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Genesis Energy, L.P. Reports Third Quarter 2017 Results

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Genesis Energy, L.P. (NYSE:GEL) today announced its third quarter
results.

Certain highlights of our results for the quarter ended September 30,
2017 included the following items:

We completed the $1.325 billion accretive acquisition of the world's
largest producer of natural soda ash. We funded that acquisition and the
related transaction costs with proceeds from a $750 million private
placement of convertible preferred units, a $550 million public offering
of notes, our revolving credit facility, and cash on hand.

We announced a strategic reallocation of capital, allocating more
capital to debt repayments and growth opportunities (and less to current
distributions). As part of this, we declared a quarterly distribution of
$0.50 per common unit for the quarter ended September 30, 2017, to be
paid on November 14, 2017 to unitholders of record at the close of
business on October 31, 2017. From this re-setting of our current
quarterly distribution to common unitholders, we have enhanced our
balance sheet and financial flexibility, facilitating our plan to:

  • Increase our quarterly distribution by at least $0.01 per quarter for
    each of the next twenty quarters
  • Increase our distribution coverage ratio
  • Reduce our leverage ratio
  • Opportunistically pursue accretive organic projects and acquisitions

We confirmed prior guidance and provided additional guidance metrics,
including:

  • Projecting record net income, cash flow from operations, Adjusted
    EBITDA and Available Cash before Reserves in future periods
  • Targeting distribution coverage of the new distribution profile of
    1.40 to 1.60 times on a cash basis, as historically calculated and
    presented
  • Targeting leverage ratios approaching 4.75, 4.25 and 3.75 times for
    year ends 2018, 2019 and 2020, respectively, as historically
    calculated and presented

We generated the following financial results for the third quarter of
2017:

  • Net Income Attributable to Genesis Energy, L.P. of $6.3 million
    generating $0.01 of net income per common unit. Net income was
    negatively affected by approximately $25.2 million, or $0.21 per unit,
    due to transaction and financing expenses, as well as an increase in
    interest expense, primarily driven by our acquisition of the Alkali
    Business during the quarter.
  • Cash Flows from Operating Activities of $33.8 million. This result was
    negatively affected by certain non-recurring costs described above as
    well as an increase in net working capital that is not necessarily
    meaningful to the underlying performance of the partnership's
    businesses.
  • Available Cash before Reserves of $91.8 million. Available Cash before
    Reserves provided 1.50 coverage for the quarterly distribution of
    $0.50 per common unit attributable to the third quarter. We will pay
    distributions on our convertible preferred units in the form of
    162,234 additional convertible preferred units.
  • Adjusted EBITDA of $140.1 million. Our Adjusted Debt to Pro Forma
    EBITDA ratio is 5.28 as of September 30, 2017. These amounts are
    calculated and further discussed later in this press release.

Grant Sims, CEO of Genesis Energy, said, "We recently made the strategic
decision to re-set our quarterly distribution and provided guidance for
visible, achievable long term distribution growth and a clear path
forward to deleveraging. These steps, along with the future stable and
repeatable cash flows from our recently completed acquisition as well as
the anticipated ramp from our recent strategic investments, we believe
further enhance our financial flexibility to opportunistically pursue
accretive organic projects and acquisitions should they present
themselves. In this context, however, we would reiterate, we currently
have no plans to access the equity capital markets in the immediate
future, including under our 'at the market' equity program, which in
fact has never been used. Overall, we believe these actions to
strengthen our balance sheet and enhance our financial flexibility are
the best actions we can take to allow us to generate strong total
returns for our unitholders in the years ahead.

Our quarterly results were negatively impacted by a number of events
such as Hurricane Harvey (a 1,000-year hurricane), the planned
regulatory dry-docking of our M/T American Phoenix as required every
five years, some extended turnarounds at several offshore hubs, and
turnarounds at several facilities in Alberta. Notwithstanding these
negatives, our legacy businesses are performing as expected, and we are
seeing increased contributions from our recently completed organic
projects in the Baton Rouge corridor, in and around Texas City and in
Wyoming. Additionally, the quarter reflects only one month of
contribution from our recently acquired soda ash operations, which
performance is exceeding our expectations. Even under these
circumstances and closing on a $1.325 billion acquisition, our leverage
ratio declined on a sequential quarterly basis, and our reported
distribution coverage of 1.50 times was exactly in the middle of our
recently announced targeted range.

The financial results for the quarter ended September 30, 2017, in our
opinion, should not be the focus. As we recently discussed, we expect to
report record net income, cash flows from operations, Adjusted EBITDA
and Available Cash before Reserves in future periods. Even with some of
the headwinds in certain of our legacy businesses about which we have
been very forthright and explicit, we have built a company currently
capable of generating EBITDA approaching $700 million annually, with
visible growth in front of it and positively leveraged to cyclical
recovery in certain of its businesses.

Earlier this year, we announced and discussed our intent to market
certain non-strategic assets with targeted proceeds of $50-$75 million.
While not yet fully recognized in our reported results, we have to date
consummated sales for total cash proceeds of approximately $76 million,
representing in the aggregate a GAAP gain of approximately $40 million
and at an implied multiple to us of in excess of 30 times, none of which
directly flows through our non-GAAP measures of EBITDA or Available
Cash. We continue to evaluate other non-strategic assets in our
portfolio, although there can be no assurances of additional
transactions.

Finally, I want to recognize our professional and dedicated employees
and warmly welcome the some 900 plus that have recently joined Genesis
as a result of our recent acquisition. We will continue to work together
to drive value for all of our stakeholders while never losing sight of
our commitment to safe, reliable and responsible operations."

Preferred Unit Distributions

With respect to our Class A Convertible Preferred Units, we have
declared a payment-in-kind ("PIK") of the quarterly distribution, which
will result in the issuance of an additional 162,234 Class A Convertible
Preferred Units. This PIK amount, as pro-rated based on the period these
units were outstanding, equates to a distribution of $0.2458 per Class A
Convertible Preferred Unit for the 2017 Quarter, or $2.9496 annualized.
These distributions will be payable on November 14, 2017 to unitholders
holders of record at the close of business on November 3, 2017.

Financial Results

Segment Margin

On September 1, 2017, we acquired Tronox Limited's ("Tronox's") trona
and trona-based exploring, mining, processing, producing, marketing and
selling business (the "Alkali Business") for approximately $1.325
billion. We funded that acquisition and the related transaction costs
with proceeds from a $750 million private placement of convertible
preferred units, a $550 million public offering of notes, our revolving
credit facility, and cash on hand. At the closing, we entered into a
transition service agreement to facilitate a smooth transition of
operations and uninterrupted services for both employees and customers.

Beginning in the fourth quarter of 2016, we started reporting our
results on a comparative basis in four business segments. Due to the
increasingly integrated nature of our onshore operations, the results of
our onshore pipeline transportation segment, formerly reported under its
own segment, is now reported in our onshore facilities and
transportation segment. The onshore facilities and transportation
segment also now includes what was formerly reported in our supply and
logistics segment. This segment was renamed in the second quarter of
2017 to more accurately describe the nature of its operations. We will
report the results of the Alkali Business in our renamed sodium and
sulfur services segment, which will include the Alkali Business as well
as our historical refinery services operations.

Variances between the third quarter of 2017 (the "2017 Quarter") and the
third quarter of 2016 (the "2016 Quarter") in these components are
explained below.

Segment results for the 2017 Quarter and 2016 Quarter were as follows:

 
    Three Months Ended
September 30,
2017   2016

(in thousands)

Offshore pipeline transportation $ 78,228 $ 86,557
Sodium minerals and sulfur services 30,031 20,526
Onshore facilities and transportation 25,606 17,560
Marine transportation 12,649   16,697  
Total Segment Margin $ 146,514   $ 141,340  
 

Offshore pipeline transportation Segment Margin for the 2017 Quarter
decreased $8.3 million, or 9.6%, from the 2016 Quarter. The 2017 Quarter
was negatively impacted by both anticipated and unanticipated downtime
at several major fields, including weather related downtime, affecting
certain of our deepwater Gulf of Mexico customers and thus certain of
our key crude oil and natural gas assets, including our Poseidon
pipeline and certain associated laterals which we own. While such
downtime was temporary, we expect additional downtime relating to
weather and maintenance involving certain customers' fields during the
fourth quarter of 2017. The quarter also reflects the effects of a
contractual step down to a lower transportation rate for a certain
lateral which we own that will be in place going forward. In addition,
the 2016 Quarter benefited from the temporary diversion of certain
natural gas volumes from third party gas pipelines to one of our gas
pipelines and related facilities due to disruptions at onshore
processing facilities where such volumes typically flow.

Sodium minerals and sulfur services Segment Margin for the 2017 Quarter
increased $9.5 million, or 46.3%. This increase is principally due to
the inclusion of one month's contribution from the Alkali Business. This
was partially offset by the results of our refinery services business
and related NaHS and caustic soda activities. The 2017 Quarter results
for these activities were in line with our expectations and include the
effects of previously disclosed commercial discussions with certain of
our host refineries and several NaHS customers, which resulted in
extending the term and tenor of a large number of contractual
relationships.

Onshore facilities and transportation Segment Margin increased by $8.0
million, or 45.8%, between the two quarters. In the 2017 Quarter, this
increase is primarily attributable to the ramp up in volumes on our
pipeline, terminal and rail infrastructure on our infrastructure in the
Baton Rouge corridor. In addition, relative to the 2016 Quarter, we
experienced an increase in volumes on our Texas pipeline system as the
repurposing of our Houston area crude oil pipeline and expansion of our
terminal infrastructure became operational in the second quarter of 2017.

Marine transportation Segment Margin for the 2017 Quarter decreased $4.0
million, or 24.2%, from the 2016 Quarter. The decrease in Segment Margin
is primarily due to lower day rates on our inland and offshore fleets
(which offset higher utilization as adjusted for planned dry docking
time). The M/T American Phoenix was also undergoing regulatory dry
docking inspections for approximately one month during the 2017 Quarter,
which negatively impacted Segment Margin. In our inland fleet, weaker
demand continued to apply pressure on our rates, which we expect to
continue into the fourth quarter. In our offshore barge fleet, as a
number of our units have come off longer term contracts, we have
continued to choose to primarily place them in spot service or
short-term (less than a year) service, as we continue to believe the day
rates currently being offered by the market are at, or approaching,
cyclical lows.

Other Components of Net Income

In the 2017 Quarter, we recorded Net Income Attributable to Genesis
Energy, L.P. of $6.3 million compared to $32.1 million in the 2016
Quarter. Impacting net income are increases in transaction related third
party financing, accounting and legal costs primarily attributable to
our acquisition of the Alkali Business, as well as an increase in
interest expense. These items had a combined effect of $25.2 million.
For the 2017 Quarter, our operating results include one month of
activity related to the Alkali Business for the month of September.

Earnings Conference Call

We will broadcast our Earnings Conference Call on Friday, November 3,
2017, at 8:00 a.m. Central time (9:00 a.m. Eastern time). This call can
be accessed at www.genesisenergy.com.
Choose the Investor Relations button. For those unable to attend the
live broadcast, a replay will be available beginning approximately one
hour after the event and remain available on our website for 30 days.
There is no charge to access the event.

Genesis Energy, L.P. is a diversified midstream energy master limited
partnership headquartered in Houston, Texas. Genesis' operations include
offshore pipeline transportation, sodium minerals and sulfur services,
marine transportation and onshore facilities and transportation.
Genesis' operations are primarily located in Texas, Louisiana, Arkansas,
Mississippi, Alabama, Florida, Wyoming and the Gulf of Mexico.

 

GENESIS ENERGY, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(in thousands, except per unit amounts)

 
  Three Months Ended   Nine Months Ended
September 30, September 30,
2017   2016 2017   2016

REVENUES

$ 486,114 $ 460,050 $ 1,308,328 $ 1,284,440
 
COSTS AND EXPENSES:
Costs of sales and operating expenses 359,873 339,394 962,692 929,909
General and administrative expenses 19,409 11,212 38,723 34,716
Depreciation and amortization 63,732 54,265 176,453 156,800
Gain on sale of assets     (26,684 )  
OPERATING INCOME 43,100 55,179 157,144 163,015
Equity in earnings of equity investees 13,044 12,488 34,805 35,362
Interest expense (47,388 ) (34,735 ) (122,117 ) (104,657 )
Other expense (2,276 )   (2,276 )  
INCOME BEFORE INCOME TAXES 6,480 32,932 67,556 93,720
Income tax expense (320 ) (949 ) (878 ) (2,959 )
NET INCOME 6,160 31,983 66,678 90,761
Net loss attributable to noncontrolling interests 152   118   457   370  
NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P. $ 6,312   $ 32,101   $ 67,135   $ 91,131  
Less: Accumulated distributions attributable to Series A Convertible
Preferred Units
(5,469 )   (5,469 )  
NET INCOME AVAILABLE TO COMMON UNITHOLDERS $ 843   $ 32,101   $ 61,666   $ 91,131  
NET INCOME PER COMMON UNIT:        
Basic and Diluted $ 0.01   $ 0.28   $ 0.51   $ 0.81  
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS:
Basic and Diluted 122,579 115,718 121,198 111,906
 
 
GENESIS ENERGY, L.P.
OPERATING DATA - UNAUDITED
 
  Three Months Ended   Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
Offshore Pipeline Transportation Segment
Crude oil pipelines (barrels/day unless otherwise noted):
CHOPS 203,697 190,613 220,374 200,753
Poseidon (1) 257,093 263,519 258,031 259,446
Odyssey (1) 135,787 107,252 122,433 106,622
GOPL 8,317   6,287   8,166   5,839  
Offshore crude oil pipelines total 604,894   567,671   609,004   572,660  
 
Natural gas transportation volumes (MMbtus/d) (1) 467,095 775,546 516,974 656,452
 
Sodium Minerals and Sulfur Services Segment
NaHS (dry short tons sold) 30,381 34,299 95,575 96,116
Soda Ash volumes (short tons sold) (2) 336,000 336,000
NaOH (caustic soda) volumes (dry short tons sold) (3) 21,746 19,653 55,962 59,802
 
Onshore Facilities and Transportation Segment
Crude oil pipelines (barrels/day):
Texas 45,329 11,529 28,418 41,708
Jay 13,716 15,119 14,480 14,494
Mississippi 8,104 9,503 8,478 10,607
Louisiana (4) 130,862 30,814 115,436 26,865
Wyoming 22,204   9,772   19,816   10,003  
Onshore crude oil pipelines total 220,215   76,737   186,628   103,677  
 
Free State- CO2 Pipeline (Mcf/day) 68,363 88,026 73,042 101,157
 
Crude oil and petroleum products sales (barrels/day) 52,082 64,292 49,255 66,725
 
Rail load/unload volumes (barrels/day) (5) 42,221 13,091 55,010 13,344
 
Marine Transportation Segment
Inland Fleet Utilization Percentage (6) 90.8 % 87.6 % 90.5 % 91.4 %
Offshore Fleet Utilization Percentage (6) 99.3 % 96.2 % 98.4 % 91.2 %
 

(1) Volumes for our equity method investees are
presented on a 100% basis.

(2) Includes sales volumes from September 1, 2017, the
date on which we acquired the Alkali Business.

(3) Caustic soda sales volumes also include volumes
sold for the month of September from our new Alkali Business.

(4) Total daily volume for the three months and nine
months ended September 30, 2017 includes 66,048 and 54,974 barrels
per day respectively of intermediate refined products associated
with our Port of Baton Rouge Terminal pipelines which became
operational in the fourth quarter of 2016. Additionally, this
includes 19,574 and 6,925 barrels per day for the three months and
nine months ended September 30, 2017 respectively of crude oil
associated with our new Raceland Pipeline which became fully
operational in the second quarter of 2017.

(5) Indicates total barrels for which fees were charged
for either loading or unloading at all rail facilities.

(6) Utilization rates are based on a 365 day year, as
adjusted for planned downtime and dry-docking.

 
 
GENESIS ENERGY, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands, except number of units)

 
 

 

 

September 30,

December 31,
2017 2016
ASSETS
Cash and cash equivalents $ 9,694 $ 7,029
Accounts receivable - trade, net 437,039 224,682
Inventories 98,558 98,587
Other current assets 45,533   29,271  

Total current assets

590,824 359,569
Fixed assets, net 4,840,392 4,214,864
Mineral leaseholds, net 622,756
Investment in direct financing leases, net 127,248 132,859
Equity investees 383,191 408,756
Intangible assets, net 187,441 204,887
Goodwill 325,046 325,046
Other assets, net 60,736   56,611  
Total assets $ 7,137,634   $ 5,702,592  
LIABILITIES AND CAPITAL
Accounts payable - trade $ 203,717 $ 119,841
Accrued liabilities 160,294   140,962  
Total current liabilities 364,011 260,803
Senior secured credit facility 1,372,500 1,278,200
Senior unsecured notes, net of debt issuance costs 2,358,049 1,813,169
Deferred tax liabilities 26,399 25,889
Other long-term liabilities 256,462   204,481  
Total liabilities 4,377,421   3,582,542  
Mezzanine capital:
Series A convertible preferred units 691,708    
Partners' capital:
Common unitholders 2,077,393 2,130,331

Noncontrolling interests

(8,888 ) (10,281 )

Total partners' capital

2,068,505   2,120,050  
Total liabilities, mezzanine capital and partners' capital $ 7,137,634   $ 5,702,592  
 
Common Units Data:
Total common units outstanding 122,579,218   117,979,218  
 
 
GENESIS ENERGY, L.P.
RECONCILIATION OF SEGMENT MARGIN AND ADJUSTED EBITDA TO NET
INCOME - UNAUDITED

(in thousands)

 
  Three Months Ended
September 30,
2017   2016
Total Segment Margin (1) $ 146,514 $ 141,340
Corporate general and administrative expenses (18,230 ) (10,420 )
Non-cash items included in general and administrative costs 1,212 614
Cash expenditures not included in Adjusted EBITDA 10,595 363
Cash expenditures not included in net income (6 ) (86 )
Adjusted EBITDA 140,085 131,811
Depreciation, depletion, amortization and accretion (66,436 ) (57,103 )
Interest expense, net (47,388 ) (34,735 )
Cash expenditures not included in Adjusted EBITDA (10,589 ) (277 )
Adjustment to exclude distributable cash generated by equity
investees not included in income and include equity in investees net
income
(7,136 ) (9,063 )
Differences in timing of cash receipts for certain contractual
arrangements (2)
5,847 3,624
Other non-cash items (7,751 ) (1,207 )
Income tax expense (320 ) (949 )
Net income attributable to Genesis Energy, L.P. $ 6,312   $ 32,101  
 

(1) See definition of Segment Margin later in this
press release.

(2) Certain cash payments received from customers under
certain of our minimum payment obligation contracts are not
recognized as revenue under GAAP in the period in which such
payments are received.

 

 

GENESIS ENERGY, L.P.

RECONCILIATIONS OF NET INCOME AND NET CASH FLOWS FROM OPERATING
ACTIVITIES TO

AVAILABLE CASH BEFORE RESERVES- UNAUDITED

(in thousands)

 
  Three Months Ended
September 30,
2017   2016

(in thousands)

Net income attributable to Genesis Energy, L.P. $ 6,312 $ 32,101
Depreciation, depletion, amortization and accretion 66,436 57,103
Cash received from direct financing leases not included in income 1,751 1,586
Cash effects of sales of certain assets 967 120
Effects of distributable cash generated by equity method investees
not included in income
7,136 9,063
Expenses related to acquiring or constructing growth capital assets 10,595 363
Unrealized (gain) loss on derivative transactions excluding fair
value hedges, net of changes in inventory value
2,168 (571 )
Maintenance capital utilized (1) (3,375 ) (1,885 )
Non-cash tax expense 150 649
Differences in timing of cash receipts for certain contractual
arrangements (2)
(5,847 ) (3,624 )
Other items, net 5,514   107  
Available Cash before Reserves $ 91,807   $ 95,012  

(1) Maintenance capital expenditures in the 2017
Quarter and 2016 Quarter were $10.8 million and $7.9 million,
respectively.

(2) Certain cash payments received from customers under
certain of our minimum payment obligation contracts are not
recognized as revenue under GAAP in the period in which such
payments are received.

 
Three Months Ended
September 30,
2017 2016
(in thousands)
Cash Flows from Operating Activities $ 33,836 $ 124,725
Maintenance capital utilized (1) (3,375 ) (1,885 )
Proceeds from asset sales 967 120
Amortization of debt issuance costs and discount (2,894 ) (2,571 )
Effects of available cash from joint ventures not included in
operating cash flows
4,194 4,801
Net effect of changes in components of operating assets and
liabilities not included in calculation of Available Cash before
Reserves
34,575 (26,834 )
Non-cash effect of equity based compensation expense 3,566 (2,047 )
Expenses related to acquiring or constructing growth capital assets 10,595 363
Differences in timing of cash receipts for certain contractual
arrangements (2)
(5,847 ) (3,624 )
Other items affecting available cash 16,190   1,964  
Available Cash before Reserves $ 91,807   $ 95,012  

(1) Maintenance capital expenditures in the 2017
Quarter and 2016 Quarter were $10.8 million and $7.9 million,
respectively.

(2) Certain cash payments received from customers under
certain of our minimum payment obligation contracts are not
recognized as revenue under GAAP in the period in which such
payments are received.

 
 
GENESIS ENERGY, L.P.

RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES TO
ADJUSTED EBITDA -

UNAUDITED

(in thousands)

 
  Three Months Ended
September 30,
2017   2016
Cash Flows from Operating Activities $ 33,836 $ 124,725
Interest Expense 47,388 34,735
Amortization of debt issuance costs and discount (2,894 ) (2,571 )
Effects of available cash from equity method investees not included
in operating cash flows
4,194 4,801
Net effect of changes in components of operating assets and
liabilities not included in calculation of Adjusted EBITDA
34,575 (26,834 )
Non-cash effect of equity based compensation expense 3,566 (2,047 )
Expenses related to acquiring or constructing growth capital assets 10,595 363
Differences in timing of cash receipts for certain contractual
arrangements (1)
(5,847 ) (3,624 )
Other items, net 14,672   2,263  
Adjusted EBITDA $ 140,085   $ 131,811  

(1) Certain cash payments received from customers under
certain of our minimum payment obligation contracts are not
recognized as revenue under GAAP in the period in which such
payments are received.

 
 
GENESIS ENERGY, L.P.
ADJUSTED DEBT-TO-PRO FORMA EBITDA RATIO - UNAUDITED

(in thousands)

 
  September 30, 2017
Senior secured credit facility $ 1,372,500
Senior unsecured notes 2,358,049
Less: Outstanding inventory financing sublimit borrowings (38,700 )
Less: Cash and cash equivalents (9,694 )
Adjusted Debt (1) $ 3,682,155  
 
Pro Forma LTM
September 30, 2017
LTM Adjusted EBITDA (as reported) (2) $ 530,997
Acquisitions and material projects EBITDA adjustment (3) 166,902  
Pro Forma EBITDA $ 697,899  
 
Adjusted Debt-to-Pro Forma EBITDA 5.28 x
 

(1) We define Adjusted Debt as the amounts outstanding
under our senior secured credit facility and senior unsecured
notes (including any unamortized premiums or discounts) less the
amount outstanding under our inventory financing sublimit, less
cash and cash equivalents on hand at the end of the period.

(2) Last twelve months ("LTM") Adjusted EBITDA. The
most comparable GAAP measure to Adjusted EBITDA, Net Income
Attributable to Genesis Energy L.P., was $29.6 million for the
fourth quarter of 2016, $27.1 million for the first quarter of
2017 , $33.7 million for the second quarter of 2017, and $6.3
million for the third quarter of 2017. Reconciliations of Adjusted
EBITDA to net income for all periods presented are available on
our website at www.genesisenergy.com.

(3) This amount reflects the adjustment we are
permitted to make under our senior secured credit facility for
purposes of calculating compliance with our leverage ratio. It
includes a pro rata portion of projected future annual EBITDA from
material projects (i.e. organic growth) and includes Adjusted
EBITDA (using historical amounts and other permitted amounts)
since the beginning of the calculation period attributable to each
acquisition completed during such calculation period, regardless
of the date on which such acquisition was actually completed. This
adjustment may not be indicative of future results.

 

This press release includes forward-looking statements as defined under
federal law. Although we believe that our expectations are based upon
reasonable assumptions, we can give no assurance that our goals will be
achieved. Actual results may vary materially. All statements, other than
statements of historical facts, included in this press release that
address activities, events or developments that we expect, believe or
anticipate will or may occur in the future are forward-looking
statements, and historical performance is not necessarily indicative of
future performance. Those forward-looking statements rely on a number of
assumptions concerning future events and are subject to a number of
uncertainties, factors and risks, many of which are outside our control,
that could cause results to differ materially from those expected by
management. Such risks and uncertainties include, but are not limited
to, weather, political, economic and market conditions, including a
decline in the price and market demand for products, the timing and
success of business development efforts and other uncertainties. Those
and other applicable uncertainties, factors and risks that may affect
those forward-looking statements are described more fully in our Annual
Report on Form 10-K for the year ended December 31, 2016 filed with the
Securities and Exchange Commission and other filings, including our
Current Reports on Form 8-K and Quarterly Reports on Form 10-Q. We
undertake no obligation to publicly update or revise any forward-looking
statement.

NON-GAAP MEASURES

This press release and the accompanying schedules include non-generally
accepted accounting principle (non-GAAP) financial measures of Adjusted
EBITDA and total Available Cash before Reserves. In this press release,
we also present total Segment Margin as if it were a non-GAAP measure.
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 schedules provide reconciliations of
these non-GAAP financial measures to their most directly comparable
financial measures calculated in accordance with generally accepted
accounting principles in the United States of America (GAAP). 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, Adjusted EBITDA and
total Segment Margin measures are just three 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.

We define Available Cash before Reserves as net income as adjusted for
certain items, some of the most significant of which tend to be (a) the
elimination of certain non-cash revenues, expenses, gains, losses or
charges (such as depreciation and amortization, unrealized gain or loss
on derivative transactions not designated as hedges for accounting
purposes, gain or loss on sale of non-surplus assets and equity
compensation expense that is not settled in cash), (b) the substitution
of distributable cash generated by our equity investees in lieu of our
equity income attributable to our equity investees (includes
distributions attributable to the quarter and received during or
promptly following such quarter), (c) the elimination of expenses
related to acquiring or constructing assets that provide new sources of
cash flows, (d) certain litigation expenses that are not deducted in
determining our Pro Forma Adjusted EBITDA under our senior secured
credit facility, and (e) the subtraction of maintenance capital
utilized, which is described in detail below.

Disclosure Format Relating to Maintenance Capital

We use a modified format relating to maintenance capital requirements
because our maintenance capital expenditures vary 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
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.

Initially, substantially all of our maintenance capital expenditures
were (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.

As we exist today, 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
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 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.

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 did not initially use 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.

ADJUSTED EBITDA

Purposes, Uses and Definition

Adjusted EBITDA 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 without regard to financing
methods, capital structures or historical cost basis;

(2) our operating performance as compared to those of other companies in
the midstream energy industry, without regard to financing and capital
structure;

(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.

We define Adjusted EBITDA ("Adjusted EBITDA") as net income or loss plus
net interest expense and income taxes, and eliminating non-cash
revenues, expenses, gains, losses and charges (such as depreciation and
amortization, unrealized gain or loss on derivative transactions not
designated as hedges for accounting purposes, gain or loss on sale of
non-surplus assets and equity based compensation expense that is not
settled in cash), plus or minus certain other items, the most
significant of which tend to be (a) the substitution of distributable
cash generated by our equity investees in lieu of our equity income
attributable to our equity investees (includes distributions
attributable to the quarter and received during or promptly following
such quarter), (b) the elimination of expenses related to acquiring or
constructing assets that provide new sources of cash flows, and (c) the
elimination of certain litigation expenses that are not deducted to
determine our Pro Forma Adjusted EBITDA under our senior secured credit
facility.

SEGMENT MARGIN

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.
We define Segment Margin as revenues less product costs, operating
expenses, and segment general and administrative expenses, plus our
equity in distributable cash generated by our equity investees and
certain litigation expenses that are not deducted to determine our Pro
Forma Adjusted EBITDA under our senior secured credit facility. Our
Segment Margin definition also includes the non-income portion of
payments received under direct financing leases and eliminates non-cash
revenues, expenses, gains, losses and charges (such as depreciation and
amortization, unrealized gain or loss on derivative transactions not
designated as hedges for accounting purposes, gain or loss on sale of
non-surplus assets and equity based compensation expense that is not
settled in cash).

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