Gibson Energy

Focused

Annual Report 2016

In 2016, we continued to focus our efforts on those things 

within our control—investing in our core infrastructure, 

streamlining the business, controlling costs, working 

safely, and developing our people.

Stew Hanlon, President & CEO

In this Report

Who We Are

2  2016 Results and Highlights

Gibsons is a Canadian-based midstream energy company with operations in 

3  Message from the CEO

6  Our Responsibility

7  Financial Information

Forward-Looking Statements
This annual report contains forward-looking statements.  
Please refer to the caution on forward-looking information on 
the inside back cover.

key basins across North America. For over 60 years, Gibsons has delivered 

integrated midstream solutions to customers in the oil and gas industry, safely 

and reliably. Our North American operations include the movement, storage, 

blending, processing, marketing and distribution of crude oil, liquids and re-

fined products. We also provide oilfield waste and water management services.

8.9 million barrels

Amount of storage at Hardisty in 2016; 
nearly a 50% increase over 2015

1.6

1.6

1.6

1.6

2005

2006

2007

2008

3.1

2011

2.8

2010

2.2

2009

8.9

2016

6.0

2015

5.1

2014

4.3

2013

3.7

2012

172%

In five years, 
we’ve increased 
our overall storage 
capacity by 172%

1 in 4

We touch 
1 in 4 barrels 
produced in 
Western Canada

60years

In 1957, Gibsons was 
the first company to 
construct tanks 
at Hardisty

Gibsons | 1

2016 Results and Highlights

Health, Safety, Security and Environment

 ≈ Achieved a Total Recordable Incident Frequency of 1.32, a favorable variance to the 2016 target of 1.85

 ≈ Conducted 144 emergency response exercises across the organization, including table top, drill and full scale exercises

 ≈ Improved our 2016 Certificate of Recognition (COR) results in Alberta by 5% over 2015 results; overall score was 87%

Financial

 ≈ Increased Infrastructure segment profit by 11% to $200.3 million 

 ≈ Delivered total Adjusted EBITDA of $278 million

 ≈ Completed capital expenditures of $233 million, of which $204 million was related to growth initiatives

 ≈ Reduced overall headcount, resulting in salary and benefits savings of $39.7 million compared to 2015

Operations

 ≈ Commissioned certain assets associated with our Hardisty East and West terminal expansion projects, increasing the 

storage, blending and handling capabilities by 2.9 million barrels

 ≈ Commissioned 300,000 barrels of storage related to our Edmonton terminal expansion project

 ≈ Received committed customer support for the construction of two new 400,000 barrel crude oil storage tanks and 

related pipeline connection infrastructure at our Edmonton Terminal

 ≈ Continued to reduce operating costs across all parts of our organization

Infrastructure Segment Profit ($ Millions)

200

150

100

50

0

Growth Capital ($ Millions)

400

300

200

100

0

Yearly Dividend ($/share)

1.50

1.25

1.00

0.75

0.50

0.25

0.00

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

2 | Gibsons

Message from the CEO

As we publish this 2016 Annual Report, with the 2017 fiscal year already well 

underway, I can sum up my thoughts on the current environment in two 

words: cautious optimism. 

We’ve survived an especially tough few years with oversupply and low prices; 

been challenged by climate and energy policies; encountered weather-related 

headwinds that impacted various parts of our business; and then, in the 

spring of 2016, we saw things go from bad to worse with the wildfires in 

Fort McMurray. Without question, these conditions created uncertainty for 

industry and investors. Yet, for Gibsons, this environment also reaffirmed that 

the things within our control – investing in our core infrastructure, streamlining the business, 

controlling costs, working safely and developing our people, are key to emerging as a much 

stronger company from these challenging times.

Against this backdrop, we continued to perform well. Our segment profit from infrastructure 

increased by 11% to $200 million in 2016 compared to $181 million in 2015, as a result of the 

additional tank capacity and associated fixed-fee contracts added during the year. In 2016, we 

delivered adjusted EBITDA of $278 million. 

We continued to invest in those areas where we intend to lead. At our Hardisty East and West 

terminals, we increased the storage, blending and handling capabilities by 2.9 million barrels, 

bringing our total storage capacity to 8.9 million barrels. At our Edmonton terminals, we contin-

ue to expand our merchant terminalling services. We increased capacity by 300,000 barrels and 

received committed customer support for the construction of two new 400,000 barrel crude 

oil storage tanks and related pipeline connection infrastructure. These new tanks, which are 

expected to be in-service in the second quarter of 2018, are underpinned by a long-term, fixed-

fee contract with a large, integrated, investment grade customer.

Stewart Hanlon
President & CEO

Our Competitive Advantage

Strategic Asset Base 

Integrated Solutions 

Customer Relationships 

Operational Excellence 

We have enviable assets 

We deliver synergistic 

We put the customer at 

We have a proven 

in Canada’s major 

midstream services 

the center of everything 

track record of building 

crude oil hubs and an 

to solve our 

we do.

established presence 

customers’ challenges.

in energy basins across 

North America.

and operating our 

infrastructure, safely 

and efficiently.

Gibsons | 3

In 2016, we re-assessed our path to future growth by simplifying our leadership and organiza-

tional structure. Our move toward fewer, larger business groups allowed us to speed decision 

making, increase accountability and take better advantage of the synergies among our breadth 

of services. We intensified our focus on cost reduction and operational efficiency. As part of 

this work, we conducted an organizational review to align costs with economic conditions. 

This resulted in a 20% reduction in headcount, equating to savings of about $40 million. In 

addition, we streamlined our general and administrative functions, achieving a 14% reduction 

from 2015 levels. We intend to build on that success in 2017 by finding ways to further reduce 

total spending and maintain our financial flexibility.

We also made significant changes to Gibsons’ portfolio. In 2016, we initiated the sale of 

certain businesses where we did not see a consistent path to growth; specifically our Canwest 

Propane and Stittco Energy companies. In February, we announced the sale of those business-

es for $412 million to Superior Plus which will be completed through a series of transactions 

over the course of 2017. The deal allows us to strengthen our capital structure through debt 

reduction and to support capital programs within our Infrastructure business. Going forward, 

we will continue to look thoughtfully and strategically at additional non-core asset sales. 

Nothing is more important to us than the health and safety of our people. In 2016, we contin-

ued to build on our safety performance, with a total reportable injury frequency of 1.32. We 

were awarded one of the highest Certificate of Recognition (COR) results in our company’s 

history with a rating of 87%. A COR is awarded by Occupational Health and Safety to em-

ployers who develop health and safety programs that meet or exceed occupational health and 

safety legislation requirements.

Our training efforts, which include safety initiatives, continue to demonstrate our commitment 

to employee growth and development. Our new Learning Management System, which 

Our 
Strategic 
Priorities

Strive for 
leadership 
in HSS&E and 
operational 
performance

Provide a leading 
integrated 
portfolio of 
services

Be a superb 
business partner 
by providing 
innovative, 
cost-effective 
solutions for all of 
our stakeholders

4 | Gibsons

became fully operational in 2016, ensures our “pipeline” of talent is properly developed and 

gives our people the tools and resources they need to work safely and efficiently every day. 

While we are pleased with our safety programs and the results we have seen in recent years, 

we know we still have much work to do. In 2017, we will continue our focus on safety. Our new 

Safety Incentive Program will reward individuals who take a proactive approach to safety and 

safe behaviour in the field. The program is based on a point system where employee incentives 

are provided in order to reward desired behaviours that prevent incidents from occurring. 

In 2016, we also conducted a review of our community investment focus areas to reflect 

changes in the industry, our operations and stakeholder expectations. We streamlined our 

areas of investment to Safety, Environment and Community. We also stepped up to help our 

fellow employees affected by the wildfires in Fort Mac and those impacted by the devastating 

floods in Louisiana.

None of this past year’s success would have been possible without the 2,300 dedicated 

Gibsons team members who come to work each day with a determination to solve our 

customers problems. Thank you to our Board of Directors who have provided support and 

guidance through this challenging environment. Thank you also to our customers who work 

with us to make our future possible. Finally, thank you to our shareholders for your continued 

commitment to our great company. 

As I said at the beginning of this letter, I am cautiously optimistic about the near term envi-

ronment, but I have every confidence that the steps our company has taken over the past few 

years have positioned us well for 2017 and beyond. We’ve got a sound strategy and a focused 

management team; strategic assets on an enviable North American footprint; a long history of 

operational success; and a reputation for solving our customers’ problems. We look forward to 

sharing our successes with you in the years ahead.

Be responsive 
and adaptable to 
a continuously 
changing 
business 
environment

Ensure our 
workforce is 
highly engaged 
and customer 
solution focused

Be a socially 
responsible 
organization that 
is valued by the 
communities in 
which we do 
business

Endeavor to be 
an outstanding 
investment for 
our shareholders

Gibsons | 5

Our Responsibility

Health, Safety, Security & Environment

87%

144

1.32

Our score on the 
2016 COR Audit; an 
increase of 5% 
over 2015

Number of Emergency 
Response Exercises 
conducted across the 
organization this year

Our Total Recordable 
Incident Frequency 
for the year, beating our 
target of 1.85

Our People

601

Training courses 
available to employees 
via our Learning 
Management System

Making a Difference

$340,000 
Total funds raised by 
our matched workplace 
giving program in 2016

6 | Gibsons

Received an Inclusive 

Employers Award 

from Developmental 

Disabilities Resource 

Centre of Calgary

Introduced an 
employee wellness 
program

Honoured with a 
Spirits of Gold award 
for Outstanding 
Workplace campaign

From United Way Calgary and 
Area for our 2016 Employee 
Giving Campaign

725

The number of volunteer 
hours our employees 
logged during our 
Employee Giving Campaign

Management’s Discussion and Analysis

2016 Year End Report

Contents

Business Overview . . . . . . . . . . . . . . . . . . 8

Logistics  . . . . . . . . . . . . . . . . . . . . . . . . 16

Outstanding Share Data. . . . . . . . . . . . . 37

Selected Financial Information . . . . . . . . . 9

Wholesale . . . . . . . . . . . . . . . . . . . . . . . 18

2016 Review  . . . . . . . . . . . . . . . . . . . . . 10

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Subsequent Events . . . . . . . . . . . . . . . . . 10

Results of Discontinued Operations  . . . . 23

Project Developments and 
Market Outlook . . . . . . . . . . . . . . . . . . . .11

Results of Continuing Operations . . . . . . 13

Infrastructure. . . . . . . . . . . . . . . . . . . . . 14

Summary of Quarterly Results. . . . . . . . . 25

Liquidity and Capital Resources . . . . . . . 31

Off Balance Sheet Arrangements . . . . . . 37

Related Party Transactions . . . . . . . . . . . 37

Quantitative and Qualitative 
Disclosures About Market Risk . . . . . . . . 38

Accounting Policies  . . . . . . . . . . . . . . . . 39

Disclosure Controls and Procedures  . . . . 43

Risk Factors . . . . . . . . . . . . . . . . . . . . . . 43

Forward Looking Information . . . . . . . . . 46

Non-GAAP Financial Measures  . . . . . . . 47

The  following  Management’s  Discussion  and  Analysis  (“MD&A”)  was  prepared  and  approved  by  the  Board  of  Directors  (the 
“Board”) of Gibson Energy Inc. (“we”, “our”, “us”, its”, “Gibsons” or the “Company”) as of March 7, 2017 and should be read in 
conjunction with the audited consolidated financial statements and related notes of the Company for the years ended December 
31, 2016 and 2015, which were prepared under International Financial Reporting Standards (“IFRS”) as set out in the Handbook of 
the  Canadian  Institute  of  Chartered  Professional  Accountants  and  as  issued  by  the  International  Accounting  Standards  Board 
(“IASB”),  also  referred  to  as  GAAP.  Amounts  are  stated  in  thousands  of  Canadian  dollars  unless  otherwise  noted. Additional 
information about Gibsons, including the Annual Information Form (“AIF”) is available on SEDAR at www.sedar.com and on our 
website at www.gibsons.com.  

This MD&A contains forward-looking information 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 Information” and “Non-GAAP Financial Measures” 
included at the end of this MD&A.  

BUSINESS OVERVIEW 

We are a Canadian-based midstream energy company headquartered in Calgary, Alberta, with operations in key hydrocarbon 
basins across North America. For over 60 years, Gibsons has delivered integrated midstream solutions to customers in the oil and 
gas industry, safely and reliably. Our North American operations include the movement, storage, blending, processing, marketing 
and distribution of crude oil, natural gas liquids (“NGLs”) and refined products, including oilfield waste and water management 
services.  

Our strategy and strengths 

Our principal business strategy is to use our assets, market knowledge and operational expertise to move, and provide storage 
for, crude oil, NGLs and refined products from the source of production to the most appropriate end-market, throughout Canada 
and the United States (“U.S.”).  

To achieve this, our strategy is to: 

• 

• 
• 

Invest  in  midstream  infrastructure  with  a  focus  on  fixed  fee-based  commercial  structures  that  are  responsive  to 
customers and generate predictable, sustainable, long-term cash flow and earnings; 

Expand our business by improving and enhancing services at existing facilities; 

Pursue focused, complementary ‘bolt-on’ growth, within our existing footprint, that directly supports our infrastructure 
assets; 

•  Deliver safe and reliable operations, while aggressively managing costs to maintain and improve operating margins; and 
•  Maintain a strong balance sheet and ample liquidity to adapt to market conditions and opportunities. 

We believe that our business model provides significant competitive advantages: 

• 

•

•

Strategic Asset Base: We have competitively advantaged land positions and infrastructure in Canada’s major crude oil 
hubs at Hardisty, Alberta and Edmonton, Alberta, largely underpinned by dedicated tanks with fixed fee arrangements. 
Our broad North American presence allows us to build local relationships in those basins, provide competitive services 
and capitalize on opportunities.  

Integrated Solutions: Through our integrated solutions offering, we can deliver customers a broad range of synergistic 
midstream services. This approach allows us to use the full value of our assets and network to better solve customer 
challenges,  create  opportunities  and,  ultimately,  deliver  more  profitable  results.  We  believe  we  are  one  of  the  few 
industry players who have the capability to deliver these integrated solutions to our customers. 

Customer relationships: Our culture is based on putting the customer at the center of everything we do. We focus on 
building long-term relationships with our customers and we believe this approach allows us to better understand and be 
more responsive to our customers’ midstream challenges and requirements.  

•  Operational Excellence: In addition to being highly skilled in building and operating our infrastructure, we have a track 
record of sourcing and successfully executing internal growth projects. We do all of this with a firm commitment to be a 
leader  in  health,  safety,  security  and  the  environment.  Our  experienced  leadership  team  has  a  proven  history  of 
successful operations and a strong industry reputation.  

      Gibson Energy Inc.                                                            1                                          2016 Management’s Discussion and Analysis  

8 | Gibsons

 
 
 
 
 
 
SELECTED FINANCIAL INFORMATION 

Three months ended December 31 

2016 

2015 4 

2016 

Year ended December 31 
2015 4 

2014 4 

Continuing operations 
Revenue .................................................................. 
Segment profit ........................................................ 
Net income (loss) .................................................... 
Basic and diluted income (loss) per share ............... 
Adjusted EBITDA 2,3 ................................................. 
EBITDA 2,3 ................................................................ 
Distributable cash flow 2,3 ....................................... 
Dividends declared .................................................. 
Cash flow from operating activities ........................ 
Growth capital expenditures................................... 

  $ 

  $ 

1,414,187  
87,634  
(50,597)  
(0.36)  
83,927  
27,312  
42,725  
46,772  
44,152  
34,769  

  $  1,226,007  
97,335  

  $ 

4,594,181  
263,646  

  $ 

5,405,311  
377,416  

  $ 

(218,373)
(1.74)
85,846  

 (118,227)

63,770  
40,363  
97,490  
86,227  

  $ 

  $ 

(178,167)
(1.31)
244,092  
96,410  
101,940  
181,994  
175,482  
202,984  

  $ 

(295,374)
(2.35)
344,591  
33,887  
200,990  
161,002  
399,117  
343,766  

  $ 

8,295,537
443,774
55,174
0.44
409,738
361,725
188,316
148,573
307,040
343,292

Combined operations 1 
Segment profit 1 ...................................................... 
Combined Adjusted EBITDA 1, 2,3 ............................. 
Combined EBITDA 1, 2,3 ............................................ 
Distributable cash flow 2,3 ....................................... 

   $         100,926 
    97,219 
40,604 
  $           47,614 

   $       112,098  
 100,961  
(103,464)

   $         65,659  

   $          298,012      $         418,757      $         487,101
453,065
405,052
   $         131,644       $        226,297      $         237,787

278,106      
130,776      

386,284      
75,228      

 Consolidated balance sheet and ratios 

Total assets ...................................................................  
Total non-current liabilities ...........................................  

As at December 31 

  $ 

2016 
3,261,347 
$      1,639,045 

2015 

  $ 

3,282,986 
$      1,606,425 

2014 
  $  3,573,029 
     $     1,507,876 

Debt ratios 
Total and senior debt leverage ratio .............................  
Interest coverage ratio ..................................................  
__________________________________________________ 
1 See discussion on non-GAAP measures on page 40. Combined segment profit, Adjusted EBITDA, and EBITDA, represents the aggregated 
   results of both continuing and discontinued operations. 
2  See discussion on non-GAAP measures on pages 18 to 23 and 40. 
3  See pages 29 and 18 to 23 for a reconciliation of distributable cash flow to cash flow from operations and EBITDA to net income (loss),  
   respectively. Distributable cash flow from combined operations include results from continuing and discontinued operations.  
4  Comparative period information has been restated to reflect the impact of discontinued operations. Refer to “subsequent events” for 
   details. 

2.2 
6.7 

3.2 
4.6 

4.4 
3.0 

      Gibson Energy Inc.                                                            2                                          2016 Management’s Discussion and Analysis  

Gibsons | 9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
   
   
 
 
 
   
   
 
 
 
   
   
   
   
 
   
   
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
   
   
   
 
   
 
   
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016 REVIEW 

Financial highlights 
o 

Segment profit for the Infrastructure segment increased by 11% to $200.3 million for the year ended December 31, 2016 
compared  to  $181.1  million  for  the  year  ended  December  31,  2015  as  a  result  of  the  additional  tank  capacity  and 
associated fixed fee contracts added during the year.  

o  Combined segment profit decreased by 29% to $298.0 million for the year ended December 31, 2016 compared to $418.8 

million for the year ended December 31, 2015. 

o  Combined Adjusted EBITDA decreased by 28% to $278.1 million for the year ended December 31, 2016 compared to 

$386.3 million for the year ended December 31, 2015. 

o  Net loss from continuing operations decreased by 40% to $178.2 million for the year ended December 31, 2016 compared 

to $295.4 million for the year ended December 31, 2015. 

o  Throughout  2016,  the  Company  continued  its  efforts  on  headcount  rationalization  and,  as  a  result,  recorded  non-
recurring severance costs of $10.0 million for the year ended December 31, 2016. Overall, the reduction in headcount 
resulted  in  salaries  and  benefits  savings  of  approximately  $39.7  million  when  compared  to  2015,  and  reflects 
management’s  commitment  to  continue  to  improve  bottom  line  performance  by  aligning  costs  in  light  of  depressed 
industry conditions. 

o 

o 

In the fourth quarter of 2016, the Company declared a dividend of $0.33 per common share. Total dividends declared in 
the year ended December 31, 2016, was $182.0 million representing a 13% increase over the $161.0 million declared in 
the year ended December 31, 2015.  

In the second quarter of 2016, the Company completed an offering of 14,892,500 common shares at a price of $15.45 
per  common  share  for  net  proceeds  of  $220.1  million  and  $100.0  million  aggregate  principal  amount  of  unsecured 
subordinated convertible debentures (the “Debentures”) at a price of $1,000 per Debenture for net proceeds of $96.3 
million.  

Capital expenditure highlights 
o 

In the fourth quarter of 2016, the Company successfully commissioned all of the remaining assets associated with the 
Hardisty  and  the  Edmonton  Terminal  expansion  projects,  thereby  increasing  the  storage,  blending,  and  handling 
capabilities of the Hardisty Terminal by 2,400,000 barrels and the Edmonton Terminal by 300,000 barrels.  

o 

o 

In the third quarter of 2016, the Company successfully commissioned 500,000 barrels of storage capacity associated with 
the  Hardisty  East  Terminal  expansion  project  and  announced  it  had  received  committed  customer  support  for  the 
construction of two new 400,000 barrel crude oil storage tanks and related pipeline connection infrastructure at the 
Company's Edmonton Terminal. The new tanks, which are expected to be in-service by the second quarter of 2018, are 
underpinned by a long-term, fixed fee contract with a large, integrated, investment grade customer. 

In the first quarter of 2016, the Company successfully commissioned the Edmonton East Terminal Expansion, thereby 
increasing the storage, blending, and handling capabilities of the Edmonton Terminal by 160,000 barrels. 

o  During the year ended December 31, 2016, the Company incurred total growth capital expenditures of $202.9 million of 
which $183.6 million related to the Infrastructure segment for new tanks and related infrastructure at the Hardisty and 
Edmonton terminals. 

SUBSEQUENT EVENTS 

Industrial Propane sale 
o 

Subsequent to December 31, 2016, the Company entered into an agreement to sell its Industrial Propane business for 
non-refundable cash consideration of $412.0 million, subject to certain adjustments, to Superior Plus LP ("Superior"). 
The sale will be completed through a series of transactions. Pursuant to an option purchase agreement, dated February 
13,  2017,  subject  to  the  fulfilment  of  customary  conditions,  Gibsons  and  Superior  agreed  to  complete  the  initial 
transaction pursuant to which Superior would pay $412.0 million in exchange for the grant of an irrevocable option (the 
"Option") to Superior to acquire 100% of the partnership units and shares (the "Securities") of the Canwest and Stittco 

      Gibson Energy Inc.                                                            3                                          2016 Management’s Discussion and Analysis  

10 | Gibsons

 
 
 
 
businesses. On March 1, 2017, the Company received the cash payment of $412.0 million in exchange for the grant of 
the  Option  and,  effective  this  date,  Superior  became  entitled  to  the  economics  of  the  Canwest  and  Stittco  propane 
businesses.  Following  granting  of  the  Option  by  Gibsons,  closing  risk  resides  with  Superior.  Gibsons  will  continue  to 
operate the business based on the terms and covenants of the Option agreement under the direction of the current 
management team, with no disruption to its employee base and customer service levels, until the final closing of the 
divestiture, which is expected to occur no later than the fourth quarter of 2017. Upon exercise of the Option by Superior, 
and receipt of regulatory approvals, the Securities will be transferred to Superior for nominal consideration. From an 
accounting  perspective,  the  Company  will  derecognize  the  Industrial  Propane  segment  effective  March  1,  2017.  The 
proceeds of the sale will be utilized to strengthen our capital structure through debt reduction and to support previously 
announced 2017 and 2018 capital programs within our Infrastructure business. 

o 

In accordance with the requirements of IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations, income 
and expenses associated with the Industrial Propane segment to be sold have been classified as discontinued operations 
and presented separately for the years ended 2016 and 2015 in the consolidated financial statements of the Company. 
Selective  financial  information  for  the  year  ended  2014  has  also  been  restated  in  this  MD&A.  Associated  assets  and 
liabilities have been classified as held for sale as at December 31, 2016 and the comparative information has not been 
restated  in  the  consolidated  financial  statements.  Unless  otherwise  stated,  the  Industrial  Propane  segment  will  be 
referred  to  as  “Discontinued  Operations”,  and  the  remaining  operations  as  “Continuing  Operations”,  and  the  total 
discontinued and continuing operations as “Combined Operations” throughout this MD&A.  

Credit facility 
o 

Subsequent  to  December  31,  2016,  the  Company  has  amended  the  Revolving  Credit  Facility  whereby  the  maximum 
consolidated senior debt leverage ratio and the maximum consolidated total debt leverage ratio which are now 4.85 to 
1.0 for the 2017 fiscal year, 4.25 to 1.0 for the 2018 fiscal year and 4.0 to 1.0 thereafter. Furthermore, the maturity date 
of our Revolver Credit Facility has been extended from August 2020 to March 2022. 

Dividend 
o  On March 7, 2017, the Board declared a quarterly dividend of $0.33 per common share for the three months ended 
March 31, 2017 on its outstanding common shares. The dividend is payable on April 17, 2017 to shareholders of record 
at the close of business on March 31, 2017. 

PROJECT DEVELOPMENTS AND MARKET OUTLOOK 

Major growth projects 

The Company continues to progress towards the completion of major growth projects within its Infrastructure segment, primarily 
related to the construction of tankage and pipeline connections. These projects include the construction of two new 400,000 
barrel crude oil storage tanks and related pipeline connection infrastructure at the Company's Edmonton Terminal. These new 
tanks, which are expected to be in-service by the second quarter of 2018, are underpinned by a long-term, fixed fee contract with 
a large, integrated, investment grade customer.  

Additionally, we continue to make progress with commercial development opportunities that, with success, will enable us to add 
additional  storage  and  connection  infrastructure  for  our  customers.  In  anticipation  of  success  with  our  customer  contracting 
process, we are moving forward with the front-end engineering and initial civil work to develop an array of up to four tanks on 
the east side of our Hardisty Terminal. Similar to prior new tank construction initiatives, full development of these tanks will be 
supported by long-term fixed fee contracts. 

Market outlook 

Gibsons periodically evaluates its long-range strategic plan in order to assess the implications of emerging industry trends. These 
industry trends have the ability to affect Gibsons’ business and prospects over the short-term (“2 years or less”) and the medium 
to long-term (“two to five years”). 

There are a number of  factors that affect our producer customers’  views of market access over the short and medium term, 
particularly in the Western Canadian Sedimentary basin (the “WCSB”). These views, in addition to commodity prices, will impact 
their  willingness  to  increase  their  capital  expenditure  programs,  which  ultimately  leads  to  increased  activity  and  production 
volumes, which create opportunities for our terminals at Hardisty and Edmonton, as well as our integrated services that support 

      Gibson Energy Inc.                                                            4                                          2016 Management’s Discussion and Analysis  

Gibsons | 11

 
 
 
those assets: 

•

•

•

Recent government announcements have revived the prospects for the Trans Mountain Expansion and Keystone XL pipeline 
projects, two of three crucial initiatives (including the Energy East pipeline project) that should help the growing supply of 
Canadian crude oil garner improved access to the large refining markets in the U.S., Eastern Canada and other foreign locales. 
The  starting  point  for  the  pipelines  would  be  adjacent  to  the  Company’s  Hardisty  (Keystone  XL)  and  Edmonton  (Trans 
Mountain Expansion) terminals which could provide increased opportunities for the Company’s terminalling services. The 
timelines for these pipelines would be within our medium to long-term horizon; 

  More immediately, Enbridge Inc.’s (“Enbridge”) expansion of its Line 67, which went into operation in July 2015, and the 
proposed replacement of its Line 3, will help the growing supply of Canadian crude oil gain access to  the largest refining 
markets in the U.S. and Eastern Canada. The replacement of Line 3, which received Canadian approval in December, 2016, 
and is awaiting U.S. approval, could provide incremental capacity by 2019. The Hardisty Terminal is connected to deliver to 
both of these pipelines and these expansions should provide increased opportunities for the Company’s terminal services at 
Hardisty; 

Enbridge’s twinning of the southern section of its Athabasca pipeline, commissioned in January, 2017, should also provide for 
incremental volumes into the Hardisty Terminal and increased opportunities for the Company’s terminal services at Hardisty; 

•

In  the  short-term,  crude  oil  pricing,  location  and  quality  disconnects,  combined  with  the  existing  shortage  of  pipeline 
takeaway capacity from the WCSB, necessitate demand for terminal services and crude by rail (“CBR”) as a solution for export 
market access. While low crude oil prices have negatively impacted the economics of CBR in recent quarters, the Company 
expects that as oil prices stabilize, and when export pipeline access becomes a barrier to reach markets, which is possible 
sometime in 2017, opportunities for the Company to increase its service offering to include more CBR movements will arise; 
•  Over the medium to long-term, as market access solutions become more certain, the supply of Canadian heavy crude oil from 
the oil sands should start to grow more rapidly again, resulting in increased demand for terminal services and diluent in the 
WCSB. Additionally, the recent sanctioning of oil sands related projects in Alberta, such as Kirby North (Canadian Natural 
Resources Limited) and Christina Lake Phase Six (Cenovus Energy Inc.) should result in increased demand for terminal services 
and movements of diluent through the Hardisty, Edmonton and Alberta Heartland areas’ pipeline and terminal infrastructure 
and may generate increased opportunities for Gibsons’ services; and 

• 

The lifting of the U.S. crude oil export ban in December, 2015 may further advance demand for the utilization of midstream 
assets to enable increased volumes of crude oil to access tidewater export locations. Gibsons’ U.S. presence and extensive 
footprint offer an important growth platform that should prove advantageous to the Company’s North America-wide core 
midstream infrastructure development plan.  

The recent firming of crude prices, combined with the commitments of the Organization of the Petroleum Exporting Countries 
(“OPEC”) to limit supply, improving cost efficiencies and increasing optimism regarding market access solutions, have resulted in 
modest increases in capital programs being announced over the fourth quarter by a number of our North American producer 
customers. Over the medium-term, as crude oil supply and demand fundamentals rebalance, the Company anticipates a slow 
return to increased activity and production levels and a continued demand for midstream assets and a slowly increasing demand 
for the services provided by our more activity sensitive businesses. 

Price  fluctuations  between  crude  oil  types  can  create  incremental  margin  opportunities  in  multiple  areas  of  the  Company’s 
operations. While current price differentials have continued to remain compressed in spite of the recent firming in benchmark 
crude oil prices, the Company remains attentive to opportunities as this trend continues to evolve.  

Over the medium to long-term the Company expects new technology for drilling, completion and oil sands development to be 
deployed within the industry which should improve producers’ cost structures and further enhance the viability and resilience of 
the specific basins in which Gibsons has strategically chosen to operate, resulting in increased North American production and 
increased demand for Gibsons’ services. This should also translate into a significant increase in produced water and other oilfield 
waste. This increase in oilfield waste, together with increased regulatory scrutiny, should increase demand for the Company’s 
Logistics services.  

      Gibson Energy Inc.                                                            5                                          2016 Management’s Discussion and Analysis  

12 | Gibsons

 
 
 
 
 
 
 
 
 
RESULTS OF CONTINUING 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,  amortization  and 
impairment 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, impairment and stock 
based compensation, as one of the Company’s important measures of segment performance. 

The following is a discussion of the Company’s segmented results of operations for the three months and years ended December 
31, 2016 and 2015 and the following table sets forth revenue and profit by segment for those periods: 

Three months ended  
December 31 
2016 

2015 

Year ended  
December 31 
2016 

2015 

Segment revenue 
Infrastructure ........................................................................................  
Logistics .................................................................................................  
Wholesale .............................................................................................  
Other .....................................................................................................  
Total segment revenue .........................................................................  
Revenue – inter-segmental ...................................................................  
Total revenue - external ........................................................................  
Segment profit (loss) 
Infrastructure ........................................................................................  
Logistics .................................................................................................  
Wholesale .............................................................................................  
Other .....................................................................................................  
Total segment profit .............................................................................  
General and administrative ...................................................................  
Depreciation ..........................................................................................  
Amortization .........................................................................................  
Impairment of goodwill .........................................................................  
Stock based compensation ...................................................................  
Foreign exchange loss (gain) .................................................................  
Net interest expense .............................................................................  
Loss before income tax .........................................................................  
Income tax recovery ..............................................................................  
Net loss from continuing operations .....................................................  
Net income from discontinued operations, after tax ............................  
Net loss .................................................................................................  

  $ 

83,458 
132,790 
1,322,354 
1,658 
1,540,260 
(126,073)   
1,414,187 

  $ 

69,965 
158,355 
1,111,912 
8,197 
1,348,429 
(122,422)   
1,226,007 

  $ 

    $ 

298,150 
512,935 
4,187,508 
11,291 
5,009,884 
(415,703)   
4,594,181 

271,341 
681,056 
4,967,646 
38,885 
5,958,928 
(553,617) 
5,405,311 

56,271 
14,685 
17,204 

(526)   

87,634 
8,482 
54,185 
7,820 
28,647 
7,172 
16,165 
23,317 
(58,154)   
(7,557)   
(50,597)   
13,790 
(36,807)   

50,026 
18,019 
27,936 
1,354 
97,335 
10,790 
53,785 
42,948 
175,959 
5,662 
23,186 
19,406 
(234,401)   
(16,028)   
(218,373)   
6,153 
(212,220)   

  $ 

  $ 

200,307 
39,576 
24,408 

(645)   

263,646 
35,018 
175,346 
69,062 
130,052 
24,876 
(21,617)   
85,526 
(234,617)   
(56,450)   
(178,167)     
18,453 

  $ 

(159,714)      $ 

181,067 
90,116 
100,317 
5,916 
377,416 
39,569 
180,471 
82,623 
175,959 
20,379 
108,180 
79,022 
(308,787) 
(13,413) 
(295,374) 
14,718 
(280,656) 

The exclusion of depreciation, amortization and impairment 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 Company’s capital assets are charged to operating expense as incurred. 

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. 

      Gibson Energy Inc.                                                            6                                          2016 Management’s Discussion and Analysis  

Gibsons | 13

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
 
   
 
   
 
   
   
 
 
 
 
INFRASTRUCTURE 

The Infrastructure segment is comprised of a network of midstream infrastructure assets that include oil terminals, rail loading 
and unloading facilities, injection stations, gathering pipelines and processing facilities that collect, store and process oil and other 
liquid hydrocarbon production and by-products before eventual distribution to end-use markets. The primary facilities within this 
segment include the terminals located at Hardisty and Edmonton, which are the principal hubs for aggregating and exporting oil 
and  refined  products  out  of  the  WCSB;  gathering  pipelines,  which  are  connected  to  the  Hardisty  Terminal  and  to  one  of  our 
Processing Recovery and Disposal (“PRD”) locations; injection stations, which are located in the U.S.; a crude oil processing facility 
in Moose Jaw, Saskatchewan (the “Moose Jaw Facility”), and processing, recovery, and disposal terminals located throughout 
Western Canada and the Northern U.S. 

Our PRD business is dependent upon the drilling activity in WCSB, Bakken and the Northern U.S. As a result, the PRD business is 
impacted by seasonality due to road bans as part of spring break-up. 

The following tables set forth the operating results from the Company’s Infrastructure segment for the three months and years 
ended December 31, 2016 and 2015: 

Volumes (barrels in thousands) 
Terminals and facilities 

Three months ended  
December 31 
2016 

Hardisty Terminal ......................................................................  
Edmonton Terminal ..................................................................  
Moose Jaw Facility ....................................................................  
PRD Terminals ...........................................................................  
Injection Stations ......................................................................  
Total terminals and facilities .....................................................  

56,802 
5,421 
1,628 
3,201 
6,419 
73,471 

2015 

54,902 
3,544 
1,410 
3,496 
10,093 
73,445 

Year ended  
December 31 
2016 

211,699 
16,922 
5,180 
10,904 
32,310 
277,015 

2015 

208,292 
14,510 
5,438 
15,059 
40,511 
283,810 

Three months ended  
December 31 
2016 

2015 

Year ended  
December 31 
2016 

2015 

Revenue ........................................................................................  
Operating expenses and other ......................................................  
Segment profit ..............................................................................  

$  83,458 
27,187 
$  56,271 

$  69,965 
19,939 
$  50,026 

$  298,150 
97,843 
$  200,307 

$  271,341 
90,274 
$  181,067 

Operational performance 

In the three months and year ended December 31, 2016 compared to the three months and year ended December 31, 2015: 

Hardisty Terminal volumes increased by 3% and 2%, respectively. The increase during the periods was largely driven by the impact 
of the new tanks commissioned in the fourth quarter of 2016 and the commissioning of the connectivity enhancement projects 
related to the twinning of the Cold Lake and Athabasca pipeline connections during the first quarter of 2016. The year over year 
increases were partially offset by the operational impact of the Fort McMurray forest fire on volumes delivered to our customers 
in the second quarter of 2016. 

The Edmonton Terminal volumes increased by 53% and 17%, respectively. The increase during the periods was mainly due to 
commissioning of the Edmonton West Terminal, completed in the fourth quarter of 2016. The full year was also impacted by tanks 
being put back into service as a result of the commissioning of the Edmonton East Terminal expansion completed in the first 
quarter of 2016. 

The Moose Jaw Facility volumes increased by 15% and decreased 5%, respectively. The quarter over quarter increase was primarily 
due to the impact of higher processing activity related to increased demand for distillates to service the increase in drilling activity 
in the WCSB and the North Dakota Bakken. The year over year decrease was mainly due to the impact of a longer plant turnaround 
time during the second quarter of 2016. 

      Gibson Energy Inc.                                                            7                                          2016 Management’s Discussion and Analysis  

14 | Gibsons

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PRD Terminal volumes decreased by 8% and 28%, respectively, mainly due to lower drilling activity. Volumes in the fourth quarter 
of 2016 increased to their highest level, when compared to the prior quarters in 2016, due to increased activity levels in the 
Company’s WCSB service areas.  

Injection Station volumes decreased by 36% and 20%, respectively, mainly due to a decrease in activity with a major customer in 
the North Dakota Bakken as a result of the low netbacks in the region causing them to shift focus to other basins and in the 
Permian region as a result of reduced trucking volumes as addressed in the logistics narrative. 

Financial performance 

In the three months and year ended December 31, 2016 compared to the three months and year ended December 31, 2015: 

Revenue at the Hardisty Terminal increased by $6.8 million and $21.6 million, respectively. The increases were largely driven by 
increased revenue from the new tanks commissioned in the fourth quarter of 2016 which provided additional customers with 
dedicated tank usage who are subject to fixed fee arrangements. The increases were also driven by the commissioning of the 
connectivity enhancement project and associated service enhancement activities specific to the twinning of the Cold Lake and 
Athabasca pipeline connections completed early in 2016, partially offset by the impact of Fort McMurray forest fires.  

Revenue at the Edmonton Terminal increased by $7.3 million and $20.2 million, respectively. The increases were primarily due to 
the impact of the revenue related to the commissioning of the Edmonton East Terminal expansion and the impact of additional 
fixed fee arrangements and associated volumes related to the new tank at the Edmonton West Terminal that was commissioned 
in the third quarter of 2016.  

PRD  Terminal  revenue  decreased  by  $0.2  million  and  $12.7  million,  respectively.  Higher  crude  prices  in  the  current  quarter 
provided for additional contribution from recovered oil revenues. The year over year decline was mainly due to lower drilling 
activity in the first three quarters of 2016, partially offset by the additional revenue earned during the fourth quarter of 2016. 

There were no material changes in the revenue for each of the Moose Jaw Facility and Injection Stations.  

Segment profit increased by $6.2 million and $19.2 million, respectively, primarily due to the increased revenues from both the 
Hardisty Terminal and the Edmonton Terminal. The revenue increase was partially offset by reductions in revenues from the other 
facilities in the segment, higher operating costs, including payroll related costs from the expansion of the terminals, and one-time 
environmental remediation costs.  

Capital expenditures 

Below is the summary of the Infrastructure capital expenditures for the years ended December 31, 2016 and 2015: 

Growth capital .............................................................................................................................  
Upgrade and replacement capital................................................................................................  

Year ended December 31 

2016 
  $  183,561 
13,110 
  $ 

2015 
  $  298,334 
  $  14,587 

Growth  capital  expenditures  in  the  year  ended  December  31,  2016  primarily  relate  to  construction  and  expansion  projects 
including the construction of additional tanks and related infrastructure at the Hardisty Terminal and the Edmonton Terminal and 
the  Moose  Jaw  Facility.  Expenditures  in  the  year  ended  December  31,  2015  include  the  construction  of  additional  tanks  and 
related infrastructure at the Hardisty Terminal and the Edmonton Terminal and the Moose Jaw Facility, the purchase of small 
truck unloading terminals in the U.S. and the expansion and construction of existing, and new, PRD Terminals in both Canada and 
the U.S. 

Upgrade  and  replacement  capital  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.  Upgrade  and  replacement  capital  decreased  10%  in  the  year  ended  December  31,  2016 
compared to prior year, primarily due to higher costs associated with tank cleaning requirements incurred in the prior period at 
the Hardisty Terminal and the Edmonton Terminal. 

      Gibson Energy Inc.                                                            8                                          2016 Management’s Discussion and Analysis  

Gibsons | 15

 
 
 
 
 
 
 
 
 
 
LOGISTICS 

The Logistics segment includes a suite of logistical wellsite services that enable oil and liquids production to access fixed midstream 
infrastructure. This segment provides transportation and related services that allow the Company to service its customers’ needs 
several times between the wellhead and the end market, and includes providing hauling services for crude, condensate, propane, 
butane, asphalt, methanol, sulfur, petroleum coke, gypsum, emulsion, waste water and drilling fluids for many of North America’s 
leading oil and gas producers. Additionally, the Company also provides several ancillary services to production companies. 

Generally, the segment’s second quarter results are impacted by road bans and other restrictions which impact overall activity 
levels  in  the  WCSB  and  the  Northern  U.S.,  and,  therefore,  negatively  impact  the  business.  Also,  for  certain  services  and 
geographical regions, the activity is generally the lowest in the winter months when daylight hours are shorter. 

The following tables set forth operating results from the Company’s Logistics segment for the three months and years ended 
December 31, 2016 and 2015: 

Volumes (barrels in thousands) 
Canadian crude and other products................................................  
U.S. crude and other products ........................................................  
Total ................................................................................................  

Three months ended  
December 31 
2016 
12,034 
8,229 
20,263 

2015 
12,865 
10,144 
23,009 

Year ended  
December 31 
2016 
44,955 
36,629 
81,584 

2015 
55,230 
43,057 
98,287 

Three months ended  
December 31 
2016 

2015 

Year ended 
 December 31 
2016 

2015 

Revenue 

Canadian crude and other product hauling ............................  
U.S. crude and other product hauling .....................................  
Water hauling and disposal .....................................................  
Other products and services ...................................................  
Total revenue ..................................................................................  
Cost of sales ....................................................................................  
Operating expenses and other ........................................................  
Segment profit ................................................................................  

$  50,582 
21,821 
26,882 
33,505 
132,790 
96,383 
21,722 
$  14,685 

$  51,041 
30,870 
34,421 
42,023 
158,355 
111,379 
28,957 
$  18,019 

$  180,636 
101,054 
106,298 
124,947 
512,935 
372,309 
101,050 
$  39,576 

$  237,764 
138,807 
139,056 
165,429 
681,056 
465,275 
125,665 
90,116 

$ 

Operational performance 

In the three months and year ended December 31, 2016 compared to the three months and year ended December 31, 2015: 

Canadian crude and other product hauling barrels decreased by 6% and 19%, respectively. The quarter over quarter decrease was 
primarily due to lower levels of volume-based hauling activity in Northern Alberta and the Saskatchewan Bakken areas, which was 
primarily attributable to the period over period change in the mix between long and short-haul routes and the type of goods 
transported. This decrease was partially offset by higher sulphur volumes in the current quarter. The year over year decrease was 
impacted by lower demand for transportation services and declining production volumes mainly due to lower drilling activity in 
the Company’s service areas as noted above, as well as the operational impact of the Fort McMurray fires on our customers.  

U.S. crude and other products volume decreased by 19% and 15%, respectively. The decrease was primarily due to the overall 
reduced drilling activity which translated into production declines in the first three quarters of 2016 and the completion of more 
gathering systems connections to existing wells. To a lesser degree, 2016 volumes were negatively impacted as the Company 
chose to exit the Utica Basin in the fourth quarter of 2016 due to uneconomic hauling margins in the region. 

      Gibson Energy Inc.                                                            9                                          2016 Management’s Discussion and Analysis  

16 | Gibsons

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial performance 

In the three months and year ended December 31, 2016 compared to the three months and year ended December 31, 2015: 

Canadian crude and other product revenue was relatively flat and decreased by 24%, respectively. On a year over year basis, the 
revenue decreased primarily due to lower volumes hauled resulting from declining production volumes as a consequence of lower 
drilling activity and the Fort McMurray fires.  

U.S. crude and other revenue decreased by 29% and 27%, respectively primarily driven by lower volumes hauled and the impact 
of lower hauling rates driven by increased competition in the Utica and Permian basins. 

Water  hauling  and  disposal  revenue  decreased  by  22%  and  24%,  respectively,  primarily  driven  by  the  impact  of  increased 
competition for production related volumes in the Bakken and Northern Alberta. 

Other products and services revenue decreased by 20% and 24%, respectively, primarily driven by lower activity and increased 
competition in the Bakken, Rockies and Eagle Ford regions. 

Segment profit decreased by 19% and 56%, respectively. On a quarter over quarter basis, the decrease was primarily due to lower 
gross margins earned on U.S. crude and other products, driven by reduced volumes and lower rates. Canadian operations were 
also  negatively  impacted  by  lower  margins  primarily  related  to  the  mix  between  long  and  short  hauls  and  the  type  of  goods 
transported. Partially offsetting this was higher margins earned on sulphur in the quarter and a reduction in payroll related costs 
due to overall headcount reductions. On a year over year basis, similar factors contributed to the decrease in margin as stated 
above. However, the impact of substantially lower margins in the first two quarters of the year, primarily attributable to lower 
crude hauling margins in Canada and U.S. and the impact of the Fort McMurray fires, further impacted the margins negatively 
year over year. The decline was partially offset by a reduction in payroll related costs due to overall headcount reductions. 

Capital expenditures 

Below is the summary of the Logistics capital expenditures for the years ended December 31, 2016 and 2015: 

Growth capital .............................................................................................................................  
Upgrade and replacement capital................................................................................................  

Year ended December 31 

2016 
$   5,860 
$  9,634    

2015 
$   36,885 
$   19,989  

Growth  capital  expenditures  in  the  year  ended  December  31,  2016  largely  represent  the  completion  costs  relating  to  the 
Edmonton Trucking facility and additional equipment purchased in the U.S. Expenditures in the year ended December 31, 2015 
largely represent the costs for constructing a new office and maintenance facility in Edmonton, Alberta and also the addition of 
equipment and rolling stock.  

Upgrade and replacement capital decreased 52% in the year ended December 31, 2016 compared to the year ended December 
31, 2015, primarily due to a reduction in spending relating to the replacement of the truck and trailer fleet. 

      Gibson Energy Inc.                                                            10                                          2016 Management’s Discussion and Analysis  

Gibsons | 17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
WHOLESALE 

The Wholesale segment includes the purchasing, selling, storing and blending of hydrocarbon products, including crude oil, NGLs, 
road asphalt, roofing flux, frac oils, light and heavy straight run distillates, combined vacuum gas oil (“CVGO”), and oil based mud 
(“OBM”) product. This segment earns margins by providing aggregation services to producers and/by capturing quality, locational 
or time-based arbitrage opportunities. This segment also contributes to the Company’s overall margins by driving volume based 
business to our Infrastructure segment.  

The Wholesale segment is exposed to commodity price fluctuations arising between the time contracted volumes are purchased 
and the time they are sold, as well as being exposed to pricing differentials between different geographic markets. These risks are 
managed by purchasing and selling products at prices based on the same or similar indices or benchmarks, and through physical 
and financial contracts that include energy-related forward contracts, swaps, futures, options and other hedging instruments. Fair 
values of these derivative contracts fluctuate depending on the underlying estimates of future commodity prices and can impact 
the segment profits in the form of realized or unrealized gains and losses that can change significantly period over period.  

Canadian road asphalt activity, related to Refined Products, is affected by the impact of weather conditions on road construction. 
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 and completion activities, with activity normally the busiest in the winter months. Demand for propane and 
other NGLs is also highest in the colder months of the year. 

WTI average price ($USD/bbl) .........................................................  
WCS differential ..............................................................................  
Average foreign exchange rates U.S. dollar to Canadian dollar ......  
Propane average price ($USD/U.S. gallon)  .....................................  
Butane average price ($USD/U.S. gallon) ........................................  

Three months ended 
 December 31 
2016 
$49.29   
14.32   
1.33   
0.62   
0.79   

2015 
$42.18   
14.49   
1.34   
0.38   
0.68   

Year ended  
December 31 

2016 
$43.302 
13.804 
1.322 
0.462 
0.633 

2015 
$48.93
13.52
1.28
0.38
0.67

Volumes (barrels in thousands) 
Crude and diluent ...........................................................................  
Propane and other NGL ..................................................................  
Refined products .............................................................................  

Three months ended 
 December 31 
2016 
27,162 
3,551 
843 

31,556 

2015 
27,344 
3,613 
751 

31,708 

Year ended 
 December 31 
2016 
101,377 
11,632 
3,585 

116,594 

Year ended  
December 31 

2015 
109,827 
11,438 
3,368 

124,633 

Three months ended  
December 31 
2016 

2015 

2016 

2015 

Revenue 

Crude and diluent ....................................................................  
Propane and other NGL ...........................................................  
Refined products .....................................................................  
Total revenue ..................................................................................  
Cost of sales ....................................................................................  
Operating expenses and other ........................................................  
Segment profit ................................................................................  

  $  1,073,052 
179,420 
69,882 
1,322,354 
1,297,501 
7,649 
17,204 

  $ 

  $ 

  $ 

923,730 
127,250 
60,932 
1,111,912 
1,074,805 
9,171 
27,936 

  $  3,464,847 
454,307 
268,354 
4,187,508 
4,135,937 
27,163 
24,408 

  $ 

  $  4,213,082 
459,961 
294,603 
4,967,646 
4,845,953 
21,376 
100,317 

  $ 

      Gibson Energy Inc.                                                            11                                          2016 Management’s Discussion and Analysis  

18 | Gibsons

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operational performance 

In the three months and year ended December 31, 2016 compared to the three months and year ended December 31, 2015: 

Sales volumes for crude and diluent were consistent and decreased by 8%, respectively. Quarter over quarter volumes remained 
consistent despite volume declines experienced in the first three quarters of 2016 compared to the prior period. This was mainly 
due to the increase in WCSB activity. Year over year, the decrease was mainly due to a decline in opportunities to bring volumes 
into the Company’s integrated assets, attributable to tighter blending differentials during the first three quarters of 2016, and to 
the Fort McMurray fires in the second quarter, which also negatively impacted the sales volumes in the current year. 

Sales volumes for propane and other NGLs were relatively flat as higher demand for wholesale propane volumes largely offset 
the lower demand for other NGL volumes. 

Volumes for refined products increased by 12% and 6%, respectively. The quarter over quarter volumes increased due to higher 
demand for OBM and distillates, primarily driven by increased WCSB drilling activity. The year over year volume increase was 
mainly due to higher demand for CVGO, partially offset by lower demand for frac oils, distillates and asphalt. The decline in asphalt 
volumes was due to the impact of an extended plant turnaround at Moose Jaw that resulted in reduced product being available 
for sale, government elections, which delayed seasonal asphalt nominations and adverse wet weather conditions, which delayed 
or prevented certain paving jobs from being completed. 

Financial performance 

In the three months and year ended December 31, 2016 compared to the three months and year ended December 31, 2015: 

Revenue for crude and diluent increased by 16% and decreased by 18%, respectively. The quarter over quarter revenue increased 
due to higher crude oil prices, whereas year over year revenue decreased due to the impact of lower crude oil prices and lower 
volumes. 

Revenue  for  propane  and  other  NGLs  increased  by  41%  and  decreased  by  1%,  respectively.  Quarter  over  quarter  revenue 
increased mainly due to higher butane and propane prices during the current year period. On a year over year basis, revenue was 
relatively consistent as the impact of slightly higher volumes was offset by the impact of lower commodity prices. 

Revenue  for  Refined  Products  increased  15%  and  decreased  9%,  respectively,  with  the  movement  relatively  in  line  with  the 
changes in product mix and the impact of the extended turnaround noted above. 

Segment profit decreased by 38% and 76%, respectively. The quarter over quarter decrease was mainly due to the impact of lower 
gross  margins  on  crude  oil,  primarily  driven  by  narrow  spreads  in  crude  oil  grades  negatively  impacting  quality  arbitrage 
opportunities. Additionally, propane margins compressed in the current period resulting from increased cost of sales that could 
not be fully recovered due to market conditions prevalent during the quarter. These impacts were partially offset by higher gross 
margins on other NGLs, such as butane, and lower operating costs in the current year period compared to the same period last 
year primarily due to a reduction in business taxes. The year over year decrease was mainly due to similar factors as noted above 
with  additional  impact  from  margin  compression  on  our  refined  products  as  well  as  lower  crude  oil  volumes  due  to  the  Fort 
McMurray fires. Furthermore, the operating expenses increased primarily due to a foreign exchange gain of $4.3 million, recorded 
in 2015, compared to a foreign exchange loss of $0.6 million, recorded in 2016. 

Capital expenditures 

Below is the summary of Wholesale capital expenditures for the years ended December 31, 2016 and 2015: 

Growth capital .............................................................................................................................  
Upgrade and replacement capital................................................................................................  

Year ended December 31 

2016 
   $    11,423 

$            55    

2015 
$     7 
$  98   

Expenditures in the year ended December 31, 2016 represent the cost of additional line-fill volumes purchased as a result of a 
non-recurring change in the arrangement for the Hardisty Terminal and the Edmonton Terminal wherein the Company assumed 
single shipper status. 

      Gibson Energy Inc.                                                            12                                          2016 Management’s Discussion and Analysis  

Gibsons | 19

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OTHER 

The Other segment includes  the provision of other services to the oil and gas industry including exploration  support services 
(“ESS”) and accommodation services.  

The following tables set forth the operating results from the Company’s Other segment for the three months and years ended 
December 31, 2016 and 2015: 

Three months ended 
 December 31 
2016 

2015 

Year ended  
December 31 
2016 

2015 

Revenue ..........................................................................................  
Cost of sales ....................................................................................  
Operating expenses and other ........................................................  
Segment profit (loss) .......................................................................  

$ 

$ 

1,658 
1,896 
288 
(526)   

  $ 

  $ 

8,197 
6,207 
636 
1,354 

  $ 

  $ 

11,291 
11,322 
614 
(645) 

  $ 

  $ 

38,885 
30,935 
2,034 
5,916 

Operational and financial performance 

In the three months and year ended December 31, 2016 compared to the three months and year ended December 31, 2015: 

Revenue decreased by 80% and 71%, respectively. The quarter over quarter decrease was mainly due to an overall decline in the 
ESS business in Southern Louisiana in the current quarter. The year over year decrease was also due to the overall decline in oil 
and  gas  activity,  partially  offset  by  the  favorable  impact  of  the  change  in  foreign  exchange  rates  on  translating  revenue 
denominated in U.S. dollars. 

Segment profit decreased by 139% and 111%, respectively. The decrease was primarily driven by the decline in revenue, partially 
offset by lower costs of sales, reflecting the impact of lower direct labour and materials costs and lower operating expenses mainly 
due to a reduction in payroll related costs. 

      Gibson Energy Inc.                                                            13                                          2016 Management’s Discussion and Analysis  

20 | Gibsons

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative and other, excluding depreciation and amortization 

General and administrative expense (“G&A”) is comprised of costs incurred at the corporate level and relates to items such as 
executive,  finance  and  operational  support  services.  G&A  expense  was  $35.0  million  in  the  year  ended  December  31,  2016, 
compared to $39.6  million in the year ended December 31, 2015. The decrease in the  year ended December  31, 2016 was a 
function of lower payroll costs due to our headcount rationalization efforts that continued throughout the year, and head office 
overhead cost reductions.  These savings  were partially offset by mark to market  movements on equity financial instruments, 
higher severance costs incurred during the current year as well as the impact of a non-recurring other income amount recorded 
in  prior  year  G&A  expense.  Excluding  the  impact  of  equity  financial  instruments  gains  and  losses,  severance  costs  and  non-
recurring income, the G&A expenses decreased by approximately 14% year over year. 

Depreciation and impairment 

Depreciation expense in the year ended December 31, 2016 was $175.3 million compared to $180.5 million, in the year ended 
December 31, 2015. The decrease was primarily due to the impact of asset disposals, assets reaching the end of depreciable lives 
and the higher amount of impairment charges recorded in 2015, partially offset by additional depreciation on asset additions in 
the current year period. The Company recorded impairment charges within depreciation of $10.6 million and $13.5 million during 
the years ended December 31, 2016, and 2015, respectively. 

Amortization and impairment 

Amortization  expense  was  $69.1  million  in  the  year  ended  December  31,  2016  compared  to  $82.6  million  in  the  year  ended 
December 31, 2015. The decrease was largely due to the revision of useful lives of certain intangible assets within the Company’s 
Logistics  segment  which  resulted  in  additional  amortization  expense  of  $30.5  million  in  the  prior  year  period.  The  Company 
recorded impairment expense of $1.6 million during the year ended December 31, 2016. 

Impairment of goodwill 

In  the  year  ended  December  31,  2016,  the  Company  recorded  goodwill  impairment  losses  within  the  Company’s  U.S. 
Environmental Services and Refined Products business segments of $101.4 million and $28.6 million, respectively. The respective 
impairments  were  identified  as  part  of  management’s  review  of  impairment  indicators  during  the  year.  Accordingly,  it  was 
determined  that  the  recoverable  values  of  both  the  U.S.  Environmental  Services  business  segment  and  the  Refined  Products 
business within the Wholesale segment were less than the respective carrying values and, therefore, an impairment loss was 
recorded  for  the  respective  business  units.  As  at  December  31,  2016  the  entire  amount  of  goodwill  related  to  the  U.S. 
Environmental Services and Refined Products business segments has been written off. During the year ended December 31, 2015, 
a goodwill impairment loss within the U.S. Environmental Services business segment of $176.0 million was recorded, triggered by 
impairment indicators.  

Stock based compensation 

Stock based compensation expense was $24.9 million in the year ended December 31, 2016, compared to $20.4 million, in the 
year ended December 31, 2015. The increase was primarily driven by additional expense from the granting of stock awards in the 
year ended December 31, 2016 in lieu of cash bonuses for senior employees, as well as immediate vesting of awards for certain 
retiring executives during the current year. This was partially offset by the impact of forfeitures of performance share units. 

Foreign exchange loss not affecting segment profit 

In the years ended December 31, 2016 and 2015, the Company recorded a foreign exchange gain of $21.6 million and a foreign 
exchange loss of $108.2 million, respectively.  

The gains and losses recorded are primarily driven by the movement in exchange rates on the translation of the Company’s U.S. 
dollar denominated long-term debt and related financial instruments. In the years ended December 31, 2016 and 2015, a gain of 
$22.7  million  and  a  loss  of  $123.1  million,  respectively,  were  recorded  due  to  the  favorable  and  unfavorable  movements  in 
exchange rates on the translation of Company’s U.S. dollar denominated long-term debt. In the year ended December 31, 2015, 
the loss was partially offset by a gain of $10.0 million, related to the change in mark-to-market value of U.S. dollar denominated 
forward contracts and options used to mitigate the currency risk associated with the Company’s U.S. dollar denominated long-
term debt.  

      Gibson Energy Inc.                                                            14                                          2016 Management’s Discussion and Analysis  

Gibsons | 21

 
 
 
In the first quarter of 2015, the Company settled its forward contracts and options used to mitigate the currency risk associated 
with the Company’s U.S. dollar denominated long-term debt and as a result, received net cash of $36.6 million on the settlement 
of  U.S.  dollar  forward  contracts  for  a  notional  amount  of U.S.$250.0  million  and  U.S.  dollar  options  for  a  notional  amount  of 
U.S.$250.0 million.  

Net interest expense 

Net  interest  expense  was  $85.5 million  in  the  year  ended  December  31,  2016,  compared  to  $79.0 million  in  the  year  ended 
December 31, 2015. The increase for the year ended December 31, 2016 was primarily due to higher interest costs related to 
drawing on the revolving line of credit in the current year compared to the prior year and the issuance of Debentures in 2016, 
partially offset by higher capitalized interest amounts related to our long-term capital projects completed during the year. 

Income tax recovery  

Income  tax  recovery  from  continuing  and  discontinued  operations  was  $59.1  million  for  the  year  ended  December  31,  2016 
compared  to  an  income  tax  recovery  of  $6.7  million  for  the  year  ended  December  31,  2015,  as  disclosed  in  note  12  of  the 
consolidated financial statements. The effective tax rate was 27.0% during the year ended December 31, 2016 compared to 2.3% 
in the year ended December 31, 2015. The main driver for the income tax recovery and the change in the effective rate was the 
impact of the impairment of goodwill recorded during the years ended December 31, 2016 and December 31, 2015, partially 
offset by the impact of unrealized amounts relating to the net capital gains arising from foreign exchange movements on the 
Company’s U.S. dollar denominated long-term debt as well as the impact of income taxes recorded for discontinued operations. 
For the year ended December 31, 2015, as a result of the increase in the Alberta corporate tax rate, the income tax amount 
includes a $6.8 million charge relating to the impact of the higher tax rate on the valuation of the Company’s net deferred tax 
liabilities.  

      Gibson Energy Inc.                                                            15                                          2016 Management’s Discussion and Analysis  

22 | Gibsons

 
 
 
 
 
 
RESULTS OF DISCONTINUED OPERATIONS 

As discussed earlier in this MD&A, the Industrial Propane segment is classified as discontinued operations as at December 31, 
2016. 

The Industrial Propane segment is one of the largest retail propane suppliers in Canada with a diversified customer base including 
a  focus  on  oil  and  gas  customers  in  Western  Canada.  This  segment  operates  under  the  Canwest  and  Stittco  brands  and  sells 
propane and related equipment to oil and gas, commercial and other end-user customers. This 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. 

The following tables set forth operating results from discontinued operations of the Industrial Propane segment for the three 
months and year ended December 31, 2016 and 2015: 

Volumes (litres in thousands) 
Oilfield ...............................................................................................  
Commercial .......................................................................................  
Other .................................................................................................  

2016 
52,451 
51,371 
32,331 

2015 
61,467 
49,936 
26,595 

136,153 

137,998 

2016 
173,829 
143,210 
105,901 

422,940 

2015 
248,970 
157,926 
102,352 

509,248 

Three months ended 
 December 31 

Year ended  
December 31 

Three months ended  
December 31 
2016 

Year ended  
December 31 

2015 

2016 

2015 

Revenue 

Propane .....................................................................................  
Other .........................................................................................  
Total revenue ....................................................................................  
Cost of sales ......................................................................................  
Operating expenses and other ..........................................................  
Segment profit ..................................................................................  
Depreciation and amortization .........................................................  
Income before taxes .........................................................................  
Income tax (recovery) provision  .......................................................  
Net income ........................................................................................  

$  52,807 
7,498 
60,305 
30,374 
16,639 
13,292 
3,784 
9,508 
(4,282)   

$  13,790 

$  41,892 
8,425 
50,317 
18,363 
17,191 
14,763 
4,872 
9,891 
3,738 
6,153 

$ 

$  141,557 
26,353 
167,910 
69,608 
63,936 
34,366 
18,572 
15,794 
(2,659)  
18,453 

$ 

$  157,099 
29,820 
186,919 
73,092 
72,486 
41,341 
19,898 
  21,443 
6,725 
14,718 

$ 

Operational and financial performance 

In the three months and year ended December 31, 2016 compared to the three months and year ended December 31, 2015: 

Industrial propane volumes decreased by 1% and 17%, respectively. Quarter over quarter volumes were relatively consistent as 
lower overall oilfield activity was largely offset by higher activity from Commercial and Other, primarily driven by colder weather 
patterns in the fourth quarter of 2016 compared to the prior period. The year over year volume decrease was due to lower overall 
oilfield and commercial activity, and warmer weather patterns in the first half of 2016.  

Revenue  increased  by  20%  and  decreased  by  10%,  respectively.  The  quarter  over  quarter  increase  was  due  to  higher  prices, 
whereas the year over year decrease was mainly due to lower volumes. 

Segment profit decreased by 10% and 17%, respectively. Quarter over quarter segment profit decreased due to lower margins as 
a result of a higher proportion of lower margin products being sold in the current quarter compared to the prior quarter. The year 
over year segment profit decline was primarily due to lower volumes which were impacted by reduced oilfield and commercial 
activity resulting from warmer weather patterns and lower oilfield activity in the first half of the year. 

      Gibson Energy Inc.                                                            16                                          2016 Management’s Discussion and Analysis  

Gibsons | 23

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures 

The following table summarizes the Discontinued Operations capital expenditures for the years ended December 31, 2016 and 
2015: 

Growth capital  ............................................................................................................................. 
Upgrade and replacement capital ................................................................................................ 

Year ended  
December 31 

  $ 

2016 
793 
$        4,222 

2015 
  $      2,025 
$        7,645 

Growth expenditures in the year ended December 31, 2016 and 2015, mainly represent the addition of tanks and generators in 
key market areas, whereas the upgrade and replacement expenditures represent the replacement and maintenance related to 
the Company’s tanks and truck fleet. 

      Gibson Energy Inc.                                                            17                                          2016 Management’s Discussion and Analysis  

24 | Gibsons

 
 
 
 
 
 
 
 
 
 
 
 
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 

December 31 

September 30 

June 30 

March 31 

December 31 

September 30 

June 30 

March 31 

2016 

2015 

Continuing operations 
Revenue ..........................  
Net income (loss) ............  
EBITDA (2) ........................  
Adjusted EBITDA (3)  ........  
Earnings (loss) per share 
Basic ...........................  
Diluted ........................  

Discontinued operations 
Revenue ...........................  
Net income (loss) .............  
EBITDA (2) .........................  
Adjusted EBITDA (3)  .........  
Earnings (loss) per share 
     Basic ............................  
     Diluted ........................  

Combined operations 
Revenue (1) ......................  
Net income (loss) ............  
EBITDA (2) ........................  
Adjusted EBITDA (3)  ........  
Earnings (loss) per share 
Basic  ...........................  
Diluted ........................  

$1,414,187 
(50,597) 
27,312 
83,927 

$1,178,741 $1,095,026
(132,368)
(71,968)
41,553

(30,777)
45,580
60,691

$906,227 
35,575 
95,486 
57,921 

$1,226,007 
(218,373)
(118,227)
85,846

$1,319,048
(39,693)
36,286
92,169

$1,540,759
(6,195)
70,569
71,396

$1,319,497
(31,113)
45,259
95,180

(0.37) 
$       (0.37) 

(0.22)
$      (0.22)

(1.01)
$       (1.01)

0.28 
   $      0.28 

(1.74) 
$       (1.74) 

(0.31)
$       (0.31)

(0.05)
$      (0.05)

(0.25) 
$     (0.25) 

$     60,222 
13,790 
13,292 
13,292 

$  27,188 
(2,093) 
1,872 
1,872 

$   27,472 
(1,778) 
2,728 
2,728 

$  52,817 
8,534 
16,474 
16,122 

$     50,216 
6,153 
14,763 
15,115 

$   29,942 
(1,502) 
2,938 
2,938 

$   33,668 
(546) 
4,247 
4,247 

$    72,845 
10,613 
19,393 
19,393 

0.09 
$         0.09 

(0.01) 
$    (0.01) 

(0.01) 
$     (0.01) 

0.07 
$      0.06 

0.05 
$         0.05 

(0.02) 
$     (0.02) 

- 
- 

0.09 
$        0.09 

$1,474,409 
(36,807) 
40,604 
97,219 

$1,205,929 $1,122,498
(134,146)
(69,240)
44,281

(32,870)
47,452
62,563

$959,044 
44,109 
111,960 
74,043 

$1,276,223 
(212,220)
(103,464)
100,961

$1,348,990
(41,195)
39,224
95,107

$1,574,427
(6,741)
74,816
75,643

$1,392,342
(20,500)
64,652
114,573

(0.28) 
$      (0.28) 

(0.23)
$      (0.23)

(1.02)
$     (1.02)

0.35 
$    0.34 

(1.69) 
$      (1.69) 

(0.33)
$      (0.33)

(0.05)
$      (0.05)

(0.16) 
$    (0.16) 

(1)  Revenue from combined operations represents the aggregated results of both continuing and discontinued operations and is not a measure 

recognized under IFRS and does not have standardized meanings prescribed by IFRS. 

(2)  EBITDA  is  not  a  measure  recognized under  IFRS and  does not  have  standardized  meanings  prescribed by  IFRS.  EBITDA  from  continuing 
operations  only  consists  of  net  income  (loss)  before  interest  expense,  income  taxes,  depreciation  and  amortization  from  continuing 
operations. Combined EBITDA includes results from continuing and discontinued operations. 

(3)  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  long-term  assets  and  asset  write-downs.  It  also 
removes  the  impact  of  foreign  exchange  movements  in  the  Company’s  U.S.  dollar  denominated  long-term  debt,  debt  extinguishment 
expenses and adjustments that are considered non-recurring in nature. Combined Adjusted EBITDA includes results from continuing and 
discontinued operations, while Adjusted EBITDA from continuing operations only includes results from continuing operations. 

      Gibson Energy Inc.                                                            18                                          2016 Management’s Discussion and Analysis  

Gibsons | 25

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Company presents Combined EBITDA, EBITDA from continuing operations and discontinued operations, Combined Adjusted 
EBITDA, and Adjusted EBITDA from continuing operations and discontinued operations (collectively EBITDA and Adjusted EBITDA, 
respectively) because it 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. EBITDA and Adjusted EBITDA have limitations as analytical tools, 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 and Adjusted EBITDA: 

-

-

-

-

each exclude certain income tax payments that may represent a reduction in cash available to the Company; 

do  not  reflect  the  Company’s  cash  expenditures,  or  future  requirements  for  capital  expenditures  or  contractual 
commitments; 

do not reflect changes in, or cash requirements for, the Company’s working capital needs; and 

do not reflect the significant interest expense, or the cash requirements necessary to service interest payments on the 
Company’s  debt,  including  the  Debentures,  Notes  (as  defined  herein)  and  the  Revolving  Credit  Facility  9as  defined 
herein); 

- 

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 and Adjusted EBITDA do not reflect any cash requirements for such replacements; and 
-  Other companies in the industry may calculate EBITDA and Adjusted EBITDA differently than the Company does, limiting its 

usefulness as a comparative measure.  

      Gibson Energy Inc.                                                            19                                          2016 Management’s Discussion and Analysis  

26 | Gibsons

 
 
 
 
 
 
 
 
  
 
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered to be measures 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 and Adjusted EBITDA only as supplemental measures. The following 
table  reconciles  consolidated  net  income  (loss)  to  EBITDA  and  Adjusted  EBITDA  for  continuing  operations,  discontinued 
operations, and combined operations for the last eight quarters: 

2016 

2015 

Three months ended 

December 31 

September 30 

June 30 

March 31 

December 31  September 30 

June 30 

March 31 

Continuing operations 

Net income (loss) .........  

      $    (50,597)    $  (30,777) 

  $(132,368)   $  35,575 

  $  (218,373) 

  $  (39,693) 

  $ 

(6,195) 

  $  (31,113) 

Depreciation and 
amortization .................  
Interest expense  ..........  

          62,005 
23,461 

72,051 
21,416 

59,613
21,935

50,739 
19,807 

96,733 
19,441 

56,038 
19,471 

57,023 
20,206 

53,300 
20,462 

Income tax expense 
(7,557) 
(recovery) .....................  
EBITDA..........................           $     27,312 

(17,110) 

(21,148)

(10,635) 

(16,028) 

470 

(465) 

2,610 

  $  45,580 

  $  (71,968)   $  95,486 

  $  (118,227) 

  $  36,286 

  $  70,569 

  $  45,259 

Discontinued 
operations 

Net income (loss) .........  

Depreciation 
and 
amortization .................  

Income 
tax  expense 
(recovery) .....................  
EBITDA..........................  

Combined operations 

  $    13,790    $ 

(2,093) 

  $ 

(1,778)   $ 

8,534 

  $ 

6,153   $ 

(1,502) 

  $ 

(546)   $  10,613 

                3,784 

4,725 

5,149

4,914 

4,872

4,972 

4,984

5,070 

               (4,282)
        $   13,292 

  $ 

(760) 
1,872 

  $ 

(643)
3,026 
2,728   $  16,474 

3,738
  $  14,763   $ 

(532) 
2,938 

  $ 

(191)
3,710 
4,247   $  19,393 

Net income (loss) .........  

   $ 

(36,807) 

  $  (32,870) 

  $(134,146)   $  44,109 

  $  (212,220)   $  (41,195) 

  $ 

(6,741)   $  (20,500) 

Depreciation 
amortization .................                65,789 

and 

76,776 

64,762

55,653 

101,605

61,010 

62,007

58,370 

Interest expense ..........                23,461 
tax  expense 
Income 
(recovery) .....................  
EBITDA..........................     $       40,604 

21,416 

21,935

19,807 

19,441

19,471 

20,206

20,462 

          (11,839)               (17,870) 
  $  47,452 

(21,791)

(7,609) 
  $  (69,240)   $  111,960 

(12,290)
  $  (103,464) 

(62) 
  $  39,224 

(656)
  $  74,816 

6,320 
  $  64,652 

The results of EBITDA are primarily driven by segment profit for the respective reportable segments. For more details on the 
specific factors driving the periodic movements in segment profit, refer to the results of continuing and discontinued operations 
included in this MD&A.  

      Gibson Energy Inc.                                                            20                                          2016 Management’s Discussion and Analysis  

Gibsons | 27

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA and Pro Forma Adjusted EBITDA for continuing, discontinued, and combined operations (collectively 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 and Debentures), 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 such measures are frequently used by securities analysts, investors 
and other interested parties as measures 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 long-term assets and asset write-downs. It also removes the impact of foreign exchange movements in 
the  Company’s  U.S.  dollar  denominated  long-term  debt,  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 and divestitures that took place in each fiscal year as if the acquisitions and divestitures took place 
at the beginning of the fiscal year in which such acquisition or divestiture occurred. Pro Forma Adjusted EBITDA is also used in 
calculating the Company’s covenant compliance under the Company’s debt agreements.  

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 results of Adjusted EBITDA are driven by segment profit for the respective reportable segments as well as the adjustments 
discussed below in the tables. For more details on the specific factors driving the periodic movements in segment profit, refer to 
the results of continuing and discontinued operations included in this MD&A.  

      Gibson Energy Inc.                                                            21                                          2016 Management’s Discussion and Analysis  

28 | Gibsons

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The  following  tables  reconcile  EBITDA  to  Adjusted  EBITDA  for  continuing  operations,  discontinued  operations  and  combined 
operations for each of the last eight quarters and Pro Forma Adjusted EBITDA for the years ended December 31, 2016 and 2015: 

Three months ended 

December 31, 
 2016 

September 30, 
 2016 

June 30, 
2016 

March 31, 
 2016 

Year ended 
December 31, 
 2016 

Continuing operations 
  $  45,580 
EBITDA.........................................................................................     $  27,312 
Unrealized foreign exchange loss (gain) on long-term debt (1) ....  
5,940 
17,050 
Net unrealized loss (gain) from financial instruments (2) .............  
2,313 
(602) 
Stock based compensation (3) ......................................................  
6,858 
7,172 
Impairment of goodwill (4) ...........................................................  
- 
28,647 
Severance costs (5) .......................................................................  
- 
4,348 
Adjusted EBITDA .........................................................................     $  83,927    $  60,691 

  $ 

(71,968)    $  95,486 

2,090 
2,536 
7,490 
101,405 
- 
  $  41,553 

(47,795)   
1,178 
3,356 
- 
5,696 
  $  57,921 

  $ 

96,410
(22,715)
5,425
24,876
130,052
10,044
  $   244,092 

Discontinued operations 
13,292 
EBITDA.........................................................................................  
Net unrealized gain from financial instruments (2) ......................  
- 
Adjusted EBITDA .........................................................................     $  13,292 

  $ 

1,872 
- 
1,872 

  $ 

2,728 
- 
2,728 

16,474 

(352)   

  $  16,122 

34,366
(352)
  $     34,014 

Combined operations 
EBITDA.........................................................................................  
Unrealized foreign exchange loss (gain) on long-term debt (1) ....  
Net unrealized loss (gain) from financial instruments (2) .............  
Stock based compensation (3) ......................................................  
Impairment of goodwill (4) ...........................................................  
Severance costs (5) .......................................................................  
Combined Adjusted EBITDA ........................................................  
Pro forma impact of acquisitions (7) ............................................  
Combined Pro Forma Adjusted EBITDA ......................................  

40,604
17,050
(602)
7,172
28,647
4,348

(69,240)           111,960 
(47,795) 
826 
3,356 
- 
5,696 
  $  97,219   $  62,563   $  44,281           $74,043 

47,452
5,940
2,313
6,858
-
-

2,090
2,536
7,490
101,405
-

130,776
(22,715)
5,073
24,876
130,052
10,044
  $  278,106
-
  $  278,106

      Gibson Energy Inc.                                                            22                                          2016 Management’s Discussion and Analysis  

Gibsons | 29

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended 

December 31, 
 2015 

September 30, 
 2015 

June 30, 
 2015 

March 31, 
 2015 

Continuing operations 
EBITDA.........................................................................................  
Unrealized foreign exchange loss (gain) on long-term debt (1) ....  
Net unrealized loss (gain) from financial instruments (2) .............  
Stock based compensation (3) ......................................................  
Impairment of goodwill (4) ...........................................................  
Acquisition related costs (6) .........................................................  
Adjusted EBITDA .........................................................................  

  $  (118,227)
24,530
(2,078)
5,662
175,959
-

  $  36,286   $  70,569
(11,495)
7,206
5,116
-
-
  $  85,846   $  92,169   $  71,396

50,600
82
5,135
-
66

  $ 

  $ 

45,259 
59,510 
(14,066) 
4,466 
- 
11 
95,180 

Year ended 
December 31, 
 2015 

  $ 

33,887
123,145
(8,856)
20,379
175,959
77
  $  344,591

Discontinued operations 
EBITDA.........................................................................................  
Net unrealized loss from financial instruments (2) .......................  
Adjusted EBITDA .........................................................................  

14,763
352
  $  15,115

2,938
-
2,938

4,247
-
4,247

19,393 
- 
         19,393 

41,341
352
41,693

  $ 

Combined operations 
EBITDA.........................................................................................  
Unrealized foreign exchange loss (gain) on long-term debt (1) ....  
Net unrealized loss (gain) from financial instruments (2) .............  
Stock based compensation (3) ......................................................  
Impairment of goodwill (4) ...........................................................  
Acquisition related costs (6) .........................................................  
Combined Adjusted EBITDA ........................................................  
Pro forma impact of acquisitions (7) ............................................  
Combined Pro Forma Adjusted EBITDA ......................................  

  $  (103,464)
24,530
(1,726)
5,662
175,959
-

  $  39,224   $  74,816
(11,495)
7,206
5,116
-
-
  $  100,961   $  95,107   $  75,643

50,600
82
5,135
-
66

  $ 

64,652 
59,510 
(14,066) 
4,466 
- 
11 
  $  114,573 

  $ 

75,228
123,145
(8,504)
20,379
175,959
77
  $  386,284
3,611
  $  389,895

(1)  Non-cash adjustment representing the unrealized foreign exchange gain and loss and foreign exchange gain and loss related to long-term 

debt as a result of the movement in exchange rates in the periods. 

(2)  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. 

(3)  Represents the non-cash stock based compensation relating to the Company’s equity incentive plan.  

(4)  Represents the non-cash impairment of goodwill charge recorded in the years ended December 31, 2016 and 2015. 

(5)  Represents the severance costs incurred related to a headcount rationalization review throughout 2016. 

(6)    Represents transaction fees that were expensed in connection with acquisitions made by the Company. 

(7)  Reflects the pro forma impact of acquisitions on the Company’s Adjusted EBITDA as if the acquisitions that took place in the twelve month 
period occurred on January 1 of each twelve month period. The pro forma impact of acquisitions is calculated on the same basis as Adjusted 
EBITDA.  

      Gibson Energy Inc.                                                            23                                          2016 Management’s Discussion and Analysis  

30 | Gibsons

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIQUIDITY AND CAPITAL RESOURCES 

Liquidity Sources 

The  Company’s  primary  liquidity  and  capital  resource  needs  are  to  fund  ongoing  capital  expenditures,  growth  opportunities, 
acquisitions, and to fund its dividend. In addition, the Company must service its debt, including interest payments, and finance 
working capital needs. The Company’s short-term and long-term liquidity needs are met through the following sources: cash flow 
from operations, debt and equity financings, borrowings under the Revolving Credit Facility and proceeds from the sale of assets. 
As  at  December  31,  2016,  the  Company  has  sufficient  liquidity  sources  to  fund  its  ongoing  capital  expenditures,  growth 
opportunities, dividends, debt service requirements and working capital needs over the short and long-term. As discussed in the 
subsequent events section, the Company received a cash payment of $412.0 million on March 1, 2017 in connection with the sale 
of  the  Industrial  Propane  business  which  will  be  utilized  to  repay  certain  indebtedness  of  the  Company.  Furthermore,  the 
Company may enter into transactions that are planned to further refinance our long-term indebtedness, reduce interest costs 
and extend certain maturities in our debt portfolio.  

 Cash flow summary 

The  Company’s  operating  cash  flow  is  generally  impacted  by  the  overall  profitability  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  growth  strategy  and  manage  costs.  Below  is  the  summary  of  changes  in  the  cash  flow  from  continuing  and 
discontinued operations:  

Continuing operations 

The following table summarizes the Company’s sources and uses of funds for the years ended December 31, 2016 and 2015 from 
continuing operations: 

Year ended  
December 31 
2016 

2015 

Statement of cash flows 
Cash flows provided by (used in): 
Operating activities ..................................................................................................................................  
Investing activities ....................................................................................................................................  
Financing activities ...................................................................................................................................  

  $ 

175,482 
(243,193) 
$          17,556 

  $ 

399,117 
(364,565) 
$     (141,862) 

Cash provided by operating activities 

Cash provided by operations in the year ended December 31, 2016 was $175.5 million compared to $399.1 million in the year 
ended December 31, 2015. The decrease was due to a decline in segment profit primarily related to the Logistics and Wholesale 
segments (refer to the respective section in “Results of Continuing Operations” for more details) as well as changes in working 
capital needs that resulted in the use of $47.1 million in cash in the year ended December 31, 2016 compared to cash provided 
to fund working capital of $56.5 million in the year ended December 31, 2015. The change in working capital requirements in the 
current period was largely driven by inventory storage requirements along with the impact of increased commodity prices. 

Cash  provided  by  operating  activities  and  working  capital  requirements  is  strongly  influenced  by  the  amount  of  inventory 
purchased and subsequently held in storage, as well as by the commodity prices at which inventory is bought and sold. Commodity 
prices and inventory demand fluctuate over the course of the year in relation to general market forces and seasonal demand for 
certain products like propane, and, accordingly, working capital requirements related to inventory also fluctuate with changes in 
commodity prices and demand. The primary drivers of working capital requirements are the collection of amounts related to sales 
of products such as crude oil, propane, NGLs, asphalt and other products and fees for services associated with the Company’s 
Logistics and Infrastructure segments. Offsetting these collections are payments for purchases of crude oil and other products, 
primarily within the Wholesale segment, and other expenses. Historically, the Wholesale segment has been the most variable 
with respect to generating cash flows and working capital 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 this segment. Working 
capital  is  also  influenced  by  the  management  and  timing  of  certain  financing  activities  related  to  the  credit  facility,  interest 
payments on debt, as well as payments of dividends as discussed below under cash provided by (used in) financing activities. 

      Gibson Energy Inc.                                                            24                                          2016 Management’s Discussion and Analysis  

Gibsons | 31

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash used in investing activities 

Cash used in investing activities consists primarily of capital expenditures and business acquisitions. 

Cash used in investing activities was $243.2 million in the year ended December 31, 2016, compared to $364.6 million in the year 
ended December 31, 2015. Cash used in investing activities largely relates to capital expenditures and acquisitions of which none 
were completed during 2016. For a summary of capital expenditures and acquisitions for the respective segments, see “Capital 
expenditures” included throughout this MD&A. 

Cash provided by (used in) financing activities 

Cash provided by financing activities was $17.6 million in the year ended December 31, 2016 compared to cash used in financing 
activities of $141.8 million in the year ended December 31, 2015. The change was due to the net proceeds from the issuance of 
common shares of $220.0 million and the net proceeds from the issuance of the Debentures of $96.3 million, partially offset by 
the payment of net interest and cash dividends of $89.0 million and $175.6 million, respectively, compared to net interest and 
cash dividends of $84.1 million and $129.0 million, respectively, in the year ended December 31, 2015. In addition, in the year 
ended December 31, 2016, the Company made net payments to credit facilities of $35.0 million, and in the year ended December 
31,  2015,  the  Company  received  net  proceeds  on  the  settlement  of  financial  instruments  of  $36.6  million.  The  increase  in 
dividends paid was driven by both the $0.01 per share increase in dividends, effective in the first quarter of 2016, the increase in 
shares outstanding from the share issuance and also the impact of the suspension of the DRIP during 2015, resulting in a $28.9 
million increase in cash dividends paid during 2016.  

Discontinued operations 

The following table summarizes the sources and uses of funds for the years ended December 31, 2016 and 2015 from discontinued 
operations: 

Year ended December 31, 

2016 

2015 

Statement of cash flows 
Cash flows provided by (used in): 
Operating activities ..................................................................................................................................  
Investing activities ....................................................................................................................................  
Financing activities ...................................................................................................................................  

  $ 

32,084 
(3,507)   

$                     - 

  $ 

58,950 
(8,063) 
$                     - 

Cash provided by operating activities 

Cash provided by operations in the year ended December 31, 2016 was $32.1 million compared to $58.9 million in the year ended    
December 31, 2015. The decrease was primarily due to a decline in segment profit and working capital requirements.   

Cash used in investing activities 

Cash used in investing activities was $3.5 million  in the year ended December 31, 2016, compared to $8.1 million in the year 
ended  December  31,  2015.  Cash  used  in  investing  activities  largely  funded  capital  expenditures  related  to  upgrade  and 
replacement activities. 

Cash provided by (used in) financing activities 

There was no cash provided by (used in) financing activities related to discontinued operations. 

      Gibson Energy Inc.                                                            25                                          2016 Management’s Discussion and Analysis  

32 | Gibsons

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures  

The following table summarizes growth capital and upgrade and replacement capital for the years ended December 31, 2016 and 
2015: 

Growth capital (1) ..........................................................................................................................................  
Upgrade and replacement capital (2) ............................................................................................................  
Total ............................................................................................................................................................  

  $ 

  $ 

Year ended  
December 31 
2016 
202,984 
24,841 
227,825 

2015 
  $  343,766 
39,130 
  $      382,896 

(1)  Growth capital expenditures in the years ended December 31, 2016 and 2015 include Other and Corporate expenditures of $2.1 million and 
$8.5 million, respectively. These expenditures mainly relate to growth capital expenditure costs associated with the Company’s information 
and operational systems. The remainder of the growth capital expenditures have been discussed in continuing and discontinued operations 
earlier in this MD&A.  

(2)  Upgrade and replacement capital expenditures in the years ended December 31, 2016 and 2015 include Other and Corporate expenditures 
of  $2.0  million  and  $4.5  million,  respectively.  These  expenditures  mainly  relate  to  upgrade  and  replacement  costs  associated  with  the 
Company’s information and operational systems. The remainder of the upgrade and replacement capital expenditures have been discussed 
in continuing and discontinued operations earlier in this MD&A.  

Planned capital expenditures 

Capital expenditures amounted to $227.8 million in the twelve months ended December 31, 2016. As previously announced, the 
Company has approved a 2017 growth capital expenditure budget ranging from $150.0 million to $250.0 million and an additional 
$45.0 million allocated to upgrade and replacement capital expenditures. As at December 31, 2016, the Company has identified 
and  approved  planned  growth  capital  expenditure  commitments,  excluding  acquisitions,  of  $194.7  million  that  the  Company 
expects to undertake over the next 12 to 24 months. While the Company anticipates that these planned capital expenditures will 
occur, certain capital projects are subject to general economic, financial, competitive, legislative, regulatory and other factors, 
some of which are beyond the Company’s control and could impact the Company’s ability to complete such activities as planned. 

In  addition  to  anticipated  capital  expenditures,  the  Company  may  engage  in  strategic  acquisitions  and  additional  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. 

Capital structure 

As at December 31 

2016 

2015 

Notes 
  U.S.$550.0 million 6.75% Notes due July 15, 2021 ................................................................................  
  $250.0 million 7.00% Notes due July 15, 2020 ......................................................................................  
  $300.0 million 5.375% Notes due July 15, 2022 ....................................................................................  
  Unamortized issue discount and debt issue costs .................................................................................  
Total financial liability borrowings...........................................................................................................  
$100.0 million Debentures 5.25% due July 15, 2021 (liability component) ............................................  
Total debt outstanding ............................................................................................................................  
Cash and cash equivalents .......................................................................................................................  
Net debt (1) ...............................................................................................................................................  
Total share capital (including Debentures – equity component) ............................................................  
Total capital .............................................................................................................................................  

  $ 

738,485 
250,000 
300,000 
(16,646) 
1,271,839 
89,765 
1,361,604 
(60,159) 
1,301,445 
1,919,267 
  $  3,220,712 

  $ 

761,200 
250,000 
300,000 
(19,777) 
1,291,423 
- 
1,291,423 
(82,775) 
1,208,648 
1,672,323 
  $  2,880,971 

(1)  The Debentures are included in the above total capital calculation in accordance with the Company’s view of its capital structure which includes shareholders’ 
equity, long-term debt, the Debentures, the Revolving Credit Facility and working capital. The Debentures and associated interest payments are excluded 
from the definition of net debt included in the consolidated senior and total debt covenant ratios as well as the consolidated interest coverage covenant ratio. 

      Gibson Energy Inc.                                                            26                                          2016 Management’s Discussion and Analysis  

Gibsons | 33

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes 

On June 28, 2013, the Company issued U.S.$500.0 million 6.75% Senior Unsecured Notes due July 15, 2021 at an issue price of 
98.476% and $250.0 million 7.00% Senior Unsecured Notes due July 15, 2020 at an issue price of 98.633%. On June 12, 2014, the 
Company issued U.S.$50.0 million 6.75% Senior Unsecured Notes due July 15, 2021 at an issue price of 108% and issued $300.0 
million 5.375% Senior Unsecured Notes due July 15, 2022 at an issue price of par (collectively, the “Notes”). Interest is payable 
semi-annually on January 15 and July 15 of each year the Notes are outstanding. 

The indenture governing the terms of the Notes, including the supplemental indenture thereto (the “Indenture”), contains certain 
redemption options whereby the Company can redeem all or part of the Notes at prices set forth in the Indenture from proceeds 
of an equity offering or on the dates specified in the Indenture. In addition, the holders of Notes have the right to require the 
Company to redeem the Notes at the redemption prices set forth in the respective indebtedness in the event of a change in 
control  or  in  the  event  certain  asset  sale  proceeds  are  not  re-invested  in  the  time  and  manner  specified  in  the  respective 
indebtedness. 

Debentures  

On June 2, 2016, the Company issued $100.0 million aggregate principal amount of Debentures at a price of $1,000 per Debenture 
for net proceeds of approximately $96.3 million, including debt issuance costs of $3.7 million. The Debentures, issued at par, bear 
interest at a rate of 5.25% per annum, payable semi-annually on July 15 and January 15 in each year commencing January 15, 
2017, mature on July 15, 2021, and may be redeemed, in certain circumstances, on or after July 15, 2019. The Debentures are 
convertible  at  the holder's  option  into  common  shares  at  any  time  prior  to  the  earlier  of  July  15,  2021  and  the  business  day 
immediately preceding the date fixed for redemption by the Company at a conversion price of $21.65 per common share, being 
a  ratio  of  approximately  46.1894  common  shares  per  $1,000  principal  amount  of  the  Debenture.  The  Debentures  are 
subordinated to the Company's senior indebtedness.  

Credit facility 

The Revolving Credit Facility of $500.0 million (“Revolving Credit Facility”), the proceeds of which are available to provide financing 
for  working  capital  and  other  general  corporate  purposes,  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 
an extendible term of five years, expiring on August 15, 2020. 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. In addition, the Company has three bilateral demand letter of credit facilities totaling $150.0 million. The 
Company had $nil and $35.0 million drawn on its $500.0 million Revolving Credit Facility as of December 31, 2016 and December 
31, 2015, respectively, and had issued letters of credit totaling $48.4 million and $32.6 million under its bilateral demand letter of 
credit facilities as at December 31, 2016 and December 15, 2015, respectively.  

The Revolving Credit Facility contains certain covenants, including financial covenants requiring the Company to maintain ratios 
of maximum consolidated senior and total debt leverage as well as to maintain a minimum interest coverage ratio. On December 
16, 2016 the Company reached an agreement with its bank syndicate to amend its $500.0 million Revolving Credit Facility. These 
amendments  included  an  increase  to  the  maximum  consolidated  senior  and  total  debt  leverage  ratio  from  4.85  to  1.0  to                       
5.25 to 1.0 for the period ending on the earlier of the date that is either the last day of the fiscal quarter immediately preceding 
the  fiscal  quarter  in  which  the  sale  of  the  Industrial  Propane  segment  is  closed  or  abandoned,  or  June  30,  2017  (covenant 
amendment period), with such threshold decreasing to 4.85 to 1.0 for the period beginning after the covenant amendment period 
and ending on December 31, 2017, and decreasing to 4.25 to 1.0 for the period beginning January 1, 2018 and ending on March 
31, 2018 and further decreasing to 3.5 to 1.0 thereafter. See the “subsequent events” section for details on amendments to these 
covenants subsequent to December 31, 2016. In addition, the Company is also required to maintain a minimum interest coverage 
ratio of no less than 2.5 to 1.0. The consolidated senior debt ratio represents the ratio of all senior debt obligations to Pro Forma 
Adjusted  EBITDA.  The  consolidated  total  debt  ratio  represents  the  ratio  of  total  debt  to  Pro  Forma  Adjusted  EBITDA.  The 
consolidated interest coverage ratio represents the ratio of Pro Forma Adjusted EBITDA to consolidated cash interest expense.  

      Gibson Energy Inc.                                                            27                                          2016 Management’s Discussion and Analysis  

34 | Gibsons

 
 
 
 
As  at  December  31,  2016,  the  Company  was  in  compliance  with  the  financial  ratios  with  the  senior  debt  leverage  ratio  at                             
4.4 to 1.0, total debt leverage ratio at 4.4 to 1.0, and the interest coverage ratio at 3.0 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 the Revolving Credit Facility 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 principal, interest 
or fees when due, breach of covenants, change in control and material inaccuracy of representations and warranties, subject to 
specified grace periods. As of December 31, 2016, the Company was in compliance with all of its covenants under the Notes and 
the Revolving Credit Facility. 

Share capital  

On June 2, 2016, the Company completed an offering of 14,892,500 common shares at a price of $15.45 per common share for 
net proceeds of $220.1 million, including share issuance costs of $10.0 million. 

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 Gibsons will be at the discretion of the Board and will be established on 
the basis of Gibsons’ 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.  In  the  three  months  ended  December  31,  2016,  the  Company  declared  a 
dividend of $0.33 per share for a total dividend of $46.8 million, of which the entire amount was paid in cash on January 17, 2017. 
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.  

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 from continuing and combined operations (collectively “distributable cash flow”) is used 
to assess the level of cash flow generated 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 fluctuations in product inventories or other temporary changes. Upgrade and replacement capital expenditures are 
deducted from distributable cash flow as there is an ongoing requirement to incur these types of expenditures. The Company may 
deduct or include additional items in its calculation of distributable cash flow; these items would generally, but not necessarily, 
be items of a non-recurring  nature. The Company has currently reflected non-recurring items relating to severance costs and 
income taxes paid in distributable cash flow to approximate the internally generated cash flow available to the Company within 
its normal operating cycle. 

During the fourth quarter of 2016, the Company revised its distributable cash flow calculations whereby certain non-recurring 
adjustments were excluded from the measure. Income taxes were also adjusted to include the impact of cash taxes paid during 
the period instead of current income taxes. In the Company’s view, the revised calculations provide a more meaningful measure 
to the users of the MD&A.  

The following is a reconciliation of distributable cash flow from combined operations to its most closely related IFRS measure, 
cash flow from operating activities for the years ended December 31, 2016, 2015 and 2014. 

      Gibson Energy Inc.                                                            28                                          2016 Management’s Discussion and Analysis  

Gibsons | 35

 
 
 
 
 
 
Year ended  
December 31 

Continuing operations 

2016 

2015 1 

2014 1 

Cash flow from operating activities ..........................................................  
Adjustments: 

Changes in non-cash working capital ....................................................  
Upgrade and replacement capital .........................................................  
Cash interest expense, including capitalized interest ...........................  
Non-recurring items: .............................................................................  
       Severance costs (2) ...........................................................................  
       Income taxes paid (3)  .......................................................................  
Distributable cash flow from continuing operations ................................  

$  175,482 

     $   399,117

     $   307,040

32,491 
(24,841) 
(91,236) 

10,044 
- 

       $      101,940        

(92,458)
(39,130)
(84,965)

2,830
15,596
$   200,990

3,858
(53,874)
(68,708)

-
-
$   188,316

Year ended  
December 31 

Combined operations  

2016 

2015 1 

2014 1 

Combined cash flow from operating activities .........................................  
Adjustments: 

Combined changes in non-cash working capital ...................................  
Combined upgrade and replacement capital ........................................  
Cash interest expense, including capitalized interest ...........................  
Non-recurring items: .............................................................................  
       Severance costs (2) ...........................................................................  
       Income taxes paid (3)  .......................................................................  
Distributable cash flow from combined operations .................................  

$  207,566 

     $      458,067

     $      336,228

34,333 
(29,063) 
(91,236) 

10,044 
- 
$     131,644 

(118,456)
(46,775)
(84,965)

2,830
15,596
$     226,297

29,302
(59,035)
(68,708)

-
-
$     237,787

Dividends declared to shareholders .........................................................  

$  181,994 

$  161,002

$  148,573

(1)  Comparative period combined distributable cash flow has been restated to reflect the current year presentation including adjustments to 

non-recurring items. 

(2)  Represents the severance costs incurred related to a headcount rationalization review throughout 2016 and 2015, which are considered 

non-recurring. 

(3)  Represents  $11.0  million  accelerated  payment  to  settle  the  provincial  portion  of  the  partnership  deferral  for  2015  and  2016  and 
approximately $4.6 million of additional current tax expense relating to the net realized gain on the settlement of the U.S. dollar forward 
contracts and U.S. dollar options in the first quarter of 2015, which are considered non-recurring. 

Dividends declared in the year ended December 31, 2016 were $182.0 million, of which the entire amount was paid in cash. In 
the year ended December 31, 2016, dividends declared represented 138% of the combined distributable cash flow generated.  

Contractual obligations  

The following table presents, at December 31, 2016, the Company’s obligations and commitments to make future payments under 
contracts and contingent commitments: 

Total 
Long-term debt (1) ....................................................................  
   $ 1,288,485 
Convertible debentures ..........................................................  
100,000 
Interest payments on long-term debt and Debentures (1) .......  
677,472 
Operating lease and other commitments (2) ............................  
259,937 
Total contractual obligations ..................................................     $   2,325,894 

Payments due by period 

 $ 

Less than 
1 year 
- 
- 
98,222 
65,359 

 $ 

1-3 years 
- 
- 
196,443 
102,493 

3-5 years 
 $  988,485 
100,000 
196,443 
41,914 

 $ 

More than 
5 years 
300,000 
- 
186,364 
50,171 

 $  163,581 

 $  298,936 

 $ 1,326,842 

 $ 

536,535 

      Gibson Energy Inc.                                                            29                                          2016 Management’s Discussion and Analysis  

36 | Gibsons

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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, 2016 of U.S.$0.7448 to CAD$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. 

In addition, the Company had accrued liabilities for obligations with respect to the Company’s defined benefit plans of $5.1 million 
and provisions associated with site restoration on the retirement of assets and environmental costs of $171.0 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”.  

Contingencies 

The Company is currently undergoing various tax related 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.  

The Company is involved in various claims and actions arising in the course of operations and is subject to various legal actions 
and exposures. Although the outcome of these claims is uncertain, the Company does not expect these matters to have a material 
adverse effect on the Company’s financial position, cash flows or operational results. If an unfavorable outcome were to occur, 
there exists the possibility of a material adverse impact on the Company’s consolidated net income or loss in the period in which 
the outcome is determined. Accruals for litigation, claims and assessments are recognized if the Company determines that the 
loss is probable and the amount can be reasonably estimated. The Company believes it has made adequate provision for such 
legal claims. While fully supportable in the Company’s view, some of these positions, if challenged may not be fully sustained on 
review. 

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.  

OFF-BALANCE SHEET ARRANGEMENTS 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future 
effect on the Company’s financial performance or financial condition. 

RELATED PARTY TRANSACTIONS 

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, 2016 and 2015, the 
Company’s  proportionate  share  of  property,  plant  and  equipment  in  the  Plato  Partnership  was  $8.9  million  and  $9.4 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. 

OUTSTANDING SHARE DATA 

The Company is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares. As at 
December 31, 2016, there were 141.7 million common shares outstanding and no preferred shares outstanding. In addition, under 
the Company’s equity incentive plan, there were an aggregate of 2.8 million restricted share units, performance share units and 
deferred share units outstanding and 3.1 million stock options outstanding as at December 31, 2016.  

At December 31, 2016, awards available to grant under the equity incentive plan were approximately 8.3 million. 

As at March 6, 2016, 141.8 million common shares, 2.7 million restricted share units, performance share units and deferred share 
units and 2.9 million stock options were outstanding. 

      Gibson Energy Inc.                                                            30                                          2016 Management’s Discussion and Analysis  

Gibsons | 37

 
 
 
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, (iii) currency exchange rates and (iv) equity prices. The Company utilizes various derivative instruments 
from time to time to manage commodity price, interest rate, currency exchange rate, and equity price 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 Commodity Risk Management Committee that has direct responsibility and authority for the Company’s risk policies and 
the Company’s trading controls and procedures. Additionally, certain aspects of corporate risk management are handled within 
the  Risk  Management  Group.  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 New York Mercantile Exchange, the Intercontinental Exchange 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  transact  only  in 
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 as a result of production, transportation and 
delivery variances as well as logistical issues associated with inclement weather conditions. 

The  intent  of  the  Company’s  risk  management  strategy  is  to  hedge  the  Company’s  margin.  However,  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 Chicago Mercantile Exchange. 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, 2016 and December  31, 2015. 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 $9.7 million and $6.8 million as of December 31, 2016 and 2015, respectively. A 15% unfavorable change 
would decrease the Company’s net income by $10.1 million and $6.1 million as of December 31, 2016 and 2015, respectively. 
However, these changes may be offset by the use of one or more risk management strategies. 

Interest  rate  risk.  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 the Canadian Prime Rate or U.S. LIBOR, U.S. Base Rate or Canadian Bankers’ Acceptance Rate, plus 
an applicable margin based on the Company’s total leverage ratio. As at December 31, 2016, the Company had $nil drawn under 
the Revolving Credit Facility and, accordingly, is currently not subject to the interest rate cash flow risk associated with these 
amounts. At December 31, 2015, the Company had $35.0 million drawn under the Revolving Credit Facility and 1% favorable and 

      Gibson Energy Inc.                                                            31                                          2016 Management’s Discussion and Analysis  

38 | Gibsons

 
 
 
unfavorable change in interest rates in relation to the amounts drawn at December 31, 2015 would have impacted net income by 
$0.3 million. 

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 $1.9 million and $1.2 million as at December 
31, 2016 and 2015, respectively. A 5% favorable change would increase the Company’s net income by $1.8 million and $1.2 million 
as at December 31, 2016 and 2015, 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,  2016,  the  Company  had  outstanding  U.S.  dollar 
denominated debt of U.S.$550.0 million. As a result of the settlement of U.S. forward and options contracts in the first quarter of 
2015, the Company has no foreign currency hedges in place relating to its long-term debt at December 31, 2016 and, therefore, 
the  Company  is  exposed  to  the  associated  foreign  currency  exchange  risk.  The  Company  monitors  its  exposure  to  foreign 
currencies,  including  associated  interest  payments,  and,  where  optimal,  will  consider  minimizing  exposure  using  appropriate 
hedging strategies. Currently, 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 any related foreign currency contracts and would decrease the 
Company’s net income by $31.9 and $33.1 million as at December 31, 2016 and 2015, respectively. A corresponding favorable 
change would increase the Company’s net income by $31.9 and $33.1 million as at December 31, 2016 and 2015, 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 and, therefore, the Company is exposed to the associated foreign currency exchange 
risk. Based on the interest rate in effect at December 31, 2016, a 5% unfavorable change in the value  of the Canadian dollar 
relative to the U.S. dollar as of December 31, 2016 would increase the Company’s annual interest expense by $2.5 million. A 5% 
favorable change in the value of the Canadian dollar relative to the U.S. dollar as of  December 31, 2016  would decrease the 
Company’s annual interest expense by $2.5 million.  

Equity price risk: The Company has equity price and dilution exposure to shares that it issues under its stock based compensation 
programs.  Gibsons  uses  equity  derivatives  to  manage  volatility  derived  from  its  stock  based  compensation  programs.  These 
contracts will mature at the prevailing share prices in accordance with the specific maturities of each contract over a three year 
period. As at December 31, 2016 and 2015, the Company estimates that a 10% increase in the Company’s share price would have 
resulted in an increase in the Company’s income of $1.7 million and $0.6 million, respectively. A corresponding decrease in the 
Company’s share price would decrease the Company’s net income by $1.7 million and $0.6 million, respectively.  

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. 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 

      Gibson Energy Inc.                                                            32                                          2016 Management’s Discussion and Analysis  

Gibsons | 39

 
 
 
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,  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. 

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. 

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 

      Gibson Energy Inc.                                                            33                                          2016 Management’s Discussion and Analysis  

40 | Gibsons

 
 
 
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.  

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.  

Initial adoption of accounting policies 

During 2016, the following policies were adopted by the Company: 

Assets held for sale and discontinued operations. This policy was adopted as a result of the Company’s plans to sell its Industrial 
Propane business as discussed in note 6 of the consolidated financial statements. Accordingly, non-current assets were classified 
as held for sale as the carrying amounts will be recovered through a sale transaction rather than through continuing use. This 
condition was met as at December 31, 2016 as the sale was highly probable and the disposal group were available for immediate 
sale in their present condition.  

Non-current assets and disposal groups are classified and presented as discontinued operations if the assets or disposal groups 
are disposed of or classified as held for sale and: 

- 
- 

-

the assets or disposal groups are a major line of business or geographical area of operations; 
the  assets  or  disposal  groups  are  part  of  a  single  coordinated  plan  to  dispose  of  a  separate  major  line  of  business  or 
geographical area of operations; or 
the assets or disposal groups are a subsidiary acquired solely for the purpose of resale. 

The assets or disposal groups that meet these criteria are measured at the lower of the carrying amount and fair value less costs 
of  disposal,  with  impairments  recognized  in  the  consolidated  statement  of  operations.  Non-current  assets  held  for  sale  are 
presented in current assets and liabilities within the consolidated balance sheet. Assets held for sale are not depreciated, depleted 
or amortized. Comparative periods in the consolidated balance sheets are not restated. The results of discontinued operations 
are shown separately in the consolidated statements of operations and comparative figures are restated.  

The Company has applied this policy as of December 31, 2016 and accordingly has classified the Industrial Propane segment as 
held for sale within the current year for the consolidated balance sheet with no restatement of the prior year. The results of 
discontinued operations are shown separately and comparatives were represented as  disclosed in note 6 of the consolidated 
financial statements. 

Compound financial instruments. Compound financial instruments are separated into liability and equity components. The 
liability component is recognized initially at the fair value of a similar liability that does not have an equity conversion option 
and the equity component is recognized as the difference between the fair value of the compound financial instrument as a 

      Gibson Energy Inc.                                                            34                                          2016 Management’s Discussion and Analysis  

Gibsons | 41

 
 
 
 
 
 
whole and the fair value of the liability component net of any deferred taxes. Any transaction costs are allocated to the liability 
and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component 
of the compound financial instrument is measured at amortized cost and is accreted to the original principal balance using the 
effective interest method. The equity component is not remeasured subsequent to initial recognition. The equity component 
and the accreted liability component are reclassified to share capital upon conversion and any balance in the equity component 
of the compound financial instrument that remains after the settlement of the liability is transferred to contributed surplus. 

The Company has applied this policy as of June 30, 2016 as a result of the issuance of the Debentures. The Company has presented 
the liability and equity components separately in its consolidated balance sheet. The Debentures have been classified as a liability, 
net of issue costs and net of the fair value of the conversion feature at the date of issue, which has been classified as shareholders’ 
equity. The liability component will accrete up to the principal balance at maturity. The accretion of the liability component and 
interest payable are expensed in the statement of operations. 

Amended standards adopted by the Company  

The Company adopted the following new and revised standards, along with any consequential amendments. These changes were 
made in accordance with applicable transitional provisions. 

•

• 

• 

The annual improvements process addresses  issues in the 2014-2016 reporting cycles including changes to IFRS 5 -  Non-
current  assets  held  for  sale  and  discontinued  operations,  IFRS  7  -  Financial  instruments:  Disclosures,  IAS  19  -  Employee 
benefits, and IAS 34 -  Interim financial reporting. These improvements are effective for periods beginning on or after January 
1, 2016. The adoption of these improvements did not have a material impact on the consolidated financial statements. 

IAS  1  -  Presentation  of  financial  statements  (“IAS  1”),  has  been  amended  to  clarify  the  guidance  on  materiality  and 
aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. 
The  amendment  to  IAS  1  is  effective  for  annual  periods  beginning  on  or  after  January  1,  2016.  The  adoption  of  this 
amendment did not have a material impact on the consolidated financial statements. 

IFRS 10 - Consolidated financial statements (“IFRS 10”), and IAS 28 - Investments in associates and joint ventures (“IAS 28”), 
have each been amended to address an inconsistency between IFRS 10 and IAS 28 in regards to a sale or contribution of 
assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or 
loss is recognized when the transaction involves a business combination, and whereas a partial gain is recognized when the 
transaction involves the assets that do not constitute a business. Additionally, the amendments clarify the exception from 
preparing consolidated financial statements, the consolidation requirements for subsidiaries which act as an extension of an 
investment  entity,  and  the  requirements  for  equity  accounting  for  investments  in  associates  and  joint  ventures.  The 
amendments to IFRS 10 and IAS 28 are effective for annual periods beginning on or after January 1, 2016. The adoption of 
these amendments did not have a material impact on the consolidated financial statements. 

New standards and interpretations issued but not yet adopted  

The following provides information requiring new standards and interpretations that have been issued but not yet adopted by 
the Company: 

•

•

•

• 

The annual improvements process addresses issues in the 2014-2016 reporting cycles include changes to IFRS 12 - Disclosure 
of interests in other entities. This improvement is effective for periods beginning on or after January 1, 2017. The Company 
is currently evaluating the impact of adopting this standard on its consolidated financial statements. 

IFRIC 22 - Foreign currency transactions and advance consideration (“IFRIC 22”), provides guidance on how to determine the 
date of the transaction when an entity either pays or receives consideration in advance for foreign currency-denominated 
contracts. IFRIC 22 is effective for annual periods beginning on or after January 1, 2018. The Company is currently evaluating 
the impact of adopting this standard on its consolidated financial statements. 

IFRS 2 - Share-based payments (“IFRS 2”), has been amended to address (i) certain issues related to the accounting for cash 
settled  awards,  and  (ii)  the  accounting  for  equity  settled  awards  that  include  a  “net  settlement”  feature  in  respect  of 
employee withholding taxes. IFRS 2 is effective for annual periods beginning on or after January 1, 2018. The Company is 
currently evaluating the impact of adopting this standard on its consolidated financial statements. 

The IASB completed the final element of its comprehensive publication of IFRS 9 - Financial Instruments (“IFRS 9”) in July 
2014. The package of improvements introduced by IFRS 9 includes a logical model for classification and measurement, a 

      Gibson Energy Inc.                                                            35                                          2016 Management’s Discussion and Analysis  

42 | Gibsons

 
 
 
 
 
 
 
•

•

single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. The 
IASB has previously published versions of IFRS 9 that introduced new classification and measurement requirements (in 2009 
and  2010)  and  a  new  hedge  accounting  model  (in  2013).  The  July  2014  publication  represents  the  final  version  of  the 
Standard,  replaces  earlier  versions  of  IFRS  9  and  completes  the  IASB’s  project  to  replace  IAS  39  Financial  Instruments: 
Recognition and Measurement. IFRS 9 is effective for annual periods beginning on or after 1 January 2018. The Company is 
currently evaluating the impact of adopting this standard on its consolidated financial statements. 

IFRS 15 - Revenue from contracts with customers (“IFRS 15”), has been issued as a new standard on revenue recognition and 
will supersede IAS 18 - Revenue and IAS 11- Construction Contracts and related interpretations. IFRS 15 is effective for annual 
periods beginning on or after January 1, 2018. IFRS 15 establishes a control based revenue recognition model where revenue 
is recognized when control of the underlying goods  or  services  for certain performance obligations is  transferred to  the 
customer. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements 
by identifying relevant contracts and arrangements that fall within the scope of IFRS 15. The Company has yet to determine 
the final extent of the impact on the financial statements. 

IFRS 16 - Leases (“IFRS 16”), has been issued as a new standard on leases and will supersede IAS 17. IFRS 16 is effective for 
annual periods beginning on or after January 1, 2019. IFRS 16 establishes a single balance sheet accounting model for lessees 
that will result in the recognition of a lease liability for the obligation to make lease payments and a right-of-use asset for 
the right to use the underlying asset for the lease term. Finance lease exemptions exist for short-term leases where the term 
is 12 months or less and for leases of low value items. The accounting treatment remains the same for lessors, however new 
criteria has been added with respect to the choice of classifying a lease as either a finance lease or operating lease. The 
Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and has yet 
to determine the final extent of the impact on the 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, 2016. 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. In making its assessment, 
management used the  Committee of  Sponsoring Organizations of the Treadway Commission framework in Internal Control  – 
Integrated Framework (2013) to evaluate the design and effectiveness of internal control over financial reporting. 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, or caused to be evaluated under their supervision, the design and operational 
effectiveness of such controls as at December 31, 2016. 

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  Gibsons’  DC&P  and  ICFR  were  effective  as  at  December 31,  2016.  There  have  been  no  changes  in  ICFR  that 
occurred  during  the  period  beginning  January  1,  2016  and  ended  on  December  31,  2016  that  has  materially  affected  or  is 
reasonably likely to materially affect Gibsons’ ICFR. 

RISK FACTORS 

Shareholders  and  prospective  investors  should  carefully  consider  the  risk  factors  noted  below  before  investing  in  Gibsons’ 
securities, as each of these risks may negatively affect the trading price of Gibsons’ securities, the amount of dividends paid to 
shareholders and the ability of Gibsons to fund its debt obligations, including debt obligations under its outstanding Debentures 
and any other debt securities that Gibsons may issue from time to time. For a further discussion of the risks identified in this 
MD&A, other risks and trends that could affect Gibsons’ performance and the steps that Gibsons takes to mitigate these risks, 
readers are referred to Gibsons AIF, which is available on SEDAR at www.sedar.com.  

Operational Risks  

Operational  risks  include:  tank  and  pipeline  leaks;  the  breakdown  or  failure  of  equipment  related  to,  pipelines  and  facilities, 
information systems or processes; the compromise of information and control systems; spills at truck terminals and  terminal 
hubs; spills associated with the loading and unloading of harmful substances onto rail cars and trucks; failure to maintain adequate 
supplies  of  spare  parts;  operator  error;  labour  disputes;  disputes  with  interconnected  facilities  and  carriers;  operational 

      Gibson Energy Inc.                                                            36                                          2016 Management’s Discussion and Analysis  

Gibsons | 43

 
 
 
 
 
disruptions or apportionment on third-party systems or refineries which may prevent the full utilization of Gibsons’ facilities and 
pipelines;  and  catastrophic  events  including  but  not  limited  to  natural  disasters,  fires,  floods,  explosions,  train  derailments, 
earthquakes, acts of terrorists and saboteurs, and other similar events, many of which are beyond the Company’s control. Gibsons 
may also be exposed from time to time, to additional operational risks not stated in the immediately preceding sentences. The 
occurrence or continuance of any of these events could increase the cost of operating Gibsons’ assets or reduce revenue, thereby 
impacting earnings. Additionally, Gibsons’ facilities and pipelines are reliant on electrical power for their operations. A failure or 
disruption within the local or regional electrical power supply or distribution or transmission systems could significantly affect 
ongoing operations. In addition, a significant increase in the cost of power or fuel could have a materially negative effect on the 
level of profit realized in cases where the relevant contracts do not provide for recovery of such costs. 

Market and Commodity Price Risk  

The Company enters into contracts to purchase and sell crude oil, NGLs, and refined products. Most of these contracts are priced 
at floating market prices. Although the majority of these contracts are back-to-back, these activities could expose the Company 
to market risks resulting from movements in commodity price, margin, and currency exchange rate differentials between the 
timing of purchases and subsequent sales. The prices of the products that the Company markets are subject to fluctuations as a 
result of such factors as seasonal demand changes, changes in commodity markets, and other factors. In many circumstances, 
purchase  and  sale  contracts  are  not  perfectly  matched,  as  they  are  entered  into  at  different  times  and  for  different  values. 
Furthermore, the Company normally has a long position in propane, NGLs, crude oil, and refined products that the Company 
markets, and may store these products in order to meet seasonal demand and take advantage of seasonal pricing differentials, 
thereby resulting in inventory risk.  

Because  crude  oil  margins  are  earned  by  capturing  spreads  between  different  qualities  of  crude  oil,  the  Company’s  crude  oil 
marketing business is subject to volatility in price differentials between crude oil streams and blending agents. As a result, margins 
and profitability can vary significantly from period to period as a result of this volatility. We expect that commodity prices will 
continue to fluctuate significantly in the future. The Company manages this commodity risk in a number of ways, including the 
use of financial contracts and by offsetting some physical and financial contracts in terms of volumes, timing of performance and 
delivery obligations. For example, as NGL and refined product prices are somewhat related to the price of crude oil, crude oil 
financial contracts are one of the more common price risk management strategies that the Company uses. Also, with respect to 
crude oil, the Company manages its exposure using WTI based futures, options and swaps. These strategies are subject to basis 
risk between the prices of crude oil streams, WTI, NGL and refined product values and, therefore, may not fully offset future price 
movements. Furthermore, there is no guarantee that these strategies and other efforts to manage marketing and inventory risks 
will generate profits or mitigate all the market and inventory risk associated with these activities. If the Company utilizes price risk 
management strategies, the Company may forego the benefits that may otherwise be experienced if commodity prices were to 
increase. In addition, any non-compliance with the Company’s trading policies could result in significantly adverse financial effects. 
To the extent that the Company engages in these kinds of activities, the Company is also subject to credit risks associated with 
counterparties with whom the Company has contracts. 

Additionally, the Company purchases from producers and other customers a substantial amount of crude oil and condensate, 
propane  and  NGLs  for  resale  to  third  parties,  including  other  marketers  and  end-users.  However,  the  Company  may  not  be 
successful in balancing its purchases and sales. A producer or supplier could fail to deliver contracted volumes or could deliver in 
excess of contracted volumes, or a purchaser could purchase less than contracted volumes. Any of these actions could cause the 
Company’s purchases and sales to be unbalanced. While the Company attempts to balance its purchases and sales, if its purchases 
and sales are unbalanced, the Company will face increased exposure to commodity price risks and could have increased volatility 
in its operating income and cash flow. 

Reputation  

Gibsons relies on its reputation to build and maintain positive relationships with its stakeholders, to recruit and retain staff, and 
to be a credible, trusted company. Reputational risk is the potential for negative impacts that could result from the deterioration 
of  Gibsons’  reputation  with  key  stakeholders.  The  potential  for  harming  the  Company’s  corporate  reputation  exists  in  every 
business  decision  and  public  interaction,  which  in  turn  can  negatively  impact  the  Company’s  business  and  its  securities. 
Reputational  risk  cannot  be  managed  in  isolation  from  other  forms  of  risk.  Credit,  market,  operational,  insurance,  liquidity, 
regulatory,  environmental  and  legal  risks  must  all  be  managed  effectively  to  safeguard  the  Company’s  reputation.  Negative 
impacts from a compromised reputation could include revenue loss, reduction in customer base and diminution of share price. 

      Gibson Energy Inc.                                                            37                                          2016 Management’s Discussion and Analysis  

44 | Gibsons

 
 
 
 
 
Decommissioning, Abandonment and Reclamation Costs  

The Company is responsible for compliance with all applicable laws and regulations regarding the decommissioning, abandonment 
and reclamation of the Company’s facilities and pipelines at the end of their economic life, the costs of which may be substantial. 
It is not possible to predict these costs  with certainty  since they  will be a function of  regulatory requirements at the time of 
decommissioning, abandonment and reclamation. The Company may, in the future, be required by applicable laws or regulations 
to establish and fund one or more decommissioning, abandonment and reclamation reserve funds to provide for payment of 
future decommissioning, abandonment and reclamation costs, which could decrease funds available to the Company to execute 
its business plan and service its debt obligations. In addition, such reserves, if established, may not be sufficient to satisfy such 
future  decommissioning,  abandonment  and  reclamation  costs  and  the  Company  will  be  responsible  for  the  payment  of  the 
balance of such costs. 

Legislative and Regulatory Changes  

The Company’s industry is highly regulated. There can be no guarantee that laws and other government programs relating to the 
oil and gas industry, the energy services industry and the transportation industry will not be changed in a manner which directly 
and adversely affects the Company’s business. There can also be no assurance that the laws, regulations or rules governing the 
Company’s customers  will not be changed in a manner which adversely affects the Company’s customers and, therefore, the 
Company’s business. In addition, the Company’s pipelines and facilities are potentially subject to common carrier and common 
processor applications and to rate setting by regulatory authorities in the event agreement on fees or tariffs cannot be reached 
with producers. To the extent that producers believe processing fees or tariffs with respect to pipelines and facilities are too high, 
they may seek rate relief through regulatory means. If regulations were passed lowering or capping the Company’s rates and 
tariffs, the Company’s results of operations and cash flows could be adversely affected.  

Petroleum products that the Company stores and transports are sold by the Company’s customers for consumption into the public 
market. Various federal, provincial, state and local agencies have the authority to prescribe specific product quality specifications 
for commodities sold into the public market. Changes in product quality specifications or blending requirements could reduce the 
Company’s  throughput  volume,  require  the  Company  to  incur  additional  handling  costs  or  require  capital  expenditures.  For 
instance, different product specifications for different markets impact the fungibility of the products in the Company’s system 
and  could  require  the  construction  of  additional  storage.  If  the  Company  is  unable  to  recover  these  costs  through  increased 
revenues, the Company’s cash flows could be adversely affected. In addition, changes in the quality of the products the Company 
receives on its petroleum products pipeline system could reduce or eliminate the Company’s ability to blend products.  

The Company’s cross-border activities are subject to additional regulation, including import and export licenses, tariffs, Canadian 
and U.S. customs and tax issues and toxic substance certifications. Such regulations include the Short Supply Controls of the Export 
Administration Act, the North American Free Trade Agreement, the Toxic Substances Control Act and the Canadian Environmental 
Protection Act, 1999. Violations of these licensing, tariff and tax reporting requirements could result in the imposition of significant 
administrative, civil and criminal penalties.  

In addition, local, consumption and income tax laws relating to the Company may be changed in a manner which adversely affects 
the Company.  

Environmental Regulation and Climate Change 

Gibsons  is  subject  to  a  range  of  laws,  regulations  and  requirements  imposed  by  various  levels  of  government  and  regulatory 
bodies  in  the  jurisdictions  in  which  it  operates.  While  these  legal  controls  and  regulations  affect  all  dimensions  of  Gibsons’ 
activities,  including,  but  not  limited  to,  the  operation  of  pipelines  and  facilities,  construction  activities,  emergency  response, 
operational safety and environmental procedures, Gibsons does not believe that they impact its operations in a manner materially 
different from other comparable businesses operating in those jurisdictions.  

Greenhouse gases, mainly carbon dioxide and methane, are components of the raw natural gas processed and handled at Gibsons’ 
facilities. Operations at Gibsons’ facilities, including the combustion of fossil fuels in engines, heaters and boilers, release carbon 
dioxide,  methane  and  other  minor  greenhouse  gases.  As  such,  Gibsons  is  subject  to  various  greenhouse  gas  reporting  and 

      Gibson Energy Inc.                                                            38                                          2016 Management’s Discussion and Analysis  

Gibsons | 45

 
 
 
 
 
 
 
 
 
 
 
 
 
reduction programs. Gibsons uses an engineering consulting firm to compile inventories of greenhouse gas emissions and reports 
these  inventories  in  accordance  with  federal  and  provincial  programs.  Second  party  audits  or  verifications  of  inventories  are 
conducted for facilities that are required to meet regulatory targets.  

FORWARD-LOOKING INFORMATION 

Certain  statements  contained  in  this  MD&A  constitute  forward-looking  information,  as  such  term  is  defined  under  applicable 
Canadian  securities  laws  (“forward-looking  information”).  These  statements  relate  to  future  events  or  the  Company’s  future 
performance. All statements other than statements of historical fact are forward-looking information. 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  information.  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  information.  No  assurance  can  be  given  that  these  expectations  will  prove  to  be  correct  and  such  forward-looking 
information 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 information pertaining to the following:   

•
• 

• 
• 
• 
• 
• 
• 

• 
• 
• 

• 

• 
• 
• 

• 
• 
•
•
•
•
•

the completion of the sale of the Industrial Propane segment; 
realization of anticipated benefits from the sale of Industrial Propane segment, including the ability to reinvest net proceeds 
of disposition in a timely and efficient manner; 
realization of anticipated benefits from headcount rationalization efforts; 
the addition or disposition of assets and changes in the 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  transactions,  including  the 
costs thereof; 
in-service dates for new storage capacity being constructed by the Company; 
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 realization of anticipated benefits from the implementation of cost saving measures; 
the Company’s projections of dividends; and 
the Company's dividend policy. 

With  respect  to  forward-looking  information  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; 
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; 
changes in credit ratings applicable to the Company; 

      Gibson Energy Inc.                                                            39                                          2016 Management’s Discussion and Analysis  

46 | Gibsons

 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
•
•
•
•
•

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. 

As  discussed  earlier  in  this  MD&A,  subsequent  to  December  31,  2016,  the  Company  announced  that  it  has  entered  into  an 
agreement  to  sell  its  Industrial  Propane  business  for  cash  consideration  of  $412.0  million  to  Superior.  The  transaction  is  not 
complete as of the date of this MD&A and any forward-looking information in this MD&A is made subject to any changes upon 
closing the transaction.  

In addition, this MD&A may contain forward-looking information attributed to third party industry sources. The Company does not 
undertake any obligations to publicly update or revise any forward-looking information except as required by applicable Canadian 
securities  laws.  Actual  results  could  differ  materially  from  those  anticipated  in    forward-looking  information    as  a  result  of 
numerous  risks  and  uncertainties  including,  but  not  limited  to,  the  risks  and  uncertainties  described  in  “Forward-Looking 
Information” and “Risk Factors” included in the Company’s Annual Information Form dated March 7, 2017 as filed on SEDAR at 
www.sedar.com and available on Gibsons 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. Combined Revenue, Combined 
Segment  profit, EBITDA  from  continuing operations,  EBITDA  from discontinued operations, EBITDA  from combined operations, 
Adjusted EBITDA from continuing operations, Adjusted EBITDA from discontinued operations, Pro Forma Adjusted EBITDA from 
continuing operations,  Pro  Forma  Adjusted  EBITDA  from  discontinued  operations,  Pro  Forma  Adjusted  EBITDA  from  combined 
operations 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”  on  page 18  for  a  reconciliation  of  EBITDA  from 
continuing, discontinued and combined operations to net income (loss), the IFRS measure most directly comparable to EBITDA, 
and  for  a  reconciliation  of  Adjusted  EBITDA  from  continuing,  discontinued,  and  combined  operations  and  Pro  Forma  Adjusted 
EBITDA  from  continuing,  discontinued  and  combined  operations  to  EBITDA  from  continuing,  discontinued  and  combined 
operations. Distributable cash flow from continuing operations and combined operations 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” on page 29 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. 

      Gibson Energy Inc.                                                            40                                          2016 Management’s Discussion and Analysis  

Gibsons | 47

 
 
 
 
 
 
 
 
 
 
Consolidated Financial Statements

For the years ended December 31, 2016 and 2015

Contents

Independent Auditor’s Report  . . . . . . . . 50

Consolidated Balance Sheet . . . . . . . . . . .51

Consolidated Statement of 
Operations. . . . . . . . . . . . . . . . . . . . . . . 52

Consolidated Statement of 
Comprehensive Income (Loss). . . . . . . . . 53

Consolidated Statement of 
Cash Flows  . . . . . . . . . . . . . . . . . . . . . . 55

Consolidated Statement of 
Changes in Equity  . . . . . . . . . . . . . . . . . 54

Notes to Consolidated 
Financial Statements  . . . . . . . . . . . . . . . 56

March 7, 2017 

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, 2016 and December 31, 2015 and the 
consolidated statements of operations, comprehensive income (loss), 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. 

Equity 

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, 2016 and December 31, 2015 and its financial 
performance and its cash flows for the years then ended in accordance with International Financial 
Reporting Standards. 

Chartered Professional Accountants 

PricewaterhouseCoopers LLP  
111 5th Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P5L3  
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, except per share amounts) 

Assets 

Current assets 

Cash and cash equivalents  ..............................................................................................................    

$ 

$ 

December 31, 

2016 

2015 

Property, plant and equipment (note 10) ........................................................................................  

1,643,294 

1,771,117 

Total non-current assets ..................................................................................................................  

2,333,628 

Total assets .............................................................................................................................................    

$  3,261,347 

$ 

3,282,986 

Trade and other receivables (note 7) ..............................................................................................  

Inventories (note 8) .........................................................................................................................  

Income taxes receivable ..................................................................................................................  

Prepaid and other assets .................................................................................................................  

Net investment in finance leases (note 9) .......................................................................................  

Assets held for sale (note 6) ............................................................................................................  

Total current assets .........................................................................................................................  

Non-current assets 

Long-term prepaid and other assets (note 11) ................................................................................  

Net investment in finance leases (note 9) .......................................................................................  

Deferred income tax assets (note 12) ..............................................................................................  

Intangible assets (note 13)...............................................................................................................  

Goodwill (note 14) ...........................................................................................................................  

Liabilities 

Current liabilities  

Credit facilities (note 15) .................................................................................................................  

Trade payables and accrued charges (note 17) ...............................................................................  

Dividends payable (note 20) ............................................................................................................  

Deferred revenue ............................................................................................................................  

Income taxes payable ......................................................................................................................  

Liabilities related to assets held for sale (note 6) ............................................................................  

Total current liabilities .....................................................................................................................  

Non-current liabilities 

Convertible debentures (note 16) ...................................................................................................  

Provisions (note 18) .........................................................................................................................  

Other long-term liabilities (note 19) ................................................................................................  

Deferred income tax liabilities (note 12) .........................................................................................  

Total non-current liabilities .............................................................................................................  

Total liabilities ..................................................................................................................................  

60,159 

428,248 

144,595 

8,057 

17,976 

2,325 

266,359 

927,719 

4,350 

118,244 

47,165 

66,086 

454,489 

- 

- 

468,834 

46,772 

9,833 

39,767 

565,206 

87,312 

171,038 

6,506 

102,350 

1,639,045 

2,204,251 

Long-term debt (note 15) ................................................................................................................  

1,271,839 

1,291,423 

Share capital (note 20) .....................................................................................................................  

1,909,032 

Contributed surplus .........................................................................................................................  

Accumulated other comprehensive income ....................................................................................  

Convertible debentures (note 16) ...................................................................................................  

Deficit ..............................................................................................................................................  

Total equity ......................................................................................................................................  

46,899 

201,089 

7,151 

(1,107,075)   

1,057,096 

Total liabilities and equity ......................................................................................................................    

$  3,261,347 

$ 

3,282,986 

Commitments and contingencies (note 21) 

See accompanying notes to the consolidated financial statements 

Approved by the Board of Directors: 

(signed) 

“James M. Estey”  

James M. Estey (Director) 

(signed) 

“Marshall L. McRae” 

Marshall L. McRae (Director) 

1 

82,775 

370,313 

107,593 

16,130 

18,124 

1,045 

- 

595,980 

4,564 

93,389 

1,596 

145,433 

670,907 

2,687,006 

35,000 

418,732 

40,363 

7,690 

7,775 

509,560 

- 

- 

155,343 

13,975 

145,684 

1,606,425 

2,115,985 

1,672,323 

34,959 

224,866 

- 

(765,147) 

1,167,001 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Consolidated Balance Sheet 

(tabular amounts in thousands of Canadian dollars, except per share amounts) 

December 31, 
2016 

2015 

Assets 
Current assets 

Cash and cash equivalents  ..............................................................................................................    
Trade and other receivables (note 7) ..............................................................................................  
Inventories (note 8) .........................................................................................................................  
Income taxes receivable ..................................................................................................................  
Prepaid and other assets .................................................................................................................  
Net investment in finance leases (note 9) .......................................................................................  
Assets held for sale (note 6) ............................................................................................................  
Total current assets .........................................................................................................................  

$ 

60,159 
428,248 
144,595 
8,057 
17,976 
2,325 
266,359 
927,719 

Non-current assets 

Property, plant and equipment (note 10) ........................................................................................  
Long-term prepaid and other assets (note 11) ................................................................................  
Net investment in finance leases (note 9) .......................................................................................  
Deferred income tax assets (note 12) ..............................................................................................  
Intangible assets (note 13)...............................................................................................................  
Goodwill (note 14) ...........................................................................................................................  
Total non-current assets ..................................................................................................................  

Total assets .............................................................................................................................................    

1,643,294 
4,350 
118,244 
47,165 
66,086 
454,489 
2,333,628 
$  3,261,347 

$ 

$ 

Liabilities 
Current liabilities  

Credit facilities (note 15) .................................................................................................................  
Trade payables and accrued charges (note 17) ...............................................................................  
Dividends payable (note 20) ............................................................................................................  
Deferred revenue ............................................................................................................................  
Income taxes payable ......................................................................................................................  
Liabilities related to assets held for sale (note 6) ............................................................................  
Total current liabilities .....................................................................................................................  

Non-current liabilities 

Long-term debt (note 15) ................................................................................................................  
Convertible debentures (note 16) ...................................................................................................  
Provisions (note 18) .........................................................................................................................  
Other long-term liabilities (note 19) ................................................................................................  
Deferred income tax liabilities (note 12) .........................................................................................  
Total non-current liabilities .............................................................................................................  
Total liabilities ..................................................................................................................................  

Equity 

Share capital (note 20) .....................................................................................................................  
Contributed surplus .........................................................................................................................  
Accumulated other comprehensive income ....................................................................................  
Convertible debentures (note 16) ...................................................................................................  
Deficit ..............................................................................................................................................  
Total equity ......................................................................................................................................  
Total liabilities and equity ......................................................................................................................    

Commitments and contingencies (note 21) 
See accompanying notes to the consolidated financial statements 

- 
468,834 
46,772 
9,833 
- 
39,767 
565,206 

1,271,839 
87,312 
171,038 
6,506 
102,350 
1,639,045 
2,204,251 

1,909,032 
46,899 
201,089 
7,151 

(1,107,075)   
1,057,096 
$  3,261,347 

$ 

82,775 
370,313 
107,593 
16,130 
18,124 
1,045 
- 
595,980 

1,771,117 
4,564 
93,389 
1,596 
145,433 
670,907 
2,687,006 
3,282,986 

35,000 
418,732 
40,363 
7,690 
7,775 
- 
509,560 

1,291,423 
- 
155,343 
13,975 
145,684 
1,606,425 
2,115,985 

1,672,323 
34,959 
224,866 
- 
(765,147) 
1,167,001 
3,282,986 

Approved by the Board of Directors: 

(signed) 
James M. Estey (Director) 

“James M. Estey”  

(signed) 
Marshall L. McRae (Director) 

“Marshall L. McRae” 

1 

Gibsons | 51

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Consolidated Statement of Operations 

(tabular amounts in thousands of Canadian dollars, except per share amounts) 

Year ended 
December 31, 

(Restated – 
Note 6) 
2015  

2016   

Revenue (note 22) .....................................................................................................................................    
Cost of sales (notes 8, 23, 24 and 30) ........................................................................................................  
Gross profit ................................................................................................................................................  

$  4,594,181   
4,569,374   
24,807   

$  5,405,311 
5,296,045 
109,266 

General and administrative expenses (notes 23, 24 and 30) ....................................................................  
Impairment of goodwill (note 14) .............................................................................................................  
Other operating income (note 25) ............................................................................................................  
Loss from operating activities ..................................................................................................................  

Interest expense  .......................................................................................................................................  
Interest income .........................................................................................................................................  
Foreign exchange (gain) loss on long-term debt (note 15) ........................................................................  

Loss before income taxes .........................................................................................................................  

Income tax recovery (note 12) ..................................................................................................................  

69,818   
130,052   
(3,257)  
(171,806)  

86,619   
(1,093)  
(22,715)  

(234,617)  

(56,450)  

71,702 
175,959 
(21,778)
(116,617)

79,580 
(560)
113,150 

(308,787)

(13,413)

Net loss from continuing operations .........................................................................................................    

$ 

(178,167)  

$ 

(295,374)

Net income from discontinued operations, after tax (note 6) ..................................................................  

18,453   

14,718 

Net loss......................................................................................................................................................  

$      (159,714)  

$      (280,656)

Earnings Loss per share (note 26) 

Basic loss per share from continuing operations ...............................................................................  

Basic income per share from discontinued operations .....................................................................  

Basic loss per share ............................................................................................................................  

Diluted loss per share from continuing operations ...........................................................................  

Diluted income per share from discontinued operations ..................................................................  

Diluted loss per share ........................................................................................................................  

$ 

$ 

$ 

$ 

(1.32)  

0.14  

(1.18)  

(1.32)  

0.13  

(1.19)  

$ 

$ 

$ 

$ 

(2.35) 

0.12 

(2.23) 

(2.35) 

0.12 

(2.23) 

 See accompanying notes to the consolidated financial statements 

52 | Gibsons

2 

 
 
 
 
 
 
 
 
 
   
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
          
       
Gibson Energy Inc. 
Consolidated Statement of Comprehensive Income (Loss) 

(tabular amounts in thousands of Canadian dollars, except per share amounts) 

Year ended 
December 31, 
2016   

2015 

Net loss......................................................................................................................................................    

$ 

(159,714)   

$ 

(280,656) 

Other comprehensive income (loss).........................................................................................................  
Items that may be reclassified subsequently to statement of operations  

Exchange differences on translating foreign operations ...................................................................  

(23,777) 

131,855 

Items that will not be reclassified to statement of operations 

Remeasurements of post-employment benefit obligation, net of tax ..............................................  

Other comprehensive (loss) income, net of tax .......................................................................................  

(220) 

(23,997) 

184 

132,039 

Comprehensive loss ..................................................................................................................................    

$ 

(183,711)   

$ 

(148,617) 

See accompanying notes to the consolidated financial statements

3 

Gibsons | 53

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Consolidated Statement of Changes in Equity 

(tabular amounts in thousands of Canadian dollars, except per share amounts) 

Share 
capital 
(note 20) 

Contributed 
surplus 

Accumulated 
other 
comprehensive 
income (loss) 

Convertible 
debentures 

Deficit 

Total Equity 

Balance – January 1, 2015 ...........................   $1,634,001 

  $  23,841 

  $  93,011   

 $ 

Net loss  ....................................................... 
Other comprehensive income, net of tax .... 
Comprehensive income ............................... 
Stock based compensation ........................ 
Proceeds from exercise of stock options... 
Reclassification of contributed surplus 
on issuance of awards under equity 
incentive plan ...................................... 

Issuance of common shares in connection 

with the dividend reinvestment and stock 
dividend programs .................................... 

Dividends on common shares ($0.32 per 

- 
- 
- 

105 

- 
- 
- 
20,379 
- 

9,261 

(9,261) 

28,956 

common share) ......................................... 

- 

- 

-   
131,855   
131,855   

-   

-   

-   

-   

Balance – December 31, 2015 .....................  $  1,672,323 

  $ 

34,959 

$  224,866   

 $ 

Net loss ........................................................ 
Other comprehensive loss, net of tax .......... 
Comprehensive loss ..................................... 
Stock based compensation ........................ 
Proceeds from exercise of stock options... 
Reclassification of contributed surplus 
on issuance of awards under equity 
incentive plan ...................................... 
Issuance of common shares for cash, net of 
issue costs and tax ..................................... 
Issuance of convertible debentures, net of 
issuance costs and tax (note 16) ............... 

Dividends on common shares ($0.33 per 

common share) ......................................... 

- 
- 
- 

1,001 

- 
- 
- 
24,876 
- 

-   
(23,777)   
(23,777)   
-   
-   

12,936 

(12,936) 

222,772 

- 

- 

- 

- 

- 

-   

-   

-   

-   

- 

- 
- 
- 
- 
- 

- 

- 

- 

- 

- 
- 
- 
- 
- 

- 

- 

7,151 

 $ 

(323,673)  

$1,427,180 

(280,656)  
184   
(280,472)  

- 

- 

(280,656) 
132,039 
(148,617) 
20,379 
105 

- 

-   

28,956 

(161,002)  

(161,002) 

 $  (765,147)  

  $1,167,001 

(159,714)  
(220)  
(159,934)  

- 
- 

- 

-   

-   

(159,714) 
(23,997) 
(183,711) 
24,876 
1,001 

- 

222,772 

7,151 

- 

(181,994)  

(181,994) 

Balance – December 31, 2016 ..................... $  1,909,032 

  $  46,899 

  $  201,089   

 $  7,151 

$ (1,107,075)  

$1,057,096 

See accompanying notes to the consolidated financial statements 

54 | Gibsons

4 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
   
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Consolidated Statement of Cash Flows 
(tabular amounts in thousands of Canadian dollars, except where noted)  

Year ended 
December 31, 

(Restated – 
Note 6) 
2015 

2016   

Cash provided by (used in) 
Operating activities 

Loss from operating activities ...............................................................................................................  
Items not affecting cash 

$ 

(171,806)    

$ 

(116,617)

Depreciation and impairment of property, plant and equipment (notes 10 and 23) ....................... 
Amortization and impairment of intangible assets (notes 13 and 23) ............................................. 
Impairment of goodwill (note 14)..................................................................................................... 
Stock based compensation (note 24 and 29).................................................................................... 
Gain on sale of property, plant and equipment (note 25) ................................................................ 
Other ................................................................................................................................................ 
Net loss on fair value movement of financial instruments (note 30) ............................................... 

Changes in items of working capital 

Trade and other receivables ............................................................................................................. 
Inventories ........................................................................................................................................ 
Other current assets ......................................................................................................................... 
Trade payables and accrued charges ................................................................................................ 
Deferred revenue ............................................................................................................................. 
Income taxes paid, net ......................................................................................................................... 
Net cash provided by operating activities from continuing operations ..................................................... 
Net cash provided by operating activities from discontinued operations (note 6) .................................... 
Net cash provided by operating activities .................................................................................................. 

Investing activities 

Purchase of property, plant and equipment ........................................................................................ 
Purchase of intangible assets ............................................................................................................... 
Acquisitions, net of cash acquired (note 5) .......................................................................................... 
Proceeds on sale of assets .................................................................................................................... 
Net cash used in investing activities from continuing operations .............................................................. 
Net cash used in investing activities from discontinued operations (note 6)............................................. 
Net cash used in investing activities ........................................................................................................... 
Financing activities 

Payment of shareholder dividends ....................................................................................................... 
Proceeds from dividend reinvestment plans (note 20) ........................................................................ 
Interest paid ......................................................................................................................................... 
Interest received ................................................................................................................................... 
Proceeds from exercise of stock options .............................................................................................. 
Proceeds from issuance of common shares ......................................................................................... 
Payment of share issue costs ................................................................................................................ 
Proceeds from convertible debentures, net of issue costs (note 16) ................................................... 
Proceeds from credit facilities .............................................................................................................. 
Repayment of credit facilities ............................................................................................................... 
Repayment of finance lease liabilities  ................................................................................................. 
Settlement of financial instruments not affecting operating activities (note 30) ................................. 
Net cash provided by (used in) financing activities from continuing operations ....................................... 
Net cash provided by (used in) financing activities from discontinued operations (note 6) ...................... 
Net cash provided by (used in) financing activities .................................................................................... 
Effect of exchange rate on cash and cash equivalents ............................................................................. 
Net decrease in cash and cash equivalents  .............................................................................................. 
Cash and cash equivalents – beginning of year ........................................................................................ 
Cash and cash equivalents – end of year ..................................................................................................  

175,346   
69,062   
130,052   
24,876   
(4,983)  
(5,012)  
5,073   

(90,595)  
(42,350)  
(1,780)  
99,260   
2,974   
(14,635)  
175,482   
32,084   
207,566   

(240,992)  
(13,588)  
-   
11,387   
(243,193)  
(3,507)  
(246,700)  

(175,586)  
-   
(90,059)  
1,090   
1,000   
230,090   
(10,273)  
96,293   
446,790   
(481,789)  
-   
-   
17,556   
-   
17,556   
(1,038)  
(22,616)  
82,775   
60,159     

180,471
82,623
175,959
20,379
(2,265)
575
1,491

263,525
47,760
6,799
(214,291)
(11,335)
(35,957)
399,117
58,950
458,067

(318,977)
(10,728)
(39,772)
4,912
(364,565)
(8,063)
(372,628)

(157,985)
28,956
(84,665)
556
105
-
-
-
163,257
(128,257)
(411)
36,582
(141,862)
-
(141,862)
7,287
(49,136)
131,911
82,775

$ 

$ 

 See accompanying notes to the consolidated financial statements 

5 

Gibsons | 55

 
 
 
   
 
 
   
   
   
   
   
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

1  General Information 

Gibson Energy Inc. (“Gibsons” 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”. 

Gibsons 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, 
oil-field  waste  management  services  and  propane  distribution.  The  Company  is  incorporated  in  Alberta  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 Professional Accountants and as issued by the 
International Accounting Standards Board (“IASB”).  

These  consolidated  financial  statements  were  approved  for  issuance  by  the  Company’s  board  of  directors  (“Board”)  on                   
March 7, 2017.  

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 

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. 

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.  

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.  

56 | Gibsons

6 

 
 
 
 
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 consolidated 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 consolidated 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 consolidated statement of operations in the period of 
acquisition.  

Any contingent consideration to be transferred by the Company is recognised at fair value at the acquisition date. Subsequent 
changes to the fair value of the contingent consideration that are deemed to be an asset or liability are recognised in the 
consolidated  statement  of  operations.  Contingent  consideration  that  is  classified  as  equity  is  not  re-measured,  and  its 
subsequent settlement is accounted for within equity. 

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 

Intangible assets are stated at cost, less accumulated amortization and accumulated impairment losses.  

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, license and permits ...................................................................................................................................... 3 – 7 years 

7 

Gibsons | 57

 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

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 
carrying value may not be recoverable. 

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. 

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  consolidated  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 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 to changes in the Company’s business plans, economic performance of the assets, 
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  (FVLCD)  and  its  value  in  use.  Impairments  are  recognized  immediately  in  the 
consolidated statement of operations.  

58 | Gibsons

8 

 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

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 FVLCD and value in use. Value in use is usually determined on the basis of discounted estimated 
future net cash flows. In determining FVLCD, recent market transactions are taken into account, if available. In the absence 
of such transactions, an appropriate valuation model is used. 

An impairment loss in respect of goodwill is not reversible in the 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. 

Assets held for sale and discontinued operations 

Non-current assets are classified as held for sale if their carrying amounts will be recovered through a sale transaction rather 
than through continuing use. This condition is met when the sale is highly probable and the asset is available for immediate 
sale in its present condition. 

Non-current  assets  and  disposal  groups  are  classified  and  presented  as  discontinued  operations  if  the  assets  or  disposal 
groups are disposed of or classified as held for sale and: 
- 
- 

the assets or disposal groups are a major line of business or geographical area of operations; 
the assets or disposal groups are part of a single coordinated plan to dispose of a separate major line of business or 
geographical area of operations; or 
the assets or disposal groups are a subsidiary acquired solely for the purpose of resale. 

- 

The assets or disposal groups that meet these criteria are measured at the lower of the carrying amount and FVLCD, except 
for  deferred  tax  assets  that  are  carried  at  fair  value,  with  impairments  recognized  in  the  consolidated  statement  of 
operations. An impairment loss is recognized for any initial or subsequent write-down of the asset (or disposal group) to fair 
value less costs to dispose. Non-current assets held for sale are presented separately in current assets and liabilities within 
the consolidated balance sheet. Assets held for sale are not depreciated, depleted or amortized. The comparative period 
consolidated balance sheet is not restated.  

The results of discontinued operations are shown separately in the consolidated statements of operations and cash flows 
and comparative figures are restated. 

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 consolidated 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 consolidated statement of operations. When a trade receivable is 
uncollectible, it is written off against the allowance account for trade receivables. 

9 

Gibsons | 59

 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

Cash  and  cash  equivalents  comprise  cash  on  hand  and  short-term  deposit,  highly  liquid  investments  that  are  readily 
convertible to known amounts of cash which are subject to insignificant risk of changes in value and maturity of three months 
or less from the date of acquisition. 

Financial liabilities 

Financial liabilities classified as other liabilities include amounts borrowed under credit facilities, trade payables and accrued 
charges, dividends payable, long-term debt and the convertible debentures. 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 the consolidated  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. 

Compound financial instruments 

Compound financial instruments are separated into liability and equity components. The liability component is recognized 
initially at the fair value of a similar liability that does not have an equity conversion option and the equity component is 
recognized as the difference between the fair value of the compound financial instrument as a whole and the fair value of 
the liability component net of any deferred taxes. Any transaction costs are allocated to the liability and equity components 
in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of the compound 
financial instrument is measured at amortized cost and is accreted to the original principal balance using the effective interest 
method. The equity component is not remeasured subsequent to initial recognition. The equity component and the accreted 
liability  component  are  reclassified  to  share  capital  upon  conversion  and  any  balance  in  the  equity  component  of  the 
compound financial instrument that remains after the settlement of the liability is transferred to contributed surplus. 

Derivative financial instruments 

Derivative financial instruments, used periodically by the Company to manage exposure to market risks relating to commodity 
prices, interest rates, share based compensation 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 consolidated statement of 
operations. 

Inventories 

Inventories are carried at the lower of 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 consolidated statement of operations on an accrual basis. 

All  other  leases  are  operating  leases,  and  the  rental  of  these  is  charged  to  the  consolidated  statement  of  operations  as 
incurred over the lease term.  

60 | Gibsons

10 

 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

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 consolidated 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 of the 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. 

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  

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 

11 

Gibsons | 61

 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

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 (loss) in the period in which they arise. 

Past-service costs or credits are recognised immediately in the consolidated 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 the granting of stock options, restricted share units with time based vesting 
(RSUs) and performance share units (PSUs) with performance based vesting conditions and deferred share units (DSUs) that 
vest on the date such employee redeems the DSUs after their cessation of employment with 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 consolidated statement 
of operations with a corresponding impact to contributed surplus. 

The fair value of RSUs, PSUs and DSUs is 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.  

Termination benefit 

The Company recognizes termination benefits as an 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 included in interest 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 consolidated 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 

62 | Gibsons

12 

 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

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 products such as crude oil, diluent, natural gas liquids, road asphalt, roofing 
flux, 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 effectively is acting 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. Long-term take-or-pay contracts, under which 
shippers are obligated to pay fixed amounts ratably over the contract period regardless of volumes shipped, may contain 
make-up rights. Make-up rights are earned by shippers when minimum volume commitments are not utilized during the 
period  but  under  certain  circumstances  can  be  used  to  offset  overages  in  future  periods,  subject  to  expiry  periods.  The 
Company recognizes revenues associated with make-up rights at the earlier of when the make-up volume is shipped, the 
make-up right expires or when it is determined that the likelihood that the shipper will utilize the make-up right is remote. 
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, costs related to transportation, inventory write downs and reversals, and gains and losses on derivative 
financial instruments relating to commodities. 

Interest 

Interest income and expense is recognized in the consolidated 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 consolidated statement of operations in the period in which they are incurred. 

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. 

13 

Gibsons | 63

 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

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 

The Company determines its reportable segments based on the nature of its operations, which is consistent with how the 
business is managed and results are reported to the chief operating decision maker. Each operating segment also uses a 
measure of profit and loss that represents segment profit. 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  FVLCD 
calculations which require the use of estimates. The Company also assesses 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.  

64 | Gibsons

14 

 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

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  macro-economic  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  the 
consolidated statement of operations in the period in which the change occurs.  

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 are 
likely to 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 if further remedial action is required. The Company uses third-
party  environmental  evaluators,  where  possible,  to  obtain  the  estimates  of  the  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 
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 have 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 

15 

Gibsons | 65

 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

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 consolidated  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. 

4  Changes in accounting policies and disclosures 

New and amended standards adopted by the Company  

The Company adopted the following new and revised standards, along with any consequential amendments. These changes 
were made in accordance with applicable transitional provisions. 

•

• 

• 

The annual improvements process addresses issues in the 2012-2014 reporting cycles including changes to IFRS 5 - Non-
current assets held for sale and discontinued operations, IFRS 7 - Financial instruments: Disclosures, IAS 19 - Employee 
benefits, and IAS 34 - Interim financial reporting. These improvements are effective for periods beginning on or after 
January  1,  2016.  The  adoption  of  these  improvements  did  not  have  a  material  impact  on  the  consolidated  financial 
statements. 

IAS  1  -  Presentation  of  financial  statements  (“IAS  1”),  has  been  amended  to  clarify  the  guidance  on  materiality  and 
aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. 
The  amendment  to  IAS  1  is  effective  for  annual  periods  beginning  on  or  after  January  1,  2016.  The  adoption  of  this 
amendment did not have a material impact on the consolidated financial statements. 

IFRS 10 - Consolidated financial statements (“IFRS 10”), and IAS 28 - Investments in associates and joint ventures (“IAS 
28”), has been amended to address an inconsistency between IFRS 10 and IAS 28 in regards to a sale or contribution of 
assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full 
gain or loss is recognized when the transaction involves a business combination, and whereas a partial gain is recognized 
when the transaction involves the assets that do not constitute a business. Additionally, the amendments clarify the 
exception from preparing consolidated financial statements, the consolidation requirements for subsidiaries which act 
as an extension of an investment entity, and the requirements for equity accounting for investments in associates and 
joint ventures. The amendments to IFRS 10 and IAS 28 are effective for annual periods beginning on or after January 1, 
2016. The adoption of these amendments did not have a material impact on the consolidated financial statements. 

New standards and interpretations issued but not yet adopted  

The following provides information requiring new standards and interpretations that have been issued but not yet adopted 
by the Company: 

•

•

•

• 

The  annual  improvements  process  addresses  issues  in  the  2014-2016  reporting  cycles  include  changes  to  IFRS  12  - 
Disclosure of interests in other entities. This improvement is effective for periods beginning on or after January 1, 2017. 
The Company is currently evaluating the impact of adopting this improvement on its consolidated financial statements. 

IFRIC 22 - Foreign currency transactions and advance consideration (“IFRIC 22”), provides guidance on how to determine 
the  date  of  the  transaction  when  an  entity  either  pays  or  receives  consideration  in  advance  for  foreign  currency-
denominated contracts. IFRIC 22 is effective for annual periods beginning on or after January 1, 2018. The Company is 
currently evaluating the impact of adopting this interpretation on its consolidated financial statements. 

IFRS 2 - Share-based payments (“IFRS 2”), has been amended to address (i) certain issues related to the accounting for 
cash settled awards, and (ii) the accounting for equity settled awards that include a “net settlement” feature in respect 
of employee withholding taxes. IFRS 2 is effective for annual periods beginning on or after January 1, 2018. The Company 
is currently evaluating the impact of adopting this standard on its consolidated financial statements. 

The IASB completed the final element of its comprehensive publication of IFRS 9 (“IFRS 9”) Financial Instruments in July 
2014. The package of improvements introduced by IFRS 9 includes a logical model for classification and measurement, 
a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. 
The IASB has previously published versions of IFRS 9 that introduced new classification and measurement requirements 

66 | Gibsons

16 

 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

•

•

(in 2009 and 2010) and a new hedge accounting model (in 2013). The July 2014 publication represents the final version 
of  the  Standard,  replaces  earlier  versions  of  IFRS  9  and  completes  the  IASB’s  project  to  replace  IAS  39  Financial 
Instruments: Recognition and Measurement. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. 
The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements. 

IFRS 15 - Revenue from contracts with customers (“IFRS 15”), has been issued as a new standard on revenue recognition 
and will supersede IAS 18, Revenue, IAS 11, Construction Contracts and related interpretations. IFRS 15 is effective for 
annual periods beginning on or after January 1, 2018. IFRS 15 establishes a control based revenue recognition model 
where revenue is recognized when control of the underlying goods or services for certain performance obligations is 
transferred  to  the  customer.  The  Company  is  currently  evaluating  the  impact  of  adopting  this  standard  on  its 
consolidated financial statements by identifying relevant contracts and arrangements that fall within the scope of IFRS 
15. The Company has yet to determine the final extent of the impact on the consolidated financial statements. 

IFRS 16 - Leases (“IFRS 16”), has been issued as a new standard on leases and will supersede IAS 17. IFRS 16 is effective 
for annual periods beginning on or after January 1, 2019. IFRS 16 establishes a single balance sheet accounting model 
for lessees that will result in the recognition of a lease liability for the obligation to make lease payments and a right-of-
use asset for the right to use the underlying asset for the lease term. Finance lease exemptions exist for short-term 
leases where the term is 12 months or less and for leases of low value items. The accounting treatment remains the 
same for lessors, however new criteria has been added with respect to the choice of classifying a lease as either a finance 
lease or operating lease. The Company is currently evaluating the impact of adopting this standard on its consolidated 
financial statements and has yet to determine the final extent of the impact on the consolidated financial statements. 

5  Business combinations  

There were no business acquisitions in 2016. The Company completed the following business combinations in 2015: 

Ross Eriksmoen, Inc., GWCC, LLC, Frontier Ventures, LLC (collectively doing business as “T&R Transport”)  

On July 1, 2015, the Company acquired all of the issued and outstanding ownership interests of T&R Transport for total cash 
consideration  of  $34.9  million.  T&R  transports  water  and  oil  field  waste  and  provides  related  transportation  services  to 
customers in the oil, gas, and petrochemical industry throughout the Bakken region of North Dakota. 

The following table summarizes the fair value of assets acquired and liabilities assumed at the acquisition date: 

Fair Value 

8,501 
Trade and other receivables .................................................................................................................................     $ 
619 
Inventories ............................................................................................................................................................  
67 
Prepaid and other assets.......................................................................................................................................  
22,578 
Property, plant and equipment.............................................................................................................................  
Goodwill (1)  ............................................................................................................................................................  
6,226 
Intangible assets (2) ................................................................................................................................................  
3,133 
Trade payables and accrued charges  ...................................................................................................................  
(6,197) 
Net assets acquired ...............................................................................................................................................     $  34,927 

The  total  consideration  included  contingent  consideration  of  $6.2  million  that  the  Company  expected  to  be  paid  out  on 
achieving specified targets. As of December 31, 2016 the entire amount of the contingent consideration has been either paid 
or written off. 

(1)  The goodwill arising on the acquisition is deductible for tax purposes.  
(2)  Consists of customer relationships of $1.3 million and non-compete agreements of $1.8 million. 

The goodwill arising from the acquisition was attributable to the expected synergies with the Company’s U.S. Environmental 
Services  business  segment.  The  goodwill  for  this  acquisition  was  allocated  to  the  U.S.  Environmental  Services  business 
segment. As of December 31, 2016 the entire amount of goodwill has been written-off. 

The fair value of trade receivables was $8.5 million, which approximates their gross contractual amount. 

17 

Gibsons | 67

 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

Littlehawk Enterprises Ltd (“Littlehawk”)  

On February 1, 2015, the Company acquired all of the issued and outstanding common shares of Littlehawk for total cash 
consideration of $11.5 million. Littlehawk is a private Canadian company which operates hydrovac units that specialize in 
hydro excavation, pressure testing and water hauling for the construction and energy industries.  

The following table summarizes the fair value of assets acquired and liabilities assumed at the acquisition date: 

Fair Value 

1,784 
Trade and other receivables .................................................................................................................................     $ 
128 
Inventories ............................................................................................................................................................  
57 
Prepaid and other assets.......................................................................................................................................  
8,123 
Property, plant and equipment.............................................................................................................................  
Goodwill (1)  ............................................................................................................................................................  
1,533 
Intangible assets (2) ................................................................................................................................................  
1,754 
48 
Other long-term assets .........................................................................................................................................  
(505) 
Trade payables and accrued charges ....................................................................................................................  
Deferred income tax liabilities ..............................................................................................................................  
(1,391) 
Net assets acquired ...............................................................................................................................................     $  11,531 

The  total  consideration  included  contingent  consideration  of  $0.6  million  that  the  Company  expected  to  be  paid  out  on 
achieving specified targets. As of December 31, 2016 the entire amount of the contingent consideration has been either paid 
or written off. 

(1)  The goodwill arising on the acquisition was not deductible for tax purposes.  
(2)  Consists of customer relationships of $0.2 million and non-compete agreements of $1.6 million. 

The  goodwill  arising  from  the  acquisition  was  attributable  to  the  expected  synergies  with  the  Company’s  existing  Truck 
Transportation  –  Canada  business  segment.  The  goodwill  for  this  acquisition  was  allocated  to  the  Canadian  Truck 
Transportation business segment. 

The fair value of trade receivables is $1.8 million, which approximates their gross contractual amount. 

6  Assets and liabilities held for sale, and discontinued operations 

As at December 31, 2016 the Company met the criteria under IFRS 5 - Non-Current Assets Held for Sale and Discontinued 
Operations for the Industrial Propane operating segment to be classified as held for sale. The trigger was based on certain 
events that occurred during the fourth quarter of 2016, supporting the high probability of the sale of the Industrial Propane 
segment. As a result, the Industrial Propane segment, which represents a major line of business, was classified as held for 
sale and the results were presented as discontinued operations. In classifying the operations as discontinued, all assets were 
measured at the lower of carrying amount and FVLCD. The expected sale proceeds were used to determine the FVLCD. The 
valuation is classified as a level 2 valuation as it is based on a quoted price in an inactive market. As a result, no impairment 
write-downs were recorded.  

68 | Gibsons

18 

 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

The results of the discontinued operations are presented below: 

Year ended 
December 31, 
2016   

2015 

       Revenue ...............................................................................................................................   
       Cost of sales .........................................................................................................................  
       Gross profit ..........................................................................................................................  

$  167,699     
152,428   
15,271   

$  186,671 
165,476 
21,195 

       Other operating income ......................................................................................................  
       Income before income taxes ...............................................................................................  
       Income tax provision - current (note 12) .............................................................................  
       Income tax recovery – deferred  (note 12) ..........................................................................  
       Net income from discontinued operations ..........................................................................   

$ 

523   
15,794   
3,179   
(5,838)  
18,453     

$ 

248 
21,443 
8,207 
(1,482) 
14,718 

  Assets and liabilities held for sale are comprised of the following: 

      Assets 

December 31, 
2016 

       Trade and other receivables ................................................................................................  
       Inventories ...........................................................................................................................  
       Property, plant and equipment ...........................................................................................  
       Intangible assets ..................................................................................................................  
       Goodwill ..............................................................................................................................  
       Other assets .........................................................................................................................  
       Total assets held for sale .....................................................................................................  

$ 

36,738 
6,986 
133,426 
10,305 
77,579 
1,325 
$     266,359  

       Liabilities 

       Trade payables and accrued charges ..................................................................................  
       Deferred revenue ................................................................................................................  
       Deferred tax liability (note 12) ............................................................................................  
       Other liabilities ....................................................................................................................  
       Total liabilities held for sale .................................................................................................  

$ 

22,330 
1,339 
13,860 
2,238 
$        39,767 

7 

Trade and other receivables 

Trade receivables ............................................................................................................  
Allowance for doubtful accounts ....................................................................................  
Trade receivables - net ....................................................................................................  
Risk management assets (note 30) .................................................................................  
Broker accounts receivable .............................................................................................  
Indirect taxes receivable .................................................................................................  
Other ...............................................................................................................................  

December 31, 
2016 

  $ 

  $ 

410,325 
(1,124) 
409,201 
6,218 
5,329 
4,375 
3,125 
428,248 

  $ 

  $ 

2015 

353,485 
(1,950) 
351,535 
8,415 
1,561 
5,579 
3,223 
370,313 

19 

Gibsons | 69

 
 
 
 
 
   
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

Allowance for doubtful accounts 

Year ended 
December 31, 
2016 

Opening balance .............................................................................................................    
Additional allowances .....................................................................................................  
Receivables written off as uncollectible .........................................................................  
Recoveries .......................................................................................................................  
Transfers to assets held for sale (note 6) ........................................................................  
Effect of changes in foreign exchange rates ...................................................................  
Closing balance ...............................................................................................................    

$ 

$ 

1,950 
357 
(718) 
- 
(440) 
(25) 
1,124 

$ 

$ 

8 

Inventories 

2015 

4,678 
35 
(2,953) 
(31) 
- 
221 
1,950 

Crude oil ..........................................................................................................................    
Diluent .............................................................................................................................  
Asphalt ............................................................................................................................  
Natural gas liquids ...........................................................................................................  
Wellsite fluids and distillate ............................................................................................  
Spare parts and other .....................................................................................................  

December 31, 
2016 

2015 

$  71,627   
1,371   
16,546   
31,994   
8,556   
14,501   
$  144,595   

$ 

46,876 
1,244 
10,928 
22,238 
8,856 
17,451 
$  107,593 

The cost of the inventory sold included in cost of sales was $3,380.5 million and $4,279.4 million for the year ended December 
31, 2016 and 2015, respectively.  

9  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 ...................................................    

The minimum lease receivables are expected to be as follows: 

December 31, 
2016 

2015 

$  388,956   
44,944   
(313,331)  
120,569   
2,325   
$  118,244   

$  329,806 
35,858 
(271,230) 
94,434 
1,045 
93,389 

$ 

2017 .................................................................................................................................................................... 
2018 .................................................................................................................................................................... 
2019 .................................................................................................................................................................... 
2020 .................................................................................................................................................................... 
2021 .................................................................................................................................................................... 
2022 and later ..................................................................................................................................................... 

  $  28,771 
28,771 
28,771 
28,771 
28,771 
$   245,101 

70 | Gibsons

20 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

10  Property, plant and equipment  

Land & 
Buildings 

Pipelines and 
Connections 

Tanks 

Rolling 
Stock 

Plant, 
Equipment & 
Disposal wells 

Work in 
Progress 

Total 

Cost: 
At January 1, 2016 ......................     $ 207,519    $  168,179    $ 542,750    $  491,946    $  843,111    $ 290,582    $ 2,544,087 
224,965 
Additions .....................................  
(48,112) 
Disposals .....................................  
Reclassifications ..........................  
- 
Change in decommissioning 

182,327 
- 
(340,484) 

4,069 
(3,184) 
184,050 

14,152 
(13,630) 
96,751 

7,592 
(24,684) 
16,587 

3,129 
(6,614) 
14,210 

13,696 
- 
28,886 

provision (note 18) ..................  

Transfer to net investment in 

finance leases (note 9).............  

Transfers to assets held for sale 

- 

- 

(note 6) ....................................  

(29,022) 

Effect of movements in 

(1,307) 

3,221 

- 

- 

12,984 

- 

14,898 

- 

(27,258) 

(27,258) 

- 

(122,063) 

(26,668) 

(23,750) 

(28) 

(201,531) 

exchange rates ........................  

(17,289) 
At December 31, 2016 ................     $ 188,380    $  209,454    $ 608,344    $  457,871    $  920,843    $ 104,868   $ 2,489,760 

(8,775) 

(6,902) 

(842) 

(499) 

(271) 

- 

Accumulated depreciation and 

impairment: 

At January 1, 2016 ......................     $  31,941    $ 
Depreciation ...............................  
Impairment  ................................  
Disposals .....................................  
Transfers to assets held for sale 

8,972 
- 
(4,688) 

(note 6) ....................................  

(4,365) 

Effect of movements in 

exchange rates ........................  

(82) 

62,648    $ 101,156    $  251,585    $  325,640    $ 
10,404 
- 
- 

71,528 
3,846 
(12,545) 

59,711 
6,565 
(22,097) 

28,387 
235 
(1,393) 

-    $  772,970 
179,002 
- 
10,646 
- 
(40,723) 
- 

(31,567) 

(17,147) 

(15,026) 

- 

(68,105) 

At December 31, 2016 ................     $  31,778    $ 

73,052    $  96,609    $  275,002    $  370,025    $ 

(209) 

(3,615) 

(3,418) 

- 
(7,324) 
-    $  846,466 

- 

- 

- 

- 

Carrying amounts: 
At January 1, 2016 ......................     $ 175,578    $  105,531    $ 441,594    $  240,361    $  517,471    $ 290,582 
  $1,771,117  
At December 31, 2016 ................   $ 156,602  $   136,402  $511,735  $  182,869  $  550,818  $ 104,868  $1,643,294 

21 

Gibsons | 71

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

Land & 
Buildings 

Pipelines and 
Connections 

Tanks 

Rolling 
Stock 

Plant, 
Equipment & 
Disposal wells 

Work in 
Progress 

Total 

Cost: 
At January 1, 2015 ......................     $ 159,631    $  137,434    $ 430,153    $  454,493    $  668,425 
26,671 
Additions .....................................  
(2,197) 
Disposals .....................................  
Acquisitions through business 

2,144 
(13,676) 

57,372 
(177) 

7,964 
(1,506) 

4,222 
- 

 $200,400    $ 2,050,536 
376,479 
(17,556) 

278,106 
- 

combinations (note 5) .............  
Reclassifications ..........................  
Change in decommissioning 

provision (note 18) ..................  

Effect of movements in 

5,741 
29,772 

- 
23,818 

- 
47,532 

6,773 
- 

18,187 
99,659 

- 
(200,781) 

30,701 
- 

- 

2,705 

5,740 

- 

9,180 

- 

17,625 

exchange rates ........................  

23,186 
At December 31, 2015 ................     $ 207,519    $  168,179    $ 542,750    $  491,946    $  843,111 

42,212 

5,917 

2,130 

- 

Accumulated depreciation and 

impairment: 

At January 1, 2015 ......................     $  25,599    $ 
Depreciation ...............................  
Impairments  ...............................  
Disposals .....................................  
Effect of movements in 

5,773 
385 
(324) 

exchange rates ........................  

508 

At December 31, 2015 ................     $  31,941    $ 

52,652    $  78,211    $  184,624    $  214,881 
82,066 
12,045 
(1,450) 

60,952 
1,034 
(11,531) 

23,187 
- 
(247) 

9,996 
- 
- 

- 

18,098 
62,648    $ 101,156    $  251,585    $  325,640 

16,506 

5 

12,857 

86,302 
 $290,582   $ 2,544,087 

 $ 

 $ 

-    $  555,967 
181,974 
- 
13,464 
- 
(13,552) 
- 

35,117 
- 
-    $  772,970 

Carrying amounts: 
 $ 351,942    $  269,869    $  453,544 
At January 1, 2015 ......................     $ 134,032    $  84,782 
At December 31, 2015 ................   $ 175,578  $   105,531  $ 441,594  $  240,361  $  517,470 

  $200,400   $ 1,494,569 
 $ 290,582  $ 1,771,117 

Additions to property, plant and equipment include capitalization of interest of $12.9 million and $12.2 million for the year 
ended December 31, 2016 and 2015, respectively.  

Property, plant and equipment are reviewed for impairment whenever events or conditions indicate that their net carrying 
amount may not be recoverable. During the year ended December 31, 2016, the Company recorded an impairment loss of 
$10.6 million that was recorded as depreciation included within cost of sales. Of the impairment loss recorded, $9.0 million 
related to assets within the Canadian Truck Transportation business segment and $1.6 million related to assets within the 
Terminals and Pipelines business segment.  

During  the  year  ended  December  31,  2015,  due  to  the  general  market  downturn  in  2015,  the  Company  recorded  an 
impairment loss of $13.5 million that was recorded as additional depreciation. Of the impairment loss recorded, $12.8 million 
related  to  assets  within  the  U.S.  Environmental  Services  business  segment  and  $0.7  million  related  to  assets  within  the 
Canadian Truck Transportation segment.  

11  Long-term prepaid and other assets 

Long-term prepaid ....................................................................................................  
Defined benefit pension plan assets .........................................................................  
Other assets ..............................................................................................................  

December 31, 
2016 

$ 

$ 

1,296 
1,081 
1,973 
4,350 

2015 

1,189 
1,084 
2,291 
4,564 

$ 

$ 

72 | Gibsons

22 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

12  Income tax 

The major components of income tax are as follows: 

Year ended 
December 31, 
2016 

Current tax provision 
Current tax on income for the year .........................................................................  
Adjustments in respect of prior years .....................................................................  
Discontinued operations (note 6) ............................................................................  
Total current tax provision .....................................................................................  
Deferred tax recovery ..............................................................................................  
Origination and reversal of temporary differences .................................................  
Discontinued operations (note 6) ............................................................................  
Total deferred tax recovery ....................................................................................  
Income tax recovery ................................................................................................  

$ 

$ 

13,302 
(1,513) 
3,179 
14,968 
(68,731) 
492 
(5,838) 
(74,077) 
(59,109) 

2015 

31,697 
8,195 
8,207 
48,099 
(47,410) 
(5,895) 
(1,482) 
(54,787) 
(6,688) 

$ 

$ 

The income tax recovery 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: 

Year ended 
December 31, 

2016 

2015 

$  (234,617) 
15,794 
(218,823) 
26.97% 
(59,017) 

$ 

(308,787) 
21,443 
(287,344) 
26.13% 
(75,083) 

Loss before income taxes, continuing operations ...................................................  
Income before income taxes, discontinued operations  .........................................  
Loss before income taxes ........................................................................................  
Statutory income tax rate ........................................................................................  
Computed income tax recovery ..............................................................................  
Decrease (increase) in income tax recovery resulting from: 

Foreign exchange (gain) loss on long-term debt, net .......................................  
Foreign exchange (gain) loss, other ..................................................................  
Non-deductible expenses .................................................................................  
Stock based compensation ...............................................................................  
Non-taxable dividends ......................................................................................  
Rate differential on foreign taxes .....................................................................  
Goodwill impairment ........................................................................................  
Held for sale classification ................................................................................  
Impact of corporate rate changes ....................................................................  
Other, including revisions in previous tax estimates, rate reductions, and 
state taxes ........................................................................................................  

(3,013) 
(3,013) 
733 
6,709 
(14,421) 
(12,467) 
33,324 
(4,154) 
- 

(3,790) 
(59,109) 

$ 

Effective income tax rate .........................................................................................  

27.01% 

Current, from continuing operations .......................................................................  
Current, from discontinued operations ...................................................................  

Deferred, from continuing operations.....................................................................  
Deferred, from discontinued operations .................................................................  

11,789 
3,179 
   14,968 

$ 

(68,239) 
(5,838) 
$    (74,077) 

14,622 
15,227 
1,015 
5,325 
(13,863) 
(8,237) 
45,978 
- 
6,825 

1,503 
(6,688) 

2.33% 

39,892 
8,207 
48,099 

$ 

$ 

(53,305) 
(1,482) 
$    (54,787) 

23 

Gibsons | 73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

Total current and deferred, from continuing operations ........................................  
Total current and deferred, from discontinued operations ....................................  

(56,450) 
(2,659) 

(13,413) 
6,725 

The increase in the statutory rate was due to higher provincial income tax rates in Canada. 

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 ...............................................  

$ 

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 ...........................................................................................  

$ 

The gross movement on the deferred income tax account is as follows: 

As at December 31, 

2016 

35,665   
11,500   
47,165   

100,950   
1,400   
102,350   
55,185   

$ 

2015 

896 
700 
1,596 

124,284 
21,400 
145,684 
$  144,088 

Opening balance ...........................................................................................................  
Effect of changes in foreign exchange rates .................................................................  
Recognized through business combinations (note 5) ...................................................  
Transfers to assets held for sale (note 6)......................................................................  
Income statement recovery..........................................................................................  
Tax charge (credit) relating to components of other comprehensive income .............  
Tax charged directly to equity ......................................................................................  
Closing balance .............................................................................................................  

Year ended 
December 31, 

2016   
$  144,088   
(1,035)  
-   
(13,860)  
(74,077)  
(59)  
128   
55,185   

$ 

2015 
$  187,819 
9,600 
1,391 
- 
(54,787) 
65 
- 
$  144,088 

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: 

Deferred tax assets 

At January 1, 2015 ........................................  
Credited (charged) to the statement of 

operations ..............................................  
Credited to other comprehensive income ....  
Effect of changes in foreign exchange rates .  
At January 1, 2016 ........................................  
Credited (charged) to the statement of 

operations ..............................................  
Charged to other comprehensive income ....  
Transfers from assets held for sale (note 6) .  
Effect of changes in foreign exchange rates .  
At December 31, 2016 ..................................  

Non-capital 
losses carried 
forward 

Asset 
retirement 
obligations 

Retirement 
benefits 
obligations 

Other 

Total 

  $  18,117 

  $ 13,897 

  $  1,443 

  $  13,223 

  $  46,680 

10,449 
- 
1,577 
  $  30,143 

32,087 
- 
- 
369 
  $  62,599 

3,093 
- 
420 
  $ 17,410 

2,860 
- 
(81) 
90 
  $ 20,279 

34 
(65) 
- 
  $  1,412 

(96) 
59 
(6) 
- 
  $  1,369 

5,785 
- 
(4,689) 
  $  14,319 

13,193 
- 
637 
1,304 
  $  29,453 

19,361 
(65) 
(2,692) 
  $ 63,284 

48,044 
59 
550 
1,763 
  $113,700 

74 | Gibsons

24 

 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

Deferred tax liabilities 

At January 1, 2015 ......................................  
Credited (charged) to the statement of 

operations ............................................  
Business combinations ...............................  
Effect of changes in foreign exchange 

rates ........................................................  
At January 1, 2016 ......................................  
Credited (charged) to the statement of 

operations ............................................  
Credited (charged) directly to equity..........  
Transfers to assets held for sale (note 6)....  
Effect of changes in foreign exchange 

Timing of 
Partnership 
Income 

Property, 
Plant and 
Equipment 

Accounting 
and tax basis 
differences 

Other 

Total 

  $  (32,862) 

  $ (171,000) 

  $  (28,914) 

  $ (1,723) 

    $ (234,499) 

20,729 
- 

(274) 
(1,391) 

13,958 
- 

1,013 
- 

35,426 
(1,391) 

- 
  $  (12,133) 

(6,064) 
    $ (178,729) 

(844) 
  $  (15,800) 

- 
(710) 

(6,908) 
    $ (207,372) 

  $ 

(2,840) 
- 
10,989 

25,616 
- 
2,321 

3,114 
- 
- 

143 
(128) 
- 

26,033 
(128) 
13,310 

rates ........................................................  
At December 31, 2016 ................................  

  $ 

- 
(3,984) 

(767) 
    $ (151,559) 

39 
  $  (12,647) 

- 
(695) 

(728) 
    $ (168,885) 

  $ 

Income tax losses carry forward 

At December 31, 2016 and 2015, the Company had losses available to offset income for tax purposes of $165.3 million and 
$79.8 million, respectively. At December 31, 2016, the Company has $4.0 million and $161.3 million of the losses available in 
Canada and the United States, respectively that expire as follows: 

December 31, 2031 .............................................................................................................................................    
December 31, 2032 .............................................................................................................................................  
December 31, 2033 .............................................................................................................................................  
December 31, 2034 .............................................................................................................................................  
December 31, 2035 .............................................................................................................................................  
December 31, 2036 .............................................................................................................................................  

$  38,700 
14,278 
- 
1,332 
22,418 
88,579 
$ 165,307 

No income tax liability has been recognized in respect of temporary differences associated with investments in subsidiaries 
except for as disclosed on note 6 for assets held for sale. 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 

Gibsons | 75

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

13  Intangible assets 

Brands 

Customer 
relationships 

Long-term 
customer 
contracts 

Non-compete 
agreements 

Technology 
and 
Software 

License and 
Permits 

Total 

  $ 67,290 
7,875 
(22) 
(1,193) 

  $  4,434 
- 
- 
1,193 

  $ 489,151 
7,875 
(22) 
- 

(1,191) 

- 

(32,761) 

(244) 
  $ 72,515 

(90) 
  $  5,537 

(7,487) 
  $ 456,756 

  $ 25,407 
11,326 
1,514 
(22) 
(1,193) 

  $  4,431 
5 
- 
- 
1,193 

  $ 343,718 
71,719 
1,613 
(22) 
- 

(247) 

- 

(22,456) 

(143) 
  $ 36,642 

(92) 
  $  5,537 

(3,902) 
  $ 390,670 

  $ 41,883 
$ 35,873 

  $ 

3 
$            - 

  $ 145,433 
$    66,086 

Cost: 
At January 1, 2016 .........     $  53,240    $ 288,880    $  43,706    $  31,601 
- 
Additions .......................  
- 
Disposals .......................  
Reclassifications ............  
- 
Transfers to assets held 
for sale (note 6) ...........  
Effect of movements in 
(315) 
exchange rates ............  
At December 31, 2016 ..     $  46,288    $ 264,587    $  42,539    $  25,290 

(18,974) 

(6,600) 

(5,996) 

(1,167) 

(5,319) 

(352) 

- 
- 
- 

- 
- 
- 

- 
- 
- 

- 

Accumulated 

amortization and 
impairment: 

1,702 
- 
- 
- 

At January 1, 2016 .........     $  48,076    $ 214,069    $  26,510    $  25,225 
3,167 
Amortization .................  
99 
Impairment ...................  
- 
Disposals .......................  
Reclassifications ............  
- 
Transfers to assets held 
for sale (note 6) ...........  
Effect of movements in 
(255) 
exchange rates ............  
At December 31, 2016 ..     $  44,155    $ 250,665    $  29,634    $  24,037 

51,797 
- 
- 
- 

3,722 
- 
- 
- 

(12,735) 

(5,275) 

(4,199) 

(2,466) 

(348) 

(598) 

- 

Carrying amounts: 
At January 1, 2016 ........     $  5,164    $  74,811    $  17,196    $ 
At December 31, 2016 ..   $     2,133 

$   13,922  $  12,905 

6,376 
$      1,253 

76 | Gibsons

26 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

Brands 

Customer 
relationships 

Long-term 
customer 
contracts 

Non-
compete 
agreements 

Technology and 
Software 

License and 
Permits 

Total 

Cost: 
At January 1, 2015 .........  
Additions .......................  
Acquisitions through 
business combinations 
(note 5) ........................  
Effect of movements in 
exchange rates ............  
At December 31, 2015 ..  

Accumulated 

amortization and 
impairment: 

At January 1, 2015 .........  
Amortization .................  
Effect of movements in 
exchange rates ............  
At December 31, 2015 ..  

Carrying amounts: 
At January 1, 2015 ........  
At December 31, 2015 ..  

  $  51,330    $ 258,716    $  37,380   $  26,554 
- 
- 

- 

-

         $50,206 
          16,087 

  $  3,716 
- 

  $ 427,902 
16,087 

-

1,419 

- 

3,468 

-

-

4,887 

1,910 

1,579 
  $  53,240    $ 288,880    $  43,706   $  31,601 

28,745 

6,326 

  $  39,451    $ 136,796    $  19,702   $  20,923 
2,917 

65,053 

6,722 

3,630 

1,385 
        1,903 
  $  48,076    $ 214,069    $  26,510   $  25,225 

12,220 

3,178 

  $  11,879    $ 121,920    $  17,678   $ 
$   74,811 

5,631 
$  17,196  $      6,376 

$     5,164 

              997 
       $67,290 

718 
   $  4,434 

40,275 
  $ 489,151 

$  16,823   $  2,670 
1,151 

8,081

  $ 236,365 
87,554 

               503 

610 
$  25,407    $  4,431 

19,799 
  $ 343,718 

$   33,383   $  1,046   $ 191,537 
$ 145,433 
$           3

        $   41,883

During the year ended December 31, 2016 the Company revised the useful lives for certain intangible assets within the Truck 
Transportation (Canada) segment. The net change on the current financial year was an increase to the amortization expense 
by $1.6 million which represents the end of their estimated useful lives. 

During  the  year  ended  December  31,  2015  the  Company  revised  the  useful  lives  for  certain  intangible  assets  within  the 
Environmental Services segment. The net change on the current financial year was an increase to amortization expense of 
$30.5 million.   

14  Goodwill 

The changes in the carrying amount of goodwill are as follows: 

Year ended 
December 31, 
2016 

2015 

Balance as at January 1 .......................................................................................................    
Additions through business combinations (note 5) ............................................................  
Impairments  .......................................................................................................................  
Transfers to assets held for sale (note 6) ............................................................................  
Effect of changes in foreign exchange rates .......................................................................  
Balance as at December 31 .................................................................................................    

$  670,907   
- 
(130,052) 
(77,579) 
(8,787) 
$  454,489   

$  783,721 
7,759 
(175,959) 
- 
55,386 
$  670,907 

27 

Gibsons | 77

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

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, Pipelines and Injection Stations ........................................................................  
Moose Jaw Facility ..............................................................................................................  
Canadian Trucking and Transportation  ..............................................................................  
U.S. Trucking and Transportation .......................................................................................  
U.S. Environmental Services ...............................................................................................  
Canadian Wholesale Marketing ..........................................................................................  
U.S. Wholesale Marketing ..................................................................................................  
Refined Products .................................................................................................................  
Assets held for sale (note 6)................................................................................................  

December 31, 

2016 1 

2015             

(re-stated 1) 

  $  197,723 
89,017 
19,988 
42,942 
- 
75,422 
29,397 
- 
- 
  $  454,489 

  $  197,786 
89,017 
19,988 
44,263 
107,884 
75,442 
30,301 
28,647 
77,579 
  $  670,907 

1.  The goodwill amounts contain certain reallocations of goodwill which were completed as part of management’s changes 

to segmented reporting (see note 31). 

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, 2016 and 2015, $364.8 million, net of 
impairment,  relates  to  goodwill  recognized  on  the  acquisition  of  the  Company  on  December  12,  2008.  Of  the  remaining 
balance, $13.8 million represents additional goodwill recorded on acquisitions completed and $75.9 million relates to the 
effect of changes in foreign exchange rates recorded by the Company since December 12, 2008. 

The recoverable amount of the CGU is determined based on a FVLCD calculation. This calculation involves comparing the fair 
value of each operating  segment to its carrying  value,  including goodwill. 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. To determine fair value, an implied 
forward multiple was applied to each operating segment’s budgeted EBITDA less corporate expenses. The implied multiple 
is calculated by utilizing multiples of comparable public companies by operating segment. In calculating fair value for each 
operating segment, the Company used an implied average forward multiples that ranged from 9.1 to 15.7. The fair value of 
each operating segment was categorized as Level 2 fair value based on the observables inputs. 

On June 30, 2016, the Company reviewed impairment indicators with respect to goodwill and determined that based on a 
review  of  actual  performance  being  less  than  expected  during  the  period,  impairment  indicators  existed  in  the  U.S. 
Environmental Services business within the Logistics segment. Accordingly, the Company performed an impairment test with 
respect to the U.S. Environmental Services business by comparing the FVLCD to the carrying value of the operating segment, 
including goodwill. As a result, it was determined that goodwill in the operating segment was impaired by $101.4 million. The 
recoverable amount of goodwill was determined based on a FVLCD calculation utilizing EBITDA. A multiple of 9.6 was applied 
to the U.S. Environmental Services business EBITDA less, corporate expenses, using comparable public company multiples 
which  is  considered  a  key  assumption  in  determining  the  fair  value  less  costs  of  disposal.  The  fair  value  of  the  U.S. 
Environmental Services business was categorized as Level 2 fair value based on the observables inputs. 

On  November  30,  2016,  the  Company  carried  out  its  annual  impairment  test  with  respect  to  goodwill.  For  all  operating 
segments, other than the Refined Products business within the Wholesale segment, the FVLCD was greater than the operating 
segments carrying value, including goodwill. The impairment of $28.6 million within the Refined Products business was due 
to  actual  performance  being  less  than  expected.  Key  assumptions  used  in  the  determination  of  the  recoverable  amount 
include Board approved budgeted EBITDA for the operating segment and the application of an implied forward multiple of 
10.7. These assumptions represent management’s assessment of future trends in the wholesale business and were based on 
historical data from both external and internal sources.   

78 | Gibsons

28 

 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

15  Loans and Borrowings 

Revolving Credit Facility 

The Company has established an unsecured revolving credit facility of up to $500.0 million (the “Revolving Credit Facility”), 
with a maturity date of August 15, 2020, the proceeds of which are available to provide financing for working capital and 
other  general  corporate  purposes.  In  addition,  the  Company  has  three  demand  letter  of  credit  facilities  totaling  $150.0 
million. 

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 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 based on the Company’s total debt leverage ratio. 

On December 16, 2016 the Company reached an agreement with its bank syndicate to amend certain covenants related to 
its $500.0 million Revolving Credit Facility. These amendments included an increase to the maximum consolidated senior and 
total debt leverage ratio from 4.85 to 1.0, to 5.25 to 1.0 for the period ending on the earlier of the date that is either the last 
day of the fiscal quarter immediately preceding the fiscal quarter in which the sale of the Industrial Propane segment is closed 
or abandoned or June 30, 2017 (covenant amendment period), with such threshold decreasing to 4.85 to 1.0 for the period 
beginning after the covenant amendment period and ending on December 31, 2017, and decreasing to 4.25 to 1.0 for the 
period beginning January 1, 2018 and ending on March 31, 2018 and further decreasing to 3.5 to 1.0 thereafter until maturity.  

In addition, the Company is also required to maintain a minimum interest coverage ratio of no less than 2.5 to 1.0. 

As  at  December  31,  2016,  the  Company  was  in  compliance  with  all  covenants  under  the  Revolving  Credit  Facility.  The 
Company had $nil and $35.0 million drawn against the Revolving Credit Facility as at December 31, 2016 and December 31, 
2015, respectively. The Company had issued letters of credit totalling $48.4 million and $32.6 million as at December 31, 
2016 and December 31, 2015, respectively. 

Long-term debt 

December 31, 
2016 

2015 

U.S.$550.0 million 6.75% Notes due July 15, 2021 ...........................................................  
$250.0 million 7.00% Notes due July 15, 2020 ..................................................................  
$300.0 million 5.375% Notes due July 15, 2022................................................................  
Unamortized issue discount and debt issue costs ............................................................  
Long-term debt: non-current portion ...............................................................................  

  $  738,485 
250,000 
300,000 
(16,646) 
  $  1,271,839 

  $  761,200 
250,000 
300,000 
(19,777) 
  $ 1,291,423 

On June 28, 2013, the Company issued U.S.$500.0 million 6.75% Senior Unsecured Notes due July 15, 2021 at an issue price 
of 98.476% and $250.0 million 7.00% Senior Unsecured Notes due July 15, 2020 at an issue price of 98.633%. On June 12, 
2014, the Company issued U.S.$50.0 million 6.75% Senior Unsecured Notes due July 15, 2021 at an issue price of 108% under 
its existing indenture and issued $300.0 million 5.375% Senior Unsecured Notes due July 15, 2022 at an issue price of par 
(collectively, the “Notes”). Interest is payable semi–annually on January 15 and July 15 of each year the Notes are outstanding. 

The Notes agreements contain certain redemption options whereby the Company can redeem all or part of the Notes at 
prices set forth in the respective indebtedness from proceeds of an equity offering or on the dates specified in the respective 
indebtedness. In addition, the Notes holders have the right to require the Company to redeem the Notes at the redemption 
prices set forth in the respective indebtedness 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 respective indebtedness.  

The Company’s long-term debt contains non-financial covenants and customary events of default clauses. As of December 
31, 2016 and December 31, 2015, the Company was in compliance with all of its covenants.  

29 

Gibsons | 79

 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

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, net, on 
long-term debt as follows: 

Year ended 
December 31, 
2016 

2015 

Foreign exchange (gain) loss on U.S. dollar long-term debt ...............................................    
Gain on financial instruments relating to long-term debt (note 30) ..................................  
Foreign exchange (gain) loss on long-term debt ................................................................... 

$ 

$ 

(22,715)  
- 
(22,715)  

$  123,145 
(9,995) 
$  113,150 

16  Convertible debentures 

Liability Component 

Equity Component 

Balance as at January 1, 2016 .......................................................................................  
$100.0 million 5.25% convertible debentures due July 15, 2021 .................................  
Unamortized issue costs ...............................................................................................  
Deferred taxes ...............................................................................................................  
Balance as at December 31, 2016 .................................................................................  

$ 

$ 

- 
89,765 
(2,453) 
- 
87,312 

$ 

    $ 

- 
10,235 
(324)
(2,760)
7,151 

On June 2, 2016, the Company issued $100.0  million  aggregate principal amount of unsecured subordinated convertible. 
debentures (“the Debentures”). The Debentures issued at par, bear interest at a rate of 5.25% per annum, payable semi-
annually on July 15 and January 15 in each year commencing January 15, 2017, will mature on July 15, 2021, and may be 
redeemed, in certain circumstances, on or after July 15, 2019. The Debentures will be convertible at the holder's option into 
common shares at any time prior to the earlier of the Maturity Date and the business day immediately preceding the date 
fixed for redemption by the Company at a conversion price of $21.65 per Share (the "Conversion Price"), being a ratio of 
approximately  46.1894  Shares  per  $1,000  principal  amount  of  Debentures.  The  Debentures  are  subordinated  to  the 
Company's senior indebtedness. 

The Debentures are treated as a compound financial instrument and have been classified as a liability, net of issue costs and 
net of the fair value of the conversion feature at the date of issue, which has been classified as shareholders’ equity. The 
liability component will accrete up to the principal balance at maturity. The accretion of the liability component and interest 
payable are expensed in the statement of operations. The fair value of the conversion feature was determined at the time of 
issuance as the difference between the principal value of the Debentures and the discounted cash flows assuming a 7.8% 
rate which was the estimated rate for debt with similar terms with no conversion feature. If the Debentures are converted 
into common shares, a portion of the value of the conversion feature under shareholders’ equity and the liability component 
will be reclassified to shareholders’ equity along with the conversion price. 

80 | Gibsons

30 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

17  Trade payables and accrued charges 

Trade payables and accrued charges include the following items: 

Trade payables ....................................................................................................................  
Accrued compensation charges ..........................................................................................  
Indirect taxes payable  ........................................................................................................  
Risk management liabilities (note 30).................................................................................  
Defined benefit plan obligations .........................................................................................  
Interest payable ..................................................................................................................  
Due to Hunting plc  .............................................................................................................  
Other ...................................................................................................................................  

December 31, 

2016 

2015 

$  376,767 
18,566 
4,403 
11,901 
510 
41,623 
- 
15,064 
$  468,834 

$  322,347 
18,409 
3,164 
5,479 
465 
39,251 
8,585 
21,032 
$  418,732 

18  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, 

2016 

2015 

Opening balance ...............................................................................................................    
Settlements .......................................................................................................................  
Additions ...........................................................................................................................  
Change in estimated future cash flows ............................................................................  
Change in discount rate ....................................................................................................  
Unwinding of discount ......................................................................................................  
Transfer to liabilities held for sale (note 6) .......................................................................  
Effect of changes in foreign exchange rates .....................................................................  
Closing balance .................................................................................................................  

$  155,343 
(2,556) 
22,997 
(1,499) 
(5,100) 
3,251 
(962) 
(436) 
$  171,038 

$ 136,347 
(4,247) 
6,774 
2,240 
8,611 
3,251 
- 
2,367 
$ 155,343 

The  Company  currently  estimates  the  total  undiscounted  future  value  amount,  including  an  inflation  factor  of  2.0%,  of 
estimated  cash  flows  to  settle  the  future  liability  for  asset  retirement  and  remediation  obligations  to  be  approximately 
$312.9 million and $277.9 million at December 31, 2016 and 2015, 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 2.3% and 2.1% 
at December 31, 2016 and 2015, respectively. The provision is expected to be settled up to 40 years into the future. A one 
percent increase or decrease in the risk-free rate would decrease or increase the provision by $33.4 million, respectively, 
with a corresponding adjustment to property, plant and equipment. 

31 

Gibsons | 81

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

19  Other long-term liabilities  

Defined benefit plan obligations .........................................................................................    
Risk management liabilities (note 30) .................................................................................  
Other post-retirement benefits obligations ........................................................................  
Other ...................................................................................................................................  

December 31, 
2016 

2015 

$ 

$ 

1,404   
274   
4,244   
584   
6,506   

$ 

1,530 
3,824 
4,072 
4,549 
$  13,975 

20  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, 2016 or 2015. 

Common Shares - Issued and outstanding 

The following table below sets forth the issued and outstanding common shares for the years ended December 31, 2016 and 
2015.  

Common Shares 

Number of 
Common 
Shares 

Balance as at January 1, 2015 ................................................................................................   124,488,545   
12,162 
Issuance in connection with the exercise of stock options ....................................................  
412,054 
Issuance in connection with other equity awards .................................................................  
1,222,805 
Issuance in connection with the dividend reinvestment and stock dividend programs ........  
Reclassification of contributed surplus on issuance of awards under equity incentive plans  
- 
Balance as at December 31, 2015 ..........................................................................................   126,135,566   
14,892,500 
Issuance for cash, net of issue costs and deferred tax...........................................................  
115,806 
Issuance in connection with the exercise of stock options ....................................................  
589,160 
Issuance in connection with other equity awards .................................................................  
Reclassification of contributed surplus on issuance of awards under equity incentive plans  
- 
Balance as at December 31, 2016 ..........................................................................................   141,733,032   

Amount 

$  1,634,001 
105 
- 
28,956 
9,261 
$  1,672,323 
222,772 
1,001 
- 
12,936 
$  1,909,032 

On June 2, 2016, the Company completed an offering of 14,892,500 common shares at a price of $15.45 per common share 
for gross proceeds of $232.8 million less share issuance costs of $7.3 million, net of income tax of $2.8 million. 

A dividend of $0.33 per share, declared on November 3, 2016, was paid on January 17, 2017. 

82 | Gibsons

32 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

21  Commitments and contingencies  

Commitments 

Operating lease obligations primarily relate to office leases, rail cars, vehicles, field buildings, various equipment and terminal 
services arrangements. The minimum payments required under these commitments, net of sub-lease income, are as follows: 

2017 ................................................................................................................................................................    
2018 ................................................................................................................................................................  
2019 ................................................................................................................................................................  
2020 ................................................................................................................................................................  
2021 ................................................................................................................................................................  
2022 and later .................................................................................................................................................  

$ 

65,359 
57,315 
45,178 
26,093 
15,821 
50,171 
$  259,937 

Expenses  related  to  operating  leases,  net  of  sublease  income,  were  $69.2  million  and  $65.8  million  for  the  year  ended 
December 31, 2016 and 2015, respectively. 

With  respect  to  capital  expenditures,  at  December  31,  2016,  the  Company  had  an  estimated  amount  of  $194.7  million 
remaining to be spent that relates to projects approved at that date. 

Contingencies 

The Company is currently undergoing various tax related 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.  

The Company is involved in various claims and actions arising in the course of operations and is subject to various legal actions 
and exposures. Although the outcome of these claims are uncertain, the Company does not expect these matters to have a 
material adverse effect on the Company’s financial position, cash flows or operational results. If an unfavorable outcome 
were to occur, there exists the possibility of a material adverse impact on the Company’s consolidated net income or loss in 
the period in which the outcome is determined. Accruals for litigation, claims and assessments are recognized if the Company 
determines  that  the  loss  is  probable  and  the  amount  can  be  reasonably  estimated.  The  Company  believes  it  has  made 
adequate  provision  for  such  legal  claims.  While  fully  supportable  in  the  Company’s  view,  some  of  these  positions,  if 
challenged may not be fully sustained on review. 

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 such as operating experience and changes 
in legislation and regulations.  

33 

Gibsons | 83

 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

22  Revenue 

Products ..........................................................................................................................  
Services ...........................................................................................................................  

23  Depreciation, amortization and impairment 

Depreciation and impairment of property, plant and equipment ..................................  
Amortization and impairment of intangible assets ........................................................  

Year ended 
December 31, 

(Restated – 
Note 6) 
2015 

2016 

  $  3,796,643 
797,538 
  $  4,594,181 

  $  4,452,826 
952,485 
  $  5,405,311 

Year ended 
December 31, 

(Restated – 
Note 6) 
2015 

2016 

  $ 

  $ 

175,346 
69,062 
244,408 

  $ 

  $ 

180,471 
82,623 
263,094 

Depreciation and impairment of property, plant and equipment and amortization and impairment of intangible assets have 
been expensed as follows: 

Cost of sales ....................................................................................................................  
General and administrative ............................................................................................  

24  Employee salaries and benefits 

Salaries and wages ..........................................................................................................  
Post-employment benefits .............................................................................................  
Share based compensation .............................................................................................  
Termination benefits ......................................................................................................  

Year ended 
December 31, 

(Restated – 
Note 6) 
2015 

2016 

  $ 

  $ 

234,483   
9,925   
244,408   

  $ 

  $ 

256,110 
6,984 
263,094 

Year ended 
December 31, 

2016 

218,088 
5,845 
24,876 
10,042 
258,851 

  $ 

  $ 

(Restated – 
Note 6) 
2015 

  $ 

  $ 

255,748 
6,291 
20,379 
2,855 
285,273 

84 | Gibsons

34 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

Employee salaries and benefits have been expensed as follows: 

Cost of sales ....................................................................................................................  
General and administrative ............................................................................................  

25  Other operating income 

Gain on sale of property, plant and equipment .............................................................  
Other income ..................................................................................................................  
Foreign exchange loss (gain) ...........................................................................................  

Year ended 
December 31, 

(Restated – 
Note 6) 

2015 

2016 

  $ 

  $ 

216,698 
42,153 
258,851 

  $ 

  $ 

246,422 
38,851 
285,273 

Year ended 
December 31, 

2016 

(4,983) 
- 
1,726 
(3,257) 

  $ 

  $ 

(Restated – 
Note 6) 
2015 

  $ 

  $ 

(2,265) 
(4,770) 
(14,743) 
(21,778) 

26  Per share amounts  

The following table shows the number of shares used in the calculation of earnings per share: 

Year ended 
December 31, 

2016 

2015 

Weighted average common shares outstanding - Basic .................................................  
Dilutive effect of: 

135,202,472 

125,652,815 

Stock options and other awards ..............................................................................  
Weighted average common shares – Diluted .................................................................  

- 
135,202,472 

- 
125,652,815 

The dilutive effect of 2.7 million stock options and other awards, and the potential common stock that would be issued upon 
the conversion of the Debentures for the year ended December 31, 2016, and the dilutive effect of 2.0 million stock options 
and other awards for the year ended December 31, 2015 has not been included in the determination of the weighted average 
number of common shares outstanding as the inclusion would be anti-dilutive to the net loss per share. 

27  Related party transactions 

Joint operations 

On August 11, 2011, the Company formed a partnership to jointly construct and own pipeline and emulsion treating, water 
disposal and oilfield waste management facilities in the Plato area of Saskatchewan. The partnership commenced operations 
in 2012. The Company’s interest in the partnership is 50%. A member of the Company’s Board is also a director of the other 
party  with  the  50%  interest  in  the  partnership.  At  December  31,  2016  and  2015,  the  Company’s  proportionate  share  of 
property, plant and equipment was $9.0 million and $9.4 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.  

35 

Gibsons | 85

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.............................................................................................  

28  Post-retirement benefits 

Defined benefit plans 

Year ended 
December 31, 

2016 

2015 

  $ 

  $ 

4,071 
1,064 
6,280 
11,415 

  $ 

  $ 

4,571 
1,123 
6,262 
11,956 

The  Company  maintains  a  funded  defined  benefit  pension  plan  that  is  funded  based  upon  the  advice  of  independent 
actuaries. The Company is required to file an actuarial valuation of the defined benefit pension plans with the provincial 
regulator every three years, with the most recent actuarial valuation filing as at December 31, 2016. Based on the actuarial 
valuations as at December 31, 2016 and 2015, the status of the defined benefit plans was as follows: 

Accrued benefit obligation 

Accrued benefit obligation, beginning of year ................................................................     $ 
Current service cost .................................................................................................  
Interest cost .............................................................................................................  
Benefits paid ............................................................................................................  
Actuarial loss (gain) ..................................................................................................  
Other ........................................................................................................................  
Accrued benefit obligation, end of year .........................................................................     $ 

Plan assets 

Year ended 
December 31, 
2016 

16,440   
48   
606   
(629)  
393   
11   
16,869   

  $ 

  $ 

Year ended 
December 31, 
2016 

Fair value of pension plan assets, beginning of year ......................................................     $ 
Interest on plan assets .............................................................................................  
Actual contributions.................................................................................................  
Actual benefits paid .................................................................................................  
Actuarial gain ...........................................................................................................  
Fair value of pension plan assets, end of year ................................................................     $ 

15,529   
536   
517   
(629)  
173   
16,126   

  $ 

  $ 

Accrued benefit liability 

2015 

16,342 
216 
608 
(571) 
(167) 
12 
16,440 

2015 

14,696 
513 
809 
(571) 
82 
15,529 

Accrued benefit obligation .........................................................................................................     $ 
Fair value of plan assets .............................................................................................................  
Accrued benefit liability .............................................................................................................     $ 

(16,869) 
16,126 
(743) 

  $ 

  $ 

(16,440) 
15,529 
(911) 

86 | Gibsons

36 

Year ended 
December 31, 
2016   

2015 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

The significant weighted average actuarial assumptions adopted in measuring the Company’s defined benefit plan obligation 
are as follows: 

Discount rate ..............................................................................................................................  
Rate of compensation increase ..................................................................................................  

3.8%   
3.0%   

Year ended 
December 31, 
2016 

2015 

4.0% 
3.0% 

The assumed discount rate has an effect on the amounts reported for the defined benefit plan obligations. A one-percentage 
point change in the discount rate would have the following impact:  

One % point 
increase 

One % point 
decrease 

Increase/(decrease) in defined benefit plans obligations ..........................................................     $ 

2,414   

  $ 

2,414 

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 $6.3 million and $7.1 million for the year ended December 
31, 2016 and 2015, respectively.  

29  Share based compensation 

The Company has established an equity incentive plan which permits the award of stock options, RSUs, PSUs and DSUs for 
executives, directors, employees and consultants of the Company.  Stock options provide the holder with the right to exercise 
an option to purchase a common share, upon vesting, at a price determined on the date of grant. RSUs give the holder the 
right to receive, upon vesting, either a common share or 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  2016  and  2015  were  expected  to  be  settled  by  delivery  of  common  shares  and  accordingly,  were 
considered an equity–settled award for accounting purposes. Stock options and RSUs granted generally vest equally each 
year over a three year period.  RSUs granted with specific performance criteria are designated as PSUs. PSU’s vest at the end 
of the three year period and granting depends on the achievement of certain performance criteria.  DSUs are similar to RSUs 
except that DSUs may not be redeemed until the holder ceases to hold all offices, employment and directorships.  

37 

Gibsons | 87

 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

At December 31, 2016, awards available to grant under the equity incentive plan totalled approximately 8.3 million. 

A summary of stock option activity is as follows: 

Balance at January 1, 2015 .................................................................................................  
Granted ........................................................................................................................  
Exercised ......................................................................................................................  
Forfeited ......................................................................................................................  
Balance at December 31, 2015 ...........................................................................................  
Granted ........................................................................................................................  
Exercised ......................................................................................................................  
Forfeited ......................................................................................................................  
Balance at December 31, 2016 ...........................................................................................  
Vested and exercisable at December 31, 2016 ...................................................................  
Vested and exercisable at December 31, 2015 ...................................................................  

Number of 
Shares 

2,485,215 
852,192 
(12,162) 
(8,077) 
3,317,168 
- 
(115,806) 
(133,497) 
3,067,865 
2,315,301 
1,557,276 

Additional information regarding stock options outstanding as of December 31, 2016 is as follows: 

Outstanding 

Weighted 
Average 
Remaining 
Contractual Life 
(Years) 
2.0 
5.2 
2.4 
3.4 
3.5 
4.2 
4.2 
4.6 
3.9 

Number 
Outstanding 
409,164 
38,608 
33,681 
57,981 
21,930 
1,393,345 
1,030,345 
82,847 
3,067,865 

  $ 

Exercise 
Price 
(in dollars) 
8.64 
17.06 
20.67 
22.37 
24.44 
25.62 
28.24 
34.44 

Number 
Outstanding 
409,164 
30,367 
33,681 
57,981 
21,930 
943,220 
751,475 
67,483 
2,315,301 

Exercisable 

Weighted-
Average 
Remaining 
Contractual Life 
(Years) 
2.0 
5.1 
2.4 
3.4 
3.5 
3.8 
4.2 
4.6 
3.6 

Weighted- 
Average 
Exercise Price 
(in dollars) 

$ 

$ 

$ 
$ 
$ 

23.33 
25.00 
8.64 
26.44 
23.81 
- 
8.64 
26.93 
24.24 
23.51 
20.53 

  $ 

Exercise 
Price 
(in dollars) 
8.64 
17.02 
20.67 
22.37 
24.44 
25.75 
28.25 
34.50 

A summary of RSUs, PSUs and DSUs activity is set forth below: 

Balance at January 1, 2015 ..................................................................  
Granted .........................................................................................  
Issued for common shares............................................................  
Forfeited .......................................................................................  
Issued for cash ..............................................................................  
Balance at December 31, 2015 ............................................................  
Granted .........................................................................................  
Issued for common shares............................................................  
Forfeited .......................................................................................  
Balance at December 31, 2016 ............................................................  
Vested, Balance at December 31, 2016 ...............................................  
Vested, Balance at December 31, 2015 ...............................................  

RSUs 
544,753 
345,508 
(241,299) 
(38,547) 
(264) 
610,151 
893,994 
(324,001) 
(67,353) 
1,112,791 
49,229 
106,240 

Number of Shares 

PSUs 
628,959      
555,383 
(106,254) 
(50,042) 
(204) 
1,027,842 
852,462 
(103,676) 
(246,308) 
1,530,320 

-     
-   

DSUs 
146,786 
108,665 
(64,501) 
- 
- 
190,950 
167,105 
(161,473) 
- 
196,582 
196,582 
167,406 

88 | Gibsons

38 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

Stock based compensation expense was $24.9 million and $20.4 million for the years ended December 31, 2016 and 2015, 
respectively, and is included in general and administrative expenses. 

There were no options granted during the year ended December 31, 2016, accordingly there are no fair value assumptions 
and calculations for the current year period. The fair value of the options granted was estimated at $2.42 per option for the 
year ended December 31, 2015. 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, 2015 
5.2% 
24.2% 
0.5% 
3.0 

The fair value of RSUs, PSUs and DSUs was determined using the five days weighted average stock price prior to the date of 
grant.  

30  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,  amounts  borrowed  under  the  credit  facilities,  dividends  payable, 
Debentures and long-term debt.  

Cash and cash equivalents, trade and other receivables, trade payables and accrued charges, dividends payable and amounts 
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, 2016, 
the carrying amount of long-term debt was $1,288.5 million less debt discount and issue costs of $16.6 million and the fair 
value of long-term debt based on period end trading prices on the secondary market (Level 2) was $1,336.8 million. As at 
December 31, 2015, the carrying amount of long-term debt was $1,311.1 million less debt discount and issue costs of $19.8 
million  and  the  fair  value  of  long-term  debt  based  on  period  end  trading  prices  on  the  secondary  market  (Level  2)  was 
$1,235.6 million. 

The Debentures liability component is recorded at amortized cost using the effective interest method of amortization. As at 
December 31, 2016, the total carrying amount of the debentures liability and equity components was $100.0 million less debt 
discount and issue costs of $2.7 million, and deferred taxes relating to the equity component of $2.7 million. The fair value 
of the Debentures based on period end trading prices on the secondary market (Level 2) was $109.0 million (December 31, 
2015 – nil). 

39 

Gibsons | 89

 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

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, 
2016 

December 31, 
2015 

Trade and 
other 
receivables 

Trade payable 
and accrued 
charges 

Trade and 
other 
receivables 

Trade 
payable and 
accrued 
charges 

Gross amounts ........................................................     $  400,152   
(269,611) 
Amount offset .........................................................  
Net amount included in the consolidated 

  $  338,824   
(269,611) 

  $  268,602   
(169,351) 

  $  228,022 
(169,351) 

financial statements ............................................     $  130,541 

    $ 

69,213 

  $ 

99,251 

    $ 

58,671 

Derivative financial instruments (recurring fair value measurements) 

The following is a summary of the Company’s risk management contracts outstanding: 

Commodity futures ................................................................     $ 
Commodity swaps .................................................................  
Commodity options ...............................................................  
Equity swaps ..........................................................................  
Foreign currency forwards .....................................................  
Foreign currency options .......................................................  
Total .......................................................................................     $ 
Less non-current portion: 

Equity swaps ...................................................................  
Foreign currency forwards .............................................  
Foreign currency options ................................................  

Current portion ......................................................................     $ 

December 31, 
2016 

December 31, 
2015 

Assets 

Liabilities 

Assets 

Liabilities 

595 
5,578 
38 
- 
- 
7 
6,218 

- 
- 
- 
- 
6,218 

   $ 

5,640   
2,688   
747   
1,686   
1,411   
3   
   $  12,175   

226   
48   
-   
274   
   $  11,901   

  $ 

  $ 

  $ 

1,105 
6,545 
765 
- 
- 
- 
8,415 

- 
- 
- 
- 
8,415 

  $ 

  $ 

  $ 

337 
3,165 
13 
5,390 
398 
- 
9,303 

3,824 
- 
- 
3,824 
5,479 

The fair value of financial instruments is 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 

Futures, options and swaps 

The Company enters into futures, options and swap contracts to manage the price risk associated with sales, purchases 
and inventories of crude oil, natural gas liquids and petroleum products.  

(ii)  Currency financial instruments 

The Company enters into forward and options contracts to buy and 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 and long-term borrowings 
denominated in U.S. dollars.  

During the year ended December 31, 2015, the Company received cash of $53.3 million on the settlement of U.S. dollar 
forward contracts for a notional amount of U.S.$250.0 million. Additionally, the Company paid cash of $16.7 million to 

90 | Gibsons

40 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
   
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

settle  U.S  dollar  options  for  a  notional  amount  of  U.S.  $250.0  million.  At  December  31,  2016,  the  Company  had  no 
forward and options contracts to buy and sell U.S. dollars in exchange for Canadian dollars to fix the exchange rate on 
its long-term borrowings denominated in U.S. dollars.  

(iii)  Equity price financial instruments 

During 2016, the Company entered into additional equity swaps of 660,000 notional amount common shares (2015 – 
550,000 notional amount common shares), at an initial price of $17.59 per share (2015 – $23.65 per share) for settlement 
over a three year period. The Company has entered into these equity swap contracts to help manage equity price and 
dilution exposure to shares that it issues under its stock based compensation programs. During the year ended December 
31, 2016 the Company recognized an unrealized gain in the current period of $3.6 million (2015 - unrealized loss of $5.4 
million). 

The value of the Company’s derivative financial instruments is 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 financial instrument contracts by fair value hierarchy at December 31, 2016 was: 

Total 

Level 1 

Level 2 

Level 3 

Assets from financial instrument contracts 

Commodity futures ........................................................... 
Commodity swaps ............................................................ 
Commodity options .......................................................... 
Foreign currency options .................................................. 
Total assets ....................................................................... 

  $ 

595  
5,578 
38 
7 
  $  6,218  

  $ 

  $ 

595 
- 
- 
- 
595 

  $ 

- 
5,578 
38 
7 
  $  5,623 

Liabilities from financial instrument contracts 

Commodity futures ........................................................... 
Commodity swaps ............................................................ 
Commodity options .......................................................... 
Equity swaps ..................................................................... 
Foreign currency forwards ............................................... 
Foreign currency options .................................................. 
Total liabilities .................................................................. 

  $  5,640  
2,688 
747 
1,686 
1,411 
3 
  $  12,175  

  $  5,640 
- 
- 
1,686 
- 
- 
  $  7,326 

  $ 

- 
2,688 
747 
- 
1,411 
3 
  $  4,849 

 $ 

 $ 

$ 

 $ 

- 
- 
- 
- 
- 

-  
- 
- 
- 
- 
- 
- 

41 

Gibsons | 91

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

The fair value of financial instrument contracts by fair value hierarchy at December 31, 2015 was: 

Total 

Level 1 

Level 2 

Level 3 

Assets from financial instrument contracts 

Commodity futures ........................................................... 
Commodity swaps ............................................................ 
Commodity options .......................................................... 
Total assets ....................................................................... 

  $  1,105  
6,545 
765 
  $  8,415  

  $  1,105 
- 
- 
  $  1,105 

  $ 

- 
6,545 
765 
  $  7,310 

Liabilities from financial instrument contracts 

Commodity futures ........................................................... 
Commodity swaps ............................................................ 
Commodity options .......................................................... 
Equity swaps ..................................................................... 
Foreign currency forwards ............................................... 
Total liabilities .................................................................. 

  $ 

337  
3,165 
13 
5,390 
398 
  $  9,303  

  $ 

337 
- 
- 
5,390 
- 
  $  5,727 

  $ 

- 
3,165 
13 
- 
398 
  $  3,576 

 $ 

 $ 

 $ 

 $ 

- 
- 

- 

- 
- 
- 
- 
- 
- 

The impact of the movement in the fair value of financial instruments has been expensed in the consolidated statement of 
operations as follows: 

Cost of sales .......................................................................................................................  
General and administrative................................................................................................  
Foreign exchange loss (gain) on long-term debt (note 15) .................................................  

Year ended 
December 31, 
2016 

2015 

  $ 

  $ 

8,678 
(3,605) 
- 
5,073 

  $ 

  $ 

(3,899) 
5,390 
(9,995) 
(8,504) 

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.  

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 and risk management functions are responsible for implementing the policies and providing a centralised service to 
the Company for identifying, evaluating and monitoring financial risks.  

a) 

Foreign currency 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. 

92 | Gibsons

42 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

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, 
2016 

2015 

U.S. Dollar Forwards and Options 

Favorable 5% change .................................................................................................  
Unfavorable 5% change .............................................................................................  

  $ 

1,796 
(1,998) 

  $ 

1,180 
(1,180) 

The movement is a result of a change in the fair value of U.S. dollar forward contracts and 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. 
At December 31, 2016, the Company had $nil amounts drawn on its credit facilities, accordingly there is no current interest 
rate risk associated with the credit facility. At December 31, 2015, the Company has exposure to changes to market interest 
rates  that  relate  to  the  $35.0  million  drawn  on the  Company’s  credit  facility  as  at  December  31,  2015.  A  1%  increase  or 
decrease in interest rates in relation to the amounts drawn at December 31, 2015 would impact net income by $0.3 million, 
when annualized, and assuming a consistent balance over the duration of the year.  

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.  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 assumption. 

Crude oil and NGL related prices 

Favorable 15% change ................................................................................................  
Unfavorable 15% change ............................................................................................  

  $ 

9,681 
(10,110) 

  $ 

6,747 
(6,092) 

December 31, 

2016 

2015 

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,  2016  and 2015,  approximately  2%  and  3%,  respectively,  of  net  trade  receivables  are  past  due  but  not 
considered to be impaired. The Company considers trade receivables as past due when they are 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. 

43 

Gibsons | 93

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

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  generally  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  investment  grade  international  banks  and  financial 
institutions. 

e) 

Equity price risk 

The Company is exposed to changes in the Company’s share price with respect to equity swap contracts. If the Company’s 
share price increased or decreased by 10%, the impact on net income and equity would be as follows: 

Equity Swaps 

Favorable 10% change ...........................................................................................  
Unfavorable 10% change .......................................................................................  

$ 

1,661 
(1,661) 

$ 

December 31, 

2016 

2015 

558 
(558) 

f) 

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.  Cash  and  cash  equivalents  and  the  Revolving  Credit  Facility  are  available  and  are  expected  to  be 
available  to  satisfy  the  Company’s  short  and  long-term  requirements.  The  Company  has  a  Revolving  Credit  Facility  of 
$500.0 million and three bilateral demand letter of credit facilities totaling $150.0 million. At December 31, 2016, $nil was 
drawn against the Revolving Credit Facility and the Company had outstanding issued letters of credit of $48.4 million. 

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, 2016 and December 31, 
2015, the Company was in compliance with these covenants. 

94 | Gibsons

44 

 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

Set out below is a maturity analyses of certain of the Company’s financial contractual obligations as at December 31, 2016. 
The maturity dates are the contractual maturities of the obligations and the amounts are the contractual undiscounted cash 
flows. 

Trade payables and accrued charges, excluding 
derivative financial instruments and accrued 
interest................................................................. 
Dividend payable.......................................................
Long-term debt .........................................................
Debentures (debt and equity component) ...............
Interest on long-term debt and Debentures .............
Commodity futures ...................................................
Commodity swaps .....................................................
Commodity options ...................................................
Equity swap ...............................................................
Foreign currency forwards ........................................
Foreign currency options ..........................................

Capital management 

On demand or 
within one year   

Between one 
and five years   

After 

five years   

Total 

$  415,310 
46,772 
- 
- 
98,222 
5,640 
2,688 
747 
1,460 
1,363 
3 
$  572,205 

$ 

- 
- 
988,485 
100,000 
392,886 
- 
- 
- 
226 
48 
- 

$1,481,645   

  $ 

- 
- 
300,000 
- 
186,364 
- 
- 
- 
- 
- 
- 
  $  486,364 

  $ 

415,310 
46,772 
1,288,485 
100,000 
677,472 
5,640 
2,688 
747 
1,686 
1,411 
3 
  $  2,540,214 

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 capital requirements 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 Debentures, the Revolving Credit Facility and working capital. To maintain or adjust the capital structure, the 
Company may draw on its revolving credit facility, issue notes or issue equity and/or adjust its operating costs and/or 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, and the Debentures), less cash and cash equivalents. Total capital is calculated as net debt plus share capital 
as shown in the consolidated balance sheet. 

December 31, 
2016 

2015 

Total financial liability borrowings ..................................................................................     $  1,271,839 
Debentures (liability component) (1) ...............................................................................    
89,765 
(60,159) 
Less: cash and cash equivalents ......................................................................................  
1,301,445 
Net debt ..........................................................................................................................  
Total share capital (including Debentures – equity component) ....................................  
1,919,267 
Total capital ....................................................................................................................     $  3,220,712 

  $  1,291,423 
- 
(82,775) 
1,208,648 
1,672,323 
  $  2,880,971 

(1)  The Debentures are included in the above total capital calculation in accordance with the Company’s view of its capital structure which 
includes shareholders’ equity, long-term debt, the Debentures, the Revolving Credit Facility, and working capital. The Debentures and 

45 

Gibsons | 95

 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

associated interest payments are excluded from the definition of net debt included in the consolidated senior and total debt covenant 
ratios, as well as the consolidated interest coverage covenant ratio. 

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 and the bilateral demand  letter of credit  facilities are  sufficient to service this debt and support 
ongoing operations.  

31  Segmental information 

During  the  first  quarter  of  2016,  following  a  review  of  the  management  of  the  Company’s  operations,  and  in  support  of 
improved  customer  interface  and  enhanced  internal  efficiencies,  the  Company  implemented  several  management  and 
organizational changes. These changes caused the Company to realign its internal management reporting  structure, and, 
therefore, the Company has also changed its external segment reporting structure to align with how business information is 
regularly  reviewed  internally  for  the  purposes  of  decision  making,  allocating  resources  and  assessing  performance.  The 
results of the Company are now being reported in the following reportable segments: 

(1)  Infrastructure  includes  a  network  of  midstream  infrastructure  assets  that  includes  oil  terminals,  rail  loading  and 
unloading facilities, injection stations, gathering pipelines and processing facilities that collect, store, and process oil and 
other  liquid  hydrocarbon  production  and  by-products  before  eventual  distribution  to  end-use  markets.  The  primary 
facilities within this segment include the 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; gathering pipelines, 
which are  connected to the  Hardisty Terminal; injection stations, which are  located in  the United States; a crude oil 
processing facility in Moose Jaw, Saskatchewan, and processing, recovery, and disposal terminals located throughout 
Western Canada and the Northern United States.  

(2)  Logistics includes a suite of logistical wellsite services that enable oil and liquids production to access fixed midstream 
infrastructure.  This  segment  provides  transportation  and  related  services  that  allow  the  Company  to  service  its 
customers’ needs several times between the wellhead and the end market, and includes providing hauling services for 
crude, condensate, propane, butane, asphalt, methanol, sulfur, petroleum coke, gypsum, emulsion, waste water and 
drilling fluids for many of North America’s leading oil and gas producers. Additionally, the Company also provides several 
ancillary services to production companies. 

(3)  Wholesale includes the purchasing, selling, storing and blending of hydrocarbon products, including crude oil, NGL’s, 
road asphalt, roofing flux, frac oils, light and heavy straight run distillates, combined vacuum gas oil, and an oil based 
mud  product.  This  segment  earns  margins  by  providing  aggregation  services  to  producers  and/by  capturing  quality, 
locational or time-based arbitrage opportunities.  

(4)  Other  includes  the  provision  of  other  services  to  the  oil  and  gas  industry  including  exploration  support  services  and 

accommodation services.  

This  reporting  structure  provides  a  direct  connection  between  the  Company’s  operations,  the  services  it  provides  to 
customers and the ongoing strategic direction of the Company. 

These reportable 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. The Company has aggregated certain operating 
segments into the above noted reportable segments through examination of the Company's performance which is based on 
the similarity of the goods and services provided and economic characteristics exhibited by these operating segments.  

Accounting policies used for segment reporting are consistent with the accounting policies used for the preparation of the 
Company’s  consolidated  financial  statements.  Inter-segmental  transactions  are  eliminated  upon  consolidation  and  the 
Company does not recognize margins on inter-segmental transactions. Comparative information has been recast to conform 
to our current segmented reporting information. No changes were implemented with respect to the consolidated data as a 
result of the recast. 

96 | Gibsons

46 

 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

Twelve months ended December 31, 2016  

Infrastructure 

Logistics 

Wholesale 

Other

Total 

Statement of operations 
Revenue 
  External ....................................   
Inter-segmental .......................  
  External and inter-segmental ..  

  $  185,351
112,799
298,150

  $  462,808
50,127
512,935

  $3,934,922
252,586
4,187,508

  $  11,100
191
11,291

  $  4,594,181 
415,703 
5,009,884 

Segment profit (loss) ...................   

  $  200,307

  $ 

39,576

  $  24,408

  $ 

(645)

  $  263,646 

Corporate & other reconciling items 

175,346 
Depreciation of property, plant and equipment ...............................................................................................  
69,062 
Amortization of intangible assets ......................................................................................................................  
130,052 
Impairment of goodwill .....................................................................................................................................  
35,018 
General and administrative ...............................................................................................................................  
24,876 
Stock based compensation ................................................................................................................................  
1,098 
Corporate foreign exchange loss .......................................................................................................................  
86,619 
Interest expense ................................................................................................................................................  
(1,093) 
Interest income .................................................................................................................................................  
(22,715) 
Foreign exchange gain on long-term debt ........................................................................................................  
(234,617) 
Net loss from continuing operations before income tax ...................................................................................  
(56,450) 
Income tax recovery ..........................................................................................................................................  
(178,167) 
Net loss from continuing operations .................................................................................................................      
Net income from discontinued operations (note 6) ..........................................................................................      
18,453 
Net loss from operations ...................................................................................................................................     $  (159,714) 

47 

Gibsons | 97

 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

 Twelve months ended December 31, 2015 (restated1) 

Infrastructure 

Logistics 

Wholesale 

Other

Total 

Statement of operations 
Revenue 
  External ....................................   
Inter-segmental .......................  
  External and inter-segmental ..  

  $  167,841
103,500
271,341

  $  625,556
55,500
681,056

  $4,573,029
394,617
4,967,646

  $  38,885
-
38,885

  $  5,405,311
553,617
5,958,928

Segment profit (loss) ...................   

  $  181,067

  $ 

90,116

  $  100,317

  $  5,916

  $  377,416

Corporate & other reconciling items 

Depreciation of property, plant and equipment ...............................................................................................  
Amortization of intangible assets ......................................................................................................................  
Impairment of goodwill .....................................................................................................................................  
General and administrative ...............................................................................................................................  
Stock based compensation ................................................................................................................................  
Corporate foreign exchange gain ......................................................................................................................  
Interest expense ................................................................................................................................................  
Interest income .................................................................................................................................................  
Foreign exchange loss on long-term debt .........................................................................................................  
Net loss from continuing operations before income tax ...................................................................................  
Income tax recovery ..........................................................................................................................................  
Net loss from continuing operations .................................................................................................................  
Net income from discontinued operations (note 6) ..........................................................................................  
Net loss from operations ...................................................................................................................................  

180,471 
82,623 
175,959 
39,569 
20,379 
(4,970) 
79,580 
(558) 
113,150 
(308,787) 
(13,413) 
(295,374) 
14,718 
  $  (280,656) 

The  breakdown  of  additions  to  property,  plant  and  equipment  and  intangible  assets,  including  through  business 
combinations, by reportable segments are as follows: 

Twelve months ended December 31 

2016 

Property, 
plant and 
equipment 

Infrastructure ..................................................................   
Logistics ...........................................................................  
Wholesale .......................................................................  
Corporate & other ...........................................................  
Total ................................................................................   

$  194,080  
13,814  
11,386  
1,055  
$  220,335  

2015 (restated 1) 

Property, 
plant and 
equipment 

$  310,011  
83,914  
68  
3,517  
$  397,510  

Intangible 
Assets 

$  2,910 
8,548 
37 
9,479 
$  20,974 

Intangible 
Assets 

$  2,591 
1,680 
92 
3,127 
$  7,490 

1. 

Comparative period was restated to reflect the results of continuing operations separately from discontinued operations as well as the segment 
reporting structure changes noted earlier. 

Geographic Data 

Based on the location of the end user, approximately 22% and 20% of revenue was from customers in the United States for 
the year ended December 31, 2016 and 2015, respectively.  

The Company’s non-current assets, excluding investment in finance leases and deferred tax assets, are primarily concentrated 
in Canada with 16% and 24% in the United States at December 31, 2016 and 2015, respectively. 

98 | Gibsons

48 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
   
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

32  Subsequent Events 

Subsequent  to  December  31,  2016,  the  Company  announced  that  it  has  entered  into  an  agreement  to  sell  its  Industrial 
Propane business for non-refundable cash consideration of $412.0 million, subject to certain adjustments, to Superior Plus 
LP ("Superior"). The sale will be completed through a series of transactions. Pursuant to an option purchase agreement, dated 
February 13, 2017, subject to the fulfilment of customary conditions, Gibsons and Superior agreed to complete the initial 
transaction pursuant to which Superior would pay $412.0 million in exchange for the  grant of an irrevocable option (the 
"Option")  to  Superior  to  acquire  100%  of  the  partnership  units  and  shares  (the  "Securities")  of  the  Canwest  and  Stittco 
businesses. On March 1, 2017, the Company received the cash payment of $412.0 million. Gibsons will continue to operate 
the business based on the terms and covenants of the Option agreement under the direction of the current management 
team,  with  no  disruption  to  its  employee  base  and  customer  service  levels,  until  the  Securities  are  transferred,  which  is 
expected to occur no later than the fourth quarter of 2017. Upon exercise of the Option by Superior, and receipt of regulatory 
approvals,  the  Securities  will  be  transferred  to  Superior  for  nominal  consideration.  The  Company  will  derecognize  the 
Industrial Propane segment effective March 1, 2017. 

Subsequent  to  December  31,  2016,  the  Company  has  amended  the  Revolving  Credit  Facility  whereby  the  maximum 
consolidated senior debt leverage ratio and the maximum consolidated total debt leverage ratio which are now 4.85 to 1.0 
for the 2017 fiscal year, 4.25 to 1.0 for the 2018 fiscal year and 4.0 to 1.0 thereafter. Furthermore, the maturity date of our 
Revolver Credit Facility has been extended from August 2020 to March 2022. 

 On March 7, 2017, the Company announced that the Board declared a quarterly dividend of $0.33 per common share for 
the quarter ending March 31, 2017 on its outstanding common shares.  The common share dividend is payable on April 17, 
2017 to shareholders of record at the close of business on March 31, 2017. 

33  Principal subsidiaries 

The Company had the following subsidiaries as at December 31, 2016: 

Name 
A&A Tank Truck Co. 
B.E.G. Liquid Mud Services Corp. 
Cal-Gas Inc. 
Canwest Propane Partnership  
Canwest Propane ULC 
Charles Houston Inc. 
Chief Hauling Contractors ULC 
Frontier Ventures, LLC 
GEP ULC  
Gibson (U.S) Acquisitionco Corp. 
Gibson (U.S) Finco Corp. 
Gibson (U.S) Holdco Corp. 
Gibson Energy (US) Inc.  
Gibson Energy Inc.  
Gibson Energy Infrastructure, LLC  
Gibson Energy Corp.  
Gibson Energy Marketing, LLC 
Gibson Energy Partnership  
2011312 Alberta Ltd. (formerly Gibson Energy Sask 
Ltd.) 
Gibson Energy ULC  
Gibson Energy LLC 

  Nature of business 

Transportation and Waste Disposal 

  Oil & Gas Support Services 

Industrial propane 
Industrial propane 
Industrial propane 

  Oil & Gas Support Services 
Transportation Services 
  Oil & Gas Support Services 
Transportation and Storage 
Holding Company 
Holding Company 
Holding Company 

  Wholesale petroleum products 

Holding Company 
Holding Company 
Holding Company 

  Wholesale petroleum products 
Transportation and Storage 

Transportation and Storage 

Holding Company 
Transportation  

  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% 

Country of 
incorporation and 
place of business 
USA 
USA 
Canada 
Canada  
Canada  
USA 
Canada  
USA 
Canada  
USA  
USA  
USA  
USA   
Canada   
USA   
USA   
USA  
Canada  

Canada  

Canada  
USA 

49 

Gibsons | 99

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibson Energy Inc. 
Notes to Consolidated Financial Statements 
(tabular amounts in thousands of Canadian dollars, except where noted)  

Name 
Gibson Energy ULC Pension Plan 
Gibson Gas Liquids Partnership (Alberta) 
Gibson Gas Liquids ULC 
Gibson GCC Inc.  
Gibson Offshore Services, LLC 
Gibson Omni Parent Inc. 
Griswold Management, Inc. 
GWCC, LLC 
Industrial Lift Truck & Equipment Co, Inc. 
Keeton Services, Inc. 
Link Petroleum, Inc.  
Littlehawk Enterprises Ltd. 
Moose Jaw Refinery Partnership  
Moose Jaw Refinery ULC 
OMNI Energy Seismic Services, LLC  
OMNI Energy Services Corp. 
OMNI Energy Transportation Corp. 
OMNI Labor Corp. 
OMNI Properties Corp. 
Plato Services Partnership 
Preheat, Inc. 
Rig Tools, Inc. 
Ross Eriksmoen, Inc. 
Stittco Energy Ltd. 
Stittco Utilities Man Ltd. 
Stittco Utilities NWT Ltd. 
Taylor Transfer Services, LLC 
TPG Leasing, LLC 
TPG Transport, LLC 
Trussco, Inc. 
WISCO, Inc. 

Country of 
incorporation 
and place of 
business 
Canada 
Canada  
Canada  
Canada  
USA 
USA 
USA 
USA 
USA 
USA 
USA  
Canada 
Canada  
Canada  
USA 
USA 
USA 
USA 
USA 
Canada 
USA 
USA 
USA 
Canada 
Canada 
Canada 
USA 
USA 
USA 
USA 
USA 

  Nature of business 
Pension Fund 
  Wholesale propane 
  Wholesale propane 

Inactive 

  Oil & Gas Support Services 

Holding Company 
Inactive 

  Oil & Gas Support Services 
  Oil & Gas Support Services 
  Oil & Gas Support Services 
  Wholesale propane 
  Oil & Gas Support Services 

Fluids and refining 
Fluids and refining 

  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 
  Oil & Gas Support Services 

Industrial propane 
Industrial propane 
Industrial propane 
Transportation  
Rental and Leasing 
Transportation  

  Oil & Gas Support 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% 
50% 
100% 
100% 
100% 
100% 
100% 
100% 
100% 
100% 
100% 
100% 
100% 

100 | Gibsons

50 

 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gibsons | 101

Edmonton

Hardisty

Our Footprint

Our strategic footprint spans 
all the key plays in major 
North American basins. We 
have an enviable position in 
Canada’s energy hubs along 
with synergistic service 
capabilities in Western 
Canada and the United States.

By delivering exceptional service, 
we provide our customers with 
flexible midstream solutions, while 
giving us a competitive advantage.

Reasons to Invest

Gibsons’ primary objective is to generate stable and increasing cash flow for shareholders through an attractive 

dividend and a growing infrastructure asset base.

We offer:

A strategic asset base 

Integrated and 

An attractive growth 

An established, 

in key oil basins across 

synergistic vertical 

profile and competitive 

conservative and resilient 

North America.

services that enable 

dividend.

business model.

oil & liquids production.

102 | Gibsons

Corporate Information

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
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, Finance and Corporate Affairs 
Phone: (403) 206-4212 
Email: tammi.price@gibsons.com
Amanda Condie 
Manager, Communications 
Phone: (403) 776-3189 
Email: amanda.condie@gibsons.com

MANAGEMENT 
A. Stewart Hanlon 
President & Chief Executive Officer

Sean M. Brown 
Chief Financial Officer

Douglas P. Wilkins 
President, U.S. Operations

Richard M. Wise 
Chief Operating Officer

DIRECTORS 
James M. Estey 
Chair of the Board

Douglas P. Bloom

James J. Cleary

A. Stewart Hanlon

Donald R. Ingram

Marshall L. McRae

Mary Ellen Peters

Clayton H. Woitas

FORWARD-LOOKING STATEMENTS
Certain statements and information included or referred to in this annual report constitute 
forward-looking information (as such term is defined under applicable Canadian securities 
laws). These statements relate to future events or the Company’s future performance. All 
statements other than statements of historical fact are forward-looking information. 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 
expressing future outcomes or statements regarding an outlook are intended to identify 
forward-looking information. The forward-looking information 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 information. 

No assurance can be given that these expectations will prove to be correct and such 
forward-looking information included or referred to in this annual report should not be unduly 
relied upon. The forward-looking information included or referred to in this annual report are 
expressly qualified by this cautionary statement and speak only as of the date of this annual 
report. The Company does not undertake any obligation to publicly update or revise any for-
ward-looking information, whether as a result of new information, future events or otherwise 
except as required by applicable securities laws.

Developing forward-looking information involves reliance on a number of assumptions and con-
sideration of certain risks and uncertainties, some of which are specific to Gibsons and others 
that apply to the industry in general. With respect to forward-looking information included or 
referred to in this annual report, assumptions have been made regarding, among other things:

 ƒ future growth in worldwide demand for crude oil and petroleum products;

 ƒ crude oil prices;

 ƒ no material defaults by the counterparties to agreements with the Company;

 ƒ the Company’s ability to obtain qualified personnel, owner-operators, lease operators and 

equipment in a timely and cost-efficient manner;

 ƒ the regulatory framework governing taxes and environmental matters in the jurisdictions in 

which the Company conducts and will conduct its business;

 ƒ changes in credit ratings applicable to the Company;

 ƒ operating costs;

 ƒ future capital expenditures to be made by the Company;

 ƒ the Company’s ability to obtain necessary regulatory and partner approvals;

 ƒ the successful and timely implementation of capital projects or stages thereof; 

 ƒ the Company’s ability to generate sufficient cash to meet its current and future obligations;

 ƒ the Company’s ability to obtain financing for its capital programs on acceptable terms;

 ƒ the Company’s future debt levels;

 ƒ the impact of increasing competition on the Company;

 ƒ the impact of future changes in accounting policies on the Company’s consolidated financial 

statements; and

 ƒ other risks and uncertainties described from time to time in the filings the Company makes 

with securities regulatory authorities.

Readers are cautioned that the foregoing list is not exhaustive and is made as at the date hereof. 
Actual results could differ materially from those anticipated in the forward-looking information 
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 7, 
2017, available on SEDAR at www.sedar.com and on the Company’s website at Gibsons.com. 

Annual General Meeting Information

Tuesday, May 9, 2017, at 10:00 a.m. (Mountain Time)

The Westin Calgary

320 4th Avenue SW, Calgary, Alberta

Gibsons

1700, 440 - 2nd Ave. SW 
Calgary, AB, Canada, T2P 5E9

Phone: (403) 206-4000 
Fax: (403) 206-4001

www.gibsons.com