Edgar Filing: GENESIS ENERGY LP

form10q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-12295

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

Securities registered pursuant to Section 12(g) of the Act:

NONE

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 þ No o

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 o No o

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 o

Accelerated filer þ

Non-accelerated filer o

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Exchange Act).

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Units outstanding as of November 2, 2010: 39,585,692

GENESIS ENERGY, L.P.

Form 10-Q

INDEX

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	Page

	Unaudited Condensed Consolidated Balance Sheets – September 30, 2010 and December 31, 2009	3

	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009	4

	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2010 and 2009	5

	Unaudited Condensed Consolidated Statements of Partners’ Capital for the Nine Months Ended September 30, 2010 and 2009	6

	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009	7

	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39

Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults upon Senior Securities	39

Item 4.	[Removed and Reserved]	39

Item 5.	Other Information	39

Item 6.	Exhibits	39

SIGNATURES		41

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Index

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30, 2010			December 31, 2009

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,058		$	4,148
Accounts receivable - trade, net of allowance for doubtful accounts of $1,303 and $1,372 at September 30, 2010 and December 31, 2009, respectively		169,370			127,248
Accounts receivable - related parties		315			2,617
Inventories		64,581			40,204
Investment in direct financing leases, net of unearned income -current portion		4,509			4,202
Other		8,904			10,825
Total current assets		250,737			189,244

FIXED ASSETS, at cost		373,636			373,927
Less: Accumulated depreciation		(103,834	)		(89,040	)
Net fixed assets		269,802			284,887

INVESTMENT IN DIRECT FINANCING LEASES, net of unearned income		169,626			173,027
CO2 ASSETS, net of accumulated amortization		16,869			20,105
EQUITY INVESTEES AND OTHER INVESTMENTS		14,255			15,128
INTANGIBLE ASSETS, net of accumulated amortization		123,315			136,330
GOODWILL		325,046			325,046
OTHER ASSETS, net of accumulated amortization		9,847			4,360

TOTAL ASSETS	$	1,179,497		$	1,148,127

LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable - trade	$	137,390		$	114,428
Accounts payable - related parties		2,213			3,197
Accrued liabilities		25,733			23,803
Total current liabilities		165,336			141,428

LONG-TERM DEBT		426,000			366,900
DEFERRED TAX LIABILITIES		14,391			15,167
OTHER LONG-TERM LIABILITIES		5,523			5,699
COMMITMENTS AND CONTINGENCIES (Note 13)

PARTNERS' CAPITAL:
Common unitholders, 39,586 and 39,488 units issued and outstanding,at September 30, 2010 and December 31, 2009, respectively		557,079			585,554
General partner		10,608			11,152
Accumulated other comprehensive loss		-			(829	)
Total Genesis Energy, L.P. partners' capital		567,687			595,877
Noncontrolling interests		560			23,056
Total partners' capital		568,247			618,933

TOTAL LIABILITIES AND PARTNERS' CAPITAL	$	1,179,497		$	1,148,127

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Index

GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
REVENUES:
Supply and logistics:
Unrelated parties	$	518,441		$	355,604		$	1,338,755		$	833,658
Related parties		368			846			1,014			3,218
Refinery services		38,437			30,006			106,160			112,894
Pipeline transportation, including natural gas sales:
Transportation services - unrelated parties		13,565			4,009			36,342			11,442
Transportation services - related parties		-			7,977			2,861			24,175
Natural gas sales revenues		522			435			1,967			1,667
CO2 marketing:
Unrelated parties		3,886			3,712			9,881			9,821
Related parties		793			800			2,101			2,211
Total revenues		576,012			403,389			1,499,081			999,086

COSTS AND EXPENSES:
Supply and logistics costs:
Product costs - unrelated parties		490,358			324,162			1,251,777			751,524
Product costs - related parties		-			-			-			1,754
Operating costs		23,300			22,894			66,764			60,766
Operating costs - related parties		599			-			1,932			-
Refinery services operating costs		22,251			17,160			60,268			73,711
Pipeline transportation costs:
Pipeline transportation operating costs		3,007			2,852			9,192			7,984
Natural gas purchases		490			395			1,847			1,519
CO2 marketing costs:
Transportation costs		1,741			1,603			4,542			4,251
Other costs		16			16			47			47
General and administrative		10,583			10,128			23,678			27,188
Depreciation and amortization		13,477			15,806			40,489			47,358
Net loss (gain) on disposal of surplus assets		7			17			25			(141	)
Total costs and expenses		565,829			395,033			1,460,561			975,961
OPERATING INCOME		10,183			8,356			38,520			23,125

Equity in earnings of joint ventures		377			(788	)		922			1,382
Interest expense		(6,542	)		(3,418	)		(13,506	)		(9,826	)
Income before income taxes		4,018			4,150			25,936			14,681
Income tax expense		(155	)		(253	)		(1,827	)		(1,661	)
NET INCOME		3,863			3,897			24,109			13,020

Net loss attributable to noncontrolling interests		1,205			402			2,082			1,025

NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P.	$	5,068		$	4,299		$	26,191		$	14,045

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GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF OPERATIONS - CONTINUED

(In thousands, except per unit amounts)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009

Net Income Attributable to Genesis Energy, L.P.
Per Common Unit:
Basic and Diluted	$	0.12	$	0.14	$	0.48	$	0.43

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

(In thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Net income	$	3,863		$	3,897		$	24,109		$	13,020
Change in fair value of derivatives:
Current period reclassification to earnings		1,553			224			2,112			514
Changes in derivative financial instruments - interest rate swaps		(224	)		(315	)		(424	)		(400	)
Comprehensive income		5,192			3,806			25,797			13,134
Comprehensive loss (income) attributable to noncontrolling interests		529			46			1,223			(60	)
Comprehensive income attributable to Genesis Energy, L.P.	$	5,721		$	3,852		$	27,020		$	13,074

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Index

GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL

(In thousands)

	Partners' Capital
	Number of Common Units		Common Unitholders			General Partner			Accumulated Other Comprehensive Loss			Non-Controlling Interests			Total Capital

Partners' capital, January 1, 2010		39,488	$	585,554		$	11,152		$	(829	)	$	23,056		$	618,933
Comprehensive income:
Net income (loss)		-		20,052			6,139			-			(2,082	)		24,109
Interest rate swap losses reclassified to interest expense		-		-			-			1,035			1,077			2,112
Interest rate swap loss		-		-			-			(206	)		(218	)		(424	)
Cash contributions		-		-			37			-			-			37
Cash distributions		-		(43,644	)		(7,909	)		-			(5	)		(51,558	)
Contribution for executive compensation (See Note 9)		-		-			1,289			-			-			1,289
Unit based compensation expense		98		20			-			-			-			20
Acquisition of non-controlling interest in DG Marine (See Note 2)		-		(4,903	)		(100	)		-			(21,268	)		(26,271	)
Partners' capital, September 30, 2010		39,586	$	557,079		$	10,608		$	-		$	560		$	568,247

	Partners' Capital
	Number of Common Units		Common Unitholders			General Partner			Accumulated Other Comprehensive Loss			Non-Controlling Interests			Total Capital

Partners' capital, January 1, 2009		39,457	$	616,971		$	16,649		$	(962	)	$	24,804		$	657,462
Comprehensive income:
Net income (loss)		-		17,892			(3,847	)		-			(1,025	)		13,020
Interest rate swap loss reclassified to interest expense		-		-			-			251			263			514
Interest rate swap loss		-		-			-			(197	)		(203	)		(400	)
Cash contributions		-		-			7			-			-			7
Cash distributions		-		(39,958	)		(4,191	)		-			(4	)		(44,153	)
Contribution for executive compensation (See Note 9)		-		-			7,587			-			-			7,587
Unit based compensation expense		26		793			-			-			-			793
Partners' capital, September 30, 2009		39,483	$	595,698		$	16,205		$	(908	)	$	23,835		$	634,830

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Index

GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine Months Ended September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	24,109		$	13,020
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation of fixed assets		17,241			19,378
Amortization of intangible and CO2 assets		23,248			27,980
Amortization and write-off of credit facility issuance costs		2,498			1,448
Amortization of unearned income and initial direct costs on direct financing leases		(13,275	)		(13,606	)
Payments received under direct financing leases		16,389			16,390
Equity in earnings of investments in joint ventures		(922	)		(1,382	)
Distributions from joint ventures - return on investment		1,494			800
Non-cash effect of unit-based compensation plans		1,941			2,758
Non-cash compensation charge		1,289			7,587
Deferred and other tax liabilities		649			1,084
Other non-cash items		2,423			(283	)
Net changes in components of operating assets and liabilities (See Note 10)		(43,010	)		(19,343	)
Net cash provided by operating activities		34,074			55,831

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments to acquire fixed and intangible assets		(8,799	)		(28,656	)
Distributions from joint ventures - return of investment		308			-
Other, net		756			417
Net cash used in investing activities		(7,735	)		(28,239	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings		561,429			174,300
Bank repayments		(502,329	)		(165,200	)
Credit facility issuance fees		(7,584	)		-
General partner contributions		37			7
Noncontrolling interests distributions		(5	)		(4	)
Distributions to common unitholders		(43,644	)		(39,958	)
Distributions to general partner interest		(7,909	)		(4,191	)
Acquisition of non-controlling interests in DG Marine (See Note 2)		(26,271	)		-
Other, net		(1,153	)		(2,831	)
Net cash used in financing activities		(27,429	)		(37,877	)

Net decrease in cash and cash equivalents		(1,090	)		(10,285	)
Cash and cash equivalents at beginning of period		4,148			18,985

Cash and cash equivalents at end of period	$	3,058		$	8,700

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 limited partnership focused on the midstream segment of the oil and gas industry in the Gulf Coast area of the United States. We conduct our operations through our operating subsidiaries and joint ventures. We manage our businesses through four divisions:

Pipeline transportation of crude oil and carbon dioxide;

Refinery services involving processing of high sulfur (or “sour”) gas streams for refineries to remove the sulfur, and sale of the related by-product, sodium hydrosulfide (or NaHS, commonly pronounced nash);

Supply and logistics services, which includes terminaling, blending, storing, marketing, and transporting crude oil and petroleum products by trucks and barges; and

Industrial gas activities, including wholesale marketing of CO2 and processing of syngas through a joint venture.

Our 2% general partner interest is held by Genesis Energy, LLC, a Delaware limited liability company. Our general partner manages our operations and activities and employs our officers and personnel, who devote 100% of their efforts to our management.

Basis of Presentation and Consolidation

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 financial statements prepared in accordance with generally accepted accounting principles 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, 2009.

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.

DG Marine

Today, DG Marine Transportation (“DG Marine”) is one of our wholly-owned consolidated subsidiaries, providing transportation services of petroleum products by barge that complements our other supply and logistics operations. Originally formed in 2008, DG Marine was a joint venture in which we owned (directly and indirectly) a 49% economic interest. The remaining 51% economic interest in DG Marine was owned by TD Marine, a related party. (See our Form 10-K for the year ended December 31, 2009 for a description of our related party relationships.)

On July 29, 2010, we acquired TD Marine’s effective 51% interest in DG Marine for $25.5 million in cash, resulting in DG Marine becoming wholly-owned by us. We funded the acquisition with proceeds from our credit agreement, including (i) paying off DG Marine’s stand-alone credit facility, which had an outstanding principal balance of $44.4 million, and (ii) settling DG Marine’s interest rate swaps, which resulted in $1.3 million being reclassified from Accumulated Other Comprehensive Loss (“AOCL”) to interest expense in the third quarter of 2010.

As a result of this transaction, we reclassified the acquired noncontrolling interest in DG Marine of $21.3 million to Genesis Energy, L.P. partners’ capital. Additionally, we reduced our partners’ capital by $26.3 million for the costs related to the transaction ($25.5 million paid to TD Marine and $0.8 million in direct transaction costs associated with the acquisition). The net effect on Genesis Energy, L.P. partners’ capital in our Consolidated Balance Sheet for September 30, 2010 was a decrease of $5.0 million.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Until July 29, 2010, DG Marine was a variable interest entity as certain of our voting rights were not proportional to our 49% economic interest. Accounting provisions required us to consolidate DG Marine and reflect the interest of TD Marine as a noncontrolling interest.

3.	Inventories

The major components of inventories were as follows:

	September 30, 2010		December 31, 2009
Crude oil	$	18,385	$	13,901
Petroleum products		36,421		22,150
Caustic soda		5,406		1,985
NaHS		4,350		2,154
Other		19		14
Total inventories	$	64,581	$	40,204

Inventories are valued at the lower of cost or market. The costs of inventories did not exceed market values at September 30, 2010 and December 31, 2009.

4.	Intangible Assets and Goodwill

Intangible Assets

The following table reflects the components of intangible assets being amortized at the dates indicated:

	September 30, 2010						December 31, 2009
	Gross Carrying Amount		Accumulated Amortization		Carrying Value		Gross Carrying Amount		Accumulated Amortization		Carrying Value

Customer relationships:
Refinery services	$	94,654	$	50,217	$	44,437	$	94,654	$	41,450	$	53,204
Supply and logistics		35,430		18,859		16,571		35,430		15,493		19,937
Supplier relationships -
Refinery services		36,469		30,745		5,724		36,469		28,551		7,918
Licensing Agreements -
Refinery services		38,678		14,760		23,918		38,678		11,681		26,997
Trade names -
Supply and logistics		18,888		7,009		11,879		18,888		5,444		13,444
Favorable lease -
Supply and logistics		13,260		1,500		11,760		13,260		1,144		12,116
Other		10,129		1,103		9,026		3,823		1,109		2,714
Total	$	247,508	$	124,193	$	123,315	$	241,202	$	104,872	$	136,330

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Estimated amortization expense for each of the five subsequent fiscal years is expected to be as follows (amounts are exclusive of intangible assets not yet in service associated with our information technology systems upgrade project):

Year Ended December 31	Amortization Expense to be Recorded
Remainder of 2010	$	7,042
2011	$	21,918
2012	$	18,261
2013	$	14,264
2014	$	11,790
2015	$	9,856

Goodwill

The carrying amount of goodwill by business segment at both September 30, 2010 and December 31, 2009 was $301.9 million to refinery services and $23.1 million to supply and logistics.

Debt

Our obligations under credit facilities consisted of the following:

	September 30, 2010		December 31, 2009

Genesis Credit Facility, variable rate, due June 2015	$	426,000	$	320,000
DG Marine Credit Facility, variable rate		-		46,900
Total Long-Term Debt	$	426,000	$	366,900

On June 29, 2010, we restructured our senior secured credit agreement with a syndicate of banks led by BNP Paribas. Among other changes, our credit agreement:

now matures on June 30, 2015;

provides for a $525 million senior secured revolving credit facility, with the ability to increase the size of the facility up to $650 million, with approval of lenders;

includes a $75 million hedged crude oil and petroleum products inventory loan sublimit based on 90% of the hedged value of the inventory; and

no longer includes “borrowing base” limitations except with respect to inventory loans.

Our inventory borrowing base is recalculated monthly. At September 30, 2010, our inventory borrowing base was $50.4 million.

At September 30, 2010, we had $426 million borrowed under our credit agreement, with $50.4 million of that amount designated as a loan under the inventory sublimit. Additionally, we had $4.3 million in letters of credit outstanding.

The key terms for rates under our credit agreement are as follows:

The interest rate on borrowings may be based on a eurodollar rate (“LIBOR”) or an Alternate Base Rate (“ABR”), at our option. The interest rate on LIBOR borrowings is equal to the sum of (a) the LIBOR rate for the applicable interest period multiplied by the statutory reserve rate and (b) a margin that can range from 2.50% to 3.50%. The interest rate on ABR borrowings is equal to the sum of (a) the greatest of (i) the prime rate established by BNP Paribas, (ii) the federal funds effective rate plus ½ of 1% and (iii) the LIBOR rate for a one-month maturity plus 1%, and (b) a margin that can range from 1.50% to 2.50%. The applicable margin under either option is based on our leverage ratio as computed under our credit agreement. Our leverage ratio is recalculated quarterly and in connection with each material acquisition. At September 30, 2010, our borrowing rate margins were 2.75% and 1.75% for LIBOR and ABR borrowings, respectively.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Letter of credit fees will range from 2.50% to 3.50% based on our leverage ratio as computed under our credit agreement. This rate can fluctuate quarterly. At September 30, 2010, our letter of credit rate was 2.75%.

We pay a commitment fee on the unused portion of the $525 million facility amount. The commitment fee is 0.50%.

Collateral under the credit facility consists of substantially all of our assets, excluding our security interest in the NEJD pipeline and our ownership interest in the Free State pipeline. Our credit agreement is recourse to our general partner only with respect to its general partner interest in certain of our subsidiaries.

Our credit agreement contains customary covenants (affirmative, negative and financial) that limit the manner in which we may conduct our business. Our credit agreement contains three primary financial covenants – a maximum leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio. In general, our leverage ratio calculations compare our consolidated funded debt (excluding the amounts borrowed under the inventory sublimit in our credit agreement) to EBITDA (as defined and adjusted in accordance with our credit agreement). Our interest coverage ratio compares EBITDA (as adjusted) to interest expense. Our credit agreement includes provisions for the temporary adjustment of the required ratios following material acquisitions and with lender approval. So long as we are in compliance with the terms of our credit agreement, we have no limitations on our ability to distribute all of our available cash (as defined in our partnership agreement).

We were in compliance with all applicable covenants of our credit agreement at September 30, 2010.

In connection with our purchase of TD Marine’s interest in DG Marine on July 29, 2010, the outstanding balance on the DG Marine credit facility was repaid. See Note 2.

We believe the amounts included in our balance sheet for the debt outstanding under our revolving credit agreement approximate fair value due to the recent restructuring of our credit agreement.

6.	Distributions and Net Income Per Common Unit

Distributions

We paid or will pay the following distributions in 2009 and 2010:

Distribution For	Date Paid	Per Unit Amount		Limited Partner Interests Amount		General Partner Interest Amount		General Partner Incentive Distribution Amount		Total Amount

Fourth quarter 2008	February 2009	$	0.3300	$	13,021	$	266	$	823	$	14,110
First quarter 2009	May 2009	$	0.3375	$	13,317	$	271	$	1,125	$	14,713
Second quarter 2009	August 2009	$	0.3450	$	13,621	$	278	$	1,427	$	15,326
Third quarter 2009	November 2009	$	0.3525	$	13,918	$	284	$	1,729	$	15,931
Fourth quarter 2009	February 2010	$	0.3600	$	14,251	$	291	$	2,037	$	16,579
First quarter 2010	May 2010	$	0.3675	$	14,548	$	297	$	2,339	$	17,184
Second quarter 2010	August 2010	$	0.3750	$	14,845	$	303	$	2,642	$	17,790
Third quarter 2010	November 2010 (1)	$	0.3875	$	15,339	$	313	$	3,147	$	18,799

(1) This distribution will be paid on November 12, 2010 to our general partner and unitholders of record as of November 2, 2010.

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Index

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Net Income Allocation to Partners

Net income is allocated to our partners in the Unaudited Condensed Consolidated Statements of Partners’ Capital as follows:

To our general partner – income in the amount of the incentive distributions paid in the period.

To our general partner – expense in the amount of the executive compensation expense to be borne by our general partner (See Note 9).

To our limited partners and general partner – the remainder of net income in the ratio of 98% to the limited partners and 2% to our general partner.

Net Income Per Common Unit

The following table sets forth the computation of basic and diluted net income per common unit.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Numerators for basic and diluted net income per common unit:
Income attributable to Genesis Energy, L.P.	$	5,068		$	4,299		$	26,191		$	14,045
Less: General partner's incentive distribution to be paid for the period		(3,147	)		(1,729	)		(8,128	)		(4,281	)
Add: Expense for Class B and
Series B Awards (Note 9)		2,965			3,088			1,289			7,587
Subtotal		4,886			5,658			19,352			17,351
Less: General partner 2% ownership		(98	)		(113	)		(387	)		(347	)
Income available for common unitholders	$	4,788		$	5,545		$	18,965		$	17,004

Denominator for basic per common unit:
Common Units		39,586			39,480			39,573			39,467

Denominator for diluted per common unit:
Common Units		39,586			39,480			39,573			39,467
Phantom Units (1)		-			134			16			133
		39,586			39,614			39,589			39,600

Basic net income per common unit	$	0.12		$	0.14		$	0.48		$	0.43
Diluted net income per common unit	$	0.12		$	0.14		$	0.48		$	0.43

(1) See Note 9 for description of Phantom Units.

7.	Business Segment Information

We define Segment Margin as revenues less product costs, operating expenses (excluding non-cash charges, such as depreciation and amortization), and segment general and administrative expenses, plus our equity in distributable cash generated by our joint ventures. Our Segment Margin definition also excludes the non-cash effects of our stock-based compensation plans, 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 maintenance capital investment.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Pipeline Transportation		Refinery Services			Supply &Logistics			Industrial Gases		Total
Three Months Ended September 30, 2010
Segment margin (a)	$	11,920	$	16,218		$	7,740		$	3,495	$	39,373

Maintenance capital expenditures	$	161	$	354		$	201		$	-	$	716

Revenues:
External customers	$	11,059	$	40,246		$	520,028		$	4,679	$	576,012
Intersegment (b)		3,028		(1,809	)		(1,219	)		-		-
Total revenues of reportable segments	$	14,087	$	38,437		$	518,809		$	4,679	$	576,012

Three Months Ended September 30, 2009
Segment margin (a)	$	10,269	$	12,694		$	9,423		$	2,893	$	35,279

Maintenance capital expenditures	$	451	$	162		$	723		$	-	$	1,336

Revenues:
External customers	$	10,729	$	31,365		$	356,783		$	4,512	$	403,389
Intersegment (b)		1,692		(1,359	)		(333	)		-		-
Total revenues of reportable segments	$	12,421	$	30,006		$	356,450		$	4,512	$	403,389

	Pipeline Transportation		Refinery Services			Supply &Logistics			Industrial Gases		Total
Nine Months Ended September 30, 2010
Segment margin (a)	$	33,756	$	45,668		$	19,473		$	8,990	$	107,887

Maintenance capital expenditures	$	295	$	1,169		$	795		$	-	$	2,259

Revenues:
External customers	$	33,969	$	111,964		$	1,341,166		$	11,982	$	1,499,081
Intersegment (b)		7,201		(5,804	)		(1,397	)		-		-
Total revenues of reportable segments	$	41,170	$	106,160		$	1,339,769		$	11,982	$	1,499,081

Nine Months Ended September 30, 2009
Segment margin (a)	$	30,841	$	38,643		$	21,979		$	8,785	$	100,248

Maintenance capital expenditures	$	1,201	$	704		$	1,853		$	-	$	3,758

Revenues:
External customers	$	32,927	$	117,193		$	836,934		$	12,032	$	999,086
Intersegment (b)		4,357		(4,299	)		(58	)		-		-
Total revenues of reportable segments	$	37,284	$	112,894		$	836,876		$	12,032	$	999,086

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(a)

A reconciliation of Segment Margin to income before income taxes for the periods presented is as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Segment Margin	$	39,373		$	35,279		$	107,887		$	100,248
Corporate general and administrative expenses		(9,769	)		(9,141	)		(21,174	)		(24,218	)
Depreciation and amortization		(13,477	)		(15,806	)		(40,489	)		(47,358	)
Net (loss) gain on disposal of surplus assets		(7	)		(17	)		(25	)		141
Interest expense, net		(6,542	)		(3,418	)		(13,506	)		(9,826	)
Non-cash expenses not included in segment margin		(4,301	)		(1,008	)		(2,966	)		(1,850	)
Other items excluded from income affecting segment margin		(1,259	)		(1,739	)		(3,791	)		(2,456	)
Income before income taxes	$	4,018		$	4,150		$	25,936		$	14,681

(b)

Intersegment sales were conducted on similar terms as sales to third parties.

8.	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. An affiliate of Denbury Resources, Inc. sold its interest in our general partner on February 5, 2010. Transactions with Denbury through February 5, 2010 are included in the table below as related party transactions.

The transactions with related parties were as follows:

	Nine Months Ended September 30,
	2010		2009

Operations, general and administrative services provided by our general partner	$	34,827	$	38,999
Marine operating costs provided by Quintana affiliate	$	1,932	$	-
Sales of CO2 to Sandhill	$	2,101	$	2,211
Petroleum products sales to Davison family businesses	$	832	$	602
Truck transportation services provided to Denbury (1)	$	182	$	2,616
Pipeline transportation services provided to Denbury (1)	$	1,365	$	10,481
Payments received under direct financing leases from
Denbury (1)	$	99	$	16,390
Pipeline transportation income portion of direct financing lease fees from Denbury (1)	$	1,502	$	13,754
Pipeline monitoring services provided to Denbury (1)	$	10	$	90
CO2 transportation services provided by Denbury (1)	$	373	$	4,029
Crude oil purchases from Denbury (1)	$	-	$	1,754

(1) Amounts for 2010 only through February 5, 2010.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Additionally, on July 29, 2010, we acquired the 51% interest of TD Marine in DG Marine. See Note 3.

Amounts due to and from Related Parties

At September 30, 2010 and December 31, 2009, we owed our general partner $2.0 million and $2.1 million for administrative services, respectively. We owed an affiliate of Quintana Capital Group II, L.P. $0.2 million at September 30, 2010 for fuel and other expenses associated with our inland marine barge operations. Sandhill owed us $0.3 million and $0.7 million for purchases of CO2 at September 30, 2010 and December 31, 2009, respectively. Denbury owed us $1.9 million for truck and pipeline transportation services, and we owed Denbury $1.0 million for CO2 transportation charges at December 31, 2009.

9.	Equity-Based Compensation

We recorded charges related to our equity-based compensation plans and awards for the three and nine months ended September 30, 2010 and 2009 as follows:

Expense Related to Equity-Based Compensation

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Statement of Operations	2010		2009		2010		2009
Pipeline operating costs	$	200	$	124	$	307	$	208
Refinery services operating costs		234		139		409		289
Supply and logistics operating costs		758		481		1,052		910
General and administrative expenses		3,829		3,710		2,819		9,041
Total	$	5,021	$	4,454	$	4,587	$	10,448

In connection with the sale of our general partner on February 5, 2010, our general partner redeemed all of its Class B Member Interests and replaced its Class A Member Interest with Series A units and Series B units.

Series B Units

Our general partner uses the Series B Units, which have no voting rights, as part of its long-term compensation structure for our management team. A total of 1,000 Series B Units may be issued by our general partner. Pursuant to restricted unit agreements entered into with Genesis Energy, LLC, our general partner, on February 5, 2010, certain members of our management team received an aggregate of 767 Series B units in our general partner. Provided the holder of the Series B Units is still employed on the seventh anniversary of the issuance date of the awards, the Series B Units will be converted into Series A Units (unless a conversion occurs at a prior date due to a public offering or a change in control of our general partner).

Subject to the rights of the holders of the Series A units in our general partner to receive distributions up to certain threshold amounts, holders of Series B units, upon vesting, have the right to receive a share of the distributions paid by us to our general partner. With regard to the right to receive a share of distributions, the Series B Units vest 25% per year on each of the next four anniversary dates of the award. The four-year vesting requirement would also be applicable to any conversion due to a public offering should that conversion occur in the first four years after issuance of the award.

Although the Series B units represent an equity interest in our general partner and our general partner will not seek reimbursement under our partnership agreement for the value of these compensation arrangements, we will record non-cash expense for the estimated fair value of the awards. The estimated fair value of the converted Series B units will be recomputed at each quarterly reporting date until conversion, and the expense to be recorded will be adjusted based on that fair value, with an offsetting entry to the capital account of our general partner.

Management’s estimates of the fair value of these awards are based on a number of future events, including estimates of the distributions that would be received by our general partner in the future through the conversion date of February 5, 2017, the fair value of our general partner at February 5, 2017, and assumptions about an appropriate discount rate. Changes in our assumptions will change the amount of expense we record.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

At September 30, 2010, management estimates that the fair value of the Series B Units granted to our management team is approximately $36.4 million. This estimate of the fair value was determined using a discount rate of 14%. Due to the limited number of holders of Series B Units, we assumed a forfeiture rate of zero. For the three and nine months ended September 30, 2010, we recorded non-cash expense of $3.0 million and $3.5 million, respectively for these awards.

2007 Long Term Incentive Plan

As a result of the sale of our general partner on February 5, 2010, all outstanding phantom units issued pursuant to our 2007 Long Term Incentive Plan vested. As a result of this acceleration of the vesting period, we recorded non-cash compensation expense of $0.5 million in the first quarter of 2010. In total, 123,857 phantom units vested.

Class B Membership Interests

All of the Class B membership interests in our general partner held by the existing management team were either (i) converted into Series A units in our general partner or (ii) redeemed by our general partner on February 5, 2010. The amounts owed under the deferred compensation plan with the management team were similarly converted or redeemed. In total, the value of the Series A units issued and cash payments made by our general partner to settle its obligations under the Class B membership interests and deferred compensation totaled $14.9 million. This value, when combined with amounts previously paid to our management team during 2009 related to the Class B membership interests, resulted in total compensation expense of $15.4 million. The difference between the recorded cumulative compensation expense related to these interests through December 31, 2009 of $17.5 million and the total compensation expense of $15.4 million was recorded as a reduction of expense in the first quarter of 2010.

2010 Long Term Incentive Plan

In the second quarter of 2010, our general partner adopted the Genesis Energy, LLC 2010 Long-Term Incentive Plan (the “2010 Plan”). The 2010 Plan provides for the awards of phantom units and distribution equivalent rights to directors of our general partner, and employees and other representatives of our general partner and its affiliates who provide services to us. Phantom units are notional units representing unfunded and unsecured promises to pay to the participant a specified amount of cash based on the market value of our common units should specified vesting requirements be met. Distribution equivalent rights (“DERs”) are tandem rights to receive on a quarterly basis an amount of cash equal to the amount of distributions that would have been paid on the phantom units had they been limited partner units issued by us. The 2010 Plan is administered by the Governance, Compensation and Business Development Committee (the “GCBD Committee”) of the board of directors of our general partner.

The GCBD Committee (at its discretion) will designate participants in the 2010 Plan, determine the types of awards to grant to participants, determine the number of units to be covered by any award, and determine the conditions and terms of any award including vesting, settlement and forfeiture conditions. Awards under the 2010 Plan of 54,806 phantom units with tandem DERs were made in the first nine months of 2010. The phantom units will vest on the third anniversary of the date of issuance.

The compensation cost associated with the phantom units is re-measured each reporting period based on the fair value of the phantom units, and the liability recorded for the estimated amount to be paid to the participants will be adjusted. Management’s estimates of the fair value of these awards include assumptions about expectation of forfeitures prior to vesting. Due to the positions of the small group of employees and non-employee directors who received these awards, we have assumed that there will be no forfeitures of these phantom units in our fair value calculation as of September 30, 2010. At September 30, 2010, we estimate the fair value of these awards to be approximately $1.2 million, and we recorded $0.2 million of compensation expense for the three and nine months ended September 30, 2010.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10.	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,
	2010			2009
Decrease (increase) in:
Accounts receivable	$	(39,771	)	$	(7,513	)
Inventories		(25,571	)		(15,048	)
Other current assets		831			(523	)
Increase (decrease) in:
Accounts payable		22,503			4,071
Accrued liabilities		(1,002	)		(330	)
Net changes in components of operating assets and liabilities,net of working capital acquired	$	(43,010	)	$	(19,343	)

Cash received by us for interest for the nine months ended September 30, 2010 and 2009 was less than $0.1 million. Payments of interest and commitment fees were $10.8 million and $10.9 million for the nine months ended September 30, 2010 and 2009, respectively.

Cash paid for income taxes during the nine months ended September 30, 2010 and 2009 was $2.2 million and $1.0 million, respectively.

At September 30, 2010, we had incurred liabilities for fixed and intangible assets and other asset additions totaling $2.0 million that had not been paid at the end of the third quarter, and, therefore, are not included in the caption “Payments to acquire fixed and intangible assets” under investing activities on the Unaudited Condensed Consolidated Statements of Cash Flows. At September 30, 2009, we had incurred $0.3 million of such liabilities that had not been paid at that date and are not included in “Payments to acquire fixed and intangible assets” under investing activities.

11.	Derivatives

Commodity Derivatives

At September 30, 2010, we had the following outstanding derivative commodity futures, forwards and options contracts that were entered into to 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)		159		-
Weighted average contract price per bbl	$	78.08	$	-

Not qualifying or not designated as hedges under accounting rules:
Crude oil futures:
Contract volumes (1,000 bbls)		554		417
Weighted average contract price per bbl	$	75.86	$	75.78

Heating oil futures:
Contract volumes (1,000 bbls)		115		15
Weighted average contract price per gal	$	2.16	$	2.32

RBOB gasoline futures:
Contract volumes (1,000 bbls)		44		-
Weighted average contract price per gal	$	1.93	$	-

#6 Fuel oil futures:
Contract volumes (1,000 bbls)		325		215
Weighted average contract price per bbl	$	66.92	$	67.85

Crude oil written calls and puts:
Contract volumes (1,000 bbls)		252		-
Weighted average premium received	$	1.71	$	-

Interest Rate Derivatives

Until July 29, 2010, DG Marine utilized swap contracts with financial institutions to hedge interest payments for a portion of its outstanding debt. DG Marine expected these interest rate swap contracts to be highly effective in limiting its exposure to fluctuations in market interest rates; therefore, we designated these swap contracts as cash flow hedges under accounting guidance. The effective portion of the derivative represented the change in fair value of the hedge that offset the change in cash flows of the hedged item. The effective portion of the gain or loss in the fair value of these swap contracts was reported as a component of AOCL and was reclassified into future earnings contemporaneously as interest expense associated with the underlying debt under the DG Marine credit facility was recorded. In the third quarter of 2010, we settled the DG Marine interest rate swaps in connection with our acquisition of the 51% of DG Marine that we did not own. See Note 2.

Financial Statement Impacts

The following tables reflect the estimated fair value gain (loss) position of our hedge derivatives and related inventory impact for qualifying hedges at September 30, 2010 and December 31, 2009:

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Index

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Derivative Assets and Liabilities

	Asset Derivatives
	Unaudited Condensed Consolidated Balance Sheets	Fair Value
	Location	September 30, 2010		December 31, 2009
Commodity derivatives - futures and call options:
Hedges designated under accounting guidance as fair value hedges	Other Current Assets	$	768	$	53
Undesignated hedges	Other Current Assets		1,516		307
Total asset derivatives		$	2,284	$	360

	Liability Derivatives
	Unaudited Condensed Consolidated Balance Sheets	Fair Value
	Location	September 30, 2010			December 31, 2009
Commodity derivatives - futures and call options:
Hedges designated under accounting guidance as fair value hedges	Other Current Assets	$	(1,250	)(1)	$	(159	)(1)
Undesignated hedges	Other Current Assets		(4,040	)(1)		(2,118	)(1)
Total commodity derivatives			(5,290	)		(2,277	)

Interest rate swaps designated as cash flow hedges under accounting rules:
Portion expected to be reclassified into earnings within one year	Accrued Liabilities		-			(1,176	)
Portion expected to be reclassified into earnings after one year	Other Long-term Liabilities		-			(512	)

Total liability derivatives		$	(5,290	)	$	(3,965	)

(1)

These derivative liabilities have been funded with margin deposits recorded in our Unaudited Condensed Consolidated Balance Sheets in Other Current Assets.

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Index

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Effect on Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income
	Amount of Gain (Loss) Recognized in Income
	Supply & Logistics					Interest Expense				Other Comprehensive Income
	Product Costs					Reclassified from AOCL				Effective Portion
	Three Months					Three Months				Three Months
	Ended September 30,					Ended September 30,				Ended September 30,
	2010			2009		2010		2009		2010		2009
Commodity derivatives - futures and call options:
Contracts designated as hedges under accounting guidance	$	(354	)	$	758	$	-	$	-	$	-	$	-
Contracts not considered hedges under accounting guidance		(138	)		1,288		-		-		-		-
Total commodity derivatives		(492	)		2,046		-		-		-		-