future economic prospects of the reporting unit. Such assumptions include (i) discrete financial forecasts for the assets
contained within the reporting unit, which rely on management’s estimates of operating margins, (ii) long-term growth rates for
cash flows beyond the discrete forecast period, (iii) appropriate discount rates and (iv) estimates of the cash flow multiples to
apply in estimating the market value of our reporting units. If the fair value of the reporting unit (including its inherent
goodwill) is less than its carrying value, a charge to earnings may be required to reduce the carrying value of goodwill to its
implied fair value. If future results are not consistent with our estimates, we could be exposed to future impairment losses that
could be material to our results of operations. We monitor the markets for our products and services, in addition to the overall
market, to determine if a triggering event occurs that would indicate that the fair value of a reporting unit is less than its
carrying value. One of our monitoring procedures is the comparison of our market capitalization to our book equity on a
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quarterly basis to determine if there is an indicator of impairment. As of December 31, 2015, our market capitalization
exceeded the book value of our equity; therefore, since there were no events or changes in circumstances indicating impairment
issues, we determined that it was not necessary to perform an interim assessment as of December 31, 2015. We did not have
any goodwill impairments in 2015, 2014 or 2013.
For additional information regarding our goodwill, see Note 9 to our Consolidated Financial Statements in Item 8.
Deferred Charges on Marine Transportation Assets
Our marine vessels are required by US Coast Guard regulations to be re-certified after a certain period of time, usually
every five years. The US Coast Guard states that vessels must meet specified "seaworthiness" standards to maintain required
operating certificates. To meet such standards, vessels must undergo regular inspection, monitoring, and maintenance, referred
to as "dry-docking." Typical dry-docking costs include costs incurred to comply with regulatory and vessel classification
inspection requirements, blasting and steel coating, and steel replacement. We expense routine repairs and maintenance as they
are incurred. For the major replacements and improvements we defer and amortize the costs over the length of time that the
certification is supposed to last, which is generally the 5 year (60 month) internal inspection regulated by the US Coast Guard.
Inherent in this process are judgments we make regarding whether the specific cost incurred is capitalizable and the period that
the incurred cost will benefit.
Equity Compensation Plan Accrual
Our 2010 Long-Term Incentive Plan provides for grantees, which may include key employees and directors, to receive
cash at the vesting of the phantom units equal to the average of the closing market price of our common units for the twenty
trading days prior to the vesting date. Our phantom units are comprised of both service-based and performance-based awards.
Until the vesting date, we calculate estimates of the fair value of the awards and record that value as compensation expense
during the vesting period on a straight-line basis. These estimates are based on the current trading price of our common units
and an estimate of the forfeiture rate we expect may occur. For our performance-based awards, our fair value estimates are
weighted based on probabilities for each performance condition applicable to the award. At December 31, 2015, we had
476,884 phantom units outstanding and recorded $7.7 million of expense during 2015. The liability recorded for phantom units
expected to vest fluctuates with the market price of our common units. At the date of vesting, any difference between the
estimates recorded and the actual cash paid to the grantee will be charged to expense. At December 31, 2015, we estimated
approximately $5.5 million of remaining compensation costs to be recognized over a weighted average period of approximately
one year for these awards. Changes in our assumptions may impact our liabilities and expenses related to these awards.
See Note 15 to our Consolidated Financial Statements in Item 8 for further discussion regarding our equity
compensation plans.
Liability and Contingency Accruals
We accrue reserves for contingent liabilities including environmental remediation and potential legal claims. When our
assessment indicates that it is probable that a liability has occurred and the amount of the liability can be reasonably estimated,
we make accruals. We base our estimates on all known facts at the time and our assessment of the ultimate outcome, including
consultation with external experts and counsel. We revise these estimates as additional information is obtained or resolution is
achieved.
We also make estimates related to future payments for environmental costs to remediate existing conditions
attributable to past operations. Environmental costs include costs for studies and testing as well as remediation and restoration.
We sometimes make these estimates with the assistance of third parties involved in monitoring the remediation effort.
At December 31, 2015, we were not aware of any contingencies or liabilities that would have a material effect on our
financial position, results of operations or cash flows.
Recent Accounting Pronouncements
Recently Issued and Adopted
In May 2014, the FASB issued revised guidance on revenue from contracts with customers that will supersede most
current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an
entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard provides a
five-step analysis for transactions to determine when and how revenue is recognized. The guidance permits the use of either a
full retrospective or a modified retrospective approach. In July 2015, the FASB approved a one year deferral of the effective
date of this standard to December 15, 2017 for annual reporting periods beginning after that date. The FASB also approved
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early adoption of the standard, but not before the original effective date of December 15, 2016. We are evaluating the transition
methods and the impact of the amended guidance on our financial position, results of operations and related disclosures.
In April 2015, the FASB issued guidance that will require the presentation of debt issuance costs in financial
statements as a direct reduction of related debt liabilities with amortization of debt issuance costs reported as interest expense.
Under current U.S. GAAP standards, debt issuance costs are reported as deferred charges (i.e., as an asset). This guidance is
effective for annual periods, and interim periods within those fiscal years, beginning after December 15, 2015 and is to be
applied retrospectively upon adoption. Early adoption is permitted and we have adopted this guidance in the fourth quarter of
2015.
In July 2015, the FASB issued guidance modifying the accounting for inventory. Under this guidance, the
measurement principle for inventory will change from lower of cost or market value to lower of cost and net realizable value.
The guidance defines net realizable value as the estimated selling price in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation. The guidance is effective for reporting periods after December 15,
2016, with early adoption permitted. We do not expect adoption to have a material impact on our consolidated financial
statements.
In September 2015, the FASB issued guidance in response to stakeholder feedback that restating prior periods to
reflect adjustments made to provisional amounts recognized in a business combination adds cost and complexity to financial
reporting but does not significantly improve the usefulness of information provided to users. Under the new guidance, an
acquirer must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting
period in which the adjustment amounts are determined. The guidance also requires that the acquirer present separately on the
face of the income statement, or disclose in the notes, the portion of the amount recorded in current period earnings by line item
that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized
as of the acquisition date. The standards update is effective for fiscal years and interim periods beginning after December 15,
2015. Early application is permitted for financial statements that have not been issued. We are currently evaluating this
guidance.
In November 2015, the FASB issued guidance amending the accounting for income taxes and requiring all deferred tax
assets and liabilities to be classified as non-current on the consolidated balance sheet. The guidance is effective for reporting
periods beginning after December 15, 2016, with early adoption permitted. The guidance may be adopted either prospectively
or retrospectively. We elected to early adopt this guidance prospectively in the fourth quarter of 2015 and as such all deferred
tax liabilities on our consolidated balance sheet are presented as non-current for the year ended December 31, 2015.
In February 2016, the FASB issued guidance to improve the transparency and comparability among companies by
requiring lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. The guidance also
requires additional disclosure about leasing arrangements. The guidance is effective for interim and annual periods beginning
after December 15, 2018 and requires a modified retrospective approach to adoption. Early adoption is permitted. We are
currently evaluating this guidance.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, primarily related to volatility in crude oil and petroleum products prices,
NaHS and NaOH prices and interest rates. Our policy is to purchase only commodity products for which we have a market, and
to structure our sales contracts so that price fluctuations for those products do not materially affect the Segment Margin we
receive. We do not acquire and hold futures contracts or other derivative products for the purpose of speculating on price
changes.
Our primary price risk relates to the effect of crude oil and petroleum products price fluctuations on our inventories
and the fluctuations each month in grade and location differentials and their effect on future contractual commitments. Our risk
management policies are designed to monitor our physical volumes, grades and delivery schedules to ensure our hedging
activities address the market risks that are inherent in our gathering and marketing activities. We believe our hedging activities
have been successful in helping to mitigate these risks.
We utilize NYMEX commodity based futures contracts and option contracts to hedge our exposure to these market
price fluctuations as needed. All of our open commodity price risk derivatives at December 31, 2015 were categorized as non-
trading. On December 31, 2015 we had entered into NYMEX future contracts that will settle between February and March
2016 and NYMEX options contracts that will settle during February and May 2016. This accounting treatment is discussed
further in Note 17 to our Consolidated Financial Statements.
The table below presents information about our open derivative contracts at December 31, 2015. Notional amounts in
barrels or gallons, the weighted average contract price, total contract amount and total fair value amount in U.S. dollars of our
open positions are presented below. Fair values were determined by using the notional amount in barrels or gallons multiplied
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by the December 31, 2015 quoted market prices on the NYMEX. All of the hedge positions offset physical exposures to the
cash market; none of these offsetting physical exposures are included in the table below.
Unit of
Measure
for Volume
Contract
Volumes
(in 000’s)
Unit of
Measure
for Price
Weighed
Average
Market
Price
Contract
Value
(in 000’s)
Mark-to
Market
Change
(in 000’s)
Settlement
Value
(in 000’s)
NYMEX Futures Contracts
Sell (Short) Contracts:
Crude Oil
Crude Oil Swaps
Diesel
#6 Fuel Oil
Buy (Long) Contracts:
Crude Oil
Diesel
NYMEX Option Contracts (2)
Written Contracts:
Crude Oil
Purchased Contracts:
Crude Oil
Bbl
Bbl
Bbl
Bbl
Bbl
Bbl
Bbl
Bbl
491
290
86
165
6
6
95
35
$
37.81
$ 18,617
Bbl
Bbl
Gal
Bbl
$
(1) $
$
1.28
1.30
26.97
$
$
$
$
$
372
4,709
4,451
219
290
$
$
$
$
$
$
88
$
(150) $
(563) $
(766) $
18,705
222
4,146
3,685
4
$
(4) $
223
286
Bbl
Gal
$
(1) $
36.48
1.15
Bbl
Bbl
$
$
1.50
$
142
$
(19) $
123
0.64
$
23
$
— $
23
(1) Prices and volumes as presented as quoted on the NYMEX. To calculate the total contract value the price per unit in gallons should
be multiplied by 42 gallons to convert into a price per barrel.
(2) Weighted average premium received/paid.
We manage our risks of volatility in NaOH prices by indexing prices for the sale of NaHS to the market price for
NaOH in most of our contracts.
We are also exposed to market risks due to the floating interest rates on our credit facility. Obligations under our senior
secured credit facility bear interest at the LIBOR rate or alternate base rate (which approximates the prime rate), at our option,
plus the applicable margin. We have not historically hedged our interest rates. On December 31, 2015, we had $1.1 billion of
debt outstanding under our credit facility. For the year ended December 31, 2015, a 10% change in LIBOR would have resulted
in approximately a $2.1 million change in net income.
Item 8. Financial Statements and Supplementary Data
The information required hereunder is included in this report as set forth in the “Index to Consolidated Financial
Statements”.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures and internal controls designed to ensure that information required to
be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and forms. Our chief executive officer and chief
financial officer, with the participation of our management, have evaluated our disclosure controls and procedures as of the end
of the period covered by this Annual Report on Form 10-K and have determined that such disclosure controls and procedures
are effective in providing assurance of the timely recording, processing, summarizing and reporting of information, and in
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accumulation and communication to management on a timely basis material information relating to us (including our
consolidated subsidiaries) required to be disclosed in this Annual Report on Form 10-K.
Changes in Internal Controls over Financial Reporting
There were no changes during our last fiscal quarter that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management of the Partnership is responsible for establishing and maintaining effective internal control over financial
reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. The Partnership’s internal control over
financial reporting is designed to provide reasonable assurance to the Partnership’s management and board of directors
regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Partnership’s internal control over financial reporting as of
December 31, 2015. In making this assessment, management used the criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on
our assessment, we believe that, as of December 31, 2015, the Partnership’s internal control over financial reporting is effective
based on those criteria.
In July 2015, we acquired the offshore pipeline and services business of Enterprise Products Partners, L.P. and its
affiliates for approximately $1.5 billion, subject to certain adjustments. Due to the recent nature and scale of this business
combination, it was not practical from a timing or resource standpoint for us to conduct a thorough assessment of the internal
control over financial reporting prior to December 31, 2015 as relating to our acquisition of this business. As a result, we
excluded our Enterprise acquisition from the scope of our management's assessment of the effectiveness of our internal control
over financial reporting as of December 31, 2015. We are in the process of implementing our internal control structure over the
operations surrounding our offshore pipelines and services business acquired from Enterprise Products Partners, L.P. and expect
that this effort will be completed in 2016. The offshore pipelines and services business acquired from Enterprise Products
Partners, L.P. accounted for approximately 6% of our consolidated revenues for the year ended December 31, 2015 and
approximately 40% of our total consolidated assets at December 31, 2015.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our management included a report of their assessment of
the design and effectiveness of our internal controls over financial reporting as part of this Annual Report on Form 10-K for the
fiscal year ended December 31, 2015. Deloitte & Touche LLP, the Partnership’s independent registered public accounting firm,
has issued an attestation report on the effectiveness of the Partnership’s internal control over financial reporting. Deloitte &
Touche’s attestation report on the Partnership’s internal control over financial reporting appears in Item 8. “Financial
Statements and Supplementary Data.”
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
Management of Genesis Energy, L.P.
Part III
We are a Delaware limited partnership. We conduct our operations and own our operating assets through our
subsidiaries and joint ventures. Our general partner, Genesis Energy, LLC, a wholly-owned subsidiary that owns a non-
economic general partner interest in us, has sole responsibility for conducting our business and managing our operations. It also
employs most of our personnel, including executive officers.
As is common with MLPs, our partnership structure does not allow our unitholders to directly or indirectly participate
in our management or operations. The board of directors of our general partner must approve significant matters (such as
material business strategies, mergers, business combinations, acquisitions or dispositions of assets, issuances of common units,
incurrences of debt or other financings and the payments of distributions). The holders of our Class B Common Units are
entitled to (i) vote in the election of the board of directors of our general partner (which we refer to as “our board of directors”),
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subject to the Davison family’s rights described below, as well as (ii) vote on substantially all other matters on which our
Class A holders are entitled to vote. The holders of our Class A Common Units are not entitled to vote in the election of
directors, but they are entitled to vote in a very limited number of other circumstances, including our merger with another
company and the removal of our general partner.
Collectively, members of the Davison family own approximately 11.6% of our Class A Common Units and 76.9% of
our Class B Common Units, for a combined ownership percentage of 11.6% of total Common Units. The Davison family is
entitled to elect up to three directors under terms of its unitholders rights agreement. If members of the Davison family own
(i) 15% or more of our common units, they have the right to appoint three directors, (ii) less than 15% but more than 10%, they
have the right to appoint two directors, and (iii) less than 10%, they have the right to appoint one director. So long as the
Davison family has the right to elect three directors, our board of directors cannot have more than 11 directors without the
Davison family’s consent.
Under our limited partnership agreement, the organizational documents of our general partner and indemnification
agreements with our directors, subject to specified limitations, we will indemnify to the fullest extent permitted by Delaware
law, from and against all losses, claims, damages or similar events, any director or officer, or while serving as director or
officer, any person who is or was serving as a tax matters member or as a director, officer, tax matters member, employee,
partner, manager, fiduciary or trustee of our partnership or any of our affiliates. Additionally, we will indemnify to the fullest
extent permitted by law, from and against all losses, claims, damages or similar events, any person who is or was an employee
(other than an officer) or agent of our general partner.
Our board of directors currently consists of Sharilyn S. Gasaway, James E. Davison, James E. Davison, Jr., Corbin J.
Robertson III, Kenneth M. Jastrow II, Conrad P. Albert, Jack T. Taylor and Mr. Sims. Our board of directors has determined
that each of Ms. Gasaway and Messrs. Robertson, Jastrow, Albert and Taylor is an independent director under the NYSE rules.
Board Leadership Structure and Risk Oversight
Board Leadership Structure
Our board of directors has no policy that requires the positions of the Chairman of the Board and the Chief Executive
Officer to be held by the same or different persons or that we designate a lead or presiding independent director. Our board of
directors believes it is important to retain the flexibility to make those determinations based on an assessment of the
circumstances existing from time to time, including the composition, skills and experience of our board of directors and its
members, specific challenges faced by the company or the industry in which it operates, and governance efficiency.
Presently, our board of directors believes that, because Mr. Sims is the director most familiar with our business and
industry and the most capable of leading the discussion of, and executing on, our business strategy, he is best situated to serve
as Chairman, regardless of the fact that he is the Chief Executive Officer of our general partner. As a result, Mr. Sims serves as
Chairman and Chief Executive Officer. Our board of directors also believes that the appointment of a lead independent
director, who will preside over executive sessions of non-management directors of our board of directors, will facilitate
teamwork and communication between the non-management directors and management. Our board of directors appointed Mr.
Jastrow as our lead independent director because of his executive experience and service as a director of other companies. Our
board of directors believes that the combined role of Chairman and Chief Executive Officer working with the lead independent
director is currently in the best interest of unitholders, providing the appropriate balance between developing our strategy and
overseeing management.
We are committed to sound principles of governance. Such principles are critical for us to achieve our performance
goals and maintain the trust and confidence of investors, personnel, suppliers, business partners and stakeholders. We believe
independent directors are a key element for strong governance, although we have reserved or exercised our right as a limited
partnership under the listing standards of the NYSE not to comply with certain requirements of the NYSE. For example,
although at least a majority of the members of our board of directors is independent under the NYSE rules, we reserve the right
not to comply with Section 303A.01 of the NYSE Listed Company Manual, which would require that our board of directors be
comprised of at least a majority of independent directors. In addition, among other things, we have elected not to comply with
Sections 303A.04 and 303A.05 of the NYSE Listed Company Manual, which would require our board of directors to maintain
a nominating/corporate governance committee and a compensation committee, each consisting entirely of independent
directors. Our corporate governance guidelines are available on our website (www.genesisenergy.com) free of charge. For
further discussion of director independence, please see Item 13. "Certain Relationships and Related Transactions, and Director
Independence—Director Independence."
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Risk Oversight
We face a number of risks, including exposure to matters relating to the environment, regulation, competition,
fluctuations in commodity prices and interest rates and weather . Management is responsible for the day-to-day management of
risks our company faces, although our board of directors, as a whole and through its committees, has responsibility for the
oversight of risk management. In fulfilling its risk oversight role, our board of directors must determine whether risk
management processes designed and implemented by our management are adequate and functioning as designed. Senior
management regularly delivers presentations to our board of directors on strategic matters, operations, risk management and
other matters, and is available to address any questions or concerns raised by our board of directors. Board of directors
meetings also regularly include discussions with senior management regarding strategies, key challenges and risks and
opportunities for our company.
Our board committees assist our board of directors in fulfilling its oversight responsibilities in certain areas of risk.
For example, the audit committee assists with risk management oversight in the areas of financial reporting, internal controls
and compliance with legal and regulatory requirements and our risk management policy relating to our hedging program. The
governance, compensation and business development committee assists our board of directors with risk management relating to
our compensation policies and programs.
Our board of directors believes that it is important to align (when practical) the interests of the members of our board
of directors and certain of our officers with the interests of our long-term stakeholders. Our board of directors has adopted
certain policies to further promote that alignment of interests. For example, among other things, our policies prohibit our
directors and officers from (i) buying, selling or engaging in transactions with respect to our common units while they are
aware of material non-public information and (ii) engaging in short sales of our securities. Certain of our directors and/or
officers own substantial amounts of our units, some of which are pledged and/or held in broker margin accounts. See Item 12.
"Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."
Audit Committee
The audit committee of our board of directors generally oversees our accounting policies and financial reporting and
the audit of our financial statements. The audit committee assists our board of directors in its oversight of the quality and
integrity of our financial statements and our compliance with legal and regulatory requirements. Our independent registered
public accounting firm is given unrestricted access to the audit committee. Our board of directors has determined that the
members of the audit committee meet the independence and experience standards established by NYSE and the Securities
Exchange Act of 1934, as amended. In accordance with the NYSE rules and the Securities Exchange Act of 1934, as amended,
our board of directors has named three of its members to serve on the audit committee—Sharilyn S. Gasaway, Conrad P. Albert
and Jack T. Taylor. Ms. Gasaway is the chairperson. Our board of directors believes that Ms. Gasaway and Mr. Taylor qualify
as audit committee financial experts as such term is used in the rules and regulations of the SEC. The charter of the audit
committee is available on our website (www.genesisenergy.com) free of charge. Each of Ms. Gasaway and Messrs. Albert and
Taylor is an independent director under NYSE rules.
Governance, Compensation and Business Development Committee
The governance, compensation and business development committee, or G&C Committee, of our board of directors
generally (i) monitors compliance with corporate governance guidelines, (ii) reviews and makes recommendations regarding
board and committee composition, structure, size, compensation and related matters, and (iii) oversees compensation plans and
compensation decisions for our employees. All the members of our board of directors, other than our CEO, serve as members
of the G&C Committee. Mr. Jastrow is the chairperson. The charter of the G&C Committee is available on our website
(www.genesisenergy.com) free of charge.
Conflicts Committee
To the extent requested by our board of directors, a conflicts committee of our board of directors would be appointed
to review specific matters in connection with the resolution of conflicts of interest and potential conflicts of interest between
any of our affiliates and us. If a specific review is requested by our board of directors, our conflicts committee would be formed
by our Board and would be comprised solely of independent directors. See Item 13. “Certain Relationships and Related
Transactions, and Director Independence—Review or Special Approval of Material Transactions with Related Persons.”
Executive Sessions of Non-Management Directors
Our board of directors holds executive sessions in which non-management directors meet without any members of
management present in connection with regular board meetings. The purpose of these executive sessions is to promote open
and candid discussion among the non-management directors. Mr. Jastrow, as the lead independent director, serves as the
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presiding director at those executive sessions. In accordance with NYSE rules, interested parties can communicate directly with
non-management directors by mail in care of the General Counsel and Secretary or in care of the chairperson of the audit
committee at 919 Milam, Suite 2100, Houston, TX 77002. Such communications should specify the intended recipient or
recipients. Commercial solicitations or communications will not be forwarded. We have established a toll-free, confidential
telephone hotline so that interested parties may communicate with the chairperson of the audit committee or with all the non-
management directors as a group. All calls to this hotline are reported to the chairperson of the audit committee who is
responsible for communicating any necessary information to the other non-management directors. The number of our
confidential hotline is (800) 826-6762.
Directors and Executive Officers
Set forth below is certain information concerning our directors and executive officers, effective as of February 26,
2016.
Name
Grant E. Sims
Conrad P. Albert
James E. Davison
James E. Davison, Jr.
Sharilyn S. Gasaway
Kenneth M. Jastrow II
Corbin J. Robertson III
Jack T. Taylor
Robert V. Deere
Paul A. Davis
Stephen M. Smith
Richard R. Alexander
Karen N. Pape
Age
60
69
78
49
47
68
45
64
61
52
39
40
57
Director, Chairman of the Board, and Chief Executive Officer
Position
Director
Director
Director
Director
Director
Director
Director
Chief Financial Officer
Senior Vice President
Vice President
Vice President
Senior Vice President and Controller
Grant E. Sims has served as a director and Chief Executive Officer of our general partner since August 2006 and
Chairman of the Board of our general partner since October 2012. Mr. Sims had been a private investor since 1999. He was
affiliated with Leviathan Gas Pipeline Partners, L.P. from 1992 to 1999, serving as the Chief Executive Officer and a director
beginning in 1993 until he left to pursue personal interests, including investments. Leviathan (subsequently known as El Paso
Energy Partners, L.P. and then GulfTerra Energy Partners, L.P.) was an NYSE-listed MLP that merged with Enterprise Products
Partners, L.P. on September 30, 2004. Mr. Sims provides leadership skills, executive management experience and significant
knowledge of our business environment, which he has gained through his vast experience with other MLPs.
Conrad P. Albert has served as a director of our general partner since July 2013. Mr. Albert is a private investor and
was formerly a director of Anadarko Petroleum Corporation from 1986 to 2006. Mr. Albert also served as a director of
DeepTech International, Inc. from 1992 to 1998. From 1969 to 1991, Mr. Albert served in various positions with Manufacturers
Hanover Trust Company, ultimately serving as Executive Vice President in charge of worldwide energy lending and corporate
finance. Mr. Albert’s extensive financial, executive and directorial experience and his service in various roles in the
management of other energy-related companies will allow him to provide valuable expertise to our board of directors.
James E. Davison has served as a director of our general partner since July 2007. Mr. Davison served as chairman of
the board of Davison Transport, Inc. for over 30 years. He also serves as President of Terminal Services, Inc. Mr. Davison has
over forty years of experience in the energy-related transportation and refinery services businesses. Mr. Davison brings to our
board of directors significant energy-related transportation and refinery services experience and industry knowledge.
James E. Davison, Jr. has served as a director of our general partner since July 2007. Mr. Davison is also a director of
Origin Bancorp, Inc. and serves on its nominating and corporate governance, finance, and compensation committees.
Mr. Davison is the son of James E. Davison. Mr. Davison’s executive and leadership experience enable him to make valuable
contributions to our board of directors.
Sharilyn S. Gasaway has served as a director of our general partner since March 2010 and serves as chairperson of the
audit committee. Ms. Gasaway is a private investor and was Executive Vice President and Chief Financial Officer of Alltel
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Corporation, a wireless communications company, from 2006 to 2009. She served as Controller of Alltel Corporation from
2002 through 2006. Ms. Gasaway is a director of two other public companies, JB Hunt Transport Services, Inc. and Waddell
and Reed Financial, Inc., serving on the audit committee of each company. Additionally, Ms. Gasaway serves on the
nominating committee of JB Hunt and the nominating and corporate governance committee and investment committees of
Waddell and Reed. Ms. Gasaway provides our board of directors valuable management and financial expertise, including an
understanding of the accounting and financial matters that we address on a regular basis.
Kenneth M. Jastrow II has served as a director of our general partner since March 2010 and serves as chairperson of
the G&C Committee. Mr. Jastrow served as Chairman and Chief Executive Officer of Temple-Inland, Inc., a manufacturing
company and the former parent of Forestar Group, from 2000 to 2007. Prior to that, Mr. Jastrow served in various roles at
Temple-Inland, including President and Chief Operating Officer, Group Vice President and Chief Financial Officer. Mr. Jastrow
is also a director and serves on the compensation committee of KB Home and MGIC Investment Corporation. Mr. Jastrow
formerly served as Non-Executive Chairman of Forestar Group, Inc. Mr. Jastrow’s executive experience and service as director
of other companies enable him to make valuable contributions to our board of directors and particularly well suited to be the
lead independent director.
Corbin J. Robertson III has served as a director of our general partner since February 2010. Mr. Robertson is a
Managing Partner of LKCM Headwater Investments GP, LLC and LKCM Headwater Investments I, L.P., a private equity fund.
Mr. Robertson is also an owner of various interests associated with the Robertson family holding company and Quintana
Capital Group, an energy focused private equity firm he co-founded. Mr. Robertson currently serves on various boards of
Quintana and LKCM Headwater affiliated portfolio companies. Previously, Mr. Robertson was a Vice President for Reservoir
Capital Group, a New York-based investment firm, and prior to that, he worked for three years as a Vice President for Sandefer
Capital Partners, an energy investment fund. We believe that Mr. Robertson's experience with investment in a variety of energy
businesses provides a valuable resource to our board of directors.
Jack T. Taylor has served as a director of our general partner since July 2013. Mr. Taylor is currently a director of
Sempra Energy and Murphy USA Inc. Additionally, Mr. Taylor currently serves on the audit committee of Sempra Energy and
Murphy USA Inc. Mr. Taylor was a partner of KPMG LLP for 29 years, where from 2005 to 2010 he served as KPMG's Chief
Operating Officer-Americas and Executive Vice Chair of U.S. Operations and from 2001 to 2005 he served as the Vice
Chairman of U.S. Audit and Risk Advisory Services. Mr. Taylor’s extensive experience with financial and public accounting
issues, his various leadership roles at KPMG LLP and his extensive knowledge of the energy industry make him a valuable
resource to our board of directors.
Robert V. Deere has served as Chief Financial Officer of our general partner since October 2008. Mr. Deere served as
Vice President, Accounting and Reporting at Royal Dutch Shell (Shell) from 2003 through 2008.
Paul A. Davis has served as Senior Vice President of our general partner since March 2012. Mr. Davis is responsible
for the commercial development of Genesis. Mr. Davis spent approximately 19 years in the investment banking industry with a
focus in the midstream and master limited partnership sector, serving in various roles, including Managing Director at Bank of
America Merrill Lynch.
Stephen M. Smith has served as Vice President of our general partner since February 2010. Mr. Smith is responsible
for the commercial aspects of our Supply and Logistics segment. Since 2009, Mr. Smith has served in various capacities within
our commercial development and finance groups. He was a Principal for the energy investment banking group at Banc of
America Securities from 2006 to 2009.
Richard R. Alexander has served as Vice President of our general partner since November 2014. Mr. Alexander is
responsible for the commercial aspects of our Marine Transportation segment. Since 2008, Mr. Alexander has served in various
capacities within our marine operations.
Karen N. Pape has served as Senior Vice President and Controller of our general partner since July 2007 and served as
Vice President and Controller from May 2002 until July 2007.
Common Unit Ownership by Directors and Executive Officers
We encourage our directors and officers to own our common units, although we do not feel it is necessary to require
them to own a minimum number. Certain of our directors and officers own substantial amounts of our securities, although any
(or all) of them may sell, pledge or otherwise dispose of all or a portion of those securities at any time, subject to any applicable
legal and company policy requirements. See Item 10. “Directors, Executive Officers and Corporate Governance-Board
Leadership Structure and Risk Oversight-Risk Oversight.”
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Code of Ethics
We have adopted a Code of Business Conduct and Ethics that is applicable to, among others, the principal financial
officer and the principal accounting officer. Our Code of Business Conduct and Ethics is posted at our website
(www.genesisenergy.com), where we intend to report any changes or waivers.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors of our general partner and
persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in
ownership with the SEC and the NYSE. Based solely on our review of the copies of such reports received by us, or written
representations from certain reporting persons to us, we are aware of no filings that were not timely made.
Item 11. Executive Compensation
The Compensation Discussion and Analysis below discusses our compensation process, objectives and philosophy
with respect to our Named Executive Officers (“NEOs”), for the fiscal year ended December 31, 2015.
Compensation Discussion and Analysis
Named Executive Officers
Our NEOs for 2015 were:
•
•
•
•
•
Grant E. Sims, Chief Executive Officer;
Robert V. Deere, Chief Financial Officer;
Paul A. Davis, Senior Vice President;
Stephen M. Smith, Vice President; and
Richard R. Alexander, Vice President.
Board and Governance, Compensation and Business Development Committee
Our board of directors is responsible for, and effectively determines, compensation programs applicable to our NEOs
and to the board itself. Our board of directors has delegated to the G&C Committee, a majority of the members of which are
"independent," according to NYSE listing standards, the authority and responsibility to regularly analyze and reconsider our
compensation policies, to determine the annual compensation of our NEOs, and to make recommendations to our board of
directors with respect to such matters. As described in more detail below, the G&C Committee engaged BDO USA, LLP, or
BDO, as its independent compensation adviser. We also utilize committees comprised solely of certain of our independent
directors (i.e., the audit committee or special committees) to review and make recommendations with respect to certain
matters such as obtaining exemptions from the “insider trading” trading rules under Section 16 of the Exchange Act in
connection with certain acquisitions. Because the G&C Committee is comprised of all the members of our board of directors,
excluding our CEO, determinations by the G&C Committee are effectively determinations by our board of directors. For a
more detailed discussion regarding the purposes and composition of board committees, please see Item 10. “Directors,
Executive Officers and Corporate Governance.”
Committee/Board Process
Following the end of each calendar year, our CEO reviews the compensation of all the other NEOs and makes a
proposal to the G&C Committee as to their compensation. The CEO's proposal is based on (among other things) our financial
results for the prior year, the individual executive’s areas of responsibility, market data provided by our independent
compensation adviser as well as recommendations from that executive’s supervisor (if other than our CEO). The G&C
Committee reviews the compensation of our CEO and the proposal of our CEO regarding the compensation of the other NEOs
and makes a final determination with our board of directors regarding compensation of our NEOs. Depending on the nature
and quantity of changes made to that proposal, there may be additional G&C Committee meetings and discussions with our
CEO in advance of that determination.
Committee/Board Approval
The G&C Committee determines salaries, annual cash incentives and long-term awards for executive officers, taking
into consideration the CEO’s recommendation regarding the NEOs. In April, any applicable salary increases and long-term
incentive awards are made or granted. Bonuses are paid by March 15th of the year following the year in which they are
earned.
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Role of Compensation Consultant and Peer Group Analysis
The G&C Committee’s charter authorizes the Committee to retain independent compensation consultants from time
to time to serve as a resource in support of its efforts to carry out certain duties. In 2015, the G&C Committee engaged BDO,
an independent compensation consultant, to assist the Committee in assessing and structuring competitive compensation
packages for the executive officers that are consistent with our compensation philosophy. The G&C Committee assessed the
independence of BDO pursuant to current exchange listing requirements and SEC guidance and concluded that no conflict of
interest exists that would prevent BDO from serving as an independent consultant to the G&C Committee.
At the request of the G&C Committee, BDO reviewed and provided input on the compensation of our NEOs, trends
in executive compensation, meeting materials circulated to the G&C Committee and management’s recommendations
executive compensation plans. BDO also developed assessments of market levels of compensation through an analysis of peer
data and information disclosed in our peer companies’ public filings, but did not determine or recommend the amount of
compensation.
The peer group used for this market analysis in 2015 consisted of the following 15 companies in the energy industry:
Atlas Pipeline Partners, Buckeye Partners, Calumet Specialty Products Partners, Plains All American Pipeline, Enlink
Midstream Partners (formerly known as Crosstex Energy Partners), DCP Midstream Partners, HollyFrontier Corporation,
Magellan Midstream Partners, Markwest Energy Partners, NuStar Energy, Regency Energy Partners, Sunoco Logistics
Partners, Targa Resources Partners, Western Refining and Summit Midstream Partners. These companies were selected as the
compensation peer group for any or all of the following reasons:
1) they reflect our industry competitors for products and services;
2) they operate in similar markets or have comparable geographical reach;
3) they are of similar size and maturity to us; or
4) they are companies that have similar credit profiles and comparable growth or capital programs to us.
The Committee reviews the peer group annually and may, from time to time, add or remove companies in order to
assure the composition of the group meets the criteria outlined above. The 2015 peer group is different from the 2014 group
due to the addition of Summit Midstream Partners and the elimination of PVR Partners and Eagle Rock Energy Partners,
whose midstream assets were acquired by Regency Energy Partners.
The information that BDO compiled included compensation trends for MLPs and levels of compensation for
similarly-situated executive officers of companies within this peer group. We believe that compensation levels of executive
officers in our peer group are relevant to our compensation decisions because we compete with those companies for executive
management talent.
Compensation Objectives and Philosophy
The primary objectives of our compensation program are to:
• encourage our executives to build and operate the partnership in a way that is aligned with our common
unitholders’ interests, focusing on growing cash distributions and growing the asset base with an emphasis on
maintaining a focus on the long-term stability of the enterprise so as to not promote inappropriate risk taking;
• offer near-term and long-term compensation opportunities that are consistent with industry norms; and
• provide appropriate levels of retention to the executive team to ensure long-term continuity and stability for the
successful execution of key growth initiatives and projects.
We strive to accomplish these objectives by compensating all employees, including our NEOs, with a total
compensation package that is market competitive and performance-based. In our assessment of the market competitiveness of
compensation, we take into consideration the compensation offered by companies in our peer group described above, but we
have not targeted a specific percentile of peer company pay as a target. Rather, we use market information as one
consideration in setting compensation along with individual performance, our financial and operational performance and our
safety performance.
We pay base salaries at levels that we feel are appropriate for the skills and qualities of the individual NEOs based on
their past performance, current scope of responsibilities and future potential. The incentive-based components of each NEO’s
compensation include annual cash incentive bonus opportunities and participation in the long-term incentive program. The
annual cash bonus rewards incremental operational and financial achievements required to meet investor expectations in the
short-term while the long-term component focuses rewards to the long-term stability of the enterprise. Both incentive
components are generally linked to base salary and are consistent in general with our understanding of market practice and
with our judgment regarding each individual’s role in the organization.
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As described in more detail below, we believe that the combination of base salaries, cash bonuses and long-term
incentive plans provide an appropriate balance of short-term and long-term incentives, cash and non-cash based compensation
and an alignment of the incentives for our executives, including our NEOs, with the interests of our common unitholders.
The amount of compensation contingent on performance is a significant percentage of total compensation, therefore
ensuring business decisions and actions lead to the long-term growth and sustainability of the organization. Our bonus plan is
driven by the generation of Available Cash before Reserves (which is an important metric of value for our unitholders) and our
safety record. Our long term incentive plan is linked primarily to increases in the distribution rate on our common units and
the appreciation in our common unit price, which we believe links pay with performance and creates an alignment of interest
between our NEOs and our unitholders.
Elements of Our Compensation Program and Compensation Decisions for 2015
The primary elements of our compensation program are a combination of annual cash and long-term equity-based
incentive compensation. For the year ended December 31, 2015, the elements of our compensation program for the NEOs
consisted of the following:
•
•
•
annual cash base salary
discretionary annual cash bonus awards
annual grants under long-term incentive arrangements
Additionally, in order to attract qualified executive personnel, we may make one-time new-hire awards of equity.
Base Salaries
We believe that base salaries should provide a fixed level of competitive pay that reflects the executive officer’s
primary duties and responsibilities, as well as a foundation for incentive opportunities and benefit levels. As discussed above,
the base salaries of our NEOs are reviewed annually by the G&C Committee, taking into account recommendations from our
CEO regarding NEOs other than himself. We pay base salaries at a level that we feel is appropriate for the skills and qualities
of the individual NEOs based on their past performance, current scope of responsibilities and future potential. Base salaries
may be adjusted to achieve what is determined to be a reasonably competitive level or to reflect promotions, the assignment of
additional responsibilities, individual performance or company performance. Salaries are also periodically adjusted based on
analysis of peer group practices as described above.
In April 2015, the G&C Committee reviewed the assessments of market levels of compensation developed by BDO
in conjunction with a discussion of individual performance and responsibilities and, as a result, approved market adjustments
for the following NEOs: Mr. Sims' salary was increased 14% to $600,000, Mr. Smith’s salary was increased 8% to $325,000
and Mr. Alexander's salary was increased 8% to $325,000. The G&C Committee determined that such increases were
necessary to align salaries to comparable market levels and were warranted in light of their individual performance and
increased levels of responsibility related to the management of the company. Mr. Deere's and Mr. Davis' salaries of $450,000
and $375,000, respectively, were not increased in 2015.
Bonuses
Our NEOs participate in a bonus program, or the Bonus Plan, in which substantially all company employees
participate. As designed by the G&C Committee, each NEO has an annual bonus target based on a stated percentage of his
base salary. The targeted amount for the NEOs is set following the analysis of market practices of the peer group and
consideration of the level of salary and targeted long-term incentives for each NEO. For 2015, the G&C Committee set each
NEO’s bonus target as a percentage of salary as follows:
Name
Grant E. Sims
Robert V. Deere
Paul A. Davis
Stephen M. Smith
Richard R. Alexander
2015
Bonus Target
(% of base salary)
100%
75%
100%
100%
100%
We believe the Bonus Plan generates a bonus that represents a meaningful level of compensation for the employee
population and encourages employees to operate as a unified team to generate results that are aligned with the interests of our
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unitholders. The G&C Committee therefore designed the Bonus Plan to enhance our financial performance by rewarding our
NEOs and other employees for achieving (i) financial performance and (ii) safety objectives. Attainment of these two goals is
measured by, respectively, Available Cash before Reserves (before subtracting bonus expense and related employer tax
burdens) and company-wide safety incident rates.
Available Cash before Reserves, which is a "non-GAAP" measure, is an important factor in determining the amount
of distributions to our unitholders and is a significant factor in the market’s perception of the value of common units of an
MLP (See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a description
of Available Cash before Reserves.) Safety objectives encourage our employees to focus on the impact their job performance
has on the environment in which we operate. Both of these measures are used to calculate the recommended bonus payout (or
general bonus pool) described below. However, bonuses are paid at the discretion of the G&C Committee based on
quantitative and qualitative measures relating to: our financial and operational performance relative to our peers; industry
expectations; progress in attaining strategic goals; and individual performance. Because the determination of whether bonuses
will be paid each year and in what amounts they will be paid is determined by the G&C Committee on a company-wide basis,
NEOs only receive bonuses if other employees receive bonuses.
As in prior years, the 2015 general bonus pool was weighted and calculated as follows: the level of Available Cash
before Reserves generated for the year as a percentage of a target set by the G&C Committee was weighted 90% and the
achieved level of the safety incident rate was weighted 10%. The sum of the weighted percentage achievement of these targets
was multiplied by the eligible compensation and the target percentages established by the G&C Committee for the various
levels of our employees to determine the maximum general bonus pool. However, because the G&C Committee also
considered other subjective factors in determining the general bonus pool and individual award amounts, the amount of the
general bonus pool and individual award amounts is not formulaic.
The total 2015 pool approved for such bonuses, inclusive of other discretionary downward adjustments, was
approximately $5 million. Messrs. Davis, Smith, and Alexander were awarded bonuses of $93,750, $75,000 and $200,000
respectively in recognition of their leadership of their respective areas of responsibility. The bonuses were approved based on
the G&C Committee's subjective review of the operational and financial performance of the company, industry expectations
and individual performance. The bonuses will be paid in March 2016. Messrs. Sims and Deere voluntarily elected not to be
considered for a bonus.
Long-Term Incentive Compensation
We provide equity-based, long-term compensation for employees, including executives and directors, through our
2010 Long-Term Incentive Plan, or the 2010 LTIP. The 2010 LTIP is designed to promote a sense of proprietorship and
personal involvement in our development and financial success among our employees and directors through awards of
phantom units and distribution equivalent rights, or DERs. The 2010 LTIP also allows for providing flexible incentives to
employees and directors. Prior to vesting or termination of the applicable restricted period, our officers cannot transfer
(including sale, pledge or hedge) any of their LTIP Awards. The 2010 LTIP provides for the awards of phantom units and
DERs to directors of our general partner, and employees and other representatives of our general partner and its affiliates who
provide services to us.
All long-term objectives for payments to participants in the 2010 LTIP are based upon measurable performance
targets. These targets consist of specific increases in the distributions paid to unitholders. As a result, we believe that the
2010 Long-Term Incentive Plan strongly aligns the interests of management with those of our unitholders.
Phantom units are notional units representing unfunded and unsecured promises to pay to the participant a specified
amount of cash based on the market value of our common units should specified vesting requirements be met. DERs are
tandem rights to receive on a quarterly basis an amount of cash equal to the amount of distributions that would have been paid
on outstanding phantom units had they been limited partner units issued by us.
The G&C Committee administers the 2010 LTIP. Under the 2010 LTIP, the G&C Committee (at its discretion) has
the authority to determine the terms and conditions of any awards granted under the 2010 LTIP and to adopt, alter and repeal
rules, guidelines and practices relating to the 2010 LTIP. The G&C Committee has full discretion to administer and interpret
the 2010 LTIP and to establish such rules and regulations as it deems appropriate and to determine, among other things, the
time or times at which the awards may be exercised and whether and under what circumstances an award may be exercised.
The G&C Committee designates participants in the 2010 LTIP, determines the types of awards to grant to participants and
determines the number of units to be covered by any award. Our board of directors can terminate the 2010 LTIP at any time.
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Targeted grant values for the NEOs are set following the analysis of market practices of the peer group and
consideration of the level of salary and targeted bonus for each NEO. For 2015, the G&C Committee established the following
long-term incentive target grant values for each of our NEOs:
Name
Grant E. Sims
Robert V. Deere
Paul A. Davis
Stephen M. Smith
Richard R. Alexander
2015
Long-Term Incentive Target
Grant Value
$
$
$
$
$
1,800,000
900,000
750,000
650,000
650,000
In April 2015, phantom units were granted to each of our NEOs and certain non-officer employees under the 2010
LTIP. The number of units granted was determined by dividing the average 20-day closing price of our units through the date
of grant by the long-term incentive target amount. The phantom units will be paid in cash upon vesting based on the average
closing price of the common units for the 20 trading days immediately prior to the date of vesting. The phantom units granted
to our NEOs in April 2015 were all performance-based awards.
Performance-based awards granted to our NEOs and non-officer employees will vest on the third anniversary of
issuance, in an amount ranging from 50% to 150% of the targeted number of phantom units for each such NEO or non-officer
employee, if certain quarterly cash distribution targets are achieved in the fourth quarter of 2017. In order to align the interests
of our NEOs with our common unitholders and incentivize the NEOs to meet targeted distribution annual growth rates ranging
between approximately 5% and 9% (which are deemed achievable growth rates by the G&C Committee), these awards will
vest as follows:
(i) if the quarterly cash distribution on the common units for the fourth quarter of 2017 is $0.67 per unit, 50% of the
target number of phantom units granted will vest, and the remainder will be forfeited;
(ii) if the quarterly cash distribution on the common units is $0.72 per unit, 100% of the target number of phantom
units granted will vest; or
(iii) if the quarterly cash distribution on the common units is $0.78 per unit or greater, 150% of the target number of
phantom units granted will vest.
Should the quarterly cash distribution on the common units fall between the range of $0.67 per unit and $0.78 per
unit, the phantom units will vest between 50% and 150% of the number targeted on a proportionately adjusted basis (for
example, if the quarterly cash distribution on the common units is $0.70 per unit, 75% of the phantom units targeted will vest
or if the quarterly cash distribution on the common units is $0.75 per unit, 125% of the phantom units targeted will vest). If the
quarterly cash distribution is below $0.67 per unit for the fourth quarter of 2017, all of the performance-based phantom units
granted will be forfeited.
The phantom units also include distribution equivalent rights, or DERs, which are granted in tandem with all
phantom units. DERs on service-based awards to our non-officer employees will be paid quarterly in connection with the
related phantom units. DERs on all granted performance-based awards to our NEOs are also paid quarterly on the number of
units corresponding to the number of units in the initial grant.
Other Compensation and Benefits
We offer certain other benefits to our NEOs, including medical, dental, disability and life insurance, and
contributions on their behalf to our 401(k) plan. NEOs participate in these plans on the same basis as all other employees.
Other than the 401(k) plan, we do not sponsor a pension plan, and we do not provide post-retirement medical benefits to our
employees.
No perquisites of any material nature are provided to our NEOs.
Tax and Accounting Implications
Because we are a partnership and not a corporation for federal income tax purposes, we are not subject to the
limitations of Internal Revenue Code Section 162(m) with respect to tax-deductible executive compensation. However, if such
tax laws related to executive compensation change in the future, the G&C Committee will consider the implication of such
changes to us.
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For our equity-based compensation arrangements, we record compensation expense over the vesting period of the
awards, as discussed further in Note 15 of our Consolidated Financial Statements in Item 8.
Compensation Committee Report
The G&C Committee has reviewed and discussed with management the Compensation Discussion and Analysis
included above. Based on the review and discussions, the G&C Committee recommended to our board of directors that this
Compensation Discussion and Analysis be included in this Form 10-K.
The foregoing report is provided by the following directors, who constitute the G&C Committee:
Kenneth M. Jastrow II, Chairman
James E. Davison
James E. Davison, Jr.
Sharilyn S. Gasaway
Corbin J. Robertson III
Conrad P. Albert
Jack T. Taylor
The information contained in this report shall not be deemed to be soliciting material or filed with the SEC or subject
to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a
document filed under the Securities Act or the Exchange Act.
Compensation Risk Assessment
Our board of directors does not believe that our compensation policies and practices for employees are reasonably
likely to have a material adverse effect on us. We compensate all employees with a combination of competitive base salary
and incentive compensation. Our board of directors believes that the mix and design of the elements of employee
compensation do not encourage employees to assume excessive or inappropriate risk taking.
Our board of directors concluded that the following risk oversight and compensation design features guard against
excessive risk-taking:
•
•
•
•
•
•
•
the company has strong internal financial controls;
base salaries are consistent with employees’ responsibilities so that they are not motivated to take excessive
risks to achieve a reasonable level of financial security;
the determination of incentive awards is based on a review of a variety of indicators of performance as well
as a meaningful subjective assessment of personal performance, thus diversifying the risk associated with
any single indicator of performance;
goals are appropriately set to avoid targets that, if not achieved, result in a large percentage loss of
compensation;
incentive awards are capped by the G&C Committee;
compensation decisions include discretionary authority to adjust annual awards and payments, which further
reduces any business risk associated with our plans; and
long-term incentive awards are designed to provide appropriate awards for dedication to a corporate strategy
that delivers long-term returns to unitholders.
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Summary Compensation Table
The following Summary Compensation Table summarizes the total compensation paid or accrued to our NEOs in
2015, 2014 and 2013.
Name & Principal Position
Grant E. Sims
Chief Executive Officer
(Principal Executive Officer)
Robert V. Deere
Chief Financial Officer
(Principal Financial Officer)
Paul A. Davis
Senior Vice President
Stephen M. Smith
Vice President
Richard R. Alexander (3)
Vice President
Year
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
Salary ($)
Bonus ($) (1)
Stock
Awards ($) (2)
All Other
Compensation ($) (4)
Total ($)
$ 576,923
$
— $ 1,755,771
$
190,851
$ 2,523,545
525,000
517,308
450,000
450,000
446,923
375,000
359,615
311,154
317,308
292,308
267,308
317,308
295,192
—
401,163
— 1,248,181
—
—
—
243,750
350,000
250,000
225,000
150,000
—
300,000
300,000
658,448
401,163
499,291
585,287
601,718
424,374
438,966
401,163
324,563
585,287
300,859
182,187
196,119
108,449
102,482
104,808
101,761
63,838
33,843
85,268
65,071
59,079
1,108,350
1,961,608
1,216,897
953,645
1,051,022
1,305,798
1,375,171
1,019,371
1,066,542
908,542
650,950
112,299
1,314,894
54,619
950,670
(1) For 2015, Mr. Davis received a retention bonus of $150,000 and a bonus of $93,750, Mr. Smith received a retention bonus of
$150,000 and a bonus of $75,000 and Mr. Alexander received a retention bonus of $100,000 and a bonus of $200,000. The
retention bonuses granted to these three NEO's were granted in March 2015 and were contingent upon continued employment
through July and December 2015.
(2) The amounts shown in this column represent the aggregate grant date fair value for each NEO’s phantom units granted under our
2010 Long-Term Incentive Plan. The grant date fair value of each award was determined in accordance with accounting guidance
for equity-based compensation and is based on the probable outcome of any underlying performance conditions. Assumptions
used in the calculation of these amounts are included in Note 15 to our Consolidated Financial Statements in Item 8.
(3) Mr. Alexander became an executive officer of our general partner in November 2014.
(4) The following table presents the components of "All Other Compensation" for each NEO for the year ended December 31, 2015.
Name
Grant E. Sims
Robert V. Deere
Paul A. Davis
Stephen M. Smith
Richard R. Alexander
401(k) Matching
and Profit
Sharing
Contributions (a)
Insurance
Premiums
(b)
Other
Compensation
(c)
$
$
$
$
$
10,600
26,500
26,500
24,100
26,500
$
$
$
$
$
1,458
1,458
1,458
1,458
1,458
$
$
$
$
$
178,793
80,491
73,803
59,710
84,341
$
$
$
$
$
Totals
190,851
108,449
101,761
85,268
112,299
The amounts in this table represent:
(a) Contributions by us to our 401(k) plan on each NEO’s behalf.
(b) Term life insurance premiums paid by us on each NEO’s behalf.
(c) This column includes cash distributions paid in connection with granted DERs.
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Grants of Plan-Based Awards in Fiscal Year 2015
The following table shows equity incentive plan awards granted to our NEOs in 2015.
Estimated Future Payouts Under
Equity Incentive Plan Awards (1)
Name
Grant Date
Threshold
Target
Maximum
Market Price of
Common Units on
Award Date (2)
Grant Date Fair
Value of Stock
and Option
Awards (3)
Grant E. Sims
Robert V. Deere
Paul A. Davis
Stephen M. Smith
Richard R. Alexander
4/14/2015
4/14/2015
4/14/2015
4/14/2015
4/14/2015
19,235
7,214
6,412
4,809
6,412
38,470
14,427
12,824
9,618
12,824
57,705
21,641
19,236
14,427
7,222
$
$
$
$
$
46.79
$ 1,755,771
46.79
46.79
46.79
46.79
$
$
$
$
658,448
585,287
438,966
585,287
(1) Represents the number of phantom units that each NEO can earn of grant awarded on April 14, 2015, if the company meets certain
performance conditions (threshold, target and maximum) during the fourth quarter of 2017. See additional discussion in "Long-
Term Incentive Compensation" above.
(2) Represents the closing market price of our common units on the date of the phantom unit award on April 14, 2015.
(3) The amounts in this column for each NEO represent the fair value of the award on the date of the grant (as calculated in
accordance with accounting guidance for equity-based compensation) using the twenty day average closing price of our common
units through the date of grant ($45.64).
Employment Agreements
Paul A. Davis
Mr. Davis entered into a letter agreement in March 2012 relating to his employment and providing for a base salary,
which is subject to discretionary upward adjustments. Currently, the annual base salary of Mr. Davis is $375,000. That
agreement provides that Mr. Davis is eligible to participate in all other benefit programs (e.g. health, dental, disability, life
and/or other insurance plans) for which executive officers are generally eligible and severance benefits as disclosed in
"Potential Payments upon Termination or Change of Control" below.
Richard R. Alexander
Mr. Alexander entered into an employment agreement in July 2008 relating to his employment and providing for a
base salary which is subject to discretionary upward adjustments. Currently, the annual base salary of Mr. Alexander is
$325,000. That agreement provides that Mr. Alexander is eligible to participate in all other benefit programs (e.g. health,
dental, disability, life and/or other insurance plans) for which executive officers are generally eligible and severance benefits
as disclosed in "Potential Payments upon Termination or Change of Control" below.
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Outstanding Equity Awards at December 31, 2015
The following table presents the information regarding the outstanding equity awards to our NEOs at December 31,
2015.
Stock Awards
Name
Grant Date
Equity Incentive
Plan Awards:
Number of Unearned
Phantom Units That
Have Not Vested (#)
(1)
Equity Incentive
Plan Awards: Market
Value of Unearned
Phantom Units That
Have Not Vested ($)
(2)
Grant E. Sims
Robert V. Deere
Paul A. Davis
Stephen M. Smith
Richard R. Alexander (3)
4/14/2015
4/8/2014
4/9/2013
4/14/2015
4/8/2014
4/9/2013
4/14/2015
4/9/2014
4/9/2013
4/14/2015
4/8/2014
4/9/2013
4/14/2015
4/8/2014
4/9/2013
57,705 $
11,111 $
39,861 $
21,641 $
11,111 $
15,945 $
19,236 $
16,665 $
13,553 $
14,427 $
11,111 $
10,365 $
19,236 $
7,222 $
6,910 $
1,986,206
382,441
1,372,016
744,883
382,441
548,827
662,103
573,609
466,494
496,577
382,441
356,763
662,103
248,581
237,842
(1) The number of performance units reflected in the table assumes a maximum performance payout based upon past achievement
levels from the previous vesting period. For the service based units reflected in the table above, as only held by Mr. Alexander,
the threshold, target, and maximum payouts are identical.
(2) The amounts in this column were calculated by multiplying the closing market price of our units using the twenty day average at
year-end by the number of applicable units outstanding.
(3) Phantom units outstanding for Mr. Alexander include 2,222 and 2,126 service based units for 2014 and 2013, respectively. The
remainder of the outstanding units held by Mr. Alexander and represented above are performance based units.
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Phantom Units Vested
The following table presents the information regarding the vesting of phantom units during the year ended
December 31, 2015 with respect to our NEOs.
Name
Grant E. Sims
Robert V. Deere
Stephen M. Smith
Richard R. Alexander
Paul A. Davis
Phantom Unit Awards
Number of Phantom Units
Vested (#)
Value Realized on Vesting ($)
57,300
22,410
15,917
11,035
$
$
$
$
— $
2,590,332
1,013,078
719,529
498,831
—
The phantom unit awards granted to our NEOs in 2012 vested on April 10, 2015 and, pursuant to our 2010 Long
Term Incentive Plan, the value realized upon vesting was computed by multiplying the average closing price of our common
units for the 20 trading days immediately prior to the date of vesting by the number of units that vested. We achieved the
maximum target for 2012 of a quarterly distribution to common unitholders of $0.57 per unit; therefore the number of
phantom units vested in the table above represents 150% of the initial award. Those phantom unit awards were paid in cash.
Termination or Change of Control Benefits
We consider maintaining a stable and effective management team to be essential to protecting and enhancing the best
interests of us and our unitholders. To that end, we recognize that the possibility of a change of control or other acquisition
event may raise uncertainty and questions among management, and such uncertainty could adversely affect our ability to
retain our key employees, which would be to our unitholders’ detriment. Because our management team was built over time,
as described above, and our NEOs became NEOs under different circumstances, the compensation and benefits awarded to
our individual NEOs in the event of termination or a change of control varies. The employment agreements of Messrs. Davis
and Alexander provide certain compensation and benefits as an incentive for each of them to remain in our employ, enhancing
our ability to call on and rely upon each of them in the event of a change of control. Neither of them would be entitled to
severance benefits if terminated by our general partner for cause. In extending these benefits, we considered a number of
factors, including the prevalence of similar benefits adopted by other publicly traded MLPs. See “Potential Payments Upon
Termination or Change of Control” below for further discussion of these benefits, including the definitions of certain terms
such as change of control and cause.
We believe that the interests of unitholders will best be served if the interests of our management and unitholders are
aligned. We believe the termination and change of control benefits described above strike an appropriate balance between the
potential compensation payable and the objectives described above.
Potential Payments upon Termination or Change of Control
Each of Messrs. Davis and Alexander is entitled under his employment agreement to specified severance benefits
under certain circumstances as discussed above.
Under a change of control and certain termination circumstances, each of our NEOs also will vest in any outstanding
awards under our 2010 LTIP. Under the 2010 LTIP, a change of control occurs upon, in general, any sale of substantially all of
the assets of us or our general partner or a merger, conversion, consolidation of us or our general partner or any other
transaction resulting in a change in the beneficial ownership of more than 50% of the voting equity interests in our general
partner.
With respect to Mr. Davis, if within two years following a change of control he terminates his employment for good
reason or his employment terminates for any reason other than his death, disability, good cause, or his voluntary resignation
without good reason, Mr. Davis would be entitled to (i) continued health benefits for up to 18 months, (ii) a severance
payment equal to the greater of (x) his annual base salary and (y) two times his annual base salary reduced by one-twelfth of
his annual salary for each month he is employed following the change of control but prior to his termination; and (iii) a bonus
payment equal to the greater of (x) 100% of his annual base salary and (y) 200% of his annual base salary reduced by one-
twelfth of his annual salary for each month he is employed following the change of control but prior to his termination.
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As used in Mr. Davis’ employment agreement, the terms “good cause”, “change of control”, and “good reason” are
generally described below:
•
•
•
“Good cause” means, in general, if the executive commits willful theft, embezzlement, forgery; conviction of
similar criminal activity; willful violation of our material policies; or substantial non-performance of duties.
“Change of control” means, in general, any sale or other transfer of substantially all of the assets of us or our
general partner, other than to our affiliates, or any merger, consolidation, or other transaction pursuant to which
more than 50% of our publicly-traded common units or more than 50% of our Class B Common Units ceases to
be beneficially owned by the persons who owned such interests as of the date of the employment agreement.
“Good reason” means, in general, the diminution of the executive’s duties, title, reporting relationships,
compensation, or benefits, or the relocation of our principal offices or the requirement that the executive be
based anywhere other than the Houston, Texas area without his consent.
With respect to Mr. Alexander, if he terminates his employment for good reason or we terminate his employment
without cause, Mr. Alexander would be entitled to (i) company payment of his COBRA health benefits for 12 months and (ii)
monthly payments of his annual base salary due for the remainder of the renewal term of his employment agreement.
As used in Mr. Alexander’s employment agreement, the terms “cause”, “change of control”, “good reason” and
"renewal term" are generally described below:
•
•
•
•
“Cause” means, in general, if the executive commits theft, embezzlement, forgery, any other act of dishonesty
relating the executive’s employment or violates our policies or any law, rule, or regulation applicable to us, is
convicted of a felony or lesser crime having as its predicate element fraud, dishonesty, or misappropriation, fails
to perform his duties under the employment agreement or commits an act or intentionally fails to act, which act
or failure to act amounts to gross negligence or willful misconduct.
“Good Reason” means, in general, following a change of control which results in a substantial diminution of the
executive’s duties, compensation, or benefits; executive’s removal from position as Vice President (other than for
cause, death or disability, or being offered an equivalent position); or our failure to make any payment to the
executive required under the terms of his employment agreement.
“Change of control” means, in general, any sale of equity in us or our general partner or sale of substantially all
of our assets; any merger, conversion or consolidation of us or our general partner; or any other event that, in
each of the foregoing cases, results in any persons or entities having the ability to elect a majority of the
members of our board of directors (other than one or more of our executive officers or affiliates).
“Renewal term” means, in general, each one-year term of employment beginning on July 18 of each year, absent
either the Company or the executive giving the other party at least 90 days advance written notice of its intent
not to renew the employment agreement between them.
Based upon a hypothetical termination date of December 31, 2015, the termination benefits for Messrs. Sims, Deere,
Davis, Smith and Alexander for voluntary termination or termination for cause would be zero.
Based upon a hypothetical termination date of December 31, 2015, the termination benefits for Mr. Alexander for
termination without cause (other than as a result of death or disability) or for good reason would have been:
Severance pursuant to employment agreement
Healthcare
Total
Richard R. Alexander
325,000
$
22,607
347,607
$
If termination occurs due to death or disability, Messrs. Sims, Deere, Davis, Smith, and Alexander would vest in
outstanding phantom unit awards under our 2010 LTIP. Utilizing the closing price of our common units for the twenty trading
days prior to December 31, 2015 would result in payments under the 2010 LTIP of the following amounts upon death or
disability:
Grant E. Sims
Robert V. Deere
Paul A. Davis
Stephen A. Smith
Richard R. Alexander
90
$
$
$
$
$
2,493,763
1,117,411
1,134,793
823,843
815,547
Table of Contents
Based on a hypothetical simultaneous change of control and termination date of December 31, 2015, the change of
control termination benefits for Messrs. Sims, Deere, Davis, Smith, and Alexander would have been as follows:
Grant E.
Sims
Robert V.
Deere
Paul A.
Davis
Stephen M.
Smith
Richard R.
Alexander
Severance pursuant to employment agreement
Healthcare
$
— $
—
— $1,500,000
$
— $ 325,000
—
33,911
—
Cash payment for vested phantom units under 2010 LTIP
2,493,763
1,117,411
1,134,793
823,843
22,607
815,547
Total
$2,493,763
$1,117,411
$2,668,704
$ 823,843
$1,163,154
Director Compensation in Fiscal Year 2015
The table below reflects compensation for the directors.
Name
James E. Davison
James E. Davison, Jr.
Sharilyn S. Gasaway
Kenneth M. Jastrow II
Corbin J. Robertson III
Conrad P. Albert
Jack T. Taylor
Fees Earned or
Paid in Cash
($) (1)
Stock
Awards
($) (2) (3)
All Other
Compensation
($) (4)
$
$
$
$
$
$
$
90,000
92,000
112,500
104,500
90,000
104,500
104,500
$
$
$
$
$
$
$
100,000
100,000
112,500
112,500
100,000
102,500
102,500
$
$
$
$
$
$
$
14,629
14,629
16,523
16,356
14,736
10,457
10,457
$
$
$
$
$
$
$
Total
204,629
206,629
241,523
233,356
204,736
217,457
217,457
(1) Amounts include annual retainer fees and fees for attending meetings.
(2) Amounts in this column represent the fair value of the awards of phantom units under our 2010 LTIP on the date of grant, as
calculated in accordance with accounting guidance for equity-based compensation.
(3) Outstanding awards to directors at December 31, 2015 consist of phantom units granted under our 2010 LTIP and stock
appreciation rights pursuant to our Stock Appreciation Rights Plan. Messrs. James Davison and James Davison, Jr. each hold
5,922 outstanding phantom units and 1,000 stock appreciation rights. Messrs. Jastrow, Robertson, Albert, Taylor and Ms.
Gasaway hold 6,658, 5,952, 5,126, 5,126 and 6,681 outstanding phantom units, respectively.
(4) Amounts in this column represent the amounts paid for tandem DERs related to outstanding phantom units granted under our 2010
LTIP.
Directors who are not officers of our general partner are entitled to a base compensation of $180,000 per year, with
$80,000 paid in cash and $100,000 paid in phantom units. Cash is paid, and phantom units are awarded, on the first day of
each calendar quarter. The number of phantom units awarded is determined by dividing the closing market price of our units
on the date of the award into the amount to be paid in phantom units. So long as he or she is a director on the relevant date of
determination, each director will receive: (i) a quarterly distribution equal to the number of phantom units held by such
director multiplied by the quarterly distribution amount we will pay in respect of each of our outstanding common units on
such distribution date, and (ii) on the third anniversary of each award date for such director, an amount equal to the number of
phantom units granted to such director on such award date multiplied by the average closing price of our common units for the
20 trading days ending on the day immediately preceding such anniversary date.
The lead director and chairpersons of the audit committee and G&C Committee receive an additional amount of base
compensation split equally between cash and phantom units, which cash compensation is paid in equal quarterly installments.
Such additional amount is $10,000 for the lead director, $25,000 for the chair of the audit committee and $15,000 for the chair
of the G&C Committee.
In addition, each director receives additional cash compensation for each “Additional Meeting” (board and/or
committee) in which he or she participates. Participation by a director in-person will entitle her/him to additional
compensation of $2,500 per meeting, and participation by a director by means of telecommunication will entitle her/him to
additional compensation of $2,000 per meeting. Such payments are made in conjunction with the quarterly payments of base
compensation. Additional Meetings consist of (i) with respect to our board of directors any meetings (in-person or by
telecommunication) other than (x) the four pre-set meetings of our board of directors for each calendar year and (y) brief
follow-up telecommunication conferences relating to the Annual Report on Form 10-K or any Quarterly Report on Form 10-Q
the company files with the SEC, and (ii) any committee meeting.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Securities Authorized for Issuance Under Equity Compensation Plans
Equity Compensation plans approved by security holders:
2007 Long-term Incentive Plan (2007 LTIP)
Number of securities
remaining available for
future issuance under
equity compensation plans
832,928
There were no outstanding phantom units under this plan as of December 31, 2015, 2014 or 2013. For additional
discussion of our 2007 LTIP, see Note 15 to our Consolidated Financial Statements in Item 8.
Beneficial Ownership of Partnership Units
The following table sets forth certain information as of February 26, 2016, regarding the beneficial ownership of our
units by beneficial owners of 5% or more by class of unit and by directors and the executive officers of our general partner and
by all directors and executive officers as a group. This information is based on data furnished by the persons named.
Class A Common Units
Class B Common Units
Name and Address of Beneficial Owner
Amount and Nature of
Beneficial Ownership
Conrad P. Albert
James E. Davison
James E. Davison, Jr.
Sharilyn S. Gasaway
Kenneth M. Jastrow II
Corbin J. Robertson III
Jack T. Taylor
Grant E. Sims
Robert V. Deere
Paul A. Davis
Stephen M. Smith
Richard R. Alexander
Karen N. Pape
5,000
3,376,282
5,323,932
269,445
—
1,811,567
2,865
2,956,737
750,987
15,152
416,144
10,000
152,131
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Percent
of Class
Amount and Nature of
Beneficial Ownership
Percent
of Class
*
3.1%
4.8%
*
—
1.6%
*
2.7%
*
*
*
*
*
—
—
9,453
23.6%
13,648
34.1%
1,081
2.7%
—
—
—
—
—
—
7,087
1,052
17.7%
2.6%
—
—
—
—
—
—
—
—
All directors and executive officers as a group (13 in total)
15,090,242
13.7%
32,321
80.8%
Steven K. Davison
Tortoise Capital Advisors, L.L.C
Goldman Sachs Asset Management
OppenheimerFunds, Inc.
Alerian MLP ETF
*
Less than 1%
2,392,839
(8)
6,050,317
6,613,810
6,078,047
7,377,877
2.2%
5.5%
6.0%
5.5%
6.7%
7,676
19.2%
—
—
—
—
—
—
—
(1) The Class B Common Units, which also are included in the Class A Common Unit total, are identical in most respects to the Class
A Common Units and have voting and distribution rights equivalent to those of the Class A Common Units. In addition, the Class
B Common Units have the right to elect all of our board of directors and are convertible into Class A Common Units under certain
circumstances, subject to certain exceptions.
(2) Mr. Davison pledged 1,049,406 of these Class A Common Units as collateral for a loan from a bank. In addition to his direct
ownership interests, Mr. Davison is the sole stockholder of Davison Terminal Service, Inc., which owns 1,010,835 Class A
Common Units.
(3) Mr. Davison, Jr. pledged 1,164,370 of these Class A Common Units as collateral for a loan from a bank. 1,339,383 of these Class A
Common Units are held by trusts for Mr. Davison's children. 187,856 of these Class A Common Units are held by the James E. and
Margaret A. B. Davison Special Trust.
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Table of Contents
(4) Mr. Robertson pledged 1,590,039 of these Class A Common Units as collateral for margin accounts. Includes 198,785 Class A
Common Units held by The Corbin J. Robertson III 2009 Family Trust and 5,743 Class A Common Units held by Corby & Brooke
Robertson 2006 Family Trust. Also included are 20,000 Class A Common Units held by BHJ Investments, LP, whose members
include Mr. Robertson, the Corby and Brooke Robertson 2014 Children's Trust, and Brooke Robertson as Mr. Robertson's wife.
(5) Mr. Sims pledged 1,450,000 of these Class A Common Units as collateral for loans from a bank. Includes 1,000 Class A Common
Units held by Mr. Sims’ father, of which Mr. Sims disclaims beneficial ownership.
(6) Mr. Smith pledged 350,000 Class A Common Units as collateral for margin brokerage accounts.
(7) Mr. Alexander pledged these 10,000 Class A Common Units as collateral for margin brokerage accounts.
(8) Includes 147,941 Class A Common units held by the Steven Davison Family Trust.
Except as noted, each unitholder in the above table is believed to have sole voting and investment power with respect
to the units beneficially held, subject to applicable community property laws.
The mailing address for Genesis Energy, LLC and all officers and directors is 919 Milam, Suite 2100, Houston, Texas,
77002.
Beneficial Ownership of General Partner Interest
Genesis Energy, LLC owns a non-economic general partner interest in us. Genesis Energy, LLC is our wholly-owned
subsidiary.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Transactions with Related Persons
Our CEO, Mr. Sims owns an aircraft, which is used by us for business purposes in the course of operations. We pay
Mr. Sims a fixed monthly fee and reimburse the aircraft management company for costs related to our usage of the aircraft,
including fuel and the actual out-of-pocket costs. In connection with this arrangement, we made payments to Mr. Sims totaling
$0.7 million, during 2015. Based on current market rates for chartering of private aircraft under long-term, priority
arrangements with industry recognized chartering companies, we believe that the terms of this arrangement are no worse than
what we could have expected to obtain in an arms-length transaction.
Family members of certain of our executive officers and directors may work for us from time to time. In 2015, Mr.
Sims (our CEO and a director) had two sons that worked as a vice president and a manager in our supply and logistics
department. Mr. James Davison, Sr. (a director) had one son (who is also a brother of James E. Davison, Jr., a director), that
worked as a director in our supply and logistics department. In the aggregate, these family members received total W-2
compensation of less than $1,000,000.
Director Independence
Because we are a limited partnership, the listing standards of the NYSE do not require that we have a majority of
independent directors (although at least a majority of the members of our board of directors is independent,as defined by the
NYSE rules) or that we have either a nominating committee or a compensation committee of our board of directors. We are,
however, required to have an audit committee consisting of at least three members, all of whom are required to be
“independent” as defined by the NYSE.
Under NYSE rules, to be considered independent, our board of directors must determine that a director has no material
relationship with us other than as a director. The rules specify the criteria by which the independence of directors will be
determined, including guidelines for directors and their immediate family members with respect to employment or affiliation
with us or with our independent public accountants. Our board of directors has determined that each of Ms. Gasaway and
Messrs. Robertson, Jastrow, Albert and Taylor is an independent director under the NYSE rules. See Item 10. “Directors,
Executive Officers and Corporate Governance” for additional discussion relating to our directors and director independence.
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Table of Contents
Item 14. Principal Accounting Fees and Services
The following table summarizes the fees for professional services rendered by Deloitte & Touche LLP for the years
ended December 31, 2015 and 2014.
Audit Fees (1)
Tax Fees (2)
All Other Fees (3)
Total
2015
2014
(in thousands)
3,496
$
739
8
4,243
$
2,489
839
8
3,336
$
$
(1) Includes fees for the annual audit and quarterly reviews (including internal control evaluation and reporting), SEC registration
statements and accounting and financial reporting consultations and research work regarding Generally Accepted Accounting
Principles.
(2) Includes fees for tax return preparation and tax consultations.
(3) Includes fees associated with licenses for accounting research software.
Pre-Approval Policy
The services by Deloitte in 2015 and 2014 were pre-approved in accordance with the pre-approval policy and
procedures adopted by the audit committee. This policy describes the permitted audit, audit-related, tax and other services,
which we refer to collectively as the Disclosure Categories that the independent auditor may perform. The policy requires that
each fiscal year, a description of the services, or the Service List expected to be performed by the independent auditor in each
of the Disclosure Categories in the following fiscal year be presented to the audit committee for approval.
Any requests for audit, audit-related, tax and other services not contemplated on the Service List must be submitted to
the audit committee for specific pre-approval and cannot commence until such approval has been granted. Normally, pre-
approval is provided at regularly scheduled meetings.
In considering the nature of the non-audit services provided by Deloitte in 2015 and 2014, the audit committee
determined that such services are compatible with the provision of independent audit services. The audit committee discussed
these services with Deloitte and management of our general partner to determine that they are permitted under the rules and
regulations concerning auditor independence promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002, as well as
the American Institute of Certified Public Accountants.
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Table of Contents
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
See “Index to Consolidated Financial Statements and Financial Statement Schedules”.
(a)(2) Financial Statement Schedules.
See “Index to Consolidated Financial Statements and Financial Statement Schedules”.
(a)(3) Exhibits
2.1
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Purchase and Sale Agreement, dated July 16, 2015, by and between Genesis Energy L.P. and Enterprise
Products Operating, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on
Form 8-K/A dated July 16 2015, File No. 001-12295).
Certificate of Limited Partnership of Genesis Energy, L.P. (incorporated by reference to Exhibit 3.1 to
Amendment No. 2 of the Registration Statement on Form S-1, File No. 333-11545).
Amendment to the Certificate of Limited Partnership of Genesis Energy, L.P. (incorporated by reference
to Exhibit 3.2 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, File
No. 001-12295).
Fifth Amended and Restated Agreement of Limited Partnership of Genesis Energy, L.P. (incorporated
by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated January 3, 2011, File
No. 001-12295).
Certificate of Conversion of Genesis Energy, Inc., a Delaware corporation, into Genesis Energy, LLC, a
Delaware limited liability company (incorporated by reference to Exhibit 3.1 to Form 8-K dated
January 7, 2009, File No. 001-12295).
Certificate of Formation of Genesis Energy, LLC (formerly Genesis Energy, Inc.) (incorporated by
reference to Exhibit 3.2 to Form 8-K dated January 7, 2009, File No. 001-12295).
Second Amended and Restated Limited Liability Company Agreement of Genesis Energy, LLC dated
December 28, 2010 (incorporated by reference to Exhibit 3.2 to Form 8-K dated January 3, 2011, File
No. 001-12295).
Certificate of Incorporation of Genesis Energy Finance Corporation, dated as of November 26, 2006
(incorporated by reference to Exhibit 3.7 to Registration Statement on Form S-4 filed on September 26,
2011, File No. 333-177012).
Bylaws of Genesis Energy Finance Corporation (incorporated by reference to Exhibit 3.8 to
Registration Statement on Form S-4 filed on September 26, 2011, File No. 333-177012).
Form of Unit Certificate of Genesis Energy, L.P. (incorporated by reference to Exhibit 4.1 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2007, File No. 001-12295).
Form of Common Unit Certificate of Genesis Energy, L.P. (incorporated by reference to Exhibit 4.1 to
Form 10-K filed on March 17, 2008, File No. 001-12295).
Davison Unitholder Rights Agreement dated July 25, 2007 (incorporated by reference to Exhibit 10.4 to
the Company's Current Report on Form 8-K dated July 31, 2007, File No. 001-12295).
Amendment No. 1 to the Davison Unitholder Rights Agreement dated October 15, 2007 (incorporated
by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated October 19, 2007,
File No. 001-12295).
Amendment No. 2 to the Davison Unitholder Rights Agreement dated December 28, 2010
(incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K dated January
3, 2011, File No. 001-12295).
Davison Registration Rights Agreement dated July 25, 2007 (incorporated by reference to Exhibit 10.3
to the Company's Current Report on Form 8-K dated July 31, 2007, File No. 001-12295).
Amendment No. 1 to the Davison Registration Rights Agreement, dated October 15, 2007 (incorporated
by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated October 19, 2007,
File No. 001-12295).
Amendment No. 2 to the Davison Registration Rights Agreement, dated December 6, 2007
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated
December 11, 2007, File No. 001-12295).
Amendment No. 3 to the Davison Registration Rights Agreement, dated as of December 28, 2010
(incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated January
3, 2011, File No. 001-12295).
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Table of Contents
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
Registration Rights Agreement, dated as of December 28, 2010, by and among Genesis Energy, L.P.
and the former unitholders of Genesis Energy, LLC (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-k dated January 3, 2011, File No. 001-12295).
Indenture for 7.875% Senior Subordinated Notes due 2018, dated November 18, 2010 among Genesis
Energy, L.P., Genesis Energy Finance Corporation, certain subsidiary guarantors named therein and
U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K dated November 23, 2010, File No. 001-12295).
Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of November 24,
2010, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named
therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the
Company’s Registration Statement on Form S-4 dated September 26, 2011, File No. 333-177012).
Second Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of
December 27, 2010, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the
Guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to
Exhibit 4.3 to the Company’s Registration Statement on Form S-4 dated September 26, 2011, File No.
333-177012).
Third Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of
February 28, 2011, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the
Guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to
Exhibit 4.4 to the Company’s Registration Statement on Form S-4 dated September 26, 2011, File No.
333-177012).
Fourth Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of June 30,
2011, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named
therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.5 to the
Company’s Registration Statement on Form S-4 dated September 26, 2011, File No. 333-177012).
Fifth Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of
September 13, 2011, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the
Guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to
Exhibit 4.6 to the Company’s Registration Statement on Form S-4 dated September 26, 2011, File No.
333-177012).
Sixth Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of
September 22, 2011, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the
Guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to
Exhibit 4.7 to the Company’s Registration Statement on Form S-4 dated September 26, 2011, File No.
333-177012).
Seventh Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of
December 5, 2011, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the
Guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to
Exhibit 4.9 to Form 10-K filed on February 29, 2012, File No. 001-12295).
Eighth Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of January 3,
2012, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named
therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.10 to
Form 10-K filed on February 29, 2012, File No. 001-12295).
Ninth Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of January 27,
2012, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named
therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.11 to
Form 10-K filed on February 29, 2012, File No. 001-12295).
Tenth Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of December
6, 2012, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors
named therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit
4.12 to Form 10-K filed on February 26, 2013, File No. 001-12295).
Eleventh Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of
January 28, 2013, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the
Guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to
Exhibit 4.13 to Form 10-K filed on February 26, 2013, File No. 001-12295).
Twelfth Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of February
19, 2014, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors
named therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit
4.14 to Form 10-K filed on February 27, 2014, File No. 001-12295).
Thirteenth Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of May 7,
2014, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named
therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.19 to
Form 10-K filed on February 27, 2015, File No. 001-12295).
96
Table of Contents
4.25
4.26
4.27
4.28
4.29
4.30
4.31
4.32
4.33
4.34
4.35
4.36
4.37
4.38
4.39
Fourteenth Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of
October 15, 2014, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the
Guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to
Exhibit 4.20 to Form 10-K filed on February 27, 2015, File No. 001-12295).
Fifteenth Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of
December 17, 2014, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the
Guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to
Exhibit 4.21 to Form 10-K filed on February 27, 2015, File No. 001-12295).
Sixteenth Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of January
22, 2015, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors
named therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit
4.22 to Form 10-K filed on February 27, 2015, File No. 001-12295).
Seventeenth Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of
February 19, 2015, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the
Guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to
Exhibit 4.23 to Form 10-K filed on February 27, 2015, File No. 001-12295).
Eighteenth Supplemental Indenture for 7.875% Senior Subordinated Notes due 2018, dated as of
February 19, 2015, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the
Guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to
Exhibit 4.24 to Form 10-K filed on February 27, 2015, File No. 001-12295).
Indenture for 5.75% Senior Subordinated Notes due 2021, dated February 8, 2013 among Genesis
Energy, L.P., Genesis Energy Finance Corporation, certain subsidiary guarantors named therein and
U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated February 11, 2013, File No. 001-12295).
First Supplemental Indenture for 5.75% Senior Subordinated Notes due 2021, dated as of February 19,
2014, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named
therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.14 to
Form 10-K filed on February 27, 2014, File No. 001-12295).
Second Supplemental Indenture for 5.75% Senior Subordinated Notes due 2021, dated as of May 7,
2014, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named
therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.27 to
Form 10-K filed on February 27, 2015, File No. 001-12295).
Third Supplemental Indenture for 5.75% Senior Subordinated Notes due 2021, dated as of October 15,
2014, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named
therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.28 to
Form 10-K filed on February 27, 2015, File No. 001-12295).
Fourth Supplemental Indenture for 5.75% Senior Subordinated Notes due 2021, dated as of December
17, 2014, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors
named therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit
4.29 to Form 10-K filed on February 27, 2015, File No. 001-12295).
Fifth Supplemental Indenture for 5.75% Senior Subordinated Notes due 2021, dated as of January 22,
2015, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named
therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.30 to
Form 10-K filed on February 27, 2015, File No. 001-12295).
Sixth Supplemental Indenture for 5.75% Senior Subordinated Notes due 2021, dated as of February 19,
2015, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named
therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.31 to
Form 10-K filed on February 27, 2015, File No. 001-12295).
Seventh Supplemental Indenture for 5.75% Senior Subordinated Notes due 2021, dated as of February
19, 2015, by and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors
named therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit
4.32 to Form 10-K filed on February 27, 2015, File No. 001-12295).
Eighth Supplemental Indenture for 5.75% Senior Notes due 2021, dated as of June 26, 2015, among
Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein and U.S.
Bank National Association, as trustee (incorporated by reference to Exhibit 4.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, File No. 001-12295).
Ninth Supplemental Indenture for 5.75% Senior Notes due 2021, dated as of July 15, 2015, among
Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein and U.S.
Bank National Association, as trustee (incorporated by reference to Exhibit 4.9 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, File No. 001-12295).
97
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4.40
*
4.41
4.42
4.43
4.44
4.45
4.46
4.47
4.48
4.49
4.50
4.51
Tenth Supplemental Indenture for 5.75% Senior Notes due 2021, dated as of September 22, 2015,
among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein and
U.S. Bank National association, as trustee (incorporated by reference to Exhibit 4.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, File No. 001-12295).
Eleventh Supplemental Indenture for 5.75% Senior Notes due 2021, dated as of December 11, 2015,
among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein and
U.S. Bank National association, as trustee.
Indenture for 5.625% Senior Notes due 2024, dated May 15, 2014, among Genesis Energy, L.P.,
Genesis Energy Finance Corporation, certain subsidiary guarantors named therein and U.S. Bank
National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current
Report on Form 8-K dated May 15, 2014, File No. 001-12295).
Supplemental Indenture for the Issuer's 5.625% Senior Notes due 2024, dated as of May 15, 2014, by
and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the subsidiary guarantors named
therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to
Form 10-K filed on May 15, 2014, File No. 001-12295).
Second Supplemental Indenture for 5.625% Senior Notes due 2024, dated as of October 15, 2014, by
and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein
and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.35 to Form 10-K
filed on February 27, 2015, File No. 001-12295).
Third Supplemental Indenture for 5.625% Senior Notes due 2024, dated as of December 17, 2014, by
and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein
and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.36 to Form 10-K
filed on February 27, 2015, File No. 001-12295).
Fourth Supplemental Indenture for 5.625% Senior Notes due 2024, dated as of January 22, 2015, by
and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein
and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.37 to Form 10-K
filed on February 27, 2015, File No. 001-12295).
Fifth Supplemental Indenture for 5.625% Senior Notes due 2024, dated as of February 19, 2015, by and
among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein and
U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.38 to Form 10-K
filed on February 27, 2015, File No. 001-12295).
Sixth Supplemental Indenture for 5.625% Senior Notes due 2024, dated as of February 19, 2015, by
and among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein
and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.39 to Form 10-K
filed on February 27, 2015, File No. 001-12295).
Seventh Supplemental Indenture for 5.625% Senior Notes due 2024, dated as of June 26, 2015, among
Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein and U.S.
Bank National Association, as trustee (incorporated by reference to Exhibit 4.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, File No. 001-12295).
Eighth Supplemental Indenture for 5.625% Senior Notes due 2024, dated as of July 15, 2015, among
Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein and U.S.
Bank National Association, as trustee (incorporated by reference to Exhibit 4.7 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, File No. 001-12295).
Ninth Supplemental Indenture for 5.625% Senior Notes due 2024, dated as of September 22, 2015,
among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein and
U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, File No. 001-12295).
*
4.52
Tenth Supplemental Indenture for 5.625% Senior Notes due 2024, dated as of December 11, 2015,
among Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein and
U.S. Bank National Association, as trustee.
4.53
4.54
4.55
Indenture, dated May 21, 2015, among Genesis Energy, L.P., Genesis Energy Finance Corporation, the
Guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated May 21, 2015, File No. 001-12295).
Supplemental Indenture for the Issuers' 6.000% Senior Notes due 2023, dated May 21, 2015, among
Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein and U.S.
Bank National Association, as trustee (including the form of the Notes) (incorporated by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K dated May 21, 2015, File No. 001-12295).
Second Supplemental Indenture for 6.000% Senior Notes due 2023, dated as of June 26, 2015, among
Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein and U.S.
Bank National Association, as trustee (incorporated by reference to Exhibit 4.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, File No. 001-12295).
98
Table of Contents
4.56
4.57
4.58
*
4.59
10.1
10.2
*
10.3
10.4
10.5
10.6
10.7
Third Supplemental Indenture for 6.000% Senior Notes due 2023, dated as of July 15, 2015, among
Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein and U.S.
Bank National Association, as trustee (incorporated by reference to Exhibit 4.5 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, File No. 001-12295).
Fourth Supplemental Indenture for 6.75% Senior Notes due 2022, dated as of July 23, 2015, among
Genesis Energy, L.P., Genesis Energy Finance Corporation, the Guarantors named therein and U.S.
Bank National Association, as trustee to the Indenture dated as of May 21, 2015, among Genesis
Energy, L.P., Genesis Energy Finance Corporation, the subsidiary guarantors named therein and U.S.
Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K dated July 28, 2015, File No. 001-12295).
Fifth Supplemental Indenture for 6.000% Senior Notes due 2023 and 6.75% Senior Notes due 2022,
dated as of September 22, 2015, among Genesis Energy, L.P., Genesis Energy Finance Corporation, the
Guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to
Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
2015, File No. 001-12295).
Sixth Supplemental Indenture for 6.000% Senior Notes due 2023 and 6.75% Senior Notes due 2022,
dated as of December 11, 2015, among Genesis Energy, L.P., Genesis Energy Finance Corporation, the
Guarantors named therein and U.S. Bank National Association, as trustee.
Fourth Amended and Restated Credit Agreement, dated as of June 30, 2014, among Genesis Energy,
L.P. as borrower, Wells Fargo Bank, National Association, as administrative agent, Bank of America,
N.A. and Bank of Montreal as co-syndication agents, U.S. Bank National Association as documentation
agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to Form 8-K dated July
3, 2014, File No. 001-12295).
First Amendment to Fourth Amended and Restated Credit Agreement, dated August 25, 2014, among
Genesis Energy, L.P. as borrower, Wells Fargo Bank, National Association, as administrative agent,
Bank of America, N.A. and Bank of Montreal as co-syndication agents, U.S. Bank National Association
as documentation agent and the lenders party thereto (incorporated by reference to Exhibit 10.1 to Form
8-K dated August 29, 2014, File No. 001-12295).
Second Amendment to Fourth Amended and Restated Credit Agreement and Joinder Agreement, dated
as of July 17, 2015, among Genesis Energy, L.P. as borrower, Wells Fargo Bank, National Association,
as administrative agent and issuing bank, Bank of America, N.A. and Bank of Montreal as co-
syndication agents, U.S. Bank National Association as documentation agent, and the lenders party
thereto.
Third Amendment to Fourth Amended and Restated Credit Agreement, dated as of September 17, 2015,
among Genesis Energy, L.P. as borrower, Wells Fargo Bank, National Association, as administrative
agent and issuing bank, Bank of America, N.A. and Bank of Montreal as co-syndication agents, U.S.
Bank National Association as documentation agent, and the lenders party thereto (incorporated by
reference to Exhibit 10.1 to Form 8-K dated September 23, 2015, File No. 001-12295).
Pipeline Financing Lease Agreement by and between Genesis NEJD Pipeline, LLC, as Lessor and
Denbury Onshore, LLC, as Lessee for the North East Jackson Dome Pipeline dated May 30, 2008
(incorporated by reference to Exhibit 10.1 to Form 8-K dated June 5, 2008, File No. 001-12295).
Transportation Services Agreement between Genesis Free State Pipeline, LLC, as Lessor and Denbury
Onshore, LLC dated May 30, 2008 (incorporated by reference to Exhibit 10.3 to Form 8-K dated
June 5, 2008, File No. 001-12295).
Form of Indemnity Agreement, among Genesis Energy, L.P., Genesis Energy, LLC and each of the
Directors of Genesis Energy, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K dated March 5, 2010, File No. 001-12295).
10.8
+ Genesis Energy, LLC First Amended and Restated Stock Appreciation Rights Plan (incorporated by
reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008, File No. 001-12295).
10.9
+ Form of Stock Appreciation Rights Plan Grant Notice (incorporated by reference to Exhibit 10.25 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2008, File No. 001-12295).
10.10
+ Genesis Energy, Inc. 2007 Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated December 21, 2007, File No. 001-12295).
10.11
+ Genesis Energy, L.P. 2010 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, File No.
001-12295).
10.12
+ Genesis Energy, LLC 2010 Long-Term Incentive Plan Form of Directors Phantom Unit with DERs
Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-
Q for the quarter ended March 31, 2013, File No. 001-12295).
99
Table of Contents
10.13
+ Genesis Energy, LLC 2010 Long-Term Incentive Plan Form of Executive Phantom Unit with DERs
Award – Officers (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2011, File No. 001-12295).
10.14
+ Genesis Energy, LLC 2010 Long-Term Incentive Plan Form of Employee Phantom Unit with DERs
Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-
Q for the quarter ended March 31, 2010, File No. 001-12295).
10.15
+ Form of 2007 Phantom Unit Grant Agreement (3-Year Graded) (incorporated by reference to Exhibit
10.2 to the Company’s Current Report on Form 8-K dated December 21, 2007, File No. 001-12295).
10.16
+ Form of 2007 Phantom Unit Grant Agreement (3-Year Cliff) (incorporated by reference to Exhibit 10.3
to the Company’s Current Report on Form 8-K dated December 21, 2007, File No. 001-12295).
10.17
10.18
11.1
21.1
23.1
31.1
31.2
32.1
32.2
+ Employment Agreement by and between Genesis Energy, LLC and Paul A. Davis, dated March 5, 2012
(incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K dated
February 26, 2013, File No. 001-12295).
+ Employment Agreement by and between DG Marine Transportation, LLC and Richard Alexander dated
July 18, 2008 ((incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form
10-K dated February 27, 2015, File No. 001-12295).
Statement Regarding Computation of Per Share Earnings (See Notes 2 and 11 of the Notes to the
Consolidated Financial Statements).
Subsidiaries of the Registrant.
Consent of Deloitte & Touche LLP.
Certification by Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act
of 1934.
Certification by Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act
of 1934.
Certification by Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification by Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document.
101.SCH
XBRL Schema Document.
101.CAL
XBRL Calculation Linkbase Document.
101.LAB
XBRL Label Linkbase Document.
101.PRE
XBRL Presentation Linkbase Document.
101.DEF
XBRL Definition Linkbase Document.
Filed herewith
A management contract or compensation plan or arrangement.
*
*
*
*
*
*
*
*
*
*
*
*
*
+
100
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 26, 2016
GENESIS ENERGY, L.P.
(A Delaware Limited Partnership)
By:
GENESIS ENERGY, LLC,
as General Partner
By:
/s/ GRANT E. SIMS
Grant E. Sims
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons in the capacities and on the dates indicated.
NAME
TITLE
DATE
/s/ GRANT E. SIMS
Grant E. Sims
/s/ ROBERT V. DEERE
Robert V. Deere
/s/ KAREN N. PAPE
Karen N. Pape
/s/ CONRAD P. ALBERT
Conrad P. Albert
/s/ JAMES E. DAVISON
James E. Davison
/s/ JAMES E. DAVISON, JR.
James E. Davison, Jr.
/s/ SHARILYN S. GASAWAY
Sharilyn S. Gasaway
/s/ KENNETH M. JASTROW, II
Kenneth M. Jastrow, II
/s/ CORBIN J. ROBERTSON, III
Corbin J. Robertson, III
/s/ JACK T. TAYLOR
Jack T. Taylor
*
Genesis Energy, LLC is our general partner.
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
(OF GENESIS ENERGY, LLC)*
Chairman of the Board, Director and Chief Executive
Officer
(Principal Executive Officer)
Chief Financial Officer,
(Principal Financial Officer)
Senior Vice President and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
101
Table of Contents
Item 8. Financial Statements and Supplementary Data
GENESIS ENERGY, L.P.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Financial Statements of Genesis Energy, L.P.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Partners’ Capital
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
1. Organization
2. Summary of Significant Accounting Policies
3. Acquisitions and Divestitures
4. Receivables
5. Inventories
6. Fixed Assets and Asset Retirement Obligations
7. Net Investment in Direct Financing Leases
8. Equity Investees
9. Intangible Assets, Goodwill and Other Assets
10. Debt
11. Partners' Capital and Distributions
12. Business Segment Information
13. Transactions with Related Parties
14. Supplemental Cash Flow Information
15. Equity-Based Compensation Plans and Employee Benefit Plans
16. Major Customers and Credit Risk
17. Derivatives
18. Fair-Value Measurements
19. Commitments and Contingencies
20. Income Taxes
21. Quarterly Financial Data (Unaudited)
22. Condensed Consolidating Financial Information
Page
F-1
F-2
F-3
F-4
F-5
F-6
F-6
F-6
F-11
F-15
F-15
F-16
F-17
F-17
F-20
F-21
F-24
F-25
F-27
F-28
F-29
F-32
F-32
F-35
F-36
F-37
F-39
F-39
102
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Genesis Energy, LLC and Unitholders of
Genesis Energy, L.P.
Houston, Texas
We have audited the accompanying consolidated balance sheets of Genesis Energy, L.P. and subsidiaries (the "Partnership") as of December 31,
2015 and 2014, and the related consolidated statements of operations, partners’ capital, and cash flows for each of the three years in the period
ended December 31, 2015. We also have audited the Partnership's internal control over financial reporting as of December 31, 2015, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Partnership's management is responsible for these financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion
on the Partnership's internal control over financial reporting based on our audits.
As described in Management's Report on Internal Control over Financial Reporting, management excluded from its assessment the internal
control over financial reporting of the offshore pipelines and services business acquired from Enterprise Products Partners, L.P., which was
acquired in July 2015 and whose financial statements constitute approximately 40% of total assets and approximately 6% of total revenues, of
the consolidated financial statement amounts as of and for the year ended December 31, 2015. Accordingly, our audit did not include the internal
control over financial reporting at the offshore pipelines and services business acquired from Enterprise Products Partners, L.P.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement
and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive
and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Genesis
Energy, L.P. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31,
2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 26, 2016
F-1
GENESIS ENERGY, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
Table of Contents
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable—trade, net
Inventories
Other
Total current assets
FIXED ASSETS, at cost
Less: Accumulated depreciation
Net fixed assets
NET INVESTMENT IN DIRECT FINANCING LEASES, net of unearned income
EQUITY INVESTEES
INTANGIBLE ASSETS, net of amortization
GOODWILL
OTHER ASSETS, net of amortization
TOTAL ASSETS
LIABILITIES AND PARTNERS’ CAPITAL
CURRENT LIABILITIES:
Accounts payable—trade
Accrued liabilities
Total current liabilities
SENIOR SECURED CREDIT FACILITY
SENIOR UNSECURED NOTES, net of debt issuance costs
DEFERRED TAX LIABILITIES
OTHER LONG-TERM LIABILITIES
COMMITMENTS AND CONTINGENCIES (Note 19)
PARTNERS’ CAPITAL:
Common unitholders, 109,979,218 and 95,029,218 units issued and outstanding at
December 31, 2015 and 2014, respectively
Noncontrolling interests
Total partners' capital
TOTAL LIABILITIES AND PARTNERS’ CAPITAL
December 31,
2015
December 31,
2014
$
10,895
$
219,532
43,775
32,114
306,316
4,310,226
(378,247)
3,931,979
139,728
474,392
223,446
325,046
58,692
9,462
271,529
46,829
27,546
355,366
1,899,058
(268,057)
1,631,001
145,959
628,780
82,931
325,046
41,541
$
5,459,599
$
3,210,624
$
140,726
$
161,410
302,136
1,115,000
1,807,054
22,586
192,072
245,405
117,740
363,145
550,400
1,030,889
18,754
18,233
2,029,101
(8,350)
2,020,751
1,229,203
—
1,229,203
$
5,459,599
$
3,210,624
The accompanying notes are an integral part of these consolidated financial statements.
F-2
Table of Contents
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)
REVENUES:
Offshore pipeline transportation services
Onshore pipeline transportation services
Refinery services
Marine transportation
Supply and logistics
Total revenues
COSTS AND EXPENSES:
Supply and logistics product costs
Supply and logistics operating costs
Marine transportation operating costs
Refinery services operating costs
Offshore pipeline transportation operating costs
Onshore pipeline transportation operating costs
General and administrative
Depreciation and amortization
Total costs and expenses
OPERATING INCOME
Equity in earnings of equity investees
Interest expense
Gain on basis step up on historical interest
Other income/(expense), net
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Income from discontinued operations
NET INCOME
Net loss attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P.
BASIC AND DILUTED NET INCOME PER COMMON UNIT:
Continuing operations
Discontinued operations
Net income per common unit
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS:
Basic and Diluted
`
Year Ended December 31,
2015
2014
2013
$
140,230
$
3,296
$
77,092
177,880
238,757
1,612,570
2,246,529
83,157
207,401
229,282
3,323,028
3,846,164
3,923
82,585
205,985
152,542
3,689,795
4,134,830
1,481,619
3,166,336
3,547,141
95,878
135,200
96,806
39,713
25,311
64,995
150,140
2,089,662
156,867
54,450
(100,596)
332,380
(17,529)
425,572
(3,987)
421,585
—
421,585
943
422,528
4.09
—
4.09
$
$
$
110,716
142,793
121,401
1,271
29,496
50,692
90,908
102,187
104,676
131,289
1,234
25,972
46,790
64,784
3,713,613
132,551
4,024,073
110,757
43,135
(66,639)
—
—
109,047
(2,845)
106,202
—
106,202
—
106,202
1.18
—
1.18
$
$
$
22,675
(48,583)
—
—
84,849
(845)
84,004
2,105
86,109
—
86,109
1.00
0.03
1.03
103,004
90,060
83,957
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(In thousands)
December 31, 2012
Net income
Cash distributions to partners, net
Issuance of units for cash, net (Note 11)
Conversion of waiver units
December 31, 2013
Net income
Cash distributions to partners, net
Issuance of units for cash, net (Note 11)
Conversion of waiver units
December 31, 2014
Net income (loss)
Noncontrolling interest from acquisition
Cash distributions to partners, net
Cash distributions to noncontrolling interests
Number of
Common
Units
Partners'
Capital
Noncontrolling
Interest
Total
81,203
$
916,495
$
— $
916,495
—
—
5,750
1,738
86,109
(168,441)
263,574
—
88,691
1,097,737
—
—
4,600
1,738
106,202
(200,461)
225,725
—
95,029
1,229,203
—
—
—
—
422,528
—
(256,389)
—
633,759
—
—
—
—
—
—
—
—
—
86,109
(168,441)
263,574
—
1,097,737
106,202
(200,461)
225,725
—
1,229,203
—
(943)
(6,447)
—
(960)
—
421,585
(6,447)
(256,389)
(960)
633,759
(8,350) $ 2,020,751
Issuance of common units for cash, net (Note 11)
14,950
December 31, 2015
109,979
$ 2,029,101
$
The accompanying notes are an integral part of these consolidated financial statements.
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GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization
Gain on basis step up on historical interest
Amortization and write-off of debt issuance costs and premium
Amortization of unearned income and initial direct costs on direct
financing leases
Payments received under direct financing leases
Equity in earnings of investments in equity investees
Cash distributions of earnings of equity investees
Non-cash effect of equity-based compensation plans
Deferred and other tax benefits
Unrealized (gains) losses on derivative transactions
Other, net
Net changes in components of operating assets and liabilities, net
of acquisitions (See Note 14)
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments to acquire fixed and intangible assets
Cash distributions received from equity investees—return of
investment
Investments in equity investees
Acquisitions
Contributions in aid of construction costs
Proceeds from asset sales and discontinued operations
Other, net
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on senior secured credit facility
Repayments on senior secured credit facility
Proceeds from issuance of senior unsecured notes, including premium
Repayment of senior unsecured notes
Debt issuance costs
Issuance of common units for cash, net
Distributions to noncontrolling interests
Distributions to common unitholders
Other, net
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Year Ended December 31,
2015
2014
2013
$
421,585
$
106,202
$
86,109
150,140
(332,380)
10,881
(14,979)
20,664
(54,450)
71,823
5,014
2,960
(1,009)
3,915
5,372
289,536
90,908
—
4,785
(15,706)
21,235
(43,135)
57,165
4,494
1,745
(17,984)
3,391
77,954
291,054
64,796
—
4,339
(16,152)
21,262
(22,675)
34,132
12,473
(152)
1,313
(873)
(46,186)
138,386
(495,774)
(443,482)
(343,119)
25,645
(3,045)
(1,520,299)
3,179
2,811
(1,976)
(1,989,459)
1,525,050
(960,450)
1,139,718
(350,000)
(28,901)
633,759
(960)
(256,389)
(471)
1,701,356
1,433
9,462
18,363
(40,926)
(157,000)
—
272
(1,214)
(623,987)
1,839,900
(1,872,300)
350,000
—
(11,896)
225,725
—
(200,461)
2,561
333,529
596
8,866
12,432
(94,551)
(230,880)
—
1,910
(1,622)
(655,830)
1,593,300
(1,510,500)
350,000
—
(8,157)
263,574
—
(168,441)
(4,748)
515,028
(2,416)
11,282
$
10,895
$
9,462
$
8,866
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
1. Organization
GENESIS ENERGY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We are a limited partnership focused on the midstream segment of the crude oil and natural gas industry in the Gulf
Coast region of the United States, primarily Texas, Louisiana, Arkansas, Mississippi, Alabama, Florida, and in Wyoming and
the Gulf of Mexico. We have a diverse portfolio of assets, including pipelines, refinery-related plants, storage tanks and
terminals, railcars, rail loading and unloading facilities, barges and other vessels, and trucks. We were formed in 1996 and are
owned 100% by our limited partners. Genesis Energy, LLC, our general partner, is a wholly-owned subsidiary. Our general
partner has sole responsibility for conducting our business and managing our operations. We conduct our operations and own
our operating assets through our subsidiaries and joint ventures. We manage our businesses through the following five divisions
that constitute our reportable segments:
• Offshore pipeline transportation and processing of crude oil and natural gas in the Gulf of Mexico;
• Onshore pipeline transportation of crude oil and, to a lesser extent, carbon dioxide (or “CO2”);
• Refinery services involving processing of high sulfur (or “sour”) gas streams for refineries to remove the sulfur,
and selling the related by-product, sodium hydrosulfide (or “NaHS”, commonly pronounced "nash");
• Marine transportation to provide waterborne transportation of petroleum products and crude oil throughout North
America; and
•
Supply and logistics services, which include terminaling, blending, storing, marketing, and transporting crude oil
and petroleum products and, on a smaller scale, CO2.
On July 24, 2015, we acquired the offshore pipeline and services business of Enterprise Products Partners, L.P. and its
affiliates for approximately $1.5 billion, subject to certain adjustments. That business includes interests in offshore crude oil
and natural gas pipelines and six offshore hub platforms that serve some of the most active drilling and development regions in
the United States, including deepwater production fields in the Gulf of Mexico offshore Texas, Louisiana, Mississippi and
Alabama. That acquisition complements and substantially expands our existing offshore pipelines segment.
2. Summary of Significant Accounting Policies
Basis of Consolidation and Presentation
The accompanying financial statements and related notes present our consolidated financial position as of
December 31, 2015 and 2014 and our results of operations, changes in partners’ capital and cash flows for the years ended
December 31, 2015, 2014 and 2013. All intercompany balances and transactions have been eliminated. The accompanying
Consolidated Financial Statements include Genesis Energy, L.P. and its subsidiaries.
Except per unit amounts, or as noted within the context of each footnote disclosure, the dollar amounts presented in
the tabular data within these footnote disclosures are stated in thousands of dollars.
Joint Ventures
We participate in several joint ventures, including a 64% interest in Poseidon Oil Pipeline Company, L.L.C. (or
"Poseidon"), a 50% interest in Deepwater Gateway, LLC, a 25.7% interest in Neptune Pipeline Company, LLC and a 29%
interest in Odyssey Pipeline L.L.C. (or "Odyssey"). We account for our investments in these joint ventures by the equity
method of accounting. See Notes 3 and 8.
Use of Estimates
The preparation of our Consolidated Financial Statements requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the
Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. We based
these estimates and assumptions on historical experience and other information that we believed to be reasonable under the
circumstances. Significant estimates that we make include: (1) liability and contingency accruals, (2) estimated fair value of
assets and liabilities acquired and identification of associated goodwill and intangible assets, (3) estimates of future net cash
flows from assets for purposes of determining whether impairment of those assets has occurred, and (4) estimates of future
asset retirement obligations. Additionally, for purposes of the calculation of the fair value of awards under equity-based
compensation plans, we make estimates regarding the expected life of the rights, expected forfeiture rates of the rights,
volatility of our unit price and expected future distribution yield on our units. While we believe these estimates are reasonable,
actual results could differ from these estimates. Changes in facts and circumstances may result in revised estimates.
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Table of Contents
Cash and Cash Equivalents
Cash and cash equivalents consist of all demand deposits and funds invested in highly liquid instruments with original
maturities of three months or less. We have no requirement for compensating balances or restrictions on cash. We periodically
assess the financial condition of the institutions where these funds are held and believe that our credit risk is minimal.
Accounts Receivable
We review our outstanding accounts receivable balances on a regular basis and record an allowance for amounts that
we expect will not be fully recovered. Actual balances are not applied against the reserve until substantially all collection
efforts have been exhausted.
Inventories
Our inventories are valued at the lower of cost or market. Cost is determined principally under the average cost
method within specific inventory pools.
Fixed Assets
Property and equipment are carried at cost. Depreciation of property and equipment is provided using the straight-line
method over the respective estimated useful lives of the assets. Asset lives are 5 to 40 years for pipelines and related assets, 20
to 30 years for marine vessels, 10 to 20 years for machinery and equipment, 3 to 7 years for transportation equipment, and 3 to
10 years for buildings and improvements, office equipment, furniture and fixtures and other equipment.
Interest is capitalized in connection with the construction of major facilities. The capitalized interest is recorded as part
of the asset to which it relates and is amortized over the asset’s estimated useful life.
Maintenance and repair costs are charged to expense as incurred. Costs incurred for major replacements and upgrades
are capitalized and depreciated over the remaining useful life of the asset. Certain volumes of crude oil and refined products are
classified in fixed assets, as they are necessary to ensure efficient and uninterrupted operations of the gathering businesses.
These crude oil and refined products volumes are carried at their weighted average cost.
Long-lived assets are reviewed for impairment. An asset is tested for impairment when events or circumstances
indicate that its carrying value may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds
the sum of the undiscounted cash flows expected to be generated from the use and ultimate disposal of the asset. If the carrying
value is determined to not be recoverable under this method, an impairment charge equal to the amount the carrying value
exceeds the fair value is recognized. Fair value is generally determined from estimated discounted future net cash flows.
Deferred Charges on Marine Transportation Assets
Our marine vessels are required by US Coast Guard regulations to be re-certified after a certain period of time, usually
every five years. The US Coast Guard states that vessels must meet specified "seaworthiness" standards to maintain required
operating certificates. To meet such standards, vessels must undergo regular inspection, monitoring, and maintenance, referred
to as "dry-docking." Typical dry-docking costs include costs incurred to comply with regulatory and vessel classification
inspection requirements, blasting and steel coating, and steel replacement. We defer and amortize these costs to maintenance
and repair expense over the length of time that the certification is supposed to last.
Asset Retirement Obligations
Some of our assets have contractual or regulatory obligations to perform dismantlement and removal activities, and in
some instances remediation, when the assets are abandoned. In general, our future asset retirement obligations relate to future
costs associated with the removal of our crude oil and CO2 pipelines, barge decommissioning, removal of equipment and
facilities from leased acreage and land restoration. The fair value of a liability for an asset retirement obligation is recorded in
the period in which it is incurred, discounted to its present value using our credit adjusted risk-free interest rate, and a
corresponding amount capitalized by increasing the carrying amount of the related long-lived asset. The capitalized cost is
depreciated over the useful life of the related asset. Accretion of the discount increases the liability and is recorded to expense.
See Note 6.
Direct Financing Leasing Arrangements
For our direct financing leases, we record the gross finance receivable, unearned income and the estimated residual
value of the leased pipelines. Unearned income represents the excess of the gross receivable plus the estimated residual value
over the costs of the pipelines. Unearned income is recognized as financing income using the interest method over the term of
the transaction and is included in pipeline transportation services revenue in the Consolidated Statements of Operations. The
pipeline cost is not included in fixed assets.
We review our direct financing lease arrangements for credit risk. Such review includes consideration of the credit
rating and financial position of the lessee. See Note 7.
F-7
Table of Contents
CO2 Assets
Our CO2 assets include two volumetric production payments, which are amortized on a units-of-production method.
These assets are included in Other Assets in our Consolidated Balance Sheets. See Note 9.
Intangible and Other Assets
Intangible assets with finite useful lives are amortized over their respective estimated useful lives. If an intangible
asset has a finite useful life, but the precise length of that life is not known, that intangible asset shall be amortized over the best
estimate of its useful life. At a minimum, we will assess the useful lives and residual values of all intangible assets on an annual
basis to determine if adjustments are required. We are amortizing our customer and supplier relationships, contract agreements,
licensing agreements and trade name based on the period over which the asset is expected to contribute to our future cash
flows. Generally, the contribution of these assets to our cash flows is expected to decline over time, such that greater value is
attributable to the periods shortly after the acquisition was made. Intangible assets associated with lease or other items are
being amortized on a straight-line basis.
We test intangible assets periodically to determine if impairment has occurred. An impairment loss is recognized for
intangibles if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value. No
impairment has occurred of intangible assets in any of the periods presented.
Costs incurred in connection with the issuance of long-term debt and certain amendments to our credit facilities have
historically been capitalized and amortized using the straight-line method over the term of the related debt. Use of the straight-
line method does not differ materially from the “effective interest” method of amortization. Based on our early adoption of new
FASB Guidance related to the balance sheet presentation of debt issuance costs, certain of our capitalized debt issuance costs
related to our respective issuances of notes are now classified as reductions in long-term debt rather than non-current assets on
the balance sheet. This new guidance does not have an impact on income statement presentation, nor does it impact the
classification of debt issuance costs related to our credit facility. See below under "Recent and Proposed Accounting
Pronouncements" for further discussion.
Goodwill
Goodwill represents the excess of purchase price over fair value of net assets acquired. We evaluate, and test if
necessary, goodwill for impairment annually at October 1, and more frequently if indicators of impairment are present. During
evaluation, we perform a qualitative assessment of relevant events and circumstances to determine the likelihood of goodwill
impairment. If it is deemed more likely than not that the fair value of the reporting unit is less than its carrying amount, we
calculate the fair value of the reporting unit. Otherwise, further testing is not necessary. If the calculated fair value of the
reporting unit exceeds its book value including associated goodwill amounts, the goodwill is considered to be unimpaired and
no impairment charge is required. If the fair value of the reporting unit is less than its book value including associated goodwill
amounts, a charge to earnings may be necessary to reduce the carrying value of the goodwill to its implied fair value. In the
event that we determine that goodwill has become impaired, we will incur a charge for the amount of impairment during the
period in which the determination is made. No goodwill impairment has occurred in any of the periods presented. See Note 9
for further information.
Environmental Liabilities
We provide for the estimated costs of environmental contingencies when liabilities are probable to occur and a
reasonable estimate of the associated costs can be made. Ongoing environmental compliance costs, including maintenance and
monitoring costs, are charged to expense as incurred.
Equity-Based Compensation
Our stock appreciation rights plan and phantom units issued under our 2010 Long-Term Incentive Plan result in the
payment of cash to our employees or directors of our general partner upon exercise or vesting of the related award. The fair
values of our equity-based awards are re-measured at the end of each reporting period and are recorded as liabilities. The
liability and related compensation cost for our stock appreciation rights are calculated using a Black-Scholes option pricing
model that takes into consideration the expected future value of the rights at their expected exercise dates and management’s
assumptions about expectation of forfeitures prior to vesting. The fair value of our phantom units is equal to the market price of
our common units. Our phantom units include both service-based and performance-based awards. For our performance-based
awards, our fair value estimates are weighted based on probabilities for each performance condition applicable to the award.
See Note 15 for more information on these plans.
Revenue Recognition
Product Sales—Revenues from the sale of crude oil, petroleum products and CO2 by our supply and logistics segment,
and caustic soda and NaHS by our refinery services segment are recognized when title to the inventory is transferred to the
customer, pricing is fixed and determinable, collectibility is reasonably assured and there are no further significant obligations
F-8
Table of Contents
for future performance by us. Most frequently, title transfers upon our delivery of the inventory to the customer at a location
designated by the customer, although in certain situations, title transfers when the inventory is loaded for transportation to the
customer. Our crude oil and petroleum products are typically sold at prices based off daily or monthly published prices. Many
of our contracts for sales of NaHS incorporate the price of caustic soda in the pricing formulas.
Marine Transportation—Revenues from the inland and offshore marine transportation of heavy refined petroleum
products, including asphalt and crude oil, via our barges or vessels are recognized over the transit time of individual shipments
as determined on an individual contract basis. Revenue from these contracts is typically based on a set day rate or a set fee per
cargo movement. The costs of fuel, substantially all of which is a pass through expense, and other specified operational costs
are directly reimbursed by the customer under most of these contracts.
Rail Facility Loading and Unloading Revenues—Revenues based on a per barrel fee from the loading and/or
unloading of crude oil at our rail facilities is recognized as the crude oil enters or exits the railcars.
Onshore Pipeline Transportation—Revenues from transportation of crude oil by our pipelines are based on actual
volumes at a published tariff. Tariff revenues are recognized either at the point of delivery or at the point of receipt pursuant to
the specifications outlined in our regulated tariffs. Income from direct financing leases is being recognized ratably over the
term of the leases and is included in pipeline revenues.
Offshore Pipeline Transportation—Revenue from our offshore pipelines is generally based upon a fixed fee per unit of
volume gathered or transported multiplied by the volume delivered. Transportation fees are based either on contractual
arrangements or tariffs regulated by the FERC. Revenue associated with these fee-based contracts and tariffs is recognized
when volumes have been delivered. Revenues from offshore platform services are primarily dependent upon the level of
commodity charges and/or demand-type fees billable to customers. Revenues from offshore platform services are recognized in
the period the services are provided. Revenue from commodity charges is based on a fee per unit of volume (typically per
MMcf of natural gas or per barrel of crude oil) delivered to the platform multiplied by the total volume of each product
delivered. Demand-type fees are similar to firm capacity reservation agreements for a pipeline in that they are charged to a
customer regardless of the volume the customer actually delivers to the platform. Contracts for platform services often include
both demand-type fees and commodity charges, but demand-type fees generally expire after a contractually fixed period of time
and in some instances may be subject to cancellation by customers.
In order to compensate us for bearing the risk of volumetric losses in volumes that occur to crude oil in our pipelines
(onshore and offshore) due to temperature, crude quality and the inherent difficulties of measurement of liquids in a pipeline,
our tariffs and agreements include the right for us to make volumetric deductions from the shippers for quality and volumetric
fluctuations. We refer to these deductions as pipeline loss allowances.
We compare these allowances to the actual volumetric gains and losses of the pipeline and the net gain or loss is
recorded as revenue or a reduction of revenue, based on prevailing market prices at that time. When net gains occur, we have
crude oil inventory. When net losses occur, we reduce any recorded inventory on hand and record a liability for the purchase of
crude oil that we must make to replace the lost volumes. We reflect inventories in the Consolidated Financial Statements at the
lower of the recorded value or the market value at the balance sheet date. We value liabilities to replace crude oil at current
market prices. The crude oil in inventory can then be sold, resulting in additional revenue if the sales price exceeds the
inventory value.
Cost of Sales and Operating Expenses
Supply and logistics costs and expenses include the cost to acquire the product and the associated costs to transport it
to our terminal facilities, including storing, or to a customer for sale. Other than the cost of the products, the most significant
costs we incur relate to transportation utilizing our fleet of trucks, railcars, terminals, barges and other vessels , including
personnel costs, fuel and maintenance of our or third-party owned equipment.
When we enter into buy/sell arrangements concurrently or in contemplation of one another with a single counterparty,
we reflect the amounts of revenues and purchases for these transactions on a net basis in our Consolidated Statements of
Operations as supply and logistics revenues.
Marine operating costs consist primarily of employee and related costs to man the boats, barges, and vessels,
maintenance and supply costs related to general upkeep of the boats, barges, and vessels, and fuel costs which are rebillable and
passed through to the customer.
The most significant operating costs in our refinery services segment consist of the costs to operate NaHS plants
located at various refineries, caustic soda used in the process of processing the refiner’s sour gas, and costs to transport the
NaHS and caustic soda.
Pipeline operating costs consist primarily of power costs to operate pumping and platform equipment, personnel costs
to operate the pipelines and platforms, insurance costs and costs associated with maintaining the integrity of our pipelines.
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Table of Contents
Excise and Sales Taxes
We collect and remit excise and sales taxes to state and federal governmental authorities on its sales of fuels. These
taxes are presented on a net basis, with any differences due to rebates allowed by those governmental entities reflected as a
reduction of product cost in the Consolidated Statements of Operations.
Income Taxes
We are a limited partnership, organized as a pass-through entity for federal income tax purposes. As such, we do not
directly pay federal income tax. Our taxable income or loss, which may vary substantially from the net income or net loss we
report in our Consolidated Statements of Operations, is included in the federal income tax returns of each partner.
Some of our corporate subsidiaries pay U.S. federal, state, and foreign income taxes. Deferred income tax assets and
liabilities for certain operations conducted through corporations are recognized for temporary differences between the assets
and liabilities for financial reporting and tax purposes. Changes in tax legislation are included in the relevant computations in
the period in which such changes are effective. Deferred tax assets are reduced by a valuation allowance for the amount of any
tax benefit not expected to be realized. Penalties and interest related to income taxes will be included in income tax expense in
the Consolidated Statements of Operations.
Derivative Instruments and Hedging Activities
When we hold inventory positions in crude oil and petroleum products, we use derivative instruments to hedge
exposure to price risk. Derivative transactions, which can include forward contracts and futures positions on the NYMEX, are
recorded in the Consolidated Balance Sheets as assets and liabilities based on the derivative’s fair value. Changes in the fair
value of derivative contracts are recognized currently in earnings unless specific hedge accounting criteria are met. We must
formally designate the derivative as a hedge and document and assess the effectiveness of derivatives associated with
transactions that receive hedge accounting. Accordingly, changes in the fair value of derivatives are included in earnings in the
current period for (i) derivatives accounted for as fair value hedges; (ii) derivatives that do not qualify for hedge accounting and
(iii) the portion of cash flow hedges that is not highly effective in offsetting changes in cash flows of hedged items. Changes in
the fair value of cash flow hedges are deferred in Accumulated Other Comprehensive Income (“AOCI”) and reclassified into
earnings when the underlying position affects earnings. See Note 17.
Fair Value of Current Assets and Current Liabilities
The carrying amount of other current assets and other current liabilities approximates their fair value due to their
short-term nature.
Net Income Per Common Unit
Basic and diluted net income per common unit is determined by dividing net income attributable to limited partners by
the weighted average number of outstanding common units during the period.
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation and new accounting
pronouncements, including the presentation of debt issuance costs relating to our senior unsecured notes as discussed further
below in "Recent and Proposed Accounting Pronouncements".
Recent and Proposed Accounting Pronouncements
In May 2014, the FASB issued revised guidance on revenue from contracts with customers that will supersede most
current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an
entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard provides a
five-step analysis for transactions to determine when and how revenue is recognized. The guidance permits the use of either a
full retrospective or a modified retrospective approach. In July 2015, the FASB approved a one year deferral of the effective
date of this standard to December 15, 2017 for annual reporting periods beginning after that date. The FASB also approved
early adoption of the standard, but not before the original effective date of December 15, 2016. We are evaluating the transition
methods and the impact of the amended guidance on our financial position, results of operations and related disclosures.
In April 2015, the FASB issued guidance that will require the presentation of debt issuance costs in financial
statements as a direct reduction of related debt liabilities with amortization of debt issuance costs reported as interest expense.
Under current U.S. GAAP standards, debt issuance costs are reported as deferred charges (i.e., as an asset). This guidance is
effective for annual periods, and interim periods within those fiscal years, beginning after December 15, 2015 and is to be
applied retrospectively upon adoption. Early adoption is permitted and we have adopted this guidance in the fourth quarter of
2015. As a result of early adopting this pronouncement and applying it retrospectively to other assets and senior unsecured
notes, such assets were reduced by $19.8 million as of December 31, 2014.
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In July 2015, the FASB issued guidance modifying the accounting for inventory. Under this guidance, the
measurement principle for inventory will change from lower of cost or market value to lower of cost and net realizable value.
The guidance defines net realizable value as the estimated selling price in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation. The guidance is effective for reporting periods after December 15,
2016, with early adoption permitted. We do not expect adoption to have a material impact on our consolidated financial
statements.
In September 2015, the FASB issued guidance in response to stakeholder feedback that restating prior periods to
reflect adjustments made to provisional amounts recognized in a business combination adds cost and complexity to financial
reporting but does not significantly improve the usefulness of information provided to users. Under the new guidance, an
acquirer must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting
period in which the adjustment amounts are determined. The guidance also requires that the acquirer present separately on the
face of the income statement, or disclose in the notes, the portion of the amount recorded in current period earnings by line item
that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized
as of the acquisition date. The standards update is effective for fiscal years and interim periods beginning after December 15,
2015. Early application is permitted for financial statements that have not been issued. We are currently evaluating this
guidance.
In November 2015, the FASB issued guidance amending the accounting for income taxes and requiring all deferred tax
assets and liabilities to be classified as non-current on the consolidated balance sheet. The guidance is effective for reporting
periods beginning after December 15, 2016, with early adoption permitted. The guidance may be adopted either prospectively
or retrospectively. We elected to early adopt this guidance prospectively in the fourth quarter of 2015 and as such all deferred
tax liabilities on our consolidated balance sheet are presented as non-current for the year ended December 31, 2015. We
elected not to retrospectively adjust prior periods as the results of such adjustments were deemed immaterial.
In February 2016, the FASB issued guidance to improve the transparency and comparability among companies by
requiring lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. The guidance also
requires additional disclosure about leasing arrangements. The guidance is effective for interim and annual periods beginning
after December 15, 2018 and requires a modified retrospective approach to adoption. Early adoption is permitted. We are
currently evaluating this guidance.
3. Acquisitions and Divestitures
Acquisitions
Enterprise Offshore
On July 24, 2015, we acquired the offshore pipeline and services business of Enterprise Products Partners, L.P. and its
affiliates for approximately $1.5 billion, subject to certain adjustments. That business includes interests in offshore crude oil and
natural gas pipelines and six offshore hub platforms, including a 36% interest in the Poseidon Oil Pipeline System, a 50%
interest in the Southeast Keathley Canyon Oil Pipeline System, and a 50% interest in the Cameron Highway Oil Pipeline
System. To finance that transaction, in July, we issued 10,350,000 common units in a public offering that generated proceeds of
$437.2 million net of underwriter discounts and $750 million aggregate principal amount of 6.75% senior unsecured notes due
2022 that generated net proceeds of $728.6 million net of issuance discount and underwriting fees. The remainder of that
transaction was financed with borrowings under our senior secured credit facility.
We have reflected the financial results of the acquired business in our offshore pipeline transportation segment from the date
of acquisition. The purchase price has been allocated to the assets acquired and liabilities assumed based on estimated
preliminary fair values. Those preliminary fair values were developed by management with the assistance of a third-party
valuation firm and are subject to change pending a final valuation report and final determination of working capital acquired and
other purchase price adjustments. We expect to finalize the purchase price allocation for this transaction during 2016. We do
not expect any material adjustments to these preliminary purchase price allocations as a result of the final valuation.
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Table of Contents
The allocation of the purchase price, as presented on our Consolidated Balance Sheet, is summarized as follows:
Cash
Accounts receivable
Inventories
Other current assets
Fixed assets
Intangible assets
Equity investees
Other assets
Accounts payable
Accrued liabilities
Other long-term liabilities
Noncontrolling interest
Total purchase price
$
1,270
29,768
600
10,432
1,225,685
79,050
352,535
1,966
(6,110)
(18,662)
(161,412)
6,447
$
1,521,569
Fixed assets identified in connection with our valuation and preliminary purchase price allocation include crude oil
pipelines, natural gas pipelines and related assets. We will depreciate these assets on a straight line basis over estimated useful
lives ranging from 2 to 35 years depending on the nature of each asset.
Intangible assets identified in connection with our valuation and preliminary purchase price allocation relate to
customer contracts surrounding certain transportation agreements with producers in the Lucius production area in Southeast
Keathley Canyon, which support our SEKCO pipeline. We will amortize these intangible assets on a straight line basis over an
estimated useful life of 19 years.
In connection with our valuation and preliminary purchase price allocation, we have identified asset retirement
obligations ("AROs") relating to the crude oil pipelines, natural gas pipelines and related assets with a preliminary fair value of
$158.2 million. Of these AROs, $9.8 million of retirement costs are estimated to be incurred within the next year and thus are
included in accrued liabilities in the table above, as well as on our Consolidated Balance Sheet at December 31, 2015. The
remainder of the AROs recorded as a result of our Enterprise acquisition are included within "Other long-term liabilities" in the
table above, as well as on our Consolidated Balance Sheet. See further discussion of AROs assumed as a result of our Enterprise
acquisition in Note 5.
Noncontrolling interest as shown in the table above relates to the preliminary fair value assigned to the 20% ownership
interest of our joint venture partner in Independence Hub, LLC, a consolidated subsidiary acquired as a result of the Enterprise
acquisition in which we have an 80% ownership interest.
Our Consolidated Financial Statements include the results of our acquired offshore pipeline transportation business
since July 24, 2015, the effective closing date of the acquisition. The following table presents selected financial information
included in our Consolidated Financial Statements for the periods presented:
Revenues
Net income
Year Ended
December 31,
2015
$
$
101,444
58,805
The table below presents selected unaudited pro forma financial information incorporating the historical results of our
newly acquired offshore pipeline transportation assets. The pro forma financial information below has been prepared as if the
acquisition had been completed on January 1, 2013 and is based upon assumptions deemed appropriate by us and may not be
indicative of actual results. This pro forma information was prepared using historical financial data of the Enterprise offshore
pipelines and services businesses and reflects certain estimates and assumptions made by our management. Our unaudited pro
forma financial information is not necessarily indicative of what our consolidated financial results would have been had our
Enterprise acquisition been completed on January 1, 2013.
F-12
Table of Contents
Pro forma consolidated financial operating results:
Revenues
Net Income Attributable to Genesis Energy L.P.
Basic and diluted earnings per unit:
As reported net income per unit
Pro forma net income per unit
Year Ended
December 31,
2015
2014
2013
$ 2,421,989
$ 4,135,964
$ 4,372,827
$
$
$
425,363
$
132,682
$
81,287
4.09
3.91
$
$
1.18
1.32
$
$
1.00
0.86
As relating to our Enterprise acquisition, we have incurred approximately $15 million in acquisition related costs
through December 31, 2015. Such costs are included as "General and Administrative costs" on our Unaudited Condensed
Consolidated Statement of Operations.
M/T American Phoenix
On November 13, 2014, we acquired the M/T American Phoenix from Mid Ocean Tanker Company for $157 million.
The M/T American Phoenix is a modern double-hulled, Jones Act qualified tanker with 330,000 barrels of cargo capacity that
was placed into service during 2012.
The purchase price of $157 million was paid to Mid Ocean Tanker Company in cash, as funded with proceeds from
available and committed liquidity under our revolving credit facility. We have reflected the financial results of the acquired
business in our marine transportation segment from the date of acquisition. We have recorded the assets acquired in the
Consolidated Financial Statements at their fair values. Those fair values were developed by management.
The allocation of the purchase price, as presented on our Consolidated Balance Sheet, is summarized as follows:
Property and equipment
Intangible assets
Total purchase price
$
$
125,000
32,000
157,000
Our Consolidated Financial Statements include the results of our acquired offshore marine transportation business since
November 13, 2014, the effective closing date of the acquisition. The following table presents selected financial information
included in our Consolidated Financial Statements for the periods presented:
Revenues
Net income
Year Ended
December 31,
2014
$
$
3,038
454
The table below presents selected unaudited pro forma financial information for us incorporating the historical results
of the acquired M/T American Phoenix. The pro forma financial information below has been prepared as if the acquisition had
been completed on January 1, 2013 and is based upon assumptions deemed appropriate by us and may not be indicative of actual
results. Depreciation expense for the fixed assets acquired is calculated on a straight-line basis over an estimated useful life of
approximately 30 years.
Pro forma earnings data:
Revenues from continuing operations
Net income
F-13
Year Ended
December 31,
2014
2013
$
$
3,863,745
111,132
$
$
4,153,443
90,829
Table of Contents
Offshore Marine Transportation Business
In August 2013, we acquired substantially all of the assets of the downstream transportation business of Hornbeck
Offshore Services, Inc. for $230.9 million, which we refer to as our offshore marine transportation business and assets. The total
acquisition cost of $230.9 million was allocated to fixed assets on our Consolidated Balance Sheet. The acquired business was
primarily comprised of nine barges and nine tug boats that transport crude oil and refined petroleum products, principally
serving refineries and storage terminals along the Gulf Coast, Eastern Seaboard, Great Lakes and Caribbean. That acquisition
was funded with proceeds from our revolving credit facility. We have reflected the financial results of the acquired business in
our marine segment from the date of the acquisition.
Our Consolidated Financial Statements include the results of our acquired offshore marine transportation business since
August 28, 2013, the effective closing date of that acquisition. The following table presents selected financial information
included in our Consolidated Financial Statements for the periods presented:
Revenues
Net income
Year Ended
December 31,
2013
$
$
30,424
7,348
The table below presents selected unaudited pro forma financial information for us incorporating the historical results
of our offshore marine transportation business. The pro forma financial information below has been prepared as if the acquisition
had been completed on January 1, 2013 and is based upon assumptions deemed appropriate by us and may not be indicative of
actual results. Depreciation expense for the fixed assets acquired is calculated on a straight-line basis over an estimated useful
life of approximately 25 years.
Pro forma earnings data:
Revenues from continuing operations
Net Income
Divestitures
Year Ended
December 31,
2013
$
$
4,177,715
98,846
On December 31, 2013 we sold our vehicle fuel procurement and delivery logistics management services business. We
sold the business for $1 million and recorded a gain on the sale of approximately $0.9 million, included in Income (loss) from
discontinued operations on the Consolidated Statements of Operations. That business, previously reported in our supply and
logistics revenues and costs and expenses, was reclassified as discontinued operations in our Consolidated Statements of
Operations for the year ended December 31, 2013. The summarized operating results of our discontinued operations are as
follows:
Revenues
Cost and expenses
Operating income
Interest income
Income before income taxes
Gain on sale of discontinued operations
Income from discontinued operations
F-14
Year Ended
December 31,
2013
593,733
592,505
1,228
2
1,230
875
2,105
$
$
Table of Contents
4. Receivables
Accounts receivable – trade, net consisted of the following:
Accounts receivable - trade
Allowance for doubtful accounts
Accounts receivable - trade, net
December 31,
2015
2014
$
$
220,978
(1,446)
219,532
$
$
274,502
(2,973)
271,529
The following table presents the activity of our allowance for doubtful accounts for the periods indicated:
Balance at beginning of period
(Credited) charged to costs and expenses
Amounts written off
Balance at end of period
5. Inventories
The major components of inventories were as follows:
Petroleum products
Crude oil
Caustic soda
NaHS
Other
Total
2015
December 31,
2014
2013
$
$
2,973
1,242
(2,769)
1,446
$
$
1,526
1,447
—
2,973
$
$
2,372
(86)
(760)
1,526
December 31,
2015
2014
$
14,235
$
30,108
22,815
3,964
2,755
6
7,266
2,850
6,603
2
$
43,775
$
46,829
Inventories are valued at the lower of cost or market. The market value of inventories was below recorded costs by
approximately $0.9 million and $6.6 million at December 31, 2015 and 2014, respectively; therefore we reduced the value of
inventory in our Condensed Consolidated Financial Statements for this difference.
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Table of Contents
6. Fixed Assets and Asset Retirement Obligations
Fixed Assets
Fixed assets consisted of the following:
December 31,
2015
2014
Crude oil pipelines and natural gas pipelines and related assets
$
2,501,821
$
Machinery and equipment
Transportation equipment
Marine vessels
Land, buildings and improvements
Office equipment, furniture and fixtures
Construction in progress
Other
Fixed assets, at cost
Less: Accumulated depreciation
Net fixed assets
414,100
19,025
794,508
41,202
7,540
485,575
46,455
466,613
376,672
18,479
731,016
38,037
6,696
222,233
39,312
4,310,226
(378,247)
3,931,979
$
1,899,058
(268,057)
1,631,001
$
Depreciation expense was $124.2 million, $73.2 million and $46.3 million for the years ended December 31, 2015,
2014, and 2013, respectively.
Asset Retirement Obligations
We record AROs in connection with legal requirements to perform specified retirement activities under contractual
arrangements and/or governmental regulations. As a result of our Enterprise acquisition of the offshore pipeline and services
business of Enterprise Products Partners, L.P. on July 24, 2015, we recorded AROs based on the fair value measurement
assigned during the preliminary purchase price allocation.
A reconciliation of our liability for asset retirement obligations is as follows:
December 31, 2013
Liabilities incurred
Accretion expense
December 31, 2014
AROs arising from our Enterprise acquisition
AROs from the consolidation of historical interests in CHOPS and SEKCO
Accretion expense
Revisions in timing of expected settlement
Settlements
December 31, 2015
$
14,332
—
458
14,790
158,230
1,988
4,941
9,986
(1,273)
188,662
$
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Table of Contents
Of the ARO balances disclosed above, $9.8 million is included as current in "Accrued liabilities" on our Consolidated
Balance Sheet, as of December 31, 2015. The remainder of the ARO liability as of December 31, 2015, as well as the ARO
liability as of December 31, 2014, are included in "Other long-term liabilities" on our Consolidated Balance Sheet.
With respect to our AROs, the following table presents our forecast of accretion expense for the periods indicated:
2016
2017
2018
2019
2020
$
$
$
$
$
7,743
6,722
5,141
5,518
5,924
Certain of our unconsolidated affiliates have AROs recorded at December 31, 2015 relating to contractual agreements
and regulatory requirements. These amounts are immaterial to our Consolidated Financial Statements.
7. Net Investment in Direct Financing Leases
Our direct financing leases include a lease of the Northeast Jackson Dome (“NEJD”) Pipeline. Under the terms of the
agreement, we are paid quarterly payments, which commenced August 2008. These quarterly payments are fixed at
approximately $20.7 million per year during the lease term at an interest rate of 10.25%. At the end of the lease term in 2028,
we will convey all of our interests in the NEJD Pipeline to the lessee for a nominal payment. There are requirements in our
leases that would provide credit support should the credit rating of our lessee fall to certain levels, and at December 31, 2015,
no credit support is required.
The following table lists the components of the net investment in direct financing leases:
December 31,
2015
2014
$
257,111
$
277,732
—
1,272
(112,378)
146,005
(6,277)
139,728
$
292
1,444
(127,531)
151,937
(5,978)
145,959
Total minimum lease payments to be received
Estimated residual values of leased property (unguaranteed)
Unamortized initial direct costs
Less unearned income
Net investment in direct financing leases
Less current portion (included in other current assets)
Long-term portion of net investment in direct financing leases
$
At December 31, 2015, minimum lease payments to be received for each of the five succeeding fiscal years are $20.7
million.
8. Equity Investees
We account for our ownership in our joint ventures under the equity method of accounting (see Note 2 for a
description of these investments). The price we pay to acquire an ownership interest in a company may exceed or be less than
the underlying book value of the capital accounts we acquire. At December 31, 2015 and 2014, the unamortized differences in
carrying value totaled $414.0 million and $215.4 million, respectively. We amortize the differences in carrying value as a
change in equity earnings.
As part of our Enterprise acquisition, we increased our ownership interest in each of Cameron Highway Oil Pipeline
Company ("CHOPS") and Southeast Keathley Canyon Pipeline Company, LLC ("SEKCO") from 50% to 100%. Consequently,
these entities were reflected as equity investees until July 24, 2015, at which point they became fully consolidated wholly
owned subsidiaries. Upon consolidation, we recorded a $332.4 million non-cash gain due to the step up in basis on our
historical interest.
Also, as part of our Enterprise acquisition, our ownership interest in Poseidon Oil Pipeline Company, LLC
("Poseidon") increased from 28% to 64%. We also acquired a 50% ownership interest in Deepwater Gateway, LLC and a
25.7% interest in Neptune Pipeline Company, LLC. These additional interests are accounted for as equity investments from the
acquisition date of July 24, 2015.
F-17
Table of Contents
The following table presents information included in our Consolidated Financial Statements related to our equity
investees.
Genesis’ share of operating earnings
Amortization of differences attributable to Genesis' carrying value of
equity investments
Net equity in earnings
Distributions received
Year Ended December 31,
2015
2014
2013
17,157
$
53,783
$
33,152
37,293
54,450
97,468
$
$
(10,648)
43,135
75,528
$
$
(10,477)
22,675
46,564
$
$
$
F-18
Table of Contents
The following tables present the combined balance sheet information for the last two years and income statement data
for the last three years for our equity investees (on a 100% basis) including the effects of the change in our ownership interest
due to the Enterprise acquisition previously discussed:
BALANCE SHEET DATA:
Assets
Current assets
Fixed assets, net
Other assets
Total assets
Liabilities and equity
Current liabilities
Other liabilities
Equity
Total liabilities and equity
INCOME STATEMENT DATA:
Revenues
Operating Income
Net Income
Poseidon's revolving credit facility
December 31,
2015
2014
$
$
$
$
38,871
$
42,135
450,108
2,040
491,019
25,308
231,032
234,679
$
$
1,015,305
4,369
1,061,809
25,369
202,613
833,827
491,019
$
1,061,809
Year Ended December 31,
2015
2014
2013
$
$
$
189,941
26,101
7,810
$
$
$
246,265
146,760
142,754
$
$
$
183,533
102,107
99,357
Borrowings under Poseidon’s revolving credit facilities, which was amended and restated in February 2015, are
primarily used to fund spending on capital projects. The February 2015 credit facility is non-recourse to Poseidon’s owners and
secured by its assets. The February 2015 credit facility contains customary covenants such as restrictions on debt levels, liens,
guarantees, mergers, sale of assets and distributions to owners. A breach of any of these covenants could result in acceleration
of the maturity date of Poseidon’s debt. Poseidon was in compliance with the terms of its credit agreement for all periods
presented in these consolidated financial statements.
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9. Intangible Assets, Goodwill and Other Assets
Intangible Assets
The following table reflects the components of intangible assets being amortized at December 31, 2015 and 2014:
December 31, 2015
December 31, 2014
Weighted
Amortization
Period in Years
Gross
Carrying
Amount
Accumulated
Amortization
Carrying
Value
Gross
Carrying
Amount
Accumulated
Amortization
Carrying
Value
Refinery Services:
Customer relationships
Licensing agreements
Segment total
Supply & Logistics:
Customer relationships
Intangibles associated with lease
Segment total
Marine contract intangibles
Offshore pipeline contract intangibles
Other
Total
5
6
5
15
5
19
5
$ 94,654
$
86,285
$
8,369
$ 94,654
$
81,880
$ 12,774
38,678
31,694
6,984
38,678
28,983
133,332
117,979
15,353
133,332
110,863
35,430
13,260
48,690
27,000
158,101
22,819
32,044
3,986
36,030
900
3,467
8,120
3,386
9,274
12,660
26,100
154,634
14,699
35,430
13,260
48,690
32,000
—
22,797
30,228
3,512
33,740
833
—
8,452
9,695
22,469
5,202
9,748
14,950
31,167
—
14,345
$389,942
$ 166,496
$223,446
$236,819
$ 153,888
$ 82,931
The licensing agreements referred to in the table above relate to the agreements we have with refiners to provide
services. The supply and logistics lease relates to a terminal facility in Shreveport, Louisiana. The marine contract intangibles
relate to the contracts we assumed in the purchase of the M/T American Phoenix in November 2014.
The offshore pipeline contract intangibles relate to customer contracts surrounding certain transportation agreements
with producers in the Lucius production area in Southeast Keathley Canyon, which support our SEKCO pipeline identified in
connection with our purchase price allocation surrounding the Enterprise Acquisition.
We are recording amortization of our intangible assets based on the period over which the asset is expected to
contribute to our future cash flows. Generally, the contribution to our cash flows of the customer and supplier relationships,
licensing agreements and trade name intangible assets is expected to decline over time, such that greater value is attributable to
the periods shortly after the acquisition was made. The supply and logistics lease, marine contract, offshore pipeline contract
intangibles and other intangible assets are being amortized on a straight-line basis. Amortization expense on intangible assets
was $20.0 million, $13.4 million and $14.6 million for the years ended December 31, 2015, 2014 and 2013, respectively.
The following table reflects our estimated amortization expense for each of the five subsequent fiscal years:
Refinery Services:
Customer relationships
Licensing agreements
Supply and Logistics:
Customer relationships
Intangibles associated with lease
Marine contract intangibles
Offshore pipeline contract intangibles
Other
2016
2017
2018
2019
2020
$
3,471
$
2,737
$
2,161
$
2,510
1,631
474
5,400
8,321
2,270
2,324
1,407
474
5,400
8,321
2,252
2,150
41
474
5,400
8,321
2,252
— $
—
40
474
5,400
8,321
2,252
—
—
38
474
4,500
8,321
2,252
Total
$
24,077
$
22,915
$
20,799
$
16,487
$
15,585
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Goodwill
The carrying amount of goodwill by business segment at both December 31, 2015 and 2014 was $301.9 million in
refinery services and $23.1 million in supply and logistics. We have not recognized any impairment losses related to goodwill
for any of the periods presented.
Other Assets
Other assets consisted of the following:
CO2 volumetric production payments, net of amortization
Deferred marine charges (1)
Other deferred costs and deposits (2)
Other assets, net of amortization
December 31,
2015
2014
$
$
7,413
$
29,871
21,408
58,692
$
9,395
13,042
19,104
41,541
(1) See discussion of deferred charges on marine transportation assets in the Summary of Accounting Policies (Note 2)
(2) There has been a change in presentation relating to 2014 due to the adoption of guidance issued by the FASB that requires the
presentation of debt issuance costs in financial statements as a direct reduction of related debt liabilities with amortization of debt
issuance costs reported as interest expense. Previously debt issuance costs were reported as part of deferred charges. Genesis
adopted this guidance in Q4 2015 and retrospectively adjusted the presentation of related costs as needed. For more information
please refer to the discussion of recently issued accounting pronouncements in the Summary of Accounting Policies (Note 2).
The CO2 assets are being amortized on a units-of-production method. We recorded amortization of $5.9 million in
2015, $4.2 million in 2014 and $3.9 million in 2013.
10. Debt
At December 31, 2015 and 2014, our obligations under debt arrangements consisted of the following:
Senior secured credit facility
7.875% senior unsecured notes(2)
6.000% senior unsecured notes
5.750% senior unsecured notes
5.625% senior unsecured notes
6.750% senior unsecured notes
Total long-term debt
December 31, 2015
Unamortized
Discount and
Debt Issuance
Costs (1)
Principal
Net Value
Principal
December 31, 2014
Unamortized
Discount and
Debt Issuance
Costs (1)
$1,115,000
$
— $1,115,000
$ 550,400
$
—
400,000
350,000
350,000
750,000
—
7,825
5,183
7,510
22,428
—
350,000
392,175
344,817
342,490
727,572
—
350,000
350,000
—
—
4,502
—
6,202
8,407
—
Net Value
550,400
345,498
—
343,798
341,593
—
$2,965,000
$
42,946
$2,922,054
$1,600,400
$
19,111
$1,581,289
(1) In April 2015, the FASB issued guidance that requires the presentation of debt issuance costs in financial statements as a direct
reduction of related debt liabilities with amortization of debt issuance costs reported as interest expense. Under current U.S. GAAP
standards, debt issuance costs are reported as deferred charges (i.e., as an asset). This guidance is effective for annual periods, and
interim periods within those fiscal years, beginning after December 15, 2015 and is to be applied retrospectively upon adoption.
Early adoption is permitted, including adoption in an interim period for financial statements that have not been previously issued.
Genesis adopted this guidance in the fourth quarter of 2015.
(2) Net of unamortized premium of $639 in 2014.
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Senior Secured Credit Facility
Our Enterprise acquisition meaningfully expanded our size and is expected to improve our credit metrics over the
longer-term, which we believe should help accelerate an increase in our credit ratings in the future. In connection with our
expanded size and improved credit outlook, we amended our senior secured credit facility (which matures on July 28, 2019) in
the third quarter of 2015 to, among other things, (i) increase our committed amount to $1.5 billion, (ii) provide that, if and
when we achieve specified investment grade ratings, certain restrictive covenants will cease to apply and the applicable margin
for both alternate base rate and Eurodollar loans and the commitment fee on the unused committed amount will be reduced by
specified amounts, (iii) immediately provide us more operational flexibility by relaxing certain covenants, including by
increasing certain applicable limits and baskets, and (iv) increase the inventory financing sublimit amount, which is designed to
allow us to more efficiently finance crude oil and petroleum products inventory in the normal course of our operations by
allowing us to exclude the amount of inventory loans from our total outstanding indebtedness for purposes of determining our
applicable interest rate, from $150 million to $200 million.
The key terms for rates under our credit facility, which are dependent on our leverage ratio (as defined in the credit
agreement), are as follows:
• The interest rate on borrowings may be based on an alternate base rate or a Eurodollar rate, at our option. The alternate
base rate is equal to the sum of (a) the greatest of (i) the prime rate as established by the administrative agent for the
credit facility, (ii) the federal funds effective rate plus 0.5% of 1% and (iii) the LIBOR rate for a one-month maturity
plus 1% and (b) the applicable margin. The Eurodollar rate is equal to the sum of (a) the LIBOR rate for the applicable
interest period multiplied by the statutory reserve rate and (b) the applicable margin. The applicable margin varies
from 1.50% to 2.50% on Eurodollar borrowings and from 0.50% to 1.50% on alternate base rate borrowings,
depending on our leverage ratio. Our leverage ratio is recalculated quarterly and in connection with each material
acquisition. At December 31, 2015, the applicable margins on our borrowings were 1.50% for alternate base rate
borrowings and 2.50% for Eurodollar rate borrowings.
• Letter of credit fees range from 1.50% to 2.50% based on our leverage ratio as computed under the credit facility. The
rate can fluctuate quarterly. At December 31, 2015, our letter of credit rate was 2.50%.
• We pay a commitment fee on the unused portion of the $1.5 billion maximum facility amount. The commitment fee on
the unused committed amount will range from 0.250% to 0.375% per annum depending on our leverage ratio (0.375%
at December 31, 2015).
Our credit facility is secured by liens on a substantial portion of our assets, and by guarantees by all of our restricted
subsidiaries (as defined in the credit facility).
Our credit facility contains customary covenants (affirmative, negative and financial) that could limit the manner in
which we may conduct our business. As defined in our credit facility, we are required to meet three primary financial metrics—
a maximum leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio. Our credit
agreement provides for the temporary inclusion of certain pro forma adjustments to the calculations of the required ratios
following material acquisitions. In general, our leverage ratio calculation compares our consolidated funded debt (including
outstanding notes we have issued) to EBITDA (as defined and adjusted in accordance with the credit facility) and cannot
exceed 5.00 to 1.00 (5.50 to 1.00 in an acquisition period). Our senior secured leverage ratio excludes outstanding debt under
senior unsecured notes and cannot exceed 3.75 to 1.00 (4.25 to 1.00 in an acquisition period). Our interest coverage ratio
calculation compares EBITDA (as defined and adjusted in accordance with the credit facility) to interest expense and must be
greater than 3.00 to 1.00 (2.75 to 1.00 during an acquisition period).
At December 31, 2015, we had $1.1 billion borrowed under our credit facility, with $33.8 million of the borrowed
amount designated as a loan under the inventory sublimit. The credit agreement allows up to $100 million of the capacity to be
used for letters of credit, of which $10.7 million was outstanding at December 31, 2015. Due to the revolving nature of loans
under our credit facility, additional borrowings and periodic repayments and re-borrowings may be made until the maturity date
of July 28, 2019. The total amount available for borrowings under our credit facility at December 31, 2015 was $374.3 million.
On September 17, 2015, we amended our $1.5 billion credit agreement which provides that, if and when we achieve
specified investment grade ratings, certain restrictive covenants will cease to apply and the applicable margin for both alternate
base rate and Eurodollar loans and the commitment fee on the unused committed amount will be reduced by specified amounts.
The amendment also increases the inventory financing sublimit amount from $150 million to $200 million.
Senior Unsecured Notes
In November 2010, we issued $250 million in aggregate principal amount of 7.875% senior unsecured notes due
December 15, 2018 (the "2018 Notes"). Our 2018 Notes were sold at face value. Interest payments are due on June 15 and
December 15 of each year. In February 2012, we issued an additional $100 million of aggregate principal amount of additional
2018 Notes. The additional 2018 Notes were issued at 101% of face value at an effective interest rate of 7.682%. The additional
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2018 Notes have the same terms and conditions as the notes previously issued under the indenture. The issuance increased the
total aggregate principal amount of our 2018 Notes to $350 million. These notes were redeemed upon the issuance of our $400
million unsecured notes issued on May 21, 2015 as discussed below.
On February 8, 2013, we issued $350 million of aggregate principal amount of 5.75% senior unsecured notes (the
"2021 Notes"). Our 2021 Notes were sold at face value. Interest payments are due on February 15 and August 15 of each year.
Our 2021 Notes mature on February 15, 2021. The net proceeds were used to repay borrowings under our credit facility and for
general partnership purposes.
On May 15, 2014, we issued $350 million in aggregate principal amount of 5.625% senior unsecured notes (the "2024
Notes"). Our 2024 Notes were sold at face value. Interest payments are due on June 15 and December 15 of each year with the
initial interest payment due December 15, 2014. Our 2024 Notes mature on June 15, 2024.
On May 21, 2015, we issued $400 million in aggregate principal amount of 6.0% senior unsecured notes (the "2023
Notes"). Interest payments are due on May 15 and November 15 of each year with the initial interest payment due November
15, 2015. Our 2023 Notes mature on May 15, 2023. We used a portion of the proceeds from those notes to effectively redeem
all of our outstanding $350 million, 7.875% senior unsecured notes due 2018, using a combination of public tender offer and
our redemption rights relating to those notes. The aggregate principal amount of the 7.875% notes totaling $300.1 million were
tendered and the remaining $49.9 million were redeemed in full. A total loss of approximately $19.2 million for the tender and
redemption of notes is recorded to "Other income/(expense), net" in our Consolidated Statements of Operations.
On July 23, 2015, we issued $750 million in aggregate principal amount of 6.75% senior unsecured notes (the "2022
Notes"). Interest payments are due on February 1 and August 1 of each year with the initial interest payment due February 1,
2016. Our 2022 Notes mature on August 1, 2022. That issuance generated net proceeds of $728.6 million net of issuance
discount and underwriting fees. The net proceeds were used to fund a portion of the purchase price for our Enterprise
acquisition.
Our 2021, 2022, 2023 and 2024 Notes were co-issued by Genesis Energy Finance Corporation (which has no
independent assets or operations) and are each fully and unconditionally guaranteed, subject to customary exceptions pursuant
to the indentures governing our 2021, 2022, 2023 and 2024 Notes, as discussed below, jointly and severally, by certain of our
wholly-owned subsidiaries. We have the right to redeem our 2021 Notes at any time after February 15, 2017, at a premium to
the face amount of our 2021 Notes that varies based on the time remaining to maturity on our 2021 Notes. We have the right to
redeem our 2022 Notes at any time after August 1, 2018, at a premium to the face amount of our 2022 Notes that varies based
on the time remaining to maturity on our 2022 Notes. Prior to August 1, 2018, we may also redeem up to 35% of the principal
amount of our 2022 Notes for 106.75% of the face amount with the proceeds from an equity offering of our common units. We
have the right to redeem our 2023 Notes at any time after May 15, 2018, at a premium to the face amount of our 2023 Notes
that varies based on the time remaining to maturity on our 2023 Notes. Prior to May 15, 2018, we may also redeem up to 35%
of the principal amount of our 2023 Notes for 106% of the face amount with the proceeds from an equity offering of our
common units. We have the right to redeem our 2024 Notes at any time after June 15, 2019, at a premium to the face amount of
our 2024 Notes that varies based on the time remaining to maturity on our 2024 Notes. Prior to June 15, 2017, we may also
redeem up to 35% of the principal amount of our 2024 Notes for 105.625% of the face amount with the proceeds from an
equity offering of our common units.
Guarantees of our 2021, 2022, 2023 and 2024 Notes will be released under certain circumstances, including (i) in
connection with any sale or other disposition of (a) all or substantially all of the properties or assets of a guarantor (including
by way of merger or consolidation) or (b) all of the capital stock of such guarantor, in each case, to a person that is not a
restricted subsidiary of the Partnership (ii) if the Partnership designates any restricted subsidiary that is a guarantor as an
unrestricted subsidiary, (iii) upon legal defeasance, covenant defeasance or satisfaction and discharge of the applicable
indenture, (iv) upon the liquidation or dissolution of such guarantor, or (v) at such time as such guarantor ceases to guarantee
any other indebtedness of either of the issuers and any other guarantor.
Covenants and Compliance
Our credit agreement and the indenture governing the senior notes contain cross-default provisions. Our credit
documents prohibit distributions on, or purchases or redemptions of, units if any default or event of default is continuing. In
addition, those agreements contain various covenants limiting our ability to, among other things:
•
•
•
•
incur indebtedness if certain financial ratios are not maintained;
grant liens;
engage in sale-leaseback transactions; and
sell substantially all of our assets or enter into a merger or consolidation.
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A default under our credit documents would permit the lenders thereunder to accelerate the maturity of the outstanding
debt. As long as we are in compliance with our credit facility, our ability to make distributions of “available cash” is not
restricted. As of December 31, 2015, we were in compliance with the financial covenants contained in our credit facility and
indenture.
11. Partners’ Capital and Distributions
At December 31, 2015, our outstanding equity consisted of 109,939,221 Class A common units and 39,997 Class B
common units. The Class A units are traditional common units in us. The Class B units are identical to the Class A units and,
accordingly, have voting and distribution rights equivalent to those of the Class A units, and, in addition, the Class B units have
the right to elect all of our board of directors and are convertible into Class A units under certain circumstances, subject to
certain exceptions.
Distributions
Generally, we will distribute 100% of our available cash (as defined by our partnership agreement) within 45 days
after the end of each quarter to unitholders of record. Available cash consists generally of all of our cash receipts less cash
disbursements adjusted for net changes to reserves. We paid distributions in 2016, 2015 and 2014 as follows:
Distribution For
2013
4th Quarter
2014
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2015
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Date Paid
Per Unit Amount
Total Amount
February 14, 2014
May 15, 2014
August 14, 2014
November 14, 2014
February 13, 2015
May 15, 2015
August 14, 2015
November 13, 2015
February 12, 2016
$
$
$
$
$
$
$
$
$
0.5350
0.5500
0.5650
0.5800
0.5950
0.6100
0.6250
0.6400
0.6550
$
$
$
$
$
$
$
$
$
47,453
48,783
50,114
54,112
56,542
60,774
68,737
70,387
72,036
Equity Issuances and Contributions
Our partnership agreement authorizes our general partner to cause us to issue additional limited partner interests and
other equity securities, the proceeds from which could be used to provide additional funds for acquisitions or other needs.
On July 22, 2015, we issued 10,350,000 Class A common units in a public offering at a price of $43.77 per unit, which
included the exercise by the underwriters of an option to purchase up to 1,350,000 additional common units from us. We
received proceeds, net of underwriting discounts and offering costs, of approximately $437.2 million from that offering. We
used the net proceeds to fund a portion of the purchase price for our Enterprise acquisition.
On April 10, 2015, we issued 4,600,000 Class A common units in a public offering at a price of $44.42 per unit, which
included the exercise by the underwriters of an option to purchase up to 600,000 additional common units from us. We received
proceeds, net of underwriting discounts and offering costs, of approximately $198.2 million from that offering. We used the net
proceeds for general partnership purposes, including the repayment of a portion of the borrowings outstanding under our
revolving credit facility.
In September 2014, we issued 4,600,000 Class A common units in a public offering at a price of $50.71 per unit. We
received proceeds, net of underwriting discounts and offering costs, of approximately $225.7 million from that offering. We
used the net proceeds for general partnership purposes, including the repayment of outstanding borrowings under our revolving
credit facility.
In September 2013, we issued 5,750,000 Class A common units in a public offering at a price of $47.51 per unit. We
received proceeds, net of underwriting discounts and offering costs, of approximately $263.6 million from that offering. We
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used the net proceeds for general partnership purposes, including the repayment of outstanding borrowings under our revolving
credit facility.
The new common units issued in 2015, 2014 and 2013 to the public for cash were as follows:
Period
July 2015
Purchaser of
Common Units
Public
April 2015
Public
September 2014 Public
September 2013 Public
Units
Gross
Unit Price
Issuance Value
Costs
Net Proceeds
10,350
4,600
4,600
5,750
$
$
$
$
43.77
44.42
50.71
47.51
$
$
$
$
453,020
204,332
233,266
273,183
$
$
$
$
(15,856) $
(6,164) $
(7,541) $
(9,609) $
437,164
198,168
225,725
263,574
12. Business Segment Information
Our operations consist of five operating segments (see Note 1 for discussion of segment reporting change):
• Offshore Pipeline Transportation – offshore transportation of crude oil and natural gas in the Gulf of Mexico;
• Onshore Pipeline Transportation –transportation of crude oil, and to a lesser extent, CO2;
• Refinery Services – processing high sulfur (or “sour”) gas streams as part of refining operations to remove the sulfur
and selling the related by-product, NaHS;
• Marine Transportation – marine transportation to provide waterborne transportation of petroleum products and crude
oil throughout North America and;
•
Supply and Logistics – terminaling, blending, storing, marketing, and transporting crude oil and petroleum products
(primarily fuel oil, asphalt, and other heavy refined products) and, on a smaller scale, CO2.
Substantially all of our revenues are derived from, and substantially all of our assets are located in, the United States.
We define Segment Margin as revenues less product costs, operating expenses (excluding non-cash charges, such as
depreciation and amortization), and segment general and administrative expenses, plus our equity in distributable cash
generated by our equity investees. In addition, our Segment Margin definition excludes the non-cash effects of our legacy stock
appreciation rights plan and includes the non-income portion of payments received under direct financing leases.
Our chief operating decision maker (our Chief Executive Officer) evaluates segment performance based on a variety
of measures including Segment Margin, segment volumes, where relevant, and capital investment.
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Table of Contents
Segment information for each year presented below is as follows:
Offshore Pipeline
Transportation
Onshore Pipeline
Transportation
Refinery
Services
Marine
Transportation
Supply &
Logistics(a)
Total
Year Ended December 31, 2015
Segment Margin (b)
Capital expenditures (c)
Revenues:
External customers
Intersegment (d)
$
$
$
Total revenues of reportable segments $
Year Ended December 31, 2014
Segment Margin (b)
Capital expenditures (c)
Revenues:
$
$
External customers
Intersegment (d)
$
Total revenues of reportable segments $
Year Ended December 31, 2013
Segment Margin (b)
Capital expenditures (c)
Revenues:
$
$
External customers
Intersegment (d)
$
Total revenues of reportable segments $
197,723
1,527,320
140,230
—
140,230
71,598
37,639
3,296
—
3,296
44,530
94,286
3,923
—
3,923
$
$
$
$
$
$
$
$
$
$
$
$
58,919
235,069
$
$
80,246
1,595
64,524
12,568
77,092
$ 187,257
(9,377)
$ 177,880
61,231
46,611
$
$
84,851
2,385
66,760
16,397
83,157
$ 218,297
(10,896)
$ 207,401
64,349
130,787
$
$
75,361
3,258
65,452
17,133
82,585
$ 216,860
(10,875)
$ 205,985
$
$
$
$
$
$
$
$
$
$
$
$
103,222
$
36,475
$ 476,585
69,009
$ 174,618
$2,007,611
230,192
$1,624,326
$2,246,529
8,565
(11,756) $
—
238,757
$1,612,570
$2,246,529
86,239
$
43,345
$ 347,264
232,783
$ 325,130
$ 644,548
214,039
$3,343,772
$3,846,164
15,243
(20,744) $
—
229,282
$3,323,028
$3,846,164
47,726
$
48,394
$ 280,360
260,736
$ 215,138
$ 704,205
131,049
$3,717,546
$4,134,830
21,493
(27,751) $
—
152,542
$3,689,795
$4,134,830
Total assets by reportable segment were as follows:
Offshore pipeline transportation
Onshore pipeline transportation
Refinery services
Marine transportation
Supply and logistics
Other assets
Total consolidated assets
December 31,
2015
2,623,478
December 31,
2014
645,668
December 31,
2013
637,323
614,484
394,626
777,952
1,000,851
48,208
460,012
403,703
745,128
907,189
48,924
437,912
417,121
529,914
782,547
43,711
$ 5,459,599
$ 3,210,624
$ 2,848,528
(a) Discontinued operations are included in Segment Margin but excluded from revenues for all periods presented.
(b) A reconciliation of Segment Margin to net income attributable to Genesis Energy, L.P. for each year is presented
below.
(c) Capital expenditures include maintenance and growth capital expenditures, such as fixed asset additions (including
enhancements to existing facilities and construction of growth projects) as well as acquisitions of businesses and
contributions to equity investees related to same. In addition to construction of growth projects, capital spending in our
offshore pipeline transportation segment included $1.5 billion during the year ended December 31, 2015 to fund our
Enterprise acquisition. Capital spending in this segment also included $2.5 million and $36.1 million during the years
ended December 31, 2015 and December 31, 2014 representing capital contributions to our SEKCO pipeline to fund
our share of the construction costs for its pipeline (as prior to our Enterprise acquisition in July 2015, we owned a 50%
interest in the SEKCO pipeline with Enterprise owning the remaining 50%). During 2014, capital spending in our
marine transportation segment included $157 million for our purchase of the M/T American Phoenix. During 2013,
capital spending in our marine segment also included $230.9 million for the acquisition of our offshore marine
transportation assets.
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Table of Contents
(d) Intersegment sales were conducted under terms that we believe were no more or less favorable than then-existing
market conditions.
Reconciliation of Segment Margin to net income attributable to Genesis Energy, L.P.:
Segment Margin
Corporate general and administrative expenses
Depreciation and amortization
Interest expense
Adjustment to exclude distributable cash generated by equity investees not included
in income and include equity in investees net income (1)
Non-cash items not included in Segment Margin
Cash payments from direct financing leases in excess of earnings
Gain on step up of historical basis
Loss on debt extinguishment
Other, net
Income tax expense
Discontinued operations
Year Ended December 31,
2015
2014
2013
$
$ 476,585
(61,370)
(150,140)
(100,596)
347,264
(47,065)
(90,908)
(66,639)
$ 280,360
(43,353)
(64,784)
(48,583)
(43,018)
4,227
(5,685)
332,380
(19,225)
(6,643)
(3,987)
—
(31,093)
3,017
(5,529)
—
—
—
(2,845)
—
(23,889)
(7,551)
(5,110)
—
—
2,105
(845)
(2,241)
86,109
Net income attributable to Genesis Energy, L.P.
$ 422,528
$
106,202
$
(1) Includes distributions attributable to the quarter and received during or promptly following such quarter.
13. Transactions with Related Parties
Sales, purchases and other transactions with affiliated companies, in the opinion of management, are conducted under
terms no more or less favorable than then-existing market conditions. The transactions with related parties were as follows:
Year Ended December 31,
2015
2014
2013
$
3,259
$
3,060
$
3,076
3,941
56
—
—
—
—
—
—
1,293
600
—
Revenues:
Sales of CO2 to Sandhill Group, LLC (1)
Revenues from services to Poseidon Oil Pipeline Company, LLC (2)
Revenues from services to Deepwater Gateway, LLC (3)
Petroleum products sales to Davison family businesses (4)
Expenses:
Amounts paid to our CEO in connection with the use of his aircraft
$
690
$
630
$
Charges for products purchased from Poseidon Oil Pipeline Company,
LLC (2)
464
—
(1) We own a 50% interest in Sandhill Group, LLC.
(2) We own a 64% interest in Poseidon Oil Pipeline Company, LLC.
(3) We own a 50% interest in Deepwater Gateway, LLC.
(4) Amounts included in discontinued operations for all periods presented.
Our CEO, Mr. Sims, owns an aircraft which is used by us for business purposes in the course of operations. We pay
Mr. Sims a fixed monthly fee and reimburse the aircraft management company for costs related to our usage of the aircraft,
including fuel and the actual out-of-pocket costs. Based on current market rates for chartering of private aircraft under long-
term, priority arrangements with industry recognized chartering companies, we believe that the terms of this arrangement are
no worse than what we could have expected to obtain in an arms-length transaction.
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Amounts due from Related Parties
At December 31, 2015, and 2014, Sandhill Group, LLC owed us $0.3 million, respectively, for purchases of CO2.
Also, at December 31, 2015 Poseidon Oil Pipeline Company, LLC owed us $1.9 million for services rendered.
Transactions with Unconsolidated Affiliates
Poseidon
As part of our Enterprise acquisition, we became the operator of Poseidon in the third quarter of 2015. We provide
management, administrative and pipeline operator services to Poseidon under an Operation and Management Agreement .
Currently, that agreement renews automatically annually unless terminated by either party (as defined in the agreement). Our
revenues for the year ended December 31, 2015 reflect $3.9 million of fees we earned through the provision of services under
that agreement.
Deepwater Gateway
As part of our Enterprise acquisition, we became the operator of Deepwater Gateway in the third quarter of 2015. We
provide technical and administrative services to Deepwater Gateway under a Management Services Agreement. That
agreement continues indefinitely until either party decides to exercise their termination rights (as defined in the agreement).
Our revenues for the year ended December 31, 2015 reflect less than $0.1 million, respectively, of fees we earned through the
provision of services under that agreement.
14. Supplemental Cash Flow Information
The following table provides information regarding the net changes in components of operating assets and liabilities:
(Increase) decrease in:
Accounts receivable
Inventories
Deferred charges
Other current assets
Increase (decrease) in:
Accounts payable
Accrued liabilities
Net changes in components of operating assets and liabilities
Year Ended December 31,
2015
2014
2013
$
$
$
99,384
3,811
(11,916)
6,417
$
95,014
38,501
(8,935)
62,305
(101,581)
9,257
5,372
$
(73,307)
(35,624)
77,954
$
(96,300)
1,720
—
(39,170)
41,718
45,846
(46,186)
Payments of interest and commitment fees, net of amounts capitalized, were $86.8 million, $74.8 million and $49.7
million during the years ended December 31, 2015, 2014 and 2013, respectively. We capitalized interest of $17.1 million,
$13.8 million and $13.3 million during the years ended December 31, 2015, 2014 and 2013.
During the years ended December 31, 2015, 2014 and 2013, we paid taxes of $0.9 million, $0.8 million and $0.6
million.
At December 31, 2015, 2014 and 2013, we had incurred liabilities for fixed and intangible asset additions totaling
$68.6 million, $61.2 million and $52.5 million, respectively, which had not been paid at the end of the year. Therefore, these
amounts were not included in the caption “Payments to acquire fixed and intangible assets” under Cash Flows from Investing
Activities in the Consolidated Statements of Cash Flows.
At December 31, 2015 and 2014, we had incurred liabilities for other asset additions totaling $0.3 million and $9.4
million that had not been paid at the end of the year, and, therefore, were not included in the caption "Other, net" under Cash
Flows from Investing Activities in the Consolidated Statements of Cash Flows.
During the year ended December 31, 2015, as a result of our Enterprise acquisition, we acquired the 50% ownership
interest in each of CHOPS and SEKCO as previously held by Enterprise, resulting in 100% ownership interest by us in each of
these subsidiaries. As a result, we recorded a one time $332 million non-cash gain from the step up in basis in our historical
50% ownership interest in each of CHOPS and SEKCO to fair value (resulting from the fair value assigned to the 50%
ownership interest in each of CHOPS and SEKCO that we acquired from Enterprise, as derived from the preliminary purchase
price allocation). This also results in the consolidation of CHOPS and SEKCO by us, resulting in the inclusion of the operating
assets and liabilities on our Consolidated Balance Sheet. As 50% of the operating assets and liabilities of CHOPS and SEKCO
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were based on our historical interest with no cash impact, these amounts relating to our historical interest were not included in
net changes in components of operating assets and liabilities in the Consolidated Statements of Cash Flows.
15. Equity-Based Compensation Plans and Employee Benefit Plans
2010 Long Term Incentive Plan
In 2010, we adopted the 2010 Long-Term Incentive Plan (the “2010 Plan”). The 2010 Plan provides for the awards of
phantom units and distribution equivalent rights to members of our board of directors, and employees who provide services to
us. Phantom units are notional units representing unfunded and unsecured promises to pay to the participant a specified amount
of cash based on the market value of our common units should specified vesting requirements be met. Distribution equivalent
rights (“DERs”) are tandem rights to receive on a quarterly basis a cash amount per phantom unit equal to the amount of cash
distributions paid per common unit. The 2010 Plan is administered by the Governance, Compensation and Business
Development Committee (the “G&C Committee”) of our board of directors. The G&C Committee (at its discretion) designates
participants in the 2010 Plan, determines the types of awards to grant to participants, determines the number of units to be
covered by any award, and determines the conditions and terms of any award including vesting, settlement and forfeiture
conditions.
The compensation cost associated with the phantom units is re-measured each reporting period based on the market
value of our common units, and is recognized over the vesting period. The liability recorded for the estimated amount to be
paid to the participants under the 2010 LTIP is adjusted to recognize changes in the estimated compensation cost and
vesting. Management’s estimates of the fair value of these awards granted in 2015 are adjusted for assumptions about expected
forfeitures of units prior to vesting. For our performance-based awards, our fair value estimates are weighted based on
probabilities for each performance condition applicable to the award.
During 2015, we granted 212,825 phantom units with tandem DERs at a weighted average grant fair value of $44.95
per unit. During 2014, we granted 125,988 phantom units with tandem DERs at a weighted average grant date fair value of
$54.14 per unit. The phantom units granted during 2015 and 2014 were both service-based and performance-based awards. The
service-based awards vest on the third anniversary of the date of grant. Performance-based phantom unit awards granted in
2014 and 2015 will vest on the third anniversary of issuance, in an amount ranging from 50% to 150% of the targeted number
of phantom units, if certain quarterly cash distribution per common unit targets are achieved in the fourth quarter of 2016 and
2017, respectively. If the quarterly cash distribution per common unit is below the threshold target, all of the performance-
based phantom units granted will be forfeited.
During 2013, we granted 152,964 phantom units with tandem DERs at a weighted average grant date fair value of
$46.88 per unit. These phantom units will vest in April 2016, the third anniversary of the date of grant, at 150% of the targeted
number of phantom units due to the distribution per common unit target achieved in the fourth quarter of 2015.
A summary of our phantom unit activity for our service-based and performance-based awards is set forth below:
Service-Based Awards
Performance-Based Awards
Number of
Phantom
Units
Average
Grant
Date Fair
Value
Total
Value
(in thousands)
Number of
Phantom
Units
Average
Grant
Date Fair
Value
Total
Value
(in thousands)
Unvested at December 31, 2014
Granted
Forfeited
Settled
112,823
58,192
$
$
(2,856) $
(35,483) $
44.40
47.26
30.79
Unvested at December 31, 2015
132,676
$
48.09
$
44.53
$
5,024
313,845
$
42.82
$
13,439
2,584
(135)
(1,093)
6,380
154,633
$
(4,201) $
(120,069) $
$
344,208
45.15
46.00
31.50
47.78
$
6,982
(193)
(3,782)
16,446
At December 31, 2015, we estimated the unrecognized compensation cost of our phantom awards to be approximately
$5.5 million to be recognized over a weighted average period of approximately one year. We recorded $7.7 million and $8.8
million of compensation expense for the years ended December 31, 2015 and 2014, respectively. Our liability for these awards
totaled $12.3 million and $15.4 million at December 31, 2015 and 2014, respectively.
Stock Appreciation Rights Plan
Our Stock Appreciation Rights Plan is administered by the G&C Committee, which determines, in its full discretion,
who shall receive awards under the Plan, the number of rights to award, the grant date of the units and the formula for
allocating rights to the participants and the strike price of the rights awarded. Each right is equivalent to one common unit.
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The rights have a term of 10 years from the date of grant. If the right has not been exercised at the end of the ten year
term and the participant has not terminated employment with us, the right will be deemed exercised as of the date of the right’s
expiration and a cash payment will be made as described below.
Upon vesting, the participant may exercise rights and receive a cash payment calculated as the difference between the
average of the closing market price of our common units for the ten days preceding the date of exercise over the strike price of
the right being exercised. If the G&C Committee determines, in its full discretion, that it would cause significant financial harm
to the Partnership to make cash payments to participants who have exercised rights under the Stock Appreciation Rights Plan,
then the G&C Committee may authorize deferral of the cash payments until a later date.
Termination for any reason other than death, disability or normal retirement (as these terms are defined in the Stock
Appreciation Rights Plan) will result in the forfeiture of any non-vested rights. Upon death, disability or normal retirement, all
rights will become fully vested. If a participant is terminated for any reason within one year after the effective date of a change
in control (as defined in the plan) all rights will become fully vested.
The compensation cost associated with our Stock Appreciation Rights plan, which upon exercise will result in the
payment of cash to the employee, is re-measured each reporting period based on the fair value of the rights calculated using a
Black-Scholes option pricing model that takes into consideration the expected future value of the rights at their expected
exercise dates and management’s assumptions about expectation of forfeitures prior to vesting.
The liability amount accrued on the balance sheet is adjusted to the fair value of the outstanding awards at each
balance sheet date with the adjustment reflected in the Consolidated Statement of Operations. The fair value is adjusted for
expected forfeitures of rights (due to terminations before vesting, or expirations after vesting).
The estimates that we make each period to determine the fair value of these rights include the following assumptions:
Expected life of rights (in years)
Risk-free interest rate
Expected unit price volatility
Expected future distribution yield
Assumptions Used for Fair Value of Rights
December 31, 2015
Less than 1
—% - 0.07%
39.3%
5.00%
December 31, 2014
Less than 1
—% - 0.07%
39.3%
5.00%
December 31, 2013
Less than 1
—% - 0.07%
39.3%
5.00%
The following table reflects rights activity under our Stock Appreciation Rights Plan as of January 1, 2015, and
changes during the year ended December 31, 2015:
Outstanding at December 31, 2014
Exercised during 2015
Forfeited or expired during 2015
Outstanding at December 31, 2015
Exercisable at December 31, 2015
Stock
Appreciation
Rights
Weighted
Average
Strike Price
160,855
$
(30,607) $
(571) $
$
129,677
129,677
$
18.08
41.69
20.92
18.55
18.55
Weighted
Average
Contractual
Remaining
Term (Yrs)
Aggregate
Intrinsic
Value
2.14
2.14
$
$
2,350
2,350
The total intrinsic value of rights exercised during 2015, 2014 and 2013 was $0.8 million, $1.4 million and $5.5
million, respectively, which was paid in cash to the participants.
As of December 31, 2015, all of our SARs were vested and the related total compensation cost had been fully
recognized.
We recorded a reduction to compensation expense related to our stock appreciation rights from continuing operations
of $0.8 million in 2015. In 2014, we recorded a reduction to compensation expense related to our stock appreciation rights
from continuing operations of $2.0 million and in 2013 we recorded compensation expense related to our stock appreciation
rights from continuing operations of $5.6 million.
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Equity-Based Compensation Plan Expense
Equity-based compensation expense from our continuing operations during the three years ended December 31, 2015
was as follows:
Consolidated Statement of Operations
Supply and logistics operating costs
Marine transportation operating costs
Refinery services operating costs
Offshore pipeline operating costs
Onshore pipeline operating costs
General and administrative expenses
Total
Bonus Program
Expense Related to Equity-Based
Compensation Plans
2015
2014
2013
$ 1,201
$
485
$ 4,524
851
227
94
(16)
4,565
626
(62)
—
(52)
5,824
586
1,978
—
510
11,073
$ 6,922
$ 6,821
$18,671
Bonuses under our bonus plan are paid at the discretion of the G&C Committee to our employees and executive
officers based on quantitative and qualitative measures relating to: our financial and operational performance relative to our
peers; industry expectations; progress in attaining strategic goals; and individual performance. In 2015, the G&C Committee
based bonus amounts primarily on the amount of cash we generated for distributions to our unitholders, measured on a
calendar-year basis. Two metrics were considered by the G&C Committee in determining the general bonus pool – the level of
Available Cash before Reserves (before subtracting bonus expense and related employer tax burdens) that we generated and our
company-wide safety record improvement which included a targeted achieved level in our company-wide incident injury rate.
The level of Available Cash before Reserves generated for the year as a percentage of a target set by the G&C Committee is
weighted 90% and the achieved level of the targeted improvement in our safety record is weighted 10%. The sum of the
weighted percentage achievement of these targets is multiplied by the eligible compensation and the target percentages
established by the G&C Committee for the various levels of our employees to determine the maximum general bonus pool. In
addition, the G&C Committee also considered other subjective factors in determining the general bonus pool and individual
award amounts. At December 31, 2015, we accrued $5.0 million for estimated bonuses to be paid in March 2016. For 2014 and
2013, we paid bonuses totaling $7.8 million and $5.3 million, respectively, to our executive officers and employees.
Employee Benefit Plans
In order to encourage long-term savings and to provide additional funds for retirement to its employees, we sponsor a
tax qualified profit-sharing and retirement savings plan. Under this plan, our matching contribution is calculated as an equal
match of the first 6% of each employee’s per pay period contribution. Our profit-sharing plan targets a 3% contribution of each
eligible employee’s total compensation (subject to IRS limitations). The expenses included in the Consolidated Statements of
Operations for costs relating to this plan were $8.2 million, $6.3 million and $4.3 million for the years ended December 31,
2015, 2014 and 2013, respectively.
We also provided certain health care and survivor benefits for our active employees. Our health care benefit programs
are self-insured, with a catastrophic insurance policy to limit our costs. We plan to continue self-insuring these plans in the
future. The expenses included in the Consolidated Statements of Operations for these benefits were $15.2 million, $13.5
million and $10.4 million in 2015, 2014 and 2013, respectively.
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16. Major Customers and Credit Risk
Due to the nature of our supply and logistics operations, a disproportionate percentage of our trade receivables
constitute obligations of refiners, large crude oil producers and integrated oil companies. This industry concentration has the
potential to impact our overall exposure to credit risk, either positively or negatively, in that our customers could be affected by
similar changes in economic, industry or other conditions. However, we believe that the credit risk posed by this industry
concentration is offset by the creditworthiness of our customer base. Our portfolio of accounts receivable is comprised in large
part of accounts owed by integrated and large independent energy companies with stable payment histories. The credit risk
related to contracts which are traded on the NYMEX is limited due to daily margin requirements and other NYMEX
requirements.
We have established various procedures to manage our credit exposure, including initial credit approvals, credit limits,
collateral requirements and rights of offset. Letters of credit, prepayments and guarantees are also utilized to limit credit risk to
ensure that our established credit criteria are met.
During 2015, 2014 and 2013 our largest customer was Shell Oil Company, which accounted for 12%, 12% and 17% of
total revenues respectively. The revenues from Shell Oil Company in all three years relate primarily to our supply and logistics
operations.
17. Derivatives
Commodity Derivatives
We have exposure to commodity price changes related to our inventory and purchase commitments. We utilize
derivative instruments (primarily futures and options contracts traded on the NYMEX) to hedge our exposure to commodity
prices, primarily of crude oil, fuel oil and petroleum products. Our decision as to whether to designate derivative instruments as
fair value hedges for accounting purposes relates to our expectations of the length of time we expect to have the commodity
price exposure and our expectations as to whether the derivative contract will qualify as highly effective under accounting
guidance in limiting our exposure to commodity price risk. Most of the petroleum products, including fuel oil that we supply
cannot be hedged with a high degree of effectiveness with derivative contracts available on the NYMEX; therefore, we do not
designate derivative contracts utilized to limit our price risk related to these products as hedges for accounting
purposes. Typically we utilize crude oil and other petroleum products futures and option contracts to limit our exposure to the
effect of fluctuations in petroleum products prices on the future sale of our inventory or commitments to purchase petroleum
products, and we recognize any changes in fair value of the derivative contracts as increases or decreases in our cost of
sales. The recognition of changes in fair value of the derivative contracts not designated as hedges for accounting purposes can
occur in reporting periods that do not coincide with the recognition of gain or loss on the actual transaction being
hedged. Therefore we will, on occasion, report gains or losses in one period that will be partially offset by gains or losses in a
future period when the hedged transaction is completed.
We have designated certain crude oil futures contracts as hedges of crude oil inventory due to our expectation that
these contracts will be highly effective in hedging our exposure to fluctuations in crude oil prices during the period that we
expect to hold that inventory. We account for these derivative instruments as fair value hedges under the accounting guidance.
Changes in the fair value of these derivative instruments designated as fair value hedges are used to offset related changes in
the fair value of the hedged crude oil inventory. Any hedge ineffectiveness in these fair value hedges and any amounts
excluded from effectiveness testing are recorded as a gain or loss in the Consolidated Statement of Operations.
In accordance with NYMEX requirements, we fund the margin associated with our loss positions on commodity
derivative contracts traded on the NYMEX. The amount of the margin is adjusted daily based on the fair value of the
commodity contracts. The margin requirements are intended to mitigate a party’s exposure to market volatility and the
associated contracting party risk. We offset fair value amounts recorded for our NYMEX derivative contracts against margin
funding as required by the NYMEX in Current Assets - Other in our Consolidated Balance Sheets.
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At December 31, 2015, we had the following outstanding derivative commodity contracts that were entered into to
economically hedge inventory or fixed price purchase commitments.
Designated as hedges under accounting rules:
Crude oil futures:
Contract volumes (1,000 bbls)
Weighted average contract price per bbl
Not qualifying or not designated as hedges under accounting rules:
Crude oil futures:
Contract volumes (1,000 bbls)
Weighted average contract price per bbl
Crude oil swaps:
Contract volumes (1,000 bbls)
Weighted average contract price per bbl
Diesel futures:
Contract volumes (1,000 bbls)
Weighted average contract price per gal
#6 Fuel oil futures:
Contract volumes (1,000 bbls)
Weighted average contract price per bbl
Crude oil options:
Contract volumes (1,000 bbls)
Weighted average premium received
Financial Statement Impacts
Sell (Short)
Contracts
Buy (Long)
Contracts
47
37.68
—
—
444
37.94
$
6
36.48
290
1.28
86
1.30
$
165
26.97
$
95
1.50
$
—
—
6
1.15
—
—
35
0.64
$
$
$
$
$
$
The following table summarizes the accounting treatment and classification of our derivative instruments on our
Consolidated Financial Statements.
Derivative Instrument
Hedged Risk
Designated as hedges under accounting guidance:
Crude oil futures contracts
(fair value hedge)
Volatility in crude oil prices -
effect on market value of
inventory
Impact of Unrealized Gains and Losses
Consolidated
Balance Sheets
Consolidated
Statements of Operations
Derivative is recorded in
Other current assets (offset
against margin deposits and
offsetting change in fair value
of inventory is recorded in
Inventories
Excess, if any, over effective
portion of hedge is recorded
in Supply and logistics costs -
product costs
Effective portion is offset in
cost of sales against change
in value of inventory being
hedged
Not qualifying or not designated as hedges under accounting guidance:
Commodity hedges
consisting of crude oil,
heating oil and natural gas
futures and forward
contracts and call options
Volatility in crude oil and
petroleum products prices -
effect on market value of
inventory or purchase
commitments
Derivative is recorded in
Other current assets (offset
against margin deposits) or
Accrued liabilities
Entire amount of change in
fair value of derivative is
recorded in Supply and
logistics costs - product costs
Unrealized gains are subtracted from net income and unrealized losses are added to net income in determining cash
flows from operating activities. To the extent that we have fair value hedges outstanding, the offsetting change recorded in the
fair value of inventory is also eliminated from net income in determining cash flows from operating activities. Changes in
margin deposits necessary to fund unrealized losses also affect cash flows from operating activities.
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The following tables reflect the estimated fair value gain (loss) position of our derivatives at December 31, 2015 and
2014:
Fair Value of Derivative Assets and Liabilities
Asset Derivatives:
Commodity derivatives—futures and call options (undesignated
hedges):
Gross amount of recognized assets
Gross amount offset in the Consolidated Balance Sheets
Net amount of assets presented in the Consolidated Balance
Sheets
Liability Derivatives:
Commodity derivatives—futures and call options (undesignated
hedges):
Gross amount of recognized liabilities
Gross amount offset in the Consolidated Balance Sheets
Net amount of liabilities presented in the Consolidated Balance
Sheets
Commodity derivatives—futures and call options (designated
hedges):
Gross amount of recognized liabilities
Gross amount offset in the Consolidated Balance Sheets
Net amount of liabilities presented in the Consolidated Balance
Sheets
Consolidated
Balance Sheets
Location
Current Assets -
Other
Current Assets -
Other
Current Assets -
Other (1)
Current Assets -
Other (1)
Current Assets -
Other (1)
Current Assets -
Other (1)
Fair Value
December 31, 2015
December 31, 2014
$
$
$
$
$
$
1,703
(388)
1,315
(388)
388
—
(23)
23
—
$
$
$
$
$
$
16,383
(2,310)
14,073
(2,310)
2,310
—
—
—
—
(1) These derivative liabilities have been funded with margin deposits recorded in our Consolidated Balance Sheets under Current
Assets - Other.
Our accounting policy is to offset derivative assets and liabilities executed with the same counterparty when a master
netting arrangement exists. Accordingly, we also offset derivative assets and liabilities with amounts associated with cash
margin. Our exchange-traded derivatives are transacted through brokerage accounts and are subject to margin requirements as
established by the respective exchange. On a daily basis, our account equity (consisting of the sum of our cash balance and the
fair value of our open derivatives) is compared to our initial margin requirement resulting in the payment or return of variation
margin. As of December 31, 2015, we had a net broker receivable of approximately $5.5 million (consisting of initial margin
of $4.4 million increased by $1.1 million of variation margin). As of December 31, 2014, we had a net broker receivable of
approximately $2.8 million (consisting of initial margin of $2.4 million increased by $0.3 million of variation margin). At
December 31, 2015 and December 31, 2014, none of our outstanding derivatives contained credit-risk related contingent
features that would result in a material adverse impact to us upon any change in our credit ratings.
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Effect on Operating Results
Amount of Gain (Loss) Recognized in Income
Supply & Logistics Product Costs
Year Ended
December 31,
2015
2014
2013
Commodity derivatives—futures and call options:
Contracts designated as hedges under accounting guidance
Contracts not considered hedges under accounting guidance
Total derivatives
$
$
(1,101) $
16,026
14,925
$
— $
35,468
35,468
$
—
(3,268)
(3,268)
We have no derivative contracts with credit contingent features.
18. Fair-Value Measurements
We classify financial assets and liabilities into the following three levels based on the inputs used to measure fair
value:
(1)
and liabilities;
Level 1 fair values are based on observable inputs such as quoted prices in active markets for identical assets
(2)
and liabilities and are either directly or indirectly observable as of the measurement date; and
Level 2 fair values are based on pricing inputs other than quoted prices in active markets for identical assets
(3)
Level 3 fair values are based on unobservable inputs in which little or no market data exists.
As required by fair value accounting guidance, financial assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value measurement.
Our assessment of the significance of a particular input to the fair value requires judgment and may affect the
placement of assets and liabilities within the fair value hierarchy levels.
The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were
accounted for at fair value on a recurring basis as of December 31, 2015 and 2014.
Recurring Fair Value Measures
Commodity derivatives:
Assets
Liabilities
December 31, 2015
December 31, 2014
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$
$
1,703
$
(411) $
— $
— $
— $
— $
16,383
$
(2,310) $
— $
— $
—
—
Our commodity derivatives include exchange-traded futures and exchange-traded options contracts. The fair value of
these exchange-traded derivative contracts is based on unadjusted quoted prices in active markets and is, therefore, included in
Level 1 of the fair value hierarchy.
See Note 17 for additional information on our derivative instruments.
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Table of Contents
Nonfinancial Assets and Liabilities
We utilize fair value on a non-recurring basis to perform impairment tests as required on our property, plant and
equipment, goodwill and intangible assets. Assets and liabilities acquired in business combinations are recorded at their fair
value as of the date of acquisition. The inputs used to determine such fair value are primarily based upon internally developed
cash flow models and would generally be classified in Level 3, in the event that we were required to measure and record such
assets within our Consolidated Financial Statements. Additionally, we use fair value to determine the inception value of our
asset retirement obligations. The inputs used to determine such fair value are primarily based upon costs incurred historically
for similar work, as well as estimates from independent third parties for costs that would be incurred to restore leased property
to the contractually stipulated condition, and would generally be classified in Level 3.
Other Fair Value Measurements
We believe the debt outstanding under our credit facility approximates fair value as the stated rate of interest
approximates current market rates of interest for similar instruments with comparable maturities. At December 31, 2015 our
senior unsecured notes had a carrying value of $1.8 billion and a fair value of $1.5 billion, compared to $1.0 billion and $1.0
billion, respectively at December 31, 2014. The fair value of the senior unsecured notes is determined based on trade
information in the financial markets of our public debt and is considered a Level 2 fair value measurement.
Additionally, we recorded the estimated fair value of net assets acquired and liabilities assumed in connection with our
Enterprise acquisition as of the acquisition date of July 24, 2015. The fair value measurements were primarily based on
significant unobservable inputs (Level 3) developed using company-specific information. See Note 3 for further information
associated with the values recorded in our Enterprise acquisition.
Additionally, the fair value measurements, using unobservable (Level 3) inputs, used in recording the estimated fair
value of the net assets acquired and liabilities assumed of CHOPS and SEKCO (which we now own 100% interest in and
consolidate given the respective 50% ownership interest acquired from Enterprise for each of these subsidiaries) as a result of
our Enterprise acquisition were used to calculate the effects of the re-measurement of our pre-acquisition historical interest in
CHOPS and SEKCO at fair value, based on accounting guidance involving step acquisitions as discussed in ASC 805-10-25.
19. Commitments and Contingencies
Commitments and Guarantees
Our office lease for our corporate headquarters extends until October 31, 2022. To transport products, we lease
tractors, trailers and railcars. In addition, we lease tanks and terminals for the storage of crude oil, petroleum products, NaHS
and caustic soda. Additionally, we lease a segment of pipeline where under the terms we make payments based on throughput.
We have no minimum volumetric or financial requirements remaining on our pipeline lease.
The future minimum rental payments under all non-cancelable operating leases as of December 31, 2015, were as
follows (in thousands):
2016
2017
2018
2019
2020
2021 and thereafter
Total minimum lease obligations
Office
Space
Transportation
Equipment
Terminals and
Tanks
Total
$
2,203
$
13,569
$
8,106
$
2,099
2,117
2,065
2,056
4,325
11,595
10,109
9,535
7,514
18,037
3,571
3,610
3,665
3,610
59,776
23,878
17,265
15,836
15,265
13,180
82,138
$
14,865
$
70,359
$
82,338
$
167,562
Total operating lease expense from our continuing operations was as follows (in thousands):
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
$
$
$
36,833
37,941
27,674
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Table of Contents
We are subject to various environmental laws and regulations. Policies and procedures are in place to monitor
compliance and to detect and address any releases of crude oil from our pipelines or other facilities; however no assurance can
be made that such environmental releases may not substantially affect our business.
Other Matters
Our facilities and operations may experience damage as a result of an accident or natural disaster. These hazards can
cause personal injury or loss of life, severe damage to and destruction of property and equipment, pollution or environmental
damage and suspension of operations. We maintain insurance that we consider adequate to cover our operations and properties,
in amounts we consider reasonable. Our insurance does not cover every potential risk associated with operating our facilities,
including the potential loss of significant revenues. The occurrence of a significant event that is not fully-insured could
materially and adversely affect our results of operations. We believe we are adequately insured for public liability and property
damage to others and that our coverage is similar to other companies with operations similar to ours. No assurance can be made
that we will be able to maintain adequate insurance in the future at premium rates that we consider reasonable.
We are subject to lawsuits in the normal course of business and examination by tax and other regulatory authorities.
We do not expect such matters presently pending to have a material effect on our financial position, results of operations or
cash flows.
20. Income Taxes
We are not a taxable entity for federal income tax purposes. As such, we do not directly pay federal income taxes.
Other than with respect to our corporate subsidiaries and the Texas Margin Tax, our taxable income or loss is includible in the
federal income tax returns of each of our partners.
A few of our operations are owned by wholly-owned corporate subsidiaries that are taxable as corporations. We pay
federal and state income taxes on these operations.
Our income tax (benefit) expense is as follows:
Current:
Federal
State
Total current income tax expense (benefit)
Deferred:
Federal
State
Total deferred income tax expense (benefit)
Total income tax expense from continuing operations (1)
Year Ended December 31,
2015
2014
2013
$
$
$
$
$
— $
— $
1,200
1,200
2,478
309
2,787
3,987
$
$
$
$
1,100
1,100
1,508
237
1,745
2,845
$
$
$
$
345
650
995
(248)
98
(150)
845
(1) Our discontinued operations had no income tax benefit or expense in any period presented.
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Deferred income taxes relate to temporary differences based on tax laws and statutory rates in effect at the balance
sheet date. Deferred tax assets and liabilities consist of the following:
Deferred tax assets:
Current:
Other current assets
Other
Total current deferred tax asset
Net operating loss carryforwards
Total long-term deferred tax asset
Valuation allowances
Total deferred tax assets
Deferred tax liabilities:
Current:
Other
Long-term:
Fixed assets
Intangible assets
Other
Total long-term liability
Total deferred tax liabilities
Total net deferred tax liability
December 31,
2015
2014
$
$
$
$
$
— $
—
—
9,542
9,542
(787)
8,755
$
262
8
270
9,048
9,048
(737)
8,581
— $
(871)
(4,384)
(17,473)
(729)
(22,586)
(22,586) $
(13,831) $
(4,335)
(14,419)
—
(18,754)
(19,625)
(11,044)
We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income
of the appropriate character in the future and in the appropriate taxing jurisdictions.
Our income tax expense (benefit) varies from the amount that would result from applying the federal statutory income
tax rate to income from continuing operations before income taxes as follows:
Income from continuing operations before income taxes
Partnership income not subject to tax
Income (loss) subject to income taxes
Tax expense (benefit) at federal statutory rate
State income taxes, net of federal tax
Effects of unrecognized tax positions, federal and state
Return to provision, federal and state
Other
Income tax expense (benefit)
Year Ended December 31,
2015
425,572
(418,500)
7,072
2,475
$
$
$
2014
109,047
(104,751)
4,296
1,504
$
$
$
$
$
$
928
—
(193)
777
992
—
(232)
581
$
3,987
$
2,845
$
2013
84,849
(85,567)
(718)
(251)
660
—
88
348
845
Effective tax rate on income from continuing operations before income
taxes
1%
3%
1%
At December 31, 2015, 2014 and 2013, we had no uncertain tax positions.
F-38
Table of Contents
21. Quarterly Financial Data (Unaudited)
The table below summarizes our unaudited quarterly financial data for 2015 and 2014.
First
Second
Third
Fourth
2015 Quarters
Revenues from continuing operations
Operating income
Income from continuing operations
Net loss (income) attributable to noncontrolling interest
Net income attributable to Genesis Energy, L.P.
Basic and diluted net income per common unit:
Continuing operations
Net income per common unit
Cash distributions per common unit (1)
$
$
$
$
$
$
$
$
526,857
24,819
20,215
$
$
$
656,327
29,380
11,665
$
$
$
— $
— $
20,215
0.21
0.21
0.5950
$
$
$
$
11,665
0.12
0.12
0.6100
$
$
$
$
2014 Quarters
572,334
44,798
$
$
363,409
$
(195) $
$
363,214
3.38
3.38
0.6250
Revenues from continuing operations
Operating income
Income from continuing operations
Net income
Basic and diluted net income per common unit:
Continuing operations
Net income per common unit
Cash distributions per common unit (1)
First
Second
Third
$ 1,019,719
$ 1,015,049
$
$
$
$
$
$
35,402
29,775
29,775
0.34
0.34
0.5350
$
$
$
$
$
$
31,257
21,148
21,148
0.24
0.24
0.5500
$
$
$
$
$
$
$
964,114
35,268
29,113
29,113
0.33
0.33
0.5650
491,011
57,870
26,296
1,138
27,434
0.24
0.24
0.6400
Fourth
847,282
30,624
26,166
26,166
0.28
0.28
0.5800
$
$
$
$
$
$
$
$
$
$
(1) Represents cash distributions declared and paid in the applicable period.
22. Condensed Consolidating Financial Information
Our $1.9 billion aggregate principal amount of senior unsecured notes co-issued by Genesis Energy, L.P. and Genesis
Energy Finance Corporation are fully and unconditionally guaranteed jointly and severally by all of Genesis Energy, L.P.’s current
and future 100% owned domestic subsidiaries, except Genesis Free State Pipeline, LLC, Genesis NEJD Pipeline, LLC and certain
other minor subsidiaries. Genesis NEJD Pipeline, LLC is 100% owned by Genesis Energy, L.P., the parent company. The
remaining non-guarantor subsidiaries are owned by Genesis Crude Oil, L.P., a guarantor subsidiary. Genesis Energy Finance
Corporation has no independent assets or operations. See Note 10 for additional information regarding our consolidated debt
obligations.
During 2015, the Company determined the need to revise its disclosures and presentation with respect to the Condensed
Consolidating Financial Information included in this footnote. These revisions relate solely to transactions between Genesis
Energy, L.P. and its subsidiaries and only impact the information that is presented in the Condensed Consolidating Financial
Information presented herein and does not affect the Consolidated Financial Statements in any way. The Company determined
that adjustments to the presentation relating to advances to and from affiliates was necessary and were made. As such, the
condensed consolidating balance sheet as of December 31, 2014 was adjusted to present advances to and from subsidiaries as non-
current assets and liabilities. This resulted in the reclassification of such advances from current assets and liabilities to long term
assets and liabilities. Also, the condensed consolidated statement of cash flows for the year ended December 31, 2014 and 2013
have been adjusted to reflect these changes. There is also a schedule below that reflects all these adjustments and reconciles from
what has been disclosed in previous filings to what we represent in the financial statements below.
The following is condensed consolidating financial information for Genesis Energy, L.P. and subsidiary guarantors:
F-39
Table of Contents
ASSETS
Current assets:
Condensed Consolidating Balance Sheet
December 31, 2015
Genesis
Energy, L.P.
(Parent and
Co-Issuer)
Genesis
Energy Finance
Corporation
(Co-Issuer)
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Genesis
Energy, L.P.
Consolidated
Cash and cash equivalents
$
6
$
— $
8,288
$
2,601
$
— $
10,895
Other current assets
Total current assets
Fixed Assets, at cost
Less: Accumulated depreciation
Net fixed assets
Goodwill
Other assets, net
Advances to affiliates
Equity investees and other investments
Investments in subsidiaries
Total assets
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Senior secured credit facilities
Senior unsecured notes
Deferred tax liabilities
Advances from affiliates
Other liabilities
Total liabilities
Partners’ capital, common units
Noncontrolling interests
50
56
—
—
—
—
13,140
2,619,493
—
2,353,804
—
—
—
—
—
—
—
—
—
—
285,313
293,601
4,232,641
(356,530)
3,876,111
325,046
394,294
—
474,392
90,741
10,422
13,023
77,585
(21,717)
55,868
—
140,409
47,034
—
—
(364)
(364)
—
—
—
—
(125,977)
(2,666,527)
295,421
306,316
4,310,226
(378,247)
3,931,979
325,046
421,866
—
—
474,392
(2,444,545)
—
4,986,493
$
— $
5,454,185
$
256,334
$
(5,237,413) $
5,459,599
35,338
$
— $
267,294
$
— $
(496) $
302,136
1,115,000
1,807,054
—
—
—
2,957,392
2,029,101
—
—
—
—
—
—
—
—
—
—
—
22,586
2,666,527
150,877
3,107,284
2,346,901
—
—
—
—
—
—
—
—
(2,666,527)
1,115,000
1,807,054
22,586
—
167,006
167,006
97,678
(8,350)
(125,811)
192,072
(2,792,834)
3,438,848
(2,444,579)
2,029,101
—
(8,350)
$
$
Total liabilities and partners’ capital
$
4,986,493
$
— $
5,454,185
$
256,334
$
(5,237,413) $
5,459,599
F-40
Table of Contents
ASSETS
Current assets:
Condensed Consolidating Balance Sheet
December 31, 2014
Genesis
Energy, L.P.
(Parent and
Co-Issuer)
Genesis
Energy Finance
Corporation
(Co-Issuer)
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Genesis
Energy, L.P.
Consolidated
Cash and cash equivalents
$
9
$
— $
8,310
$
1,143
$
— $
9,462
Other current assets
Total current assets
Fixed Assets, at cost
Less: Accumulated depreciation
Net fixed assets
Goodwill
Other assets, net
Advances to affiliates
Equity investees and other investments
Investments in subsidiaries
Total assets
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Senior secured credit facilities
Senior unsecured notes
Deferred tax liabilities
Advances from affiliates
Other liabilities
Total liabilities
Partners' capital
53
62
—
—
—
—
8,671
1,378,520
—
1,434,255
—
—
—
—
—
—
—
—
—
—
333,385
341,695
1,823,556
(251,171)
1,572,385
325,046
269,252
—
628,780
97,195
12,474
13,617
75,502
(16,886)
58,616
—
(8)
(8)
—
—
—
—
146,700
(154,192)
(1,378,520)
345,904
355,366
1,899,058
(268,057)
1,631,001
325,046
270,431
—
—
—
—
—
628,780
(1,531,450)
—
$
$
2,821,508
$
— $
3,234,353
$
218,933
$
(3,064,170) $
3,210,624
11,016
$
— $
395,159
$
499
$
(43,529) $
363,145
550,400
1,030,889
—
—
—
1,592,305
1,229,203
—
—
—
—
—
—
—
—
—
18,754
1,366,697
18,233
1,798,843
1,435,510
—
—
—
—
—
—
11,823
(1,378,520)
(110,663)
110,663
122,985
550,400
1,030,889
18,754
—
18,233
(1,532,712)
1,981,421
95,948
(1,531,458)
1,229,203
Total liabilities and partners’ capital
$
2,821,508
$
— $
3,234,353
$
218,933
$
(3,064,170) $
3,210,624
F-41
Table of Contents
Condensed Consolidating Statement of Operations
Year Ended December 31, 2015
Genesis
Energy, L.P.
(Parent and
Co-Issuer)
Genesis
Energy Finance
Corporation
(Co-Issuer)
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Genesis
Energy, L.P.
Consolidated
REVENUES:
Offshore pipeline transportation services
$
— $
— $
137,681
$
2,549
$
— $
140,230
Onshore pipeline transportation services
Refinery services
Marine transportation
Supply and logistics
Total revenues
COSTS AND EXPENSES:
Supply and logistics costs
Marine transportation costs
Refinery services operating costs
Offshore pipeline transportation operating
costs
Onshore pipeline transportation operating
costs
General and administrative
Depreciation and amortization
Total costs and expenses
OPERATING INCOME
Equity in earnings of equity investees
Equity in earnings of subsidiaries
Interest (expense) income, net
Gain on basis step up on historical interest
Other income/(expense), net
Income before income taxes
Income tax benefit (expense)
NET INCOME
Net loss attributable to noncontrolling interest
NET INCOME ATTRIBUTABLE TO
GENESIS ENERGY, L.P.
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
542,226
(100,494)
—
(19,204)
422,528
—
422,528
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
53,347
175,132
238,757
1,612,570
2,217,487
1,577,497
135,200
94,241
38,459
24,475
64,995
141,785
2,076,652
140,835
54,450
2,053
15,042
332,380
1,675
546,435
(4,036)
542,399
—
23,745
11,942
—
—
—
(9,194)
—
—
77,092
177,880
238,757
1,612,570
38,236
(9,194)
2,246,529
—
—
—
—
11,759
(9,194)
1,577,497
135,200
96,806
39,713
25,311
64,995
150,140
—
—
—
—
(9,194)
2,089,662
—
—
(544,279)
—
—
—
156,867
54,450
—
(100,596)
332,380
(17,529)
(544,279)
425,572
—
(3,987)
(544,279)
421,585
—
943
1,254
836
—
8,355
22,204
16,032
—
—
(15,144)
—
—
888
49
937
943
$
422,528
$
— $
542,399
$
1,880
$
(544,279) $
422,528
F-42
Table of Contents
Condensed Consolidating Statement of Operations
Year Ended December 31, 2014
Genesis
Energy, L.P.
(Parent and
Co-Issuer)
Genesis
Energy Finance
Corporation
(Co-Issuer)
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Genesis
Energy, L.P.
Consolidated
REVENUES:
Offshore pipeline transportation services $
Onshore pipeline transportation services
— $
— $
3,296
$
— $
Refinery services
Marine transportation
Supply and logistics
Total revenues
COSTS AND EXPENSES:
Supply and logistics costs
Marine transportation costs
Refinery services operating costs
Offshore pipeline transportation
operating costs
Onshore pipeline transportation
operating costs
General and administrative
Depreciation and amortization
Total costs and expenses
OPERATING INCOME
Equity in earnings of equity investees
Equity in earnings of subsidiaries
Interest (expense) income, net
Income before income taxes
Income tax benefit (expense)
NET INCOME
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
172,828
(66,626)
106,202
—
—
—
—
58,391
202,250
229,282
— 3,323,028
24,766
18,289
—
—
— $
—
(13,138)
—
—
3,296
83,157
207,401
229,282
3,323,028
— 3,816,247
43,055
(13,138)
3,846,164
— 3,277,052
—
—
—
—
—
—
142,793
117,788
1,271
28,639
50,692
88,368
— 3,706,603
—
—
—
—
—
—
109,644
43,135
6,952
15,662
175,393
(3,030)
—
—
—
—
17,393
(13,780)
3,277,052
142,793
121,401
—
857
—
2,540
20,790
22,265
—
—
—
—
—
—
1,271
29,496
50,692
90,908
(13,780)
3,713,613
642
—
(179,780)
132,551
43,135
—
(15,675)
—
(66,639)
6,590
185
(179,138)
109,047
—
(2,845)
$ 106,202
$
— $
172,363
$
6,775
$
(179,138) $
106,202
F-43
Table of Contents
Condensed Consolidating Statement of Operations
Year Ended December 31, 2013
Genesis
Energy, L.P.
(Parent and
Co-Issuer)
Genesis
Energy Finance
Corporation
(Co-Issuer)
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Genesis
Energy, L.P.
Consolidated
REVENUES:
Offshore pipeline transportation services
$
— $
— $
3,923
$
— $
Onshore pipeline transportation services
Refinery services
Marine transportation
Supply and logistics
Total revenues
COSTS AND EXPENSES:
Supply and logistics costs
Marine transportation costs
Refinery services operating costs
Offshore pipeline transportation operating
costs
Onshore pipeline transportation operating
costs
General and administrative
Depreciation and amortization
Total costs and expenses
OPERATING INCOME
Equity in earnings of equity investees
Equity in earnings of subsidiaries
Interest (expense) income, net
Income before income taxes
Income tax expense
Income from continuing operations
Loss from discontinued operations
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
134,616
(48,507)
86,109
—
86,109
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
56,784
203,021
152,542
3,689,795
4,106,065
3,649,328
104,676
128,814
1,234
24,853
46,790
62,194
4,017,889
88,176
22,675
6,913
16,080
133,844
(676)
133,168
2,105
25,801
17,835
—
—
—
1,119
—
2,590
20,582
23,054
—
—
— $
—
(14,871)
—
—
3,923
82,585
205,985
152,542
3,689,795
43,636
(14,871)
4,134,830
—
—
—
—
16,873
(14,398)
3,649,328
104,676
131,289
—
—
—
—
1,234
25,972
46,790
64,784
(14,398)
4,024,073
(473)
—
(141,529)
(16,156)
—
6,898
(169)
6,729
—
(142,002)
—
(142,002)
—
110,757
22,675
—
(48,583)
84,849
(845)
84,004
2,105
NET INCOME
$
86,109
$
— $
135,273
$
6,729
$
(142,002) $
86,109
F-44
Table of Contents
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2015
Net cash (used in) provided by operating activities
$
(14,082) $
— $
308,144
$
45,125
$
(49,651) $
289,536
Genesis
Energy, L.P.
(Parent and
Co-Issuer)
Genesis
Energy Finance
Corporation
(Co-Issuer)
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Genesis
Energy, L.P.
Consolidated
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments to acquire fixed and intangible
assets
Cash distributions received from equity
investees - return of investment
Investments in equity investees
Acquisitions
Intercompany transfers
Repayments on loan to non-guarantor
subsidiary
Contributions in aid of construction costs
Proceeds from asset sales
Other, net
Net cash used in investing activities
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings on senior secured credit facility
Repayments on senior secured credit facility
Proceeds from issuance of senior unsecured
notes, including premium
Repayment of senior unsecured notes
Debt issuance costs
Intercompany transfers
Issuance of common units for cash, net
Distributions to partners/owners
Distributions to noncontrolling interest
Other, net
—
186,026
(633,761)
—
(1,240,973)
—
—
—
—
(1,688,708)
1,525,050
(960,450)
1,139,718
(350,000)
(28,901)
—
633,759
(256,389)
—
—
Net cash provided by financing activities
1,702,787
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
(3)
9
6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(495,774)
25,645
(3,045)
(1,520,299)
—
5,524
3,179
2,811
(1,976)
(1,983,935)
—
—
—
—
—
1,299,830
633,759
(256,389)
(960)
(471)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(495,774)
(186,026)
633,761
25,645
(3,045)
—
(1,520,299)
1,240,973
(5,524)
—
—
—
—
—
3,179
2,811
(1,976)
1,683,184
(1,989,459)
—
—
—
—
—
1,525,050
(960,450)
1,139,718
(350,000)
(28,901)
(58,857)
(1,240,973)
—
—
—
—
(633,759)
633,759
256,389
(256,389)
—
15,190
(15,190)
(960)
(471)
1,675,769
(43,667)
(1,633,533)
1,701,356
(22)
8,310
1,458
1,143
—
—
1,433
9,462
$
— $
8,288
$
2,601
$
— $
10,895
F-45
Table of Contents
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2014
Net cash (used in) provided by operating activities
$
96,868
$
— $
317,520
$
34,331
$
(157,665) $
291,054
Genesis
Energy, L.P.
(Parent and
Co-Issuer)
Genesis
Energy Finance
Corporation
(Co-Issuer)
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Genesis
Energy, L.P.
Consolidated
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments to acquire fixed and intangible
assets
Cash distributions received from equity
investees - return of investment
Investments in equity investees
Acquisitions
Intercompany transfers
Repayments on loan to non-guarantor
subsidiary
Proceeds from assets sales
Other, net
Net cash used in investing activities
CASH FLOWS FROM FINANCING
ACTIVITIES:
—
42,755
(225,725)
—
(244,876)
—
—
—
(427,846)
Borrowings on senior secured credit facility
Repayments on senior secured credit facility
1,839,900
(1,872,300)
Proceeds from issuance of senior unsecured
notes, including premium
Debt issuance costs
Intercompany transfers
Issuance of ownership interests to partners for
cash
Distributions to partners/owners
Other, net
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
350,000
(11,896)
—
225,725
(200,462)
—
330,967
(11)
20
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(443,482)
18,363
(40,926)
(157,000)
—
4,993
272
(1,214)
(618,994)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
273,911
(29,035)
(244,876)
225,725
(200,462)
2,560
301,734
260
8,050
—
—
(4,949)
(33,984)
347
796
(225,725)
200,463
4,950
(265,188)
—
—
—
(443,482)
(42,755)
225,725
—
244,876
(4,993)
—
—
18,363
(40,926)
(157,000)
—
—
272
(1,214)
422,853
(623,987)
—
—
—
—
1,839,900
(1,872,300)
350,000
(11,896)
—
225,725
(200,461)
2,561
333,529
596
8,866
9,462
$
9
$
— $
8,310
$
1,143
$
— $
F-46
Table of Contents
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2013
Net cash (used in) provided by operating activities
$
107,951
$
— $
139,027
$
35,847
$
(144,439) $
138,386
Genesis
Energy, L.P.
(Parent and
Co-Issuer)
Genesis
Energy Finance
Corporation
(Co-Issuer)
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Genesis
Energy, L.P.
Consolidated
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments to acquire fixed and intangible
assets
Cash distributions received from equity
investees - return of investment
Investments in equity investees
Acquisitions
Intercompany transfers
Repayments on loan to non-guarantor
subsidiary
Proceeds from asset sales
Other, net
Net cash used in investing activities
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings on senior secured credit facility
Repayments on senior secured credit facility
Proceeds from issuance of senior unsecured
notes
Debt issuance costs
Intercompany transfers
Issuance of ownership interests to partners for
cash
Distributions to partners/owners
Other, net
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
—
23,963
(263,574)
—
(388,106)
—
—
—
(627,717)
1,593,300
(1,510,500)
350,000
(8,157)
—
263,574
(168,441)
—
519,776
10
10
20
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(343,119)
12,432
(94,551)
(230,880)
—
4,512
1,910
(1,622)
(651,318)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
418,852
(30,746)
(388,106)
263,574
(168,441)
(4,748)
509,237
(3,054)
11,104
—
—
(4,473)
(35,219)
628
168
796
(263,574)
168,441
4,473
(478,766)
—
—
$
— $
—
(343,119)
(23,963)
263,574
12,432
(94,551)
—
(230,880)
388,106
(4,512)
—
—
—
—
1,910
(1,622)
623,205
(655,830)
—
—
—
—
1,593,300
(1,510,500)
350,000
(8,157)
—
263,574
(168,441)
(4,748)
515,028
(2,416)
11,282
8,866
$
— $
8,050
$
F-47
Table of Contents
See below for revisions to previously presented Condensed Consolidating Financial Information.
Balance Sheet Restatements
As Previously Reported
Adjustment
As Revised
December 31, 2014
Parent Column
Other current assets
Total current assets
Advances to affiliates
Guarantor Column
Current liabilities
Advances from affiliates
Non Guarantor Column
Other current assets
Total current assets
Total assets
Current liabilities
Advances from affiliates
Other liabilities
Total liabilities
Total liabilities and partners' capital
Eliminations Column
Other current assets
Total current assets
Advances to affiliates
Total assets
Current liabilities
Advances from affiliates
Other liabilities
Total liabilities
Total liabilities and partners' capital
(1,378,520)
(1,378,520)
1,378,520
(1,366,697)
1,366,697
(33,741)
(33,741)
(33,741)
(2,206)
11,823
(43,358)
(33,741)
(33,741)
1,412,261
1,412,261
(1,378,520)
33,741
1,368,903
(1,378,520)
43,358
33,741
33,741
53
62
1,378,520
395,159
1,366,697
12,474
13,617
218,933
499
11,823
110,663
122,985
218,933
(8)
(8)
(1,378,520)
(3,064,170)
(43,529)
(1,378,520)
(110,663)
(1,532,712)
(3,064,170)
1,378,573
1,378,582
—
1,761,856
—
46,215
47,358
252,674
2,705
—
154,021
156,726
252,674
(1,412,269)
(1,412,269)
—
(3,097,911)
(1,412,432)
—
(154,021)
(1,566,453)
(3,097,911)
F-48
Table of Contents
Cash Flow Restatements
December 31, 2014
Parent Column
Net cash provided by operating activities
Intercompany transfers (investing)
Net cash used in investing activities
Guarantor Column
Net cash provided by operating activities
Intercompany transfers (financing)
Net cash provided by (used in) financing
activities
Non Guarantor Column
Net cash provided by operating activities
Intercompany transfers (financing)
Net cash provided by (used in) financing
activities
Eliminations Column
Intercompany transfers (investing)
Net cash used in investing activities
Intercompany transfers (financing)
Net cash provided by (used in) financing
activities
Cash Flow Restatements
December 31, 2013
Parent Column
Net cash provided by operating activities
Intercompany transfers (investing)
Net cash used in investing activities
Guarantor Column
Net cash provided by operating activities
Intercompany transfers (financing)
Net cash provided by (used in) financing
activities
Non Guarantor Column
Net cash provided by operating activities
Intercompany transfers (financing)
Net cash provided by (used in) financing
activities
Eliminations Column
Intercompany transfers (investing)
Net cash used in investing activities
Intercompany transfers (financing)
Net cash provided by (used in) financing
activities
As Previously Reported
Adjustment
As Revised
(148,008)
—
(182,970)
591,431
—
27,824
5,296
—
(4,950)
—
177,977
—
(20,312)
244,876
(244,876)
(244,876)
(273,911)
273,911
273,910
29,035
(29,035)
(29,034)
244,876
244,876
(244,876)
(244,876)
96,868
(244,876)
(427,846)
317,520
273,911
301,734
34,331
(29,035)
(33,984)
244,876
422,853
(244,876)
(265,188)
As Previously Reported
Adjustment
As Revised
388,106
(388,106)
(388,106)
(418,852)
418,852
418,852
30,746
(30,746)
(30,746)
388,106
388,106
(388,106)
(388,106)
107,951
(388,106)
(627,717)
139,027
418,852
509,237
35,847
(30,746)
(35,219)
388,106
623,205
(388,106)
(478,766)
(280,155)
—
(239,611)
557,879
—
90,385
5,101
—
(4,473)
—
235,099
—
(90,660)
F-49
Officers*
Directors*
Conrad P. Albert (1) (2)
Private investor; former director of Anadarko
Petroleum Corporation and DeepTech
International, Inc.; former Executive Vice
President of Manufacturers Hanover Trust
Company
James E. Davison (1)
Private investor; former chairman of Davison
Transport, Inc.
James E. Davison, Jr. (1)
Private investor; executive of Davison family
businesses
Sharilyn S. Gasaway(1) (2)
Private investor; former Executive Vice President
and Chief Financial Officer of Alltel Corporation
Kenneth M. Jastrow, II (1) (2) (3)
Former Non-executive Chairman of Forestar Group,
Inc.; former Chairman and Chief Executive
Officer of Temple-Inland, Inc.
Corbin J. Robertson III (1) (2)
Private investor; Managing Partner of LKCM
Headwater Investments GP, LLC and LKCM
Headwater Investments I, L.P.
Grant E. Sims (1)
Chairman of the Board and Chief Executive Officer,
Genesis Energy, LLC
Jack T. Taylor (1) (2)
Director of Sempra Energy and Murphy USA Inc.;
former KPMG Chief Operating Officer-Americas
(1) Governance, Compensation and Business Development
Committee Member. Mr. Jastrow serves as Chairman.
(2) Audit Committee Member. Ms. Gasaway serves as
Chairperson.
(3) Lead independent director
*Genesis Energy, L.P., does not have officers or directors.
Listed above are the officers and directors of the General
Partner, Genesis Energy, LLC
Grant E. Sims
Chief Executive Officer
Robert V. Deere
Chief Financial Officer
Paul A. Davis
Senior Vice President
Stephen M. Smith
Vice President
Richard R. Alexander
Vice President
Karen N. Pape
Senior Vice President and Controller
Unitholder Information
Partnership Offices
Genesis Energy, L.P.
919 Milam, Suite 2100
Houston, TX 77002
(713) 860-2500
Partnership Website
www.genesisenergy.com
Exchange Listing
NYSE
Ticker Symbol: GEL
Principal Transfer Agent, Registrar and Cash
Distribution Paying Agent
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
(800) 937-5449
Additional Information:
• For information regarding your K-1 tax report,
call (855) 502-0936
• Unitholder questions regarding transfers, lost
certificates, distribution checks and address
changes should be directed to the Transfer
Agent or your stockbroker.
The Partnership’s Annual Report on Form 10-K is
available to Unitholders upon request. It is also
available on the Internet at
http://www.genesisenergy.com
Genesis Energy, L.P. ♦ 919 Milam, Suite 2100 ♦ Houston, Texas 77002