Gibson Energy Annual Report 2018

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FY2018 Annual Report · Gibson Energy

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ANNUAL REPORT 2018

IN THIS REPORT

1 Management’s Discussion & Analysis

45 Consolidated Financial Statements

Management’s

Discussion and Analysis

2018 Year End Report

Management’s
Discussion and Analysis
2018 Year End Report

Contents

BUSINESS OVERVIEW _____________________________________________________________________ 2

SELECTED FINANCIAL MEASURES ____________________________________________________________ 3

2018 REVIEW ____________________________________________________________________________ 4

PROJECT DEVELOPMENTS AND MARKET OUTLOOK _____________________________________________ 6

RESULTS OF CONTINUING OPERATIONS _______________________________________________________ 7

BUSINESS OVERVIEW

INFRASTRUCTURE _______________________________________________________________________________ 8

LOGISTICS ____________________________________________________________________________________ 11

WHOLESALE __________________________________________________________________________________ 12

EXPENSES ______________________________________________________________________________ 14

RESULTS OF DISCONTINUED OPERATIONS ____________________________________________________ 16

SUMMARY OF QUARTERLY RESULTS ________________________________________________________ 20

LIQUIDITY AND CAPITAL RESOURCES ________________________________________________________ 23

Liquidity Sources _______________________________________________________________________________ 23

Capital expenditures and acquisitions ______________________________________________________________ 25

Capital structure _______________________________________________________________________________ 26

Dividends ____________________________________________________________________________________ 27

Distributable cash flow _________________________________________________________________________ 27

Contractual obligations and contingencies __________________________________________________________ 30

OFF-BALANCE SHEET ARRANGEMENTS ______________________________________________________ 30

OUTSTANDING SHARE DATA ______________________________________________________________ 30

opportunities;

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ____________________________ 31

pursue high quality cash flows to underpin our dividend and fund growth capital;

ACCOUNTING POLICIES ___________________________________________________________________ 32

DISCLOSURE CONTROLS & PROCEDURES _____________________________________________________ 36

RISK FACTORS __________________________________________________________________________ 37

funding costs and increase our access to capital;

FORWARD-LOOKING INFORMATION ________________________________________________________ 41

NON-GAAP FINANCIAL MEASURES __________________________________________________________ 42

 maintain a strong balance sheet and financial position through targeting a debt leverage ratio of 3.0x – 3.5x and a payout

ratio of 70% – 80% of distributable cash flow 1. We anticipate being fully funded for our growth capital through the end of

2019 through internally generated cash flows and proceeds from non-core asset dispositions and will subsequently seek to

fund growth capital with a maximum of 50% - 60% debt. We also target an investment grade credit rating to decrease our

remain highly skilled in building and operating our infrastructure while aggressively managing costs to maintain and improve

operating margins. We will be customer-focused and will foster long-term relationships with our customers in order to better

understand their infrastructure requirements and be more responsive in providing the best solutions for them; and

continue our firm commitment to be a leader in environment, health, and safety. Our experienced leadership team has a

proven history of successful operations and a strong industry reputation.

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”, “Gibson Energy”, “Gibson” or the “Company”) as of March 4, 2019 and should be read

in conjunction with the audited consolidated financial statements and related notes of the Company for the years ended December

31, 2018 and 2017, 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 except per share data, unless otherwise noted.

Additional information about Gibson, including the Annual Information Form for the year ended December 31, 2018 (“AIF”) is available

on SEDAR at www.sedar.com and on our website at www.gibsonenergy.com. This MD&A contains forward-looking statements and

non-GAAP measures and readers are cautioned that this MD&A should be read in conjunction with the Company’s disclosure under

“Forward-Looking Statements” and “Non-GAAP Financial Measures” included at the end of this MD&A.

Gibson is a Canadian-based oil infrastructure company with its principal businesses consisting of the storage, optimization,

processing, and gathering of crude oil and refined products. Headquartered in Calgary, Alberta, the Company’s operations are focused

around its core terminal assets located at Hardisty and Edmonton, Alberta, and also include the Moose Jaw Facility and an

infrastructure position in the United States (U.S.).

Our strategy and strengths

The key attributes of our strategy are:

an oil infrastructure focus, with the Infrastructure segment targeting to comprise approximately 85% of segment profit and

the terminals and pipelines representing approximately 75% of total segment profit;

targeting 10% distributable cash flow per share growth 1; and

offering a secure, growing dividend that is underpinned by long-term contracts with investment grade counterparties at its

terminal assets, with total Company cash flows expected to be comprised of approximately 85% take-or-pay, stable fee-

based structures, inclusive of internal take-or-pay.

In order to be successful in our strategy we will:

leverage our competitive position at our terminals to continue to secure a significant proportion of new tankage business.

Through offering the most connectivity to inbound and outbound pipelines at Hardisty, as well as exclusive access to the

only unit train rail facility at Hardisty, we have built a position that provides us a competitive advantage to service our

customers. We intend to harvest additional opportunities within our terminals to provide incremental connectivity and other

services to existing terminal customers;

seek complementary growth through our basin strategy, focusing on the oil sands, Viking and Duvernay basins in Canada,

and the Permian and SCOOP / STACK basins in the U.S. Within these basins, we will leverage our core terminals and growing

infrastructure position in the U.S. to advantage us in competing for gathering pipeline and related infrastructure



1 See definition of non-GAAP measures on page 28 and 42.

Gibson Energy Inc. 2 Management’s Discussion and Analysis

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

Management’s Discussion and Analysis