Edgar Filing: GENESIS ENERGY LP

10-Q

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, 2015

¨ 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 109,939,221 Class A Common Units and 39,997 Class B Common Units outstanding as of November 5, 2015.

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GENESIS ENERGY, L.P.

TABLE OF CONTENTS



		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets	3
	Unaudited Condensed Consolidated Statements of Operations	4
	Unaudited Condensed Consolidated Statements of Partners’ Capital	5
	Unaudited Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
	1. Organization and Basis of Presentation and Consolidation	7
	2. Recent Accounting Developments	8
	3. Acquisition and Divestiture	8
	4. Inventories	11
	5. Fixed Assets	11
	6. Equity Investees	12
	7. Intangible Assets	14
	8. Debt	14
	9. Partners' Capital and Distributions	15
	10. Business Segment Information	16
	11. Transactions with Related Parties	18
	12. Supplemental Cash Flow Information	19
	13. Derivatives	20
	14. Fair-Value Measurements	23
	15. Contingencies	24
	16. Condensed Consolidating Financial Information	24
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	55
Item 4.	Controls and Procedures	55
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	57
SIGNATURES		58

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except units)



	September 30, 2015			December 31, 2014
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	15,568		$	9,462
Accounts receivable - trade, net	243,372			271,529
Inventories	49,069			46,829
Other	37,387			27,546
Total current assets	345,396			355,366
FIXED ASSETS, at cost	4,163,909			1,899,058
Less: Accumulated depreciation	(337,087		)	(268,057		)
Net fixed assets	3,826,822			1,631,001
NET INVESTMENT IN DIRECT FINANCING LEASES, net of unearned income	141,343			145,959
EQUITY INVESTEES	493,190			628,780
INTANGIBLE ASSETS, net of amortization	229,457			82,931
GOODWILL	325,046			325,046
OTHER ASSETS, net of amortization	87,991			61,291
TOTAL ASSETS	$	5,449,245		$	3,230,374
LIABILITIES AND PARTNERS’ CAPITAL
CURRENT LIABILITIES:
Accounts payable - trade	$	168,118		$	245,405
Accrued liabilities	157,988			117,740
Total current liabilities	326,106			363,145
SENIOR SECURED CREDIT FACILITY	1,014,100			550,400
SENIOR UNSECURED NOTES	1,839,933			1,050,639
DEFERRED TAX LIABILITIES	20,997			18,754
OTHER LONG-TERM LIABILITIES	182,915			18,233
COMMITMENTS AND CONTINGENCIES (Note 15)
PARTNERS’ CAPITAL:
Common unitholders, 109,979,218 and 95,029,218 units issued and outstanding at September 30, 2015 and December 31, 2014, respectively	2,072,030			1,229,203
Noncontrolling interests	(6,836		)	—
Total partners' capital	2,065,194			1,229,203
TOTAL LIABILITIES AND PARTNERS’ CAPITAL	$	5,449,245		$	3,230,374

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

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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,
	2015			2014			2015			2014
REVENUES:
Onshore pipeline transportation services	19,909			20,349			57,910			62,992
Offshore pipeline transportation services	61,388			974			63,436			2,443
Refinery services	43,332			51,208			135,780			158,202
Marine transportation	60,536			57,000			180,501			169,241
Supply and logistics	387,169			834,583			1,317,891			2,606,004
Total revenues	572,334			964,114			1,755,518			2,998,882
COSTS AND EXPENSES:
Supply and logistics product costs	354,331			791,411			1,217,374			2,485,068
Supply and logistics operating costs	24,585			27,434			73,606			82,526
Marine transportation operating costs	33,869			34,864			100,749			107,543
Refinery services operating costs	22,363			29,031			75,225			93,374
Onshore pipeline transportation operating costs	6,721			6,917			19,874			22,113
Offshore pipeline transportation operating costs	17,698			276			18,341			941
General and administrative	26,799			13,765			54,852			40,471
Depreciation and amortization	41,170			25,148			96,500			64,919
Total costs and expenses	527,536			928,846			1,656,521			2,896,955
OPERATING INCOME	44,798			35,268			98,997			101,927
Equity in earnings of equity investees	14,260			15,017			48,440			27,757
Interest expense	(29,617		)	(20,441		)	(66,737		)	(47,314		)
Gain on basis step up on historical interest	335,260			—			335,260			—
Other income/(expense), net	—			—			(17,529		)	—
Income before income taxes	364,701			29,844			398,431			82,370
Income tax expense	(1,292		)	(731		)	(3,142		)	(2,334		)
NET INCOME	363,409			29,113			395,289			80,036
Net income attributable to noncontrolling interests	(195		)	—			(195		)	—
NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P.	$	363,214		$	29,113		$	395,094		$	80,036
NET INCOME PER COMMON UNIT:
Basic and Diluted	$	3.38		$	0.33		$	3.93		$	0.90
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS:
Basic and Diluted	107,617			88,941			100,653			88,775

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

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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, 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, net	—	(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
	Number of Common Units	Partners’ Capital			Noncontrolling Interest			Total
Partners’ capital, January 1, 2014	88,691	$	1,097,737		$	—		$	1,097,737
Net income	—	80,036			—			80,036
Cash distributions to partners, net	—	(146,350		)	—			(146,350		)
Cash distributions to noncontrolling interests	—	—			—			—
Issuance of common units for cash, net	4,600	225,610			—			225,610
Partners' capital, September 30, 2014	93,291	$	1,257,033		$	—		$	1,257,033

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

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GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



	Nine Months Ended September 30,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	395,289		$	80,036
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization	96,500			64,919
Gain on basis step up on historical interest	(335,260		)	—
Amortization of debt issuance costs and premium	8,467			3,541
Amortization of unearned income and initial direct costs on direct financing leases	(11,286		)	(11,833		)
Payments received under direct financing leases	15,501			15,946
Equity in earnings of investments in equity investees	(48,440		)	(27,757		)
Cash distributions of earnings of equity investees	54,463			38,031
Non-cash effect of equity-based compensation plans	6,387			7,624
Deferred and other tax liabilities	2,242			1,234
Unrealized loss (gain) on derivative transactions	68			(5,680		)
Other, net	816			3,008
Net changes in components of operating assets and liabilities (Note 12)	7,381			39,050
Net cash provided by operating activities	192,128			208,119
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments to acquire fixed and intangible assets	(359,504		)	(336,061		)
Cash distributions received from equity investees - return of investment	19,360			11,352
Investments in equity investees	(2,900		)	(40,426		)
Acquisitions	(1,517,428		)	—
Proceeds from asset sales	2,571			178
Other, net	(2,137		)	(4,706		)
Net cash used in investing activities	(1,860,038		)	(369,663		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on senior secured credit facility	1,168,850			1,420,900
Repayments on senior secured credit facility	(705,150		)	(1,668,700		)
Proceeds from issuance of senior unsecured notes	1,139,718			350,000
Repayment of senior unsecured notes	(350,000		)	—
Debt issuance costs	(28,361		)	(11,857		)
Issuance of common units for cash, net	633,759			225,610
Distributions to noncontrolling interests	(560		)	—
Distributions to common unitholders	(186,026		)	(146,350		)
Other, net	1,786			—
Net cash provided by financing activities	1,674,016			169,603
Net increase in cash and cash equivalents	6,106			8,059
Cash and cash equivalents at beginning of period	9,462			8,866
Cash and cash equivalents at end of period	$	15,568		$	16,925

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

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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 oil and gas industry in the Gulf Coast region of the United States, primarily Texas, Louisiana, Arkansas, Mississippi, Alabama, Florida, Wyoming and in the Gulf of Mexico. 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 trucks. We are owned 100% by our limited partners. Our general partner, Genesis Energy, LLC, 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:


•	Onshore pipeline transportation of crude oil and, to a lesser extent, carbon dioxide (or "CO₂");


•	Offshore pipeline transportation and processing of crude oil and natural gas in the Gulf of Mexico;


•	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 approximately 2,350 miles of offshore crude oil and natural gas pipelines and six offshore hub platforms that serve some of the most active drilling and development regions in the United States, including deepwater production fields in the Gulf of Mexico offshore Texas, Louisiana, Mississippi and Alabama. At the closing of that transaction, we entered into transition service agreements to facilitate a smooth transition of operations and uninterrupted services for both employees and customers. 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, 2014, as amended and superseded in part in Genesis' Current Report on Form 8-K filed on July 2, 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.

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2. Recent Accounting Developments

Recently Issued

In April 2015, the Financial Accounting Standards Board ("FASB") issued guidance that will require the presentation of debt issuance costs in financial statements as a direct reduction of related debt liabilities with amortization of debt issuance costs reported as interest expense. Under current U.S. GAAP standards, debt issuance costs are reported as deferred charges (i.e., as an asset). This guidance is effective for annual periods, and interim periods within those fiscal years, beginning after December 15, 2015 and is to be applied retrospectively upon adoption. Early adoption is permitted, including adoption in an interim period for financial statements that have not been previously issued. We are considering adopting this guidance in the fourth quarter of 2015.

In May 2014, the FASB issued revised guidance on revenue from contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard provides a five-step analysis for transactions to determine when and how revenue is recognized. The guidance permits the use of either a full retrospective or a modified retrospective approach. In July 2015, the FASB approved a one year deferral of the effective date of this standard to December 15, 2017 for annual reporting periods beginning after that date. The FASB also approved early adoption of the standard, but not before the original effective date of December 15, 2016. We are evaluating the transition methods and the impact of the amended guidance on our financial position, results of operations and related disclosures.

In 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. Early application is permitted for financial statements that have not been issued. We are currently evaluating this guidance.

3. Acquisition and Divestiture

Acquisition

Enterprise Offshore

On July 24, 2015, we completed the Enterprise acquisition for $1.5 billion, subject to certain adjustments. That business includes interests in approximately 2,350 miles of offshore crude oil and natural gas pipelines and six offshore hub platforms, including a 36% interest in the Poseidon Oil Pipeline System, a 50% interest in the Southeast Keathley Canyon Oil Pipeline System, and a 50% interest in the Cameron Highway Oil Pipeline System. To finance that transaction, in July, we issued 10,350,000 common units in a public offering that generated proceeds of $437.2 million net of underwriter discounts and $750 million aggregate principal amount of 6.75% senior unsecured notes due 2022 that generated net proceeds of $728.6 million net of issuance discount and underwriting fees. The remainder of that transaction was financed with borrowings under our senior secured credit facility.

We have reflected the financial results of the acquired business in our offshore pipeline transportation segment from the date of acquisition. The purchase price has been allocated to the assets acquired and liabilities assumed based on estimated preliminary fair values. Those preliminary fair values were developed by management with the assistance of a third-party valuation firm and are subject to change pending a final valuation report and final determination of working capital acquired and other purchase price adjustments. We expect to finalize the purchase price allocation for this transaction during the fourth quarter of 2015. We do not expect any material adjustments to these preliminary purchase price allocations as a result of the final valuation.

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The allocation of the purchase price, as presented on our Consolidated Balance Sheet, is summarized as follows:



Cash	$	1,087
Accounts receivable	28,783
Inventories	600
Other current assets	3,504
Fixed assets	1,229,807
Intangible assets	79,416
Equity investees	353,841
Accounts payable	(6,464		)
Accrued liabilities	(15,017		)
Other long-term liabilities	(163,513		)
Noncontrolling interest	6,471
Total purchase price	$	1,518,515

Fixed assets identified in connection with our valuation and preliminary purchase price allocation include crude oil pipelines, natural gas pipelines and related assets. We will depreciate these assets on a straight line basis over estimated useful lives ranging from 2 to 35 years depending on the nature of each asset.

Intangible assets identified in connection with our valuation and preliminary purchase price allocation relate to customer contracts surrounding certain transportation agreements with producers in the Lucius production area in Southeast Keathley Canyon, which support our SEKCO pipeline. We will amortize these intangible assets on a straight line basis over an estimated useful life of 19 years.

In connection with our valuation and preliminary purchase price allocation, we have identified asset retirement obligations ("AROs") relating to the crude oil pipelines, natural gas pipelines and related assets with a preliminary fair value of $158.1 million. Of these AROs, $7.7 million of retirement costs are estimated to be incurred within the next year and thus are included in accrued liabilities in the table above, as well as on our Unaudited Condensed Consolidated Balance Sheet. The remainder of the AROs recorded as a result of the Enterprise acquisition are included within "Other long-term liabilities" in the table above, as well as on our Unaudited Condensed Consolidated Balance Sheet. See further discussion of AROs assumed as a result of the Enterprise acquisition in Note 5.

Noncontrolling interest as shown in the able above relates to the preliminary fair value assigned to the 20% ownership interest of our joint venture partner in Independence Hub, LLC, a consolidated subsidiary acquired as a result of the Enterprise acquisition in which we have an 80% ownership interest.

Our Consolidated Financial Statements include the results of our acquired offshore pipeline transportation business since July 24, 2015, the effective closing date of the acquisition. The following table presents selected financial information included in our Consolidated Financial Statements for the periods presented:



	Three Months Ended September 30, 2015		Nine Months Ended September 30, 2015
Revenues	$	44,713	$	44,713
Net income	$	24,471	$	24,471

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.

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	Three Months Ended September 30,				Nine Months Ended September 30,
Pro forma consolidated financial operating results:	2015		2014		2015		2014
Revenues	$	590,994	$	1,049,349	$	1,930,978	$	3,205,331
Net Income Attributable to Genesis Energy L.P.	$	372,548	$	38,573	$	392,988	$	91,466
Basic and diluted earnings per unit:
As reported net income per unit	$	3.38	$	0.33	3.93		$	0.90
Pro forma net income per unit	$	3.39	$	0.39	$	3.63	$	0.92

As relating to the Enterprise acquisition, we have incurred approximately $13 million in acquisition related costs through September 30, 2015. Such costs are included as "General and Administrative costs" on our Unaudited Condensed Consolidated Statement of Operations.

M/T American Phoenix

On November 13, 2014, we acquired the M/T American Phoenix from Mid Ocean Tanker Company for $157 million. The M/T American Phoenix is a modern double-hulled, Jones Act qualified tanker with 330,000 barrels of cargo capacity that was placed into service during 2012.

The purchase price of $157 million was paid to Mid Ocean Tanker Company in cash, as funded with proceeds from available and committed liquidity under our $1.5 billion revolving credit facility. We have reflected the financial results of the acquired business in our marine transportation segment from the date of acquisition. We have recorded the assets acquired in the Consolidated Financial Statements at their fair values. Those fair values were developed by management.

The allocation of the purchase price, as presented on our Consolidated Balance Sheet, is summarized as follows:



Property and equipment	$	125,000
Intangible assets	32,000
Total purchase price	$	157,000

Our Consolidated Financial Statements include the results of our acquired offshore marine transportation business since November 13, 2014, the effective closing date of the acquisition. The following table presents selected financial information included in our Consolidated Financial Statements for the periods presented:



	Three Months Ended September 30, 2015		Nine Months Ended September 30, 2015
Revenues	$	5,637	$	16,859
Net income	$	1,381	$	4,052

The table below presents selected unaudited pro forma financial information incorporating the historical results of our M/T American Phoenix. 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. Depreciation expense for the fixed assets acquired is calculated on a straight-line basis over an estimated useful life of approximately 30 years.



	Three Months Ended September 30, 2014		Nine Months Ended September 30, 2014
Pro forma consolidated financial operating results:
Revenues	$	969,127	$	3,013,597
Net Income	$	30,471	$	84,022

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. Inventories

The major components of inventories were as follows:



	September 30, 2015		December 31, 2014
Petroleum products	$	14,500	$	30,108
Crude oil	28,352		7,266
Caustic soda	3,265		2,850
NaHS	2,952		6,603
Other	—		2
Total	$	49,069	$	46,829

Inventories are valued at the lower of cost or market. The market value of inventories was below recorded costs by approximately $1.1 million and $6.6 million at September 30, 2015 and December 31, 2014, respectively; therefore we reduced the value of inventory in our Condensed Consolidated Financial Statements for this difference.

5. Fixed Assets

Fixed Assets

Fixed assets consisted of the following:



	September 30, 2015			December 31, 2014
Crude oil pipelines and natural gas pipelines and related assets	$	2,481,871		$	466,613
Machinery and equipment	406,512			376,672
Transportation equipment	19,459			18,479
Marine vessels	770,362			731,016
Land, buildings and improvements	41,304			38,037
Office equipment, furniture and fixtures	7,481			6,696
Construction in progress	390,464			222,233
Other	46,456			39,312
Fixed assets, at cost	4,163,909			1,899,058
Less: Accumulated depreciation	(337,087		)	(268,057		)
Net fixed assets	$	3,826,822		$	1,631,001

Our depreciation expense for the periods presented was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Depreciation expense	$	33,716	$	20,736	$	78,265	$	52,422

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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, 2014:



ARO liability balance, December 31, 2014	$	14,790
AROs arising from the Enterprise acquisition	158,133
AROs from the consolidation of historical interests in CHOPS and SEKCO	1,988
Accretion Expense	2,781
Settlements	(384		)
ARO liability balance, September 30, 2015	$	177,308

Of the ARO balances disclosed above, $7.7 million is included as current in "Accrued liabilities" on our Unaudited Condensed Consolidated Balance Sheet, as of September 30, 2015. The remainder of the ARO liability as of September 30, 2015, as well as ARO liability as of December 31, 2014, are 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	2015	$	3,420
	2016	$	8,997
	2017	$	9,611
	2018	$	10,291
	2019	$	11,488

Certain of our unconsolidated affiliates have AROs recorded at September 30, 2015 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 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, 2015 and December 31, 2014, the unamortized excess cost amounts totaled $419.6 million and $215.4 million, respectively. We amortize the excess cost as a reduction in equity earnings in a manner similar to depreciation.

As part of the 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 the 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.

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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,
	2015			2014			2015			2014
Genesis’ share of operating earnings	$	17,944		$	17,600		$	57,607		$	35,506
Amortization of excess purchase price	(3,684		)	(2,583		)	(9,167		)	(7,749		)
Net equity in earnings	$	14,260		$	15,017		$	48,440		$	27,757
Distributions received	$	23,522		$	21,758		$	73,823		$	49,383

The following tables present the combined unaudited balance sheet and income statement information (on a 100% basis) of our equity investees:



	September 30, 2015		December 31, 2014
BALANCE SHEET DATA:
Assets
Current assets	$	34,168	$	42,135
Fixed assets, net	546,311		1,015,305
Other assets	2,776		4,369
Total assets	$	583,255	$	1,061,809
Liabilities and equity
Current liabilities	$	10,718	$	25,369
Other liabilities	222,729		202,613
Equity	349,808		833,827
Total liabilities and equity	$	583,255	$	1,061,809



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
INCOME STATEMENT DATA:
Revenues	$	73,281	$	74,801	$	227,924	$	171,065
Operating income	$	45,496	$	46,096	$	150,017	$	99,199
Net income	$	34,195	$	44,881	$	136,342	$	96,402

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 its assets. The February 2015 credit facility contains customary covenants such as restrictions on debt levels, liens, guarantees, mergers, sale of assets and distributions to owners. A breach of any of these covenants could result in acceleration of the maturity date of Poseidon’s debt. Poseidon was in compliance with the terms of its credit agreement for all periods presented in these Unaudited Combined Financial Statements.

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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, 2015						December 31, 2014
	Gross Carrying Amount		Accumulated Amortization		Carrying Value		Gross Carrying Amount		Accumulated Amortization		Carrying Value
Refinery Services:
Customer relationships	$	94,654	$	85,184	$	9,470	$	94,654	$	81,880	$	12,774
Licensing agreements	38,678		31,016		7,662		38,678		28,983		9,695
Segment total	133,332		116,200		17,132		133,332		110,863		22,469
Supply & Logistics:
Customer relationships	35,430		31,563		3,867		35,430		30,228		5,202
Intangibles associated with lease	13,260		3,868		9,392		13,260		3,512		9,748
Segment total	48,690		35,431		13,259		48,690		33,740		14,950
Marine contract intangibles	32,000		4,583		27,417		32,000		833		31,167
Offshore pipeline contract intangibles	158,831		1,393		157,438		—		—		—
Other	21,798		7,587		14,211		22,797		8,452		14,345
Total	$	394,651	$	165,194	$	229,457	$	236,819	$	153,888	$	82,931

Our amortization of intangible assets for the periods presented was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Amortization of intangible assets	$	5,554	$	3,148	$	13,745	$	9,440

We estimate that our amortization expense for the next five years will be as follows:



Remainder of	2015	$	6,785
	2016	$	24,014
	2017	$	22,850
	2018	$	20,735
	2019	$	16,422

8. Debt

Our obligations under debt arrangements consisted of the following:



	September 30, 2015		December 31, 2014
Senior secured credit facility	$	1,014,100	$	550,400
7.875% senior unsecured notes (including unamortized premium of $639 in 2014)	—		350,639
6.000% senior unsecured notes	400,000		—
5.750% senior unsecured notes	350,000		350,000
5.625% senior unsecured notes	350,000		350,000
6.750% senior unsecured notes (including unamortized discount of $10,067 in 2015)	739,933		—
Total long-term debt	$	2,854,033	$	1,601,039

As of September 30, 2015, we were in compliance with the financial covenants contained in our credit agreement and senior unsecured notes indentures.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Senior Secured Credit Facility

The Enterprise acquisition meaningfully expanded our size and is expected to improve our credit metrics over the longer-term, which we believe should help accelerate an increase in our credit ratings in the future. In connection with our expanded size and improved credit outlook, we amended our senior secured credit facility (which matures on July 28, 2019) in the third quarter of 2015 to, among other things, (i) increase our committed amount to $1.5 billion, (ii) provide that, if and when we achieve specified investment grade ratings, certain restrictive covenants will cease to apply and the applicable margin for both alternate base rate and Eurodollar loans and the commitment fee on the unused committed amount will be reduced by specified amounts, (iii) immediately provide us more operational flexibility by relaxing certain covenants, including by increasing certain applicable limits and baskets, and (iv) increase the inventory financing sublimit amount, which is designed to allow us to more efficiently finance crude oil and petroleum products inventory in the normal course of our operations by allowing us to exclude the amount of inventory loans from our total outstanding indebtedness for purposes of determining our applicable interest rate, from $150 million to $200 million.

The key terms for rates under our $1.5 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 2.50% on Eurodollar borrowings and from 0.50% to 1.50% 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 0.375%.

•The accordion feature is $500 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, 2015, we had $1.0 billion borrowed under our $1.5 billion credit facility, with $34.5 million of the borrowed amount designated as a loan under the inventory sublimit. Our credit agreement allows up to $100 million of the capacity to be used for letters of credit, of which $16.6 million was outstanding at September 30, 2015. Due to the revolving nature of loans under our credit facility, additional borrowings and periodic repayments and re-borrowings may be made until the maturity date. The total amount available for borrowings under our credit facility at September 30, 2015 was $469.3 million.

On September 17, 2015, we amended our $1.5 billion credit agreement which provides that, if and when we achieve specified investment grade ratings, certain restrictive covenants will cease to apply and the applicable margin for both alternate base rate and Eurodollar loans and the commitment fee on the unused committed amount will be reduced by specified amounts. The amendment also increases the inventory financing sublimit amount from $150 million to $200 million.

Senior Unsecured Note Issuance and Repayment

On July 23, 2015, we issued $750 million in aggregate principal amount of 6.75% senior unsecured notes due 2022. Interest payments are due on February 1 and August 1 of each year with the initial interest payment due February 1, 2016. Those notes mature on August 1, 2022. That issuance generated net proceeds of $728.6 million net of issuance discount and underwriting fees. The net proceeds were used to fund a portion of the purchase price for our Enterprise acquisition.

On May 21, 2015, we issued $400 million in aggregate principal amount of 6.0% senior unsecured notes due 2023. Interest payments are due on May 15 and November 15 of each year with the initial interest payment due November 15, 2015. Those notes mature on May 15, 2023. We used a portion of the proceeds from those notes to effectively redeem all of our outstanding $350 million, 7.875% senior unsecured notes due 2018, using a combination of public tender offer and our redemption rights relating to those notes. The aggregate principal amount of the 7.875% notes totaling $300.1 million were tendered and the remaining $49.9 million were redeemed in full. A total loss of approximately $19.2 million for the tender and redemption of notes is recorded to "Other income/(expense), net" in our Consolidated Statements of Operations.

9. Partners’ Capital and Distributions

At September 30, 2015, our outstanding common units consisted of 109,939,221 Class A units and 39,997 Class B units.

On July 22, 2015, we issued 10,350,000 Class A common units in a public offering at a price of $43.77 per unit, which included the exercise by the underwriters of an option to purchase up to 1,350,000 additional common units from us. We received proceeds, net of underwriting discounts and offering costs, of approximately $437.2 million from that offering. We used the net proceeds to fund a portion of the purchase price for our Enterprise acquisition.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On April 10, 2015, we issued 4,600,000 Class A common units in a public offering at a price of $44.42 per unit, which included the exercise by the underwriters of an option to purchase up to 600,000 additional common units from us. We received proceeds, net of underwriting discounts and offering costs, of approximately $198 million from that offering. We intend to use the net proceeds for general partnership purposes, including funding acquisitions (including organic growth projects) or repaying a portion of the borrowings outstanding under our revolving credit facility.

Distributions

We paid or will pay the following distributions in 2014 and 2015:



Distribution For	Date Paid		Per Unit Amount		Total Amount
2014
1^st Quarter	May 15, 2014		$	0.5500	$	48,783
2^nd Quarter	August 14, 2014		$	0.5650	$	50,114
3^rd Quarter	November 14, 2014		$	0.5800	$	54,112
4^th Quarter	February 13, 2015		$	0.5950	$	56,542
2015
1^st Quarter	May 15, 2015		$	0.6100	$	60,774
2^nd Quarter	August 14, 2015		$	0.6250	$	68,737
3^rdQuarter	November 13, 2015	⁽¹⁾	$	0.6400	$	70,387

(1) This distribution will be paid to unitholders of record as of October 30, 2015.

10. Business Segment Information

In the fourth quarter of 2014, we reorganized our operating segments as a result of a change in the way our Chief Executive Officer, who is our chief operating decision maker, evaluates the performance of operations, develops strategy and allocates resources. The results of our marine transportation activities, formerly reported in the Supply and Logistics Segment, are now reported in our Marine Transportation Segment. In addition, the results of our offshore and onshore pipeline transportation activities, formerly reported in the Pipeline Transportation Segment, are now reported separately in our Onshore Pipeline Transportation Segment and Offshore Pipeline Transportation Segment. Our disclosures related to prior periods have been recast to reflect our reorganized segments.

As a result of the above changes, we currently manage our businesses through five divisions that constitute our reportable segments:


•	Onshore Pipeline Transportation – transportation of crude oil, and to a lesser extent, CO₂;


•	Offshore Pipeline Transportation – offshore pipeline transportation and processing of crude oil and natural gas in the Gulf of Mexico;


•	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.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Segment information for the periods presented below was as follows:



	Onshore Pipeline Transportation		Offshore Pipeline Transportation		Refinery Services			Marine Transportation		Supply & Logistics			Total
Three Months Ended September 30, 2015
Segment margin (a)	$	14,984	$	70,943	$	20,692		$	26,583	$	7,508		$	140,710
Capital expenditures (b)	$	45,933	$	1,520,268	$	118		$	12,489	$	43,942		$	1,622,750
Revenues:
External customers	$	16,735	$	61,388	$	45,738		$	58,490	$	389,983		$	572,334
Intersegment (c)	3,174		—		(2,406		)	2,046		(2,814		)	—
Total revenues of reportable segments	$	19,909	$	61,388	$	43,332		$	60,536	$	387,169		$	572,334
Three Months Ended September 30, 2014
Segment margin (a)	$	15,354	$	21,666	$	21,855		$	22,077	$	13,838		$	94,790
Capital expenditures (b)	$	11,340	$	23,949	$	1,254		$	14,987	$	88,347		$	139,877
Revenues:
External customers	$	15,715	$	974	$	53,930		$	53,901	$	839,594		$	964,114
Intersegment (c)	4,634		—		(2,722		)	3,099		(5,011		)	—
Total revenues of reportable segments	$	20,349	$	974	$	51,208		$	57,000	$	834,583		$	964,114
Nine Months Ended September 30, 2015
Segment Margin (a)	$	43,670	$	121,241	$	60,073		$	79,501	$	28,913		$	333,398
Capital expenditures (b)	$	155,417	$	1,522,407	$	1,568		$	40,151	$	136,568		$	1,856,111
Revenues:
External customers	$	48,422	$	63,436	$	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	$	57,910	$	63,436	$	135,780		$	180,501	$	1,317,891		$	1,755,518
Nine Months Ended September 30, 2014
Segment Margin (a)	$	46,574	$	46,504	$	64,354		$	61,512	$	35,878		$	254,822
Capital expenditures (b)	$	39,081	$	37,525	$	2,153		$	63,023	$	240,997		$	382,779
Revenues:
External customers	$	50,454	$	2,443	$	166,589		$	156,883	$	2,622,513		$	2,998,882
Intersegment (c)	12,538		—		(8,387		)	12,358		(16,509		)	—
Total revenues of reportable segments	$	62,992	$	2,443	$	158,202		$	169,241	$	2,606,004		$	2,998,882

Total assets by reportable segment were as follows:



	September 30, 2015		December 31, 2014
Onshore pipeline transportation	$	552,920	$	460,012
Offshore pipeline transportation	2,661,783		645,668
Refinery services	395,291		403,703
Marine transportation	752,116		745,128
Supply and logistics	995,589		907,189
Other assets	91,546		68,674
Total consolidated assets	5,449,245		3,230,374


(a)	A reconciliation of Segment Margin to net income 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 contributions to equity investees related to same. In addition to construction of growth projects, capital spending in our

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

pipeline transportation segment included $0.7 million and $2.5 million during the three and nine months ended September 30, 2015 and $23.4 million and $36.1 million during the three and nine months ended September 30, 2014 representing capital contributions to our SEKCO equity investee to fund our share of the construction costs for its pipeline.


(c)	Intersegment sales were conducted under terms that we believe were no more or less favorable than then-existing market conditions.

Reconciliation of Segment Margin to net income:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Segment Margin	$	140,710		$	94,790		$	333,398		$	254,822
Corporate general and administrative expenses	(25,940		)	(12,865		)	(52,192		)	(37,715		)
Depreciation and amortization	(41,170		)	(25,148		)	(96,500		)	(64,919		)
Interest expense	(29,617		)	(20,441		)	(66,737		)	(47,314		)
Adjustment to exclude distributable cash generated by equity investees not included in income and include equity in investees net income ⁽¹⁾	(7,962		)	(6,741		)	(25,383		)	(20,326		)
Non-cash items not included in Segment Margin	1,316			1,653			473			1,935
Cash payments from direct financing leases in excess of earnings	(1,448		)	(1,404		)	(4,215		)	(4,113		)
Gain on step up of historical basis in CHOPS and SEKCO	335,260			—			335,260			—
Loss on extinguishment of debt	—			—			(19,225		)	—
Other, net	(6,643		)	—			(6,643		)	—
Income tax expense	(1,292		)	(731		)	(3,142		)	(2,334		)
Net income attributable to Genesis Energy, L.P.	$	363,214		$	29,113		$	395,094		$	80,036


(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,
	2015		2014		2015		2014
Revenues:
Sales of CO₂ to Sandhill Group, LLC ⁽¹⁾	$	913	$	867	$	2,418	$	2,235
Sales to Poseidon Oil Pipeline Company, LLC ⁽²⁾	1,980		—		1,980		—
Sales to Deepwater Gateway, LLC ⁽³⁾	33		—		33		—
Costs and expenses:
Amounts paid to our CEO in connection with the use of his aircraft	$	165	$	150	$	525	$	450
Expenses from Poseidon Oil Pipeline Company, LLC ⁽²⁾	241		—		241		—
Expenses from Deepwater Gateway, LLC ⁽³⁾	—		—		—		—


(1)	We own a 50% interest in Sandhill Group, LLC.


(2)	We own 64% interest in Poseidon Oil Pipeline Company, LLC.


(3)	We own a 50% interest in Deepwater Gateway, LLC.

Amount due from Related Party

At September 30, 2015 and December 31, 2014 Sandhill Group, LLC owed us $0.3 million, respectively, for purchases of CO₂.

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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, 2015 reflect $2 million, respectively, of fees we earned through the provision of services under that agreement.

Deepwater Gateway

As part of our Enterprise acquisition, we became the operator of Deepwater Gateway in the third quarter of 2015. We provide technical and administrative services to Deepwater Gateway under a Management Services Agreement. That agreement continues indefinitely until either party decides to exercise their termination rights (as defined in the agreement). Our revenues for the three and nine months ended September 30, 2015 reflect less than $0.1 million, respectively, of fees we earned through the provision of services under that agreement.

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,
	2015			2014
(Increase) decrease in:
Accounts receivable	$	72,372		$	43,591
Inventories	(1,481		)	(14,060		)
Deferred charges	(7,256		)	—
Other current assets	(7,014		)	48,582
Increase (decrease) in:
Accounts payable	(70,980		)	(8,576		)
Accrued liabilities	21,740			(30,487		)
Net changes in components of operating assets and liabilities	7,381			39,050

Payments of interest and commitment fees, net of amounts capitalized, were $56.8 million and $46.3 million for the nine months ended September 30, 2015 and September 30, 2014, respectively. We capitalized interest of $11.9 million and $11.5 million during the nine months ended September 30, 2015 and September 30, 2014.

At September 30, 2015 and September 30, 2014, we had incurred liabilities for fixed and intangible asset additions totaling $50.2 million and $61.2 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.

At September 30, 2015 we had incurred liabilities for other asset additions totaling $0.1 million, that had not been paid at the end of the third quarter and, therefore, were not included in the caption "Other, net" under Cash Flows from Investing Activities in the Unaudited Condensed Consolidated Statements of Cash Flows.

During the three months ended September 30, 2015, as a result of the Enterprise acquisition, we acquired the 50% ownership interest in each of CHOPS and SEKCO as previously held by Enterprise, resulting in 100% ownership interest by us in each of these subsidiaries. As a result, we recorded a one time $335 million non-cash gain from the step up in basis in our historical 50% ownership interest in each of CHOPS and SEKCO to fair value (resulting from the fair value assigned to the 50% ownership interest in each of CHOPS and SEKCO that we acquired from Enterprise, as derived from the preliminary purchase price allocation). This also results in the consolidation of CHOPS and SEKCO by us, resulting in the inclusion of the operating assets and liabilities on our Unaudited Condensed Consolidated Balance Sheet. As 50% of the operating assets and liabilities of CHOPS and SEKCO were based on our historical interest with no cash impact, these amounts relating to our historical interest were not included in net changes in components of operating assets and liabilities in the Unaudited Condensed Consolidated Statements of Cash Flows.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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, 2015, we had the following outstanding derivative commodity contracts that were entered into to economically hedge inventory or fixed price purchase commitments.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



	Sell (Short) Contracts		Buy (Long) Contracts
Designated as hedges under accounting rules:
Crude oil futures:
Contract volumes (1,000 bbls)	47		—
Weighted average contract price per bbl	$	46.81	$	—

Not qualifying or not designated as hedges under accounting rules:
Crude oil futures:
Contract volumes (1,000 bbls)	730		292
Weighted average contract price per bbl	$	44.88	$	46.77
Crude oil swaps:
Contract volumes (1,000 bbls)	280		—
Weighted average contract price per bbl	$	2.38	$	—
Diesel futures:
Contract volumes (1,000 bbls)	58		12
Weighted average contract price per gal	$	1.58	$	1.56
#6 Fuel oil futures:
Contract volumes (1,000 bbls)	465		105
Weighted average contract price per bbl	$	36.36	$	34.76
Crude oil options:
Contract volumes (1,000 bbls)	175		30
Weighted average premium received	$	1.68	$	0.21

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.

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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, 2015 and December 31, 2014:

Fair Value of Derivative Assets and Liabilities



	Unaudited Condensed Consolidated Balance Sheets Location	Fair Value
	Unaudited Condensed Consolidated Balance Sheets Location	September 30, 2015			December 31, 2014
Asset Derivatives:
Commodity derivatives - futures and call options (undesignated hedges):
Gross amount of recognized assets	Current Assets - Other	$	1,515		$	16,383
Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets	Current Assets - Other	(1,277		)	(2,310		)
Net amount of assets presented in the Unaudited Condensed Consolidated Balance Sheets		$	238		$	14,073
Commodity derivatives - futures and call options (designated hedges):
Gross amount of recognized assets	Current Assets - Other	$	—		$	—
Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets	Current Assets - Other	—			—
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⁾	$	(1,277	)	$	(2,310	)
Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets	Current Assets - Other ⁽¹⁾	1,277			2,310
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⁾	$	(37	)	$	—
Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets	Current Assets - Other ⁽¹⁾	37			—
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, 2015, we had a net broker receivable of approximately $4.9 million (consisting of initial margin of $4.9 million and unaffected by variation margin). As of December 31, 2014, we had a net broker receivable of approximately $2.8 million (consisting of initial margin of $2.4 million increased by $0.3 million of variation margin). At September 30, 2015 and December 31, 2014, none of our outstanding derivatives contained credit-risk related contingent features that would result in a material adverse impact to us upon any change in our credit ratings.

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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,
		2015		2014			2015			2014
Commodity derivatives - futures and call options:
Contracts designated as hedges under accounting guidance	Supply and logistics product costs	$	621	$	—		$	(1,214	)	$	—
Contracts not considered hedges under accounting guidance	Supply and logistics product costs	11,559		(8,738		)	6,545			(5,242		)
Total commodity derivatives		$	12,180	$	(8,738	)	$	5,331		$	(5,242	)

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, 2015 and December 31, 2014.



	Fair Value at							Fair Value at
	September 30, 2015							December 31, 2014
Recurring Fair Value Measures	Level 1			Level 2		Level 3		Level 1			Level 2		Level 3
Commodity derivatives:
Assets	$	1,515		$	—	$	—	$	16,383		$	—	$	—
Liabilities	$	(1,314	)	$	—	$	—	$	(2,310	)	$	—	$	—

Our commodity derivatives include exchange-traded futures and exchange-traded options contracts. The fair value of these exchange-traded derivative contracts is based on unadjusted quoted prices in active markets and is, therefore, included in Level 1 of the fair value hierarchy.

See Note 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, 2015 our senior unsecured notes had a carrying value of $1.8 billion and a fair value of $1.7 billion, compared to $1.1 billion and $1.0 billion, respectively, at December 31, 2014. The fair value of the senior unsecured notes is determined based on trade information in the financial markets of our public debt and is considered a Level 2 fair value measurement.

Additionally, we recorded the estimated fair value of net assets acquired and liabilities assumed in connection with the 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 the Enterprise acquisition.

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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 the 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 $1.9 billion aggregate principal amount of senior unsecured notes co-issued by Genesis Energy, L.P. and Genesis Energy Finance Corporation are fully and unconditionally guaranteed jointly and severally by all of Genesis Energy, L.P.’s current and future 100% owned domestic subsidiaries, except Genesis Free State Pipeline, LLC, Genesis NEJD Pipeline, LLC and certain other minor subsidiaries. Genesis NEJD Pipeline, LLC is 100% owned by Genesis Energy, L.P., the parent company. The remaining non-guarantor subsidiaries are owned by Genesis Crude Oil, L.P., a guarantor subsidiary. Genesis Energy Finance Corporation has no independent assets or operations. See Note 8 for additional information regarding our consolidated debt obligations.

During the second quarter of 2015, the Company took action related to certain non-guarantor subsidiaries that resulted in these subsidiaries previously categorized as non-guarantor subsidiaries becoming wholly owned guarantor subsidiaries. The changes made to guarantor subsidiaries did not impact the Company's previously reported consolidated net operating results, financial position, or cash flows. The condensed consolidating balance sheet as of December 31, 2014 and the condensed consolidating statements of operations for the three and nine months ended September 30, 2014 as well as the condensed consolidating statements of cash flows for the nine months ended September 30, 2014 have been retrospectively adjusted to reflect these updates to our guarantor subsidiaries as though the subsidiaries had been guarantors in all periods presented.

During the third quarter of 2015, the Company determined the need to revise its disclosures and presentation with respect to the Condensed Consolidating Financial Information included in this footnote. These revisions relate solely to transactions between Genesis Energy, L.P. and its subsidiaries and only impact the information that is presented in the Condensed Consolidating Financial Information presented herein and does not affect the Consolidated Financial Statements in any way. The Company determined that adjustments to the presentation relating to advances to and from affiliates was necessary and were made. As such, the condensed consolidating balance sheet as of December 31, 2014 was adjusted to present advances to and from subsidiaries as non-current assets and liabilities. This resulted in the reclassification of such advances from current assets and liabilities to long term assets and liabilities. The condensed consolidated statement of cash flows for the nine months ended September 30, 2014 has also been adjusted to reflect these changes. There is also a schedule below that reflects all these adjustments and reconciles from what has been disclosed in previous filings to what we represent in the financial statements below.

The following is condensed consolidating financial information for Genesis Energy, L.P., the guarantor subsidiaries and the non-guarantor subsidiaries.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Condensed Consolidating Balance Sheet

September 30, 2015



	Genesis Energy, L.P. (Parent and Co-Issuer)		Genesis Energy Finance Corporation (Co-Issuer)		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Genesis Energy, L.P. Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	6	$	—	$	13,044		$	2,518		$	—		$	15,568
Other current assets	75		—		317,334			12,428			(9		)	329,828
Total current assets	81		—		330,378			14,946			(9		)	345,396
Fixed assets, at cost	—		—		4,086,318			77,591			—			4,163,909
Less: Accumulated depreciation	—		—		(318,312		)	(18,775		)	—			(337,087		)
Net fixed assets	—		—		3,768,006			58,816			—			3,826,822
Goodwill	—		—		325,046			—			—			325,046
Other assets, net	47,919		—		418,936			142,038			(150,102		)	458,791
Advances to affiliates	2,543,341		—		—			38,941			(2,582,282		)	—
Equity investees	—		—		493,190			—			—			493,190
Investments in subsidiaries	2,362,919		—		95,587			—			(2,458,506		)	—
Total assets	$