Genesis Energy L.P. GEL
December 10, 2004 - 11:11am EST by
2004 2005
Price: 12.18 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 113 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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Genesis (GEL) is a mid-stream (prmiary asset base) master limited partnership traded on the AMEX. GEL gathers, markets, and transports crude through their pipeline system, and is also marketing a growing supply of Co2. The company's pipline systems are in Texas, Florida-Alabama, and Miss-La.

The thesis of why I believe this is a low risk investment opportunity is very simple: The relatively new ownership of the GP provides solid management working on behalf of GEL unit holders, while the GP's parent is experiencing tremendous growth which I believe will deliver significant economic benefit to unit holders.

The quick and dirty:
Genesis has an approximate $115mm market cap, approx $15mm in long term debt, and partners capital of just under $50mm. In the 3rd quarter ended Sep 30, total revenues were $250mm, and for the nine months ended this period revenues increased to $680mm versus $480mm in the prior year. In the 3rd Q, available cash generated per unit was .21, versus a distribtution of .15 per unit. The company reported a loss of .04 per unit in this quarter, due primarily to non-cash contract impairment charges. Since new ownership came in, the company has not made distributions which were not generated on a cash basis. The company has stated it expects to maintain a .15 distribution/quarter/unit, and hopes to reach .20/unit in 2005. Currently the units are yielding just slightly under 5%.

Why I like this:
GEL was close to bankruptcy until it was taken over by Denbury Resoureces (DNR). The GP is controlled by Debury (DNR), and the managing members of the GP are the top executives from DNR. From the sources I've checked, management is deemed to be extremely solid, somewhat boring, not prone to mistakes, and highly ethical. That makes me comfortable with mgmt, what they say, and their ability to deliver. DNR has stated to the street that they intend to more than 3x(triple)their oil production over the next 3-4 years. Taking them at their word, I believe this translates into very strong growth opportunities for Genesis, through both significant volume increases in their systems, and new asset build opportunities on behalf of parent DNR. A good chunk of DNR's stated growth will come through tertiary recovery of oil from fields in Miss-La through Co2 injection. DNR sold it's wholesale Co2 operation to GEL in late 2003. GEL will also have growth opportunities outside of it's parent through acquisitions, though for the sake of this write up, I believe unit distribution can at the very least double (.30-.40/quarter/unit)over the next 3-4 years through increased production/organic opportunites at the parent alone.

GEL has the assets in place to benefit from increased volume from DNR, and DNR will be hard pressed not to utilize the inherent lower cost of capital which comes through using units for financing accretive operations or acquisitions. Quite simply, GEL sits in the middle of DNR's future growth, and the management team is well aware of the value which can be created through the use of it's GP/MLP structure.


Increased volume in parent DNR assets through tertiary recovery.
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