Gibson Energy Inc . (TSX:GEI) has reported robust operational and financial outcomes for the first quarter of 2024, with a consistent Infrastructure segment performance and a Marketing segment that exceeded expectations. The company announced plans to invest in growth and infrastructure, while maintaining a solid financial base and engaging in discussions about potential share buybacks later in the year.
Key Takeaways
- Gibson Energy's Infrastructure segment reported an adjusted EBITDA of CAD 151 million.
- Marketing segment's adjusted EBITDA reached CAD 34 million, surpassing guidance.
- Consolidated adjusted EBITDA stood at CAD 170 million with a distributable cash flow of CAD 114 million.
- The company maintained a leverage ratio of 3.2x and a payout ratio of 63%.
- Gibson Energy is planning to invest CAD 150 million in growth capital, focusing on Canadian assets and the Gateway Terminal.
- Construction of two new tanks at the Edmonton Terminal is on schedule.
- The company expects to announce news regarding the Gateway Terminal in Q2.
- Executives discussed the potential for share buybacks later in the year, dependent on business performance.
- Gibson Energy has achieved strong safety and ESG results, with a TRIF ratio of 0.22.
Company Outlook
- Gibson Energy plans to deploy CAD 150 million in growth capital, with CAD 125 million already sanctioned.
- An additional CAD 25 million in growth capital is expected to be sanctioned.
- The company is on track with its construction projects and contract negotiations.
- Discussions with customers for the Gateway Terminal are progressing, with updates anticipated in the second quarter.
Bearish Highlights
- The company remains conservative about share buybacks due to market uncertainties.
- Contract negotiations can be unpredictable, which may affect timing and execution.
Bullish Highlights
- The Marketing segment performed above the long-term run rate, suggesting strong market positioning.
- The company has a strong safety and ESG track record, which may appeal to environmentally conscious investors.
Misses
- There were no specific financial misses reported in the earnings call.
Q&A Highlights
- Executives confirmed flexibility in contract strategies and the ability to layer in new contracts.
- Buyback discussions indicated a cautious approach, with decisions to be based on the year's performance.
- Amendments to the credit facility were clarified as legal formalities without impacting the company's operational flexibility.
Gibson Energy's first-quarter performance showcases a company that is not only maintaining a steady operational pace but also looking to expand and invest in its future. With a clear plan for capital deployment and ongoing projects, the company appears poised for continued growth. However, executives are taking a cautious approach to share buybacks, signaling a conservative strategy in the face of market uncertainties. Investors and stakeholders can expect further updates on the company's progress in the coming quarters, particularly with regards to the Gateway Terminal and the potential for share buybacks in the latter half of the year.
Full transcript - None (GBNXF) Q1 2024:
Operator: Good morning, everyone, and welcome to the Gibson Energy First Quarter 2024 Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Beth Pollock, Vice President, Capital Markets and Risk. Ms. Pollock, please go ahead.
Beth Pollock: Thank you, Operator. Good morning, and thank you for joining us on this conference call discussing our first quarter 2024 operational and financial results. Joining me on the call this morning from Gibson Energy are Steve Spaulding, President and Chief Executive Officer; and Sean Brown, Senior Vice President and Chief Financial Officer. We also have the rest of the senior management team in the room to help with questions-and-answers as required. Listeners are reminded that today's call refers to non-GAAP measures, forward-looking, and pro forma financial information, which is derived in part from historical financial information of South Texas Gateway Terminal LLC, and is subject to certain assumptions and adjustments, and may not be indicative of actual results. Descriptions and qualifications of such measures and information are set out in our Investor Presentation available on our website and our continuous disclosure documents available on SEDAR+. Now, I would like to turn the call over to Steve.
Steve Spaulding: Thanks, Beth. Good morning, everyone, and thank you for joining us today. We're excited to announce another great quarter, demonstrating the strength and stability of our Canadian and U.S. infrastructure assets, including our recently-acquired Gateway Terminal, as well as the earnings power of our marketing business. In our Infrastructure segment, we reported CAD 151 million of adjusted EBITDA in the first quarter of 2024, which is in line with the high watermark set last quarter. In addition, marketing adjusted EBITDA of CAD 34 million was above our long-term run rate for the quarter, and above the greater than CAD 30 million guidance we provided on our Q4 call. On a consolidated basis, adjusted EBITDA of CAD 170 million is consistent with last quarter's record. Distributable cash flow of CAD 114 million was in line with our previous record of CAD 115 million. The strong performance was driven by the addition of the Gateway last year, as well as continued solid results from our Canadian Infrastructure business and our Marketing segment's ability to capture opportunities. We also maintained our robust financial position. And leverage of 3.2x was well within our target range of 3.0x to 3.5x, with adjusting for the full-year of Gateway's adjusted EBITDA. Our payout ratio, of 63%, was below the bottom end of our 70% to 80% target range. Looking ahead to the rest of 2024, we continue to anticipate deploying CAD 150 million in growth capital, with CAD 125 million of that at our Canadian Infrastructure assets, primarily at Edmonton, and the remaining CAD 25 million at our Gateway Terminal. Construction of the two new tanks at our Edmonton Terminal remains on schedule, and we expect to place these tanks into service late this year. These tanks represent 870,000 barrels of new tankage, and underpinned by a 15-year take-or-pay agreement with Cenovus. This will further increase our high-quality long-term infrastructure revenues, and support our customers' shipments on TMX pipeline. We also continue to maintain an active dialogue with our customers to see how we can best support them during this exciting time for Canadian energy. With respect to Gateway, we continue to perform in line or above our expectations from when we acquired the facility. With record volumes through the facility in the quarter, we also maintain our optimistic commercial outlook around entering into contracts with new or existing customers at or above the existing rates. Discussions with customers are progressing, and we still expect to have news to announce, either in advance or with our second quarter results. In terms of safety and ESG more broadly, we completed 2023 with a TRIF ratio of 0.22, the lowest employee TRIF ratio result in our company's 70-year history, and zero lost time injuries and zero reportable vehicle incidents, and zero reportable spills. Our employees and contractors have now worked over 7.6 million hours since our last lost time injury. Despite these successes, we will not become complacent in our Mission Zero goal of no harm to people, environment, and the asset remains front of mind. In addition, during the quarter, we are proud to have been recognized by Globe and Mail as one of 30 Canadian companies with strong management leading to journey down the road to net zero. The acknowledgement further reinforces our leadership when it comes to ESG. In closing, the business delivered another solid quarter. This marked another great start to the year. Canadian Infrastructure continues to perform well across all our assets. And the Gateway Terminal is performing ahead of our initial expectations, with contracting news expected by our Q2 earnings call. Our Marketing segment delivered strong results in line with our previous guidance, with full-year results expected to be within that CAD 80 million to CAD 120 million run rate. I'll now pass it on to Sean, who will walk us through our financial results in more detail. Sean?
Sean Brown: Thank you, Steve. As Steve mentioned, we had another solid quarter to start the year. Infrastructure adjusted EBITDA, of CAD 151 million in the first quarter of 2024, was CAD 43 million higher than the same quarter last year, driven primarily by the contribution from our Gateway Terminal, as well as continued strong financial performance from our Canadian Infrastructure businesses, which included a second consecutive quarter with the new TMX tank in Edmonton in service. Q1 2024 Infrastructure results were also consistent with Q4 2023 results. Turning to the Marketing segment, adjusted EBITDA of CAD 34 million was a CAD 6 million increase over the fourth quarter of 2023, ahead of the outlook we provided on our last quarterly call of over CAD 30 million, and also above the high end of our long-term run rate on a quarterly basis. The strong quarter was driven by outsized storage opportunities which allowed our Crude Marketing group to realize higher than expected earnings. Looking forward for Marketing, based on the current environment, we would expect adjusted EBITDA of CAD 20 million or greater in the second quarter, keeping us within our long-term guidance of CAD 80 million to CAD 120 million annually. In the second quarter, crude margins are expected to be driven primarily by time-based opportunities, while refined products performance should benefit from strengthening asphalt prices which are anticipated to offset the impact of tighter heavy differentials in Western Canada. However, we will be well-positioned to benefit if other opportunities arise. To complete the discussion of results for this quarter, let me briefly discuss a couple of items impacting distributable cash flow. The first quarter result, of CAD 114 million, was a CAD 7.00 million increase from the first quarter of 2023, and a CAD 12 million increase from the Q4 2023 results. When comparing to the first quarter of 2023, the primary driver of the increase was increased cash flows from the Gateway Terminal and, to a lesser extent, lower current income tax, which was partially offset by higher financing costs relating to leverage incurred to finance the Gateway Terminal acquisition. Turning to our financial position, our strong performance has allowed us to maintain a conservative balance sheet, with pro forma net debt to adjusted EBITDA of 3.2x, within our target range of 3.0x to 3.5x, and a well-covered dividend with our payout ratio of 63%, well below the bottom end of our 70% to 80% target range. Looking at our ratios on an Infrastructure-only basis, our payout ratio is approximately 75%, well below our target of 100%, and pro forma leverage of 3.5x is also well below our target of 4.0x when accounting for a full-year of Gateway-adjusted EBITDA contribution. In terms of our liquidity and debt maturity profile, subsequent to the quarter, we enhanced our financial flexibility by extending the maturity of our CAD 1 billion sustainably-linked revolving credit facility to 2029, with full support from our lending syndicate. This further optimizes our staggered debt maturity profile. In summary, we are pleased to have started 2024 off with a strong quarter. Infrastructure results were in line with record contributions in Q4 2023, Marketing adjusted EBITDA of CAD 34 million was ahead of our previous guidance of greater than CAD 30 million, with the Q2 outlook within our CAD 80 million to CAD 120 million run rate, and we continue to progress commercial discussions at Gateway, and expect to have news in advance of or when we announce our Q2 results. I will now turn the call over to the operator to open it up for questions.
Operator: Thank you. [Operator Instructions] And today, our first question, it will be coming from Jeremy [indiscernible] of JP Morgan Securities. Your line is open.
Eli Jossen: Morning. This is Eli Jossen on for Jeremy. Just maybe wanted to start on Gateway, circling back to previous comments about organic growth opportunities at the asset. Can you walk us through how you get to some of those 10% or more organic growth opportunities, and what you might be doing with floating windows or otherwise? And then, how do you see this evolving from a timing perspective?
Steve Spaulding: Sure. We're actively negotiating currently to fill the windows up to '28, which is about a 10% increase in our utilization. Those negotiations are going quite well with numerous customers. That drives itself almost a 10% increase in the revenue. And then, other things that we've really seen is really larger vessels coming into the facility. Most of our MVCs or all of our MVCs currently are set on an Aframax size. So, when the higher utilization of VLCCs come in, you go from a 750,000-barrel vessel to a 1.3 million-barrel vessel. And so, that incremental throughput take is a substantial income into the facility. And we've seen, really, a steady rise over the last six months in utilization by the VLCCs. Those are some of the just non-capital-driven opportunities that we've seen really starting to materialize.
Eli Jossen: Got it, yes, that's helpful color. And then, maybe if we could pivot a little bit to capital allocation, so, obviously, we see leverage beginning to decline inside of the target range. How should we think about equity shareholder return priorities in the second-half of 2024? Recognize marketing performance likely plays a role in your decisions, but if we were to see stable performance there near the CAD 80 million to CAD 120 million guide, as you mentioned already, what kind of upside is there for buybacks this year?
Sean Brown: Yes, thanks, Eli. It's Sean here. No real change in messaging from our year-end call previously. We certainly see potential for buybacks as we move into the backend of the year, but really need to see how the business plays out. I mean principally for us, as always, the key factors driving that will be how does marketing perform as we move into the back-half of the year. And then, the other one is where does growth capital actually settle out. We've got, currently, a guide of CAD 150 million, with CAD 125 million of that sanctioned, another CAD 25 million that we expect to sanction. But it also -- that is part of the calculus as well as we think about potential. But I mean really no change in messaging. Buybacks are definitely part of our capital allocation philosophy to the extent that we have excess cash flow. But we really need to see how the year plays out. We did just finish the first quarter.
Eli Jossen: Fair enough. I'll leave it there. Thanks.
Sean Brown: Thank you.
Operator: Thank you for your question. [Operator Instructions] And our next question will be coming from Rob Hope of Scotiabank. Your line is open.
Rob Hope: Good morning, everyone. Want to stick with South Texas. So, you commented on kind of the capital-light opportunities there. Maybe pivoting over to the ability to invest some capital there, how has your thinking evolved on the ability to add storage there, and the opportunity related to that, as well as the dredging and getting some incremental barrels from the -- or the asset?
Steve Spaulding: Yes, I think really all three of those -- there's three opportunities to expend capital that we're currently pursuing, a connection into the Cactus (NYSE:WHD) Pipeline which will provide access to almost 1 million barrels a day of supply to our customers. And we also are progressing with the cost estimates and negotiations with cost estimates around deepening the terminal to allow us to fully load a Suezmax, and to load up to 1.4 million barrels of production or product on to the VLCCs. And we're actually actively negotiating with one of our contract extensions to add additional tank, an additional 430,000-barrel tank.
Rob Hope: Thanks for that. And then, moving north of the border, Trans Mountain looks like it's starting to flow now. Over the last little while, have your conversations with your Canadian customers altered in terms of their needs in the potential additional tankage or any other infrastructure there?
Steve Spaulding: At Edmonton, I think it's a wait-and-see, right, at Edmonton. We have the ability to build two more tanks there. I was out there a couple weeks ago. The tanks are fully erected and they were about to -- they're starting to build the infrastructure to raise the roof, so they're progressing very well. Of course, the one tank was placed in service in the fourth quarter of last year, and that tank actually made nominations into the pipeline last week.
Rob Hope: Thank you.
Operator: Thank you for your question. One moment for the next question. Our next question will be coming from Robert Catellier of CIBC Capital Markets. Please go ahead.
Robert Catellier: Maybe I'll just continue with TMX. How do you foresee TMX being placed on the service impacting strategy and the availability of opportunities in the marketing segment?
Steve Spaulding: They're doing minefield right now. We expect ships to start loading out of the facility in May. So, as far as opportunities in the marketing segment, I mean, I think we've seen the forward curve tighten to around $11.5 to $12 on the WCS and WTI. Of course, as you tighten, that itself kind of reduces marketing opportunities because you really squeeze all of the opportunities together. But we also, anytime you start up a new asset, generally you'll have some blips in the operation. And so, that could lead to opportunities in the market that we'll be well-positioned to take advantage of, Robert.
Robert Catellier: Yes, that makes sense. Just on Gateway, how does the enterprise product spot deep-water port license impact the recontracting outlook? And the same question for the Enbridge (NYSE:ENB) acquisition of the neighboring Flint Hills terminal. Has that changed the nature of the conversation either with respect to term, rate, or anything else?
Steve Spaulding: Robert, I was down there 2 weeks ago and spent a whole week talking to our customers. And not one of them talked about spot as somebody that they were leveraging against us in any form of fashion. They were all driving forward with extending you know, the contracts that they have, and those negotiations are progressing quite well. And also, we probably have a list of four new customers that want into the facility currently. So, we are talking with them. We may sign a short-term agreement with one of them within the next couple of weeks.
Robert Catellier: Okay. And then, --
Steve Spaulding: As far as spot goes, it comes in on the pipelines that go into the Houston ship channel, which I think our facility, from what I've been able -- from what I heard is probably is more economical than the spot opportunity for our customers. So, I think spot, if it goes, would be if the Permian Basin really starts to ramp up in production, additional production. As far as Enbridge expansion on buying Flint Hills we have -- that has not really impacted us at all as far as our existing conversations with our customers. Our customers, we have six customers currently. We're talking to four potential new customers. We don't see it as a real threat at the current time.
Robert Catellier: Okay, great. And then, the last one for me, for Sean Brown, just on the amendments to the credit facility, I think the language in the MD&A talks about other amendments. Is there anything noteworthy there, or are those just all normal course?
Sean Brown: No, purely legalese, I think it was maybe crossed the T slightly differently and because that is technically another amendment, we are forced. I mean, the way to think of it is just a plain vanilla extension of a year to a new five-year term with full support of all of our banks.
Robert Catellier: Right, so nothing in there that encumbers your assets or reduces flexibility to solve or anything like that, right? Okay, perfect. Thanks.
Sean Brown: Yes, you bet. Thank you.
Operator: Thank you. One moment while we prepare for the next question. And our next question will be coming from Ben, excuse me, Pham of BMW (ETR:BMWG). I'm sorry, BMO, your line is open.
Ben Pham: Okay. Thanks. Good morning. Maybe the first question on a marketing segment and just think about with the quarter-over-quarter potential change in marketing, are you able to provide maybe a sensitivity of where marketing EBITDA could go in a range relative to where you see differentials could land?
Steve Spaulding: Yes, I think we've always been consistent, Ben, that we think we're going to be within that 80 to 120 range for the year. We had a nice print this quarter. We believe we'll have a nice second quarter. We never really give any forward forecast beyond the quarter in front of us. We always stay in our 80 to 120. We believe that the opportunities that develop across the year that we will capture. So, as far as marketing goes, we still believe it will be between that 80 to 120. And we've given you our second quarter kind of forecast, which we're very confident in. And we believe in the third and fourth quarter, that the opportunities that materialize that we'll be able to capture. The challenge to you, Ben, is, as it's not just differentials that drives performance within the marketing business. I mean, we've got a couple of strategies going on the crude marketing side, which is not entirely differential driven, and then refined products as well, as we said in our prepared remarks. Though tighter differentials would impact that business, we do expect to see some offset of that through strengthening asphalt markets. So, it's really difficult to just isolate and say if differentials go down a dollar, what does it mean generically across the entire marketing business? And generally that spread, the WCS to WTI actual spread as far as taking advantage of this spread is not one of our main trading opportunities that we're able to capture is we don't have mainline capacity on Enbridge or Trans Mountain.
Ben Pham: Okay, got it. And maybe to continue some of the questions on gateway recontracting specifically, I know you had some timing on when you expect a development there. And it sounds like with record volumes, the tone and ability to recontract looks pretty good. Can you comment on, I know you put up timing, is there anything where it is macro or competitive that might drive a slippage in your ability to announce something by Q3 results?
Steve Spaulding: Yes, I mean, Ben, I'm fairly confident in the two contracts on the extension of the two existing contracts. Those negotiations are going quite well. And I don't see any reason why we wouldn't be able to announce that by at least the second quarter earnings call.
Ben Pham: Okay. Just to clarify, just to clarify, by Q2, are you expecting to announce all your targeted potential contracts, or it could be more of a situation where it's more partial and piecemeal, and you lock up the rest later on?
Steve Spaulding: Well, I mean, we've got six customers at the facility right now and I think the messaging that we've had, Ben, is that we're in active discussions with basically all of them as we would be, but I mean, where our expectation right now based on the status of those discussions is that two of them, more specifically, we would hope to have an update in the second quarter and that is absolutely consistent, but I mean, once that update happens, we continue to work. So, with respect to the two, or even the potentially new customers that Steve talked about, that would certainly be nearer term, but discussions continue -- continuously with all of our customers. So, I think with respect to the guidance we've previously given around what we expect to update people on. We still remain very consistent with that, but we'll still talk to all of our customers as we would at any of our facilities as we move through this year and next year.
Ben Pham: Okay, got it. Okay, appreciate it. Thank you.
Operator: Thank you. [Operator Instructions] One moment for the next question. And our next question will be coming from Robert Kwan of RBC Capital Markets. Your line is open.
Robert Kwan: Good morning. If I can just start and ask about the dynamics between the new and the existing customers, you noted that there might be a new customer coming in short term. Is that just selling the spot windows or put differently, are there any renewal rights or options for your existing customers that stops you from layering in a contract in behind them, if they're not advancing the way you'd like on an extension?
Steve Spaulding: Yes. I mean, it's selling some of the windows that aren't firm today on a spot basis, kind of and there is nothing that prevents us from fully contracting the terminal up, Robert, which is that we say 28 windows.
Robert Kwan: Okay. But is there anything that stops you from if somebody was willing to take a contract three years out to layer it in behind somebody else?
Steve Spaulding: No, no. A lot of the rights that's definitely one of our contract strategies is to develop some additional customers to layer on as some of these contracts may expire to ensure that we have long-term contracts.
Robert Kwan: Thanks. Just coming back to I think it's a bit of a slight change in timing. I just want to know if there's anything to read into it. You're talking now potentially out to the Q2 call, which would be August. I think previously the messaging was by the end of the second quarter. Is that just negotiations take time or?
Steve Spaulding: No. We are really exactly where we've always thought we would be. So, we're quite confident. But you never know, Robert in negotiations. I mean, we're trading paper with these counterparties. We feel confident we'll be able to execute it, but you never know exactly on time.
Robert Kwan: Okay. If I can just finish one for Sean here on the buybacks, you commented that there is no change in the strategy, certainly doesn't sound like there is, but that you need to see how the rest of the year plays out. And with a lot of the buybacks tied to excess marketing, you had a good first quarter, but now you're guiding to that $20 million for Q2. So, is there something specific to Q2 that you think could rebound in the second-half of the year? Or is that Q2 number kind of where you think the indicative level is post-TMX until we start to fill up the pipes?
Sean Brown: No, not necessarily. I mean, Q2 that guide, we're basically at where we budgeted going into the year. And as Steve talked about, we do think that there could be some opportunities as it relates to our marketing group with the TMX startup. So, it's really, do those opportunities arise, how does marketing actually manifest itself by the end of the year? It does not necessarily mean that if we hit budget that there is not going to be any buybacks, like, we're not looking for massive outsized opportunities. We just with TMX coming on, there is some uncertainty, or probably less certainty around that business. So, we just want to see how it plays out, because for things like capital allocation, we have typically been fairly conservative in our messaging and wouldn't fear off that right now.
Robert Kwan: Okay. That's great. Thanks very much.
Sean Brown: Thanks, Robert.
Operator: Thank you for your question. There are no more questions in the queue. And I would now like to turn the call back over to Beth. Please go ahead.
Beth Pollock: Thank you for joining us for our 2024 first quarter and full-year conference call. We have also made available certain supplementary information on our website, gibsonenergy.com.
Operator: Thank you all for joining today's conference call. This concludes today's meeting. You may all disconnect.
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