ANNUAL REPORT 2013
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INTEGRATED MIDSTREAM SOLUTIONS
Contents
1 President & CEO’s Message
5 Management’s Discussion and Analysis
37 Independent Auditor’s Report
38 Consolidated Financial Statements for the Year Ended December 31, 2013
43 Notes to the Consolidated Financial Statements
IBC Corporate Information
ANNUAL GENERAL MEETING INFORMATION
Wednesday, May 7, 2014 at 9:00 a.m. (Mountain Standard Time)
Sun Life Plaza Conference Centre
140 - 4 Ave SW (+15 Level), Calgary, Alberta
President & CEO’s Message
Dear fellow shareholders,
I am extremely pleased with the performance of our business as we approach
the completion of our third year as a public company. Gibson’s earnings
and dividends have consistently increased each year while we provide our
shareholders with a stable, growing, oil and liquids-leveraged cash flow stream.
450
400
350
300
250
200
150
100
50
0
0.30
0.28
0.26
0.24
0.22
0.20
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
-10%
Q3/11
Q4/11
Q1/12
Q2/12
Q3/12
Q4/12
Q1/13
Q2/13
Q3/13
Q4/13
2009
2010
2011
2012
2013
Trailing Twelve Month Adjusted EBITDA ($MM)
Enterprise Value ($B)
4.0
3.0
2.0
1.0
0.0
Pursuing our Long-Term Strategy
Gibson continued to execute on its long-term strategic plan
in 2013. In simple terms, our strategy is to provide mid-
stream solutions that capitalize on growth trends in North
American oil and liquids production. A key element of this
strategy includes leveraging and expanding our integrated
asset base to capture synergies along the hydrocarbon val-
ue chain. Additionally, we seek to partner with high quality
customers to provide stable, long-term revenue streams. Finally, we strive to main-
tain financial discipline and sound risk management policies while we pursue our
growth objectives. The advancement of these strategic goals contributed to strong
operational and financial results in 2013.
Delivering Strong Financial and Operational Results
Highlights:
Q3/11
Q4/11
Q1/12
Q2/12
Q3/12
Q4/12
Q1/13
Q2/13
Q3/13
Q4/13
Q1/14
» Achieved record annual adjusted EBITDA of $427 million, a 41% increase over 2012.
Quarterly Dividend ($/share)
» Achieved growth capital expenditures in 2013 of $177 million, a 41% increase over the prior year.
» Increased Hardisty Terminal storage capacity in 2013 by 16% to 4.3 million barrels.
Total Return (Equity + Dividends)
Equity Return
» Increased 2013 Marketing volumes by 27% and Propane & NGL volumes by 22% over 2012.
» Completed the integration of Omni Energy Services, which we acquired in October 2012.
Jun 11
Dec 11 Jan12
Dec 12
Jan 13
Dec 13
Mar 14
Total Shareholder Return
» Increased distributable cash flow by 39% to $253 million in 2013, compared to
$183 million in 2012.
» Declared total dividends of $134 million, or $1.10 per share in 2013, compared to
$106 million, or $1.01 per share in 2012.
» Increased our quarterly dividend by 9% to $0.30 per share in conjunction with the release of
our fourth quarter 2013 results, the fourth increase since our initial public offering in June 2011.
Gibson Energy 1
President & CEO’s Message
Dear fellow shareholders,
I am extremely pleased with the performance of our business as we approach
the completion of our third year as a public company. Gibson’s earnings
and dividends have consistently increased each year while we provide our
shareholders with a stable, growing, oil and liquids-leveraged cash flow stream.
450
400
350
300
250
200
150
100
50
0
0.30
0.28
0.26
0.24
0.22
0.20
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
-10%
Q3/11
Q4/11
Q3/12
Q4/13
Trailing Twelve Month Adjusted EBITDA ($MM)
Q1/12
Q2/12
Q2/13
Q3/13
Q1/13
Q4/12
4.0
3.0
2.0
1.0
0.0
2009
2010
2011
2012
2013
Enterprise Value ($B)
Pursuing our Long-Term Strategy
Gibson continued to execute on its long-term strategic plan
in 2013. In simple terms, our strategy is to provide mid-
stream solutions that capitalize on growth trends in North
American oil and liquids production. A key element of this
strategy includes leveraging and expanding our integrated
asset base to capture synergies along the hydrocarbon val-
ue chain. Additionally, we seek to partner with high quality
customers to provide stable, long-term revenue streams. Finally, we strive to main-
tain financial discipline and sound risk management policies while we pursue our
growth objectives. The advancement of these strategic goals contributed to strong
operational and financial results in 2013.
Delivering Strong Financial and Operational Results
Highlights:
Q1/12
Q4/11
Q3/11
Q1/13
Quarterly Dividend ($/share)
Q2/12
Q3/12
Q4/12
Q2/13
Q3/13
Q4/13
Q1/14
» Achieved record annual adjusted EBITDA of $427 million, a 41% increase over 2012.
» Achieved growth capital expenditures in 2013 of $177 million, a 41% increase over the prior year.
» Increased Hardisty Terminal storage capacity in 2013 by 16% to 4.3 million barrels.
Total Return (Equity + Dividends)
Equity Return
» Increased 2013 Marketing volumes by 27% and Propane & NGL volumes by 22% over 2012.
» Completed the integration of Omni Energy Services, which we acquired in October 2012.
Jun 11
Dec 11 Jan12
Dec 12
Jan 13
Dec 13
Mar 14
Total Shareholder Return
» Increased distributable cash flow by 39% to $253 million in 2013, compared to
$183 million in 2012.
» Declared total dividends of $134 million, or $1.10 per share in 2013, compared to
$106 million, or $1.01 per share in 2012.
» Increased our quarterly dividend by 9% to $0.30 per share in conjunction with the release of
our fourth quarter 2013 results, the fourth increase since our initial public offering in June 2011.
Gibson Energy 1
Providing Integrated Midstream
Solutions to Our Customers
We continue to offer our customers
superior integrated solutions. We have
long-standing relationships with large
energy companies and industrial users
across North America. Our portfolio of
business segments offers significant
multi-service
opportunities to
the same customer
across our inte-
grated business. In
late 2013, Gibson
was awarded
the “Supplier of the Year” award from
Canada’s Oilweek Magazine. The criteria
for this award were based on financial
performance, management stability,
industry leadership, safety and growth.
I am especially proud of this award as it
reflects the capability of our employees
and the quality of the customer rela-
tionships which we have fostered over
six decades of operations.
Expanding our Midstream Solutions Platform
In 2013, we made several advances in our multi-year strategy to capitalize on the
projected growth profile of oil and liquids production across North America.
In May, we announced committed support from a large oil sands producer for a
500,000 barrel oil storage tank. This was the fourth large storage tank that we have
announced since November 2012 for a combined total of 1.7 million barrels of new
storage capacity under construction at our Hardisty Terminal.
In July, we announced a long-term contract with Statoil Canada Ltd. to build infra-
structure on the western side of our Edmonton Terminal. Subject to pipeline connec-
tion agreements, the project involves constructing pipeline and connection infra-
structure to multiple major pipelines in the Edmonton area, a 300,000 barrel crude
oil storage tank and a rail loading rack. This project serves as an important anchor for
the eventual merchant terminal build-out at our Edmonton Terminal.
In August, we announced a project, in conjunction with US Development Group LLC (USDG),
to develop a new state-of-the-art crude oil unit train rail loading facility near Hardisty,
Alberta, with pipeline connectivity from our Hardisty Terminal. The crude oil unit train
initiative is underpinned by long-term customer commitments. We will install the
required pumping equipment and construct a pipeline for the transfer of crude from our
Hardisty Terminal and will be the exclusive provider of crude oil to the USDG crude-by-
rail facility. The project is scheduled to begin operations in the second quarter of 2014.
In September, we commissioned two 300,000 barrel crude oil storage tanks on the
west side of our Hardisty Terminal. In the last three years, we have increased our total
crude oil storage capacity at Hardisty by 54%.
Maintaining Financial Discipline
In support of our growth initiatives, we retain a strong balance sheet and strive to
maintain financial flexibility.
In June, we refinanced our existing senior secured credit facilities by issuing
U.S. $500 million of 8 year, 6.75% senior unsecured notes and $250 million of 7 year,
7.00% senior unsecured notes. Additionally, we entered into a new $500 million
senior secured revolving credit facility. The net proceeds from this refinancing were
used to repay the previous senior secured credit facility, providing a surplus of $72.1
million to be used to fund growth initiatives and for general corporate purposes.
This refinancing served to extend the average duration of our long-term debt, while
increasing covenant flexibility and providing the security of a fixed interest rate.
Our balance sheet remains healthy with a debt to proforma adjusted EBITDA ratio of 1.6
times and a debt to capitalization ratio of 33% at year end 2013. Furthermore, we main-
tain a conservative dividend policy with a payout ratio at the lower end of our long-
term target of between 50% to 60% of distributable cash flow. We believe our recent
9% dividend increase, announced on March 4, 2014, provides an attractive cash yield to
our shareholders, while retaining sufficient funds to pursue our growth initiatives.
2 Gibson Energy
Investing in Our Communities
Community investment is a fundamental
part of our corporate culture. In 2013, we
invested approximately $800,000 in the
communities in which we operate. This
funding helped support nearly 100 charities
across Canada and the United States. We
continue to fund a wide variety of community initiatives and would like to highlight
the following:
We are looking forward to building
a conservation partnership with
Ducks Unlimited Canada. They are the
predominant wetland restoration agent
in North America and have played a
leadership role in the development
and implementation of compensatory
wetland restoration projects.
The Calgary Police Foundation is an
independent charitable organization that
partners with the Calgary Police Service
and funds community initiatives to reduce
youth victimization and criminal activity
by focusing on education, prevention
and early intervention. We are proud to
support their community initiatives.
The Stewpot offers a safe haven for
homeless and at-risk individuals of Dallas,
Texas, providing resources for basic
survival needs as well as opportunities
to start a new life. Our employees enjoy
serving in their communities by donat-
ing their time and enthusiasm for great
people and causes.
Building an Industry Leading Team
We are proud to be named one of the
2014 Top 50 “Best Employers” in Canada.
282 Canadian employers and almost
280,000 employees participated in the
survey. The 1,207 dedicated personnel
we have in Canada comprised the em-
ployee base for Gibson’s results.
We made the list for the first time in 2013.
The positive opinions our employees have
about us, their commitment to our work-
place and their motivation to go “above
and beyond” to contribute to business
success allowed us to stand out among
Canada’s finest companies.
In addition to the 1,207 employees in
Canada we also employ 1,275 in the
U.S. that contribute to a dedicated and
professional North American team of
almost 2,500 people.
Early in January we completed a reor-
ganization of our senior executive team.
This reorganization included the promo-
tion of Doug Wilkins to Chief Commer-
cial Officer, Rick Wise to Chief Operating
Officer, and Brian Recatto to President,
U.S. Operations. Additionally, a new
Board member, Mary Ellen Peters, was
appointed in February 2014. Ms. Peters
has over 30 years of experience in the
midstream and downstream sector with
Marathon Petroleum Company LP. Her
addition to our Board of Directors will
add valuable experience and insight.
These changes will ensure that our
organizational structure is appropriate
for the company we are today. They also
allow us to better serve our customers
and position us to identify and exe-
cute on opportunities to continue to
successfully grow our North American
midstream company.
Gibson Energy 3
Hardisty East expansion under construction
Moving Ahead
We have accomplished a tremendous amount since our initial public offering in
June 2011. As always, we continue to focus on executing on our ambitious agenda
for growth. As the growth in the North American energy industry continues to devel-
op, we continue working hard to capitalize on the infrastructure projects in front of
us. We have many exciting opportunities which we are confident we will capture.
I would like to extend my sincere thanks to the entire Gibson team for their dedica-
tion and tireless commitment to making our company a great success and to our
Board of Directors for providing strong oversight and governance. In 2014, we expect
to continue our track record of growth, as we look to invest a record $340 million on
growth initiatives. Furthermore, we expect significant growth spending in 2015 with
over $250 million of growth projects. Finally, we will remain focused on providing
excellent service levels and innovative solutions to our customers while maintaining
the highest standards of performance with respect to health, safety, security and our
stewardship of the environment.
A. Stewart Hanlon
President & Chief Executive Officer
4 Gibson Energy
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
Management’s Discussion and Analysis
The following Management’s Discussion and Analysis (“MD&A”) was prepared as of March 4, 2014 and should be read in
conjunction with the audited consolidated financial statements and related notes of Gibson Energy Inc. (“Gibson” or the
“Company”) for the years ended December 31, 2013 and 2012, which were prepared under International Financial Reporting
Standards (“IFRS”). Amounts are stated in Canadian dollars unless otherwise noted.
This MD&A contains forward-looking statements and non-GAAP measures and readers are cautioned that this MD&A should be
read in conjunction with the Company’s disclosure under “Forward-Looking Statements” and “Non-GAAP Financial Measures”
included at the end of this MD&A.
EXECUTIVE OVERVIEW
Gibson is a large independent midstream energy company in Canada and an integrated service provider to the oil and gas industry
in the United States. Gibson is engaged in the movement, storage, blending, processing, marketing and distribution of crude oil,
condensate, natural gas liquids (“NGLs”), water, oilfield waste, and refined products. The Company transports energy products by
utilizing its integrated network of terminals, pipelines, storage tanks, and trucks located throughout western Canada and through
its significant truck transportation and injection station network in the United States. The Company also provides emulsion
treating, water disposal and oilfield waste management services in Canada and the United States and is the second largest retail
propane distribution company in Canada. The Company’s integrated operations allow it to participate across the full midstream
energy value chain, from the hydrocarbon producing regions in Canada and the United States, through the Company’s
strategically located terminals in Hardisty and Edmonton, Alberta and injection stations and small terminals in the United States,
to the refineries of North America via major pipelines.
Gibson has provided market access to leading oil and gas industry participants in western Canada for many years and celebrated
its 60th anniversary as an organization in 2013. The Company has grown by diversifying its service offerings to meet customers’
needs and by expanding geographically to provide its service offerings to key hydrocarbon producing regions throughout the
United States.
The Company’s integrated segments can be broken down as follows: (1) Terminals and Pipelines, (2) Truck Transportation, (3)
Environmental Services, (4) Propane and NGL Marketing and Distribution, (5) Processing and Wellsite Fluids and (6) Marketing.
The Company believes its competitive advantage is driven by its geographic presence in some of the most hydrocarbon-rich
basins in the world, its footholds in strategic market hubs, its ability to capture value throughout the midstream energy value
chain, its diversified, integrated, synergistic service offerings, its ability to source and successfully execute internal growth
projects, its proven track record of sourcing, executing and successfully integrating business acquisitions, its leading health,
safety, security and environment record, its experienced management team with a proven history of successful operations and
strong industry reputation and its conservative risk management policies. The Company is continuously focused on improving its
operations across all segments by utilizing the Company’s integrated asset base to capture inter segment synergies and to expand
the Company’s network of assets, as well as increasing the Company’s margins by providing additional value added services
along the midstream energy value chain.
1
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Gibson Energy Inc.
TSX: GEI
Highlights
2013 Year End Report
The key highlights for the year ended December 31, 2013 were as follows:
•
Revenue increased by 41% in the year ended December 31, 2013 compared to the year ended December 31, 2012. The
increase was primarily due to increased overall activity in the Company’s segments, including the full year impact of the
acquisition of the parent holding company of OMNI Energy Services Corp. (“OMNI”) in the fourth quarter of 2012;
•
Segment profit increased by 38% to $456.4 million in the year ended December 31, 2013 compared to $329.9 million in the
year ended December 31, 2012 with increases in the Company’s Terminals and Pipelines, Environmental Services, Propane
and NGL Marketing and Distribution, Processing and Wellsite Fluids and Marketing segments;
•
Adjusted EBITDA in the year ended December 31, 2013 increased 41% to $427.0 million compared to $302.1 million in the
year ended December 31, 2012;
•
Capital expenditures were $247.0 million in the year ended December 31, 2013, of which $177.4 million related to growth
capital. Growth capital expenditures were primarily related to the construction of tanks and pipeline and connection
infrastructure at the Company’s facilities, in particular at Hardisty, and the expansion of the Environmental Services segment;
• Total dividends declared in the year ended December 31, 2013 were $133.7 million, or $1.10 per share, compared to $106.1
million, or $1.01 per share, in the year ended December 31, 2012. For the year ended December 31, 2013, distributable cash
flow increased by 39% to $253.2 million compared to $182.5 million for the year ended December 31, 2012;
• Net income was $103.8 million in the year ended December 31, 2013 compared to net income of $116.2 million in the year
ended December 31, 2012. Despite an increase in overall segment profit, the decrease was largely driven by depreciation and
amortization expense, debt extinguishment expense and the unfavorable movement in foreign exchange rates on the
translation of the Company’s U.S. denominated long-term debt;
•
•
•
•
•
In December 2013, the Company announced its 2014 capital expenditure budget of $410.0 million. Of the total capital
expenditure budget, $340.0 million or 83% is directed towards growth investments of which $230.0 million or 68% is
earmarked for the Terminals and Pipelines segment. The other significant capital expenditure budget primarily comprise
growth capital investments in the Environmental Services segment;
In September 2013, the Company commissioned two 300,000 barrel crude oil storage tanks on the west side of the Hardisty
Terminal;
In August 2013, the Company announced that it had partnered with US Development Group LLC. (“USDG”) to construct a
new state-of-the-art crude oil unit train rail loading facility near Hardisty, Alberta, with pipeline connectivity from Gibson’s
Hardisty Terminal. The crude oil unit train initiative is underpinned by long-term customer commitments. The Company will
install required pumping equipment and construct a pipeline for the transfer of crude from its Hardisty Terminal and will be
the exclusive provider of crude oil to the USDG crude-by-rail facility. The project is scheduled to begin operations in the first
half of 2014;
In July 2013, the Company announced that it had signed a long-term contract with Statoil Canada Ltd. to build infrastructure
on the western side of the Company’s Edmonton Terminal. Subject to pipeline connection agreements, the Company will be
constructing pipeline and connection infrastructure to multiple major pipelines in the Edmonton area, one 300,000 barrel
crude oil storage tank and a rail loading rack. The in-service date for the new facilities is expected to be in the first half of
2015;
In May 2013, the Company announced that it had received committed support from a large oil sands producer for a 500,000
barrel oil storage tank at the Hardisty Terminal. This was the fourth large storage tank that the Company announced since
November 2012 for a combined total of 1.7 million barrels of new storage capacity at the Hardisty Terminal;
•
On June 28, 2013, the Company refinanced its existing senior secured Tranche B Term Loan under which it issued and sold
U.S.$500 million principal amount of 6.75% Senior Unsecured Notes due July 15, 2021 at an issue price of 98.476% (the
"U.S.$ Notes") and $250.0 million principal amount of 7.00% Senior Unsecured Notes due July 15, 2020 at an issue price of
98.633% (the "C$ Notes" and together with the U.S.$ Notes, the "Notes"). The net proceeds from the Notes were used to
repay the previous senior secured credit facility with a principal amount of U.S.$643.5 million, with the remaining net
proceeds of $72.1 million to be used to fund growth initiatives and for general corporate purposes; and
2
6
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
•
Concurrently with the closing of the Notes offering, the Company entered into a new $500.0 million senior secured revolving
credit facility (the "Revolving Credit Facility") and terminated its previous senior secured credit facility of U.S.$375.0
million.
On March 4, 2014, the Company announced that the board of directors of the Company (the "Board") declared a quarterly
dividend of $0.30 per common share for the quarter ending March 31, 2014 on its outstanding common shares representing a 9%
increase from the prior quarterly rate and resulting in a new annualized dividend of $1.20 per common share. The common share
dividend is payable on April 17, 2014 to shareholders of record at the close of business on March 31, 2014.
Trends affecting the Company’s business
In accordance with the Company’s long-range strategic plan, the Company is continuously evaluating organic growth
opportunities and potential acquisitions of transportation, retail propane distribution, gathering, terminalling or storage and other
complementary midstream businesses, such as emulsion treating, water disposal and oilfield waste management services.
Some of the key industry trends that are currently affecting Gibson’s business and prospects are as follows:
•
Increased production levels in North America and relatively strong crude oil prices have increased demand for many facets of
the midstream energy value chain including storage, transportation, distribution, processing, refining and environmental and
production services, all of which are activities in which the Company participates;
• The growing supply of Canadian heavy crude oil from the oilsands will result in an increasing demand for diluent in the
Western Canada Sedimentary Basin (the “WCSB”). This should result in increased movements of diluent through the
Edmonton area pipeline and terminal infrastructure and may generate increased opportunities for Gibson’s services;
• Continuing crude pricing, location and quality disconnects combined with a shortage of pipeline takeaway capacity from the
WCSB are creating a demand for crude rail movements that could persist for an extended period. If this trend continues, it
could create opportunities for the Company to increase its service offering to include more crude rail movements;
• Technology advancements within the drilling and fracturing processes are providing production companies new opportunities
to increase production levels from wells that were previously uneconomic and to bring on production from areas that were
previously unable to economically produce crude oil, such as tight shale plays. If this trend continues, it could create
opportunities for the Company to increase the various service offered by the network of integrated segments;
• The Keystone XL and Energy East pipeline projects, if approved, would help provide a growing supply of Canadian crude oil
access to the largest refining markets in the United States and Eastern Canada. If approved, the starting point for both
pipelines would be adjacent to the Company’s Hardisty Terminal which could provide increased opportunities for the
Company’s terminalling services;
• Enbridge’s twinning of the southern section of its Athabasca pipeline and Inter Pipeline Fund’s twinning of its Cold Lake
pipeline should provide for additional volumes into the Hardisty area and will provide increased opportunities for the
Company’s terminalling services at the Hardisty; and
•
The price fluctuations between heavy and light crude oil should create incremental margin opportunities in multiple areas of
the Company’s operations. Differentials continue to be volatile and this trend is expected to continue.
Longer-term outlook
The Company’s longer-term outlook, spanning three to five years or more, is influenced by many factors affecting the North
American midstream energy sector. Some of the more significant trends and developments relating to crude oil include:
•
New technology for drilling and well completion methodology being deployed towards conventional and unconventional
production within the Company’s operating areas;
•
North American self-sufficiency goals and investment in drilling and production across North America should drive demand
for the Company’s services;
•
Increased oil and gas production in North America should also mean a significant increase in produced water and other
oilfield wastes. This increase in oilfield wastes, together with increased regulatory scrutiny, should drive demand for the
Company’s Environmental Services solutions;
•
Uncertainty and volatility relating to crude oil prices and price differentials between crude oil streams and blending agents;
3
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Gibson Energy Inc.
TSX: GEI
2013 Year End Report
•
Increased crude oil production on-shore in North America, including from the Canadian oil sands and activity levels in the
U.S. Gulf Coast; and
•
Expansion of the midstream infrastructure in North America to handle increased production and expansion of capacity in the
U.S. refining complex to handle crude oil from the WCSB.
The Company believes the collective impact of these trends and developments, many of which are beyond the Company’s
control, will result in an increasingly volatile crude oil market that is subject to more frequent short-term swings in market prices
and grade differentials and shifts in market structure. However, the Company feels demand for its services should remain strong
in the medium to long-term.
Acquisitions and capital expenditures
The following table summarizes growth capital, acquisitions and upgrade and replacement capital (in thousands):
2013
Growth capital.............................................................................................................................. $ 177,443
Acquisitions .................................................................................................................................
-
Upgrade and replacement capital (1) .............................................................................................
69,513
$ 246,956
2012
$ 125,662
479,026
56,536
$ 661,224
Year ended December 31,
(1) Upgrade capital above includes improvement projects that extend the physical life of an asset, while replacement capital
includes purchases that replace existing assets as necessary to maintain current service levels or replace assets that no
longer have a useful economic life.
Total expenditures for growth capital and upgrade and replacement capital were $247.0 million and $182.2 million in the year
ended December 31, 2013 and 2012, respectively. In the year ended December 31, 2013 and 2012, $238.5 million and
$176.7 million, respectively, were included as additions to property, plant and equipment and $8.5 million and $5.5 million,
respectively, were included as additions to intangible assets.
Growth capital
The following table summarizes the Company’s growth capital by segment (in thousands):
Terminals and Pipelines(1) ..........................................................................................................
Truck Transportation(2) ..............................................................................................................
Environmental Services (3) .........................................................................................................
Propane and NGL Marketing and Distribution (4) ......................................................................
Processing and Wellsite Fluids(5) ...............................................................................................
Other ..........................................................................................................................................
Total...........................................................................................................................................
Year ended December 31,
2013
$ 101,300 $
19,156
46,649
6,807
2,528
1,003
2012
40,614
26,255
24,312
7,100
27,114
267
$ 177,443 $ 125,662
(1) Expenditures in the year ended December 31, 2013 relate to a number of construction and expansion projects including the
construction of additional tanks and related infrastructure at the Hardisty Terminal and the unit rail facility near Hardisty.
(2) Largely represents the ongoing addition of rolling stock capable to meet specific demand growth in key market areas in both
Canada and the United States.
(3) Expenditures in the year ended December 31, 2013 relate to the expansion of emulsion and waste treatment and salt water
disposal facilities in both Canada and the United States and also the addition of equipment and rolling stock.
(4) Mainly represents the ongoing addition of trucks, tanks and generators to meet growing demand in key market areas and the
expansion of rail infrastructure at a Company facility.
(5) Expenditures in the year ended December 31, 2013 largely relate to the expansion of throughput and storage at the facility in
Moose Jaw.
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Gibson Energy Inc.
TSX: GEI
Acquisitions
2013 Year End Report
During the year ended December 31, 2013, the Company did not complete any acquisitions but continues to evaluate
opportunities as they arise.
Seasonality
The Company believes that seasonality does not have a material impact on its combined operations and segments. However,
certain of the Company’s individual segments are impacted by seasonality. Generally, the Company’s second quarter results are
impacted by road bans and other restrictions which impact overall activity levels in the WCSB, and therefore negatively impact
the Company’s trucking, propane and wellsite fluids businesses in Canada and certain operations within Environmental Services
in Canada and the United States.
Within the Company’s Processing and Wellsite Fluids segment, certain products are impacted by seasonality. Canadian road
asphalt activity is affected by the impact of weather conditions on road construction. Refineries produce liquid asphalt year round,
but road asphalt demand peaks during the summer months when most of the road construction activity in Canada takes place. In
the off peak demand months for road asphalt, the demand for roofing flux continues. Demand for wellsite fluids is dependent on
overall well drilling activity, with drilling activity normally the busiest in the winter months. As a result, the Company’s
Processing and Wellsite Fluids segment’s sales of road asphalt peak in the summer and sales of wellsite fluids peak in the winter.
The Company’s Propane and NGL Marketing and Distribution segment is characterized by a high degree of seasonality driven by
the impact of weather on the need for heating and the amount of propane required to produce power for oil and gas related
applications. Therefore, volumes are low during the summer months relative to the winter months. Operating profits are also
considerably lower during the summer months. Most of the annual segment profit is earned from October to March each year.
Within the Company’s Environmental Services segment, certain services and geographical regions are impacted by seasonality
including the impact of weather and daylight hours. Due to exposure to weather, activity is generally the lowest in the winter
months and shorter daylight hours during the winter months also result in lower overall service activity. The business is also
impacted by the timing of capital expenditure cycles of oil and gas companies. As a result, revenue and operating profit for certain
services and geographical regions during the fourth calendar quarter and the first calendar quarter of each year typically are lower
than the second and third quarters.
SELECTED ANNUAL FINANCIAL MEASURES
Year ended December 31,
2013
2012
2011
Revenue .......................................................................................................
Net income (loss) ........................................................................................
$ 6,940,669
103,816
(in thousands except per share amounts)
$ 4,913,029
116,186
$ 5,072,031
(62,605)
Earnings (loss) per share
Basic ..........................................................................................................
Diluted .......................................................................................................
$
$
0.86
0.84
1.13
1.10
Dividends declared per common share ........................................................
$
1.10
$
1.01
Total assets ..................................................................................................
Total non-current liabilities .........................................................................
2013
$ 3,049,382
1,058,582
As at December 31,
2012
$ 2,796,525
947,374
$
$
(0.88)
(0.88)
0.52
2011
$ 2,204,375
866,897
5
9
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
SEGMENTED RESULTS OF OPERATIONS
The Company’s senior management evaluates segment performance based on a variety of measures depending on the particular
segment being evaluated, including profit, volumes, operating expenses, profit per barrel and upgrade and replacement capital
requirements. The Company defines segment profit as revenues less cost of sales (excluding depreciation and amortization
expense) and operating expenses. Revenues presented by segment in the table below include inter-segment revenue, as this is
considered more indicative of the level of each segment’s activity. Profit by segments excludes depreciation, amortization,
accretion, impairment charges, stock based compensation and corporate expenses, as senior management looks at each period’s
earnings before corporate expenses and non-cash items such as depreciation, amortization and stock based compensation, as one
of the Company’s important measures of segment performance.
In the first quarter of 2013, the Company combined its Canadian and United States Environmental Services businesses and as a
result, realigned its Canadian Environmental Services business from the Terminals and Pipelines segment to the Environmental
Services segment. Accordingly, results of operations for the comparative periods have been reclassified to reflect the realignment.
The following is a discussion of the Company’s segmented results of operations for the year ended December 31, 2013 and 2012
and the following table sets forth revenue and profit by segment for those periods:
Segment revenue
Terminals and Pipelines ...............................................................................................................
Truck Transportation .....................................................................................................................
Environmental Services .................................................................................................................
Propane and NGL Marketing and Distribution .............................................................................
Processing and Wellsite Fluids ......................................................................................................
Marketing ......................................................................................................................................
Total segment revenue...................................................................................................................
Revenue—inter-segmental ............................................................................................................
Total revenue—external ................................................................................................................
Segment profit
Terminals and Pipelines ................................................................................................................
Truck Transportation .....................................................................................................................
Environmental Services .................................................................................................................
Propane and NGL Marketing and Distribution .............................................................................
Processing and Wellsite Fluids ......................................................................................................
Marketing ......................................................................................................................................
Total segment profit ......................................................................................................................
General and administrative ............................................................................................................
Depreciation and amortization ......................................................................................................
Stock based compensation .............................................................................................................
Debt extinguishment .....................................................................................................................
Foreign exchange loss (gain) .........................................................................................................
Net interest expense ......................................................................................................................
Gain on financial instruments relating to interest expense ............................................................
Income before income tax .............................................................................................................
Income tax provision .....................................................................................................................
Net income ....................................................................................................................................
Year ended December 31,
2013
(in thousands)
2012
$
$ 132,144
532,490
325,059
1,151,206
611,097
5,580,040
8,332,036
(1,391,367)
6,940,669
109,407
524,007
75,216
856,686
551,737
3,745,283
5,862,336
(949,307)
4,913,029
95,613
83,674
83,094
62,277
48,720
83,004
456,382
34,664
184,057
8,271
38,209
15,725
52,987
(18,252)
140,721
36,905
$ 103,816
79,229
85,499
16,689
49,671
40,068
58,737
329,893
32,747
126,611
3,856
-
(20,397)
43,010
(4,247)
148,313
32,127
$ 116,186
The exclusion of depreciation and amortization expense could be viewed as limiting the usefulness of segment profit as a
performance measure because it does not take into account in current periods the implied reduction in value of the Company’s
capital assets (such as rolling stock, tanks, pipelines, plant and equipment and disposal wells) caused by use, aging and wear and
tear. Repair and maintenance expenditures that do not extend the useful life, improve the efficiency or expand the operating
capacity of the asset are charged to operating expense as incurred.
6
10
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
The Company’s segment analysis involves an element of judgment relating to the allocations between segments. Inter-segment
sales, cost of sales and operating expenses are eliminated on consolidation. Transactions between segments and within segments
are valued at prevailing market rates. The Company believes that the estimates with respect to these allocations and rates are
reasonable.
Terminals and Pipelines
The following tables set forth the operating results from the Company’s Terminals and Pipelines segment:
Volumes (barrels in thousands)
Terminals
Year ended December 31,
2013
2012
Hardisty Terminal ......................................................................................................................
Edmonton Terminal ...................................................................................................................
Injection stations ........................................................................................................................
Total terminals ...........................................................................................................................
Pipelines
Bellshill pipeline ........................................................................................................................
Provost pipeline .........................................................................................................................
Total pipelines ...........................................................................................................................
Total terminals and pipelines ........................................................................................................
144,940
17,161
46,582
208,683
1,751
5,776
7,527
216,210
133,357
22,651
40,385
196,393
1,909
6,625
8,534
204,927
Year ended December 31,
2013
(in thousands)
2012
Revenues .......................................................................................................................................
Operating expenses and other ........................................................................................................
Segment profit ...............................................................................................................................
$ 132,144
36,531
95,613
$
$ 109,407
30,178
79,229
$
Volumes, revenues and cost of sales. Hardisty Terminal volumes increased by 9% in the year ended December 31, 2013 compared
to the year ended December 31, 2012, as a result of increased throughput volumes from customers with dedicated tank usage and
increased volumes from the Company’s Marketing segment. Revenue at the Hardisty Terminal increased by $18.3 million in the
year ended December 31, 2013 compared to the year ended December 31, 2012. The increase in revenue was mainly due to the
increase in volume and additional revenue from customers with dedicated tank usage that are subject to minimum volume
charges. In addition, the increased volumes and revenue were also due to commissioning of four new large tanks and other new
infrastructure on the Hardisty Terminal in late 2012 and 2013.
Edmonton Terminal volumes decreased by 24% in the year ended December 31, 2013 compared to the year ended December 31,
2012 mainly due to a decrease in diesel shipments through the terminal from a customer that is subject to minimum volume
charges and lower volumes from the Company’s Marketing segment. Although volumes at Edmonton Terminal decreased,
revenues increased by $4.1 million in the year ended December 31, 2013 compared to the year ended December 31, 2012 as a
result of the impact of minimum volume and fixed fee arrangements.
Injection station volumes increased by 15% in the year ended December 31, 2013 compared to the year ended December 31, 2012
due to an increase in activity with a major customer. As a result, revenue increased by $1.0 million in the year ended December
31, 2013 compared to the year ended December 31, 2012.
Volumes for the Company’s Bellshill pipeline decreased 8% in the year ended December 31, 2013 compared to the year ended
December 31, 2012 due to a decrease in receipts from oil production batteries that produce into the pipeline. Despite the decrease
in volumes, revenue remained relatively stable in the year ended December 31, 2013 compared to the year ended December 31,
2012 due to an increase in tariffs.
Volumes for the Company’s Provost pipeline decreased by 13% in the year ended December 31, 2013 compared to the year ended
December 31, 2012 due to a shut-in of a battery due to operational issues in 2013 and also due to a decrease in receipts from oil
production batteries that are connected to the pipeline. As a result, revenue decreased by $0.7 million in the year ended December
31, 2013 compared to the year ended December 31, 2012, offset in part, by an increase in tariffs.
7
11
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
Operating expenses and other. Overall operating expenses and other costs increased by $6.4 million, or 21%, in the year ended
December 31, 2013 compared to the year ended December 31, 2012. The increase was largely related to the increase in costs
related to new tanks on the west side of the Hardisty Terminal and increased repairs and maintenance costs as a result of a shut-in
of a battery due to operational issues.
Segment profit. Overall, segment profit in the year ended December 31, 2013 increased by $16.4 million, or 21%, compared to the
year ended December 31, 2012. The increase was primarily due to the impact of an additional customer with dedicated tank usage
that is subject to minimum volume charges, offset in part by increased operating costs.
Truck Transportation
The following tables set forth the operating results from the Company’s Truck Transportation segment:
Volumes (barrels in thousands)
Year ended December 31,
2013
2012
Barrels hauled ..................................................................................................................................
144,340
152,226
Revenues .........................................................................................................................................
Cost of sales ....................................................................................................................................
Operating expenses and other ..........................................................................................................
Segment profit .................................................................................................................................
Year ended December 31,
2013
(in thousands)
2012
$ 532,490
350,228
182,262
98,588
83,674
$
$ 524,007
354,605
169,402
83,903
85,499
$
Volumes, revenues and cost of sales. For the year ended December 31, 2013, barrels hauled decreased by 5% compared to the
year ended December 31, 2012, due to the negative impact of weather conditions in both Canada and the United States and the
impact of new pipelines in certain regions of the United States reducing demand for trucking services, that was partially offset by
additional volumes from acquisitions completed in 2012.
Despite the decrease in volumes, revenues increased by 2% in the year ended December 31, 2013 as compared to the year ended
December 31, 2012 mainly due to the impact of an increase in rates for spot hauling activities and an increase in service related
charges.
Cost of sales is primarily comprised of payments to owner-operators and lease operators. Cost of sales decreased by 1% in the
year ended December 31, 2013 compared to the year ended December 31, 2012 due to the decrease in hauling volumes.
Operating expenses and other. Overall operating expenses and other costs increased by $14.7 million, or 18%, in the year ended
December 31, 2013 compared to the year ended December 31, 2012, mainly due to the impact of additional costs of
approximately $7.3 million relating to the acquisitions completed in 2012, increase in certain non-recurring customer credits of
approximately $1.8 million and increase in payroll related costs in both Canada and the United States.
Segment profit. Segment profit decreased by $1.8 million, or 2%, in the year ended December 31, 2013 compared to the year
ended December 31, 2012, primarily due to the impact of higher operating costs, partially offset by higher margins.
8
12
Gibson Energy Inc.
TSX: GEI
Environmental Services
2013 Year End Report
The following tables set forth operating results from the Company’s Environmental Services segment:
Year ended December 31,
2013
(in thousands)
2012
Revenues
Environmental services and fluid handling ...............................................................................
Production services....................................................................................................................
Exploration support services .....................................................................................................
Accommodations .......................................................................................................................
Total revenues ...............................................................................................................................
Cost of sales ..................................................................................................................................
Operating expenses and other ........................................................................................................
Segment profit ...............................................................................................................................
$ 214,595
68,713
30,743
11,008
325,059
183,133
58,832
83,094
$
$ 60,561
11,221
1,659
1,775
75,216
30,450
28,077
$ 16,689
Revenues and cost of sales. Revenue increased by $249.8 million in the year ended December 31, 2013 as compared to the year
ended December 31, 2012 mainly due to the full year impact of the OMNI acquisition that was completed on October 31, 2012.
The increase was also due to increased volumes and revenue at the Company’s Canadian environmental services facilities, in part
due to the impact of adding a new facility during the year.
As a result of the increase in revenue, cost of sales increased by $152.7 million in the year ended December 31, 2013 as compared
to the year ended December 31, 2012. Cost of sales primarily consists of payroll related costs, equipment repairs and
maintenance, spare parts and fuel related costs.
Operating expenses and other. Operating costs increased by $30.8 million in the year ended December 31, 2013 as compared to
the year ended December 31, 2012, largely as a result of the full year impact of the OMNI acquisition. Operating costs largely
relate to payroll costs and other administrative costs that specifically relate to the segment.
Segment profit. Segment profit increased by $66.4 million in the year ended December 31, 2013 as compared to the year ended
December 31, 2012, largely as a result of the full year impact of the OMNI acquisition and also due to an increase in the profit
from the Company’s Canadian environmental services facilities.
9
13
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
Propane and NGL Marketing and Distribution
The following tables set forth operating results from the Company’s Propane and NGL Marketing and Distribution segment:
Volumes
Sales volumes—retail (litres in thousands)
Residential .................................................................................................................................
Oil and gas .................................................................................................................................
Commercial and industrial .........................................................................................................
Automotive ................................................................................................................................
Other ..........................................................................................................................................
Year ended December 31,
2013
2012
22,824
207,449
89,960
21,108
21,627
362,968
21,493
192,876
72,821
21,579
19,481
328,250
Sales volumes—wholesale (barrels in thousands)
Propane ......................................................................................................................................
4,475
4,171
Other NGLs
Butane .....................................................................................................................................
Condensate .............................................................................................................................
U.S. division ...........................................................................................................................
Revenues
Retail
Propane...................................................................................................................................
Other ......................................................................................................................................
Total retail ..................................................................................................................................
Wholesale
Propane...................................................................................................................................
Other NGLs ............................................................................................................................
Total wholesale ..........................................................................................................................
Total revenues ...............................................................................................................................
Cost of sales
Retail
Propane...................................................................................................................................
Other ......................................................................................................................................
Total retail ..................................................................................................................................
Wholesale ..................................................................................................................................
Total cost of sales ..........................................................................................................................
Gross Margin
Retail ......................................................................................................................................
Wholesale ...............................................................................................................................
Total gross margin .........................................................................................................................
Operating expenses and other ........................................................................................................
Segment profit ...............................................................................................................................
2,204
2,003
4,332
8,539
2,218
888
3,144
6,250
Year ended December 31,
2013
(in thousands)
2012
$ 170,144
23,855
193,999
$ 138,022
20,325
158,347
235,828
721,379
957,207
1,151,206
110,655
2,539
113,194
915,285
1,028,479
178,616
519,723
698,339
856,686
79,035
2,510
81,545
670,645
752,190
80,805
41,922
122,727
60,450
62,277
76,802
27,694
104,496
54,825
$ 49,671
$
10
14
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
Volumes, revenues and cost of sales. Retail volumes increased 11% in the year ended December 31, 2013 compared to the year
ended December 31, 2012, largely due to increased volumes in the oil and gas market as a result of continued strong demand from
key customers. Further, the residential and commercial and industrial markets volumes increased as a result of increased
construction activities in Alberta and Saskatchewan as well as the positive impact of the acquisitions completed in 2012.
Retail propane revenues increased 23% in the year ended December 31, 2013 as compared to the year ended December 31, 2012,
as a result of higher sales volumes and also higher overall propane retail prices, particularly in the latter part of the year. Other
retail revenue relates to equipment sales, service labour and rental and delivery charges. Other retail revenue increased by 17% in
the year ended December 31, 2013 compared to the year ended December 31, 2012, largely due to the Company’s investment in
related equipment and the impact of the acquisitions completed in 2012.
Wholesale propane volumes increased by 7% in the year ended December 31, 2013 compared to the year ended December 31,
2012. The increase in volumes was largely driven by the impact of higher propane demand with certain customers. As a result,
revenues increased by 32% in the year ended December 31, 2013 compared to the year ended December 31, 2012 with the
additional increase due to an increase in wholesale propane prices.
Wholesale other NGLs volumes increased by 37% in the year ended December 31, 2013 as compared to the year ended December
31, 2012, primarily as a result of higher demand from internal and external customers as favorable pricing impacted blending
programs. As a result, other NGLs revenues increased by 39% in the year ended December 31, 2013 as compared to the year
ended December 31, 2012.
Retail gross margin increased 5% in the year ended December 31, 2013 compared to the year ended December 31, 2012 primarily
due to the impact of higher retail propane volumes and the increase in other retail income. Wholesale gross margins increased
51% in the year ended December 31, 2013 compared to the year ended December 31, 2012 primarily due to the impact of more
favorable pricing conditions in the other NGLs marketing business.
Operating expenses and other. Overall operating expenses and other costs increased by $5.6 million or 10%, in the year ended
December 31, 2013 compared to the year ended December 31, 2012, primarily due to an increase in payroll related costs in both
the retail and wholesale businesses, due in part to the impact of acquisitions completed throughout 2012.
Segment profit. The Propane and NGL Marketing and Distribution segment profit increased in the year ended December 31, 2013
by $12.6 million, or 25%, compared to the year ended December 31, 2012, primarily, as a result of the increase in wholesale
margins and volumes.
Processing and Wellsite Fluids
The following tables set forth operating results from the Company’s Processing and Wellsite Fluids segment:
Volumes (barrels in thousands)
Roofing flux ..................................................................................................................................
Road asphalt ..................................................................................................................................
Frac fluid (Gibson Clear) ..............................................................................................................
Distillate (D822) ............................................................................................................................
Tops ...............................................................................................................................................
Other ..............................................................................................................................................
Total sales volumes .......................................................................................................................
2013
2,076
186
466
835
1,909
152
5,624
2012
1,853
289
331
695
2,132
68
5,368
Year ended December 31,
11
15
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
Year ended December 31,
2013
(in thousands)
2012
Revenues
Road asphalt and roofing flux ...................................................................................................
Frac fluid (Gibson Clear) ..........................................................................................................
Distillate (D822) ........................................................................................................................
Tops ...........................................................................................................................................
Other ..........................................................................................................................................
Total revenues ...............................................................................................................................
Cost of sales ..................................................................................................................................
Operating expenses and other ........................................................................................................
Segment profit ...............................................................................................................................
$
$
234,887
59,353
118,632
174,071
24,154
611,097
540,182
22,195
48,720
$ 223,045
46,327
95,414
176,119
10,832
551,737
491,056
20,613
40,068
$
Volumes, revenues and cost of sales. Sales volumes for roofing flux increased by 12% in the year ended December 31, 2013
compared to the year ended December 31, 2012 as a result of increased demand in the United States and increased throughput at
the processing facility. Sales volumes for road asphalt decreased by 36% in the year ended December 31, 2013 compared to the
year ended December 31, 2012 due to less Canadian road paving jobs being performed. Road asphalt and roofing flux revenue
increased by 5% in the year ended December 31, 2013 compared to the year ended December 31, 2012 largely due to the increase
in roofing flux volumes.
Frac fluid volumes increased 41% in the year ended December 31, 2013 compared to the year ended December 31, 2012 largely
due to an overall increase in customer demand. Frac fluid revenues increased by 28% in the year ended December 31, 2013
compared to the year ended December 31, 2012 due to the increase in volume that was offset in part by lower overall selling
prices.
Sales volumes for distillate were 20% higher in the year ended December 31, 2013 compared to the year ended December 31,
2012 largely due to increase in demand from customers in Canada. As a result, distillate revenues were 24% higher in the year
ended December 31, 2013 compared to the year ended December 31, 2012.
Tops volumes decreased 10% in the year ended December 31, 2013 as compared to the year ended December 31, 2012 due to the
increase in frac fluid and distillate volumes resulting in the Company selling less of the light end volume as tops. Tops revenues
decreased by 1% in the year ended December 31, 2013 compared to the year ended December 31, 2012 due to the decrease in
volume offset in part by higher tops pricing.
Other volumes include the sale of the Company’s oil based mud (OBM) product and solvents. Other volumes increased by 124%
in the year ended December 31, 2013 compared to the year ended December 31, 2012, largely driven by increased demand for the
Company’s OBM product. Other revenue increased by 123% in the year ended December 31, 2013 compared to the year ended
December 31, 2012 largely due to the increase in volumes.
The overall cost per barrel for the basket of products sold by the Processing and Wellsite Fluids segment increased by 5% due to
the increase in crude oil prices.
Overall margins increased by $10.2 million, or 17%, in the year ended December 31, 2013 as compared to the year ended
December 31, 2012. Overall margins increased due to higher overall margins from tops and distillate, particularly in the first
quarter of 2013, partially offset by lower road asphalt, roofing flux and frac fluid margins.
Operating expenses and other. Operating expenses increased by $1.6 million, or 8%, in the year ended December 31, 2013 as
compared to the year ended December 31, 2012, primarily due to an increase in repairs and maintenance costs and increased
operating costs relating the Company’s OBM business.
Segment profit. The Processing and Wellsite Fluids segment profit increased in the year ended December 31, 2013 by
$8.7 million, or 22%, as compared to the year ended December 31, 2012, primarily due to higher overall margins for tops and
distillate, particularly in the first quarter of 2013, offset in part by higher operating expenses and decreased margins for road
asphalt, roofing flux and frac fluid.
12
16
Gibson Energy Inc.
TSX: GEI
Marketing
The following tables set forth the operating results from the Company’s Marketing segment:
Volumes (barrels in thousands)
Sales Volumes
2013 Year End Report
Year ended December 31,
2013
2012
Crude and diluent ......................................................................................................................
103,549
81,688
Year ended December 31,
2013
(in thousands)
2012
Revenues ....................................................................................................................................... $ 5,580,040
5,487,361
Cost of sales ..................................................................................................................................
Operating expenses and other ........................................................................................................
9,675
Segment profit ..............................................................................................................................
83,004
$
$ 3,745,283
3,675,635
10,911
58,737
$
The following tables set forth the monthly average NYMEX benchmark price of West Texas Intermediate crude oil (U.S.$):
Calendar Period
January ..........................................................................................................................................
February ........................................................................................................................................
March ............................................................................................................................................
April ..............................................................................................................................................
May ...............................................................................................................................................
June ...............................................................................................................................................
July ................................................................................................................................................
August ...........................................................................................................................................
September .....................................................................................................................................
October .........................................................................................................................................
November .....................................................................................................................................
December .....................................................................................................................................
Average for the year ended December 31 .....................................................................................
2013
$ 94.83
95.32
92.96
92.07
94.80
93.80
104.67
106.57
106.24
100.55
93.93
97.89
97.80
2012
$ 100.32
102.26
106.21
103.35
94.72
82.41
87.93
94.16
94.72
89.57
86.66
88.25
94.37
Volumes, revenues and cost of sales. Sales volumes for crude and diluent increased by 27% in the year ended December 31, 2013,
due to a continued focus on bringing volumes to the Company’s integrated assets. Revenue increased by 49% in the year ended
December 31, 2013 compared to the year ended December 31, 2012, due to the increase in both volume and commodity prices,
including the impact of changes in crude oil differentials during the year.
Cost of sales increased by 49% in the year ended December 31, 2013 compared to the year ended December 31, 2012 largely in
line with the increase in revenue.
Operating expenses and other. Operating expenses decreased by $1.2 million, or 11%, in the year ended December 31, 2013
compared to the year ended December 31, 2012 primarily due to lower payroll related costs and an increase in foreign exchange
gain.
Segment profit. The Marketing segment profit increased by $24.3 million, or 41%, in the year ended December 31, 2013 as
compared to the year ended December 31, 2012. In the year ended December 31, 2013, margins were positively impacted by the
increase in volumes delivered to the Company’s terminals and by crude oil shipped via rail at the Company’s various rail loading
facilities.
General and administrative, excluding depreciation and amortization
General and administrative expense (“G&A”) is comprised of costs incurred for executive services, accounting, finance, legal,
human resources, investor relations and communications that are incurred at a corporate level and are not related to a specific
segment of operations.
G&A expense was $34.6 million in the year ended December 31, 2013 compared to $32.7 million in the year ended December 31,
2012. The increase was largely driven by an increase in payroll related costs and integration costs relating to the OMNI
acquisition.
13
17
Gibson Energy Inc.
TSX: GEI
Depreciation and amortization
2013 Year End Report
Depreciation and amortization expense was $184.1 million in the year ended December 31, 2013 compared to $126.6 million in
the year ended December 31, 2012. The increase is due to the additional depreciation and amortization related to the increase in
the Company’s tangible assets due to capital expenditures and the impact of acquisitions, in particular the OMNI acquisition.
Stock based compensation
Stock based compensation expense was $8.3 million in the year ended December 31, 2013 compared to $3.9 million in the year
ended December 31, 2012. The increase was primarily due to the additional expense incurred from granting a full annual grant of
stock awards in the year ended December 31, 2013. In 2012, only a partial annual allotment was granted as unvested amounts
were converted from a previous equity plan.
Debt extinguishment
On June 28, 2013, the Company repaid and terminated its Tranche B Term Loan facility of U.S.$650.0 million and revolving
credit facility of U.S.$375.0 million, concurrent with the closing of the Notes and the establishment of the Revolving Credit
Facility. Accordingly, the Company recognized non-cash debt extinguishment expenses of $38.2 million comprising unamortized
debt issue costs of $22.8 million, unamortized financial instrument liability discount of $10.0 million and unamortized financing
costs of $5.4 million during the year ended December 31, 2013.
Foreign exchange loss (gain) not affecting segment profit
In the year ended December 31, 2013, the Company recorded a foreign exchange loss of $15.7 million compared to a foreign
exchange gain of $20.4 million in the year ended December 31, 2012.
The gains and losses recorded are primarily as a result of the impact of the movement in exchange rates on the Company’s U.S.
dollar denominated long-term debt and related financial instruments. In the year ended December 31, 2013, a loss of $42.5
million was due to the unfavorable movement in exchange rates that was partially offset by a gain of $22.5 million, related to the
change in mark-to-market value of U.S. dollar forward contracts and call options used to mitigate the currency risk associated
with the Company’s U.S. dollar denominated long-term debt. In the year ended December 31, 2012, a gain of $14.4 million was
due to the favorable movement in exchange rates that was offset in part by an unrealized loss of $0.5 million that related to the
Company’s U.S. dollar forward contract and call option to mitigate the currency risk associated with its U.S. dollar denominated
long term debt.
Net interest expense
Net interest expense, excluding the non-cash movement in financial instruments relating to interest expense, was $53.0 million in
the year ended December 31, 2013 compared to $43.0 million in the year ended December 31, 2012. The increase was primarily
due to an increase in interest charges as a result of the increase in outstanding debt and interest rates after the closing of the Notes,
letters of credit charges and commitment fees and accretion expense associated with decommissioning and site restoration. The
increase was partially offset by the impact of lower amortization of issue costs relating to the Notes and the Revolving Credit
Facility.
Financial instruments relating to interest expense
Financial instruments relating to interest expense largely relates to the changes in the value of interest rate swap and an embedded
derivative on an interest rate floor within the Company’s Tranche B Term Loan that was required to be separated from the
carrying value of long-term debt and was accounted for as a separate financial instrument that was measured at fair value at each
balance sheet date. As a result of the repayment of the Tranche B Term Loan on June 28, 2013, the interest rate swap was settled
and the financial instrument liability discount was derecognized and a gain of $18.3 million was recorded in the year ended
December 31, 2013 as compared to $4.2 million in the year ended December 31, 2012.
Income tax expense
Income tax expense for the year ended December 31, 2013 was $36.9 million compared to $32.1 million for the year ended
December 31, 2012. The effective tax rate was 26.2% during the year ended December 31, 2013, compared to a rate of 21.7% for
the year ended December 31, 2012. The increase in the income tax expense and effective tax rate was primarily due to the impact
of non-deductible foreign exchange losses in the year ended December 31, 2013 compared to non-taxable foreign exchange gains
in the year ended December 31, 2012. This change was offset in part by the impact of an increase in non-taxable dividends in the
year ended December 31, 2013 compared to the year ended December 31, 2012.
14
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Gibson Energy Inc.
TSX: GEI
Fourth Quarter Results
Segment revenue
Terminals and Pipelines ..............................................................................................................
Truck Transportation ...................................................................................................................
Environmental Services ...............................................................................................................
Propane and NGL Marketing and Distribution ...........................................................................
Processing and Wellsite Fluids ....................................................................................................
Marketing ....................................................................................................................................
Total segment revenue.................................................................................................................
Revenue – inter-segmental ..........................................................................................................
Total revenue – external .............................................................................................................
Segment profit
Terminals and Pipelines ..............................................................................................................
Truck Transportation ...................................................................................................................
Environmental Services ...............................................................................................................
Propane and NGL Marketing and Distribution ...........................................................................
Processing and Wellsite Fluids ....................................................................................................
Marketing ....................................................................................................................................
Total segment profit ....................................................................................................................
General and administrative ..........................................................................................................
Depreciation and amortization ....................................................................................................
Stock based compensation ...........................................................................................................
Foreign exchange loss (gain) .......................................................................................................
Net interest expense ....................................................................................................................
Gain on financial instruments relating to interest expense ..........................................................
Income before income tax ...........................................................................................................
Income tax provision ...................................................................................................................
Net income .................................................................................................................................
2013 Year End Report
Three months ended December 31,
2013
(in thousands)
2012
$
$
35,208
134,102
81,386
369,418
156,930
1,424,424
2,201,468
(285,430)
1,916,038
25,065
22,165
22,564
23,204
13,612
16,733
123,343
9,310
52,002
2,258
15,056
14,662
-
30,055
9,331
20,724
$
$
27,595
135,803
48,275
244,717
148,155
996,452
1,600,997
(294,762)
1,306,235
20,329
21,634
11,185
20,886
10,132
17,918
102,084
10,693
39,171
1,150
(4,978)
10,798
(2,263)
47,513
10,902
36,611
Segment revenue increased by $600.5 million in the three months ended December 31, 2013 compared to the three months ended
December 31, 2012. Changes in segment revenue were as follows:
• Terminals and Pipelines segment revenue for the three months ended December 31, 2013 increased by $7.6 million compared
to the three months ended December 31, 2012. The increase was largely due to an increase in revenue at the Hardisty
Terminal resulting from an increase in revenue from customers with dedicated tank usage that are subject to minimum
volumes and fixed fee arrangements;
•
Truck Transportation segment revenue decreased by $1.7 million largely due to a decrease in barrels hauled as a result of
negative impact of weather conditions in both Canada and the United States and the impact of new pipelines in certain
regions of the United States reducing demand for trucking services. However, the impact of lower barrels hauled was
partially offset by an increase in rates for spot hauling activities and an increase in service related charges;
•
Environmental Services segment revenue increased by $33.1 million in the year ended December 31, 2013 as compared to
the year ended December 31, 2012 mainly due to the full quarter impact of the acquisition of OMNI in 2013 compared to a
partial quarter in 2012. The increase was also due to increased volumes at the Company’s Canadian environmental services
facilities, in part due to the impact of adding a new facility in the latter part of the fourth quarter of 2012;
•
Propane and NGL Marketing and Distribution segment revenue increased by $124.7 million due to higher retail and
wholesale sales volumes and also due to the impact of higher propane rack prices;
•
Processing and Wellsite Fluids segment revenue increased by $8.8 million due to an increase in demand for roofing flux, frac
fluid and distillate, partially offset by lower tops revenues; and
15
19
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
•
Marketing segment revenue increased by $428.0 million due mainly to the impact of higher volumes and higher commodity
prices.
Segment profit increased by $21.2 million or 20.8% in the three months ended December 31, 2013 compared to the three months
ended December 31, 2012. The increase in segment profit was due to:
•
Terminals and Pipelines segment profit increased by $4.7 million, largely due to increased volumes through the Company’s
terminals and the additional profit from customers with dedicated tank usage;
•
Truck Transportation segment profit increased by $0.5 million largely as a result of increases in rates for spot hauling
activities and an increase in service related activities;
•
Environmental Services segment profit increased $11.4 million largely as a result of the full quarter impact of the OMNI
acquisition and also an increase in volumes from the Canadian environmental services facilities;
•
Propane and NGL Marketing and Distribution segment profit increased by $2.3 million due to increased margins from the
wholesale business, largely as a result of more favorable pricing conditions in the fourth quarter of 2013 compared to the
prior year period;
• Processing and Wellsite Fluids segment profit increased by $3.5 million, primarily as a result of higher margins on frac fluid
and distillate partially offset by lower margins on roofing flux and asphalt and tops; and
• Marketing segment profit decreased by $1.2 million due to the impact of less favorable pricing differentials between crude oil
types.
Net income was $20.7 million in the three months ended December 31, 2013 compared to $36.6 million in the three months
ended December 31, 2012. Despite the increase in segment profit, net income decreased primarily due the increase in interest
expense, depreciation and amortization expenses and foreign exchange losses as a result of the unfavorable movement in
exchange rates on the translation of the Company’s U.S. dollar denominated long-term debt.
SUMMARY OF QUARTERLY RESULTS
The following table sets forth a summary of the Company’s quarterly results for each of the last eight quarters.
Three months ended
(in thousands)
Revenues ..........................
Net income (loss) .............
EBITDA(1) ........................
Adjusted EBITDA(2) ........
Earnings (loss) per share
Basic ............................
Diluted .........................
December 31 September 30
June 30 March 31
December 31 September 30
June 30 March 31
2013
2012
$1,916,038
20,724
96,806
115,284
$1,841,894 $1,619,726 $1,563,011
45,728
114,733
121,044
42,599
115,385
103,533
(5,235)
33,060
87,176
$1,306,235
36,611
95,601
96,134
$1,185,647 $1,126,219 $1,294,928
40,037
86,251
71,789
9,521
48,565
62,044
30,017
83,915
72,109
0.17
0.16
0.35
0.35
(0.04)
(0.04)
0.38
0.37
0.32
0.32
0.30
0.29
0.10
0.09
0.41
0.40
(1) EBITDA is not a measure recognized under IFRS and does not have standardized meanings prescribed by IFRS. EBITDA
consists of net income (loss) before interest expense, income taxes, depreciation, and amortization.
(2) Adjusted EBITDA is defined as net income (loss) before interest expense, income taxes, depreciation, amortization, other
non-cash expenses and charges deducted in determining consolidated net income (loss), including movement in the
unrealized gains and losses on the Company’s financial instruments, stock based compensation expense, impairment of
goodwill and intangible assets, and non-cash inventory or asset impairment charges. It also removes the impact of foreign
exchange movements in the Company’s U.S. dollar denominated long-term debt, management fees, debt extinguishment
expenses and adjustments that are considered non-recurring in nature.
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20
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
The Company presents EBITDA because it considers it to be an important supplemental measure of the Company’s performance
and believes this measure is frequently used by securities analysts, investors and other interested parties in the evaluation of
companies in industries with similar capital structures. EBITDA has limitations as an analytical tool, and readers should not
consider this item in isolation, or as a substitute for an analysis of the Company’s results as reported under IFRS. Some of these
limitations are:
- EBITDA:
-
-
-
-
excludes certain income tax payments that may represent a reduction in cash available to the Company;
does not reflect the Company’s cash expenditures, or future requirements, for capital expenditures or contractual
commitments;
does not reflect changes in, or cash requirements for, the Company’s working capital needs; and
does not reflect the significant interest expense, or the cash requirements necessary to service interest payments on the
Company’s debt, including the Notes and the Revolving Credit Facility;
- Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to
be replaced in the future and EBITDA does not reflect any cash requirements for such replacements; and
- Other companies in the industry may calculate EBITDA differently than the Company does, limiting its usefulness as a
comparative measure.
Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to the Company to
invest in the growth of the Company’s business. The Company compensates for these limitations by relying primarily on the
Company’s IFRS results and using EBITDA only supplementally. The following table reconciles consolidated net income (loss)
to EBITDA:
Three months ended
(in thousands)
Net income (loss) ...............
Depreciation and
amortization ...................
Interest expense(1) ............
Income tax expense
(recovery) ......................
EBITDA ............................
December 31 September 30
June 30 March 31
December 31 September 30
June 30 March 31
2013
2012
$ 20,724 $ 42,599
$ (5,235) $ 45,728
$ 36,611
$ 30,017
$ 9,521
$ 40,037
52,002
14,749
44,460
14,901
44,942
(5,286)
42,653
10,842
39,171
8,917
30,848
14,362
28,705
8,916
27,887
7,213
9,331
$ 96,806
13,425
$ 115,385
(1,361)
$ 33,060
15,510
$ 114,733
10,902
$ 95,601
8,688
$ 83,915
1,423
$ 48,565
11,114
$ 86,251
(1) Interest expense includes the impact of the gains or losses attributable to movement in the mark-to-market valuation of
financial instruments relating to interest expense.
Adjusted EBITDA and Pro Forma Adjusted EBITDA are presented in the table below because the Company believes it facilitates
investors’ use of operating performance comparisons from period to period and company to company by backing out potential
differences caused by variations in capital structures (affecting relative interest expense and foreign exchange differences on the
Company’s long-term debt), the book amortization of intangibles (affecting relative amortization expense) and the age and book
value of property, plant and equipment (affecting relative depreciation expense). The Company also presents Adjusted EBITDA
and Pro Forma Adjusted EBITDA because it believes it is frequently used by securities analysts, investors and other interested
parties as a measure of financial performance. Adjusted EBITDA and Pro Forma Adjusted EBITDA as presented herein are not
recognized measures under IFRS and should not be considered as an alternative to operating income or net income as measures of
operating results or an alternative to cash flows as measures of liquidity. Adjusted EBITDA differs from the term EBITDA as it is
commonly used. Adjusted EBITDA is defined as consolidated net income (loss) before interest expense, income taxes,
depreciation, amortization, other non-cash expenses and charges deducted in determining consolidated net income (loss),
including movement in the unrealized gains and losses on the Company’s financial instruments, stock based compensation
expense, impairment of goodwill and intangible assets, and non-cash inventory or asset writedowns. It also removes the impact of
foreign exchange movements in the Company’s U.S. dollar denominated long-term debt, management fees, debt extinguishment
expenses and other adjustments that are considered non-recurring in nature. Pro Forma Adjusted EBITDA differs from the term
Adjusted EBITDA in that it also includes the pro forma effect of acquisitions that took place in each fiscal year as if the
acquisitions took place at the beginning of the fiscal year in which such acquisition occurred. Pro Forma Adjusted EBITDA is
also used in calculating the Company’s covenant compliance under the debt agreements.
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21
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
The Company’s calculation of Adjusted EBITDA and Pro Forma Adjusted EBITDA may not be comparable to such calculations
used by other companies. In calculating Pro Forma Adjusted EBITDA, the Company makes certain adjustments that are based on
assumptions and estimates that may prove to have been inaccurate. In addition, in evaluating Adjusted EBITDA and Pro Forma
Adjusted EBITDA, readers should be aware that in the future the Company may incur expenses similar to those eliminated in the
presentation herein.
The following tables reconcile EBITDA to Adjusted EBITDA for each of the last eight quarters and Pro Forma Adjusted
EBITDA for the year ended December 31, 2013 and 2012:
Three months ended
December 31,
2013
September 30,
2013
June 30,
2013
March 31,
2013
(in thousands)
EBITDA .....................................................................................
Unrealized foreign exchange loss (gain) on long-term debt (a) ...
Net unrealized gain from financial instruments (b) ......................
Share based compensation (c) ......................................................
Debt extinguishment (d) ...............................................................
Adjusted EBITDA ......................................................................
Pro forma impact of acquisitions (f) ............................................
Pro Forma Adjusted EBITDA ....................................................
$ 96,806
17,549
(1,329)
2,258
-
$ 115,284
$ 115,385 $ 33,060 $ 114,733
13,354
(8,668)
1,625
-
$ 103,533 $ 87,176 $ 121,044
(11,350)
(2,867)
2,365
-
22,898
(9,014)
2,023
38,209
Three months ended
December 31,
2012
September 30,
2012
June 30,
2012
March 31,
2012
EBITDA .....................................................................................
Unrealized foreign exchange loss (gain) on long-term debt (a) ...
Net unrealized loss (gain) from financial instruments (b) ............
Share based compensation (c) ......................................................
Acquisition related costs (credits) (e) ...........................................
Adjusted EBITDA ......................................................................
Pro forma impact of acquisitions (f) ............................................
Pro Forma Adjusted EBITDA ....................................................
$ 95,601
7,244
(2,838)
1,150
(5,023)
$ 96,134
$
$
$
(in thousands)
83,915
(22,953)
8,636
804
1,707
72,109
48,565 $
12,862
(472)
1,050
39
$ 62,044
$
86,251
(11,577)
(3,737)
852
-
71,789
Year ended
December 31,
2013
$
$
$
359,984
42,451
(21,878)
8,271
38,209
427,037
-
427,037
Year ended
December 31,
2012
$
$
$
314,332
(14,424)
1,589
3,856
(3,277)
302,076
68,536
370,612
(a) Non-cash adjustment representing the unrealized foreign exchange loss (gain) on long-term debt, as a result of the movement
in exchange rates in the periods.
(b) Reflects the exclusion of the movement in the mark-to-market valuation of financial instruments used in risk management
activities. The Company uses crude oil and NGL priced futures, options and swaps to manage the exposure to commodities
price movements and foreign currency forward contracts and options to manage foreign exchange risks, although the
Company does not formally designate these financial instruments as hedges for accounting purposes. Accordingly, the
unrealized gains or losses on these financial instruments are recorded directly to the income statement. Management believes
that this adjustment better correlates the effect of risk management activities to the underlying operating activities to which
they relate.
(c) Represents the non-cash stock based compensation relating to the Company’s 2011 Equity Incentive Plan.
(d) In connection with the repayment of the Company’s long-term debt and termination of the previous revolving credit facility,
the Company recorded $38.2 million of non-cash debt extinguishment expenses in the three months ended June 30, 2013.
(e) Represents transaction fees that were expensed in connection with acquisitions made by the Company. In addition, in the
three months ended December 31, 2012, the Company realized a gain of $6.3 million on the settlement of foreign currency
forward contracts which were entered into to minimize the effect of foreign exchange fluctuations on the U.S. dollar purchase
price of OMNI.
(f) Reflects the pro forma impact of acquisitions on the Company’s Pro Forma Adjusted EBITDA as if the acquisitions that took
place in the twelve months occurred on January 1 of each twelve month period.
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Gibson Energy Inc.
TSX: GEI
2013 Year End Report
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary liquidity and capital resource needs are to fund ongoing capital expenditures, growth opportunities and
acquisitions and to fund its targeted dividend level. In addition, the Company must service its debt, including interest payments
and finance working capital needs. The Company relies on its cash flow from operations, debt and equity financings and
borrowings under the Company’s Revolving Credit Facility for liquidity.
The Company’s operating cash flow has historically been affected by the overall profitability of sales within the Company’s
segments, the Company’s ability to invoice and collect from customers in a timely manner and the Company’s ability to
efficiently implement the Company’s acquisition strategy and manage costs. The Company’s cash, cash equivalents and cash flow
from operations have historically been sufficient to meet the Company’s working capital, capital expenditure and debt servicing
requirements.
The following table summarizes the Company’s sources and uses of funds for the year ended December 31, 2013 and 2012:
Year ended December 31,
2013
(in thousands)
2012
Statement of Cash Flows
Cash flows provided by (used in):
Operating activities ....................................................................................................................
Investing activities ......................................................................................................................
Financing activities ....................................................................................................................
$ 331,631
(232,250)
(66,672)
$ 308,899
(636,045)
322,827
Cash provided by operating activities
The primary drivers of cash flow from operating activities are the collection of amounts related to sales of products such as crude
oil, propane, NGLs, asphalt and other products and fees for services provided associated with the Company’s Truck
Transportation, Terminals and Pipelines and Environmental Services segments. Offsetting these collections are payments for
purchases of crude oil and other products and other expenses. Other expenses primarily consist of owner-operator and lease
operator payments for the provision of contract trucking services, field operating expenses and G&A expenses. Historically, the
Marketing and the Processing and Wellsite Fluids segments have been the most variable with respect to generating cash flows due
to the impact of crude oil price levels and the volatility that price changes and crude oil grade basis changes have on the cash
flows and working capital requirements of these segments.
Cash provided by operations in the year ended December 31, 2013 was $331.6 million compared to $308.9 million in the year
ended December 31, 2012. The increase was primarily attributable to an increase in overall segment profitability partially offset
by an increase in working capital in the year ended December 31, 2013 compared to the year ended December 31, 2012.
Cash used in investing activities
Cash used in investing activities consists primarily of expenditures for growth capital, upgrade and replacement capital and
business acquisitions.
Cash used in investing activities was $232.3 million in the year ended December 31, 2013 compared to $636.0 million in the year
ended December 31, 2012. The decrease in cash used in investing activities was due largely to not completing any acquisitions in
the year ended December 31, 2013 compared to investing $466.4 million related to acquisitions in the year ended December 31,
2012. Offsetting this was an increase in capital expenditures in the year ended December 31, 2013 compared to the year ended
December 30, 2012. For a summary of capital expenditures and acquisitions, see “Acquisitions and Capital expenditures”
included in this MD&A.
Cash provided by (used in) financing activities
Cash used in financing activities was $66.7 million compared to cash provided by financing activities of $322.8 million in the
year ended December 31, 2012.
19
23
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
The main reason for the change in the year ended December 31, 2013 compared to December 31, 2012 was the completion of a
bought deal equity offering for net proceeds of $385.9 million in the year ended December 31, 2012 to partially fund the
acquisition of OMNI. No equity offerings were completed in the year ended December 31, 2013.
In addition, in the year ended December 31, 2013, the Company completed the Notes offering on June 28, 2013 for proceeds, net
of issue discount of, $764.2 million, which was offset in part by the repayment of the Tranche B Term Loan of $678.1 million.
During the year ended December 31, 2013, the Company also paid debt issue and financing costs of $16.2 million, paid net cash
dividends of $93.9 million, paid interest of $19.8 million, received net proceeds of $8.7 million on settlement of certain derivative
financial instruments relating to interest expense and foreign exchange and received proceeds of $1.2 million on the exercise of
stock options.
In the year ended December 31, 2012, the Company replaced and re-priced its previous long-term debt resulting in the Company's
existing U.S.$645.0 million Term Loan B being replaced with a U.S.$650.0 million Tranche B Term Loan. In connection with
this transaction, the Company paid debt issue and related financing costs of $10.5 million. In addition, during the year ended
December 31, 2012, the Company also paid net cash dividends of $60.6 million, paid interest of $37.9 million, received proceeds
of $18.6 million on the exercise of stock options and received net proceeds of $31.9 million under the Revolving Credit Facility.
Liquidity sources, requirements and contractual cash requirements and commitments
The Company believes that cash on hand, together with cash from operations and borrowings under the Revolving Credit Facility,
will be adequate to meet its working capital needs, upgrade and replacement capital expenditures, currently sanctioned growth
capital projects, debt service, targeted dividend level and other cash requirements for at least the next twelve months. The
Company had unrestricted cash of $97.2 million and $442.6 million available under the Revolving Credit Facility as at December
31, 2013.
The Company’s ability to make interest payments on the Company’s indebtedness, to pay targeted dividends and to fund the
Company’s other liquidity requirements will depend on the Company’s ability to generate cash in the future. In the three months
ended December 31, 2013, the Company declared a dividend of $0.275 per share for a total dividend of $33.6 million, of which
$24.8 million was paid in cash on January 17, 2014 with the remainder of the dividend being settled with the issuance of common
shares to shareholders participating in the Company’s dividend reinvestment plan (“DRIP”) and stock dividend program. The
declaration of dividends is considered on a quarterly basis and is at the sole discretion of the Board and will be determined on the
basis of earnings, financial requirements for operations and a solvency calculation.
Capital expenditures amounted to $247.0 million in the year ended December 31, 2013. At December 31, 2013, the Company has
identified upgrade and replacement capital expenditures and growth capital expenditures excluding acquisitions of $508.5 million,
of which $261.5 million has been approved, that the Company expects to undertake over the next 12 to 24 months. While the
Company anticipates that these capital expenditures will occur, they are subject to general economic, financial, competitive,
legislative, regulatory and other factors, some of which are beyond the Company’s control.
In addition to anticipated capital expenditures, the Company may engage in additional strategic acquisitions and capital
expenditures as opportunities arise that benefit the Company’s existing operations by expanding the Company’s reach in existing
markets or by providing platforms by which to enter new markets. Any such acquisition or capital expenditure could be material
and could have a material effect on the Company’s liquidity, cash flows and capital commitments and resources. Any future
acquisitions, capital expenditures or other similar transactions may require additional capital and there can be no assurance that
such capital will be available to the Company on acceptable terms, or at all.
On June 28, 2013, the Company completed the Notes offering and as a result, as of December 31, 2013, the Company had total
outstanding long-term debt, excluding debt discount and issuance costs, of U.S.$500.0 million bearing fixed interest of 6.75% per
annum due July 15, 2021 and $250.0 million bearing fixed interest of 7.00% per annum due July 15, 2020. Interest is payable
semi–annually on January 15 and July 15 of each year the Notes are outstanding. The proceeds from the Notes were used to repay
the outstanding Tranche B Term Loan principal amount of U.S.$643.5 million with the remaining proceeds to be used primarily
to fund growth initiatives and for general corporate purposes.
As a result of the Notes offering, the Company extended the maturity profile of its long-term debt from 2018 to the years 2020
and 2021, moved from a floating rate secured debt to a fixed rate unsecured debt structure and increased the Company’s
flexibility to make dividend payments, permitted investments and incur additional debt in support of future growth capital
requirements.
20
24
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
The Notes agreement contains certain redemption options whereby the Company can redeem all or part of the Notes at prices set
forth in the agreement from proceeds of equity offerings or on the dates specified in the agreement. In addition, the Note holders
have the right to require the Company to redeem the Notes or a portion thereof, at the redemption prices set forth in the agreement
in the event of change in control or in the event certain asset sale proceeds are not re-invested in the time and manner specified in
the agreement.
On June 28, 2013, the Company established a Revolving Credit Facility of $500.0 million, the proceeds of which are available to
provide financing for working capital and other general corporate purposes. The Revolving Credit Facility has an accordion
feature whereby the Company can increase the Revolving Credit Facility to $750.0 million subject to obtaining incremental
lender commitments. The Revolving Credit Facility has a term of five years, expiring on June 28, 2018. The Revolving Credit
Facility provides sub–facilities for letters of credit, swingline loans and borrowings in Canadian dollars and U.S. dollars.
Borrowings under the Revolving Credit Facility bear interest at a rate equal to Canadian Prime Rate or U.S. Base Rate or U.S.
LIBOR or Canadian Bankers Acceptance Rate as the case may be plus an applicable margin. The applicable margin for
borrowings under the Revolving Credit Facility is subject to step up and step down based on the Company’s total debt leverage
ratio. In addition, the Company must pay a standby fee on the unused portion of the Revolving Credit Facility and customary
letter of credit fees equal to the applicable margins determined in a manner similar to the interest.
As a result of establishing the Revolving Credit Facility and terminating the previous senior secured credit facility, the Company
increased its availability under the facility, extended the maturity from 2016 to 2018, improved overall pricing, fronting fees and
standby fees and increased the Company flexibility relating to certain non-financial covenants and relaxed certain financial
covenants.
At December 31, 2013, the Company had no amount drawn against the Revolving Credit Facility, had no restricted cash and had
issued letters of credit totaling $57.4 million. The Revolving Credit Facility is secured by substantially all of the Company’s
property, plant and equipment, intangible assets and current assets, including inventory and trade receivables and is guaranteed by
substantially all of the Company’s existing wholly owned subsidiaries.
The terms of the Company’s Revolving Credit Facility require the Company to maintain certain covenants defined in the
agreement including senior debt leverage ratio of no greater than 3.5 to 1.0, a total debt leverage ratio of no greater than 5.0 to 1.0
and an interest coverage ratio of no less than 2.5 to 1.0. As at December 31, 2013, the Company was in compliance with the
financial ratios with the senior debt leverage ratio at 0.0 to 1.0, total debt leverage ratio at 1.6 to 1.0, and the interest coverage
ratio at 9.1 to 1.0. If the Company fails to comply with the financial covenants, the lenders may declare an event of default. An
event of default resulting from a breach of a financial covenant may result, at the option of lenders holding a majority of the loans,
in an acceleration of repayment of the principal and interest outstanding and a termination of the Revolving Credit Facility.
The Notes and Revolving Credit Facility also contain non-financial covenants that restrict, subject to certain thresholds, some of
the Company’s activities, including the Company’s ability to dispose of assets, incur additional debt, pay dividends, create liens,
make investments and engage in specified transactions with affiliates. The Notes and the Revolving Credit Facility also contain
customary events of default, including defaults based on events of bankruptcy and insolvency, non-payment of interest or fees
when due, subject to specified grace periods, breach of covenants, change in control and material inaccuracy of representations
and warranties. As of December 31, 2013, the Company was in compliance with all of its covenants under the Notes and the
Revolving Credit Facility.
Contingencies
The Company is currently undergoing various income tax related and excise tax audits. While the final outcome of such audits
cannot be predicted with certainty, the Company believes that the resolution of these audits will not have a material impact on the
Company’s consolidated financial position or results of operations. As a part of the acquisition of the Company by the wholly-
owned subsidiary of R/C Guitar Cooperatief U.A.(“Co-op”), a Dutch Co-op owned by investment funds affiliated with Riverstone
Holdings LLC (“Riverstone”), from Hunting PLC (“Hunting”) on December 12, 2008, Hunting has indemnified the Company for
the pre-closing period impact of these audits.
The Company is subject to various regulatory and statutory requirements relating to the protection of the environment. These
requirements, in addition to the contractual agreements and management decisions, result in the recognition of estimated
decommissioning obligations and environmental remediation. Estimates of decommissioning obligations and environmental
remediation costs can change significantly based on such factors as operating experience and changes in legislation and
regulations.
21
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Gibson Energy Inc.
TSX: GEI
2013 Year End Report
The Company is involved in various legal actions which have occurred in the ordinary course of business. The Company is of the
opinion that losses, if any, arising from such legal actions would not have a material impact on the Company’s consolidated
financial position or results of operations.
Contractual obligations
The following table presents, at December 31, 2013, the Company’s obligations and commitments to make future payments under
contracts and contingent commitments:
(in thousands)
Long-term debt(1) ................................................................ $ 781,800
Interest payments on long-term debt(1) ...............................
412,194
Operating lease and other commitments(2) .........................
228,946
Total contractual obligations .............................................. $1,422,940
Total
Payments due by period
$
Less than
1 year
-
53,397
45,478
$ 98,875
1-3 years
3-5 years
$
-
106,794
85,283
$ 192,077
$
-
106,794
63,766
$ 170,560
More than
5 years
$ 781,800
145,209
34,419
$ 961,428
(1) The exchange rate used to translate the U.S. dollar obligations on the Company’s long-term debt and interest payments is the
rate as of December 31, 2013 of U.S.$0.9402 to $1.00.
(2) Operating lease and other commitments relate to an office lease for the Company’s Calgary head office, rail tank cars,
vehicles, field buildings, various equipment leases and terminal services arrangements.
As at December 31, 2013, the Company has identified and approved upgrade and replacement capital and internal growth
projects, excluding acquisitions, of $261.5 million that the Company expects to undertake over the next 12 to 24 months. In
addition, the Company had accrued liabilities for obligations with respect to the Company’s defined benefit plans of $5.9 million
and provisions associated with site restoration on the retirement of assets and environmental costs of $91.4 million but the timing
of such payments is uncertain due to the estimates used to calculate these amounts and the long-term nature of these balances. The
Company also has commitments relating to its risk management contracts which are discussed further in “Quantitative and
Qualitative Disclosures about Market Risks” and in the notes to the Company’s audited consolidated financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or
future effect on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or
capital expenses that are material to investors.
RELATED PARTY TRANSACTIONS
On March 27, 2012, the Company completed a secondary offering of common shares of the Company held by Co-op, pursuant to
which Co-op sold 28,107,782 common shares at a price of $20.70 per common share for total gross proceeds to Co-op of
$581.8 million. The Company and Co-op also had an agreement to govern the sale of common shares held by Co-op and its
affiliates. The agreement also contained customary registration, expense reimbursement and indemnity terms. In connection with
the agreement, the Company incurred professional fees relating to the secondary offerings of common shares of $0.2 million in
the year ended December 31, 2012. The agreement expired on closing of the secondary offering on March 27, 2012 and
accordingly, no expenses have been incurred since that date. As a result of the secondary offering, Co-op and Riverstone no
longer hold any common shares of the Company as at March 27, 2012.
On August 11, 2011, the Company formed a partnership (the “Plato Partnership”) to jointly construct and own a pipeline and
emulsion treating, water disposal and oilfield waste management facilities in the Plato area of Saskatchewan. The Plato
Partnership commenced operations in 2012. The Company’s interest in the Plato Partnership is 50%. A member of the
Company’s Board is also a director of the other party with the 50% interest in the Plato Partnership. At December 31, 2013 and
2012, the Company’s proportionate share of property, plant and equipment was $10.5 million and $9.8 million, respectively. The
impact of the Company’s share of the other financial position and results of the Plato Partnership is not material to the Company’s
consolidated financial statements.
The related party transactions noted above have been measured at agreed upon market based terms.
22
26
Gibson Energy Inc.
TSX: GEI
OUTSTANDING SHARE DATA
2013 Year End Report
The Company is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares. As at
December 31, 2013, there were 122.2 million common shares outstanding and no preferred shares outstanding. In addition, under
the Company’s 2011 Equity Incentive Award Plan, there were an aggregate of 1.0 million restricted share units, performance
share units and deferred share units outstanding and 1.9 million stock options outstanding as at December 31, 2013.
At the Company’s Annual General Meeting held on May 8, 2013, the Company’s shareholders approved the amendment of its
2011 Equity Incentive Plan to fix the number of common shares reserved for issuance under the plan to a maximum of 10% of the
total number of common shares issued and outstanding at any given time. At December 31, 2013, awards available to grant under
the amended 2011 Equity Incentive Plan were approximately 9.2 million.
As at February 28, 2014, 122.7 million common shares, 1.0 million restricted share units, performance share units and deferred
share units and 1.9 million stock options were outstanding.
DIVIDENDS
The Company is currently paying quarterly dividends to holders of common shares. The payment of dividends is not guaranteed,
and the amount and timing of any dividends payable by Gibson will be at the discretion of the Board and will be established on
the basis of Gibson's earnings, financial requirements for operations, the satisfaction of a solvency calculation and the terms of the
Company’s debt agreements. In addition, in connection with Company’s dividend policy, after each fiscal year end the Board will
formally review the annual dividend amount.
The Board has approved a DRIP that provides eligible holders of common shares with the opportunity to reinvest their cash
dividends, on each dividend payment date, in additional common shares to be issued from treasury of Gibson. At the Company’s
Annual General Meeting held on May 8, 2013, the Company’s shareholders approved the amendment of the articles of
amalgamation of the Company setting forth terms and conditions pursuant to which the Company may issue common shares as a
payment of all or any portion of dividends declared on the common shares for those eligible shareholders who elect to receive
stock dividends instead of cash dividends. Presently, the Company has no intention of terminating the DRIP and intends that the
stock dividend program (“SDP”) and the DRIP will continue to run simultaneously. For the fourth quarter dividend of 2013,
holders of approximately 26.2 % of the common shares participated in the DRIP and SDP.
DISTRIBUTABLE CASH FLOW
Distributable cash flow is not a standard measure under IFRS and, therefore, may not be comparable to similar measures reported
by other entities. Distributable cash flow is used to assess the level of cash flow generated from ongoing operations and to
evaluate the adequacy of internally generated cash flow to fund dividends. Changes in non-cash working capital are excluded
from the determination of distributable cash flow because they are primarily the result of seasonal fluctuations in product
inventories or other temporary changes. Upgrade and replacement capital expenditures are deducted from distributable cash flow
as they are ongoing recurring expenditures.
The following is a reconciliation of distributable cash flow to its most closely related IFRS measure, cash flow from operating
activities.
Cash flow from operating activities ................................................................................................
Adjustments:
Year ended
December 31
2013
(in thousands)
2012
$ 331,631
$308,899
90,043
Changes in non-cash working capital ................................................................................................
(69,513)
Upgrade and replacement capital ................................................................................................
Cash interest expense ................................................................................................................................(46,909)
Current income tax ................................................................................................................................ (52,074)
$ 253,178
Distributable cash flow ................................................................................................................................
(6,799)
(56,536)
(36,847)
(26,205)
$182,512
Dividends declared to shareholders ................................................................................................
$ 133,682
$106,074
23
27
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
Dividends declared in the twelve months ended December 31, 2013 were $133.7 million, of which $96.4 million was paid in cash
and the balance was settled with the issuance of common shares under the Company’s DRIP and SDP. In the twelve months
ended December 31, 2013, dividends declared represented 53% of the distributable cash flow generated or, distributable cash
flow was 1.9 times dividends declared.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is involved in various commodity related marketing activities that are intended to enhance the Company’s
operations and increase profitability. These activities often create exposure to price risk between the time contracted volumes are
purchased and sold and to foreign exchange risk when contracts are in different currencies (Canadian dollar versus U.S. dollar).
The Company is also exposed to various market risks, including volatility in (i) crude oil, refined products, natural gas and NGL
prices, (ii) interest rates and (iii) currency exchange rates. The Company utilizes various derivative instruments from time to time
to manage commodity price, interest rates and currency exchange rate exposure and, in certain circumstances, to realize
incremental margin during volatile market conditions. The Company’s commodity trading and risk management policies and
procedures are designed to establish and manage to an approved level of Value at Risk. The Company has a Risk Management
Committee that has direct responsibility and authority for the Company’s risk policies and the Company’s trading controls and
procedures and certain aspects of corporate risk management. The Company’s approved strategies are intended to mitigate risks
that are inherent in the Company’s core businesses of aggregating and marketing and distribution. To hedge the risks discussed
above the Company engages in risk management activities that the Company categorizes by the risks the Company is hedging and
by the physical product that is creating the risk. The following discussion addresses each category of risk.
Commodity Price Risk. The Company hedges its exposure to price fluctuations with respect to crude oil, refined products, natural
gas and NGLs, and expected purchases and sales of these commodities (relating primarily to crude oil, roofing flux, propane sales
and purchases of natural gasoline). The derivative instruments utilized consist primarily of futures and option contracts traded on
the NYMEX, ICE and over-the-counter transactions, including swap and option contracts entered into with financial institutions
and other energy companies. The Company’s policy is to purchase only commodity derivative products for which the Company
physically transacts, and to structure the Company’s hedging activities so that price fluctuations for those products do not
materially affect the net cash the Company ultimately receives from its commodity related marketing activities.
Although the Company seeks to maintain a position that is substantially balanced within the Company’s various commodity
purchase and sales activities, the Company may experience net unbalanced positions for short periods of time as a result of
production, transportation and delivery variances as well as logistical issues associated with inclement weather conditions.
Although the intent of the Company’s risk management strategy is to hedge the Company’s margin, the Company has not
designated nor attempted to qualify for hedge accounting. Thus, changes in the fair values of all of the Company’s derivatives are
recognized in earnings, and result in greater potential for earnings volatility.
The fair value of futures contracts is based on quoted market prices obtained from the CME. The fair value of swaps and option
contracts is estimated based on quoted prices from various sources such as independent reporting services, industry publications
and brokers. These quotes are compared to the contract price of the swap, which approximates the gain or loss that would have
been realized if the contracts had been closed out at the period end. For positions where independent quotations are not available,
an estimate is provided, or the prevailing market price at which the positions could be liquidated is used. No such positions
existed as at December 31, 2013 and 2012. All derivative positions offset existing or anticipated physical exposures. Price-risk
sensitivities were calculated by assuming 15% volatility in crude oil and NGL related prices, regardless of term or historical
relationships between the contractual price of the instruments and the underlying commodity price. In the event of an increase or
decrease in prices, the fair value of the Company’s derivative portfolio would typically increase or decrease, offsetting changes in
the Company’s physical positions. A 15% favorable change would increase the Company’s net income by $3.1 million and
$3.7 million as of December 31, 2013 and 2012, respectively. A 15% unfavorable change would decrease the Company’s net
income by $3.0 million and $3.7 million as of December 31, 2013 and 2012, respectively. However, these changes may be offset
by the use of one or more risk management strategies.
Interest rate risks. Following the Notes offering, the Company’s long-term debt accrues interest at fixed interest rates and
accordingly, changes in market interest rates do not expose the Company to future interest cash outflow variability.
Under the Revolving Credit Facility, the Company is subject to interest rate risk, as borrowings bear interest at a rate equal to, at
the Company’s option, either U.S. LIBOR, U.S. Base Rate, Canadian Prime Rate or Canadian Bankers’ Acceptance rate, plus an
applicable margin based on a pricing grid. As at December 31, 2013, the Company had no amounts drawn under the Revolving
Credit Facility and accordingly, was not exposed to the interest rate cash flow risk.
Prior to the Notes offering, the Company’s long-term debt had an interest rate floor which was considered an embedded
derivative as the floor exceeded the LIBOR interest rate at the time of its origination and subsequent modification. As a result, the
fair value of the interest rate floor was measured as a separate financial liability at fair value. In addition, the Company had
entered into a forward U.S. dollar interest rate swap on the notional amount of U.S.$ 175.0 million to fix the variable interest rate
on its Tranche B Term Loan at 5.5% until September 15, 2015. On completion of the Notes offering, the Company derecognized
the financial liability discount and settled the interest rate swap and accordingly, as at December 31, 2013 was not exposed to
changes in future market interest rates.
Currency exchange risks. The Company’s monetary assets and liabilities in foreign currencies are translated at the period-end
rate. Exchange differences arising from this translation are recorded in the Company’s statement of operations. In addition,
currency exposures can arise from revenues and purchase transactions denominated in foreign currencies. Generally, transactional
currency exposures are naturally hedged (i.e., revenues and expenses are approximately matched), but where appropriate, are
covered using forward exchange contracts. All of the foreign currency forward exchange contracts entered into by the Company,
although effective hedges from an economic perspective, have not been designated as hedges for accounting purposes, and
therefore any gains and losses on such forward exchange contracts impact the Company’s earnings. A 5% unfavorable change in
the value of the Canadian dollar relative to the U.S. dollar would affect the fair value of the Company’s outstanding forward
currency contracts and options and would decrease the Company’s net income by $5.3 million and $2.5 million as at December
31, 2013 and 2012, respectively. A 5% favorable change would increase the Company’s net income by $5.1 million and
$2.5 million as at December 31, 2013 and 2012, respectively. The Company expects to continue to enter into financial
derivatives, primarily forward contracts, to reduce foreign exchange volatility.
Additionally, currency exposure occurs on a portion of the principal of the Company’s long-term debt and the related interest
payments, as they are denominated in U.S. dollars. As at December 31, 2013, the Company had outstanding U.S. dollar
denominated debt of U.S.$500.0 million. In the year ended December 31, 2011, the Company had entered into U.S. dollar
forward contracts on notional amount of U.S.$498.0 million expiring on September 15, 2015 and sold long-dated U.S. dollar call
options for notional amount of U.S.$275.0 million to offset the credit cost related to the forward contracts that expire on
September 15, 2015. Following the repayment of Tranche B Term Loan on June 28, 2013, U.S. dollar forward contracts for
notional amount of U.S.$238.0 million and U.S. dollar call options with notional amount of U.S.$15.0 million were settled.
Accordingly, U.S. dollar forward contracts and U.S. dollar call option contracts with notional amount of $260.0 million each
remained outstanding as at December 31, 2013.
In addition, during the year ended December 31, 2013, the Company extended the terms and pricing of the remaining U.S. dollar
forward and options contracts for a notional amount of U.S.$260.0 million. As a result, as at December 31, 2013, the Company
has U.S. dollar forward contracts to buy U.S. dollars at a weighted average rate of $1.0242 to U.S.$1.00 for a notional amount of
U.S.$260.0 million expiring on September 15, 2017 and as at December 31, 2013, the Company has sold U.S. dollar option
contracts for a notional amount of $260.0 million for a strike price of $1.295 to U.S.$1.00, expiring on September 15, 2017.
A 5% unfavorable change in the value of the Canadian dollar relative to the U.S. dollar would impact both the carrying value of
the Company’s long-term debt and the related foreign currency contracts and would decrease the Company’s net income by $11.6
million and $5.7 million as at December 31, 2013 and 2012, respectively. A corresponding favorable change would increase the
Company’s net income by $11.6 million and $5.7 million as at December 31, 2013 and 2012, respectively.
With respect to the related interest payments on the U.S. dollar denominated long term debt, to date the Company has not entered
into any foreign currency hedges as the Company believes that it will generate enough U.S. dollar cash inflows to pay these
interest payments when due. Based on the interest rate in effect at December 31, 2013, a 5% unfavorable change in the value of
the Canadian dollar relative to the U.S. dollar as of December 31, 2013 would increase the Company’s annual interest expense by
$1.8 million. A 5% favorable change in the value of the Canadian dollar relative to the U.S. dollar as of December 31, 2013
would decrease the Company’s annual interest expense by $1.8 million.
The Company is exposed to credit loss in the event of non-performance by the other party to the derivative financial instruments.
The Company mitigates this risk by entering into agreements directly with a number of major financial institutions that meet the
Company’s credit standards and that the Company expects to fully satisfy their contractual obligations. The Company views
derivative financial instruments purely as a risk management tool and, therefore, does not use them for speculative trading
purposes.
24
28
25
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
Prior to the Notes offering, the Company’s long-term debt had an interest rate floor which was considered an embedded
derivative as the floor exceeded the LIBOR interest rate at the time of its origination and subsequent modification. As a result, the
fair value of the interest rate floor was measured as a separate financial liability at fair value. In addition, the Company had
entered into a forward U.S. dollar interest rate swap on the notional amount of U.S.$ 175.0 million to fix the variable interest rate
on its Tranche B Term Loan at 5.5% until September 15, 2015. On completion of the Notes offering, the Company derecognized
the financial liability discount and settled the interest rate swap and accordingly, as at December 31, 2013 was not exposed to
changes in future market interest rates.
Currency exchange risks. The Company’s monetary assets and liabilities in foreign currencies are translated at the period-end
rate. Exchange differences arising from this translation are recorded in the Company’s statement of operations. In addition,
currency exposures can arise from revenues and purchase transactions denominated in foreign currencies. Generally, transactional
currency exposures are naturally hedged (i.e., revenues and expenses are approximately matched), but where appropriate, are
covered using forward exchange contracts. All of the foreign currency forward exchange contracts entered into by the Company,
although effective hedges from an economic perspective, have not been designated as hedges for accounting purposes, and
therefore any gains and losses on such forward exchange contracts impact the Company’s earnings. A 5% unfavorable change in
the value of the Canadian dollar relative to the U.S. dollar would affect the fair value of the Company’s outstanding forward
currency contracts and options and would decrease the Company’s net income by $5.3 million and $2.5 million as at December
31, 2013 and 2012, respectively. A 5% favorable change would increase the Company’s net income by $5.1 million and
$2.5 million as at December 31, 2013 and 2012, respectively. The Company expects to continue to enter into financial
derivatives, primarily forward contracts, to reduce foreign exchange volatility.
Additionally, currency exposure occurs on a portion of the principal of the Company’s long-term debt and the related interest
payments, as they are denominated in U.S. dollars. As at December 31, 2013, the Company had outstanding U.S. dollar
denominated debt of U.S.$500.0 million. In the year ended December 31, 2011, the Company had entered into U.S. dollar
forward contracts on notional amount of U.S.$498.0 million expiring on September 15, 2015 and sold long-dated U.S. dollar call
options for notional amount of U.S.$275.0 million to offset the credit cost related to the forward contracts that expire on
September 15, 2015. Following the repayment of Tranche B Term Loan on June 28, 2013, U.S. dollar forward contracts for
notional amount of U.S.$238.0 million and U.S. dollar call options with notional amount of U.S.$15.0 million were settled.
Accordingly, U.S. dollar forward contracts and U.S. dollar call option contracts with notional amount of $260.0 million each
remained outstanding as at December 31, 2013.
In addition, during the year ended December 31, 2013, the Company extended the terms and pricing of the remaining U.S. dollar
forward and options contracts for a notional amount of U.S.$260.0 million. As a result, as at December 31, 2013, the Company
has U.S. dollar forward contracts to buy U.S. dollars at a weighted average rate of $1.0242 to U.S.$1.00 for a notional amount of
U.S.$260.0 million expiring on September 15, 2017 and as at December 31, 2013, the Company has sold U.S. dollar option
contracts for a notional amount of $260.0 million for a strike price of $1.295 to U.S.$1.00, expiring on September 15, 2017.
A 5% unfavorable change in the value of the Canadian dollar relative to the U.S. dollar would impact both the carrying value of
the Company’s long-term debt and the related foreign currency contracts and would decrease the Company’s net income by $11.6
million and $5.7 million as at December 31, 2013 and 2012, respectively. A corresponding favorable change would increase the
Company’s net income by $11.6 million and $5.7 million as at December 31, 2013 and 2012, respectively.
With respect to the related interest payments on the U.S. dollar denominated long term debt, to date the Company has not entered
into any foreign currency hedges as the Company believes that it will generate enough U.S. dollar cash inflows to pay these
interest payments when due. Based on the interest rate in effect at December 31, 2013, a 5% unfavorable change in the value of
the Canadian dollar relative to the U.S. dollar as of December 31, 2013 would increase the Company’s annual interest expense by
$1.8 million. A 5% favorable change in the value of the Canadian dollar relative to the U.S. dollar as of December 31, 2013
would decrease the Company’s annual interest expense by $1.8 million.
The Company is exposed to credit loss in the event of non-performance by the other party to the derivative financial instruments.
The Company mitigates this risk by entering into agreements directly with a number of major financial institutions that meet the
Company’s credit standards and that the Company expects to fully satisfy their contractual obligations. The Company views
derivative financial instruments purely as a risk management tool and, therefore, does not use them for speculative trading
purposes.
25
29
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
ACCOUNTING POLICIES
Critical accounting policies and estimates
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and
assumptions. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results
may vary from estimates in amounts that may be material to the financial statements. An accounting policy is deemed to be
critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time
the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that
are reasonably likely to occur periodically, could materially impact the Company’s consolidated financial statements. The
Company’s critical accounting policies and estimates are as follows:
Fair value of assets and liabilities acquired in a business combination. In conjunction with each business combination, the
Company must allocate the cost of the acquired entity to the assets and liabilities assumed based on their estimated fair values at
the date of acquisition. Determining the fair value of assets and liabilities acquired, as well as intangible assets that relate to such
items as customer relationships, brands, contracts, and industry expertise involves professional judgment and is ultimately based
on acquisition models and management’s assessment of the value of the assets acquired and, to the extent available, third party
assessments. Uncertainties associated with these estimates include changes in production volumes, changes in commodity prices,
fluctuations in capacity or product slates, economic obsolescence factors in the area and potential future sources of cash flow.
During the measurement period, the allocation of purchase price of the acquired entity may be adjusted when the initial
accounting for business combination is recorded based on provisional amounts. Although the resolution of these uncertainties has
not historically had a material impact on the Company’s results of operations or financial condition, the actual amounts may vary
significantly from estimated amounts. Any excess of the cost of acquisition over the net fair value of the identifiable assets
acquired is recognized as goodwill.
Recoverability of asset carrying values. The Company carries out impairment reviews in respect of goodwill at least annually or if
indicators of impairment exist. The Company also assesses during each reporting period whether there have been any events or
changes in circumstances that indicate that property, plant and equipment, inventories and other intangible assets may be impaired
and an impairment review is carried out whenever such an assessment indicates that the carrying amount may not be recoverable.
Such indicators include changes in the Company’s business plans, changes in activity levels, and an increase in the discount rate,
the intention of “holding” versus “selling” and evidence of physical damage. For the purposes of impairment testing, assets are
grouped at the lowest levels for which there are separately identifiable cash flows. Where impairment exists, the asset is written
down to its recoverable amount, which is the higher of the fair value less costs to sell and value in use. Impairments are
recognized immediately in the consolidated statement of operations.
The assessment for impairment entails comparing the carrying value of the asset or cash-generating unit with its recoverable
amount, that is, the higher of fair value less costs to sell and value in use. Value in use is usually determined on the basis of
discounted estimated future net cash flows. However, the determination as to whether and how much an asset is impaired involves
management estimates on highly uncertain matters such as the outlook for global or regional market supply-and-demand
conditions, future commodity prices, the effects of inflation on operating expenses and discount rates.
In the year ended December 31, 2013 and 2012, the Company did not have any impairment charge with respect to property, plant
and equipment, goodwill or intangible assets.
Income tax. Income tax expense represents the sum of the income tax currently payable and deferred income tax. Interest and
penalties relating to income tax are also included in income tax expense. Deferred income tax is provided for using the liability
method of accounting. Deferred income tax assets and liabilities are determined based on differences between the financial
reporting and income tax basis of assets and liabilities. These differences are then measured using enacted or substantially enacted
income tax rates and laws that will be in effect when these differences are expected to reverse. The effect of a change in income
tax rates on deferred tax assets and liabilities is recognized in income in the period that the change occurs.
The computation of the Company’s income tax expense involves the interpretation of applicable tax laws and regulations in many
jurisdictions. The resolution of tax positions taken by the Company can take significant time to complete and in some cases it is
difficult to predict the ultimate outcome. In addition, the Company has carry-forward tax losses in certain taxing jurisdictions that
are available to offset against future taxable profit. However, deferred income tax assets are recognized only to the extent that it is
probable that taxable profit will be available against which the unused tax losses can be utilized. Management judgement is
exercised in assessing whether this is the case. To the extent that actual outcomes differ from management’s estimates, income tax
charges or credits may arise in future periods.
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Gibson Energy Inc.
TSX: GEI
2013 Year End Report
Financial instruments. In situations where the Company is required to mark financial instruments to market, the estimates of
gains or losses at a particular period-end do not reflect the end results of particular transactions, and will most likely not reflect
the actual gain or loss at the conclusion of the underlying transactions. The Company reflects the fair value estimates for financial
instruments based on valuation information from third parties. The calculation of the fair value of certain of these financial
instruments is based on proprietary models and assumptions of third parties because such instruments are not quoted on an active
market. Additionally, estimates of fair value for such financial instruments may vary among different models due to a difference
in assumptions applied, such as the estimate of prevailing market prices, volatility, correlations and other factors, and may not be
reflective of the price at which they can be settled due to the lack of a liquid market. Although the resolution of these uncertainties
has not historically had a material impact on the Company’s results of operations or financial condition, the actual amounts may
vary significantly from estimated amounts.
Provisions and accrued liabilities. The Company uses estimates to record liabilities for obligations associated with site restoration
on the retirement of assets and environmental costs, taxes, potential legal claims, and other accruals and liabilities.
Liabilities for site restoration on the retirement of assets are recognized when the Company has an obligation to restore the site,
and when a reliable estimate of that liability can be made. An obligation may also crystallize during the period of operation of a
facility through a change in legislation or through a decision to terminate operations. The amount recognized is the present value
of the estimated future expenditure determined in accordance with local conditions and requirements. The present value is
determined by discounting the expenditures expected to be required to settle the obligation using a risk-free discount rate.
Estimated future expenditure is based on all known facts at the time and current expected plans for decommissioning. Among the
many uncertainties that may impact the estimates are changes in laws and regulations, public expectations, prices and changes in
technology. A corresponding item of property, plant and equipment of an amount equivalent to the provision is also recorded.
This is subsequently depreciated as part of the asset. Other than the unwinding discount on the provision, any change in the
present value of the estimated expenditure is reflected as an adjustment to the provision and the corresponding item of property,
plant and equipment. As a result of a change in the risk-free rate and upward revision to the initial costs estimates, the Company
recorded an decrease to the provision of $22.6 million during the year ended December 31, 2013, with a corresponding decrease
to property, plant and equipment.
Liabilities for environmental costs are recognized when a clean-up is probable and the associated costs can be reliably estimated.
Generally, the timing of recognition of these provisions coincides with the completion of a feasibility study or a commitment to a
formal plan of action. The amount recognized is the best estimate of the expenditure required. Where the liability will not be
settled for a number of years, the amount recognized is the present value of the estimated future expenditure. Estimated future
expenditure is based on all known facts at the time and an assessment of the ultimate outcome. A number of factors affect the cost
of environmental remediation, including the determination of the extent of contamination, the length of time remediation may
require, the complexity of environmental regulations and the advancement of remediation technology.
Other provisions and accrued liabilities are recognized in the period when it becomes probable that there will be a future outflow
of funds resulting from past operations or events and the amount of cash outflow can be reliably estimated. The timing of
recognition and quantification of the liability require the application of judgment to existing facts and circumstances, which can
be subject to change. Since the actual cash outflows can take place many years in the future, the carrying amounts of provisions
and liabilities are reviewed regularly and adjusted to take account of changing facts and circumstances. A change in estimate of a
recognized provision or accrued liability would result in a charge or credit to net income in the period in which the change occurs.
27
31
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
Amended standards adopted by the Company
The Company adopted the following amendments to IFRS that were effective for the first time for the financial year beginning on
or after January 1, 2013.
•
•
•
•
•
•
•
IAS 1, Presentation of Financial Statements (“IAS 1”) was amended and requires companies to group items presented within
Other Comprehensive Income based on whether they may be subsequently reclassified to profit or loss. This amendment to
IAS 1 is effective for annual periods beginning on or after July 1, 2012 with full retrospective application. The adoption of
this amendment did not result in any adjustments to other comprehensive income or comprehensive income.
IAS 19, Employee Benefits (“IAS 19”) was amended to eliminate the option to defer the recognition of actuarial gains and
losses, commonly known as the corridor approach and requires an entity to recognize actuarial gains and losses in Other
Comprehensive Income (“OCI”) immediately. In addition, the net change in the defined benefit liability or asset must be
disaggregated into three components: service cost, net interest and remeasurements. Service cost and net interest continue to
be recognized in net earnings while remeasurements, which include changes in estimates or the valuation of plan assets,
recognized in OCI. Furthermore, entities are required to calculate net interest on the net defined benefit liability or asset using
the same discount rate used to measure the defined benefit obligation. The amendment also enhances financial statement
disclosures. This amended standard is effective for annual periods beginning on or after January 1, 2013, with modified
retrospective application. As required, the Company adopted these amendments retrospectively. The Company adjusted its
opening equity as at January 1, 2012 to recognize previously unrecognized past service credits and accordingly, on January 1,
2012, December 31, 2012 and December 31, 2013, deficit balance was decreased by approximately $0.6 million and other-
long term liabilities were decreased by $0.6 million. The impact on the Company results of operations and earnings per share
was not material for the current and comparative year.
IFRS 7, Financial Instruments: Disclosures (“IFRS 7”) has been amended to provide more extensive quantitative disclosures
for financial instruments that are offset in the statement of financial position or that are subject to enforceable master netting
or similar arrangements. This amendment to IFRS 7 is effective for annual periods beginning on or after January 1, 2013,
with retrospective application. The adoption of this amendment resulted in additional disclosures that are included in these
consolidated financial statements.
IFRS 10, Consolidated financial statements (‘‘IFRS 10’’) builds on existing principles by identifying the concept of control
as the determining factor in whether an entity should be included within the consolidated financial statements of the parent
company. IFRS 10 is effective for annual periods beginning on or after January 1, 2013. The adoption of IFRS 10 did not
result in any change in the consolidation status of any of the Company’s subsidiaries.
IFRS 11, Joint Arrangements (“IFRS 11”) addresses joint arrangements by focusing on the rights and obligations of the
arrangement, rather than its legal form. The standard addresses inconsistencies in the reporting of joint arrangements by
requiring a single method to account for interests in jointly controlled entities. IFRS 11 is effective for annual periods
beginning on or after January 1, 2013. The adoption of IFRS 11 did not result in any changes in the accounting for joint
arrangements.
IFRS 12, Disclosure of Interests in Other Entities (‘‘IFRS 12’’) is a comprehensive standard on disclosure requirements for
all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance
sheet vehicles. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. The adoption of IFRS 12 did
not result in additional disclosures.
IFRS 13, Fair Value Measurement (“IFRS 13”) provides for a consistent and less complex definition of fair value, established
a single source for determining fair value and introduces consistent requirements for disclosures related to fair value
measurement. IFRS 13 is effective for annual periods beginning on or after January 1, 2013 and applies prospectively from
the beginning of the annual period in which the standard is adopted. The adoption of IFRS 13 did not require any adjustment
to the valuation techniques used by the Company to measure fair value and accordingly, did not result in any measurement
adjustment as at January 1, 2013. However, the adoption of IFRS 13 resulted in a few additional disclosures that are included
in the consolidated financial statements.
•
The annual improvements process addresses issues in the 2009 - 2011 reporting cycle including changes to IFRS 1, ‘First
time adoption’, IAS 1, IAS 16, ‘Property plant and equipment’, IAS 32, Financial Instruments: Presentation (“IAS 32”), IAS
34, ‘Interim financial reporting’. These improvements are effective for annual periods beginning on or after January 1, 2013,
28
32
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
with retrospective application. The adoption of these amendments did not have any material impact on the Company’s
consolidated financial statements.
•
IAS 36, ‘Impairment of assets’ (“IAS 36”), was amended regarding the recoverable amount disclosures for non-financial
assets. This amendment removed certain disclosures of the recoverable amount of CGUs which had been included in IAS 36
by the issue of IFRS 13. The amendment is not mandatory for the group until 1 January 2014, however the Company has
decided to early adopt the amendment as of January 1, 2013. The adoption of this amendment did not have any material
impact on the Company’s consolidated financial statements.
New standards and interpretations issued but not yet adopted
•
•
IFRS 9, Financial Instruments (“IFRS 9”), addresses the classification, measurement and recognition of financial assets and
financial liabilities. It replaces the parts of IAS 39, “Financial Instruments: Recognition and Measurements’’ that relate to the
classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two
measurement categories: those measured as at fair value and those measured at amortized cost. The determination is made at
initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the
contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39
requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair
value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement,
unless this creates an accounting mismatch. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. The
Company is currently evaluating the impact of adopting IFRS 9 on its consolidated financial statements.
IAS 32, Financial Instruments: Presentation ("IAS 32") has been amended to clarify the requirements for offsetting financial
assets and liabilities. The amendment clarifies that the right to offset must be available on the current date and cannot be
contingent on a future event. The amendment to IAS 32 is effective for annual periods beginning on or after January 1, 2014,
with retrospective application. The Company is currently evaluating the impact of adopting this amendment on its
consolidated financial statements.
DISCLOSURE CONTROLS & PROCEDURES
As part of the requirements mandated by the Canadian securities regulatory authorities under National Instrument 52-109-
Certification of Disclosure in Issuers' Annual and Interim Filings ("NI 52-109"), the Company’s Chief Executive Officer ("CEO")
and the Chief Financial Officer ("CFO") have evaluated the design and operation of the Company's disclosure controls and
procedures ("DC&P"), as such term is defined in NI 52-109, as at December 31, 2013. The CEO and CFO are also responsible for
establishing and maintaining internal controls over financial reporting, ("ICFR"), as such term is defined in NI 52-109. These
controls are designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and
compliance with IFRS. The Company’s CEO and CFO have evaluated the design and operational effectiveness of such controls
as at December 31, 2013.
Based on the evaluation of the design and operating effectiveness of the Company’s DC&P and ICFR, the CEO and the CFO
concluded that Gibson's DC&P and ICFR were effective as at December 31, 2013.
29
33
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
FORWARD-LOOKING STATEMENTS
Certain statements contained in this MD&A constitute forward-looking statements. These statements relate to future events or the
Company’s future performance. All statements other than statements of historical fact are forward-looking statements. The use of
any of the words ‘‘anticipate’’, ‘‘plan’’, ‘‘contemplate’’, ‘‘continue’’, ‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘propose’’, ‘‘might’’,
‘‘may’’, ‘‘will’’, ‘‘shall’’, ‘‘project’’, ‘‘should’’, ‘‘could’’, ‘‘would’’, ‘‘believe’’, ‘‘predict’’, ‘‘forecast’’, ‘‘pursue’’, ‘‘potential’’
and ‘‘capable’’ and similar expressions are intended to identify forward-looking statements. These statements involve known and
unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated
in such forward-looking statements. No assurance can be given that these expectations will prove to be correct and such forward-
looking statements included in this MD&A should not be unduly relied upon. These statements speak only as of the date of this
MD&A. In particular, this MD&A contains forward-looking statements pertaining to the following:
•
•
•
•
•
•
•
•
•
•
•
•
the addition of assets to the business and the increase in the number of services to be offered by the Company;
the Company's investment in new equipment, technology, facilities and personnel;
the Company's growth strategy to expand in existing and new markets;
the availability of sufficient liquidity for planned growth;
new technology and drilling methodology being deployed towards conventional and unconventional production within the
Company's operating areas;
uncertainty and volatility relating to crude prices and price differentials between crude oil streams and blending agents;
increased crude oil production and exploration activity on shore in North America, including from the Canadian oil sands;
the expansion of midstream infrastructure in North America to handle increased production and expansion of capacity in the
U.S. refining complex to handle heavier crude oil from the WCSB;
the effect of competition in regions of North America and its impact on downward pricing pressure and regional crude oil
price differentials among crude oil grades and locations;
the effect of market volatility on the Company's marketing revenues and activities;
the Company's ability to pay down and retire indebtedness;
the Company's plans for additional strategic acquisitions, capital expenditures or other similar transaction, including the
costs thereof;
the Company's planned hedging activities;
the Company's projections of commodity purchase and sales activities;
the Company's projections of currency and interest rate fluctuations;
the Company’s projections of a growing dividend; and
the Company's dividend policy and continuing availability of the Company’s DRIP and SDP.
•
•
•
•
•
With respect to forward-looking statements contained in this MD&A, assumptions have been made regarding, among other
things:
•
•
•
•
future growth in world-wide demand for crude oil and petroleum products;
crude oil prices supporting increased production and services in North America, including the Canadian oil sands;
no material defaults by the counterparties to agreements with the Company;
the Company's ability to obtain qualified personnel, owner-operators, lease operators and equipment in a timely and cost-
efficient manner;
the regulatory framework governing taxes and environmental matters in the jurisdictions in which the Company conducts
and will conduct its business;
operating costs;
future capital expenditures to be made by the Company;
the Company's ability to obtain financing for its capital programs on acceptable terms;
the Company's future debt levels;
the impact of increasing competition on the Company; and
the impact of future changes in accounting policies on the Company’s consolidated financial statements.
•
•
•
•
•
•
•
In addition, this MD&A may contain forward-looking statements and forward-looking information attributed to third party
industry sources. The Company does not undertake any obligations to publicly update or revise any forward-looking statements
except as required by securities law. Actual results could differ materially from those anticipated in these forward-looking
statements as a result of numerous risks and uncertainties including, but not limited to, the risks and uncertainties described in
30
34
Gibson Energy Inc.
TSX: GEI
2013 Year End Report
“Forward-Looking Statements” and “Risk Factors” included in the Company’s Annual Information Form dated March 4, 2014
as filed on SEDAR and available on the Gibson website at www.gibsons.com.
NON-GAAP FINANCIAL MEASURES
This MD&A refers to certain financial measures that are not determined in accordance with IFRS. EBITDA, Adjusted EBITDA,
Pro Forma Adjusted EBITDA and distributable cash flow are not measures recognized under IFRS and do not have standardized
meanings prescribed by IFRS. Management considers these to be important supplemental measures of the Company’s
performance and believes these measures are frequently used by securities analysts, investors and other interested parties in the
evaluation of companies in industries with similar capital structures. See ‘‘Summary of Quarterly Results” for a reconciliation of
EBITDA to net income (loss), the IFRS measure most directly comparable to EBITDA, and for a reconciliation of Adjusted
EBITDA and Pro Forma Adjusted EBITDA to EBITDA. Distributable cash flow is used to assess the level of cash flow generated
from ongoing operations and to evaluate the adequacy of internally generated cash flow to fund dividends. See ‘‘Distributable
Cash Flow” for a reconciliation of distributable cash flow to cash flow from operations, the IFRS measure most directly
comparable to distributable cash flow.
Readers are encouraged to evaluate each adjustment and the reasons the Company considers it appropriate for supplemental
analysis. Readers are cautioned, however, that these measures should not be construed as an alternative to net income (loss)
determined in accordance with IFRS as an indication of the Company’s performance.
31
35
March 4, 2014
Independent Auditor’s Report
To the Shareholders of Gibson Energy Inc.
We have audited the accompanying consolidated financial statements of Gibson Energy Inc., which comprise
the consolidated balance sheets as at December 31, 2013 and December 31, 2012 and the consolidated
statements of operations, comprehensive income, changes in equity and cash flows for the years then ended,
and the related notes, which comprise a summary of significant accounting policies and other explanatory
information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Gibson Energy Inc. as at December 31, 2013 and December 31, 2012 and its financial performance
and its cash flows for the years then ended in accordance with International Financial Reporting Standards.
Chartered Accountants
PricewaterhouseCoopers LLP
111 5th Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P 5L3
T: 403 509 7500, F:403 781 1825, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Gibson Energy Inc.
Consolidated Balance Sheet
(tabular amounts in thousands of Canadian dollars)
Assets
Current assets
December 31,
2013
2012
Cash and cash equivalents ................................................................................................
Trade and other receivables (note 6) .................................................................................
Inventories (note 7) ...........................................................................................................
Income taxes receivable ....................................................................................................
Prepaid expenses and other assets .....................................................................................
Net investment in finance leases (note 8) ..........................................................................
Total current assets ............................................................................................................
$
97,182
592,850
156,419
7,534
25,170
765
879,920
Non-current assets
Property, plant and equipment (note 9) .............................................................................
Long-term prepaid expenses and other assets (note 10) ....................................................
Net investment in finance leases (note 8) ..........................................................................
Deferred income tax assets (note 11) ................................................................................
Intangible assets (note 12) .................................................................................................
Goodwill (note 13) ............................................................................................................
Total non-current assets ....................................................................................................
Total assets ..............................................................................................................................
Liabilities
Current liabilities
1,119,856
19,640
93,236
8,187
202,395
726,148
2,169,462
$ 3,049,382
Credit facilities (note 14)...................................................................................................
Trade payables and accrued charges (note 15) ..................................................................
Dividends payable (note 18) .............................................................................................
Deferred revenue ...............................................................................................................
Income taxes payable ........................................................................................................
Current portion of long-term debt (note 14) ......................................................................
Total current liabilities ......................................................................................................
$
-
565,179
33,605
2,847
20,535
-
622,166
Non-current liabilities
Long-term debt (note 14) ..................................................................................................
Provisions (note 16) ..........................................................................................................
Other long-term liabilities (note 17) ..................................................................................
Deferred income tax liabilities (note 11) ...........................................................................
Total non-current liabilities ...............................................................................................
Total liabilities ..................................................................................................................
757,566
91,424
15,487
194,105
1,058,582
1,680,748
$
61,026
484,843
151,458
5,401
17,584
549
720,861
1,038,784
5,894
78,130
9,060
234,438
709,358
2,075,664
$ 2,796,525
$
31,837
467,224
31,232
1,499
3,410
6,467
541,669
599,677
111,197
30,384
206,116
947,374
1,489,043
Equity
Share capital (note 18) ......................................................................................................
Contributed surplus ...........................................................................................................
Accumulated other comprehensive income (loss) .............................................................
Deficit................................................................................................................................
Total equity .......................................................................................................................
Total liabilities and equity .....................................................................................................
Commitments and contingencies (note 19)
See accompanying notes to the consolidated financial statements
1,585,145
16,130
33,879
(266,520)
1,368,634
$ 3,049,382
1,543,149
11,297
(9,166)
(237,798)
1,307,482
$ 2,796,525
Approved by the Board of Directors:
(signed) “James M. Estey”
James M. Estey
Director
(signed) “Marshall L. McRae”
Marshall L. McRae
Director
38
1
Gibson Energy Inc.
Consolidated Statement of Operations
(tabular amounts in thousands of Canadian dollars, except per share amounts)
Year ended
December 31,
2013
2012
Revenue (note 20) ......................................................................................................................
Cost of sales (notes 21, 22 and 28) .............................................................................................
Gross profit ................................................................................................................................
$ 6,940,669
6,666,257
274,412
$ 4,913,029
4,707,720
205,309
General and administrative expenses (notes 21 and 22) .............................................................
Other operating income (note 23) ..............................................................................................
Income from operating activities ............................................................................................
Interest expense .........................................................................................................................
Gain on financial instruments relating to interest expense (note 28) .........................................
Interest income ...........................................................................................................................
Foreign exchange loss (gain) on long-term debt (note 14) .........................................................
Debt extinguishment expense (note 14) .....................................................................................
Loss from investment in associate..............................................................................................
Loss on sale of investment in associate ......................................................................................
Income before income taxes ....................................................................................................
Income tax provision (note 11) ..................................................................................................
Net income ................................................................................................................................
47,372
(6,576)
233,616
53,458
(18,252)
(471)
19,951
38,209
-
-
140,721
36,905
$ 103,816
40,469
(8,367)
173,207
43,655
(4,247)
(645)
(13,915)
-
12
34
148,313
32,127
$ 116,186
Earnings per share (note 24)
Basic ....................................................................................................................................
Diluted .................................................................................................................................
$
$
0.86
0.84
$
$
1.13
1.10
See accompanying notes to the consolidated financial statements
2
39
Gibson Energy Inc.
Consolidated Statement of Comprehensive Income
(tabular amounts in thousands of Canadian dollars)
Year ended
December 31,
2013
2012
Net income ................................................................................................................................
$ 103,816
$ 116,186
Other comprehensive income (loss) ........................................................................................
Items that may be reclassified subsequently to statement of operations
Exchange differences on translating foreign operations ......................................................
43,045
(5,662)
Items that will not be reclassified to statement of operations
Remeasurements of post-employment benefit obligation, net of tax ..................................
Other comprehensive income (loss), net of tax ......................................................................
Comprehensive income ............................................................................................................
1,144
44,189
$ 148,005
(1,053)
(6,715)
$ 109,471
See accompanying notes to the consolidated financial statements
3
40
Accumulated
other
comprehensive
income (loss)
$
(3,504)
-
(3,504)
-
(5,662)
(5,662)
Contributed
surplus
$ 21,240
-
21,240
-
-
-
-
3,856
-
Deficit
Total
Equity
$ (247,505) $ 853,221
648
853,869
(246,857)
648
116,186
(1,053)
115,133
-
-
-
116,186
(6,715)
109,471
390,229
3,856
18,576
-
-
(106,074)
37,555
(106,074)
$ (237,798) $ 1,307,482
103,816
1,144
104,960
-
-
-
(133,682)
103,816
44,189
148,005
8,271
1,169
-
37,389
(133,682)
-
-
-
-
-
-
(9,166)
-
43,045
43,045
-
-
-
-
-
$ 16,130
$ 33,879
$ (266,520) $ 1,368,634
Gibson Energy Inc.
Consolidated Statement of Changes in Equity
(tabular amounts in thousands of Canadian dollars)
Share
capital
(note 18)
Balance – January 1, 2012 (as previously
reported) ................................................ $ 1,082,990
-
1,082,990
Effect of change in accounting policy (note 4) ...
Balance – January 1, 2012 (restated) ..............
Net income .........................................................
Other comprehensive loss, net of tax .................
Comprehensive income (loss) ............................
Issuance of common shares less issuance costs,
net of tax .........................................................
Employee share options:
Stock based compensation .........................
Proceeds from exercise of stock options ...
Reclassification of contributed surplus on
exercise of stock option and other stock
awards ....................................................
Issuance of common shares in connection with
-
-
-
390,229
-
18,576
13,799
(13,799)
37,555
the dividend reinvestment plans......................
-
Dividends on common shares .............................
Balance – December 31, 2012 .......................... $ 1,543,149
-
-
$ 11,297
$
Net income ........................................................
Other comprehensive income, net of tax ............
Comprehensive income ......................................
Employee share options:
Stock based compensation ..........................
Proceeds from exercise of stock options .....
Reclassification of contributed surplus on
exercise of stock option and other stock
awards ......................................................
-
-
-
-
-
-
-
1,169
8,271
-
3,438
(3,438)
Issuance of common shares in connection with
37,389
the dividend reinvestment plans .......................
-
Dividends on common shares .............................
Balance – December 31, 2013 .......................... $ 1,585,145
-
-
See accompanying notes to the consolidated financial statements
4
41
Gibson Energy Inc.
Consolidated Statement of Cash Flows
(tabular amounts in thousands of Canadian dollars)
Cash provided by (used in)
Operating activities
Income from operating activities ...........................................................................................
Items not affecting cash
Depreciation of property, plant and equipment (note 21) ...................................................
Amortization of intangible assets (note 21) ........................................................................
Stock based compensation (note 22) ..................................................................................
Gain on sale of property, plant and equipment (note 23) ...................................................
Other ...................................................................................................................................
Net loss on fair value movement of financial instruments (note 28) .................................
Changes in items of working capital
Trade and other receivables ................................................................................................
Inventories ..........................................................................................................................
Other current assets ............................................................................................................
Trade payables and accrued charges ..................................................................................
Deferred revenue ................................................................................................................
Income taxes received (paid) ..............................................................................................
Net cash provided by operating activities ...................................................................................
Investing activities
Purchase of property, plant and equipment ............................................................................
Purchase of intangible assets ..................................................................................................
Proceeds from sale of associate..............................................................................................
Proceeds on sale of assets ......................................................................................................
Acquisitions, net of cash acquired (note 5) ............................................................................
Net cash used in investing activities............................................................................................
Financing activities
Net proceeds from issuance of common shares (note 18) ......................................................
Payment of shareholder dividends .........................................................................................
Proceeds from dividend reinvestment plans (note 18) ...........................................................
Interest paid ............................................................................................................................
Interest received .....................................................................................................................
Proceeds from exercise of stock options ................................................................................
Proceeds from long-term debt, net of debt discount (note 14) ...............................................
Payment of debt issue and financing costs .............................................................................
Repayment of long-term debt (note 14) .................................................................................
Repayment of credit facilities (note 14) .................................................................................
Proceeds from credit facilities (note 14) ................................................................................
Repayment of finance lease liabilities ...................................................................................
Net proceeds on settlement of derivative financial instruments
not affecting operating activities (note 28) .........................................................................
Net cash provided by (used in) financing activities ....................................................................
Year ended
December 31,
2013
2012
$ 233,616 $ 173,207
133,854
50,203
8,271
(1,029)
(3,863)
622
(108,618)
(3,700)
(11,705)
68,481
1,330
(35,831)
331,631
(227,019)
(8,495)
-
3,264
-
(232,250)
-
(131,309)
37,389
(19,803)
466
1,169
764,173
(16,189)
(678,098)
(156,385)
124,000
(808)
8,723
(66,672)
91,972
34,639
3,856
(1,803)
(851)
1,080
(29,518)
36,727
(1,200)
(19,850)
(6,509)
27,149
308,899
(168,877)
(5,502)
596
4,119
(466,381)
(636,045)
385,906
(98,204)
37,555
(37,928)
637
18,576
664,535
(10,493)
(669,361)
(98,887)
130,819
(328)
-
322,827
Effect of exchange rate on cash and cash equivalents ............................................................
3,447
535
Net increase (decrease) in cash and cash equivalents ............................................................
36,156
(3,784)
Cash and cash equivalents – beginning of year ......................................................................
Cash and cash equivalents – end of year .................................................................................
$
61,026
97,182 $
64,810
61,026
See accompanying notes to the consolidated financial statements
5
42
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
1 General Information
Gibson Energy Inc. (“Gibson” or the “Company”) was incorporated pursuant to the Business Corporations Act (Alberta). The
Company’s common shares are traded on the Toronto Stock Exchange under the symbol “GEI”.
Gibson is engaged in the movement, storage, blending, processing and marketing and distribution of crude oil, condensate,
natural gas liquids, water, oilfield waste and refined products. The Company also provides emulsion treating, water disposal,
oilfield waste management services and propane distribution. The Company is incorporated and domiciled in Canada. The
address of the Company’s principal place of business is 1700, 440 Second Avenue S.W., Calgary, Alberta, Canada.
2 Basis of preparation
These consolidated financial statements have been prepared in compliance with International Financial Reporting Standards
(“IFRS”) as set out in the Handbook of the Canadian Institute of Chartered Accountants.
These consolidated financial statements were approved for issuance by the Company’s board of directors (“Board”) on
March 4, 2014.
These consolidated financial statements are presented in Canadian dollars, the Company’s functional currency, and all values
are rounded to the nearest thousands of dollars, except where indicated otherwise. All references to $ are to Canadian dollars
and references to U.S.$ are to United States dollars.
3 Summary of significant accounting policies
The significant accounting policies applied in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of measurement
These consolidated financial statements have been prepared under the historical cost convention except for certain items that
are recorded at fair value as required by the respective accounting standards.
Basis of consolidation
These consolidated financial statements include the results of the Company and its subsidiaries together with its interest in
joint operations.
Subsidiaries are all entities over which the Company has control. The Company controls an entity when the Company is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the
Company and continue to be consolidated until the date control ceases. All intercompany transactions, balances, income and
expenses are eliminated on consolidation.
On January 1, 2013, the Company adopted IFRS 11 Joint Arrangements (“IFRS 11”) and applied it to all joint arrangements
as of January 1, 2012. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint
ventures depending on the contractual rights and obligations of each investor. The Company has assessed the nature of its
joint arrangements and determined them to be joint operations and accordingly, the Company has recognized its
proportionate share of revenues, expenses, assets and liabilities relating to these joint operations.
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Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Foreign currency translation
The financial statements for each of the Company’s subsidiaries and joint operations are prepared using their functional
currency. The functional currency is the currency of the primary economic environment in which an entity operates. The
presentation and functional currency of the parent company is Canadian dollars. Assets and liabilities of foreign operations
are translated into Canadian dollars at the market rates prevailing at the balance sheet date. Operating results are translated at
the average rates for the period. Exchange differences arising on the consolidation of the net assets of foreign operations are
recorded in other comprehensive income (loss).
Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the transaction
date. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the
translation at period end exchange rates of monetary assets and liabilities denominated in currencies other than an entity’s
functional currency are recognized in the statement of operations.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method of accounting. The cost of an acquisition is measured
as the cash paid and the fair value of other assets given, equity instruments issued and liabilities incurred or assumed at the
date of exchange. For acquisitions achieved in stages, previously held equity interests in the acquired company are
remeasured at the acquisition date fair value and the resulting gain or loss is recognized in the statement of operations. Direct
costs incurred by the Company in connection with an acquisition, such as finder’s fees, advisors, legal, accounting, valuation
and other professional or consulting fees, are expensed as general and administrative expenses when incurred. The acquired
identifiable assets, liabilities and contingent liabilities are measured at their fair values at the date of acquisition. Any excess
of the cost of acquisition plus the amount of any non-controlling interest in the acquiree, and the acquisition date fair value of
the acquirer’s previously held equity interest, if any, over the net fair value of the identifiable assets, liabilities and contingent
liabilities acquired is recognized as goodwill. Any deficiency of the cost of acquisition below the fair values of the
identifiable net assets acquired is credited to the statement of operations in the period of acquisition.
At the acquisition date, any goodwill acquired is allocated to each of the operating segments expected to benefit from the
combination’s synergies. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Intangible assets
An intangible asset acquired as part of a business combination is measured at fair value at the date of acquisition and is
recognized separately from goodwill if the asset is separable or arises from contractual or other legal rights and its fair value
can be measured reliably. Intangible assets acquired separately from a business are carried initially at cost. The initial cost is
the aggregate amount paid and the fair value of any other consideration given to acquire the asset.
Intangible assets with a finite life are amortized on a straight-line basis over their expected useful lives as follows:
Brands ........................................................................................................................................................................ 2 – 10 years
Customer relationships ............................................................................................................................................... 1 – 12 years
Long-term customer contracts .................................................................................................................................... 6 – 10 years
Non-compete agreements ........................................................................................................................................... 2 – 10 years
Technology .................................................................................................................................................................. 3 – 5 years
Software ....................................................................................................................................................................... 3 – 7 years
License and permits ........................................................................................................................................................... 3 years
The expected useful lives and method of amortization of intangible assets are reviewed on an annual basis and, if necessary,
changes in expected useful life are accounted for prospectively.
The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the
carrying value may not be recoverable.
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Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Property, plant and equipment
Property, plant and equipment is stated at cost, less accumulated depreciation and accumulated impairment losses.
The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the
asset into operation, the initial estimate of any decommissioning obligation, if any, and, for qualifying assets, borrowing
costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration
given to acquire the asset.
Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets, inspection
costs and overhaul costs. Where an asset or part of an asset that was separately depreciated is replaced and it is probable that
future economic benefits associated with the item will flow to the Company, the expenditure is capitalized and the carrying
amount of the replaced asset is derecognized. Inspection costs associated with major maintenance programs are capitalized
and amortized over the period to the next inspection. All other maintenance costs are expensed as incurred.
Depreciation is charged so as to write off the cost of assets, other than assets that are work in progress, using the straight-line
method over their expected useful lives.
The useful lives of the Company’s property, plant and equipment are as follows:
Buildings .................................................................................................................................................................. 10 – 20 years
Equipment .................................................................................................................................................................. 3 – 20 years
Rolling stock .............................................................................................................................................................. 5 – 23 years
Pipelines ..................................................................................................................................................................... 8 – 20 years
Tanks ........................................................................................................................................................................ 20 – 33 years
Plant ........................................................................................................................................................................... 7 – 25 years
Disposal wells .......................................................................................................................................................... 15 – 25 years
The expected useful lives, method of depreciation and residual values of property, plant and equipment are reviewed on an
annual basis and, if necessary, changes are accounted for prospectively.
The carrying value of property, plant and equipment is reviewed for impairment whenever events or changes in
circumstances indicate the carrying value may not be recoverable.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to
arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the item) is included in the statement of operations in the
period the item is derecognized.
Impairments
The Company carries out impairment reviews in respect of goodwill at least annually or if indicators of possible impairment
exist. The Company also assesses during each reporting period whether there have been any events or changes in
circumstances that indicate that property, plant and equipment and other intangible assets may be impaired and an
impairment review is carried out whenever such an assessment indicates that the carrying amount may not be recoverable.
Such indicators include, but are not limited, for changes in the Company’s business plans, changes in commodity prices
leading to lower activity levels, an increase in the discount rate and evidence of physical damage. For the purposes of
impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash inflows. Where
impairment exists, the asset is written down to its recoverable amount, which is the higher of the fair value less costs of
disposal and its value in use. Impairments are recognized immediately in the statement of operations.
The assessment for impairment entails comparing the carrying value of the asset or cash-generating unit with its recoverable
amount, that is, the higher of fair value less costs of disposal and value in use. Value in use is usually determined on the basis
of discounted estimated future net cash flows. In determining fair value less costs of disposal, recent market transactions are
taken into account, if available. In the absence of such transactions, an appropriate valuation model is used.
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Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
An impairment loss in respect of goodwill is not reversible in future. In respect of other assets, an impairment loss is reversed
if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to
the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortization, if no impairment loss had been previously recognized.
Non-derivative financial instruments – recognition and measurement
Financial assets
Financial assets include cash and cash equivalents and trade and other receivables. The Company determines the
classification of its financial assets at initial recognition. Financial assets are recognized initially at fair value, normally being
the transaction price plus directly attributable transaction costs.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. Such assets are carried at amortized cost using the effective interest method if the time value of money is significant.
Gains and losses are recognized in the statement of operations when the loans and receivables are derecognized or impaired,
as well as through the use of the effective interest method. This category of financial assets includes cash and cash
equivalents and trade and other receivables.
A provision for impairment of trade receivables is established when there is objective evidence that the Company may not be
able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the
debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments
(more than 30 days past the due date) are considered indicators that the trade receivable may be impaired. The amount of the
provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows,
discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance
account, and the amount of the loss is recognized in the statement of operations. When a trade receivable is uncollectible, it is
written off against the allowance account for trade receivables.
Cash and cash equivalents comprise cash on hand and short-term deposit, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to insignificant risk of changes in value.
Financial liabilities
Financial liabilities classified as other liabilities include amounts borrowed under credit facilities, trade payables and accrued
charges, dividends payable and long-term debt. The Company determines the classification of its financial liabilities at initial
recognition. All financial liabilities are initially recognized at fair value. For interest-bearing loans and borrowings this is the
fair value of the proceeds received net of issue costs associated with the borrowing. After initial recognition, financial
liabilities are subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by
taking into account any issue costs, and any discount or premium on settlement. Gains and losses arising on the repurchase,
settlement or cancellation of liabilities are recognized in statement of operations.
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable
right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the
liability simultaneously.
Derivative financial instruments
Derivative financial instruments, used periodically by the Company to manage exposure to market risks relating to
commodity prices, interest rates and foreign currency exchange rates, are not designated as hedges. They are recorded at fair
value and recorded on the Company’s balance sheet as either an asset, when the fair value is positive, or a liability, when the
fair value is negative. Changes in fair value are recorded immediately in the statement of operations.
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Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Inventories
Inventories are carried at the lower of average cost and net realizable value, with cost determined using a weighted average
cost method. Net realizable value is the estimated selling price less applicable selling expenses. If carrying value exceeds net
realizable amount, a write down is recognized. The write down may be reversed in a subsequent period if the circumstances
which caused it no longer exist.
Leases - lessee
A finance lease is a lease that transfers substantially all the risks and rewards of ownership of an asset to the lessee. Assets
acquired under finance leases are recorded in the balance sheet as property, plant and equipment at the lower of their fair
value and the present value of the minimum lease payments and depreciated over the shorter of their estimated useful life or
their lease terms. The corresponding rental obligations are included in other long-term liabilities as finance lease liabilities.
Interest incurred on finance leases is charged to the statement of operations on an accrual basis.
All other leases are operating leases, and the rental of these is charged to the statement of operations as incurred over the
lease term.
Leases - lessor
Contractual arrangements that transfer substantially all the risks and benefits of ownership of property to the lessee are
recorded as a net investment in a finance lease. The present value of minimum lease receivable under such arrangements are
recorded as an investment in finance lease and the finance income is recognized in a manner that produces a consistent rate
of return on the investment in the finance lease and is included in revenue.
Operating lease income is recognized in the statement of operations as it is earned over the lease term.
Provisions and contingencies
Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of a past event, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Where appropriate, the future cash flow estimates are adjusted to
reflect risks specific to the liability.
If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows
at a pre-tax rate that reflects current market assessments of the time value of money. Where discounting is used, the increase
in the provision due to the passage of time is recognized within finance costs.
A contingent liability is disclosed where the existence of an obligation will only be confirmed by future events or where the
amount of the obligation cannot be measured reliably and outflow of cash is less than remote. Contingent assets are not
recognized, but are disclosed when an inflow of economic benefits is probable.
Decommissioning
Liabilities for site restoration on the retirement of assets are recognized when the Company has an obligation to restore the
site, and when a reliable estimate of that liability can be made. An obligation may also crystallize during the period of
operation of a facility through a change in legislation or through a decision to terminate operations. The amount recognized is
the present value of the estimated future expenditure determined in accordance with local conditions and requirements. The
present value is determined by discounting the expenditures expected to be required to settle the obligation using a risk-free
discount rate. Actual expenditures incurred are charged against the accumulated liability.
A corresponding item of property, plant and equipment of an amount equivalent to the provision is also created. The amount
capitalized in property, plant and equipment is depreciated over the useful life of the related asset. Increases in the
decommissioning liabilities resulting from the passage of time are recognized as a finance cost in the consolidated statement
of operations. Other than the unwinding discount on the provision, any change in the present value of the estimated
expenditure is reflected as an adjustment to the provision and the corresponding item of property, plant and equipment.
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Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Environmental liabilities
Environmental liabilities are recognized when a remediation is probable and the associated costs can be reliably estimated.
Generally, the timing of recognition of these provisions coincides with the completion of a feasibility study or a commitment
to a formal plan of action. The amount recognized is the best estimate of the expenditure required. Where the liability will
not be settled for a number of years, the amount recognized is the present value of the estimated future expenditure using a
risk-free discount rate.
Employee benefits
Defined benefit pension plan and other post retirement benefits plan
The company maintains a funded defined benefit pension plan and an unfunded defined benefit other post-retirement benefits
plan (“OPRB”).
The liability recognised in the balance sheet in respect of defined benefit plans is the present value of the defined benefit
obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated
annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation
is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are
denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of
the related pension obligation.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited
to equity in other comprehensive income in the period in which they arise.
Past-service costs or credits are recognised immediately in statement of operations.
Defined contribution pension plans
The Company’s defined contribution plans are funded as specified in the plans and the pension expense is recorded as the
benefits are earned by employees and funded by the Company.
Share-based payments
The Company’s equity incentive plan allows for granting of stock options, restricted share units with time (RSUs) and
performance share units (PSUs) with performance based vesting conditions and deferred share units (DSUs) that vest when
the employee retires from the Company.
The fair value of grants made under the employee share award plan is measured at the date of grant of the award. The
resulting cost, as adjusted for the expected and actual level of vesting of the awards, is expensed over the period in which the
awards vest.
At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting
period has expired and management’s best estimate of the number of equity instruments that will ultimately vest.
The movement in the cumulative expense since the previous balance sheet date is recognized in the statement of operations
with a corresponding impact to contributed surplus.
The fair value of RSUs, PSUs and DSUs are equal to the Company five days weighted average share price at the date of
grant.
The fair value of options is measured by using the Black-Scholes model. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable and
it requires the input of highly subjective assumptions. Expected volatility of the stock is based on a combination of the
historical stock price of the Company and also of comparable companies in the industry. The expected term of options
represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the
Government of Canada’s Canadian Bond Yields with a remaining term equal to the expected life of the options used in the
Black-Scholes valuation model.
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Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Termination benefit
The Company recognizes termination benefits as expense when it is demonstrably committed to either terminating the
employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing
benefits as a result of an offer made to encourage voluntary termination.
Income taxes
Income tax expense represents the sum of the income tax currently payable and deferred income tax. Interest and penalties
relating to income tax are also included in income tax expense.
The income tax currently payable is based on the taxable income for the period. Taxable income differs from net income as
reported in the statement of operations because it excludes items of income or expense that are taxable or deductible in other
periods and it further excludes items that are never taxable or deductible. The Company’s liability for current income tax is
calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred income tax is provided for using the liability method of accounting. Deferred income tax assets and liabilities are
determined based on differences between the financial reporting and income tax basis of assets and liabilities. These
differences are then measured using enacted or substantially enacted income tax rates and laws that will be in effect when
these differences are expected to reverse. The effect of a change in income tax rates on deferred tax assets and liabilities is
recognized in income in the period that the change occurs. Deferred income tax assets are recognized for tax loss carry-
forwards to the extent that the realization of the related tax benefit through future taxable profits is probable.
Revenue recognition
Product revenues associated with the sales of crude oil, diluent, natural gas liquids, asphalt, natural gas, wellsite fluids and
distillate owned by the Company are recognized when the risk of ownership passes to the customer and physical delivery
occurs, the price is fixed and collection is reasonably assured. Sales terms are generally FOB shipping point, in which case
the sales are recorded at the time of shipment, because this is when title and risk of loss are transferred. All payments
received before delivery are recorded as deferred revenue and are recognized as revenue when delivery occurs, assuming all
other criteria are met. Freight costs billed to customers are recorded as a component of revenue. Revenues from buy/sell
transactions whereby the Company acts as an agent are recorded on a net basis.
Revenue associated with the provision of services such as transportation, terminalling and environmental services are
recognized when the services are provided, the price is fixed and collection is reasonably assured. Revenue from pipeline
tariffs and fees are based on volumes and rates as the pipeline is being used. Revenue from equipment rentals and non-
refundable propane tank fees are recorded in deferred revenue and are recognized in revenue on a straight line basis over the
rental period, typically one year.
Excise taxes are reported gross within sales and other operating revenues and taxes other than income taxes, while other sales
and value-added taxes are recorded net in operating expenses.
Cost of sales
Cost of sales includes the cost of finished goods inventory (including depreciation, amortization and impairment charges),
processing costs, and costs related to transportation and inventory write downs and reversals.
Interest
Interest income and expense is recognized in the statement of operations using the effective interest method.
Borrowing costs
General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,
which are assets that take a substantial period of time to get ready for their intended use or sale, are added to the cost of those
assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are
recognized in the statement of operations in the period in which they are incurred.
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Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Share capital
Common and preferred shares are classified as equity. Incremental costs directly attributable to the issuance of shares are
recognized as a deduction from equity.
Per share amounts
Basic per share amounts are calculated using the weighted average number of shares outstanding during the year. Diluted per
share amounts are calculated giving effect to the potential dilution that would occur if stock options and other equity awards
were exercised or converted into common shares.
Dividends
Dividends on common shares are recognized in the period in which the dividends are approved by the Board.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
maker. The chief operating decision maker, who is responsible for resource allocation and assessing performance of the
operating segments, has been identified as the President and Chief Executive Officer.
Critical accounting estimates and judgements
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It
also requires management to exercise its judgement in the process of applying the Company’s accounting policies. Estimates
and judgements are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
Critical accounting estimates and assumptions
The preparation of financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the balance sheet date and the
reported amounts of revenues and expenses during the reporting period. Actual outcomes could differ from those estimates.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are addressed below.
Fair value of assets and liabilities acquired in a business combination
In conjunction with each business combination, the Company must allocate the cost of the acquired entity to the assets and
liabilities assumed based on their estimated fair values at the date of acquisition. Determining the fair value of assets and
liabilities acquired, as well as intangible assets that relate to such items as customer relationships, brands and contracts
involves professional judgment and is ultimately based on acquisition models and management’s assessment of the value of
the assets and liabilities acquired and, to the extent available, third party assessments. Uncertainties associated with these
estimates include changes in production volumes, changes in commodity prices, fluctuations in capacity or product slates,
economic obsolescence factors in the area and potential future sources of cash flow. During the measurement period, the fair
value of assets acquired and liabilities assumed may be adjusted when the initial accounting for business combination is
recorded based on provisional amounts. Although the resolution of these uncertainties has not historically had a material
impact on the Company’s results of operations or financial condition, the actual amounts may vary significantly from
estimated amounts. Any excess of the cost of acquisition over the net fair value of the identifiable assets acquired is
recognized as goodwill.
Impairment assessment of non-financial assets
The Company tests annually whether goodwill of an operating segment has suffered any impairment, in accordance with the
Company’s accounting policy. The recoverable amounts of the operating segments are determined based on fair value less
costs of disposal calculations which requires the use of estimates. The Company also assesses at least annually whether there
have been any events or changes in circumstances that indicate that property, plant and equipment and other intangible assets
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Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
may be impaired and an impairment review is carried out whenever such an assessment indicates that the carrying amount
may not be recoverable.
In the impairment analysis of the Company’s assets, some of the key assumptions used in estimating future cash flows
include revenue growth, future commodity prices, expected margin, expected sales volumes, cost structures and the outlook
of market supply and demand conditions appropriate to the local circumstances and environment. These assumptions and
estimates are uncertain and are subject to change as new information becomes available. Changes in economic conditions can
also affect the rate used to discount future cash flow estimates.
Income taxes
The Company is subject to income taxes in Canada and the United States of America. Tax provisions are recognized when it
is considered probable that there will be a future outflow of funds to a taxing authority. In such cases, provision is made for
the amount that is expected to be settled, where this can be reasonably estimated. This requires management to make some
assumptions as to the ultimate outcome, which can change over time depending on facts and circumstances. A change in
estimate of the likelihood of a future outflow and/or in the expected amount to be settled would be recognized in statement of
operations in the period in which the change occurs.
Fair value of derivatives financial instruments
The Company reflects the fair value of derivative financial instruments based on valuation information from third parties.
The calculation of the fair value of certain of these instruments is based on proprietary models and assumptions of third
parties because such instruments are not quoted on an active market. Additionally, estimates of fair value may vary among
different models due to a difference in assumptions applied, such as the estimate of prevailing market prices, volatility,
correlations and other factors, and may not be reflective of the price at which they can be settled due to the lack of a liquid
market. As a result of changes in key assumptions, the actual amounts may vary significantly from estimated amounts.
Provisions
Accruals for decommissioning and environmental remediation are recorded when it is considered probable and the costs can
be reasonably estimated. A number of factors affect the cost of environmental remediation, including the determination of the
extent of contamination, the length of time remediation may require, the complexity of environmental regulations and the
advancement of technology. Considering these factors, the Company has estimated the costs of remediation, which will be
incurred in future years. The Company believes the provisions made for environmental matters are adequate, however it is
reasonably possible that actual costs may differ from the estimated accrual, if the selected methods of remediation do not
adequately reduce the contaminates and further remedial action is required. The Company uses third-party environmental
evaluators, where possible, to obtain the estimates of decommissioning and environmental provision.
Critical judgements in applying the Company’s accounting policies
Identification of cash-generating unit (“CGU”)
For the purposes of impairment testing, assets are grouped at the lowest levels of integrated assets that generate identifiable
cash inflows that are largely independent of the cash inflows of other assets or groups of assets, termed as a CGU. The
allocation of assets into a CGU requires significant judgment and interpretations with respect to the integration between
assets, the existence of active markets, similar exposure to market risks, shared infrastructures and the way in which
management monitors the operations.
Investment in finance leases
In determining whether certain of the Company’s long-term tank storage arrangements are, or contain, a lease, the Company
must use judgement in assessing whether the fulfilment of the arrangement is dependent on the use of a specific asset and the
arrangement conveys the right to use the assets. For those arrangements considered to be a lease, further judgement is
required to determine whether substantially all of the significant risks and rewards of ownership are transferred to the
customer or remain with the Company, to appropriately account for the arrangement as a finance or operating lease. These
judgements can be significant as to how the Company classifies amounts related to the arrangements as property, plant and
equipment or net investment in finance lease on the balance sheet. The Company has determined, based on the terms and
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Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
conditions of these arrangements, that the substantial risks and rewards to the ownership of certain storage tanks have been
transferred to the customer, and accordingly, these storage tanks has been recognized as an investment in finance lease.
Current and deferred taxation
The computation of the Company’s income tax expense involves the interpretation of applicable tax laws and regulations in
many jurisdictions. The resolution of tax positions taken by the Company can take significant time to complete and in some
cases it is difficult to predict the ultimate outcome. In addition, the Company has carry-forward tax losses in certain taxing
jurisdictions that are available to offset against future taxable profit. This involves an assessment of when those deferred tax
assets are likely to be realized, and a judgment as to whether or not there will be sufficient taxable profits available to offset
the tax assets when they do reverse. This requires assumptions regarding future profitability and is therefore inherently
uncertain. To the extent assumptions regarding future profitability change, there can be an increase or decrease in the
amounts recognized in respect of deferred tax assets as well as in the amounts recognized in statement of operations in the
period in which the change occurs. However, deferred income tax assets are recognized only to the extent that it is probable
that taxable profit will be available against which the unused tax losses can be utilized. To the extent that actual outcomes
differ from management’s estimates, income tax charges or credits may arise in future periods.
Change in the terms of the credit agreement
The Company incurs costs on the refinancing, replacement and re-pricing of its long-term debt and credit facilities. The
treatment of such costs is dependent on the assessment of whether the refinancing, replacement or re-pricing was an
extinguishment or a modification of the original loan. In the case of an extinguishment, the costs incurred are charged to
statements of operations whereas in the case of a modification, the costs are capitalized as a part of the existing carrying
amount of the loan and amortized to statement of operations over the term of the loan using effective interest method. When
the terms and conditions of a refinancing, replacement and re-pricing are substantially different, it is generally considered an
extinguishment. The assessment requires the exercise of significant judgement involving comparing qualitative and quantities
factors of the credit agreement before and after the refinancing, replacement or re-pricing.
4 Changes in accounting policies and disclosures
New and amended standards adopted by the Company
The Company adopted the following amendments to IFRS that were effective for the first time for the financial year
beginning on or after January 1, 2013.
IAS 1, Presentation of Financial Statements (“IAS 1”) was amended and requires companies to group items presented within
Other Comprehensive Income based on whether they may be subsequently reclassified to profit or loss. This amendment to
IAS 1 is effective for annual periods beginning on or after July 1, 2012 with full retrospective application. The adoption of
this amendment did not result in any adjustments to other comprehensive income or comprehensive income.
IAS 19, Employee Benefits (“IAS 19”) was amended to eliminate the option to defer the recognition of actuarial gains and
losses, commonly known as the corridor approach and requires an entity to recognize actuarial gains and losses in Other
Comprehensive Income (“OCI”) immediately. In addition, the net change in the defined benefit liability or asset must be
disaggregated into three components: service cost, net interest and remeasurements. Service cost and net interest continue to
be recognized in net earnings while remeasurements, which include changes in estimates or the valuation of plan assets,
recognized in OCI. Furthermore, entities are required to calculate net interest on the net defined benefit liability or asset
using the same discount rate used to measure the defined benefit obligation. The amendment also enhances financial
statement disclosures. This amended standard is effective for annual periods beginning on or after January 1, 2013, with
modified retrospective application. As required, the Company adopted these amendments retrospectively. The Company
adjusted its opening equity as at January 1, 2012 to recognize previously unrecognized past service credits and accordingly,
on January 1, 2012, December 31, 2012 and December 31, 2013, deficit balance was decreased by approximately $0.6
million and other-long term liabilities were decreased by $0.6 million. The impact on the Company results of operations and
earnings per share was not material for the current and comparative year.
IFRS 7, Financial Instruments: Disclosures (“IFRS 7”) has been amended to provide more extensive quantitative disclosures
for financial instruments that are offset in the statement of financial position or that are subject to enforceable master netting
or similar arrangements. This amendment to IFRS 7 is effective for annual periods beginning on or after January 1, 2013,
15
52
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
with retrospective application. The adoption of this amendment resulted in additional disclosures that are included in these
consolidated financial statements.
IFRS 10, Consolidated financial statements (‘‘IFRS 10’’) builds on existing principles by identifying the concept of control
as the determining factor in whether an entity should be included within the consolidated financial statements of the parent
company. IFRS 10 is effective for annual periods beginning on or after January 1, 2013. The adoption of IFRS 10 did not
result in any change in the consolidation status of any of the Company’s subsidiaries.
IFRS 11, Joint Arrangements (“IFRS 11”) addresses joint arrangements by focusing on the rights and obligations of the
arrangement, rather than its legal form. The standard addresses inconsistencies in the reporting of joint arrangements by
requiring a single method to account for interests in jointly controlled entities. IFRS 11 is effective for annual periods
beginning on or after January 1, 2013. The adoption of IFRS 11 did not result in any changes in the accounting for joint
arrangements.
IFRS 12, Disclosure of Interests in Other Entities (‘‘IFRS 12’’) is a comprehensive standard on disclosure requirements for
all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance
sheet vehicles. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. The adoption of IFRS 12
resulted in few additional disclosures that are included in these consolidated financial statements.
IFRS 13, Fair Value Measurement (“IFRS 13”) provides for a consistent and less complex definition of fair value,
established a single source for determining fair value and introduces consistent requirements for disclosures related to fair
value measurement. IFRS 13 is effective for annual periods beginning on or after January 1, 2013 and applies prospectively
from the beginning of the annual period in which the standard is adopted. The adoption of IFRS 13 did not require any
adjustment to the valuation techniques used by the Company to measure fair value and accordingly, did not result in any
measurement adjustment as at January 1, 2013. However, the adoption of IFRS 13 resulted in a few additional disclosures
that are presented in note 28.
The annual improvements process addresses issues in the 2009 - 2011 reporting cycle including changes to IFRS 1, ‘First
time adoption’, IAS 1, IAS 16, ‘Property plant and equipment’, IAS 32, Financial Instruments: Presentation (“IAS 32”), IAS
34, ‘Interim financial reporting’. These improvements are effective for annual periods beginning on or after January 1, 2013,
with retrospective application. The adoption of these amendments did not have any material impact on the Company’s
consolidated financial statements.
IAS 36, ‘Impairment of assets’ (“IAS 36”), was amended regarding the recoverable amount disclosures for non-financial
assets. This amendment removed certain disclosures of the recoverable amount of CGUs which had been included in IAS 36
by the issue of IFRS 13. The amendment is not mandatory until January 1, 2014, however the Company has decided to early
adopt the amendment as of January 1, 2013. The adoption of this amendment did not have any material impact on the
Company’s consolidated financial statements.
New standards and interpretations issued but not yet adopted
IFRS 9, Financial Instruments (“IFRS 9”), addresses the classification, measurement and recognition of financial assets and
financial liabilities. It replaces the parts of IAS 39, “Financial Instruments: Recognition and Measurements’’ that relate to the
classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two
measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at
initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the
contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39
requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair
value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement,
unless this creates an accounting mismatch. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. The
Company is currently evaluating the impact of adopting IFRS 9 on its consolidated financial statements.
IAS 32 has been amended to clarify the requirements for offsetting financial assets and liabilities. The amendment clarifies
that the right to offset must be available on the current date and cannot be contingent on a future event. The amendment to
IAS 32 is effective for annual periods beginning on or after January 1, 2014, with retrospective application. The Company is
currently evaluating the impact of adopting this amendment on its consolidated financial statements.
16
53
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
5 Business combinations
The Company did not complete any business combinations in 2013. Information regarding business combinations completed
in 2012 is provided below:
Parent holding company of OMNI Energy Services Corp. (“OMNI”)
On October 31, 2012, the Company acquired all of the issued and outstanding common stock of OMNI for total cash
consideration of $439.7 million including final closing adjustments. OMNI has operations in many major oil and liquids
focused areas in the United States with a focus on environmental and production-related activities.
Acquisition-related costs of $2.8 million have been charged to general and administrative expenses in the consolidated
statement of operations for the year ended December 31, 2012.
The following table summarizes the fair value of assets acquired and liabilities assumed at the acquisition date:
Cash and cash equivalents .................................................................................................................................
Trade and other receivables ..............................................................................................................................
Inventories.........................................................................................................................................................
Income taxes receivable ....................................................................................................................................
Prepaid and other assets ....................................................................................................................................
Property, plant and equipment ..........................................................................................................................
Long-term prepaid expenses and other assets ...................................................................................................
Goodwill ...........................................................................................................................................................
Intangible assets (1) ............................................................................................................................................
Trade payables and accrued charges .................................................................................................................
Income taxes payable ........................................................................................................................................
Provisions ..........................................................................................................................................................
Other long-term liabilities .................................................................................................................................
Deferred income tax liabilities ..........................................................................................................................
Net assets acquired ............................................................................................................................................
Fair Value
$
6,577
51,978
8,835
8,228
4,159
150,849
745
188,414
125,874
(34,296)
(760)
(9,930)
(4,004)
(56,972)
$ 439,697
(1) Consists of customer relationships of $111.8 million, brands of $8.5 million, license and permits of $3.1 million,
technology assets of $1.0 million, non-compete agreements of $0.3 million and software of $1.2 million.
The goodwill arising on the acquisition is attributable to the Company’s broadened footprint in many major oil and liquids
focused basins in the United States, the expected growth in the environmental services business in North America, the
expansion upon recent acquisitions and new customers in the United States to whom the Company can promote the rest of
the Gibson product suite. The goodwill is allocated to the Environmental Services segment, a new operating segment in the
year ended December 31, 2012.
Northern Truck Services 1994 Ltd. and All Fluids & Filtration Services Ltd. (collectively “Northern Trucking”)
On October 1, 2012, the Company acquired all of the issued and outstanding common shares of Northern Trucking for total
cash consideration of $23.2 million. Northern Trucking provides fluid hauling, filtration and completion products to drilling
and production companies in Northern Alberta and Northeastern British Columbia.
Acquisition-related costs of $0.1 million have been charged to general and administrative expenses in the consolidated
statement of operations for the year ended December 31, 2012.
17
54
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
The following table summarizes the fair value of assets acquired and liabilities assumed at the acquisition date:
Cash and cash equivalents .................................................................................................................................
Trade and other receivables ..............................................................................................................................
Inventories.........................................................................................................................................................
Prepaid expenses and other assets .....................................................................................................................
Property, plant and equipment ..........................................................................................................................
Goodwill ..........................................................................................................................................................
Intangible assets (1) ............................................................................................................................................
Trade payables and accrued charges .................................................................................................................
Deferred income tax liabilities ..........................................................................................................................
Net assets acquired ............................................................................................................................................
Fair Value
$
$
1,922
4,619
378
143
14,481
4,043
2,313
(1,780)
(2,837)
23,282
(1) Consists of customer relationships of $1.7 million and non-compete agreements of $0.6 million.
The goodwill arising on the acquisition of Northern Trucking is attributable to Gibson’s ability to take advantage of the
growth in the fluid hauling market, with an additional opportunity to support the sales and hauling of Gibson’s frac fluids and
mud products from its Sexsmith facility. The goodwill is allocated to the Truck Transportation segment.
Other acquisitions
The Company completed the following individually immaterial business combinations during the year ended December 31,
2012:
Name
Acquisition date
Gator Propane Services Inc. (“Gator”) ............................................................ November 27, 2012
September 1, 2012
Jalbert Enterprises Ltd (“Jalbert”) ...................................................................
July 24, 2012
Mobile Propane Services Inc. (“Mobile Propane”) .........................................
May 1, 2012
Fricken Fracken Water Hauling Ltd. (“Fricken Fracken”) ..............................
$
Total consideration
3,745
2,240
5,312
4,750
16,047
$
Acquisition-related costs of $0.1 million have been charged to general and administrative expenses in the consolidated
statement of operations for the year ended December 31, 2012.
The total consideration paid was comprised of the following:
Cash ................................................................................................................................................................
Contingent consideration ................................................................................................................................
Total consideration .........................................................................................................................................
$
$
14,497
1,550
16,047
18
55
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
The following table summarizes the fair value of assets acquired and liabilities assumed at the acquisition date:
Cash and cash equivalents ..............................................................................................................................
Trade and other receivables ............................................................................................................................
Inventories ......................................................................................................................................................
Prepaid expenses and other assets ..................................................................................................................
Property, plant and equipment ........................................................................................................................
Goodwill .........................................................................................................................................................
Intangible assets (2) ..........................................................................................................................................
Trade payables and accrued charges ...............................................................................................................
Deferred income tax liabilities ........................................................................................................................
Total ................................................................................................................................................................
Fair value
$
$
351
1,105
92
186
5,282
5,274
6,806
(556)
(2,493)
16,047
(1) Under the agreements, the Company is required to pay the former owners of the acquired entities certain cash amounts
which are dependent on the achievement of specified gross margins. The maximum undiscounted amount of the
contingent consideration under these agreements approximates $1.6 million. The Company has recorded the full amount
of the contingent consideration as it expects that the specified gross margin thresholds will be achieved.
(2) Consists of customer relationships of $2.6 million and non-compete agreements of $4.2 million.
Gator, Jalbert and Mobile Propane provide retail propane services to the construction, residential and commercial sectors in
Saskatchewan. Goodwill of $3.6 million arising from the acquisitions of Gator, Jalbert and Mobile Propane is attributable to
the expected increase in the Company’s share of the growing Southeast Saskatchewan marketplace and expected synergies
with its existing propane operations within the Propane and NGL Marketing and Distribution segment. The goodwill for
these acquisitions is allocated to the Propane and NGL marketing and distribution segment.
Fricken Fracken provides water hauling and transportation services. Goodwill of $1.7 million arising from the acquisition of
Fricken Fracken is attributable to the expected expansion of the Company’s market presence in west central Saskatchewan
and expected synergies with the Company’s custom treating and terminal operations. The goodwill arising on this acquisition
is allocated to the Truck Transportation segment.
6 Trade and other receivables
Trade receivables ............................................................................................................
Allowance for doubtful accounts ....................................................................................
Trade receivables - net ....................................................................................................
Derivative financial instruments (note 28) ......................................................................
Deposits held as collateral ...............................................................................................
Broker accounts receivable .............................................................................................
GST receivable ................................................................................................................
Other ...............................................................................................................................
December 31,
2013
$
$
583,068
(4,092)
578,976
1,120
1,145
1,326
5,967
4,316
592,850
$
$
2012
466,651
(4,603)
462,048
5,520
1,337
5,371
3,495
7,072
484,843
19
56
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Allowance for doubtful accounts
Opening balance ..............................................................................................................
Additional allowances .....................................................................................................
Receivables written off as uncollectible ..........................................................................
Recoveries .......................................................................................................................
Effect of changes in foreign exchange rates ....................................................................
Closing balance ...............................................................................................................
$
$
7
Inventories
Year ended
December 31,
2013
4,603
1,291
(1,866)
(28)
92
4,092
2012
3,009
2,611
(871)
(120)
(26)
4,603
$
$
Crude oil..........................................................................................................................
Diluent ............................................................................................................................
Asphalt ............................................................................................................................
Natural gas liquids ..........................................................................................................
Wellsite fluids and distillate ............................................................................................
Spare parts and other .......................................................................................................
December 31,
2013
2012
$
64,423
3,561
27,825
34,749
13,003
12,858
$ 156,419
$
79,407
3,656
23,588
25,103
8,584
11,120
$ 151,458
The cost of the inventory sold included in cost of sales was $5,631.0 million and $3,954.0 million for the year ended
December 31, 2013 and 2012, respectively. There were no inventory write-downs in the years ended December 31, 2013 and
2012.
8 Net investment in finance leases
The following summarizes the Company’s net investment in arrangements whereby the Company has entered into fixed term
contractual arrangements to allow customers to have dedicated use of certain tanks owned by the Company. These
arrangements are accounted for as finance leases:
Total minimum lease payments receivable .......................................................................
Residual value ...................................................................................................................
Unearned income ..............................................................................................................
Less: current portion .........................................................................................................
Net investment in finance lease : non-current portion.......................................................
December 31,
2013
2012
$ 363,742
35,182
(304,923)
94,001
765
93,236
$
$ 335,229
29,881
(286,431)
78,679
549
78,130
$
The minimum lease receivables are expected to be as follows:
2014 ....................................................................................................................................................................
2015 ....................................................................................................................................................................
2016 ....................................................................................................................................................................
2017 ....................................................................................................................................................................
2018 ....................................................................................................................................................................
2019 and later ......................................................................................................................................................
$
22,740
22,740
22,740
22,740
22,740
250,042
20
57
Work in
Progress
Total
$ 36,741 $ 1,308,975
238,461
(9,507)
142,762
-
-
(93,268)
(15,905)
-
-
(20,580)
229
18,945
$ 86,464 $ 1,520,389
$
$
- $ 270,191
133,854
-
(7,175)
-
-
3,663
- $ 400,533
$ 36,741 $ 1,038,784
1,119,856
86,464
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
9 Property, plant and equipment
Land &
Buildings
Pipelines
Tanks
Plant,
Equipment &
Disposal
wells
Rolling
Stock
11,627
-
Cost:
At January 1, 2013 ...................... $ 94,698 $ 133,706 $ 266,925 $ 337,260 $ 439,645
17,906
Additions .....................................
(2,464)
Disposals .....................................
Transfer to net investment in
finance leases (note 8) ...............
Reclassifications .........................
Change in decommissioning
provision (note 16) ....................
Effect of movements in
9,462
exchange rates ...........................
At December 31, 2013 ................ $ 113,292 $ 128,360 $ 266,947 $ 400,671 $ 524,655
(15,905)
15,722
57,501
(6,844)
-
(1,984)
-
68,289
8,474
(199)
-
6,109
-
5,132
191
-
(3,553)
(8,844)
(8,183)
7,622
774
858
-
-
-
Accumulated depreciation and
impairment:
At January 1, 2013 ...................... $ 15,849 $ 34,477 $ 42,998 $ 88,981 $ 87,886
58,478
Depreciation ................................
(1,696)
Disposals .....................................
Effect of movements in
989
exchange rates ...........................
At December 31, 2013 ................ $ 20,706 $ 43,579 $ 58,377 $ 132,214 $ 145,657
46,160
(5,396)
15,285
(83)
4,829
-
9,102
-
2,469
177
28
-
Carrying amounts:
At January 1, 2013 ...................... $ 78,849 $ 99,229
84,781
At December 31, 2013 ................
92,586
$ 223,927 $ 248,279 $ 351,759
378,998
268,457
208,570
21
58
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Land &
Buildings
Pipelines
Tanks
Plant,
Equipment &
Disposal
wells
Rolling
Stock
Cost:
At January 1, 2012 ......................
Additions .....................................
Additions through business
combination (note 5) .................
Disposals .....................................
Transfer to net investment in
finance leases (note 8) ...............
Reclassifications .........................
Change in decommissioning
provision (note 16) ....................
Effect of movements in
exchange rates ...........................
At December 31, 2012 ................
Accumulated depreciation and
impairment:
At January 1, 2012 ......................
Depreciation ................................
Disposals .....................................
Effect of movements in
exchange rates ...........................
At December 31, 2012 ................
$ 76,406 $ 100,437 $ 236,173 $ 214,997 $ 292,274
15,225
15,188
57,462
17,734
6,789
Work in
Progress
Total
$ 51,624 $ 971,911
176,696
64,298
9,478
(31)
-
-
2,200
(454)
71,326
(5,668)
84,265
(379)
3,343
-
170,612
(6,532)
-
2,105
-
10,431
(13,833)
14,858
-
892
(21,338)
54,222
-
(82,508)
(35,171)
-
-
5,104
12,994
-
16,065
-
34,163
(49)
(689)
$ 94,698 $ 133,706 $ 266,925 $ 337,260 $ 439,645
(1,749)
(201)
-
$ 11,540 $ 26,624 $ 29,318 $ 60,916 $ 54,422
33,744
13,831
(235)
(118)
32,216
(3,817)
4,328
(16)
7,853
-
(3)
(45)
$ 15,849 $ 34,477 $ 42,998 $ 88,981 $ 87,886
(334)
(33)
-
(16)
(2,704)
$ 36,741 $ 1,308,975
$
$
- $ 182,820
91,972
-
(4,186)
-
-
(415)
- $ 270,191
$ 51,624 $ 789,091
1,038,784
36,741
Carrying amounts:
At January 1, 2012 ......................
At December 31, 2012 ................
$ 64,866 $ 73,813
99,229
78,849
$ 206,855 $ 154,081 $ 237,852
351,759
248,279
223,927
Additions to property, plant and equipment includes capitalization of interest of $2.9 million and $1.9 million for the year
ended December 31, 2013 and 2012, respectively.
At December 31, 2013 and 2012, the carrying value includes $2.3 million and $4.4 million of assets capitalized under finance
lease, respectively.
As a part of the annual review of the estimates of useful lives of property, plant and equipment, the Company revised
estimated useful lives of certain property, plant and equipment. As a result, the Company recorded additional depreciation
expense of $4.2 million in the year ended December 31, 2013.
10 Long-term prepaid expenses and other assets
Long-term prepaid expenses .......................................................................................
Derivative financial instruments (note 28) ..................................................................
Post-retirement benefit assets ......................................................................................
Other assets .................................................................................................................
December 31,
2013
442
15,646
1,058
2,494
19,640
$
$
2012
684
2,476
1,087
1,647
5,894
$
$
22
59
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
11 Income tax
The major components of income tax are as follows:
Current tax provision
Current tax on income for the year..............................................................................
Adjustments in respect of prior years ..........................................................................
Total current tax provision ......................................................................................
Deferred tax provision (recovery) ...............................................................................
Origination and reversal of temporary differences ......................................................
Total deferred tax provision (recovery) ..................................................................
Income tax provision ...................................................................................................
Year ended
December 31,
2013
2012
$
$
51,339
735
52,074
(10,848)
(4,321)
(15,169)
36,905
$
$
26,522
(317)
26,205
5,113
809
5,922
32,127
The income tax provision differs from the amounts which would be obtained by applying the Canadian statutory income tax
rate to income before income taxes. These differences result from the following items:
Income before income taxes........................................................................................
Statutory income tax rate ............................................................................................
Computed income tax provision .................................................................................
Increase (decrease) in income tax resulting from:
Foreign exchange loss (gain) on long-term debt, net ...........................................
Non-deductible expenses .....................................................................................
Stock based compensation ...................................................................................
Non-taxable dividends .........................................................................................
Other, including revisions in previous tax estimates and rate reductions ............
Rate differential on foreign taxes .........................................................................
Effective income tax rate ............................................................................................
Current ........................................................................................................................
Deferred ......................................................................................................................
Year ended
December 31,
2013
2012
$ 140,721
25.2%
35,462
$ 148,313
25.0%
37,078
4,026
1,568
2,091
(11,159)
1,839
3,078
36,905
26.2%
52,074
(15,169)
36,905
$
$
(6,582)
908
964
(4,794)
2,568
1,985
32,127
21.7%
26,205
5,922
32,127
$
$
The increase in the statutory rate was due to higher local income tax rates in Canada in the current year.
The income tax provision relating to actuarial gain on post-employment benefit obligation recognized in other
comprehensive income was $0.4 million for the year ended December 31, 2013. The income tax recovery relating to actuarial
loss on post-employment benefit obligation recognized in other comprehensive income was $0.4 million for the year ended
December 31, 2012. The income tax adjustment to equity in the year ended December 31, 2012 was $4.0 million relating to
the impact of the deductibility of expenses incurred on the issuance of common shares.
23
60
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
The analysis of deferred tax assets and deferred tax liabilities is as follows:
Deferred tax assets:
Deferred tax asset to be settled after more than 12 months ....................................
Deferred tax asset to be settled within 12 months ..................................................
$
December 31,
2013
4,487
3,700
8,187
Deferred tax liabilities:
Deferred tax liability to be settled after more than 12 months ...............................
Deferred tax liability to be settled within 12 months .............................................
Deferred tax liabilities (net) ..........................................................................................
184,605
9,500
194,105
$ 185,918
The gross movement on the deferred income tax account is as follows:
$
2012
9,060
-
9,060
203,916
2,200
206,116
$ 197,056
Opening balance ............................................................................................................
Effect of changes in foreign exchange rates ..................................................................
Recognized on business combinations (note 5) ............................................................
Income statement provision (recovery) .........................................................................
Tax credit relating to components of other comprehensive income ..............................
Tax credited directly to equity ......................................................................................
Closing balance .............................................................................................................
Year ended
December 31,
2013
$ 197,056
3,644
-
(15,169)
387
-
$ 185,918
2012
$ 133,417
(211)
62,302
5,922
(351)
(4,023)
$ 197,056
The movement in the significant components of deferred income tax assets and liabilities during the year, without taking into
consideration the offsetting balances within the same tax jurisdiction, is as follows:
Non-capital
losses carried
forward
Asset
retirement
obligations
Retirement
benefits
obligations
Other
Total
$ 27,580
$ 5,585
$ 2,802
$ 30,488
$ 66,455
1,542
-
-
3,755
-
$ 10,882
1,360
-
269
$ 12,511
(1,091)
351
-
-
-
$ 2,062
(195)
(387)
-
$ 1,480
(7,672)
-
4,023
1,244
211
$ 28,294
(6,066)
-
(1,186)
$ 21,042
(12,530)
351
4,023
4,999
211
$ 63,509
(7,192)
(387)
596
$ 56,526
Deferred tax assets
At January 1, 2012 ........................................
Credited (charged) to the statement of
operations ...............................................
Credited to other comprehensive income .....
Credited directly to equity ............................
Business combinations ..................................
Effect of changes in foreign exchange rates .
At December 31, 2012 ..................................
Credited (charged) to the statement of
(5,309)
-
-
-
-
$ 22,271
operations ...............................................
Charged to other comprehensive income ......
Effect of changes in foreign exchange rates .
At December 31, 2013 ..................................
(2,291)
-
1,513
$ 21,493
24
61
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Deferred tax liabilities
At January 1, 2012 ........................................
Credited (charged) to the statement of
operations ...............................................
Business combinations ..................................
At December 31, 2012 ..................................
Credited (charged) to the statement of
Timing of
Partnership
Income
Property,
Plant and
Equipment
Accounting
and tax
basis
differences
Other
Total
$ (66,655)
$(102,867)
$ (29,785)
$
(565)
$ (199,872)
5,269
-
$ (61,386)
(7,560)
(43,625)
$(154,052)
10,027
(23,676)
$ (43,434)
(1,128)
-
$ (1,693)
6,608
(67,301)
$ (260,565)
operations ...............................................
Effect of changes in foreign exchange rates .
At December 31, 2013 ..................................
13,918
-
$ (47,468)
2,243
(4,240)
$(156,049)
4,507
-
$ (38,927)
1,693
-
-
22,361
(4,240)
$ (242,444)
$
Income tax losses carry forward
At December 31, 2013 and December 31, 2012, the Company had losses available to offset income for tax purposes of
$60.5 million and $60.3 million, respectively. At December 31, 2013, the Company has $7.1 million and $53.4 million of the
losses available in Canada and the United States, respectively that expire as follows:
December 31, 2028 ...............................................................................................................................................
December 31, 2029 ...............................................................................................................................................
December 31, 2030 ...............................................................................................................................................
December 31, 2031 ...............................................................................................................................................
December 31, 2032 ...............................................................................................................................................
December 31, 2033 ...............................................................................................................................................
$
49
141
1,861
45,543
8,722
4,177
$ 60,493
No income tax liability has been recognized in respect of temporary differences associated with investments in subsidiaries.
As no income taxes are expected to be paid in respect of these differences related to Canadian subsidiaries, the amounts have
not been determined. There are no taxable temporary differences associated with investments in non-Canadian subsidiaries.
25
62
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
12 Intangible assets
Brands
Customer
relationships
Long-term
Contracts
Non-compete
agreements Technology
Software
License and
Permits
Total
Cost:
At January 1, 2013 ........ $ 49,881 $ 226,364 $ 32,712 $ 22,945 $ 2,516 $ 19,470 $ 3,074 $ 356,962
8,495
-
Additions .......................
Effect of movements in
12,063
exchange rates .............
At December 31, 2013 .. $ 50,465 $ 235,096 $ 34,653 $ 23,368 $ 2,579 $ 27,911 $ 3,448 $ 377,520
8,333
1,941
8,732
584
423
162
212
108
63
-
-
-
-
Accumulated
amortization:
At January 1, 2013 ........ $ 18,280 $ 70,900 $ 10,515 $ 13,934 $ 1,651 $ 7,073 $
Amortization .................
Effect of movements in
2,398
exchange rates .............
At December 31, 2013 .. $ 28,142 $ 101,478 $ 14,801 $ 17,468 $ 1,980 $ 9,944 $ 1,312 $ 175,125
171 $ 122,524
50,203
29,396
3,142
9,694
2,858
1,182
1,098
3,698
392
588
168
317
43
13
12
Carrying amounts:
At January 1, 2013 ........ $ 31,601 $ 155,464 $ 22,197 $
22,323
At December 31, 2013 ..
133,618
19,852
9,011
5,900
$
865 $ 12,397 $ 2,903 $ 234,438
202,395
599
17,967
2,136
Brands
Customer
relationships
Long-term
Contracts
Non-compete
agreements Technology
Software
License and
Permits
Total
Cost:
At January 1, 2012 ........ $ 41,425 $ 111,093 $ 33,336 $ 17,923 $ 1,600 $ 12,775 $
Additions .......................
Additions through
business combination
(note 5) ........................
Effect of movements in
exchange rates .............
116,133
8,496
5,152
5,502
1,203
(130)
(624)
(862)
(40)
(10)
920
(4)
-
-
-
-
-
-
- $ 218,152
5,502
-
3,089
134,993
(15)
(1,685)
At December 31, 2012 .. $ 49,881 $ 226,364 $ 32,712 $ 22,945 $ 2,516 $ 19,470 $ 3,074 $ 356,962
Accumulated
amortization:
At January 1, 2012 ........ $ 13,544 $ 50,020 $ 7,033 $ 11,407 $ 1,313 $ 4,920 $
Amortization .................
Effect of movements in
exchange rates .............
At December 31, 2012 .. $ 18,280 $ 70,900 $ 10,515 $ 13,934 $ 1,651 $ 7,073 $
20,989
2,654
4,735
2,156
3,596
(127)
(114)
(109)
338
(3)
1
-
- $ 88,237
34,639
171
-
(352)
171 $ 122,524
Carrying amounts:
At January 1, 2012 ........ $ 27,881 $ 61,073 $ 26,303 $
31,601
At December 31, 2012 ..
155,464
22,197
6,516
9,011
$
287 $ 7,855 $
865
12,397
- $ 129,915
234,438
2,903
As a part of the annual review of the estimates of useful lives of intangible assets, the Company revised estimated useful life
of a certain brand. As a result, the Company recorded additional amortization expense of $0.7 million in the year ended
December 31, 2013. The revision in estimate of useful life of this brand will result in additional amortization expense of $3.5
million per year for years 2014 and 2015.
26
63
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
13 Goodwill
The changes in the carrying amount of goodwill are as follows:
Year ended
December 31,
2013
2012
Balance as at January 1 .......................................................................................................
Additions through business combinations (note 5) .............................................................
Effect of changes in foreign exchange rates ........................................................................
Balance as at December 31 .................................................................................................
$ 709,358
-
16,790
$ 726,148
$ 513,747
197,731
(2,120)
$ 709,358
The goodwill recorded on the balance sheet represents the excess of the cost of acquisitions over the fair value of identifiable
assets, liabilities and contingent liabilities acquired. Of the balance as at December 31, 2013, $432.7 million, net of
impairment, relates to goodwill recognized on the acquisition of the Company by the wholly-owned subsidiary of R/C Guitar
Cooperatief U.A. (“Co-op”), a Dutch Co-op owned by investment funds affiliated with Riverstone Holdings LLC
(“Riverstone”), from Hunting PLC (“Hunting”) on December 12, 2008. Of the remaining balance, $279.9 million represents
additional goodwill recorded on acquisitions completed and $13.5 million relates to the effect of changes in foreign exchange
rates recorded by the Company since December 12, 2008.
Goodwill is monitored for impairment by management at the operating segment level. The following is a summary of
goodwill allocated to each operating segment:
Terminals and Pipelines ......................................................................................................
Truck Transportation ..........................................................................................................
Environmental Services ......................................................................................................
Propane and NGL Marketing and Distribution ...................................................................
Processing and Wellsite Fluids ...........................................................................................
Marketing ............................................................................................................................
December 31,
2013
2012
$ 199,972
51,388
216,542
97,027
117,664
43,555
$ 726,148
$ 199,867
49,178
203,593
95,501
117,664
43,555
$ 709,358
The recoverable amount of goodwill has been determined based on a fair value less costs of disposal calculation. This
calculation involves comparing the fair value of each operating segment to its carrying value, including goodwill, at
November 30, the annual impairment test date. To calculate a fair value, management uses an earning’s multiple approach. In
calculating earnings, the Company uses Board approved budgets to determine earnings before interest, taxes, depreciation
and amortization (“EBITDA”) by operating segment. Corporate expenses are allocated to the operating segments based on
assumptions such as expected usage and headcount. To determine fair value, an implied multiple was applied to each
operating segment’s EBITDA less corporate expenses. The implied multiple was calculated by looking at multiples of
comparable public companies by operating segment and ranged from 6.3 to 12.5 in the 2013 annual impairment test. For all
operating segments, the fair value less costs of disposal was greater than the operating segments carrying value, including
goodwill. Accordingly, goodwill is not considered impaired in the years ended December 31, 2013 and 2012. The fair value
of each of operating segment was categorized as Level 2 fair value based on the observables inputs.
27
64
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
14 Loans and Borrowings
Revolving Credit Facility
On June 28, 2013, the Company established a revolving credit facility of $500.0 million (the “Revolving Credit Facility”),
the proceeds of which are available to provide financing for working capital and other general corporate purposes. The
Revolving Credit Facility has a term of five years, expiring on June 28, 2018. In connection with the Revolving Credit
Facility, the Company incurred transaction costs of approximately $2.1 million which were capitalized as prepaid expenses
and other assets.
The Revolving Credit Facility provides sub–facilities for letters of credit, swingline loans and borrowings in Canadian dollars
and U.S. dollars. Borrowings under the Revolving Credit Facility bear interest at a rate equal to Canadian Prime Rate or U.S.
Base Rate or U.S. LIBOR or Canadian Bankers Acceptance Rate as the case may be plus an applicable margin. The
applicable margin for borrowings under the Revolving Credit Facility is subject to step up and step down based on the
Company’s total debt leverage ratio. In addition, the Company must pay a standby fee on the unused portion of the
Revolving Credit Facility and customary letter of credit fees based on the Company’s total debt leverage ratio.
The Revolving Credit Facility contains certain covenants including financial covenants, as defined in the agreement, that
require the Company to maintain ratios of maximum senior debt leverage ratio of 3.5:1.0, maximum total debt leverage ratio
of 5.0:1.0 and minimum interest coverage ratio of 2.5:1.0. As at December 31, 2013, the Company was in compliance with
all covenants under the Revolving Credit Facility.
As at December 31, 2012, the Company had a previous credit facility of up to U.S.$375.0 million which was terminated on
June 28, 2013 concurrent with the establishment of the Revolving Credit Facility.
The Company has no amounts drawn against the Revolving Credit Facility as at December 31, 2013. The Company had
$31.8 million drawn against the previous revolving credit facility as at December 31, 2012. The Company had issued letters
of credit totalling $57.4 million and $90.4 million as at December 31, 2013 and December 31, 2012, respectively.
The Revolving Credit Facility is secured by substantially all of the Company’s property, plant and equipment, intangibles
and current assets, including inventory and trade receivables and is guaranteed by substantially all of the Company’s existing
wholly owned subsidiaries.
Long-term debt
Long-term debt consists of the following:
6.75% Notes due July 15, 2021 ...........................................................................................
7.00% Notes due July 15, 2020 ...........................................................................................
Tranche B Term Loan .........................................................................................................
Unamortized issue discount and debt issue costs ................................................................
Unamortized financial instrument liability discount ...........................................................
Less: current portion ...........................................................................................................
Long-term debt: non-current portion ...................................................................................
December 31,
2013
2012
$ 531,800
250,000
-
(24,234)
-
757,566
-
$ 757,566
$
-
-
641,835
(24,755)
(10,936)
606,144
6,467
$ 599,677
On June 28, 2013, the Company issued U.S.$500.0 million 6.75% Senior Unsecured Notes due July 15, 2021 at issue price of
98.476% and $250.0 million 7.00% Senior Unsecured Notes due July 15, 2020 at issue price of 98.633% (collectively, the
“Notes”). Interest is payable semi–annually on January 15 and July 15 of each year the Notes are outstanding. In connection
with the issuance of the Notes, the Company incurred and capitalized debt discount and issue costs of $25.5 million which
were recorded as a deduction to the carrying amount of the long-term debt. The proceeds from the Notes were used to repay
the outstanding Tranche B Term Loan in an aggregate principal amount of U.S.$643.5 million.
28
65
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
The Notes agreement contains certain redemption options whereby the Company can redeem all or part of the Notes at prices
set forth in the agreement from proceeds of equity offering or following certain dates specified in the agreement. In addition,
the Note holders have the right to require the Company to redeem the Notes or a portion thereof, at the redemption prices set
forth in the agreement in the event of change in control or in the event certain asset sale proceeds are not re-invested in the
time and manner specified in the agreement.
As at December 31, 2012, the Company had a senior secured first lien term loan facility (“Tranche B Term Loan”) in the
aggregate principal amount of U.S.$650.0 million. The Tranche B Term Loan had a term expiring on June 15, 2018 and was
repayable in equal quarterly installments at the end of each quarter, totalling 1% per annum of the principal with the
remaining balance to be paid at the end of the term. The Tranche B Term Loan accrued interest at the option of the Company
at a rate equal to LIBOR plus 3.75%, subject to a minimum Adjusted LIBOR interest rate floor of 1.0% or base rate plus
2.75%, subject to a minimum base rate interest rate floor of 2.0%. This interest rate floor was considered an embedded
derivative as the floor rate exceeded the market rate of interest at the time that the Trance B Term Loan was incurred. As a
result, the interest rate floor derivative was required to be separated from the carrying value of long-term debt and accounted
for as a separate financial liability initially measured at fair value and marked to market at each reporting date (note 28).
Debt extinguishment and modification
Concurrent with the completion of the issuance of the Notes and the establishment of the Revolving Credit Facility, the
Company terminated its previous senior secured first lien credit facility which comprised of the Tranche B Term Loan
facility of U.S.$650.0 million and a revolving credit facility of up to U.S.$375.0 million. As a result, the Company
recognised debt extinguishment expenses of $38.2 million comprising unamortized debt issue costs of $22.8 million,
unamortized financial instrument liability discount of $10.0 million and unamortized financing costs of $5.4 million in 2013.
In the year ended December 31, 2012, the Company replaced and re-priced its previous term loan facility with the Tranche B
Term Loan whereby the previous loan was re-priced to reflect a decrease in the interest rate of 0.75% and a decrease in the
interest rate floor of 0.25%. The Company determined that the terms of the old and new loan were not substantially different,
including the change in the net present value of cash flows and accordingly, the replacement and re-pricing transaction was
not accounted for as a debt extinguishment. As a result, in the year ended December 31, 2012, the Company capitalized
$10.1 million relating to the replacement and re-pricing that consisted of a prepayment penalty on the repayment of the old
loan of $6.5 million, an original issue discount of $3.3 million and other fees of $0.4 million.
Foreign exchange gain (loss) on long-term debt
As a result of the movement in foreign exchange rates, the Company recorded foreign exchange gains and losses on long-
term debt as follows:
Foreign exchange loss (gain) on movement in exchanges rates on U.S. dollar long-term
debt ................................................................................................................................
Loss (gain) on financial instruments relating to long-term debt (note 28) ..........................
Year ended
December 31,
2013
2012
$
$
42,451
(22,500)
19,951
$ (14,424)
509
$ (13,915)
29
66
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
15 Trade payables and accrued charges
Trade payables and accrued charges include the following items:
Trade payables ....................................................................................................................
Accrued compensation charges ...........................................................................................
GST payable ......................................................................................................................
Derivative financial instruments (note 28) ..........................................................................
Broker accounts payable .....................................................................................................
Post-retirement benefit obligations ....................................................................................
Interest payable ...................................................................................................................
Due to Hunting (note 19) ....................................................................................................
Other ...................................................................................................................................
December 31,
2013
2012
$ 437,724
36,591
1,980
2,465
2,610
825
27,894
9,199
45,891
$ 565,179
$ 356,388
30,156
1,843
11,790
3,118
1,121
595
26,525
35,688
$ 467,224
16 Provisions
The aggregate carrying amounts of the obligation associated with decommissioning and site restoration on the retirement of
assets and environmental costs are as follows:
Year ended
December 31,
2013
2012
Balance as at January 1 ......................................................................................................
Settlements .........................................................................................................................
Assumed in a business combination (note 5) .....................................................................
Additions ............................................................................................................................
Change in estimated future cash flows ...............................................................................
Effect of changes in foreign exchange rates .......................................................................
Change in discount rate ......................................................................................................
Unwinding of discount .......................................................................................................
Balance as at December 31 ................................................................................................
$ 111,197
(3,305)
-
2,032
705
732
(23,317)
3,380
91,424
$
$
66,471
(1,197)
9,930
4,773
19,782
(61)
9,608
1,891
$ 111,197
The Company currently estimates the total undiscounted future value amount, including an inflation factor of 2%, of
estimated cash flows to settle the future liability for asset retirement and remediation obligations to be approximately
$228.9 million and $235.8 million at December 31, 2013 and 2012, respectively. In order to determine the current provision
related to these future values, the estimated future values were discounted using an average risk-free rate of 3.1% and 2.4% at
December 31, 2013 and 2012, respectively. The provision is expected to be settled up to 40 years into the future. A one
percent increase in the risk-free rate would decrease the provision by $21.5 million, with a corresponding adjustment to
property, plant and equipment. A one percent decrease in the risk-free rate would increase the provision by $21.5 million,
with a corresponding adjustment to property, plant and equipment.
17 Other long-term liabilities
Post-retirement benefit obligations .....................................................................................
Derivative financial instruments (note 28) ..........................................................................
Finance lease liabilities .......................................................................................................
Other ...................................................................................................................................
30
67
December 31,
2013
$
$
6,086
5,046
345
4,010
15,487
$
$
2012
7,591
17,409
1,262
4,122
30,384
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
18 Share capital
Authorized
The Company is authorized to issue an unlimited number of common shares and preferred shares.
Holders of common shares are entitled to one vote per common share at meetings of shareholders of the Company, to receive
dividends if, as and when declared by the Board and to receive pro rata the remaining property and assets of the Company
upon its dissolution, liquidation or winding-up, subject to the rights of shares having priority over the common shares.
The preferred shares are issuable in series and have such rights, restrictions, conditions and limitations as the Board may
from time to time determine. The preferred shares shall rank senior to the common shares with respect to the payment of
dividends or distribution of assets or return of capital of the Company in the event of a dissolution, liquidation or winding up
of the Company. There were no issued and outstanding preferred shares as at December 31, 2013 and 2012.
Common Shares - Issued and outstanding
The following table below sets forth the issued and outstanding common shares for the years ended December 31, 2013 and
2012.
Common Shares
Number of
Common
Shares
97,335,641
Balance as at January 1, 2012 ................................................................................................
18,216,000
Issuance of common shares, less issuance costs, net of tax ...................................................
2,149,941
Issuance of common shares in connection with the exercise of stock options .......................
573,400
Issuance of common shares in connection with other equity awards .....................................
1,848,548
Issuance of common shares in connection with the dividend reinvestment plans ..................
Transfer from contributed surplus on issue of equity awards ................................................
-
Balance as at December 31, 2012 .......................................................................................... 120,123,530
135,340
Issuance of common shares in connection with the exercise of stock options .......................
Issuance of common shares in connection with other equity awards .....................................
375,976
1,565,346
Issuance of common shares in connection with the dividend reinvestment plans ..................
Transfer from contributed surplus on issue of equity awards ................................................
-
Balance as at December 31, 2013 .......................................................................................... 122,200,192
Amount
$ 1,082,990
390,229
18,576
-
37,555
13,799
$ 1,543,149
1,169
-
37,389
3,438
$ 1,585,145
On October 29, 2012, the Company closed a bought deal offering of subscription receipts which on closing of the acquisition
of OMNI were automatically exchanged into common shares of the Company. As a result, the Company issued 18,216,000
common shares at a price of $22.10 per common shares for gross proceeds of approximately $402.6 million. The Company
incurred issuance costs, including the underwriters’ discount, of $16.4 million, offset in part by a tax benefit of $4.0 million
relating to the deductibility of issuance costs. The net proceeds were used to finance a portion of the purchase price of
OMNI.
A dividend of $0.275 per share, declared in November 2013, was paid on January 17, 2014.
31
68
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
19 Commitments and contingencies
Commitments
Operating lease obligations primarily relate to office leases, rail tank cars, vehicles, field buildings, various equipment and
terminal services arrangements. These leases expire at various dates over the next 10 years. The minimum payments required
under these commitments, net of sub-lease income, are as follows:
2014 ................................................................................................................................................................
2015 ................................................................................................................................................................
2016 ................................................................................................................................................................
2017 ................................................................................................................................................................
2018 ................................................................................................................................................................
2019 and later ..................................................................................................................................................
$
45,478
44,228
41,055
34,753
29,013
34,419
$ 228,946
Expenses related to operating leases, net of sublease income, were $28.2 million and $22.9 million for the year ended
December 31, 2013 and 2012, respectively.
Finance lease liabilities primarily relates to trucks and trailers and are for the non-cancellable term ranging from 1 to 2 years
with a favourable bargain purchase option at the end of the term. The minimum lease payments are expected to be as follows:
2014 ..............................................................................................................................................................
2015 ..............................................................................................................................................................
$
$
948
360
1,308
With respect to capital expenditures, at December 31, 2013, the Company had $261.5 million remaining to be spent that
relate to projects approved at that date.
Contingencies
The Company is currently undergoing income tax related and excise tax audits. While the final outcome of such audits
cannot be predicted with certainty, it is the opinion of management that the resolution of these audits will not have a material
impact on the Company’s consolidated financial position or results of operations.
As a part of the acquisition of the Company by Riverstone from Hunting on December 12, 2008, Hunting has indemnified the
Company for the pre-closing period impact of these audits. Included in income tax receivable and trade payables and accrued
charges as at December 31, 2013 and December 31, 2012 is $9.2 million and $26.5 million, respectively, whereby Hunting
paid the Company and the Company paid the tax assessments relative to certain of these audits. In the year ended December
31, 2013, the Company received a refund of income tax totalling $17.3 million that was ultimately refunded to Hunting. The
Company has assumed that the remaining assessment amounts paid in connection with these audits will be refunded to the
Company and although the timing is uncertain, will be settled within a year.
The Company is subject to various regulatory and statutory requirements relating to the protection of the environment. These
requirements, in addition to the contractual agreements and management decisions, result in the recognition of estimated
decommissioning provisions. Estimates of decommissioning costs can change significantly based on such factors as
operating experience and changes in legislation and regulations.
The Company is involved in various legal actions, which have occurred in the ordinary course of business. Management is of
the opinion that losses, if any, arising from such legal actions would not have a material impact on the Company’s
consolidated financial position or results of operations.
32
69
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
20 Revenue
Products ............................................................................................................................
Services .............................................................................................................................
21 Depreciation and amortization
Depreciation of property, plant and equipment .................................................................
Amortization of intangible assets ......................................................................................
Year ended
December 31,
2013
2012
$ 5,998,769
941,900
$ 6,940,669
$ 4,196,663
716,366
$ 4,913,029
Year ended
December 31,
2013
2012
$
$
133,854
50,203
184,057
$
$
91,972
34,639
126,611
Depreciation of property, plant and equipment and amortization of intangible assets have been expensed as follows:
Cost of sales .....................................................................................................................
General and administrative ..............................................................................................
22 Employee salaries and benefits
Salaries and wages ............................................................................................................
Post-employment benefits .................................................................................................
Share based compensation ................................................................................................
Termination benefits .........................................................................................................
Employee salaries and benefits have been expensed as follows:
Cost of sales ......................................................................................................................
General and administrative ...............................................................................................
Year ended
December 31,
2013
2012
$
$
179,620
4,437
184,057
$
$
122,745
3,866
126,611
Year ended
December 31,
2013
2012
$
$
255,697
5,568
8,271
746
270,282
$
$
150,552
5,501
3,856
1,416
161,325
Year ended
December 31,
2013
2012
$
$
241,568
28,714
270,282
$
$
138,594
22,731
161,325
33
70
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
23 Other operating income
Gain on sale of property, plant and equipment .................................................................
Foreign exchange gain ......................................................................................................
Year ended
December 31,
2013
1,029
5,547
6,576
2012
1,803
6,564
8,367
$
$
$
$
24 Per share amounts
The following table shows the number of shares used in the calculation of earnings per share:
Year ended
December 31,
2013
2012
Weighted average common shares outstanding - Basic ....................................................
Dilutive effect of:
121,376,222
102,812,328
Stock options and other awards .................................................................................
Weighted average common shares – Diluted ....................................................................
1,708,187
123,084,409
2,700,369
105,512,697
25 Related party transactions
Management and registration rights agreements
On March 27, 2012, the Company completed a secondary offering of common shares of the Company held by Co-op,
pursuant to which Co-op sold 28,107,782 common shares at a price of $20.70 per common share for total gross proceeds to
Co-op of $581.8 million. The Company and Co-op also had an agreement to govern the sale of common shares held by Co-
op and its affiliates. The agreement contained customary registration, expense reimbursement and indemnity terms. In
connection with the agreement, the Company incurred professional fees relating to the secondary offerings of common shares
of $0.2 million in the year ended December 31, 2012. The agreement expired on closing of the secondary offering on March
27, 2012 and accordingly, no expenses have been incurred since that date. As a result of the secondary offering, Co-op and
Riverstone no longer hold any common shares of the Company as at March 27, 2012.
Sale and purchase of goods and services
Year ended
December 31,
2013
2012
Sale of goods and services
Principal shareholder having controlling/significant interest .......................................
Associates ....................................................................................................................
Purchase of goods and services
Principal shareholder having controlling/significant interest .......................................
$
$
-
-
-
$
226
205
$ 46,185
The related party transactions noted above were measured at the exchange amount and only for the period in which they were
considered related.
Joint operations
On August 11, 2011, the Company formed a partnership (the “Plato Partnership”) to jointly construct and own pipeline and
emulsion treating, water disposal and oilfield waste management facilities in the Plato area of Saskatchewan. The Plato
Partnership commenced operations in 2012. The Company’s interest in the Plato Partnership is 50%. A member of the
Company’s Board is also a director of the other party with the 50% interest in the Plato Partnership. At December 31, 2013
and 2012, the Company’s proportionate share of property, plant and equipment was $10.5 million and $9.8 million,
respectively. The impact of the Company’s share of the other financial position and results of the Partnership is not material
to the Company’s consolidated financial statements.
34
71
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Compensation of key management
Key management includes the Company’s directors, executive officers, business unit leaders and other non-business unit
senior vice presidents. Compensation awarded to key management was:
Salaries and short-term employee benefits .........................................................................
Post-employment benefits ..................................................................................................
Share based compensation .................................................................................................
Termination benefits ..........................................................................................................
26 Post-retirement benefits
Defined benefit plans
Year ended
December 31,
2013
6,079
817
2,696
-
9,592
$
$
$
$
2012
6,597
875
1,435
270
9,177
The company maintains a funded defined benefit pension plan and an unfunded defined benefit other post-retirement benefits
plan (“OPRB”).
The Company’s defined benefit pension plans are funded based upon the advice of independent actuaries. The Company is
required to file an actuarial valuation of its pension plans with the provincial regulator every three years, with the most recent
actuarial valuation filing as at December 31, 2012. Based on the actuarial valuations as at December 31, 2013 and 2012, the
status of the defined benefit plans was as follows:
Accrued benefit obligation
Year ended
December 31,
2013
2012
Pension
OPRB
Pension
OPRB
Accrued benefit obligation, beginning of year .............................................. $ 14,736 $ 3,996 $ 13,003 $ 3,508
246
152
(259)
349
-
Accrued benefit obligation, end of year ........................................................ $ 15,187 $ 3,605 $ 14,736 $ 3,996
Current service cost................................................................................
Interest cost ............................................................................................
Benefits paid ..........................................................................................
Actuarial loss (gain) ...............................................................................
Other ......................................................................................................
509
568
(490)
1,132
14
506
155
(261)
(791)
-
323
558
(500)
56
14
Plan assets
Year ended
December 31,
2013
2012
Pension
OPRB
Pension
OPRB
Fair value of pension plan assets, beginning of year ..................................... $ 11,107 $
Interest on plan assets ............................................................................
Actual contributions ...............................................................................
Actual benefits paid ...............................................................................
Actuarial gain .........................................................................................
394
1,142
(500)
796
Fair value of pension plan assets, end of year ............................................... $ 12,939 $
-
-
261
(261)
-
-
$ 10,472 $
574
474
(490)
77
$ 11,107 $
-
-
259
(259)
-
-
35
72
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Accrued benefit liability
December 31,
2013
2012
Pension
OPRB
Pension
OPRB
Accrued benefit obligation ............................................................................ $ (15,187) $ (3,605)
12,939
Fair value of plan assets ................................................................................
-
(2,248) $ ( 3,605)
Accrued benefit liability ................................................................................ $
$ (14,736) $(3,996)
11,107
-
(3,629) $(3,996)
$
The significant weighted average actuarial assumptions adopted in measuring the Company’s post-retirement benefit
obligation are as follows:
Year ended
December 31,
2013
2012
Discount rate .....................................................................................................................................
Rate of compensation increase ..........................................................................................................
Health care cost trend rate for next year ...........................................................................................
4.75%
4.00%
7.0%
4.00%
5.00%
7.0%
Assumed discount rate and health care cost and trend rates have an effect on the amounts reported for post-retirement
obligation. A one-percentage point change in discount rate and assumed health care cost and trend rates would have the
following impact:
One % point
increase
One % point
decrease
Discount rate effect on post-retirement benefit obligation ............................................................
Health care cost and trend rates effect on post retirement benefit obligation ................................
$ (2,649)
481
$ 2,767
(379)
Defined contribution pension plan
The Company operates defined contribution plans whereby, in some cases, contributions made by participants are matched
by the Company up to specified annual limits and in other cases, contributions are fully funded by the Company. The total
expense recorded for the defined contribution pension plans was $5.0 million and $4.6 million for the year ended December
31, 2013 and 2012, respectively.
27 Share based compensation
The Company has established an equity incentive plan (the ‘‘2011 Equity Incentive Plan’’) which permits the award of stock
options, RSUs, PSUs’ and DSUs for executives, directors, employees and consultants of the Company. RSUs give the holder
the right to receive a cash payment, subject to consent of the Board, or its equivalent in fully paid common shares equal to
the fair market value of the Company’s common shares at the date of such payment. The RSUs granted in 2013 and 2012
were expected to be settled by delivery of common shares and accordingly, were considered an equity–settled award for
accounting purposes. RSUs granted generally vest over a three year period. RSUs granted with specific performance criteria
are designated as PSUs. DSUs are similar to PSUs except that DSUs may not be redeemed until the holder ceases to hold all
offices, employment and directorships.
At the Company’s Annual General Meeting held on May 8, 2013, the Company’s shareholders approved the amendment to
its 2011 Equity Incentive Plan to fix the number of common shares reserved for issuance under the plan at a maximum of
10% of the total number of common shares issued and outstanding at any given time. At December 31, 2013, awards
available to grant under the amended 2011 Equity Incentive Plan totalled approximately 9.2 million.
36
73
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
A summary of stock options activity under the 2011 Equity Incentive Plan is as follows:
Balance at January 1, 2012.......................................................................................................
Granted .............................................................................................................................
Exercised ...........................................................................................................................
Forfeited ............................................................................................................................
Balance at December 31, 2012 .................................................................................................
Granted .............................................................................................................................
Exercised ...........................................................................................................................
Forfeited ............................................................................................................................
Balance at December 31, 2013 .................................................................................................
Vested and exercisable at December 31, 2013 .........................................................................
Vested and exercisable at December 31, 2012 .........................................................................
Number of
Shares
3,402,246
96,226
(2,149,941)
(54,389)
1,294,142
798,233
(135,340)
(28,050)
1,928,985
1,076,097
1,142,648
Weighted-
Average
Exercise Price
(in dollars)
$ 8.64
21.24
8.64
8.64
$ 8.66
25.87
8.64
24.88
$ 16.22
$ 9.33
$ 8.66
Additional information under the 2011 Equity Incentive Plan regarding stock options outstanding as of December 31, 2013
is as follows:
Outstanding
Weighted Average
Remaining
Contractual Life
(Years)
5.0
4.6
5.3
5.5
5.3
6.2
6.0
Number Outstanding
1,057,818
4,750
52,012
40,164
27,068
747,173
1,928,985
$
Exercise
Price
(in dollars)
8.64
16.10
20.67
22.03
24.44
25.94
Number
Outstanding
1,031,676
3,167
23,748
13,388
-
4,118
1,076,097
Exercisable
Weighted-
Average
Remaining
Contractual
Life (Years)
5.0
4.6
5.3
5.5
-
0.5
6.0
A summary of RSUs, PSUs and DSUs activity is set forth below:
RSUs
Number of Shares
PSUs
Balance at January 1, 2012 ................................................................................................
1,408,319
Granted ................................................................................................ 120,369
(87,125)
Forfeited ................................................................................................
(571,525)
Issued ................................................................................................
870,038
Balance at December 31, 2012 ................................................................
Granted ................................................................................................ 246,604
(15,145)
Forfeited ................................................................................................
(373,886)
Issued ................................................................................................
Balance at December 31, 2013 ................................................................
727,611
Vested, Balance at December 31, 2013 ................................................................114,345
Vested, Balance at December 31, 2012 ................................................................85,364
1,604
88,776
(12,229)
(1,875)
76,276
155,478
(6,504)
(2,090)
223,160
-
-
Exercise
Price
(in dollars)
8.64
$
16.10
20.67
22.03
-
25.94
DSUs
42,889
2,067
-
-
44,956
50,065
-
-
95,021
73,599
20,009
Stock based compensation expense was $8.3 million and $3.9 million for the years ended December 31, 2013 and 2012,
respectively, and is included in general and administrative expenses.
37
74
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
The fair value of the options granted was estimated at $2.40 per option and $1.97 per option for the year ended December 31,
2013 and 2012, respectively. The fair value of options was calculated by using the Black-Scholes model with the following
weighted average assumptions:
Expected dividend rate ......................................................................................................
Expected volatility ............................................................................................................
Risk-free interest rate ........................................................................................................
Expected life of option (years) ..........................................................................................
Year ended
December 31,
2013
4.0%
20.2%
1.2%
3.0
2012
4.7%
21.5%
1.2%
3.0
The fair value of RSUs, PSUs and DSUs was determined using the five days weighted average stock price on the date of
grant.
28 Financial instruments
Non-Derivative financial instruments
Non-derivative financial instruments comprise cash and cash equivalents, trade and other receivables, net investment in
finance lease, trade payables and accrued charges, amount borrowed under the credit facilities, dividends payable, long-term
debt and finance lease liabilities.
Cash and cash equivalents, trade and other receivables, trade payables and accrued charges, dividends payable and amount
borrowed under the credit facilities are recorded at amortized cost which approximates fair value due to the short term nature
of these instruments.
Long-term debt is recorded at amortized cost using the effective interest method of amortization. As at December 31, 2013,
the carrying amount of long-term debt was $781.8 million less debt discount and issue costs of $24.2 million and the fair
value of long-term debt based on period end trading prices on the secondary market (Level 2) was $805.9 million. As at
December 31, 2012, the carrying amount of long-term debt was $641.8 million less debt discount and issue costs of $24.8
million and the fair value of long-term debt based on period end trading prices on the secondary market (Level 2) was $651.9
million.
Financial assets and liabilities are only offset if the Company has the current legal right to offset and intends to settle on a net
basis or settle the asset and liability simultaneously. The following table provides a summary of the Company’s offsetting
trade and other receivables and trade payables and accrued charges:
December 31,
2013
December 31,
2012
Trade and other
receivables
Trade payable
and accrued
charges
Trade and other
receivables
Trade payable
and accrued
charges
Gross amounts ......................................................... $ 560,256
(409,636)
Amount offset .........................................................
Net amount included in the consolidated
$ 529,789
(409,636)
$ 312,923
(206,801)
$ 283,749
(206,801)
financial statements ............................................. $ 150,620
$ 120,153
$ 106,122
$
76,948
38
75
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Derivative financial instruments (recurring fair value measurements)
The following is a summary of the Company’s risk management contracts outstanding:
December 31,
2013
December 31,
2012
Assets
Liabilities
Assets
Liabilities
-
Commodity futures ................................................................ $
1,095
Commodity swaps ..................................................................
13
Commodity options ................................................................
15,651
Foreign currency forward contracts .......................................
7
Foreign currency options, including deferred premium .........
-
Interest rate swap ...................................................................
-
Interest rate floor ....................................................................
Total ....................................................................................... $ 16,766
Less non-current portion:
Foreign currency forward contracts ................................
Foreign currency options ................................................
Interest rate swap ............................................................
Interest rate floor .............................................................
Current portion ....................................................................... $
15,646
-
-
-
15,646
1,120
$
$
$
336
1,914
-
215
5,046
-
-
7,511
-
5,046
-
-
5,046
2,465
$
$
$
434
5,086
-
2,476
-
-
-
7,996
2,476
-
-
-
2,476
5,520
$
2,013
3,887
18
316
2,954
2,884
17,127
$ 29,199
-
2,954
1,746
12,709
17,409
$ 11,790
The fair value of financial instruments are classified as a non-current asset (long-term prepaid expense and other assets) or
liability (other long-term liabilities) if the remaining maturity is more than 12 months and, as a current asset or liability, if the
maturity is less than 12 months.
(i) Commodity financial instruments
WTI Futures, options and swaps
The Company enters into crude oil futures, options and swap contracts to manage the price risk associated with sales,
purchases and inventories of crude oil and petroleum products.
Natural Gas Liquids (“NGL”)
The Company enters into NGL swap contracts to manage the risk associated with sales, purchases and inventories of
NGLs.
(ii) Currency financial instruments
U.S. Dollar Forwards
The Company enters into forward contracts to sell U.S. dollars in exchange for Canadian dollars to fix the exchange rate
on its estimated future net cash inflows denominated in U.S. dollars.
In the year ended December 31, 2011, the Company entered into a U.S. dollar forward contracts maturing on September
15, 2015 on U.S.$498.0 million of the principal of the Company’s long-term debt to help mitigate the currency risk
associated with its U.S. dollar denominated long-term debt. Following the repayment of Tranche B Term Loan on June
28, 2013, the Company received cash of $11.6 million on the settlement of U.S. dollar forward contracts for a notional
amount of U.S.$238.0 million. In the year ended December 31, 2013, the Company extended the terms of the remaining
U.S. dollar forward contracts for a notional amount of U.S.$260.0 million to September 15, 2017.
As at December 31, 2013, U.S. dollar forward contracts to buy U.S. dollars at a weighted average rate of $1.0242 to
U.S.$1.00 for a notional amount of U.S.$260.0 million remained outstanding.
39
76
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
U.S. Dollar Options
In the year ended December 31, 2011, in connection with the forward contracts on the principal of the Company’s long-
term debt and to mitigate the credit cost, the Company sold U.S. dollar call options with a notional amount of
U.S.$275.0 million, expiring September 15, 2015, with a strike price of $1.32 to U.S.$1.00 for which the Company
received an initial cash premium of $4.8 million.
Following the repayment of Tranche B Term Loan on June 28, 2013, the Company paid $0.2 million to settle U.S. dollar
options for a notional amount of U.S.$15.0 million. In the year ended December 31, 2013, the Company extended the
terms of the remaining U.S. dollar option contracts for a notional amount of U.S.$260.0 million to September 15, 2017 at
a strike price to $1.295 to U.S.$1.00.
As at December 31, 2013, U.S. dollar option contracts for a notional amount of $260.0 million remained outstanding.
Interest Rate Swap
In the year ended December 31, 2011, the Company entered into a U.S. dollar interest rate swap to hedge a portion of the
Company’s U.S. dollar floating interest rate exposure on the Company’s long-term debt. The swap effectively fixed the
interest rate on U.S.$175.0 million of the principal at 5.5% for a three year period beginning in September 2012.
Following the repayment of Tranche B Term Loan on June 28, 2013, the Company paid $2.7 million to settle the U.S.
dollar interest rate swap.
Interest Rate Floor
The Tranche B Term Loan carried an interest rate of Adjusted LIBOR plus 3.75%, subject to a minimum Adjusted
LIBOR floor of 1.0%. This interest rate floor was considered an embedded derivative as the floor rate exceeded the
market rate of interest at the time that the debt was incurred and modified. As a result, the interest rate floor derivative
was separated from the carrying value of long-term debt and accounted for as a separate financial liability measured at
fair value. Following the repayment of Tranche B Term Loan on June 28, 2013, the Company derecognized the interest
rate floor financial instrument liability discount and accordingly, recognized a gain in financial instrument relating to
interest expense of $17.1 million in the year ended December 31, 2013.
The value of the Company’s derivative finance instruments are determined using inputs that are either readily available in
public markets or are quoted by counterparties to these contracts. In situations where the Company obtains inputs via quotes
from its counterparties, these quotes are verified for reasonableness via similar quotes from another source for each date for
which financial statements are presented. The Company has consistently applied these valuation techniques in all periods
presented and the Company believes it has obtained the most accurate information available for the types of financial
instrument contracts held. The Company has categorized the inputs for these contracts as Level 1, defined as observable
inputs such as quoted prices in active markets; Level 2 defined as inputs other than quoted prices in active markets that are
either directly or indirectly observable; or Level 3 defined as unobservable inputs in which little or no market data exists
therefore requiring an entity to develop its own assumptions.
The Company used the following techniques to value financial instruments categorized in Level 2:
•
The fair value of commodity options and swaps is calculated as the present value of the estimated future cash flows
based on the difference between contract price and commodity price forecast.
•
The fair value of foreign currency options and forward contracts is determined using the forward exchange rates at the
measurement date, with the resulting value discounted back to present values.
•
The fair value of interest rate swaps and floor was calculated as the present value of the estimated future cash flows
based on observable yield curves.
40
77
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
The fair value of derivative financial instrument contracts by fair value hierarchy at December 31, 2013 was:
Total
Level 1
Level 2
Level 3
Assets from financial instrument contracts
Commodity swaps ..............................................................
Commodity options ............................................................
Foreign currency options, including deferred premium ......
Foreign currency forward contracts ....................................
Total assets .........................................................................
$ 1,095
13
7
15,651
$ 16,766
Liabilities from financial instrument contracts
Commodity swaps ..............................................................
Commodity futures .............................................................
Foreign currency options, including deferred premium ......
Foreign currency forward contracts ....................................
Total liabilities ....................................................................
$ 1,914
336
5,046
215
$ 7,511
$
$
$
$
-
-
-
-
-
$ 1,095
13
7
15,651
$ 16,766
-
336
-
-
336
$ 1,914
-
5,046
215
$ 7,175
$
$
$
$
-
-
-
-
-
-
-
-
-
-
The fair value of derivative financial instrument contracts by fair value hierarchy at December 31, 2012 was:
Total
Level 1
Level 2
Level 3
Assets from financial instrument contracts
Commodity swaps ..............................................................
Commodity futures .............................................................
Foreign currency forward contracts ....................................
Total assets .........................................................................
$ 5,086
434
2,476
$ 7,996
$
$
-
434
-
434
$ 5,086
-
2,476
$ 7,562
Liabilities from financial instrument contracts
Commodity swaps ..............................................................
Commodity futures .............................................................
Commodity options ............................................................
Foreign currency options, including deferred premium ......
Foreign currency forward contracts ....................................
Interest rate swap ................................................................
Interest rate floor ................................................................
Total liabilities ....................................................................
$ 3,887
2,013
18
2,954
316
2,884
17,127
$ 29,199
$
-
2,013
-
-
-
-
-
$ 2,013
$ 3,887
-
18
2,954
316
2,884
17,127
$ 27,186
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
The impact of the movement in the fair value of derivative financial instruments has been expensed in the consolidated
statement of operations as follows:
Cost of sales .......................................................................................................................
Foreign exchange loss (gain) on long-term debt (note 14) ................................................
Gain on financial instrument relating to interest expense ..................................................
Year ended
December 31,
2013
2012
$
622
(22,500)
(18,252)
$ (40,130)
$
$
1,080
509
(4,247)
(2,658)
Financial Risk Management
The Company’s activities expose it to certain financial risks, including foreign exchange risk, interest rate risk, commodity
price risk, credit risk and liquidity risk. The Company’s risk management strategy seeks to reduce potential adverse effects
on its financial performance. As a part of its strategy, both primary and derivative financial instruments are used to hedge its
risk exposures.
41
78
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
There are clearly defined objectives and principles for managing financial risk, with policies, parameters and procedures
covering the specific areas of funding, banking relationships, interest rate exposures and cash management. The Company’s
treasury function is responsible for implementing the policies and providing a centralised service to the Company for
identifying, evaluating and monitoring financial risks.
a)
Foreign exchange risk
Foreign exchange risks arise from future transactions and cash flows and from recognized monetary assets and liabilities that
are not denominated in the functional currency of the Company’s operations.
The exposure to exchange rate movements in significant future transactions and cash flows is managed by using foreign
currency forward contracts and options. These financial instruments have not been designated in a hedge relationship. No
speculative positions are entered into by the Company.
Foreign currency exchange rate sensitivity
If the Canadian dollar strengthened or weakened by 5% relative to the U.S. dollar and all other variables, in particular interest
rates remain constant, the impact on net income and equity would be as follows:
December 31,
2013
2012
U.S. Dollar Forwards and Options
Favorable 5% change ...................................................................................................
Unfavorable 5% change ...............................................................................................
$
5,063
(5,260)
$
2,529
(2,529)
U.S. Dollar long-term debt Forwards and the related Options
Favorable 5% change ...................................................................................................
Unfavorable 5% change ...............................................................................................
$ 11,566
(11,566)
$
5,670
(5,670)
The movement is a result of a change in the fair value of U.S. dollar forward contracts and options. The sensitivity relating to
the Company’s long-term debt includes the change in the carrying value of the Company’s U.S. dollar denominated long-
term debt, the U.S. dollar forward contracts on the principal and the related U.S. dollar call options.
The impact of translating the net assets of the Company’s U.S operations into Canadian dollars is excluded from this
sensitivity analysis.
b)
Interest rate risk
Interest rate risk is the risk that the fair value of a financial instrument will be affected by changes in market interest rates.
As a result of the repayment of Tranche B Term Loan on June 28, 2013, the Company settled the interest rates swap and
derecognized its interest rate floor financial instrument liability discount, and accordingly, the Company no longer has
exposure to changes in market interest rates as at December 31, 2013 relating to these financial instruments.
The following table summarizes the impact to net income and equity to a change in fair value of the Company’s risk
management position to changes in interest rates leaving all other variables constant:
Interest Rate Swap
Favorable 1% change .....................................................................................................
Unfavorable 1% change .................................................................................................
$
December 31,
2013
$
-
-
December 31,
2012
1,537
(189)
2013
2012
Interest Rate Floor
Favorable 1% change .....................................................................................................
Unfavorable 1% change .................................................................................................
$
-
-
$
7,262
(17,887)
42
79
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
The Company’s interest rate risk exposure did not exist within any of the operating segments, but existed at the corporate
level where the variable rate debt obligations are issued.
c)
Commodity price risk
The Company is exposed to changes in the price of crude oil, NGLs, oil related products and electricity commodities, which
are monitored regularly. Crude oil and NGL priced futures, options and swaps are used to manage the exposure to these
commodities’ price movements. These financial instruments are not designated as hedges. An electricity price swap has been
used in the past to manage the exposure to electricity prices in Canada and if used, would be marked to market each period.
Based on the Company’s risk management policies, all of the financial instruments are employed in connection with an
underlying asset/liability and/or forecasted transaction and are not entered into with the objective of speculating on
commodity prices.
The following table summarizes the impact to net income and equity due to a change in fair value of the Company’s
derivative positions because of fluctuations in commodity prices leaving all other variables constant, in particular foreign
currency rates. The Company believes that a 15% volatility in crude oil and NGL related prices is a reasonable assumptions.
Crude oil and NGL related prices
Favorable 15% change ...................................................................................................
Unfavorable 15% change ...............................................................................................
$ 3,082
(3,004)
$ 3,706
(3,656)
December 31,
2013
2012
d)
Credit risk
The Company’s credit risk arises from its outstanding trade receivables, including receivables from customers who have
entered into fixed term contractual arrangements to have dedicated use of certain of the Company’s tanks. A significant
portion of the Company’s trade receivables are due from entities in the oil and gas industry. Concentration of credit risk is
mitigated by having a broad customer base and by dealing with credit-worthy counterparties in accordance with established
credit approval practices. The Company actively monitors the financial strength of its customers and in select cases has
tightened credit terms to minimize the risk of default on trade receivables.
At December 31, 2013 and 2012, approximately 4% and 5%, respectively, of net trade receivables are past due but not
considered to be impaired. The Company considers trade receivables as past due when it is 30 days past the due date. The
maximum exposure to credit risk related to trade receivables is their carrying value as disclosed in these financial statements.
The Company establishes guidelines for customer credit limits and terms. The Company review includes financial statements
and external ratings when available. The Company does not usually require collateral in respect of trade and other
receivables. The Company provides adequate provisions for expected losses from the credit risks associated with trade
receivables. The provision is based on an individual account-by-account analysis and prior credit history.
The Company is exposed to credit risk associated with possible non-performance by financial instrument counterparties. The
Company does not generally require collateral from its counterparties but believes the risk of non-performance is low. The
counterparties are major financial institutions or commodity brokers with investment grade credit ratings as determined by
recognized credit rating agencies.
The Company’s cash equivalents are placed in time deposits with major international banks and financial institutions.
e)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. This risk relates
to the Company’s ability to generate or obtain sufficient cash or cash equivalents to satisfy these financial obligations as they
become due. The Company’s process for managing liquidity risk includes preparing and monitoring capital and operating
budgets, coordinating and authorizing project expenditures and authorization of contractual agreements. The Company may
seek additional financing based on the results of these processes. The budgets are updated with forecasts when required and
as conditions change. Sufficient funds and the Revolving Credit Facility are available to satisfy the Company's requirements
over the next 12 months, and are expected to be available to satisfy the Company’s long term requirements. The Company
43
80
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
has a Revolving Credit Facility of $500.0 million and at December 31, 2013, no amount was drawn against the facility other
than outstanding issued letters of credit.
The terms of the Notes and Revolving Credit Facility require the Company to comply with certain covenants. If the Company
fails to comply with these covenants the lenders may declare an event of default. At December 31, 2013 and December 31,
2012, the Company was in compliance with these covenants.
Set out below is maturity analyses of certain of the Company’s financial contractual obligations as at December 31, 2013.
The maturity dates are the contractual maturities of the obligations and the amounts are the contractual undiscounted cash
flows.
On demand or
within one year
Between one
and five years
After
five years
Total
Trade payables and accrued charges, excluding
derivative financial instruments and accrued
interest ..................................................................
Dividend payable .......................................................
Long-term debt ...........................................................
Interest payment on long-term debt ...........................
Commodity futures ....................................................
Commodity swaps ......................................................
Foreign currency forwards and options ......................
Capital management
$ 534,820
33,605
-
53,397
336
1,914
215
$ 624,287
$
-
-
-
213,588
-
-
5,046
$ 218,634
$
-
-
781,800
145,209
-
-
-
$ 927,009
$
534,820
33,605
781,800
412,194
336
1,914
5,261
$ 1,769,930
The Company's objectives when managing its capital structure are to maintain financial flexibility so as to preserve the
Company’s ability to meet its financial obligations and to finance internally generated growth as well as potential
acquisitions.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the
risk characteristics of the underlying assets. The Company considers its capital structure to include shareholders' equity,
long-term debt, the Revolving Credit Facility and working capital. To maintain or adjust the capital structure, the Company
may raise debt or issue equity and/or adjust its capital spending to manage its current and projected debt levels.
Financing decisions are made by management and the Board based on forecasts of the expected timing and level of capital
and operating expenditure required to meet the Company’s commitments and development plans. Factors considered when
determining whether to issue new debt or to seek equity financing include the amount of financing required, the availability
of financial resources, the terms on which financing is available and consideration of the balance between shareholder value
creation and prudent financial risk management.
Net debt is calculated as total borrowings (including ‘current and non-current borrowings’ as shown in the consolidated
balance sheet), less cash and cash equivalents. Total capital is calculated as net debt plus share capital as shown in the
consolidated balance sheet.
December 31,
2013
2012
Total financial liability borrowings ................................................................................... $
757,566
(97,182)
Less: cash and cash equivalents ........................................................................................
Net debt .............................................................................................................................
660,384
1,585,145
Total share capital .............................................................................................................
Total capital ..................................................................................................................... $ 2,245,529
$
637,981
(61,026)
576,955
1,543,149
$ 2,120,104
If the Company is in a net debt position, the Company will assess whether the projected cash flow and availability under the
Revolving Credit Facility is sufficient to service this debt and support ongoing operations.
44
81
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
29 Segmental information
In the first quarter of 2013, the Company combined its Canadian and United States Environmental Services businesses and as
a result realigned its Canadian custom treating and terminal facilities business from the Terminals and Pipelines segment to
the Environmental Services segment. Accordingly, results of operations for the comparative periods have been reclassified to
reflect the realignment.
The Company has defined its operations into the following operating segments: (i) Terminals and Pipelines, (ii) Truck
Transportation, (iii) Environmental Services, (iv) Propane and NGL Marketing and Distribution, (v) Processing and Wellsite
Fluids and (vi) Marketing
Terminals and Pipelines include fee-based storage and terminalling services and tariff-based pipeline services for crude
oil, condensate and refined product. The Company owns and operates major storage terminals located at Edmonton and
Hardisty, which are the principal hubs for aggregating and exporting oil and refined products out of the Western
Canadian Sedimentary Basin; a terminal at Sexsmith, Alberta; pipelines, which are connected to the Hardisty Terminal;
and injection stations, which are located in the United States.
Truck Transportation includes provision of hauling services for crude oil, condensate, propane, butane, asphalt,
methanol, sulfur, petroleum coke, gypsum, emulsion, waste water and drilling fluids for customers in Western Canada
and the United States.
Environmental Services includes the provision of environmental and production services such as emulsion treating,
water disposal services and oilfield waste management, exploration support services and accommodation facilities to the
oil and gas industry.
Propane and NGL Marketing and Distribution include a retail propane distribution operation and a wholesale
business that includes wholesale propane distribution and an NGL marketing business. The retail operation sells propane
to oil and gas, industrial and residential customers, while the wholesale operations sell to larger customers who are not
usually end users of the product.
Processing and Wellsite Fluids includes the refining and marketing of a variety of products, including road asphalt,
roofing flux, wellsite fluids and tops.
Marketing includes purchasing, selling, storing and blending of crude oil and condensate providing aggregation services
to producer and earning margins through quality, or time-based arbitrage opportunities.
These operating segments of the Company have been derived because they are the segments (a) that engage in business
activities from which revenues are earned and expenses are incurred; (b) whose operating results are regularly reviewed by
the Company’s chief operating decision maker to make decisions about resources to be allocated to each segment and assess
its performance; and (c) for which discrete financial information is available. No operating segments were aggregated to
arrive at the reportable segments.
Inter-segmental transactions are eliminated upon consolidation. No margins are recognized on inter-segmental transactions.
Accounting policies used for segment reporting are consistent with the accounting policies used for the preparation of the
Company’s consolidated financial statements.
45
82
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Terminals &
Pipelines
Truck
Transportation
Environmental
Services
Propane
& NGL
Marketing &
Distribution
Processing &
Wellsite Fluids Marketing
Corporate &
other
reconciling
balances
Total
Year ended
December 31, 2013
Statement of operations
Revenue - external and
inter-segmental ........ $ 132,144
$ 532,490
$ 325,059 $1,151,206 $ 611,097 $ 5,580,040 $
- $ 8,332,036
Revenue - inter-
segmental .................
Revenue - external ........
(50,884)
81,260
(56,155)
476,335
(24,836)
300,223
(160,500)
990,706
(174,275)
436,822
(924,717)
4,655,323
Segment profit ...............
95,613
83,674
83,094
62,277
48,720
83,004
-
-
(1,391,367)
6,940,669
456,382
26,503
36,146
42,820
10,337
15,838
2,011
12,541
22,646
6,296
3,541
Depreciation of property,
plant and equipment .
Amortization of
intangible assets .......
General and
administrative ..........
Stock based
compensation ...........
Corporate foreign
exchange gain ..........
Interest expense .............
Gain on financial
-
-
-
-
-
-
instruments relating to
interest expense ........
Interest income ..............
Foreign exchange loss on
long-term debt ..........
-
Debt extinguishment......
-
Income tax provision .....
-
Net income ................... $ 67,099
263
678
1,947
133,854
2,490
50,203
-
-
-
-
-
-
34,664
34,664
8,271
8,271
(4,226)
53,458
(4,226)
53,458
(18,252)
(471)
(18,252)
(471)
-
-
-
19,951
19,951
38,209
38,209
36,905
36,905
82,063 $ (172,946) $ 103,816
-
-
-
-
-
-
-
-
-
$ 34,987
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$ 17,628 $ 45,644 $ 29,341 $
46
83
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Terminals &
Pipelines
Truck
Transportation
Environmental
Services
Propane
& NGL
Marketing &
Distribution
Processing &
Wellsite Fluids Marketing
Corporate &
other
reconciling
balances
Total
Year ended
December 31, 2012
Statement of operations
Revenue - external and
inter-segmental ........ $ 109,407
$ 524,007
$ 75,216 $ 856,686 $ 551,737 $3,745,283 $
- $ 5,862,336
Revenue - inter-
segmental .................
Revenue - external ........
(36,265)
73,142
(43,932)
480,075
(15,528)
59,688
(143,731)
712,955
(176,465)
(533,386)
375,272 3,211,897
Segment profit ...............
79,229
85,499
16,689
49,671
40,068
58,737
-
-
-
(949,307)
4,913,029
329,893
Depreciation of property,
plant and equipment .
Amortization of
intangible assets .......
General and
administrative ..........
Stock based
compensation ...........
Corporate foreign
exchange gain ..........
Interest expense .............
Gain on financial
-
-
-
-
instruments relating to
interest expense ........
Interest income ..............
Foreign exchange gain on
long-term debt ..........
-
Income tax provision .....
-
Net income (loss) .......... $ 51,929
-
-
25,227
32,199
13,171
9,162
10,147
2,073
11,562
6,752
5,853
5,665
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$ 41,738
-
-
(3,234) $
-
-
34,656 $
$
-
-
(13,915)
32,127
24,256 $ 57,803 $ (90,962) $ 116,186
(13,915)
32,127
-
-
The breakdown of additions to property, plant and equipment and intangible assets by operating segment is as follows:
December 31
2013
256
678
1,810
91,972
2,056
34,639
-
-
-
-
-
-
32,747
32,747
3,856
3,856
(6,482)
43,655
(6,482)
43,655
(4,247)
(645)
(4,247)
(645)
2012
Property,
plant and
equipment
$
43,245
64,162
25,295
12,372
30,525
1,097
$ 176,696
Intangible
Assets
$ 1,860
1,162
139
68
-
2,273
$ 5,502
Terminals and Pipelines..................................................................
Truck Transportation ......................................................................
Environmental Services ..................................................................
Propane & NGL Marketing & Distribution ....................................
Processing & Wellsite Fluids .........................................................
Corporate & other ..........................................................................
Property,
plant and
equipment
$ 105,061
51,146
59,213
12,930
8,083
2,028
$ 238,461
Intangible
Assets
$
$
2,276
2,356
978
462
109
2,314
8,495
47
84
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Geographic Data
Based on the location of the end user, approximately 23% and 22% of revenue was from customers in the United States for
the year ended December 31, 2013 and 2012, respectively.
The Company’s non-current assets, excluding investment in finance lease and deferred tax asset, are primarily concentrated
in Canada with 32% and 32% in the United States at December 31, 2013 and 2012, respectively.
30 Subsequent Event
On March 4, 2014, the Company announced that the Board declared a quarterly dividend of $0.30 per common share for the
quarter ending March 31, 2014 on its outstanding common shares. The common share dividend is payable on April 17, 2014
to shareholders of record at the close of business on March 31, 2014.
31 Principal subsidiaries
The Company had the following subsidiaries as at December 31, 2013:
Name
A&A Tank Truck Co.
All-Clean Fluids and Filtration Services Ltd.
B.E.G. Liquid Mud Services Corp.
Bridge Creek Trucking Ltd.
Canwest Propane Partnership
Canwest Propane ULC
Chief Hauling Contractors ULC
GEP ULC
Gibson (U.S) Acquisition Corp.
Gibson (U.S) Finco Corp.
Gibson (U.S) Holdco Corp.
Gibson Energy (US) Inc.
Gibson Energy Inc.
Gibson Energy Marketing , LLC
Gibson Energy Partnership
Gibson Energy ULC
Gibson Energy, LLC
Gibson Finance Ltd.
Gibson Gas Liquids Partnership (Alberta)
Gibson Gas Liquids ULC
Gibson GCC Inc.
Gibson Offshore, LLC.
Griswold Management, Inc.
Industrial Lift Truck & Equipment Co, Inc
Johnstone Tank Trucking Ltd.
Keeton Services, Inc.
Nature of business
Trucking and Waste Disposal
Oil and Drilling Fluids
Oil & Gas Support Services
Trucking Services
Retail propane
Retail propane
Trucking Services
Trucking and Storage
Holding Company
Holding Company
Holding Company
Wholesale petroleum products
Holding Company
Wholesale petroleum products
Trucking and Storage
Holding Company
Transportation
Holding Company
Wholesale propane
Wholesale propane
Inactive
Oil & Gas Support Services
Inactive
Oil & Gas Support Services
Trucking Services
Oil & Gas Support Services
Proportion of
ordinary
shares owned
by the
Company
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Country of
incorporation
and place of
business
USA
Canada
USA
Canada
Canada
Canada
Canada
Canada
USA
USA
USA
USA
Canada
USA
Canada
Canada
USA
Canada
Canada
Canada
Canada
USA
USA
USA
Canada
USA
48
85
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars, except where noted)
Name
Link Petroleum Inc.
Link Petroleum Services Ltd.
Moose Jaw Refinery Partnership
Moose Jaw Refinery ULC
Northern Truck Services 1994 Ltd.
Omni Energia Mexicana
OMNI Energy Seismic Services, LLC
OMNI Energy Services Corp.
OMNI Energy Transportation Corp
OMNI Labor Corporation
OMNI Properties Corp.
Plato Services Partnership
Preheat, Inc.
Rig Tools, Inc.
Taylor Transfer Services, LLC
Gibson Energy ULC Pension Plan
TPG Leasing, LLC
TPG Transport, LLC
Trussco, Inc.
Wellspring Omni Parent Inc.
WISCO Inc.
Country of
incorporation
and place of
business
USA
Canada
Canada
Canada
Canada
Mexico
USA
USA
USA
USA
USA
Canada
USA
USA
USA
Canada
USA
USA
USA
USA
USA
Nature of business
Wholesale propane
Inactive
Fluids and refining
Fluids and refining
Trucking Services
Inactive
Oil & Gas Seismic Services
Oil & Gas Support Services
Oil & Gas Support Services
Inactive
Inactive
Waste Disposal Services
Oil & Gas Support Services
Oil & Gas Support Services
Transportation
Pension Fund
Rental and Leasing
Transportation
Oil & Gas Support Services
Holding Company
Oil & Gas Support Services
Proportion of
ordinary
shares owned
by the
Company
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
49
86
Corporate Information
MANAGEMENT
A. Stewart Hanlon
President & Chief Executive Officer
Donald A. Fowlis
Chief Financial Officer
Brian J. Recatto
President U.S. Operations
Douglas P. Wilkins
Chief Commercial Officer
Richard M. Wise
Chief Operating Officer
Rodney J. Bantle
Senior Vice President,
Truck Transportation
Sean W. Duffee
Senior Vice President
Supply & Marketing
Warren Osatiuk
Senior Vice President, Refining
Samuel van Aken
Senior Vice President, Propane
Marketing & Distribution
DIRECTORS
James M. Estey
Chairman of the Board
James J. Cleary
A. Stewart Hanlon
Donald R. Ingram
Marshall L. McRae
Mary Ellen Peters
Clayton H. Woitas
HEAD OFFICE
1700, 440–2nd Ave SW
Calgary, AB Canada
T2P 5E9
Phone: (403) 206-4000
Fax: (403) 206-4001
Website: www.gibsons.com
AUDITORS
PricewaterhouseCoopers LLP
BANKERS
Royal Bank of Canada
JPMorgan Chase Bank, N.A.
LEGAL COUNSEL
Bennett Jones LLP
Latham & Watkins LLP
TRUSTEE, REGISTRAR & TRANSFER
AGENT
Computershare Trust Company of Canada
Calgary, Alberta
STOCK EXCHANGE
Toronto Stock Exchange
Trading Symbol: GEI
INVESTOR RELATIONS & MEDIA
Tammi Price
Vice President, Investor Relations &
Corporate Planning
Phone: (403) 206-4212
Email: tprice@gibsons.com
Cam Deller
Manager, Investor Relations
Phone: (403) 776-3041
Email: cam.deller@gibsons.com
Nicole Collard
Manager, Communications
Phone: (403) 206-4276
Email: nicole.collard@gibsons.com
FORWARD-LOOKING STATEMENTS
Certain statements contained in this annual
report constitute forward-looking information
and statements (collectively “forward-looking
statements”). These statements relate to future
events or the Company’s future performance. All
statements other than statements of historical
fact are forward-looking statements. The use of
any of the words “anticipate”, “plan”, “contemplate”,
“continue”, “estimate”, “expect”, “intend”, “propose”,
“might”, “may”, “will”, “shall”, “project”, “should”,
“could”, “would”, “believe”, “predict”, “forecast”,
“pursue”, “potential” and “capable” and similar
expressions are intended to identify forward-look-
ing statements. These statements involve known
and unknown risks, uncertainties and other
factors that may cause actual results or events to
differ materially from those anticipated in such
forward-looking statements. No assurance can
be given that these expectations will prove to be
correct and such forward-looking statements in-
cluded in this annual report should not be unduly
relied upon. These statements speak only as of the
date of this annual report.
With respect to forward-looking statements
contained in this annual report, assumptions have
been made regarding, among other things:
» future growth in worldwide demand for crude oil
and petroleum products;
» crude oil prices supporting increased production
and services in North America, including the
Canadian oil sands and off-shore of North America,
including the Gulf of Mexico;
» no material defaults by the counterparties to agree-
ments with the Company;
» the Company’s ability to obtain qualified personnel,
owner-operators, lease operators and equipment in
a timely and cost-efficient manner;
» the regulatory framework governing taxes and envi-
ronmental matters in the jurisdictions in which the
Company conducts and will conduct its business;
» operating costs;
» future capital expenditures to be made by the
Company;
» the Company’s ability to obtain financing for its
capital programs on acceptable terms;
» the Company’s future debt levels and ratings on the
Company’s debt;
» the impact of increasing competition on the Company.
Actual results could differ materially from those
anticipated in these forward-looking statements
as a result of numerous risks and uncertainties
including, but not limited to, the risks described in
“Risk Factors” and “Forward-Looking Statements”
included in the Company’s AIF dated March 4,
2014 as filed on SEDAR at www.sedar.com.
G
i
b
s
o
n
E
n
e
r
g
y
A
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N
U
A
L
R
E
P
O
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T
2
0
1
3
1700, 440 - 2nd Ave SW
Calgary, AB Canada, T2P 5E9
Phone: (403) 206-4000
Fax: (403) 206-4001
Website: www.gibsons.com
TSX: GEI