Filed Pursuant to Rule 424(b)(5)

Registration No. 333-126482

PROSPECTUS SUPPLEMENT

(To Prospectus dated August 30, 2005)

 

8,000,000 Common Units

 

 

Representing Limited Partner Interests

 

We are offering 8,000,000 common units representing limited partner interests, as well as 638,898 common units to be offered to our general partner. We will receive all of the net proceeds from the sale of such common units. Our common units are traded on the American Stock Exchange, or AMEX, under the symbol “GEL.” On December 4, 2007, the last reported sales price of our common units on the AMEX was $22.00 per common unit.

 

Investing in our common units involves a high degree of risk. Before buying any common units, you should read the discussion of material risks of investing in our common units in “Risk factors” beginning on page S-16 of this prospectus supplement and page 2 of the accompanying prospectus.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

The underwriters may also purchase up to an additional 1,200,000 common units from us at the public offering price, less underwriting discounts and commissions payable by us to cover over-allotments, if any, within 30 days from the date of this prospectus supplement. Our general partner will purchase up to an additional 95,834 common units from us at the public offering price, less the underwriting discount, allowing it to maintain its proportionate interest in us to the extent the underwriters exercise the over-allotment option.

 

The underwriters are offering the common units as set forth under “Underwriting.” Delivery of the common units will be made on or about December 10, 2007.

 

Joint Book-Running Managers

 

 

 

 

 

The date of this prospectus supplement is December 4, 2007.

 

 

TABLE OF CONTENTS

 

 

 

This document is in two parts. The first part is the prospectus supplement, which describes the specific terms of this offering of common units. The second part is the base prospectus dated August 30, 2005, which gives more general information, some of which may not apply to this offering. You should not assume that the information provided by this prospectus supplement or the accompanying base prospectus, as well as information we previously filed with the Securities and Exchange Commission that is incorporated by reference herein, is accurate as of any date other than its respective date. Generally, when we refer only to the “prospectus,” we are referring to the two parts combined. If information varies between the prospectus supplement and the accompanying base prospectus, you should rely on the information in this prospectus supplement.

 

We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted.

Ø	Pipeline Transportation:  We transport oil and, to a lesser extent, natural gas and CO2 in the Gulf Coast region of the U.S. through approximately 500 miles of pipeline. We own and operate three oil common carrier pipelines, a small CO2 pipeline and several small natural gas gathering pipelines. Our pipeline systems include a total of approximately 0.7 million barrels of leased and owned tankage.
Ø	Refinery Services:  We provide services to eight refining operations located predominantly in Texas, Louisiana and Arkansas. These refineries generally are owned and operated by large companies, including ConocoPhillips, Citgo and Ergon. Our refinery services primarily involve processing high sulfur (or “sour”) natural gas streams, which are separated from hydrocarbon streams, to remove the sulfur. Our refinery services contracts, which usually have an initial term of two to ten years, have an average remaining term of five years.
Ø	Supply and Logistics:  We provide terminaling, blending, storing, marketing, gathering and transporting by trucks, and other supply and logistics services to third parties, as well as to support our other businesses. We own or lease approximately 300 trucks, 600 trailers and almost 1.5 million barrels of liquid storage capacity at eleven different locations. Our terminaling, blending, marketing and gathering activities are focused on oil and petroleum products, primarily fuel oil.
Ø	Industrial Gases:  We supply CO2 to industrial customers under long-term, back-to-back agreements. In addition, through our 50% interest in Sandhill Group, LLC, we process raw CO2 for sale to other customers for uses ranging from completing oil and natural gas producing wells to food processing. Through our 50% interest in T&P Syngas Supply Company, or T&P Syngas, we also process syngas (a combination of carbon monoxide and hydrogen), which T&P Syngas sells to Praxair Inc., the other 50% owner.

Ø	Denbury’s stated intent for us to function as a provider of pipelines and gathering systems necessary to support its operations;
Ø	Denbury’s significant economic and strategic interests in us;
Ø	the close proximity of certain of Denbury’s assets and operations to certain of our assets and operations; and
Ø	the extent of Denbury’s growth capital requirements.

Ø	Expanding our asset base through strategic and accretive acquisitions and construction and development projects with third parties and Denbury;
Ø	Optimizing our CO2 and other industrial gases expertise and infrastructure;
Ø	Leveraging our oil handling capabilities with Denbury’s tertiary recovery projects;
Ø	Attracting new refinery customers and expanding the services we provide those customers;
Ø	Increasing the utilization rates and enhancing the profitability of our existing assets;
Ø	Increasing stable cash flows generated through fee-based services, long-term contractual arrangements and managing commodity price risks;
Ø	Maintaining a balanced and diversified portfolio of midstream energy and industrial gases assets, operations and customers;
Ø	Creating strategic arrangements and sharing capital costs and risks through joint ventures and strategic alliances; and
Ø	Maintaining, on average, a conservative capital structure that will allow us to execute our growth strategy while, over the longer term, enhancing our credit ratings.

Ø	Relationship with Denbury.  We have a strong relationship with Denbury, the indirect owner of our general partner. Denbury has indicated that it intends to use us as a vehicle to provide its midstream infrastructure needs, particularly with respect to CO2 pipelines. We believe Denbury has strong economic and strategic incentives to provide business opportunities to us. We also believe that, if we can become an instrumental component of Denbury’s future development projects, we can leverage those operations (and our relationship with Denbury) into oil transportation and storage opportunities with third parties, such as other producers and refinery operators, in the areas into which Denbury expands its operations.
Ø	Experienced, Knowledgeable and Motivated Senior Management Team with Proven Track Record. Our senior management team has over 40 years of combined experience in the midstream sector. They have worked together and separately in leadership roles at a number of large, successful public companies, including other publicly-traded partnerships. As discussed below, the incentive compensation arrangements of our senior management team are structured to help ensure that our senior management team executes our growth strategy in a manner that is accretive on a “distribution per unit” basis.
Ø	Unique Platform, Limited Competition and Anticipated Growing Demand in Refinery Services Operations.  We provide services to eight refining operations located predominantly in Texas, Louisiana and Arkansas. Our refinery services primarily involve processing sour natural gas streams, which are separated from hydrocarbon streams, to remove the sulfur. We believe that the U.S. refinery industry’s demand for sulfur extraction services will increase because we believe sour oil will constitute an ever-increasing portion of the total supply of refinery oil worldwide. In addition, we have an increasing array of services we can offer to our refinery customers and we believe our

	proprietary knowledge, scale, logistics capabilities and safety and service record will encourage such customers to continue to outsource their existing refinery services needs to us.

Ø	Supply and Logistics Division Supports Full Suite of Services.  In addition to its established customers, our supply and logistics division can, from time to time, attract customers to our other divisions and/or create synergies that may not be available to our competitors.
Ø	Diversified and Balanced Portfolio of Customers, Operations and Assets.  We have a diversified and well-balanced portfolio of customers, operations and assets throughout the Gulf Coast region of the U.S. Through our diverse assets, we provide stand-alone and integrated gathering, transporting, processing, blending, storing and marketing services, among others, to four distinct customer groups. Our operations and assets are characterized by:

	-	Strategic Locations.  Our oil pipelines and related assets are predominately located near areas that are experiencing increasing oil production, in large part because of Denbury’s tertiary recovery operations, and in and around inland refining operations, many of which we believe are contemplating expansion.
	-	Cost-Effective Expansion and Enhancement Opportunities.  We own pipelines, terminals and other assets that have available capacity or that have opportunities for expansion of capacity without incurring material expenditures. Our available capacity allows us to increase our revenues with little or no additional cost to us, and our expansion capability allows us to increase our asset base, as needed, in a cost-effective manner.
	-	Cash Flow Stability.  Our cash flow is relatively stable due to a number of factors, including our long-term, fee-based contracts with our refinery services and industrial gases customers, our diversified base of customers, assets and services, and our relatively low exposure to volatile fluctuations in commodity prices.

Ø

Financial Flexibility.  After we complete the offering contemplated by this prospectus supplement, we believe we will have the financial flexibility to pursue additional growth projects. As of September 30, 2007, we had $285 million of loans and $4.7 million in letters of credit outstanding under our $500 million credit facility, resulting in $90.4 million of remaining credit availability under our borrowing base. In addition, any new acquisitions that we complete will have the potential to increase our borrowing base, subject to specified limitations and lender consent. We will use the proceeds of this offering for general partnership purposes, including temporarily paying down the outstanding balance under our credit facility and, ultimately, indirectly funding certain acquisitions. If we use $165.9 million, or all of the net proceeds relating to this offering (including proceeds received from our general partner), to reduce indebtedness under our credit facility, we will have $256.3 million of remaining credit availability under our borrowing base. We believe this offering and our credit facility will provide us with the financial flexibility to fund our short term operations and strategic growth plan and to facilitate our longer-term expansion and acquisition strategies, which include accessing the capital markets from time to time to fund future growth.

Ø	Public unitholders will own 20,765,000 common units, representing a 55.1% interest in us.
Ø	The Davison family will own 13,459,209 common units, representing a 35.7% interest in us.
Ø	Our general partner, who will maintain its proportionate ownership interest in us, will own 2,733,221 common units (representing a 7.2% interest in us) and all of our 2.0% general partnership interest, as well as our incentive distribution rights.

(1)		The incentive compensation arrangement in connection with which our general partner has undertaken to negotiate definitive agreements to provide our senior management team with the opportunity to earn up to 20% of the interest in our general partner if certain performance criteria are met. See “Recent Events — Adopted Growth-Oriented Strategy and Hired an Experienced Midstream Senior Management Team.”

Common units we are offering to the public		8,000,000 common units, or 9,200,000 common units if the underwriters exercise their option to purchase additional common units.
Common units we are offering to our general partner in a private offering concurrently with this offering		638,898 common units, or 734,732 common units if the underwriters exercise their over-allotment option in full. The per unit price for the sale to our general partner will be equal to the per unit price offered to the public through this prospectus supplement, less an amount equal to any underwriting discounts and fees that would apply if those units had been offered to the public.
Common units to be outstanding after this offering		36,957,430 common units, or 38,253,264 common units if the underwriters exercise their option to purchase additional common units.
Use of proceeds		We will receive net proceeds (after deducting underwriting discounts and estimated offering expenses) from this offering, our concurrent offering to our general partner and the contribution from our general partner to maintain its 2% general partner interest of approximately $185.3 million. We will use the net proceeds for general partnership purposes, including temporarily repaying indebtedness under our credit facility and, ultimately, funding a portion of our future growth expenditures.
Cash distributions		Within approximately 45 days after the end of each quarter, we will distribute all available cash to unitholders of record on the applicable record date. However, there is no guarantee that we will pay a distribution on the common units in any quarter, and we will be prohibited from making any distributions to unitholders if it would cause an event of default, or if an event of default then exists, under our credit facility.
Incentive distributions		Our general partner is entitled to receive incentive distributions if the amount we distribute with respect to any quarter exceeds levels specified in our partnership agreement. Under the quarterly incentive distribution provisions, the general partner is entitled to receive 13.3% of any distributions in excess of $0.25 per unit, 23.5% of any distributions in excess of $0.28 per unit, and 49% of any distributions in excess of $0.33 per unit, without duplication.
Risk factors		An investment in our common units involves risk. See “Risk factors” beginning on page S-16 of this prospectus supplement and page 2 of the accompanying base prospectus and the materials incorporated by reference for a more detailed discussion of additional factors that you should consider before purchasing our common units.

Estimated ratio of taxable income to distributions		We estimate that if you own the common units you purchase in this offering through the record date for the distribution with respect to the final calendar quarter of 2009, you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be 20% or less of the cash distributed to you with respect to that period. Please read “Tax considerations” on page S-37 for the basis of this estimate.
Material tax consequences		For a discussion of other material federal income tax considerations that may be relevant to prospective unitholders who are individual citizens or residents of the U.S., please read “Material Tax Consequences” in the accompanying base prospectus.
American Stock Exchange symbol		“GEL.”

		Actual																				Pro Forma(1)
														Nine months ended								Year ended				Nine months ended
		Years ended December 31,												September 30,								December 31,				September 30,
		2004				2005				2006				2006				2007				2006				2007
		(dollars in thousands, except per unit amounts)
Income Statement Data:
Revenues		$	927,143			$	1,078,739			$	918,369			$	726,496			$	738,850			$	1,479,174			$	1,113,927
Operating (loss) income			(23	)			5,220				8,584				7,415				7,304				25,319				19,619
(Loss) Income from Continuing Operations			(949	)			3,689				8,351				7,700				1,912				156	(2)			(1,234	)
(Loss) Income from Continuing Operations per limited partnership unit—diluted		$	(0.10	)		$	0.38			$	0.59			$	0.55			$	0.11			$	0.01	(2)		$	(0.04	)
Balance Sheet Data (at period end):
Total assets		$	143,154			$	181,777			$	191,087			$	192,982			$	894,640
Long-term debt			15,300				—				8,000				6,000				285,000
Partners’ capital			45,239				87,689				85,662				87,824				436,793
Other Financial Data:
Segment Margin(3) Pipeline Transportation		$	8,543			$	9,804			$	12,426			$	9,862			$	8,858			$	12,426			$	8,858
Refinery Services			—				—				—				—				8,545				44,716				37,486
Supply and Logistics			4,034				3,661				7,366				6,074				7,986				24,321				17,685
Industrial Gases			5,762				8,154				11,443				8,808				8,804				11,443				8,804
Total Segment Margin:		$	18,339			$	21,619			$	31,235			$	24,744			$	34,193			$	92,906			$	72,833
Adjusted EBITDA(4)		$	8,610			$	14,711			$	21,161			$	16,351			$	24,185			$	74,855			$	58,715
Available Cash before Reserves(5)			6,282				11,136				18,831				15,157				15,036
Maintenance Capital Expenditures(6)			939				1,543				967				560				2,842

(1)		Pro forma amounts were prepared assuming that the Davison acquisition was consummated as of January 1 for each period for which income statement data is presented. Per unit amounts assume the common units issued to the Davison family and the common units purchased by our general partner were outstanding January 1 of each period. These amounts were prepared based upon assumptions deemed appropriate by Genesis and may not be indicative of actual results.
(2)		This amount differs from the pro forma amount reflected in our Form 8-K/A filed on October 10, 2007 due to the effects of including approximately $3.6 million pro forma estimated federal and state income tax expense.
(3)		Segment margin was calculated as revenues less cost of sales and operations expense. It includes our share of the operating income of equity joint ventures. A reconciliation of segment margin (a non-GAAP measure) to income from continuing operations before income taxes (the GAAP measure) is on page S-15. Our Supply and Logistics segment was previously

		known as our Crude Oil Gathering and Marketing segment. With the Davison acquisition, we expanded our operations into petroleum products and other transportation services, and combined these operations due to their similarities and our approach to managing these operations. We also added a new segment for the Refinery Services business acquired in the Davison acquisition.
(4)		Adjusted EBITDA was calculated as net income from continuing operations before interest, income taxes, depreciation and amortization, and non-cash income or loss related to (i) derivative instruments, (ii) our stock appreciation rights plan and (iii) miscellaneous items. A reconciliation of Adjusted EBITDA (a non-GAAP measure) to income from continuing operations and to operating cash flows (the GAAP measures) is on page S-15.
(5)		Available cash before reserves was calculated as income from continuing operations with several adjustments, the most significant of which are the elimination of gains and losses on asset sales, except those from the sale of surplus assets, the addition of non-cash expenses such as depreciation, the replacement of the amount recognized as our equity in the income of joint ventures with the available cash generated from those ventures, and the subtraction of maintenance capital expenditures. A reconciliation of Adjusted EBITDA (a non-GAAP measure) to income from continuing operations and to operating cash flows (the GAAP measures) is on page S-15.
(6)		Maintenance capital expenditures are capital expenditures to replace or enhance partially or fully depreciated assets to sustain the existing operating capacity or efficiency of the assets and extend their useful lives. Genesis expects maintenance capital expenditures related to the Davison businesses to be approximately $4 million to $5 million per year after 2008. Maintenance capital expenditures for the historical Genesis operations are expected to average $1.5 million per year.

Ø	the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;
Ø	our operating performance and return on capital as compared to other companies in the midstream energy sector, without regard to financing or capital structure; and
Ø	the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

		Years ended												Nine months ended
		December 31,												September 30,
		2004				2005				2006				2006				2007
Reconciliation of Segment Margin to Income from Continuing Operations
Segment Margin excluding depreciation and amortization		$	18,339			$	21,619			$	31,235			$	24,744			$	34,193
General and administrative expenses			(11,031	)			(9,656	)			(13,573	)			(10,448	)			(13,652	)
Depreciation and amortization			(7,298	)			(6,721	)			(7,963	)			(6,000	)			(12,346	)
Net (loss) gain on disposal of surplus assets			(33	)			479				16				38				24
Interest expense, net			(926	)			(2,032	)			(1,374	)			(645	)			(5,248	)
(Loss) income from continuing operations before income taxes and cumulative effect adjustment		$	(949	)		$	3,689			$	8,341			$	7,689			$	2,971
Reconciliation of Income from Continuing Operations to Adjusted
EBITDA
(Loss) income from continuing operations		$	(949	)		$	3,689			$	8,351			$	7,700			$	1,912
Adjustments to reconcile income from continuing operations to Adjusted EBITDA:
Depreciation & Amortization			7,298				6,721				7,963				6,000				12,346
Net Interest Expense			926				2,032				1,374				645				5,248
Income Taxes			—				—				(11	)			(11	)			1,059
Unrealized (gains)/losses FAS 133			—				(6	)			(34	)			(12	)			833
Cash received from direct financing leases not included in income			39				441				531				394				422
Stock appreciation rights expense, net of payments			1,151				(541	)			1,565				614				1,696
Estimated cash from joint ventures in excess of equity income recorded			—				836				1,401				988				664
Proceeds from sales of certain assets, net of gain or loss recognized			145				1,106				51				29				171
Other non-cash (income) expense			—				433				(30	)			4				(166	)
Adjusted EBITDA		$	8,610			$	14,711			$	21,161			$	16,351			$	24,185
Reconciliation of Operating Cash Flows to Adjusted EBITDA
Cash flows from operating activities		$	9,702			$	9,490			$	11,262			$	6,722			$	25,653
Adjustments to reconcile operating cash flows to Adjusted EBITDA:
Net interest expense			926				2,032				1,374				645				5,248
Income Taxes			—				—				(11	)			(11	)			1,059
Proceeds from sales of certain assets			112				1,585				67				67				195
Amortization of credit facility issuance fees			(373	)			(373	)			(969	)			(279	)			(509	)
Cash effects of stock appreciation rights plan			—				(61	)			(364	)			(271	)			(1,447	)
Effect of available cash generated by investments in joint ventures not included in cash flows from operating activities			—				848				967				756				303
Discontinued operations			463				—				—				—				—
Other items affecting Adjusted EBITDA			—				—				(38	)			(64	)			—
Net effect of changes in working capital accounts not included in calculation of Adjusted EBITDA			(2,220	)			1,190				8,873				8,786				(6,317	)
Adjusted EBITDA		$	8,610			$	14,711			$	21,161			$	16,351			$	24,185
Reconciliation of Operating Cash Flows to Available Cash before reserves
Cash flows from operating activities		$	9,702			$	9,490			$	11,262			$	6,722			$	25,653
Adjustments to reconcile operating cash flows to Available Cash:
Maintenance capital expenditures			(939	)			(1,543	)			(967	)			(560	)			(2,842	)
Proceeds from sales of certain assets			112				1,585				67				67				195
Amortization of credit facility issuance fees			(373	)			(373	)			(969	)			(279	)			(509	)
Cash effects of stock appreciation rights plan			—				(61	)			(364	)			(271	)			(1,447	)
Effect of available cash generated by investments in joint ventures not included in cash flows from operating activities			—				848				967				756				303
Other items affecting Available Cash			—				—				(38	)			(64	)			—
Net effect of changes in working capital accounts not included in calculation of Available Cash			(2,220	)			1,190				8,873				8,786				(6,317	)
Available Cash before reserves		$	6,282			$	11,136			$	18,831			$	15,157			$	15,036

 

Risk factors

 

An investment in our common units involves risks. You should carefully consider the discussion of risks set forth under the caption “Risk Factors” beginning on page 2 of the accompanying base prospectus as well as the section entitled “Risk Factors” included in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, and the other documents incorporated by reference into this prospectus supplement, prior to investing in our common units. If any of these risks were to occur, our business, financial condition or results of operations could be adversely affected, the trading price of our common units could decline and you could lose all or part of your investment. Some of the risks discussed in the base prospectus as well as the documents incorporated by reference into this prospectus supplement are summarized below.

 

RISKS RELATED TO OUR BUSINESS

 

 

Risk factors

 

 

 

RISKS RELATED TO OUR PARTNERSHIP STRUCTURE

 

 

TAX RISKS TO COMMON UNITHOLDERS

 

 

Risk factors

 

 

 

 

Use of proceeds

 

We will receive net cash proceeds (after payment of underwriting discounts and estimated offering expenses) from this offering ($168.0 million), our concurrent offering to our general partner ($13.5 million) and the contribution of cash from our general partner ($3.9 million) totaling approximately $185.3 million. The underwriters will receive no discount or commission on the common units sold to our general partner. We will use the net proceeds for general partnership purposes, which may include, among other things, temporarily repaying indebtedness under our credit facility, acquiring assets (including purchasing businesses and constructing facilities), paying distributions and satisfying working capital requirements. During the last 12 months, we have used proceeds from our credit facility for general partnership purposes, including:

 

 

On September 30, 2007, the weighted average interest rate on the debt was 9.00%. Our credit facility matures on November 15, 2011.

 

Capitalization

 

The following table sets forth as of September 30, 2007:

 

 

We derived this table from, and it should be read in conjunction with, and is qualified in its entirety by reference to, our historical consolidated financial statements and the notes to those financial statements that are incorporated by reference in this prospectus supplement.

 

 

Price range of common units and distributions

 

We are required by our partnership agreement to distribute 100% of our available cash within 45 days after the end of each quarter to our unitholders of record and to our general partner. Available cash consists generally of all of our cash receipts less cash disbursements adjusted for net changes to reserves. Cash reserves are the amounts deemed necessary or appropriate, in the reasonable discretion of our general partner, to provide for the proper conduct of our business or to comply with applicable law, any of our debt instruments or other agreements. The full definition of available cash is set forth in our partnership agreement and amendments thereto, which is filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2006. See “Where you can find more information.”

 

Our general partner is entitled to receive incentive distributions if the amount we distribute with respect to any quarter exceeds levels specified in our partnership agreement. Under the quarterly incentive distribution provisions, the general partner is entitled to receive 13.3% of any distributions in excess of $0.25 per unit, 23.5% of any distributions in excess of $0.28 per unit, and 49% of any distributions in excess of $0.33 per unit, without duplication. The likelihood and timing of the payment of any incentive distributions will depend on our ability to increase the cash flow from our existing operations and to make cash flow accretive acquisitions. In addition, our partnership agreement authorizes us to issue additional equity interests in our partnership with such rights, powers and preferences (which may be senior to our common units) as our general partner may determine in its sole discretion, including with respect to the right to share in distributions and profits and losses of the partnership.

 

At September 30, 2007, there were 28,318,532 common units outstanding, held by approximately 5,880 record holders and beneficial owners (held in street name), including 2,094,323 common units held by our general partner and 13,459,209 held by the Davison family. The common units are traded on the AMEX under the symbol “GEL.” The following table sets forth the high and low sales prices for the common units in each quarter, as reported by the AMEX, and the declared cash distributions for the common units in each quarter. The last reported sale price of common units on the AMEX on December 4, 2007 was $22.00 per unit. On November 14, 2007 we paid a cash distribution of $0.27 per unit for the quarter ended September 30, 2007. That distribution represents a 17% increase from our distribution of $0.23 per unit for the second quarter of 2007 which was paid during the third quarter of 2007.

 

 

 

Business

 

This Business section summarizes certain information about our business and properties from the documents incorporated by reference, particularly the more complete business description contained in our Annual Report on Form 10-K for the year ended December 31, 2006. You should read carefully this and the other documents incorporated by reference to understand fully our business and properties. See “Where you can find more information.”

 

OVERVIEW

 

We are a growth-oriented limited partnership 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 and Florida. We have a diverse portfolio of customers, operations and assets, including refinery-related plants, pipelines, storage tanks and terminals, and trucks and truck terminals. We provide services to refinery owners; oil, natural gas and CO₂ producers; industrial and commercial enterprises that use CO₂ and other industrial gases; and individuals and companies that use our dry-goods trucking services. Substantially all of our revenues are derived from providing services to integrated oil companies, large independent oil and gas or refinery companies, and large industrial and commercial enterprises.

 

We manage our businesses through four divisions which are our reportable segments:

 

 

We conduct our business through subsidiaries and joint ventures. As is customary with MLPs, our general partner is responsible for operating our business, including providing all necessary personnel and other resources.

 

OUR RELATIONSHIP WITH DENBURY RESOURCES INC.

 

We continue to benefit from our strategic affiliation with Denbury, which indirectly owns 100% of our general partnership interest, 100% of our incentive distribution rights and, prior to the closing of this

 

Business

 

 

offering, a 7.2% interest in us (represented by 2,094,323 of our outstanding common units). Denbury, which had an equity market capitalization of approximately $6.9 billion as of October 31, 2007, operates primarily in Mississippi, Louisiana and Texas. As a result of its emphasis on the tertiary recovery of oil using CO₂ flooding, Denbury has become the largest producer (based on average barrels produced per day) of oil in Mississippi.

 

Denbury is a uniquely situated oil company. It is one of only a handful of producers in the U.S. that possesses CO₂ tertiary recovery expertise along with large deposits of low-cost CO₂ reserves, estimated to contain approximately 5.5 trillion cubic feet of estimated proved CO₂ reserves as of December 31, 2006. Other than the CO₂ reserves owned by Denbury, we do not know of any significant natural sources of CO₂ from East Texas to Florida. Denbury is conducting the largest CO₂ tertiary recovery operations in the Eastern Gulf Coast of the U.S., an area with many mature oil reservoirs that potentially contain substantial volumes of recoverable oil. In addition to the amounts it has already expended on the Free State and North East Jackson Dome, or NEJD, CO₂ pipelines, Denbury has announced that it expects to spend approximately $775 million between December 31, 2007 and the end of 2009 to build CO₂ pipelines to support its tertiary oil recovery expansions.

 

We believe Denbury has strong economic and strategic incentives to furnish business opportunities to us. In fact, Denbury has indicated that it plans to use us as a vehicle to provide its midstream infrastructure needs, particularly with respect to CO₂ pipelines. We believe Denbury is likely to provide us with future growth opportunities due to the following additional factors, among others:

 

 

Denbury has announced its intention, which it can change at any time, to drop down to us certain midstream assets over time, at its discretion. Denbury intends to consider offering $1.00 of “drop down” transactions to us for each $1.50 of non-Denbury-related capital we economically deploy. For example, because we have consummated the Davison acquisition for approximately $623 million (net of cash acquired at closing and subject to final purchase price adjustments), Denbury is willing to discuss with us drop down transactions of approximately $400 million.

 

We believe there is a broad array of transactions that we could explore with Denbury which could result in strong growth opportunities for us, including acquiring (through purchase, construction, lease or otherwise) CO₂, oil and/or natural gas gathering and transportation pipelines and related midstream infrastructure; transporting CO₂; transporting, gathering and storing oil and/or natural gas; and enhancing our industrial gases opportunities. In August, both Denbury and we announced our intention to enter into negotiations regarding specific transactions. See “Recent Events — Announced Potential Denbury Drop Down Transactions” below.

 

Although our relationship with Denbury may provide us with a source of acquisition and other growth opportunities, Denbury is not obligated to enter into any transactions with (or to offer any opportunities to) us or to promote our interest, and none of Denbury or any of its affiliates (including our general partner) has any obligation or commitment to contribute or sell any assets to us or enter into any type of transaction with us, and each of them, other than our general partner, has the right to act in a manner that could be beneficial to its interests and detrimental to ours. Further, Denbury may, at any time, and without notice, alter its business strategy, including determining that it no longer desires to use us as a provider of its midstream infrastructure. Additionally, even if Denbury were to

 

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make one or more offers to us, we cannot say that we would elect to pursue or consummate any such opportunity. In addition, though our relationship with Denbury is a significant strength, it also is a source of potential conflicts. Please read “Summary of Conflicts of Interest and Fiduciary Duties.”

 

OUR OBJECTIVES AND STRATEGIES

 

Our primary business objectives are to generate stable cash flows to allow us to make quarterly cash distributions to our unitholders and to increase those distributions over time. We plan to achieve those objectives by executing the following strategies:

 

 

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OUR COMPETITIVE STRENGTHS

 

We believe we are well positioned to execute our strategies and ultimately achieve our objectives due primarily to the following competitive strengths:

 

 

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RECENT EVENTS

 

Acquisition of Refinery Services Division and Other Businesses

 

On July 25, 2007, we acquired five energy-related businesses, including the operations that comprise our refinery services division, from several entities owned and controlled by the Davison family of Ruston, Louisiana. The other businesses we acquired from the Davisons transport, store, procure and market petroleum products and other bulk commodities and are included in our supply and logistics division. Our acquisition agreement with the Davisons provided that we would deliver to them $563 million of consideration, half in common units (13,459,209 common units at an agreed-to value of $20.8036 per unit) and half in cash. In addition, we agreed to adjust the cash portion of the consideration in connection the value of working capital, inventory and other specified adjustment matters.

 

Our financial statements at September 30, 2007 reflect a total acquisition price of $631 million, which includes the preliminary purchase price adjustments, our transaction costs, working capital acquired, net of cash acquired, and a valuation of the units at $24.52 per unit, which was the average closing price of our units during the five trading day period ending two days after we signed the acquisition agreement.

 

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The Davison family is our largest unitholder, with a 36.8% interest in us (represented by 13,459,209 of our common units) after giving effect to the issuances pursuant to this offering. It has designated two of the family members to the board of directors of our general partner, and as long as it maintains a specified minimum percentage of our common units, it will have the continuing right to designate up to two directors. The Davison family has agreed to restrictions that limit its ability to sell specified percentages of its common units through July 26, 2010. Prior to July 25, 2008, the Davison family may not sell more than 20% of its units. On that date, an additional 20% of its units will be released. An additional 20%, 30% and 10% of its issued units will be released 18, 24 and 36 months after closing, at which point the Davisons will be free to sell or otherwise dispose of all of their units.

 

Announced Potential Denbury Drop Down Transactions

 

Denbury has announced plans to negotiate several anticipated transactions with us involving the drop down of some of its CO₂ pipeline assets. We currently expect those transactions to consist of property purchases combined with associated transportation or service arrangements or direct financing leases, or a combination of both. We anticipate that, during the fourth quarter of 2007, we will enter into approximately $200 to $250 million of transactions with Denbury relating to its Free State and North East Jackson Dome, or NEJD, CO₂ pipelines. We also anticipate similar transactions in the range of $100 to $150 million in the second half of 2008 for other CO₂ pipelines that Denbury is currently constructing. Although we currently are negotiating the Free State and NEJD transactions with Denbury, we cannot assure you that we will reach mutually satisfactory terms and consummate those transactions.

 

Denbury has begun negotiations with us with respect to the transactions described above because we have recently completed over $600 million in non-Denbury-related acquisitions or growth projects, which includes the Davison acquisition.

 

Quarterly Distribution Increase

 

On October 26, 2007, our board of directors declared a cash distribution of $0.27 per unit for the quarter ended September 30, 2007. The distribution was paid on November 14, 2007 to our general partner and all common unitholders of record as of the close of business on November 6, 2007. That quarterly distribution rate represents an increase of 17% relative to the distribution paid for the second quarter of 2007, an approximate 35% increase relative to the same period in 2006, and an approximate 69% increase relative to the third quarter in 2005. This is our ninth consecutive quarterly distribution increase, with the previous eight being increased by $0.01 per unit.

 

Increased Credit Facility to $500 Million

 

On November 15, 2006, we replaced our $50 million working capital credit facility with a $500 million working capital and acquisition facility. As of September 30, 2007, we had borrowed $285 million under that facility, and we had $4.7 million in letters of credit outstanding, resulting in $90.4 million of remaining credit availability under our borrowing base.

 

Adopted Growth-Oriented Strategy and Hired an Experienced Midstream Senior Management Team

 

Our board of directors has adopted a growth-oriented strategy for us, and on August 8, 2006, we hired an experienced senior management team; Grant E. Sims, former CEO of Leviathan Gas Pipeline Partners, L.P., was appointed as the new Chief Executive Officer and a member of the board of directors and Joseph A. Blount, Jr., former President and Chief Operating Officer of Unocal Midstream & Trade, was appointed as President and Chief Operating Officer. Our senior management

 

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team is responsible for designing and implementing a growth-oriented strategy that will include acquisitions from third parties (such as the recent acquisition from the Davisons), development projects and, ultimately, acquisitions from (or leases or financing arrangements with) subsidiaries of Denbury.

 

To help ensure that our senior management team is incentivized to execute our growth strategy in a manner that is accretive on a “distribution per unit” basis, the team and our general partner have undertaken to negotiate definitive agreements relating to an incentive compensation arrangement to provide the members of our senior management team with the opportunity to earn up to a 20% interest in our general partner if certain performance criteria are met. Those performance criteria primarily relate to the dollar amount of expenditures for acquisitions we consummate (including development projects, but excluding acquisitions from Denbury and its affiliates) provided such expenditures earn (using a look-back provision) a specified minimum, un-levered return on investment.

 

Acquired Terminal and Dock Facilities

 

Effective July 1, 2007, we paid $8.1 million for BP Pipelines (North America) Inc.’s Port Hudson oil truck terminal, marine terminal and marine dock on the Mississippi River, which includes 215,000 barrels of tankage, a pipeline and other related assets in East Baton Rouge Parish, Louisiana. The acquisition was funded with borrowings under our credit facility.

 

Florida Oil Pipeline System Expansion

 

We committed to construct an extension of our existing Florida oil pipeline system that would extend to producers operating in southern Alabama. That new lateral will consist of approximately 33 miles of 8” pipeline originating in the Little Cedar Creek Field in Conecuh County, Alabama to a connection to our Florida Pipeline System in Escambia County, Alabama. That project also will include gathering connections to approximately 30 wells and oil storage capacity of 20,000 barrels in the field. We expect to place those facilities in service in the second half of 2008.

 

Unitholder Meeting

 

We have called a special meeting of our unitholders to be held on December 18, 2007, for unitholders of record as of November 2, 2007, to vote on (1) a proposal to amend certain provisions of our partnership agreement to allow any affiliated persons or group who hold more than 20% of our outstanding voting units to vote on all matters on which holders of our voting units have the right to vote, other than matters relating to the succession, election, removal, withdrawal, replacement or substitution of our general partner, and to clarify and expand the concept of “group” as defined in our partnership agreement; and (2) a proposal to approve the terms of the Genesis Energy, Inc. 2007 Long Term Incentive Plan, which provides for awards of our units and other rights to our employees and, possibly, our directors.

 

BUSINESS SEGMENTS

 

We conduct our business through four primary segments:  Pipeline Transportation, Refinery Services, Supply and Logistics and Industrial Gases. Our Supply and Logistics segment was previously known as Crude Oil Gathering and Marketing. With the Davison acquisition, we expanded our operations into petroleum products and other transportation services, and combined these operations due to their similarities and our approach to managing these operations. These segments are strategic business units that provide a variety of energy related services. For information relating to revenues from external customers, operating income and total assets of each segment, see the financial statements incorporated by reference into this prospectus.

 

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PIPELINE TRANSPORTATION

 

Oil Pipelines.  Our core pipeline transportation business is the transportation of oil for others for a fee. Our 230-mile Mississippi System provides shippers of oil in Mississippi indirect access to refineries, pipelines, storage, terminaling and other oil infrastructure located in the Midwest. Our 90-mile Texas System extends from West Columbia to Webster, Webster to Texas City and Webster to Houston. Our 100-mile Jay System originates in eastern Alabama and the panhandle of Florida and extends to a point near Mobile, Alabama. On a much smaller scale, we also transport CO₂ and natural gas for a fee.

 

Our regulated pipelines are open-access carriers whose tariff rates are regulated by FERC or the Railroad Commission of Texas. Accordingly, we offer transportation services to any shipper of oil, if the products tendered for transportation satisfy the conditions and specifications contained in the applicable tariff. Pipeline revenues are a function of the level of throughput and the particular point where the oil was injected into the pipeline and the delivery point. We also can earn revenue from pipeline loss allowance volumes. In exchange for bearing the risk of pipeline volumetric losses, we deduct volumetric pipeline loss allowances and crude quality deductions. Such allowances and deductions are offset by measurement gains and losses. When the allowances and deductions exceed measurement losses, the net pipeline loss allowance volumes are earned and recognized as income and inventory available for sale valued at the market price for the oil. Until the volumes are sold, we account for them as inventory and value them at the lower of cost or market value. When we sell the inventory, we recognize any difference between the carrying amount and the sale price as additional pipeline revenue.

 

The margins from our pipeline operations are generated by the difference between the revenues from regulated published tariffs, pipeline loss allowance revenues and the fixed and variable costs of operating and maintaining our pipelines.

 

Mississippi System.  Our Mississippi System extends from Soso, Mississippi to Liberty, Mississippi. Our Mississippi System includes tankage at various locations with an aggregate owned storage capacity of 247,500 barrels. The system is adjacent to several oil fields operated by Denbury, which is the sole shipper (other than us) on our Mississippi System. As a result of its emphasis on the tertiary recovery of oil using CO₂ flooding, Denbury has become the largest producer (based on average barrels produced per day) of oil in the State of Mississippi, and it owns more developed CO₂ reserves than anyone in the Eastern Gulf Coast Region of the U.S. As Denbury continues to implement its tertiary oil recovery strategy, its anticipated increased production could create increased demand for our oil transportation services because of the close proximity of the pipelines, especially the Mississippi System, and their projects.

 

Some of our oil gathering, marketing and transportation arrangements with Denbury have an “incentive” tariff. Under our incentive tariff, the average rate per barrel that we charge during any month decreases as our aggregate throughput for that month increases above specified thresholds.

 

Texas System.  The active segments of our Texas System extend from West Columbia to Webster, Webster to Texas City and Webster to Houston. Those segments include approximately 90 miles of pipe. The Texas System receives all of its volume from connections to other pipeline carriers. We earn a tariff for our transportation services, with the tariff rate per barrel of oil varying with the distance from injection point to delivery point. We entered into a joint tariff with TEPPCO to receive oil from their system at West Columbia and a joint tariff with TEPPCO and ExxonMobil Pipeline Company to receive oil from their systems at Webster. We also continue to receive barrels from a connection with Seminole Pipeline Company at Webster. We own tankage with approximately 55,000 barrels of storage capacity associated with the Texas System. We lease an additional approximately 165,000 barrels of storage capacity for our Texas System in Webster. We have a tank rental reimbursement agreement with the primary shipper on our Texas System to reimburse us for the lease of that storage capacity at Webster.

 

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Jay System.  Our Jay System begins near oil fields in southeastern Alabama and the panhandle of Florida and extends to a point near Mobile, Alabama. Our Jay System includes tankage with 230,000 barrels of storage capacity, primarily at Jay Station. Recently, we have witnessed significant re-development work at some of the more mature fields attached to the Jay System. As a result of new production in the area surrounding our Jay System, volumes have stabilized on that system.

 

We recently committed to construct an extension of our existing Florida oil pipeline system that would extend to producers operating in southern Alabama. The new lateral will consist of approximately 33 miles of 8” pipeline originating in the Little Cedar Creek Field in Conecuh County, Alabama to a connection to our Florida Pipeline System in Escambia County, Alabama. The project will also include gathering connections to approximately 30 wells and additional oil storage capacity of 20,000 barrels in the field. The project is expected to be placed in service in the second half of 2008.

 

CO₂ Pipeline.  During 2004, we constructed a 10-mile, 10” CO₂ pipeline that is connected to Denbury’s 183-mile pipeline that transports CO₂ from their Jackson Dome CO₂ reservoir. Our pipeline moves the CO₂ to the Brookhaven oil field used by Denbury in tertiary recovery. We entered into a contract granting Denbury the exclusive right to use that CO₂ pipeline through 2012 in exchange for a monthly demand and commodity charge.

 

Natural Gas Pipelines.  We have several small natural gas gathering systems located in Texas, Louisiana and Oklahoma, which we acquired in January 2005 from Multifuels Energy Asset Group, L.P.

 

REFINERY SERVICES

 

We provide services for eight refining operations primarily located in Texas, Louisiana and Arkansas. In our processing, we apply proprietary technology that uses large quantities of caustic soda. In exchange for our services, we receive a by-product of our process, NaHS, which we sell to approximately 100 customers. As such, we are one of the largest marketers of NaHS in North America. Our refinery services business generates revenue by selling the NaHS, the by-product of our process.

 

NaHS is used in the specialty chemicals business and the pulp and paper business, in connection with mining operations and also has environmental applications. NaHS is used in various industries for applications including, but not limited to, agricultural, dyes and other chemical processing; waste treatment programs requiring stabilization and reduction of heavy and toxic metals through precipitation; and sulfidizing oxide ores (most commonly to separate copper from molybdenum). NaHS is also used in Kraft pulping process to prepare synthetic cooking liquor (white liquor); as a make-up chemical to replace lost sulfur values; as a scrubbing media for residual chlorine dioxide generated and consumed in mill bleach plants; and for removing hair from hides at the beginning of the tannery process.

 

Our refinery service contracts typically range from two to ten years. Because of our reputation, experience and logistical capability to transport, store and deliver both NaHS and caustic soda (the primary input used by our proprietary process), we believe such contracts will likely be renewed upon the expiration of their primary terms. We also believe that the demand for sulfur removal at U.S. refineries will increase in the years ahead as the quality of the oil supply used by refineries in the U.S. continues to drop (or become more “sour”). As that occurs, we believe more refineries will seek economic and proven sulfur removal processes from reputable service providers that have the scale and logistical capabilities to efficiently perform such services. Because of our existing scale, we believe we will be able to attract such refineries as new customers for our sulfur handling/removal services.

 

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SUPPLY AND LOGISTICS

 

Our oil gathering and marketing operations are concentrated in Texas, Louisiana, Alabama, Florida, and Mississippi. These operations, which involve purchasing, gathering and transporting by trucks and pipelines operated by us and trucks, pipelines and barges operated by others, and reselling, help to ensure (among other things) a base supply source for our oil pipeline systems. Our profit for those services is derived from the difference between the price at which we re-sell oil less the price at which we purchase that oil, minus the associated costs of aggregation and any cost of supplying credit. The most substantial component of our aggregating costs relates to operating our fleet of leased trucks. Our oil gathering and marketing activities provide us with an extensive expertise, knowledge base and skill set that facilitates our ability to capitalize on regional opportunities which arise from time to time in our market areas. Usually, this segment experiences limited commodity price risk because we generally make back-to-back purchases and sales, matching our sale and purchase volumes on a monthly basis.

 

With the Davison acquisition, we gained approximately 225 trucks, 525 trailers and 1.3 million barrels of existing leased and owned storage and expanded our activities to include transporting, storing and blending intermediate and finished refined petroleum products. In combination with our historical focus on oil, we believe we are well positioned to provide a full suite of logistical services to both independent and integrated refinery operators, ranging from upstream (the procurement and staging of refinery inputs) to downstream (the transportation, staging and marketing) of refined products.

 

Port Hudson.  Effective July 1, 2007, we acquired the Port Hudson oil truck terminal, marine terminal and marine dock of BP Pipelines (North America) Inc., or Port Hudson, for $8.1 million. The assets acquired in this transaction include docking facilities on the Mississippi River, 215,000 barrels of tankage, a pipeline and other related assets in East Baton Rouge Parish, Louisiana. In connection with such acquisition, we entered into a long-term purchase contract with several producers to ensure steady throughput on those facilities. With some of our existing activities and some identified opportunities, as well as the committed production, we see Port Hudson developing into a focus area for oil handling activities in South Louisiana.

 

Segment margin from our supply and logistics operations varies from period to period, depending, to a significant extent, upon changes in the supply of and demand for oil, refined products and natural gas. Generally, as we purchase products, we simultaneously establish a margin by selling products for physical delivery to third-party users. Through these transactions, we seek to maintain a position that is substantially balanced between purchases, on the one hand, and sales or future delivery obligations, on the other hand. We do not acquire and hold oil or refined products, futures contracts or other derivative products for the purpose of speculating on price changes.

 

INDUSTRIAL GASES

 

Our industrial gases segment is a natural outgrowth from our pipeline transportation business. Because of the substantial tertiary recovery operations using CO₂ flooding being conducted around our Mississippi System, we became familiar with CO₂-related activities and, ultimately, began our CO₂ business in 2003. Our relationships with industrial customers who use CO₂ have expanded, which has introduced us to potential opportunities associated with other industrial gases, such as syngas (also known as synthesis gas), which is a combination of carbon monoxide and hydrogen.

 

CO₂.  We supply CO₂ to five industrial customers under seven long-term CO₂ sales contracts. We acquired those contracts, as well as the CO₂ necessary to satisfy substantially all of our expected obligations under those contracts, in three separate transactions with Denbury. Since 2003, we have purchased those contracts, along with three volumetric production payments, or VPPs, representing 280.0 Bcf of CO₂ (in the aggregate), from Denbury for a total of $43.1 million in cash. We sell our

 

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CO₂ to customers who treat the CO₂ and sell it to end users for use for beverage carbonation and food chilling and freezing. Our compensation for supplying CO₂ to our industrial customers is the effective difference between the price at which we sell our CO₂ under each contract and the price at which we acquired our CO₂ pursuant to our VPPs, less transportation costs. We expect our CO₂ contracts to provide stable cash flows until they expire, at which time we will attempt to extend or replace those contracts.

 

Sandhill Group, LLC.  On April 1, 2006, we acquired a 50% interest in Sandhill Group, LLC, or Sandhill. At September 30, 2007, Reliant Holdings, Ltd. held the other 50% interest in Sandhill. Sandhill is a limited liability company that owns a CO₂ processing facility located in Brandon, Mississippi and is engaged in the production and distribution of liquid CO₂ for use in the food, chemical and oil industries. The facility acquires CO₂ from us under a long-term supply contract that we acquired in 2005 from Denbury.

 

Syngas.  On April 1, 2005, we acquired from TCHI Inc., a wholly owned subsidiary of ChevronTexaco Global Energy Inc., a 50% partnership interest in T&P Syngas for $13.4 million in cash, which we funded with proceeds from our credit facility. T&P Syngas is a partnership which owns a facility located in Texas City, Texas that manufactures syngas and high-pressure steam. We receive a proportionate share of fees under a long-term processing agreement between the joint venture and its sole customer, Praxair Hydrogen Supply, Inc. Under that processing agreement, the joint venture receives a fixed fee in exchange for Praxair receiving the exclusive right to use the facility through at least 2016 (term extendable at Praxair’s option for two additional five year terms). Praxair also is our partner in the joint venture and owns the remaining 50% interest.

 

The results of operations relating to our syngas investment are reflected in our Industrial Gases Segment margin because we use the equity method to account for that investment.

 

CUSTOMERS AND COMPETITION

 

Our customers are diverse and numerous. Our pipeline transportation customers consist of Denbury and other large energy companies. In our refinery services business, we service eight refinery operations located primarily in Texas, Louisiana and Arkansas, and sell NaHS to over 100 customers. We do however rely on a few refineries for much of the NaHS supply, with ConocoPhillips representing approximately 65% of our refinery services business. In our supply and logistics segment, we sell crude oil and petroleum products and provide transportation services to hundreds of customers. We do not believe that the loss of any one customer for crude oil or petroleum products would have a material adverse effect on us as these products are readily marketable commodities. Our industrial gases customers consist primarily of several large international customers and the approximately 25 customers of our joint ventures.

 

ENVIRONMENTAL MATTERS

 

Information regarding environmental-related regulations and occurrences that may impact our business can be found in our reports filed with the Securities and Exchange Commission (the “SEC”) that are incorporated by reference into this prospectus supplement and the accompanying base prospectus. See “Where you can find more information.” In addition to the matters discussed there, voluntary remediation of subsurface hydrocarbon contamination is in process at the former Jay Trucking Facility. The estimated remediation and related costs are $1.3 million, which we are sharing with other responsible parties. We currently have no reason to believe that this remediation will have a material adverse effect on our financial position, results of operation or cash flow.

 

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CREDIT FACILITY

 

We have a credit facility, with a maximum facility amount of $500 million, with a group of banks led by Fortis Capital Corp. and Deutsche Bank Securities Inc. The committed amount under our credit facility is $500 million and the maximum for letters of credit is $100 million. Our borrowing base as of September 30, 2007 was $380 million. The committed amount represents the amount the banks have committed to fund pursuant to the terms of the credit agreement. The borrowing base is recalculated quarterly and may be increased to the extent of pro forma additional EBITDA (earnings before interest, taxes, depreciation and amortization), attributable to acquisitions with approval of the lenders. The borrowing base represents the amount that can be borrowed or utilized for letters of credit from a credit standpoint based on our EBITDA computed in accordance with the provisions of our credit facility.

 

At September 30, 2007, we had $285 million borrowed under our credit facility and we had $4.7 million in letters of credit outstanding. 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 of November 15, 2011. Under our credit facility’s borrowing base, the total amount available for borrowings at September 30, 2007 was $90.4 million under our credit facility.

 

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

 

 

Collateral under the credit facility consists of substantially all our assets. While in general, our general partner is jointly and severally liable for all of our obligations unless and except to the extent those obligations provide that they are non-recourse to our general partner, our credit facility expressly provides that it is non-recourse to our general partner (except to the extent of its pledge of its general partner interest in certain of our subsidiaries) and Denbury and its other subsidiaries.

 

Our credit facility contains customary covenants (affirmative, negative and financial) that limit the manner in which we may conduct our business. Our credit facility contains three primary financial covenants—a debt service coverage ratio, leverage ratio and funded indebtedness to capitalization ratio—that require us to achieve specific minimum financial metrics. In general, the debt service coverage ratio calculation compares EBITDA (as adjusted in accordance with the credit facility) to interest expense. The leverage ratio calculation compares our consolidated funded debt (as calculated in accordance with the credit facility) to EBITDA (as adjusted). The funded indebtedness ratio compares outstanding debt to the sum of our consolidated total funded debt plus our consolidated net worth.

 

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Our credit facility includes provisions for the temporary adjustment of the required ratios following material acquisitions and with lender approval. If we meet these financial metrics and are not otherwise in default under our credit facility, we may make quarterly distributions; however the amount of such distributions may not exceed the sum of the distributable cash generated by us for the eight most recent quarters, less the sum of the distributions made with respect to those quarters. At September 30, 2007, the excess of distributable cash over distributions under this provision of the credit facility was $19.7 million. For a summary of our non-financial covenants, please refer to our Annual Report on Form 10-K for the year ended December 31, 2006 which is incorporated by reference into this prospectus.

 

The carrying value of our debt under our credit facility approximates fair value primarily because interest rates fluctuate with prevailing market rates, and the applicable margin on outstanding borrowings reflect what we believe is market.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Historically, we have entered into transactions with Denbury and its subsidiaries to acquire assets. We have instituted specific procedures for evaluating and valuing our material transactions with Denbury and its subsidiaries. However, the partnership agreement does not require that we use these procedures and we may change them at any time. Before we consider entering into a transaction with Denbury or any of its subsidiaries, we determine whether the proposed transaction (1) would comply with the requirements under our credit facility, (2) would comply with substantive law and (3) would be fair, or deemed to be fair under the terms of the partnership agreement, to us and our limited partners. In addition, our general partner’s board of directors is authorized to utilize its Audit Committee comprised solely of independent directors. That committee may:

 

 

Under the partnership agreement, the general partner may resolve a conflict without input from the Audit Committee.

 

Information concerning specific transactions with Denbury can be found in reports filed with the SEC that are incorporated into this prospectus supplement and the accompanying base prospectus by reference. See “Where you can find more information.”

 

SUMMARY OF CONFLICTS OF INTEREST AND FIDUCIARY DUTIES

 

General.  Our general partner has a duty to manage us in a manner that is reasonably believed by the general partner to be in, or not inconsistent with, our best interests, and in a manner that is beneficial to holders of our common units. These duties originate under our partnership agreement and in statutes and judicial decisions and are commonly referred to as a fiduciary duty. However, because our general partner is owned by Denbury Gathering and Marketing, Inc., the officers and directors of our general partner will also have fiduciary duties to manage our general partner in a manner beneficial to Denbury Gathering and, ultimately, Denbury which indirectly owns and controls our general partner. As a result of those relationships, conflicts of interest may arise in the future between us and holders of our common units, on the one hand, and our general partner and its owners on the other hand. For example, our general partner will be entitled to make determinations that affect our ability to make cash distributions, including, but not limited to, determinations related to the operation of our business, such as those related to capital expenditures, asset purchases and sales and other acquisitions and

 

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dispositions, borrowings and the amount of cash reserves necessary or appropriate to satisfy general administrative and other expenses and debt service requirements, and otherwise provide for the proper conduct of our business. Those determinations will have an effect on the value of the common units, the amount of cash distributions we make to the holders of our common units, and that in turn has an effect on whether our general partner receives incentive cash distributions as discussed below.

 

Partnership Agreement Modifications of Fiduciary Duties.  Our partnership agreement limits the liability and reduces the fiduciary duties of our general partner to us and our unitholders. Our partnership agreement also restricts the remedies available to our unitholders for actions that might otherwise constitute a breach of our general partner’s fiduciary duties owed to our unitholders. Our partnership agreement also provides that Denbury and its affiliates, other than our general partner (in certain circumstances), may own assets or engage in businesses that compete with us. For example, Denbury may acquire, invest in or dispose of midstream or other assets in the future without any obligation to offer us the opportunity to purchase or own interests in those assets, and Denbury may, at any time, alter its strategy, including determining that it no longer desires to use us as a vehicle to provide any of its midstream infrastructure needs. Denbury and its affiliates are also not under any obligation to make any acquisitions on our behalf. By purchasing a common unit, the purchaser agrees to be bound by the terms of our partnership agreement and, under the terms of our partnership agreement, each holder of common units consents to various actions contemplated in the partnership agreement and conflicts of interest that might otherwise be considered a breach of a general partner’s fiduciary or other duties under applicable state law.

 

For a description of our other relationships with our affiliates, please read “Certain Relationships and Related Transactions.” For more detail on our relationship with our general partner and Denbury, please read “Risk Factors—Risks related to our partnership structure—Denbury Resources and its affiliates have conflicts of interest with us and limited fiduciary responsibilities, which may permit them to favor their own interests to your detriment,” et seq., which can be found beginning on page 8 of the base prospectus attached to this prospectus supplement.

 

Tax considerations

 

The tax consequences to you of an investment in common units will depend in part on your own tax circumstances. For a discussion of the principal federal income tax considerations associated with our operations and the purchase, ownership and disposition of common units, please read “Material Tax Consequences” beginning on page 25 of the accompanying base prospectus. You are urged to consult your own tax advisor about the federal, state and local tax consequences peculiar to your circumstances.

 

The anticipated after-tax economic benefit of an investment in us depends largely on our being treated as a partnership for federal income tax purposes. No ruling has been or will be sought from the Internal Revenue Service (“IRS”) and the IRS has made no determination as to our status as a partnership for federal income tax purposes or whether our operations generate “qualifying income” under Section 7704 of the Internal Revenue Code. We estimate that less than 8% of our current income is not qualifying income; however, this estimate could change from time to time.

 

We will rely on the opinion of Akin Gump Strauss Hauer & Feld LLP that, based upon the Internal Revenue Code, its regulations, published revenue rulings and court decisions and the representations described below, we will be classified as a partnership for federal income tax purposes.

 

In rendering its opinion, Akin Gump Strauss Hauer & Feld LLP has relied on factual representations made by us and our general partner, including the following:

 

 

If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our income at the corporate tax rate, which is currently a maximum of 35%, and would likely pay state and local income tax at varying rates. Distributions would generally be taxed again to unitholders as corporate distributions and no income, gains, losses, or deductions would flow through to unitholders. Because a tax would be imposed upon us as an entity, cash available for distribution to unitholders would be substantially reduced. Treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to unitholders and thus would likely result in a substantial reduction in the value of the common units.

 

Current law may change so as to cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to entity-level taxation. Any modification to the federal income tax laws and interpretations thereof may or may not be applied retroactively and could make it more difficult or impossible to meet the exception for us to be treated as a partnership for federal income tax purposes that is not taxable as a corporation, referred to as the “Qualifying Income Exception,” affect or cause us to change our business activities, affect the tax considerations of an investment in us, change the character or treatment of portions of our income and adversely affect an investment in our common units. For example, in response to certain developments, members of Congress are considering substantive changes to the definition of “qualifying income.” It is possible that these legislative efforts could result in changes to the existing federal income tax laws that affect publicly traded partnerships including us. We are unable to predict whether any of these changes, or other proposals will ultimately be enacted. Any such changes could negatively impact an investment in our common units. In addition, because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. For example, beginning in 2008, we will be required to pay Texas franchise tax at a maximum rate of 0.5% of our gross income apportioned to Texas in the prior year.

 

Tax considerations

 

 

We estimate that if you purchase a common unit in this offering and hold the unit through the record date for the distribution with respect to the final calendar quarter of 2009 (assuming quarterly distributions on the common units with respect to that period are equal to the current announced quarterly distribution rate of $0.27 per common unit), you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be 20% or less of the amount of cash distributed to you with respect to that period. This estimate is based upon many assumptions regarding our business and operations, including assumptions as to tariffs, capital expenditures, cash flows and anticipated cash distributions. This estimate and the underlying assumptions are subject to, among other things, numerous business, economic, regulatory, competitive and political uncertainties beyond our control and to tax reporting positions that we have adopted. The IRS could disagree with our tax reporting positions, including estimates of the relative fair market values of our assets and the validity of certain allocations. Accordingly, we cannot assure you that the estimate will be correct. The actual percentage of distributions that will constitute taxable income could be higher or lower than our estimate, and any differences could be material and could materially affect the value of the common units. For example, the ratio of allocable taxable income to cash distributions could be greater, and perhaps substantially greater, than our estimate with respect to the period described above if:

 

 

Ownership of common units by tax-exempt entities and foreign investors raises issues unique to such persons. Please read “Material Tax Consequences—Tax-Exempt Organizations and Other Investors” beginning on page 35 of the accompanying base prospectus.

 

Management

 

As is common with MLPs, we do not directly employ any persons responsible for managing or operating our activities or for providing services relating to day-to-day business affairs. Our general partner provides such services and is reimbursed for its direct and indirect costs and expenses, including all compensation and benefit costs.

 

The board of directors of our general partner is composed of ten members. Four of the directors, including the Chairman of the Board, are executives of Denbury. In addition, our Chief Executive Officer serves on the board. The three remaining directors are “independent directors” as contemplated by the rules of the American Stock Exchange.

 

DIRECTORS AND EXECUTIVE OFFICERS OF OUR GENERAL PARTNER

 

The following table sets forth certain information concerning the directors and executive officers of our general partner. All executive officers serve at the discretion of our general partner.

 

 

Gareth Roberts has served as a Director and Chairman of the Board of our general partner since May 2002. Mr. Roberts is President, Chief Executive Officer and a director of Denbury Resources Inc. and has been employed by Denbury since 1992.

 

Grant E. Sims has served as Director and Chief Executive Officer of our general partner since August 2006. Mr. Sims had been a private investor since 1999. He was affiliated with Leviathan Gas Pipeline Partners, L.P. from 1992 to 1999, serving as the Chief Executive Officer and a director beginning in 1993 until he left to pursue personal interests, including investments. Leviathan (subsequently known as El Paso Energy Partners, L.P. and then GulfTerra Energy Partners, L.P.) was a NYSE listed master limited partnership.

 

Mark C. Allen has served as a director of our general partner since June 2006. Mr. Allen is Vice President and Chief Accounting Officer of Denbury, and has been employed by Denbury since April 1999.

 

Ronald T. Evans has served as a director of our general partner since May 2002. Mr. Evans is Senior Vice President of Reservoir Engineering of Denbury and has been employed by Denbury since September 1999.

 

Herbert I. Goodman has served as a director of our general partner since January 1997. During 2001, he served as the Chief Executive Officer of PEPEX.NET, LLC, which provides electronic trading solutions to the international oil industry. From 2002 to 2005, he served as Chairman of PEPEX.NET,

 

Management

 

 

LLC. He was Chairman of IQ Holdings, Inc., a manufacturer and marketer of petrochemical-based consumer products until 2004. From 1988 until 1996 he was Chairman and Chief Executive Officer of Applied Trading Systems, Inc., a trading and consulting business.

 

Susan O. Rheney has served as a director of our general partner since March 2002. Ms. Rheney is a private investor and formerly was a principal of The Sterling Group, L.P., a private financial and investment organization, from 1992 to 2000.

 

Phil Rykhoek has served as a director of our general partner since May 2002. Mr. Rykhoek is Chief Financial Officer, Senior Vice President, Secretary and Treasurer of Denbury, and has been employed by Denbury since 1995.

 

J. Conley Stone has served as a director of our general partner since January 1997. From 1987 to his retirement in 1995, he served as President, Chief Executive Officer, Chief Operating Officer and Director of Plantation Pipe Line Company, a common carrier liquid petroleum products pipeline transporter.

 

James E. Davison has served as a director of our general partner since July 2007. Mr. Davison has served as chairman of the board of Davison Transport, Inc. for over 30 years. He also serves as President of Sunshine Oil and Storage, Inc. Mr. Davison has over forty years experience in the energy-related transportation and refinery services businesses.

 

James E. Davison, Jr. has served as a director of our general partner since July 2007. Mr. Davison is also a director of Community Trust Bank and serves on its executive committee.

 

Joseph A. Blount, Jr. has served as President and Chief Operating Officer of our general partner since August 2006. Mr. Blount served as President and Chief Operating Officer of Unocal Midstream & Trade from March of 2000 to September of 2005. In such capacity, Mr. Blount oversaw the worldwide marketing of Unocal’s natural gas, crude oil and condensate resources, the development and management of its pipeline, terminal and storage assets, and its commodity risk management activities. Upon the acquisition of Unocal by Chevron in September of 2005, Mr. Blount left to pursue personal interests, including investments.

 

Ross A. Benavides has served as Chief Financial Officer of our general partner since October 1998. He has served as General Counsel and Secretary since December 1999.

 

Karen N. Pape has served as Senior Vice President since July 2007 and as Controller of our general partner since March 2002. Ms. Pape served as Director of Finance and Administration of our general partner since December 1996.

 

Underwriting

 

We are offering our common units described in this prospectus through the underwriters named below. UBS Securities LLC and Wachovia Capital Markets, LLC are the representatives of the underwriters. Subject to the terms and conditions of an underwriting agreement, which will be filed as an exhibit to the registration statement, each of the underwriters has severally agreed to purchase the number of common units listed next to its name in the following table:

 

 

The underwriting agreement provides that the underwriters must buy all of the common units if they buy any of them. However, the underwriters are not required to take or pay for the common units covered by the underwriters’ option to purchase additional common units described below.

 

Our common units and the common units to be sold upon the exercise of the underwriters’ option to purchase additional common units, if any, are offered subject to a number of conditions, including:

 

 

We have been advised by the representatives that the underwriters intend to make a market in our common units, but that they are not obligated to do so and may discontinue making a market at any time without notice.

 

In connection with this offering, certain of the underwriters or securities dealers may distribute prospectuses electronically.

 

Our general partner will purchase an aggregate of 638,898 common units, or 734,732 common units if the underwriters exercise their over-allotment option in full, concurrently with this offering directly from us at a price equal to the public offering price, less an amount equal to any underwriting discounts and fees that would apply if those units had been offered to the public. The underwriters will not receive any discount or commission on the sale of those common units.

 

OPTION TO PURCHASE ADDITIONAL COMMON UNITS

 

We have granted the underwriters an option to buy up to an aggregate 1,200,000 additional common units. This option may be exercised if the underwriters sell more than 8,000,000 common units in connection with this offering. The underwriters have 30 days from the date of this prospectus to exercise this option. If the underwriters exercise this option, they will each purchase additional common units approximately in proportion to the amounts specified in the table above.

 

COMMISSIONS AND DISCOUNTS

 

Common units sold by the underwriters to the public will initially be offered at the offering price set forth on the cover of this prospectus. Any common units sold by the underwriters to securities dealers may be sold at a discount of up to $0.52 per common unit from the offering price. Any of these

 

Underwriting

 

 

securities dealers may resell any common units purchased from the underwriters to other brokers or dealers at a discount of up to $0.10 per common unit from the public offering price. If all the common units are not sold at the offering price, the representatives may change the offering price and the other selling terms. Sales of common units made outside of the U.S. may be made by affiliates of the underwriters. Upon execution of the underwriting agreement, the underwriters will be obligated to purchase the common units at the prices and upon the terms stated therein, and, as a result, will thereafter bear any risk associated with changing the offering price to the public or other selling terms.

 

The following table shows the per unit and total underwriting discounts and commissions we will pay to the underwriters assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional 1,200,000 units.

 

 

We estimate that the total expenses of this offering payable by us, not including the underwriting discounts and commissions, will be approximately $1.0 million.

 

INDEMNIFICATION

 

We and certain of our affiliates have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, and to contribute to payments that may be required to be made in respect of these liabilities. If we are unable to provide this indemnification, we will contribute to payments the underwriters may be required to make in respect of those liabilities.

 

LOCK-UP AGREEMENTS

 

We, our subsidiaries, our general partner and certain of its affiliates, including the executive officers and certain directors of our general partner, will enter into lock-up agreements with the underwriters. Under these agreements, subject to specified exceptions, we and each of the these persons may not, without the prior written approval of UBS Securities LLC and Wachovia Capital Markets, LLC, offer, sell, contract to sell or otherwise dispose of or hedge our common units or securities convertible into or exchangeable for our common units, enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common units, make any demand for or exercise any right or file or cause to be filed a registration statement with respect to the registration of any common units or any of our other securities or publicly disclose the intention to do any of the foregoing. These restrictions will be in effect for a period of 90 days after the date of this prospectus. The lock-up period may be extended under certain circumstances where we release, or pre-announce a release of our earnings or announce material news or a material event during the 17 days before or 16 days after the termination of the 90-day period in which case the restrictions described will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the materials news or material event.

 

The restrictions described in this paragraph do not apply to:

 

 

At any time and without public notice, UBS Securities LLC and Wachovia Capital Markets, LLC may in their discretion, release all or some of the securities from these lock-up agreements.

 

Underwriting

 

 

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

 

In connection with this offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common units including:

 

 

Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of our common units while this offering is in progress. These transactions may also include making short sales of our common units, which involves the sale by the underwriters of a greater number of common units than they are required to purchase in this offering, and purchasing common units on the open market to cover positions created by short sales. Short sales may be “covered” shorts, which are short positions in an amount not greater than the underwriters’ option to purchase additional common units referred to above, or may be “naked” shorts, which are short positions in excess of that amount.

 

The underwriters may close out any covered short position by either exercising their option to purchase additional common units, in whole or in part, or by purchasing common units in the open market. In making this determination, the underwriters will consider, among other things, the price of common units available for purchase in the open market as compared to the price at which they may purchase common units through their option to purchase additional common units.

 

Naked short sales are in excess of the underwriters’ option to purchase additional common units. The underwriters must close out any naked short position by purchasing common units in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common units in the open market that could adversely affect investors who purchased in this offering.

 

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased units sold by or for the account of such underwriter in stabilizing or short transactions.

 

Prior to purchasing the common units being offered pursuant to this prospectus supplement, on December 4, 2007, one of the underwriters purchased, on behalf of the syndicate, 46,600 common units at an average price of $21.9996 per common unit in stabilizing transactions.

 

LISTING

 

Our common units are traded on the American Stock Exchange under the symbol “GEL.”

 

AFFILIATIONS

 

The underwriters and their affiliates may from time to time in the future engage in transactions with us and perform services for us in the ordinary course of business. In addition, some of the underwriters have engaged in, and may in the future engage in, transactions with us and our predecessor and perform services for us in the ordinary course of their business. In particular, Deutsche Bank Trust Company Americas, an affiliate of Deutsche Bank Securities Inc., is a lender under our credit facility and Deutsche Bank Securities Inc. is the joint lead arranger and syndication agent in our credit facility. Additionally, each of Bank of America, N.A., Royal Bank of Canada and Wachovia Bank, National Association, affiliates of Bank of America Securities LLC, RBC Capital Markets Corporation and Wachovia Capital Markets, LLC, respectively, are co-documentation agents under our credit facility.

 

Underwriting

 

 

NASD AND FINRA CONDUCT RULES

 

Because the Financial Industry Regulatory Authority Inc., or FINRA, views the common units offered by this prospectus supplement as interests in a direct participation program, this offering is being made in compliance with Rule 2810 of the NASD’s Conduct Rules (which are part of the FINRA Rules).

 

Pursuant to a requirement by FINRA, the maximum commission or discount to be received by any FINRA member or independent broker/dealer may not be greater than eight percent (8%) of the gross proceeds received by us for the sale of any securities being registered pursuant to SEC Rule 415 under the Securities Act of 1933.

 

As described under “Use of Proceeds,” we intend to use the proceeds of this offering to, among other things, temporarily repay a portion of the indebtedness under our credit facility. The underwriters or their affiliates may receive proceeds from this offering if they hold such debt on or after the closing of this offering. Because it is possible that the underwriters or their affiliates could receive more than 10% of the proceeds of the offering as repayment for such debt, the offering is made pursuant to the provisions of Section 2710(h) of the NASD Conduct Rules. Pursuant to that section, the appointment of a qualified independent underwriter is not necessary in connection with this offering, as a bona fide independent market (as defined in the NASD Conduct Rules) exists in the common units.

 

ELECTRONIC DISTRIBUTION

 

A prospectus supplement in electronic format may be made available by one or more of the underwriters or their affiliates. The representatives may agree to allocate a number of common units to underwriters for sale to their online brokerage account holders. The representatives will allocate common units to underwriters that may make Internet distributions on the same basis as other allocations. In addition, common units may be sold by the underwriters to securities dealers who resell common units to online brokerage account holders.

 

Other than the prospectus supplement in electronic format, the information on any underwriter’s web site and any information contained in any other web site maintained by an underwriter is not part of the prospectus supplement or the registration statement of which this prospectus supplement forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as an underwriter and should not be relied upon by investors.

 

DISCRETIONARY SALES

 

The underwriters have informed us they do not intend to confirm sales to discretionary accounts that exceed 5% of the total number of units offered by them.

 

Legal matters

 

The validity of the common units being offered and certain tax matters relating to those units will be passed upon for us by Akin Gump Strauss Hauer & Feld LLP, Houston, Texas. Certain legal matters with respect to the legality of the common units being offered will be passed upon for the underwriters by Andrews Kurth LLP, Houston, Texas.

 

Experts

 

The consolidated financial statements as of December 31, 2006 and 2005, and for each of the three years in the period ended December 31, 2006, and management’s report on the effectiveness of internal control over financial reporting as of December 31, 2006 incorporated in this prospectus by reference from the Company’s Annual Report on Form 10-K and the related financial statement schedule included elsewhere in the Registration Statement have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports, which are incorporated herein by reference (which reports (1) express an unqualified opinion on the consolidated financial statements and financial statement schedule and include an explanatory paragraph referring to the changes in methods of accounting for equity-based payments and asset retirement obligations based on the adoption of new accounting standards, (2) express an unqualified opinion on management’s assessment regarding the effectiveness of internal control over financial reporting, and (3) express an unqualified opinion on the effectiveness of internal control over financial reporting), and have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.

 

The balance sheet of Genesis Energy, Inc., incorporated in this prospectus by reference from Genesis Energy, L.P.’s Current Report on Form 8-K as of December 31, 2006 filed on June 11, 2007, has been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated herein by reference, and has been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

 

The combined financial statements of the Davison Combined Entities as of December 31, 2006 and 2005 and for each of the three years in the period ended December 31, 2006 incorporated in this prospectus by reference from the Current Report on Form 8-K/A of Genesis Energy, L.P. filed on October 10, 2007 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

 

The financial statements of Fuel Masters, LLC as of December 31, 2006 and 2005 and for each of the three years in the period ended December 31, 2006, incorporated in this prospectus by reference from the Current Report on Form 8-K/A of Genesis Energy, L.P. filed on October 10, 2007 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

 

The balance sheets of the TDC, L.L.C. (formerly known as Tessenderlo Davison Companies LLC) as of December 31, 2006 and 2005 and the related statements of income, members’ equity and cash flows for each of the years in the three-year period ended December 31, 2006, have been incorporated by reference herein and in the registration statement in reliance upon the report of KPMG LLP, independent auditors, incorporated by reference herein, which report and related financial statements of TDC, L.L.C. appear in the Current Report on Form 8-K/A of Genesis Energy, L.P. filed on October 10, 2007 and upon the authority of said firm as experts in accounting and auditing.

 

Forward-looking statements

 

This prospectus supplement and the accompanying base prospectus contain or incorporate by reference forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Where any forward-looking statement includes a statement of the assumptions or bases underlying the forward-looking statement, we caution that, while we believe these assumptions or bases to be reasonable and made in good faith, assumed facts or bases almost always vary from the actual results, and the differences between assumed facts or bases and actual results can be material, depending upon the circumstances. Where, in any forward-looking statement, we or our management express an expectation or belief as to future results, such expectation or belief is expressed in good faith and is believed to have a reasonable basis. We cannot assure you, however, that the statement of expectation or expressions may identify forward-looking statements. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” and similar terms and phrases, including references to assumptions. These statements are contained in the sections entitled “Genesis Energy, L.P.” and “Risk Factors” and other sections of this prospectus supplement, the accompanying base prospectus and in the documents we have incorporated by reference. These forward-looking statements involve risks and uncertainties that may cause our actual future activities and results of operations to be materially different from those suggested or described in this prospectus supplement, the accompanying base prospectus or the documents we have incorporated by reference. These risks include the risks that are identified in this prospectus supplement in the “Risk Factors” section, as well as the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2006, and the other documents incorporated by reference. These risks may also be specifically described in our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and 8-K/A and other documents we have filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future or otherwise. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected.

 

Where you can find more information

 

We file annual, quarterly and other reports and other information with the SEC. You may read and copy any document we file at the SEC’s public reference room at 100 F. Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for further information on their public reference room. Our SEC filings are also available at the SEC’s website at http://www.sec.gov. You can also obtain information about us at the offices of the American Stock Exchange, 86 Trinity Place, New York, New York 10006.

 

The SEC allows us to incorporate by reference information we file with it. This procedure means that we can disclose important information to you by referring you to documents filed with the SEC. The information we incorporate by reference is part of this prospectus supplement and the accompanying base prospectus, and later information that we file under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, and which is deemed to be “filed,” with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below:

 

 

Where you can find more information

 

 

You may request a copy of these filings at no cost by making written or telephone requests for copies to:

 

Investor Relations

Genesis Energy, L.P.

500 Dallas, Suite 2500

Houston, Texas 77002

(713) 860-2500 or

(800) 284-3365

 

We also make available free of charge on our internet website at http://www.genesiscrudeoil.com our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained on our website is not part of this prospectus.

 

You should rely only on the information incorporated by reference or provided in this prospectus supplement and the accompanying base prospectus. We have not authorized anyone else to provide you with any information. You should not assume that the information incorporated by reference or provided in this prospectus supplement and the accompanying base prospectus is accurate as of any date other than the date on the front of each document.

PROSPECTUS

 

GENESIS ENERGY, L.P.

 

 

 

 

$250,000,000 OF EQUITY SECURITIES

 

 

 

 

We may offer one or more classes or series of equity securities, as described in this prospectus, in one or more separate offerings under this prospectus. This prospectus describes the general terms of these equity securities and the general manner in which we will offer the equity securities.

 

We may offer and sell equity securities using this prospectus only if it is accompanied by a prospectus supplement. We will include the specific terms of any equity securities we offer in a supplement to this prospectus. The prospectus supplement will also describe the specific manner in which we will offer the equity securities. You should read this prospectus and the prospectus supplement carefully.

 

We may sell these equity securities to underwriters or dealers, or we may sell them directly to other purchasers. See “Plan of Distribution.” The prospectus supplement will list any underwriters and the compensation they will receive. The prospectus supplement will also show you the total amount of money that we will receive from selling these equity securities, after we pay certain expenses of the offering.

 

Our common units are listed on the American Stock Exchange under the symbol “GEL.”

 

Investing in our equity securities involves risks. Limited partnerships are inherently different from corporations. You should carefully consider the Risk Factors beginning on page 2 of this Prospectus Before you make an investment in our equity securities.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these equity securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is August 30, 2005.

TABLE OF CONTENTS

 

 

 

 

 

You should rely only on the information contained in this prospectus, any prospectus supplement and the documents we have incorporated by reference. We have not authorized anyone else to provide you different information. We are not making an offer of these equity securities in any state where the offer is not permitted. We will disclose any material changes in our affairs in an amendment to this prospectus, a prospectus supplement or a future filing with the Securities and Exchange Commission incorporated by reference in this prospectus and any prospectus supplement. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of those documents.

 

RISK FACTORS

 

An investment in our equity securities involves risks. You should consider carefully the following risk factors, together with all of the other information included in, or incorporated by reference into, this prospectus and any prospectus supplement in evaluating an investment in our equity securities. This prospectus also contains forward-looking statements that involve risks and uncertainties. Please read “Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this prospectus. If any of these risks occur, our business, financial condition or results of operation could be adversely affected.

 

Risks Related to Our Business

 

We may not have sufficient cash from operations to pay the current level of quarterly distribution following the establishment of cash reserves and payment of fees and expenses, including payments to
our general partner.

 

The amount of cash we distribute on our units principally depends upon margins we generate from our crude oil gathering and marketing operations, margins from the pipeline transportation operations and sales of CO₂, which will fluctuate from quarter to quarter based on, among other things:

 

 

In addition, the actual amount of cash we will have available for distribution will depend on other factors that include:

 

 

You should also be aware that our ability to pay quarterly distributions each quarter depends primarily on our cash flow, including cash flow from financial reserves and working capital borrowings, and is not solely a function of profitability, which will be affected by non-cash items. As a result, we may make cash distributions during periods when we record losses and we may not make distributions during periods when we record net income.

 

Our indebtedness could adversely restrict our ability to operate, affect our financial condition, prevent us from fulfilling our obligations under our debt instruments and making distributions.

 

We have outstanding indebtedness and the ability to incur more indebtedness. As of December 31, 2004, we had approximately $15.3 million outstanding of senior secured indebtedness and approximately $75.4 million outstanding of accounts payable.

We and all of our subsidiaries must comply with various affirmative and negative covenants contained in our credit facilities. Among other things, these covenants limit the ability of us and our subsidiaries to:

 

 

The restrictions under our indebtedness may prevent us from engaging in certain transactions which might otherwise be considered beneficial to us and could have other important consequences to you. For example, they could:

 

 

We may incur additional indebtedness (public or private) in the future, either under our existing credit facilities, by issuing debt instruments, under new credit agreements, under joint venture credit agreements, under capital leases or synthetic leases, on a project finance or other basis, or a combination of any of these. If we incur additional indebtedness in the future, it likely would be under our existing credit facility or under arrangements which may have terms and conditions at least as restrictive as those contained in our existing credit facilities. Failure to comply with the terms and conditions of any existing or future indebtedness would constitute an event of default. If an event of default occurs, the lenders will have the right to accelerate the maturity of such indebtedness and foreclose upon the collateral, if any, securing that indebtedness. If an event of default occurs under our joint ventures’ credit facilities, we may be required to repay amounts previously distributed to us and our subsidiaries. In addition, if there is a change of control as described in our credit facility, that would be an event of default, unless our creditors agreed otherwise, under our credit facility. Any such event could limit our ability to fulfill our obligations under our debt instruments and to make cash distributions to unitholders which could adversely affect the market price of our securities.

 

Our profitability and cash flow is dependent on our ability to increase or, at a minimum, maintain our current commodity — oil, natural gas and CO₂ — volumes, which often depends on actions and commitments by parties beyond our control.

 

Our profitability and cash flow is dependent on our ability to increase or, at a minimum, maintain our current commodity — oil, natural gas and CO₂ — volumes. We access commodity volumes through two sources, producers and service providers (including gatherers, shippers, marketers and other aggregators). Depending on the needs of each customer and the market in which it operates, we can either provide a service for a fee (as in the case of our pipeline transportation operations) or we can purchase the commodity from our customer and resell it to another party (as in the case of oil marketing and CO₂ operations).

Our source of volumes depends on successful exploration and development of additional oil and natural gas reserves by others and other matters beyond our control.

 

The oil, natural gas and other products available to us are derived from reserves produced from existing wells, which reserves naturally decline over time. In order to offset this natural decline, our energy infrastructure assets must access additional reserves. Additionally, some of the projects we have planned or recently completed are dependent on reserves that we expect to be produced from newly discovered properties that producers are currently developing.

 

Finding and developing new reserves is very expensive, requiring large capital expenditures by producers for exploration and development drilling, installing production facilities and constructing pipeline extensions to reach the new wells. Many economic and business factors out of our control can adversely affect the decision by any producer to explore for and develop new reserves. These factors include the prevailing market price of the commodity, the capital budgets of producers, the depletion rate of existing reservoirs, the success of new wells drilled, environmental concerns, regulatory initiatives, cost and availability of equipment, capital budget limitations or the lack of available capital, and other matters beyond our control. Additional reserves, if discovered, may not be developed in the near future or at all. We cannot assure you that production will rise to sufficient levels to allow us to maintain or increase the commodity volumes we are experiencing.

 

We face intense competition to obtain commodity volumes.

 

Our competitors — gatherers, transporters, marketers, brokers and other aggregators — include independents and major integrated energy companies, as well as their marketing affiliates, who vary widely in size, financial resources and experience. Some of these competitors have capital resources many times greater than ours and control substantially greater supplies of crude oil.

 

Even if reserves exist in the areas accessed by our facilities and are ultimately produced, we may not be chosen by the producers to gather, transport, store or otherwise handle any of these reserves. We compete with others for any such volumes on the basis of many factors, including:

 

 

Additionally, third-party shippers do not have long-term contractual commitments to ship crude oil on our pipelines. A decision by a shipper to substantially reduce or cease to ship volumes of crude oil on our pipelines could cause a significant decline in our revenues. In Mississippi, we are dependent on interconnections with other pipelines to provide shippers with a market for their crude oil, and in Texas, we are dependent on interconnections with other pipelines to provide shippers with transportation to our pipeline. Any reduction of throughput available to our shippers on these interconnecting pipelines as a result of testing, pipeline repair, reduced operating pressures or other causes could result in reduced throughput on our pipelines that would adversely affect our cash flows and results of operations.

 

Fluctuations in demand for crude oil, such as those caused by refinery downtime or shutdowns, can negatively affect our operating results. Reduced demand in areas we service with our pipelines can result in less demand for our transportation services. In addition, certain of our field and pipeline operating costs and expenses are fixed and do not vary with the volumes we gather and transport. These costs and expenses may not decrease ratably or at all should we experience a reduction in our volumes gathered by truck or transmitted by our pipelines. As a result, we may experience declines in our margin and profitability if our volumes decrease.

Fluctuations in commodity prices could adversely affect our business.

 

Oil, natural gas, other petroleum product and CO₂ prices are volatile and could have an adverse effect on a portion of our profits and cash flow. Our operations are affected by price reductions. Price reductions can materially reduce the level of exploration, production and development operations, as well as pipeline and marketing volumes.

 

Prices for commodities can fluctuate in response to changes in supply, market uncertainty and a variety of additional factors that are beyond our control.

 

Our operations are dependent upon demand for crude oil by refiners in the Midwest and on the Gulf Coast.

 

Any decrease in this demand for crude oil by the refineries or connecting carriers to which we deliver could adversely affect our business. Those refineries’ need for crude oil also is dependent on the competition from other refineries, the impact of future economic conditions, fuel conservation measures, alternative fuel requirements, government regulation or technological advances in fuel economy and energy generation devices, all of which could reduce demand for our services.

 

We are exposed to the credit risk of our customers in the ordinary course of our crude oil gathering and marketing activities.

 

When we market crude oil, we must determine the amount, if any, of the line of credit we will extend to any given customer. Since typical sales transactions can involve tens of thousands of barrels of crude oil, the risk of nonpayment and nonperformance by customers is an important consideration in our business. In those cases where we provide division order services for crude oil purchased at the wellhead, we may be responsible for distribution of proceeds to all parties. In other cases, we pay all of or a portion of the production proceeds to an operator who distributes these proceeds to the various interest owners. These arrangements expose us to operator credit risk. As a result, we must determine that operators have sufficient financial resources to make such payments and distributions and to indemnify and defend us in case of a protest, action or complaint. Even if our credit review and analysis mechanisms work properly, there can be no assurance that we will not experience losses in dealings with other parties.

 

Our operations are subject to federal and state environmental and safety regulations and laws related to environmental protection and operational safety.

 

Our gathering and pipeline operations are subject to the risk of incurring substantial environmental and safety related costs and liabilities. These costs and liabilities could rise under increasingly strict environmental and safety laws, including regulations and enforcement policies, or claims for damages to property or persons resulting from our operations. If we are unable to recover such resulting costs through increased rates or insurance reimbursements, our cash flows and distributions to our unitholders could be materially affected.

 

The transportation and storage of crude oil involves a risk that crude oil and related hydrocarbons may be suddenly or gradually released into the environment, which may result in substantial expenditures for a response action, significant government penalties, liability to government agencies for natural resources damages, liability to private parties for personal injury or property damages, and significant business interruption.

 

Our CO₂ operations primarily relate to our volumetric production payment, which is a finite resource projected to terminate around 2015.

 

The cash flow from our CO₂ operations primarily relates to our volumetric production payment, which is projected to terminate around 2015. Unless we are able to obtain a replacement supply of CO₂ and enter into sales arrangements that generate substantially similar economics, our cash flow could decline significantly around 2015.

Our CO₂ operations are exposed to risks related to Denbury Resources’ operation of their CO₂ fields, equipment and pipeline.

 

Because Denbury Resources produces the CO₂ and transports the CO₂ to our customers, any major failure of its operations could have an impact on our ability to meet our obligations to our CO₂ customers. We have no other supply of CO₂ or method to transport it to our customers.

 

The CO₂ supplied by Denbury Resources to us for our sale to our customers could fail to meet the quality standards in the contracts due to impurities or water vapor content. If the CO₂ were below specifications, we could be contractually obligated to provide compensation to our customers for the costs incurred in raising the CO₂ quality to serviceable levels required by our contracts.

 

Fluctuations in demand for CO₂ by our industrial customers could materially impact our profitability.

 

Our customers are not obligated to purchase volumes in excess of specified minimum amounts in our contracts. As a result, fluctuations in our customers’ demand due to market forces or operational problems could result in a reduction in our revenues from our sales of CO₂.

 

Our wholesale CO₂ industrial operations are dependent on three customers.

 

If one or more of those customers experience financial difficulties such that they fail to purchase their required minimum take-or-pay volumes, our cash flows could be adversely affected. We believe these three customers are credit worthy, but we cannot assure you that an unanticipated deterioration in their ability to meet their obligations to us might not occur.

 

We may not be able to fully execute our growth strategy if we encounter tight capital markets or increased competition for qualified assets.

 

Our strategy contemplates substantial growth through the development and acquisition of a wide range of midstream and other energy infrastructure assets while maintaining a strong balance sheet. This strategy includes constructing and acquiring additional assets and businesses to enhance our ability to compete effectively, diversify our asset portfolio and, thereby, provide more stable cash flow. We regularly consider and enter into discussions regarding, and are currently contemplating, additional potential joint ventures, stand-alone projects and other transactions that we believe will present opportunities to realize synergies, expand our role in the energy infrastructure business, and increase our market position and, ultimately, increase distributions to unitholders.

 

We will need new capital to finance the future development and acquisition of assets and businesses. Limitations on our access to capital will impair our ability to execute this strategy. Expensive capital will limit our ability to develop or acquire accretive assets. Although we intend to continue to expand our business, this strategy may require substantial capital, and we may not be able to raise the necessary funds on satisfactory terms, if at all.

 

In addition, we are experiencing increased competition for the assets we purchase or contemplate purchasing. Increased competition for a limited pool of assets could result in our not being the successful bidder more often or our acquiring assets at a higher relative price than that which we have paid historically. Either occurrence would limit our ability to fully execute our growth strategy. Our ability to execute our growth strategy may impact the market price of our securities.

Our growth strategy may adversely affect our results of operations if we do not successfully integrate the businesses that we acquire or if we substantially increase our indebtedness and contingent liabilities to make acquisitions.

 

We may be unable to integrate successfully businesses we acquire. We may incur substantial expenses, delays or other problems in connection with our growth strategy that could negatively impact our results of operations. Moreover, acquisitions and business expansions involve numerous risks, including:

 

 

If consummated, any acquisition or investment also likely would result in the incurrence of indebtedness and contingent liabilities and an increase in interest expense and depreciation, depletion and amortization expenses. A substantial increase in our indebtedness and contingent liabilities could have a material adverse effect on our business, as discussed above.

 

Our actual construction, development and acquisition costs could exceed our forecast, and our cash flow from construction and development projects may not be immediate.

 

Our forecast contemplates significant expenditures for the development, construction or other acquisition of energy infrastructure assets, including some construction and development projects with technological challenges. We may not be able to complete our projects at the costs currently estimated. If we experience material cost overruns, we will have to finance these overruns using one or more of the following methods:

 

 

Any or all of these methods may not be available when needed or may adversely affect our future results of operations.

 

Fluctuations in interest rates could adversely affect our business.

 

In addition to our exposure to commodity prices, we also have exposure to movements in interest rates. The interest rates on our indebtedness outstanding on the date of this prospectus, like our credit facility, are variable. Our results of operations and our cash flow, as well as our access to future capital and our ability to fund our growth strategy, could be adversely affected by significant increases or decreases in interest rates.

 

Our use of derivative financial instruments could result in financial losses.

 

We use financial derivative instruments and other hedging mechanisms from time to time to limit a portion of the adverse effects resulting from changes in commodity prices, although there are times when we do not have any hedging mechanisms in place. To the extent we hedge our commodity price exposure, we forego the benefits we would otherwise experience if commodity prices were to increase. In addition, we could experience losses resulting from our hedging and other derivative positions. Such losses could occur under various circumstances, including if our counterparty does not perform its obligations under the hedge arrangement, our hedge is imperfect, or our hedging policies and procedures are not followed.

A natural disaster, catastrophe or other interruption event involving us could result in severe personal injury, property damage and environmental damage, which could curtail our operations and otherwise adversely affect our assets and cash flow.

 

Some of our operations involve higher risks of severe personal injury, property damage and environmental damage, any of which could curtail our operations and otherwise expose us to liability and adversely affect our cash flow. Virtually all of our operations are exposed to the elements, including tornadoes, storms, floods and earthquakes.

 

If one or more facilities that are owned by us or that connect to us is damaged or otherwise affected by severe weather or any other disaster, accident, catastrophe or event, our operations could be significantly interrupted. Similar interruptions could result from damage to production or other facilities that supply our facilities or other stoppages arising from factors beyond our control. These interruptions might involve significant damage to people, property or the environment, and repairs might take from a week or less for a minor incident to six months or more for a major interruption. Any event that interrupts the fees generated by our energy infrastructure assets, or which causes us to make significant expenditures not covered by insurance, could reduce our cash available for paying our interest obligations as well as unitholder distributions and, accordingly, adversely impact the market price of our securities. Additionally, the proceeds of any property insurance maintained by us may not be paid in a timely manner or be in an amount sufficient to meet our needs if such an event were to occur, and we may not be able to renew it or obtain other desirable insurance on commercially reasonable terms, if at all.

 

FERC regulation and a changing regulatory environment could affect our cash flow.

 

The FERC extensively regulates certain of our energy infrastructure assets. This regulation extends to such matters as:

 

 

Given the extent of this regulation, the extensive changes in FERC policy over the last several years, the evolving nature of regulation and the possibility for additional changes, the current regulatory regime may change and affect our financial position, results of operations or cash flows.

 

Terrorist attacks aimed at the partnership’s facilities could adversely affect the business.

 

On September 11, 2001, the United States was the target of terrorist attacks of unprecedented scale. Since the September 11 attacks, the U.S. government has issued warnings that energy assets, specifically the nation’s pipeline infrastructure, may be the future targets of terrorist organizations. These developments have subjected our operations to increased risks. Any future terrorist attack at our facilities, those of our customers and, in some cases, those of other pipelines, could have a material adverse effect on our business.

 

Risks Related to Our Partnership Structure

 

Denbury Resources and its affiliates have conflicts of interest with us and limited fiduciary responsibilities, which may permit them to favor their own interests to your detriment.

 

Denbury Resources indirectly owns and controls our general partner. Conflicts of interest may arise between Denbury Resources and its affiliates, including our general partner, on the one hand, and us and our unitholders, on the other hand. As a result of these conflicts, our general partner may favor its own

interest and the interest of its affiliates or others over the interest of our unitholders. These conflicts include, among others, the following situations:

 

 

We expect to continue to enter into substantial transactions and other activities with Denbury Resources and its subsidiaries because of the businesses and areas in which we and Denbury Resources currently operate, as well as those in which we plan to operate in the future. Some more recent transactions in which we, on the one hand, and Denbury Resources and its subsidiaries, on the other hand, had a conflict of interest include:

 

 

In addition, Denbury Resources’ beneficial ownership interest in our outstanding partnership interests could have a substantial effect on the outcome of some actions requiring partner approval. Accordingly, subject to legal requirements, Denbury Resources makes the final determination regarding how any particular conflict of interest is resolved.

 

Even if unitholders are dissatisfied, they cannot easily remove our general partner.

 

Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business.

 

Unitholders did not elect our general partner or its board of directors and will have no right to elect our general partner or its board of directors on an annual or other continuing basis. The board of directors

of our general partner is chosen by the stockholders of our general partner. In addition, if the unitholders are dissatisfied with the performance of our general partner, they will have little ability to remove our general partners. As a result of these limitations, the price at which the common units trade could be diminished because of the absence or reduction of a takeover premium in the trading price.

 

The vote of the holders of at least a majority of all outstanding units (excluding any units held by our general partner and its affiliates) is required to remove the general partner without cause. For the definition of “cause,” please see “Description of Our Partnership Agreement” in this prospectus. If our general partner is removed without cause, (i) Denbury Resources will have the option to acquire a substantial portion of our Mississippi pipeline system at 110% of its then fair market value, and (ii) our general partner will have the option to convert its interest in us (other than its common units) into common units or to require our replacement general partner to purchase such interest for cash at its then fair market value. In addition, unitholders’ voting rights are further restricted by our partnership agreement provision providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than the general partner, its affiliates, their transferees, and persons who acquired such units with the prior approval of the board of directors of the general partner, cannot vote on any matter. Our partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the unitholders’ ability to influence the manner of direction of management.

 

As a result of these provisions, the price at which our common units trade may be lower because of the absence or reduction of a takeover premium.

 

The control of our general partner may be transferred to a third party without unitholder consent, which could effect our strategic direction and liquidity.

 

Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of the unitholders. Furthermore, there is no restriction in our partnership agreement on the ability of the owner of our general partner from transferring its ownership interest in the general partner to a third party. The new owner of the general partner would then be in a position to replace the board of directors and officers of the general partner with its own choices and to control the decisions taken by the board of directors and officers.

 

In addition, unless our creditors agreed otherwise, we would be required to repay the amounts outstanding under our credit facilities upon the occurrence of any change of control described therein. We may not have sufficient funds available or be permitted by our other debt instruments to fulfill these obligations upon such occurrence. A change of control could have other consequences to us depending on the agreements and other arrangements we have in place from time to time, including employment compensation arrangements.

 

Our general partner and its affiliates may sell units or other limited partner interests in the trading market, which could reduce the market price of common units.

 

As of December 31, 2004, our general partner and its affiliates own 688,811 (approximately 7%) of our common units. In the future, they may acquire additional interest or dispose of some or all of their interest. If they dispose of a substantial portion of their interest in the trading markets, the sale could reduce the market price of common units. Our partnership agreement, and other agreements to which we are party, allow our general partner and certain of its subsidiaries to cause us to register for sale the partnership interests held by such persons, including common units. These registration rights allow our general partner and its subsidiaries to request registration of those partnership interests and to include any of those securities in a registration of other capital securities by us.

 

Our general partner has anti-dilution rights.

 

Whenever we issue equity securities to any person other than our general partner and its affiliates, our general partner and its affiliates have the right to purchase an additional amount of those equity securities on the same terms as they are issued to the other purchasers. This allows our general partner and its affiliates to maintain their percentage partnership interest in us. No other unitholder has a similar right.

Therefore, only our general partner may protect itself against dilution caused by the issuance of additional equity securities.

 

Due to our significant relationships with Denbury Resources, adverse developments concerning Denbury Resources could adversely affect us, even if we have not suffered any similar developments.

 

Through its subsidiaries, Denbury Resources owns 100 percent of our general partner and has historically, with its affiliates, employed the personnel who operate our businesses. Denbury Resources is a significant stakeholder in our limited partner interests, and as with many other energy companies, is a significant customer of ours.

 

We may issue additional common units without your approval, which would dilute your ownership interests.

 

We may issue an unlimited number of limited partners interests of any type without the approval of our unitholders.

 

The issuance of additional common units or other equity securities of equal or senior rank will have the following effects:

 

 

Our general partner has a limited call right that may require you to sell your common units at an undesirable time or price.

 

If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their then-current market price. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your units.

 

The interruption of distributions to us from our subsidiaries and joint ventures may affect our ability to make payments on indebtedness or cash distributions to our unitholders.

 

We are a holding company. As such, our primary assets are the equity interests in our subsidiaries and joint ventures. Consequently, our ability to fund our commitments (including payments on our indebtedness) and to make cash distributions depends upon the earnings and cash flow of our subsidiaries and joint ventures and the distribution of that cash to us. Distributions from our joint ventures are subject to the discretion of their respective management committees. Further, each joint venture’s charter documents typically vest in its management committee sole discretion regarding distributions. Accordingly, our joint ventures may not continue to make distributions to us at current levels or at all.

 

We cannot cause our joint ventures to take or not to take certain actions unless some or all of the joint venture participants agree.

 

Due to the nature of joint ventures, each participant (including us) in our joint venture, T & P Syngas Supply Company, has made substantial investments (including contributions and other commitments) in that joint venture and, accordingly, has required that the relevant charter documents contain certain features designed to provide each participant with the opportunity to participate in the management of the joint venture and to protect its investment in that joint venture, as well as any other assets which may be substantially dependent on or otherwise affected by the activities of that joint venture. These participation and protective features include a corporate governance structure that consists of a management committee

composed of four members, only two of which are appointed by us. In addition, Praxair, the other 50% owner, operates the joint venture facilities. Thus, without the concurrence of the other joint venture participant, we cannot cause our joint venture to take or not to take certain actions, even though those actions may be in the best interest of the joint venture or us. As of April 1, 2005, our aggregate investment in T & P Syngas Supply Company totaled $13.5 million.

 

Our syngas operations are dependent on one customer.

 

Our joint venture has dedicated 100% of its syngas processing capacity to one customer pursuant to a processing contract. The contract term expires in 2016, unless our customer elects to extend the contract for two additional five year terms. If our customer reduces or discontinues its business with us, or if we are not able to successfully negotiate a replacement contract with our sole customer after the expiration of such contract, or if the replacement contract is on less favorable terms, the effect on us will be adverse. In addition, if our sole customer for syngas processing were to experience financial difficulties such that it failed to provide volumes to process, our cash flow from the syngas joint venture could be adversely affected. We believe this customer is creditworthy, but we cannot assure you that unanticipated deterioration of their abilities to meet their obligations to the syngas joint venture might not occur.

 

We do not have the same flexibility as other types of organizations to accumulate cash and equity to protect against illiquidity in the future.

 

Unlike a corporation, our partnership agreement requires us to make quarterly distributions to our unitholders of all available cash reduced by any amounts reserved for commitments and contingencies, including capital and operating costs and debt service requirements. The value of our units and other limited partner interests will decrease in direct correlation with decreases in the amount we distribute per unit. Accordingly, if we experience a liquidity problem in the future, we may not be able to issue more equity to recapitalize.

 

Tax Risks to Common Unitholders