Document
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
 
 
 
 
Form 10-Q 
 
 
 
 
 

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
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
76-0513049
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
919 Milam, Suite 2100,
Houston, TX
77002
(Address of principal executive offices)
(Zip code)
Registrant’s telephone number, including area code: (713) 860-2500
 
 
 
 
 
 
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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
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  x
 
Accelerated filer  ¨
 
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. There were 117,939,221 Class A Common Units and 39,997 Class B Common Units outstanding as of November 3, 2016.



Table of Contents

GENESIS ENERGY, L.P.
TABLE OF CONTENTS
 

 
 
Page
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GENESIS ENERGY, L.P.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except units)
 
 
September 30, 2016
 
December 31, 2015
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
3,447

 
$
10,895

Accounts receivable - trade, net
210,808

 
219,532

Inventories
70,199

 
43,775

Other
27,322

 
32,114

Total current assets
311,776

 
306,316

FIXED ASSETS, at cost
4,707,685

 
4,310,226

Less: Accumulated depreciation
(509,419
)
 
(378,247
)
Net fixed assets
4,198,266

 
3,931,979

NET INVESTMENT IN DIRECT FINANCING LEASES, net of unearned income
134,640

 
139,728

EQUITY INVESTEES
417,214

 
474,392

INTANGIBLE ASSETS, net of amortization
210,713

 
223,446

GOODWILL
325,046

 
325,046

OTHER ASSETS, net of amortization
57,829

 
58,692

TOTAL ASSETS
$
5,655,484

 
$
5,459,599

LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable - trade
$
128,189

 
$
140,726

Accrued liabilities
114,030

 
161,410

Total current liabilities
242,219

 
302,136

SENIOR SECURED CREDIT FACILITY
1,167,000

 
1,115,000

SENIOR UNSECURED NOTES
1,811,633

 
1,807,054

DEFERRED TAX LIABILITIES
24,644

 
22,586

OTHER LONG-TERM LIABILITIES
227,879

 
192,072

COMMITMENTS AND CONTINGENCIES (Note 15)

 

PARTNERS’ CAPITAL:
 
 
 
Common unitholders, 117,979,218 and 109,979,218 units issued and outstanding at September 30, 2016 and December 31, 2015, respectively
2,190,829

 
2,029,101

Noncontrolling interests
(8,720
)
 
(8,350
)
Total partners' capital
2,182,109

 
2,020,751

TOTAL LIABILITIES AND PARTNERS’ CAPITAL
$
5,655,484

 
$
5,459,599

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.


3

Table of Contents


GENESIS ENERGY, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
REVENUES:
 
 
 
 
 
 
 
Offshore pipeline transportation services
89,717

 
61,388

 
244,837

 
63,436

Onshore pipeline transportation services
13,999

 
19,909

 
48,400

 
57,910

Refinery services
45,725

 
43,332

 
129,585

 
135,780

Marine transportation
55,285

 
60,536

 
159,930

 
180,501

Supply and logistics
255,324

 
387,169

 
701,688

 
1,317,891

Total revenues
460,050

 
572,334

 
1,284,440

 
1,755,518

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Offshore pipeline transportation operating costs
23,122

 
17,698

 
63,732

 
18,341

Onshore pipeline transportation operating costs
5,003

 
6,721

 
17,499

 
19,874

Refinery services operating costs
25,077

 
22,363

 
67,641

 
75,225

Marine transportation operating costs
38,490

 
33,869

 
105,942

 
100,749

Supply and logistics product costs
230,229

 
354,331

 
620,620

 
1,217,374

Supply and logistics operating costs
17,473

 
24,585

 
54,475

 
73,606

General and administrative
11,212

 
26,799

 
34,716

 
54,852

Depreciation and amortization
54,265

 
41,170

 
156,800

 
96,500

Total costs and expenses
404,871

 
527,536

 
1,121,425

 
1,656,521

OPERATING INCOME
55,179

 
44,798

 
163,015

 
98,997

Equity in earnings of equity investees
12,488

 
14,260

 
35,362

 
48,440

Interest expense
(34,735
)
 
(29,617
)
 
(104,657
)
 
(66,737
)
Gain on basis step up on historical interest

 
335,260

 

 
335,260

Other income/(expense), net

 

 

 
(17,529
)
Income before income taxes
32,932

 
364,701

 
93,720

 
398,431

Income tax expense
(949
)
 
(1,292
)
 
(2,959
)
 
(3,142
)
NET INCOME
31,983

 
363,409

 
90,761

 
395,289

Net loss (gain) attributable to noncontrolling interests
118

 
(195
)
 
370

 
(195
)
NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P.
$
32,101

 
$
363,214

 
$
91,131

 
$
395,094

NET INCOME PER COMMON UNIT:
 
 
 
 
 
 
 
Basic and Diluted
$
0.28

 
$
3.38

 
$
0.81

 
$
3.93

WEIGHTED AVERAGE OUTSTANDING COMMON UNITS:
 
 
 
 
 
 
 
Basic and Diluted
115,718

 
107,617

 
111,906

 
100,653

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.


4

Table of Contents


GENESIS ENERGY, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(In thousands)
 
 
Number of
Common Units
 
Partners’ Capital
 
Noncontrolling Interest
 
Total
Partners’ capital, January 1, 2016
109,979

 
$
2,029,101

 
$
(8,350
)
 
$
2,020,751

Net income (loss)

 
91,131

 
(370
)
 
90,761

Cash distributions to partners

 
(227,454
)
 

 
(227,454
)
Issuance of common units for cash, net
8,000

 
298,051

 

 
298,051

Partners' capital, September 30, 2016
117,979

 
$
2,190,829

 
$
(8,720
)
 
$
2,182,109

 
Number of
Common Units
 
Partners’ Capital
 
Noncontrolling Interest
 
Total
Partners’ capital, January 1, 2015
95,029

 
$
1,229,203

 
$

 
$
1,229,203

Net income

 
395,094

 
195

 
395,289

Noncontrolling interest from acquisition

 

 
(6,471
)
 
(6,471
)
Cash distributions to partners

 
(186,026
)
 

 
(186,026
)
Cash distributions to noncontrolling interests

 

 
(560
)
 
(560
)
Issuance of common units for cash, net
14,950

 
633,759

 

 
633,759

Partners' capital, September 30, 2015
109,979

 
$
2,072,030

 
$
(6,836
)
 
$
2,065,194

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.


5

Table of Contents


GENESIS ENERGY, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
 
Nine Months Ended
September 30,
 
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
90,761

 
$
395,289

Adjustments to reconcile net income to net cash provided by operating activities -
 
 
 
Depreciation and amortization
156,800

 
96,500

Gain on basis step up on historical interest

 
(335,260
)
Amortization of debt issuance costs and discount or premium
7,563

 
8,467

Amortization of unearned income and initial direct costs on direct financing leases
(10,856
)
 
(11,286
)
Payments received under direct financing leases
15,501

 
15,501

Equity in earnings of investments in equity investees
(35,362
)
 
(48,440
)
Cash distributions of earnings of equity investees
49,528

 
54,463

Non-cash effect of equity-based compensation plans
6,102

 
6,387

Deferred and other tax liabilities
2,058

 
2,242

Unrealized loss on derivative transactions
742

 
68

Other, net
8,967

 
816

Net changes in components of operating assets and liabilities (Note 12)
(63,407
)
 
7,381

Net cash provided by operating activities
228,397

 
192,128

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Payments to acquire fixed and intangible assets
(363,218
)
 
(359,504
)
Cash distributions received from equity investees - return of investment
16,652

 
19,360

Investments in equity investees

 
(2,900
)
Acquisitions
(25,394
)
 
(1,517,428
)
Contributions in aid of construction costs
12,208

 

Proceeds from asset sales
3,303

 
2,571

Other, net
185

 
(2,137
)
Net cash used in investing activities
(356,264
)
 
(1,860,038
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Borrowings on senior secured credit facility
883,600

 
1,168,850

Repayments on senior secured credit facility
(831,600
)
 
(705,150
)
Proceeds from issuance of senior unsecured notes

 
1,139,718

Repayment of senior unsecured notes

 
(350,000
)
Debt issuance costs
(1,578
)
 
(28,361
)
Issuance of common units for cash, net
298,051

 
633,759

Distributions to noncontrolling interests

 
(560
)
Distributions to common unitholders
(227,454
)
 
(186,026
)
Other, net
(600
)
 
1,786

Net cash provided by financing activities
120,419

 
1,674,016

Net increase (decrease) in cash and cash equivalents
(7,448
)
 
6,106

Cash and cash equivalents at beginning of period
10,895

 
9,462

Cash and cash equivalents at end of period
$
3,447

 
$
15,568

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

6

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



1. Organization and Basis of Presentation and Consolidation
Organization
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, and in Wyoming and the Gulf of Mexico. We have a diverse portfolio of assets, including pipelines, offshore hub and junction platforms, refinery-related plants, storage tanks and terminals, railcars, rail loading and unloading facilities, barges and other vessels, and trucks. We 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.
Basis of Presentation and Consolidation
The accompanying Unaudited Condensed Consolidated Financial Statements include Genesis Energy, L.P. and its subsidiaries, including our general partner, Genesis Energy, LLC.
Our results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. The Condensed Consolidated Financial Statements included herein have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they reflect all adjustments (which consist solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial results for interim periods. Certain information and notes normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the information contained in the periodic reports we file with the SEC pursuant to the Securities Exchange Act of 1934, including the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015.
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.
2. Recent Accounting Developments
Recently Issued
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

7

Table of Contents

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 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 or 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 ASU 2015-16 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 ASU, 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 ASU 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 guidance is effective for reporting periods after December 15, 2015, with early adoption permitted. We have adopted this guidance and it has not had a material impact on our consolidated financial statements.
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.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash flow, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
3. Acquisition and Divestiture
Acquisition
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 $750.0 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 fair values. Those fair values were developed by management with the assistance of a third-party valuation firm. As of the third quarter of 2016, the purchase price allocation for this transaction has been finalized. Our finalized purchase price allocation remains unchanged from what was disclosed in the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.     
Our Consolidated Financial Statements include the results of our acquired offshore pipeline transportation business since July 24, 2015, the closing date of the acquisition. The following table presents selected financial information included in our Consolidated Financial Statements for the periods presented:
 
Three Months Ended September 30, 2016
 
Nine Months Ended September 30, 2016
Revenues
$
66,845

 
181,227

Net income
$
39,412

 
103,249


8

Table of Contents

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, 2014 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 the Enterprise acquisition been completed on January 1, 2014.
 
Three Months Ended
September 30, 2015
 
Nine Months Ended
September 30, 2015
Pro forma consolidated financial operating results:
 
 
 
Revenues
$
590,994

 
$
1,930,978

Net Income Attributable to Genesis Energy L.P.
372,828

 
395,529

Basic and diluted earnings per unit:
 
 
 
As reported net income per unit
$
3.38

 
$
3.93

Pro forma net income per unit
$
3.39

 
$
3.65

4. Inventories
The major components of inventories were as follows:
 
September 30,
2016
 
December 31,
2015
Petroleum products
$
2,061

 
$
14,235

Crude oil
57,035

 
22,815

Caustic soda
2,867

 
3,964

NaHS
8,231

 
2,755

Other
5

 
6

Total
$
70,199

 
$
43,775

Inventories are valued at the lower of cost or market. The market value of inventories were not below recorded cost as of September 30, 2016 and were below recorded costs by approximately $0.9 million as of December 31, 2015; therefore we reduced the value of inventory in our Condensed Consolidated Financial Statements for this difference in 2015.

9

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


5. Fixed Assets
Fixed Assets
Fixed assets consisted of the following:
 
 
September 30,
2016
 
December 31,
2015
Crude oil pipelines and natural gas pipelines and related assets
$
2,667,221

 
$
2,501,821

Machinery and equipment
419,355

 
414,100

Transportation equipment
18,639

 
19,025

Marine vessels
842,700

 
794,508

Land, buildings and improvements
49,465

 
41,202

Office equipment, furniture and fixtures
9,441

 
7,540

Construction in progress
653,949

 
485,575

Other
46,915

 
46,455

Fixed assets, at cost
4,707,685

 
4,310,226

Less: Accumulated depreciation
(509,419
)
 
(378,247
)
Net fixed assets
$
4,198,266

 
$
3,931,979

Our depreciation expense for the periods presented was as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Depreciation expense
$
46,909

 
$
33,716

 
$
135,428

 
$
78,265


10

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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 the 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.
The following table presents information regarding our AROs since December 31, 2015:
ARO liability balance, December 31, 2015
$
188,662

AROs arising from the purchase of the remaining interest in Deepwater Gateway
10,470

AROs from the consolidation of historical interest in Deepwater Gateway
10,470

Accretion expense
7,918

Change in estimate
5,609

Settlements
(3,216
)
ARO liability balance, September 30, 2016
$
219,913

Of the ARO balances disclosed above, $5.2 million and $9.8 million is included as current in "Accrued liabilities" on our Unaudited Condensed Consolidated Balance Sheet as of September 30, 2016 and December 31, 2015, respectively. The remainder of the ARO liability as of September 30, 2016 and December 31, 2015 is included in "Other long-term liabilities" on our Unaudited Condensed Consolidated Balance Sheet.
With respect to our AROs, the following table presents our forecast of accretion expense for the periods indicated:
Remainder of
2016
$
2,710

 
2017
$
9,807

 
2018
$
8,144

 
2019
$
8,735

 
2020
$
9,298

Certain of our unconsolidated affiliates have AROs recorded at September 30, 2016 relating to contractual agreements and regulatory requirements. These amounts are immaterial to our Consolidated Financial Statements.
6. Equity Investees
We account for our ownership in our joint ventures under the equity method of accounting. 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. Such excess cost amounts are included within the carrying values of our equity investees. At September 30, 2016 and December 31, 2015, the unamortized excess cost amounts totaled $402.1 million and $414.0 million, respectively. We amortize the excess cost as a reduction in equity earnings in a manner similar to depreciation.
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.
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.
In the first quarter of 2016, we purchased the remaining 50% interest in Deepwater Gateway, LLC for approximately $26.0 million (including adjustments for working capital), so we now own 100% of that entity. Consequently, we now consolidate Deepwater Gateway, LLC instead of accounting for our interest under the equity method.


11

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The following table presents information included in our Unaudited Condensed Consolidated Financial Statements related to our equity investees.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Genesis’ share of operating earnings
$
16,444

 
$
17,944

 
$
47,281

 
$
57,607

Amortization of excess purchase price
(3,956
)
 
(3,684
)
 
(11,919
)
 
(9,167
)
Net equity in earnings
$
12,488

 
$
14,260

 
$
35,362

 
$
48,440

Distributions received
$
21,551

 
$
23,522

 
$
66,180

 
$
73,823

The following tables present the unaudited balance sheet and income statement information (on a 100% basis) for Poseidon (which is our most significant equity investment):
 
September 30,
2016
 
December 31,
2015
BALANCE SHEET DATA:
 
 
 
Assets
 
 
 
Current assets
$
14,662

 
$
18,507

Fixed assets, net
236,509

 
248,059

Other assets
929

 
1,133

Total assets
$
252,100

 
$
267,699

Liabilities and equity
 
 
 
Current liabilities
$
23,135

 
$
22,456

Other liabilities
211,066

 
203,514

Equity
17,899

 
41,729

Total liabilities and equity
$
252,100

 
$
267,699


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
INCOME STATEMENT DATA:
 
 
 
 
 
 
 
Revenues
$
31,219

 
$
30,830

 
$
90,658

 
$
92,684

Operating income
$
23,107

 
$
23,839

 
$
68,166

 
$
71,122

Net income
$
21,921

 
$
22,860

 
$
64,670

 
$
67,804


Poseidon's revolving credit facility
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 substantially all of Poseidon's 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 Unaudited Combined Financial Statements.

12

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


7. Intangible Assets
The following table summarizes the components of our intangible assets at the dates indicated:
 
 
September 30, 2016
 
December 31, 2015
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Carrying
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Carrying
Value
Refinery Services:
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
94,654

 
$
88,888

 
$
5,766

 
$
94,654

 
$
86,285

 
$
8,369

Licensing agreements
38,678

 
33,577

 
5,101

 
38,678

 
31,694

 
6,984

Segment total
133,332

 
122,465

 
10,867

 
133,332

 
117,979

 
15,353

Supply & Logistics:
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
35,430

 
33,268

 
2,162

 
35,430

 
32,044

 
3,386

Intangibles associated with lease
13,260

 
4,341

 
8,919

 
13,260

 
3,986

 
9,274

Segment total
48,690

 
37,609

 
11,081

 
48,690

 
36,030

 
12,660

Marine contract intangibles
27,000

 
4,950

 
22,050

 
27,000

 
900

 
26,100

Offshore pipeline contract intangibles
158,101

 
9,708

 
148,393

 
158,101

 
3,467

 
154,634

Other
28,240

 
9,918

 
18,322

 
22,819

 
8,120

 
14,699

Total
$
395,363

 
$
184,650

 
$
210,713

 
$
389,942

 
$
166,496

 
$
223,446

Our amortization of intangible assets for the periods presented was as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Amortization of intangible assets
$
6,122

 
$
5,554

 
$
18,154

 
$
13,745

We estimate that our amortization expense for the next five years will be as follows:
Remainder of
2016
$
6,169

 
2017
$
23,532

 
2018
$
21,361

 
2019
$
17,026

 
2020
$
16,125


13

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


8. Debt
Our obligations under debt arrangements consisted of the following:
 
September 30, 2016
 
December 31, 2015
 
Principal
 
Unamortized Discount and Debt Issuance Costs (1)
 
Net Value
 
Principal
 
Unamortized Discount and Debt Issuance Costs (1)
 
Net Value
Senior secured credit facility
$
1,167,000

 
$

 
$
1,167,000

 
$
1,115,000

 
$

 
$
1,115,000

6.000% senior unsecured notes due May 2023
400,000

 
7,024

 
392,976

 
400,000

 
7,825

 
392,175

5.750% senior unsecured notes due February 2021
350,000

 
4,418

 
345,582

 
350,000

 
5,183

 
344,817

5.625% senior unsecured notes due June 2024
350,000

 
6,838

 
343,162

 
350,000

 
7,510

 
342,490

6.750% senior unsecured notes due August 2022
750,000

 
20,087

 
729,913

 
750,000

 
22,428

 
727,572

Total long-term debt
$
3,017,000

 
$
38,367

 
$
2,978,633

 
$
2,965,000

 
$
42,946

 
$
2,922,054

(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.
As of September 30, 2016, we were in compliance with the financial covenants contained in our credit agreement and senior unsecured notes indentures.
Senior Secured Credit Facility
In April 2016, we amended our credit agreement to, among other things, (i) increase the committed amount under our revolving credit facility to $1.7 billion (from $1.5 billion), with the ability to increase the committed amount by an additional $300.0 million, subject to lender consent and (ii) permanently relax the maximum consolidated leverage ratio to 5.5 to 1.0.
The key terms for rates under our $1.7 billion senior secured credit facility, which are dependent on our leverage ratio (as defined in the credit agreement), are as follows:
The applicable margin varies from 1.50% to 2.75% on Eurodollar borrowings and from 0.50% to 1.75% on alternate base rate borrowings.
Letter of credit fees range from 1.50% to 2.50%
The commitment fee on the unused committed amount will range from 0.250% to 0.500%.
The accordion feature is $300.0 million, giving us the ability to expand the size of the facility up to $2.0 billion for acquisitions or growth projects, subject to lender consent.
At September 30, 2016, we had $1.2 billion borrowed under our $1.7 billion credit facility, with $48.0 million of the borrowed amount designated as a loan under the inventory sublimit. Our credit agreement allows up to $100.0 million of the capacity to be used for letters of credit, of which $6.0 million was outstanding at September 30, 2016. 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. The total amount available for borrowings under our credit facility at September 30, 2016 was $527.0 million.
9. Partners’ Capital and Distributions
At September 30, 2016, our outstanding common units consisted of 117,939,221 Class A units and 39,997 Class B units.
On July 27, 2016, we issued 8,000,000 Class A common units in a public offering at a price of $37.90 per unit. We received the proceeds, net of underwriting discounts and offering costs, of $298.0 million from that offering.

14

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Distributions
We paid or will pay the following distributions in 2015 and 2016:
Distribution For
 
Date Paid
 
Per Unit
Amount
 
Total
Amount
 
2015
 
 
 
 
 
 
 
1st Quarter
 
May 15, 2015
 
$
0.6100

 
$
60,774

 
2nd Quarter
 
August 14, 2015
 
$
0.6250

 
$
68,737

 
3rd Quarter
 
November 13, 2015
 
$
0.6400

 
$
70,387

 
4th Quarter
 
February 12, 2016
 
$
0.6550

 
$
72,036

 
2016
 
 
 
 
 
 
 
1st Quarter
 
May 13, 2016
 
$
0.6725

 
$
73,961

 
2nd Quarter
 
August 12, 2016
 
$
0.6900

 
$
81,406

 
3rd Quarter
 
November 14, 2016
(1) 
$
0.7000

 
$
82,585

 
(1) This distribution will be paid to unitholders of record as of October 28, 2016.
10. Business Segment Information
We currently manage our businesses through five divisions that constitute our reportable segments:
Offshore Pipeline Transportation – offshore pipeline transportation and processing 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 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. 

15

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Segment information for the periods presented below was as follows:
 
Offshore Pipeline Transportation
 
Onshore Pipeline
Transportation
 
Refinery
Services
 
Marine Transportation
 
Supply &
Logistics
 
Total
Three Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Segment margin (a)
$
86,557

 
$
10,603

 
$
20,526

 
$
16,697

 
$
6,957

 
$
141,340

Capital expenditures (b)
$
3,977

 
$
54,968

 
$
488

 
$
26,937

 
$
30,380

 
$
116,750

Revenues:
 
 
 
 
 
 
 
 
 
 
 
External customers
$
89,717

 
$
10,846

 
$
48,069

 
$
53,573

 
$
257,845

 
$
460,050

Intersegment (c)

 
3,153

 
(2,344
)
 
1,712

 
(2,521
)
 

Total revenues of reportable segments
$
89,717

 
$
13,999

 
$
45,725

 
$
55,285

 
$
255,324

 
$
460,050

Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Segment margin (a)
$
70,943

 
$
14,984

 
$
20,692

 
$
26,583

 
$
7,508

 
$
140,710

Capital expenditures (b)
$
1,520,268

 
$
45,933

 
$
118

 
$
12,489

 
$
43,942

 
$
1,622,750

Revenues:
 
 
 
 
 
 
 
 
 
 
 
External customers
$
61,388

 
$
16,735

 
$
45,738

 
$
58,490

 
$
389,983

 
$
572,334

Intersegment (c)

 
3,174

 
(2,406
)
 
2,046

 
(2,814
)
 

Total revenues of reportable segments
$
61,388

 
$
19,909

 
$
43,332

 
$
60,536

 
$
387,169

 
$
572,334

Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Segment Margin (a)
$
249,457

 
$
38,370

 
$
61,586

 
$
53,695

 
$
25,599

 
$
428,707

Capital expenditures (b)
$
35,175

 
$
156,977

 
$
1,645

 
$
62,928

 
$
101,704

 
$
358,429

Revenues:
 
 
 
 
 
 
 
 
 
 
 
External customers
$
242,672

 
$
36,356

 
$
136,437

 
$
155,197

 
$
713,778

 
$
1,284,440

Intersegment (c)
2,165

 
12,044

 
(6,852
)
 
4,733

 
(12,090
)
 

Total revenues of reportable segments
$
244,837

 
$
48,400

 
$
129,585

 
$
159,930

 
$
701,688

 
$
1,284,440

Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Segment Margin (a)
$
121,241

 
$
43,670

 
$
60,073

 
$
79,501

 
$
28,913

 
$
333,398

Capital expenditures (b)
$
1,522,407

 
$
155,417

 
$
1,568

 
$
40,151

 
$
136,568

 
$
1,856,111

Revenues:
 
 
 
 
 
 
 
 
 
 
 
External customers
$
63,436

 
$
48,422

 
$
142,959

 
$
173,733

 
$
1,326,968

 
$
1,755,518

Intersegment (c)

 
9,488

 
(7,179
)
 
6,768

 
(9,077
)
 

Total revenues of reportable segments
$
63,436

 
$
57,910

 
$
135,780

 
$
180,501

 
$
1,317,891

 
$
1,755,518

Total assets by reportable segment were as follows:
 
September 30,
2016
 
December 31,
2015
Offshore pipeline transportation
$
2,595,408

 
$
2,623,478

Onshore pipeline transportation
706,589

 
614,484

Refinery services
390,169

 
394,626

Marine transportation
813,282

 
777,952

Supply and logistics
1,107,798

 
1,000,851

Other assets
42,238

 
48,208

Total consolidated assets
5,655,484

 
5,459,599

 
(a)
A reconciliation of total Segment Margin to net income attributable to Genesis Energy, L.P. for the periods is presented below.
(b)
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

16

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


contributions to equity investees related to same. In addition to construction of growth projects, capital spending in our Offshore Pipeline Transportation Segment included $2.5 million during the nine months ended September 30, 2015 representing capital contributions to SEKCO, which was an equity investee at that time, to fund our share of the construction costs for its pipeline. We acquired the remaining 50% interest in SEKCO in July 2015.
(c)
Intersegment sales were conducted under terms that we believe were no more or less favorable than then-existing market conditions.
Reconciliation of total Segment Margin to net income:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Total Segment Margin
$
141,340

 
$
140,710

 
$
428,707

 
$
333,398

Corporate general and administrative expenses
(10,420
)
 
(25,940
)
 
(32,269
)
 
(52,192
)
Depreciation and amortization
(54,265
)
 
(41,170
)
 
(156,800
)
 
(96,500
)
Interest expense
(34,735
)
 
(29,617
)
 
(104,657
)
 
(66,737
)
Adjustment to exclude distributable cash generated by equity investees not included in income and include equity in investees net income (1)
(9,063
)
 
(7,962
)
 
(30,818
)
 
(25,383
)
Non-cash items not included in Segment Margin
1,779

 
1,316

 
(5,428
)
 
473

Cash payments from direct financing leases in excess of earnings
(1,586
)
 
(1,448
)
 
(4,645
)
 
(4,215
)
Gain on step up of historical basis

 
335,260

 

 
335,260

Loss on extinguishment of debt

 

 

 
(19,225
)
Other, net

 
(6,643
)
 

 
(6,643
)
Income tax expense
(949
)
 
(1,292
)
 
(2,959
)
 
(3,142
)
Net income attributable to Genesis Energy, L.P.
$
32,101

 
$
363,214

 
$
91,131

 
$
395,094

(1)
Includes distributions attributable to the quarter and received during or promptly following such quarter.
11. 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:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Sales of CO2 to Sandhill Group, LLC (1)
$
878

 
$
913

 
$
2,366

 
$
2,418

Revenues from provision of services to Poseidon Oil Pipeline Company, LLC (2)
1,979

 
1,980

 
5,935

 
1,980

Costs and expenses:
 
 
 
 
 
 
 
Amounts paid to our CEO in connection with the use of his aircraft
$
165

 
$
165

 
$
495

 
$
525

Charges for services from Poseidon Oil Pipeline Company, LLC (2)
251

 
241

 
749

 
241

 
(1)
We own a 50% interest in Sandhill Group, LLC.
(2)
We own 64% interest in Poseidon Oil Pipeline Company, LLC.
Amount due from Related Party
At September 30, 2016 and December 31, 2015 (i) Sandhill Group, LLC owed us $0.3 million and $0.3 million, respectively, for purchases of CO2 and (ii) Poseidon Oil Pipeline Company, LLC owed us $1.5 million and $1.9 million, respectively, for services rendered.

17

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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 three and nine months ended September 30, 2016 reflect $2.0 million and $5.9 million, respectively, of fees we earned through the provision of services under that agreement.
Deepwater Gateway
Deepwater Gateway, LLC, which became a wholly-owned subsidiary in the first quarter of 2016, no longer constitutes a related party.
12. Supplemental Cash Flow Information
The following table provides information regarding the net changes in components of operating assets and liabilities.
 
 
Nine Months Ended
September 30,
 
2016
 
2015
(Increase) decrease in:
 
 
 
Accounts receivable
$
11,029

 
$
72,372

Inventories
(26,215
)
 
(1,481
)
Deferred charges
(5,291
)
 
(7,256
)
Other current assets
5,184

 
(7,014
)
Increase (decrease) in:
 
 
 
Accounts payable
(27,213
)
 
(70,980
)
Accrued liabilities
(20,901
)
 
21,740

Net changes in components of operating assets and liabilities
(63,407
)
 
7,381

Payments of interest and commitment fees, net of amounts capitalized, were $125.1 million and $56.8 million for the nine months ended September 30, 2016 and September 30, 2015, respectively. We capitalized interest of $19.9 million and $11.9 million during the nine months ended September 30, 2016 and September 30, 2015.
At September 30, 2016 and September 30, 2015, we had incurred liabilities for fixed and intangible asset additions totaling $55.3 million and $50.2 million, respectively, that had not been paid at the end of the third quarter, and, therefore, were not included in the caption “Payments to acquire fixed and intangible assets” under Cash Flows from Investing Activities in the Unaudited Condensed Consolidated Statements of Cash Flows.
13. 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.

18

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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 Statements 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.
At September 30, 2016, we had the following outstanding derivative commodity contracts that were entered into to economically hedge inventory or fixed price purchase commitments.
 
 
Sell (Short)
Contracts
 
Buy (Long)
Contracts
Designated as hedges under accounting rules:
 
 
 
 
Crude oil futures:
 
 
 
 
Contract volumes (1,000 bbls)
 
1,058

 

Weighted average contract price per bbl
 
$
45.24

 
$

 
 
 
 
 
Not qualifying or not designated as hedges under accounting rules:
 
 
 
 
Crude oil futures:
 
 
 
 
Contract volumes (1,000 bbls)
 
1,440

 
1,388

Weighted average contract price per bbl
 
$
44.77

 
$
44.96

Crude oil swaps:
 
 
 
 
Contract volumes (1,000 bbls)
 

 
60

Weighted average contract price per bbl
 
$

 
$
(1.88
)
Diesel futures:
 
 
 
 
Contract volumes (1,000 bbls)
 
18

 

Weighted average contract price per gal
 
$
1.41

 
$

#6 Fuel oil futures:
 
 
 
 
Contract volumes (1,000 bbls)
 
105

 
45

Weighted average contract price per bbl
 
$
35.73

 
$
37.02

Crude oil options:
 
 
 
 
Contract volumes (1,000 bbls)
 
55

 
10

Weighted average premium received
 
$
1.55

 
$
0.36

Financial Statement Impacts
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.

19

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The following tables reflect the estimated fair value gain (loss) position of our derivatives at September 30, 2016 and December 31, 2015:
Fair Value of Derivative Assets and Liabilities
 
 
Unaudited Condensed Consolidated Balance Sheets Location
 
Fair Value
 
September 30,
2016
 
December 31,
2015
Asset Derivatives:
 
 
 
 
 
Commodity derivatives - futures and call options (undesignated hedges):
 
 
 
 
 
Gross amount of recognized assets
Current Assets - Other
 
$
300

 
$
1,703

Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets
Current Assets - Other
 
(300
)
 
(388
)
Net amount of assets presented in the Unaudited Condensed Consolidated Balance Sheets
 
 
$

 
$
1,315

Commodity derivatives - futures and call options (designated hedges):
 
 
 
 
 
Gross amount of recognized assets
Current Assets - Other
 
$
4,924

 
$

Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets
Current Assets - Other
 
(4,924
)
 

Net amount of assets presented in the Unaudited Condensed Consolidated Balance Sheets
 
 
$

 
$

Liability Derivatives:
 
 
 
 
 
Commodity derivatives - futures and call options (undesignated hedges):
 
 
 
 
 
Gross amount of recognized liabilities
Current Assets - Other (1)
 
$
(1,085
)
 
$
(388
)
Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets
Current Assets - Other (1)
 
1,085

 
388

Net amount of liabilities presented in the Unaudited Condensed Consolidated Balance Sheets
 
 
$

 
$

Commodity derivatives - futures and call options (designated hedges):
 
 
 
 
 
Gross amount of recognized liabilities
Current Assets - Other (1)
 
$
(8,097
)
 
$
(23
)
Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets
Current Assets - Other (1)
 
8,097

 
23

Net amount of liabilities presented in the Unaudited Condensed Consolidated Balance Sheets
 
 
$

 
$

 (1)
These derivative liabilities have been funded with margin deposits recorded in our Unaudited Condensed 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 September 30, 2016, we had a net broker receivable of approximately $3.6 million (consisting of initial margin of $4.2 million and decreased by $0.6 million 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).  At September 30, 2016 and December 31, 2015, 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. 

20

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Effect on Operating Results 
 
 
 
Amount of Gain (Loss) Recognized in Income
 
Unaudited Condensed Consolidated Statements of Operations Location
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2016
 
2015
 
2016
 
2015
Commodity derivatives - futures and call options:
 
 
 
 
 
 
 
 
 
Contracts designated as hedges under accounting guidance
Supply and logistics product costs
 
$
1,672

 
$
621

 
$
(8,279
)
 
$
(1,214
)
Contracts not considered hedges under accounting guidance
Supply and logistics product costs
 
(262
)
 
11,559

 
(3,744
)
 
6,545

Total commodity derivatives
 
 
$
1,410

 
$
12,180

 
$
(12,023
)
 
$
5,331

14. Fair-Value Measurements
We classify financial assets and liabilities into the following three levels based on the inputs used to measure fair value:
(1)
Level 1 fair values are based on observable inputs such as quoted prices in active markets for identical assets and liabilities;
(2)
Level 2 fair values are based on pricing inputs other than quoted prices in active markets for identical assets and liabilities and are either directly or indirectly observable as of the measurement date; and
(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 September 30, 2016 and December 31, 2015. 
 
 
Fair Value at
 
Fair Value at
 
 
September 30, 2016
 
December 31, 2015
Recurring Fair Value Measures
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Commodity derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
$
5,224

 
$

 
$

 
$
1,703

 
$

 
$

Liabilities
 
$
(9,182
)
 
$

 
$

 
$
(411
)
 
$

 
$

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 13 for additional information on our derivative instruments.
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 September 30, 2016 our senior unsecured notes had a carrying value of $1.8 billion and a fair value of $1.9 billion, compared to $1.8 billion and $1.5 billion, respectively, at December 31, 2015. 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.

21

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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.
15. Contingencies
We are subject to various environmental laws and regulations. Policies and procedures are in place to aid in monitoring compliance and detecting and addressing 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.
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.
16. Condensed Consolidating Financial Information
Our $1.8 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 8 for additional information regarding our consolidated debt obligations.
The following is condensed consolidating financial information for Genesis Energy, L.P., the guarantor subsidiaries and the non-guarantor subsidiaries.



22

Table of Contents
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Unaudited Condensed Consolidating Balance Sheet
September 30, 2016

 
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
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
6

 
$

 
$
2,126

 
$
1,315

 
$

 
$
3,447

Other current assets
75

 

 
296,951

 
11,694

 
(391
)
 
308,329

Total current assets
81

 

 
299,077

 
13,009

 
(391
)
 
311,776

Fixed assets, at cost

 

 
4,630,100

 
77,585

 

 
4,707,685

Less: Accumulated depreciation

 

 
(485,827
)
 
(23,592
)
 

 
(509,419
)
Net fixed assets

 

 
4,144,273

 
53,993

 

 
4,198,266

Goodwill

 

 
325,046

 

 

 
325,046

Other assets, net
11,734

 

 
393,117

 
135,283

 
(136,952
)
 
403,182

Advances to affiliates
2,565,346

 

 

 
66,110

 
(2,631,456
)
 

Equity investees

 

 
417,214

 

 

 
417,214

Investments in subsidiaries
2,620,102

 

 
90,214

 

 
(2,710,316
)
 

Total assets
$
5,197,263

 
$

 
$
5,668,941

 
$
268,395

 
$
(5,479,115
)
 
$
5,655,484

LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
$
27,801

 
$

 
$
214,404

 
$
150

 
$
(136
)
 
$
242,219

Senior secured credit facility
1,167,000

 

 

 

 

 
1,167,000

Senior unsecured notes
1,811,633

 

 

 

 

 
1,811,633

Deferred tax liabilities

 

 
24,644

 

 

 
24,644

Advances from affiliates

 

 
2,631,455

 

 
(2,631,455
)
 

Other liabilities

 

 
185,481

 
179,191

 
(136,793
)