CALGARY, Alberta, Jan. 30, 2018 (GLOBE NEWSWIRE) — Gibson Energy Inc. (“Gibson” or the “Company”), (TSX:GEI), announced today its corporate strategy to accelerate its transition to a focused oil infrastructure growth company. As part of that strategy, the Company will divest several non-core businesses and target competitive distributable cash per share and dividend growth.
The key attributes of the go-forward strategy are:
- Oil Infrastructure Focus: infrastructure to comprise approximately 85% of segment profit by the end of 2019, with the Hardisty and Edmonton terminals representing approximately 75% of segment profit
- Targeting 10% Distributable Cash Flow Per Share Growth: aim to invest $150 million to $200 million in growth capital per year, inclusive of the expected sanction of at least 1 to 2 tanks per year that provides mid- to upper-single digit distributable cash flow per share growth
- Secure, Growing Dividend: underpinned by long-term contracts with Investment Grade counterparties at its terminal assets, with total company cash flows comprised of approximately 85% take-or-pay or stable fee-based structures by the end of 2019
“Accelerating the shift towards an oil infrastructure focus meaningfully improves the quality of our cash flows and better positions Gibson to target double-digit distributable cash flow per share growth,” said Steve Spaulding, President and Chief Executive Officer. “We believe we have high visibility to reaching these targets through 2019 based on projects already under construction and anticipated cost savings, with disposition proceeds expected to fully fund related growth capital. Longer term, to secure the capital investment opportunities we require to drive our growth, we need to be focused on the business lines and basins in which we have the strongest competitive positions.”
Canadian Business Strategy
Gibson’s world-class terminals position forms the core of its Canadian business strategy. The Company expects that the long-term growth of oil sands production will continue to increase heavy oil flows into Hardisty, driving producer demand for additional tankage. Gibson has a very strong competitive position at Hardisty and expects that the Company will continue to secure a significant proportion of incremental third-party tank build opportunities. These factors are expected to support the sanction of at least 1 to 2 tanks per year on run-rate basis in an approximately US$45 to US$65 per barrel oil price environment, with potential upside if oil prices continue to strengthen or if producer demand for days of storage increases.
The Company will also continue to grow its businesses that leverage the core terminal position. Ancillary services within the terminals are expected to continue to generate smaller-scale investment opportunities, including additional pipeline connections, blending and other optimizations on behalf of terminal customers. The Company also seeks to expand its pipeline gathering network surrounding Hardisty in the Viking Basin by leveraging existing storage capabilities and access to egress pipelines at its terminals.
At its Moose Jaw Facility, the Company believes there are opportunities to realize further operating and maintenance capital cost efficiencies. The Company is also evaluating potential high-return capital projects, including increasing throughput at the facility at an attractive relative cost. Consistent with its infrastructure focus, the Company has initiated a process to reduce cash flow variability by securing take-or-pay tolling structures on a portion of output capacity and will re-evaluate the role of the Moose Jaw Facility in the future.
U.S. Business Strategy
In the U.S., Gibson will focus on the Permian and SCOOP / STACK basins and leverage its injection station position in these plays as a competitive advantage to build gathering systems relative to other regional players. Over the next 12 to 24 months, the Company will seek to restore its U.S. business profitability to prior levels of $10 million to $15 million on a run-rate basis by establishing the producer relationships required to drive incremental volumes to the injection stations and existing gathering systems. The longer-term objective in the U.S. will be to translate trucked volumes and producer relationships into infrastructure capital investment opportunities, including the development of regional gathering pipelines, in order to establish an additional growth platform that provides an incremental $25 million to $50 million of capital investment opportunities each year.
Gibson is committed to divesting of its non-core business lines in a timely, structured manner. The Company has continued to advance the sale of its U.S. Environmental Services business as previously announced, and expects to complete the divestiture by the end of the first half of 2018. As part of the new strategy, the Company also intends to divest of several other businesses that have been deemed non-core based on their strategic fit with Gibson’s oil infrastructure focus and target basins:
|Business||Target Closing Date|
|NGL Wholesale||Q3 2018|
|Canadian Truck Transportation||Mid 2019|
|Non-Core Canadian Environmental Services||Mid 2019|
|Non-Core U.S. Injection Stations and Truck Transportation||Q4 2018|
The Company has engaged an advisor to support the sale of NGL Wholesale and expects to place all the remaining assets to be disposed into the market by the end of 2018, with a target of concluding the non-core divestiture process by mid-2019. Aggregate proceeds from the sale of non-core businesses are expected to range between $275 million and $375 million, and will be reinvested into the core infrastructure business through funding future growth capital expenditures.
Gibson remains committed to maintaining a strong financial position to underpin its dividend, fund future growth capital and preserve flexibility. In its funding strategy through the end of 2019, the Company expects that disposition proceeds will fully fund growth capital requirements while distributable cash flow will approximate dividends paid over the period.
With the continued growth of the terminals business, the Company has achieved its goal of covering its fixed capital charges with infrastructure cash flows. As part of its desire to maintain a strong financial position, the Company will target a payout ratio of 70% to 80% of distributable cash flow and leverage of 3.0x – 3.5x Net Debt to Adjusted EBITDA, which the Company believes are achievable in the medium term. The Company will also continue to focus on improving the quality of its cash flows, targeting greater than 80% of segment profit from take-or-pay and stable fee-based contract structures with over 85% of long-term contract exposures to be with investment-grade counterparties.
“Through the strategic disposition of a significant portion of our non-infrastructure businesses, there are the additional benefits of improving both the quality of our cash flows and our balance sheet strength,” said Sean Brown, Senior Vice President and Chief Financial Officer. “We believe that the disposition proceeds will fully fund our growth capital expenditures through to the end of 2019, with the resulting growth in infrastructure cash flows and cost savings moving us towards our payout ratio and leverage targets. Over the longer term, we will maintain a conservative balance sheet through balanced funding of growth capital investment as part of our goal of translating our distributable cash flow growth into dividend per share growth and our pursuit of an investment grade credit rating.”
Investor Day Webcast Details
Gibson is hosting an Investor Day on the morning of Tuesday, January 30, 2018 in downtown Toronto during which management will provide a discussion of the Company’s strategy, operations and future opportunities for interested investors and analysts.
The Investor Day will be webcast beginning at 8:45am Eastern Time (6:45am Mountain Time) and will be available through Gibson’s website www.gibsonenergy.com or may be accessed directly at the following URL:
The presentation materials, which include certain estimates for 2017 to 2019 year end, and beyond, will be made available immediately prior to the start time of 8:45am Eastern Time on Gibson’s website at: www.gibsonenergy.com/investors/presentation-and-events and a replay of the webcast will be available shortly after the conclusion of the event. The presentation materials will also be available on SEDAR by accessing the Company’s profile at www.sedar.com.
Gibson is a Canadian-based, dividend paying oil infrastructure growth company with its principal businesses consisting of the storage, blending, processing, and gathering of crude oil and refined products. Headquartered in Calgary, Alberta, the Company’s operations are focused around its core terminal assets located at Hardisty and Edmonton, Alberta, and also include the Moose Jaw Facility and injections stations in Texas and Oklahoma.
Gibson Energy Inc. shares trade under the symbol GEI and are listed on the Toronto Stock Exchange. For more information, visit www.gibsonenergy.com.
|(in $ millions)||Q3||Q2||Q1||Q4||Q3||Q2||Q1||FY|
|Segment profit from reportable segments|
|Total segment profit||64||74||87||88||65||48||64||265|
|Select operating segment profit|
|Terminals and pipelines and injection stations||55||53||53||49||44||42||42||177|
|Canadian trucking and transportation||6||6||6||7||4||2||5||18|
|U.S. environmental services||7||8||2||3||4||(2||)||2||8|
|All other operating segments||(4||)||7||26||28||13||5||15||61|
|Total segment profit||64||74||87||88||65||48||64||265|
|Select operating segment maintenance capital|
|Terminals and pipelines and injection stations||3||–||–||2||1||1||1||4|
|Canadian trucking and transportation||1||–||1||1||1||1||1||5|
|U.S. environmental services||2||1||1||2||–||1||1||4|
|All other operating segments||2||4||3||3||3||7||2||16|
|Total maintenance capital||7||5||5||8||5||11||5||29|
|Select operating segment growth capital|
|Terminals and pipelines and injection stations||45||19||23||28||46||47||49||170|
|Canadian trucking and transportation||–||–||–||–||–||–||1||1|
|U.S. environmental services||2||1||–||3||–||–||–||3|
|All other operating segments||2||4||2||3||15||6||5||29|
|Total growth capital||49||24||25||34||61||53||55||203|