Genesis Energy LP Management Discusses Q3 2013 Results - Earnings Call Transcript

Nov. 1.13 | About: Genesis Energy, (GEL)

Genesis Energy LP (NYSE:GEL)

Q3 2013 Earnings Call

November 01, 2013 9:30 am ET

Executives

Grant E. Sims - Chairman of The Board of Genesis Energy, Llc and Chief Executive Officer of Genesis Energy, Llc

Steven R. Nathanson - President of Genesis Energy, Llc and Chief Operating Officer of Genesis Energy, Llc

Robert V. Deere - Chief Financial Officer of Genesis Energy, LLC

Analysts

Cory J. Garcia - Raymond James & Associates, Inc., Research Division

TJ Schultz - RBC Capital Markets, LLC, Research Division

John Edwards - Crédit Suisse AG, Research Division

Jeffrey Birnbaum - UBS Investment Bank, Research Division

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

Unknown Executive

Welcome to the 2013 Third Quarter Conference Call for Genesis Energy. Genesis has 3 business segments. The pipeline transportation division is engaged in the pipeline transportation of crude oil and carbon dioxide. The refinery services division primarily processes sour gas streams to remove sulfur at refining operations. The supply and logistics division is engaged in the transportation, blending, storage and supply of energy products, including crude oil, refined products and CO2. Genesis' operations are primarily located in Texas, Louisiana, Arkansas, Mississippi, Alabama, Florida, and the Gulf of Mexico.

During this conference call, management may be making forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The law provides Safe Harbor protection to encourage companies to provide forward-looking information. Genesis intends to avail itself of those Safe Harbor provisions and directs you to its most recently filed and future filings with the Securities and Exchange Commission.

We also encourage you to visit our website at genesisenergy.com where a copy of the press release we issued today is located.

The press release also presents a reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures. At this time, I would like to introduce Grant Sims, CEO of Genesis Energy LP. Mr. Sims will be joined by Steve Nathanson, President and COO; Bob Deere, Chief Financial Officer; and Karen Pape, Chief Accounting Officer.

Grant E. Sims

Good morning, and welcome to everyone. This morning, we reported available cash before reserves of $43.3 million, a decrease of 6% over the prior year quarter with the resulting calculated coverage ratio of 0.93. In the third quarter of 2013, a number of items, which Bob will discuss in greater detail, negatively impacted available cash before reserves. Pro forma available cash before reserves for the third quarter of 2013, excluding the effect of those items discussed below, would have been approximately $51.6 million and pro forma adjusted EBITDA, again excluding those items, would have been $64.8 million. In spite of the number of items that combined to negatively impact our reported results for the quarter, we remain confident in the fundamentals of our businesses and the positive impact a number of our announced organic opportunities will have, especially as we move into the second half of 2014 and continuing on into 2015 and beyond.

At the end of August 2013, we completed our acquisition of substantially all of the assets of the Downstream transportation business of Hornbeck Offshore Services, Inc. for approximately $231 million, which we refer to as our offshore or blue water Marine transportation business and assets. That business is comprised of 9 barges and mated tug boats, principally serving refineries and storage terminals along the Gulf Coast, Eastern Seaboard, Great Lakes and Caribbean. These ocean-going vessels have allowed us to expand our marine transportation capabilities, complementing our inland waterway operations, as well as our other crude and refined product assets. We welcome on board the new employees, recognize them for their commitment to safe and responsible operations, and look forward to finalizing the asset integration and realizing the full financial contribution in future periods.

In September, we issued an additional 5.75 million units in a public offering at a price of $47.51 per unit. We received net proceeds of approximately $264 million from the offering. Because of the equity raised, we have ample financial flexibility to complete our organic -- announced organic projects, which will contribute in future periods. The items in the quarter that combined to negatively impact our reported results, we believe are largely behind us. Although several of our refinery customer turnarounds continued in to mid-to-late October, and the fourth quarter is typically the weakest for volumes of heavy fuel oil moved by our trucks and barges through our owned or leased terminals. We will, however, realize a full rather than partial quarter contribution from our recently acquired blue water barges.

As I said earlier, we remain confident in the fundamentals of our business. Obviously, there's a "noise" in our calculated coverage ratio, given we paid a full distribution on the new units issued in September even though our results only reflected a little over a month's worth of contribution from our recent acquisition.

We continue to anticipate that we will realize an increasing contribution in 2014 from the combined effects of our recent acquisition and our organic projects. Our 2 largest projects are SEKCO joint venture with Enterprise Products and our project with Exxon -- our project around ExxonMobil's Baton Rouge refinery complex, will begin contributing in the second half of 2014 and accelerate into 2015. We believe we are well-positioned given the current available capacity in our offshore oil pipelines to benefit in the latter part of this decade from the dramatically accelerating level of development activities in the deepwater Gulf of Mexico.

As a result, we believe we are well-positioned to continue to achieve our goals of delivering low double-digit growth in distributions, maintaining a better-than-investment-grade leverage ratio and delivering an increasing coverage ratio, all without ever losing sight of our absolute commitment to safe, reliable and responsible operations. With that, I'll turn it over to Steve.

Steven R. Nathanson

Thank you, Grant. Despite a turnaround at one of our significant refinery locations, which impacted our available volume for shipment, NaHS sales volume increased 4.5% over the same quarter a year ago. While the pulp and paper industry continues to show robust demand, our emphasis has been on addressing the growing needs of mining and specialty chemical customers with growing volumes in increased emphasis on our high-grade quality products. Last quarter, we shared with you that our Tulsa refinery operations would begin commissioning in Q3. I'm pleased to report, we've been producing much-needed on-spec NaHS for the last week. Our Tulsa operation only produces high-grade-quality product, which will help us address the growing demand in fine chemicals and the precious metal segment. Throughputs on our offshore pipeline exceeded the volume in Q2 2013 and the same period last year primarily as a result of higher volumes on the CHOPS system. Volumes increased overall by 4% over the previous quarter and 20% over the period a year ago.

Our offshore construction in Keathley Canyon remains on budget and the schedule to commission service in mid-2014. Onshore pipeline volumes increased approximately 18% over the previous year period. Our pipeline has been connected to our Pronghorn Rail Facility, which is scheduled to ship our first trains in December. Our 18 inch pipeline in Webster, Texas, to Texas City was commissioned in September as we projected it would. We have connected to our dock at Texas City but the connection to our primary customer has been delayed on their side due to their requirement to replace a short section, which is scheduled for the first half of December.

The volumes at our Natchez facility continue to ramp-up as we articulated to you during our last call. Our Phase II construction is well advanced, providing 60 additional rail offloading spots to the existing 40, and 350,000 barrels of additional storage managed across 8 different tanks, all of which will be fully operational in early 2014. We have begun the pipe lay portion of our 18-mile, 24-inch line for the Baton Rouge project, connecting our terminal and barge dock in Port Hudson to the rail and terminal facility that will serve ExxonMobil and other refiners. First deliveries to the ExxonMobil complex via barge and pipeline are scheduled for early 2014 and commissioning of the crude-by-rail portion in quarter 2 of 2014.

In Raceland, Louisiana, we broke ground on the rail and terminal portion of our crude-by-rail to pipeline in October. We expect to receive cars in Q3 2014. Demand for our inland barges is strong. We have discussed that we would take delivery of 2 barges in late quarter 3 of our 4-barge order. Those barges were commissioned in late Q3 and are now working. The next barge was put into service in October and the last will be received next week. These last 2 barges have already been contracted. We have placed an order for 4 more barges to be delivered in quarter 1 and quarter 2 of 2014, and we are reviewing our push boat requirements. The transition of the acquired offshore tank barges is well underway, and on many fronts we believe is ahead of the pre-acquisition plan schedule. Although we have only owned the fleet a short time, it is meeting all of our expectations for safety and operational excellence. We believe that by year end, we will be able to complete the full transition of these assets into Genesis Marine.

As Grant mentioned, we have had a few challenges of moving our hedge [ph] Fuel oil volumes using our trucks, barges and terminals at normal margins. We see ourselves transitioning through those challenges. We have grown our crude oil trucking operations, rail and railcar fleets significantly over the last year or so. With that has come significant increases in operating expenses and general and administrative expenses outpacing to-date our volume growth. We are focused on operating and economically growing into our expanded footprint of assets and increasing our efficiencies. With that, I'll turn it back to Grant.

Grant E. Sims

Thanks, Steve. The continuing solid performance of our business, the significant organic opportunities we're capturing and our ability to execute on attractive bolt-on acquisitions, we believe combine to provide us with the opportunity to continue to create long-term value for our unitholders. Before I turn it over to Bob to discuss our reported results in greater detail, I'd like to recognize the contribution of our folks here at Genesis. Because of their dedication to safe, responsible and reliable operations, we continue to work together to deliver increasing long-term value to all of our unitholders. With that, I'll turn it over to Bob.

Robert V. Deere

Thank you, Grant. In the third quarter of 2013, we generated total available cash before reserves of $43.3 million, representing a decrease of $2.6 million or 6% over the third quarter of 2012. Adjusted EBITDA decreased $100,000 to $56.5 million over the prior year quarter. Net income for the quarter was $18.5 million or $0.22 per unit compared to $31.2 million, or $0.39 per unit for the same period in 2012. The decline in net income was due to the prior year reversal of a provision for uncertain tax positions of $8.2 million combined with a $2.7 million increase in interest expense and an increase in current quarter expenses related to growth transactions of $3.1 million.

As Grant previously mentioned, in the third quarter of 2013, a number of items negatively impacted our results. In our supply and logistics segment, operating results were negatively impacted by approximately $6.6 million for several items, which I will discuss further in addressing the supply and logistic segment performance. In our pipeline transportation segment, operating results were adversely affected by $1.1 million due to one, reduced throughput volumes on our Jay Pipeline System as a result of a schedule turnaround at a connected shippers refinery; and two, a reduction in distributions by CHOPS, resulting from a once-every-10-year right-of-way payment. With respect to our refinery services segment, downtime attributable to a turnaround at one of our significant refinery locations negatively impacted operating results by $600,000 due to incremental costs incurred to meet our customers' demand.

Excluding these events, pro forma total segment margin would have been $73.1 million, pro forma adjusted EBITDA would have been $64.8 million, and pro forma available cash before reserves would have been $51.6 million. The aforementioned pro forma performance measures represent 11%, 14% and 12% increases, respectively, over the as-reported results of the prior year quarter. Reported results from our pipeline transportation segment increased $6.6 million or 28% between the third quarter periods. As discussed earlier, the operating results were adversely affected by approximately $1.1 million, due to one, reduced throughput volumes on our Jay Pipeline System as a result of a schedule turnaround at a connected shippers refinery, and two, a reduction in distribution by CHOPS resulting from a once-every-10-year right-of-way payment. However, pipeline transportation segment margin increased overall on a quarter-over-quarter basis due to higher onshore crude oil tariff revenues and increased contribution from CHOPS, and an increase in revenue from onshore pipeline loss allowance volumes.

Onshore crude oil tariff revenue increased primarily due to increases in total throughput volumes, primarily on our Jay Pipeline System, as a result of additional barrels received at our crude-by-rail and loading terminal at Walnut Hill, Florida, and the upward tariff indexing on our FERC-regulated pipelines. The contribution from CHOPS increased as facility improvements work by producers at the connected production fields resulted in lower volumes transported on CHOPS in the 2012 prior year quarter. Pipeline loss allowance volumes collected and sold increased as a result of an increase in barrels transported in the 2013 quarter as compared to the 2012 quarter.

Refinery services segment margin increased $200,000 or 1% between the third quarter periods. As discussed earlier, downtime attributable to a turnaround at one of our significant refinery locations negatively impacted operating results by $600,000 due to incremental cost incurred to meet our customers' demand. The decline in segment margin from that turnaround was more than offset from increased NaHS sales volumes. Other significant components contributing to the fluctuation in segment margin were higher revenues resulting from increases in the average index prices for caustic soda which is a component of our sales price, offset by other pricing components. The pricing in our sales contracts for NaHS includes adjustments for fluctuations and commodity benchmarks, freight, labor, energy cost and government indexes. The frequency at which these adjustments are applied varies by contract, geographical region and supply point. The mix of NaHS sales volumes to which these adjustments applied reduced NaHS revenues in the 2013 quarter.

Supply and logistics segment margin as reported decreased $7.9 million dollars or 33% between the third quarter periods. As discussed earlier, our operating results were negatively impacted by approximately $6.6 million for several items, including one, a decline in rail cars unloaded at our Walnut Hill crude-by-rail unloading terminal as a result of the scheduled turnaround at the connected shippers refinery. Two, rail car rental and storage costs incurred in advance of completion dates on certain of our rail projects. And three, a decision to delay sales related to certain refined product volumes due to adverse market conditions. In addition to foregoing the sale of the product, the delay resulted in the recognition of hedge losses through the end of the quarter. The volumes will continue to be hedged until sold. The current quarter segment margin included the initial months operations of our recently acquired offshore marine transportation business. Interest costs, corporate general and administrative expenses, maintenance capital expenditures and income taxes paid in cash affect available cash before reserves.

Interest cost increased in the third quarter of 2013 as compared to the third quarter of 2012 by $2.7 million, primarily as a result of increased borrowings for acquisitions and other growth projects, a portion of which were financed with our issuance in the first quarter of 2013 of $350 million of senior unsecured notes bearing interest at 5.75% per annum.

This increase was net of increased capitalized interest cost attributable to our growth capital expenditures and investments in the SEKCO pipeline joint venture. Corporate cash, general and administrative expenses decreased by $1 million, substantially due to lower cost of our employee compensation programs. In addition to the factors impacting available cash before reserves, other components of net income included noncash income tax expense of $400,000 in the 2013 quarter compared to a noncash income tax benefit of $8.7 million in the 2012 quarter. The noncash income tax benefit in the 2012 quarter was primarily due to the reversal of uncertain tax positions, as a result of tax audit settlements and the expiration of statutes of limitations. Expenses related to acquiring or constructing assets that provide new sources of cash flow increased $3.1 million between the quarterly periods, due to increases in third-party cost related to business and growth transactions. Depreciation and amortization expense increased $1.2 million between the quarterly periods, primarily as a result of our acquisition of substantially all the assets of the downstream transportation business of Hornbeck and recently completed internal growth projects. In the 2013 quarter, we recorded a noncash expense related to our legacy stock appreciation rights plan of $200,000. In the 2012 quarter, we recorded a noncash benefit of $2 million. Fluctuations in the market price of our common units were the reasons for the difference. Grant will now provide some concluding remarks to our prepared comments.

Grant E. Sims

Thanks, Bob. While our financial results were negatively impacted by a number of items that we experienced in this quarter, we believe that the impact of these items are largely behind us. Our underlying business fundamentals remains solid. Going forward, we will realize contribution from the offshore marine assets that were purchased this quarter and from some of our recently or soon-to-be completed initiatives. We continue to expect an increase -- to realize an increasing contribution from our announced organic projects.

Our 2 largest projects, our SEKCO joint venture with Enterprise and our project around ExxonMobil Baton Rouge Refinery will contribute in 2014 and accelerate into 2015. We believe, as I mentioned earlier, that we are well-positioned given the current availability -- available capacity in our offshore pipelines to benefit in the latter part of this decade from the dramatically increasing levels development activity in the deepwater Gulf of Mexico.

As a result, we believe we are well positioned to continue to achieve our goals of one, delivering low double-digit growth in distributions, which we have increased for 33 consecutive quarters, 28 of which have been 10% or greater over the prior year period and none less than 8.7%. Two, maintaining a better-than-investment-grade leverage ratio, which is less than 3.3x as we and our senior secured lenders calculate it. And three, having a strong coverage ratio, which will improve next quarter and grow from there. All without ever losing sight of our absolute commitment to safe, reliable and responsible operations. With that, I'll turn it back over to the moderator for any questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is coming from the line of Cory Garcia with Raymond James.

Cory J. Garcia - Raymond James & Associates, Inc., Research Division

I was hoping to dig a little bit into the ethanol business and recognizing that there is a 6-plus-million-dollar negative hit this quarter, you're still seeing a pretty gradual slide in the segment margin throughout the year -- maybe not all that surprising given the contraction we've seen in the spread, but just curious where do you guys sort of see the fixed-fee baseline run rate component of that business today?

Grant E. Sims

I'm not sure that we've thought about that because we report marine operations in the supply and logistics segment. So obviously, as we mentioned several times in the presentation, instead of having 1 month we'll have 2 months of that in the fourth quarter. But by and large, the lion's share of the noise, if you will, in the segment reported in the quarter ended 9/30 was in the Fuel oil business and our decision to preserve long-term value as opposed to trying to manage the inventory in a very sloppy market.

Cory J. Garcia - Raymond James & Associates, Inc., Research Division

Right, right. Completely understand that. So if I'm thinking about it correctly and in the sort of Hornbeck contribution for the quarter, have you guys provided any figure on that recognizing that it's still a month of contribution and still hasn't been fully integrated into the system -- just kind of trying to back into what the business looks like and how we should think about modeling the fourth quarter and going forward?

Grant E. Sims

Yes, we said at the time that we announced it or discussed it on the previous call that we thought it was around the 7x deal and that after we get through the transition period and fully integrate it as well as have a couple of the legacy contracts roll-off and be repriced into the current market that we thought that we could drive that multiple to 5.5x to 6x.

Operator

Our next question is coming from the line of TJ Schultz with RBC Capital Markets.

TJ Schultz - RBC Capital Markets, LLC, Research Division

So the refined product issues or decision to delay sales I guess you're transitioning through, how long do you view kind of that transition process or if you could provide a little more insight on kind of timing there to realize some of the value?

Grant E. Sims

Yes, as we also said in the prepared remarks, fourth quarter is seasonally the weakest quarter for moving heavy fuel oil primarily as a result of strange behavior in December to avoid [indiscernible] With inventories but the volumes remained hedged where we recognized, realized hedge losses by rolling it, in fact, and ate, if you will, the backwardation [ph] that existed because we felt that we could work this off. We've been in this business for -- we've managed it for 7 years and the Davison family had managed it for 50 [ph] years prior to that. So we hope to be able to realize some of the deferred margin certainly in the fourth quarter but it's going to be a function of how much we actually move through our system and how many times we turn our tanks in the fourth quarter.

TJ Schultz - RBC Capital Markets, LLC, Research Division

Okay. The Texas City pipe that was connected, it sounds like some delay there on the customer side, if you could just provide a little bit of detail -- maybe how low you expected the delay? I think you said they would begin addressing the issue in December, but what is the ultimate impact on kind of your ability to connect there?

Grant E. Sims

Basically we hurried up and got operational and right before we were stubbing [ph] into the primary customer's existing facilities, they came to the determination that they needed to replace certain parts of their in-refinery piping, if you will. And they are scheduled to do that in the first week or first 2 weeks of December.

TJ Schultz - RBC Capital Markets, LLC, Research Division

Okay, and Walnut Hill, how many trains are you -- I guess you're past the refinery turnaround, how many trains are you seeing now and kind of your expectations there, given you have capabilities to unload unit trains?

Grant E. Sims

The normal operations for the [indiscernible] Refinery customer is order of magnitude, plus or minus 11 trains a month. We anticipate being at that rate in all of November and December and periods going forward. As we've said, there is the likelihood of another pipeline interconnect down to another refinery customer being in service towards the end of this year, early in 2014, in which case we would have the opportunity to potentially move additional trains in there.

TJ Schultz - RBC Capital Markets, LLC, Research Division

And then Wink, if you can just provide an update on Phase 2, I think that gets you to the ability to load 140 cars and kind of your expectation for demand out of West Texas whether to move volumes to the West Coast or to the Gulf Coast?

Grant E. Sims

I think that we still anticipate being fully unit train capable towards the end of this year or certainly early in the first quarter of 2014 as we've seen the increasing level of drilling activity in and around -- in the Permian Basin as a general proposition that we feel quite confident that given our existing trucking operations out there that we will see some activity accelerating in 2014.

TJ Schultz - RBC Capital Markets, LLC, Research Division

Okay, just lastly the -- can you quantify the CHOPS right-of-way payment you all made this quarter?

Grant E. Sims

I think we mentioned that there's price -- our half was approximately $700,000.

Operator

The next question is coming from the line of John Edwards with Credit Suisse.

John Edwards - Crédit Suisse AG, Research Division

Grant, can you quantify I guess with respect to the inventory that you -- following up on TJ's question -- on the inventory coming back approximately I guess how much of that -- how much of that will come back to you in margin? I mean you rolled it into a bucket of $6.6 million in aggregate, I'm just curious if you have an idea of that piece of it?

Grant E. Sims

Obviously that's -- we don't and haven't released that, but I did say earlier that the lion's share of the $6.6 million is -- the vast lion's share is associated with the -- in essence the realized hedge losses and margin on -- cash margin hung up on the balance sheet, which we believe we have a reasonable chance of recovering all or a portion of it in future periods.

John Edwards - Crédit Suisse AG, Research Division

Okay, all right. Thanks, I must have missed that. And then I'm just curious the other thing is about can you quantify maybe how much your supply and logistics was impacted by the sort of the rapidly changing spreads in the crude oil market?

Grant E. Sims

We are not a significant participant in spreads, if you will. We really try to block and tackle. I think as Steve mentioned in his prepared remarks that we really increased the number of trucks and railcars and we're trying to catch up with our expanded footprint, all of which I mean we run a lease model, if you will, so our railcars are leased, our trucks are leased. So we recognize the expenses -- operating expense and so, we are really a volume-driven business and an efficient operation that we can continue to focus our efforts on making it more efficient.

John Edwards - Crédit Suisse AG, Research Division

Okay, so minimal. And then if you could comment on I guess sequentially the Texas pipeline volumes, were those down because of the work you were doing to interconnect to the Marathon refinery?

Grant E. Sims

Really, yes, a function of the work as well as certain operating conditions at that post refinery.

John Edwards - Crédit Suisse AG, Research Division

Okay, and then if you could comment why the Poseidon volumes were down sequentially?

Grant E. Sims

Yes, I mean it's basically primarily a function of maintenance turnarounds and well testing at various fields that are there, it's not any kind of massive decline of anything going.

Operator

The next question is coming from the line of Jeff Birnbaum with UBS.

Jeffrey Birnbaum - UBS Investment Bank, Research Division

So I guess this is another way of maybe asking the question that John just asked, but in the supply and logistics business, is it -- at least directionally, how much of the quarter-over-quarter decline in volumes, I guess, was from rails versus barge or other?

Steven R. Nathanson

We don't report the rail volumes [indiscernible] supply and logistics.

Robert V. Deere

Jeff, the volumes that you see reported exclude the rail volumes in the supply and logistics segment. We consider that to be a fee basis and we're not showing volumes. Where you see the decline in the rail throughput volumes is on the pipeline volumes in Jay, that were impacted by that.

Grant E. Sims

It would have otherwise been par [ph].

Grant E. Sims

Right.

Jeffrey Birnbaum - UBS Investment Bank, Research Division

Okay, I guess perhaps part of my question, are you seeing any change in the fourth quarter to-date versus kind of third quarter rail volume?

Robert V. Deere

Only to the extent of, as we've discussed, the completion of the turnaround that was the factor that impacted third quarter, and then Grant had given an indication of what we expect then subsequent to that for November and December.

Grant E. Sims

And then volumes continuing to incrementally ramp at Natchez, will show up in the fourth quarter.

Jeffrey Birnbaum - UBS Investment Bank, Research Division

Okay, and then I'm not sure I missed this on CHOPS earlier, but I know you discussed in the past how, I guess pardon the wording, how choppy the volumes on CHOPS can be, but can you talk about what you're seeing there now? What the big volume uplift in the quarter was driven by and kind of how you're viewing the sustainability there?

Grant E. Sims

There are 2 large deals which we've discussed in the past that are attached to CHOPS and for a variety of reasons, they've been going through extended maintenance and permitting and safety testing and it appears that we're entering a resumption of development that all of that is kind of past and so we would anticipate continued ramp up of volumes there as we've said in the past, the installed production capability of those 2 fields total is, call it 285,000 barrels a day of total production-handling capability and they're -- combined, they're producing currently in the, call it 140,000 range and simply by drilling development wells and filling up the install production capability. We anticipate that we will see that and -- or ramping of that in 2014.

Operator

[Operator Instructions] Our next question is coming from the line of Michael Blum with Wells Fargo.

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

I think most of the topics have been covered, but I just want to go back to the -- your comments in the press release and the commentary about how your operating costs around adding new Marine and truck fleets, can just talk about -- should we just consider this now like a new run rate or is there -- you sort of alluded to the fact that you're going to try to take some measures to streamline that? Can you give a more detail on kind of what your thoughts are there in that?

Grant E. Sims

I think what we're trying to say is that kind of our operating and G&A cost and our crude oil business and our kind of refined products business are quarter over the year-earlier quarter up 27% and yet our volumes are only up about 16%. So we have expanded our asset footprint, all of which we're paying for, if you will, both in terms of, as I said, the leases associated with our expanding truck fleets, the leases associated with our railcars that we've added to our fleets on a year-over-year basis, and we need to grow our volumes into our expanded footprint.

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

Okay, that's helpful. And then just last question, just can you just talk about what the acquisition market looks like right now for you and what areas look interesting and are multiples reasonable?

Grant E. Sims

We don't -- I mean obviously, we did an acquisition that we understood and felt that we could quickly integrate it relative to the acquisition of the Hornbeck tank barges. We typically don't participate in big acquisitions other than those that we feel that we can add value to and successfully integrate into our system. Our focus really is continuing to identify what we perceive to be higher return organic opportunities and we're in the midst of, for a company our size, a very robust organic build out and as we said several times in the prepared remarks, the 2 largest of which will start contributing in the second half of 2014 and certainly accelerating into 2015.

Operator

It appears there are no further questions at this time. I would now like to turn the floor back over to management for any concluding comments.

Grant E. Sims

Thank you very much, and we'll talk to you in another 90 days or so, if not sooner. Thank you.

Operator

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.

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